 United States Court of Appeals for the Federal Circuit


                                       04-5079


            PSI ENERGY, INC. and CINCINNATI GAS & ELECTRIC CO.,

                                                      Plaintiffs-Appellants,

                                           v.

                                   UNITED STATES,

                                                      Defendant-Appellee.



       Eric J. Marcotte, Winston & Strawn, LLP, of Washington, DC, argued for plaintiff-
appellant. With him on the brief was Nathan C. Guerrero.

       James G. Bruen, Jr., Special Litigation Counsel, Commercial Litigation Branch,
Civil Division, United States Department of Justice, of Washington, DC, argued for
defendant-appellee. With him on the brief were Peter D. Keisler, Assistant Attorney
General, and J. Christopher Kohn, Director.

Appealed from: Untied States Court of Federal Claims

Judge Lawrence J. Block
United States Court of Appeals for the Federal Circuit


                                          04-5079



              PSI ENERGY, INC. and CINCINNATI GAS & ELECTRIC CO.,

                                                         Plaintiffs-Appellants,

                                              v.

                                     UNITED STATES,

                                                         Defendant-Appellee.

                             __________________________

                             DECIDED: June 10, 2005
                             __________________________



Before MAYER,* NEWMAN and CLEVENGER, Circuit Judges.

Opinion for the court filed by Circuit Judge NEWMAN. Dissenting opinion filed by Circuit
Judge CLEVENGER.

NEWMAN, Circuit Judge.



        PSI Energy, Inc. and Cincinnati Gas & Electric Co. (together "the appellants") appeal

the judgment of the United States Court of Federal Claims, holding them liable for tax levied

on users of enriched uranium for generation of nuclear power, although the


____________________

        *      Haldane Robert Mayer vacated the position of Chief Judge on December 24,
2004.
appellants did not use the enriched uranium or produce nuclear power.1 We conclude that

the tax was improperly levied on the appellants, and reverse the decision of the Court of

Federal Claims.

                                      BACKGROUND

       A nuclear reactor operates using the uranium isotope U-235. As the reactor fuel is

depleted, the U-235 reverts to the inactive form. To use the uranium, it is necessary to

increase the concentration of U-235 to that needed for nuclear reaction, a process called

"enrichment." Since 1977 the United States government has performed this enrichment

and has charged the user-utility for the cost thereof. The fee is calculated by a formula that

includes the difference in the amount of U-235 in the starting material, and the amount of

U-235 in the enriched fuel that is returned to the utility. This difference is defined in terms

of "separative work units" (SWU). The appellants explain that SWUs are not tangible

objects, but are the method used to quantify the amount of effort expended to produce the

enriched uranium. Thus although the utility does not receive back the same batch of

uranium that it delivered to the government, it is charged a fee based on the amount of

enrichment acquired by the utility.

       Over the years, this activity contaminated the government's uranium processing

facilities with various radioactive and other waste products. In 1992 Congress enacted the

Energy Policy Act (EPACT), 42 U.S.C. §2297g-1(a) et seq., whose purpose was to recover

the part of the cost of decontamination that was due to this work done for power-generating

       1      PSI Energy, Inc. v. United States, 59 Fed. Cl. 590 (2004).




04-5079                                       2
utilities (the cost due to military uses was not charged to the utilities). The EPACT levied a

"special assessment" on the utilities whose spent nuclear fuel was processed by the

government. The assessment was measured by the number of SWUs purchased from the

DOE and used by the utility. The EPACT provides that if the utility sells the SWU, it will not

be considered to have purchased the SWU from the government:

       (2) a utility shall not be considered to have purchased a separative work unit
       from the Department if such separative work unit was purchased by the
       utility, but sold to another source.

42 U.S.C. §2297g-1(c).        For discussion of the background of the statute, see

Commonwealth Edison Co. v. United States, 271 F.3d 1327 (Fed. Cir. 2001) (en banc).

