Amicus Curiae Brief — Yankee Atomic Electric Co v. United States, 41 Fed. Cl. 2365 (1998) (No. 97-801)

Supreme Court, U.S.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

YANKEE ATOMIC ELECTRIC COMPANY,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF IN SUPPORT OF PETITIONER

FILED BY THIRTY-ONE ELECTRIC UTILITIES

AS AMICI CURIAE

NICHOLAS S. REYNOLDS PROFESSOR JOHN C. JEFFRIES, JR.

ROBERT A. MANGRUM Counsel of Record

DANIEL F.. STENGER UNIVERSITY OF VIRGINIA SCHOOL

WINSTON & STRAWN or LAW

1400 L Street, N.W. 500 Massie Road

Washington, DC 20005 Charlottesville, VA 22903

(202) 371-5700 (804) 924-3436

January 12, 1998

WILSON - Eres Printinc Co., Inc. - 789-0096 - WasHINGTON, D.C. 20001

TABLE OF CONTENTS

REASONS FOR GRANTING THE WRIT .............. lak.

I. THE COURT OF APPEALS’ DECISION HAS

II.

Ill.

IV.

A MAJOR ECONOMIC IMPACT ON AF-

FECTED UTILITIES AND CREATES GREAT

UNCERTAINTY FOR WHETHER THE FED-

ERAL GOVERNMENT IS BOUND BY ITS

THE COURT OF APPEALS’ DECISION CON-

FLICTS WITH THIS COURT’S DECISION IN

WINSTAR IN VIEW OF THE COMMERCIAL

NATURE OF THE GOVERNMENTAL AC-

EIT sasciiniahaectabniiddaasiaiscubidenmaminsiiietonsminnhiaecitalnoetas

THE COURT OF APPEALS’ CHARACTERI-

ZATION OF THE SPECIAL ASSESSMENT

AS A “GENERAL TAX” CONFLICTS WITH

PRECEDENT OF THIS COURT.............

THE SPECIAL ASSESSMENT IS CONSTI-

TUTIONALLY IMPERMISSIBLE DUE TO

ITS EXTREME RETROACTIVITY |...

RE a reer se mE ee ee ens

13

ii

TABLE OF AUTHORITIES

CASES Page

Bank of Mount Hope v. Commissioner, 25 B.T.A.

EE ID wisciicinkccnsiensineiehcihataiatatianietabigeitiaastatiaiiee danas 14

Eastern Enterprises v. Chater, 110 F.3d 150 (ist

Cir. 1997), cert. granted sub nom. Eastern En-

terprises v. Appel, 66 U.S.L.W. 3296 (U.S. Oct.

20, 1997) (No. 97-42) ......... Se SS ae Peatl A aN 17

Florida Central & Peninsula Railroad Co. v. Reyn-

COak,, FS Ss Se | SE icteric 14

Houck v. Little River Drainage District, 239 U. S.

Ba BRAS Se ck a SERS Se RR 14

Lynch v. United States, 292 U.S. 571 (19384)........ 6

Nichols v. Coolidge, 274 U.S. 531 (1927) —............... 17

Perry v. United States, 294 U.S. 330 (1935) —......... 6

United States v. Butler, 297 U.S. 1 (1936) —......_... 14

United States v. Carlton, 512 U.S. 26 (1994)... 17

United States v. Darusmont, 449 U.S. 292 (1981). 17

United States v. Hudson, 299 U.S. 498 (1937)... 17

United States v. Winstar Corp., 116 S. Ct. 2432

CRIN rvisndintcnishertindstceckactdsticsamiakckd aac 2, 6, 13, 15

Yankee Atomic Electric Company v. United States,

112 F.3d 1569 (Fed. Cir. 1997) ................. 8, 13, 15

STATUTES AND REGULATIONS

OD Sa I sidsicttneselnicesonce heathen eee 12

Po fk 0 SRE Se ete Se eR Te. . 12

I wich ticictirtieceinstoesieciiebins 4

Sr iia nce 10

MISCELLANEOUS

Cleaning Up the Remains of Nuclear Facilities—

A Multi-Billion Dollar Problem, EMD-77-46,

, SRE a ewer ern ee eee 9

Dep’t of Energy’s Uranium Enrichment Program:

Hearing before the Subcomm. on Energy Re-

search and Development of the Senate Comm.

on Energy and Natural Resources, 101st Cong.

