ML20101P589
| ML20101P589 | |
| Person / Time | |
|---|---|
| Site: | Comanche Peak  |
| Issue date: | 06/30/1992 |
| From: | Green D, Sampels M TEXAS UTILITIES ELECTRIC CO. (TU ELECTRIC), WORSHAM, FORSYTHE, SAMPELS & WOOLRIDGE (FORMERLY |
| To: | NRC COMMISSION (OCM) |
| Shared Package | |
| ML20101P588 | List: |
| References | |
| NUDOCS 9207130137 | |
| Download: ML20101P589 (195) | |
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I UNITED STATES OF AMERICA DEFORM THE NUCLEAR REGULATORY COMMISSION I
I Texas Utilities Electric )
)
- I Company, e.t a1
) Docket No. 50-445A 50-446A Comanche Peak Steam Electric )
Station, Units 1 and 2 )
I RESPONSE OF TU ELECTRIC TO
.I COMMENTS OF CAP ROCK ELECTRIC _CROPERATIVE. INC.
I I
COUNSEL FOR TEXAS UTILITIES ELECTRIC COMPANY I M. D. Sampels, Esq.
WORSILM, FORSYTHE, SAMPELS
& WOOLDRIDGE 3200 - 2001 Bryan Tower
- g. Dallas, Texas 75201 3 (214) 979-3000 Douglas G. Green, Esq.
NEWMAN & HOLTZII.~GER, P.C.
1615 L Street, N.W.
Washington, D.C. 20036 I- (202) 955-6600 June 30, 1992 I
I g ;gregaut89;p M
UNITED STATES OF AMERICA DEFORE THE NUCLEAR REGULATORY COMMISSION I
I Texas Utilities Eloctric )
I Company, et al.
Comanche Peak Steam Electric
)
)
)
Docket No. 50-445A 50-446A Station, Units 1 and 2 )
I RESPONSE OF TU ELECTRIC TO COMMENTS OF CAP ROCK ELECTRIC COOPERATIVE, INC.
Texas Utilities Electric Company ("TU Electric") hereby responds to the Comments submitted by Cap Rock Electric Cooperative, Inc. (" Cap Rock") on March 25, 1992 (" March 1992 Comments") requesting the Nuclear Regulatory Commission (the I " Commission" or "NRC") to institute operating license antitrust review proceedings. [ March 1992 Comments at 7). Cap Rock's March s 1992 Comments are without any merit and represent yet a third attempt to cause regulatory delay in the licensing of Comanche Peak in order to obtain concessions to which Cap Rock is not entitled.1 Steven E. Collier, Cap Rock's Director of Power Sqly and Regulatory Af f airs, views hisself as an expert I
at obtaining contractual concessions from TU Electric by using aleverage" in totally unrelated foruns. For exemple, in an article entitled Co-op Orops its Attack m TU uuclear Plant in Exchange for S e ly Access" amearing in the June 4,1990 issue of " Electric Utility Week," Mr. Cctlier annomctd the negotiation of Cap Rock's new power supply agreement with TU Electric -- which Cap Rock characterized as a " major breakthrough."
In exchange for the concessions obtained from TU Electric in that new agreement, Mr. Collier stated:
Cap Rock has agreed to . . . o " standstill" in Cap Rock's state and federal interventions into rates and licensing for TU's . . . Comanche Peak nuclear plant.
- *
- On the federal level, (Cap Rock) launched a Comanche Peak license enforcement proceeding and an antitrust aplication at the Nuclear Regulatory Comniss'on * * *. Cap Rock also filed a petition for review of Comarche Peak's NRC license at the U.S. Court of A@eals, D.C.
Circuit, in Washington *** .
(continued...)
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I For the reasons discussed below, Cap Rock's request should bc )
I denied.
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BACKGROUND Cap Rock's March 1992 Comments constitute nothing more than a continuation of the same dispute presented in its August 1988 Comments2 and its May 1989 request for enforcement 3 --
an attempt
-I to circumvent Cap Rock's all-requirements contract with TU Electric. At the time of these earlier filings, the relationship between Cap Rock and TU Electric was governed by a 1963 Agreement for Purchase of Power (the "1963 Agreement"), pursuant to which TU Electric was required to soll, and Cap Rock was required to purchase, all of its power and energy requirements.' The 1963 Agreement, as amended, required three years 5 advance written notice by either party for termination;5 it also permitted Cap Rock to I
1(... continued)
I * * * "It takes leverage for a transmission dependent utility, such as Cap Rock, to get these kinds of agreements (e.g., ' wide-open wheeling agreements'1". . .
[vol. IV, Tab 87 (enphasis aglied)) of the materials attached to the April 21, 1992 letter f rom M. D. Sanpela to Joseph Rutberg, responding to the tervientious letter to the Director submitted on January 6,1992, by Cap
_I Rock. TU Electric's response included a "Occumented Swinary of Events" swmarizing the principal f acts relating to the TU Electric / Cap Rock dispute from its inception and attaching, in chronological order, f our tabbed volumes containing the pertinent docur,ents and pleadings in the snatter, f or the convenience of the Cemnission, an additional copy of that letter and the irdexed volunes of the relevant docunents are admitted herewith as Attachment 1.
2Consnents of Cap Rock Electric Cooperative, Inc. Concerning Significant Changes in Licensee's Activity That Warrant an Antitrust Review at the operating License Stage, dated August 9, 1988. (Vol. I, Tab 36).
.I- Request of Cap Rock Electric Cooperative, Inc. for an order enforcing and Modifying Antitrust License Conditions, dated May 12, 1989. (Vol. II, Tab 47].
'4 Vol. I, Tab 1.
Had Cap Rock given the three years' notice to terminate the 1963 Agreement, as Mr. Pruitt had advised TO Electric in October 1987 that it planned to do (se,3 eVol. I, Tab 13), Cap Rock would new be free of any contractual obligation to parchase power frrm TU Electric and, therefore, fully entitled to cosinence its
.I l purchase of power from any other source it might choose, in that such termination would have been ef fective l' late 1990. But cap Rock chose not to pursue that course of action.
I
terminate the agreement on written notice given within 120 days of i a change in TU Electric's rates.6 But Cap Rock sought to enter into power supply arrangements with other suppliers without complying with the notice provisions of the 1963 Agreement and while still remaining a full-requirements customer of TU Electric.
TU Electric declined to relinquish its contractual right to such advance notice, and insisted that Cap Rock live up to its commitments. Cap Rock -- as it does in its March 1992 Comments -- characterized TU Electric's position as a " refusal to i wheel," cnd accused TU Electric of violating its existing Comanche 1
Peak license conditions. In August 1988, Cap Rock asked the )
Commission to institute antitrust review proceedi.:gs and I subsequently, in May 1989, filed a request for enforcement of the 1
l 3 license conditions.7 I
!] l TU Electric contested Cap Rock's request for enforcement, i
primarily on the grounds that neither the license conditions nor the antitrust laws require TU Electric to cancel, change or l otherwise amend its full-requirements 1963 Agreement with Cap Rock in order to facilitate Cap Rock's purchase of power from other sources.
The Director of Nuclear Reactor Regulation (the " Director")
E twice carefully addressed the contentions made by Cap Rock in its I
l I
O As a regulated electric utility, TU Liectric's rates are subject to the jurisdiction of the Texas Mllc Utility Consission ("PUCT"); thus any change in TU Electric's rates, includirs the rete charged for power and energy 6 7td to Cap Rrek urufer the 1963 Agreement and the 1990 PSA, is subject to the approval of the PUCT.
I I
A stamiary of the correspondence and meetlLgs between TU Electric and Cap Rock during the period 1987 - I j
1939 regarding these matters is attached to 6. D. Sanpe t s' letter of April 21, 1992, to Joseph Rutberg j (Attachment 1 hereto]. '
1 I
i
I August 1988 request for the institution of an antitrust review and held that the contractual dispute between Cap Rock and TU Electric was "not germano to the Commission's 'significant changes' review."
[Vol. III, Tab 55). Cap Rock appealed this finding to the D.C.
Circuit Court of Appeale [Vol. III, Tab 58]. When Cap Rock persisted in pursuing its enforcement action, the NRC Staff encouraged the parties to resolve their differences and, to this end, scheduled a meeting for January 11, 1990. To aid in the deliberations, the NRC Staff announced its views on e X party's position and urged Cap Rock and TU Electric to explore fully all l
avenues of settlement.
A further meeting with the NRC Staff was held on January 25, I 1990, at which time separate settlement proposals 8submitted by TU Electric and Cap Rock were discussed. At the end of the meeting, TU Electric and Cap Rock agreed to meet and discuss a power supply plan which Cap Rock indicated it had under consideration, and the NRC Staff indicated its willingness to tjelay the issuance of a decision on Cap Rock's enforcement request as long as the parties were negotiating in good faith toward a settlement. TU Electric and Cap Rock commenced negotiations in late February 1990.9 I 0"Cag. Rock Electric Cooperative Essential Power Supply Services to be Provided by TU Electric," January 23, 1990 (vol. Ill, feb 63). "Tu Electric's Settlement Proposal," January 24, 1990. (vol. III, Tab 6/.1.
At a seeting held on February 23, 1990, representatives cf TU Electric and Cap Rock discussed Cap Rock's five point plan for meeting its f uture power surply needs upon termination of the f ull requirements 1963 Agreement with TU Electric. The NRC had encouraged Cap Rock to develop its optimal power supply plan as a point I of departure f or negotiations. Though broad in scope, that plan, as outlined by Cap Rock's Mr. Col ller, showed that Cap Rock was seeking a conplicated, multi-step arrangement, calling for a graduat transition by Cap Rock to partial requirements status and L.!*imately to independence. Cap Rock's power supply plan indicated that Cap Rock would seek to transfer approxilnately 20 - 30 MW of its load from TU Electric to a neighboring utility I within two to three years. Mr. Collier also projected that Cap Rock would wish to purchase partial requirements power at some future date, and indicated that five years was mt a suf ficient time for Cap Rock's transition.
[Vol.111, tab 67) .
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I E
I I At the core of such negotiations was the fundamental i
disagreement between Cap Rock and TU Electric regarding the notice Cap Rock would be required to give prior to becoming a partial requirements customer of TU Electric. TU Electric initially offered, upon termination of the 1963 Agreement, to " provide partial requirements power and energy to Cap Rock pursuant to Paragraph D.(2)(k) of the Comanche Peak License Conditions,"10 which conditions TU Electric's obligation to sell full h.id partial requirements power and energy on, among other things, " reasonable j advance notice." TU Electric's position was predicated on the f act that it must be able to reasonably predict and plan for the power and energy requirements it will be called upon to serve. Based on I
i such planning, TU Electric builds generation f acilities to meet the j expected load or contracts to purchase power from reliable sources.
The selection of options to meet such demand is based on the ;
relative economics of the available power and the cost of l l
-constructing generation facilities. It is extremely important for i TU Electric to have as much notice as possible when a .arge :
customer, such as Cap Rock, is planning to cease purchasing power.
TU Electric had made a substantial investment in facilities and equipment in order to comply with its obligation to provide Cap l
Rock with all of its power requirements under the 1963 Agreement.
1 Without such notice, TU Electric would have excess capacity which it must pay for without a market for the power-from such capacity, to the detriment and at the expense of its other customers.
10"Tu Electric's Settlement Proposal," Jarluary 24, 1990. IVol. III, fab 64).
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.I Cap Rock, on the other hand, insisted that. It be entitled immediately to receive, and TU Electric . . .
be obligated immediately to provide, such partial
-I requirements service as requested by Cap Rock . . . after the existing till-requirem3nts wholesale (1963 Agreement] ,
I between TU Electric and Cap Rock .
at-such time as C3p Rock begir.s to supply a portion of the power requirements at one or more wholesale points of
. is terminated, and j delivery with other power purchases, generation or I cogeneration." (Emphasis supplied.) )
I Following further negotiations, Cap Rock and TU Electric, on I May 15, 1990, reached a settlement and executed " Principles of l
)
Agreement"t2 which contained the fundamental terms to be embodied in a new power supply agreement to be effective immediately upon l Cap Rock's termination of the 1963 Agreement. The principles of Agreement inuuded the following key provisions: )
I Paragraph 3(c) clearly contemplated that the power supply l
agreement would initially be a full requirements contract: ;
The power and energy supplied by TU Electric shall (except in the event that Cap Rock commences the scheduling of firm resources or becomes an ERCOT control area as provided for herein) constitute all of Cap Rock's power and energy requirements at all such points of delivery. (Emphasis supplied.)
Paragraph 1 of the Principles of Agreement provided:
The term of the-power supply agreement will be 10 years.
Cap Rock will have the right to terminate the power supply agreement or reduce load supplied by TU Electric I thereunder on three yearn' written notice in years 1 through 5, and
. . . (Emphasis tive years' written notice thereafter
> plied.)
'I g
"" Cap Rock Electric Cooperative 5ssential Power Supply Services to be Provided by TU Electric," Jaruary 23, 1990. tvol. III, Tab 631.
12 Vol. til, Tab 76.
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I Paragraph 2, however, permitted removal by Cap Rock of a limited amount of load with less notice: l I- With respect to nine points of delivery (Pembrook, St.
g Lawrence, Stiles, Reed, Russell, Euchtnan, Grady, Tate g and Phillips) covering up to approximah ly 30 MW of load, Cap Rock may, during years one throttgh 'ive of the power supply agreement, disconnect ont or acre of these I delivery points from TU Electric and c.onnect same to another electric utility without the impeelt.!cn of the demand determinations after load removal, provideo Cep i Rock has first given TU Electric 24 months' notice of I I such removal and such removal occurs prior to June 1 in the year of removal. (Emphasis supplied.)
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1 Significantly, the Principles of Agrooment (and ultimately the 1990 PSA) provided that, upon termination cf the 1963 Agreement in accordance with its terms, Cap Rock would continue to purchase full requirements power and energy from TU Electric until such ti me as 1 I it gave the requisite notice (s) specified therein.
1 1
Cap Rock and TU Electric ultimately executed a new Power Supply Agreement, dated June 8, 1990 (the "1990 PSA").I3 The 1990 PSA, which materially embodies the May 15, 1990 Principles of Agrt. ament, formed the basis for Cap Rock's withdrawal of its i previous filings with the Commission.
Significantly, Cap Rock boasted at that time that the 1990 PSA was without parallel in the electric utility business -- it was a
" landmark" agreement and " unprecedented" in the electric utility industry . Cap Rock even urged others to sign similar L
II Vol. IV, Tab 91.
I'For exarrple, in a press release issued by Cap Rock on July 15, 1990, tauding the benefits of the 1990 PSA, Steve Cottler stated (Cap Rock) . . . has reached a tardaark agreement with its current sole power supplier, ITU
'I Electric) of Deltas, Texas. Under this exceptional new agreement, (Cap Rock) will be able to seek power f rca alternative suppliers * * *. (Emphasis supplied.)
(continued...)
I agreements.15 But 1ess than a year later, Cap Rock reversed course and is now seeking to abrogate the 1990 PSA.
l The reason for Cap Rock's sudden shift of position is no mystery -- it no longer wants that Agreement. After execution of the 1990 PSA, Cap Rock concluded that a better deal could be made l
-3 wien w se Texas uti11 ties Company < wru > and Southsestern Pue11c ;
I !
Service Company ("SPS") and decided to leave TU Electric and its I
(... Continued)
The press release goes on to add under the heading *Qvrece&nted Purchase Optiorm Granttf' (ewohasis in origital):
I TU Electric . . . has agreed to allow (Cap Rock) to archase power f rom other stoptiers, ard to tra% port that power over TU Electric lines * * *. TV Electric also has agreed to sett supplemental power and other coordinating services as recessary to at tow (Cap Rock) to take advantage of this resurkable opportunity * * *. (Enth asis supplied.)
- *
- Only a few of the distribution cooperatives and municipal electric systms in the U.S.
are in this position * * *.
(Cap Rock) can continue to purchase the batence of its power supply requirements from TV Electric I *** . This will be a 10-year contract, and it can be exterded beyond that if both ccmipanir.
agree * * *. (Esphasis supplied.
IVol. IV, Tab A).
15 steve Collier corresponded with various other electric cooperative wholesale customers of TU Electric, tauding the benefits of the 1990 PSA and recomending that such cooperatives seek similar agreements. For amarrple, in July,1991, Mr. Cot tier advised Hunt +Cottin Electric Cooperative of the very
- desirable services and benefits
- achieved by Cap Roca as a result of the 1990 PSA and suggested that Hunt-Cottin terminate its existing all requirements contract with TU Electric and atteopt to secure a similar deal. In his letter, Mr.
Collier stated, among other things:
As you know, (Cap Rock] negotiated a new wholesale power supply contract with TU Electric test I year. This new contract provides for a variety of very desirable services beyond the nornut terms of an all-requirements contract. These services include transmission wheeling, partist requirements service, regulating power service, and a nunber of other desirable services and benefits.
- *
- It would be in your interest to terminate your existing all-requirements contract and negotiate a more f avorable one such as the one that we have executed and that I have enclosed for your review. We will be taking advantage of this termination wirdow to terminate our existing all-requirements contract to make the transition to our new power supply agreement.
It is my understarding that your all-requirements wholesale power supply contract terminates in the near f uture. You should not nive in to rressure tw TU Electric to extend or renew tha_t existina all-recnireurnts contract niven that better terna arti corditiorn have been incorporated in their contracts with Cao Rock Electric . . . (enphasis in original).
Ivol. IV, Tab J).
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I other customers holding the bag 16 by attempting to abrogate the notice provisions of the 1990 PSA.17 Abrogation of the 1990 PSA with TU Electric and the purchase by Cap Rock of power and energy from WTU also had collateral value -- but not to Cap Rock. Abrogation would enable Steven E.
Collier, Cap Rock's Director of Power Supply and Regulatory Affairo, David Pruitt, Cap Rock's General Manager and Chief Executive officer, and other members of Cap Rock's " management team" to collect a " success foe." The scheme went this way -- if Cap Rock could get out of the 1990 PSA, Messrs. Collier and Pruitt would participate in sharing a " success fee" in the amount of 21, of the difference between the power costs under the 1990 PSA and the power costs under Cap Rock's contracts with WTU and SPS. Under the WTU " success fee" contract, these payments would equal over $30,000 por year to Steve Collier alone -- a handsome payment for abrogation of a contract signed a mere 12 months before! Eco also Section V below.
Thus, the central dispute is the same today as it was when Cap Rock's two previous requests were either denied or resolved; 1 2.,
Cap Rock seeks to purchase power from other sources at a time when it is obligated to purchase all of its requirements from TU 16 As Henry Smting of TU Electric testified at the injunction hearing in Texas state court (f ao Rock
- [lectric Cooocrative. Inc. v. Texas Utilities Electric Cmoany. ko. B38.879. 238th Jtxiicial District Court of Midlard County. Texas (the "Midlarvi t i t igMion"])mTU Electric has contracted to purchas; power and energy suf ficient to serve cap Rock's 100 megawatts of load et a cost of amroximately $20 million per year - a cost eIch TU Electric would be required to beer if Cap Rock is smcessf ul in abrogating its obligations under the 1990 PSA. (Attachment 2 at 245).
II the 1990 PSA is a full requirements contract unless and until Cap Rock gives the requialte notice to I reduce the load suplied by TV Electric ard that notice period has expired. The 1990 PSA explicitly requires Cap Rock to provide three years' notice (two years' notice under certain ciro.ristances) of its intent to re<kce load supplied by TV Electric. }n Section 11 infra.
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Electric. Again, one thing is certain -- Cap Rock'c March 1992 Comments manifestly have no relation to any significant changes in
.I the activities of TU Electric under the Comancho Peak license l 1
conditions.'8 Nevertheless, to put Cap Rock's latest contentions in focus, particularly its self-serving interpretation of the 1990 l
PSA which it asks this Commission to accept as meritorious, TU Electric provides below a detailed analysis of the events j surrounding the filing of Cap Rock's March 1992 Comments. I I II.
l THE 1990 PSA IS A FULLY DINDING AND ENFORCEABLE ALL-REQUIREMENTS CONTRACT WHICH REQUIRES CAP ROCK TO PURCHASE ALL OF ITS POWER AND ENERGY REQUIREMENTS FROM TU ELECTRIC UPON THE EFFECTIVE DATE
= OF THE AGREEMENT UNTIL SUCH TIME AS CAP ROCK GIVES THE REQUISITE NOTICE (B) TO REDUCE LOAD Cap Rock contends that it "has no obligation to purchase any power or energy from TU Electric," claiming that The choice as to whether, or how much, power Cap Rock would purchase during the transition period * *
- is clearly Cap Rock's choice. * *
- The 1990 [PSA) specifies no amount of partial requirements service that cap Rock must purchase. Rather, Section 1.01 of the I (1990 PSA] provides that [TU Electric) will sell Cap Rock the amount of power and energy (expressed as Contract Demand) that "will be specified on Attachment A."
Exhibit A to the 1990 Settlement is blank."
'0 Furthermore, Cap Rock has chosen to infuse its March 1992 Coments not with any analysis of the issues I under Section 105(c) (which it never even sentions), but rather with f alse accusations and vituperatico of the most extreme sort. Fr.e exanple, Cap Rock opena its Coments with the irresponsible charge that in its response to Regulatory Guide 9.3, TU Electric " intended intentionally (sic) to mislead this Comission." March 1992 Coments at 2. A review of TU Electric's response to the Reg. Guide readily reveals the f alsity of this accusation. The antitrust information submitted by TU Electric pursuant to Reg. Guide 9.3 accurately describes et some length the current renewal of the contractual dispute between TU Electric and Cap Rock. That response f rankly apprises the Comission that TU Llectric did not accede to Cap Rock's demands, and that TU Electric took the position that Cap Rock la required to adere to its contractual commitments. Letter of Decernber 5,1991 f rom W.J. Cahill Jr. to S.C. Black, forwarding Response to Reg. Guide 9.3. As shown by the glaring I inconsistencies between the statements made by Cap Rock contenporaneously with the execution of the 1990 PSA and its current position, the sinple truth is that it is Cap Rock, not TU Electric, that is " intentionally" seeking to mislead the Comission.
l
I (March 1992 Comments at 40-41 (emphasis supplied)). Contrary to i Cap Rock's contention, however, " Contract Demand" is not the amount !
of power and energy to be sold by TU Electric and purchased by Cap Rock. The amount to be purchased and sold is instead set forth in ,
1 Sections 3.07(a), 3.01, 3.02 and 3.03 of the 1990 PSA.
Section 3.07(a) srecifies that:
i Power and energy will be sold by TU Electric and I purchased by cap Rock under this Agreement at the Points i of Delivery identified on Exhibit A hereto in the amounts !
specified in sections 3.01, 3.02 and 3.03. (Emphasis )
supplied.)
Section 3.01 of the 1990 PSA requires that: l 1
l Except as otherwise permitted by this Agreement, Cap Rock I shall purchase from TU Electric and TU Electric will sell l to Cap Rock- all of Cap Rock's power and energy l requirements, including normal load growth, at each of 1 the Points of Delivery for resale to Cap Rock's j customers. (Emphasis supplied.) i l Section 3.02 provides that:
In the event and to the extent Cap Rock gives the
,I requisite notice pursuant to section 2.04 hereof and during the period (s) that TU Electric may be required to schedule under Article V hereof, Cap Rock shall purchase from TU Electric and TU Electric will sell to Cap Rock, l at cach of the Points of Delivery (except Points of Delivery which are retained as full requirements Points of Delivery pursuant to Section 3.01 above (the " Retained Full Requirements Points of Delivery"), unless and until such Points of Delivery become partial requirements Points of Delivery as permitted therein), partial requirements power and energy for resale to Cap Rock's customers. (Emphasis supplied.)
Section 3a03 specifles that the power and energy:
supplied hereunder shall include normal load growth for each Point of Delivery specified in Exhibit A hereto, Thus, Section 3.07(a) of the 1990 PSA expressly identifies the quantity of power and energy to be purchased by Cap Rock and sold i
by TU Electric as the " amounts" specified in the full-requirements, partial requirements and load growth sections -- i.e., Sections 3.01, 3.02 and 3.03.
Furthermore, Sectir)n 3.05, which establishes the rato of charge for the power and energy to Le purchased by Cap Rock expressly recognizes that such power and energy may be "in excess of Contract Demand."" Specifically, Section 3.05 states that:
It is distinctly understood and agreed that the monthly rate of charge (including any charges for power and I energy in excess of Contract Demand and any demand determinations affecting billing demand) for all power and energy which Cap Rock shall purchase from TU Electric and TU Electric is required to sell to Cap Rock under I this Agreement shall be pursuant to TU Electric's Rate WP Wholesale Power, or its successor, as the same may from time to time be fixed and approved by the PUCT. (Emphasis supplied.)
Thus, under the 1990 PSA, service to Cap Rock is not curtailed if Cap Rock exceeds its 's?ontract Demand," as would be the case were
" Contract Demand" the set " amount" of power to be purchased.
This issue was covered at length in the injmetion hearings in the Midland Litigation. As TU Electric's witnesses testified, under TU Electric's tarif f Rate WP Wholesale Power (" Rate WP"), which has the f(rce and ef fect of law, the demard charges that TU Electric's requirements customers must pay to TU Electile are I predicated on the actual kilowatt d)mands those customers place on TV Electric's system, not the " contract demand" specified in their power sus: ply agreements. However, TU Electric's Rate WP does include en adjitional charge equal to "$1.00 per Kw for each current month kV in excess of the contract kW" (h, Contract Demand).
This is the charge ref erred to in Section 3,05 of the 1990 PSA when it states that the " monthly rate of charge tincludes) any charaes for cower and enerov in excess of Contract DemMa " The charge of $1.00 per kW in excess of Contract kW is designed to istpose a surcharge on a wholesale customer who f aits to accurately estincte its expected (h, projected) power and energy requirements at a point of delivery. Pequiring a customer to project its maxinasi demard at each point of delivery in the form of the Contract Demand specified in the agreement for electric service, and then inposing a surcharge if Contract Demand is exceeded, provides an econcale incentive for the custcener to accurately project its maximum demands. TU Electric's witnesses testified that these projections assist TU Electric in its planning process so it can have the necessary capacity evaltable to meet its customers' maximun demands. IAttachment 2 at 161 162; 167 168; 289 295).
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l In short, the term " Contract Demand," as defined and used in the 1990-PSA, is merely a planning tool and in limited instances may be used as a billing tool.20 At the heart of Cap Rock's contentions regarding th alleged unenforceability of the 1990 PSA is the fact that Exhibit A to the Agreement is " blank." (March 1992 Comments at 41). Cap Rock's 1
contentions are wholly without merit. The physical completion of a piece of paper labeled " Exhibit A" is not a condition precedent to the obligations of either Cap Rock or TU Electric with respect ;
to the amount of power to be sold and purchased under the 1990 PSA.
As discussed above, those obligations are governed by sections 3.07(a), 3.01, 3.02 and 3.03 of the Agreement.
The 1990 PSA does mandate, however, that Exhibit A be filled in on the effective date of the Agreement with the Points of Delivery, determined by applying the standard specified in Section 1 . 1 1 , 21 and the Contract Demands projected by Cap Rock in 20 Contract Demard is defined in seetion 1.01 of the 1990 PSA as follows:
" Contract Demand shall mean tha maxisun amount of power and energy expressed in kilowatts (Contract Kw) that Cap Rock projects TU Electric will be required to provide at each Point of Delivery. Contract Demand will be specified on Exhibit A, which may be changed from time to time as provided in tection 3.08 hereof.
Section 3.08 of the 1990 FSA provides, in relevant part, that I Contract Demand shall be specified for each Point of Det tvery identified on Exhibit A.
Contract Demand at any Point of Delivery may be changed f rom titre to time on Exhibit A, upon 12 months' prior written notice to TV Electric (but no more frequently than once every 12 months), as the rerutt of normal load growth or normal load reductions (which, in either case, does not incide load transferred to or f rom another source, including Cap Rock) at each such Point of Delivery.
The " Points of Delivery" at which Cap Rock is required to pJrchase power and energy from TU Electric, in the ' amounts specified in Sections 3.01, 3.02 and 3.03, are defined in section 1.11 of the 1990 PSAs
" Points of Del' ery" shall mean all points within TU Electric's Control Area at which TO Electric naintains an electrical comection with Cap Rock existino on the ef fective date
! hereof, each of which Points of Delivery shall be specified on Exhibit A hereto, which shall be amended from time to time in accordance with Section 3.07(b) hereof. (Emphasis supplied.)
(continued...)
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I accordance with Sections 1.01 and 3.08. Thus, Cap Rock and TU Electric both had an obligation to see that the proper information was "specified" on Exhibit A on the effective date of the 1990 PSA.
When Cap Rock failed to abide by its obligation under the 1990 PSA l l
to specify its Contract Demands and identify the proper Mints of Delivery on Exhibit A, TU Electric specifled the Contract Demands i
and Points of Delivery in a January 30, 1992 letter to Mr.
Collier -- namely, the Contract Demands and Points of Delivery that I
were existing and in of f oct under the 1963 Agreement on January 30, 1992, immediately prior to the February 1, 1992 effective date of l the 199 0 PSA.22 [Vol. IV, Tab 1). )
1 In summary, the 1990 PSA is a fully enforceable and binding contract, which requires Cap Rock to purchase from TU Electric and 21 ( . . . continued)
To account for the ongoing consolidations ard conversions of Cap Rock's points of delivery undar the I 1963 Agreement, future changes in contract demard under the 1963 Agreement due to load growth as well as such consolidations ard conversions, and the f act that the date upon uhich Cap Rock would ultimately choose to terminate the 1963 Agreement was totally within Cap Rock's control, the parties agreed to identify what the Points of Delivery would be under the 1990 PSA by specif ying the standard in Section 1.11 When that standard is applied, the Points of Delivery mder the 1990 PSA can be, and in f act have twen, identified with absolute certainty. Indeed, at no time has Cap Rock disputed, nor can it dianute, that the points of delivery dich existed mder the 1963 Agreament at the moment it was terminated by rap Rock, elfeetIve at 12:01 a.m. on Febrmry 1,1992, are the same Points of Delivery dich existed at that same moment -- 12:01 I a.m. on Febrmry 1,1992 -- 4en the 1990 PSA became ef fective in accordance with the empress terms of Section 2.01.
22 Cap
~~
Rock has also advised this Comission and tterrpted to argue ln the Midland Litigation that it had made arrangements wish WTU under which WTU had " agreed to take over control area responsibility for Cap Rock
. . . beginning 12:01 AM, February 1, 1992, the ef fective date of the termination of Cap Rock's full requirements contract with (TV Electric 1" (Vol. IV, Tab Y at 41, so that, on the effective date of the 1990 PSA, none of Cap Rock Electric's delivery points would have been in TU Electric's control area. Thus, accordin0 to Cap Rock, its delivery points woulo not have cctne within the definition of Points of Delivery in Section 1.11 I of the 1990 PSA.
This argument fallc for two simple reasons. First, there is no gap or moment in tine between the termination of the 1963 Agreement and the ef fectiveness of the 1990 PSA during which Cap Rock could have effected such a move to WTU's control area. Indeed, Section 2.01 of the 1990 PGA states that:
Thl: Agreement shall become ef fective, with respect to Cap Rock, f rom and af ter Cap Rock's termination of (the 1963 Agreement).
I (Vol. IV, Tab 91 at 51. Second, even if such a gap existed - which it does not -- as WTu's own wi tness testified, the arrang:menta Cap Rock was negotiating with WTU did not include moving the Cap Rock points into VTU's control area. }gg Attachment 3 hereto at 133; }es e als.g pp. 142-143.
I
I 1 TU Electric to sell to Cap Rock all of Cap Rock's power and energy requirements upon the effectivo date of the Agreement, until such !
l time as cap Rock gives the requisite two or three yearc' notico under Section 2.04 and/or Section 2.05 to reduce load supplied by l
TU Electric or to terminate the contract, and the applicable notice period has expired.23 j III.
I CAP ROCK FULLY RECOGNIZED ITB ODLIGATIONS UNDER THE 1990 PSA WHEN THE AGREEMENT WAS EXECUTED When the 1990 PSA was executed, Cap Rock fully recognized and understood its full-requirements and notice obligations under the contract. On June 11, 1990, three days after the Agiw.sment was executed, Steve Collier reported tc David Pruitt as follows:
THE GOOD NEWS IS THAT WE_llAVE NEGOTIATED A DEFINITIVE PSA!
[Vol. III, Tab 93, emphasis in original] . Mr. Collier further reported that:
I I believe that the enclosed agreement represents a While it is not the workable power supply agreement.