       The appellant utilities purchased enriched uranium from the government from 1977

to 1983, but ultimately did not use any of it to generate electric power. In 1984 the

appellants sold their entire stock of nuclear fuel to other utilities in the secondary market.

Due to market standardization, the selling price was stated as if the resold fuel contained

fewer SWUs than the utilities had purchased from the government.

       The government levied a tax of $336,987.74 on PSI and over $67,000 on Cincinnati

Gas, on the theory that because these utilities sold nominally fewer SWUs than they

received from the government, they were liable for the assessment on the purportedly

missing SWUs, whether or not they were used by these utilities. The Court of Federal

Claims held that the tax was correctly applied.




04-5079                                       3
                                       DISCUSSION

       The appellants argue that the statute levies the tax on the user of the fuel, and that

since they did not use the fuel, they are not subject to the tax. They argue that it is

incorrect to tax the appellants as if they used the fuel, when they sold their entire stock.

The appellants state that although the tax provisions of the EPACT designate the SWU as

a convenient measure of the amount of enrichment, the statute explicitly exempts liability

for the tax when the enriched fuel is resold. The appellants state that since the entire

quantity of fuel was sold, the statute eliminates their liability for the tax, and that it is

irrelevant that they had restated the SWUs present in the fuel that was sold.

       The government responds that the tax is based on SWUs, and that by selling the

fuel as if the fuel had fewer SWUs, it was as if the appellants used the fuel embodying the

difference in SWU. Although the statute does not contemplate this apparently rare fact

situation, it is clear that the tax was intended to be levied on the user of the enriched

uranium. On any theory, the appellants did not use any of the enriched uranium; they

simply resold it. In Union Electric Co. v. United States, 363 F.3d 1292, 1294 (Fed. Cir.

2004), this court explained:

       [A]s to those utilities that submitted the uranium to the government for
       processing, the tax was effectively imposed on their utilization of the
       government enrichment services. With respect to companies that purchased
       already-enriched uranium from those that had utilized the government
       enrichment services, the tax was effectively imposed on their purchase of the
       enriched uranium.

The court held that the tax was properly imposed on the ultimate user, and that the tax "did

not apply to . . . (3) domestic utilities that sold their government-enriched uranium prior to

October 24, 1992." Id. A SWU does not exist independently of the uranium nuclear fuel,



04-5079                                       4
for it measures the degree of enrichment acquired by the utility. When the appellants sold

all of their enriched uranium, and retained none, they could not be charged with the tax

levied on users.

       The government argues that its interpretation of §2279g-1(c)(2) should be accorded

deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc, 467 U.S.

837, 843-44 (1984), stating that the statute is ambiguous and that the government's

interpretation of an ambiguous statute must be given deference. However, we discern no

ambiguity. The government argues that the Department of Energy stated the position now

taken, in a comment during a rulemaking hearing in 1994. That comment, however,

concerned the actual assay of resold uranium, not a discounted price. Nor is deference

warranted for informal comments when the statute deals with the issue. There is no

ambiguity in the statutory requirement and the precedent of Yankee Atomic Electric Co. v.

United States, 112 F.3d 1569 (Fed. Cir. 1997) and Union Electric, supra, that the cleanup

tax is levied on the user of the fuel, not on a non-user who simply resells the fuel.2

       When all of the enriched fuel was resold by the appellants, by statute they are not

liable for the tax. It is irrelevant that the fuel was resold for less than its cost in SWUs. The




        2       We take note that a member of this panel would hold these utilities liable on
the broad ground that "liability stems from the contamination of the processing facility and
the costs associated with decommissioning gaseous diffusion plants." The statute,
however, is explicit in imposing the assessment only on the user of the enriched uranium,
as this court's precedent has confirmed. Yankee Atomic, 112 F.3d at 1575 ("the Act targets
whichever utility eventually used and benefitted from the DOE's enrichment services"). The
dissent further strays in stating that the effect of this decision is that the tax on the missing
SWUs is "lost," for that question is not here at issue, and was not decided by either the trial
court or this court.



