best to enforce it and so with that we'll get underway with the first case next era energy versus the united states of america good morning thank you and good morning your honour's i'm david salomon's on behalf of the appellate next era energy this case concerns the tax treatment of the new fees that nuclear power plant operators are required to pay to the department of energy under the nuclear waste policy act or in w p a for the permanent disposal of the most radioactive material produced during operations of their plants namely their spent nuclear fuel and high level radioactive waste this court addressed the end w p a and its decision in the alabama power case and it held that the act imposes a legal liability on operators to fund the full cost of that disposal and that this liability is satisfied when the operator pays the fees mandated under the standard contract now the tax treatment without case was really about an amendment and the p a contract whatnot i mean that was that was not about this subject matter it was not about the tax treatment of the fees your honor it was about the expenditures that the government were allowed to make out of the nuclear waste fund funded by those fees but in the course of the court's decision it said a few things regarding the in w p a and how it works that we submit shows some of the errors that were committed below and the problems with the government's arguments and i would just point to a couple of things first the court in alabama power  atomic energy act and it said that under that arrangement each utility roughly pays the cost of disposing of its waste and no more using kilowatt hours as a proxy for waste production so that what we do think that alabama power makes clear is that the fees that are at issue in this case are for the permanent disposal of spent nuclear fuel and high level waste it's not for the generation of electricity and that was one of the errors we submit was made by the court below it characterized these fees as being unrelated to the permanent disposal and decommissioning of fuel and instead was just based on the generation of electricity that's incorrect under this court's decision under the d c circuit's decision in two thousand  the production of electricity right it is the mechanism for calculating the fees when they're paid but since two thousand and thirteen because of the decision of the d c circuit using the same reasoning that the fees are about the permanent disposal costs not about the generation of electricity there's been no fees collected under the act you know this deduction though is all based on the decommissioning of the nuclear power plant that's correct decommissioning is not the fi in section one seventy two f is that it is not specifically defined i haven't had the common sense meaning of decommissioning means to take out a service now where any of these power plants in question take being taken out of service well no all of the power plants that issue are still in operation your honor but that is not how decommissioning costs are defined and in fact all of it i think both sides here agree that the meaning of decommission the best place to look is in section fifty point two of the n r c regulations which defines the decommissioning nuclear power plant is to root remove all of the radioactive material so that it duty to decommission a nuclear power plant is is imposed through the licensing process under the atomic energy act and the amendments to the atomic energy in other words in order to obtain a license to construct an operator nuclear power plant in express condition on that license of term of that license imposed by law required by law is that you undertake the liability to remove and safely dispose of all of the radioactive material before that license can be terminated under your definition the day you open your your in the decommissioned process because you're you're producing this way well that you're on of the day the plant begins operations you have incurred the full  legal liability to cover all costs related to the removal of radioactive material that will take place over time and when those costs can be deductible may depend on other events but the legal liability to fully decommission to to remove and dispose properly of all of the radioactive material arises from the moment the plant operates that's why congress and one seventy two f has a special carry back provision for nuclear decommissioning expenses that allows the carry back not just for ten years but to the first year of plan operations and ask you about one seventy two it's my understanding that in twenty seventeen that provision was removed from the task that's correct there are no longer carry backs under one seventy two and not just for decommissioning but generally speaking but that that doesn't affect it does not affect this case or are the was there any question whether these days were not that not well not that i'm aware of although i would just point out that it's not i don't think that's unusual another words i think what happened is that generally speaking nuclear power plants do not have significant net operating losses so it's not just the payment of the fees that triggers the right to carry back it's having significant not operating losses that need to be carried back and most utilities don't experience year to year net operating losses in that magnitude what was unusual here were some of the circumstances that next era found itself in with hurricanes in florida and other things that created significant net operating losses that allowed it for the to make this argument and to and to apply the carry back but to the point about the fact that the plans are still operating i think it's important to realize that the treasury's own regulations under the four sixty eight a fund which is that decommissioning fund qualified trust fund that could be used to fund future decommissioning expenses expressly defines decommission