ML18005A948
| ML18005A948 | |
| Person / Time | |
|---|---|
| Site: | Harris  |
| Issue date: | 06/15/1989 |
| From: | Avery G CADWALADER, WICKERSHAM & TAFT, CAROLINA POWER & LIGHT CO. |
| To: | Murley T Office of Nuclear Reactor Regulation |
| References | |
| RTR-NUREG-0970, RTR-NUREG-970 NUDOCS 8906230004 | |
| Download: ML18005A948 (46) | |
Text
D]STPJBUTI ON DEMONSTRATION SYSTEM i
REGULATC INFORMATION DISTRIBUTION+'STEM (RIDE)
'CCESSION NBR:8906230004 DOC.DATE: 89/06/15 NOTARIZED:
NO DOCKET FACIL:50-400 Shearon Harris Nuclear Power Plant, Unit 1, Carolina 05000400 AUTH.NAME AUTHOR AFFIZ IATION AVERYFG A Carolina Power 6 Light Co.
AVERY,G.A.
Cadwalader, Wickersham
& Taft RECZP.NAME
'ECIPIENT AFFILIATION MURLEY,T.E.
Office of Nuclear Reactor Regulation, Director (Post 870411
SUBJECT:
Responds to 890505 request for commencement of informal complaint procedure,per NUREG-0970,Section 5.3.2.
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TCLI (213) 887 R400 FAX: (R)3) 887 2444 XCROXI (20R) 387 1417 TWXI 710 822 )934 FAX: (202) 293 8290 G. A. Avery (202) 862-2365 June 15, 1989 Dr. Thomas E. Murley Director, Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission 11555 Rockville Pike, 12th Floor Rockville, Maryland 20852 Re:
Shearon Harris Nuclear Power Plant, Request for Commencement of Informal Complaint Procedures Under Section 5.3.2, NUREG-0970
Dear Dr. Murley:
This letter, on behalf of Carolina Power Light Company
("CP&L"), responds to the "Request for Commencement of Informal Complaint Procedure under Section 5.3.2, NUREG-0970"
("Complaint" ) submitted by North Carolina Eastern Municipal Power Agency
("Power Agency" ) in a letter dated May 5, 1989.
Power Agency claims that CP&L is obstructing Power Agency from using certain resources it wants to purchase from South Carolina Public Service Authority ("Santee Cooper" ).
This charge, which Power Agency now has made in five separate proceedings in four different. forums, is without merit.
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Dr. Thomas E. Murley June 15, 1989 Page 2
- Here, Power Agency argues that CPGL's interpretation of the 1981 Power Coordination Agreement (1981 PCA) violates the antitrust conditions contained in License No.
NPF-53, the Facility Operating License for the Shearon Harris Nuclear Power Plant, Unit No.
1.
But implementation of the antitrust commit-
- ments, by their own
- terms, must.
be "on reasonable terms and conditions as consistent with the Federal Power Act and all other lawful regulation and authority.
Commitment 6.
As discussed
- below, Power Agency is now asking the Nuclear Regulatory Commission
("NRC") to enforce the commitments in a
manner inconsistent with Federal Energy Regulatory Commission
("FERC") action on this same matter taken pursuant to FERC's authority under the Federal Power Act.
This would be contrary to Commitment 6,
which governs implementation of these license conditions.
Accordingly, Power Agency's Complaint should be dismissed.
A.
FACTUAL BACKGROUND The dispute concerning the use of Santee Cooper power involves the interpretation of certain provisions of the 1981 Power Coordination Agreement (1981 PCA) between CPGL and Power Agency.
The 1981 PCA and two related agreements between CP&L and Power Agency, the Purchase, Construction and Ownership Agreement (the "Sales Agreement" )
and the Operating and Fuel Agreement (the
Dr. Thomas E. Murley June 15, 1989 Page 3
"Operating Agreement" ) (collectively the "1981 Agreements" ) were concluded after two and one-half years of intensive negotiation which involved substantial give and take on both sides.
Each party gained certain favorable terms by compromising in the negotiation process on terms sought by the other side.
The contracts ultimately agreed to by Power Agency and CPGL allocate the economic and system planning benefits of the transaction to both parties in a mutually acceptable manner.
CPGL filed the r
1981 PCA with the Federal Energy Regulatory Commission on October 7,
1981 and the Commission accepted it for filing on October 30, 1981.
Through CPGL's willingness to enter into the 1981 Agreements, Power Agency obtained the generating resources to serve its load through a combination of Retained Capacity'nd energy entitlement from units jointly owned with CPGL, together with associated backstand from CPGL for that. Retained Capacity and energy entitlement, and Supplemental Capacity and Energy Retained Capacity is defined in Article 5 of the 1981 PCA as the capacity to which Power Agency is entitled from generation facilities it, jointly owns with CPSL (the "Joint Units").
Power Agency's Retained Capacity in the Joint Units corresponds to the percentage of ownership interest Power Agency has in each of the Joint Units, less the Purchased Capacity sold back to CPGL.
Supplemental Capacity is defined in Articles 6 and 8 of the 1981 PCA as the capacity that is required by Power Agency to meet the combined demand of its participants that is in excess of Retained Capacity.
Dr. Thomas E. Murley June 15, 1989 Page 4
purchased from CPGL.
The 1981 PCA also provides the process for Power Agency's acquisition of additional firm resources, defined as "New Resources,"3 which may be used to reduce Power Agency's Supplemental Capacity and Energy purchases from CFOUL.