04-5079                                        5
judgment of liability is reversed; on remand the appellants shall recover the assessment,

with interest in accordance with law.




                             REVERSED AND REMANDED




04-5079                                    6
 United States Court of Appeals for the Federal Circuit


                                          04-5079


             PSI ENERGY, INC., and CINCINNATI GAS & ELECTRIC CO.,

                                                                Plaintiffs-Appellants,

                                             v.

                                    UNITED STATES,

                                                                Defendant-Appellee.




CLEVENGER, Circuit Judge, dissenting.


       The court today resolves that the Court of Federal Claims has misread the

relevant statutes in imposing liability on the appellants. For the reasons that follow, it is

the court today that errs, not the Court of Federal Claims. In a nutshell, Congress

designed a program for industry participation in enrichment plant clean-up costs that

keys to the number of separative work units ("SWUs") purchased from the government,

not the number of pounds of uranium used by a utility.

       This interpretation is in keeping with prior precedent involving the EPACT statute

by this court. See Union Elec. Co. v. United States. 363 F.3d 1292 (Fed. Cir. 2004)

(holding that the special assessment under EPACT was a constitutional excise tax); Fla.

Power & Light Co. v. United States, 307 F.3d 1364 (Fed. Cir. 2002) (holding that the

Contract Disputes Act did not apply to enrichment contracts with the government

because they are contracts for services); Commonwealth Edison Co. v. United States,
271 F.3d 1327 (Fed. Cir. 2001) (en banc) (holding that the special assessment under

EPACT was not a taking or a breach of the utilities' contracts by the government and

was not a violation of due process); Maine Yankee Atomic Power Co. v. United States,

271 F.3d 1357 (Fed. Cir. 2001) (holding that the special assessment was not

unconstitutional under the Equal Protection Clause); Yankee Atomic Elec. Co. v. United

States, 112 F.3d 1569 (Fed. Cir. 1997) (holding that the special assessment did not

breach the enrichment contracts between the utilities and the government by

retroactively increasing the price of previously purchased uranium).

                                              I

       PSI Energy and Cincinnati Gas & Electric ("the appellants") claim that they are

specially situated because, unlike other utilities that contracted with the government for

enrichment services, or secondary purchasers, who used the enriched fuel in nuclear

power plants, the appellants sold the entirety of their supply without depleting one

ounce in fission reactors. At oral argument in this court, both parties asserted that this

is the only case of its kind in the universe of utility claimants under the relevant statutes:

that is, no other utility was left with unused SWUs due to the inability to transfer their

SWUs to other utilities without economic loss. As such, this case appears to be unique.

But even so, that is no reason to misapply the law. The appellants claim that because

they sold all of the physical material to other utilities they cannot be assessed on any of

the SWUs they originally purchased.        To understand why this is not the case, the

enrichment industry and the contracts that transferred uranium from the appellants to

secondary purchasers should be briefly explained.




04-5079                                   2
       Enrichment increases the concentration of U-235, the isotope desirable in reactor

fuel, and leaves behind depleted "tails" which have a concentration of U-235 below that

of naturally-occurring uranium ore. The industry uses the term "tails assay" to denote

the concentration of U-235 in the tailings—a higher tails assay means a less enriched

product whereas a lower tails assay indicates material with a higher concentration of

U-235. The energy required to process the material to a requested level of enrichment

is measured in SWUs, which correlate generally to the costs of enrichment. Separative

work is a measure of the energy or effort necessary to separate uranium of a given

U-235 concentration into a mass of uranium with a higher concentration and a tailing

with a lower concentration of the isotope.

       Contracts between the Department of Energy ("DOE" or "government") and

domestic utilities for enrichment services were fairly standardized.   These contracts

were structured as service agreements where the utilities provided the "feed" uranium

material and were returned enriched product. These contracts were priced according to

the number of SWUs necessary to produce the desired tails assay.       In this case, the

appellants contracted with the government for specific amounts of uranium processed to

a tails assay of 0.2 percent.