I perfect agreement that we would write unilaterally, it does give us a reasonable opportunity to implement power supply alternatives. * *
- Even so, the power supply agreement notice requirements, and I
term, othur constraints will pose significant limits as we attempt to develop our power supply alternatives. I will look forward to presenting the benefits and difficulties of I this agrennent to the Cap Rock Electric and Lone Wolf Electric Boards sometime next week. (Emphasis added).
I 2 Section 2.04 of the 1990 PSA requires Cap Rock to give three years' advance written notice in yei 5 or*
through five a.Ki five years' notice thereaf ter to redxe the load served by TU Electric.
Section 2.05, however, permits Cap Rock to remove w to 30 MW of load at one or mie of nine specified Points of Delivery on only two years' advance written notice.
I
Significantly, Steve Collier's notes for his briefing of the Cap Rock and Lone Wolf Boards of Directo!.'s on the 1990 PSA states that one of the " CON's" of the contract, from Cap Rock's perspective, is that it "still has 3 yr notice." Steve Collier's briefing notes list the " PRO's" of the contract as follows:
"better than we are now," "better than anyone else," and
" workable." (Vol. IV, Tab 95].
Cap Rock, through its counsel John M. Adragna, also informed this Commission of the execution of the 1990 PSA and the workable nature of the contre.ct. By letter dated June 28, 1990, to the Director [Vol. IV, Tab 97] withdrawing Cap Rock's 1989 regtmst for enforcement, Mr. Adragna advised the Commission that:
The (1990 PSA) provides a means by which Cap Rock will be
[
able to engage in an orderly transition from its current status as a full requirements customer of TU Electric, to a partial requirements customer of TU Electric and, ultimately, to a separate and independent electric l utility. Cap Rock's transition, ultimately to l independent status, will obviously be a complicated, multi-step process that will not occur overnight.
(Emphasis supplied).
- Significantly, Cap _ Rock also expressly acknowledged, in its July 15, 1990 press release touting the benefits of the " landmark" 1990 PSA 5 that Cap Rock was required to give the two or three year notices specified in the Agreement before it had the right to begin l
purchasing part or all of its power and energy requirements from other suppliers:
The agreement becomes effective when Cap Rock Electric terminates it [ sic] current power supply contract with TU Electric, Collier said. The new contract requires two or three years notice by Cap Rock to begin serving load with other power supplies, Collier explained.
l
I (Vol. IV, Tab A (emphasis supplied)). This press release, issued contemporaneously with the ~ execution of the 1990 PSA, directly contradicts Cap Rock's current claims (102, g.g., March 1992 Comments at 40) that Cap Rock never intended to be a full-requirements customer of TU Electric after termination of the 1963 Agreement, except at its option.
1 rim!1arly, Cap Rock's current position is also directly I contradicted by the contemporaneous record of a conversation between David Krupnick of SPS and Mr. Collier on June 21, 1990, which is set forth in an inter-office memorandum of the same date from David Krupnick to Gary Gibson of SPS. Mr. Krupnick's memorandum states that:
I spoke to Steve Collier today. . . . He indicated (Cap Rock) had reached a new power supply agreement with TU on June B. The agreement allows them to move 30 MW of their north system load of f TU with 2 years' notice. (Emphasis added)
[ Attachment 4). The "2 years' notice" clearly refers to Section 2.05 cf the 1990 PSA which permits Cap Rock to remove all of the load, up to but not exceeding a total of 30 MW, at one or more of nine specified Points of Delivery on two years' advance written I.- notice given in years one through five of the agreement. (Vol. IV, Tab 91 at 8-9).
The notice provisions under the 1990 PSA were also the topic of discussion during a metting on October 19, 1990, between Steve Collier, David Pruitt and Rusty Jones of Cap Rock and Gary Gibson I
17 -
I and David Krupnick of SPS. Mr. Krupnick's notes from that meeting?' read, in relevant part, as follcus:
S.C. Looked at feasibility of all load I' Power Agreement identified actual substatio.ns (2 year) e Current contract has three years notice 30 days to 3 yrs in 120 day window on rate change around final order 2 years worse for 30 MW 3 years worse for all ayatem (Attachment 6, emphasis added] Mr. Krupnick explained in his deposition that the initials "S.C." refer to Steve Collier (Attachment 5 at 100) and testified as follows regardir.g the statements "2 years worse ~ case) for 3 0 MW" and "3 years worse (case] for all system":
(They) refer [] to the fact that if (Cap Rock) had to put all their delivery points on this new 1990 (PSA), if they I enuldn't have an interim supplier, then .
would be the longest that they would have to wait te :aove 30 megawatts to (SPS). * **
. . two m ars
( And) they would have to wait the three years before they could move all of their system over to (SPS). That was the notice requirement . . . for delivery points . . .
I not included in the two year notice.
(Attachment 5 at 103).
I I
I I Sig Attachment 5 hereto at 98-103.
I
i g IV.
CAP ROCK's BCHEME TO PURCHABE POWER FROM OTHER BOURCES I IS IN DEROGATION OF IT8 OBLIGATIONS UNDER THE 1990 PBA Notwithstanding Cap Rock's recognition and thorough understanding of the notico requirements under the 1990 PSA, Cap Rock's management nevertheless devised a scheme and embarked on a course of conduct to purchase power and energy from WTUzs and SPS
[ Attachments 7 and 8) in conscious derogation of Cap Rock's f
obligations to TU Electric under the 1990 PSA.26 During its negotiations with WTU and SPS, the Cap Rock management began to anticipate TU Electric's reaction, and the preciso position TU Electric has taken, to any attempt by Cap Rock to begin purchasing power from another source upon termination of the 1963 Agreement without first complying with the notico provisions of the 1990 PSA. For example, in a June 19, 1991 report to David Pruitt regarding Cap Rock's propoced purchase of power from WTU, Mr. Collier stated that:
I -
I Despite the statements in the January 6,1992 letter to the Director f rca John Michael Adragna, Cap Rock's counsel (Vol. IV, Tab Y) ("[ap Rock has executed a contLoct with VTU pursuant to iditch W10 has agreed to take over control area responsibility for Cap Rock ard to sett Cap Rock its full taalk pcwer respircements, trgimire 12.01 AM, February 1,1992, the effective date of the termination of Cap Rock's full rervirements contract with TIEC."); the sworn statements in Cap Rcck's Original Petition; and the sworn testimony of Steve I Collier to the contrary, there is not now, nor has there ever been, a contract between Cop Rock and WTU -- a f act which even Cap Rock now adnits. ((13, g.g., March 1992 Coments at 25) .
26 tt was not until early 1991 that TU Electric first learned of the specific nature of some of Cap Rock's I plans to purchase power f rom other sources f rom an article in the February 4,1991 edition of " Electric utility Week." The article stated that Cap Rock had " negotiated an agreement M principle to txty 40 MW of wholesale power f rom (SPS) f or 10 years." (Vol. IV, Tab F) . As TV Electric's Henry Bunting testified, af ter reading the article, he catted Steve Collier who advised Mr. Bunting that the announcement of an agreement in principle with SPS was " premature." (Attachment 2 at 249). During this telephone callt I A. Mr. Collier said that when be got down to the point where he had his -- had this worked out, that he would sit down with TU Electric, and because he didn't want, and
} quoted, he didi% want to blind side un about things he was working on.
(Attachment 2 at 251, emhasis added; s_e3 gl i g vot. IV, Tab C). Of course, that is not how Cap Rock chose to proceed.
- 19 -
I
I It is very likely that TU Electric will vigorously oppose our. plan to move all of our load into the WTU control area in making the transition from our (1963 Agreement]
to the new power supply agreement which we executed last year.
(Attachment 9).
The following month, in another report to Davia Pruitt dated July 15, 1991, Steve Collier again emphasized that:
Please be aware that this power supply arrangement (with I WTU) has some risk of opposition or even litigation by TU Electric. We will be terminating our existing all-requirements agreament with TU Electric sometime in the next few months when the PUCT issues a final order in the Comanche Peak nucle.ar plant rate case. * *
- TU Electric will take the position that all of the existing I load must be transferred to the new contract and then two to three years notice given to serve load from WTU.
(Emphasis supplied).
[ Attachment 8).
Mr. Collier also informed WTU, by letter dated June 12, 1991, that:
As we discussed, TU Electric is nst likely to be pleased
. . . and can be expected to insist that we do not have the option of simply moving all of the load to WTU in making the transition from our current [1963 Agreement)
I to the new power supply agreement that we executed in June, 1991 [ sic).
[ Attachment 10].
Thus, knowing full well TU Electric would take the position that Cap Rock was required under the 1990 PSA to purchase full-requirements power and energy from TU Electric upon Cap Rock's termination of the 1963 Agreement -- as Cap Rock itself had recognized and publicly acknowledged when the contract was executed
-- the Cap Rock management began to develop a strategy of calcu3ated harassment of TU Electric for the express purpose of attempting to gain leverage for its planned load transfers to WTU and SPS, which Cap Rock knew were in derogation of the 1990 PSA.
For example, in his June 19, 1991 report to David Pruitt regarding the SPS and WTU negotiations, Steve Collier stated that:
So=e information has been received which suggests that TU I Electric may file for the Comanche Peak Unit No. 2 rate increase as early as December of this year. This would be timely, as Cap Rock Electrio's intervention in such a case would strengthen its bargaining position in the WTU I and [8PS) load transfers.
TU Electric has alao filed a notice of inquiry (NOI)
I application at the PUCT for some now combined cycle gas generation. The NOI proceeding is a precursor to an application for a certificate of convenience and necessity. Cap Rock Electric will be intervening in the I NOI proceeding to: (i) receive valuable information on TU Electric load forecasts and row te plans, (ii) take reasonable steps to protect its c.- .amers in light of the I wholesale rate impact that this could ultimately have, and (iii) begin to build a negotiating position for the WTn and (SPB) load transfers. (Emphasis supplied).
(1 tachment 9 at 3-4]
In the fal) of 1991, after having laid all the groundwork it thought necessary to carry out its plans --
while steadfastly keeping those plans secret from TU Electric -- Steve Collier _
contacted Darrell Bevelhymer and requested a meeting, which was held on october 22, 1991 with Mr. Bevelhymer and Mr. Bunting of TU Electric. _[ Attachment 2 at 251-52). Mr. Bunting testified as I follows regarding that meeting:
I Q. Could you describe what occurred at that meeting, sir?
A. Mr. Collier asked, or in fact he told us that he I didn't need the 1990 Power Supply Agreement any longer, and that he intended to take all of his load over to WTU in January of 1991.
Q. What was your reaction to that, Mr. Bunting?
I
I A. I was shocked.
Q. Why?
A. Because this was not my understanding of the 1990 Power Supply Agreement. I knew that we had I negotiated this agreement over a number of months, that we had spent a long time negotiating this agreement, . . . which Cap Rock said was very important to them that gave them a lot of flexibility, and now for him to como up and .nake this statement did shock me.
(Attachment 2 at 252 (emphasis supplied)].
The next day, October 23, 1991, Mr. Collier wrote Mr.
Bevelhymer, advising that:
When we first executed the (1990 PSA) with TU Electric . . ., we expected that the TU Electric rates would become final and that the special 120 day window for termination (of the 1963 Agreement) would come and go before we would be able to finish our alternative power supply-arrangements. At that time, we thought it might be necessary to provide notice to terminate our existing I all-requirements (1963 Agreement) and begin serving load under the new [1990 PSA) before we would be in a position to begin to serve load with alternative power supply g_ resources. However, we have been able to complete our g power supply arrangements more quickly than we thought. . . . As a result, we now anticipate being able to termincte our [1953 Agreement) without having to serve any wholesale load temporarily under the new [1990 PSA).
.I I We have . . . entered into a lett.r of intent with West Texas Utilities Company, ani we au .pate completion and execution of a definitivo contrae within the next few weeks, to begin purchasing all of our wholesale power I requirements from WTU as enrly as January, 1992.
(Emphasis supplied).
[Vol. IV, Tab K).
TU Electric responded by lettet dated November 4, 1991, from Mr. Bunting to Mr. Collier, informing Cap Rock that:
TU Electric expects Cap Rock to fully comply with the 1963 and 1990 power supply agreements. To comply with those agreements, it will not be possible for you to I-
l purchase power elsewheie, including Cap Rock's p.oposed ,
purchase from (WTU) . . . until the cancellation of the )
1963 agreement and only then upon the expiration of the I . . . notices provided for in the (1990 PSA) and compliance with all other terms of that contract.
j j
[Vol.-IV, Tab M).
By memorandum dated November 6,1991, David Pruitt transmitted a copy of Mr. Bunting's November 4, 1991 letter to the cap Rock Brard members and management:
The enclosed letter from TU Electric, Henry Bunting, who was one of the final negotiators it our contract that we signed with (TU Electric) in June of '90, stated the position that I have all along felt [TU Electric) would take. It's kind of their Declaration of War. Tney are taking a very hard line approach. They are trying to scare off SPS and WTU. ***
I feel we need to do whatever it takes in the news media, in the courthouse, interventions, make them sue us, etc.
We need to develop a strategy so the " giant" (T.U.) has to stop us versus us trying to make the giant move.
[ Attachment 11 (emphasis supplied)).
Another meeting between TU Electric and Cap Rock was then I_ scheduled for November 19, 1991, but was cancelled at the last minute by Mr. Collier because, as TU Electric only learned during discovery in the Midland Litigation, Cap Rock had not yet completed its strategic planning for the litigation.
For example, by letter dated November 19, 1991, Steve-Collier advised Gary Gibson of SPS that Cap Rock was scheduled to meet with
'TU Electric that afternoon "to discuss our disagreement and to attempt to identify a resolution." Mr. Collier further stated:
We anticipate an adverse response by TU Electric.
Therefore, we are having a strategy meeting with our lawyers and_ consultants in Midland tomorrow to f.inalize legal and other 3 :tions that we will take. We will continue to keep yr- apprised of our status and progress.
I
I E . attachment 12). However, the following day, November 20, 1991, Collier again wrote Mr. Gibson and informed him that:
- * * [w)e did not actually meet with TU yesterday as we had originally planned. Upon advice of my attorneys, we I cancelled the meeting at the last minute.
because we did not have our legal strategy finalized, and so did not have in hand those filings that we would make This is in court and the accompanying press releases. . . .
Therefore, we will wait a week or two to meet with TU Electric until we have our legal strategy and the resulting filings in hand. (Emphasis supplied).
[ Attachment 13].
Not uncharacteristically, Steve Collier's explanation to TU Electric differed dramatically. By letter dated November 22, 1991
[Vol. IV, Tab T), Steve Collier wrote Henry Bunting as follows:
I am writing to express my apologies for fouling up our I meeting schedule earlier this week. After imposing upon you and your associates to delay the meeting until the afternoon I then had to cancel out. Unfortunately, something important came up that caused me to be unable to get to the meeting.
Subsequently, at the November 26, 1991 meeting of the Cap Rock Board of Directors, Steve Collier reported on his earlier discussions with TU Electric on October 22. The minutes of that Board meeting state that:
Mr. Collier reported on power supply activities. (1) TU Electric - Contract Termination. CRE has had several discussions with TU Electric about CRE's plans with SPS and WTU as well as cancellation of the wholesale power contract CRE has with TUEC. CRE had a strategy session to determine the next course of action against TU. CRE I would consider the following courses of actions negotiate with TU, (b) File legal actions against TU, and (c) Keep TU's name in the newspapers via PR campaign.
(a)
(Emphasis supplied).
[ Attachment 14].
I y
I Representatives of TU Electric and Cap Rock met again on December 12, 1991, but no resolution of the dicpute was achieved.
At that raceting, TU Electric informed Cap Rock that TU Electric would consider waiving the notification provisions of the 1990 /SA if Cap Rock was willing to make TU Electric and its custon rs whole, but Cap Rock declined to do so.
Therefore, consistent with the strategies developed by the cap Rock management, lawyers and consultants en 11ovember 20, 1991
[ Attachments 12 and 13] and cascussed at the tiovember 26, 1991 Cap Rock Board meeting (Attachment 14), Steve Collier, by letter dated December 19, 1991, notified Darrell Bevelhymer of TU Electric, <
among other things, of Cap Rock's termination of the 1963 Agreement
" effective at 12:01 a.m. on February 1, 1992," and demanded that TU Electric sign a " wheeling agreement" to facilitate Cap Rock's proposed purchase of power from WTU. Steve Collier's letter also stated that:
As of that date, Cap Rock and its Lone Wolf Division will I purchase all of its wholesale power requirements from
[WTU). As you know, and as it is expla'ned in detail in a lawsuit entitled . Cap Rock Electric Cooperative, Inc. v2 I T.exas Utilities Electric ComDany, it is Cap Rock's position that TU Electric has no right to prevent or delay the WTU transaction. * * *
-Since beginning on February 1, 1992, WTU will be wheeling power to Cap Rock over [TU Electric's] system, we will need to execute with you a wheeling agreement. * ** I I expect you to sign the [ wheeling) agreement prior to February 1,1992 when the wheeling will begin. (Emphasis supplied.)
(Vol. IV, Tab V).
On the next day, December 20), ! wl, Cap Rock instituted the I Midland Litigation asserting that the 1990 PSA is unenforceable, as I
I L,
well as seeking mandatory injunctive relief requiring TU Electric
" to take action to permit Cap Rock to receive electric power from WTU.'
In addition to filing suit against TU Electric, Cap Rock isnplemented its planned strategy to "(k]eop (TU Electric's) name in the newspapers via PR campaign." ( Attachment 14) . For example, Cap Rock announced the filing of the Midland Litigation in an article which appeared in the December 26, 1991 edition of the $;pnton _
licra M. (Attachment 15). Through various blatantly one-sided press releases, none of which even mentions the existence of the 1990 PSA but all of which tout the benefits of the non-existent WTU contract (ang n. 25 ghra), Cap Rock also informed the media of the commencement, on March 26, 1992, of the hearing on Cap Rock's request for a temporary injunction (Attachment 17 at 1-3).
c, 2I Cap Rock's Original Petition irsatitutitig the Midlard Litigati m was filed at 9:55 a.at. on Decender 20, 1991. (Vol. IV, lab V). Also on Decender 20,199;, at 2:39 p.s clor to fu llectric's tearning that Cap Rock's suit had been filed,10 Electric itself filed suit ogsinat W Rock in the 14th Judicial District Court in Dettas Comty, Texas for ant!"lpatory repidlet tor d breach of contract, ard seeking a declaratory Judanent as to the penning c' the 1990 Pepr $ugply Agreemetw. ( At t achnent 16) . Af ter learning of the filing of Cap Rock's suit,10 Electric dismissed the Dallas County actim against Cap Rock ord, on J-Nary 13, 1992, filed a counterstale against Cap Rock in the Midlard Litigation seek f r$. among other things, declaratory judgment that *the 1990 Power surpty Agreement beccmes of f ective in accordance with its terms tpon (C ap R oc k 's termination of the 1963 Agreement) ard Cap Rock is required
- rurchase all of 4ts gower ard energy reqJiretrents f rom TU tiectric pursuant to the provisions of the 1990 P:.ar $4 ply Agrg.eent mtil such tise as Cap Rc<k provides the requisite notice (s) to TU Electric as required by An Apeenent." (Vol. IV, lab 2).
Thus, at the time ce s Rock filed its Harch 1992 Cce:wts with the Carnission, it was well aware of tu (tectric's counterctale in & 1 aldtard Litigation ard the specifle nature of the declaratory relief beinC sought by TV tiectric. However, 9at knowledge, characteristically, did not prevent Cap Ruk f rces misleading the Ccersnission, with a blatant -dschood, in its March 1992 Ccumentet It mus: 4 eartAssited what (tu Electric) has !)21 dane. (tu flectric) has not sought legal or ecpitab.e remedies to redress what it contersis would be an illegal breach of contract by Cap Roc k. for example, DJ E tectric) has not sought to test the merits of its 'interpretaticre
$n court by seeking a cbclarfory order confirming that interpretation. (lathesis in original)
(March 1992 Ccuments St 4), of course, that is precisely what fu t Lectric had cbne in its counterclaim more than two .mnths bef ore the fiting of Cap Rock's March 1992 Conventst
I Numerous representativoa of the local media were present throughout the injunction hearing.28 Similarly, in a newspaper article which appeared in the April 10, 1992 liisiland ErnQtter-Te199IMD (Attachment 18), Cap Rock also announced the filing of its March 1992 Comments with this Commionion."
I V. _
I Ti!E WTU AND DPD "DUCCEDB FEE" CONTRACTD ARE TIIE TRUE HOTIVATING FACTORD DE!!IND CAP ROCK'S ATTEMPTB TO ADROGATE Ti!E 1990 PDA The cap Rock management has vigorously attempted to convince its membern, the general public, the Court and this Commincion I (Vol. IV, Tab Y; March 1992 Comments at 3, 13, 21) that the decision to content the enforceability of the 1990 PSA was ,
motivated solely by a desire to achieve a savings in power costs for the Cap Rock members.30 llowever, another motivating factor in hardly that noble.
As TU Electric has only recently learned, both Steve Collier,
- Cap Rock's Director of power Supply, and David Pruitt, Cap Rock's 28 0n May 11, 1992, the Court denied Cap Rock's motion f or a tecgorary injuwtlon. TU tiectric telleves I that it will ultinetely prevall on the merits in the Midlard Litigation ard is currently seeking aus.ary Jsdgnent relief f rca the Court. Ccples of TU Electric's brief s allt te furnished to the Cw,nission when they are filed with the Court.
I OCap Rock's attenots to gain leverage over tu Electric were not, however, confired to the issuarte of press releases ard misleading statecents to the press, in a obvious atteopt to influence the general public ard gar,wr local support for its actions against 10 (lectric, Cap Rock also engagece in a sessive letter writing carpaign, which incttxied letters to many trdividuals who are not even eligible to purchase electricity f rorn Cap Rxk. ( At t act ment 19) .
30 f or enanple, a Cap Rock press release dated March 26, 1992 (the day tefore the hearing began on Cap Rock's request for injunctive relief) states that " Cap Rock llectric is seeking to step [tu llectric) frca interfering in the delivery of power to Cap Roc k f roen (W1U) * *
- Cap Rock iLectric can buy power f or at least 20 percent less f rom WTO than it can f rca tu flectric. That savings wilt translate to about a 10 percent savings pe, year f or Cap Rock Electric custoniers - or about $3 mitticei annually." (Attachment 17).
- 27 -
1 I
I General Manager and Chief Executive Of ficer, knew that, if Cap Rock could avoid its obligation to purchase all of its requirements from TU Electric under the 1990 PSA, upon termination of the 3963 Agrooment, and instead begin purchasing its power f rom WTU and SPS, Steve Collier and other members of the Cr,p Rock management team would be in a position to immediately garner significant, personal financial gain from a success fee contract tied to the WTU and SPS I purchases.
On November 26, 1991, two " success foo" contracts (one for the proposed WTU contract and one for the SPS contract) were executed by David Pruitt and Russell Jones, Chairman of the Cap Rock Board.
(Attachments 20, 21, 22 and 23). Steve Coll.or executed the WTU and SPS success fee cont acts on December 10, 1991 and December 11, 1991, respectively -- less than two weeks bafore f.iling the Midland Litigation on December 20, 1991. (Attachmenta 23 and 22).
Under the WTU succeas fee contract, the amount of the success fee is:
two percent (2%) of the not savings, where the not savings is defined as the amount by which WTU purchased power costs are Jess than the purchased power costs would have been had TU Electric remained the full-requirements power supplier. (Attachment 20 at 1).
The SPS success fee contract (Attachment 21) contains identical language, except that the " net savings" is the difference between the SPS and TU Electric purchased power costs.
Each of these success fee contracts provides that Steve Collier, as the " responsible individual," is to receive 50% of the success fees, with the remainder being apportioned among "other I I
I management team members." At the injunction hearing, Stovo Collier testified that, under the WTU success feo contract, he would have been able to supplement his salary by approximately $30,000 por
. car, representing an approximato 36% annual increase in his baso salary. (Attachment 2 at 335-37). Once the SPS success feo contract went into ef fect, Mr. Collier testified that the amount of l 4
the annual success foo he would rocoive would be approximately I $40,000. (Attachment 2 at 336).
Significantly, the amount of the payments under the success foe contracts was to be based upon the not savings Cap Rock might achiovo if it were uolo to purchaco power from those alternato sources --
WTU or SPS --
as compared to purchasing full-requirements power from TU Electric under the 1990 PSA (Attachment 2 at 338-340, emphasis a cided ) , even though in both casos the rates for purchased power are regulated by the Federal Enorgy Regulatory Commission and set forth in a tariff filed by both WTU and SPS. It hardly takes a genius to purchase pcwor froin ;
1 a regulated electric utility at the tariff rato! Therefore, Steve Collier and David Pruitt were to receive a foo for the successful abrogation of the 1990 PSA, not the successful negotiation of power supply arrangements with WTU and SPS.31 It is against this background of events that Cap Rock's March 1992 Comments requesting the institution of an antitrust review must be ovaluated.
I tap Rock ard Mr. Collier vigorously attenpted to persuade fu tiectric ard the Court that no signed success fee agreteents existed when, in f act, the existence of such signed contracts was known not only to Mr.
Collier, but to Cap Rock's attorneys as well. These terious matters are the sWject of fu Electric's ferding MotiLn f or leposition of Sanctions in the Midland Litigation.
29 -
I
I I mom VI.
NO DADIS EXIDTD FOR A "DIGNIFICANT CHANGES" FINDING UNDER BECTION 105(o) OF THE ATOMIC ENERGY ACT Congress did not intend for prospectivo nuclear plant licenscos to undergo rodundant antitrust reviews, one at the construction permit stage and one at the operating licenso stage.
I Houston Liahtina & Power __Ch , CLI-77-13, 5 NRC 1303, 1316-17 __
(1977). This procopt applies here with special force, for Comancho Peak has already undergono two antitrust reviews, including massivo proceedings from 1978-80 in anticipation of its operating license.
As the Director mado plain the last time Cap Rock raised the same arguments it now raises in its Marcr. 1992 Comments, under Section 105(c) of the Atomic Energy Act, operating licenso antitrust proceedings are appropriate only where thoro have boon significant changes in the " activities under the licenso" which were not anticipated in the prior antitrust reviews, and which havo
" antitrust implications that would likely warrant somo form of Commission remedy" beyond the existing licenso conditions.
Reevaluation and Af firmation of No Sionificant Change Finding at 7; Texas Utilities Electric Comnany Notico of No Sinnifiqant Criangga.
Accord South Carolina E13gstric & Gas Co. ansi South C_arolina Publiq Service Authority, (Virgil C. ,ummer Nuclear Station, Unit ho. 1),
CLI-80-28, 11 NRC 817, 835 (1980), CLI-81-13, 13 NRC 862, 871 (1981).
I I
u m .-.
b'id Sap Rock's allegations totally fail to meet these criteria.
P:.eed, Cap Rock's March 1992 Comments merely resurrect the same contentions already addressed and rejected in the Director's previous "no sj gnificant changes" determination.
Cap Rock Resurrects the Base Arguments Previously I A.
Rejected By the Director in His No Significant Change Determination.
- 1. Cap Rock's Previous Comments Charged TU Electric with violating Its Existing License conditions.
When the Commission asked for antitrust comments in connection with the operating license for Comanche Peak Unit 1, Cap Rock's Comments provided precisely the same arguments it rehashes here now. In its Comments on August 9, 1988, Cap Rock, as it does again now, sought to circumvent the notice provisions in its full requirements 1963 Agreement with TU Electric. Specifically, Cap Rock complained that TU was unwilling to provido partial requitements or transmission service to Cap Rock until Cap Rock had complied with the notice of termination provisions in that contract. Cap Rock characterized this as a " direct violation" of the existing license conditions.32 Cap Rock later reiterated these charges in asking the Director to reconsider his "No Significant Changes Findings," anc8 accused TU Electric of " willful" i
violations.33 I
2 Comnents of Cap Rock Electric Cooperative, Inc., Aug. 9,1988 et 5, 24, Vol.1, Tab 36.
33 aequest of Cap Rock Electric Cooperative, Inc. for Reeveluation, July 26,1989 at 1-2, Vol. Ill, Tab 54 I
Prior No 81gnificant Change
- 2. The Director's Determinations Hold That Operating License Review Proceedings Are Not A Proper Forum for Resolving I Purported Disputes About Compliance With Existing License Conditions.
The Director hold, both in his initial "No Significant Chango" finding and in his " Reevaluation and Af firmation of No Significant Chango Finding," that Cap Rock's allegations did not warrant institution of operating license antitrust review proceedings. He I stressed that under Section 105(c) of the Atomic Energy Act, operating license antitrust review is appropriate only where a complainant identifics significantly changed activities beyond the purview of the prior review and beyond the reach of any existing licenso conditions. Rgevaluation and Af firmation of No Sianificant Chance Findinq at 4-6, 9-10; liglice of lip __jiignifi_ cant Antitnuit Chanaea at 6 and accompanying Staff Analysis at 30-32.
Cap Rock alleged then (and alleges now) no such activities, but rather claimed that the existing licenso conditions were implicated. As the Director explained, even if accepted as true arauendo, Cap Rock's contentions could provido no justification for the institution of now antitrust review proceedings:
If in fact the alleged " changed activities" reoresented new anticompetitive actg_and practicos, then the gKigling licenso conditions would not control or govern those activities. (Emphasis in original.)
Faky.nhiation and Af firmation of No Sinnificant_Shange Finding at 5 (Vol. III, Tab 55).
Finding that "the contral premise of Cap Rock's request is that TU Electric has not complied with its license conditions," the Director concluded that the issues raised by Cap Rock "are not I
germano, .l a ., they do not have a significant connection, to the antitrust operating licenso review process." Lh at 4, 10.
- 3. Cap Rock's Host Recent Comments Re-Allege the Dame i Purported claims.
Cap Rock now raises precisely the same contentions all over again in its March 1992 Comments. The contral promise of the March 1992 Comments, as stated on their second page, is precisely the I same as before -- that TU Electric's insistence that Cap Rock comply with its contractual notice provisions " violates . . . [the existing) Comancho Peak license conditions."l' March 1992 Comments at 2. The same analysis previously employed by the Director to reject those arguments applies squarely onco again.
What is involved here is a contract dispute betwoon TU Electric and Cap Rock, not any now type of activities or any now antitrust issues. Cap Rock implicitly admits this, when it charges TU Electric with violating the existina licenso conditions. Under these circumstances, even if Cap Rock's allegations were assumed meritorious argggndo -- and they are groundless -- Cap Rock would have alleged at most a potential enforcement mattor involving the existing Comanche Peak license conditions. Under established law and the Director's prior rulings, no "significant changos" exist within the meaning of Section 105(c).
I I'Indeed such of the March 25, 1992 filing is essentially cut and pasted f rcsa Cap Rock's prior rejected filings. For emanple, conpare pages 10 35 of Cap Rock's March 1992 Comments with pages 8 32 of Cap Rock's August 9,1988 Corments. Id2 Vol. I, Tab 36.
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I D. The Current Contract Dispute Detween TU Electric and cap Rock Dears No Nexus to Any Activities Under License.
Cap Rock's request for the institution of operating license i
antitrust proceedings is f atally deficient on another, independent ground. There is no " nexus" between Cap Rock's allegations and any licensed activities.
In order to trigger antitrust review proceedings under the Atomic Energy Act, "an intervenor must plead and prove a meaningf ul nexus between the activities under the nuclear license and the
' situations' alleged to be inconsistent with the antitrust laws."
Louisiana Power & Light Co. (Waterford Steam Electric Generating Station, Unit 3), CLI-73-25, 6 AEC 619, 621 (1973) ("Hato m nt 11"). Yet here, the only such " link" even hinted at by Cap Rock is ,
that it seeks to avoid paying TU Electric's wholesale rate for power and energy "which includes the costs of Comancho Peak Unit Nos. 1 and 2." March 1992 Comments at 21. In Enterford_11, the Commission specifically held that the more fact that power from a nuclear plant is commingled with power from all of a utility's -
other generation does not authoriu the Commission to review all of the utility's commercial practices. Waterfprd II, 6 AEC at 621.
Thus, Cap Rock's assertions fail to meet the nexus requirement.
I Nor can Cap Rock claim that a meaningful nexus exista merely because its claim relates to the existing Comanche Peak license conditions. This argument has already been flatly rejected. In florida Power & Light Co. (St. Lucie Plant, Unit No. 2), ALAB-665, 15 NRC 22 (1982) ("St. Lucie 2"), the Atomic Safety and Licensing Appeal Board held that a party seeking antitrust review must show
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I l a meaningful nexus with activition under the license (i m , with the actual operation of the nuclear plant), and not just with the I license itself.
