Nextera Energy, Inc. v. United States

Filing 80

ORDER granting 57 MOTION for Summary Judgment and Incorporated Memorandum of Law filed by United States, denying 56 MOTION for Partial Summary Judgment filed by Nextera Energy, Inc. Closing Case. Other Pending motions D ENIED AS MOOT. Signed by Judge Robin L. Rosenberg on 3/22/2017. (pes) NOTICE: If there are sealed documents in this case, they may be unsealed after 1 year or as directed by Court Order, unless they have been designated to be permanently sealed. See Local Rule 5.4 and Administrative Order 2014-69.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 9:15-CV-80484-ROSENBERG/BRANNON
NEXTERA ENERGY, INC., et al.,
Plaintiffs,
v.
UNITED STATES OF AMERICA,
Defendant.
___________________________________/
ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
AND DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter is before the Court on Plaintiffs’, Nextera Energy, Inc., et al., Motion for
Partial Summary Judgment [DE 56] and Defendant United States of America’s Motion for
Summary Judgment [DE 57]. Both motions have been fully briefed. For the reasons set forth
below, Defendant’s Motion for Summary Judgment is granted and Plaintiffs’ Motion for Partial
Summary Judgment is denied.
I.

BACKGROUND AND INTRODUCTION

The core facts of this case are not in dispute. Nextera Energy, Inc. is a business entity that
owns Florida power companies. Those Florida power companies operate nuclear power plants.
Nuclear power plants utilize fuel in the form of rods of enriched uranium. DE 56-2 at 5. Those
rods are inserted into a nuclear reactor core and, upon insertion, a nuclear fission reaction occurs.
Id. That nuclear reaction produces heat, which produces steam, which rotates a turbine, which
creates electricity. Id. When the fuel reaches the end of its useful life, the fuel is highly radioactive

and must be disposed of carefully. This suit is about the tax treatment of the costs to dispose of
spent nuclear fuel—nuclear waste.1
The disposal of radioactive nuclear waste is costly and difficult. To address this difficulty,
Congress passed the Nuclear Waste Policy Act in 1983 (“Act”).

That Act assigned the

responsibility for nuclear waste disposal to the Department of Energy (“DOE”). The DOE was
entrusted with the responsibility of taking possession of nuclear waste, transporting it to a carefully
prepared location, and storing the waste. The Act also imposed fees on nuclear power plant
operators which those operators had to pay to the DOE. This case is about those fees.
Plaintiff Nextera 2 filed the instant suit on April 14, 2015, seeking a tax refund in
connection with payments it made to the DOE over many years. Nextera’s payments to the DOE
are the subject of each of Nextera’s fourteen counts. Each count corresponds to a different tax year
and each count is premised on the same section of the Internal Revenue Code: 26 U.S.C. § 172(f).
After substantial discovery, the parties filed cross motions for summary judgment on July 15,
2016. Both motions for summary judgment focus on the same legal issue—the proper tax
treatment of fees paid by Nextera to the DOE for nuclear waste disposal under 26 U.S.C. § 172(f).
Because each of Nextera’s counts is premised on Section 172(f), the motions before the
Court—and the Court’s interpretation of Section 172(f)—are dispositive of this case.
II.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if “the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

1 Nuclear waste includes not only nuclear fuel rods, but also equipment that is attached to nuclear fuel rods. See DE
56-2 at 5-6.
2 The Court refers to the collective Plaintiffs (Florida Power and Light Company is the other named Plaintiff) in this
case as Nextera.

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56(a). The existence of a factual dispute is not by itself sufficient grounds to defeat a motion for
summary judgment; rather, “the requirement is that there be no genuine issue of material fact.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A dispute is genuine if “a
reasonable trier of fact could return judgment for the non-moving party.” Miccosukee Tribe of
Indians of Fla. v. United States, 516 F.3d 1235, 1243 (11th Cir. 2008) (citing Anderson, 477 U.S.
at 247-48). A fact is material if “it would affect the outcome of the suit under the governing law.”
Id. (citing Anderson, 477 U.S. at 247-48).
In deciding a summary judgment motion, the Court views the facts in the light most
favorable to the non-moving party and draws all reasonable inferences in that party’s favor.
See Davis v. Williams, 451 F.3d 759, 763 (11th Cir. 2006). The Court does not weigh conflicting
evidence. See Skop v. City of Atlanta, 485 F.3d 1130, 1140 (11th Cir. 2007). Thus, upon
discovering a genuine dispute of material fact, the Court must deny summary judgment. See id.
The moving party bears the initial burden of showing the absence of a genuine dispute of
material fact. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008). Once the moving
party satisfies this burden, “the nonmoving party ‘must do more than simply show that there is
some metaphysical doubt as to the material facts.’” Ray v. Equifax Info. Servs., LLC, 327 F. App’x
819, 825 (11th Cir. 2009) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 586 (1986)). Instead, “[t]he non-moving party must make a sufficient showing on each
essential element of the case for which he has the burden of proof.” Id. (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986)). Accordingly, the non-moving party must produce evidence,
going beyond the pleadings, to show that a reasonable jury could find in favor of that party. See
Shiver, 549 F.3d at 1343.