SE BE Fea eee 10, 11

Se

iii

TABLE OF AUTHORITIES—Continued

Final Rule, Uranium Enrichment Services Cri-

teria, 51 Fed. Reg. 27182 (1986)

H.R. Rep. No. 91-1470, 91st Cong. (1970), re-

printed in 1970 U.S.C.C.A.N. 4981...

H.R. Rep. No. 102-474, Part 1, 102d Cong. (1992),

reprinted in 1992 U.S.C.C.A.N. 1954...

H.R. Rep. No. 102-474, Part 2, 102d Cong. (1992),

reprinted in 1992 U.S.C.C.A.N. 2064 11,

NUREG-0586, “Final Generic Environmental Im-

pact Statement on Decommissioning of Nuclear

Facilities,” published by the Nuclear Regulatory

Pn

Rev. Rul. 86-140, 1986-2C.B.195 mae

Rev. Rul. 81-198, 1981-2C.B.52.........00000220

Rev. Rul. 79-180, 1979-1C.B.95....

Rev. Rul. 77-29, 1977-1C.B.44..... =

Rev. Rul. 71-49, 1971-1 C.B. 108... ests

Rev. Rul. 61-152, 1961-2C.B.42......

Siting of Fuel Reprocessing Plants and Related

Waste Management Facilities, 35 Fed. Reg.

3 0) BG. Reece Ne Re piasi adie siaec ote,

Uranium Enrichment: Congressional Action

Needed to Revitalize the Program, General Ac-

counting Office, dated Oct. 1987 .....

Uranium Enrichment Services Criteria, published

by Atomic Energy Comm’n, Jan. 28, 1973

Wisconsin Public Service Corp., Docket No. 6690-

UR-110, Findings of Fact, Conclusions of Law

and Order, dated Feb. 25,1997 ....

Page

16

13, 16

12

IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

No. 97-801

YANKEE ATOMIC ELECTRIC COMPANY,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF IN SUPPORT OF PETITIONER

FILED BY THIRTY-ONE ELECTRIC UTILITIES

AS AMICI CURIAE'

This case concerns the power of the federal gov-

ernment, having entered into written contracts to

perform services at a fixed price, to impose substan-

tial additional charges on the purchasers of those

services many years after the contracts were fully

performed.

For over 30 years, the federal government pro-

vided uranium enrichment services to electric utilities

for fuel used in nuclear power plants. Those services

were furnished under fixed-price contracts with each

1 No counsel for any party in this case authored this brief,

either in whole or in part. No person or entity other than

the amici listed in footnote 2 has made a monetary contribu-

tion to the preparation or submission of this brief. Consent

to file this brief has been obtained from the parties, as re-

flected in correspondence filed with the Clerk of the Court.

: 5) |

utility. Much later, Congress enacted the Energy

Policy Act of 1992 (“EPACT”) which, inter alia,

provided for the eventual privatization of the federal

government’s uranium enrichment enterprise. In or-

der to avoid saddling the new entity with the cosis

of decontamination and decommissioning (“D&D”)

of the enrichment facilities, Congress imposed a spe-

cial assessment on domestic utilities based on the

amount of enrichment services each utility previously

acquired from the government. The total assessment

imposed on utilities is in excess of $2.25 billion.

In upholding the special assessment, the court of

appeals majority fundamentally misapplied the prin-

ciples of this Court’s decision in United States v.

Winstar Corp., 116 S. Ct. 2482 (1996). Disregard-

ing Winstar, the court of appeals approved a severely

retrospective assessment that has the effect of releas-

ing the government from explicit fixed-price terms of

contracts under which it sold uranium enrichment

services. The contracts on which this assessment is

now levied, in fact, date back more than 30 years.

The court of appeals decision thus has far-reaching

implications. It creates great uncertainty as_ to

whether the federal government is ever bound by the

payment terms of its contracts with private parties

and will certainly erode the public’s confidence in the

government as a reliable contracting partner. While

the court of appeals majority justified its result by

treating the special assessment as a general tax, this

conclusion conflicts with the Court’s precedent. Even

assuming arguendo that the assessment is properly

characterized as a tax, the extreme retroactivity of

the assessment makes it constitutionally infirm. For

these reasons, amici support the petitioner in seeking

review by this Court.

eee eee

3

INTERESTS OF AMICI CURIAE

The amici are 31 electric utility companies? that,

like the petitioner Yankee Atomic Electric Company

(“Yankee Atomic”), have rights under government

contracts abrogated by the special assessment im-

posed under EPACT. All amici purchased uranium

enrichment services from the federal government un-

der contracts with pricing provisions identical or sim-

ilar to those in the Yankee Atomic contracts.

