ML20099L441

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Application for Amend to CPPR-154,extending Const Completion Date to 890701.Amend Involves NSHC (Ref 10CFR50.92)
ML20099L441
Person / Time
Site: Satsop
Issue date: 11/02/1984
From: Sorensen G
WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To: Harold Denton
Office of Nuclear Reactor Regulation
References
GO3-84-688, NUDOCS 8412010128
Download: ML20099L441 (29)
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$! Washington Public Power Supply System

' > f 3000 George Washington Way P.O. Box 968 Richland, Washington 99352-0968 (509)372-5000 Docket No. 50-508 November 2,1984 G03-84-688 Mr. H. R. Denton, Director Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555

Subject:

SUPPLY SYSTEM NUCLEAR PROJECT NO. 3 CONSTRUCTION PERMIT AMENDMENT REQUEST

Dear Mr. Denton:

As we previously advised you, the Supply System approved, on July 8, 1983, an immediate construction delay of WNP-3 until an assured source of funding for continued co.1struction can be obtained. It took this a: tion after the Bonneville Power Administration (BPA) informed the . Supply System that financing for completion of the construction of WNP-3 from BPA revenues was not available and that in its opinion a three-year delay in construction would not seriously jeopardize the availability of an adequate economical power supply.

The present plans call for construction restart in July 1985 and completion in July 1989. In view of these developments and in consideration of the requirement that the Construction Permit extension application be submitted no later than December 1,1984, the Supply System requests that the Construction Permit for WNP-3 be amended to extend the latest construction completion deadline from January 1,1985 until July 1,1989.

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. - Mr. H R. Dent:n Page two On November .1, 1984, BPA made a decision that funds for the l construction of WNP-3. will not be included in its budgets for fiscal l years 1986 and ;1987.or in its rate case for the period extending from July 1,1985 to September 30, 1987. The decision further indicated that. preservation costs for WNP-3 will be included in FY-1986 and 1987 budgets and in BPA rates to preserve 'the project as a viable option.

. -The decision .of BPA in this regard is based on its projections for further -power demands ~in the Region, which indicate that the electricity to. be generated by WNP-3 may not be needed until the early 1990's. Should the recent BPA decision lead to a change in schedule,

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the Supply- System will promptly notify the NRC and modify this request for Construction Pemit extension.

The temporary lack of demand for the energy .to. be produced by WNP-3 ,

and the temporary inability to finance the continued construction of

, WNP-3 are beyond the control of the Supply System. In addition, ,the deferra? of construction in -light of these developments is for : valid

, business purposes. Finally, the duration of the requested Construction Permit _is reasonable because. it will not frustrate regulatory oversite by the NRC and because it is commensurate with the reasons for. the requested Construction . Permit extension. Accordinaly, there is good cause . .for the l requested extension ' and it is for a reasonable period of time. .10 C.F.R.1 50.55(b); Public Service Co.

of' New Hampshire (Seabrook Station, Unit 2), CLI-84-6, 19 NRC 975

'(1984): . WasMngton Public Power Supply System (WNP-1), ALAB-771, 19 NRC 1183 (1984). ,

The raquested Construction Pemit amendment involves no significant hazards consideration. This is because the requested amendment would not involve a significant increase in the probability or consequences of an accident' previously evaluated, create the possibility of a new or different kind of accident from any accident previously evaluated; or involve a significant reduction in a margin of safety. 10 C.F.R.1 50.92.

Pursuant to 10 C.F.R.1 170.21, a check is ' enclosed for $150.00 as is '.

required for a Construction Pemit amendment application.

' Very truly yours,

, A d d_ ___

G. C. Sorensen Manager, Regulatory Programs cc: J. A. AJams, NESCO G. W. Knighton, NRC N. S. Reynolds, Bishop, Liberman, Cook, Purcell, & Reynolds B. K. Singh, NRC-J. P.-Sluka, Ebasco l D. Smithpeter, BPA S. F. Swearingin, BPA ,

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LODGEO__________ pgggWy0 NOV2 61984 AT SEAITLE 3

CLERK U S. OtSTRICT COURT UNITED STATES WESTERN DISTRICTDISTRICT COURT %ESTERfdD'STRfCTOf WASH OF WASl!INGTOth i

' DEPUTY 2 AT SEATTLE 3 BONNEVILLE POWER ADMINISTRATION )

and PETER T. JOHNSON, ) No. C82-1252(BILBY) 4 )

Plaintiffs, )

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vs. ) ORDER 6 )

WAS!!INGTON PUBLIC POWER SUPPLY )

7 SYSTEM, et al., ) *

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8 Defendants. ) ,  !

__) i 10 Pending before the Court are tross motions for summary j i

judgment on certain issues framed by the parties involving the

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12 slowdown of the construction of Washington Public Power Supply  :

1 13 System's nuclear power plant known as Project 3.  !

l 14 The issues and rulings are: 4 15 1. Whether the Ownership, Project and Net Billing Agree '

16 ments require net billing the Supply System's seventy percent 17 ownership share of construction costs in the event the Supply l

18 System is unable to finance by sale of long term tax free bonds I 19 or by bank loans or otherwise. Yes.

20 2. Whether the Ownership Agreement has been materially 21 breached by the mothballing of Project 3. Yes, there 22 has been a breach. The issue of materiality contains issues of -

23 fact, and is reserved for trial. '

24 3. Whether the Investor Owned Utilities are. third party 25 beneficiaries of the Project and Net Billing Agreements and

,.;326 whether said agreements have been materially breached by the. 1  !

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l-1 mothballing of Project 3. Yes, theinvestor 2 owned utilities are third party beneficiaries and both agreements 3 have been breached. The issue of materiality contains issues of 4~ fact ~and is reserved for trial.

5 4. Whether any claim or judgment in favor of the Investor 6 Owned Utilities against the Supply System in connection with~the 7 mothballing of Project 3 must be net billed under the terms of .

8 the agreement.  !!o ,

9 10 Background 11 Washington Public Power Supply System's Project 3 is a 12 nuclear power plant to be built, owned and operated by Washington 13 Public Power Supply System (Supply- System) and certain investor 14 owned utilities in conjunction with,Bonneville Power Administra-15 tion (BPA) and the participant utilities. Several contracts 16 negotiated and executed in the 1970's set forth the various rights 17 and obligations of the parties. It is these contracts which 18 govern the issues currently before the Court.