Power Agency has given CPGL notice that it intends to acquire a
New Resource from Santee Cooper for
- 1994, 1995 and 1996.
The 1981 PCA requires Power Agency first to provide this
- notice, and then to begin negotiations with CP&L for a
power coordination agreement for that noticed New Resource.
1981 PCA 5 6.1.
CPGL repeatedly has attempted to negotiate with Power Agency concerning the noticed New Resource.
- However, Power Agency apparently wishes to utilize other resources through arrangements with Santee
- Cooper, including non-firm and firm resources for which it has not given the required notice.
Power Agency has taken the position that these other arrangements can be treated as a
New Resource as defined in the 1981 PCA.
These other resources to be provided by Santee
- Cooper, however, do not qualify as New Resources under Section 6.1(C) of the 1981 PCA.
Moreover, with respect to those resources that do qualify as noticed New Resources under the 1981
- PCA, Power Agency is proposing to account for the energy from the New Resources is defined in Section 1.61 of the 1981
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Dr. Thomas E. Murley June 15, 1989 Page 5
New Resource in ways not permitted by the 1981
- PCA, thus undermining the basic economics of the 1981 Agreements.
Because Power Agency's proposals contradict specific provisions in the 1981
- PCA, CPGL is not required to enter into the new power coordination agreement containing the provisions that Power Agency proposed.
In its Complaint, Power Agency misstates CP&L's position with respect to use of these various resources.
Power Agency claims that
. the linchpin of CPGL's position is utility exchange services that are available to Power Agency from the Santee Cooper resource."
Complaint at, 3
(emphasis in original).
On the contrary, CPGL repeatedly has informed Power
~
Agency of its willingness to negotiate not only a
power coordination agreement for qualifying New Resources, but also an interconnection agreement for other resources and even amendments to the 1981 PCA itself in an effort to accommodate Power Agency.
CPGL thus has attempted to negotiate with Power Agency concerning its use of all the generating resources it obtains from Santee Cooper.
- However, Power Agency has insisted that it will not negotiate on any basis other than,its own assertion that it is entitled to all the arrangements it seeks under the 1981 PCA.
Dr. Thomas E. Murley June 15, 1989 Page 6
Therefore, meaningful negotiations have never occurred despite CP&L's best efforts to achieve them.'n June 7,
1988, after very limited negotiations with CP&L, Power Agency filed a Complaint with FERC asking the agency to impose on CP&L arrangements to accommodate Power Agency's proposed use of Santee Cooper power.
CP&L answered the Complaint and moved to dismiss on the
- grounds, inter alia, that Power Agency had not sought arbitration regarding disputes under the
- contract, as required by the 1981 PCA.
On December 22,
- 1988, FERC dismissed Power Agency's Complaint.
FERC found that "because the dispute has not yet been subject to arbitration as required by the 1981 Agreement,
. Power Agency's complaint is premature and we will dismiss it without prejudice to refiling, upon completion of arbitration."
45 FERC
$ 61,487, 62,519 (1988).
On February 22, 1989, the Commission denied rehearing.
CP&L initiated further negotiations following FERC's December order.
Thus
- far, these negotiations have not been successful owing to the fundamental disagreement about the Significantly, if Power Agency gives proper notice under the 1981 PCA, it can terminate the agreement and subsequently use Santee Cooper resources to meet, its load.
The problem here lies in Power Agency's attempt to take the benefits from CP&L of assured service and reliability under the 1981 PCA while at the same time providing unlimited flexibility for Power Agency essentially to Power Agency's exclusive benefit in a way that is inconsistent with that contract as negotiated and agreed to by both parties in 1981.
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Dr. Thomas E. Murley June 15, 1989 Page 7
contractual requirements regarding the use of New Resources and other resources, as described above.
Rather than seek a negotiated solution to the dispute it has fostered, Power Agency has continued to pursue a policy of attempting to force its views upon CP&L by initiating litigation in every forum it can find.
On March 23,
- 1989, Power Agency filed a petition for review in the U.S.
Court of Appeals for the District of Columbia Circuit seeking reversal of FERC's orders dismissing the Complaint until completion of arbitration (North Carolina Eastern Munici al Power A enc v.
- FERC, D.C. Cir.
No.
89-1205).
In a separate FERC docket established to review a bulk power purchase arrangement between CPGL and Duke Power
- Company, Power Agency has once again complained to FERC of CPGL's failure to agree to Power Agency's proposed use of Santee Cooper resources.
See Power Agency's December 28, 1988 Protest, Motion to Intervene and Request for Suspension and Hearings, In re Duke Power Co.
(FERC Docket No. ER89-106-000).
On May 4, 1989 Power Agency filed a
Notice of Intention to Arbitrate
("Notice"),
initiating an arbitration proceeding.
Now, Power Agency has sought yet another forum in which to raise this dispute, having filed with the NRC on May 5, 1989 an informal antitrust complaint requesting enforcement action
- against, CPGL based on this same proposed use of Santee Cooper
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Dr. Thomas E. Murley June 15, 1989 Page 8
resources.
- Thus, Power Agency has raised this same dispute in five separate proceedings:
in two separate dockets before
- FERC, one in the U.S.
Court of
- Appeals, one in an arbitration proceeding, and now one before the NRC.
B.