Most of the amici, as well as other utilities, have

filed claims in the Court of Federal Claims seeking

relief from the assessment on the grounds that it rep-

resents a breach of contract and a taking of vested

property rights.* All the cases below have been

*The amici consist of the following companies: Arizona

Public Service Company; The Cincinnati Gas & Electric Com-

pany; Commonwealth Edison Company; The Detroit Edison

Company; Duke Energy Corporation; Duquesne Light Com-

pany; Entergy Operations, Inc.; Florida Power Corporation;

Florida Power & Light Company; GPU Nuclear, Inc.; IES

Utilities, Inc.; Indiana Michigan Power Company; Kansas

City Power & Light Company; Kansas Electric Power Coop-

erative, Inc.; Kansas Gas and Electric Company; Nebraska

Public Power District; New York Power Authority; Niagara

Mohawk Power Corporation; Omaha Public Power District ;

PECO Energy Company; PSI Energy, Inc.; Public Service

Electric & Gas Company; Rochester Gas & Electric Corpora-

tion; Southern California Edison Company; Southern Nuclear

Operating Company; Texas Utilities Electric Company; Union

Electric Company; Virginia Electric & Power Company ;

Washington Public Power Supply System; Wisconsin Public

Service Corporation and Wolf Creek Nuclear Operating

Corporation.

* Docket Nos. 96-290C, 96-616C, 96-217C, 96-218C, 96-712C,

96-702C, 96-673C, 97-269C, 96-430C, 97-18C, 96-490C, 96-

748C, 96-674C, 96-780C, 97-236C, 96-429C, 96-871C, 96-654C,

96-407C, 97-108C, 97-268C and 97-686C.

4

stayed pending the outcome of this case. Accordingly,

amici have a substantial interest in this matter.

REASONS FOR GRANTING THE WRIT

I. THE COURT OF APPEALS’ DECISION HAS A

MAJOR ECONOMIC IMPACT ON AFFECTED

UTILITIES AND CREATES GREAT UNCER-

TAINTY FOR WHETHER THE FEDERAL GOV-

ERNMENT IS BOUND BY ITS CONTRACTS

The importance of this case is evident not only in

the huge sums to be collected under the special assess-

ment and the economic impact of that liability, but

also in the violence done to basic contract and con-

stitutional principles.

1. The special assessment imposed under EPACT

requires domestic utilities that acquired uranium en-

richment services from the government to pay up to

$150 million per year for 15 years, or until a total

of not less than $2.25 billion has been collected. 42

U.S.C. § 2297g-1. This typically amounts to $1 mil-

lion to $1.5 million each year for a single commercial

nuclear power unit. For most utilities, the effect is

to increase their total cost of all past uranium enrich-

ment purchases from the federal government by 10

to 20 percent.

In response to this enormous new liability, virtually

the entire nuclear power industry has sought relief

in the Court of Federal Claims. Amici comprise the

vast majority of nuclear utilities in this country,

which, together with the petitioner as well as other

affected utilities, are seeking relief from the D&D

provisions of EPACT. Some 30 separate actions have

been filed by amici and others, seeking refunds of

past payments totaling over $400 million. The suits

in the Court of Federal Claims are currently stayed

pending the resolution of this case, which will estab-

lish the binding law of the Federal Circuit. A conflict

TT TL NT eT

5

among the United States courts of appeals is not

likely since these actions all arise in that Circuit.

Granting certiorari is therefore timely and will en-

able the Court to settle the important questions of

law governing the large number of cases pending

below.

Not only are vast sums of money directly at stake,

the special assessment could also undermine the com-

petitive advantage of many nuclear generating facili-

ties. Many states are moving toward deregulation of

the electric utility industry. In a competitive market,

a utility’s ability to compete may be threatened—

quite unfairly—by the government’s retroactive in-

crease in contract price. Where utilities still operate

under traditional cost-of-service ratemaking, they

may be able to recover the cost of the special assess-

ment in rates, but that result is by no means assured.

