Florida Power & Light’s Turkey Point nuclear power plant

The U.S. Court of Appeals for the Eleventh Circuit said no to NextEra Energy Inc. on a claim for a $97 million tax deduction for $200 million the company paid in contract fees to the federal government’s Nuclear Waste Fund.

“NextEra makes its claims for a tax refund based on the tax code’s treatment of net operating losses. A net operating loss exists whenever a taxpayer has more available deductions in a given year than the taxpayer is allowed to take,” Judge Beverly Martin wrote in an opinion Thursday, joined by Eleventh Circuit Judge Julie Carnes and Sixth Circuit Judge Ronald Lee Gilman, sitting by designation.

Martin explained that the tax code allows a taxpayer to “carryover” extra deductions to a future tax year, or to “carryback” the deductions to a previous tax year.

“Ordinarily a carryback is limited to the two tax years preceding the year of the net operating loss,” Martin said. “But certain types of net operating losses are allowed a longer carryback period.”

The fees NextEra sought to deduct were paid between 2003 and 2010 for the disposal of radioactive waste produced by nuclear power plants operated by subsidiaries Florida Power & Light Co. and NextEra Energy Resources. Two of the plants are in Florida. The others are in Iowa, New Hampshire and Wisconsin.

Martin upheld Southern District of Florida Judge Robin Rosenberg in denying the deduction on the basis that the fees “do not qualify as specified liability losses.” The court reasoned that upon payment of the fees, the federal government takes on the responsibility for disposing of spent nuclear fuel, which “will remain dangerous for time spans seemingly beyond human comprehension.”

David Salmons of Morgan Lewis & Bockius in Washington argued the case for NextEra. Ivan Clay Dale, chief of the appellate section tax division of the U.S. Department of Justice in Washington, argued for the government. The lawyers could not be reached immediately for comment. Besides explaining tax code, Martin’s opinion gives a vivid description of what goes on inside nuclear reactors—generally powered by hundreds of “fuel assemblies” that contain rods of enriched uranium.

“In the core of the reactor, these rods undergo a sustained nuclear fission reaction. This fission reaction produces heat, which creates steam to rotate turbines. The rotation of the turbines generates electricity. Over time, fuel assemblies become less efficient in producing energy, so they need to be replaced,” Martin said. “Used fuel assemblies continue to emit dangerous radiation for thousands of years. Spent nuclear fuel can be stored on-site for years, but ultimately needs to be transferred to a permanent storage site.”

The case is NextEra v. U.S.A., No. 17-12304.