B-164660, OCT. 2, 1970

B-164660, OCT. 2, 1970

SOUTHWESTERN POWER ADMINISTRATION - POWER CONTRACT - LIABILITY AFFIRMING DECISION OF SEPTEMBER 26, 1968, HOLDING THAT N.W. ELECTRIC POWER CO., INC., IS LIABLE FOR 5,000 KILOWATTS OF PEAKING CAPACITY AND ASSOCIATED ENERGY UNDER CONTRACT WITH SOUTHWESTERN POWER ADMINISTRATION.

TO PICKETT, ANDERECK, HAUCK & SHARP:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 6, 1969, AND THE STATEMENT OF THE N.W. ELECTRIC POWER COOPERATIVE, INC. (N.W.), ENCLOSED THEREWITH, REGARDING OUR DECISION OF SEPTEMBER 26, 1968, B-164660, TO THE SECRETARY OF THE INTERIOR. THAT DECISION CONCERNED THE MAKING OF A FINAL SETTLEMENT OF ACCOUNTS BY THE SOUTHWESTERN POWER ADMINISTRATION WITH N.W. ARISING OUT OF A POWER SALES CONTRACT (CONTRACT NO. ISPA 296), WHICH WAS IN EFFECT BETWEEN 1949 AND JULY 31, 1962.

ONE OF THE ELEMENTS OF THE FINAL ACCOUNTING AND SETTLEMENT INVOLVES A DISPUTE OVER WHETHER, BY VIEW OF CERTAIN EVENTS WHICH OCCURRED IN DECEMBER 1961, N.W. IS OBLIGATED UNDER THE CONTRACT TO PURCHASE AND PAY FOR 5,000 KILOWATTS OF PEAKING CAPACITY AND ASSOCIATED ENERGY FOR THE PERIOD JANUARY 1 THROUGH JULY 31, 1962.

IN OUR DECISION OF SEPTEMBER 26, 1968, WE HELD--FOR THE REASONS SET FORTH THEREIN--THAT N.W. IS LIABLE TO THE GOVERNMENT UNDER POWER CONTRACT ISPA- 296, AS AMENDED, FOR THE PAYMENT OF 5,000 KILOWATTS OF PEAKING CAPACITY AND ASSOCIATED ENERGY DURING THE PERIOD JANUARY 1 THROUGH JULY 31, 1962, SUBJECT TO CERTAIN ADJUSTMENTS.

THE STATEMENT OF N.W. EXPRESSES THE VIEW THAT THERE IS SUBSTANTIAL ERROR IN OUR DECISION BECAUSE AT THE TIME THE DECISION WAS WRITTEN NEITHER OUR OFFICE NOR THE DEPARTMENT OF THE INTERIOR HAD THE NECESSARY FACTS AT HAND UPON WHICH TO BASE A CORRECT OPINION. N.W. REQUESTS THAT WE RECONSIDER OUR DECISION OF SEPTEMBER 26, 1968, IN LIGHT OF WHAT IS SET FORTH IN THE STATEMENT.

THE PERTINENT FACTS, CIRCUMSTANCES, AND CONTRACT PROVISIONS ARE SET FORTH IN OUR DECISION OF SEPTEMBER 26, 1968, AND WILL NOT BE REPEATED HERE EXCEPT TO THE EXTENT NECESSARY TO CONSIDER THE NINE POINTS (I-IX) RAISED IN THE STATEMENT, WHICH WILL BE SET FORTH BELOW AND COMMENTED ON IN THE ORDER PRESENTED. AS YOU HAVE BEEN ADVISED, WE OBTAINED THE COMMENTS AND VIEWS OF THE DEPARTMENT OF THE INTERIOR ON THE STATEMENT.

I.

"THE OPINION ERRONEOUSLY INTERPRETS ARTICLE I, SECTION 10 (A) OF AMENDMENT NO. 10 TO ISPA 296,

BECAUSE,

(A) SUCH SUB-SECTION WAS INSERTED IN THE CONTRACT ONLY TO REQUIRE THAT WHEN NW'S SUMMER LOAD EXCEEDED 70,000 KW (45,000 KW FIRM-25,000 KW PEAKING CAPACITY) AS PROVIDED FOR UNDER ARTICLE I, SECTION 2 IN AMENDMENT NO. 10 TO THE POWER CONTRACT ISPA 296, NW WOULD PURCHASE ADDITIONAL PEAKING POWER CAPACITY FROM SPA, IF AVAILABLE;

(B) SUCH SUB-SECTION WAS NOT INTENDED TO REFER TO THE PURCHASE OF CAPACITY SET FORTH IN ARTICLE I, SECTION 1 AND 2;

(C) SUCH SUB-SECTION DOES NOT LIMIT NOR CONTRADICT OTHER LANGUAGE IN THE CONTRACT WHICH PERMITS NW TO PURCHASE FROM OTHERS, FIRM CAPACITY FROM SEPTEMBER 30 TO JUNE 1."