CP&L HAS NOT VIOLATED THE ANTITRUST COMMITMENTS Power Agency argues that CP&L is violating Commitment No.
4.~
That provision states:
Licensee will facilitate the exchange of bulk power by transmission over its system between or among two or more entities with which it is interconnected on terms which will fully compensate it for the service performed, to the extent that such arrangements reasonably can be accommodated from a
functional and technical standpoint.
Power Agency claims that CP&L is violating the provision because there is no "functional or technical" impedi-ment.
- Moreover, Power Agency claims that. the dispute "is not simply a disagreement about appropriate compensation."
- Rather, Power Agency contends, it is CP&L's position that Power Agency is prohibited from using Santee Cooper resources.
According to Power
- Agency, CP&L's alleged effort to frustrate Power Agency's Power Agency also claims CP&L may be violating other conditions, without specifying what they are.
CP&L denies that it is violating any of the conditions.
If Power Agency alleges any other specific violations at some future time, CP&L reserves the right to address them at that time.
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Dr. Thomas E. Murley June 15, 1989 Page 9
proposed use of the Santee Cooper resources violates Commitment 4.
Complaint at 3.
Power Agency is wrong for several reasons.
- First, Power Agency mischaracterizes CP&L's position.
CP&L is not attempting to prohibit Power Agency from using Santee Cooper resources.
It is seeking to ensure that.
CP&L is permitted to retain the benefits for which it negotiated in the 1981 PCA and that Power Agency properly compensates it for arrangements within the 1981
- PCA, as well as for arrangements not contemplated by that agreement.
As discussed below, the terms and conditions of that contract have been found by FERC to be consistent with the Federal Power Act.
- Moreover, as noted
- above, while CP&L has maintained that the 1981 PCA does not permit all of the uses of Santee Cooper power proposed by Power
- Agency, CP&L consistently has indicated its willingness to negotiate agreements for resources other than those qualifying as New Resources and further accommodate the use of other resources, even to the point of considering amendments to the 1981 PCA.
Contrary to Power Agency's assertions, compensation is an issue, and Power Agency and CP&L have not been able to reach agreement at this time.
In
- addition, there is a
dispute between CP&L and Power Agency regarding interpretation of Power Agency's obligations to provide notice of its intention to bring on certain other resources.
The
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Dr. Thomas E. Murley June 15, 1989 Page 10 notice provisions are critical to CPGL's operational and planning requirements.
- Thus, there may be "functional" and "technical" problems if Power Agency does not provide proper notice despite Power Agency's assertion to the contrary.
- Second, Power Agency's citation of the language of Commitment 4 wholly ignores the language of Commitment 6,
which governs implementation of the commitments.
Commitment 6 pro-vides:
The implementation of these numbered para-graphs shall be in all respects on reasonable terms and conditions as consistent with the Federal Power Act and all other lawful regulation and authority.
- Thus, Commitment 6
provides that CPGL is satisfying its obligations under Commitment 4 if the terms and conditions on which it is dealing with Power Agency are found to be consistent with the Federal Power Act.
Since FERC has the statutory responsibility to implement and enforce the Federal Power Act, it is necessary to look to FERC's regulation of the 1981 PCA to evaluate the charge that CPGL has violated Commitment 4.
CPGL's actions have been entirely consistent with FERC's regulation under the Federal Power Act.
As noted, CP&L filed the 1981 PCA with FERC on October 7, 1981 and FERC accepted it for filing on October 30, 1981.
That acceptance confirms that the 1981 PCA conforms to the requirements of the Federal Power
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Dr. Thomas E. Murley June 15, 1989 Page 11 Act.
As discussed
- above, there is now a dispute between CP&L and Power Agency as to the meaning of the 1981 PCA with respect to Power Agency's proposed use of Santee Cooper power.
Power Agency attempted to bring that, dispute before FERC.
CP&L pointed out to FERC that the 1981 PCA, which FERC had already accepted under the Federal Power Act, calls for arbitration of the dispute between the parties.
FERC carefully considered the matter and agreed with CP&L.
Therefore, FERC dismissed Power Agency's June 7,
1988 Complaint.
- Thus, FERC has effectively ruled that, consistent with the Federal Power
- Act, CP&L can insist that the pending dispute with Power Agency should be resolved through arbitration.
That is exactly what is now happening.
On May 4, 1989 Power Agency filed a Notice of Xntention to Arbitrate.
CP&L filed an Answering Statement on May 17, 1989.
The arbitration thus is proceeding, consistent with FERC's orders.
Commitment 6 requires the commitments to be implemented consistent with the Federal Power Act.
Pursuant to its authority under the Federal Power Act, FERC has accepted the contract for filing and dismissed Power Agency's Complaint pending arbitration, which is underway.
Xt must be concluded, therefore, that CP&L's implementation of the license conditions in connection with its dealings with Power Agency fully complies with the Federal Power Act and thus satisfies CP&L's obligations
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Dr. Thomas E. Murley June 15, 1989 Page 12 under its NRC commitments.
Accordingly, there is no basis for the NRC to reach the conclusion that CPGL is violating those commitments.
Power Agency claims that despite its institution of arbitration proceedings pursuant to FERC's orders, its Complaint here is proper because the NRC "has an independent regulatory interest in ensuring compliance by licenses with antitrust license conditions.
Complaint at 4.