       After their business decision to not enter into the nuclear energy market, the

appellants decided to sell the uranium in the secondary fuel market. The appellants'

sales of enriched uranium in the secondary market were structured like the original

purchase service contracts with the DOE enrichment processors.           The contracts

"designated a certain number of kilograms of enriched uranium to be sold at a specified

tails assay" which was broken down for cost purposes into a SWU component and an




04-5079                                  3
unenriched component as required by the purchaser.           At the time of sale, market

conditions had changed because utilities operating reactors had found that a lower

concentration of U-235 was optimal for electricity generation and had adopted a 0.3

percent tails assay as the market standard. In the secondary market, 0.2 percent tails

assay product was over-enriched and buyers were unwilling to pay for processing

beyond that required to achieve a 0.3 percent tails assay.

      The appellants had managed to offload most of their material under the 0.2

percent tails assay characterization before they had to make price concessions and

recharacterize the material as enriched to a 0.3 percent tails assay in order to dispose

of the material on the secondary market. As part of these secondary market contracts,

the number of SWUs resold with the uranium by the appellants reflected the amount of

SWUs that would have been used to produce 0.3 percent tails assay material, not what

the buyer actually received—the 0.2 percent tails assay material. Therefore, although

all of the material was sold by the appellants, the recharacterization effectively left

SWUs unaccounted for and transferred only the SWUs necessary to produce 0.3

percent tails assay material to the new owner. The size of the alleged economic harm

to the appellants, the assessment on the SWUs that were not transferred, is

$336,987.74 against PSI Energy and $67,000 against Cincinnati Gas.            Under the

statute, the secondary purchaser is responsible for the assessment on the SWUs

transferred. Thus the question becomes who pays the assessment on the SWUs that

were not transferred.




04-5079                                 4
                                            II

      The plain language of the statute and the statutory scheme of EPACT dictate the

outcome of this case. EPACT was intended to spread the costs of decommissioning

enrichment facilities to all those who purchased or benefited from enrichment services

performed by the DOE. To better understand the application of the special assessment,

the language of the statute must be examined. It reads in relevant part:

      (c)    Special assessment


               The Secretary shall collect a special assessment from domestic
      utilities. The total amount collected for a fiscal year shall not exceed
      $150,000,000 (to be annually adjusted for inflation using the Consumer
      Price Index for all-urban consumers published by the Department of
      Labor). The amount collected from each utility pursuant to this subsection
      for a fiscal year shall be in the same ratio to the amount required under
      subsection (a) of this section to be deposited for such fiscal year as the
      total amount of separative work units such utility has purchased from the
      Department of Energy for the purpose of commercial electricity
      generation, before October 24, 1992, bears to the total amount of
      separative work units purchased from the Department of Energy for all
      purposes (including units purchased or produced for defense purposes)
      before October 24, 1992. For purposes of this subsection--

      (1)     a utility shall be considered to have purchased a separative work
      unit from the Department if such separative work unit was produced by the
      Department, but purchased by the utility from another source; and

      (2)    a utility shall not be considered to have purchased a separative
      work unit from the Department if such separative work unit was purchased
      by the utility, but sold to another source.

42 U.S.C. § 2297g-1 (emphases added).

      Literally, the statute reads that the assessments are based on a utility's

proportionate share of the enrichment services purchased in terms of SWUs, not on the

quantity of uranium processed.     The SWUs are also deemed the relevant units in

secondary transactions that track liability. The secondary market for enriched uranium


04-5079                                 5
was in view when the statute was drawn and Congress could have easily dealt with the

assessment in terms of quantities of enriched uranium, but instead chose to tie the

assessment to the source of the contamination—the separation itself. On its face, the

special assessment is tallied by SWU expenditures. This construction makes sense in

light of the purpose behind EPACT because liability stems from the contamination of the

processing facility and the costs associated with decommissioning gaseous diffusion

plants. A utility's share of these costs is proportional to the amount of services the

government performed for that utility. The statute literally reads that contracting utilities

should be responsible for the SWUs they contracted for except those transferred in the

secondary market.     Under this interpretation, the special assessment was properly

assessed for the amount of "overprocessing" that was not effectively transferred by the

secondary sale.