expenses in a way so that they can be incurred whether or not the plant is still generating electricity and the storage costs that are at issue it specifically includes the construction and maintenance and ultimate decommissioning of the independent storage facilities that are used to store spent fuel the government agrees and concedes that that is decommissioning expenses that are subject to the carry back under one seventy two i v that regulations as the term does not include expenses to be in carney connection with  disposal of spent nuclear fuel under the nuclear waste policy act that's right your honor and so let me be clear the first point i was making is that it defined decommissioning not to be defined not not to be governed by whether the plant is operating or not if it's radioactive material that eventually has to be removed you can remove it during plan operations it is still a decommissioning expense eligible for the carry back and that you can use decommissioning funds for four sixty a day is this fund for future  the regulation carves out the fees under the in w p a but but there's there's a reason for that that's because these fees are paid on a quarterly basis you don't need to set aside funds in a savings account for future decommissioning expenses the real question we're got with regard to that your honor is whether the plain terms of section one hundred two f are broader than the terms of four sixty eight and those regulations and we think the answer is clear that they are if you look at one seventy two f it refers to any amount allowable as a deduction under this chapter as long as it's a law requiring decommissioning you know i understand you've got a couple of other hurdles you even if we agreed with you this these this was a decommissioning expense you first have to show that it's something under state or federal law and the judge below ruled against you on that right will that that's the ruling your honor that we submit is directly inconsistent with this court's decision and then you've got a third hurdle which i guess the district court didn't reach this three year the act giving rise to the laws has to be more than the least three years before the beginning of the taxable year do you have a problem with that well we think we readily comply with that your honor in fact the keep in mind that what one seventy two f does is it creates a carry back where the there's at least a three year period between the act giving rise to the liability and the other of instead of intially allow special rule for nuclear power plant after three yes and that talks about just you know it could be is ending in the taxable year proceeding the last year how does that jive with the three year rule i gather you're not able to use that one year no your honor what what that part of the ac is that rather than just the ten year period of the carry back there's a special carry back period for nuclear power plants that allows it to be carried back i'll be waiting with him beginning with the first year the plants in operation ending with the tax we're proceeding the law so that's a finds the for the for the getting in the end of the put the carry back of the carry back but it doesn't overlap with the three year act no the requirement of for the three year is that the act giving rise to the liability occur at least three years before the expenses deducted the avner if we decide the act is the generation of electricity and is only goes and is only for the prior quarter then you're out of luck it's only if we agree with you that it goes back to the when the plant began operations well but i think your honor that if you were to hold that the act that creates liability is the generation of electricity you would be inconsistent with alabama power which shows that important to honor because it's the same reasoning that this court applied in alabama power it's not about the generation of electricity that's how it gets allocated what this court said in alabama power was that that was a proxy for waste production the legal liability for these fees incurs at the time that the plant begins operations that's why the in w p a m into the atomic energy acts licensing and safety provisions to expressively require that before you can even begin operations at a plant you have to have show proof that you've entered into one of these standard contracts and you have taken upon yourself the legal liability to fund the full cost of the disposal of your fees through the mechanism of the in w a contract fees but the like legal liability is for the permanent disposal of your spent fuel and high level waste  good morning good morning may please court my name is ivan dale on behalf of the united states so i'd like to start by giving you five reasons briefly why the district correct court was correct to hold that the quarterly payment of fees of the art of energy throughout the operation of next terrorist plants cannot be carried back up to forty years to offset income in those years i'll address them briefly in order and then discuss them more in more detail as t minutes so the first is that in order for these fees to be carried back they have to arrive pursuant to a federal law requiring decommissioning well the nuclear waste power policy act does not require decommissioning it doesn't say anything about decommissioning it's in chapter one hundred eight of title forty two and and only establishes a federal policy for that the department of energy will be responsible for clean up waste that builds up during operations and when you have asked council what the law was requiring decommissioning you did say the nuclear waste policy act said the atomic energy well the atomic energy act is in chapter twenty three of title forty two it's an entirely different section of title forty two none of its provisions were amended by the  inclusion in title forty two is enough then we don't have a then basically any regulation of nuclear