- However, as discus-sed
- above, in exercising its authority over the license condi-tions the NRC must, by the terms of Commitment 6,
look to FERC regulation of the arrangements between the parties under the Federal Power Act.
Absent any specific assertion by Power Agency of "other lawful regulation and authority" that would permit the NRC to act in a manner inconsistent with FERC's regulation under the Federal Power Act and we are not aware of any -- Power Agency's Complaint should be dismissed.
- Moreover, a duplicative proceeding at the NRC at this time is wholly unwarranted.
The dispute that Power Agency has brought before the NRC is essentially the same dispute, based on the same
- facts, that FERC has ordered resolved by arbitration.
Zn fact, Power Agency has provided the NRC with a copy of its arbitration filing to provide "the facts surrounding Power
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Dr. Thomas E. Murley Zune 15, 1989 Page 13 Agency's complaint herein."'omplaint at 4.
FERC has indicated that even after the arbitration is concluded, it "will make an independent examination of any resulting rate filings and [it]
will not be constrained by any
- findings, conclusions or recommendations of the arbitrator should we determine they are not in accordance with the statutory standards of the Federal Power Act."
46 FERC
$ 61,181, 61,600 (1989).
- Thus, FERC intends to assert jurisdiction to ensure that the terms and conditions of arrangements between CP&L and Power Agency are consistent with the Federal Power Act, even after the arbitration.
Since CP&L cannot be deemed to violate the license conditions while in compliance with FERC's rulings under the Federal Power
- Act, further NRC action on the basis of Power Agency's Complaint would be wasteful and duplicative of resources already being expended.
Power Agency also contends that even if CP&L's conduct is found by the arbitrator to be consistent with the 1981
- PCA, "such conduct might nevertheless be deemed by the
[NRC] to contravene antitrust license conditions to which CP&L is subject."
Complaint at 4.
Power Agency provides no detail or support for this assertion.
Xn any event, as discussed
- above, given the language of the commitments themselves, actions deemed For your information, we are enclosing a
copy of CP&L's Answering Statement to Power Agency's arbitration filing.
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Dr. Thomas E. Murley June 15, 1989 Page 14 by FERC to be consistent with the Federal Power Act cannot, by definition, violate the commitments.'ince Power Agency has no valid basis for a contention that CPGL is not fully living up to its commitments in the NRC license conditions, the NRC should inform Power Agency that there is no basis for action on its informal complaint.
If, despite this compelling analysis, you and your staff wish to have further information from CP&L concerning its views as to the merits of Power Agency's claims in the arbitration and before
- FERC, we respectfully request that you so inform us so that we can promptly respond.
We submit,
- however, that such a step is not necessary.
The NRC should fully stay its hand until the dispute is resolved as FERC has determined is proper under the Federal Power Act.
lt Power Agency also claims that it filed its complaint before the NRC because delay in obtaining the Santee Cooper arrangements imposes economic penalties on Power Agency and it must therefore pursue all avenues of relief.
Complaint at 4.
Significantly,
- however, any alleged economic penalty due to delay is at Power Agency's own creation.
It is worth noting that Power Agency delayed resolution of these issues itself by not seeking arbitration in the first instance, which was required, as FERC
- found, by the 1981 PCA.
- Moreover, as noted
- above, under the circumstances presented
- here, duplicative litigation is unwarranted.
Dr. Thomas E. Murley June 15, 1989 Page 15 For the foregoing reasons, the NRC should dismiss Power Agency's Complaint.
Sincerely yours, Ge A. Avery C
nsel for Carolina Po er 6
Light Company cc:
Gary J. Newell (w/o enclosure)
, 'p+
PROCEEDING IN ARBITRATION CAROLINA POWER
& LIGHT
- COMPANY, Other Party NORTH CAROLINA EASTERN
)
MUNICIPAL POWER AGENCY,
)
)
Initiating Party
)
)
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)
)
)
)
)
)
ANSWERING STATEMENT TO NOTICE OF INTENTION TO ARBITRATE AND RESPONSE ON PROPOSED ARBITRATORS Carolina Power
& Light Company
("CP&L") respectfully submits this Answering Statement pursuant to Section 22.3(b)(2) of the Power Coordination Agreement dated July 30, 1981
("1981 PCA") in response to the Notice of Intention to Arbitrate dated May 4, 1989 by North Carolina Eastern Municipal Power Agency
("Power Agency" ).
CP&L also states herein its position on the arbitrators proposed by Power Agency.
FACTUAL BACKGROUND This proceeding involves a
dispute concerning the proper interpretation of certain provisions of the 1981 PCA.
The 1981 PCA and two related agreements between CP&L and Power
- Agency, the
- Purchase, Construction and Ownership Agreement (the "Sales Agreement" )
and the Operating and Fuel Agreement (the "Opera'ng A"reement")
(collectively the
>>1981 Agreements" )
were r
concluded ax er two and one-half years of intensive negotiation which involved substantial.
give and take on both sides.
Each
party gained certain favorable terms by compromising in the negotiation process on terms sought by the other side.
The r
contracts ultimately agreed to by Power Agency and CP&L allocate the economic and system planning benefits of the transaction to both parties in a mutually acceptable manner.
CP&L filed the 1981 PCA with the Federal Energy Regulatory Commission on October 7,
1981 and the Commission accepted it for filing on October 30, 1981.
Through its willingness to enter into the 1981 Agreements, CP&L played a critical role in Power Agency's ability to become a power supplier.