19 The Supply System owns seventy percent of Project 3, and 20 the investor owned utilities own the remaining thirty percent 21 (Pacific Power and Light Co. owns 10%; Portland General Electric 22 Co. owns 10%; Puget Sound Power and Light owns'5%;-Washington i

23 Water Power Co. owns 5%). A contract entitled the ownership 24 Agreement'was signed by the owners on September 17, 1973.

I 25 Pursuant to the Ownership Agreement the owners provide the

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l project, and they control the same percentage of the Project's

. electrical output. Costs resulting from the ownership, operation and maintenance are to be billed according to the ownership percentage.

4 The Supply System, BPA and one hundred three (103) of 3

BPA'S preference customers (public utilities, cities and 6

7 cooperatives) executed contracts known as Net Billing Agreements g

which provide for the allocation of the Supply System's seventy percent ownership obligations and energy share. Under the Net 9

Billing Agreements,also executed in September, 1973, BPA's 10 g preference customers, known as participants, purchased a.certain percentage of the Project's generating capability, for which each participant is obligated to pay the supply System the same 13 percentage of costs. Each participant assigned-its share of g

15 generating capability to BPA which assumed its cost obligation.

BPA was to credit the participant's wholesale power bill, or to

--16 17 pay ash if the participant's obligation to the supply System is larger than its power bill. This process is referred to as net 13 billing.

19 20

.At the same time, BPA and the Supply System also executed a 21 contract called the Project Agreement delineating some of the 22 Supply System's rights and obligations as project manager, and granting to BPA certain rights of review.

23

, y All of the parties anticipated that.the Supply System would 3 i

25 pay its seventy percent share of construction costs pursuant to the sale of municipal bonds. The Bond Resolution was adopted by

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3 the Supply System board of directors in December, 1975. To date 2 the Supp1'y System's share of construction costs has beenIpaid 3 for from the bond proceeds. The Supply System is now apparently unable to sell more bonds, and the construction of Project 3 is 4

5 only partially completed (approximately 75%) . The current 6- controversy arose when the Supply System implemented a slowdown 7 of cons *.ruction of Project 3.

8 9 Special Board Proceeding

- 10 on October 11, 1983, the Court determined that the Supply 11 System's proposal to implement a slowdown on construction was.

j; referrable to a Special Board. Amended Order of October 11, 1983.

13 Pursuant to the terms of the contracts, and at the direction of 14 the Court, a special Board was convened to consider whether the 15 proposed three year slowdown was consistent with the parties' 16 contracted standard of " Prudent Utility Practice" as defined in 17 the Ownership Agreement, Section 1(o) . The Court directed the 18 Board to assume that funding for the Project was available. See 19 Transcript of Hearing of November 10, 1983.

20 The Report of the Special Board was filed with the Court 21 on January 6, 1984. It provided in relevant part:

22 In May 1983, the Supply System was effectively fore-closed from the capital markets. Therefore, the proposed 23 three year slowdown was a-prudent utility practice as defined in Section 1(o) of the Ownership Agreement, based 24 on the assumption that sufficient funds were not available from other sources to enable the. Supply System to continue j 25 scheduled construction of WNP-3. If sufficient funds from other sources were available to the Supply System in May

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I- 1983, the slowdown proposal would not be a prudent utility practice as so defined.

. 2 Report of the Special Board at 3 1-2 4 The Board was not directed by the Court, nor permitted by the 5 relevant contracts, to make any findings on the availability of 6 funds for the Project. By doing so it exceeded its jurisdiction.

7 The parties contracted for the Prudent Utility Practice standard 8 to govern the Special Board's decisions on certain specified 9 matters.

10 (o) " Prudent Utility Practice" at a particular time means any of the practices, methods and acts, which, in 11 the exercise of reasonable judgment in the light of the facts (including but not limited to the practices, methods 12 and acts engaged in or approved by a significant portion of-the electrical utility industry' prior thereto) known at the 13 time the decision was made, would have been expected to accomplish the desired result at the lowest reasonable cost 14 consistent with reliability, safety and expedition.

Prudent Utility Practice shall apply not only to functional 15 parts of the Project, but also to appropriate structures, landscaping, painting, signs, lighting, other facilities 16 and public relations programs ~ reasonably designed to pro-mote public enjoyment, understanding, and acceptance of the 17 Project. Frucent Utility Practice is not intended to be limited to the optimum practice, method or act, to the 18 exclusion of all others, but rather to be a spectrum of possible practices, methods or acts. In evaluating 19 whether any Matter conforms to Prudent Utility Practice, Supply System, the Committee and any special board 20 established pursuant to Section 4 hereof shall take into account:

21 (i) The fact that Supply System is a municipal 22 corporation and operating agency under the laws of the State of Washington, with prescribed statutory 23 duties and responsibilities; and 24 (ii) the objective to integrate the Project Capability with the generating resources of the 25 Federal Columbia River Power System and the generating resources of other systems operated by the Parties to 26 achieve optimum utilization of the~ resources of such s.,.7. 7,;yt systems. -

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,. 1 Despite contrary assertions by various parties,-the Court 2 rules that this standard of review refers to what is prudent for 3 the Project, and not what is prudent for any of the individual 4 parties. The term applies primarily to the non-financial aspects 5 of utility practice, but it does include those financial issues 6 which relate to cost effectiveness.

7 It is ordered that the-findings of the Special Board which 8 relate to the availability of funding are stricken (page 1, lines 9 21 through 25; page 2, lines 1 to 2). .The remaining portion of 10 the report is the only operative part 11 , If sufficient funds from other sources were available to the Supply System in May, 1983, the sicwdown proposal 12 would not be a prudent utility practice as so defined.

13 Report of the Special Board, page 2, lines 2-4.

14 15 DC THE OWNERSHIP AGREE!!ENT, PROJECT AGREEliENT AND NET BILLING AGREEMENTS REQUIRE NET B7LLING THE SUPPLY SYSTEM'S 16 SEVENTY PERCENT OWNERSHIP S!!ARE OF CONSTRUCTION COSTS IN THE EVENT THE SUPPLY SYSTEM IS UNABLE TO FINANCE BY SALE OF LONG TERM TAX 17 FREE BONDS OR BY BANK LOANS?