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III.

ANALYSIS

Nextera’s suit is premised upon one provision of the Internal Revenue Code: 26 U.S.C. §
172. Section 172 covers the tax treatment of net operating losses. A net operating loss, under the
Code, is defined as an excess of deductions for any given tax year. In other words, a net operating
loss exists when a taxpayer has more available deductions than the taxpayer is permitted to take.
26 U.S.C. § 172(c). When a taxpayer has excess deductions (net operating losses), the taxpayer
may “carryover” the deductions to a future tax year or “carryback” the deductions to a prior year,
provided that the carryback is limited to the two prior tax years. 26 U.S.C. § 172(b)(1)(A). Under
special circumstances, however, a taxpayer may carryback losses further into the past than two
years. For example, a taxpayer may carryback a “specified liability loss” to each of the ten tax
years preceding the year of the loss. 26 U.S.C. § 172(b)(1)(C). A “specified liability loss” is
defined in 26 U.S.C. § 172(f) and it is this provision that is at the center of the matter before the
Court.
A specified liability loss includes the sum of any “amount allocable as a deduction . . .
which is in satisfaction of a liability under Federal or State Law requiring . . . the decommissioning
of a nuclear power plant (or any unit thereof).” 26 U.S.C. § 172(f)(1)(B). Section 172(f) does not
define “the decommissioning of a nuclear power plant (or any unit thereof)” and the parties
disagree as to the meaning of this term. Nextera argues that the fees it pays to the DOE for the
DOE’s disposal of nuclear waste qualify as decommissioning expenses under Section 172(f) and,
because it is required to pay those fees pursuant to the Nuclear Waste Policy Act, its payment of
fees to the DOE is required by federal law. Thus, Nextera argues that its payments to the DOE
qualify for Section 172(f) carryback treatment.

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In response, Defendant argues that Nextera’s payments to the DOE are not equivalent to
decommissioning costs and, as a result, Nextera is not entitled to Section 172(f) carryback
treatment. The Court therefore considers: (A) the meaning of “decommissioning costs” under
Section 172(f); (B) whether Nextera’s payments to the DOE qualify as decommissioning expenses
mandated by federal law; and (C) other arguments raised by the parties in the motions before the
Court. The relevant portions of Section 172(f) are set forth below:
(f) Rules relating to specified liability loss.--For purposes of this section-(1) In general.--The term “specified liability loss” means the sum of the following
amounts to the extent taken into account in computing the net operating loss for the
taxable year:
(A) Any amount allowable as a deduction under section 162 or 165 which is
attributable to-(i) product liability, or
(ii) expenses incurred in the investigation or settlement of, or
opposition to, claims against the taxpayer on account of product
liability.
(B)
(i) Any amount allowable as a deduction under this chapter (other
than section 468(a)(1) or 468A(a)) which is in satisfaction of a
liability under a Federal or State law requiring-(I) the reclamation of land,
(II) the decommissioning of a nuclear power plant (or any
unit thereof),
(III) the dismantlement of a drilling platform,
(IV) the remediation of environmental contamination, or
(V) a payment under any workers compensation act (within
the meaning of section 461(h)(2)(C)(i)).
(ii) A liability shall be taken into account under this subparagraph
only if--

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(I) the act (or failure to act) giving rise to such liability
occurs at least 3 years before the beginning of the taxable
year, and
(II) the taxpayer used an accrual method of accounting
throughout the period or periods during which such act (or
failure to act) occurred.
A. The Meaning of Decommissioning Costs under Section 172(f)
Both Nextera and Defendant argue that the plain meaning of Section 172(f) supports their
respective positions, citing solely to dictionary definitions. The Court addresses this matter first,
below.

