StrategyDriven Editorial Perspective - Believe None of What You Hear

Ever known a politician to renege on a campaign promise, say something misleading or simply just wrong?

So many politicians lie (we don’t mince words here… if our children told such stories we’d punish them for lying) that we accept it as a part of the political game. And members of both parties are guilty as charged. These falsehoods cause harmful uncertainty that can be detrimental to businesses and the economy because they diminish business leaders’ ability to project, strategize, plan, and execute.

Some of these falsehoods can be easily recognized and dealt with reasonably. No one really expected politicians to reveal their back room deals by televising healthcare negotiations on CSPAN. Likewise, we can read a lot of lips but know that bigger government requires higher taxes. FactCheck.com aggressively identifies the factual errors politicians make; helping eliminate the uncertainty of their creative non-fiction.

Other falsehoods are not so easily dealt with. Businesses are hurt and significant uncertainty created when the government willfully breaches a contract. These are not broken campaign promises but legally binding agreements that those in power have decided not to abide by because the provisions have become politically unfavorable. Such breaches of integrity are materially harmful to businesses specifically and the economy and public in general.

Unnecessary Uncertainty in the U.S. Energy Market

Let’s briefly examine one government breach of contract in the clean energy market; a market vital to both national security and the reduction of carbon emissions.

Breach of Contract – National Spent Nuclear Fuel Repository

In 1982, Congress passed the Nuclear Waste Policy Act; making the U.S. Department of Energy (DOE) responsible for siting, building, and operating an underground disposal facility for high level radioactive waste, including the spent nuclear fuel from the nation’s 104 nuclear reactors.¹ In 1987, Congress selected Yucca Mountain as the location where this underground repository would be built. The Yucca Mountain facility was to be constructed and to begin accepting waste by 1998. While nuclear reactor owners faithfully pay their dues to the government in support of the repository, Yucca Mountain is currently little more than an access tunnel bored into the side of a mountain.²

“I will continue to leverage my leadership position to prevent the dump from ever being built.”

Harry Reid
U.S. Senate Majority Leader
Nevada (D)

A 2007 statement on the continued pursuit of the Yucca Mountain project.³

In 2008, the DOE applied for a license to construct the Yucca Mountain repository by 2020, 22 years late.⁴ However, the Obama Administration announced in February 2010 that it would withdraw its application to build the repository. Energy Secretary Steven Chu emphasized that the withdrawal would be ‘with prejudice’ – a legal definition prohibiting resubmission by a post-Obama administration.⁵ Additionally, the Obama administration has announced that it will defund the Yucca Mountain repository project in its 2011 budget submission to Congress.⁶

Impact

Utilities involved have filed a total of 71 breach of contract lawsuits against the Federal Government. DOE estimates the government’s liability at $12.3 billion. Nuclear utilities estimate damages claims will total $50 billion. As of today, 51 of the 71 cases are pending in either the Claims or Federal Circuit Courts, 10 have been settled, 6 were voluntarily withdrawn and 4 have been litigated through a final non-appealable judgment.⁷

…there is, of course, the additional cost of litigation (courts, lawyers, etcetera).

In addition to the cost impacts, five states (Minnesota, West Virginia, Wisconsin, Illinois, and Kentucky) currently prohibit construction of new nuclear plants in part because of a lack of a national spent fuel repository.⁸ This prevents communities in these states from realizing the benefits of the estimated 1400-1800 jobs created during the 4-5 year construction period and 400-700 workers needed to operate and maintain the plant thereafter.⁹ These numbers don’t account for the community services and business jobs created to support these individuals.

…there is, of course, the additional non-carbon emitting power these plants would provide the region.

Regardless of the arguments for and against the suitability of locating the spent nuclear fuel repository at Yucca Mountain, Nevada, this case and the judgments against the Federal Government clearly illustrate a breach of contract that has created significant market uncertainty and damaged businesses.

StrategyDriven Recommended Practices

As the single largest consumer of goods and services within the U.S. economy, it would be virtually impossible, if not undesirable, to avoid doing business with the Federal Government. And even if direct business activity can be avoided, the effects of government interaction with other organizations cannot.

The politics of governing and the willingness of some politicians to renege on their campaign promises and/or government contracts require corporate leaders to take actions protecting their organization from this unnecessary risk. While not intended to be an all inclusive list, StrategyDriven recommends those contracting or subcontracting with government agencies take the following risk mitigation actions:

validate key government project assumptions and facts (timelines, resource availability/capacity, technologies, cost, existing regulatory structures, etcetera)
identify ‘political will’ risk drivers in government project assumptions

adjust risk estimates and associated contingency planning and funding accordingly
verify project popularity with the general public and the likelihood such popularity will be maintained for the term of the project
check for bipartisan project support

establish contingency plans for government project delays and cancellations
review government proposals against the past performance on similar projects
monitor progress on government projects just as you would internal projects

Final Thought…

We used the nuclear power industry example because of the already litigated breach of contract lawsuits clearly supporting our assertion that the federal government does not always fulfill its obligations. Because we don’t believe this example to be either an aberration or the last time such a breach will occur, we encourage the practices presented here to be applied in all dealings with Federal, State, and local governments.

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Sources

“The Nuclear Waste Program,” U.S. Department of Energy, http://www.ocrwm.doe.gov/about/History_Of_The_Nuclear_Waste_Program.shtml
“The Washington Post’s distorted take on Yucca Mountain,” Hugh Gusterson, Bulletin of Atomic Scientists, March 27, 2009, http://www.thebulletin.org/web-edition/columnists/hugh-gusterson/the-washington-posts-distorted-take-yucca-mountain
“Yucca Problems Mount For DOE: Transportation, Costs, Not To Mention Congressional Opposition From Harry Reid,” Johnny Gunn, The Nevada Observer, March 15, 2007, http://www.nevadaobserver.com/Archive/070315/Featurestory%201.htm
“The Washington Post’s distorted take on Yucca Mountain,” Hugh Gusterson, Bulletin of Atomic Scientists, March 27, 2009, http://www.thebulletin.org/web-edition/columnists/hugh-gusterson/the-washington-posts-distorted-take-yucca-mountain
“Yucca Mountain’s death just a few steps away,” Lisa Mascaro and Stephanie Tavares, Las Vegas Sun, February 2, 2010, http://www.lasvegassun.com/news/2010/feb/02/yuccas-death-just-few-steps-away/
“Proposal would eliminate funding for Yucca Mountain,” Steve Tetreault, Las Vegas Review-Journal, February 1, 2010, http://www.lvrj.com/news/proposal-would-eliminate-funding-for-yucca-mountain-83230447.html
“Greenberg Traurig’s Jerry Stouck Discusses Nuclear Fuel Cases,” Wyoming Trial Lawyers Association, September 25, 2009, http://wtlachannel.squarespace.com/the-wtla-blog-page/2009/9/25/greenberg-traurigs-jerry-stouck-discusses-nuclear-fuel-cases.html
“Another Major Setback for “Nuclear Renaissance”: Industry Goes 0-6 in 2009 Efforts to Overturn State Bans on New Nuclear Reactors.,” Leslie Anderson, Nuclear Information and Resource Service, August 27, 2009, http://www.nirs.org/press/08-27-2009/1
“Testimony for the Record [to the U.S. Senate Committee on Energy and Natural Resources],” Carol L. Berrigan, Director, Industry Infrastructure, Nuclear Energy Institute, November 6, 2007, http://energy.senate.gov/public/_files/CBerriganTestimony110607.pdf