18 In a contractual dispute such as this one, summary judgment 19 is properly granted only if the contract provisions are unambiguous ,

20 and there are no disputed material issues of fact. See Bower v.

21 Bunker Hill Co._, 725 F.2d 1221, 1223 (9th Cir. 1984); Nat. Union 22 Fire Ins. Co., Etc. vs. Arconaut Ins. Co., 701 F.2d 95, 97 (9th

' 23 Cir. 1983).

24 The intent of the parties is irrelevant when the terms of

-~ . 25 a contract are unambiguous. S.A. Empresa Etc. v. Boeing Co.,

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26 641 F.

4m; 2d 746, 750 (9th Cir. 1981) citingGrantCountyConstructorg

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P 1 v.E.V. Lane Corporation, 77 Wash. 2d 110, 459 P. 2d 947, 954 2 (Wash. 1969). See also Taylor-Edwards Warehouse Transfer Co. v.

3 Burlington Northern, 715 F. 2d 1330, 1333 (9th Cir. 1983). The 4 role of the court is to ascertain the parties' intention from the 5 contracts themselves, and then to give them effect. See Matter of 6 Estate of Hollingsworth, 88 Wash. 2d 322, 326, Su0 P 2d 348, 350-

? 51 (Wa sh. 197 7) .

8 To determine the meaning of any of the relevant contractual 9 language,.the Court must look at all of the instruments that are 10 part~of the transaction, and construe each with reference to the 11 other. Levinson v.__Linderman, 50 Wash. 2d 855, 322 P. 2d 863, 866 12 (Wash. 19 5 8 ) ~. The Ownership Agreement, Project Agreement, and 13 Net Billing Agreements were all executed in September, 1973 as 14 part of one transaction. The Bond Resolution was not enacted 15 until 1975, but it is referred to in the earlier documents, and 16 is clearly part of the same transaction.

17 Although the contractual scheme created as a result of the 18 various documents is complicated, the contracts are not ambiguous.

19 The ownership Agreement, the Net Billing Agrlements and the

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21- operation and maintenance of a nuclear power plant to meet

- 22 anticipated needs for power. The contracts must be construed to 23 give effect to this primary purpose. Continental Ill. Nat. Bank, 24 Etc. v. State of Wash. 696 F. 2d 692 (9th Cir. 1983). Under the 25 Ownership Agreement, the Supply System contracted to pay for a-

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b 26 seventy percent share of the construction, operation and main-

tenance of Project 3. All of the parties anticipated that the 2 Supply System's share of construction costs would be bond 3 financed.1 None of the documents expressly provides whether or 4 not construction costs may be not billed in the event that bond 5 financing is. unavailable. Viewing the express contractual 6 language while bearing in mind the underlying purpose of the 7 contracts, the court concludes that the contracts provide for 8 the not billing of construction costs.

9 According to the various agreements, costs that are to be 10 net billed are included in the Annual Budget. Net Billing Agree-11 ment Da 1(b) , 6& 7. The Annual Budget is defined as:

12 the budget adopted by Supply System,not less than 45 days prior to the beginning of each Contract Year which item-13 izes the projected costs of Supply Systera's ownership Share of the Project applicable to such Contract Year, or, in the 14 case of an amended Annual Budget, applicable to the remain-der of such Contract Year. The Annual Budget, as amended 15 from time to time, shall make provision for all such Supply System's costs (including cost of fuel), and maintenance of 16 the Project and repairs, renewals, replacements and additionj to the Project,' including, but not limited to, the amounts 17 which Supply System is required under the Bond Resolution to-pay in each Contract Year into various funds provided for in; 18 theBondResolutionfordebtserviceandallotherpurposes{

and shall include the source of funds proposed to-be used; 19 provided however, that the-Annual Budget for any portion of ;

a Contract Year prior to the Date of Commercial Operation j.

20 or September 1, 1981, whichever occurs first, shall include 21 22 1. Section 7 (b) of the Project Agreement contemplated i

that if any amounts for " renewals, repairs, replacements and 23 bettermente,and for capital additions necessary to achieve design !

capability or required by governmental agencies . . . " exceed j 24 certain limits, then the " Supply System shall, in good faith, use :

its best efforts to issue and sell bonds to pay such excess. . ."

25 While evidencing the- desire to finance construction costs

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.. a p ,y by the sale of bonds as a first choice, it does not rule out the 6

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necessity for net billing-the Supply System's seventy percent

, c;-7 share, if bonds cannot be sold. ,

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4 il- only_such amounts as may be agreed upon by Supply System and the Administrator.

'2- - Net Billing Agreement 1(a) ;

-Project Agreement 1 (a) .

3 4 A " Contract. Year" is' define'd as:

5 the' period commencing on:the Date of. Commercial' Operation, '

or on January-1,.1981, whichever occurs-first, ending at 6 12 PM on the following June 30....

7 Net. Dilling Agreement 1(f) .

8 Reading'these terms in conjunction, we~see that there can be no-9 Annual Budget for a year commencing prior'to January 1, 1981.

10 Since January 1, 1981, occurred before Commercial Operation, 11 .there could be no not billing prior to January 1, 1981.

12 To determine whether cons'truction costs can be net billed, 13 the pertinent inquiry is does "all such' Supply System's costs. . . . . 1 14 resulting from the ownership. . .of the Project" include con -

15 struction costs? The plain language of this description-is 16 inclusive. "All costs" of project ownership should include-17 construction costs in the absence of a specific prohibition or 18 limitation in the contract. There are no. specific proh'ibitions or' 19 limitations. The Participants citing the doctrine of eiusdem l

20 generis claim that the1 specific mention of types of' post-21 construction costs indicates an overriding intent to excidde=

22 construction costs from "all costs". This doctrine is' rendered 23 ^ inapplicable lar the specific language'" including, but not limited-

t. 24 to" included in the-definition of Annual Budget.

. 25 The Participants also claim that it is evident from other p 7~.