Second, the Court addresses the single regulation relevant to nuclear plant

decommissioning costs, which again the parties argue supports their respective interpretations of
Section 172(f). Finally, the Court addresses Nextera’s citation to private letter rulings from the
Internal Revenue Service in support of its interpretation of Section 172(f).
1. The Ordinary Meaning of Section 172(f)
Section 172(f) permits a taxpayer to take a carryback deduction for “the decommissioning
of a nuclear power plant (or any unit thereof).” Nextera argues that it should be allowed a
carryback deduction under Section 172(f) for liabilities incurred in connection with the disposal of
spent nuclear fuel rods. Nextera argues nuclear rods are decommissioned, just as a nuclear power
plant or a nuclear reactor is decommissioned. Defendant argues that the fuel rods are not
decommissioned—they are disposed of as waste.
Section 172(f) does not define “decommissioning.” As a result, Nextera argues that the
plain, ordinary meaning of decommissioning includes the disposal of spent nuclear fuel rods.
Nextera supports its argument with a single citation to a dictionary definition. See Taniguchi v.
Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2002-03 (2012) (noting that when a term is not defined in
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a statute, the term must be given its ordinary meaning, and examining dictionaries to determine
ordinary meaning); see also Major Paint Co. v. United States, 334 F.3d 1042, 1045 (Fed. Cir.
2003) (noting the lack of legislative history or treasury regulations to aid courts in interpreting
Section 172(f)).3 Nextera cites to Webster’s Ninth New Collegiate Dictionary which defines
decommissioning as “to remove . . . from service.” The full definition, not supplied by Nextera, is
that a decommissioning means “to remove (as a ship) from service.”
Defendant responds to Nextera’s argument by citing to Webster’s Third New International
Dictionary which also defines decommissioning as “to remove (as a ship) from service.” The
parties rely upon no other authority for their respective arguments on the plain, ordinary meaning
of decommissioning in Section 172(f). The Court’s own research includes the definition of the
term by Webster’s New World College Dictionary, Third Edition (“to revoke the commission of .
. . to take (a vessel) out of service”) and The Oxford English Dictionary (“[T]o take (a ship,
aeroplane, etc.) out of service; to close down (esp. a nuclear reactor).”). For the three reasons set
forth below, the Court concludes that Defendant has the better argument.
First, the dictionary definitions above make clear that the word decommissioning is used in
the context of ships, airplanes, and nuclear reactors. A ship, an airplane, and a nuclear reactor are
three examples of objects that provide a useful service for a very long period of time, provided they
are maintained, and all three are formally commissioned. By contrast, it is common knowledge
that fuel does not last for a very long time, that fuel is depleted when it is used, and that fuel is not

3 Notwithstanding the minimal amount of relevant legislative history pertaining to Section 172(f), there is some
support in the legislative history for the proposition that the decommissioning of a nuclear power plant was inserted
into Section 172(f) on the assumption that decommissioning would occur at the end of a plant’s useful life. H.R. Rep.
No. 98-861 at 877 (“[U]tilities that operate nuclear power plants are obligated to decommission the plants at the end of
their useful lives.”).

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(according to its ordinary meaning) formally commissioned.4 Stated another way, for fuel to be
decommissioned, it would first have to be commissioned.

While a naval vessel may be

commissioned and decommissioned, the removal of waste from a naval vessel does not amount to
decommissioning of that waste. Similarly, while a nuclear power plant or a nuclear reactor may be
commissioned and decommissioned, the removal of waste from the power plant does not amount
to decommissioning of that waste.

Furthermore, Nextera’s argument, taken to its logical

conclusion, would mean that any piece of equipment in a nuclear power plant that is disposed of
could be considered “decommissioned.” Thus, a battery placed into a device in the plant would be
“commissioned” into service and then, once the charge was spent, that battery would be
“decommissioned.” Nextera’s interpretation is therefore unreasonable as overbroad.
Second, the relevant phrase in Section 172(f) is that a deduction may be taken for “the
decommissioning of a nuclear power plant (or unit thereof).”