power plants that imposes a liability and that liability automatically becomes a liability under a law requiring decommissioning so there's really no out outer balance to to that argument the second reason why the district court was correct is that the fees themselves are not properly characterize as decommissioning costs they are operational costs and i'll come back to that but as support for that is the third reason why the district court was correct which is that both s and nuclear regulatory commission regulations specifically state that these fees are not decommissioning costs in fact the i or c regulations state that the term decommissioning cost does not licensed activities decommissioning activities do not include the removal of disposal of spent fuel which is considered to be an operational activity you know a sort of inconsistent with that though is the code for six four a talks about the independent spent fuel storage installation is clearly a decommissioning cost per that regulation and obviously that's taking effect while the plants in operation it didn't dependent on shutting it  storage of the the independent spent fuel storage installation so that i asked at that size so the construction of those i s f s i's was necessary in order to decommission in other words seemingly indefinitely it has been since about two thousand and nine at least so so the you know the department of three has you know nowhere to take this stuff so as a result in order to decommission a power plant now what you have to do is build one of these temporary dry storage facilities in put the fuel in there intil in you know it's got to be a secure facility it's got to be housed in a certain way and it's got to be monitored so that that radioactive material doesn't get out so that that process is now properly characterized as a decommission activity because it's necessary for us to to shut down the plant what's interesting about that is that you can decommission a plant without permanently storing the nuclear waste in in yucca mountain or anyplace else you just have to have one of these housing temporary housing facilities and you can decommission the plant that way you can contract you know that housing facility can be on site it can be offsite so it's not true as a factual matter that permit disposal of position on the three year rule yes so so the three year old i mean our position is that you know this expanse which occurs on day one doesn't satisfy the three year rule and the reason why i is the act that gives rise to the liability is the generation of electricity yes they sign a contract that says they will pay fees based on the generation of electricity and that  d that that feed and that and that contract is entered into at the beginning of the license but there's no actual law to pay until unless you generate electricity in fact there are cases in which i think the state of new jersey case cited by the hauen is a case in which the facility itself never started generating electricity all of it only got into the testing phase so they still had to decommission at that point but they never paid any department any fees the department and energy because they did not produce electricity out of the planned what's the effect of no law since two thousand and thirteen or ever the nobody's paying these does that affect the three year rule well it no it doesn't affect the three year old i mean it means that  it means that you know that in combined with the fact that that congress at the end of two thousand and seventeen eliminated the carry about provision entirely it means that this case doesn't have a lot of wide application but it doesn't really interplay with the three year old as i understand it so i do want to address the three year old because i think the three year olds is kind of where it's at it makes the most sense to me which is that the whole idea behind this provision is you know all these tax provisions were enacted together and they were an act in the one nine hundred eighty four and they wanted to address a particular issue related to  something that comes up when you're on an cruel basis of accounting so what that means is your liabilities are income when they're owed to you and their expenses when you owe them to somebody else whether or not you know they're actually pay so you know congress was concerned in back in one thousand nine hundred four interest rates were pretty high so congress was concerned that well you know that something was happening there that wasn't taking into account the time value of money so if you if you were owed an expense otoh obligation that he ended up not paying well you got the deduction in the year in which he owed it but then you know you paid it back in the year in which you did know it so you got the benefit you got a windfall as a result so congress said we're going to we're going to do away with that and we're going to say actual economic performance is when you can deduct the obligation so the people impacted by that the most are people who have more expenses that large obligations that they incur now where they don't pay or complete until later on and so those large expenditures are the kind of the kinds that are listed in the statute environmental remediation dismantling of a drilling platform and decommissioning of a nuclear power plant you have this ultimate obligation at the end of the life of the nuclear power plant to of which is they allowed you to deduct currently contributions to a trust used to pay those decommissioning liabilities and the second thing they did if you didn't use the trust if you just put away money yourself well then when you paid it at the end you could bring it back and offset it against your income and so the whole idea was matching in expenses what why all of that matters is it doesn't make any sense to offer this unlimited net carry back net operating loss carry back provision for a fee that they could deduct on day one