WE DO NOT DISAGREE THAT ONE OF THE PURPOSES OF SECTION 10(A) OF AMENDMENT NO. 10 MAY HAVE BEEN TO REQUIRE THAT WHEN N.W.'S SUMMER LOAD EXCEEDED 70,000 KW (45,000 KW FIRM-25,000 KW PEAKING CAPACITY), N.W. WOULD PURCHASE ADDITIONAL CAPACITY (FIRM AND PEAKING) FROM SPA, IF AVAILABLE. HOWEVER, AS WE READ THE CONTRACT, SECTION 10(A) DOES NOT PERMIT N.W. TO DISREGARD THE OBLIGATIONS IMPOSED ON IT BY SECTIONS 1 AND 2 OF THE CONTRACT. THAT IS TO SAY, WHEN N.W. IS TAKING ALL THE FIRM AND PEAKING CAPACITY AND ASSOCIATED ENERGY IT IS REQUIRED TO PURCHASE UNDER SECTIONS 1 AND 2 OF ARTICLE I, THEN SECTION 10 COMES INTO OPERATION. SECTION 10 PROVIDES, IN EFFECT, THAT IF THE AMOUNT OF FIRM CAPACITY AND PEAKING CAPACITY SPECIFIED IN SECTIONS 1 AND 2 IS NOT ADEQUATE TO MEET N.W. LOADS DURING THE MONTHS SEPTEMBER 30 TO JUNE 1 (OF EACH CONTRACT YEAR), N.W. MAY PURCHASE POWER FROM OTHER SOURCES, BUT THAT IN JUNE, JULY, AUGUST, AND SEPTEMBER, N.W. MUST REQUEST ANY ADDITIONAL CAPACITY (OVER THE SPECIFIED AMOUNTS) FROM SPA, WHICH SPA SHALL SUPPLY IF AVAILABLE AND IF NOT AVAILABLE N.W. SHALL ACQUIRE THE NECESSARY CAPACITY FROM OTHER SOURCES. AS POINTED OUT IN OUR DECISION OF SEPTEMBER 26, SECTION 10, BY ITS EXPRESS TERMS COMES INTO PLAY WHEN N.W. NEEDS CAPACITY "IN ADDITION TO THE AMOUNT OF SUCH CAPACITY PURCHASED UNDER SECTIONS 1 AND 2 OF THIS ARTICLE I *** ."

ALSO, WHILE SECTION 10(A) MAY NOT HAVE BEEN INTENDED TO REFER TO THE PURCHASE OF CAPACITY SET FORTH IN SECTIONS 1 AND 2 OF ARTICLE I, THERE ARE TWO SPECIFIC REFERENCES IN SECTION 10(A) TO THE PURCHASE OF CAPACITY UNDER SECTIONS 1 AND 2.

IN CONNECTION WITH SECTION 2 WE NOTE THE FOLLOWING COMMENT ON PAGE 14 OF N.W.'S STATEMENT:

"FROM THE STATEMENTS IN THIS BRIEF, AND FROM A CAREFUL READING OF SECTION 2, OF ARTICLE I OF AMENDMENT #10, IT IS VERY PLAIN TO SEE THAT WHEN NW'S LOAD IN JUNE, JULY, AUGUST, AND SEPTEMBER EXCEEDED 45,000 KW, OR ON JULY 1, 1964 (WHICHEVER DATE OCCURRED FIRST) NW DEFINITELY WAS OBLIGATED TO PURCHASE 5000 KW OF PEAKING POWER CAPACITY FROM SPA. IN FACT NW HAD NO OTHER PLACE TO PURCHASE IT."

IT APPEARS FROM THE ABOVE-QUOTED LANGUAGE THAT N.W. ADMITS THAT HAD WHAT OCCURRED HERE IN DECEMBER, OCCURRED IN JUNE, JULY, AUGUST, OR SEPTEMBER (I.E., HAD N.W.'S LOAD EXCEEDED 45,000 KW IN THE LAST-NAMED FOUR MONTHS), N.W. WOULD HAVE BEEN OBLIGATED TO PURCHASE 5,000 KW OF PEAKING POWER FROM SPA. WE SEE NO DISTINCTION, INSOFAR AS SECTION 2 IS CONCERNED, AS TO WHETHER N.W.'S LOAD EXCEEDED 45,000 KW IN JUNE, JULY, AUGUST, AND SEPTEMBER OR IN ANY OF THE OTHER MONTHS OF THE YEAR. IF SECTION 2 OBLIGATES N.W. TO PURCHASE 5,000 KW OF PEAKING POWER FROM SPA DURING JUNE, JULY, AUGUST, AND SEPTEMBER IF N.W.'S LOAD IN ANY OF THOSE MONTHS EXCEEDED 45,000 KW, THEN IN OUR OPINION SUCH SECTION WOULD OBLIGATE N.W. TO PURCHASE 5,000 KW OF PEAKING POWER FROM SPA AT ANY TIME N.W.'S LOAD EXCEEDED 45,000 KW.

FURTHER, WHILE PARAGRAPH (C) OF POINT I IMPLIES THERE IS OTHER LANGUAGE IN THE CONTRACT (I.E., OTHER THAN IN SECTION 10(A)), WHICH PERMITS N.W. TO PURCHASE FROM OTHER SOURCES FIRM CAPACITY FROM SEPTEMBER 30 TO JUNE 1, WE FIND NO SUCH PROVISIONS WHICH MAKE A DISTINCTION BETWEEN THE EIGHT WINTER MONTHS AND THE FOUR SUMMER MONTHS. AS POINTED OUT BY SPA THE OTHER REFERENCES TO THE PURCHASE OF POWER FROM OTHERS ARE GENERAL AND CONTAINED IN THE "WHEREAS" CLAUSES IN AMENDMENT NO. 10.

II.

"THE OPINION ERRONEOUSLY ASSUMES THAT DURING THE CONTRACT PERIOD SPA COULD SUPPLY NW WITH MORE THAN 45,000 KW OF FIRM POWER,

BECAUSE,

(A) SPA IN FACT LIMITED NW TO NO MORE FIRM POWER THAN 45,000 KW;

(B) SPA ORALLY AND IN WRITING INFORMED NW THAT IT COULD NOT, AND WOULD NOT, SUPPLY NW WITH MORE THAN 45,000 KW OF FIRM POWER."

