B-165739, JUL. 24, 1969

B-165739, JUL. 24, 1969

CONTRACTS - POWER SALES - UNEARNED DISCOUNTS DECISION TO CERTIFYING OFFICER OF SOUTHWESTERN POWER ADMINISTRATION AUTHORIZING CERTIFICATION FOR COLLECTION OF UNEARNED DISCOUNTS ARISING UNDER POWER SALES AGREEMENT WITH ARKANSAS ELECTRIC COOPERATIVE CORPORATION AND CONTINUATION OF COLLECTION ACTION FOR SUBSEQUENT UNEARNED DISCOUNTS.

TO MR. DOUGLAS G. WRIGHT, ADMINISTRATOR:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 25, 1968, WITH ENCLOSURES, REQUESTING WHETHER YOU MAY PROPERLY CERTIFY FOR COLLECTION AN ATTACHED INVOICE IN THE AMOUNT OF $39,436.20, REPRESENTING UNEARNED DISCOUNTS, AND WHETHER YOU MAY CONTINUE TO PURSUE COLLECTION OF THE UNPAID PORTION OF THE MONTHLY INVOICES FOR SUBSEQUENT UNEARNED DISCOUNTS, ARISING OUT OF A POWER SALES AGREEMENT NO. 14-02-0001-938 (HEREINAFTER REFERRED TO AS THE "FITZHUGH CONTRACT), BETWEEN THE SOUTHWESTERN POWER ADMINISTRATION (HEREINAFTER REFERRED TO AS "SPA"), AND THE ARKANSAS ELECTRIC COOPERATIVE CORPORATION (HEREINAFTER REFERRED TO AS "ARKCO").

THE RECORD DISCLOSES THAT ARKCO IS A GENERATION AND TRANSMISSION COOPERATIVE ORGANIZED IN THE LATE 1950'S UNDER THE LAWS OF THE STATE OF ARKANSAS FOR THE PURPOSE OF PROVIDING WHOLESALE POWER TO A NUMBER OF DISTRIBUTION COOPERATIVES IN ARKANSAS. AT THAT TIME, THE DISTRIBUTION COOPERATIVES WERE RECEIVING THEIR POWER SUPPLY FROM SPA, OR FROM PRIVATE POWER COMPANIES, INCLUDING THE SOUTHWESTERN ELECTRIC POWER COMPANY (HEREINAFTER REFERRED TO AS "SWEPCO"), AND THE ARKANSAS MISSOURI POWER COMPANY (HEREINAFTER REFERRED TO AS "ARK-MO"). ARKCO PLANNED TO OBTAIN POWER FROM SPA, FROM THE PRIVATE UTILITY COMPANIES, AND FROM A 57,000-KW. STEAM GENERATING PLANT WHICH ARKCO INTENDED TO CONSTRUCT WITH THE AID OF A GOVERNMENT LOAN. THIS PLANT, THEN CALLED THE OZARK PLANT, IS NOW NAMED THE FITZHUGH PLANT.

IN 1960, ARKCO ENTERED INTO COMPANION NEGOTIATIONS WITH BOTH SPA AND SWEPCO, EXECUTING CONTRACTS WITH SWEPCO ON OCTOBER 6, 1960, AND WITH SPA ON NOVEMBER 28, 1960 (FITZHUGH CONTRACT).