Under the 1981
- PCA, and the related agreements, Power Agency obtained the generating resources to serve its load through a combination of Retained Capacity'nd energy entitlement from units jointly owned with CP&L, together with associated backstand from CP&L for that, Retained Capacity and energy entitlement, and Supplemental Capacity'nd
.Energy purchased from CP&L.
The 1981 PCA also provides the process for Power Agency's acquisition of additional firm resources; defined Retained Capacity is defined in Article 5 of the 1981 PCA as the capacity that Power Agency is entitled to from generation facilities it jointly owns with CP&L (the "Joint Units" ).
Power Agency's Retained Capacity in the Joint Units corresponds to the percentage of ownership interest Power Agency has in each of the Joint Units, less the Purchased Capacity sold back to CP&L.
Supplement..:I Cap 1981 PCA as the capa the combined demand Retained Capacity.
=ity is defined in Articles 6 and 8 of the iy that is required by Power Agency to meet of its participants that is in excess of
as a
"New Resource,"
which may be used to reduce Power Agency's Supplemental Capacity and Energy purchases from CP&L.,
Power Agency has given CP&L notice that it intends to acquire a
New Resource from Santee Cooper for
- 1994, 1995 and 1996.
The 1981 PCA requires Power Agency first to provide this
- notice, and then to begin negotiations with CP&L for a
power coordination agreement for that noticed New Resource.
1981 PCA 5
6.1.
CP&L repeatedly has attempted to negotiate with Power Agency concerning the noticed New Resource.
- However, Power Agency apparently wishes to engage in wide ranging power supply arrangements with Santee Cooper (including non-firm resources and firm resources for which it has not given the required notice).
Power Agency has taken the position that these other arrangements must be treated as a
New Resource under the 1981 PCA.
These other resources to be provided by Santee
- Cooper, however, do not qualify as New Resources under Section 6.1(C) of the 1981 PCA.
Moreover, with respect to those resources that do qualify as noticed New Resources under the 1981
- PCA, Power Agency is proposing to account for the energy from the New Resource in ways not permitted under the 1981 PCA.
Because Power Agency's proposals contradict specific provisions in the 1981
- PCA, CP&L is not required to enter into the new power coordination agreement containing the provision that'Power Agency proposed.
Nonetheless, CP&L l s repeatedly informed Power Agency of its willingness to negotiate not only a
power coordination
agreement for qualifying New Resources, but also an interconnection agreement for other resources and amendments to the 1981 PCA.
CP&L has thus attempted to negotiate with Power Agency concerning its use of all the generating resources it obtains from Santee Cooper.
But the negotiations have not resolved the disputes under the 1981 PCA.
On June 7, 1988 Power Agency filed a complaint with the Federal Energy Regulatory Commission
("FERC")
asking FERC to impose on CP&L arrangements to accommodate Power Agency's proposed use of Santee Cooper power.
CP&L answered the complaint and moved to dismiss on the grounds',nter
~a',
that Power Agency had not sought arbitration regarding disputes under the
- contract, as required by the 1981 PCA.
On December 22,
- 1988, FERC dismissed the complaint.
FERC found that "because the dispute has not yet been subject to arbitration as required by the 1981 Agreement, Power Agency's complaint is premature I
and we will dismiss.it without prejudice to refiling upon completion of arbitration."
45 FERC g 61,487, 62,519 (1988).
On February 22, 1989, the Commission denied rehearing.
CP&L initiated further negotiations following FERC's December orders Thus
- far, these negotiations have not been successful, for the same reasons as described above.
Rather than seek a negotiated solution to the dispute it has fostered, Power Agency has continued to pursue a policy of attempting
'-o force its views upon CP&
by initiating litigation in every forum it can find.
On March 23,
- 1989, Power Agency
filed a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit seeking reversal of FERC's orders dismissing the complaint until completion of this pending arbitration proceeding
( orth Carolina Eastern Munici al Power A enc v.
- FERC, D.C.
Cir.
No.
89-1205).
In a
separate FERC docket established to review a bulk power purchase arrangement between CP&L and Duke Power
- Company, Power Agency has once again complained to FERC of CP&L's failure to agree to Power Agency's proposed use of Santee Cooper resources.
See Power Agency's December 28, 1988 Protest, Motion to Intervene and Request for Suspension and
- Hearings, In re Duke Power Co.
(FERC Docket No. ER89-106-000).
On May 4, 1989 Power Agency filed its Notice of Intention to Arbitrate ("Notice" ), initiating this arbitration proceeding.
Power Agency,has sought yet another forum in which to raise this dispute, having filed with the Nuclear Regulatory Commission on May,5, 1989 an informal antitrust complaint (attaching a
copy of its Notice for this pending dispute) requesting enforcement action against CP&L based on this same proposed use of Santee Cooper resources.
- Thus, Power Agency has raised this same dispute in five separate proceedings:
in two separate dockets before
- FERC, one in the U.S.
Court of Appeals, one before the
- NRC, and now in this arbitration proceeding.
PRELIMINARY ANSWERING STATEMEN 1.
Many of Power Agency's Proposed Uses of Santee Cooper Resources Are Inconsistent With the 1981 PCA.
This is a
case of contract interpretation.
Power Agency's right to use additional, non-CP&L generation resources was never a subject of controversy in the negotiation of the 1981 Agreement.