At least one state public service commission has al-

ready disallowed the pass-through of this liability.

2. The court of appeals’ decision undermines the

sanctity of contracts with the federal government.

Utilities purchased uranium enrichment services un-

der standard fixed-price contracts offered by the gov-

ernment. Those contracts provided that the charges

for a separative work unit (“SWU”), the standard

measure of enrichment services, were based upon the

published price “in effect at the time of performance”

—efined as the date of delivery of the related en-

riched uranium to the customer. The contracts also

provided that any increase in price required advance

notice to the customer. None of the contracts pro-

vided any right to revise the prices for enrichment

after receipt of the services.

* Wisconsin Public Service Corp., Docket No. 6690-UR-110.

Findings of Fact, Conclusions of Law and Order, dated Feb.

25, 1997.

6

Thus the contracts embodied an explicit obligation

by the government to supply services at a specified

fixed price. By virtue of the performance of the con-

tracts, utilities acquired vested property rights pro-

tected by the Fifth Amendment, and the federal gov-

ernment may not unilaterally alter or destroy the

essential terms of those contracts. Perry v. United

States, 294 U.S. 330, 353-54 (1935) ; Lynch v. United

States, 292 U.S. 571, 579 (1984). As this Court

ruled in Perry, the government is not free to repudiate

the payment terms of its contracts. 294 U.S. at 350.

Yet that is precisely the effect of the special assess-

ment at issue here. The assessment exacts more funds

for services already rendered and paid for. It thereby

nullifies the fixed-price terms of the contracts. Where,

as here, a statute has “the substantial effect of re-

leasing the Government from its own contractual

obligations,” Winstar, 116 S. Ct. at 2468, the gov-

ernment remains liable for damages in its role as

contractor.

The court of appeals’ decision to the contrary has

far-reaching implications. First of all, it renders the

pricing provisions of the government’s contracts

wholly illusory, and essentially means that the gov-

ernment is never bound by a promise to sell goods

or services at a set price. This result is a radical

departure from this Court’s decisions in Perry and

Winstar. Moreover, the decision below, if allowed

to stand, would establish a precedent for similar

exactions in other contexts when the federal gov-

ernment decides it has paid too much or charged

too little for goods or services bought or sold at arm’s

length. In addition to the manifest unfairness to the

targeted companies, this case thus has serious impli-

cations for whether the federal government can be

counted on by anyone as a reliable contracting part-

7

ner. The Court should therefore grant certiorari to

resolve the serious issues raised.

Il. THE COURT OF APPEALS’ DECISION CONFLICTS

WITH THIS COURT’S DECISION IN WINSTAR IN

VIEW OF THE COMMERCIAL NATURE OF THE

GOVERNMENTAL ACTION

The court of appeals majority based its decision on

the sovereign acts and unmistakability doctrines. This

was clearly in error. Under this Court’s precedent in

Winstar, the nature of the government’s action, in re-

leasing itself from its own contractual obligations for

commercial reasons, precludes a finding that it is a

“public and general” sovereign act.

1. In providing uranium enrichment services, the

government at all times acted as a commercial busi-

ness enterprise, supplying services pursuant to the

terms of written contracts. In the formation of those

contracts, the government had ample authority and

opportunity to recover its full costs in the pricing of

SWU. From the early days of the enrichment pro-

gram, the federal government adhered to a “funda-

mental concept” in pricing SWU—namely, full re-

covery of the government’s costs over a reasonable

period of time.* Section 161v of the Atomic Energy

Act was amended in 1970 to specify that the price

“shall be on a basis of recovery of the Government’s

costs over a reasonable period of time. .. .”* Indeed,

as discussed below, the federal government had a near

monopoly on the world uranium enrichment market

until the mid-1970s, and therefore had the discretion

to set its prices in a manner to ensure full cost re-

covery. Thus, there can be no question that the

Atomic Energy Commission and its successors, the

Energy Research and Development Administration

5 See, e.g., H.R. Rep. No. 91-1470, 91st Cong. (1970), re-

printed in 1979 U.S.C.C.A.N. 4981, 5002.

* 42 US.C. § 2201v (1970).