!. . pp+23 26 portions o'f the contract that the~ parties did not intend."all b - t Mynge ~

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l p costs" of project ownership to-include construction costs. Some 2

of the arguments are very persuasive, and they emphasize the fact that at the time of contracting the parties anticipated bond 3

4 financing would cover the Supply System's share, and that construction costs would not need to be net billed. Unfortunately, 5

n ne of the cited. contractual language sheds any light on the 6

situation with which we are now faced, no available bond financing.

7 8

The Project Agreement requires the Supply System to prepare 9

two different types of budgets, construction budgets and annual 10 budgets. Project Agreement, @ 7. Construction budgets, under la the Ownership Agreement,specify the costs which all of the owners must incur. The initial construction budget was approved-by the 32 13 execution of the Ownership Agreement,'and subsequent construction 14 budgets-are to be prepared each year for approval by the Owners 15 Committee until the date of commercial operation. Ownership 16 Agreement 00 1(f), 5. Annual Budgets are prepared commencing no

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17 later than January 1, 1981, whether or not the project is complete, gg Net Billing Agreement Me 1(a) , 1(f). The Annual Budget covers 19 only the Supply System's share of costs.

Although this scheme may 20 indicate that the parties did not expect a need for construction 21 funds to come out of the Annual Budget, it does not show that 22 they cannot, nor does it render the budgetary scheme meaningless

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23 if the budgets overlap.

24 If the parties had intended to exclude construction costs 25 from the term "all costs" as defined in the Annual Budget, they 2e shuuld have wold su. 'This is particularly true where the uvuunun

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i 1 primary purpose was to construct and operate a nuclear power plant.

2. It is totally. unrealistic to intrepret these contracts in such a 3 manner that if the project was 98% complete and no more bonds could 4 be sold, it.would have to be terminated for failure to' finance.

5 The problem here ir that Project 3 was 75% complete rather than 98%,

6 The fact that construction costs are expressly mentioned in 7 other sections and are not expressly in the definition of Annual 8 Budget does not dictate that they cannot be included in.the Annual 9 Dudget. See e.g. Net Billing Agreement S 10 (a) ; Project Agreement 10 S 4. The express listing of construccion costs in those~ sections 11 indicates situations in which the parties expected to.need to ad-12 dress those costs. All of the parties agree, and the Court found 13 that t'- parties anticipated that the Supply System's share of con-14 struction costs would be bond financed. Amended Order of October I

15 11, 1983. To determine what the contracts dictate'in the unexpected 16 event we must look to the broader language of the contracts to 17 determine whether they cover the situation. The Net Billing Agree-18 ments do cover this event when they provido e'nat the Annual Budget 19 "shall" include "all such" Supply Syntem's " costs of ownership";

20 the Supply System "shall" include these costs in a billing state-21 ment which "shall" specify the amounts the participants. shall pay 22 to the Supply System; and, BPA "shall" pay to the parcicipants.

23 Net Billing Agreement S 1(a) (b), S (a) and (b) , .7 (a) . Each step 24 of this complex process is_ mandated by the use of the word "shall."

25 Further indication that Bond Financing need not be the sole 26: method 'of financing is section 4 of tite Het- Billing Agreement. The

_ 1- .

1 obligation under.this paragraph was not to use its best efforts to 2 finance its interest solely through the sale of bonds but to use its 3 best efforts "and finance its interest therein." IInd the parties in-4 tended the Supply System's sole method of financing its interest .

5 to be through the sale of bonds this was the place to indicate 6 that intention. They did not do so.

7 Section 6 of the. Project Agreement does provide more strong-8 ly that:

9 Supply System shall, in good faith and with due diligence, use its best efforts to issue and sell 10 Bonds to finance Supply System's ownership Share of the costs of the Project and the completion 11 thereof, as such costs are defined in the Bond

' Resolution . . . . Project Agreement S 6 (a) .

12 Even here there is no clear statement that the financing must come 13 solely from the sale of bonds. The Court can only assume that had 14 all the parties agreed that the supply System's sole obligation to 15 finance was through the sale of bonds they would have clearly and 16 unequivocally said so. They did not.

17 The Participants also contend that the Bond Resolution pro-13 hibits net billing of current construction costs.'The Bond Resolu-19 tion contains a complicated system of various funds for different 20 purposes. Several creative arguments have been made for why certain 21 provisions in the Bond Resolution indicate that the parties must not 22 have meant that current construction costs should be net billed.

23 An examination of the actual language of the document shows nothing

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  1. to prohibit the net billing of construction costs. Thus, it does 15 not contravene the broauer language used in the ownership Agreement 26 and Net Billing Agreements. For example, the Bond Resolution

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1 identifies certain money which must be deposited in the Construct-2 ion Fund, but it does not indicate what.may be deoosited in that 3 fund. Bond Resolution S 6.8.

4 -The Court has reviewed and considered the other numerous 5 arguments made on this issue, and finds them not helpful.

Bonneville Power Administrative Veto 7

Bonneville Power Administration (BPA) claims that it'has the 8

authority to disapprove the net billing of construction costs. Al-9 ~

though BPA has special approval rights under certain circumstances, 10 the Court finds that BPA does not have the authority to disapprove

" the current not billing of construction costs during this relevant 12 period. (Post September 1, 1981 to ninety days prior to completion). ,

BPA is not an owner, but it has the right to designate one-14 of the Supply System's representatives on the Owners Committee.

" Ownership Agreement S 3 (a) . This Committee has the authority 16 to review various types of proposals. Ownership Agreement S 3 (g) . ,

17 Approval of proposals must be by more than eighty percent of the voting shares. Voting rights of members are equal to their 19 ownership share, except that the BPA represent'ative on the Committee has special rights to vote part of the Supply System's 21 share. Ownership Agreement S 3 (a); Project Agreement S 4. The 22 Court has previously ruled that the slowdown of the Project was a j "3

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matter properly referrable to the Owners Committee and then to 24 the Special Board. Amended order of October 11, 1983. Any rights 25 that BPA may have exercised pursuant to its membership and voting

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rights on the ownership committee have been vitiated by the j, c.