       The structure and purpose of EPACT supports the literal meaning of the statute.

EPACT sets up a scheme by which the government is compensated for a set amount of

decommissioning costs. Even if some of these costs can be spread by the original

contracting utility to a secondary purchaser, the government wants to receive the full

assessment based on the contamination from the original contracted services. If all the

SWUs do not transfer, the difference is not lost (which is the practical result of the

majority's decision). Rather, the original contracting utility must pay for the difference.

In other words, someone has to pay for the assessment on all the SWUs that went into

enriching the material.     Even if a secondary purchaser can take some of the

responsibility, the statute does not contemplate simply erasing the remaining SWUs.




04-5079                                   6
They are retained by the original contracting utility. Nothing in the statute requires all

SWUs used in the creation of the fuel to be passed upon sale.

       In essence the secondary purchaser only purchased the SWUs associated with

the level of enrichment that they required—that is why the SWUs in this case are lower

than the genuine amount required to produce this material—the purchaser did not want

this particular material, it was willing to pay for material with a 0.3 percent tails assay

and no more. The loss falls on the original utility that actually contracted for the service

to produce 0.2 percent tails assay material.    Imposing the special assessment on the

originally contracting utility is not in conflict with the requirement that later purchasers

who benefited from the enrichment, but did not contract for it, should be allocated

decommissioning responsibility. These latecomers are taxed on only what they would

have used of the enrichment service if they had to purchase service directly from the

government.

       Other case law of this court supports this interpretation. Yankee Atomic Electric

Co. v. United States resolved whether the special assessment was a retroactive price

increase of enrichment services contracts or was more similar to a tax on those who

had used enrichment services. The court in Yankee Atomic stated "the Act targets

whichever utility eventually used and benefited from the DOE's enrichment services."

112 F.3d at 1575 (emphases added). Yankee Atomic was specifically written to capture

the aftermarket purchasers, not to exempt the original contracting utilities that used

enrichment services. The court approved the applicability of the assessment to later

users of the uranium by distinguishing the assessment from a retroactive increase in the

contract price charged to the original contracting utility and found that purchasers in the




04-5079                                  7
secondary market benefited from the enrichment services. See id. at 1577. Yankee

Atomic should be viewed in combination with the language from the en banc decision in

Commonwealth Edison which found the processing by the government itself conferred a

benefit on the utilities. See Commonwealth Edison, 271 F.3d at 1346. Yankee Atomic

speaks to the tax on the service, which later benefited the secondary purchasers, not a

tax on the enriched material.

       This court discussed the assessment as a "tax" again in Union Electric. The

court found: "the tax at issue here is not a general tax on the whole of one's personal

property or even a tax on a broad class of personal property. Rather, it is a carefully

tailored tax . . . levied upon only one particular kind of personal property, government-

enriched uranium." Union Elec., 363 F.3d at 1302. The court in Union Electric clarifies

that the assessment is on the enrichment services by stating that "the EPACT tax is an

excise because its incidence falls on a particular activity related to property—here the

purchase of enrichment services or enriched uranium—as opposed to the mere

ownership of property." Id. at 1303-04. Although not referencing SWUs, the court

states that "[t]he EPACT tax was not imposed on the mere ownership of enriched

uranium. Rather, the tax was limited to purchases of government enrichment services

or government-enriched uranium for the purpose of [domestic] commercial electricity

generation prior to October 24, 1992." Id. at 1304 (quotation omitted). Again the court

focuses on the services, not the material.       Union Electric was primarily directed at

finding the special assessment to be an excise tax rather than a direct tax in order to

resolve the constitutionality of the statute as applied to secondary purchasers and the

original contracting utilities. The court only found that




04-5079                                   8
       as to those utilities that submitted the uranium to the government for
       processing, the tax was effectively imposed on their utilization of the
       government enrichment service.        With respect to companies that
       purchased already-enriched uranium from those that had utilized the
       government enrichment services, the tax was effectively imposed on their
       purchase of the enriched uranium.