WE DID NOT ERRONEOUSLY ASSUME THAT DURING THE CONTRACT PERIOD SPA COULD SUPPLY N.W. WITH MORE THAN 45,000 KW OF FIRM POWER. AS WE UNDERSTAND IT, THERE IS A DIFFERENCE BETWEEN "FIRM POWER" AND "PEAKING POWER." THE QUESTION AT ISSUE IN OUR DECISION OF SEPTEMBER 26 INVOLVED "PEAKING POWER." IN THIS CONNECTION WE ARE ADVISED BY SPA AS FOLLOWS:

"THE CONTRACT IS VERY CLEAR THAT THE MAXIMUM RATE OF DELIVERY FOR FIRM POWER WHICH SPA WOULD SELL WAS 45,000 KW. IF N.W.'S LOADS EXCEEDED THIS RATE OF DELIVERY, THE CONTRACT PROVIDES THAT SPA WILL SUPPLY THE EXCESS IN THE FORM OF PEAKING POWER UP TO 25,000 KW. THE DIFFERENCE BETWEEN FIRM POWER AND PEAKING POWER IS IN THE AMOUNT OF ENERGY THAT GOES WITH THE CAPACITY. A SALE OF FIRM POWER CARRIES WITH IT WHATEVER ENERGY IS NECESSARY TO MEET THE CUSTOMER'S LOAD. AT A TYPICAL LOAD FACTOR OF 55 PERCENT, FOR EXAMPLE, THIS WOULD AMOUNT TO 4,818 KILOWATT-HOURS PER KILOWATT PER YEAR (55 % OF 8,760 HOURS IN A YEAR). BY CONTRAST, A SALE OF PEAKING POWER CARRIES WITH IT ONLY A LIMITED AMOUNT OF ENERGY. IN THIS CONTRACT SPA AGREED TO DELIVER 1,800 KILOWATT-HOURS PER KILOWATT OF PEAKING CAPACITY PER YEAR, AND THERE WERE MINIMUM AND MAXIMUM LIMITATIONS ON HOW MUCH OF THIS ENERGY WOULD BE PROVIDED IN ANY GIVEN MONTH (SEE SUBSECTIONS 2(G) AND (I)). THIS MEANS THAT PEAKING POWER IS USED ONLY TO MEET PEAK LOADS, AS THE NAME IMPLIES.

"UNDER THESE CONTRACTUAL PROVISIONS, DURING PEAK HOURS WHEN N.W.'S LOAD EXCEEDS 45,000 KW, THAT PEAK LOAD IS SUPPLIED BY SPA BY BOTH FIRM AND PEAKING POWER. BY ITS OWN ADMISSION N.W. IGNORES THE PEAKING POWER FEATURES OF THE CONTRACT IN ATTEMPTING TO JUSTIFY ITS PURCHASE OF POWER FROM THE COMPANY DURING DECEMBER 1961 (STATEMENT, P. 13):

"'IN DECEMBER OF 1961, NW WAS GETTING CLOSE TO THE 45,000 KW CONTRACTED FROM SPA, AND KNEW IT WOULD HAVE TO SCHEDULE POWER FROM KCPL INTO ITS SYSTEM SO THAT IT DIDN'T EXCEED THE 45,000 KW.'"

FURTHER, WHILE SPA MAY HAVE ADVISED N.W. THAT IT COULD NOT AND WOULD NOT SUPPLY N.W. WITH MORE THAN 45,000 KW OF "FIRM POWER," WE FOUND NOTHING IN THE RECORD BEFORE US TO INDICATE THAT SPA EITHER WOULD NOT OR COULD NOT SUPPLY N.W. WITH "PEAKING POWER." IN FACT, THE CONTRACT PROVISIONS ARE TO THE CONTRARY.

III.

"THE OPINION ERRONEOUSLY ASSUMES THAT NW WAS FORCED TO BUY FROM SPA ALL ITS POWER REQUIREMENTS (WHETHER FIRM OR PEAKING CAPACITY) DURING THE PERIOD SEPTEMBER 30, TO JUNE 1, AS SCHEDULED UNDER SECTION 2, ARTICLE I, AMENDMENT NO. 10 OF ISPA 296, BEFORE IT COULD BUY POWER FROM OTHERS,

BECAUSE,

(A) THE CONTRACT DOCUMENTS SPECIFICALLY PROVIDE TO THE CONTRARY IN:

--SEC. 10(A), ARTICLE I, AMEND. 10, ISPA 296;

--PRELIM. STATEMENT, AMEND. 10, ISPA 296;

--FACTOR B, SEC. 5, ART. I, AMEND. 10, ISPA 296;

--PROVISO CLAUSE, SEC. 10, ART. I, AMEND. 10, ISPA 296;

--SUB. SEC. (B)(1), SEC. 10, ART. I, AMEND. 10, ISPA 296;

--PARA. 2, AMEND. 19, ISPA 296."

WE HAVE ALREADY DISCUSSED SECTION 10(A) OF ARTICLE I UNDER POINT I ABOVE.

APPARENTLY THE PRELIMINARY STATEMENTS YOU REFER TO ARE THE "WHEREAS" CLAUSES IN AMENDMENT 10, WHICH READ AS FOLLOWS:

"WHEREAS, ON NOVEMBER 23, 1949, THE PARTIES HERETO ENTERED INTO AN AGREEMENT (ISPA-296) FOR THE SALE AND EXCHANGE OF ELECTRIC POWER AND ENERGY WHICH, AS AMENDED, PROVIDES, AMONG OTHER THINGS, THAT IF THE COOPERATIVE NEEDS ADDITIONAL CAPACITY IN EXCESS OF ITS EXISTING CONTRACT DEMAND, THE GOVERNMENT WILL FURNISH SUCH ADDITIONAL CAPACITY IF AVAILABLE; AND

"WHEREAS, THE COOPERATIVE NEEDS ADDITIONAL CAPACITY, AND THE PARTIES HERETO DESIRE TO AMEND THE SAID AGREEMENT TO PROVIDE FOR THE SALE BY THE GOVERNMENT TO THE COOPERATIVE OF FIRM POWER CAPACITY AND ASSOCIATED ENERGY, AND, IN ADDITION, FOR THE SALE BY THE GOVERNMENT TO THE COOPERATIVE OF PEAKING POWER CAPACITY AND ASSOCIATED PEAKING ENERGY WHICH WILL BE UTILIZED BY THE COOPERATIVE IN CONNECTION WITH POWER AND ENERGY PURCHASED FROM OTHER SOURCES OF POWER SUPPLY;" IN CONNECTION WITH THE "WHEREAS" CLAUSES SPA STATES THAT:

