B-155777, DEC. 21, 1965

B-155777, DEC. 21, 1965

TO MR. DOUGLAS G. WRIGHT, ADMINISTRATOR, SOUTHWESTERN POWER ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTERS OF NOVEMBER 12, 1964, AND MAY 10, 1965, AND ENCLOSURES, REQUESTING A DETERMINATION AS TO THE VALIDITY OF TWO VOUCHERS DATED OCTOBER 27, 1964, SUBMITTED BY WESTERN FARMERS ELECTRIC COOPERATIVE (WESTERN) TO THE SOUTHWESTERN POWER ADMINISTRATION (SPA), AND ADVICE WHETHER SPA MAY PAY ALL OR ANY PART OF THE AMOUNTS CLAIMED.

THESE VOUCHERS REPRESENT CLAIMS BY WESTERN IN THE AMOUNTS OF $112,639.78 UNDER CONTRACT NO. 14-02-001-795 (795) AND $5,363.37 UNDER CONTRACT NO. 14 -02-001-794 (794), BOTH BETWEEN WESTERN AND SPA. YOU STATE THAT THESE CLAIMS RESULT FROM SEVERAL AUDIT DIFFERENCE STATEMENTS PREPARED BY SPA WHICH ESTABLISH THAT INVOICES SUBMITTED BY WESTERN TO SPA WERE EXCESSIVE UNDER THE APPLICABLE PROVISIONS OF THE CONTRACTS.

THE CLAIM UNDER CONTRACT 795 FOR $112,639.78 IS COMPOSED OF TWO ITEMS: (1) DISALLOWED TRANSMISSION SERVICE CHARGES IN THE AMOUNT OF $89,092.45 FOR THE PERIOD JULY 1, 1963, TO JULY 31, 1964, AND (2) ADDITIONAL TAXES IN THE AMOUNT OF $23,547.33 FOR THE PERIOD JULY 1, 1957, TO JUNE 30, 1963. THE CLAIM UNDER CONTRACT 794 FOR $5,363.37 COVERS DISALLOWED POWER AND ENERGY SALES BY WESTERN TO SPA FOR THE PERIOD DECEMBER 1, 1961, TO JULY 31, 1964. THESE CLAIMS WILL BE CONSIDERED SEPARATELY HEREAFTER.

ON JUNE 11, 1957, SPA AND WESTERN ENTERED INTO CONTRACT 795 WHICH PROVIDES FOR THE TRANSMISSION AND DELIVERY OF POWER AND ENERGY BY WESTERN FOR THE GOVERNMENT. PERTINENT PROVISIONS OF THE CONTRACT, AS AMENDED, READ AS FOLLOWS:

"ARTICLE II

"TRANSMISSION SERVICE BY WESTERN

"SECTION 1. TRANSMISSION AND DELIVERY OF POWER AND ENERGY FOR THE GOVERNMENT. (A) WESTERN SHALL TRANSMIT AND DELIVER FOR THE GOVERNMENT THROUGH THE TRANSMISSION FACILITIES, TO THE POINTS OF DELIVERY DESIGNATED BY THE GOVERNMENT, SUCH AMOUNTS OF ELECTRIC POWER CAPACITY AND ACCOMPANYING ENERGY AS THE GOVERNMENT MAY DELIVER OR CAUSE TO BE DELIVERED INTO THE TRANSMISSION FACILITIES FOR SERVICE TO CUSTOMERS OF THE GOVERNMENT.

"/B) DEFINITION OF "TRANSMISSION FACILITIES.' AS USED HEREIN, THE TERM "TRANSMISSION FACILITIES" SHALL MEAN THE TRANSMISSION LINES AND RELATED FACILITIES OF WESTERN, AS SHOWN ON EXHIBIT "1," A COPY OF WHICH IS ATTACHED HERETO AND BY THIS REFERENCE MADE A PART HEREOF. WESTERN SHALL NOT, EXCEPT WITH THE WRITTEN CONSENT OF THE GOVERNMENT, SELL, ASSIGN, LEASE, OR TRANSFER THE TRANSMISSION FACILITIES, OR ANY PORTION THEREOF, TO ANY OTHER PARTY, OR TAKE ANY ACTION WITH REGARD TO THE TRANSMISSION FACILITIES, OR ANY PORTION THEREOF, WHICH WILL ADVERSELY AFFECT THE ELECTRIC SERVICE WHICH IS, OR WHICH MAY BE, FURNISHED TO CUSTOMERS OF THE GOVERNMENT PURSUANT TO THIS AGREEMENT.

"/C) DEFINITION OF "CUSTOMERS OF THE GOVERNMENT.' AS USED HEREIN, THE TERM "CUSTOMERS OF THE GOVERNMENT" SHALL INCLUDE THE GOVERNMENT, WESTERN, THE CITY OF ANADARKO, OKLAHOMA, THE ALTUS AIR FORCE BASE, ALTUS, OKLAHOMA, AND SUCH ADDITIONAL CUSTOMER OR CUSTOMERS OF THE GOVERNMENT AS THE GOVERNMENT MAY DESIGNATE FROM TIME TO TIME, SUBJECT TO THE CONDITIONS SET FORTH IN SECTION 2 OF THIS ARTICLE II.

"SECTION 2. LIMITATIONS ON SERVICE TO CUSTOMERS OF THE GOVERNMENT OTHER THAN WESTERN. IT IS RECOGNIZED BY THE PARTIES HERETO THAT THE CAPACITY OF THE TRANSMISSION FACILITIES SHALL AND SHOULD BE AVAILABLE FOR SERVICE TO WESTERN. IT IS UNDERSTOOD AND AGREED, THEREFORE, THAT THE TRANSMISSION SERVICE PROVIDED BY WESTERN UNDER SECTION 1 OF THIS ARTICLE II IS SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:

"/III) WESTERN SHALL NOT BE OBLIGATED TO FURNISH OR CONSTRUCT ANY NEW TRANSMISSION OR RELATED FACILITIES FOR THE PURPOSE OF PROVIDING TRANSMISSION SERVICE FOR THE GOVERNMENT UNDER THIS ARTICLE II.

"SECTION 3. POINTS OF INTERCONNECTION. THE POINTS OF INTERCONNECTION FOR THE DELIVERY OF POWER AND ENERGY INTO THE TRANSMISSION FACILITIES BY OR FOR THE ACCOUNT OF THE GOVERNMENT SHALL BE AT THE POINT OF ELECTRICAL INTERCONNECTION AT 69 KILOVOLTS BETWEEN THE TRANSMISSION FACILITIES AND THE TRANSMISSION SYSTEM OWNED BY THE GOVERNMENT:

(I) IN WESTERN'S ANADARKO SUBSTATION;

(II) IN WESTERN'S COMANCHE, OKLAHOMA, SWITCHING SUBSTATION;

(III) AT OR NEAR WALTERS, OKLAHOMA; AND AT SUCH OTHER POINT OR POINTS AS MAY BE ESTABLISHED, FROM TIME TO TIME, BY MUTUAL AGREEMENT OF THE PARTIES HERETO.

"SECTION 5. PAYMENT FOR TRANSMISSION AND DELIVERY SERVICE. (A) THE GOVERNMENT SHALL PAY TO WESTERN EACH MONTH AS COMPENSATION FOR THE TRANSMISSION AND DELIVERY SERVICES PERFORMED FOR THE GOVERNMENT PURSUANT TO SECTION 1 OF THIS ARTICLE II A SERVICE CHARGE COMPUTED IN ACCORDANCE WITH THE FORMULA

(FORMULA OMITTED) WITH THE FACTORS DEFINED AS FOLLOWS:

S EQUALS THE AMOUNT DUE WESTERN FROM THE GOVERNMENT FOR ANY

PARTICULAR MONTH, OR THE AMOUNT SPECIFIED UNDER

FACTOR "A," BELOW, WHICHEVER AMOUNT IS THE LESSER.

A EQUALS THE SUM OF $80,800, OR THE SUM OF $84,750 ON AND

AFTER JULY 1, 1958, IF, ON OR BEFORE JULY 1, 1958,

WESTERN CONSTRUCTS AND HAS IN OPERATION A 69 KILOVOLT

TRANSMISSION LINE FROM ITS WOODWARD GENERATING PLANT

TO ITS FREEDOM SUBSTATION, EXCEPT THAT THIS FACTOR

"A" SHALL BE SUBJECT TO REVIEW AND ADJUSTMENT IN

ACCORDANCE WITH THE PROVISIONS OF SUBSECTION (B)

OF THIS SECTION 5.

B EQUALS AN AMOUNT IN KILOWATTS EQUAL TO MAXIMUM MONTHLY

COINCIDENTAL THIRTY-MINUTE INTEGRATED DEMANDS

AT THE POINTS OF DELIVERY DURING THE PRECEDING

TWELVE-MONTH PERIOD ENDING WITH THE THEN CURRENT

MONTH, FOR POWER UNDELIVERED INTO THE TRANSMISSION

FACILITIES BY THE GOVERNMENT AND WESTERN, OR 92,000

KILOWATTS, WHICHEVER AMOUNT IS GREATER.

C EQUALS AN AMOUNT IN KILOWATTS EQUAL TO THE SUM OF THE

MAXIMUM MONTHLY THIRTY-MINUTE INTEGRATED DEMANDS DURING

THE PRECEDING TWELVE-MONTH PERIOD ENDING WITH THE THEN

CURRENT MONTH, AT EACH OF THE POINTS OF DELIVERY FOR

POWER DELIVERED FROM OR TO THE TRANSMISSION FACILITIES

FROM OR TO CUSTOMERS OF THE GOVERNMENT,

OTHER THAN WESTERN, AT A NOMINAL VOLTAGE OF OTHER THAN

69 KILOVOLTS; PROVIDED, THAT IF ANY CHANGE IS MADE IN

A REQUEST FOR SERVICE UNDER SECTION 4 OF THIS ARTICLE II,

AN APPROPRIATE ADJUSTMENT SHALL BE MADE IN SUCH MAXIMUM

MONTHLY THIRTY-MINUTE INTEGRATED DEMAND TO REFLECT SUCH

CHANGE.

D EQUALS AN AMOUNT IN KILOWATTS EQUAL TO THE SUM OF THE MAXIMUM

MONTHLY THIRTY-MINUTE INTEGRATED DEMANDS DURING THE

PRECEDING TWELVE-MONTH PERIOD ENDING WITH THE THEN

CURRENT MONTH, AT EACH OF THE POINTS OF DELIVERY

FOR POWER DELIVERED FROM OR TO THE TRANSMISSION

FACILITIES FROM OR TO CUSTOMERS OF THE GOVERNMENT, OTHER

THAN WESTERN, AT A NOMINAL VOLTAGE OF 69 KILOVOLTS;

PROVIDED, THAT IF ANY CHANGE IS MADE IN A REQUEST FOR

SERVICE UNDER SECTION 4 OF THIS ARTICLE II, AN

APPROPRIATE ADJUSTMENT SHALL BE MADE IN SUCH

MAXIMUM MONTHLY THIRTY-MINUTE INTEGRATED DEMANDS TO

REFLECT SUCH CHANGE.

E EQUALS AN AMOUNT EQUAL TO EITHER 92,000 KILOWATTS OR THE

MAXIMUM MONTHLY COINCIDENTAL THIRTY-MINUTE INTEGRATED

DEMANDS AT THE POINTS OF DELIVERY DURING THE PRECEDING

TWELVE-MONTH PERIOD ENDING WITH THE THEN CURRENT

MONTH FOR POWER DELIVERED OR CAUSED TO BE DELIVERED

INTO THE TRANSMISSION FACILITIES BY WESTERN, WHICHEVER

AMOUNT IS GREATER; PROVIDED, THAT FACTOR "/B-E)" SHALL

EQUAL ZERO UNTIL FACTOR "/B-E)" IS A PLUS QUANTITY.

"/B) ADJUSTMENT AND REDETERMINATION OF FACTOR "A.'

IT IS RECOGNIZED THAT THE SUM REPRESENTED BY FACTOR "A" IN

THE FORMULA SET FORTH IN SUBSECTION (A) OF THIS SECTION 5,

ARTICLE II, INCLUDES AN AMOUNT REPRESENTING THE MONTHLY PAYMENT BY

THE GOVERNMENT TO WESTERN (FACTOR "X" IN THE FORMULA SET FORTH BELOW) WHICH IS INTENDED TO AMORTIZE THE ACTUAL COST TO WESTERN

OF THE TRANSMISSION AND RELATED FACILITIES SET FORTH IN EXHIBIT

"2," A COPY OF WHICH IS ATTACHED HERETO AND BY THIS REFERENCE MADE A PART HEREOF. IT IS FURTHER RECOGNIZED THAT THE SUM

REPRESENTED BY THE SAID FACTOR "A" IS ALSO BASED UPON THE

1956-1957 COST OF TAXES, LABOR, AND MATERIALS, AND THAT SUCH

COSTS MAY VARY FROM YEAR TO YEAR DURING THE TERM OF THIS CONTRACT.