you know they could deduct on day one they could duck duck in the second year in every year of operation they could deduct these fees so there's no there's no sense no sense in having this carry back problem that if if their position if we agreed with their position with this be a double deduction or just a single the auction well so as it stands now you know they've they've already deducted these and carry them forward and carry them back to like the two thousand and two and two thousand and fourteen years what they've done then is attempted to  court basically their argument is well it's not a double deduction because if we win then you guys can assess us based on what we incorrectly deducted the other way know it's sort of a way that you know they don't have anything to lose in this argument it's all upside to them you know they're not really willing to put their chips behind their argument gather there is no case in the country that really deals with the issue we're facing right now there has never been a case that is adopted or even in which a power plant has advanced the argument it bans by the elves in this case it is entirely novel you know part it and you know i think counsel said well that sort of due to the fact that they were unusual circumstances usually you don't sustain these kind of net operating losses you know at this point in time and there's some there's some element of truth to that but you know the fact of the matter is is you know you know if you look to you know the dictionary definition if you look to the definitions provided in i arrest and in r c regulations you know it it's pretty clear that you know decommissioning expenses aren't something that you just pay operationally on day one the way i kind of like to think about it and it's you know not to be glib about it but you know if i'm under a lease and in an apartment i have an obligation at the end of that lease to remove all of the waste from that apartment and and give it to the next less or in clean condition now i might be able to say at the end of my lease you know pay somebody to haul away some of my trash and maybe that's a moving expense well what i can't do is say that all of the fees i paid to them in the municipality from day one of my lease to take away my trash those aren't moves moving expenses those are just expenses as a result of being in a house so by the same token these fees which are just fees that are designed to address the build up of nuclear waste that it occurred as a result of operating not as a result of decommissioning the payment of these fees i difference is diesel fuel is burned it's just gone here you've got a new theatre fuel that is going to be radioactive for thousands of years you can't just say it's gone all right it's true and i think the i think the district court was addressing your particular issue that had been raised by the balance but that has been abandoned on appeal which was that the fuel itself was decommissioned fuel isn't commission and so with that unless the panel has any other questions i thank operating life of the plant the government however never asked what is the federal law that creates the liability for the costs of that interim storage in the answer and the only answer your honor's is the in w p a amendments to the atomic energy act in a does amend the atomic energy act if you look at page three of the statutory and then jump to our opening brief you will see that there are two subsections in ten one three one of the nuclear waste policy act that make clear how the costs liabilities are going to be assigned subsection four imposes the cost of permanent disposal on the owners and generators of spent fuel subsection five imposes the same with regard to interim storage the legal liability under federal law for the costs of interim storage is imposed under the nuclear waste policy acts amendments to the atomic energy act and it is the same federal law that requires the costs of permanent disposal to be assigned to the those owners in generators of waste with regard to decommissioning and terminations of a license with respect to my friend he is simply mistaken you cannot be commission a nuclear power plant release the site for unrestricted use and terminate the license as long as you are storing spent nuclear fuel i would refer the court to  what you can store the fuel without decommissioning the plant no your honor the way it works is that a regional license includes the license to store material and then what in this is set forth in fifty five fed to nine one eight six this is the in our series regulations promulgated under the nuclear waste policy act not just the comic energy act and it says the following when the reactor is put into a condition which it cannot operate the operating a license would be amended to permit the licensee to possess the byproduct source and special nuclear material remaining on the site storage of spent fuel in dry cast under the general license could continue under the amended license which is often called a possession only license and then says decommissioning and this is an a regulation decommissioning means to remove a facility from service reduce the residual radioactivity to a level that permits terminations the license and release the site for under strict use spent fuel stored under a general license must be removed before the site can be released for unrestricted use decommissioned these are decommissioning expenses lastly with regard to the three year  rule i would just point out that virtually every argument my friend made with regard to the application of the three year rule in this context is inconsistent with the fourth circuit's decision and host merit and the tax court's decision in internet and that there is no requirement under one seventy two f that these fees be unusually large or sporadic included within the carry back of one seventy two f r worker's compensation claims and expenses which are similarly