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Special Board decision finding the slowdown not to be prudent 2 utility practice. (See pages 4-6 supra) 3 Under the Project Agreement, BPA's special rights of review 4 are set forth. The Administrator of BPA '.s the right to approve 5 the Bond Resolution.

6 Notwithstanding any other provision of this agreement, 7

the Bond Resolution shall be subject to the approval of the Administrator. Project Agreement 6 (b)

S This section does not grant BPA any authority over the Annual 9 Budget. Under Project Agreement G 7 (b), BPA has certain rights 10 of review over the Annual Budget. This section provides in 11 relevant part:

12 (b) Annual Budget. At least 90 days _ prior to the expected Date of. Commercial Operation, Supply System 13 shall submit to the Administrator a uroposed Annual 14 Dudget for the period from the expected Date of_ Commercial Operation to the next succeeding July 1, and if the Date of-Commercial Operating occurs subsequent to April 1 in a 15 calendar year, a similar Annual Budget for the next succeeding Contract Year. Thereafter, on or before April 1 16 of each year Supply System shall submit to the Administrator 17 a similar Annual Budget for the next succeeding Contract Year, which budget shall take into account the cumulative difference between total moneys received and expenditures 18 for the prior Contract Year and provide for adjustment, as necessary, of the appropriate working cash fund. . .-

If in any Contract Year the amounts in the Annual 20 Budget for renewals, repairs, replacements, and betterments, 21 and for capital additions necessary to achieve design capability or required by governmental agencies (Amounts for Extraordinary Costs), whether or not such amounts are 22 Costs of Operation or Costs of Construction as defined in 23 the Ownership Agreement, exceed the amount of reserves, if any, maintained for such purpose pursuant to the' Bond 24 Resolution plus the proceeds of insurance, if any, available by reason of loss or damage to the Project, by the lesser oft 25

-(l) an amount of $3,000,000 or

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'l (2) an amount by which the amount of'the Adminis-trator's estimate of the total of the Administrator's 2- net billing credits available in such Contract Year to Participants pursuant to section 7 (a)' of the Net Bill-3 ing Agreements and.the amounts of such reserves a'nd insurance,'if any, exceeds the Annual Budget for such 4 Contract Year exclusive of Amounts for Extraordinary Costs.

5 4 Supply System'shall, in good faith, use its best efforts-to 6 issue and sell. Bonds ~to pay such. excess in:accordance with section 6(a).

7

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Notwithstanding any other provision of this agreement,

' 8 Supply System's ownership Share of costs incurred by Supply System in an emergency'or to protect the safety of the

' 9 Project or the public, and unbudgeted expenditures necessary in the normal course of business for the continued safe

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10 operation and maintenance of the Project prior to~ approval-of the Annual Budget or revised Annual Budget, shall be II added to the Annual Budget as incurred. Promptly after any l

such occurrence, and prior to expenditures of any other 12 funds not contemplated in the effective Annual Budget, Suppl y.

System shall submit a revised Annual Budget to the 13 Administrator.

14 The Annual Budget n'nd revised Annual Budget shall become effective unless disapproved by the Administrator i,

15 within thirty days, and seven days respectively,-after g submittal. Any item disapproved shall be referred to the Project Consultant as provided in section 8.

17 Project Agreement G'7 (emphasis 18 19 Project Agreement Section 8 sets forth the way in which-the

{ Administrator _may exercise his rights:

I 20

l. - 8. Administrator's Approval and Project Consultant.

( 21 l ,,

. (a) All proposals of Supply System, including but i not limited to, budgets, plans, actions, activities or matters submitted to the_ Administrator under any provisions-

~3_

of this agreement shall include itemized cost estimates and other detail sufficient to support a comprehensive review, 24 L including but not limited to, a copy of all. supporting 25 reports, analyses, recommendations, or other documents fa.,d u, ,

pertaining thereto. If the Administrator does not dis-

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approve the proposal within.the time specified, or if no d$ih7

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1. time is specified, within seven days after receipt, the proposal shall be deemed approved. Any proposal dis-2 approved shall be segregated so thatEthe exact items of difference are identified and shall become effective 3 immediately as to items not disapproved.

4 (b) Disapproval by the Administrator shall be given in writing and, except as provided in section 6 (b) , shall 5 be based solely on whether the proposal or item is consistent with Prudent Utility Practice. Such disapproval 6 shall describe in what particular the proposa'l or item is not consistent with Prudent Utility Practice and shcIl at 7 the same time recommend 1what would meet that standard.

8 When any proposal or item is so disapproved by the Administrator, Supply System shall adopt the suggestion of 9 the Administrator or within seven days after receipt of such disapproval, shall appoint a Project Consultant 10 acceptable to the Administrator to review the proposal or item in the manner described in this section. If the 11 parties shall not agree upon the selection of the Project Consultant, Supply System shall promptly request the Chief 12 Judge of the United _ States District Court for the judicial district of Washington in which the Project is located to 13 appoint the Project Consultant.

14 (c) The Project Consultant shall consider all written arguments and factual materials which have been 15 submitted to it by either party within the ten days following its appointment, and as promptly as possible after 16 the expiration of such period, make a written determination as to whether the proposal or item disapproved by the 17 Administrator referred to it by Supply System would or would not have been consistent with Prudent Utility Practice .

18 If the Project Consultant determines that the proposal or item referred to it was not consistent with Prudent Utility 19 Practice it shall, at the same time, recommend what would, under the same circumstances, have met such test.

20 Proposals or items found by the-Project Consultant to 21 b) consistent with Frudent Utility Practice shall become immediately effective. Proposals or items found by the 22 Project Consultant to be inconsistent with Prudent Utility Practice shall be modified to conform to the recommendation.

23 of the Project Consultant or as the parties otherwise' agree and~shall become effective as and when modified.

24 (d) All costs incurred by' Supply System for or by

. . ..,_ 25 . reason of employing a Project Consultant under this agree-emedyne - s ment and the Net Billing Agreements and all reasonable eqpig,26 ., . costs of Supply System related to presentations to the d*j'.%!> u -

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. c special board which may be convened pursuant to the I

,, Ownership Agreement, shall be a cost of the Project.