ACCORDINGLY, IT IS AGREED THAT THE SUM ASSIGNED TO THE SAID

FACTOR "A" SHALL BE ADJUSTED AND REDETERMINED (I) ON THE FIRST

DAY OF THE BILLING PERIOD FOLLOWING THE DATE THE SAID PAYMENTS BY THE

GOVERNMENT HAVE AMORTIZED THE ACTUAL COST OF THE TRANSMISSION AND

RELATED FACILITIES AS SET FORTH IN SAID EXHIBIT "2," AND (II)

ON JULY 1, 1958, AND ON JULY 1 OF EACH YEAR THEREAFTER (FOR USE

DURING THE FOLLOWING TWELVE-MONTH PERIOD), IN ACCORDANCE WITH THE

FORMULA

W TIMES L M TIMES R

FACTOR A EQUALS X PLUS T PLUS (- ( PLUS (- (,

W M

I I

WITH THE FACTORS DEFINED AS FOLLOWS:

X EQUALS THE SUM OF $46,200, OR THE SUM OF $48,500 ON

AND AFTER JULY 1, 1962, IF, ON OR BEFORE JULY 1, 1962,

WESTERN CONSTRUCTS AND HAS IN OPERATION A 69

KILOVOLT TRANSMISSION LINE FROM ITS WOODWARD GENERATING

PLANT TO ITS FREEDOM SUBSTATION; PROVIDED, THAT FACTOR

"X" SHALL EQUAL ZERO ON AND AFTER THE FIRST DAY OF THE

MONTH FOLLOWING THE DATE MONTHLY PAYMENTS BY THE

GOVERNMENT HAVE AMORTIZED THE ACTUAL COST OF THE

TRANSMISSION AND RELATED FACILITIES AS SET FORTH IN

THE SAID EXHIBIT "2.'

T EQUALS $1,750, WHICH REPRESENTS AN ESTIMATE OF THE TAXES

PAID BY WESTERN EACH MONTH AND DIRECTLY ASSIGNABLE

TO THE TRANSMISSION FACILITIES. THIS SUM MAY BE

INCREASED OR DECREASED AT ANY TIME BY MUTUAL

AGREEMENT OF THE GOVERNMENT AND WESTERN TO REFLECT

ANY MATERIAL CHANGE IN THE AMOUNT OF TAXES PAID BY

WESTERN.

W EQUALS AVERAGE HOURLY WAGE FOR THE PRECEDING CALENDAR YEAR FOR

WORKERS IN THE ELECTRIC LIGHT AND POWER INDUSTRY AS

COMPILED BY THE BUREAU OF LABOR STATISTICS OF THE U.S.

DEPARTMENT OF LABOR.

W EQUALS AVERAGE HOURLY WAGE FOR THE YEAR 1956 AS DETERMINED IN

I W, ABOVE.

L EQUALS THE SUM OF $19,750, OR $20,500 ON AND AFTER JULY 1,

1962, IF, ON OR BEFORE JULY 1, 1962, WESTERN

CONSTRUCTS AND HAS IN OPERATION A 69 KILOVOLT

TRANSMISSION LINE FROM ITS WOODWARD GENERATING PLANT

TO ITS FREEDOM SUBSTATION.

M EQUALS THE AVERAGE WHOLESALE PRICE FOR THE PRECEDING

CALENDAR YEAR ON ALL COMMODITIES OTHER THAN FARM AND

FOOD PRODUCTS AS COMPILED BY THE BUREAU OF LABOR

STATISTICS OF THE U.S. DEPARTMENT OF LABOR.

M EQUALS THE AVERAGE WHOLESALE PRICE INDEX FOR THE YEAR 1956 AS

I DETERMINED IN M, ABOVE.

R EQUALS THE SUM OF $13,100, OR $13,800 ON AND AFTER JULY

1, 1962, IF, ON OR BEFORE JULY 1, 1962, WESTERN CONSTRUCTS

AND HAS IN OPERATION A 69 KILOVOLT TRANSMISSION LINE FROM ITS

WOODWARD GENERATING PLANT TO ITS FREEDOM SUBSTATION.

PROVIDED, THAT THE BILLING STATEMENT SUBMITTED IN JULY OF EACH YEAR

BY WESTERN TO THE GOVERNMENT COVERING THE MONTH OF JUNE

SHALL CONTAIN A CREDIT OR DEBIT, AS THE CASE MAY BE, EQUAL

TO THE DIFFERENCE BETWEEN THE TAXES DIRECTLY ASSIGNABLE TO THE

TRANSMISSION FACILITIES DURING THE PRECEDING TWELVE-MONTH PERIOD

AND THE TOTAL AMOUNT PAID BY THE GOVERNMENT DURING SUCH PERIOD

UNDER FACTOR "T," ABOVE.'

WESTERN'S CLAIM FOR $89,092.45, COVERING DISALLOWED TRANSMISSION SERVICE CHARGES FOR THE PERIOD JULY 1, 1963, TO JULY 31, 1964, IS PRIMARILY BASED ON ITS CONTENTION, AS SET FORTH IN ITS LETTER TO YOU DATED OCTOBER 13, 1964, THAT FACTOR "B" IN THE SERVICE CHARGE FORMULA SET FORTH IN SECTION 5, ARTICLE II OF TRANSMISSION CONTRACT (NUMBERED 795) APPLIES TO THE AMOUNT OF POWER MEASURED AT THE POINTS OF DELIVERY IN LOAN CENTERS OF ITS MEMBER COOPERATIVES, PROVIDING SUCH POINTS OF DELIVERY WERE INCLUDED IN THE TRANSMISSION FACILITIES AS DEFINED IN THE CONTRACT. ON THE OTHER HAND, SPA TAKES THE POSITION THAT ALL POWER SUPPLIED BY WESTERN AND THE GOVERNMENT MUST BE ACCOUNTED FOR UNDER FACTOR "B" SINCE WESTERN'S TRANSMISSION FACILITIES ARE FULLY INTEGRATED AND INTERCONNECTED WITH THE GOVERNMENT'S FACILITIES, AND ALL SUCH POWER EITHER DOES OR MAY FLOW THROUGH THE "TRANSMISSION FACILITIES.' YOU STATE THAT THE DIFFERENCE IN THE AMOUNTS OF MONEY COMPUTED UNDER THESE TWO CONCEPTS IS ACCOUNTED FOR BY (1) THE TRANSMISSION LOSSES BETWEEN POINTS OF DELIVERY AND POINTS OF INTERCONNECTION, AND (2) THE POWER DELIVERIES TO ALL LOAD CENTERS DIFFERING FROM DELIVERIES ONLY TO LOAN CENTERS ESTABLISHED IN THE DEFINITION OF "TRANSMISSION FACILITIES.' AS NOTED PREVIOUSLY, WESTERN'S CONTENTIONS WITH RESPECT TO THE INTERPRETATION OF FACTOR "B" ARE SET FORTH IN A LETTER TO YOU DATED OCTOBER 13, 1964. THAT LETTER READS, IN PERTINENT PART, AS FOLLOWS:

"* * * THE ENCLOSED ROUGH DRAFT OF THE PROPOSED AMENDMENT TO THE TRANSMISSION SERVICE CONTRACT PRESENTED TO US ON APRIL 23, 1957, BY SOUTHWESTERN POWER ADMINISTRATION GIVES AN INDICATION POINTING TOWARD A FINAL DEVELOPMENT OF THE FORMULA FOR DETERMINING THE TRANSMISSION PAYMENT IN THE EXECUTED CONTRACT. UNDER THE ROUGH DRAFT, THERE WOULD HAVE BEEN NO REDUCTION IN THE PAYMENTS UNDER THE TRANSMISSION FORMULA UNTIL AFTER WE WERE PURCHASING 90,000 KILOWATTS OF POWER FROM SPA. YOU WILL NOTE THAT NOWHERE IN THE DEFINITION OF ITEMS IN THE FORMULA IS THE PAYMENT REDUCED FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY WESTERN. THIS IS THE LAST ROUGH DRAFT OF THE AMENDMENT THAT WE HAVE AVAILABLE PRIOR TO FINAL COMPLETION OF THE CONTRACT. THE RECORD INDICATES THE CONTRACT WAS COMPLETED THROUGH A SERIES OF DISCUSSIONS BETWEEN THE PARTIES.

"AS TO THE INTERPRETATION OF THE FORMULA AND LANGUAGE OF THE CONTRACT, OUR CONTENTIONS ARE AS FOLLOWS:

(1) THE APPLICATION OF THE FORMULA APPLIES ONLY TO TRANSMISSION FACILITIES OUTLINED ON THE MAP ATTACHED TO THE CONTRACT AS DEFINED IN ARTICLE II, 1 (B). THIS CONTENTION IS ALSO SUPPORTED BY INTERPRETATIONS OF THE CONTRACT OUTLINED IN MR. NEIL L. ADAMS' LETTER OF JULY 19, 1960, AND YOUR LETTER OF DECEMBER 1, 1961, WHICH ARE ENCLOSED. UNDER ARTICLE II, WE ARE TO "TRANSMIT AND DELIVER FOR THE GOVERNMENT THROUGH THE TRANSMISSION FACILITIES, TO THE POINTS OF DELIVERY DESIGNATED BY THE GOVERNMENT, SUCH AMOUNTS OF ELECTRIC POWER CAPACITY AND ACCOMPANYING ENERGY AS THE GOVERNMENT MAY DELIVER OR CAUSE TO BE DELIVERED INTO THE TRANSMISSION FACILITIES FOR SERVICE TO CUSTOMERS OF THE GOVERNMENT.' THE DEFINED TRANSMISSION FACILITIES CONSISTS OF 1,032 MILES OF LINE AT A ESTIMATED COST OF $12,124,249.88. WE HAVE SINCE ADDED FACILITIES TO SERVE NEW LOADS AND TO PROVIDE ADDITIONAL CAPACITY AND AS OF JUNE 30, 1964, WERE OPERATING 1,487.126 MILES OF LINE AT A COST OF $21,133,596.38. SPA MAKES NO CONTRIBUTION TO THESE ADDITIONAL FACILITIES NOR DO WE PROVIDE ANY SERVICES FOR SPA OVER THESE ADDITIONAL FACILITIES.

"ARTICLE II, 1 (C) DEFINES CUSTOMERS OF THE GOVERNMENT, WHICH INCLUDES WESTERN. THE POWER CONTRACT NO. 14-02-001-794, ARTICLE II, SECTION 10, STATES THE POINTS OF DELIVERY AT WHICH POWER WILL BE DELIVERED TO WESTERN. THE FORMULA, SECTION 5 OF ARTICLE II OF THE TRANSMISSION SERVICE CONTRACT, REFERS TO THE MOVEMENT OF POWER FROM THE POINT WHERE IT ENTERS THE TRANSMISSION FACILITIES TO ITS DESTINATION AT THE POINTS OF DELIVERY SPECIFIED IN SECTION 10 OF ARTICLE II OF THE POWER CONTRACT. THE SERVICE WE ARE PERFORMING FOR SPA RELATES TO THESE POINTS OF DELIVERY AND THESE ALONE. WHILE IT MIGHT BE CONTENDED THAT ARTICLE II, SECTION 3, OF THE TRANSMISSION CONTRACT REFERS TO THE POINTS OF DELIVERY AS INCLUDED IN SECTION 5 OF THE SAME ARTICLE, THE LANGUAGE UNDER SECTION 3 MERELY OUTLINES THE ORIGINATING POINT FOR THE DELIVERY OF POWER AND REFERS TO THEM AS POINTS OF INTERCONNECTION FOR POWER DELIVERED "BY OR FOR THE ACCOUNT OF THE GOVERNMENT.' NO MENTION IS MADE IN THIS SECTION OF POWER DELIVERED BY WESTERN. FURTHERMORE, FACTORS OF THE FORMULA IN SECTION 5 OF ALL STATE "MAXIMUM MONTHLY COINCIDENTAL THIRTY-MINUTE INTEGRATED DEMANDS AT THE POINTS OF DELIVERY......., FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES," WHICH COVERS THE MOVEMENT OF THE POWER FROM THE POINTS OF INTERCONNECTION DEFINED IN SECTION 3, ARTICLE II TO THE POINTS OF UTILIZATION. THEREFORE, WE CONCLUDE THAT FACTOR B SHOULD INCLUDE ONLY THE SUMMATION OF THE COINCIDENTAL DEMANDS AT THE POINTS OF DELIVERY OUTLINED IN ARTICLE II, SECTION 10 OF THE POWER CONTRACT.

(2) ANOTHER POINT OF ISSUE IS FACTOR E IN THE FORMULA. YOU APPARENTLY CONTEND THAT THE FACTOR (B MINUS E) IS EQUAL TO THE QUANTITY (C PLUS D) UNDER AN INTERPRETATION WHEREIN THE POWER DELIVERED OR CAUSED TO BE DELIVERED INTO THE TRANSMISSION FACILITIES BY WESTERN INCLUDES THE AMOUNT DELIVERED BY SPA TO WESTERN. WE CONTEND THAT FACTOR E INCLUDES ONLY THAT POWER DELIVERED BY WESTERN OR PURCHASED FROM SOME SOURCE OTHER THAN SPA. WE BELIEVE THAT THE PHRASE "CAUSE TO BE DELIVERED" HAS REFERENCE TO OTHER POWER SOURCES. IF THE FACTOR (B MINUS E) EQUALS (C PLUS D) AS CONTENDED IN YOUR LETTER OF JULY 1, 1960, THE PARTIES UNNECESSARILY COMPLICATED THE FORMULA AS IT WOULD THEN INCLUDE TWO QUANTITIES THAT CANCEL EACH OTHER. HAD THIS BEEN INTENDED, A QUESTION ARISES AS TO WHY THE PARTIES DEPARTED FROM THE ROUGH DRAFT ON APRIL 23, 1957, IN THIS RESPECT WHEN THE FORMULA WAS SIMPLY WRITTEN WITHOUT SURPLUS ITEMS THAT WOULD CANCEL EACH OTHER. SIMILARLY, IT COULD BE ASKED WHY THE PARTIES INTRODUCED FACTOR E IF (B MINUS E) EQUALS (C PLUS D) WHEN FACTORS (C PLUS D) HAD ALREADY BEEN DEFINED. ALSO IF E WAS TO INCLUDE POWER DELIVERED BY WESTERN AND SPA, EXCEPT FOR CUSTOMERS OF THE GOVERNMENT OTHER THAN WESTERN, WHY DIDN-T THE LANGUAGE PARALLEL THE DEFINITIONS USED IN DEFINING FACTORS B, C AND D. WE SUGGEST THAT THE PARTIES HAD SOMETHING ENTIRELY DIFFERENT IN MIND WHICH WAS THE INTRODUCTION OF OTHER POWER SOURCES, THUS THE LANGUAGE ,CAUSE TO BE DELIVERED" IN THE DEFINITION OF E. APPARENTLY, YOU CONTEND THAT WE "CAUSE TO BE DELIVERED" POWER YOU ARE SELLING TO WESTERN, BUT NOT TO OTHER CUSTOMERS OF THE GOVERNMENT. HOW WE COULD "CAUSE" YOUR POWER TO BE DELIVERED INTO THE TRANSMISSION FACILITIES IS BEYOND COMPREHENSION AS WE HAVE ABSOLUTELY NO CONTROL OVER YOUR OPERATIONS.