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St. Lucie 2 involved a claim by a qualifying facility ("QF")
that the St. Lucio Unit 2 License Conditions should be revised to requiro Florida Power & Light ("FPL") to whool the QF's power. The petitioning QF argued that nexus existed by virtue of the fact that its claim was mado pursuant to the licenso conditions. The Appeal Board rejected the QF's petition because it had not shown how the refusal of FPL to whool its power was an " activity under the license" as required under Section 105(c) . The Board concluded thatt (T]ho licensed activities must play some activo role in creating or maintaining the anticompetitivo situation.
I Put another way, the nuclear nower nlant must be an actor, an influence, on the anticomnotitive scene.
Wherover we have found the nexus requirement mot, that fundamental linkage has existed.
St. Lucio 2, 15 NRC at 32 (emphasis supplied).
The argument that the QF made in St. Lucio 2 and the argument Cap Rock is making here are fundamentally the samo: that the Commission should use the licensing of a nuclear plant as the occasion for insorting itself into a commercial dispute, despite the fact that the nuclear plant has no influence on that situation and the only tie between that situation and the plant is a claim
- b. sod on the plant licenso conditions.
. As the Appeal Board stated in St. Lucie 2, this argument, and Cap Rock's position, " reads out the nexus requirement of Section 105c(5) in its entirety." & at 34.
I C. Cap Rock's Conclusory Allegations Regarding Tox-La and Rayburn Co-Ops Add Nothing and Dhow a Demonstrable Disregard for the Actual Pacts.
In its March 1992 Comments, Cap Rock purports to advise this Commission of the status of TU Electric's relationships with two other entities, each of which is totally unrelated to Cap Rock, y_i g . , Tox-La Electric Cooperativo, Inc. ("Tox-La") and Rayburn Country Electric Cooperativo, Inc. ("Rayburn Country"). Cap Rock states that:
I [TU Electric) is also misleading the commission as to the status of its relationships with two other wholesale customers * *
- Tex-La and * *
- Rayburn Country. On February 5, 1992, (TU Electric] represented to this I Commission that it was currently providing transmission and related scheduling services for Tex-La's and Rayburn Country's purchases of low cost hydroelectric power from I the Denison Dam. * *
- Those reprasenta'! cts were true for less than two days.
I [TU Electric) chose to conceal its actions from this Commission and to sock to have this Commission believe that it continued to transmit and to schedulo Denison Dam power for Tex-La and Rayburn Country.
(March 1992 Comments at 5-6). Not only are Cap Rock's statements _
completely f alse,35 Cap Rock appoints itself both judge and jury of the law and facts surrounding the interpretation of certain provisions of TU Electric's Scheduling Agreements with Tex-La and Rayburn Country.36 I
II Atthough 10 Electric has notitled Tem-La and Rayturn Comtry that tu (Lectric's chtigations urrier the Sche &llng Agreement have automatically terminated in accordance with the terms thereof, service by TV Electric under each of such Sche & ting Agreements has nevertheless centirued and is continuing on the date of this Response, without interruption.
For eranple, Cap Rock asserts that:
I This notice (of 10 tiectrit.'s tes sination of the Scheduling Agreements with Tea t a and Rayturn Country] was given without prior wtice of the purported t> reaches and without af fording tex La (continued...)
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.I In short, Cap Rock'e conclusory allegations regarding TU Electric's relationships with Tox-La and Rayburn Country (who can
" speak for themselves" if they so chooso) --
add nothing and show a demonstrable disregard for the actual facts. As with the remainder of the statements in cap Rock's March 1992 Comments, Cap Rock's gr" uitous comments concerning Tex-La and Rayburn Country are inserted f or the sole purpose of intentionally misicading this I commission in an effort to force TU Electric to accede to Cap _
Rock's demand for termination of the 1990 PSA without Cap Rock's first complying with the hJvance notJco requirements of that Agreement.
I VII.
I THE LICENSE CONDITIONS DO NOT RELIEVE CAP ROCK OF ITS ODLIGATION TO COMPLY WITH AGREED-UPON CONTRACTUAL NOTICE PROVISIONS I The licenso conditions do not require TU Electric to cancol, chango, or otherwise amend its full requirements contracts simply -
because the other party no longer wishes to abide by the agreed-upon terms of those contracts. Nonetheless, Cap Rock evidently seeks to have the Commission intervene in its contractual I M(... continued) and Raytaurn Comtry opportunit.es to cure the purported breaches. (March 1992 Cuments at $1.
- *
- Ten La maintains that (TV Electric's) termination is inef f ective tecause no breach of which Tex to is aware occurred ard, if a breach did occur, (TV Electric) did not give Tex La I the 90 day notice and opportunity to cure that la required by the Sche <blIng Agreement (March 1992 Coninents, n.12) .
Cap RocUs "adji.dication" of the propriety of fu tiectric's " termination" of the Scheduling Agreenent with Ten-I La is particularly f ascinating in view of the f act that on Friday, Jme 19, 1992, the state district court in Dallas County, leans, in which Ita La's suit f or declaratory jtsjgnent is perding, tknied the motions of tr)th Ten La ord TU tiectric for steinary judynent on that very lasue.
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relationship wi.5 TU Electric, and do just that, by annulling the notice provisions of the 1990 PS A . 3' A review of the license I conditions themselves, however, shows that it is cap Rock's position that does violence to their terms.
Though Cap Rock repeatedly accuses TU Electric of violating the licenso conditions, it tellingly glosses over them in only a page and a half in its comments. In so doing cap Rock neglects to mention that the license conditions expressly contemplate that reasonabic notico provisions will be included in TU Electric's contracts. Indeed, Cap Rock conveniently deletes from its quotation of the license conditionL the very language that deals with advance notico, cap Rock relics on Paragraph 3.0. (2) (1) of the license conditions. That Paragraph is set forth in portinent part below:
The Applicants shall participate in and facilitate the exchange of bulk power by transmission over the I Applicants' transmission f acilities between or among two or more Entities in the North Texas Area with which the Applicants are connected, and between any such I Entity (ios) and any Entity (ies) outside the North Texas Area between transmission lines those and facilities other the transmission Applicants' lines, including any direct current (asynchronous) transmission I lines, form a continuous electrical path; provided, that (i) permission to utilize such other transmission lines has been requested by the proponent of the arrangement, I (ii) the arrangenents reasonably can be accommodated from a functional and technical standpoint, ansi _Lili) any Entityfies) reatesting sugh transmission arranGCRanta I shall have aivon Applicants reasonable advance notice Q1 its (theiri schedule and recuirements . . . . (Empharis supplied.)
I While Cap Rock states that it does not ask the Conniasim to *ndju1(cate the perits" of its contractual dispute with fu Electric, Cap Rock apparently wants the ccat,nission to issue an order on the premise that its I position is scritorious " a result recently rejected t>y the state court in Midin A, temas, in denying Cap Rock's motion for a tecporary injunction.
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I Similar provisions regarding advance notice appear in Paragraph 3.D. (2) (k) regarding the provision of partial requirements service.
I In affirming the right of a utility to rely on such notice provisions, the license conditions are consistent with the general practice in the industry. It has long been recognized that notice of termination provisions are an integral and necessary element of full requirements contracts for power supply. For example in Egntucky U41Lij;ies Co. , 23 F.E.R.C. 1 61,337 (1983), the Federal Energy Regulatory Commissior., in a decision upholding 3-5 year notico provisions in a full requirements contract, elaborated on the reasons why such provisions are legitimate and necesnary:
One of the basic purposes of a notice provision is to I enable utilities properly to plan their systems.
system planning requires utilities like Kentucky to commit to building necessary facilities well in advance Proper of the time generating units are nooded to meet customers' loads. In making their plans as to what type and size generating units to build, where to build them, and, most importantly, when to build them, utilities must l rely on projections requirements.
of load These projections have to be as accurate as possible. The consequences of error are too great for growth and future I them not to be. The system may well be either less reliable than it should be or produce electricity at a higher cost than it could.
Hence it is of vital importance to utilities to know who their customers will be and how much electricity they will need to provide. Notice of cancellation provisions I aid utilities in their planning by giving them advance notice of decreases in the loads they will have to serve.
Because of the importance of proper system planning to I the efficient and reliable design and operation of electrical power systems, utilities should have adequate notice of decreases in their customers' requirements.
What constitutes adequato notico varies, of course, with the circumstances. But at least as a starting point, AD n_qcontable measure for an adeauate notice period is I certain1, that it should rouchly accroximate the neriod hetween the time the utility makes major commitments of I I
I gacital to buildina annerating___11nLtg to serve its customers' future requirements and the time the generating unit is completed.
1 at 61,668 (footnotes omitted) (emphasis supplied).sa To the same offect, ggs Arizona Pyhllg_Jiervice Cox , 18 F.E.R.C. 5 61,197 (1982) (upholding seven year notico of termination provision as just and reasonable); Q.ulf Sirtt op U1.ilitics Co2, 5 F.E.R.C.
1 61,066, at 61,098-99 (1978).
As noted earlier, there is no question here as to whether Cap Rock qualifies as an " Entity" under the licenso conditions. Nor is there any question whether TU Electric will provide wheeling service for Cap Rock when Cap Rock fulfills the notice requirements it agreed to in the 1990 PSA. This TU Electric has repeatedly committed it will do.
In short, thoro is absolutely no legitimate issue as to whether TU Electric is complying with its license onditions. It has complied with them, and it will continue to honor them fully in the future. The only real question raised by this dispute is whether Cap Rock will live up to its contractual commitments in the 1990 PSA. Nothing in the 11censo conditions or the law requires TU to relinquish the right to insist that Cap Rock do so.
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IO ln Ern_,tgkytilities Co. v. f tRC, 766 f.2d 239, 250 (6th Cir.1985), the slath Circuit reewxled, finding I no rational basis f or sinalter utilities to be allowed to terminate on three years' notice rather then five.
On rea.and, if RC extended the five year notice provision "across the board" to all full rc<pirecants custrners.
Kentucky Utilities Co4, 37 f .E.R.C.161,?99 (1986).
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l VIII.
T1!E ANTITRUST LAPD DO NOT IMPOSE A DUTY ON UTILITIES I -- EVEN TI!OSE WITII MONOPOLY POWER --
TO DURRENDER LEGITIMATE CONTRACT RIGitTS Ih 7RDER TO DENEFIT A COMPETITOR Cap Rock contends that by opposing Cap Rock's litigation efforts to void the 1990 PSA as unenforceable, TU Electric has engaged in "self help". March 1992 Comments at 3. The logical vacuity of this argument in so apparent as to suggest that it was advanced tongue-in-check. It is cap Rock, not TU Electric, that has initiated action to disown its contractual commitments. Cap Rock's argument boils down to the extraordinary notion that as soon as it challenged the enforceability of the 1990 PSA, TU Electric should have relinquished its full requirements contract rights and then gone to court to seek declaratory relief. This would require TU Electric to relinquish its contract rights the minuto anybody raises a challenge to them. Cap Rock citos no authority for this proposition, and the law gives no such encourag ment to contract violators.
Moreover, Cap Rock's argument displays a fundamental misunderstanding of the applicable antitrust principles. As recognized in a number of recent decisions, none of which Cap Rock mentions, the antitrust laws do not require a utility -- even one controlling essential facilities -- to surrender its requirements contracts in order to benefit a customer.
These decisions make it clear that even the owner of an essantial facility is permitted to enter into lawful requirements contracts, and has no general duty "to abandon its contractual I
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rights at the behost of customers who are no longer happy with their bargain." Edit , 1111noin v. Panhandle Equigrp Pine Linn Co. m 935 F.2d 1469, 1484 (7th Cir. 1991), cort. denind, 112 S. Ct. 1169 (1992).
In P3nhandle, the Seventh Circuit held that the defendant natural gas pipeline's refusal to transport gas for local distribution company customers ("G tariff customors") who woro contractually obligated to buy all of their gns from the dofondant did not violato section 2 of the Sherman Act. After the FERC issued order 436 permitting pipolines to transport gas purchased from other sources on a nondiscriminatory basis, Panhandlo nonetholoss refused to transport gas for its full requirements customers. The state of Illinois brought suit on behalf of these customers.
The court rejected plaintiff's monopolization and essential f acilities claims, finding thoso claims meritless even assuming the defendant possessed essential facilities:
What the state lah?ls "monocolization" was nothing more than the enforcement of Ic.gitimate contracts desianed to g allocate _ risk botWQgn Panhandle and its custQacIg; what g the stato aska us to do is reallocato those risks. We decline the invitation. Panhar.dle had incurred obligations itself in reliance on the G tarif f (i.e. , its full requirements contracts) and to satisfy its regulatory obligations to anticipato and meet futuro customer demand. (Panhandle's G tariff customers) voro, I in turn, obligated to buy their full requirements for gas from Panhandle. We do not believe that "anticomnetitive" for Panhandle to hold _them to that it wag I 1511 at 1483-84 (emphasis supplied) (citations omitted). TU Electric is asking no more of Cap Rock than Panhandle asked of itt I
I G tariff customers, namely to abide by the terms of a freely negotiated contract.
Similarly, in City of Chamite v. W1111 alas Natural Gas Cg2, 955 F.2d 641 (10th Cir. 1992), the Tenth Circuit rejected a claim by full requirements customers of Williams (a natural gas pipeline) that Williams' refusal to transport gas for them violated section 2 of the Sherman Act. Williams had agreed temporarily to transport gas for its all-requirements customers, but subsequently cancelled that program. The court found that Williams' desire to avoid I liability under take-or-pay gas supply contracts it had entered into in anticipation of serving its requirements customers, coupled with its desire to avoid losing the business of its requirements customers, constituted a legitimate business justification for its actions.3' TU Electric must be able to rely on the contractua?.
(sommitments of its requiramantn customers in its planning process.
If TU Electric's wholesale customers were free to abandon their contractual obligations and could come and go at their whim, TU Electric's other customers would have to pay higher rates to cover the fixed costs of the capacity left stranded by the exiting wholesale customers. The Ninth Circuit has recently held in two separate cases that electric utilities are not required to provide firm transmission access to their wholesale customers if doing so would raise the utility's costs and hence the rates for the 3' 1 at 656. The court also held that WIL Liams' sutply of gas at FIRC sproved rates provided the plaintiffs with areasonable access to the pipeline." & st 649. This aspect of the decision is discussed below in the following section of this response.
I
I utility's other customern. Een Cit v___.qL_Anaho l m v. Sputhern California Edison Co., 955 F.2d 1373, 1381 (9th Cir. ;992) (it is a legitimate business justification to avc,1d imposing higher ratos on existing customers); gity of VeruRn_Y. Scuthern Calliginin EdiDon Co., 955 F.2d 1361, 1367 (9th Cir.1992) ("(T]ho domand that Edison turn over its facility to e city simply because the city
- ould save money by obtaining cheapcr power stands the essential facility doctrino on its head.").
Cap Roc.k's reliance on UnitisLEAt.cs v. otter Tail Pownr_JCL, 331 F. Supp. 54 (D.Minn. 1971), afL'd, 410 U.S. 366 (1973) is misplaced. In M1er Tall, the defendant utility refused to either whool gr sell electricity '.o towns which sought to form their own municipal oloctric systems. As the district court stated in Panhandle (in language quoted in part in the court of appeals decision):
Otter Tail may stand for the proposition that a utility cannot refuse to transport power it does not supply to a former long-term custorer, but it does not stand for the proposition that a utility must renegotiato extant long-term service agrooments to enable a customer to supplant the utility as its solo supplier.
Ulinois v. Panhandle Eastern Pipe Line Co., 730 F.Supp. 826, 909 (C.D.Ill. 1990) (emphasis in original).
I It is beyond dispute that TU Electric has a legitimato need for the reasonable advance notico ref3ccted in its full requirements 1963 Agrooment and in the 1990 PSA.'O As the abovo I 40 there can be no question that Cap Rock recognizes the legitimacy of such notice provisions, indeed,teth Cap Rock's purported futt requiramente power supply contract with 6,1U [ Attachment F to March 1992 Ccernents) ard I its full reqdrseents agreemimt with SPS (Attachment 7 hereto) provide f or five years' acharre notice of
. terminatiote ' 6C Lasst two years' more notice than C+p Rock is reqJf red to give ill Electric tbring the first five yors of the 1990 PSAI
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I casee napiy cor. firm the antitrust Inwa clearly permit TU Electric to enforce its contractual notico requirements and certainly givo Cap Rock no liconse to renego en them.
IX.
CAP RC9K'S OWN COMMENTS DEMONSTRATE THAT TU 11ECTRIC'S TRANSMISSION SYPTEM IS NOT AN r.DEENTIAL FACILITY I
The dist:casion above shows that Cap Rock's antitrur.t arguments lack substanco ovcn acnuming EqRends that TU I:lectric's f acilities mot the critoria for applicatior. of the so-callet " essential facilities doctrino." Notably, Cap Rock, in its Comments, presupposes that TU possesoes an ossential facility without engaging in any analysts. The reason Cap Rock dodges such an analysis is not _ hard to discern. Cap Rock's own submissiont, demonstrate that TU Electric's transmission system is not an essential facility.
As Cap Rock correctly points out at page 29 of its March 1992 Comments, a party seeking to invoke the essential facilities doctrino must show, ititpr glia, that it could not practically or reasonably duplicate the facilities in question. ligl Communicat ions _ _Coro . v. American Tel. & Tel. Co., 708 F.2d 1081, 1132-33 (7th Cir. ) , cert. denied, 464 U.S. 891 (1983). It is insufficient for a party to demonstrate that alternatives to the allegedly " essential" facility are inconvenient or involve some oconomic loss; "he must show that an alternative to the facility is not f easible." Tw_in Laboratories. Inc. v. Weider llealth & Fitngga, 900 F.2d 566, 570 (2d Cir. 1990).
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Cap Rock's own submission shows just the opposito. According to Cap Rock, it has already executed an agreement with SPS whoroby I in one year SPS will construct the necessary transmission
)
l facilities to interconnect the SPS and Oap Rock systems directly while simultaneously disconnecting from TU Electric -- thus offectively duplicating the " essential" TU Electric transmission system.
The decision of the Eighth Circuit in City of Maldon v. Unb2D Elettric CE 887 F.2d 157 (8th Cir. 1989) is particularly instructivo. That case tavnived a claim by a wholesale customer that its utility power supplier violated the antitrust laws by refusing to whool power from third-parties. In rejecting the plaintiff city's claim, the Eighth Circuit affirmed the district court's finding that the plaintiff city "could havo economically provided for an alternative transmission system to convoy electrical power." Isb. at 161. Just as in the instant caso, the plaintiff city had arranged for another utility to build an alternativo transmission interconnection which would enable it to
'2 bypass the defendant utility's system. It is disingenuous for Cap Rock to argue that TU Electric's transmissica cannot be duplicated, while simultaneously arguing in Texas stato court that it should be lot out of its respcnsibility to purchase all of its I
'I March 1992 Ccments at 13. 111 Perbandle, 730 F.Stsp. at 928 (" Duplication of the entire [ Panhandle) system was not necessary tecause interconnects with adjacent pipelines could prcvide the benefits of Panhandle's system.")
I 'Isee also Panhandle, 935 F.2d at 1482 (Illinols' essential f acilities argtsnent f aits, in part, tecause "It would have been economically feasible for carpetitors to duplicate much of Parhandle's system within central Ittinois by means of interconnecticris tetween corpeting pipelines and the construction of new pipelines ")
1 i
I electric requirements from TU Electric so that next year it can l
directly and bypass I interconnect with transmission system entirely.
l The 1990 PSA providos for a reasonable and fair mechanism for Cap Rock's transition from its current status as a full !
requirements wholesale customer of TU Electric to a wholesale customer of other utilities. Under the 1990 PSA, Cap Rock has the opportunity to remove its load from the TU Electric system (with reasonable notice to TU Electric), as well as the opportunity to purchase partial requirements power from TU Electric if it so chooses. In the interira, TU Electric will supply Cap Rock with its olectric requirements at regulated cost and wholesale ratos.
The courts in both City of Chanuto and City of Anahoin held that the facilities in question woro not essential facilities becaus6 the plaintiff cities essentially had reasonable access to thoso faci?ities as a result of their existing power supply arrangements. City of Chanuto, 955 F.2d at 649; .Qity of Anaheim, 955 F.2d at 1380-81. For example, in City of Gany,t_g, the Tenth Circuit ruled that, as a matter of law, the citics' supply of gas from Williams at FERC-approved prices provided them with reasonable access.to the pipelines. Both courts held that the more fact that the type of access requested by the plaintiff cities would have been loss expensive was not enough to make the facilities in question eseential.
In short, under a consistent series of- recent antitrust decisions, Cap Rock cannot now attempt, under the guise of 47 -
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Commission antitrust review, to sidostop the terms of a contract it fronly ontored in 1990 simply becauso 't might be able to obtain loss expensivo power elsewhero.
CONCLUDION X.
The only specific "rolief" requestod by Cap Rock in its March 1992 Comments is "an unequivocal datormination by this commission that TUEC is obligated by its antitrust licenso conditions to whool for Cap Rock and other similarly situated entitics." (March 1992 Comments at 7. ) But there is no question that TU Electric ic bound by its licenso conditions. TU Electric has and will centinue to abide by all of the Comancho Peak licenso conditions. Indood, TU Electric mado a contractual arrangement with Cap Rock to whool electric power and energy in a manner and under circumstancos which went well beyond the requiremonto of the licenso conditions. As the Director's prior datorminations in this matter recognized, TU Electric also currently providos substantial whooling service for entities similarly situated to Cap Rock.'3 Thoro can be no question that TU Electric is entitled to reasonable advanco notice of reductions in electric service to Cap I Rock under the 1990 PSA. The licenso conditions do not remotoly suggest that the Commission intended such conditions to interfore with the notico provisions in valid full requirements contracts --
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'3 LL. Ein11ustion and Af firmation of ho Sionificant ihange findina 9t 9 tvot. Ill,1sts $5); Inn Utilities Electric ccreany hotice of ho Siontficant Chan2es Firding, Jrc 30,1989 at 3 4 (vot, it, Tab $11.
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I I in fact, as demonstrated above, the liconso conditions explicitly acknowledge that such notico is appropriato.
In summary, this dispute is not about whether TU Electric is in compliance with its licenso conditions. This disputo is strictly a contractual issue, involving Cap Rock's ef forts to annul the reasonable notico provisions of the 1990 PSA -- an issue currently under consideration by a stato district court in Midland County, Texas. Ilonce, the irstitution of proceedings by this commission would not only be legally groundless under Section 105(c), but also pointions. If and when Cap Rock is not obligated to purchaso all of its power and onorgy requirements from TU Eloctric and TU Electric refuses to comply with its licenso conditions, Cap Rock then has a remedy under the Atomic Energy Act '
to requiro such compliance.
For all of the foregoing reasons, Cap Rock's request for the institution of operating licenso antitrust review procoodings should be denied.
Respectfully submitted,
,j ' m' ' m. _I f I M. D. Sampols I
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I OF COUNSEL:
H. D. Sampels, Esq.
I WORSilAM, FORSYTilE, SAMPELS
& WOOLDRIDGE 3200 - 2001 Bryan Tower I Dallas, Texas 75201 (214) 979-3000 I Douglas G. Groon, Esq.
NEWMAN & llOLTZINGER, P.C.
1615 L Stroot, N.W.
Washington, D.C. 20036 I (202) 955-6600 ATTORNEYS FOR TEXAS UTILITIES ELECTRIC COMPANY DATED: Juno 30, 1992
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I ATTACHMENTS TO REDPONDE OF TU ELECTRIC TO I COMMENTS OF CAE_RQCK_ ELECTRIC CQQEERATLYL_1HC1 I E9AQI1P_t19D hktA9hE19Rt_H91 Letter dated April m , 1992, from M. D.
Sampels to Joseph Rutberg, together with the " Documented Summary of Events" attached I thereto. [The four-volume set of documents is being submitted separately.) 1 I Excerpts from transcript of the April 14-15, 1992 injunction hearing in the Midland Litigation 2 Excerpts from Deposition of David L. Teeter in the Midland Litigation 3 Internal SPS memo dated June 21, 1990, from Dave Krupnick to Gary Gibson 4 I Excerpts from the Deposition of David Andrew Krupnick in the Midland Litigation 5 David Krupnick's notes of meeting between I SPS and Cap Rock on October 19, 1990 6
" Southwestern Public Service Company Agreement '
for Wholesale Full Requirements Electric Power Service to Cap Rock Electric Cooperative, Inc.,"
dated July 3, 1991 7 Letter dated July 15, 1991, from Steve Collier to David Pruitt re: Power Supply and Regulatory Report 8 Letter dated June 19, 1991, from Steve Collier to David Pruitt ro: Power Supply and Regulatory Report 9 Letter dated June 12, 1991, from Steve Collier to Don Welch of WTU re: Anticipated "ower I Supply Arrangements 10 Internal Cap Rock memo, dated November 6, I 1991, from David Pruitt to All Directors, et al 11 I
I
I Lottor dated November 19, 1991, from Stovo Collier to Gary Gibson of SPS rot Update en Dealings with TU Electric 12 Lotter dated November 20, 1991, from Stavo Collier to Gary Gibson of SPS 13 Minutos of Mootir) of Cap Rock Doard of Directors hold on November 26, 1991 14 Article appearing in December 26, 1991 edition of the Etruitsn_llerAlsl, entitled "Co-op filos againnt Giant" 15
< I Original Petition filed by TU Electric against Cap Rock in the 14th Judicial District of Dallas County, Texas on December 20, 1991 16 Cap Rock Press Releases dated March 26, 1992 17 Article appearing in April 10, 1992 odition of the Midlans1_EQDorter-TeleStsu, entitled
" Cap Rock files antitrust complaint against TU" la Excorpts from the Deposition of David Pruitt in the Midland Litigation 19 "Succous Foo Contract" h twoon Cap Rock and Steve Collier relative to the " West Texas Utilition Company Contract 20 I " Success Foo Contract" betwoon Cap Rock and Steve Collier relativo to the " Southwestern Public Service Company Contract" 21 Fully oxocuted signaturo page of November 26, 1991 " Success Foo Contract" betwoon I Cap Rock and Steve Collier relativo to the
" Southwestern Public Servico company contract" 22 Fully executed signature page of November 26, 1992 "Succoon Foo Contract" betwoon Cap Rock and Steve Collier relative to the
" West Texas Utilities Company Contract" 23 I
I I ,
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... ;' a N N . u 31 April 21, 1992 Mr. Joseph Rutberg Office of the General Counsel U. S. liuclear Regulatory Commission I 11555 Rockville Pike, Room 15D19 Rockville, Maryland 20854 Res Texas Utilities Electric Campany, Comanche Peak Steam Electric Station, Units 1 and_2. Docket Nos. 50 _445A and 50-446A
Dear Mr. Rutberg:
This further reference to our Jr,nuary meeting in I
is in Washington regarding the January 6, 1992 letter from Cap Rock's counsel to Mr. Thomas E. Murley, Dirtsctor, Office of fluclear Reactor Regulatiots.1 Rather than summariJe the many misleading and I incorrect claims in Mr. Adragna's letter, I am furnishing you a documented summary of TU Electric's dealings with Cap Rock from 1987 (when the dispute between Cap Rock and TU Electric first I' developed) to the present date.
there is no merit whatever to any of Cap Rock's claims and is yet This summary demonstrates that
'On March 25, 1992, Cap Rock also filed Comments in the flRC's pending antitrust operating license review with respect to Unit !!o.
2 of TU Electric's Con.ancho Peak Steam Electric Station. TU l Electric intends to f!!c a formal response to Cap Rock's Comments after the issuance by the District Court of Midland County, Texas of an order on Cap Rock's request for a mandatory temporary injunction to compel TU Electric to facilitate Cap Rock's proposed l purchase of power and cnergy from West Texas Utilities Company.
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rL, April 21, 1992 Page 2 l another illustration of Cap Rock's ef fort to attemp : to use the tfRC to " leverage" TU Electric to obtain concrasions elsewhere. It is l
noteworthy that what Cap Rock now seeks is the abrogation of its 1990 Power Supply Agreement (the "1990 PSA") with TU Electric.
That Agreement was negotiated over the course of several months following settlement conferences with the IIRC Staff on January 11 and January 25, 1990, and formed the basis for Cap Rock's withdrawal of its request for enforcement.2 The central dispute between Cap Rock and TU Electric is the ,
came today as it was in 1987; i.2., Cap Rock's insistence that it I is entitled to purctase power from other sources .t a time when it has an all-requil ants contract with TU Electric. TU Electric has no objection to Cap Rock purchasing power f rom alternative sources.
i It does object to Cap Rock ignoring its contractual obligations to TU Electric.
I 2
By letter dated June 28, 1990, Cap Rock's counsel furnished I the tJRC with a copy of the 1990 PSA and moved to withdraw Cap Rock's request for enforcement, indicating, among other things, The (1990] PSA . . . constitutes a settlement of the outstanding disputes between [ Cap Rock) . . .
and [TU Electric] . . ., including those -
I differences that gave rise to the request for license enforcement of the antitrust conditions . . . filed with your office by Cap Rock on !!ay 12, 1989.
.I The [1990) PSA provides a means by which Cap Rock will be able to engage in an orderly transition from its current status as a full requirements customer of TU Electric, to a partial requirements customer of TU Electric and, ultimately, to a separate and independent electric utilicy. Cap Rock's transition, ultimately to independent status, will obviously be a complicated, multi-step process that will not occur overnight.
Consequently, the {1990) PSA contemplates that many of the services that Cap Rock and TU Electric have agreed will be provided in the future will be provided pursuant to separate agreements, negotiated pursuant to the PSA.
See Vol. IV, Tab 91 of the accompanying materials.
I I April 21, 1992 Page 3 TU Electric believed it had finally solved all of its problems I with Cap Rock following execution of the 1990 PSA, which was to become effective upon Cap Rock's cancellation of its 1963 all-requirements contract. Although Cap Rock terminated the 1963 contract, effective February 1, 1992, it now claims that the 1990 PSA (which requires Cap Rock to give three years' notico ((two E years in some instances)) before reducing load on TU Electric by I purchasing power from other sources) is not binding upon Cap Rock.
Ca.p Rock claims it is now free to shop elsewhere for its power i,'
without giving TU Electric any notice. This is completely contrary to the 1990 PSA.
I This is all the more frustrating to TU Electric since Cap Rock
'M, not only insisted that TU Electric be bound to an all-requirements contract with Cap Rock for a period of 10 years, it also insisted that the 1990 PSA be negotiated before it terminated its 1963 all-requirements contract. Cap Rock asked that TU Electric make its I decision to terminate the 1963 Agreement easier by providing the basis for various services (including wheeling and scheduling services) to provide for Cap Rock's transition fror a full to a partial requirements customer. TU Electric agreed to do so. At no I time was it contemplated that Cap Rock would be relieved of the requirement tr provide TU Electric the two - three years' notice of its intent to reduce service from TU Electric.
I. The documents underlying the 1990 PSA make ta s a b st, utely clear. The representatives of TU Electric and Cap Rock on May 15, I 1990, concluded netgotiation of detailed " Principles of Agreement."
These Principles of Agreement were submitted by TU Electric to the NRC. The first principle of the Principles of Agreement requires Cap Rock to provide appropriate written advance notice of its I election to terminate or reduce service from TU Electric.3 The 1990 PSA incorporates these principles.' It provides that 3
See Vol. III, Tab 76 of the accompanying materials.
'In a memorandum to the Directors of Cap Rock seeking approval of the Principles of Agreement at a Cap Rock Board meeting I scheduled for May 17, 1990, David Pruitt advised the Cap Rock Board of the importance of the definitive agreement contemplated by the Principles of Agreement, stating that When we do get a definitive contract agreed to and signed by TU, this will be the foundation of our power supply plan. This is the key piece to the puzzle that had to be before anything else could be (continued...)
I
I April 21, 1992 Page 4 I Cap Rock may purchase power elsewhere after giving TU Electric three years' notice (except under certain circumstances in which only two years' notice is required).5 Despite having agreed to these modest notice provisions, Cap Rock has informed TU Electric that it has verbally agreed upon a full requirements contract with j West Texas Utilities Company and is demanding that TU Electric '
immediately wheel power to Cap Rock from WTU -- a request which is I not only contrary to the provisions of the 1990 PSA but would constitute the complete abrogation of that contract. TU Electric informed Cap Rock that its request was incoitsistent with the 1990 l
PSA. Cap Rock then sued TU Electric in state court in Midland, Texas, seeking, among other things, to void the 1990 PSA on the ground that it was never enforceable. Cap Rock also requested the Court to issue a temporary mandatory injunction requiring TU Electric to facilitate Cap Rock's proposed purchase of power and energy from WTU.6 TU Electric believes that the 1990 PSA is a valid and binding contract. The position now taken by Cap Rock is not only directly contrary to the express provisions of the 1990 PSA but also to numerous admissions made by Cap Rock contemporaneously with, and for over a year after, the execution of that Agreement.