2 (e) If any proposal or item referred to the Project Consultant has not been resolved and will affect the 3

continuous operation.of the Project, Supply System shall continue to operate the Project. Supply System may proceed 4

with the item (1) as proposed by it, or (2) as proposed by 5

the Administrator, or (3) as modified by mutual agreement by Supply System and the Administrator prior to the time such item affects operation of the Project; crovided, how-6 ever, that if Supply System proceeds with a disapproved 7

item reviewable under this agreement and if the determina-tion made by the Project Consultant is that the item is 8

n t consistent with Prudent Utility Practice, Supply System shall bear any net increase in the cost of construction or 9

operation of the Project resulting from such item without charge to Supply Syste'm's Cwnership Share of the Project in the Annual Budget to the extent such item was incon-10 sistent with what the Project Consultant determined would 11 under such circumstances have met such test. Notwithstand-ing other provisions of this section 8 (e) , whenever a pro-12 p sal has been referred to the Project Consultant, Supply

' System shall operate in accordance with Supply System's 13 proposals until such proposal has been resolved by the Project Consultant, whenever Supply System determines that g the Administrator's proposals would create an immediate danger to the safe operation of the Project.

15 (f) The Administrator's approval or failure to' dis-16 approve any plan, proposal or item pursuant to the terms oft this agreement shall not render the Government, its officerd 17 agents or employees, liable or responsible for any injury, i loss, damage, or accident resulting from ownership, design,'

g construction, operation, or maintenance of the Project.

(g) Supply System shall not proceed with the follow-39 ing elective items under the Ownership Agreement without the Concurrence of the Administrator's representative on the Committeet (1) notice to repair damage to the Project, g pursuant to section 16 (b) , (2) a capital addition to the Project pursuant to section 18, and (3) construction of the

,)2 Pr ect pursuant to section 22(b). The Administrator t shall evidence his approval of any such items in writing 23 and Supply System's share of costs associated with any item ;

so approved shall become groject. costs related to Supply 24 System's ownership Share."  ;

25 2_

)

This " veto" power does not give the Administrator ~any power ove j 26 including or excluding construction costs in the Annual Budget ex l

.~ ,.a - cept those specifically listed in this subparagraph.

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2 (h) Items subject to review by the Committee under.

the Ownership Agreement ~shall not be reviewable hereunder.

3 (i) The word " item" as used in this section means the 4 item described including the cost specified therefor.

5 Project Agreement S 8.

6 These clauses in the Project Agreement grant tha Administrator ,

7 substantial authority to review and to disapprove items in the 8 Annual Budget. However, as the underlined portion of Section 7 (b) 9 reflects, none of these rights come into play until just prior 10 to the expected date of commercial operation. Since construction 11 costs cannot possibly be in'an Annual Budget which is "for the 12 period from the expected Date of Commercial Operation to the next 13 succeeding July," BPA has no right under these sections of the- '

14 Project Agreement to disapprove the inclusion of construction

15 costs in the Annual Budget. .

16 BPA's other right of review of the Annual Budget is con-17 tained in the paragraph quoted above from both the Project Agree-18 ment and the Not Billing Agreements which defines the Annual 1

19 Budget, Project Agreement 81(a); Net Billing Agreement S 1(a) .  !

20 The relevant part provides:

21 provided, however, that the Annual Budget for any portion of a contract year prior to the Date of Commercial 22 Operation or September 1, 1981, whichever occurs first, shall include only such amounts as may be agreed upon the 23 Supply System and the Administrator.

24 Project Agreement 81(a) ' Net Billing Agreemnnt 2 1(a).

, !g: d$" 26 This language, apparently granting a blanket veto power to both

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I the Supply System and the Administrator, is also limited by its terms to.a 2 pericd of time that is not applicable to the current controversy. This 3 section gave the Administrator the right-to approve an Annual

'4 Budget up until September 1, 1981~, and it has no relevance now.

5 In sum, none of the rights expressly granted to the Admin-6 istrator of BPA in the contracts.gives it the authority to disap-7 prove the current net billing of construction costs.- BPA argues 8 that the parties could not have intended such a gap in its right of 9 review. Moreover, in 1973 when the relevant contracts were signed, 10 it was an agency subject to Congressional appropriations and thus, 11 they claim could not have so contracted. See 16 U.S.C. G 832 j; 12 31 U.S.A. 8 1341 (a) (1) .

13 It is not the province of the Court to rewrite the' contract 14 for the parties, e.g. Corbin on Contracts, 93 95, 541 and cases g3 cited therein. The contracts themselves set forth the rights of 16 BPA. The gap in time (September 1, 1981 until 90 days prior to g7 completion) when BPA had no right of disapproval or veto over.the 33 Annual Budget was created by the parties,-not the Court. When the 19 contracts are not ambiguous, the Court must assume that the parties 20 intended' What they wrote. See S. A. Drpresa, Etc. v._ _ Boeing Co. , 641 F. 2d 746, 21 750 (9th Cir. 1981) and cases cited at 6-7, supra.

72 Conclusion 23 Not billing of construction cost is allowable under the Net 24 Billing Agreement and 'as w mandatory in this case due to the 25 s ;+4 eu .

ruling of the Special Board.that it was a Prudent Utility Practice v^2

    • 1". 26 to contin,ue with construction assuming aufficient funds were available tn-Supoly.Runten fres nthn-. aov---

? .

~.1 HAS THERE BEEN A MATERIAL BREACil OF Tile OWNERSHIP AGREEMENT BY T!!E MOTilDALLING OF. PROJECT 37 2'

As described above, the "mothballino" nf Prniere 1 was J ~

submitted to the Special Board for determination whether it was 4

prudent utility practice, and the Board determined that it was 5

not. At-the time the matter was submitted to the Special Board, 6

there was a factual issue whether there were sound utility reasons to mothball the plant. The Board determined there were not suf-8 ficient reasons to mothball the plant other than funding.

The Ownership Agreement provides:

The board shall decide whether the Matter pro-11 posed by Supply System is in accordance with Pru-dent Utility Practice. If the board decides in 12 the affirmative, supply System shall proceed _as proposed by it; if in the negative, Supply System 13 shall not so proceed. The decision of the majority of the board shall be final and conclusive.