"THERE IS ALSO FOR CONSIDERATION THE FACT THAT THE PARTIES ANTICIPATED THAT THE FACTOR (B MINUS E) COULD BE A NEGATIVE QUANTITY. THE ONLY WAY THAT (B MINUS E) COULD BECOME NEGATIVE WOULD BE WHEN WESTERN INTRODUCED PURCHASED POWER FROM SOME OTHER SOURCE IN A QUANTITY GREATER THAN THAT DELIVERED BY WESTERN AND SPA.

"A FURTHER ANALYSIS OF THE FORMULA INDICATES THE PARTIES ANTICIPATED THAT FACTOR S MIGHT PRODUCE A GREATER PAYMENT THAN SPECIFIED UNDER FACTOR A. FACTOR S AND SPA'S INTERPRETATION WOULD ALWAYS COME OUT TO BE A SUM SMALLER THAN FACTOR A. UNDER OUR INTERPRETATION OF FACTOR E, FACTOR S COULD BECOME LARGER THAN FACTOR A.

(3) IT SHOULD ALSO BE NOTED UNDER ARTICLE II, 5 (B), A CLEAR STATEMENT IS MADE TO THE EFFECT THAT THE INTEREST AND AMORTIZATION COMPONENTS OF THE PAYMENT " IS INTENDED TO AMORTIZE THE ACTUAL COST TO WESTERN OF THE TRANSMISSION AND RELATED FACILITIES SET FORTH IN EXHIBIT 2.' IF IT WAS INTENDED THAT THE PAYMENTS TO WESTERN WAS TO BE REDUCED, FACTOR X WOULD NOT AMORTIZE THE ACTUAL COST OF THE FACILITIES NOR DOES THE CONTRACT CONTAIN ANY LANGUAGE WHICH WOULD INDICATE HOW YOU WOULD ASSIGN VARIOUS COMPONENTS OF THE FORMULA TO OPERATIONS AND MAINTENANCE, REPLACEMENT AND INTEREST AND AMORTIZATION EXPENSES UNDER A REDUCED PAYMENT. THERE IS ALSO FOR CONSIDERATION THE FACT THAT THE GOVERNMENT HAS THE RIGHT TO EXTEND THIS CONTRACT UNTIL JULY 1, 2035, AFTER ITS ORIGINAL EXPIRATION ON JULY 1, 1995. UNDER SPA'S INTERPRETATION, THE GOVERNMENT WOULD HAVE THE RIGHT TO USE THE SYSTEM FOR NEARLY 75 YEARS FROM THE PRESENT DATE AND MAKE VERY LITTLE CONTRIBUTION FOR THIS RIGHT. EVEN UNDER OUR INTERPRETATION, THE GOVERNMENT WOULD HAVE THE RIGHT TO USE (FOR ANOTHER 75 YEARS) THE TRANSMISSION SYSTEM THAT WOULD HAVE LONG SINCE SERVED ITS USEFUL LIFE. RELATION TO THE CONTRACT, DATED DECEMBER 15, 1949, THE GOVERNMENT IS RECEIVING ALL OF THE RIGHTS CONFERRED UNDER THAT CONTRACT EXCEPT ACTUAL OWNERSHIP WITHOUT ANY ADDITIONAL RISK SUCH AS COMPLETE RECONSTRUCTION OF FACILITIES AFTER THEIR ORIGINAL LIFE SPAN. IN OUR OPINION, THE GOVERNMENT IS IN A FAR MORE FAVORABLE POSITION FROM A MONETARY STANDPOINT THAN IT WAS UNDER THE ORIGINAL OPTION TO PURCHASE AGREEMENT. FOR THE GOVERNMENT TO NOW TAKE A POSITION CONTRARY TO OUR UNDERSTANDING OF THE CONTRACT AND DIRECTIVES OF CONGRESSIONAL COMMITTEES AT THE TIME THE CONTRACTUAL RELATIONS WERE REACTIVATED, APPEARS TO GO WELL BEYOND THE CALL OF DUTY.

BY LETTER DATED FEBRUARY 1, 1965, TO OUR OFFICE WESTERN SUPPLEMENTED THE ABOVE CONTENTIONS. WITH THIS LETTER, WESTERN SUBMITTED A MAP SHOWING THE LOCATIONS WHERE POWER IS NOW DELIVERED TO POINTS WHICH WERE NOT INCLUDED IN THE TRANSMISSION FACILITIES ORIGINALLY DEFINED IN THE CONTRACT. WESTERN STATES THAT IT IS "HIGHLY PROBABLE" THAT AT LEAST TWO OF THESE POINTS--- CURTIS AND PAOLI SUBSTATIONS--- WILL NEVER RECEIVE ANY POWER THAT FLOWS INTO OR THROUGH THE ORIGINALLY DEFINED TRANSMISSION FACILITIES. WESTERN STATES THAT THE MAJOR PORTION OF THE 455 MILES OF EXTENDED TRANSMISSION SYSTEM WAS BUILT SUBSEQUENT TO 1960 AND THAT PRIOR TO INITIATING CONSTRUCTION IT ENDEAVORED TO OBTAIN AN INTERPRETATION FROM SPA TO SEE WHETHER SPA CONCURRED IN ITS VIEWS THAT LOADS FROM THE EXTENDED FACILITIES WOULD NOT BE INCLUDED IN FACTOR "B.' WESTERN FURTHER STATES THAT THIS REQUEST MOTIVATED SPA'S LETTER OF JULY 19, 1960, AND WAS CONFIRMED IN YOUR LETTER OF DECEMBER 1, 1961, IN SPECIFIC RESPECT TO TEXAS LOADS.

WESTERN ALSO ASSERTS THAT ITS CONTENTION THAT POINTS OF DELIVERY AS MENTIONED UNDER THE DEFINED FACTORS IN THE TRANSMISSION SERVICE CHARGE FORMULA AS BEING THOSE OUTLINED IN ARTICLE II, SECTION 10, OF THE POWER CONTRACT, IS SUPPORTED BY THE SPECIFIC LANGUAGE OF THAT ARTICLE WHICH STATES "THE POINTS OF DELIVERY FOR POWER AND ENERGY PURCHASED BY WESTERN UNDER THIS AGREEMENT SHALL BE AT THE POINTS AND AT THE VOLTAGE SET FORTH BELOW.....' WHILE WESTERN CONCEDES THAT THE TRANSMISSION CONTRACT (795) IS AN INDEPENDENT DOCUMENT, IT CALLS ATTENTION TO ARTICLE IV AND TO SECTION 6 OF ARTICLE V OF CONTRACT 795 WHEREIN THE TWO CONTRACTS ARE CONSIDERED TOGETHER.

WESTERN FURTHER ASSERTS THAT THE POWER DELIVERED BY WESTERN TO THE POINTS OF DELIVERY DOES NOT PASS THROUGH THE POINTS OF INTERCONNECTION NOR IS IT "RECORDED" AT THE POINTS OF INTERCONNECTION. ACCORDING TO WESTERN, THE ONLY POWER THAT PASSES THROUGH THE POINTS OF INTERCONNECTION IS POWER EXCHANGED BETWEEN WESTERN AND THE GOVERNMENT AND THAT THE POWER DELIVERED BY WESTERN TO THE POINTS OF DELIVERY BY PASSES EVERY SINGLE POINT OF INTERCONNECTION. WESTERN CONCLUDES THAT POWER FROM ITS GENERATING PLANTS THAT PASSES THROUGH THE POINTS OF INTERCONNECTION REPRESENTS A SALE TO SPA OR A PURCHASE FROM SPA. FINALLY, WESTERN STATES, THERE IS FOR CONSIDERATION THE FACT THAT IN CONTRACT 795, NO MENTION IS MADE OF POWER DELIVERED INTO THE TRANSMISSION FACILITIES FROM WESTERN SOURCES OTHER THAN THE "VAGUE" REFERENCE TO "POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY THE GOVERNMENT AND WESTERN" AND THAT VIEWED IN THE GENERAL CONCEPT OF BOTH CONTRACTS AND THE ,OBVIOUS" INTENTIONS OF THE PARTIES AT THE TIME THE BASIC CONTRACT WAS WRITTEN, WESTERN CONTENDS THAT THE CURRENT INTERPRETATION OF FACTOR "B" BY SPA IS WRONG AND THAT ITS INTERPRETATION OF FACTOR "E" IS CONTRARY TO RATHER SPECIFIC LANGUAGE.

BY LETTER DATED FEBRUARY 15, 1965, OUR OFFICE FURNISHED YOUR ADMINISTRATION A COPY OF WESTERN'S LETTER OF FEBRUARY 1, 1965, AND REQUESTED YOUR COMMENTS ON THE CONTENTIONS SET FORTH IN WESTERN'S LETTER. YOUR COMMENTS WERE FURNISHED US IN A LETTER DATED MAY 10, 1965. INITIALLY, YOU STATE THAT WESTERN'S CONTENTION IN REGARD TO THE IMPROBABILITY OF A FLOW OF POWER TO CURTIS AND PAOLI SUBSTATIONS SERVES ONLY TO CONFUSE THE ISSUE SINCE KWH METER READINGS SHOW THAT FROM SEPTEMBER 1963 THROUGH MAY 1964, 311,600 KWH HAVE BEEN RECORDED AS FLOWING FROM WESTERN TO SPA AT THE INTERCONNECTION BETWEEN THE TWO SYSTEMS AT THE PAOLI SUBSTATION. YOU SAY THAT IT IS A FACT THAT THIS 311,600 KWH OF POWER AND ENERGY COULD NOT FLOW INTO THE SPA SYSTEM WITHOUT HAVING ORIGINATED AT SOME OTHER POINT, FLOWED INTO AND THROUGH THE SYSTEM OF WESTERN, AND THEN OUT OF THE WESTERN TRANSMISSION FACILITIES THROUGH PAOLI SUBSTATION TO THE SPA SYSTEM.

YOUR LETTER OF MAY 10, 1965, ENCLOSED COPIES OF THE TWO LETTERS CITED BY WESTERN AS SUPPORTING ITS POSITION. THE FIRST LETTER DATED JULY 19, 1960, FROM THE CHIEF, DIVISION OF RATES AND CUSTOMER SERVICE, SPA, TO WESTERN READS AS FOLLOWS:

"THIS IS IN RESPONSE TO OUR RECENT DISCUSSION AND SUPPLEMENTS OUR LETTER OF JULY 1, 1960, SETTING OUT HYPOTHETICAL COMPUTATIONS FOR TRANSMISSION CHARGES PAID BY THE GOVERNMENT UNDER ARTICLE II, SECTION 5 (A) OF THE TRANSMISSION AGREEMENT BETWEEN THIS ADMINISTRATION AND WESTERN FARMERS AFTER WESTERN'S LOAD EXCEEDS 92,000 KW.

"THE CONSTANT OF 92,000 KW USED IN THE FORMULA OF SAID SECTION 5 (A) IS THE ESTIMATED TRANSMISSION CAPABILITY OF THE "TRANSMISSION FACILITIES" INCLUDED UNDER OUR TRANSMISSION AGREEMENT AND DEFINED THEREIN. LIKEWISE, FACTOR B OF SAID FORMULA IS THE MAXIMUM LOAD, OR MORE SPECIFICALLY THE MAXIMUM COINCIDENTAL THIRTY-MINUTE INTEGRATED DEMAND AT THE POINTS OF DELIVERY, SERVED DIRECTLY FROM THESE "TRANSMISSION FACILITIES.' ACCORDINGLY, LOADS SERVED FROM WESTERN'S EXTENDED TRANSMISSION SYSTEM WILL NOT BE INCLUDED IN THE COMPUTATION OF FACTOR B WHEN SUCH EXTENDED TRANSMISSION SYSTEM IS INTERCONNECTED WITH THE "TRANSMISSION FACILITIES" FOR PURPOSES SUCH AS CONTINUITY OF SERVICE AND SYSTEM STABILIZATION ONLY.' THE SECOND LETTER DATED DECEMBER 1, 1961, FROM YOU TO WESTERN, READS, IN PERTINENT PART, AS FOLLOWS:

"THIS IS IN RESPONSE TO YOUR LETTER OF NOVEMBER 20, 1961, AND WILL PURSUE SOME OF THE SUGGESTIONS MADE DURING YOUR MEETING WITH MY STAFF ON NOVEMBER 17, 1961.