"THE INTENT EXPRESSED IN THESE TWO CLAUSES IS CLEAR. UNDER THE PREVIOUS CONTRACT THERE WAS A LIMIT ON HOW MUCH CAPACITY SPA WAS OBLIGATED TO SELL. IF, HOWEVER, SPA DETERMINED THAT ADDITIONAL CAPACITY WAS AVAILABLE, SPA WOULD SELL IT TO MEET N.W.'S LOADS, AND N.W. WOULD BE OBLIGATED TO BUY IT. SPA NOW DETERMINES THAT IT HAS ADDITIONAL CAPACITY, BUT THAT THE AMOUNT OF ENERGY TO GO WITH THIS CAPACITY IS LIMITED; THAT IS, SPA HAS PEAKING CAPACITY WITH LIMITED ENERGY, BUT NOT FIRM POWER CAPACITY WITH LOAD-FACTOR ENERGY. THIS PEAKING CAPACITY WILL BE UTILIZED BY N.W. IN CONNECTION WITH OTHER SOURCES OF POWER SUPPLY, SOURCES TO WHICH N.W. WOULD TURN WHEN THE TOTAL CAPACITY AND ENERGY AVAILABLE FROM SPA WAS NOT ADEQUATE TO MEET ITS LOADS. N.W. ARGUES THAT THE INTENT IS TO PERMIT IT TO UTILIZE OTHER SOURCES OF POWER AT ITS OPTION WITHOUT FIRST CALLING ON THE PEAKING POWER AVAILABLE FROM SPA, BUT THIS VIOLATES THE COMMON SENSE READING OF THE WORDS, WHICH IS THAT THE OTHER SOURCES OF SUPPLY MAY BE UTILIZED ONLY IN CONNECTION WITH SPA PEAKING POWER, NOT IN LIEU OF IT."

IN OUR OPINION THE "WHEREAS" CLAUSES READ TOGETHER WITH SECTIONS 1, 2, AND 10 OF ARTICLE I OF THE POWER CONTRACT DO NOT PERMIT N.W. TO PURCHASE PEAKING POWER FROM OTHER SOURCES IN LIEU OF PURCHASING SUCH POWER FROM SPA IN ALL CIRCUMSTANCES. ALSO--AS SPA POINTED OUT IN ITS COMMENTS TO US-- SUBSECTIONS (C) AND (D) OF SECTION 2 AFFORD N.W. THE OPTION TO REDUCE ITS OBLIGATION TO PURCHASE PEAKING POWER BY MULTIPLES OF 1,000 KW BY GIVING ADVANCE WRITTEN NOTICE NOT LESS THAN ONE YEAR PRIOR TO THE BEGINNING OF ANY PARTICULAR CONTRACT YEAR, OR TO ELIMINATE ITS OBLIGATION TO PURCHASE PEAKING POWER ALTOGETHER BY TWO YEARS' ADVANCE WRITTEN NOTICE. SPA ADVISES THAT HAD SUCH NOTICE BEEN GIVEN, IT WOULD HAVE HAD ADVANCE OPPORTUNITY TO SELL THE AVAILABLE PEAKING CAPACITY TO ANOTHER CUSTOMER, RATHER THAN HOLDING IT FOR N.W. IT WOULD APPEAR THAT ABSENT SUCH NOTICE, N.W. WAS OBLIGATED TO BUY PEAKING POWER FROM SPA.

AS TO FACTOR "B" OF SECTION 5(B) OF ARTICLE I, THIS FACTOR IS PART OF A FORMULA SET FORTH IN SECTION 5(B). IN CONNECTION WITH THE FORMULA SPA STATES THAT:

" *** BOTH THIS FORMULA, AND THE FORMULA IN SUBSECTION 5(A), REPRESENT NOTHING MORE THAN ACCOUNTING PROCEDURES FOR COMPUTING N.W.'S DEMAND ON SPA FOR BILLING PURPOSES WHEN N.W.'S LOADS RISE ABOVE THE PREVIOUSLY ESTABLISHED CONTRACT DEMAND. THESE ACCOUNTING FORMULAS DO NOT REDUCE OBLIGATIONS FIXED ELSEWHERE IN THE CONTRACT. THE FORMULA IN SUBSECTION (B), INCLUDING THE 'B' FACTOR, THEREFORE HAS NO RELEVANCY UNLESS AND UNTIL N.W. IS PURCHASING PEAKING POWER FROM SPA UNDER SECTION 2 OR HAS GIVEN THE ADVANCE NOTICE THAT IT DESIRES TO BE RELIEVED OF THE OBLIGATION TO PURCHASE PEAKING POWER. NOT HAVING GIVEN SUCH NOTICE, IT WAS OBLIGATED TO BEGIN PAYING FOR PEAKING POWER AFTER ITS LOAD EXCEEDED 45,000 KW IN DECEMBER 1961." AS INDICATED BY SPA, THE FORMULA OF WHICH FACTOR "B" IS A PART CONCERNS THE ACCOUNTING PROCEDURE TO BE USED FOR COMPUTING N.W.'S DEMAND FOR BILLING PURPOSES UNDER CERTAIN CIRCUMSTANCES. IN ANY EVENT, THIS FORMULA DOES NOT PURPORT TO CHANGE OBLIGATIONS FOR THE PURCHASE OF POWER AS SET FORTH ELSEWHERE IN THE CONTRACT. AS TO THE PROVISO IN SECTION 10(A), AS SPA POINTS OUT, THAT CLAUSE RECOGNIZES THE RIGHT OF N.W. TO PURCHASE CAPACITY DURING THE PERIOD SEPTEMBER 30 AND JUNE 1 FROM A SOURCE OTHER THAN SPA ONLY "IN ADDITION TO THE CAPACITY PURCHASED UNDER SECTIONS 1 AND 2 OF THIS ARTICLE I."