8

and the Department of Energy,’ had the authority

and opportunity (indeed, were required by the Atomic

Energy Act) to price enrichment services so as to

recover all the government’s costs, including costs

which obviously would need to be borne eventually

for the decontamination and decommissioning of the

facilities.

2. The court of appeals majority characterized the

“main purpose” of the special assessment as being

“to spread the costs of a problem that [Congress]

realized only after the contracts had been per-

formed.” * Contrary to this pivotal assumption, the

ultimate need to decontaminate and decommission the

enrichment facilities was foreseen or reasonably fore-

seeable decades ago, and the government was in fact

recovering estimated D&D costs in the SWU price

before passage of EPACT in 1992.

The federal government was aware early on that

there would be substantial D&D costs associated with

nuclear facilities. Many nuclear facilities, including

several operated by the federal government, had al-

ready been decommissioned between 1950 and 1970.°

7 The federal government’s uranium enrichment enterprise

was originally run by the Atomic Energy Commission

(“AEC”). This function was transferred to the Energy Re-

search and Development Administration (“ERDA”) in 1974.

In 1977, the Department of Energy (“DOE”) assumed re-

sponsibility for the program. DOE maintained responsibility

for the uranium enrichment enterprise until it was transferred

to the newly created United States Enrichment Corporation

under EPACT.

8 Yankee Atomic Electric Co. v. United States, 112 F.3d

1569, 1575-76 (Fed. Cir. 1997) (emphasis added).

® See NUREG-0586. “Final Generic Environmental Impact

Statement on Decommissioning of Nuclear Facilities,” pub-

lished by the Nuclear Regulatory Comm’n (Aug. 1988), at

9

By 1970, the AEC—the very agency then responsible

for the enrichment program—was focusing on the

need to assure recovery of D&D costs for fuel re-

processing plants.” In 1977, the Comptroller Gen-

eral of the United States issued a report to the AEC’s

successors, ERDA and the Nuclear Regulatory Com-

mission, highlighting the need to plan for the sub-

stantial D&D costs for nuclear facilities, including

those operated by the federal government.”

In full knowledge that all nuclear facilities need to

be decontaminated and decommissioned in due course,

the federal government was required to and had ample

statutory authority to incorporate D&D costs into the

pricing of enrichment services. From the beginning,

the federal government’s pricing policies purported to

cover “all” the government’s cost, and therefore must

be presumed to have included an allowance for D&D

costs. For example, the AEC’s 1973 pricing criteria

stated that the charges covered, among other things,

“electric power and all other costs, direct and indi-

rect, of operating the enrichment plants ... .”™

Significantly, the price included a “margin for con-

tingencies” which would have covered D&D and any

other costs that could not be determined precisely.”

Tables 1.5-1 and 1.5-2 (citing 10 nuclear facilities decom-

missioned before 1970).

1° See Siting of Fuel Reprocessing Plants and Related

Waste Management Facilities, 35 Fed. Reg. 17,530 17,532

(1970).

1! Cleaning Up the Remains of Nuclear Facilities—A Multi-

Billion Dollar Problem, EMD-77-46, dated June 16, 1977.

12 Uranium Enrichment Services Criteria, published by

Atomic Energy Comm’n, dated Jan. 23, 1973, at 7.

18 See H.R. Rep. No. 91-1470, supra note 5, at 5003 (quoting

General Accounting Office review of AEC pricing criteria).

DOE’s revised pricing criteria published in 1986 similarly

10

In fact, in its fiscal year 1988 pricing, the govern-

ment included an explicit allowance for projected

D&D costs. As DOE informed Congress in 1990:

DOE has recognized and recovered environmental

costs and D&D in FY 1988, FY 1989, and FY

1990 through its enrichment prices and DOE

will recover all future environmental and D&D

costs through future enrichment prices.”

DOE further stated that “[b]eginning in FY 1991

SWU charges will also recover $50 million each year

to cover the commercial [utility] share of future

D&D activities for all three [uranium enrichment]

sites.” ** Thus the court of appeals decision was based

on the erroneous assumption that D&D costs were an

after-discovered cost.

3. The government’s pricing of uranium enrich-

ment services was not impaired by the unforeseeabil-

ity of the need to decontaminate and decommission.

This ultimate need was obvious from the beginning.