"TWO PRINCIPAL ITEMS WERE DISCUSSED DURING THIS MEETING. THEY WERE:

(1) THE REVISION OF EXISTING CONTRACT DEMANDS TO MEET THE NEEDS OF WESTERN; AND (2) THE CLARIFICATION OF SECTION 5, ARTICLE II, OF THE TRANSMISSION AGREEMENT, CONTRACT NO. 14-02-001-795, PERTAINING TO TRANSMISSION PAYMENTS TO WESTERN BY THE GOVERNMENT.

"FROM THESE DISCUSSIONS AND THE DATA PRESENTED IN YOUR LETTERS OF SEPTEMBER 26 AND NOVEMBER 20, 1961, WE HAVE DEVELOPED A PROPOSED CONTRACT DEMAND DISTRIBUTION FOR WESTERN AND HAVE STUDIED THE SUGGESTIONS REGARDING THE TRANSMISSION PAYMENT FORMULA.

"IN AN EFFORT TO RESOLVE OUR DIFFERENCES ON THE INTERPRETATION OF SECTION 5, ARTICLE II, OF THE TRANSMISSION AGREEMENT (TRANSMISSION PAYMENT FORMULA), YOU SUGGESTED THAT SPA'S INTERPRETATION OF THIS SECTION BE ADOPTED AND THAT SECTION 5 BE APPROPRIATELY AMENDED TO ADEQUATELY CONVEY THAT INTERPRETATION, PROVIDED, THAT PAYMENTS TO WESTERN WOULD NOT BE REDUCED BELOW A PREDETERMINED MINIMUM. YOU FURTHER SUGGESTED THAT THIS MINIMUM BE ESTABLISHED ON THE BASIS OF 80 CENTS PER KW. TIMES THE ASSUMED CAPABILITY IN SAID SECTION 5 OF 92,000 KW.

"IT APPEARS THAT THE ESTABLISHMENT OF A PREDETERMINED MINIMUM WOULD BE ACCEPTABLE TO THE GOVERNMENT. IT IS MY RECOMMENDATION, HOWEVER, THAT SUCH A MINIMUM BE 80 CENTS PER KW TIMES WESTERN'S CONTRACT DEMANDED FOR THAT FIRM AND PEAKING POWER DELIVERED INTO WESTERN'S TRANSMISSION FACILITY FOR LOAD CENTER DELIVERY. * * *

"THESE RECOMMENDATIONS, IF ADOPTED, WILL PROVIDE A MINIMUM PAYMENT TO WESTERN OF 70,000 KW TIMES 80 CENTS PER KW, OR $56,000 PER MONTH AFTER JULY 1, 1969.

"THE VALUE OF FACTOR "B" IN THE TRANSMISSION PAYMENT FORMULA REPRESENTS WESTERN'S LOAD SERVED FROM THE "TRANSMISSION FACILITIES" AS DEFINED IN SECTION 1 (B), ARTICLE II, OF THE TRANSMISSION AGREEMENT. THEREFORE, ASSUMING A TEXAS LOAD OF 22,000 KW BEGINNING JULY 1, 1969, THE GOVERNMENT'S PAYMENT TO WESTERN AFTER JULY 1, 1969, WOULD BE APPROXIMATELY $61,000 PER MONTH, PLUS ESCALATION ADVANCES. * * * THIS PROPOSED $56,000 PER MONTH MINIMUM WOULD PREVAIL AFTER THE LOAN ON WESTERN'S DEFINED "TRANSMISSION FACILITIES" REACHES 140,000 KW.

"IF THIS PROPOSAL MEETS WITH WESTERN'S APPROVAL, WE WILL PROCEED WITH THE DEVELOPMENT OF THE NECESSARY CONTRACTUAL AMENDMENT.'

YOU STATE THAT THE ABOVE LETTERS WERE WRITTEN TO EXPLAIN AND CLARIFY WHAT WOULD OCCUR IN SPECIFIC SITUATIONS AND ARE NOT FOR GENERAL APPLICATION AND THAT THEY PERTAIN TO SITUATIONS ONLY WHEN THE RESTRICTIVE LANGUAGE CONTAINED IN THE LETTERS PREVAILS. YOU CONTEND THAT WHEN THE LETTERS ARE ANALYZED, GIVING CONSIDERATION TO THEIR TOTAL CONTENT, THEY SUPPORT THE SPA INTERPRETATION OF LOADS TO BE INCLUDED IN FACTOR "B" RATHER THAN WESTERN'S INTERPRETATION. IN YOUR OPINION, THE KEY TO THE MEANING OF THESE LETTERS IS CONTAINED IN THE UNDERSCORED PORTION OF THE LETTER DATED JULY 19, 1960, TO THE EFFECT THAT WHEN WESTERN'S EXTENDED TRANSMISSION SYSTEM IS INTERCONNECTED WITH THE "TRANSMISSION FACILITIES" FOR PURPOSES SUCH AS CONTINUITY OF SERVICE AND SYSTEM STABILIZATION ONLY, LOADS SERVED FROM SUCH EXTENDED SYSTEM WILL NOT BE INCLUDED IN THE COMPUTATION OF FACTOR "B.' CONVERSELY, YOU SAY, WHEN THE PURPOSE OF INTERCONNECTION IS TO SERVE THE LOAD ITSELF, OR WHEN OTHER BENEFITS ACCRUE TO ANY OF THE PARTIES PARTICIPATING IN USE OF THE ,TRANSMISSION FACILITIES" AND ANY EXTENSION OF THEM, THE LOAD WILL BE INCLUDED IN COMPUTATIONS USING FACTOR "B.'

WITH RESPECT TO THE ISSUE CONCERNING THE INTERRELATIONSHIP OF THE POWER AND TRANSMISSION CONTRACTS, YOU POINT OUT THAT ARTICLE IV, AND SECTION 6, ARTICLE V, OF CONTRACT 795, CITED BY WESTERN HAVE NO RELATION TO THE IDENTITY OF POINTS OF DELIVERY. ARTICLE IV HAS REFERENCE TO SETTLEMENT OF ACCOUNTS BY CONSIDERATION OF THE NET BALANCE OF COMPENSATION DUE EITHER ONE OF THE PARTIES EACH MONTH IN TERMS OF MONEY AND SECTION 6, ARTICLE V HAS REFERENCE TO THE PERMISSIVE TERMINATION, BY GIVING 30-DAYS NOTICE, OF THE TRANSMISSION CONTRACT IF THE POWER CONTRACT IS TERMINATED FOR ANY REASON.

AS NOTED EARLIER, WESTERN CONTENDS THAT THE POWER DELIVERED BY IT TO THE POINTS OF DELIVERY DOES NOT PASS THROUGH THE POINTS OF INTERCONNECTION AND THAT THE ONLY POWER THAT PASSES THROUGH SUCH POINTS IS POWER EXCHANGED BETWEEN WESTERN AND THE GOVERNMENT. YOU STATE THAT THESE CONTENTIONS ARE CONTRARY TO FACT. BY WAY OF ILLUSTRATION, YOU REPORT THAT THE FLOW OF POWER OCCURRED DURING MARCH 1964 TOTALLED 18,733,330 KWH WHICH WAS TRANSMITTED FROM WESTERN'S SYSTEM THROUGH THE POINTS OF INTERCONNECTION DESCRIBED IN CONTRACT 795 INTO THE GOVERNMENT'S SYSTEM. WESTERN'S TRANSACTIONS WITH THE GOVERNMENT DURING THAT MONTH TOTALLED ONLY 16,422,200 KWH. YOU SAY THAT THE DIFFERENCE OF 2,311,100 KWH SIMULTANEOUSLY REENTERED WESTERN'S SYSTEM THROUGH OTHER INTERCONNECTIONS, MINGLED WITH OTHER POWER AND WAS DELIVERED BY WESTERN TO THE POINTS OF DELIVERY. ACCORDINGLY, YOU CONCLUDE THAT:(1) SOME OF THE POWER DELIVERED BY WESTERN TO THE POINTS OF DELIVERY DOES, INDEED, PASS THROUGH POINTS OF INTERCONNECTION AND IS RECORDED AT SUCH POINTS; (2) NOT ALL OF THE POWER THAT PASSES THROUGH THE POINTS OF INTERCONNECTION IS, IN FACT, EXCHANGED BETWEEN WESTERN AND THE GOVERNMENT; (3) ALL OF THE POWER THAT WESTERN DELIVERS TO THE POINTS OF DELIVERY DOES NOT, IN FACT, BYPASS EVERY SINGLE POINT OF INTERCONNECTION; AND (4) ALL OF THE POWER FROM WESTERN'S GENERATING PLANTS THAT PASSES THROUGH THE POINTS OF INTERCONNECTION DOES NOT, IN FACT, REPRESENT SALES TO SPA OR PURCHASES FROM SPA.

IN YOUR LETTER OF MAY 10, 1965, YOU ALSO TAKE EXCEPTION TO CERTAIN CONTENTIONS SET FORTH IN WESTERN'S LETTER OF OCTOBER 13, 1964. IN THAT LETTER WESTERN DISCUSSED FACTOR "E" AND THE TERM ,CAUSED TO BE DELIVERED" AND CONCLUDED WITH THE OBSERVATIONS THAT:

"APPARENTLY, YOU CONTEND THAT WE "CAUSE TO BE DELIVERED" POWER YOU ARE SELLING TO WESTERN, BUT NOT TO OTHER CUSTOMERS OF THE GOVERNMENT. HOW WE COULD "CAUSE" YOUR POWER TO BE DELIVERED INTO THE TRANSMISSION FACILITIES IS BEYOND COMPREHENSION AS WE HAVE ABSOLUTELY NO CONTROL OVER YOUR OPERATIONS.'

IN REBUTTAL TO THIS ARGUMENT YOU SAY:

"THE FOLLOWING FACTS ARE NOT "BEYOND COMPREHENSION" BUT READILY UNDERSTANDABLE BY THOSE VERSED IN POWER SYSTEM OPERATION:

"A. THE LOADS OF WESTERN AND THEIR CUSTOMERS ARE SERVED FROM THE "TRANSMISSION FACILITIES.'

"B. IF THE POWER GENERATED BY WESTERN'S GENERATING PLANTS ISLESS THAN THE AMOUNT DRAWN FROM THE "TRANSMISSION FACILITIES," POWER WILL FLOW INTO THESE "TRANSMISSION FACILITIES" THROUGH THE POINTS OF INTERCONNECTION.

"C. THEREFORE, WESTERN CAN CAUSE POWER TO BE DELIVERED INTO THE "TRANSMISSION FACILITIES" AT ANY TIME BY ADDING LOAD TO THE "TRANSMISSION FACILITIES" OR BY ADJUSTING THE GENERATION OF WESTERN'S GENERATING PLANTS.'

YOUR LETTER OF MAY 10 CONCLUDES WITH A DETAILED EXPOSITION OF YOUR ADMINISTRATION'S POSITION IN THE MATTER. PERTINENT PARTS THEREOF READ AS FOLLOWS:

"AS STATED EARLIER IN THIS LETTER, WE CONSIDER THAT A STATEMENT OF OBJECTIVES, CIRCUMSTANCES, AND CONDITIONS EXISTING AT THE TIME CONTRACT PROVISIONS WERE BEING DEVELOPED WOULD PROVIDE A MORE MEANINGFUL CONCEPT OF THE CONTRACTS. * * *

"PRIOR TO CONTRACTS * * * 795 AND * * * 794, SPA DELIVERED POWER TO THE MEMBER COOPERATIVES OF WESTERN AT DESIGNATED POINTS OF DELIVERY, COMMONLY REFERRED TO AS THEIR LOAD CENTERS, WITH BILLING COMPUTED BY APPLICATION OF SPA BASIC RATE SCHEDULES. IN MOVING FROM THESE SIMPLE ACCOUNTING SITUATIONS, TO THE MORE COMPLEX SITUATIONS, BROUGHT ABOUT BY THE FULL INTEGRATION OF THE SPA AND THE WESTERN FACILITIES, THE ELIMINATION OF THE SPA OPTION TO PURCHASE WESTERN FACILITIES, AND THE PERFORMANCE OF OPERATION AND MAINTENANCE ACTIVITIES BY WESTERN, IT WAS NECESSARY TO GIVE CONSIDERATION TO THE FOLLOWING:

"A. THE NEED TO COMPENSATE SPA AND WESTERN FOR POWER AND ENERGY SUPPLIED IN PROPORTION TO THEIR INDIVIDUAL CONTRIBUTION UNDER PROVISION OF THEIR CONTRACTUAL RELATIONSHIPS.

"B. THE NEED TO SERVE OFF OF THE "TRANSMISSION FACILITIES," FIVE KINDS OF LOADS, (1) MEMBER COOPERATIVES OF WESTERN; (2) SPA CUSTOMERS; (3) CUSTOMERS OF WESTERN SERVED OFF OF EXTENDED ,TRANSMISSION FACILITIES; " (4) WESTERN AS A CUSTOMER OF SPA; AND (5) SPA AS A CUSTOMER OF WESTERN.

"C. AN OBLIGATION RETAINED BY SPA TO PROVIDE WESTERN WITH FUNDS IN COMPENSATION FOR USE OF THEIR FACILITIES SUFFICIENT TO AMORTIZE THE COST OF THE "TRANSMISSION FACILITIES" BUT NOT THE EXTENDED FACILITIES WHICH WERE TO BE CONSTRUCTED AT A LATER DATE.

"D. A PROVISION TO COMPENSATE WESTERN FOR THE COST OF OPERATION AND MAINTENANCE OF THE ,TRANSMISSION FACILITIES" IN THE DELIVERY OF POWER FROM SPA AT THE POINTS OF INTERCONNECTION TO THE POINTS OF DELIVERY.