INSOFAR AS SECTION 10(B)(I) IS CONCERNED, IT APPARENTLY COMES INTO EFFECT ONLY AFTER N.W.'S "FIRM CONTRACT DEMAND EQUALS 45,000 KILOWATTS AND THE PEAKING CONTRACT DEMAND EQUALS 25,000 KILOWATTS." THIS WOULD APPEAR TO SUPPORT SPA'S INTERPRETATION OF SECTION 10 TO THE EFFECT THAT N.W. MAY PURCHASE POWER FROM OTHER SOURCES ONLY IN ADDITION TO THE PEAKING POWER IT IS OBLIGATED TO PURCHASE FROM SPA UNDER SECTION 2.

CONCERNING "AMENDMENT NO. 19" (LETTER OF MARCH 2, 1962), THE LANGUAGE USED THEREIN INDICATES IT WAS INTENDED TO SET FORTH THE PROCEDURES TO BE FOLLOWED IN ACCOUNTING AND/OR BILLING FOR POWER AND ENERGY "EFFECTIVE AS OF DECEMBER 1, 1961," DURING WHICH THE ACCOUNTING PROCEDURES BECAME NECESSARY. NOTE PARTICULARLY THE LANGUAGE APPEARING ON PAGE 2 OF AMENDMENT NO. 19, WHICH READS AS FOLLOWS: "THE FOREGOING ACCOUNTING PROCEDURES AS SET FORTH HEREIN ARE SATISFACTORY AND AGREED TO."

ALSO, IN THIS SAME CONNECTION SPA STATES THAT:

"IT SHOULD BE NOTED THAT ALTHOUGH THIS DOCUMENT IS CALLED AN 'AMENDMENT' IN ACCORDANCE WITH SPA'S LABELLING PRACTICE FOR CONVENIENCE IN KEEPING TRACK OF ALL CONTRACT-RELATED CORRESPONDENCE, ITS PURPOSE WAS TO IMPLEMENT THE ACCOUNTING PROCEDURES CONTAINED IN THE CONTRACT. THE PRINCIPAL ACCOUNTING PROBLEM INVOLVED WAS TO SEGREGATE THE ENERGY ASSOCIATED WITH FIRM CAPACITY FROM THE ENERGY ASSOCIATED WITH PEAKING CAPACITY FOR BILLING PURPOSES. THE DOCUMENT CANNOT BE INTERPRETED AS MODIFYING ANY CONTRACTUAL OBLIGATION, AN EFFORT THAT WOULD FAIL FOR WANT OF CONSIDERATION."

AS TO PARAGRAPH 2 OF AMENDMENT NO. 19--INSOFAR AS IT CONCERNS PEAKING POWER--IT, IN EFFECT, MERELY REPEATS WHAT IS STATED IN THE SECOND "WHEREAS" CLAUSE OF AMENDMENT NO. 10. AS INDICATED ABOVE, THIS "WHEREAS" CLAUSE APPEARS TO CONTEMPLATE THE USE OF SPA PEAKING CAPACITY IN CONNECTION WITH OTHER SOURCES OF POWER WHEN THE TOTAL CAPACITY AND ENERGY AVAILABLE FROM SPA IS NOT ADEQUATE TO MEET N.W.'S LOADS, BUT NOT THE USE OF OTHER SOURCES OF PEAKING POWER IN LIEU OF PURCHASING PEAKING POWER FROM SPA.

PARAGRAPH 2 OF AMENDMENT NO. 19, STANDING ALONE, IS AT BEST SOMEWHAT AMBIGUOUS. HOWEVER, IN VIEW OF EXPRESS PURPOSE OF AMENDMENT NO. 19 AS SET FORTH THEREIN, WE CANNOT SAY IT WAS INTENDED TO DO OTHER THAN IMPLEMENT THE ACCOUNTING PROCEDURES CONTAINED IN THE CONTRACT.

IN CONNECTION WITH SO-CALLED AMENDMENT NO. 19, THE FOLLOWING APPEARS IN N.W.'S STATEMENT:

"IN DECEMBER OF 1961, NW WAS GETTING CLOSE TO THE 45,000 KW CONTRACTED FROM SPA, AND KNEW IT WOULD HAVE TO SCHEDULE POWER FROM KCPL INTO ITS SYSTEM SO THAT IT DIDN'T EXCEED THE 45,000 KW. ALL PARTIES KNEW THAT SPA DID NOT HAVE FIRM POWER FOR NW IN EXCESS OF 45,000 KW. SO NW SCHEDULED, AND LATER PAID FOR 1000 KW, NW'S ESTIMATED ADDITIONAL POWER REQUIREMENTS, FROM KCPL IN DECEMBER 1961. WHEN THE DECEMBER BILLS WERE MADE UP AND EXCHANGED, SOME OF THE PEOPLE AT SPA TOOK THE POSITION THAT NW HAD EXCEEDED 45,000 KW BY 120 KILOWATTS, AND THEREFORE WAS OBLIGATED TO BUY 5000 KW OF PEAKING POWER CAPACITY IN JANUARY, 1962. NW POINTED OUT THAT IT WAS NEVER INTENDED THAT THIS PEAKING POWER CAPACITY BE PLACED ANYWHERE IN ITS LOAD EXCEPT THE FOUR SUMMER MONTHS IN WHICH NW COULDN'T BUY POWER FROM KCPL. SO NW HAD A MEETING WITH SPA ON THIS QUESTION.