Further, later on, the government’s pricing was

driven quite clearly by the commercial desire to in-

duce utilities to continue to purchase government-

produced uranium enrichment. In marketing its

uranium enrichment services, the government recog-

nized that price was the “predominant factor that

customers use in determining their source of enrich-

represented that the SWU price was established based on “all”

the government’s costs of operating the facilities. Final Rule,

Uranium Enrichment Services Criteria, 51 Fed. Reg. 27132

(1986) (codified at 10 C.F.R. § 762.5 (1986) ).

Dep’t of Energy’s Uranium Enrichment Program: Hear-

ing before the Subcomm. on Energy Research and Develop-

ment of the Senate Comm. on Energy and Natural Resources,

101st Cong. 133 (May 1, 1990).

15 Id. at 139.

Cl

1]

ment supply.” ** While the federal government had

a near monopoly on the world uranium enrichment

market in the early years of the program, by the

mid-1970s, foreign competition emerged for supply-

ing enrichment services. With competition, customers

had the option to seek enrichment services from sup-

pliers other than the federal government. Some util-

ities began to cancel commitments to DOE (in ac-

cordance with contract termination provisions) in

order to purchase SWU from lower-cost sources.” As

a result, the federal government’s share of the ura-

nium enrichment market declined to below 50 percent

by the early 1980s.

In an effort to preserve market share, the govern-

ment offered incentives to induce utilities to remain

long-term customers. In January 1984, DOE intro-

duced a new form of uranium enrichment contract,

the “Utility Services Contract”—which included lower

prices and more flexible terms than earlier contracts.”

The Utility Services Contract stated that

6 Id. at 135.

' H.R. Rep. No. 102-474, Part 2, 102d Cong. (1992), re-

printed in 1992 U.S.C.C.A.N. 2064.

'S For background, see Final Rule, Uranium Enrichment

Services Criteria, supra note 13.

*® The Utility Services Contract is not involved in the pres-

ent case, but will be in many of the pending cases in the

Court of Federal Claims brought by other utilities. Approxi-

mately 90 percent of DOE’s customers converted to these

contracts. The contract term was 30 years, with an estab-

lished 10-year ceiling price, adjusted annually for inflation.

Customers were allowed to purchase up to 30 percent of their

annual SWU requirements from non-DOE sources. In ex-

change for utilities converting to this form of contract, DOE

entered into Supplemental Agreements of Settlement which

acknowledged that the utilities had fulfilled their obligations

under the prior contracts.

12

DOE intends to serve as a reliable long term sup-

plier of uranium enrichment services at predict-

able prices while providing the most competitive

prices possible through technological innovation;

and .. . DOE desires to operate the enrichment

complex on a sound business basis without Gov-

ernment subsidy ....

Once it had established a customer base with the new

contracts, the government began marketing initia-

tives to expand sales. In 1985 and 1986, DOE offered

“incentive prices” substantially below the standard

SWU price in order to attract additional purchases

from customers.” The pricing terms of the contracts

were thus a clear inducement to utilities to purchase

services from the government.

4. In 1992, as part of EPACT, Congress compre-

hensively restructured the government’s uranium en-

richment business, created the United States Enrich-

ment Corporation (“USEC”) and provided for the

eventual privatization of the enrichment program in

USEC. 42 U.S.C. §2297d. The new government

corporation (as lessee of the enrichment plants) was

relieved of any preexisting D&D liability (prior to

July 1, 1993). EPACT specified that D&D costs

“shall remain the sole responsibility of [DOE],” 42

U.S.C. § 2297c-2, but imposed the special assessment

on domestic utilities to fund DOE’s obligation.

The legislative history reveals that Congress was

concerned that the government’s restructured ura-

nium enrichment business would not be able to oper-

ate competitively and profitably if it retained re-

sponsibility for D&D costs:

20 See Uranium Enrichment: Congressional Action Needed

to Revitalize the Program, General Accounting Office, dated

Oct. 1987, at 42.

iiaetaetaeaaieaniaaiiliiaitiliiliiiliiidi

a

13

A Government corporation, with a clearly de-

fined mission to operate as a commercial enter-

prise on a profitable and efficient basis, will

provide the enrichment program with the busi-

nesslike structure and flexibility that is crucial

to the survival of the program. In addition, any

legislation for revitalizing the enrichment enter-

prise should also address other issues which af-

fect the program, such as the decontamination

and decommissioning of the enrichment plants."