"E. RESERVE FOR WESTERN THE RIGHT TO INTERCONNECT TRANSMISSION LINE SEGMENTS OR SYSTEMS WITH THEIR "TRANSMISSION FACILITIES" WITHOUT PENALTY WHEN THE INTERCONNECTION WAS FOR THE EXPRESS PURPOSE OF IMPROVING SYSTEM OPERATION BY SUCH BENEFITS AS SYSTEM STABILIZATION OR CONTINUITY OF SERVICE.

"TO SATISFY THE REQUIREMENT TO COMPENSATE BOTH SPA AND WESTERN FOR THE POWER WHICH EACH FURNISHED TO SERVE ALL OF THE CUSTOMERS, IT WAS NECESSARY TO MOVE BACK FROM MEASURING POWER AT ONLY THE POINTS OF DELIVERY, TO MEASURING POWER ALSO AT THE POINTS OF INTERCONNECTION BETWEEN SPA AND WESTERN SYSTEMS AND AT THE SUBSTATION, SWITCHING STATION, OR OTHER POINTS WHERE POWER FROM SOURCES OF WESTERN WERE CONSIDERED TO ENTER THE "TRANSMISSION FACILITIES.'

"IN SYSTEM OPERATIONS OF THIS NATURE, CERTAIN BENEFITS ACCRUE TO THE SUPPLIERS AS A RESULT OF THE DIVERSITY OF LOAD TO THE SEVERAL CUSTOMERS, AND CERTAIN LOSSES OCCUR IN THE TRANSMISSION OF POWER, DEPENDING ON THE SIZE OF THE SYSTEM AND THE MAGNITUDE OF THE LOADS SERVED. TO DEVELOP THE FORMULA FOR COMPUTING TRANSMISSION CHARGES IN THIS INSTANCE, THE BENEFITS FROM DIVERSITY WERE CONSIDERED TO OFFSET THE LOSSES AND NO PROVISION WAS INCORPORATED IN THE FORMULA TO REFLECT THESE FACTORS.

"THE FORMULA AGREED UPON FOR COMPENSATING WESTERN FOR TRANSMISSION AND SERVICES PERFORMED FOR THE GOVERNMENT IS SET FORTH IN ARTICLE II, SECTION 5, ALONG WITH A DEFINITION OF TERMS, A PROVISION FOR REVIEW AND REDETERMINATION OF FACTOR "A," AND A COVENANTS WITH REGARD TO THE REPLACEMENT COMPONENT OF FACTOR "A.'

"THE FORMULA IS AS FOLLOWS:

(FORMULA OMITTED) AND IS COMPOSED OF THREE COMPONENTS ADDED TOGETHER TO CONSTITUTE THE TOTAL TRANSMISSION AND SERVICE CHARGE.

"THE FIRST COMPONENT WAS DESIGNED TO PROVIDE PAYMENT TO WESTERN THAT WOULD COMPENSATE THEM FOR AMORTIZATION OF THE COST OF SPECIFIC SEGMENTS OF THEIR "TRANSMISSION FACILITIES," (WITH PROVISIONS FOR CHANGING THE ITEM RELATED TO INVESTMENT WHEN, OR IF, CERTAIN ADDITIONS WERE PUT INTO OPERATION) MULTIPLIED BY THE RATIO OF ITS CAPACITY IN KW TO ITS ACTUAL USE.

"AT THE TIME THIS CONTRACT WAS ACTIVATED, THE ONLY CUSTOMERS SERVED WERE THOSE WHICH WERE LOCATED ON THE "TRANSMISSION FACILITIES" AS DESCRIBED IN THE CONTRACT AND ILLUSTRATED BY EXHIBIT ,1" OF THE CONTRACT. THEREFORE, IN ADMINISTRATION OF THE CONTRACT AT THIS TIME, NO SPECIAL NEED AROSE TO QUESTION WHETHER THE LOADS TO BE INCLUDED IN FACTOR "B" WERE ONLY THOSE EXISTING AT THE POINTS OF DELIVERY AS LISTED IN CONTRACT * * * 794 OR THOSE LOADS REFLECTED BY ALL OF THE POWER DELIVERED INTO THE "TRANSMISSION FACILITIES.' SINCE LOSSES WERE NOT INCLUDED AS AN ITEM FOR CONSIDERATION IN THE FORMULA (BEING OFFSET BY THE BENEFITS OF DELIVERY) IT BECAME COMMON PRACTICE TO REFER TO THE POWER DELIVERED INTO THE SYSTEM AS BEING THE SAME AMOUNT AS THAT DELIVERED TO THE CUSTOMERS AT THE POINTS OF DELIVERY.

"WHEN THE WESTERN SYSTEM WAS ENLARGED WITH ADDITIONAL SOURCES OF POWER AND EXTENDED TRANSMISSION LINES AND RELATED FACILITIES, THE POWER ACCOUNTING COMPUTATIONS BECAME MORE COMPLEX. IN ANTICIPATION OF THE ENLARGED SYSTEMS, WESTERN PROPOSED THAT FACTOR "B" BE LIMITED TO EXCLUDE THE LOADS AT POINTS OF DELIVERY ON THE EXTENDED "TRANSMISSION FACILITIES.'

"SPA MAINTAINED, AS IT ALWAYS HAD, THAT THE TRANSMISSION AND SERVICE FORMULA WAS DEVELOPED TO REFLECT AN INCREMENT FOR USE OF THE "TRANSMISSION FACILITIES" BASED UPON THE COST OF THE ,FACILITIES" MULTIPLIED BY THE RATIO OF ITS CAPACITY TO ITS ACTUAL USE FOR ALL OF THE POWER PUT INTO THE "TRANSMISSION FACILITIES" BY BOTH SPA AND WESTERN. THIS IS THE FIRST COMPONENT OF THE TRANSMISSION AND SERVICE FORMULA. THIS COMPONENT INCLUDES FACTOR "B" WHICH, IN OUR OPINION IS NOT SUBJECT TO MISINTERPRETATION. THE TERM "B" IS DEFINED AS:

"AN AMOUNT IN KILOWATTS ... FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY THE GOVERNMENT AND WESTERN ...' IN CLEAR AND DISTINCT LANGUAGE. ANY OTHER MEANING SUCH AS CONTENDED BY WESTERN MUST BE DERIVED THROUGH A DISTORTION OF WORK DEFINITION, OR BY REJECTING THE PREMISE THAT THE PARTIES TO THE CONTRACT WERE CAPABLE OF UNDERSTANDING THE MEANING OF THE WORDS AS WRITTEN. "IT IS OUR CONTENTION THAT THE FIRST COMPONENT OF THE FORMULA IS A SIMPLE, STRAIGHT-FORWARD, AND LOGICAL MATHEMATICAL EXPRESSION TO PROVIDE FOR AMORTIZATION OF THE COST OF THE FACILITIES WITH PAYMENT TO BE MADE IN PROPORTION TO THE USE OF THE FACILITIES.

"WHEN PROPOSING TO ENLARGE THE "TRANSMISSION FACILITIES" TO SERVE ADDITIONAL CUSTOMERS AND TO INSTALL ADDITIONAL GENERATING CAPACITY, WESTERN BECAME ACTIVELY AWARE OF THE CHANGE IN PAYMENTS THAT WOULD RESULT, AND PROPOSED THAT LOADS OF THE ADDITIONAL CUSTOMERS BE OMITTED FROM THE CALCULATIONS INVOLVING FACTOR "B.' IN THE RESULTING DISCUSSIONS AND NEGOTIATIONS, THE LETTER FROM MR. NEIL ADAMS, DATED JULY 1960, WAS WRITTEN ADVISING THAT LOADS ON THE EXTENDED ,TRANSMISSION FACILITIES" WOULD BE INCLUDED IN FACTOR "B" EXCEPT FOR THOSE LOADS SERVED FROM FACILITIES WHICH MIGHT BE ADDED ONLY FOR SUCH BENEFITS AS SYSTEM STABILIZATION OR CONTINUITY OF SERVICE.

"THE SECOND COMPONENT WAS A SERVICE CHARGE OF $0.80 PER KW FOR USE OF THE "TRANSMISSION FACILITIES" IN SERVING CUSTOMERS OF THE GOVERNMENT AT A VOLTAGE OTHER THAN 69 KV. THIS CHARGE INCLUDED AN INCREMENT OF $0.10 PER KW TO PROVIDE ADDITIONAL COMPENSATION FOR THE COST OF TRANSFORMATION OF VOLTAGE FROM THE 69 KV NOMINAL VOLTAGE DESIGNATED FOR THE "TRANSMISSION FACILITIES.'"

"THE THIRD COMPONENT WAS A SERVICE CHARGE OF $0.70 PER KW FOR USE OF THE "TRANSMISSION FACILITIES" SERVING CUSTOMERS OF THE GOVERNMENT AT 69 KV WHICH WAS DESIGNATED AS THE NOMINAL VOLTAGE OF THE "TRANSMISSION FACILITIES.'

ON THE BASIS OF THE FOREGOING, IT APPEARS THAT THE PRIMARY QUESTION INVOLVED IN THE INTERPRETATION OF FACTOR "B" IS WHETHER THE LOADS AT POINTS OF DELIVERY ON THE EXTENDED ,TRANSMISSION FACILITIES" SHOULD BE EXCLUDED FROM THE COMPUTATION OF FACTOR B. WESTERN CONTENDS THAT THE APPLICATION OF THE FORMULA IN SECTION 5, ARTICLE II, OF THE TRANSMISSION CONTRACT APPLIES ONLY TO THE TRANSMISSION FACILITIES OUTLINED ON THE MAP ATTACHED TO THE CONTRACT AS DEFINED IN SECTION 1 (B), ARTICLE II, AND SINCE THE EXTENDED FACILITIES ARE NOT SHOWN ON SUCH MAP THE FORMULA CANNOT TAKE THEM INTO ACCOUNT. FOR THE REASONS STATED BELOW WE ARE OF THE OPINION THAT FACTOR B" CANNOT BE INTERPRETED SO AS TO EXCLUDE THEREFROM THE LOADS AT THE POINTS OF DELIVERY ON THE EXTENDED TRANSMISSION FACILITIES BUT MUST INCLUDE THEREIN ALL OF THE POWER PUT INTO THE TRANSMISSION FACILITIES BY BOTH SPA AND WESTERN.

WESTERN INITIALLY STATES THAT UNDER THE ROUGH DRAFT DATED APRIL 23, 1957, OF THE TRANSMISSION CONTRACT, THERE WOULD HAVE BEEN NO REDUCTION IN THE PAYMENTS UNDER THE TRANSMISSION FORMULA UNTIL AFTER WESTERN WAS PURCHASING 90,000 KILOWATTS OF POWER FROM SPA, AND THAT NOWHERE IN THE DEFINITION OF ITEMS IN THE FORMULA WAS THE PAYMENT TO BE REDUCED FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY WESTERN. WESTERN FURTHER STATES THAT THIS WAS THE LAST ROUGH DRAFT OF THE AGREEMENT IT HAD AVAILABLE PRIOR TO FINAL COMPLETION OF THE CONTRACT, AND THAT THE RECORD INDICATES THE CONTRACT WAS COMPLETED THROUGH A SERIES OF DISCUSSIONS BETWEEN THE PARTIES.