Nuclear fuel rods are not

synonymous with a nuclear power plant. Therefore, to the extent Nextera relies upon the
contention that a “unit thereof” may include nuclear fuel, the Court does not agree. Section 172(f)
does not permit a deduction for the decommissioning of a unit of a nuclear reactor—it permits a
deduction for the decommissioning of a unit of a nuclear power plant. A plant may contain
multiple nuclear reactors.5 The Oxford English Dictionary defines “unit” as “an individual person,
thing, or group regarded as single and complete; each of the (smallest) separate individuals or
groups in which a complex whole may be analyzed.” Thus, the ordinary meaning of a unit of a
nuclear power plant does not encompass fuel, just as fuel would not qualify as a unit of a fleet of
ships. Instead, a far more reasonable interpretation of the phrase “a unit thereof” may be that a

4 Nuclear fuel does last longer than other types of fuel—approximately four years. See DE 56-2 at 5.
5 For example, two of the power plants in this case have two reactors each. See DE 56-2 at 4.

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nuclear reactor is a unit of a nuclear power plant. Such an interpretation would be supported by
the definition of decommissioning in the Oxford English Dictionary: “[T]o take (a ship, aeroplane,
etc.) out of service; to close down (esp. a nuclear reactor).” This interpretation would also be
supported by the definition of “unit” in the Oxford English Dictionary, because a nuclear reactor
can qualify as: “an individual . . . thing . . . regarded as single and complete; each of the (smallest)
separate [things] in which a complex whole may be analyzed.”
Third and finally, the other situations in Section 172(f) that qualify for special carryback
treatment tend to be “particularly ‘large and sporadic.’” United Dominion Indus., Inc. v. United
States, 532 U.S. 822, 825 (2001). Section 172(f) carryback treatment is applied, for example, to
the dismantling of an oil platform, the reclamation of land, the remediation of environmental
contamination, and the decommissioning of nuclear power plants. 26 U.S.C. § 172(f)(1)(B)(i).
Juxtaposed to these types of unusual and large expenses, Nextera seeks to carryback fees that it
makes regularly, quarterly, to the DOE.

Thus, the Court finds Nextera’s interpretation of

decommissioning unpersuasive in light of the provisions of Section 172(f) as a whole.
In conclusion, while a nuclear reactor may well qualify as a unit of a nuclear power plant
that is commissioned and decommissioned, the Court concludes that the ordinary meaning of
“decommissioning . . . a unit of a nuclear power plant” does not include the fuel that is placed into
a nuclear reactor and later disposed of as waste.
2. The Interpretation of Section 172(f) in Light of Treasury Regulations
The parties’ respective arguments are not limited to the ordinary meaning of the term
“decommissioning.” Nextera cites to one treasury regulation, Regulation 1.468A-1, for the
proposition that the costs of spent nuclear fuel disposal qualify as decommissioning costs under

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Section 172(f). As a threshold matter, the Court is unconvinced that Regulation 1.468A-1 applies
to Section 172(f) because the scope of the definitions in the Regulation is expressly limited to the
Regulation itself. (“The following terms are defined for the purposes of section 468A . . . .”). In
order to fully analyze Nextera’s arguments, however, the Court considers the content of the
Regulation to determine whether it sheds light on the definition of deductible decommissioning
costs. The relevant portion of the Regulation reads as follows:
The term nuclear decommissioning costs or decommissioning costs includes all
otherwise deductible expenses to be incurred in connection with the entombment,
decontamination, dismantlement, removal and disposal of the structures, systems
and components of a nuclear power plant, whether that nuclear power plant will
continue to produce electric energy or has permanently ceased to produce electric
energy. Such term includes all otherwise deductible expenses to be incurred in
connection with the preparation for decommissioning, such as engineering and
other planning expenses, and all otherwise deductible expenses to be incurred with
respect to the plant after the actual decommissioning occurs, such as physical
security and radiation monitoring expenses. Such term also includes costs incurred
in connection with the construction, operation, and ultimate decommissioning of a
facility used solely to store, pending acceptance by the government for permanent
storage or disposal, spent nuclear fuel generated by the nuclear power plant or
plants located on the same site as the storage facility. Such term does not include
otherwise deductible expenses to be incurred in connection with the disposal of
spent nuclear fuel under the Nuclear Waste Policy Act of 1982 (Pub. L. 97-425).
An expense is otherwise deductible for purposes of this paragraph (b)(6) if it would
be deductible under chapter 1 of the Internal Revenue Code without regard to
section 280B.
(emphasis added). Nextera stresses that (i) Regulation 1.468A-1 defines nuclear decommissioning
costs as including costs that are incurred to temporarily remove and store nuclear fuel rods prior to
the DOE’s acquisition of those rods and (ii) the Regulation clearly permits for the deductibility of
expenses whether the plant remains in operation or not and, as a result, the term
“decommissioning” can include costs incurred prior to plant closure—such as fuel disposal.
Nextera therefore poses the question: “If temporary, interim nuclear waste storage costs may be