For example, on June 11, 1990, three days after Cap Rock and TU Electric executed the 1990 Power Supply Agreement, Steve
_I Collier, Cap Rock's Director of Power Supply and Regulatory Af f airs and the individual who verified Cap Rock's Original Petition in the
'(... continued)
-I evaluated or achieved. (Emphasis added.)
See Vol. III, Tab 74 of the accompanying material. The 1990 PSA is this " foundation" and " key piece to the puzzle" that Cap Rock now repudiates and would have the Court declare to be void and unenforceable.
5 TU Electric offered to waive the notification provisions and terminate the 1990 PSA early to permit WTU to supply all of Cap I Rock's needs if Cap Rock would make TU Electric whole with respect to the amount of power purchase obligations incurred by TU Electric to fulfill the 1990 PSA, but Cap Rock declined.
6 Hearings on Cap Rock's request for a temporary injunction were held before the Court on March 26 - 27 and April 14 - 15, 1992. Testimony has now been concluded, with Cap Rock's post-hearing brief being due on April 23, 1992, and TU Electric's reply brief being due on April 29.
I
April 21, 1992 Page 5 i Midland suit, reported to David Pruitt, Cap Rock's Chief Executive Officer and General Manager as follows:
THE GOOD NEWS IS THAT WE MAVE NEGOTIATED A DEFINITIVE POWER SUPPLY AGREEMENT! * * * (Emphasis in original).
Mr. Collier further reported that:
I believe that the enclosed agreement represents a I workable power supply agreement.
the perfect unilaterally, agreement it does that give we While it is not would us a reasonable write opportunity to implement power suppl) alternatives.
Interestingly, the definitive power supply agreement provides us with capabilities and benefits that go beyond the more constraining definitions in our initial _attlement in principle.
Even so, the power supply agreement term, notice requirements, and other constraints will pose significant limits as we attempt to develop our power supply alternatives. I will look forward to presenting the benefits and difficulties 7 of this agreement to the * * * (Board) sometime next week.
Cap Rock also publicly acknowledged and touted the benefits of the 1990 PSA in various press releases written by Steve Collier.a For I example, in a press release issued on July 15, 1990,9 Collier states:
(Cap Rock) has reached a landmark agreement with its current sole power supplier, (TU Electric).
Under this exceptional new agreement, (Cap Rock) 7 In recommending approval by the Cap Rock Board of the 1990 PSA, Mr. Collier, Cap Rock's Bulk Power Manager and chief negotiator of the 1990 PSA, specifically recognized that one of the disadvantages of the 1990 PSA was the three-year notice provision.
See Vol. IV, Tab 95 of the accompanying' material.
eSteve Collier of Cap Rock also corresponded with various other electric cooperative wholesale customers of TU Electric, including Hunt-Collin Electric Cooperative, Inc., lauding the benefits of the 1990 PSA and recommending that such cooperatives seek similar agreements. See, e.g., Vol. IV, Tab J of the accompanying material.
I- 'See Vol. IV, Tab A of the accompanying materials.
1 I
l I April 21, 1992 Page 6 be able to seek power from alternative I will suppliers that could "save Cap Rock Electric's consumers millions of dollars over the next decade." (Emphasis supplied.)
I The new power supply arrangement is a breakthrough for the consumer-owned utility which currently must I purchase all of its power requirements from TU Electric . . . __
TU Electric has agreed to allow Cap Rock I
Electric to purchase power from other suppliers, and to transport that power over TU Electric lines . . . TU Electric has also agreed to sell I supplemental power and other coordinating services as necessary to allow Cap Rock Electric to take advantage of this remarkable opportunity . .
Under the new power supply agreement, TU Electric will, at Cap Rock Electric's choice, either schedule and deliver alternate power supplies, or I provide regulating service to enable Cap Rock Electric to become a control area and schedule its own power supplies. . . Only one other distribution I cooperative, located in Alaska, is currently a control area, (Collier) noted.
I Cap Rock Electric can continue to purchase the -
balance of its power supply requirements from TU Electric. "This will-be a ten-year contract, and it can be extended beyond that if both companies I agree," (Collier) reported.
Significantly, this press release, which was issued on July 15, 1990, directly contradicts Cap Rock's current claim that it never intended to be a full requirements customer of TU Electric af ter termination of the 1963 Agreement, except at its option, when it states:
The agreement- becomes effective when Cap Rock Electric terminates its current power supply I' contract with TU Electric, Collier said.
contract requires two or three years notice by Cap The new Rock to begin serving load with other power I supplies, collier explained. (Emphasis supplied.)
On July 24, 1990, TU Electric furnished to the NRC, at its request, a copy of a summary of the major differences between the initial settlement proposals of Cap Rock and TU Electric and the I
I April 21, 1992 Page 7 ultimate resolution of those differences, as incorporated in the 1990 PSA (Vol. IV, Tab B of the accompanying materials). With respect to the issue of notice, this summary indicates:
TU Electric initially offered to sell partial requirements power and energy, upon termination of the (1963 full requirements) Agreement, pursuant to Paragraph D. (2) (k) of the Comanche Peak License Conditions . . . which conditions its obligation to sell full and partial requirements power and energy I on, among notice." -
other things, " reasonable advance Cap Rock sought to purchase such power and energy "immediately" upon termination (of) the (1963) Agreement and at such time as it begins to supply a portion of its requirements with power from other sources.
I The parties finally agreed that Cap Rock will purchase full requirements power and energy from TU Electric under the (1990 Power Supply Agreemert) until and to the extent it givcs three years notice in years one through five, and five years notice thereafter, to reduce load to be supplied by TU Electric. * *
- These documents, as well as others, are included in the attached binders.
TU Electric intends to vigorously defe i its position. It believes that it must be able to rely on-the commitments of its I wholesale customers. TU Electric has more than 50 such customers, who togethei purchase over 1200 MW annually. If TU Electric were to create a situation which would allow these customers to come and go at their whim, leaving in place, but unused, the capacity which I TU Electric had allocated or acquired to serve their requirements, TU Electric's planning process would be put in a state cf disarray i and its remaining customers made to pay the bill.
I apologize for the volume of the attached information but wanted you to have the whole story in a usable form. After you
'g have had the opportunity to review this material, we would again 0- like to visit with you to answer any questions you may have.
,. As indicated, we will soon file a formal reply to the Comments
. recently filed by Cap Rock in the Commission's antitrust operating I
I I April 21, 1992 Page 8 I
I license review with respect to Unit No. 2 of Comanche Peak Steam Electric Station.
V ry tru yours,
. Sa s MDS/mkm Enclosures cc: Mr. Wm. M. Lambo I
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TU ELECTRIC / CAP ROCK ELECTRIC COOPERATIVE, INC.
1 DOCUMENTED
SUMMARY
OF EVENT 8 I Events Leading up to the Execution by Cap Rock and TU Electric of the 1990 Power Supply Acre emerLt In February 1987,2 Cap Rock Electric Cooperative, Inc. (Cap Rock), then a full requirements wholesale customer of TU Electric pursuant to a 1963 agreement for the purchase of power (the 1963 Agreement),3 contacted TU Electric requesting information relating to the wheeling of power and energy from cogeneration f acilities in the Dallas and Stanton, Texas, areas. TU Electric responded in March 1987,' describing ihe need for additional information and pointing out that the 1963 Agreement did not permit the transaction Cap Rock was considering. A draft agreement was forwarded as a possible framework for a successor agreement. A copy of the appropriate wheeling tarif f was also supplied and certain technical issues were discussed with possible solutions noted. -
In April 1987,5 a meeting was held between representatives of TU Electric and Cap Rock to further discuss facilitating wneeling of the cogeneration supply. At that time Cap Rock noted that such I supply was being proposed by panda Energy Corporation (panda). TU I ' Footnote document references are to documents contained in the attached binders.
2 Vol. I, Tab 6.
I Vol. I, Tab 1.
'Vol. I, Tab 8.
I 5 Vol. I, Tab 9.
I
I Electric again pointed out that the 1963 Agreement would have to be terminated in accordance with its terms before electric service could be taken from Panda.
I. In May 1987,' Cap Rock indicated in a conversation with TU Electric that it was in the process of " crunching" some more numbers on the cogeneration options and would probably be coming back in the near future to discuss wheeling. TU Electric also learned at that time that the Cap Rock General Manager had resigned.
On October 29, 1987,7 David Pruitt, Cap Rock's new General Manager, by letter to Jerry Farrington, Chairman and Chief Executive of Texas Utilities Company, noted that Cap Rock had only recently entered into ~ a letter agreement with a cogenerator utilizing a Dallas area host (which TU Electric later learned was Panda's Rock-Tenn facility).8 Mr. Pruitt also indicated that Cap I. Rock in the near future would formally give notice of termination of the 1963 Agreement.
On November 4, 1987,' TU Electric wrote Cap Rock, expressing
' - its surprise that Cap Rock had signed a commitment letter for 6
l Vol. I, Tab 10.
7 Vol'. I, Tab 13.
I sin April 1987, Panda filed a petition with the Public Utility Commission of Texas (PUCT) requesting that TU Electric be ordered to. enter into a long-term firm purchase power agreement with Panda and to cease and desist from entering into any contracts for the purchase of capacity and energy from any other qualifying facility pending the PUCT's ruling (Vol. 1, Tab 11). The PUCT dismissed Panda's petition-on October 21, 1987 (Vol. I, Tab 12).
'Vol. I, Tab 14.
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I cogenerated power before discussing with TU Electric the detailed arrangements that would be necessary in order for TU Electric to transmit that power to Cap Rock. While TU Electric reassured Cap Rock that it would work with Cap Rock in this venture, it again pointed out some of the f actors that had to be addressed, including cancellation of the 1963 Agreement in accordance with its terms, as well as wheeling arrangements and other considerations.
In November 1987,10 at the request of Cap Rock's new General Manager," TU Electric forwarded to Mr. Pruitt the same information that had been furnished in March 1987 to Cap Rock's former General Manager. TU Electric acknowledged Cap Rock's intent, as stated in Mr. Pruitt's October 29 letter to Mr. Farrington, to formally ,
terminate the 1963 Agreement, pursuant to which Cap Rock was a full requirements customer, and also agreed to a meeting on Cap Rock's a cogeneration plan.
In April 1988, TU Electric again met with Cap Rock, at Cap Rock's request, to discuss Cap Rock's plans for the procurement of -
alternative energy sources, including its proposed purchase of
^
economy energy from Houston Lighting & Power Company (HLP). By a follow-up letter dated April 8, 1988,12 Cap Rock, ignoring the I provisions of Cap Rock's 1963 Agreement with TU Electric and TU Electric's offer to renegotiate that contract to convert Cap Rock to a partial requirements status, asserted, 8mong other things, Cap I 'U Vol. I, Tab 15.
"Vol. I, Tab 16.
12Vol. I, Tab 18.
I 3 .
I I Rock's rights to " generate, manufacture, purchase, acquire, transmit, distribute, furnish, sell and dispose of . . .
electricity." Cap Rock also renewed its request that TU Electric g
E provide transmission and scheduling services to facilitate Cap Rock's purchase of econouy energy from HLP, which TU Electric had I declined to do until the 1963 Agreement had been term.inated in accordance with its terms.
On May 19, 1988, Cap Rock nctified TU Electric that it had formally executed a 15-year contract with Panda f or the purchase of 35 MW of capacity and associated energy, indicating that. Panda would be contacting TU Electric directly to initiate arrangemev.s for wheeling and seneduling of this power.
Between May and August of 1988, various meetings and communications occurred among representatives of Cap Rock, Panda and TU Electric, including Steven E. Collier of C. H. Guernsey &
I Company (Guernsey), who was acting as a consultant to both Cap Rock and Panda, regarding Cap Rock's examination of bulk power -
alternatives and TU Electric's ef f orts to accommodate Cap Rock once the 1963 A6reement J had been terminated in accordance with its terms."
I On August 2, 1988, another meeting occurred between representatives of TU Electric and Cap Rock, including Steve I
uVol.
I, Tabs 21-22.
"Vol. I, Tabs 2, 23-26, 22-31.
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' I Collier of Guernsey.15 In this meeting, as in a previous meeting,'8 Cap Rock demanded proposals and projections for future rates and charges. On August 4, 1988,II Cap Rock delivered a letter to TU Electric which inaccurately reflected the substar.co of the August ? meeting; three days later, without waiting for a reply, Cap Rock filed its Comments with the 11ucle ar Regulatory Commission (the " Commission" or "liRC") in the pending Comanche Peak Antitrust Operating License Review,'8 complaining, among other things, that TU Electric was interf ering with Cap Rock's ability to purchase power and energy from HLP, Panda and other sources, in ,
violation of the License Conditions.
On October 20, 1988, contemporaneously with the filing of its reply 20 to Cap Rock's Comments in the Antitrust Operating License Review, TU Electric responded to Cap Rock's letter of August 4. TU Electric advised Cap Rock, among other things, that when and if the 1963 full requirements Agreement with Cap Rock terminated, TU Electric would continue to discharge all its legal $
obligations to Cap Rock, whether in Cap Rock's capacity as a wholesale customet or an electric utility company (provided it was I IS In July 1989, Mr. Collier also became Director of Power Supply for Cap Rock (Vol. III, Tab 52).
16 Vol. I, Tab 20.
'7 Vol. I, Tab 35.
'8 Vol. I, Tab 36.
Vol. I, Tab 37.
20 Vol. I, Tab 38.
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I I fully equipped to procure, receive and dispatch its own generation). TU Electric pointed out that these obligations did not include the making of economic decisions for Cap Rock, the I providing of scheduling, energy banking or similar services, as Cap Rock had requested, or the rendering of any service which imposed a disproportionate share of TU Electric's costs on its customers for the benef.t of Cap Rock.
On February 10, 1989, Cap Rock filed with the Commission its reply comments 21 to TU Electric's response in the Comanche Peak E Antitrust Operating License Review. Supplemental comments 22 were filed by Cap Rock on March 20, 1989.
On May 5, 1989,23 TU Electric, in an attempt to clarify 2
various recent communications' between the parties regarding Cap Rock's ef forts to examine bulk power alternatives, communicated its position to Cap Rock that TU Electric would not be an impediment to Cap Rock's goals of becoming a fully self-sufficient electric utility or purchasing power from others or self-producing all or a part of its requirements, provided Cap Rock first terminated its 1963 Agreement with TU Electric in accordance with its terms and placed itself in the position of being able to take delivery of power obtained from other sources by becoming a control area or obtaining that service from a third party. However, recognizing 21 Vol. I, Tab 41.
22 Vol. I, Tab 4 2.
23 Vol. II, Tab 45.
2'Vo l . II, Tabs 43-44, 49-50.
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that power purchase alternatives might become available to Cap Rock before it could become a fully functioning control area, TU Electric offered, after the termination of the 1963 Agreement in accordance with its terms, to enter into a short-term scheduling arrangement with Cap Rock on terms that would fully compensate TU Electric for its costs plus a reasonable return on investment. TU Electric also offered, after the termination of the 1963 Agreement in accordance with its terms, (a) to provide necessary partial requirements bulk power at rates approved by the PUCT; (b) to provide transmission service pursuant to PUCT Substantive Rules 2 3. 66 and 2 3. 67, if applicable, or under such other arrangements as may be mutually agreeable and which would fully compensate TU Electric for its costs plus 4. reasonable return on investment; and, (c) to the extent then being offered, schedule short-term economy -
energy from third-party suppliers on Cap Rock's behalf under terms which would fully compensate TU Electric for its ccsts plus a reasonable return on its investment. -
On May 9, 1989,25 Cap Rock rejected TU Electric's May 5 offer, claiming that TU Electric's position constituted a violation t.,f the Comanche Peak License Conditions and informing TU Electric of its intention immediately to file a request with the Commission to obtain enforcement and modification of the License Conditions.
Such a request was filed by Cap Rock on May 12, 1989,26 and was 2sVo l . II, Tab 46.
26 Tab II, Tab 47.
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I contested by TU Electric,27 primarily on the grounds that neither the License Conditions nor the antitrust laws required TU Electric to cancel, change or otherwise amend its full requirements 1963 Agreement with Cap Rock in order to facilitate Cap Rock's purchase of power from other sources.
On June 20, 1989,2B the Commission issued its finding of " tio Significant Antitrust Changes" in the Comanche Peak Antitrust Operating License Review. On July 26, 1989,29 Cap Rock sought reevaluation of that determination. The Commission affirmed its finding on August 28, 1989,33 and on !!ovember 30, 1989,3' Cap Rock appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit. On December 29, 1989, TU Electric intervened in cap Rock's appeal.32 In January 1990, the Commission Staff scheduled a meeting for January 11 with representatives of Cap Rock and TU Electric for the purpose of encouraging settlement discussions.33 At that meeting, the Commission's probable decision concerning Cap Rock's request for enforcement was announced, which included findings that TU Electric was not obligated to provide any of the services requested 27Vol. III, Tab 53.
2sVol . II, Tab 51.
I- 29 Vol. III, Tab 54.
30 Vol..III, Tab 55.
3'Vol. III, Tab 58.
32 Vol. III, Tab 59.
33 Vol. III, Tab 62.
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I I by Cap Rock as long as Cap Rock remained a full requirements customer of TU Electric pursuant to the 1963 Agreement, that TU Electric should not be required to speculate on its future rates and-that it was not unreasonable for TU Electric to require Cap Rock to become a control area. After a discussion of the issues and the parties' respective positions, the Commission Staff indicated its willingness to continue meeting with the parties if it would facilitate settlement. Cap Rock and TU Electr'c each agreed to outline separately a proposal to settle their dispute f or submission to the Commission Staff at the next settlement meeting which was scheatied for January 25, 1990.
At the January 25 meeting with the Commission Staff, the 3
settlement proposals submitted by TU Electric' and Cap Rock 35 were discussed. At the end of the meeting, TU Electric agreed to meet with Cap Rock to discuss a power supply plan which Cap Rock had under consideration, and the Commission Staff indicated its willingness to delay the issuance of a decision in cap Rock's enforcement proceeding as long as the parties were negotiating in good faith toward a settlement."
On February 23, 1990,3# representatives of TU Electric and Cap Rock met pursuant to the agreement reached with the Commission Staf f at the January 25 meeting. At that meeting, Steve Collier of 3'Vol. III, Tab 64.
35 Vol. III, Tab 63.
3No l . III, Tab 65.
3I Vol. III, Tab 67.
I Cap Rock outlined a five-point plan to meet Cap Rock's future power supply- requirements upon termination of its full requirements contract with' TU Electric. The meeting was cordial, and Mr.
Collier indicated that it was productive and that progress had been made. Mr. Pittman of TU Electric remarked that Mr. Collier's plans were very general and not sufficiently definitive to enable TU Electric to predicate any firm commitments. Mr. Pittman indicated, however, that, when Cap Rock's plans became more definite, TU Electric was prepared to discuss Cap Rock's requests in more detail. A report on this meeting was delivered to the Commission Staff by TU Electric on March 1, 1990.38 On March 6, 1990,3' Cap Rock wrote TU Electric in further reference to the February 23, 1990 meeting. Cap Rock advised TU Electric, among other things, that it was representing to the NRC that the parties had a productive meeting and that he "sas encouraged by the concept . . . in which Cap Rock Electric would become an independent control area through the purchase of regulating services from TU Electric." Cap Rock also advised TV Electric that, to the extent the parties were able to settle the power supply arrangements in the context of the NRC license enforcement proceeding, "we can obviously avoid litigating those issues in (TU Electric's) TPUC rate application" in Docket No.
9300.
I 33Vol. III, Tab 67.
3'Vol. III, Tab 68.
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I On April 3, 1990,'O representatives of Cap Rock and TU Electric again met, at which time Mr. Pittman of TU Electric delivered a draft of proposed " Principles of Agreement" to Mr.
Collier. The proposed " Principles of Agreement" were reviewed by Mr. Collior and on April 10, 1990, the parties again met and discussed each of Mr. Collier's comments thereon. At that time, Mr. Collier indicated that he considered the proposal to constitute significant progress; however, the Board of Directors of Cap Rock would have to approve any agreements that were made. Following the meeting on April 10, 1990, TU Electric modified the " Principles of I Agreement" in an attempt to respond to Mr. Collier's legitimate concerns and delivered a revised draft to Cap Rock.
On April 12, 1990, TU Electric reported to the Commission on the status of its negotiations with Cap Rock, attaching a copy of the revised " Principles of Agreement." TU Electric indicated that it believed the offers which had been made to Cap Rock, including the regulating services offered to Cap Rock to enable it to qualify as a control area within the meaning of the ERCOT Operating Guides, went well beyond TU Electric's legal obligations and its obligations under the License Conditions. TU Electric also advised-the Commission that Mr. Collier had advised Mr. Pittman that he was optimistic that an agreement could be reached and all disputes resolved, including those pending in PUCT Docket No. 9300.
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'Nol . III, Tab 70.
Vo l . III, Tab 70.
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I I On April 20, 1990,42 the Commission Staff acknowledged receipt of the April status reports of TU Electric and Cap Rock on the settlement negotiations and indicated they were " pleased to see that the parties are making what appears to be progress on several substantive issues." The Staf f encouraged the parties to continue discussion in an ef fort to resolve *. heir dif ferences and consummate a settlement acreement in the near future.
On May 1, 1990,'3 Cap Rock wrote TU Electric, commenting on TU Electric's latest draft of the " Principles of Agreement,"
indicating that "it would appear that we are extremely close to a final settlement l
Following further meetings bet ~.2en representatives of TU Electric and Cap Rock, on May 15, 1990," the parties reached an agreement in principle and executed " Principles of Agreement" which, together with other mutually satisfactory provisic.m, were to be incorporated into a power supply agreement pending approval by the respective Boards of Directors of TU Electric and Cap Rock.
Such approval was forthcoming, and on May 16, 1990,45 TU Electric delivered a copy of the executed " Principles of Agreement" to the Commission Staff.
'2 Vol. III, Tabs 71-72.
'3 Vol. IV, Tab 7 3.
"Vol. III, Tab 76; Vol. IV, Tabs 77-79.
'5 Vol. IV, Tab 77.
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I In a memorandum 46 to the Directors of Cap Rock, seeking approval of the Principles of Agreement at a Cap Rock Board neeting scheduled for May 17, 1990, David Pruitt advised the Cap Rock Board
-of the importance of the definitive agreement contc.aplated by the Principles of Agreement, stating that:
When we do get a definitive contract agreed to end signed by TU, this will be the foundation of our I power supply plan. This.is the key piece to the puzzle that had to be before anything else could be evaluated or achieved. (Emphasis added.)
)
i Cap Rock and TU Electric thereafter commenced intensive negotiations,'7 which culminated in the execution, on June 8, 1990, of a Power Supply Agreement (the 1990 Power Supply Agreement)'8 "Vol. III, Tab 74.
'7 Vol. IV, Tabs 81-83, 86, 88-90.
'8 Vol. IV, Tab 91.
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On July 24, 1990 (Vol. IV, Tab B) , a copy of an " Executive Summary of the 1990 Power Supply Agreement," together with a copy
! of a summary of the major differences between the initial settlement proposals of Cap Rock and TU Electric and the ultimata I. resolution of those differences, as incorporated in the 1990 Power Supply Agreement, were furnished by TU Electric to the Commission at its request. With respect to the issue of notice, the summary of najor differences indicates:
TU Electric initially offered to sell partial
'I requirements power and energy, upon termination of the (1963 full requirements] Agreement, pursuant to Paragraph D. (2) (k) of the Comanche Peak License Conditions . . which conditions its obligation to I
sell full and partial requirements power and energy o n ', arong other things, " reasonable advance notice." Cap Rock sought to purchase such power and energy "immediately" upon termination (of) the (1963] Agreement and at such time as it begins to supply a portion of its requirements with power from other sources.
(continued...)
l
I between the parties, which embodied the May 15, 1990 Principles of Agreement in all material respects.
On the basis of the 1990 Fower Supply Agreement, on June 28, 1990, Cap Rock withdrew its May 12, 1989 request for a Commission order enforcing and modifying the License conditions,50 as well as I- its appeal from the Commission's finding of no significant antitrust changes,51 advising the Commission, among other things, that:
The (1990 Power Supply Agreement) provides a means by which Cap Rock will be able to engage in an orderly transition from its current status as a full requirements customer of TU Electric, to a partial requirements customer of TU Electric and,
,g ultimately, to a separate and independent electric utility. Cap Rock's transition, ultimately tn B independent status, will obviously be a l
complicated, multi-step process that will not occur overnight. Consequently, the PSA contemplates that
'I many of the services that Cap Rock and TU Electric have agreed will be provided in the future will be provided pursuant to separate agreements negotiated pursuant to the PSA.
As required by the 1990 Power Supply Agreement, Cap Rock likewise withdrew from participation in TU Electric's rate case I 'B( . . . continued)
The parties finally agreed that Cap Rock wilA purchase full requirements power and energy from TU I Electric under the (1990 Power Supply Agreement) until and to the extent it gives three years notice in years one through five, and five years notice I thereafter, Electric. ***
to reduce load to be supplied by TU
Vol. IV, Tab 97.
50 Cap Rock's withdrawal of its request for enforcement was accepted on August 22, 1990 [Vol. IV, Tab C).
S'On Cap Rock's motion, its appeal was dismissed on July 5, 1990 (Vol. IV, Tabs 99-100].
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I then pending in PUCT Docket No. 9300 and executed a release of any and all claims it had or may have had against TU Electric up to the date thereof.52 On June 11, 1990, three days after Cap Rock and TU Electric executed the 1990 Power Supply Agreement, Steve Collier, Cap Rock's Director of Power Supply and Regulatory Affairs, reported to Das 3 Pruitt, Cap Rock's Chief Executive Officer and General Manager, as f ollows : 53 THE GOOD NEWS IS THAT WE HAVE NEGOTIATED A DEFINITIVE POWER SUPPLY AGREEMENT! * * * (Emphasis in original).
Mr. Collier further reported that:
I I believe that the enclosed agreement represents a workable power supply agreement.
the -perfect agreement that we While it is not would write does give us a reasonable I unilaterally, Interestingly, it opportunity to implement power supply alternatives.
the definitive power supply agreement provides us with capabilities and benefits that go beyond the more constraining definitions in our initial settlement in principle.
Even so, the power supply agreement term, notice
-la requirements, and other constraints will pose significant limits as we attempt to develop our power supply alternatives. I will look forward to I presenting. the benefits and dif ficulties 5 ' of this agreement to the * * * (Board) somet'me next week.
Cap Rock also publicly acknowledged and touted the benefits of the 1990 Power Supply Agreement in various press releases written I. 52Vol. IV, Tab 91.
53 Vol. IV, Tab 93.
5'In recommending approval by the Cap Rock Board of the 1990 Collier, Cap Rock's Bulk Power Manager and chief I PSA, . Mr.
negotiator of the 1990 Power Supply Agreement, specifically recognized that one of the disadvantcges of the 1990 PSA was the three-year notice provision. See Vol. IV, Tab 95.
I
I I by Steve Collier.55 For example, in a press release issued on July 15, 1990,56 Collier states:
(Cap Rock] has reached a landmark agreement with I its current sole power supplier, (TU Electric).
Under this exceptional new agreement, (Cap Rock) will be able to seek power from alternative suppliers that could "save Cap Rock Electric's I consumers millions of dollars over the next decade." (Emphasis supplied.)
The new power supply arrangement is a breakthrough for the consumer-owned utility which currently must -
purchase all of its power requirements from TU Electric . . .
TU Electric . . . has agreed to allow Cap Rock Electric to purchase power from other suppliers, and to transport that power over TU Electric lines . . . TU Electric has also agreed to sell supplemental power and other coordinating services I as necessary to allow Cap Rock Electric to take advantage of this remarkable opportunity . . .
I Under the new power supply agreement, TU Electric will, at Cap Rock Electric's choice, schedule and deliver alternate power supplies, or either g provide regulating service to enable Cap Rock g Electric to become a control area and schedule its own power supplies. . . Only one other distribution cooperative, located in Alaska, is currently a -
control area, (Collier) noted.
Cap Rock Electric can continue to purchase the I balance of its power supply requirements from TU Electric. "This will be a ten-year contract, and it can be extended beyond that if both companies agree," (Collier) reported.
The agreement becomes effective when Cap Rock Electric terminates its current power supply contract with TU Electric, Collier said. The new contract requires two or three years notice by Cap Rock to begin serving load with other power supplies, Collier explained. (Emphasis supplied.)
55Vol. IV, Tabs 80, 85, 87 and A.
56 Vol. IV, Tab A.
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4 I Steve Collier also corresponded with various other electric cooperative wholesale customers of TU Electric, lauding the benefits of the 1990 Power Supply Agreement and recommending that st:ch cooperatives seek similar agreements. For example, in July, 1991, Steve Collier advised Ifunt-Collin Electric Cooperative of the very " desirable services and benefits" achieved by Cap Roc!. as a result of the 1990 Power Supply Agreement with TU Electric" and suggested that Hunt-Collin terminate its existing all-requirements contract with TU Electric and attempt to secure a similar deal. In his letter, Collier stated, among other things:
As you know, [ Cap Rock) negotiated a new wholesale power supply contract with TU Electric last year.
I This new contract provides for a variety of very desirable services beyond the normal terms of an all-requirements contract. These services include transmission I wheeling, partial requirements service, regulating power service, and a number of other desirable services and benefits.
- *
- We are expecting a final order from the Public Utility Commission of Texas regarding new rates for TU Electric for Comanche Peak Unit No. 1 I sometime this summer. As a result, the window for termination of the existing contract will be open.
It would be in your interest to terminate your I existing.all-requirements contract and negotiate a more favorable one such as the one that we have executed and that I have enclosed for your review.
We will be taking advantage of this termination window to terminate our existing all-requirements contract to make the transition to our new power supply agreement.
It is my understanding that your all-requirements wholesale power supply contract termine.tes in the I near future. You should not cive in to pressure by TU Electric to extend or renew that existino all-
- recu_iJ_eme n t s contract civen that better terms and conditions have been incorporated I 57 in their Vol. IV, Tab J.
I 'I
I I contracis with Cao Rock Electric . . . (emphasis in original).
The current Dispute 'oetween Cap Rock and TU Ele _ctric regardina the 1990 Power Supp1v 7Lqreepent In February, 1991, TU Electric learned, from an article appearing in " Electric Utility Week,"58 that Cap Rock had negotiated an agreement in principle to purchase 40 MW of wholesale power from Southwestern Public Service Company (SPSCO) for a 10-year term. In light of the fact that Cap Rock had not yet noticed termination of the 1963 Agreement and the 1990 Power Supply Agreement had not yet become ef fective, TU Electric contacted Steve Collier of Cap Rock regarding the agreement discussed in the article. Mr. Collier informed TU Electrie that the announcement was premature, admitting, however, that Cap Rock and SPSCO were in the process of exchanging drafts. Mr. Collier volunteered that as soon as he had some definitive plans, he intended to discuss them with TU Electric so that TU Electric would not be "blindsided.""
Thereafter, in October 1991, at the request of Steve Collier, officials of TU Electric met with Mr. Collier to discuss Cap Rock's plans for new power supply arrangements. Mr. Collier informed TU Electric that Cap Rock had an agreement with West Texas Utilities Company (WTU) to begin purchasing all of its wholesale power requirements from WTU as early as January 1992. Mr. Collier also indicated that Cap Rock intended to transfer most or all of its savol. IV, Tab F.
"Vol. IV, Tab G.
l l
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I.
J
I system load requirements to SPSCO beginning in June 1993. By l' letter to TU Electric, dated October 23, 1991,60 Mr. Collier indicated that Cap Rock anticipated canceling its 1963 contract with TU Electric "without (TU Electric] having to serve any wholesale load temporarily under the new power supply agreement" and confirmed its arrangements with WTU and SPSCO. Cap Rock requested, among other things, that TU Electric provide it with a draft wheeling contract so that Cap Rock could begin to make the necessary arrangements for the wheeling of power from WTU to Cap Rock over TU Electric's system.
On November 4, 1991,61 TU Electric, by letter to Mr. Collier, informed Cap Rock, among other things, that TU Electric expected Cap Rock to comply fully with the 1963 and 1990 Power Supply Agreements and that, in order to comply with those agreer.cnts, it would not be possible for Cap Rock to purchase power elsewhere,
.I including Cap Rock's proposed purchase from WTU, until the cancellation of the 1963 agreement L- upon expiration of the notice periods provided for ia the 1990 Power Supply Agreement and compliance with all other terms of that contract.62 A meeting was 60 Vol. IV, Tab K.
6'Vol. IV, Tab M.