THE ONLY EVIDENCE IN THE RECORD BEFORE US WHICH HAS ANY BEARING ON THE INTENT OF THE PARTIES AFTER THE ROUGH DRAFT AND PRIOR TO EXECUTION OF THE CONTRACT (JUNE 11, 1957) IS A COPY OF A MEMORANDUM DATED JUNE 5, 1957, FROM THE ADMINISTRATOR, SPA TO THE ASSISTANT SECRETARY--- WATER AND POWER DEVELOPMENT DESCRIBING THE PRINCIPLE POINTS COVERED IN THE TRANSMISSION AND POWER CONTRACTS. (IT SHOULD BE NOTED THAT BY LETTER DATED JANUARY 19, 1965, WESTERN WAS INVITED TO SUBMIT ANY CORRESPONDENCE OR DOCUMENTS TO OUR OFFICE IN SUPPORT OF ITS POSITION, BUT FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCE RELATING TO THE NEGOTIATIONS OF THE PARTIES PRIOR TO EXECUTION OF THE TRANSMISSION CONTRACT.) THE MEMORANDUM OF JUNE 5, 1957, INDICATES (PARAGRAPHS 4 AND 5), THAT TWO OF THE PRINCIPAL POINTS TO BE COVERED IN THE TRANSMISSION CONTRACT WERE (1) THAT THE GOVERNMENT WOULD PAY WESTERN A LUMP SUM TRANSMISSION SERVICE CHARGE FOR THE TRANSMISSION OF GOVERNMENT POWER THROUGH WESTERN'S 69 KV TRANSMISSION FACILITIES, AND (2) THAT WHEN THE LOAD SERVED FROM WESTERN'S 69 KV FACILITIES EXCEEDED 92,000 KW, THE LUMP SUM PAYMENT WOULD BE REDUCED IN PROPORTION TO THE AMOUNT THE LOAD EXCEEDED 92,000 KW. AN ANALYSIS OF THE SERVICE CHARGE FORMULA SET FORTH IN THE SUBSEQUENTLY EXECUTED TRANSMISSION CONTRACT (SECTION 5, ARTICLE II) INDICATES THAT THESE TWO POINTS, AS INTENDED BY THE GOVERNMENT, WERE ACTUALLY INCORPORATED THEREIN. FACTOR "S" OF THE FORMULA IS DEFINED AS THE AMOUNT DUE WESTERN FOR ANY PARTICULAR MONTH, OR THE AMOUNT SPECIFIED UNDER FACTOR "A," BELOW, WHICHEVER AMOUNT IS THE LESSER. FACTOR "A" IS DEFINED AS EITHER ONE OF TWO SUMS -- $80,800 OR $84,750--- DEPENDING UPON THE OCCURRENCE OF A CONDITION DESCRIBED THEREIN. A DOCUMENT SHOWING THE BASIS FOR THE LUMP SUM PAYMENT WAS ATTACHED TO THE MEMORANDUM AND THE COMPUTATIONS SHOWN THEREON INDICATE CONCLUSIVELY THAT THE FIRST PRINCIPLE REGARDING THE LUMP SUM PAYMENT WAS EMBODIED AS FACTOR "A" IN THE SERVICE CHARGE FORMULA OF THE TRANSMISSION CONTRACT. FACTOR "B" OF THE FORMULA IS DEFINED AS "AN AMOUNT IN KILOWATTS EQUAL TO MAXIMUM * * * DEMANDS AT THE POINTS OF DELIVERY * * * FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY THE GOVERNMENT AND WESTERN, OR 92,000 KILOWATTS, WHICHEVER AMOUNT IS GREATER.' AN ANALYSIS OF THE FORMULA AS SHOWN ON TWO EXAMPLES OF THE APPLICATION OF THE FORMULA WHICH WERE SUBMITTED WITH WESTERN'S LETTER OF FEBRUARY 1, 1965, SHOWS THAT WHEN FACTOR "B" EXCEEDS 92,000 KILOWATTS THE LUMP SUM PAYMENT SET FORTH IN FACTOR "A" IS REDUCED IN PROPORTION TO THE AMOUNT THAT THE LOAD EXCEEDS 92,000 KILOWATTS, WHICH IS PRECISELY WHAT WAS DESCRIBED AS INTENDED IN THE MEMORANDUM. ACCORDINGLY, WHILE THE FORMULA IN THE ROUGH DRAFT, AS WESTERN CONTENDS, DID NOT PROVIDE FOR A REDUCED PAYMENT FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY WESTERN, IT MUST BE CONCLUDED THAT THE GOVERNMENT INTENDED THAT IT SHOULD BE SO REDUCED AND IN DEFINING FACTOR "B" ACTUALLY PROVIDED FOR SUCH REDUCTION, SINCE FACTOR "B" STATES EXPLICITLY THAT THE AMOUNT IN KILOWATTS SHALL BE MEASURED BY THE DEMANDS AT THE POINTS OF DELIVERY "FOR POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY THE GOVERNMENT AND WESTERN *

WESTERN ALSO CONTENDS THAT THE TWO LETTERS FROM SPA TO WESTERN DATED JULY 19, 1960, AND DECEMBER 1, 1961, SUPPORT ITS POSITION THAT THE FORMULA APPLIES ONLY TO THE TRANSMISSION FACILITIES OUTLINED ON THE MAP ATTACHED TO THE CONTRACT. WE DO NOT READ THESE TWO LETTERS AS SUPPORTING WESTERN'S POSITION. THE LETTER OF JULY 19 DOES NOT STATE THAT LOADS SERVED FROM WESTERN'S EXTENDED TRANSMISSION SYSTEM WILL NOT BE INCLUDED IN THE COMPUTATION OF FACTOR "B" IN ANY OR ALL CIRCUMSTANCES, BUT ONLY WHEN SUCH EXTENDED SYSTEM IS INTERCONNECTED WITH THE TRANSMISSION FACILITIES FOR PURPOSES SUCH AS CONTINUITY OF SERVICE AND SYSTEM STABILIZATION. CONVERSELY, BY IMPLICATION, THE LETTER INDICATES THAT IF THE EXTENDED SYSTEM IS INTERCONNECTED FOR OTHER PURPOSES SUCH SYSTEM WILL BE INCLUDED IN THE COMPUTATION OF FACTOR "B.' THE LETTER OF DECEMBER 1, WHEREIN IT IS STATED THAT THE VALUE OF FACTOR "B" REPRESENTS WESTERN'S LOAD SERVED FROM THE TRANSMISSION FACILITIES AS DEFINED IN SECTION 1 (B), ARTICLE II, OF THE TRANSMISSION AGREEMENT, IS IN OUR OPINION, EQUIVOCAL AT BEST. THE LETTER WAS WRITTEN WITH THE PURPOSE IN MIND OF AMENDING THE TRANSMISSION CONTRACT TO RESOLVE THE DIFFERENCES BETWEEN THE PARTIES ON THE INTERPRETATION OF THE TRANSMISSION PAYMENT FORMULA AND IT SETS FORTH CERTAIN PROPOSALS TO THAT END. WHEN THE ISOLATED STATEMENT UPON WHICH WESTERN RELIES IS READ IN CONTEXT WITH THE REST OF THE LETTER, IT BECOMES APPARENT THAT THE STATEMENT IS NOTAN EXPRESSION OF SPA'S THEN CURRENT AND UNQUALIFIED OPINION AS TO THE VALUE OF FACTOR "B.'

WESTERN NEXT NOTES THAT SECTION 10, ARTICLE II OF THE POWER CONTRACT (794) STATES THE POINTS OF DELIVERY AT WHICH POWER WILL BE DELIVERED TO WESTERN AND ASSERTS THAT THE TRANSMISSION PAYMENT FORMULA REFERS TO THE MOVEMENT OF POWER FROM THE POINT WHERE IT ENTERS THE TRANSMISSION FACILITIES TO ITS DESTINATION AT THE POINTS OF DELIVERY SPECIFIED IN SECTION 10, ARTICLE II, OF THE POWER CONTRACT. WESTERN CONCEDES THAT WHILE IT MIGHT BE ARGUED THAT SECTION 3, ARTICLE II, OF THE TRANSMISSION CONTRACT REFERS TO THE POINTS OF DELIVERY AS INCLUDED IN SECTION 5 (PAYMENT FORMULA) OF THE SAME ARTICLE, IT CONTENDS THAT THE LANGUAGE UNDER SECTION 3 MERELY OUTLINES THE ORIGINATING POINT FOR THE DELIVERY OF POWER BY OR FOR THE ACCOUNT OF THE GOVERNMENT AND THAT NO MENTION IS MADE IN THIS SECTION OF POWER DELIVERED BY WESTERN.

THE POWER CONTRACT IS A SEPARATE AND INDEPENDENT INSTRUMENT AND PROVIDES FOR THE SALE OF POWER, BOTH PARTIES THEREUNDER BEING SELLER AND BUYER. THERE IS NOTHING IN THE TRANSMISSION CONTRACT (795) OR THE POWER CONTRACT (794), FOR THAT MATTER, TO INDICATE THAT THE PARTIES INTENDED THAT THE POINTS OF DELIVERY SPECIFIED IN THE POWER CONTRACT WERE TO BE APPLICABLE TO THE TRANSMISSION PAYMENT FORMULA. WHILE IT IS TRUE, AS WESTERN STATES, THAT SECTION 3, ARTICLE II, OF THE TRANSMISSION CONTRACT DOES NOT MENTION POWER DELIVERED BY WESTERN, WE FAIL TO SEE THE SIGNIFICANCE OF THAT FACT SINCE THE CONTROLLING LANGUAGE HERE IS THAT USED IN FACTOR "B," WHICH CLEARLY DOES REFER TO POWER DELIVERED INTO THE TRANSMISSION FACILITIES BY WESTERN.

WESTERN CONTENDS THAT FACTOR "E" INCLUDES ONLY POWER DELIVERED BY WESTERN OR PURCHASED FROM SOME SOURCE OTHER THAN SPA WHEREAS IT IS APPARENTLY YOUR POSITION, ACCORDING TO WESTERN, THAT FACTOR "E" INCLUDES THE AMOUNT OF POWER DELIVERED BY SPA TO WESTERN. YOU SAY THAT WESTERN CAN CAUSE POWER TO BE DELIVERED INTO THE TRANSMISSION FACILITIES AT ANY TIME BY ADDING LOAD TO THE TRANSMISSION FACILITIES OR BY ADJUSTING THE OUTPUT OF WESTERN'S GENERATING PLANTS. IN VIEW THEREOF, WE SEE NO BASIS FOR CONCLUDING THAT FACTOR "E" INCLUDES ONLY THAT POWER DELIVERED BY WESTERN OR PURCHASED FROM SOME SOURCE OTHER THAN SPA. THE PHRASE "CAUSE TO BE DELIVERED" IS BROAD AND APPEARS TO CONTEMPLATE SOMETHING MORE THAN THE MERE DELIVERY OF PURCHASED POWER FROM SOME SOURCE OTHER THAN SPA SINCE SUCH PURCHASED POWER WOULD STILL BE POWER DELIVERED BY WESTERN AND NOT NECESSARILY POWER THAT IS "CAUSE TO BE DELIVERED.' IN OUR OPINION, THE PHRASE "CAUSED TO BE DELIVERED" MUST CONTEMPLATE THE VERY SITUATION WHICH YOU DESCRIBE; THAT IS, POWER CAUSED TO BE DELIVERED BY WESTERN BY ADDING LOAD TO THE TRANSMISSION FACILITIES OR BY ADJUSTING THE OUTPUT OF WESTERN'S GENERATING PLANTS.

FINALLY, WE NOTE THAT THE IDENTICAL TRANSMISSION PAYMENT FORMULA, UNDER CONSIDERATION HERE, WAS EMPLOYED BY SPA IN A CONTRACT WITH CENTRAL ELECTRIC POWER COOPERATIVE (CONTRACT NO. 14-02-001-797) WHICH WAS ENTERED INTO ON THE SAME DATE AS CONTRACT 795 WITH WESTERN. WE HAVE BEEN ADVISED INFORMALLY BY REPRESENTATIVES OF YOUR ADMINISTRATION THAT WESTERN AND CENTRAL CONTRACTS WERE THE ONLY TWO WHICH UTILIZE THIS FORMULA AND THAT NO OTHER SPA CONTRACTS CONTAIN PAYMENT FORMULAS COMPARABLE WITH THESE. DETERMINING WHICH INTERPRETATION OF THE CONTRACT IS MORE REASONABLE, IT IS SIGNIFICANT, WE THINK, THAT CENTRAL CONSTRUES ITS PAYMENT FORMULA PRECISELY AS YOU SAY THE WESTERN FORMULA SHOULD BE CONSTRUED. THIS IS SHOWN BY AN EXCHANGE OF LETTERS BETWEEN WESTERN AND CENTRAL. ON MAY 26, 1961, THE GENERAL MANAGER OF WESTERN SENT THE FOLLOWING LETTER TO THE GENERAL MANAGER OF CENTRAL:

"A QUESTION OF INTERPRETATION HAS ARISEN WITH SPA ON THE PAYMENT FOR TRANSMISSION SERVICE UNDER OUR TRANSMISSION SERVICE AGREEMENT WITH SPA.

"SPA HAS TAKEN THE POSITION THAT FACTORS IN THE FORMULA C PLUS D ALWAYS EQUAL B MINUS E. WE DO NOT SEE HOW SUCH A CONCLUSION CAN BE REACHED FROM THE CONTRACT LANGUAGE AND ARE TRYING TO DEVELOP THE INTENT OF THE PARTIES AT THE TIME THE FORMULA WAS ADOPTED FOR USE IN CENTRAL'S AND WESTERN'S CONTRACTS. MR. NEIL ADAMS THINKS THAT YOU MAY HAVE A COMPLETE ANALYSIS OF THE FORMULA THAT WAS MADE IN 1957 WHEN THE CONTRACTS WERE SIGNED. IF SO, WE SHOULD APPRECIATE YOUR SENDING US A COPY OF THE ANALYSIS.

"IN ANY EVENT, IT IS SUGGESTED THAT YOU TRY THE FORMULA FOR VARIOUS CONDITIONS AFTER THE LOAD ON YOUR 69 KV SYSTEM EXCEEDS 45,000 KW. UNDER CERTAIN CONDITIONS, THE FORMULA RESULTS IN AN INCREASE IN TRANSMISSION PAYMENT OVER THE BASIC FIGURE. IN YOUR CASE, ASSUME SPA DELIVERS 40,000 KW OF HYDRO POWER OVER YOUR 69 KV SYSTEM FOR YOUR LOAD, YOU DELIVERY 40,000 KW FROM YOUR PLANT TO YOUR LOAD AND SPA DELIVERS 10,000 KW OF ITS POWER TO CUSTOMERS OF THE GOVERNMENT AT 69 KV OTHER THAN CENTRAL. FOR SAKE OF SIMPLICITY, ASSUME FACTOR A EQUALS $50,000. UNDER THIS EXAMPLE, THE PAYMENT FOR TRANSMISSION SERVICES TO CENTRAL WOULD COME OUT TO $61,000 MONTHLY. UNDER SPA'S INTERPRETATION THE PAYMENT WOULD BE $33,000.

"IF YOU AGREE WITH OUR INTERPRETATION, WE SHOULD JOIN FORCES IN AN EFFORT TO RESOLVE THIS ISSUE WITH SPA.'

IN RESPONSE TO THE ABOVE LETTER, THE GENERAL MANAGER OF CENTRAL SENT THE FOLLOWING LETTER DATED MAY 31, 1961, TO THE GENERAL MANAGER OF WESTERN:

"OUR UNDERSTANDING OF THE FORMULA IN OUR TRANSMISSION CONTRACT IS THE SAME AS THAT OF SPA.