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considered nuclear decommissioning costs, why can’t the cost of permanent nuclear waste
disposal be considered decommissioning costs as well?”
Defendant responds to this question by pointing out that the Regulation clearly says that
permanent waste disposal costs are not decommissioning costs by the express language of the
second-to-last sentence in the Regulation: “Such term does not include otherwise deductible
expenses to be incurred in connection with the disposal of spent nuclear fuel under the Nuclear
Waste Policy Act of 1982.” While Nextera concedes that fees paid to the DOE for the permanent
disposal of waste are not decommissioning costs under the Regulation, Nextera argues that this
exclusion should only be read as to Regulation 1.468A-1. Nextera’s position, then, is that while
the earlier portions of the Regulation may be used to define decommissioning for the purposes of
Section 172(f) (even though the Regulation defines terms only for Regulation 1.468A-1), the latter
portion of the Regulation—which excludes permanent waste disposal costs—should not be used to
define decommissioning for Section 172(f). Nextera cannot have it both ways. Either the
Regulation is useful for interpreting Section 172(f) or it is not.
The inherent conflict in Nextera’s position is recognized by Nextera and, as a result,
Nextera offers a strained rationale as to why the earlier portions of Regulation 1.468A-1 should
apply broadly—to Nextera’s benefit—but the latter portions of Regulation 1.468A-1 should apply
narrowly—and therefore not limit Nextera’s claims. Nextera’s argument is based upon the
purpose of the Regulation and it is this topic which forms the basis for another of Defendant’s
grounds in opposition to Nextera’s position. With respect to purpose, the parties’ dispute focuses
on the underlying reason for excluding permanent nuclear waste disposal as a decommissioning
cost but allowing temporary or interim waste storage as decommissioning costs prior to transfer of

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the waste to the DOE. Nextera argues that there is no logical reason for treating these two
situations differently. Defendant argues there is.
Defendant argues the reason for treating the costs differently is because of the statutory
separation of responsibility for nuclear waste disposal. Before spent fuel is transferred to the
DOE’s control, the costs and responsibility for storing the waste falls to the nuclear power
companies—Nextera. Conversely, once the fuel is transferred to the DOE, the responsibility for
the disposal of the fuel and the inherent accompanying costs are borne by the DOE. 42 U.S.C. §
10131(a)(4). Once the fuel is transferred, Nextera’s obligation is not to permanently dispose of the
fuel, but to pay fees to the DOE. Id. Defendant has offered a cogent, persuasive reason, supported
by authority, why the tax treatment for temporary waste storage and permanent waste storage are
treated differently under the Code. Nextera’s argument on this point, which focuses on the
underlying purpose of Regulation 1.468A-1, does not meet the burden placed on Nextera. A
deduction is a matter of “legislative grace” and Nextera bears the burden of proving an entitlement
to a deduction. INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 94 (1992). The plain text of Regulation
1.468A-1 does not apply to Section 172(f) and, even if the Regulation applies, the terms of the
Regulation refute Nextera’s position. Deductions “are strictly construed” and allowed only when
there is a clear provision in support of the deduction. New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934). Nextera has not shown that there is a “clear provision” in the Regulation that
supports its position.
3. Nextera’s Citation to Private Letter Rulings
Nextera cites to private letter rulings from the Internal Revenue Service in support of its
interpretation of Section 172(f). A private letter ruling may not be cited as precedent, Treas. Reg.

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301.6110-7(b), and, as a result, this Court has not considered any private letter ruling. See also 27
U.S.C. § 6110(k)(3) (“[A] written determination may not be used or cited as precedent.”).
Although Nextera cites to a narrow exception in which a court may consider a private letter ruling,
Rowan Companies, Inc. v. United States, 452 U.S. 247, 261 n.17 (1981), cases such as Rowan
stand for the limited proposition that a private letter ruling may be recognized as evidence of an
administrative practice. For example, in Rowan, the Court recognized that private letter rulings
indicated that the IRS had not been “dormant” in a particular area of the law. Conversely, here,
Nextera does not proffer the private letter rulings as evidence of administrative practice, but rather
as substantive precedent which this Court should consider in interpreting an undefined term in
Section 172(f). Thus, Nextera’s citation to private letter rulings in this case is improper.
In conclusion, the Court again notes the heavy burden placed on Nextera. The Court
concludes that Nextera is not entitled to a deduction under Section 172(f) for three reasons. First,
to the extent this Court must interpret the ordinary meaning of “decommissioning” a “unit” of a
nuclear power plant, the Court concludes that Nextera has not met its burden to establish that the
ordinary meaning of those terms encompasses the permanent disposal of spent nuclear fuel.
Second, to the extent this Court may interpret Section 172(f) in light of Regulation
1.468A-1—which by its own terms does not apply to Section 172(f)—the terms of the Regulation
directly refute Nextera’s position. Regulation 1.468A-1 expressly excludes from the definition of
nuclear decommissioning costs the expenses a plant accrues in connection with permanent fuel
disposal. As a result, Nextera has not met its burden to establish that permanent nuclear waste
disposal costs as defined under Regulation 1.468A-1 entitle it to a deduction under Section 172(f).
Third and finally, to the extent Nextera argues there is no logical reason for the tax code to treat