I- 62 The 1990 power Supply Agreement became effective at 12:01 a.m. on February 1, 1992, the time specified by Cap Rock for the I termination of the 1963 Agreement (Vol. IV, Tab V) and, among other things, provides for Cap Rock to purchase from TU Electric all of Cap Rock's power and energy requirements until such time as Cap 4
Rock provides the requisite notice (s) to reduce load. Under the
.- 1990 Power Supply Agreement, if Cap Rock wisnes to reduce load supplied by TU Electric to Cap Rock for any reason, Cap Rock is (continued...)
I
I-1 scheduled on November 19, 1991, to discuss the contract issues but was cancelled by Mr. Collier.63 Representatives of TU Electric and Cap .ock subsequently met I. on December 12, 1991, but no resolution of the dispute was achieved. At that meeting TU Electric informed Cap Rock that TU Electric would consider waiving the notification provisions of the 1990 Power Supply Agreement if Cap Rock was willing to make TU Electric and its customers whole, but Cap Rock declined to do so.
A week later, by letter dated December 19, 1991," Cap Rock formally gave TU Electric notice of termination of the 1963 full requirements Agreement, effective at 12:01 a.m. on February 1, 1992, and again requested that TU Electric furni;h a draf t wheeling agreement covering the tJansfer of power from WTU to Cap Rock over TU Electric's system.
The next morning, December 20, 1991, Cap Rock filed suit 65 in the District Court of Midland County, Texas against TU Electric, seeking, among other things, a declaratory judgment that the 1990 power Supply Agreement is not enforceable, as well as mandatory I
I 62 ( . . . continued) required to give at least three years' prior written notice to TU Electric (except in certain instances in which two years' notice is required).
63Vol. IV, Tabs R, S and T.
"Vol. IV, Tab V.
65Vol. IV, Tab W.
I.
I I injunctive relief requiring TU Electric to take all requisite action to permit Cap Rock to receive electric service from WTU."
On January 6, 1992,67 Cap Rocx's counsel wrote Mr. Thomas E.
Murley, Director of the (*fice of flucicar Reactor Regulation, setting forth Cap Rock's position that the 1990 Power Supply I Agreement is neither hinding nor enforceable. While the letter did not request any relief, Cap Rock's counsel stated that Cap Rock had been able to make arrangements for alternative power supply sources much earlier than it had anticipated when the 1990 Power Supply Agreement with TU Electric was negotiated (citing Cap Rock's arrangements with WTU and SPSCO), indicating that, under such circumstances, to require Cap Rock to make purchases from TU Electric under that Agreement would somehow be inconsistent with the Comanche Peak License Conditions.
On January 13, 1992," TU Electric filed an Answer and
~
Counterclaim. in the Midland litigation, denying all of the allegations in Cap Rock's Original Petition and seeking a judgment -
declaring, among other things, that the 1990 Power Supply Agreement 7,
g is binding.and enforceable. 4 I
I "However, by letter dated February 18, 1992, WTU advised Steve I Collier that the negotiations between WTU and Cap Rock had not resulted in a contract between WTU and Cap Rock. Eq_q V o l . IV, Tab 3.
67 Vol. IV, Tab Y.
"Vol. IV, Tab Z.
I I
I I Thereafter, by it.tter dated January 30, 1992," TU Electric informed Cap Rock that it accepted Cap Rock's December 19, 1991 letter au notice of termination of the 1963 Agreement, ef f ective at 12 :01 a.m. on February 1, 1992. TU Electric advised cap Rock, that it would thereafter supply all of Cap Rock's power and energy requirements, in accordance with the provisions of the 1990 Power Supply Agreement, at Cap Rock's points of delivery presently sorved by TU Electric, specifically setting forth each such point of delivery and the then current contract demand at each such point.
TU Electric denied Cap Rock's request for TU Electric to wheel power from WTU to Cap Rock, beginning February 1, 1992, until the 1990 Power Supply Agreement has been terminated in accordance with its terms or a wheeling request is made pursuant to the provisions thereof, pointing out that the contract does not obligate TU Electric to wheel power or energy from WTU, as regaaste(. without
^:I at least three years' prior written notico. T Ple:tric stated that it intended to comply fully with the provisions of the 1990 Power Supply Agreement and expected Cap Rock to do likewise.
!g on January 31, 1992,70 Cap Rock responded, advising TU j
Electric of its assumption that "nothing short of a court order will stop" TU Electric from enforcing its view of the "1990 i document."
At 12:01 a.m. on February 1, 1992, the 1990 Power Supp?
_l W Agreement became effective, oric TU Eioctric began serving Cap "Vol. IV, Tab 1.
IO 1 Vol. IV, Tab 2.
I Rock's r0Quirements at all of the points of delivery previously served under the 1963 Agreement."
Discovery proceedings ensued in the Midland litigation during the months of January, February and March 1992. On March 24, 1992, Ttt Electric filed a motion in that action to deny Cap Rock's requeut for temporary injunctive relief.D On March 25, 1992, Cap Rock filed Comments" in the llRC's pending antitrust operating license review with respect to Unit tio.
2 of TU Electric's Comanche Peak Steam Electric Station. Cap Rock's claims in its March 25, 1992 Comments are essentially identical to those contained in its 1988 Comments with respect to the antitrust operating license review for Unit flo. 1 of Comanche Peak; that is, Cap Rock is entitled to purchase power from other sourcen at a time when it has an all-requirements contract with TU Electric. The relief sought is also essentially identical. Cap Rock requests this Commission to "promptly institute a hearing and investigation for the purpose of determining the extent to which (TU Electric's) conduct has created a situation inconsistent with the antitrust laws i'nd . .. unequivocally declare (TU Ele;tric's) obligation to wheel for Cap Rock and all similarly-situated Entities."
Hearings on Cap Rock's request for a temporary mandatory injunction to compel TU Electric to facilitate Cap Rock's proposed "Vul. IV, Tab 1.
U Vol. IV, Tab 4.
U Vol. IV, Tab 5.
.I - 23 -
I
I I purchase of power and energy from WTU were held before the Court in Midland, Texas on March 26 - 27 and April 14 - 15, 1992. Testimony has now been concludea, with Cap Rock's post-hearing brief being due on April 23, 1992, and TU Electric's reply brief being duo on April 29, 1992.
TU Electric intends to file a formal response to Cap Rock's March 25 Comments following issuance of the Cocrt's order on Cap Rock's request for a temporary injunction, i
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Copy 1 1 NO. B-38,879 2 i 3 CAP ROCK ELECTRIC > IN Tile DISTRICT 200RT COOPERATIVE, INC.
5 s?, > 238Tl! JUDICIAL DISTRICT 6
TEXAS UTILITIES 7 ELECTRIC COMPANY > MIDLAND COUNTY, TEXAS 8
I 9 ---------------------------------------------------------
10 11 S TATEME NT O F FACTS VO LUME
, I I I
) i 12 April 14, 1992 13 14 15 A PPEARANC E S:
16 17 FOR T11E PLAINTIFF: ilON . RICilARD C. BA LOUGli l Attorney at Law 18 1403 West 6th Street l Austin, Texas 78703 l
[ 19 l IlON . J. BRIAN MARTIN i 20 Attorney at Law l P. O Drawer 1490 21 Midland, Texas 79702 l.
l 22 IlON . TOM W. GREGC, JR.
l ml 23 Attorney at Law P. O. Drawer 1032 San Angelo, Texas 76902 l 24 1
i 25
If1 1 those points of delivery and those cc.ntract demands are 2 identical, essentially identical to those identified in a 3 draft of a proposed agreemei.t with West Texas Utilities 4 Company and cap Rock?
5 A. I understand that they are. I have not done 6 that personally.
7 Q. Okay. Thank you, sir.
8 Could you explain at the time you're 9 negotiating this agreement with Mr. Collier what the 10 purpose was for having Exhibit A under the Pouer Supply 11 Agreement at all?
3 12 A. Exhibit A, Your lionor, is basically to
,. 13 enumerate for administrative purposes, as much as 14 anything else, what are the points of delivery to cap 15 Rock Electric. We have people in accounting, we have 16 people that are working with reading meters, we have 17 people that are in rates that have an interest in that 18 kind of information and like to see it in some sort of 19 summary form in one place, and that's helpful to them.
20 However, contract demand itself is a term that 21 we use or a number that we use as a projection, a 22 reasonable projection by the customer of what it expects 23 its requirements to be on its system at that particular 24 point of delivery. It's -- we would hope that that T 25 customer would give us a reasonable good faith number, I
I.
162 1 because we use that, we would like to use that in 2 planning the facilities that we have to have in place at 3 that particular location to take care of those 4 requirements, in other words, the transformers, the power 5 system components, transmission lines and the like.
6 Ilo w e v e r , as far as the amount of power that we 7 are obligated to supply that cuntomer, those obligations 8 are spelled out in this agreement in the sections that J 9 referred you to previously, in other words, 307, 301, 10 302, those define the amounts of power that we're to 11 supply at those points, so I would sino, Your lionor, s
12 refer you to Section 3.05 in this agreement. This in on
- 13 Page 15 of the agreement. 3.05, and I quoto, is the rate 14 schedule, and it says "it is distinctly understood and 15 agreed that the monthly rate of charge, including any 16 charges for power and energy in excess of contract demand 17 and any demand determinations affecting billing demand 18 for all power and energy which Cap Rock shall purchase 19 from TU Electric and TU Electric is required to sell to 20 Cap Rock under this agreement shall be pursuant to TU 21 Electric's rate WP wholesale powe r its succersor, as
! 22 same may from time to time be f i* approved by the l 23 PUCT," in other words, Public Utility Commission of l
I T 24 25 Texas.
Now --
excuse me.
I
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I 167 1 to Cap Rock in the event its customers at any point of 2 delivery exceeded any contract demand that might be 3 specified by Cap Rock at that point?
4 A. No, we did not.
5 Q. Is it unusual for a custon.or such as Cap Rock 6 to exceed contract demand from time to time?
7 A. Occasionally customers will exceed their 8 contract demands.
9 Q. lias TU Electric ever interrupted service to 10 any customer because of some excess contract demand taken 11 at a point of delivery?
12 A. I am not aware of any such circumstances.
, ,o 13 Q. lias any of its contracts over permit that to 14 occur?
15 A. I can't say any of its contracts, but none t
16 that I'm aware of.
17 Q. Well, okay. Are you responsible for 18 administering the wholesale supply contracts of all TU 1
lg 19 Electric's wholesale customers during the timo you were 1
g 20 vice president of the Special Project. group?
21 A. Most of our activity during that time, Mr.
22 Sampels, was involved in negotiating _ contracts, though we 23 worked very closely with our wholesale power group who 24 administered some of the'whole sale contracts, we E) 25 administered others.
I g
I 168 1 Q. Is it possible for TU Electric on a point of 2 delivery basis to ration the amount of power that's to be 3 supplied at a particular point or dolo it out or hol'd it 4 back?
5 A. No, in our business, Your lionor, when a 6 customer demands electric energy, we have to supply it 7 instantaneously. There's no real way to store that I 8 energy, so it's really on demand. In other words, 9 whatever the customer demands at the time, we have to 10 stand ready to provide.
11 Q. There's been a suggestion by Mr. Collier, Mr.
12 Pittman, that Exhibit B, which is also not filled in,
+ 13 somehow makes the Power Supply Agreement of 1990 14 defective. Could you explain by showing the Court the 15 provisions of the 1990 Power Supply Agreement that 16 Exhibit B is supposed to facilitate?
17 A. Your !!onor, if you will refer to Exhibit B in 18 the 1990 Power Supply Agreement, Exhibit 11, in that 19 particular exhibit, it's entitled " Cap Rock Power Supply l 20 Resources." Again columns headed Name and Location of l
21 Power Supply Resource Control Area, Firm Capability in l-22 Megawatts, Term in Years, Beginning Date and Ending Date, 23 then bracketed on six lines in that exhibit, the i 24 statement "to be specified pursuant to Section 2.03 of lI) 25 this agreement," so if you then will go to Page 6 of l
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245 1
2 Q. (By Mr. Sampels) After execution of the power I 3 --
1990 Power Supply Agreement, did you have suffic'ient 4 capacity without taking some action to serve the Cap Rock 5 load?
6 A. We didn't have sufficient capacity to serve 7 our system load requirements plus the hundred megawatts 8 of Cap Rock load, and we extended those agreements in 9 September of 1990.
10 Q. And what is the cost to TU Electric to 11 purchase the hundred megawatts of capacity under those 3
12 agreements, Mr. Bunting?
,
- 13 A. This cost would fit in the neighborhood of 14 $20,000,000.00 a year to TU.
15 Q. So for three years, $60,000,000.00?
16 A. $20,000,000.00 a year times three years would 17 be about $60,000,000.00.
18 Q. And will Texas Utilities be required to 19 purchase that capacity whether Cap Rock repurchases it 20 from TU Electric or not?
, 21 A. Yes, sir, absolutely they will.
22 Q. After the 1990 Power Supply Agreement was 23 executed, when did you next become involved with Cap .
24 Rock, do you recall?
I. T 25 A. I read an article in the Trade Press, I think I
I
I-249 1 A. Yes, sir, this is the article that in dated 2 FcLruary 25, 1991, Mr. Erle liye, Jorrell Gibbs and Pitt 3 Pittman from myself.
E 5 MR. SAMPELS: Your Honor, we offer 6 De f e nd es nt 's Exhibit 60.
7 MR. BALOUGH: tio objection, Your lionor.
8 THE COURT: 60 is admitted.
I 10 (Defendant's Exhibit ti o . 60 11 was received in evidence) 12
- 13 Q. (By Mr. Sampels) And does that record the 14 essence of your conversation with Mr.* Collier?
15 A. Yes, sir, it does.
16 Q. Did Mr. Collier assure you in that 17 conversation that he did not intend to take any action 18 inconsistent with the 1990 Power Supply Agreement?
19 A. Yes, sir.
20 Q. Did he indicate that there existed no 21 agreement with SPS?
, _ 22 A. He said that the agreement in principle was 23 premature, that as you can read in the first -- the 24 paragraph and they were exchanging drafts.
l 25 Q. And did he confirm to you that the points of
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I 251 1 what was in my mind, that was my concern. They had a 2 1963 full requirements agreement, and I was concerned I 3 that they were going to take actions which would violate 4 certain provisions of the 1990 Power Supply Agreement, so 5 our conversation was in regard to the 1990 Power Supply 6 Agreement.
7 Q. Did Mr. Collier assure you that he was not 8 going to do so?
9 A. He assured he wasn't going to take any action 10 that would be contrary to that agreement.
11 Q. And that he would not blind side TU Electric
\ 12 about when he might take even 30 megawatts of load off?
, .
- 13 A. Mr. Collier said that when he got down to the 14 point where he had his --
had this worked out, that he 15 would sit down with TU Electric, and because he didn't 16 vant, and I quoted, he didn't want to blind side us about 17 things he was working on.
18 Q. Following that conversation, what was the --
19 when did you next have contact with Mr. Collier?
20 A. My next contact with Mr. Collier was in 21 October, 19917 22 Q. Could you describe the circumstances of that 23 meeting, sir?
24 A. Mr. Collier called Mr. Darrell Bevelhymer, who 25 was Director of Bulk Power Transactions, and asked to
I 252 1 schedule a meeting. Mr. Develhymer asked me to be 2 present at that meeting.
3 Q. Do you recall when that meeting -- did I ask 4 you when that mooting occurred?
5 A. No, you did not, but it occurred on October 6 22, 1991.
7 Q. And yourself, Steve Col 1ler and Darrel1 8 Bevelhymer were present at that meeting?
9 A. Yes, the three of us.
10 C Could you describe what occurred at that 11 meeting, sir?
s 12 A. Mr. Collier asked, or in fact he told us that
,' 13 he didn't need the 1990 Power Supply Agreement any 14 longer, and that he intended to take all of his load over 15 to WTU in January of 1991, 16 Q. What was your reaction to that, Mr. Bunting?
17 A. I was shocked.
18 Q. Why?
19 A. Because this was not my understanding of the 20 1990 Power Supply Agreement. I knew that we had 21 negotiated this agreement over a number of months, that 22 we had spent a long time negotiating this agreement, thin 23 was agreement which Cap Rock said was very important to 24 them that gave them a lot of flexibility, and now for him 25 to come up and make this statement did shock me.
I
I 253 1 Q. That ho didn't nood the 1990 Agroomont any 2 more?
3 A. That's correct.
4 Q. What happened next, Mr. Bunting?
5 A. I --
of course, the mooting adjourned, and the 6 next -- I wanted to go and roview thn agroomont in more 7 detail. Wo received a letter dated October 23rd from Mr.
I 8 Collier --
9 Q. Is that what -~
10 A. ~~ stating what his 'iterpretation was and the 11 results of the mooting.
s 12 Q. lia s that boon introduced in evidence hero
. ,
- 13 Defendant's Exhibit 17?
14 A. Yes, sir, that's correct.
15 Q. Then what happened, Mr. Bunting?
16 17 THE COURT: Mr. Sampels, I do not show 18 that 17 has been admitted.
19 MR. SAMPELS: I'm sorry, Your Honor.
20 Your Honor, it is Plaintiff's 10, I'm sorry.
21 THE COURT: Plaintiff's 10 shows to be the i
22 Principles of Agrooment.
23 MR. SAMPELS: Your Honor, in your 24 Defendant's Exhibit book promarked under Tab 17.
\ 25 THE COURT: I have it before me.
I I
I 289 1 the exhibit itoolf, how it works and functions.
2 Tl:E COURT: The objection is overruled.
I 3 4 A. Rate WP contains throo basic type of chargou.
5 These are the customer charge, the demand charge and the 6 onorgy charge, and each chargo is designed to recover 7 specific costs incurred by TU Electric in providing a 8 service.
9 For example, the customer chargo in donigned 10 to recover administrative billing type expenson and 11 motoring expenses, the energy chargos are designed to 12 recover the variable costs incurred by the company to
. , 13 provido electric service, and the demand charge recovers 14 the fixed cost incurred by TU Electric in making service 15 available to the customer, whether or not any onorgy in 16 actually used or not.
17 Q. Could you claborato upon the function of the 18 demand charge?
19 A. Yes.
20 Q. And before we get far on that, the demand 21 charge tnat you're speaking of in the tariff, does that 22 have any relationship to what has been tormed in this 23 courtroom as contract KW7 24 A. No, sir, it does not.
25 Q. Okay. Please go ahead.
I I-
290 1 A. The demand charges in the tariff are 2 particularly critical, because in providing electric 3 service to the customer, TU Electric must plan and 4 install and make available aufficient resources to 5 provide the maximum load expected to occur by the 6 customer in the company's on-peak period, which is 7 typically June through Septeniber during the hours of 8 32:00 noon through 8:00 p.m. TU Electric must stand 9 ready to provide this service upon demand based on that 10 customer's maximum demand, even though that demand may 11 only be used one hour one month or a short period of time 12 and not used the rest of the year.
r' 13 This type of ef fort requires that we incur 14 fixed costs for generation, transmission and distribution 15 that are fixed in nature over a period of a year or two 16 years, and TU Electric is obligated to pay the fixed cost 17 associated with these facilities.
18 The demand charges are designed to recover 19 specifically from those customers causing TU Electric to 20 incur certain types of demand charges. As you can see, ll 21 they're designed to recover more dollars from c'stomers 22 who use their maximum demand for electricity in the 23 summer rather than in the winter, that is because it is 24 relatively more expensive to provide peaking capacity 25 than off-peak capacity.
lI
I 291 1 The chargen also through the demand 2 determination also provide for various adjuntments to the 3 demand charge, which also reflect usage by the cuntomer.
4 Q. These demand charges that you speak of, you 5 determine that by looking at the meter itself at a given 6 point of delivery?
7 A. Yes, sir. In going through the --
what in 8 actually charged to the customer at the point of 9 delivery, we first -- we look at all the items contained 10 under the demand determination provision. First item is 11 the current month KW, which is defined as the maximum
\ 12 demand that's metered at a particular point of delivery
- < 13 in the month. The rest of the items depend on what the 14 demands are at the point of delivery during various other 13 times.
~
16 For example, the 80 percent of the on-peak KW 17 recovers the cost of the capacity used to provide on-peak 18 service during the months of June through September.
19 Fifty percent of the contract KW and 50 percent of the 20 annual KW serve two purposes. First, they provide a cost 21 recovery for facilities that are incurred during the 22 off-peak periods, plus they provide an incentive for the 23 customers to accurately project their load requirements 24 so that we can get proper cost recovery.
25 In that regard, that 50 percent of the I
I
t 292 I 1 contract KW provision works in concert with the dollar 2 per KW excess provisions.
3 Q. Now, to bill for the demand chargo, as I think 4 you testified earlier, it'a not necessary that you have 5 some term called contract KW that's been discussed in 6 this case, is there?
- 7 A. No, sir, that's correct.
8 Q. And could you explain to the Court what the 9 function of contract KW is insofar as any -- to TU 10 Electric, what is the function of contract KW as you 11 understand it?
12
< 13 MR. B A LOUGil : Your lionor, I object to 14 contract KW as a term in the contract, it's not on rate 15 WP. 1le's here to talk about rate WP, and this doesn't 16 say he's an expert and knows anything about the contract 17 and now he's trying to talk about the contract.
18 MR. SAMPELS: Your lionor, I'm trying to 19 find out. if this witness knows the function to TU 20 Electric, how TU Electric uses information that is termed 21 contract demand.
22 TIIE COURT: The objection is overruled.
23 24 A. Contract KW is primarily used by TU Electric 25 as a planning tool, and in somu instances is used as a I
. - . . . . _ - - - - __~ . --
l '
293 1 billing tool. For customers such as cap Rock who are 2 long standing customers, its primary use is a planning 3 tool, and it provides an economic incentive based on the 4 operation of the dollar per KW in the tariff for the 5 customers to provide TU Electric the most accurate 6 forecast of their demands at each point of delivery.
7 Q. And in order to bill Cap Rock Electric Company 8 for all demand charges based upon rate WP and all energy 9 charges, including fuel for rate WP, the amount of 10 contract demand which may or may not be specified in 11 contract is irrelevant, is that my understanding?
g 12 A. That's correct.
,e 13 Q. And the importance of contract KW to TU 14 Electric is simply that to assist us in its planning 15 process?
16 A. Yes, sir, it's important to realize that all 17 of our tariffs for electric service require contract KW 18 to be specified on a point of delivery basic when 19 customers get over a certain size. It's a provision that 20 is used in the planning process, without which our 21 planning would be frankly less accurate, and the best 22 information that we can get from the customer helps us 23 secure the most efficient amount of resources to serve 24 the load.
\ 25 ,
Does contract KW have anything at all to do
294 l 1 with how much power, energy or capacity TU Electric is 2 required to deliver to any particular customer?
3 A. No, sir, the utility TU Electric will deliver l l
4 as much power as 10 demanded by the customer, independent ,
i 5 of whether there is a contract KW number 1isted. '
6 Q. Could y o u -- h o l ti on just a second.
7 If a customer such as Cap Rock exceeded ita 8 demand, exceeded the contract demand at a given point of 9 delivery pursuant to rate Wp, could you explain to the 10 Court what the offect of that would be?
11 A. Yes, at any one point of delivery, if the g 12 current month demand or the meter demand exceeded the
,
- 13 contract KW, the result would be the customer would be 14 billed for an additional dollar per KW for each KW in 15 excess of the stated contract KW.
16 Q. That's to provide an incentive for a customer 17 to give you accurate projection with respect to its 18 requirements at a given point of delivery?
11 20 MR. B A LOUGil : Your Honor, I'm going to 21 object to the question as to what its purpose is.
22 23 Q. (By Mr. Sampelo) What is the purpose of it, 24 sir?
\ 25 A. The purpose of this dollar per KW charge, as I
lI 295 1 previously stated, is to provide an economic incentive to 2 the customer to accurately forecast his demand 3 requirements at a particular point of delivery. Without 4 such economic incentive, we have found that the forecasts 5 are corroupondingly lesu accurate.
6 Q. There's been testimony in this case, Mr.
7 Houle, that Cap Rock would have the right and the abjlity ,
8 to put zero in the contract demand column of Exhibit A, 9 and therefore escape any obligation it had to purchase 10 power from TU Electric. Is that your understanding, sir?
11 s 12 MR. BALOUGH: Your honor, I'm going to
. ,
- 13 object to that question.
14 MR. SAMPELS: Let me ask it this way.
15 16 Q. (By Mr. Sampels) Would you please tell me 17 what the offect of that action would be in the 18 application of rates and charges to Cap Rock under rate 19 WP?
20 A. If a customer chose to select zero an a 21 contract KW, that result would be that the bill would be 22 increased by a dollar per KW per month.
23 Q. And give the Court an example of what that 24 might mean in terms of total dollars to Cap Rock?
25 A. For a load such as Cap Rock, that would be an I
I
l l w 335 1 how it's calculated. I'll withdraw my objection.
2 I 3 Q. (By Mr. Balough) Okay. Mr. Collier, I'll 4 agree with Mr. Sampels, when you're going through it, 5 tell us how it's calculated and what the amount is, 6 please?
7 A. If the success fee that we've talked about and 8 that is represented in these documents were to be in 9 effect and if we were to buy power from WTU or SPS, and 10 if, after the fact, after a year it is deternined that 11 the not cost of power is less than it would have been had g 12 we bought that power from Texas Utilities Electric
+ 13 Company, then the cuccess fee is calculated as one 14 percent, my success fee is calculated as up to one 15 percent of that amount, of that net savings, 16
~
Now, we have been doing quite a bit of 17 thinking about the WTU and the SPSCO power supply 18 arrangements, and we have tried to project what they 19 might say. If, for example, the WTU power purchase saved 20 $3,000,000.00 a year, one percent of S3,000,000.00 is -
21 S30,000.00. That would be the maximum that my success 22 fee would be for that calculation, that would represent a
.g E 23 20 percent savings, and I think that's probably on the 24 outside the most we could expect to save in power costs.
T 25 The sane thing is done on tha SPS Agreement.
I I
I 336 1 ll o w e v e r , it's important to note that those two success 2 fees are not additive. We can't serve that load from WTU 3 and SPSCO. If we're serving it from WTU, it hasn't been 4 moved to SPS yet. If it's been moved to SPS, it's not 5 being served from WTU.
6 If when load is moved to SPS it also saves us 7 40 percent on our power bill and that is $3,000,000.00, b that success fee would be $30,000.00. If it saved us 9 $4,000,000.00, that success fee would be $40,000.00, so I 10 would expect if I am able to persuade my management to 11 allow me to receive a success fee on this basis at some T 12 point in the future of this form, that my bonus would be
- 13 on the order of a total of 30 to $40,000.00 in each year, 14 assuming that we saved up to 20 percent on our power 15 bill.
16 Q. Mr. Collier, even though we've had your amount 17 redacted from your employment agreement, I think it's now E 18 important to put all this into perspective, so I'm going 19 to ask you what your base salary amount is at Cap Rock?
20 A. My base salary today is approximately 21 fD-000.70. I don't know to the penny, because it's an f
32i *
- 3 umber because of the way it raises, the percentages l 23
)
ie 4 out. In the employment arrangement, it began at 65 '
24 and moved to 75 and now I'm at 83 for base salary.
\ 25 Q. Mr. Collier, in your experience in the I
337 1 industry in which you have made your professional living, 2 is a aalary plus a bonus a usual way of compensation in I 3 your exporiance?
4 A. Yes, sir.
5 Q. And 11 I can calculate, which I always try not 6 to do, but let's say there was a $30,000.00 success fee, 7 and bar3ed on your salary, about what percentage would 8 that be of bonus salary, salary bonus, however that 9 works?
10 A. Excuse me a minute. I'm trying to make the 11 calculation. It looks to me like it would be about 36 g 12 percent of my base salary.
,e 13 Q. Okay. Mr. Collier, when you were at Guernsey, 14 you were receiving base salary plus a bonus?
15 A. Yes, sir.
16 Q. Is a bonus of 36 percent in 1ine with what you -
17 were receiving?
la A. Yes, sir, the target amount of the bonus at C.
19 }{ . Guernsey & Company was 35 percent of salary, and if 20 the company was extraordinarily profitable or my 21 department or division was extraordinarily profitable, it 22 could be in excess of that.
23 24 MR. B A LOUGil: Pass the witness, Your T 25 lionor.
I I
l I
338 1 THE COURT: Mr. Sampels.
2 3 RECROSS-EXAMINATION I '
5 BY MR. SAMPELS:
5
) Mr. Collier, you've indicated that your 7 Q.
8 success contract was based upon a percentage of savings 9 and power costs?
10 A. Yes, sir.
11 Q. You've indicated that the savings in the --
g 12 that there was about a 20 percent savings in power costs
,e 13 to --
under the SPS contract?
14 A. When we've tried to calculate power bills 15 under first TU's tariff and under WTU's tariff and 16 estimate what might be subtracted from that for wheeling, j 11 it appears to be to be on the order of 20 percent.
18 That's an estimated, not dono in detailed calculations.
19 Q. I was asking you with respect to the SPS 20 contract?
21 A. I'm very sorry.
22 Q. You said there was approximately 20 percent 23 savings to Cap Rock under the SPS contract?
24 A. Well, I used that as a similar example. We T 25 haven't been able to project exactly what the savings I
I
I 339 1 are, because we're having to build some transmission, and 2 there'll be cost of that transmission that I believe will 3 affect the not savings.
4 Q. Is it fair to say it may be approximately 20 5 percent of this?
6 A. It could be as much as 20 percent.
7 Q. Compared to what? 20 percent savings to cap 8 Rock compared to what?
9 A. Compared to what we would have paid for power 10 had we continued to buy it from Texas Utilition Electric 11 Company.
3 12 Q. In other words, compared to what you've had to
,e 13 pay had you remained at a full requirements customer of 14 TU Electric under 1990 Power Supply Agreement, right?
15 A. Yes, sir, even compared to what --
in the 16 situation in which I didn't move the load to WTU, but I -
17 moved it in sections the SPS, there might be a year in 18 which part of the load was moved, and it would be the 19 total bill, part served by SPs, part by TU, compared to 20 the total load served by TU.
21 Q. Under the Power Supply Agreement?
22 A. Yes, sir.
23 Q. Your testimony in this case, Mr. Collier, is 24 you don't have any obligation to buy any power from TU 25 Electric, is that not true?
I I
340 1 A. Yes, sir.
2 Q. Well, why do you want to compare your savings 3 and your bonus to what you would have had to pay under 4 the 1990 Power Supply Agreement? Why don't you compare 5 it the way you could have got it from some other supplier 6 such as WTU?
7 I A. The app oach that we've taken is that had we 8 not negotiated the agreements and made the arrangements, 9 we would have continued to buy our power from Texas 10 Utilities Electric company.
11 Q. And if you don't --
you're not able to 3
12 successfully abrogate that contract through this Court,
,e 13 that's exactly what you'll have to do, isn't it, Mr.
14 Collier?
I 15 16 MR. B A LOUGil: Your Honor, I'm going to 17 object to the abrogating. I would ask that it be 18 rephrased.
19 Tile COURT: O t3 j e c t i o n is overruled.
I- 20 21 Q. (By Mr. Sampels) Isn't that right, Mr.
22 Collier?
23 A. If we are not successful in being allowed by 24 this Court to purchase our power from WTU, there will be
\ 25 no savings from purchasing power from WTU.
I I
I No B.38,879 I CAP ROCK ELECTRIC COOPERATIVE, INC.,
IN TIIE DISTRICT COURT I #
Plaintiff, #
v.
- SIIDIAND COUNTY, TEXAS s
I TEXAS UTILITIES ELECTRIC COSIPANY, s
s s
Defendant. s 238th JUDICIAL DISTRICT TU ELECTRIC'S DESIGNATION OF PORTIONS OF DEPOSITION
!I OF D AVID L. TEEFER IEFTER DEPOSITION
[lRIEF I)1SCRIPTIQS
- 1. Page 65, lines 513 No contract between Cap Rock and WTU I 2. Page 119, lines 15 25 Page 120, Lines 125 No contract between Cap Rock and WTU when Collier gave notice of termination to TU Electric
- 3. Page 133, lines 815 Cap Rock not to become p- 'AT U's control area, to remain in TL lectric's control area
- 4. Page 134, lines 15 25 Page 135, lines 12 If Cap Rock becomes part of WTU's control area, would need interchange agreement with TU Electric that don't have right now
- 5. Page 142, lines 24 25 Page 143, lines 13 Cap Pock not to become part of
\VTU's control area under proposed contract with WTU
- h. Page 164, lines 20-25 Page 165, lines 1 16 TU Electric would need to do some physical things and install additional equipment to facilitate proposed q
contract with WTU and Cap Rock 7 Page 166, lines 20 24 WTU knows its wholesale customer's points of delivery
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8 M. R . DAVI5: Q y, r , ;geter, ;, .,
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9 you this quest:oh. "nder the proposee contract Detween Cap I 10 Rock and V7". is Cap Roeg to 3,cos, a 737 )g g77,s con *ro; '
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t 13 Q. Are they to re.a;a a pa; of TU I;cctr; *s ::-
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i it A. Yes.