"OUT OF THIS DISCUSSION IT WAS AGREED THAT THE DECEMBER 1961 BILLING WAS IN ACCORDANCE WITH THE INTENT OF THE CONTRACTS. THE ADMINISTRATOR OF SPA CONFIRMED THIS FACT IN HIS LETTER WHICH BECAME AMENDMENT NO. 19 TO ISPA 296. THE SAME BILLING PROCEDURES WERE CONTINUED BY THE PARTIES UNTIL THE CONTRACTS WERE PUT TO SLEEP (NOT CANCELED) WHEN THE ASSOCIATED ELECTRIC COOPERATIVE, INC.-SPA AGREEMENTS WENT INTO EFFECT. AT THAT TIME SPA FOLLOWING NORMAL PROCEDURE, SENT ITS AUDITORS INTO NW'S OFFICE TO CLOSE OUT ACCOUNTS BETWEEN NW AND SPA, AND OVER A YEAR LATER SPA FOR THE FIRST TIME ANNOUNCED THEIR INTENT TO BILL NW FOR THE 5000 KW OF PEAKING POWER CAPACITY THE COMPTROLLER GENERAL'S OPINION IN ITS PRESENT FORM SEEKS TO CHARGE NW."

THE FACT THAT DUE TO A DIFFERENCE OF OPINION BETWEEN TWO OF THE OPERATING DIVISIONS OF SPA, N.W. WAS NOT BILLED BY SPA FOR PEAKING POWER IN THE CURRENT MONTHLY BILLINGS, WOULD NOT NECESSARILY REQUIRE THE CONCLUSION THAT UNDER THE CONTRACT TERMS N.W. WAS NOT OBLIGATED TO PURCHASE PEAKING POWER FROM SPA DURING THE EIGHT WINTER MONTHS. MOREOVER, AS TO THE MEETING BETWEEN SPA AND N.W. REPRESENTATIVES, SPA DOES NOT AGREE THAT THE SO-CALLED AMENDMENT NO. 19, CONFIRMS AN UNDERSTANDING REACHED AT THAT MEETING TO THE EFFECT THAT N.W. WAS NOT OBLIGATED TO BUY 5,000 KW OF PEAKING POWER IN JANUARY 1962. AS INDICATED ABOVE, SPA VIEWS THE MARCH 2 LETTER AS MERELY IMPLEMENTING THE ACCOUNTING PROCEDURES CONTAINED IN THE CONTRACT.

FURTHER, HAD BOTH PARTIES INTENDED BY SO-CALLED AMENDMENT NO. 19, TO AMEND THE POWER CONTRACT TO EXPRESSLY PROVIDE THAT N.W. WAS NOT OBLIGATED TO PURCHASE ANY PEAKING POWER FROM SPA DURING THE EIGHT WINTER MONTHS, IT APPEARS THAT LANGUAGE CLEARLY SO PROVIDING WOULD HAVE BEEN USED THEREIN.

IV.

"THE CONTRACT INTERPRETATION IN THE OPINION IS ERRONEOUS BECAUSE IT RENDERS MEANINGLESS THE COMPANION KCPL-NW, AND KCPL-SPA CONTRACTS, AS WELL AS AMENDMENT NO. 10 TO POWER CONTRACT ISPA 296,

BECAUSE,

(A) THERE WOULD BE NO NEED FOR AMENDMENT NO. 10, NOR THE COMPANION CONTRACTS UNLESS NW COULD SCHEDULE POWER REQUIREMENTS WITH KCPL WHICH IN TURN WOULD REQUIRE ADJUSTMENTS BETWEEN SPA AND KCPL."

WE DO NOT BELIEVE THAT OUR INTERPRETATION OF THE CONTRACT IN QUESTION AS SET FORTH IN OUR DECISION OF SEPTEMBER 26 RENDERS MEANINGLESS AMENDMENT NO. 10 TO SUCH CONTRACT. IN OTHER WORDS, AS WE SEE IT, OUR DECISION WOULD NOT IN ALL CIRCUMSTANCES PRECLUDE N.W. FROM SCHEDULING POWER REQUIREMENTS WITH KCPL, WHICH IN TURN WOULD REQUIRE ADJUSTMENTS BETWEEN SPA AND KCPL. INSOFAR AS THE KCPL-NW CONTRACT IS CONCERNED, SPA POINTS OUT THAT IT WAS NOT A PARTY TO SUCH CONTRACT AND EXPRESSES THE VIEW THAT N.W.'S ARRANGEMENTS WITH OTHER SOURCES OF POWER SUPPLY CANNOT BE USED TO MODIFY OR CHANGE N.W.'S OBLIGATION TO SPA. WE ARE IN AGREEMENT WITH THIS LATTER CONTENTION OF SPA'S. FROM THE RECORD BEFORE US IT APPEARS THAT THE INTERRELATIONSHIPS, IF ANY, BETWEEN THE CONTRACTS YOU MENTION CONCERN PRIMARILY SCHEDULING, ACCOUNTING AND BILLING PROCEDURES RATHER THAN THE SUBSTANTIVE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THEIR SEPARATE CONTRACTS WITH EACH OTHER.

V.

"THE CONTRACT INTERPRETATION IN THE OPINION IS ERRONEOUS IN THAT IT IGNORES THE PURPOSE FOR WHICH THE THREE INTERDEPENDENT CONTRACTS BETWEEN SPA-NW-KCPL WERE DRAFTED, I.E.,

(A) TO SATISFY NW'S TOTAL FIRM POWER REQUIREMENTS ABOVE 45,000 KW;

(B) LIMIT SPA'S COMMITMENT FOR NW'S FIRM POWER REQUIREMENTS TO 45,000 KW;

(C) TO TAKE ADVANTAGE OF THE DIFFERENT PEAK PERIODS ON THE KCPL SYSTEM (SUMMER MONTHS), AND NW'S SYSTEM (WINTER MONTHS);

(D) TO HELP SPA MARKET ANTICIPATED PEAKING POWER CAPACITY FROM NEW HYDRO PLANTS THEN IN THE PLANNING OR CONSTRUCTION STAGE."