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temporary storage and permanent disposal differently, the Court disagrees.

For all of the

foregoing reasons, Defendant is entitled to summary judgment as to each of Nextera’s claims.
B. Nextera’s Duties Under Federal Law
Defendant argues that it is entitled to summary judgment on another ground with respect to
Section 172(f). For decommissioning costs to apply under that section, Nextera’s costs must have
been incurred “in satisfaction of a liability under a Federal or State law.” Defendant argues that the
costs at issue here are required under a law that imposes an obligation on Nextera to pay fees—not
a law that imposes an obligation on Nextera to decommission units of a nuclear power plant. In
other words, Defendant argues that even assuming arguendo that the permanent disposal of
nuclear waste equates to decommissioning, the act of decommissioning is mandated by law only as
to the DOE. By contrast, Defendant argues, Nextera is responsible for the payment of fees to the
DOE, not for the disposal of nuclear waste. Nextera’s response is to argue that its payment of fees
to the DOE is for the DOE’s disposal costs, pursuant to statute, and therefore Nextera’s fees to the
DOE should qualify as decommissioning costs paid in compliance with federal law.
Nextera’s obligation to pay fees to the DOE originates under the Nuclear Waste Policy Act.
The Act states that “while the Federal Government has the responsibility to provide for the
permanent disposal of high-level radioactive waste and such spent nuclear fuel . . . the costs of
such disposal should be the responsibility of the generators and owners of such waste and spent
fuel.” 42 U.S.C. § 10131(a)(4). The purpose of the Act was “to establish a Nuclear Waste Fund,
composed of payments made by the generators and owners of such waste and spent fuel, that will
ensure that the costs of carrying out activities relating to the disposal of such waste and spent fuel
will be borne by the persons responsible for generating such waste and spent fuel.” 42 U.S.C. §

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10131(b)(4). The costs that plant operators must pay to the DOE are based upon the amount of
electricity that was generated in the preceding three months. See 10 C.F.R. § 961.11; DE 58,
Exhibits 1-6. Thus, federal law delineates two separate responsibilities: the DOE must dispose of
nuclear waste and plant owners must pay fees to the DOE. Plant owners’ fees are not directly tied
to the demands and operational costs of the DOE, but instead are tied to the amount of energy that
each individual plant produces. Id. Thus, the only act that federal law compels Nextera to
undertake is that of the payment of fees for the production of energy—not the decommissioning of
nuclear waste. With respect to Nextera’s argument that the nuclear waste disposal costs of the
DOE are essentially passed on to Nextera by statute, the Nuclear Waste Policy Act does clearly
state that the costs for disposal should be the responsibility of plant owners. On this point,
however, case law is instructive.
In Major Paint Company v. United States, 334 F.3d 1042 (Fed. Cir. 2003), a taxpayer
argued that it was entitled to a deduction under Section 172(f) for costs undertaken in satisfaction
of federal law by citing to the bankruptcy code. In Major, the taxpayer filed for bankruptcy and, in
the course of bankruptcy proceedings, the taxpayer employed various professionals. Id. at 1044.
The taxpayer argued that its costs for the hiring of those professionals were incurred because of
requirements imposed by the bankruptcy code and, as a result, those costs were required by federal
law. See id. The Major court, after surveying case law on the topic, concluded that two principles
had arisen from case law. Id. at 1046. First, that “‘arising out of federal law’ means more than just
that the liability was incurred with respect to an obligation under a federal law” and second that
“the nature and amount of the liability must be traced to a specific law and cannot be the result of