14 Ownership Agreement 5 4 (d) .

1$ Since the Board decided in the negative, the Supply System should 16 not have proceeded with the slowdown proposal. It did proceed 17 with the mothballing, and this breached the Ownership Agreement.

18 Several parties claim that the Supply System did not breach 19 the agreement because it was suffering from an inability to finance.

20 A party's inability to finance does not prevent its non-performance 21 under a contract from being a breach unless the contract so pro-22 vides. See e.g. Dworman v. Mayor & Bd. of_ Aldermen,_Etc., Morris-23 town, 370 F. Supp. 1056, 1070 (N . J . 1974). Under section 15 of the 24 Ownership Agreement the parties did provide that no party "shall be 15 considered to be in default" if the failure of performance is due 26 to uncontrollable forces. Ownership Agreement S 15. Uncontrollable

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_g forces as defined in the contract does not include the inability 2 f ny party to finance. Ownership Agreement 5 15.

3 Section 22 of the Ownership Agreement deals with the in-4 ability of a party to finance and provides for the termination of 5 the project.

22. EMD OF PROJE2T._ (a) When the Project can no 6

longer be made capable of producing electricity consistent 7

with Pruden' Utility Practice or the requirtments of govern-mental agencies having. jurisdiction or is no longer licensed 8

by the AEC, or when the Project is ended pursuant to Sectiod 16, Supply System shall sell for removal all salable parts 9

of the Project exclusive of Fuel to the highest bidders.

After deducting all costs of ending the Project, including, 10 without limiting the generality of the foregoing, the cost of decommissioning, razing all structures-and disposing of 11 the debris and meeting all applicable requirements of law, Supply System shall close the appropriate Trust Account and, if there are net proceeds, distribute to each Party its 12 Ownership Share of such proceeds. Supply System shall 13 liquidate the Fuel, and after making all required payments and receiving all due receipts, shall disburse the proceeds 14 to the Owners as their interests appear. In the event such costs of ending the Project exceed available funds,.each 15 Party shall pay its Ownership Share of such excess as in-curred.

16 (b) (i) If the Parties are unable to reach agreement to any of the items (i) through (v) described in Section 17 3 (j ) , one or more of the Parties may, within ninety (90) days after the date of the notice to the Parties provided 18 for in Section 3 (j), elect to proceed with the Project.

19 (ii) If one or more of the Parties is rendered in-capable of proceeding with its obligations. hereunder by 20 reason of one or more of the conditions listed below, which condition is beyond the ability of such party to 21 remedy by reasonable means within a reasonable time, one.

or more of the other Parties may, within ninety (90) days 22 after notice by a Party of the occurrence of the condition, elect to proceed with the project without the disabled 23 Party; provided, however, that if such disabled Party is proceeding with all due diligence to remove such disability ,

24 the election shell not be made until 90 days after final order or other final disposition-of the matter; provided 25 further, that if. delay would cause substantial additional costs to be incurred if the election were so postponed,

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26 the electing Parties-may proceed as necessary to avoid or w bh[hw 8 -

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, 1 minimize delay, preserving the rights of the disabled 2-Party until final order or other final disposition. The conditions are:

3. l.- Inability to finance.

4 2. Failure to obtain necessary legal authori:ations, including regulatory approvals.

5 (iii) -Upon.the election for any of;the. reasons set 6

forth in (i) and (ii) above, the Parties so electing shall promptly reimburse each non-electing Party for its Costs 7

of Construction and costs of Fuel, if any, incurred here-8-

under; provided, however,_that such reimbursement shall not-occur with regard to a-disabled' Party until final order or 9

other final disposition in the Matter-confirming the disability. Upon such reimbursement, the ncn-electing Parties' interest in the Project and in this-Agreement, and 10 any related rights or interest acquired by them hereunder, shall forthwith vest in the electinc Parties 11 proportion as the election Parties 5ay agree.in such 12' Ownership Agreement a 22.

13 The use of the words "may" and " elect" makes clear that this 14 section is an option of the non-disabled parties.

15 Default is defined in the Ownership Agreement in @ 17.

16 17. DEFAULT. (a) Upon failure of a Party to make any payment wnen due, or to perform any cbligation herein, any 17 other Party may make written demand upon said Party, and if said failure is not cured within 10 days from the date 18 of such demand it shall constitute a default at the expiration of such period.

19 (b) If a Party in good faith disputes the legal validity 20 of said written demand, it shall make such payment or per-form such obligation within said 10 day = period under. written 21 protest directed to each of the other Parties. Such protest shall be in writing and shall specify,the reasons upon 22 which the protest is based. Payments not made by the default-ing Party pursuant to said written demand may be advanced in(

23 the other Parties and, if so advanced, shall bear interest until paid, at the highest lawful rate. Upon resolution of 24 such dispute, then any payments advanced or made between the 25 Parties, as in this section provided, shall be adjusted appropriately.

~C ~". 26 (c) In addition to the rights granted in this Section 17,

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1 i any nondefaulting Party may take any action, in law or equity, including an action for specific performance, to 2 enforce this Agreement and to recover.for any loss, damage or payment advances, including attorneys' fees in all trial 3 and appellate courts and collection costs incurred by reason of such default.

4 Ownership Agreement G 17.

The Supply System claims that it has not ' failed to make any pay-6 ment when due" because it has made all of its payme'nts under the 7

budget _that was approved by BPA,'the mothballing budget. That is insufficient, in view of the Special Board ruling and the Supply System obligations under the Ownership Agreement.

BPA was without the power to veto the . Annual Budget during the relevant time period. See 13 - 19, supra. Thus, the Supply System should not have submitted the budget to the Adminis-13

'g 14 trator for approval.- The Supply System's action in submitting the; ,

slow down budget was the start of the chain of events which 15 culminated in the breach, i.e. the mothballing issue which was the basis for the proposed Annual Budget,went to the Special Board. The Special Board ruled against the mothballing. When the Supply System continued with the mothballing after the ipecial Board's action it breached its obligation to the Invester OwnuS Utilities under the Ownership Agreement. Furthermore, even 21 if BPA did have the power to disapprove _the Annual _ Budget (as it does 90 days _pr'ior to commercial operation), it did not have the

. power to disapprove the budget based'on its own rate structure.