There
- were, however, considerable discussions
. and negotiations concerning the timing and use'f such resources under the 1981 PCA.
Section 6.1 of the 1981 PCA represents an accommodation between Power Agency's desire for untrammeled flexibility in meeting its future needs and CP&L's requirements to plan to meet all of its future loads, including Power Agency's Supplemental requirements, and to take into account the economic
\\and operating characteristics of any New Resource obtained by Power Agency upon CP&L's operation of the Combined System.3 The plain words of Section 6.1 provide the basis on which this dispute can be resolved.
- Now, Power Agency wants the right to use a
range of resources, the right to which it claims to have obtained from Santee Cooper.
Some of Power Agency's proposals clearly conflict in a variety of ways with what Power Agency agreed to in the 1981 PCA.
Power
- Agency, claiming that its proposed use of these Santee Cooper arrangements is in all respects consistent with the The Co&ined System is defined in Section 1.l5 of
'ie 1981 PCA. It consists of the Joint Facilities, New Resources, and all other generating and transmission facilities owned and/or operated by CP&L at present'r in the future.
1981
power coordination agreement to accommodate all of the various arrangements for use of Santee Cooper power which it proposes.
CP&L submits that Power Agency's demand conflicts with the express provisions of the 1981 PCA.
The 1981 PCA requires a power coordination agree-ment to accommodate the terms and conditions and energy accounting associated with generation obtained by Power Agency which qualifies as a
firm New Resource.
The 1981 PCA also requires an interconnection agreement to accommodate other generation resources obtained by Power
- Agency, but such other resources cannot be used in meeting Power Agency's Hourly Resource Demand.'o the extent that Power Agency's proposed arrangements are consistent with Section 6.1 of the 1981
- PCA, CP&L has been willing, and remains willing, to enter into agreements called for by the 1981 PCA to enable Power Agency to use a firm generating resource obtained from Santee Cooper that qualifies as a
New Resource under the 1981 PCA.
- However, certain of the arrangements that Power Agency has proposed to CP&L are inconsistent with Section 6.1 of the 1981
Hourly Resource Demand is defined in Section 1.40 of the 1981 PCA. It is: "[i]n each hour, the sum of all loads of Power Agency's Participants for which there is in effect a Supplemental Power Sales Agreement Section 6.1(C)(2) of the 198'CA states that. Power Agency may "meet
~ portion of its load with resources provided by it.
. but such resources ma not be used to meet Houri Resource Demand unless the are New Resources."
[Emphasis supplied.]
I Power Agency alleges that its objective is to reduce its own cost of power.
This is an oversimplification and does not vitiate Power Agency's contractual commitments to CP&L..
Power Agency cannot ignore its obligations under the 1981 PCA in an attempt to reduce its costs, nor can it impose provisions which raise the cost of power to CP&L's ratepayers or which deprive CP&L and its ratepayers of the benefits flowing from the bargain struck in 1981.
It is for these very reasons that the notice provisions and Sections 6.1(C)(2) and 6.1(C)(3),
among
- others, were included in the 1981 PCA.
Power Agency and CP&L disagree as to the meaning of Section 6.1.
It is this dispute which lies at the heart of the controversy for which Power Agency seeks'rbitration.
At issue is the application of Section 6.1 of the 1981 PCA to Power Agency's proposal as to how it can use Santee Cooper power.
The threshold dispute is to identify which of Power Agency's proposed arrangements are permitted by Section 6.1 of the 1981 PCA and which are not. If some of the proposed arrangements are found by the Arbitrator to qualify as a
New
- Resource, the arbitrator
- should, in the first instance, direct the parties to negotiate appropriate provisions for use of that New Resource in meeting Power Agency's load. If CP&L is correct about its interpretation of the 1981 PCA, the arbitrator must advise Power Agency that the 1981 PCA does not permit certain of the proposed arrangements for use of Santee Cooper power and that Power Agency must negotiate
with CP&L in good faith for a
new agreement regarding those arrangements.
- Moreover, Power Agency approaches these questions of contract interpretation on the basis of a fundamentally flawed premise.
Power Agency suggests that it is simply seeking "a
conventional inter-utility exchange arrangement of the type that CP&L and other utilities themselves utilize."
Notice at 2.
- However, Power Agency is far from being a "conventional" utility.
Under Article VI of the 1981
- PCA, CP&L is obligated to supply any part of Power Agency's supplemental requirements (i.e., its load above the level which it can serve from resources owned or jointly owned by it) which Power Agency chooses not to serve with New Resources.
"Conventional" utilities do not have this contractually assured source of supply.
Therefore, they must at all times be prepared to take the risks associated with constructing or otherwise obtaining the generation needed to serve their loads; Power Agency does not.
In addition, CP&L is contractually obligated by the 1981 PCA to provide the backstand services required by Power Agency for its share of the jointly owned units.
CP&L also provides Power Agency with an assured market for any of Power Agency's entitlement to output of the jointly owned units which is surplus to its needs.
CP&L also accepted these obligations to Power Agency in the 1981 PCA as part of the overall bargain struck in the 1981 Agreements and CP&L received certain benefits in return.
Power Agency's mischaracterization of the nature of its own utility
characteristics is thus misleading and fundamentally flawed.
That error permeates its unsupportable arguments as to the proper interpretation of the 1981 PCA.
Like CP&L, Power Agency undertook certain obligations in the 1981 Agreements.