"IN THE EXAMPLE YOU SENT US, IT WOULD BE AS FOLLOWS:

TABLE

A EQUALS $50,000

B EQUALS 90,000 KILOWATTS

C EQUALS 10,000 KILOWATTS DELIVERED TO A GOVERNMENT LOAD

AT A VOLTAGE BELOW 69 KV D EQUALS ZERO IN THIS CASE, BUT WOULD BE ANY GOVERNMENT LOAD

DELIVERED AT THE 69 KV VOLTAGE

E EQUALS 80,000 KILOWATTS, WHICH IS 40,000 FROM SPA AND

40,000 FROM OUR OWN SOURCES

* * * * * * * * * * * * * * (TABLE OMITTED) * * * * * * * * * * * * * *

"IT IS TRUE THAT C PLUS D DOES EQUAL B MINUS E AND REPRESENTS THE TOTAL GOVERNMENT LOAD OTHER THAN CENTRAL'S OWN LOAD.

"WE HAVE ALWAYS ESTIMATED THAT ONCE THE 69 KV SYSTEM BECAME FULLY LOADED, OUR UNIT COST PER KILOWATT HOUR WOULD BE MUCH LESS THAN DURING THE EARLY YEARS; CONSEQUENTLY, WE WOULD ABSORB MORE OF OUR OWN COST.

"NO DOUBT YOU ARE MAKING CONSIDERABLE PROFIT OR MARGIN ON THAT POWER FROM YOUR 44 MW UNIT AS COMPARED TO THE SPA F-1 RATE. THIS PROFIT SHOULD GO TO PAY YOUR OWN 69 KV TRANSMISSION COST RATHER THAN ASKING THE OTHER CUSTOMERS OF SPA TO PAY YOUR TRANSMISSION COST AS THEY ARE NOW NG.'

ON THE BASIS OF THE FOREGOING ANALYSIS, WE MUST ADVISE THAT WESTERN'S CLAIM FOR $89,092.45 REPRESENTING DISALLOWED TRANSMISSION SERVICE CHARGES FOR THE PERIOD JULY 1, 1963, TO JULY 31, 1964, IS NOT VALID UNDER THE TERMS OF THE CONTRACT AND SHOULD NOT BE PAID.

THE SECOND CLAIM UNDER CONTRACT 795 IS FOR $23,547.33 AND APPLIES, YOU SAY, TO THE MONIES THAT WESTERN HAS CONTRIBUTED TOU.S. SOCIAL SECURITY AND OLD AGE PROGRAMS. YOU REPORT THAT IN ONE YEAR, 1959, WESTERN INCLUDED $2,800.13 AS A "TAX ADJUSTMENT" IN THE INVOICE FOR THE MONTH OF JUNE 1959 AND THAT THIS WAS DISALLOWED BY AN AUDIT DIFFERENCE STATEMENT DATED SEPTEMBER 9, 1959, ON THE BASIS THAT THERE WERE "CONTRIBUTIONS" AND NOT "TAXES.' YOU SAY IT IS "PRESUMED" THAT THE $23,547.33 CLAIM APPLIES TO SIMILAR PAYMENTS BY WESTERN WHICH IT HAS NOT INCLUDED IN ITS SERVICE CHARGE INVOICES. IN THAT CONNECTION, BY LETTER OF JANUARY 19, 1965, OUR OFFICE REQUESTED WESTERN TO SUBMITA DETAILED ITEMIZED STATEMENT ON THE MAKE-UP OF THE TAX CLAIM. SUCH A STATEMENT WAS SUBMITTED SHOWING THAT WESTERN'S CLAIM FOR $23,547.33 COVERS THE PERIOD JULY 1, 1957 THROUGH JUNE 30, 1963. A COPY OF THIS STATEMENT WAS SUBMITTED TO YOUR ADMINISTRATION FOR APPROPRIATE COMMENTS BUT YOUR LETTER OF MAY 10, 1965, OFFERED NO COMMENTS WITH RESPECT TO THE ACCURACY OF WESTERN'S TAX STATEMENT AS TO THE AMOUNT OR SOURCE OF THE FIGURES LISTED THEREON. ACCORDINGLY, FOR OUR PURPOSES HERE, IT WILL BE PRESUMED THAT WESTERN'S STATEMENT IS ACCURATE AND OUR CONCLUSIONS STATED HEREAFTER ARE PREDICATED UPON AN ASSUMPTION THAT WESTERN'S STATEMENT WILL BE VERIFIED BY AN AUDIT PERFORMED BY YOUR ADMINISTRATION PRIOR TO ANY PAYMENT OF THE CLAIM.

THE BASIS OF WESTERN'S TAX CLAIM IS SET FORTH IN ITS LETTER OF OCTOBER 13, 1964, AS FOLLOWS:

"YOU HAVE ALSO BEEN TAKING AN AUDIT EXCEPTION TO THE AMOUNT WE INCLUDE UNDER TAXES, FACTOR T OF THE FORMULA IN ARTICLE II, 5 (B). THE EXCEPTION DISALLOWS TAXES PAID FOR U.S. SOCIAL SECURITY--- UNEMPLOYMENT, U.S. SOCIAL SECURITY--- OLD AGE BENEFITS. UNDER THE MODIFIED SYSTEM OF FEDERAL POWER COMMISSION ACCOUNTS THAT WE USE TAXES ARE DEFINED AS THE AMOUNT PAID FOR SUCH PURPOSES TO FEDERAL AND STATE, COUNTY, AND MUNICIPAL BODIES. THE TAX ACCOUNT NO. 408 IS BROKEN DOWN INTO PROPERTY, U.S. SOCIAL SECURITY, STATE SOCIAL SECURITY AND GROSS REVENUE TAX. IN THE ABSENCE OF AN EXCLUSION, IT IS OUR OPINION THAT ALL TAXES CHARGED TO THE TAX ACCOUNT SHOULD BE CONSIDERED IN THE FORMULA AND NOT MERELY PROPERTY AND GROSS RECEIPT TAXES. IN DEVELOPING THE INTENT OF THE PARTIES AT THE TIME THE CONTRACT WAS EXECUTED, IT WAS CONCLUSIVE THAT IT WAS OUR INTENTION TO INCLUDE ALL TAXES IN FACTOR T AND NOT MERELY GROSS RECEIPT TAXES. THE CONTRACT STATES SPECIFICALLY THAT THE SUM REPRESENTED BY FACTOR A "IS ALSO BASED ON THE 1956-57 COST OF TAXES, LABOR AND MATERIALS....' FOR 1956, THE TOTAL CHARGE TO OUR TAX ACCOUNT WAS $34,048.38 CONSISTING OF $26,650.42 IN GROSS RECEIPT TAXES, $5,397.96 IN SOCIAL SECURITY AND OLD AGE BENEFITS TAXES. AT THE TIME, THE PERCENTAGE OF THE TOTAL INVESTMENT ASSIGNABLE TO THE TRANSMISSION FACILITIES WAS 65.49 PERCENT. THIS PERCENTAGE APPLIED TO THE TOTAL TAX ACCOUNTS FOR 1956, AMOUNTS TO $20,988.48--- ROUNDING THE FIGURE OFF AT $21,000 RESULTS IN THE DERIVATION OF THE $1,750 MONTHLY TAX FIGURE USED IN ITEM T OF THE FORMULA. THE RECORDS INDICATE THAT A REPRESENTATIVE OF SPA UNDERSTOOD THESE FIGURES AT THE TIME THEY WERE DEVELOPED. EXCEPTION WAS TAKEN ON THE TAX ITEM AT THAT TIME.'

THE POSITION OF YOUR ADMINISTRATION IS SET FORTH IN A MEMORANDUM ADDRESSED TO YOU DATED JANUARY 25, 1960, FROM THE DEPARTMENT OF INTERIOR'S REGIONAL SOLICITOR AT TULSA. THE SOLICITOR STATES THAT IN VIEW OF THE LANGUAGE USED IN THE CONTRACT, IT IS HIS OPINION THAT SPA SHOULD INCLUDE ONLY AD VALOREM TAXES (OR THEIR EQUIVALENT) AS A COMPONENT OF FACTOR T. HE REASONS AS FOLLOWS. ALTHOUGH PAYMENTS IN CONNECTION WITH SOCIAL SECURITY AND OLD AGE BENEFIT PROGRAMS ARE FOR CONVENIENCE LABELED "TAXES," SUCH PROGRAMS ARE ACTUALLY FINANCED BY "CONTRIBUTIONS" FROM WESTERN AND ITS EMPLOYEES IN AMOUNTS BASED UPON THE WAGES PAID. THESE CONTRIBUTIONS ARE USED TO MAINTAIN A FUND FROM WHICH BENEFITS ARE ULTIMATELY RETURNED TO THE CONTRIBUTING EMPLOYEES. IF, IT IS STATED, THE INHERENT NATURE OF THESE CONTRIBUTIONS IS RECOGNIZED, IT FOLLOWS THAT THEY ARE NOT ,TAXES" ANY MORE THAN WOULD BE THE COST OF ANY OTHER EMPLOYEE BENEFIT PROGRAM WHICH WESTERN MIGHT SPONSOR ON ITS OWN INITIATIVE. ACCORDINGLY, IN HIS OPINION, THE "TAXES" INCLUDED UNDER FACTOR T" ARE "THOSE WITHIN THE USUAL DEFINITION OF THE TERMS, I.E., MONIES TAKEN BY THE STATE, IN THE EXERCISE OF ITS SOVEREIGN RIGHTS, FOR THE USE AND SERVICE OF THE STATE.'

IN ADDITION, THE SOLICITOR NOTES THAT FACTOR "T" COVERS ONLY TAXES WHICH ARE "DIRECTLY ASSIGNABLE" TO THE PROPERTY INVOLVED. ONLY AN AD VALOREM TAX (OR ITS EQUIVALENT), HE STATES, FULFILLS THIS REQUIREMENT SINCE IT IS LEVIED WITHOUT CIRCUITY AND WITHOUT RECOURSE TO ANY COLLATERAL OR INTERMEDIARY FORCE. BY WAY OF CONTRAST, THE COST OF SOCIAL SECURITY AND OLD AGE BENEFIT PROGRAMS IS IN VARYING AMOUNTS BASED UPON THE THEN CURRENT WAGES OF WESTERN EMPLOYEES AND, IN HIS OPINION, BEARS AT BEST A REMOTE AND INDIRECT RELATIONSHIP TO THE PROPERTY INVOLVED ONLY BY REASON OF POSSIBLE WORK ASSIGNMENT.

FACTOR "T" OF THE FORMULA SET FORTH IN SECTION 5 (B), ARTICLE II (AS AMENDED ON JUNE 23, 1959), OF THE TRANSMISSION CONTRACT IS DEFINED AS FOLLOWS:

"T EQUALS $1,750, WHICH REPRESENTS AN ESTIMATE OF THE TAXES

PAID BY WESTERN EACH MONTH AND DIRECTLY ASSIGNABLE

TO THE TRANSMISSION FACILITIES * * *"

AS RECOGNIZED IN YOUR AUDIT DIFFERENCE STATEMENTS DATED AUGUST 11 AND SEPTEMBER 9, 1959, THE CONTRACT IS NOT SPECIFIC AS TO THE TYPES OF TAXES WHICH ARE TO BE INCLUDED IN FACTOR T OF THE FORMULA.

THE TERM "TAX" HAS BEEN DEFINED AS "A FORCED BURDEN, CHARGE, EXACTION, IMPOSITION, OR CONTRIBUTION ASSESSED IN ACCORDANCE WITH SOME REASONABLE RULE OF APPORTIONMENT BY AUTHORITY OF A SOVEREIGN STATE UPON THE PERSONS OR PROPERTY WITHIN ITS JURISDICTION TO PROVIDE PUBLIC REVENUE FOR THE SUPPORT OF THE GOVERNMENT, THE ADMINISTRATION OF THE LAW, OR THE PAYMENT OF PUBLIC EXPENSES.' 51 AM.JUR., TAXATION, SEC. 3. THE CONTENTIONS SET FORTH IN THE SOLICITOR'S MEMORANDUM TO THE EFFECT THAT PAYMENTS IN CONNECTION WITH SOCIAL SECURITY AND OLD AGE BENEFIT PROGRAMS ARE NOT TAXES BUT "CONTRIBUTIONS" HAVE BEEN URGED UPON THE COURTS IN THE PAST AND HAVE BEEN REJECTED. SUCH PAYMENTS HAVE BEEN HELD TO BE "TAXES.' SEE CARMICHAEL V. SOUTHERN COAL CO., 301 U.S. 495; STEWARD MACHINE CO. V. DAVIS, 301 U.S. 548; HELVERING V. DAVIS, 301 U.S. 619; W. H. H. CHAMBERLIN, INC. V. ANDREWS, 2 N.E. 2D 22 (N.Y.), AFFIRMED 299 U.S. 515; PETITION OF CITY OF PITTSBURGH, 103 A.2D 722 (PA.); NATIONAL RIFLE ASSOCIATION OF AMERICA V. YOUNG, 134 F.2D 524; STONEWALL CONSTRUCTION COMPANY V. MCLAUGHLIN, 151 A.2D 535 (D.C.MUN.CT. APPEALS); 48 AM.JUR., SOCIAL SECURITY, UNEMPLOYMENT INSURANCE, AND RETIREMENT FUNDS SECS. 3, 4, 32. SEE ALSO, IN RE WM. AKERS, JR., CO., INC., 121 F.2D 846, FOR A COMPREHENSIVE DISCUSSION OF THE SUBJECT. WE THINK THAT WESTERN'S POSITION IN THIS MATTER IS CORRECT SINCE IN THE ABSENCE OF SPECIFIC EXCLUSIONARY LANGUAGE THE TERM "TAXES" WOULD ORDINARILY INCLUDE WITHIN ITS MEANING PAYMENTS MADE BY WESTERN IN CONNECTION WITH SOCIAL SECURITY AND OLD AGE BENEFIT PROGRAMS. MOREOVER, WESTERN HAS ASSERTED THAT THE BASIS FOR THE DERIVATION OF THE $1,750 MONTHLY TAX FIGURE USED IN FACTOR T OF THE FORMULA INCLUDES THE SUM OF $5,397.96 PAID IN SOCIAL SECURITY AND OLD AGE BENEFITS TAXES FOR 1956, AND THAT WHILE SPA UNDERSTOOD THIS AT THE TIME THE $1,750 MONTHLY TAX FIGURE WAS DEVELOPED NO EXCEPTION WAS TAKEN ON THE TAX ITEM AT THAT TIME. IT DOES NOT APPEAR FROM THE RECORD BEFORE US THAT YOUR ADMINISTRATION QUESTIONS AS INACCURATE WESTERN'S ASSERTIONS IN THIS REGARD AND WE THINK THAT WESTERN'S EXPLANATION OF THE DERIVATION OF THE $1,750 FIGURE IS STRONG EVIDENCE INDICATING THAT WESTERN, AT LEAST, INTENDED THAT FACTOR T WAS TO INCLUDE PAYMENTS FOR SOCIAL SECURITY AND OLD AGE BENEFIT PROGRAMS.