AS TO POINTS (A) AND (B), AS INDICATED ABOVE, OUR DECISION WAS CONCERNED WITH "PEAKING POWER" AND NOT "FIRM POWER." AS TO POINTS (C) AND (D), AS POINTED OUT BY SPA, THE PURPOSES FOR WHICH THE ABOVE-CITED CONTRACTS WERE DRAFTED CANNOT MODIFY THE OBLIGATIONS OF SPA AND N.W. AS EXPRESSLY SET FORTH IN CONTRACT NO. ISPA-296.

VI.

"THE OPINION ERRONEOUSLY FINDS NW TO BE CONTENDING THAT THE COMPUTED ACTUAL MAXIMUM DEMAND FOR DECEMBER 1961 TO BE 44,120 KW,

BECAUSE,

(A) NW HAS NEVER CLAIMED THAT NW'S BILLING DEMAND FROM SPA WAS ANYTHING BUT 45,000 KW AFTER NW'S LOAD EXCEEDED 45,000 KW IN DECEMBER, 1961;

(B) NW'S BILLING DEMAND FROM SPA FROM JANUARY, 1962 THROUGH JULY, 1962 WAS EXACTLY 45,000 KW PER MONTH;

(C) THE POWER SCHEDULED BY NW THROUGH KCPL NEVER INCREASED OR DECREASED THE BILLING DEMAND FROM SPA AFTER NW'S LOAD EXCEEDED 45,000 KW IN DECEMBER, 1961."

WE DID NOT FIND N.W. TO BE CONTENDING THAT THE COMPUTED ACTUAL DEMAND FOR DECEMBER 1961 TO BE 44,120 KW. INSOFAR AS N.W.'S DECEMBER DEMAND LOAD WAS CONCERNED, SPA HAD ADVISED US IN ITS LETTER OF JUNE 21, 1968, AS FOLLOWS:

"ON FRIDAY, DECEMBER 15, 1961, N.W. ADVISED SPA THAT STARTING THE FOLLOWING SUNDAY, DECEMBER 17, IT WOULD SCHEDULE ONE MEGAWATT OF POWER FROM KANSAS CITY POWER AND LIGHT COMPANY DURING PEAK LOAD HOURS EVERY DAY UNTIL FURTHER NOTICE. N.W. EXPLAINED THAT BY DOING THIS IT COULD AVOID INCREASING ITS CONTRACT DEMAND ON SPA AT THIS TIME.

"ON DECEMBER 20, 1961, METER READINGS AT THE POINT OF INTERCONNECTION AT THE COOPERATIVE'S MISSOURI CITY SUBSTATION DISCLOSED THAT THE COOPERATIVE HAD RECEIVED INTO ITS SYSTEM 46,400 KILOWATTS OF POWER. OF THIS AMOUNT, 1,280 KILOWATTS WAS DELIVERED INTO THE COOPERATIVE SYSTEM FOR DELIVERY FOR THE ACCOUNT OF THE GOVERNMENT OF TRENTON, MISSOURI INTERCONNECTION, UNDER CONTRACTUAL ARRANGEMENT NOT HERE RELEVANT, LEAVING A BALANCE OF 45,120 KILOWATTS. ON THIS DAY, THE COOPERATIVE PURCHASED 1,000 KILOWATTS OF POWER FROM THE KANSAS CITY POWER AND LIGHT COMPANY WHICH WAS DELIVERED AT THE MISSOURI CITY POINT OF INTERCONNECTION.

"ON THE OTHER HAND, THE COOPERATIVE REFUSED TO ACKNOWLEDGE ANY OBLIGATION TO PURCHASE THE 5,000 KILOWATTS OF PEAKING POWER. IT MAINTAINS THAT IT HAD THE RIGHT UNDER THE PROVISO CLAUSE OF SECTION 10(A) TO PURCHASE IN DECEMBER THE THOUSAND KILOWATTS OF POWER FROM KANSAS CITY POWER AND LIGHT COMPANY IN ADDITION TO FIRM POWER PURCHASED FROM SPA; THAT UNDER THESE CIRCUMSTANCES, ITS 'ACTUAL MAXIMUM DEMAND' SHOULD HAVE BEEN COMPUTED UNDER SUBSECTION (B) OF SECTION 5 OF ARTICLE I, WITH THE RESULT THAT ITS ACTUAL MAXIMUM DEMAND FOR DECEMBER 1961 WOULD BE 44,120 KILOWATTS (46,400 KILOWATTS MINUS 1,280 KILOWATTS TO TRENTON MINUS 1,000 KILOWATTS PURCHASED FROM THE COMPANY); AND THEREFORE, BECAUSE ITS ACTUAL MAXIMUM DEMAND HAD NOT REACHED 45,000 KILOWATTS, IT WAS NOT OBLIGATED TO PURCHASE PEAKING CAPACITY UNDER SECTION 2."

WHATEVER THE CONTENTION OF N.W. MAY HAVE BEEN CONCERNING ITS ACTUAL MAXIMUM DEMAND FOR DECEMBER, IT IS CLEAR THAT N.W.'S DECEMBER POWER DEMANDS EXCEEDED 45,000 KW, THUS RAISING THE QUESTION AS TO WHETHER IT WAS OBLIGATED TO PURCHASE 5,000 KW OF PEAKING POWER FROM SPA.

VII.

"THE OPINION ERRONEOUSLY FAILS TO GIVE FORCE AND EFFECT TO AMENDMENT NO. 19, TO ISPA 296,

BECAUSE,

(A) THE OPINION IS BASED UPON THE PREMISE THAT SPA COULD FURNISH NW FIRM CAPACITY IN EXCESS OF 45,000 KW, WHEREAS AMENDMENT NO. 19, STATES PRECISELY THE CONTRARY TO BE A FACT;

(B) THE OPINION IS BASED UPON THE PREMISE THAT NW COULD NOT PURCHASE POWER FROM OTHERS, WHEREAS AMENDMENT NO. 19, STATES PRECISELY THE CONTRARY TO BE A FACT."