But Power Agency's proposed use of Santee Cooper power ignores its obligation to live up to those commitments, although they enabled Power Agency to become a bulk power supplier to its participants.
Among the obligations Power Agency now seeks to ignore are:
(a) service of its Hourly Resource Demand only with firm resources, ~e.,
Retained Capacity (with backstand) and New Resources (firm power sources)
(b) purchase of its backstand requirements for Retained Capacity only from CP&L; and (c) agreement to buy Supplemental requirements from CP&L except to the extent Power Agency substitutes generation that qualifies under the definition of New Resources for such Supplemental Capacity and energy.
All of these obligations are plainly spelled out in the language of the
.1981 PCA.
Power Agency's interpretation of the uses permitted under the 1981 PCA would permit it to ignore these contractual obligations.
Each claim of Power Agency as to the proposed use Power Agency's characterization of the distinction between New Resources and other resources is incorrect.
The distinction is not based on whether or not the resource is intended to reduce Supplemental Capacity.
Notice at 9.
Rather, it is based on whether the resource is firm and qualifies as a
New Resource and thus can be used to serve Power Agency's Hourly Resource Demand because it is firm.
of Santee Cooper power can raise an issue as to w'hether such use is consistent with the 1981 PCA.
As Power Agency develops its position in detail (through pleadings or testimony),
CP&L I
reserves the right to submit any issue it deems appropriate in this arbitration as to whether such proposed use is consistent with the 1981 PCA.
2.
Power Agency's Interpretation of the Notice rovision of the 1981 PCA is Erroneous.
Power Agency's interpretation of its rights and obligations regarding notice with respect to a New Resource under the 1981 PCA is also incorrect.
Zt claims that it need not negotiate anew with CP&L when it changes the New Resource capacity amount for future years beyond the amount already noticed.
Notice at 36.
But in each year, CP&L must be prepared to meet Power Agency's Supplemental
- demand, whatever it may be, as well as CP&L's retail and wholesale demand.
- Moreover, CP&L's load and capacity situation is subject to fluctuation from year to year.
Therefore, the terms to which CP&L might have agreed in some prior power coordination agreement for a New Resource would not necessarily be appropriate for additional capacity in future years.
This is precisely why the 1981 PCA specifies a separate
. power coordination agreement for each noticed New Resource, as 1
agreed to by Power Agency and CP&L in 1981.
Sections 6.1(C),
(D) and (E).
The requirement of a notice specifying the expected capacity and period of availability is a direct protection for CP&L's retail and wholesale customers.
Power Agency also contends that Section 6.1 of the 1981 PCA provides for dual notice of a New Resource first, notice that Power Agency intends to bring a
New Resource on, then negotiations with CP&L, and then the specific notice in Sections 6.1(D) or 6.1(E).
Notice at 39.
Contrary to Power Agency's contention, the language of Section 6.1 supports CP&L's position that Power Agency must give a single written notice complying with all aspects of Sections 6.1(D) or 6.1(E) to allow for adequate system planning.
The lead-in sentence to Section 6.1(D)(1),
for
- example, states
"[i]n such
- event, the following provisions shall apply."
"Such event,"
as described in the portion of Section 6.1(D). which precedes the quoted sentence, is the giving of a
notice
- stating, among other
- things, the expected capacity and period of availability of the New Resource.
Thus, since the "event" which triggers the "following provisions" referred to in the lead-in sentence to Section 6.1(D)(l) is the notice describing the New Resource in detail, the "negotiations" embraced by those "following provisions" of Section 6.1(D)(1) must be based on and triggered by that detailed notice, not some "second
, notice."
Obviously, given the structure of the paragraph, only one notice is involved.
The language in Section 6.1 regarding notice reflects the resolution of a basic issue:
When negotiating about a
New Resi >rce, would its basic characteristics be firmly established so the parties would know what they were negotiating
- about, or would they be subject to change?
CP&L wanted those character-istics firmly fixed, while Power Agency wanted them flexible.
The notice provision in the 1981 PCA resolved that dispute with provisions clearly requiring that negotiations be based on a
notice fixing the relevant characteristics of the New Resource.'n seeking to undo that resolution of the
- issue, Power Agency baldly asks the arbitrator to ignore the contract language so that Power Agency can belatedly prevail in achieving its ends.
3 ~
Power Agency Mischaracterizes the Issues In Suggesting That Certain Issues Are Conditionally Submitted for Arbitration Because They Can be Separated From Issues of Inte retation of the 1981 PCA.
CP&L does not agree with Power Agency's character-ization of "issues conditionally submitted for determination by the -arbitrator."
Notice at 43-51.
Power Agency claims that FERC wrongly
. decided that the terms and conditions of contracts relating to alternate power sources are to be resolved by the arbitrator in the first instance.
Notice at 43.
Accordingly, Power Agency asks the arbitrator to rule that FERC, in the first
- instance, should impose terms and conditions related to Power Agency's use of Santee Cooper resources.
Power Agency then conditionally submits certain terms and conditions for arbitration, pending either successful appellate review of FERC's order or a determination by the arbitrator that
- FERC, not the arbitrator, should resolve the dispute in the first instance.
In either case Power Agency would withdraw these issues from arbitration and submit them to FERC for determination.
See Notice at 44.
Y But Power Agency's characterization of the issue is r
misleading and undermines its agreement with CP&L.