Id. at 1294. This case does not conflict with the proposition that the original contracting

utilities are responsible for enrichment services that they could not transfer to secondary

purchasers.

       Union Electric did state that the "taxes" under EPACT "did not apply to . . .

domestic utilities that sold their government-enriched uranium prior to October 24,

1992." Id. at 1294. Notably the support for this statement was drawn from the en banc

decision of the Federal Circuit in Commonwealth Edison, but that case referred only to

assessment relief based on SWUs sold in the secondary market; it did not base relief on

the amount of uranium sold. See Commonwealth Edison, 271 F.3d at 1333. Yankee

Atomic also explicitly followed the language in the statute, stating: "The Energy Policy

Act requires contribution to the Fund from any domestic utility that purchased separative

work units from the DOE before the Act's passage . . . . [T]he Act does not require

contribution from a utility that contracted with the DOE if that utility re-sold the

purchased services to another utility." Yankee Atomic, 112 F.3d at 1575 (emphasis in

original).   Yankee Atomic carefully delineates SWUs and purchased services from

enriched material in determining what utilities are subject to assessment. In view of the

cases interpreting this statutory scheme and the plain language of the statute itself,

Union Electric should not be taken to foreclose the possibility that a utility could be

assessed based on the SWUs it could not pass into the secondary market. Union

Electric does not dictate the result achieved by the majority opinion.



04-5079                                  9
       Although the statutory language is plain and unambiguous and the agency

regulations are not to be given deference, see Information Tech. & Applications Corp. v.

United States, 316 F.3d 1312, 1320 (Fed. Cir. 2003), the DOE interpretation is

consistent with assessing an original purchaser who did not transfer the entirety of

contracted SWUs into the secondary market. The DOE interprets the statutory scheme

such that "secondary market transactions cannot be allowed to effect a net increase or

decrease, for Special Assessment purposes, in the total number of SWUs that were

purchased from DOE for all purposes."         Uranium Enrichment Decontamination and

Decommissioning Fund; Procedures for Special Assessment of Domestic Utilities,

59 Fed. Reg. 41,956, 41,958-59 (Aug. 15, 1994). The DOE procedures speak directly

to the case before this court:

       If a utility purchased DOE-produced SWUs from another utility, the
       purchasing utility's assessment will be based on the SWUs specified in
       contracts or other probative documents generated at the time of the
       secondary market purchase. The selling utility's assessment will be
       reduced by an amount that will be determined by the SWUs sold to the
       purchasing utility. For instance, in the event that the SWUs purchased in
       the secondary market transactions were less than the SWUs originally
       purchased from DOE, the selling utility will be assessed for the difference.

Id. at 41,958. The DOE even provides an example on point:

       Utility A purchases 100 SWUs from DOE. In a subsequent sale, Utility A
       changes the calculated SWUs and sells the 100 SWUs to Utility B in a
       transaction for only 80 SWUs. Utility B's assessment is based upon 80
       SWUs. Utility A's assessment is based upon the remaining 20 SWUs
       unaccounted for in the secondary market transaction.

Id. at 41,959.

                                             III

       Even without deference to DOE pronouncements, the language of the statute

and the precedent of this court, which both emphasize the reliance on the number of



04-5079                                 10
SWUs contracted for by the original utility or those purchased by the secondary utility,

indicate that the original contracting utility should be responsible for the assessment on

the number of SWUs that it was unable to transfer in the secondary market. This

makes sense in light of EPACT's purpose to distribute the costs of decommissioning

and decontamination among all those utilities that contracted for or benefited from

services from the government enrichment facilities. Under this interpretation, the due

process analysis should proceed as annunciated in Commonwealth Edison and the

original contracting utility should be responsible for the assessment on the SWUs it

failed to transfer into the secondary market.      Because the majority interprets the

statutory assessment under EPACT incorrectly, I respectfully dissent.




04-5079                                 11