UNDER THE CONTRACT WITH SWEPCO, ARKCO AGREED TO SELL TO SWEPCO AT THE SAME RATES, ALL OF THE HYDRO PEAKING POWER IT PURCHASED FROM SPA, EXCEPT FOR THE INTERRUPTIBLE CAPACITY, WHICH WAS TO BE USED AS AN AD HOC STANDBY FOR THE FITZHUGH PLANT. IN ADDITION, ARKCO AGREED TO SELL TO SWEPCO 20,000 KW OF "THERMAL POWER" AND ASSOCIATED ENERGY FROM THE FITZHUGH PLANT AFTER IT BEGAN COMMERCIAL OPERATION. DELIVERY OF BOTH THE HYDRO AND THERMAL POWER WAS TO BE MADE TO THREE POINTS OF INTERCONNECTION BETWEEN THE SPA SYSTEM AND THE SWEPCO SYSTEM, NAMELY AT VAN BUREN, ARKANSAS (AT 161 KV.), WELEETKA, OKLAHOMA (AT 138 KV), AND AT BEAVER DAM RESERVOIR PROJECT, ARKANSAS (AT 161 KV.). AS PART OF THE PACKAGE, SWEPCO AGREED TO PROVIDE, FOR THE ACCOUNT OF ARKCO, FIRM POWER SERVICE TO FIVE OF ARKCO'S MEMBER COOPERATIVES.

UNDER THE FITZHUGH CONTRACT, ARKCO AGREED TO BUY FROM SPA CERTAIN QUANTITIES OF HYDRO PEAKING POWER AND ASSOCIATED ENERGY UNDER SPECIFIED RATE SCHEDULES, ATTACHED TO THE AGREEMENT AND INCORPORATED THEREIN BY REFERENCE. THE CONTRACT ALSO PROVIDED FOR THE SALE BY SPA TO ARKCO OF UNSPECIFIED QUANTITIES OF SECONDARY ENERGY, EXCESS ENERGY, AND INTERRUPTIBLE CAPACITY. IN TURN, ARKCO AGREED TO SELL TO SPA SURPLUS THERMAL ENERGY FROM THE FITZHUGH PLANT, IF, AS, AND WHEN AVAILABLE TO ARKCO AND REQUIRED BY SPA.

AS WILL BE DISCUSSED, SECTION 4 OF ARTICLE VII OF THE FITZHUGH CONTRACT, AS AMENDED, IS OF PARTICULAR SIGNIFICANCE FOR THE RESOLUTION OF THE UNEARNED DISCOUNT PROBLEM. THE SECTION STATES, IN PERTINENT PART, AS FOLLOWS:

"SECTION 4. UTILIZATION OF SPA SYSTEM FOR DISPLACEMENT OF POWER AND ENERGY. IT IS RECOGNIZED THAT BY REASON OF THE INTERCONNECTION OF SPA'S SYSTEM WITH THE SYSTEMS OF ARKCO AND OTHERS, AND INCIDENT TO THE FLOW OF THERMAL POWER AND ENERGY FROM THE 50,000 KW OZARK PLANT, SPA WILL DISPLACE CAPACITY AND ENERGY FROM ONE PORTION OF ITS SYSTEM TO ANOTHER IN A MANNER CONTROLLED BY THE LOAD AND GENERATING CONDITIONS OF THE AREA, AND THAT SUCH DISPLACEMENT WILL BE UTILIZED BY ARKCO TO PROVIDE POWER AND ENERGY REQUIRED FOR SERVICE TO ITS MEMBER COOPERATIVES. IT IS ALSO RECOGNIZED THAT SUCH DISPLACEMENT CONSTITUTES DELIVERY OF FEDERAL HYDRO POWER, TOGETHER WITH SUPPORTING OZARK PLANT THERMAL POWER. IN CONNECTION WITH THE FOREGOING, IT IS FURTHER RECOGNIZED THAT SUCH UTILIZATION OF THE SYSTEM OF SPA AND THE INTERCONNECTIONS WITH THE SYSTEMS OF ARKCO AND OTHERS IS OF MUTUAL ADVANTAGE TO THE PARTIES HERETO SINCE THIS ADDED SOURCE OF POWER SUPPLY ON THE INTEGRATED SYSTEMS WILL RESULT IN AN IMPROVEMENT IN CONTINUITY OF SERVICE, A GREATER SYSTEM STABILITY, AND A FLEXIBILITY OF OPERATION; * * *"