Many of the items that it has characterized as "terms and conditions" of a new power coordination agreement relating to a
noticed New Resource
- are, in fact, disputes as to the correct interpretation of the 1981 PCA.
For example, issue (1),
"Purchase and Pricing of
.Back-up Capacity from CP&L" (Notice at 46),
involves interpretation of the 1981 PCA.
Power Agency's position assumes that CP&L will provide back-up for Power Agency's Santee Cooper capacity.
But the 1981 PCA requires that all New Resources, i.e., in this instance, the Santee Cooper capacity, be firm. If the New Resource is not available for delivery to CP&L, Power Agency must ensure back-up capacity for it to make the resource firm.
Without such back-up, the resource would not be considered firm capacity and thus would not be a New Resource under the 1981 PCA.
Power Agency also presents issue (2),
"Adjustment of Firm Capacity of a Resource,"
as a "term and condition."
Notice at 47.
It is CP&L's position that the 1981 PCA does not permit adjustments in the manner proposed by Power Agency.
Power Agency's rights and obligations, if the noticed New Resource proves to be unavailable, are limited to those set out in Section 6.1(F) of the 1981 PCA.
Similarly,
".sue (5), "After-the-Fact Classification of Energy Provided by the Santee Cooper resource" (Notice at 49),
involves interpretation of the 1981 PCA. It is CP&L's view that, under the 1981 PCA, only New Resources (firm power) may be used to serve Hourly Resource Demand and specifically Supplemental Capacity and Energy.
1981 PCA 56.1(C)(2).
Non-firm economy transactions may not be used for this purpose under the Agreement.
- Moreover, Power Agency claims that Santee Cooper resources could be used to displace Retained Capacity or backstand therefor.
Notice at 49.
CP&L submits that under the 1981
- PCA, Power Agency has contracted to purchase its requirements for backstand for Retained Capacity from CP&L and, therefore, that Power Agency's proposal contravenes its obliga-tions under the 1981 PCA.
gee Sections 7.2 through 7.6.
Zn addition, the classification system in Article 8 of the 1981
- PCA, which describes how Power Agency is to meet Hourly Resource Demand up to and above the Retained Capacity level, reflects the intent of the parties that a
New Resource brought on by Power Agency could be used to meet Hourly Resource Demand above the Retained Capacity level, but not below.
1981 PCA gg 8.2, 8.3.
As
- shown, Power Agency's attempt to impose the terms and conditions of a new power coordination agreement for use of the Santee Cooper power is inextricably related to contract interpretation questions involving the 1981 PCA.
Accordingly, the issues raised by Power Agency as "terms and conditions" are part of the issues before the arbitrator and not on a condi-tional basis.
Once the contract interpretation issues under the 3981 PCA are resolved by th arbitrator, and it is clear what Power Agency may and may not do under the 1981 PCA, the issues as to appropriate terms and conditions for a properly noticed and defined New Resource should be submitted to the parties for negotiation.
Given the disagreements about applicability of the 1981 PCA, the parties have not yet attempted to negotiate terms and conditions in the proper framework.
4 ~
The Arbitrator Must Consider All Issues Under the 1981 PCA That Are Raised by Power Agency's Intended Use of Santee Cooper esources.
Power Agency attempts to limit CP&L's ability to raise issues during this arbitration by requiring CP&L to state now whether there are terms and conditions in addition to those listed in the notice that must be resolved prior to "implementation of the Santee Cooper resource."
Notice at 51.
As noted
- above, many of Power Agency's purported "terms and conditions" for a new power coordination agreement relating to the Santee Cooper arrangements require interpretation of the 1981 PCA.
Until the scope of the 1981 PCA is resolved, it is not possible to fully evaluate the issues of proper "terms and conditions" for a
power coordination agreement covering the noticed New Resource.
- Further, as Power Agency develops and presents its case on <<terms and conditions",
CP&L reserves its right to raise any issues under the 1981 PCA presented by Power Agency's claims; CP&L does not waive any rights to raise any issues that may arise during the courso of these proceedings.
dection 22.3(B)(2) of t;ie 1<
~ PCA provides that filing of an Answering Statement within ten days of the Notice of Arbitration is optional for the "Other Party."'P&L has chosen to file this initial Answering Statement within that time but reserves the right to file a more complete answering statement following a more adequate opportunity to review and analyze the claims made by Power Agency in its Notice.
5.
CP&L Does Not Accept Power Agency's Proposed rbitrators.
Pursuant to Section 22.3(B)(2). of the 1981
CONCLUSION To the extent that Power Agency's Notice is inconsistent with the statements made by CP&L above, CP&L denies Section 22.3(B)(2) provides that the other party "may" file an Answering Statement but "shall" state its position as to the initiating party's proposed arbitrators..
CP&L complies with that mandatory requirement herein.
the assertions in Power Agency's Notice.
CP&L requests the arbi-trator to deny the relief requested by Power Agency in its Notice (at 53-55).
Respecfully submitted, Of Counsel:
G rge
. Avery Lynda S. Mounts Gregory M. Petrick CADWALADER, WICKERSHAM & TAFT 1333 New Hampshire Avenue, N.W.
Washington, D.C.
20036 (202) 862-2200 Counsel for Carolina Power Light Company Richard E. Jones Mark S. Calvert Adrian N. Wilson Carolina Power
& Light Company 411 Fayetteville Street
- Raleigh, North Carolina 27602 Dated:
May 17, 1989