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I" INTER OFFICE CORRESPONDENCE souTuwtSTERN PUDUC SERVICE COMPANY SUBJECT Cap Rock Electric Cooperatives LocAricN A marillo, Texas DATE J u n e 21, 1990 lE i
i I
MEMORANDUM TO: Gary Gibson I spoke for to Steve Collier tod a y and sent him our projected fuel factors the 90's.
1 with TV on June He indicated they had reached a new power supply agreement 2.
I The agreement allows them to move 30 MW of their north system load off T U with 2 years' notice. He does not believe the wheeling O klau nion .agreement with TU will facilitate power from the SWPP th rou gh I fr l
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I Dave Krupnick DK/db I
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I CAUSE NO. B 38,879 I CAP ROCK ELECTRIC f IN Tile DISTRICT COURT OF COOPER ATIVE, INC.,
I i
{
Plaintiff, f 6
V. MIDLAND COUNTY, TEXAS TEXAS UTILITIES ELECTRIC i COMPANY, I Defendant.
6 i
I 238Til JUDICIAL DISTRICT I
DESIGNATION BY CAP ROCK ELECTRIC COOPERATIVE I OF DEPOSITION OF D A VID ANDREW KRUPNICK BC.h1 3Q Page Line Page Line I 6 8 10 6 6 13 10 9
16 21 19 8 I 40 49 11 6
47 53 9
23 55 17 56 11 I 4 58 64 67 14 2
9 62 65 68 22 4
13 I 86 98 128 6
17 3
87 103 130 17 9
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I 98 1 MR. WILPONG: Do you want to get 2 some lunch?
3 MR. DAVIS: Well, maybe we should.
4 (Whereupon a recess was had) 5 Q. by Mr. Davis) I think this is where we left 6 off, Mr. Krupnick. Let me hand you what I'll call 7 Exhibit No. 4. it is dated 10-19-90. Are those your
- 8. notes? We haven't talked about this one, have we?
9 A. No.
10 Q. Okay. Good.
11 MR. GREGG: Excuse me. I'm getting 12 confused. I thought all of these had l 13 been marked as Exhibit 3.
14 MR. DAVIS: Yes.
15 MR. GREGG: You referred to it as 16 Exhibit 4.
I 17 MR. DAVIS: I meant document number 18 four in Exhibit 3.
19 Q. by Mr. Davis) Are those your handwritten 20 notes again?
21 A. Yes, sir, they are.
22 Q. And they're dated October 19, 1990; is that
+ 23 right?
24 A. Yes, sir.
25 Q. Okay. And does this reflect an in-person I
I-I 99 1 meeting?
2 A. Yes, it does.
3 Q. All right. And who was present at this I 4 meeting?
5 A. Steve Collier, Rusty Jones, David Pruitt, 6 Gary Gibson and myself.
7 Q. All right. Let me ask you about these 8 initials. Is that "G.G."?
9 A. Yes, sir, it is.
10 Q. And that stands for Gary Gibson?
11 A. Yes, sir.
12 Q. And what is that language beside his name?
13 What does that say?
14 A. " Reviewed cost comparisons."
~
15 Q. And what is that referring to? .
16 A. That refers to some information provided I 17 between Cap Rock and Southwestern, the cost of 18 electricity.
19 Q. What was being compared?
20 A. The cost of different options that Cap Rock 21 might pursue.
22 Q. Was that a written cost comparison?
23 A. I don't remember.
24 Q. Did it include information on the price of 25 electricity if Cap Rock were to purchase electricity from I
- I I
100 1 TU Electric?
2 A. I don't remember if that refers to the cost 3 of power or the cost of transmission extensions. I don't I 4 remember what reference that was to.
5 Q. You just don't know?
6 A. I don't remember.
7 Q. And then we have the initials "S.C.", which I 8 again assume that is referring to Steve Collier?
9 A. Yes, sir, it does.
10 Q. And then this first sentence says, " Looked at 11 feasibility of all load." Do you know what you meant 12 when you wrote that, what you're referring to?
13 A. It probably refers to all of the load of 14 Cap Rock's system.
15 Q. The next line says, " Power Agreement 16 identified actual substation (2 year)." What is that I 17 statement referring to?
18 A. He was reiterating that comment referred to 19 in the earlier memo that there were certain substations 30 in the new TU agreement that were identified that would 21 require two years' notice if they were placed on the 32 contract.
33 Q. So that the power agreement referred to in 24 that third line refers to the 1990 Power Supply Agreement 25 between TU and Cap Rock; is that right?
101 1 A. Yes, sir, I believe it does.
2 Q. And it's your understanding that the rest of 3 that line, which it says, " Identified actual substation
~
4 _ (2 yea r) , " you're referring to those nine points of
.l 5 delivery that were specifically identified in the 1990 6 agreement between Cap Rock and TU: is that correct?
7 A. It was referring to those substations. I 8 don't remember the number nine or any particular --
but 9 it referred to the ones that had two years' notice.
! 10 Q. Now, what relationship did that sentence have 11 with the one before it?
12 MR. WILFONG: Excuse me just a i 13 minute. I need to make a phone call.
14 (Whereupon a recess was had) l 15 Q. by Mr. Davis) All right. Mr. Krupnick, 16 we're going back to these first two lines attributable to 17 Steve Collier in this memo dated October 19, 1990. I was 18 asking whether there was any relationship between the l.
19 second line there which talks about " Power Agreement 20 identified actual substation (2 year)." And the first 21 line that says, " Looked at flexibility of all load."
22 -A. I think that's " feasibility of all load."
. 23 Q. Feasibility.
24 A. I don't think those were related in that 25 conversation.
I 102 1 Q. In other words, as far as you recall, it 2 wasn't talking about that perhaps all of Cap Rock's load 3 could be served by the two substations that were 4 identified in the 1990 Power Supply Agreement between TU 5 and Cap Rock?
6 A. No, that's not what it referred to.
7 Q. Okay.
8 A. I think "all load" refers to all of their 9 load as opposed to all of the nine substations, if that 10 was the question.
11 Q. okay. Well, no, my question was --
I'm 12 wondering if, for example, there's a relationship between 13 those two lines such that it was discus' sed that SPS might 14 serve all of Cap Rock's load through the substations 15 identified in the agreement which had a two year 16 termination noticc?
I 17 A. No, that was not the topic of discussion.
18 Q. The next line says, " Current contract has 19 three years' notice." What was that referring to?
20 A. That was referring to their existing contract 21 which we've been calling today, I think, the 1963 22 contract.
23 Q. Skipping down a couple lines to -- what is
-24 that line there that I'm pointing to? It looks like "two 25 years," and then what does it says?
I
I 103 1 A. "Two years worse for 30 megawatts."
2 Q. What --
3 A. It says " worse" but it should be " worst."
4 Q. What does that mean?
5 A. That refers to the fact that if they had to 6 put all their delivery points on this new 1990 contract, 7 if they couldn't have an interim supplier, then it would 8 be --
two years would be the longest that they would have 9 to wait to move 30 megawatts to Southwestern.
10 _
Q. And then the next line?
11 A. It says that if they did that, then they
_.12 would have to wait the three years before they could move 13 all of their system over to Southwestern. That was the 14 notice requirement if they put --
for delivery points 15 that were placed on that not included in the two year 16 notice.
I 17 Q. And why were these significant to you? Why 18 did you write these comments down?
19 A. I don't know if there had been other 20 face-to-face meetings regarding their new June agreement 21 and what may have been involved in that. So they may 22 have been relating that to explain to us if that had any 23 effect on what we were negotiating and to familiarize us 24 with that.
I 25 Q. Is it accurate to say that this line which I-
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SOUTHWESTERN PUBLIC SERVICE COMPANY WHOLESALE FULL REQUIREMENTS SERVICE RATE SCHEDULE
'I The utility sucolvino service:
Southwestern Public Service Company I
i' The utility receivina services
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Cap Rock Electric Cooperative, Inc.
FERC Rate Schedule No.
i Descriotion of service to be rendered g Sale of firm electric power and energy, for distribution and resale by the full requirements customer.
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TABLE OF CONTENTS RECITALS . . . . . . . . . . . . . . . . . . . . . . . ... 1 ARTICLE I.
Points of Delivery - Service Specifications . . . ... 2 ARTICLE II.
Customer's Installation . . . . . . . . . . . . . ... 4 ARTICLE III.
Contract Power . . . . . . . . . . . . . . . . . . ... 4 ARTICLE IV.
Metering . . . . . . . . . . . . . . . . . . . . . ... 5
'I ARTICLE V.
Connection to Qualifying Facilities . . . . . . . ... 6 ARTICLE VI.
.I Rates . . . . . . . . . . . . . . . . . . . . . . ... 8 ARTICLE VII.
Exceptions To Minimum Demand Billing Units. . . . . ... 9 ARTICLE VIII.
Conservation And Load Management Measures . . . . .. 10 ARTICLE IX.
Payment of Bills . . . . . . . . . . . . . . . . . .. 10 ARTICLE X.
Termination of Agreement . . . . . . . . . . . . . .. 11
- I ARTICLE XI.
Access . . . . . . . . . . . . . . . . . . . . . . .. 11 ARTICLE XII.
Force Majeure . . . . . . . . . . . . . . . . . . .. 11 ARTICLE XIII.-
Liability . . . . . . . . . . . . . . . . . . . . ... 12 ARTICLE XIV.
Assignment. . . . . . . . . . . . . . . . . . . . . . , . 12 ARTICLE XV.
Approval . . . . . . . . . . . . . . . . . . . . . ... 13 ARTICLE XVI.
i Effective Date and Term . . . . . .. . . . . . . ... 13 i
CAP ROCK l 301518
's l
ARTICLE XVII.
Conversion To Partial Requirements Service . . . . ... 13 ARTICLE XVIII.
Modifications . . . . . . . .. . . . . . . . .. . ... 15 I ARTICLE XIX.
Governing Law . . . . . . . . . . . . . . . . . . ... 15 I ARTICLE XX.
Cumulative Remedies . . . . . . . . . . . . . . . ... 16 ARTICLE XXI.
Notice . . . . . . . . . . . . . . . . . . . . . . ... 16 ARTICL2 XXII.
Additional Customer Facilities . . . . . . . . . . ... 17 ARTICLE XXIII.
I Lease of Facilities ARTICLE XXIV.
. . . . . . . . . . . . . . ... 17 Mutual Assistance . . . . . . . . . . . . . . . . ... 18 ARTICLE XXV.
Other Agreements . . . . . . . . . . . . . . . . . ... 18 ARTICLE XXVI.
Entirety . . . . . . . . . . . . . . . . . . . . . ... 19 I
I I
I I
I I
J t1 3015l9 3 c . .cx
i SOUTHWESTERN PUBLIC SERVICE COMPANY AGREEMENT FOR WHOLESALE FULL REQUIREMENTS ELECTRIC POWER SERVICE TO CAP ROCK ELECTRIC COOPERATIVE, INC.
The Parties to this egreement (" Agreement") are Southwestern Public I Service Company, a New Mexico corporation ("SPS"), and Cap Rock Electric Cooperative, Inc., a Texas corporation (" Customer *). SPS and Customer are also referred to in this Agreement as " Party
- or
" Parties".
RECITALS FPS is an electric utility engaged in the business of generating, purchasing, transmitting, and distributing electric power and energy to customers within the States of Texas, New Mexico, Oklahoma and Kansas.
I Customer is a coopera'tive corporation engaged in the business of transmitting and distributing purchased electric power and energy to retail customers within the State of Texas.
Customer desires to purchase electric power and energy for resale, and SPS is willing to sell and deliver to Customer electric power and energy for such purposes.
SPS and Customer recognize that all of Customer's substations are now physically connected with the Electric Reliability Council of Texas ("ERCOT"). In order for SPS to sell and Customer to buy power and energy, it is necessary for Customer to disconnect from ERCOT and connect with the Southwest Power Pool ("SPP"). The I physical connection of Customer's substations with the SPP requires the construction of additional transmission facilities by both SPS and Customer.
Accordingly, in consideration of the benefits to be realized by the Parties, their mutual promises, and the specific considerations set forth in this Agreement, the Parties agree as set forth below.
I lj 1 301520 CAP ROCK
ARTICLE I.
( Points of Delivery - Service Specifications The location of the point or points of delivery (" Delivery Point") of the electric power and energy to be sold hereunder to Customer for its requirements at each Delivery Point, together with certain additional information regarding the service at each I Delivery Point, are shown on Exhibit A to this Agreement.
Changes to Exhibit A, including additions or deletions of Delivery Points, may be made by written agreement of the Parties and shall be made a part of this Agreement by amendment of Exhibit A.
All terms and conditions contained in this Agreement shall apply to any and all additional Delivery Points which may be established during the term of this Agreement with the same force and effect as they do to the initial Delivery Points specifically set forth in Exhibit A.
SPS shall make available delivery of power and energy to j Customer through no fewer than two transmission (230 kv or higher l voltage) lines, one of which shall originate in the vicinity of Lubbock County, Texas and another shall originate in the vicinity of Lea County, New Mexico. The lines shall be located to permit Custcmer to receive power and energy at 138 kV through new SPS interchanges at Customer's Vealmoor and Tate substations.
It is the intent of the Parties that all power and energy delivered hereunder will be primarily delivered through the vealmoor delivery point, with the Tate delivery point as a secondary or backup delivery point. It may be necessary from time to time for either Party to temporarily take its transmission lines out of service for maintenance, upgrades, or other reasons, and the I Parties shall, through their operations personnel develop operating procedures for notice of such outages and operation of the systems in conformance with standard electric utility practices. However,
. if due to SPS system operations, SPS requests Customer to operate its system closed, such that power and energy is delivered through both delivery points, SPS shall utilize the coincident peak demand 2
CAP ROCK l 301521
established at the two delivery points as the measured demand for purposes of Article VI of this Agreement. Title to electric power and energy transferred into a Party's system shall pass to that Party at the Delivery Point.
l Customer agrees that, during the term of this Agreement, SPS will have the right to transmit power and energy from any Delivery Point shown in Exhibit A over Customer's system to any other Delivery Point shown in Exhibit A at no cost to SPS, except that SPS shall compensate Customer for energy losses. Customer shall I provide this service to SPS only to the extent the service does not unreaJonably interfere with Customer's system operations. Such right to transmit with compensation only for losses shall not apply to SPS transmission of power and energy directly to any wholesale or retail customer that is served by Customer or that is located in Customer's certificated service area or that is interconnected with Customer's system.
SPS compensation for energy lesses shall be in accordance with the terms of a written agreement with Customer. SPS and Customer I
E shall proceed to negotiate such an agreement upon execution of this Agreement, and, if a written agreement is not executed by both Parties by January 1, 1993, Customer shall, on or before that date, file rates and terms and conditions for review and approval by the Federal Energy Regulatory Commission.
Customer agrees that, within a reasonable time after Customer gives notice to terminate this Agreement, Customer will provide SPS with an agreement specifying terms and conditions for SPS to continue to transmit power and energy from one Delivery Point shown in Exhibit A over Customer's system to other Delivery Points shown in Exhibit A. Such terms and conditions shall provide for such transmission service at fully allocated, embedded costs, or such other cost basis as may be mutually acceptable. If Customer and SPS do not reach agreement on transmission service terms and l
l l
$ 3 '
301522
<l cae accx
conditions prior to the effective date of termination of this Agreement, Customer will, on or before such date, file complete terms and conditions for review and approval by the Federal Energy Regulatory Commission.
ARTICLE II.
Customer's Iry allation Any and all apparatus on Customer's facilities, except SPS's metering equipment, required to properly control the flow of electric energy beyond the Delivery Points, and to transform it to the vcitage desired by Customer, shall be furnished, installed, maintained and operated by and at the expense of Customer, subject to the specifications as to the type and. capacity of such apparatus as may be-prescribed by st.andard engineering practice.
Customer shall, as far as reasonably possible, maintain a power factor on its system of ninety-five percent (95%) during I times of peak load. Customer shall control the character and installation of apparatus on lines (whether owned by Customer or by
.any of its customers) so that the apparatus or the nature of its operation will not produce undue electrical disturbance on SPS's system. If the apparatus or installation on the Customer's side of the Delivery Point produces undue electrical disturbance onr or damage tor SPS's system, Customer shall, at its expense, take such action as is required to eliminate the probbm.
Under.no circumstances shall Customer connect SPS's lines through Customer's lines with any other supplier of electric power and energy without (a) the prior written approval of SPS, and (b)
I engineering coordination to ensure that SPS's system will not be jeopardized by the interconnections.
ARTICLE III.
l Contract Power Subj'ect to the terms of this Agreement, SPS shall provide and Customer shall purchase all electric power and energy required by Customer at the Delivery Points set forth in Exhibit A, and at such 4
g 301523 CAP ROCK
other Delivery Points as may be agreed upon.
The maximum commitment of SPS to deliver electric power and energy at each Delivery Point is shown on Exhibit A. Customer shall have the right from time to time to request an increase in such commitment of SPS, provided that Customer shall give SPS reasonable notice in writing of its desire to increase its requirements from SPS, specifying the Delivery Point (s) and the I date(s) on which the increase will be needed. Subject to the terms and limitations of this Agreement, SPS will make such additional electric power and energy available to Customer at the specified Delivory Points and on the dates specified, provided that SPS has sufficient capacity in its existing facilities. The terms and conditions required to make such additional electric power and energy available shall be. negotiated by the Parties.
In the event that SPS is unable to provide the additional capacity requested by Customer, Customer may, notwithstanding any I other provision of this Agreement, shift load, interconnect with other suppliers, and install or purchase such power supply resources as may be necessary for Customer to meet such additional requirements; provided that, Customer must comply with the notice and coordination provisions of the last paragraph of Article II.
ARTICLE IV.
Metering, Electric power and energy supplied by SPS to Customer shall be metered at the Delivery Points and voltages shown in Exhibit A.
I The meters and metering equipment required f or the measurement of electric power and energy delivered to Customer shall be owned, I installed, operated and maintained by SPS.
Periodic tests shall be made on the metering equipment by SPS at approximately 12-month intervals after original installatio Prior notice of each periodic test shall be given to Customer a.
an opportunity afforded Customer to have a representative presenc to witness the test. If, as a result of the test, the metering 5 CAP ROCK g 3rns24
equipment is found to be inaccurate, SPS will restore the metering g equipment to a condition of accuracy. If the inaccuracy exceeds two IE percent of 100 percent registration, the readings of the meters taken during the period of 90 days preceding the test (or during such shorter period as may have intervened since the previous test) shall be corrected and payments adjusted accordingly. In no event will corrections be made for a period beyond 90 days or the date of the last preceding test, whichever is the shorter period.
In addition to the regular periodic tests, Customer or SPS, upon request in writing given by one to the other, may call for a __
special test of the metering equipment. The meter or meters involved in the request shall be tested by SPS as econ as reasonably practical with representatives of the Parties present.
In the event that the special tests requested by Customer shall
(
show the meter or meters to be registering within two percent of 100 percent registration, Customer shall bear the expense of the tests. If the tests show greater than two percent of error, SPS shall bear the costs of the tests.
If the meters installed by SPS wholly fail to register the electric power or energy during any period of time, the amount of electric power or energy delivered during the period shall be measured by means of check meters as may have been installed by
~
Customer. If Customer has not installed check meters, or if check meters have wholly f ailed to register the electric power or energy l during this period of time, the amounts of electric power or energy so delivered will be estimated according to the amounts previously delivered under substantially similar conditions.
ARTICLE V.
I Connection to Oualifyino Facilities In accordance with and subject to the Public Utility I Regulatory Policies Act of 1978 and the Federal Energy Regulatory Commission and state jurisdictional regulations thereunder, Customer is obligated to purchase power and energy from qualifying facilities (" Qualifying Facility"). Customer shall give SPS 6 ,
I l 301525 CAP ROCK
reasonable notice of its intention to connect Customer's system to a Qualifying Facility. Customer also shall give SPS reasonable a notice before the initial energizing or start-up testing of the Qualifying Facility so that SPS may have a representative present at the test.
Customer shall furnish SPS such infomation concerning any Qualifying Facility to which Customer proposes to connect Customer's system as SPS may require. The provision of such information to SPS does not relieve Customer from any liability, nor does it guarantee the adequacy of any Qualifying Facility to whien Customer proposes to connect its system to perform its intended functions.
Customer shall cause to be installed at no expense to SPS facilities or equipment which SPS shall upecify an necessary to protect SPS's system from faults, disturbances or overload conditions resulting from the interconnection of Customer's system to a Qualifying Facility and require an operating agreement for conditions related to technical and safety aspects of parallel generation. Such f acilities and equipment shall be installed prior to the connection of Customer's system to a Qualifying Facility.
CUSTOMER AND SPS DISCLAIM ANY AND ALL REPRESENTATIONS AND WARRANTIES, WHETHER WRITTEN OR ORAL, EXPRESSED OR IMPLI::D, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, DESIGN, OR SUITABILITY, AND ARISING BY CONTRACT OR STATUTE, RELATING TO ANY PROTECTIVE FACILITIES OR EQUIPMENT THAT SPS MAY SPECIFY FOR INSTALLATION.
If, in the sole judgment of SPS, the connection of Customer's system to a Qualifying Facility results in an unsafe condition, SPS shall hza a the right to disconnect Customer's f acilities f rom SPS's system. Any generation from a Qualifying Facility - that produces harmonics of a magnitude or frequency that could interfere with communications equipment or SPS's system voltage shall be discontinued until corrective measures have been taken by the Customer or the owner of the Qualifying Facility.
Consistent with Article II, Customer shall supply or shall 7 CAP ROCK l 301526 1
arrange for the Qualifying Facility to supply, at no cost to SrS, a suitable location on Customer's or Qualifying Facility's system for SPS to install, operate, maintain, repair, replace, and remove all of its metering equipment and facilities to be used for determining the amount of power and energy supplied by the Qualifying Facility. Customer or the Qualifying Facility shall provide SPS reasonable means of access to its metering equipment I and facilities.
Electric power and energy delivered by the Qualifying racility to Customer shall be metered by SPS in accordance with Article IV and caarged to Customer by SPS in'accordance with Article VI. The measured demand for Customer's Delivery Point beyond which the Qualifying Facility is interconnected - to Customer, shall be tne maximum cimultaneous sum recorded during the billing cycle ofi (a)
Customer's purchased power on the SPS meter at the Delivery Point, and (b) the Qualifying Facility deliveries to Customer recorded on the SPS meter at the Qualifying Facility. S?S shall credit Customer with an amount determined in accordance with SPS's avoided costs approved by the Public Utility Commission of Texas. The cost of metering required for the Customer's interconnection with a Qualifying Facility shall be borne by the Customer.
At its sole expense, Customer shall obtain all permits and licenses, and comply with all fees, rules, regulations, L ordinances, inspections, and other requirements relating to the interconnection of its system to a Qualifying Facility that may l be imposed by any federal, state, county, city, municipal, or other governmental agency.
ARTICLE VI.
Rates Customer shall pay SPS for electric power and energy delivered by SPS to Customer at the rate and on the terms and conditions set l
forth in its Wholesale Full Requirements Rate Schedule on file with the Federal Energy Regulatory Commission, a copy of which is l attached as Exhibit B. The sum of the monthly billing demands for 8
CAP ROCK
Customer in any calendar year starting with the first whole calendar year o" service, shall not be less than the amount shown in Column (2) of Exhibit C (Minimum Calendar Year Billing Demand) .
If in any calendar year, Customer'has not paid for at least the Minimum Calendar Year Billing Demand, then SPS will bill Customer f or the dif f erence between the Minimum Calendar Year Billing Demand and the billing demand actually paid. Customer will pay the I additional amount billed subject to Article IX, provided, however, that if the additional amount billed is in excess of $25,000, Customer may, at its option, spread payment of the additional amount with interest calculated using the same rate of interest provided in Article IX over a period not to exceed twelve months, with monthly installments of no less than $25,000.
I ARTICLE VII.
Exceptions To Kinimum Demand Billina Units I Customer agrees to use its best efforts, including diligent putsuit of all necessary regulatory approvals and construction of any required transmission facilities, to transfer to SPS all of Customer's load now served from Customer's transmission level substations. This load now represents approximately eighty five (85) megawatts of peak demand. In consideration for Customer's
~
agreement to use its best efforts to transfer all transmission level substations to SPS, the obligation of Customer to pay for the Minimum Calendar Year Billing Demand shal; not begin if events beyond the control of Customer, including, without limitation, inability. to obtain regulatory approvals, prevent Customer from completing the transmission f acilities necessary to shif t enough of Customer's load from ERCOT to SPS to avoid the application of I Minimum Calendar Year Demand billing unit charges. It is understood, that if at any time the Customer's actual billing demand equals or exceeds the Rinimum Calendar Year Billing Demand, this exception shall terminate.
l The Minimum Calendar Year Billing Demand also shall not apply unless and until SPS has placed in service the transmission 9
g 301529 CAP ROCK
interconnections described in Article I of this Agreement.
ARTICLE VIII.
Conservation And Load Manaaement Measures To the extent SPS implements time-of-use pricing or load management programs for other SPS full requirements wholesale customers, SPS will offer to Customer the same rates and programs under the same terms and conditions applicable to the other full z requirements wholesale customers. Furthermore, SPS and Customer shall cooperate in developing and implementing such other
\
I conservation and load management measures as may be practicable and k
mutually crneficial.
ARTICLE IX.
r Payment of Bills SPS shall bill Customer monthly for electric power and energy at supplied during the billing cycle, and Customer shall make payment at the main of fice of SPS in Amarillo, Texas, in accordance with the terms provided on Exhibit B. In case a portion of any bill I is in dispute, the undisputed portion shall be paid by its due date. After the dispute is resolved, if Customer is found to owe all or a portion of the disputed amount, Customer shall promptly pay SPS the amount found owing, together with interest at the .
lesser of one and one-half percent per month or the base rate announced by Bank-One N. A. as of the last business day of the month in which the bill was originally due. If Bank-One, N.A. (or any substitute index bank) no longer announces a base rate or ceases to exist, SPS may designate a new index bank by notifying Customer of the selection and tho designation shall be ef fective as of the date the notice is delivered. A substitute index bank must be a I national banking association that has capital and undivided profits of at least $100 million and is located in a metropolitan area of the United States of America that has a population greater than 500,000. All statements, billi..gs and payments shall be subject to correction of any errors, except meter errors, for two (2) years after rendition.
10 301529 CAP ROCK
ARTICLE I.
Termination of Aoreement For Breach Should either Party violate any material provision of this Agreement, the other Party may terminate this Agreement by giving written notice that this Agreement will terminate in thirty (30) days unless the defaulting Party commences remedying the violation in that time and thereaf ter diligantly pursues the cure of the I violation. Any other remedy or rerredies available under the law for any violation of the terms of this Agreement shall not be limited in any way because of this provision or the exercise of the right confe:: red in this provision.
I ARTICLE II.
Access Customer shall provide, at no cost to SPS, a suitable place (including means of support) on and access to Customer's property I for SPS to install, maintain, onerate, repair, replace, and remove all equipment and f acilities that SPS reasonably deems necessary to perform its obligations under this Agreement. Customer shall use reasonable diligence to pre ect all SPS equipment located on Customer's property.
ARTICLE XII. -
Force Maieure A Party shall not be in breach because of a f ailure to perform (other than a failure to pay when due), if the failure is caused by force majeure. Force majeure is something beyond a Party's I control, and includes, but is not liraited to, acts of God, governmental acts (whether or not within the power of the I government or governmental agency), acts of the public enemy, floods, epidemics, quarantine restrictions, strikes, labor sic" downs, labor troubles, freight embargoes, and breakdowns or damages to equipment (including emergency outages of equipment or facilities used for making repairs to avoid breakdown, damage, or imminent danger). A Party claiming force majeure shall promptly 11 CAP ROCK l 301530
. notify the other of the occurrence of the event of force majeure, and shall exercise reasonable business ef forts to remove the event of force majeure. Nothing in this article shall require a Party to settle or resolve any labor dispute if it deems the settlement to be contrary to its best interests.
I Liabilin ARTICLE IIII. '
Each Party shall defend, indemnify, and hold the other Party harmless f rom and against any and all claims and damages f or injury to or death of any person or damage to or loss of the indemnitee's property arising out of, relating to, or attributable, directly or indirectly, to the ownership, operation, or maintenance of the indemnitor's electrical . system. As an indemnitor, SPS's electrical system shall not include the segments constructed by SPS on Customer's electrical system pur.suant to Articles XXII and XXIII. The indemnifying obligation created by this Article shall g also include the obligation to indemnify against reasonable
( attorney's fees and other costs of defense. In no event shall the indemnitor be liable to the indemnitee for special, consequential, or incidental damages for loss of profits or revenue or the loss of use of either, costs of replacement power or capital, or claims of l customers of the indemnitee relating to loss of power supply, or other special, consequential, or incidental damages whatsoever.
ARTICLE IIV.
Assionment Either Party may assign this Agreement with the other Party's prior written consent, which consent shall not be unreasonably
-I withheld. Except as otherwise agreed in writing by the Parties, no assignment shall relieve the assigning Party of any liability arising _out of or resulting from this Agreement. Subject to the foregoing, this Agreement shall be binding on and inure to the l benefit of the Parties and their respective successors and assigns.
l 12 l 301531 CAP ROCK
ARTICLE IV.
E g p_roval This Agreement and any amendments to this Agreement are 5 subject to approval or acceptance by the Federal Energy Regulatory Commission. If the Commission should require raaterial modification l of this Agreement prior to acceptance, either Party may withdraw from the Agreement at that time.
I ARTICLE XVI.
Effective Date and Term I This Agreement shall become effective on the date allowed to --
become effective by the Federal Energy Regulatory Commission.
This Agreement shall remain in ef fect until Dec smber 31, 2013, and year to year thereafter until cancelled by either Party, with the termination being effective at the end of a calendar year, by giving notice of termination at least five years prior to December 31, 2013, or any extension therefrom.
During the period beginning January 1, 2004 and ending December 31, 2013, Customer may elect to terminate this Agreement m early, effective at the end of any calendar year, by giving SPS at least five years notice before the proposed termination date.
However, because Customer has required and SPS has agreed to construct additional SPS transmission facilities to make the sales I of power and energy contemplated herein, Customer agrees upon early termination to make additional payments in support of such transmission investment in accordance with the schedule shown in Column (4) of Exhibit C.
1
( ARTICLE IVII.
Conversion To Partial Requirements Service In the event that Customer elects to convert u partial requirements service under this Article, such partial requirements I service shall be provided in accordance, with the terms and conditions of a separate partial requirements agreement between the Parties that is approved or accepted for filing by the Federal 13 301532 I CAP ROCK
_ ._ _.. _ _ ~ - m __ ._. _ _ _-____ _._ _
Energy Regulatory Conanis sion , provided that any such partial requirements service a?reement shall incorporate the minimum firm capacity provisions contained in this Article.
SPS and Customer shall proceed to negotiate a partial !
requirements agreement upon receipt by SPS of Customer's notice to I convert to partial requirements service. Even if the Parties have not executed a partial requiremente agreement, SPS shall file, no l later than one year in advance of tha ef fectivo date of Customor's conve sion to partial requirements s ervice , complete partial l requirements service rates, terms and conditions for review and appro'ral by the $3deral Energy Regulatory Commission.
Customer may elect to become a partial requirements customer effective as of January 1, 2004, or at the commencement of any calendar year thereaf ter, upon three years' prior notice, provided I that customer commits to purchase fim capacity during the first l
two years that Customer ja a partial requirements customer at a demand level equal to or greater than the level shown in Column (3) of Exhibit C for the corresponding years. If customer's commitment to purchase fim capr-ity is less than a demand levol equal to or greater than the level shown in Column (3) of Exhibit C for such years, but is more than eighty percent (801) of same, I:ustomer must provide fcur years' prior notice. If customer's commitment to I purchase firm capacity is less than eighty percent (80%) of such demand level, Customer must provide five years' prior notice.
Unless a minimum purchase is required as a result of notice of less than five years, Customer's purchase obligation for any year shall be determined in accordance with the partiaA requirements service agreement between Customer and SPS.