SECTION 1 OF ARTICLE VIII OF THE FITZHUGH CONTRACT LISTS SEVEN DELIVERY POINTS FOR THE POWER AND ENERGY TO BE SOLD TO ARKCO BY SPA. THE FIRST THREE WERE FOR THE DELIVERY OF POWER AND ENERGY TO SWEPCO. THE LAST ON THE LIST OF DELIVERY POINTS WAS VIOLA, ARKANSAS (AT 69 KV.), ONE OF THE TWO DELIVERY POINTS AT WHICH THE ALLEGED UNEARNED DISCOUNTS WERE GRANTED. THE FITZHUGH PLANT BEGAN COMMERCIAL OPERATION ON JUNE 27, 1963, AND DELIVERIES FROM THE PLANT UNDER THE CONTRACT BEGAN AT :00 A.M. ON THAT DAY.

BY AMENDMENT NO. 6 TO THE CONTRACT, DATED JULY 11, 1963, SPA GRANTED ARKCO PERMISSION TO ESTABLISH A POINT OF INTERCONNECTION AT OR NEAR WATER VALLEY, ARKANSAS, BETWEEN SPA'S SYSTEM AND ARK-MO'S SYSTEM TO ALLOW DISPLACEMENT OF ELECTRIC POWER AND ENERGY THROUGH SPA'S SYSTEM TO BE PROVIDED CERTAIN SPECIFIED MEMBERS OF ARKCO. IN CONJUNCTION WITH THE ESTABLISHMENT OF THE WATER VALLEY INTERCONNECTION, ARKCO ENTERED INTO A CONTRACT WITH ARK-MO TO SELL IT, INITIALLY, 19,000 KW. OF THERMAL POWER AND ASSOCIATED ENERGY FROM THE FITZHUGH PLANT TO MEET THE LOADS OF ITS THREE MEMBER COOPERATIVES, WITH THE PROVISION THAT THIS WOULD INCREASE TO 29,000 KW. THIS ACTUAL DEMAND WAS MET PRIOR TO THE PRESENT DISPUTE PERIOD.

AMENDMENT NO. 8, DATED NOVEMBER 30, 1964, SUBSTITUTED A NEW RATE SCHEDULE FOR THE ORIGINAL FITZHUGH CONTRACT, ADDED THE TABLE ROCK DELIVERY POINT, AND OBLIGATED SPA TO PROVIDE STANDBY FOR THE FITZHUGH PLANT, IN EXCHANGE FOR WHICH ARKCO COMMITTED 5,700 KW. OF THE OUTPUT OF THE PLANT TO SPA.

THE JUNE 16, 1965, AMENDMENT NO. 9, PROVIDED FOR SEVERAL SIGNIFICANT CHANGES: (1) IT RECOGNIZED THAT AFTER JUNE 1, 1966, DELIVERIES WOULD BE MADE FOR ARKCO'S ACCOUNT TO NORTH ARKANSAS ELECTRIC COOPERATIVE, INC., AT THE VIOLA DELIVERY POINT. FOR SOME YEARS PRIOR TO THIS TIME, SPA HAD SOLD AND DELIVERED FIRM POWER TO NORTH ARKANSAS AT VIOLA UNDER A SEPARATE CONTRACT; BUT IT WAS ANTICIPATED THAT, AT AN APPROPRIATE TIME, SUCH CONTRACT WOULD BE CANCELLED, AND NORTH ARKANSAS WOULD PURCHASE ITS POWER AND ENERGY FROM ARKCO. (2) THE PROVISION FOR THE PURCHASE OF 6,000 KW. OF HYDRO PEAKING POWER WAS DROPPED, AND ARKCO AGREED TO BUY INSTEAD 10,000 KW. OF FIRM POWER AND ASSOCIATED ENERGY FROM SPA AT THE "F-1" RATE SCHEDULE; THE CONTRACT DEMAND FOR FIRM POWER WAS TO INCREASE AS "FIRM ACTUAL DEMAND" INCREASED. A FORMULA WAS PRESCRIBED FOR COMPUTING FIRM ACTUAL DEMAND. (3) THE AMENDMENT ALSO PROVIDED FOR A "2-MONTHS RATCHET DEMAND" UNDER WHICH THE BILLING DEMAND WOULD NOT BE LESS THAN THE HIGHEST FIRM ACTUAL DEMAND ESTABLISHED THREE OR MORE MONTHS EARLIER.