WE HAVE ALREADY DISCUSSED THE EFFECT OF AMENDMENT NO. 19 UNDER POINT III ABOVE.

VIII.

"THE OPINION ERRONEOUSLY FAILS TO GIVE FORCE AND EFFECT TO THE INADVERTENT FLOW PROVISION OF THE CONTRACT,

BECAUSE,

(A)IT FAILS TO RECOGNIZE THE PHYSICAL CONNECTION BETWEEN THE SPA-NW KCPL SYSTEMS WHICH REQUIRE USE OF THE SAME METER READINGS FOR MEASUREMENT OF CAPACITY FURNISHED BY KCPL, AS FOR CAPACITY FURNISHED BY SPA."

AS WE UNDERSTAND IT THIS PROVISION RELATES TO THE INADVERTENT DELIVERY OF POWER IN EXCESS OF, OR LESS THAN THE AMOUNT SCHEDULED, AND WOULD APPEAR TO HAVE NO BEARING UPON THE QUESTION OF THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO PURCHASE AND SELL POWER AND ENERGY UNDER OTHER PROVISIONS OF THE CONTRACT. MOREOVER, THIS OFFICE WOULD NOT BE IN A POSITION TO DETERMINE WHETHER THE AMOUNT OF POWER IN QUESTION HERE (120 KW) RESULTED FROM "INADVERTENT FLOW."

IX.

"THE OPINION ERRONEOUSLY FAILS TO GIVE FORCE AND EFFECT TO THE LETTER OF AGREEMENT BETWEEN SPA-NW-KCPL, DATED DECEMBER 21, 1959,

BECAUSE,

(A) IT IGNORES THE PRECISE LANGUAGE IN THAT LETTER OF AGREEMENT EXECUTED CONTEMPORANEOUS WITH THE THREE INTERDEPENDENT CONTRACTS OF SPA NW-KCPL, AND WRITTEN SO AS TO BE CERTAIN NO ONE COULD MISINTERPRET THE INTENT OF THE THREE PARTIES AS TO THE MANNER WITH WHICH THE PARTIES WERE TO DEAL WITH THE PROBLEM OF 'AFTER THE FACT' METER READING."

AS INDICATED IN OUR DECISION OF SEPTEMBER 26, THE LETTER OF DECEMBER 21, 1959, APPEARS TO CONCERN THE ESTABLISHMENT OF ACCOUNTING PROCEDURES. FURTHER, IT DOES NOT APPEAR THAT THE QUESTION INVOLVED HERE CONCERNS "AFTER THE FACT METER READING," BUT RATHER WHETHER UNDER THE CONTRACT N.W. COULD PURCHASE UP TO 25,000 KW PEAKING CAPACITY FROM OTHER THAN SPA.

ALSO, INSOFAR AS YOUR ASSERTION THAT N.W.'S ONLY PURPOSE IN ENTERING INTO AMENDMENT NO. 10 WAS TO ENABLE IT TO BUY PEAKING POWER FROM SPA DURING THE FOUR SUMMER MONTHS, SPA STATES THAT:

"INCIDENTALLY, THE NARRATIVE DISCUSSION IN THE STATEMENT REPEATEDLY ASSERTS THAT N.W.'S ONLY PURPOSE IN ENTERING INTO AMENDMENT 10 WAS TO ENABLE IT TO BUY PEAKING POWER FROM SPA DURING THE FOUR SUMMER MONTHS. THE CONSTANT REPETITION OF THIS ASSERTION CONVEYS THE IMPRESSION THAT THE CONTRACT PROVIDES FOR THE SALE OF PEAKING POWER ONLY DURING THESE MONTHS. THIS IMPRESSION OBVIOUSLY IS FALSE. THE PEAKING POWER IS SOLD ON A YEAR- ROUND BASIS, AS DEMONSTRATED BY THE SCHEDULING PROVISIONS, WHICH FIX THE MINIMUM AND MAXIMUM AMOUNTS OF PEAKING ENERGY TO BE TAKEN IN EACH MONTH. SINCE N.W.'S WINTER PEAK IS HIGHER THAN ITS SUMMER PEAK, IF IT HAS CAPACITY TO MEET THE FORMER, IT OBVIOUSLY HAS CAPACITY TO MEET THE LATTER." WHILE WE AGREE THAT THE MATTER IS NOT ENTIRELY FREE FROM DOUBT, IN LIGHT OF THE FOREGOING WE WOULD NOT HAVE A SUFFICIENT BASIS FOR CONCLUDING THAT N.W. IS NOT LIABLE TO SPA UNDER CONTRACT ISPA-296, AS AMENDED, FOR 5,000 KILOWATTS OF PEAKING CAPACITY AND ASSOCIATED ENERGY DURING THE PERIOD JANUARY 1 THROUGH JULY 31, 1962. ACCORDINGLY, WE MUST AFFIRM OUR DECISION OF SEPTEMBER 26, 1968, B-164660.

WE WOULD LIKE TO POINT OUT THAT IN A MATTER INVOLVING SUBSTANTIAL DOUBT WE, AS ACCOUNTING OFFICERS OF THE GOVERNMENT, HAVE A DUTY TO RESOLVE THE DOUBT IN FAVOR OF THE CONCLUSION WHICH WILL RESULT IN THE CONSERVATION OF FEDERAL FUNDS AND THUS RESERVE FOR THE COURTS THE ULTIMATE DETERMINATION OF THE MATTER. SEE LONGWILL V UNITED STATES, 17 CT. CL. 288 (1881); CHARLES V UNITED STATES, 19 CT. CL. 316 (1884).