The Administrator's review is to be based on the Prudent Utility

]{g Project Agreement 5 8. Prudent Utility Practice'is

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ll defined in the Project Agreement the same as it is in the. Owner-

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2 ship Agreement. Project Agreement 3 1(p); Ownership Agreement 8 ~

13 1(o). This definition-applies to the project, and not to what is 4 prudent for BPA and its customers.

5 Finally, the' Supply System argues that even if'the. budget 6 that did not include the slowdown was the appropriate budget, it 7 did everything within its power to implement it. Since BPA dis-8 approved that budget, the supply System could not proceed with the 9 preparation of the billing statements.

10 This argument overlooks.the fact that the Supply System 11 abdicated its own responsibilities under the Ownership. Agreement 12 by adopting the BPA three year slowdown proposal as its own 13 proposal and submitting it to the Owners Committee. Executive 14 Board Resolution No. 147. At that time BPA and the Supply System 15 were as one, both seeking a mothballing of Project 3.

16 The issue of whether the breach was a material one is 17 '

reserved for later determination. Various parties have' asserted 18 that there are material issues of fact which bear on the issue, 19 making summary adjudication inappropriate.

20 21 ARE THE INVESTOR OWNED UTILITIES THIRD PARTY BENEFICIARIES OF THE PROJECT AGREEMENT AND THE NET BILLING AGREEMENTS, AND IIAVE 22 THESE AGREEMENTS BEEN MATERIALLY BREACHED?

23 To be a third party beneficiary of a contract, the contract 24 must evidence an intent that the promisor shall assume a direct l

25 obligation to the third party. Detweiler Bros., Inc. v.' John s . . 26 Graham & Co., 412 F. Supp. 416 (E.D. Wash'. 1976); Burke & Thomas. l,

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1 v. Intern.Orcanization of Masters,'92 Wash. 2d 762, 600 P.2d 1282,.

"We'mustilook to the-terms of-the' contract

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2 1285~(Wash. 1979).

'3 to determine whether the performance urider the contract'would 4 necessarily and directly benefit the petitioners." L o'n s d a l e' v .;

.5 Chesterfiell, 99 Wash. 2d 762, 662 P.2d 385, 390 (Wa's h . 1983) ,

s 6 (en-banc).

7 As co-owners ofLProject 3, the investor owned utilItiesi"

c. .,, .

8-arenecessarily.anddirectlybenefittedsb{thetermsofthe:

9 Project Aejreement.and the Net. Billing Ag$eements. They are

. . 10 third party beneficiaries of those contracts'. L,-y ,

t 1.

'For all the reasons previously set forth there has been 51 12 a breach of all three agreements (Ownership Agreement,nNet Billing-

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13 Agreement and Project Agreement) by'the Supply System and.BPA.

14 WHETHER ANY CLAI!! OR JUDGMENT IN FAVOR 0F THE 'IhVESTOR .

OWNED UTILITIES AGAINST THE SUPPLY-SYSTEM IN CONNECTION WITH- '

15 THE MOTHBALLING OF PROJECT 3 MUST BE NET' BILLED UNDER THE TERMS' e OF THE AGREEMENT. 4. D 16 'e >

While the Court has determined that the three agreements provide for the net billing of the supply System's seventy percent

, share of construction costs, the same'is not true for. damages resulting from the Supply System /BPA breach of the contracts.

- This is no for four recsons.

21

l. The term "all costs" sat forth in the definition - of l

23-Annual Budget (Net Billing Agreement S 1(a) and Project Agreementt -

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5 1 (a) ) . re f ers to cos ts stmming from'the' performance o N$hese 24 '

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contracts not their' breach.'4 '

, 26 The Ownership Agreement in an effort.to comply w,ith. .-

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-l Washington law, Wash. Rev. Code, S 54-44-030, provided in section (2 2 (d) of'the Ownership Agreenent.

3 The du' ties, obligations and'11 abilities of the Parties.are intended to be several and not joint i 4 os. collective, and~none.of the Parties shall be jointly or severally liable for the acts, om-5 issions, or obligations.of any of the other Parties. No. provision of this agreement shall 6 be construed to create an association, joint venture, partnership, or impose a partnership 7 duty, obligation or liability, on or with regard to any one or more of the 'arties. No Party S shall have a right or pos.u to bind any other Party without its or their express written con-9 sent, except as. expressly provided in this agree-ment. Ownership Agreement S 2 (d) .

There is nothing in any of the three agreements whereby the Par-ticipants agree to foot the bill for the breaches of either BPA 12 or Supply System. To do so would directly contravene both the 13

' ~

s language of the Ownership Agreement and Wash. Rev. Code 5 54 030.

15

3. Section 4 of the Project Agreement provides no basis for net billing the damages as it deals only with " costs and expenditures. . . made, at the written request of the Administrator. "

It borders on the ludicrous to claim that damages for a breach

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of contract fall within section 4. Costs for damages for one party's

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. breach of contract are amounts paid outside the contract not with-2,1

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.in it. Only costs'for the performance of the contract may be y,

net billed.

4. Notwith.etanding the fact that the' Participants may appr v f the actions of BPA and the Supply System in ordering 25 26 the mothballing, the breach was not that of the Parti.cipants. It N'

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I would contravene public policy of the State of Washington ~to make

-2 a-non-breaching public. party to a contract pay damages for the 3 misconduct of another party to the contract.. Wash. Rev. Code 4 S 54-44-030.

5- In short, any damages that can- be proven to have resulted 6 from a material breach of these contracts must be borne by the-7 breaching parties. They may not be-passed on to the Participants 8 by virtue of the Net Billing arrangement.

9 Summary 10 Final judgment on the~various motions for summary judgment will await trial or other disposition of the materiality of.the breaches in questien.  !

13 l-The parties are given until !! arch 29, 1985, to. complete discovery and file any dispositive motions in connection with the materiality issues. Absent any motions, the m'atter will be set for trial shortly thereafter.

DATED: 1984.

18 November _ a__,

19 -

20 /* AM 9

_ M Richard M. Bilby 21 United States District Judgef [l 22

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