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choices made by the taxpayer.” Id. The principle case relied upon by the Major court, Sealy
Corporation v. Commissioner, 171 F.3d 655 (9th Cir. 1999), reached the same conclusion.
Here, Nextera’s obligation to pay fees to the DOE is not directly traceable (as the Major
court required) to any specific act of nuclear waste disposal. See 10 C.F.R. 961.11; DE 58,
Exhibits 1-6. The DOE does not submit an invoice to Nextera for the costs it incurs in connection
with the disposal of Nextera’s waste. Id. Instead, Nextera’s payments to the DOE are directly
traced to Nextera’s own production of energy. Id. Hypothetically speaking,6 if a random accident
or some other unforeseen circumstance increased the costs of nuclear waste disposal, the costs of
such would not be directly passed on to Nextera. Id. Stated another way, the uncertainty of
day-to-day operations in nuclear waste disposal are not directly passed on to Nextera. Indeed,
record evidence suggests that in any given tax year only a portion of the DOE’s costs for nuclear
waste disposal are passed on to plant owners through quarterly fees because the DOE’s funds for
nuclear waste disposal includes funds derived from interest on reserves, one-time fees, and nuclear
waste disposal appropriations by Congress. DE 63-6 at 18. Thus, the instant case concerns two
separate legal obligations. The first legal obligation is upon the DOE—it must permanently
dispose of nuclear waste. Id. The second legal obligation is upon Nextera—it must pay fees to the
DOE that are variable and based upon Nextera’s production of energy. Case law supports this
distinction in the context of Section 172.
For example, a case in which a taxpayer was found to have incurred deductible costs
pursuant to an obligation imposed by federal law is Host Marriott Corporation v. United States,

6 The Court’s use of hypotheticals and discussion on DOE fees is not intended to describe, with precision, how the
DOE nuclear waste program is administered—the Court is not an expert on such matters—but is instead for the limited
purpose of demonstrating that the DOE’s obligations and Nextera’s obligations, pursuant to federal law, are not the
same.

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267 F.3d 363 (4th Cir. 2001). In Marriott, the appellate court permitted a Section 172 deduction
for interest payments that had accrued on tax deficiencies because the amount of the interest was
fixed by statute and was not under any sort of control or discretion by the taxpayer. See id. at 365.
The clear and unequivocal statutory duty to pay a fixed amount of interest on an outstanding tax
debt stands in stark contrast to the two separate obligations implicated in the instant case.
Turning back to an analysis of the instant case under Major, Nextera’s fees to the DOE are
based upon a “choice” of Nextera. If Nextera chooses to produce more or less energy, its fees are
tied to that choice. Hypothetically, if technological advancement allowed for Nextera to produce
more energy with the same amount of nuclear waste byproduct, Nextera’s fees to the DOE would
increase even though its nuclear waste disposal costs would stay the same. Conversely, if
Nextera’s nuclear waste disposal needs were to increase, but Nextera’s production of energy did
not increase, Nextera’s payments to the DOE would stay the same notwithstanding the rising cost
of nuclear waste disposal.

These hypotheticals, like the hypotheticals above, demonstrate

differences between Nextera’s legal obligation to pay fees and the DOE’s legal obligation to
dispose of waste—a difference further complicated by Nextera’s unilateral choice, to an extent, as
to the manner and amount of its production of energy. By contrast, the taxpayer in Marriott had no
unilateral choice over the amount of its costs—interest accrued on its outstanding tax debt
independent of any of the taxpayer’s actions.
Although the Court does not doubt that at least a portion of the DOE’s nuclear waste
disposal costs will ultimately, invariably, bear some relationship to the level of Nextera’s
production of energy over time, this relationship does not mean that Nextera’s obligation to pay
fees based upon energy production and the DOE’s obligation to dispose of waste are exactly the