If Customer elects to become a partial requirements customer l and desires investment, to avoid payment in support of SPS transmission it shall commit to purchase fim capacity in each calendar year through the year 2013 at a d.emand level not below the partial requirements class minimum firm power commitment shown in Column (3) on Exhibit C. If Customer elects to become a partial requirements customer and commits to purchase firm capacity in a 14 cnp accx 301533
l calendar year at a demand level below the partial requirements class minimum firm power commitment shown in Column (3) on Exhibit C, then Customer shall pay a payment equal to the amount of demand below the partial requirements class minimum firm power commitment g times the payment amount shown in Column (5) of Exhibit C for the a respective year the purchased firm power is below the partial requireronts class minimum firm power commitment. Upon payment, the partial requirements class minimum firm power commitment for subsequent years as shown in Column (3) of Exhibit C shall be reduced by the cmot...t of demand for which a payment has been made.
I Modifications ARTICLE IVIII.
The Parties may modify or amend this Agreement only by signing a written amendment. However, nothing contained herein shall be cons 2 rued as af fecting in any way (a) the right of the Party furnishing or causing to be furnished service under this Agreement to unilaterally make application to the Federal Energy Regulatory Commission or other governmental body having jurisdiction for a change in rates and charges under Section 205 of the Federal Power Act, or successor statute, and pursuant to the Commission's Rules and Regulations promulgated thereunder, and (b)
I the right of Customer to protest, object to or intervene concerning any such application by SPS or to make complaint before any govern-mental body having jurisdiction or petition for an investigation I under Section 206 of the Federal Power Act, or successor statute, concerning rates and charges, classification or service, or any provision, term, rule, regulation, condition or contract relating thereto.
I ARTICLE III.
Governino Law This Agreement shall be governed by the laws of the State of Texas excluding conflicts of laws provisions, and is performabl . in Potter County, Texas.
- 15 301534 C99 ROCV
i .
Cumulative Remedies Pursuit by either Party of any remedy available for def ault or B breach of this Agreement shall not constitute a forfeiture or waiver of any amount due by the def aulting Party or of any damages occurring by reason of the violation of any of the terms, provisions, or conditions of this Agreement. No waiver of any l violation shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions, or conditions of this Agreement. Fort;earance to enforce one or more of the remedios available on an event of default or breach shall not constitnte a waiver of that or any subsequent default or I breach.
' ARTICLE III .
Notice l Any notice to be given by the Parties shall be in writing and shall b' ' ;.f ficient if delivered in person, sent by U.S . mail, postage r.tepaid, other delivery services, or communicated electronically to the following addresses:
I Southwestern Public Service Company Vice President Marketing I 601 S. Tyler (Zip 79101)
P. O. Box 1261 Amarillo, TX 79170 and to:
Cap Rock Electric Cooperative, Inc.
General Manager West Highway 80 P.O. Box 700 Stanton, Texas 79782 I
16 301535 l l
cno aot*
~ .-. _ _. .. - - - . _ _ - . -
The designation of address of either Party may be changed at any time by notice to the other Party.
l ARTICLE HII.
Additional Customer Pacilities SPS understands that additional facilities are necessary n Customer's system to enable SPS to sell and deliver electric po w and' energy to Customer. Upon request by Customer, SPS or its designee shall assist Customer in the acquisition, construction and l ,
operation of those additional f acilities. The assistance requested may include financing arrangements, design, construction, operation and maintenance. Customer agrees that it will repay to SPS the costs incurred in providing the assistance upon the terms and over the period as may be mutually agreed. Any such arrangements shall be pursuant to separately' negotiated written agreements.
ARTICLE HIII.
Lease of Pacilities SPS and Customer agree that it may be mutually beneficici for SPS, or its designee, to lease certain facilities or rights to facilities of Customer. Under such terms as are agreed, Customer may lease facilities or rights to facilities, or c!s: n leased I f acilities, to SPS or its designee; and SPS may charge Customer for its costs, including but not limited to operations maintenance, and lease costs. Any such arrangements shall be pursuant to separately negotiated written agreements.
SPS and Customer agree that it may be mutually beneficial for Customer to lease certain f acilities owned or controlled by SPS in order for Customer to purchase capacity and energy from SPS. Any such arrangements shall be pursuant to separately negotiated written agreements.
I 301538
. I c. c4
(
I ARTICLE IIIV.
Mutual Assistance SPS and Customer agree to render mutual assistance as 5 necessary to ef f ect the construction of transmission facilities required for the purchases and sales of electric power and energy contemplated by this Agreement. Such mutual assistance shall include, without limitation, support of applications f or regulatory l approvals necessary for the construction of such facilities, pther Aarenmente During the term of this Agreement, SPS agrees not to, without I the prior written approval of Customer, seek ownership or control of Customer, or any of Customer's assets or affiliates, or to advise, assist or encourage any other entity seeking ownership or control of Customer, or any of Customer's assets or affiliates l without the prior written consent of Customer.
SPS agrees during the term or at termination of this Agreement to of fer Customer at comparable prices and on comparable terms any electric utility service that SPS may be providing to any other wholesale customer to which customer is similarly situated in I relevant respects, and provided it is economically beneficial to both Parties and it is technically feasible to do so. However, SPS shall not be required by this commitment to waive or reduce any obligations that Customer hac under this Agreement.
SPS recognizes that Customer may increase its wholesale power requirements through mergers, acquisitions, or other joint ventures l and will cooperate with Customer, to the extent feasible and practicable, to arrange mutually beneficial wholesale power supply g arrangements for such additional loads.
The Parties recognize the authority of the Public Utility Com4.asion of Texas and its jurisdiction over certificated service areas and neither Party will seek to acquire new certificated service areas in the existing certificated service areas of the I other Party without the prior written agreement of the other Party.
18 30)537 I ._ _
CAP ROCK
- - - - - - - - - ~ - ._
- - - - _ _ _ _ _ - - , - - - _ - - _ _ _ . _ _ __ r
ARTICLE IIVI.
B Entirety
( This Agreement contains the entire agreement of the Parties with respect to its subject matter. No other agreement, statement, or promise made by any Party, or by any of ficer, employee, or agent l of any Party, that is not contained in this Agreement shall.be binding or valid unless in writing and signed by both Parties.
Provisions of this Agreement shall be construed as a whole according to their common meaning, and not strictly for or against I either Party.
Duly and fully authorized representatives of the Parties have signed and delivered th.I ty. se u. as of 3 , July, 1991, 1 CAP ROCK ELECTRIC SOUTIIWESTERN PUBLIC COOPERATIVE, INC. 3ERVICE COMPANY I
P hl I s David W. Pruitt M
Coyt We'
/
Chief Executive Officer and Preside t and Chief General Manager Opercting Officer I X7)(O ~
a d ';
~ -
Steven E. Collier Gary L. O bson Director of Power Supply and Vice President, Regulatory Affairs Marketing I
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19 1 301538 I enn nocx
g SOUTHWESTERN PUBLIC SERVICE COMPANY E EXHIBIT "A" DELIVERY POINT NO.1 - Yealmoor At a point located in Section 12, Block 33 T-3-N, T5P RR Co. Survey, Borden County, Texas at three onase 60 cycles, and approximately 138,000 volts uptoamaximumcapacityof 100.000 KVA (Substation capacity . Various XVA)
Metering point - located _in_Section 12. Bigsk 33. T-3-N. T&P RR C d urygv.
I at 139.000 Borden County. Texas volts.
DELIVERY POINT NO. 2 .Tur_.lBackup delivery point)
At a poin* _LQS.Hed near the_hngadary__pLSeglions B .i n d 17 Rinci 4 n. T.1.t np nn Co. Survey, Midland County. Texas at three phase 60 cycles, and approximately 138.000 volts uploamaximumcapacityof-
- KVA (Substation capacity various KVA)
Metering point located near the boundary of Sections 8 and 17. Block 40. T-1 S.
I at 138,000 T6P RR Co. Survey, Midland County. Texas volts. 'There is no additional capacity for the Tate Delivery Point.
However, any portion of the Vealmoor capacity may be taken through Tate as system DELIVERY POINT NO. conditions allow.
At a point at three pnase 60 cycles, and approximately volts uplo a maximum capacity of . KVA (Substation capacity KVA)
MetJring point at volts.
DELIVERY POINT NO, At a point at three phase 60 cycles, and approximately volts uptoamaximumcapacityof KVA (Substation capacity . KVA)
Metenng point at volts.
Lg-DELIVERY POINT NO.
At a point ,
at three phase 60 cycles, and approximately volts uploamaximumCapacityof KVA (Substation capacity KVA) i Metenng point at volts.
CAP ROCK 30JR30
EXHIBIT 8 SOUTHWESTERN PL'8LIC SERVICE COMPANY WHOLE5 ALE FULL REQUIREMENTS $ERVICE RATE SCHEDULE AVAILABILITY: Available in the territory in which $PS operates, to full requirements Wholesale Customers for resale and distribution. Service under this rate schedule is subject to the terms and conditions specified in the contract for electric service in effect between the I Parties as of the effective date of this rate schedule.
CHARACTER 0F SERVICE: Service under this rate schedule shall be firm. and shall be 3 phase, 60 herta electric energy at the available standard transmission voltage, 69 kV or above.
I HONTHLY RATE:
Customer Charge: 3178.00 per delivery point and
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l Demand Charge: $6.00 per kW f or all kW of billing demand and Energy Charge: 0.34 cents per kWh for all energy used.
HEASUREMENT OF DEMAND: The measured kW demand on transmission delivery points shall be shall be the maximum thirty (30) minute peru.d cf Customer use during the month at each delivery point.
The measured kW demand on distribution delivery points (service voltage belov 69-kV) shall equal 1.074 times the maximum thirty (30) minute period of use during the month at each such delivery point.
DETERMINATI0h 0F BILLINC DEMAND: The billing demand for Customer shall be the sum of the non-coincident measured demands from all delivery I Points.- but not lens than 65 percent of the highest sum of the non-coincident measured demands established in the preceding elsven months.
DETERMINATION OF ENERGY FOR O!STRIBUT!0N POINTS OF DELIVERY: The kWh use for billing purposes for all distribution system po i r.t s of delivery I (service voltage below 69 kV) shall equal 1.032 times the measured kWh delivery at each such delivery point.
I FUEL COST ADJUSTMENT: The above energy charges will be increased per kWh of sales equal to the estimated fuel cost per kWh of sales in the current month and Jdjusted for the preceding month's estimate error. The energy charge adjustment shall be calculated in compliance with the I formula and conditions set forth in the Wholesale fuel Cost Adjustment Clause contained in At tachment I to this Rate Schedule. Base period fuel cost per kWh of not generation is equal to zero cents.
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TAX ADJUSTHENT4 Billings under this schedule may be increased by an amount A
equal to the sua of the taxes payable under federal, state and local sales tax acts, and of all additional taxes, fees or charges (exclusive of ad valorem, state and federal income taxes) payable by the utility and levied or assessed by any governmental authority on the public utility services rendered, or on the right or privilege of rendering I the service, or on any object or event incidental to the rendition of service as the result of any new or amended laws after January 1, 1990.
HINIMUM SILL: The customer charge and the demand charge f or the month.
P A YMENT SPS shall bill the customer monthly for electric power and energy supplied during the previous billing cycle, and the Customer shall make payment transfer, at the main office of SPS in Amarillo, Texas, or by vire within fifteen (15) days after the bill is mailed or otherwise transmitted to Customer.
Nothing contained herein shall be construed as affacting in any way the right of the party furnishing service under this rate schedule to I unilaterally make application to the Federal Commission for a change in rates under Section 205 of the federal Power Act and pursuant to the Commission's Rules and Regulations promulgated Energy Regulatory thereunder.
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I I 30154L 2- CAP HOCK
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- ATTACHMENT 1 VHOLESALE FUEL COST ADJUSTHENT CLAUSE
- 1. The charges for actual wholesale service rendered during the current billin8 Period shall be increased or decreased by an adjustment amount, per kilowatt-hour of sales (to the nearest 0.000le), equal to the difference between the estimated fuel cost (er) per kilowatt-hour of I estimated sales (e$) in the current, or billing, period (m) and the base period (b), as adjusted to allow for wholesale losses (L), with the total charges adjusted by a dollar amount to correct for prior wholesale over or under collections:
Adjustment Factor = 'IS - 1.IJ! (t)
,e S m e b b,
- 2. /uel costs (F) shall be the cost of (t) Fossil and nuclear fuel consumed in Company's own plants, and Company's share of fossil and nuclear fuel consumed in jointly owned or leased plants.
(ii) Plus, the actual identifiable fossil and nuclear fuel costs associated with energy purchased for reasons other I than identified in (iii) below. Included therein shall be the portion of the cost of purchases from Quali-fying facilities at or below Company's avoided variable energy cost.
(111) Plus, the not energy cost of energy purchases, exclu I stve of capacity or demand charges (irre pective of the designation assigned to such charges), when such energy is purchased on an economic dispatch basis. Included therein may be such costs as (1) charges incurred for economy energy purchases and (2) charges incurred as a result of scheduled outages, all such kinds of energy being purchased by the Company to substitute for its own higher cost energy.
(iv) Less, the cost of fossil and nuclear fuel recovered through inter-system sales, including the fuel costs I recovered from economy energy sales and other energy sold on an economic dispatch basis.
- 3. Sales (5) shall be equated to:
(i) the sum, measured at the bus-bar or interconnection point, of (1) generation, (2) purchases, and (3) interchange-in, (g c^e accx l
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(ii) less (1) inter-system sales, as referred to in 2.(iv)
! above, and (2) inter-system losses.
4 " !, " , the adju s tmen t for wholesale losses, de t e rrsine d at the wholesale delivery points, shall be equal to 1.039 I 1 - 3.7541
- 5. The current month adjus tment f or prior wholesale over or under collec-i tions shall be calculated as:
I (1) the first prior month's (p) actual f uel cost s (4F) divided by actual sales (a$),
(11) minus that month's (p) estimated f uel costs (eF)
I- divided by estimated sales (e$),
(iii) times the wholesale loss adjustment (L),
(iv) times actual wholesale sales (W) in that month (p) for each customer.
Ad j u s t rne nt Amount . afp 3 [,p, (g,) (yp)
.a $ p e S p, The adjustment amount shall be debited or credited to the current month's billing.
- 6. (1) The fuel cost adjustment facter calculation shall not include:
I (1) the net energy cost of Celanese Corporation and, electric energy purchased from I (2) the kilowatt-hours generated at the Celanese chemical plant , not to exceed the amount of electric energy consumed at that plant.
Corporation (ii) The fuel cost adjustment factor calculation shall include both the not energy cost of energy purchased from Celanese, and the kWh generated at its piant, for any amount of energy I which does exceed the amount consumed at that plant.
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y 301543 l 2 CAP ROCK
EDill!T 4 ATTACHMENT 2
$00THWE$7ERN PUBLIC stav!CE CogpAgy WESTERN $YSTEMS POWER poot IXPER!HENTAL $ ALES BENEf!TS CREDIT RIDER To credit seventy-five percent of the benefita derived from trans-actions under the Western Systems Power Pool (W$PP) E x pe r ime n t , the total I billings for wholesale requirements service rendered during each billing month shall be decreased by a dollar amount calculated as follows using actual data f rom the month just prior to the current billing month.
WSPP Credit = 75 (B*^ *L*W e
, 5 g I Where:
I B
= the actual benefits from WSPP transactions for the prior month defined as WSPP sales revenues less WSPP sales fuel cost, variable supervision and engineering maintenance expense (account 510) of I .10 mills /kWh, vertable boiler plant maintenance expense (account 512) of .35 mills /kWh, .and variable electric plant expense (account $13) of .25 mills /kWh i 5
= the total actual applicable Sales for the prior month is defined as the sum of generation, purchases, and interchange in less inter-system sales, with losses, and energy generated at the Celanese Corporation chemical plant.
A
- the actual out-of pocket administrative expenses incurred in the I prior month because of Southwestern's participation in the WSPP Experiment._
This expense shall include applicable filing fees, Lg outside services fees and direct expenses paid to the WSPP for
'g data processing, interconnection fees, report preparation, etc.
!! adstnistrative expenses exceed the benefits of sales in the month, no credit vill be given and expenses above benefits vill be
'I accrued of andcredits.
negative applied in subsequent months to preclude applicatton L =
the loss adjustment factor for wholesale level losses equal to 1.039 and We
= the wholesale requirements custorcer's total kilowatt-hours of purchases f or the prior month.
I 301544 I
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CAP ROCK e, , - - y
EXHIBIT C MINIMUM DEMAND AND EARLY TERMINATION PAYMENT (1) (2) (3) (4 (5)
FRC Minimum Ear y PRC Calendar PRC Minimum Contract Sub-Minimum I Calendar Year Year Billing Demand (kW)
Firm Power Commitment Termination Payment Commitment Payment (kW) (S) ($/kW)
I 1994 530,000 - - -
1995 636,000 l
1996 743,000 - - -
1997 743,000 - - -
1958 743,000 - - -
I 1999 2000 2001 743,000 743,000 743,000 2002 743,000 I
2003 743,000 ' - - -
2004 743,000 63,000 10,000,000 158.73 2005 743,000 59,000 9,000,000 152.54 I 2006 2007 743,000 743,000 56,000 52,000 3,000,000 7,000,000 142.06 134.61 2008 743,000 49,000 6,000,000 122.45 E 2009 743,000 45,000 5,000,000 111.11
( 2010 2011 743,000 743,000 42,000 38,000 4,000,000 3,000,000 95.24 78.95 2012 I 2013 2014 743,000 743,000 35,000 31,000 2,000,000 1,000,000 57.14 32.26 I (1) Col. (1) represents the calendar year of the Agreement beginning with the first whole calendar year of service,1994, (2) Col. (2) represents Customer's minimum calendar year total billing demand under full requirements class (FRC) service.
(3) Col. (3) represents the minimum calendar year firm power commitment Customer must contract for if it converts to partial requirements class (PRC) service af ter year ten of the I Agreement.
(4) Col. (4) represents the amount Customer must pay SPS if
.l Customer terminates the Agreement af ter year ten and does not convert to partial requirements class service.
I (5) Col. (5) represents the amount per kW Customer must pay SPS for the amount of Customer's firm power purchase below the PRC Minimum Pirm Power commitment in Col. (3).
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. CAP ROCK ELECTRIC I P.O. BOX 9533 8140 BURNET ROAD. AUSTIN TD AS 18766
- 512 48 4 311 '
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I July 15, 1991 I
Mr. Davici W. Pruitt CEO and General Managar Cap Rock Electric Cooperative, Inc.
/.O. Box 700 Stanton, Texas 79782 SUBJECTt Power Supply and Regulatory Report l
Dear David:
I am writing to provida you with a written summary of my I <<
powar supply and regulatory activities since the June 25, 1991 board meeting. I missed that board meeting because I had to be in Oklahoma City to testify for Smith Cogeneration Management at the Oklahoma Corporation Commission.
Id written report was provided in my lettar dated June 19, 1991.
My last Le have crrent newal We have reached aarnement with I southwestern Public service connant on a twenty-year never sunniv aarregaent.. More about this is given below. .
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sout'hvast Tr fPuElie s M ies comoany We reached complete agreement with Southwestern Public Service Company on a new twenty-year power supply contract on I July 3, 1991.
your review.
A copy of the final contract is attached for Bob O'Neil and I had spent June 27 in Washington drafting a complete revision of the contract that SPSCO had provided several weaks ago. Our revised draft contract was provided to SPSCO on June 28. John Farker and I met with Gary Gibson, I SPSCO VP, and David Krupnick, SPSCO wholesale customer representative, in Austin during the day and again during the evening on July 1.
The SPSCO representatives returned to Amarillo on Tuesday a to discuss our requiramants on some unresolved issues with SPSCO management. I provided SPSCO with written comments on a iM few contract provisions on Tuesday. SPSCO provided us with some revised contract language about mid-day on Wednesday. I E reached actreament with SPSCO on the final issues by telephone l conversatLon with Gary and David late Wednesday. We received executed copies from SPSCO on Saturday.
l We did exceptionally well in the final phase of the contract negotiations. You will recall the list of issues that I included in my last power supply report. We obtained agreement from SPSCO on essentially avery one of these issues!
I In fact, in the rapid pace of the negotiations, and because of the quibbling by SPSCO attorneys and staff (which mightily irritated Gary Gibson and caused him to side with us on I several issues), some last minute changes were worded in a way that is more favorable to us.
The only significant concession we made was to commit in writing to use our best efforts to transfer all of our present transmission level load to SPSCO. We did this in exchange for a contract provision relieving us of minimum demands if events beyond our control (1 L., inability to obtain CCN's from the PUCT, etc.) prevent us transferrine load to SPSCO.
The basic terms and conditions of the contract are essentially the same as described in my summary in the May
- 1991 power supply report. I will give an overview of the contract at the board meeting on July 23. Unlike the hard-301314
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Power Supply & Regulatory Roport e July 15, 1991 n_ nj jp.-l{1 If Page 3
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fought contract undesirable with TU Electric, this contract has very fev provisions.
I will strongly recommend to the board that this contract be approved. We are waiting to execute it until we have official board approval. I will pre resolution for the July 23 meeting. pare an appropriate Waiting to sign the board 4 contract until that time also maintains the urgency for SPSCO g to finalize our financing arrangements and contracts.
g Not only will SPSCO be financing and constructing some or I all of vill need, the new they transmission will also be " and facilities to repay the investment that we have made in substation leasing facilities that we backa some existing negotiations, litigation, studies and facilities. This vill l provide some $5 million in immediate cash flow to be repaid over the next ten years. The repayment will be automatically included in our PCRF.
Our next step is to finalize our transmission plans and file jointly with SPSCO at the PUCT for the necessary CCN's.
This will involve negotiating appropriate contracts with SPSCO I and leasing, etc.
its affiliates for financing, construction, operations, ff I I I hope to have some new analytical results from C. H.
Guernsey & Company in the next few days to project the total savings that we anticipate for the first ten years of this I contract.
This will form the basis for an incentive bonus as we have discussed when I was hired and when we began negotiating with SPSCO.
Rest Tmm titilities Connany We have received a draft letter of intent from West Texas I Utilities Company for negotiation of a contract to serve all of our wholesale load beginning as soon as possible. You have received a copy under separate cover. We have a fav problems with the letter since it makes cap Rock Electric solely I responsible and scheduling arrangaments.
for the cost and effort of the necessary wheeling The power supply arrangament will have us be an all-requirements customer of WTU, so we I have responded in writing that the costs and effort are more preparly WTU's.
I John Edwards has calculated that this arrangement should save us 20% to 25% on our power bill even with wheeling.
Thus, we have a lot of flexibility to negotiate. I would recommend proceeding with this arrangement even if the savings I vers zero since it would handily get us out of TU Electric's sticky grasp. ,
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Powcr Supply & Regulatory Roport July 15, 1991 IN Page 4 0" 0 '!! j n l: $!
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. 'J J i Mu Please be aware that this power supply arrangement has I' some risk of' opposition or even litigation by TU Zlectric. We vill be terminating cur existing all-requirements agreement with TO Electric sometime in the next few months when the PUCT I issues a final order in the comanche Peak nuclear plant rate case. We read our new contract with TU Electric as allowing j us to fill in the amount of load that we vill choose to serve under the new contract. TO Electric vill take the position E that all of the existing load must be transf erred to the new contract and then two to three years notice given to serve load from WTU.
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Power Supply & negulatory Report lI 't
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wiscellaneous werer sunniv contacta We have been contacted by about buying power, buying some or a o a power plant, and h
now really interested in the matters that we have been proposing O
to them for many months.
go.
IO The refinanced, and its financial viability.is again good.
are most interested in proceeding with L cogeneration project.
has been successfully They I I am to meet with them and their chosen d ird-party developer in the next faw weeks.
'I have been in contact with another developer who is l planning one or more desalination projects in our service area. These will produce pure water as vs.11 as rare metals (L.E.a., Mgcl2). These folks have all of the problems of I naivety and disorganization that we have encountered in countless others, but they may be on to something big.
staying in touch with them.
We are ll I projectWe have no new information goedeemmusk has not been on the emessummesmW optimist c about the prospects of the I
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lU Sincerely, Otavan E. Colliar, P.E.
Direr: tor of Power Supply and Regulatory Affaits Enclosuras e
301019
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ll CAP ROCK ELECTRIC eia0 SUMNLT ROAD
- AUST1N, TEXAS 78764 e $124&44311 PO.00gasm g
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June 19, 1991 l
s ll Mr. David W. Pruitt cro & General Manager ll Cap Rock Electric Cooperative, Inc.
- 5 F.O. Boat 700 Stanton, Texas 79732 l
i SUNICTS Power Supply and Regulatory Report i )
Dear David I as writing to provida you with a written summary of 1991 my f i
ig power supply and regulatory activities since the April 23, g board meeting. My last; written power supply report was on May i
14, 1991.
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'I g 8, EXHIBli 29 30100-
s Mr. David W. Pruitt 3 n ayp :(p
) June is,1ssi Page 2
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'I southwestern Publie servine ca==any I stave colliar and David president, Doyle nunch, executive vice president, Gary Gibson, vice- president, Pruitt and David Krupnick, Manager wholesale and met with Coyt Webb, agricultural marketing, in Midland on May 23, 1991. The purpose of the meeting was to discuss the NWR venture and to continue discussions of the power supply agreement. sPsCO provided a draft power supply agrsement at that meeting.
Representatives of Cap Rock Electric and sPSCO have met together, talked by phone, and corresponded on various occasions t
since that meeting to continue to discuss and develop contract language. Most recently, steve Collier provided sPsco with a l
list of the remaining issues to be resolved in developing iinal contract language. A list of those issues is attached to this g r r. .
Some additional negotiations will be required to resolve these issues. It abould still be possible to develop contract i
language and reach agreement on a final detinitive power supply
! agreement by July.
l Given our ongoing NWR activities and our power supply contract negotiations with WTU, it will be desirable to leave ourselves a little bit of flexibility to consider our options before we actually execute an agreement with SPSCO.
iI past Texas Rtilitiaq stave collier ast- with representatives of West Texas Utilities la Austin en June 12, 1s91. The purpose of the meeting I was to discuss wrU's proposal to supply power to- Cap Rock Electrie. They have proposed to electronically incntporate cap Rock Electrie into their control area and serve the load undar their standard all-requirements tariff. The proposal would allow i
for specific delivery points to be " backed-out* as the necessary SPS transmission arrangements are completed.
This proposal by wru is autremely attractive for at least three key reasons:
(1) _it can~ provide significant power supply savings beginning as early as this year, 301095
o Mr. David it. Pruitt D m: p.1 u a' n rU r b*" A .
I I (2) it can remove all of our load from the direct control of TU Ela:tric beginning as soon as this year, and (3) it can be a source of firm power supply for any portion of our load that is not tranafarred to SP5CO. l In addition to these key benefits, Cap Rock Electric will l I represent a much largar proportion of trht's total load than is currently our circumstance with TU Electric.
rock Electric will have much greater negotiating leverage.
As a result, cap In addition, we are not, nor are we likely to be, retail competitors I with irrU, thereby removing an otherwise significant potential area of conflict.
trrU provided us with draft electric service agreements which are currently being reviewed by us, our attorneys, and our consultants. The action items resulting from the meeting were described in a separate lettar from stave collier to Don Welch, irrU vice president, dated June 13, 1991, a copy of which is attached to this report.
tSe will anticipate terminating our amisting TU Electric all-i requirements power contract in lata summer or early f all, such l termination to be effective during the coming winter or spring, depending on how quickly the necaseary control area and wheeling I
arrangements can be made. You will recall that we have discussed this matter extensively in prior meetings and correspondence. It is very likely that TU Electria will vigorously oppose our plan E to move all of our load into the trM centrol area in mairing the a transition from our current all-requirements power contract to l the new power supply agreement which we executed last year.
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Tv_minstrig Tho PUCT Nearing Examiner's report is out on the TU Electric rate case. It is possible that a final ordar could be issued by the emannission vitain about one month. Under the usaring h=inar's reptrt, the affective increase could be even larger lI than TU 31aatric has filed for, alth% the official base rata increase is slightly smaller.
Some information has been received which suggests that TU Electric may file for the comanche Peak Unit No. 2 rate increase as early as December of this year. This would be timely, as cap pock Electric's intarvantion -in such a case would strengthen its bargaining position in the WTU and sPsco load transf ars.
I d I 301096
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June 19, 1991 ; u ll 1- 11 OlL Page 4 I
TU Electric has also filed a notice of inquiry (NOI) application at the PUCT for sees new combined cycle gas generation. The NOI proceeding is a precursor to an application for a certificate of convenaence and necessity. cap Rock Electric will be intervening in the NOI proceeding tot (1) receive valuable information on TO Electrio load forecasts and resource plans, (ii) take reasonable stape to protect its I consumers in light of the wholesale rate impact that this could ultimately have, and (iii) begin to build a negotiating position for the WrU and SP5CO load transfers.
has reported that the low heating value gas reserves near .
may not be as desirable as we first thought. Apparently, the exploration data is old and limited,
'I and little or no actual production ever took place in the field.
We are currently awaiting a sore definitive assessment by 6 and his geologist consultant before deciding on the next best sce,.
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, Mr. David W. Pruitt m.1, 1,,1 g' "*' C0 F W F At I
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Sincerely,
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b '0'"E Stavan E. Collier, P.E.
V Dir6ctor of Power Supply l3g and Regulatory Atfairs i
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. CAP ROCK ELECTRIC hAPRC Q P.o. sox tsee st40 evastT aca.o . AUSTIN, TEXAS 7s764. $12-4644311 June 12, 1991 I Mr. Don Welch Vice President I West Texas Utilities P.O. Box 841 Abilene, Texas 79604 l
SUBJECT Anticipated Power Supply Arrangements Dear Don Thank you for taking the time to come with David Teeter and Scott Moore to visit me in Austin yesterday. I an especially I
I delighted with the proposal that you have made to provide electric power service to Cap Rock Electric by means of incorporating our loads into your control area. I am currently reviewing the draft service agreement that you provided, and I I have forwarded it to our attorneys and consultants for their review as well. We vill provide you with our comments and any requested revisions as soon as possible.
As we discussed during our nesting, I have enclosed with this letter a copy of our base case power cost forecasts for TU Electric and Southwestern Public Service Company. As you are aware, we are currently contemplating transferring most of our load to SPSCO by 1996. We are currently in the advanced stages of contract negotiations that would require us to transfer at I least 50 megawatts of load in 1994, 60 megawatts in 1995, and 70 megawatts in 1996. We are anticipating this move principal reasons: (i) we project SPSco wholesale power costs to for two be considerably less than TU Electric wholesale power costs over I the next tan to twenty years, extremely efficient generation and is not planning any new primarily because SPSCO has generation projects for at least a decade, and (ii) SP5co 16 I villing to assist us in the construc*. ion of local transmission facilities to integrate our system with repayment facilitated through the wholesale power contract. In addition, we find in I SPSCO a much more cooperative and customer-friendly supplier than has been our experience over the years with TU Electric.
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I Mr. Don Welch June 12, 1991 Page 2 I
We are currently trying to complete our negotiations for a target date of July contract 1, 1991 to execute the final contract. If WTU can provida electric power service with economics better than or at least similar to SPSCO over the next I ten doing to twenty that years, instead we of would be villing to visit with you about our anticipated transfer to However, we are on quite a fast track with SPSCO, and we vould SPSCO.
need to know of the prospects for long-term WTU power service very quickly. ,
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'g .6s we also discussed during the meeting, we are expecting you to provide a draft letter of intent for our considerttion.
3 This letter of
! service for all intent of would contemplate WrU wholesale power Cap Rock Electric's transmission and distribution delivery points, with provision for backing out certain load for service by SPSco starting in 1993 above. Provided that we are able to reach agreement and as described execute a letter of intent, we vill immediately verbally notify TU I Electric of our intent to make the transition to WrU shortly after Peak the UnitPUCT No. enters 1
a final order in the TU Electric Comanche rate case as provided for in our existing wholesale power contract.
As we discussed, TU Electric is not likely to be pleased with this prospect and can be expected to insist that we do not have the option of simply moving all of the load to WTU in making
. I- the transition from our current all-requirements wholesale power supply agreement to the new power supply agreement that we exscuted in June, 1991.
I suggest that Scott Moors and David Teater work directly with Mark Sullivan G,t Cap Rock Electric in Stanton regarding the I requirements for telemetry, the identification of delivery points for schedule A of the sarvice agreement, and other facilities and operations matters. Of course, I remain available to mesist in any way that I can in these matters. '
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g, Mr. Don Welch I' June 12, 1991 Page 3 I
I Again, we are delighted with the prospect of wholesale electric power service by WTU. We look forward to working with you to our mutual benefit.
Sincerely.
^% (Cbk Steven E. Collier, P.E.
Director of Power Supply ,
and Regulatory Affairs SEc:ma Erelosure E cc David Pruitt - Cap Rock Electric l
3 Mark Sullivan - Cap Rock Electric Dav.4.d Teater - WTU Scott Moore - irTU Terry Dennis - CSW I
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oooceCONFIDDrTIALeoeee MEMCRANDUM I Tot All Directors DATE: November 6, 1991 John Parker Nolan Simpson Ulen North Kenneth Rogers Steve Collier TRCMt David SUBJICT'.