Congress was obviously concerned about the new cor-

poration’s ability to maintain competitive prices and

attract private investors. Thus the special assess-

ment shifted the D&D obligation from the govern-

ment, where it belonged, to the government’s contract

partners in order to enhance the value of the new

entity to the government and enable USEC to be com-

petitive in the open market. The effect of this action

was to repudiate, for commercial reasons, the fixed

price terms of the contracts and deprive utilities of

their vested contract rights. Under the principles of

Winstar, such a result precludes a finding that the

special assessment is a “public and general” sovereign

act. 1168S. Ct. at 2469.

Ill. THE COURT OF APPEALS’ CHARACTERIZATION

OF THE SPECIAL ASSESSMENT AS A “GENERAL

TAX” CONFLICTS WITH PRECEDENT OF THIS

COURT °

1. The court of appeals stated in the majority

decision that the characterization of the special as-

sessment as either a retroactive price increase or an

exercise of the sovereign’s taxing power was the dis-

positive issue of the appeal. 112 F.3d at 1573. In

characterizing it as a “general tax,” 112 F.3d at

*11H.R. Rep. No. 102-474, Part 2, supra note 17, at 2084

(emphasis added).

14

1576, the court of appeals ignored long standing prec-

edent of the Supreme Court. A tax is generally “an

extraction for the support of a government” or “the

enforced proportional contribution of persons and

property, levied by the authority of the state for the

support of the government and for all public needs.”

United States v. Butler, 297 U.S. 1, 61 (1986) and

Bank of Mount Hope v. Commissioner, 25 B.T.A. 542,

543 (1932) (citing Florida Central & Peninsula Rail-

road Co. v. Reynolds, 188 U.S. 471, 475 (1902)).

Customarily taxes are broadly applied on an involun-

tary basis to all persons falling within a definite

class or area.”

In a related context, the Internal Revenue Service

has ruled that a tax is an enforced contribution im-

posed and collected for the purpose of raising reve-

nues to be used for public or governmental purposes

and not for some special privilege granted or service

rendered.* Ordinarily when amounts are paid into a

specific fund or earmarked for a specific purpose,

they are treated as imposed as a charge for a privi-

lege or service rendered and not as a tax.™

The special assessment prominently displays the

characteristics which the Supreme Court (and the

Internal Revenue Service) repeatedly have held do

not constitute a tax. First, the fee is imposed on an

exceedingly narrow base—those who puchased enrich-

ment services and only to the extent of their pur-

22 Houck v. Little River Drainage District, 239 U.S. 254,

264-265 (1915).

23 See, e.g., Rev. Rul. 86-140, 1986-2 C.B. 195; Rev. Rul.

81-198, 1981-2 C.B. 52; Rev. Rul. 79-180, 1979-1 C.B. 95;

Rev. Rul. 77-29, 1977-1 C.B. 44; Rev. Rul. 71-49, 1971-1 C.B.

103; Rev. Rul. 61-152, 1961-2 C.B. 42.

24 Rev. Rul. 77-29, supra, and Rev. Rul. 71-49, supra.

15

chases. Second, the fee is paid into a special fund in

order to defray part of the cost incurred by the gov-

ernment in providing the services.

2. The majority’s characterization of the special

assessment as an exercise of the government’s taxing

power turned on the fact that the assessment was im-

posed not just on utilities which had contracts with

the government but also on those who purchased

SWUs from the government’s contracting partners.

112 F.3d at 1575. The government concedes that at

most 15 percent of SWUs were purchased on this

secondary market. The petitioner submits that those

secondary market purchasers are utilities that also

had direct purchase contracts with the government.

The incidental imposition of the fee on third party

purchasers of SWUs does not make the assessment

a tax. The direct linkage between the users of DOE’s

enrichment services and the special assessment in-

stead supports the conclusion that it is a supplemental

payment for enrichment services. As this Court noted

in Winstar, Congress may not disguise the targeting

of government contractors by also assessing some in-

significant number of transactions that were not un-

der direct government contracts. 116 S. Ct. at 2468

(“Legislation can almost always be written in a for-

mally general way, and the want of an identified

target is not much security when a measure’s impact

nonetheless falls substantially upon the Government’s

contracting partners.” ) (emphasis added).