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same. Similarly, the Court does not doubt that unforeseen costs encountered by the DOE in
nuclear waste disposal would ultimately, invariably, bear some relationship to the amount of fees
the DOE collects from Nextera, 8 but this too does not mean that the DOE’s obligation and
Nextera’s obligation are the same. The scope of the DOE’s use of fees is broad, as conceded by
Nextera. See DE 56-1 at 14-15. DOE fees are used by the DOE in connection with its anticipation
of indefinite future storage costs of nuclear waste and, moreover, DOE fees are used and collected
for the uncertain future storage cost of all nuclear waste in the United States—even waste that was
produced by power plants no longer in operation (or will cease to operate in the future). Stated
succinctly, the scope of the use of DOE fees is broad—broader than any power plant’s individual
nuclear waste disposal costs. Because of this broad scope and the manner in which DOE fees are
determined (energy production), it is unsurprising to this Court that some federal regulations
classify DOE fees as an operational cost and not a decommissioning cost. Fed. Reg. 24,018 (June
27, 1988) (“Decommissioning activities do not include the removal and disposal of spent fuel
which is considered to be an operational activity.”).
Ultimately, this Court need not determine how closely Nextera’s DOE fees approximate
Nextera’s nuclear waste disposal costs. Rather, the Court need only decide whether Nextera has
met its burden to establish that its legal obligation to pay DOE fees is equivalent to Nextera
performing the act of nuclear waste disposal. Nextera has not met this burden. Nextera has not
clearly shown that the DOE’s obligation to dispose of waste and Nextera’s obligation to pay fees is
so equivalent that Nextera may claim as a deduction an act for which the responsibility is expressly
placed by law upon a governmental entity. Nextera’s argument that the DOE’s disposal costs are

8 Over time, the pull and tug of collected fees compared to actual disposal costs would resemble, perhaps, a flattened
sine wave function.

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essentially passed on to Nextera could have easily been brought in Major. The taxpayer in Major
could well have argued that the costs of compliance with the bankruptcy code were “the
responsibility” or “would be borne” by the taxpayer under federal law (the bankruptcy court even
determined the amount of those costs). Alternatively, the taxpayer in Major could have pointed
out that its payment of professional fees, ultimately required by provisions in the bankruptcy code,
provided a funding mechanism so that the bankruptcy code could function as intended. But the
Major court required more—the costs had to be traced to a specific law and the costs could not
result from a choice made by the taxpayer. Major, 334 F.3d at 1046. Neither requirement applies
here. There is no direct relationship between the DOE’s actions and Nextera’s payments to the
DOE and Nextera does have, to an extent, a unilateral choice over the amount of fees it pays to the
DOE. The act giving rise to Nextera’s liability to the DOE is not the DOE’s disposal of nuclear
waste, but instead Nextera’s prior production of energy. See Seely Corp. v. Comm’r, 171 F.3d 655,
657-58 (9th Cir. 1999).
In conclusion, assuming arguendo that the DOE’s nuclear waste disposal equates to
decommissioning under Section 172(f), Nextera has not met its burden to clearly establish it is
entitled to a deduction under Section 172(f) because its payment of fees to the DOE allows for it to
claim, in the DOE’s stead, the act of nuclear waste disposal. Federal law requires the DOE to
dispose of nuclear waste and Nextera to pay fees to the DOE, but Nextera is not seeking a
deduction under Section 172(f) because it is required to pay fees—it is seeking a deduction
because it equates its obligation to pay fees with the DOE’s legal obligation to dispose of waste.
The Court concludes for all of the foregoing reasons that (i) the DOE’s legal obligation is not the
same as Nextera’s legal obligation; (ii) Nextera’s fees to the DOE are not directly traced to the

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DOE’s actual nuclear waste disposal costs; and instead (iii) Nextera’s fees are tied to a unilateral
choice of Nextera—the choice to produce energy in certain amounts. Defendant is, therefore,
entitled to summary judgment as to each of Nextera’s claims on this basis.
C. Other Arguments Raised by the Parties
Nextera and Defendant dispute (i) when Nextera’s right to a carryback deduction would
have accrued and (ii) how far back in time Nextera’s carryback deduction could go. Given that the
Court has already ruled that Nextera is not entitled to a deduction under Section 172(f), the Court
declines to address when a deduction would have accrued, to what extent that deduction could
have been utilized, and all other remaining arguments raised by the parties.
IV.

CONCLUSION

It is therefore ORDERED AND ADJUDGED that:
1. Defendant’s Motion for Summary Judgment [DE 57] is GRANTED on the grounds
specified in this Order and summary judgment is entered in Defendant’s favor as to
each of Nextera’s claims.
2. Nextera’s Motion for Partial Summary Judgment [DE 56] is DENIED.
3. All other pending motions are DENIED AS MOOT.
4. The Clerk of the Court shall CLOSE THIS CASE.
DONE and ORDERED in Chambers, Fort Pierce, Florida, this 22nd day of March, 2017.

________________________________
ROBIN L. ROSENBERG
UNITED STATES DISTRICT JUDGE

Copies furnished to Counsel of Record

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