IN ADDITION, WE DO NOT THINK THAT THE PHRASE "TAXES * * * DIRECTLY ASSIGNABLE TO THE TRANSMISSION FACILITIES" CAN BE CONSTRUED AS MEANING ONLY AN AD VALOREM TAX OR ITS EQUIVALENT AS CONTENDED BY THE SOLICITOR. AGAIN, AS IN THE CASE OF THE TERM "TAXES," THE CONTRACT IS NOT SPECIFIC IN DEFINING WHAT IS MEANT BY "DIRECTLY ASSIGNABLE.' HOWEVER, THE RECORD DOES INDICATE THAT OF THE TOTAL TAXES PAID BY WESTERN ON ITS ENTIRE SYSTEM ONLY A PERCENTAGE THEREOF WAS TO BE ASSIGNABLE TO THE TRANSMISSION FACILITIES USED UNDER CONTRACT 795. THE AUDIT DIFFERENCE STATEMENTS DATED AUGUST 11 AND SEPTEMBER 9, 1959, SPEAK IN TERMS OF "TAXES ASSIGNABLE TO LEASED FACILITIES," WHICH WE TAKE TO MEAN WESTERN TRANSMISSION FACILITIES UTILIZED IN PERFORMANCE OF CONTRACT 795. THE MOST REASONABLE CONSTRUCTION THAT CAN BE PUT UPON THE PHRASE "DIRECTLY ASSIGNABLE" IS THAT THE PARTIES INTENDED TO INCLUDE IN FACTOR T ONLY THOSE TAXES "DIRECTLY ASSIGNABLE" TO THAT PORTION OF WESTERN'S SYSTEM UTILIZED OR "LEASED" FOR CONTRACT 795 AND TO EXCLUDE TAXES ASSIGNABLE TO OTHER PORTIONS OF WESTERN'S SYSTEM. HAD THE PARTIES INTENDED TO INCLUDE ONLY AD VALOREM TAXES IN FACTOR T IT WOULD HAVE BEEN A SIMPLE MATTER TO HAVE SPECIFIED EXPLICITLY THE KIND OF TAXES TO BE INCLUDED RATHER THAN TO ATTEMPT TO ACCOMPLISH THE SAME RESULT BY THE INDIRECT PROCESS OF MODIFYING THE TERM "TAXES" BY THE IMPRECISE PHRASE "DIRECTLY ASSIGNABLE.' WE THINK IT IS MORE REASONABLE TO CONCLUDE THAT THE PHRASE "DIRECTLY ASSIGNABLE" WAS USED BY THE PARTIES FOR THE PURPOSE OF SEGREGATING THE AMOUNT OF TAXES ATTRIBUTABLE TO THE LEASED FACILITIES FROM THE TOTAL TAXES PAID BY WESTERN, RATHER THAN A DEVICE TO DEFINE THE TYPE OF TAXES FOR INCLUSION IN FACTOR "T.'

ACCORDINGLY, WE MUST CONCLUDE THAT WESTERN'S CLAIM FOR $23,547.33 REPRESENTING MONIES CONTRIBUTED TO U.S. SOCIAL SECURITY AND OLD AGE PROGRAMS IS LEGALLY VALID UNDER THE CONTRACT AND, SUBJECT TO VERIFICATION OF THE FIGURES SET FORTH IN WESTERN'S STATEMENT, MAY BE PAID.

WESTERN'S THIRD CLAIM, IN THE AMOUNT OF $5,363.37, IS UNDER THE POWER CONTRACT (794) WHICH WAS ENTERED INTO ON JUNE 11, 1957, AND IS EXPLAINED IN WESTERN'S LETTER OF OCTOBER 13, 1964, AS FOLLOWS:

"YOU HAVE ALSO BEEN TAKING AN EXCEPTION ON AN ADJUSTMENT MADE ON THE KILOWATT HOURS DELIVERED FOR ENERGY FLOWING TO SPA AT OTHER THAN THE DEFINED POINT OF DELIVERY. ARTICLE 5, SECTION 7, OF THE POWER CONTRACT, STATES THAT "THE POWER AND ENERGY PURCHASED BY THE GOVERNMENT SHALL BE DELIVERED ...... AT THE GENERATING PLANT," WHICH IS LOCATED AT ANADARKO. SECTION 8 OF THIS SAME ARTICLE STATES THAT "ELECTRIC POWER AND ENERGY DELIVERED TO THE GOVERNMENT BY WESTERN SHALL BE METERED AT OR ADJUSTED TO THE POINT OF DELIVERY THROUGH SUITABLE METERING EQUIPMENT INSTALLED, MAINTAINED, AND OPERATED BY WESTERN.' WE HAVE BEEN MAKING A 5 PERCENT LOSS ADJUSTMENT ON ENERGY AND A 7.5 PERCENT LOSS ADJUSTMENT ON POWER AND ENERGY DELIVERED TO SPA AT PAOLI, COMMANCHE, AND TO YOUR CUSTOMER THE ALTUS AFB. UP TO JULY, 1962, SPA HONORED THIS ADJUSTMENT. WE HAVE RECEIVED NO INDICATION AS TO A CONTRARY INTERPRETATION FROM SPA ON THE INTENT OF THESE TWO SECTIONS OF THE POWER CONTRACT. THE LANGUAGE OF THE CONTRACT APPEARS TO BE CLEAR AND THE ISSUE, IF ANY, COULD ONLY INVOLVE THE AMOUNT OF THE ADJUSTMENT.'

SECTION 7, ARTICLE V OF THE POWER CONTRACT IS ENTITLED "CHARACTER OF SERVICE AND POINT OF DELIVERY" AND PROVIDES THAT:

"ELECTRIC POWER AND ENERGY PURCHASED BY THE GOVERNMENT SHALL BE DELIVERED BY WESTERN AS THREE-PHASE ALTERNATING CURRENT, AT A FREQUENCY OF APPROXIMATELY 60 CYCLES PER SECOND, AT A NOMINAL VOLTAGE OF 69 KILOVOLTS, AT THE GENERATING PLANT.'

SECTION 8, ARTICLE V, ENTITLED "METERING" PROVIDES THAT:

"ELECTRIC POWER AND ENERGY DELIVERED TO THE GOVERNMENT BY WESTERN SHALL BE METERED AT OR ADJUSTED TO THE POINT OF DELIVERY THROUGH SUITABLE METERING EQUIPMENT INSTALLED, MAINTAINED, AND OPERATED BY WESTERN.'

IT IS YOUR CONTENTION THAT THE ABOVE PROVISIONS HAVE NO APPLICATION TO ACCOUNTING FOR TRANSMISSION LOSSES, AND YOU NOTE THAT A SPECIAL AGREEMENT OF A TEMPORARY NATURE WAS NEGOTIATED TO ACCOUNT FOR SUCH LOSSES AND THAT AGREEMENT HAS NOW EXPIRED. YOU CONCLUDE, THEREFORE, THAT THERE IS NO LONGER ANY CONTRACTUAL AUTHORITY TO ALLOW FOR A PERCENTAGE LOSS IN POWER AND ENERGY IN YOUR POWER ACCOUNTING COMPUTATIONS. WE ARE IN AGREEMENT WITH YOUR CONCLUSION IN THIS RESPECT. THE FILE TRANSMITTED TO OUR OFFICE INDICATES THAT ON JUNE 10, 1960, AMENDMENT NO. 6 TO THE POWER CONTRACT WAS ENTERED INTO BETWEEN SPA AND WESTERN. THIS AMENDMENT ESTABLISHED PROCEDURES TO BE FOLLOWED IN ACCOUNTING FOR TRANSMISSION LOSSES INCIDENT TO THE FLOW OF POWER AND ENERGY THROUGH WESTERN'S SYSTEM TO CUSTOMERS OF THE GOVERNMENT OTHER THAN WESTERN AND LOSSES RESULTING FROM INTERCONNECTIONS WITH THE SYSTEMS OF SPA AND THE OKLAHOMA GAS AND ELECTRIC COMPANY AT ALVA, WOODWARD AND COMMANCHE, OKLAHOMA. THE SUBSTANTIVE PROVISIONS OF THE AMENDMENT READ AS FOLLOWS:

"2. FOR ACCOUNTING PURPOSES, THE LINE LOSSES ON WESTERN'S SYSTEM SHALL BE AS FOLLOWS:

ENERGY LOSS EQUALS 5 PERCENT CAPACITY LOSS EQUALS 7 1/2 PERCENT OR SUCH OTHER PERCENTAGE AS MAY BE AGREED TO IN WRITING BY THE PARTIES HERETO.

"3. SPA SHALL ABSORB ALL LOSSES INCIDENT TO THE FLOW OF POWER AND ENERGY THROUGH WESTERN'S SYSTEM TO CUSTOMERS OF THE GOVERNMENT OTHER THAN WESTERN.

"4. SPA SHALL ABSORB ALL LOSSES INCIDENT TO THE FLOW OF POWER AND ENERGY THROUGH THE COMANCHE POINT OF INTERCONNECTION TO SPA'S SYSTEM.

"5. SUBJECT TO THE PROVISIONS OF PARAGRAPH 6, BELOW, SPA SHALL ABSORB ALL LOSSES INCIDENT TO THE FLOW OF THE FIRST 6,000,000 KILOWATT HOURS OF ENERGY AND THE FIRST 12,000 KILOWATTS OF CAPACITY THROUGH THE WOODWARD AND ALVA POINTS OF INTERCONNECTION TO THE COMPANY'S SYSTEM AND WESTERN SHALL ABSORB ALL LOSSES INCIDENT TO THE FLOW OF ANY ADDITIONAL POWER AND ENERGY TO THE COMPANY'S SYSTEM THROUGH SUCH POINTS OF INTERCONNECTION.

"6. WESTERN SHALL ABSORB ALL LOSSES INCIDENT TO THE FLOW OF POWER AND ENERGY TO THE COMPANY'S SYSTEM THROUGH THE ALVA AND WOODWARD POINTS OF INTERCONNECTION AS OF THE FIRST DAY OF THE MONTH FOLLOWING THE DATE WESTERN HAS CONSTRUCTED AND PLACED IN OPERATION ITS PROPOSED TRANSMISSION LINE BETWEEN WOODWARD AND ALVA.'

PARAGRAPH 1 OF AMENDMENT NO. 6 PROVIDED THAT "THIS AGREEMENT SHALL BE EFFECTIVE DURING THE PERIOD FROM MAY 1, 1959, THROUGH JUNE 30, 1961.' JULY 6, 1961, AMENDMENT NO. 8 TO THE POWER CONTRACT WAS EXECUTED WHICH EXTENDED THE TERMS OF AMENDMENT NO. 6 UNTIL DECEMBER 30, 1961. AMENDMENT NO. 11 DATED NOVEMBER 29, 1961, THE TERMS OF AMENDMENT NO. 6 WERE EXTENDED "UNTIL JULY 1, 1962, OR UNTIL THE DATE AN AMENDATORY AGREEMENT IS EXECUTED BY THE PARTIES HERETO WHICH INCORPORATES INTO THE POWER SALES AGREEMENT NECESSARY LOSS ACCOUNTING PROCEDURES, WHICHEVER DATE IS EARLIER.'

IN YOUR LETTER OF MAY 10, 1965, YOU STATE AMENDMENT NO. 11 WHICH EXPIRED ON JULY 1, 1962, HAS NOT BEEN EXTENDED OR REPLACED WITH ANOTHER AGREEMENT. IN VIEW OF THIS FACT, AND SINCE NO OTHER PROVISION OF THE POWER CONTRACT APPEARS TO AUTHORIZE THE LOSS ADJUSTMENTS MADE BY WESTERN, IT MUST BE CONCLUDED THAT THERE IS NO AUTHORITY FOR PAYMENT OF WESTERN'S CLAIM OF $5,363.37.

A COPY OF THIS LETTER IS BEING FURNISHED TO WESTERN FOR ITS INFORMATION AND THE FILE FORWARDED WITH YOUR LETTER OF NOVEMBER 12, 1964, IS ENCLOSED.