The overwhelming majority, if not all, of the af-

fected third-party purchasers also had directly con-

tracted with the government for the bulk of their

enrichment services. In practice, the government’s

contracting partners bought and sold SWUs among

themselves as their immediate need for enrichment

16

services varied from their contractual ability to se-

cure enriched uranium from the government. The

pool of SWU users did not expand significantly be- |

yond the contracting partners by virtue of these sec-

ondary purchases.

cet, Wh 26 eh

The scant legislative history on this aspect of

EPACT reveals no Congressional intent to impose a

broad-based tax. The provisions in the law subjecting

third-party purchasers to the assessment were not

part of the original bill and were only included in

the legislation when the House Committee bills were

consolidated and sent to conference. The House bills

that first included the special assessment simply

stated that the assessment was to be collected from

utilities in proportion to the amount of enrichment

services they had purchased.” In applying the assess-

ment to third-party purchasers, Congress was appar-

ently attempting to prevent the obvious and additional

unfairness of assessing a utility that had purchased

certain SWUs from the government but never used

them.

The impact of the D&D assessment falls overwhelm-

ingly, if not exclusively, on the government’s contract-

ing partners. Therefore, the Federal Circuit’s reli-

ance on the inclusion of third-party purchases con-

flicts with Winstar and should be reviewed by the

Supreme Court. Further, the court of appeals’ char-

acterization of the special assessment as an exercise

of the sovereign’s taxing power is erroneous under

Butler and Florida Central and should be reviewed

by the Supreme Court.

25 See H.R. Rep. No. 102-474, Part 1, 102nd Cong. (1992),

reprinted in 1992 U.S.C.C.A.N. 1954; H.R. Rep. No. 102-474,

Part 2, supra note 17.

iii as

17

IV. THE SPECIAL ASSESSMENT IS CONSTITUTION-

ALLY IMPERMISSIBLE DUE TO ITS EXTREME

RETROACTIVITY

Even if one were to accept arguendo the court of

appeals’ characterization of the special assessment as

a tax, serious constitutional questions are raised con-

cerning retroactivity. The assessment is levied on

transactions that occurred beginning in the 1950s.

Permissible retroactivity of taxes has generally been

“confined to short and limited periods required by

the practicalities of producing national legislation.”

United States v. Darusmont, 449 U.S. 292, 296

(1981) ; United States v. Hudson, 299 U.S. 498, 500

(1937).

A tax on transactions dating back over 30 years

is unprecedented and would go well beyond anything

this Court has countenanced. See, e.g., Nichols v.

Coolidge, 274 U.S. 531 (1927) (striking down 12-year

period of retroactivity); United States v. Carlton,

512 U.S. 26, 38 (1994) (“[A] period of retroactivity

longer than the year preceding the legislative session

in which the law was enacted would raise . . . serious

constitutional questions.”) (O’Conner, J., concurring).

Review by this Court is therefore warranted to en-

sure that the constitutional protections against retro-

active taxation are not eroded.

In this connection, the Court has recently granted

review in a case concerning the constitutionality of

legislation that imposes retroactive liability. Eastern

Enterprises v. Chater, 110 F.3d 150 (1st Cir. 1997),

cert. granted sub nom. Eastern Enterprises v. Appel,

66 U.S.L.W. 3296 (U.S. Oct. 20, 1997) (No. 97-42).

Given the extreme period of retroactivity involved

here and the government’s readjustment of its own

contractual obligations, review is also appropriate in

the present case. In the alternative, amici support

18

the petitioner’s request that the Court defer ruling

on the petition pending its decision in Eastern Enter-

prises.

CONCLUSION

This case has enormous importance because of the

precedential effect the decision by the Court of Ap-

peals for the Federal Circuit will have on the utility

industry and the government contracts community

generally. The court of appeals’ decision is incon-

sistent with the legal principles clearly enunciated

by the Supreme Court in Winstar. For these reasons,

amici respectfully request that the Supreme Court

grant certiorari.

Respectfully submitted,

NICHOLAS S. REYNOLDS PROFESSOR JOHN C. JEFFRIES, JR.

ROBERT A. MANGRUM Counsel of Record

DANIEL F. STENGER UNIVERSITY OF VIRGINIA SCHOOL

WINSTON & STRAWN oF LAW

1400 L Street, N.W. 500 Massie Road

Washington, DC 20005 Charlottesville, VA 22903

(202) 371-5700 (804) 924-3436

January 12, 1998