Correspondence ment from TU Electric on Power supply Agree-I ,
The enclosed letter from TU Electric, Henry Bunting, who was on=
of the final in June negotiators in our contract that we signed with TO of '9C, would take. stated the position that I have all along felt TU It's kind line of their Declaration of War. They are I taking a very hard SPS and WTU.
declared war. They are approach.
rattling their They are trying to scare off saber and in many respects This might be their way of punishing us for doing the Hunt-Collin deal or CoPower. But what they said to us verbally and what they
', have said to-us now formally in vriting are vastly different. We feel they will do anything eensible to keep us from leaving and vill do nothina to keep us from leaving. Sounds like a contra-diction but they are not going to do any kind of special power supply deals :?.her than Rate make it extremely difficult for"WP" us towith us and they are going to leave.
I I feel we need to do whatever it takes in the news media, in the 5--_
. courthouse, interventions, make them sue us, etc. We need to
- 3 g develop a strategy so the " giant" (T.U.) has to stop us versus us trying to nake the giant move.
As I said before, I expected it all along. T.U., two months ago, I led us to believe that it mignt be a lot st=pler; however, now i, is obvious that they are going to fight and make it as hard as they can but ya will Ein. It might take longer with WTU than we L
I planned.
We do not have a course of action yet. We will keep you posted.
Expect anything. You as a director expect it from the most I unanticipated directions, he it from a mammer, from a neighboring co-op, expect prepared.
reaction and rumors and false state:ents and be We expect T.U. to clais as they do in this letter we are breaching our contract with them which is not true. They I- will'eall us non-professional, unethical, lairs, frauds, etc.
xtect this. Please report to me any conversations, any rumors that you hear concerning this particular issue or any issue.
Con =unication among ourselves is critical.
Thank'yeu.
I will kee: vcu mested as events devalon.
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'I DEFENDANT'S 2o00010A i" EXHIBIT g CAP ROCK
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l CAP ROCK ELECTRIC P O. Box 10069 8140 BURNET ROAD + AUSTIN, TEX AS 787661069 e %124516077 November 19, 1991 Mr. Gary Gibson Vice-President Southwestern Public Service Company P.O. Box 1261 Amarillo, Texas 79170 -
SUBJECT:
Update on Dealings with TU Electric
Dear Gary:
Please find enclosed with this letter a copy of my most recent correspondence with TU Electric regarding our contract dispute. We are scheduled our disagreement to meet with and to attempt them at to2:00 thisaafternoon identify to discuss resolution.
We anticipate an adverse response by TU Electric. Therefore, I we are having a strategy meeting with our lawyers and consultants in Midland tomorrow to finalize legal and other actions that will take.
We will continue to keep you apprised of our status and we progress.
Please-be assured the arrangements that we will spare no effort to proceed with Public Service Company. for which we have contracted. with Southwestern ~
Even in the highly unlikely event that TU Electric prevails entirely in their view of their contract, we would still be able to move the delivery points in the northern
-I part of our system by late 1993 and the remainder of the load by late 1994. I must say that TU Electric simply will not prevail in their view of the contract because it is not correct.
Please call me if you have any questions or comments.
Sincerely, u E.bt ug Steven E. Collier, P4 E---
Director of Power Supply and Regulatory Affairs SEC:ma Enclosure cc David Pruitt ,
Dave Krupnick I
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NOV-20-91 WED 9:01 STEVEN E COLLIER l ' '
k FAX N0, 1 512 451 6619 b; Q< h,h P.02 b
I ' CAP ROCK ELECTRIC J t uue h t'.o.BOK 100**
/f'ho
\
o sino eUMNET ACAO e Au1TW, Texas Tsin1068. %12 451407
,l w Y //4c I Mr. Gary Gibson November 20, 1991
,I Vice President Southwestern P.O. Box 1261Public Servi'ce Company Amarillo, Texas 79170 Dear David I am just writing you a brief note to let you know that we did not actually meet with TU yesterday as we had originally planned.
Upon-advice of my sttorneys, we cancelled the meeting at the last minute. .
finalized, Thissoisdid and because not haveweindid handnotthose havefilings our legal that strategy we w ould make in court and . the accompanying press releases.
concerned that We were if we met with TU Electric, and the meeting I resulted in seem,ing permanent polarization of Electric We would might much take ratherthe court action resulting in.a be initiative the and plaintiff file some action the parties, in a that court.
TU Therefore, we will wait than the defendant in any declaratory order on our contract.
a week or two to meet with TU Electric until we have our legal strategy and the resulting filings in hand .
I have told you beforeWe will keep you updated on our strategy and action so ifimportant to questions.
us an,d I believe also quite important
. As I to you.we me you have any Call Sincerely, SwJ.
Steven E. Collier, P.
I Director of power Supply SEC:ma and Regulatory Affairs cc David Pruitt David Krupnick I
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DEFENDANT'S W iBIT sps DOCUMENTS J N 2
I MINUTES OF BOARD MEETING CAP ROCK EI.ECTRIC COOPERATIVE, INC.
RockThe regular Electric monthly meeting of the Roard of Directors of Cap Cooperative, Inc. was held November 26, 1991 at the Cooperative office in Stanton, Texas at 9:30 a.m.
The meeting was called to order by Russell Jones. Chairman.
Alfred present:
Schwartz, Secretary, reported the following members Russell Jones Hubert Dunn Roger Lange Teddy Stewart Sammie Buchanan Carlos Dusek A. D. Reed Howell Tata Alfred Schwartz Robert Holman
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Ray Russell said ptrsons being all of the Directors and quorum. David I
Pruitt--CEO, Tom W. Gregg, Jr.--Corporate Counsel, Kenneth Roga ers, Nolan Simpson, Ulen North, Steve Collier, Ithn Parker, and Sharon ing.
Hoelscher were also present for all or part of the meet-I Mr. Collier reported on power supply activities.
Electric - Contract Termination. CRE has had several discussions (1) TU with TU Electric about CRE's plans with SPS and WTU as well as I cancellation of the wholesale power contract CRE has with TUEC.
CRE had a strategy session to determine the next course of action against TU. CRE would consider the following courses of action:
(a) negotiate with TU, (b) File legal actions against TU, and (c)
Keep TU's name in the newspapers via PR campaign.
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i Co-op files against Giant HE# A1.3 STAFF R EPQRT Cap Rock Dectric began seeking ratas for as locg as posaible, even I Cap Rock Electric, Inc., a other supplien as a result of nr though we represent .ess than one customer-owned electne utility Dectric's rapidly increasing cosu, percent of the ; totalload," Couier wbleh serves about 20,000 due mainly to the auge expense of continued.
customen in 17 West Texas coun- the Comanche Peak Nuclear plant. David Pruitt, Cap Rock's Chief I ties, recently (Hed a Texas Distnct In an announcement in October, Eaecutive Officer, confirmed Court challenge in its dispute with Cap Rock said it had reached a Couier' statements.
TU Electnc. the largest utdity m poower supply agreement with '"TU Decmc is like Goliath; it Texas and !Uth largest in the coun- Southwestern Pubhc Service Com. does what it wann when it wants I try, with over $ million customen.
At issue is Cap Rock's nght to pun:hase and rece:ve wbolesale (SPS) based in Amanllo, to and .how it wants. We have no buymg power in 1993, choses but to play David to their Cap Rock has smes fLnaused an GoIiatb. Our eustomers*
power from compames other than agreementwith WTU to serve AU of liW'M are at stake.
I TU Decmc who for many years its load tmul the SPS transfer is has been the company's only complete.
wholesale supplier and prmopal "We may be sman, but we've got West Texas gnt and we're gotng to reta21 co=pector. TU Electric has indicated, Saht for what's nght."
I bowever, that it wiD not allow the P:utt ft=her said Cap Rock's WTU transaction to proceed, in. customen need a break tn un!!ry At stake is the oppormnity for nstag thatit comunue to supply all costs.
Cap Rock Decmc to immediately Cap Rock's wholesale power. "We're talkmg about people mth I bes:n purchastng power from West -
TU Decmc spectically is refes. their backs agams: the waU. Given Texas Ut: lines Company (WTU) ing to " wheel" such power, or the cu: Tent econocuc concinons.
for 20 percent less than the cost deliver it to Cap Rock over its taase people could reall from TU Elecmc. transmtssion sys:em. trem lower elec=c ces:a.y " bene 5:
I This represents about $250.000 per men:h m savings to the Cap Rock Decmc tas deco =e Collier noted that TU Cecmc known for its aggressiveness ann cus: omen cf Cap Rock. said Steve had refused in 1989 to dehver enea; innovaton :n im;r:v ; se-.ce Cother mt ::m;any s c;tec:ct of energy Ca; R.:c.< r.2: ::r.:::::ec and ;;num; e::r. . f: .u I power = s;;;.
affairs an: reguia:ory for wim Hous:oc L;ntag ar.: customer on.en,1: recer.:.y an-Power, costi:g Cap Rock's nounced mergers wita exo otner "This 52 50.000 a month customers more than a m:.uon electne utdity cooperanves, ex-represents accut a ten percent dollars.
I decrease in =enthly bills, no small Pl atning that sucs jotst venn;res "It's pretty obvious that TU further the company's strateg:c matter for our customers." he wants to conunue to keep our plan to become a more d:vene an:
Said.
customers capuve to the*. tu gt, economical bcseess.
-l Cpp ROCK
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TEXAS UTILITIES ELECTRIC S INTEDIS$ICT'CbyRT I COMPANY,-
PLAINTIFF, S
S S
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'/ S . 5 DALLAS COUNTY, TEXAS '
S CAP ROCK ELECTRIC COOPERATIVE, 5 INC. S S
DEFENDANT. S JUDICIAL DISTRICT PLAINTIFF'8 ORIGINAL PETITION I TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiff TEXAS UTILITIES ELECTRIC COMPANY cc: plaining of CAP ROCK ELECTRIC COOPERATIVE, INC., and *cr cause of action would show the following:
PARTIES
- 1. Plaintiff TEXAS UTILITIES ELECTRIC COMPANY ; " T *.
Electric") is a Texas corporation with its principal place cf business in Dallas, Dallas County, Texas.
- 2. Defendant CAP ROCK ELECTRIC COOPERATIVE, INC. (" Cap g Rock") is a corporation with its principal place of business in stanton, Martin County, Texas.
BACKGROUND
- 3. TU Electric is an electric utility engaged in the gOneration, purchase, transmission, distribution and sale of olectric energy in the north central, eastern and vestern parts of
-the State of Texas. Cap Rock is a Texas cooperative corporation, PLAINTIFF'S ORIGINAL PETITION - Page 1 'l DEFENDANT'S
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, 70 TUEC 7699
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engaged in the distribution and sale of electric energy in west Texas.
TU Electric and cap Rock are parties to that certain I 4
" Agreement for Purchase of Power," dated on or about July 2, 1963 (the "1963 Agreement"), and that certain Power Supply Agreement, dated June 8, 1990 (the "1990 Agreement"), copies of which are attached hereto as Exhibits A and B, respectively, and made a part hereof. Section 2.01 of the 1990 Agreement provides that such agreement shall become effective, with respect to Cap Rock, fr:n and after Cap Rock's termination of the 1963 Agreement, ;n accordance with its terms.
5 .. By letter dated October 23, 1991, from Steven E. Collier of Cap Rock to Darrell Bevelhyner of TU Electric, attached hereto as Exhibit C and made a part hereof, Cap Rock informed TU Electric of its intent to begin purchasing all of its wholesale power and energy requirements from another party as early as January, 1992, and thereby disavcWing its obligations under the 1963 and 1990 Agreements with TU Electric.
I 6. A controversy has developed between TU Electric and Cap Rock as to whether (1) under the provisions of the 1963 Agreement.
Cap Rock is required to purchase all of its power and energy I reaguirements from TU Electric; and (ii) under the provisions of the i
1990 Agreement, Cap Rock is required to purchase all of its power and energy requiremente from TU Electric until such time as Cap Rock provides TU Electric the required notices to reduce load I
PLAINTIFF'8 ORIGINAL PETITION - Page 2 TUEC 7700
4 supplied by TU Electric under the 1990 Agrecacnt, ao provided for therein.
- 7. All conditions precedent to each of TU Electric's causes of action asserted herein have been performed or have occurred.
VENUE
- 8. The 1990 Agreement between TU Electric and Cap Rock provides that the venue of any legal proceeding relative to said agreement shall be in Dallas County, Texas.
FIRST CAUSE OF ACTION
- 9. This is a cause of action against Cap Rock for anticipatory repudiation and breach of contract.
- 10. TU Electric realleges and incorporates by reference herein paragraphs 1 through 8 hereof.
- 11. Cap Rock has anticipatorily repudiated and breached the 1990 Agreement by, inter alia, renouncing, without just excuse, tts obligations to purchase its power and energy requirements f rem T';
Electric in accordance with the provisions thereof.
- 12. By reason of this breach, TU Electric has been damaged in an amount in excess of the jurisdictional limits of-this Court.
SECOND CAUSE OF ACTION I 13. This is a cause of action against Cap Rock for a declaratory judgment pursuant to Sections 37.001 .011 of the Texas Civil Practices and Remedies Code.
I 14. TU Electric realleges and incorporates by reference horein paragraphs 1 through 8 hereof.
_l I PLAINTIFF's ORIGINAL PETITION - Page 3 I
TUEC 7701
- 15. Actual controversies oxist between TU Electric and cap Rock with respect to the matters set forth in paragraph 6 hereof.
- 16. TU Electric contends, and requests the Court to declare, (a) that Cap Rock is required to purchase all of its power and l energy requirements f rom TU Electric pursuant to the 1963 Agreement until said Agreement is terminated in accordance with its terms; and (b) that i= mediately upon Cap Rock's termination of the 1963 Agreement in accordance with its terms, Cap Rock is required to purchase all of its power and energy requirements from TU Electri:
pursuant to the provisions of the 1990 Agreement until such time as Cap Rock provides the requisite notices to TU Electric as provided for in such Agreement; and (c) that Cap Rock has anticipatorily breached the 1990 Agreement.
THIRD CAUSE OF ACTION
- 17. TU Electric realleges and incorporates by 'efer :e herein the allegations of paragraphs 1 through 16 hereof.
la. Pursuant to Sections 37.009 and 38.001 of the Texas Civil Practice and Remedies Code, TU Electric is entitled to recover 1:s I costs and reasonable attorneys' fees incurred in bringing this action.
WHEREFORE, PREMISES CONSIDERED, TU Electric prays that cap Rock be cited to appear herein and that on final hearing TU Electric be awarded judgment against Cap Rock:
lI l PLAINTIFF's ORIGINAL PETITION - Page 4 TUCC 7702
1, for the da. ages suffered by TU Electric by reason of Cap Rock's anticipatory repudiation and breach of the 1990
, 2.
. ....nt, declaring the matters set forth in paragraph 16 above;
- 3. awarding to TU Electric pre- and post-judgment interest, costs of court and its reasonable attorneys' fees; and
- 4. awarding TU Electric such other and further relief to which it is justly entitled.
Respectfully submitted, ~
I WORSHAM, FORSYTHE, SAMPELS t, WOOLDRIDGE l By: ' ///
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State Bar No. 17 1000 3200 - 2001 Sryan Tower I Dallas, Texas (214) 979-3000 75201 ATTORNEYS FOR PLAINTIFF, I TEXAS UTILITIES ELECTRIC COMPANY I -
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I 1 I CAP ROCK ELECTRIC 8140 BURNET ROAD e AUSTIN, TEXAS 767f4 * $12-4544311 P.O. 90X l>580 March 26, 1992
SUMMARY
Cap Rock Electric is seeking to stop Texas Utilities Electric Co. ( TV Electric) from interfering in the delivery I of power to Cap Rock from West Texas Utilities, based in Abilene.
Cap Rock Electr ic, which buys power wholesale and I distributes it to 20,000 customer-members in 17 West Texas counties, entered into a purchase agreement with WTU in November, 1991. Previously. TV Electric, based in Dallas, I had been Cap Rock's sole supplier of wholesale power.
Cap Rock Electric can buy power for at least 20 percent less from WTU than it can from TU Electric. That savings will I translate to about a 10 percent savings per year for Cap Rock Electric customers -- or about $3 million annually.
Today's hearing is on Cap Rock Electric 's request f or a temporary injunction against TV Electric. The case is being heard by Judge John Hyde of the 238th District Court.
I Attorneys for Cap Rock Electric are J. Brian Martin and Tom Gregg, of Midland, and Richard Balough and Mark Yudof of Austin. _
EQR MORE INFORMATION contact Teresa Kelly. f_gf_ CAe, Roc k Electric. Austin. 1-512-328-4276. gn peaoy Luxton Cap _ Rock Electric in Stanton. 1-800-442-8688.
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I l CAP ROCK ELECTRIC 8140 BURNET ROAD
- AUSTIN, TEXAS 76766
- 5124544311 P.O. BOX 9600 I
I ECONOMIC IMPACT OF PURCHASING POWER THROUGH WEST TEXAS UTILITIES (WTU)
Cap Rock Electric estimates that purchasing wholesale power from Vest Texas Utilities, based in Abilene, would save Cap Rock Electric customers approximately 10 percent per year off I electric bills over a 12-month period. The savings would vary by rate classification and from month-to-month.
Annualized rate savings projections are as follows:
- Oil companies in the Permian Basin, where Cap Rock Electric is the largest co-op supplier of electricity, would realize I an annual savings of more than 51.7 million.
- Residential customers would save a total of $1 million per year.
- All other classes of customers would save a combined
$300.00 annually.
- Altogether, the 20,000 customers served by Cap Rock Electric in the 17-county service area would save about I $250.000 each month, or about $3 million per year.
Implementation of this rate-saving contract is contingent on the outcome of a lawsuit filed by Cap Rock Electric against its current wholesale supplier, TU Electric, in 238th District Court in Midland in December. A hearing is scheduled I for March 26. before Judge John Hyde.
FOR MORE INFORMATION contact Peggy Luxton. Cap Rock Electric, 1-800-442-8688. 2/18/92 I
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- AUSTIN, TEXAS 78766 e 512 4544311 EO. BOX 958e March 26, 1992 LAWSUIT MAY BRING RAY OF HOPE TO COST-CONSCIOUS OIL INDUSTRY MIDLAND. TX -- A district court hearing began here today on a request by Cap Rock Electric Co. for a temporary injunction to keep Texas Utility Electric Co. from I interfering in a wholesale power supply contract that could result in a 10 percent electric bill reduction for Cap Rock's 20,000 customers in West Texas.
If the lawsuit against Texas Utility Electric Co. is successful. Cap Rock Electric's oil company customers will save a combined $1.7 million and residential customers will save a combined $1 million annually in lower electric bills, said Steve Collier, Cap Rock Director of Power Supply and Legislative Affairs.
Cap Rock Electric, based in Stanton, TX, filed suit against TU Electric in District Court in Midland in December.
At issue is how soon Cap Rock Electric may begin buying I wholesale power from companies other than TU Electric, which has been Cap Rock's sole wholesale supplier since 1963.
I West Texas Utilities (WTU) in Abilene has agreed to immediately begin selling Cap Rock Electric wholesale power at rates 20 percent less than TU Electr ic, but TU Electric has refused to transmit the power to Cap Rock distribution _
points.
Cap Rock Electric's long-range plan is to build I transmission lines that will allow it to receive power from Southwestern Public Service Co. of Amarillo, which is forecast to have significantly cheaper power than TV Electric l over the next decade, according to Collier.
"Our mission statement makes it clear that we have a responsibility to our customer-members to seek the lowest and I best wholesale power price and pass that savings on,"
Collier said. *TU Electric, while a fine company, has not been competitive price-wise for a long time."
Collier blamed TU Electric's high prices on construction of the Comanche Peak Nuclear Plant and the need to meet I stockholder expectations.
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Cap Rock Electric is the sixth largest electric cooperative in Texas, with 20,000 customers in 17 counties .
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L Section B Midland Reporter-Telegram ,
Friday, April 10.1992 Cap Rock files antitrust complaint against TU Its D0page report withen a couple of tas hawd dereetar of romsauna atenes far by Cap Rot k to get out of a contract he- Tuesday.
in an at:cmpt to rressure TU Dectric to months. reitier said Tu Decir r E Actioft is an attempt to t.een the t.o cintric companies Car in the estreme. they *the snC could in isno. peine to t net i start up .4 r escape a COnfraCf. TU R=k huys all of its inwer fmn m De snow an anernaec rwer surre. Cap Roe k twently asked the NRC to review hold up the operating strense, but that a manc he Peak. the NRC. to respanne to a trac.,and has since IM3gyrg ,,,, ends that .W Dertric TU Destrk's antitrust status because of not very likety . .not More deemhkely. they ceosdRamCap Rork trututr OggIClatSSay, c, sue did addettonal rewtre.
the actiem ts jud one of on going attempta TU DertrWs refusal to transmit pe=er -Whatonsehold an elsh restly antitrust hearing."
to that TU Der-Cothr said sey sa6d By Michael Kashgarian agreed to transmst power to Cap Rock if demand from other sources. 'They've trted ever3 thing to get aus of
'We're pretty httle and they're pretty tric *til tranemst our cheaper po*er.' the conditions of our contraC Ramwy power was purchawd elsewhere.
Tt1 Dertree matntains the contract big, so we try to take advantage of every Cottler sato st.et w,,4e,
' In a " power" play against TU Dmrte- specifies two years notification to get 30 avenue to get a handle on this.~ said Steve TU Dedrie offktats - confident in the said TU Dectric has samliar contracts with Cap Rock Dertric - which wants to buy percent of the power supply from an al- Cother. Austin hawd director of power termstooftransmit is egime the rontract power.- said the company but with other companees and departmg frnm the power from an alternate source ~ hopes ternate source and three years for the suppfy for Cap Rock .
proper riotificatkut agreement sould be a dannervere to other to convince the Nuclear Regu!atory Cee remainder. The NRC revices comments. such as customers and eventually cause an in-The contract has been desputed in those from Cap Rock, before Ittving the As for the attempt to apply preware mission that the larger etertric company has violated antstrust rules. Surb a viola Judge John Hyde s 238th fhstrict Court. g Ahead to operate a nuPicar plant. Ilke thrnugh federal regulators. CapTURockDertric tresse off6ctals seed in anrates, offermais said aftermate tion rould possihty hamper licensing for where Cap Rork seeks a temporary in- t!nst 2 of Comanche peak. whkh TU Dec- officials said Cap Rork pulled the ptov saurre mould sane thetr restomers atmut t' nit 4 of the Cornanche Peak nuclear junction agamst TU for allegedly tAnrk- tr6c hopes to start up at the end of th's unsuccewfully enrenew
- Thls le nothing before.
- the same eng. 10 perrent Cap Rnrk serves atent yafmo plant. ing dehvery of power f rom a third soasrce. S ear.
rap brk esperts to teretve a reriv an second serne.
- aid thrk Ramaev. the Dal restrarriers an a 17 county area But, according to TU Dedric offletals That hearme is scheduled to resume l
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NO. B 38,879 CAP ROCK ELECTRIC 9 IN TIIE DISTRICT COURT COOPERATIVE, INC., 5 5
l v.
Plaintiff, &
6 MIDIAND COUNTY, TEXAS 6
TEXAS UTILITIES $
g ELECTRIC COMPANY, 5 Defendant. 138th JUDICIAL DISTRICT
%n I DEPOSITION EXCERPTS FROM DAVID MTENS DEPOSITION I
Page 272, Lines 9 25 I Page 273, Lines 1 - 25
-l' Page 274, Lines 1 - 25 Page 275, Lines 1 - 7 I -
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7 9 Q. Did y'all do a letter writing campaign? !
10 Did y'all send letters to individuals throughout the 11 Permian Basin regarding this dispute? ;
12 A. Yes, k
'3 Q. And were all of the people that received i 14 that letter, were they members of Cap Rock 15 Cooperative?
1 16 A. I don't know.
17 Q. Isn't it true that you do know that some 18 of the letters were sent to people who weren't 19 members of Cap Rock Cooperative?
20 A. Yes, the general public, there are many 21 that aren't members.
22 Q. And I am talking about letters that were 23 sent to certain individuals. You understand that 24 that's what I am talking about?
25 A. Yes.
I Permian Court Reporters, Inc.
I Midland -
Odessa, Texas (915) 683-3032 E
273 1 Q. And isn't it true that Cap Rock sent 2 letters about this dispute to people who were not 3 being served by Cap Rock Electric?
4 A. Yes.
5 Q. Why?
6 A. To make them aware of our attempts to 7 reduce electric costs in the Permian Basin. _
8 Q. Why would you send letters about this 9 dispute to people who aren't being served by 10 Cap Rock Electric?
11 A. They were and are people that we felt 12 needed to know our offorts.
il Q. Why? If they weren't being served by
.4 Cap Rock, why did these individuals need to know 15 about your efforts?
16 A. In our opinion they were individuals that 17 needed to be made aware of what we were attempting 18 to do.
19 Q. Some of these individuals lived in --
20 Isn't it true that some of these individuals that 21 received these letters lived in places where 22 Cap Rock couldn't give them electricity even if they 23 wanted to be served by Cap Rock. Isn't that true?
24 A. I would think that would be true.
25 Q. Well, wasn't this letter writing I Permian Court Reporters, Inc.
Odessa, Texas (915) 683-3032 l Midland -
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I campaign, as I am referring to it, wasn't it 2 designed to persuade public opinion in favor of 3 Cap Rock regarding this dispute?
4 A. It was our effort to make those people 5 that received the letter aware of our efforts.
6 Q. Okay. And why do you want to make people aware of your offorts when they are not being served j j 7 8 by Cap Rock and cannot be served by Cap Rock 9 regardless of what happens in this dispute? i 10 A. They're opinion makers, and we wanted i 11 them to have the facts of the dispute, that they j i
12 might hear about it some other way.
13 Q. Were you hoping that the people that 14 received that letter would tell others about the 3
15 facts as Cap Rock presented it in the letter?
16 A. If they were asked we would hope they 17 would, 18 Q. And were you -- well then, you were i 19 hoping that they would tell Cap Rock's story to 20 others the way Cap Rock told it in that letter, 21 correct?
22 A. Yes.
23 Q. And you hoped that they would talk to 24 others about the facts that Cap Rock put in its 25 letter, right?
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Permian Court Reporters, Inc. '
Midland - Odessa, Texas (915) 683-3032 I
l 275 l If asked about that subject, I would A.
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' think they would talk about it.
Q.
And this was part of Cap Rock's overall plan to influence public opinion about this dispute, '
I wasn't it?
- it was part of the plan to make A. It is 7 the general public aware of our offorts.
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I . cess 2.Co m e, DRAFT coup;gyN_alAL -
CAP ROCK E l.E C T RI C Success Tec Contract West Texas Utilities Company Contract In accordance with Cap Rock Electric Cooperative. Inc. (" Cap I Rock Electric") B o a r t' Policy i 142 this contract provides calculation and payment of incentive compensation in the form of for a pctcentage of net power cest savinga resulting from the West Texas Utilitics Company ("WTV") power supply contract.
(1) Responsible Individualt Steven E. Collier. Director of Power Supply and Regulatory Affairs.
(1) Amount of Success Fee:
- The success fee will be two percent (2%) of the I nat savings, the amount where tha not savings is defined by which WTU purchased are Icss than the putchased power costs would have power as costs been had TU Electric r ein a i n e d the full-requirementa power supp11st.
(3) Calculation ou the Savings:
The not savings will be calculated as the difference between the sum of the power bills that would have applied under the standard TU Electric I wholesale tariff and the power bill that occurs under the WTU tariff.
actually (4) Term of Success Tes
.... .u... r.. .... .e .... . . . . . . . . _ .. w.
the eersination of the WTU conerset or five years.
(3) Payment cf the success ree:
l The Success Fee will be paid after the and of each calendar year based on the above-referenced calculation for that calendar year aften review I and of approval by the Cener al Manager and Board of Directors of this contract and the annual approval the above-teforenced calculation by the General tianager.
The Success Fee will be paid in cash to each eligible individual in a lump sum unless the amount exceeds $10,000.00, in which case Cap Rock I bS$
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DRAFT CONFIDENTIAL Electsic vill have the optiun tu spread the B payment over as many months se necessary so that any une moutlily payaient does not exceed l
I 410,000.00. The lump-sua payment payments, if applicable, in on seriea vill be made as provided Board Policy f 142 and with cash avallebility of and overall cash flow of the Cooperat.ve considered.
The eligible individual shell k r/ s the option to I elect such some or all o f ' 'c. . payment to be deferred compenestion plans maintained by the individual or Cap Roc k Elec t r ic.
as made usy to be (6) Conditions and Consiceration for Payment:
Except upon becoming eligible for benefits unde I any Cap Rock 11cettic tetirement plan, early or tegulst, the Success Tec will be paysble either to the recipients listed below in part. (7)
I without those affiliate tegard individuals to the continued employment by Cap Rock toeStric or subsidiary thereof, provided os that, of an unlass otherwise agreed by Cap Rock, each I individual agress that he vill terminate his employment by Cap Rock Elactric or any not voluntarily s(filiate or subsidiary of Cap Rock Electric for the nhoster of three years following the date of initial payment under this contract or until power deltvwifee have started and then ceased under the WTU contract, during tha first five (5)
I years of said contract.
agreat that he will Further, keep Lhe each individual terms of this contract, as well as the terms of the I transaction causing the awarding and the Success Fee, confidential.
p a y su n a t of
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(7) Sharing with Other Individuals:
In recognition of the necossary contribution of the the continued I eutire mausgement team success of Cap Rock Llactric and the successful implementation of the to lease purchase financing errangemente, t i, w success Tao will be shared amon5 I the Responsible Individual management team members as follows:
sud the othet y
Responsible I n d i, v i d u a l --
50%
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00NFIDENTIAL DRAFT
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Excnpt the confidentiality and a c t i r e me n,t I- for p ovisions, the conditions for payment described above in para. (6) are not applicable to those i
persons idenLified and listed above as "Other Individuals". It is further understood and agreed that such conditions for payment as set out in para. (6) are applicable subject to the amount of I such Success Fee total payment being commensutate and equitable with the conditions placed upon the recipients by the acceptance of such Teo.
In the event the Responsible Patty should violate the terms of this Agreement, the right to receivu future payments under this Agreement shall I immediately cease and such interest or right futura payments shall revert to Cap Rock Electric.
to In the event any individual named herein by the I Chief Executive Officer and Boatd of Directors as a past of the Managament Team shall violate terms of this agreement, dis, totite, or terminate the theit employment with Cap Rusk tiectric for any reason, the tisht to receive future payments under this contract shall immediately cease and the Chief Executive Officer shall have the right to I alloeste such share among those named individuals or others as he may deem in the best interests of the Cooperative.
I Witness our kands on this the _ day of November, 1991.
I Responsibli Individual Dare chief Executive Officer Date I
Chairman Data I
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.I Cie a m m cTatC Success Fee Contract DRAFT Southwestern Public Set" Ice Company Contract
,g g Rock inElectric")
ac c or d a nc e with Cap Roc k Elec tile Cooper ative , Inc. (" Cap Boeid Policy f 142, this contract provides foi calculation and payment of incentive compensation in the form of a percentage of net power cost savings tesulting from the Southwestern Public Servise Company power supply eontracc.
(1) Responsible Individual:
Oteven 1. Collier, Director of Power Supply a te d Rogulatoly Affairs.
(2) Amount of Su6 cess Fee:
The success fee will be two percent (2%) of the I not savinas, the where the not savings is defined amount by which SP5Co purchased are lese than the purchased power costa would have power costs as been had TV Electric remained the full-requirements power supplict.
Since a portion of the savings will result from
_g the diversity of the various delivery points that g were served under noncoincident peak billing by TV Ilectric and which will be served as a single point of delivery under the terms negotiated with SPSco, and since cap Rock Electt!r would have eventually .ombined the delivery points into one or two in any event', the-portion of the savings I- resulting from diversity will be lers:ed only the for fitstfive years of the success f== or until TU Electric. implements coincident peak billing, ve :. h e v e r is sooner, (3) Calculation of the savings:
The net eavings will be calculated as the difference between the sum of the power bills that would have applied under tha standard TV Electric wholesale tarift and the power bill that
. l' occurs under the $PSCo tariff.
actually Since tho various substations that would have been
-l%*'"-hI Responsible LUdividual Date
/Ls r n Cha iruia ti of the Board.
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Date en '
j f Chief Ex'ecutive Of ficer fY //dl, ' Date I > I DEFENDANT'S ' { EXHIBli
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