CONSIDERING THE VARIOUS PRIOR AMENDMENTS AND AGREEMENTS, THE CONTRACT NOW PROVIDED THAT THE SPA SYSTEM WOULD BE UTILIZED TO DELIVER THREE KINDS OF POWER: (1) SPA PEAKING POWER UNDER A CERTAIN RATE SCHEDULE; (2) SPA FIRM POWER UNDER RATE SCHEDULE "F-1"; AND (3) ARKCO'S THERMAL POWER FROM THE FITZHUGH PLANT. IN LIGHT OF THIS, IT BECAME NECESSARY TO ESTABLISH A METHOD FOR SEGREGATING THE DIFFERENT KINDS OF POWER FOR BILLING PURPOSES. TO PROVIDE A METHOD OF ACCOUNTING BETWEEN DELIVERIES OF SPA FIRM POWER AND ARKCO THERMAL POWER, THE AMENDMENT ADDED A NEW CATEGORY OF DELIVERY POINTS FOR FIRM POWER AND ENERGY, SEPARATE AND DISTINCT FROM DELIVERY POINTS OF HYDRO PEAKING POWER AND ENERGY. BY AMENDMENT NO. 12, DATED JUNE 23, 1967, THESE DELIVERY POINTS INCLUDED NORFORK DAM RESERVOIR PROJECT (AT 69 KV.), TABLE ROCK DAM RESERVOIR PROJECT (AT 69 KV.) AND GRAVETTE, ARKANSAS (AT 69 KV), THE LATTER BEING THE DELIVERY POINT, IN ADDITION TO VIOLA, OVER WHICH THERE IS AN UNEARNED DISCOUNT DISPUTE.

THE CONTRACT, AS AMENDED, PROVIDED A FORMULA FOR COMPUTING THE FIRM ACTUAL DEMAND, AS FOLLOWS: FAD (FIRM ACTUAL DEMAND PER MONTH) EQUALS "D" (SUM OF THE MAXIMUM 30-MINUTE INTEGRATED DEMANDS AT THE THREE POINTS WHERE ONLY FIRM POWER IS DELIVERED) PLUS "OD" (THE COMPUTED HIGHEST COINCIDENTAL 30-MINUTE DEMAND DURING EACH MONTH). THE OD FACTOR IS FOR COMPUTING THE FIRM POWER DEMAND AT THE DELIVERY POINT (VIOLA) WHERE BOTH SPA FIRM POWER AND ARKCO THERMAL POWER ARE DELIVERED. IN A SUPPLEMENTAL REPORT DATED MAY 26, 1969, WE WERE ADVISED, IN THIS CONNECTION, THAT:

"ITS (REFERRING TO THE FORMULA FOR COMPUTING THE OD FACTOR) CONCEPT IS ESSENTIALLY SIMPLE: ADD UP THE HIGHEST COINCIDENTAL 30-MINUTE DEMAND AT THE POINTS WHERE ARKCO THERMAL POWER IS BEING DELIVERED, THEN SUBTRACT THE POWER GENERATED AT THE FITZHUGH DURING THIS 30-MINUTE PERIOD THAT IS AVAILABLE TO SERVE THESE LOADS. IF THE RESULT OF THE SUBTRACTION IS ZERO OR A NEGATIVE QUANTITY, THIS MEANS THAT NO DEMAND IS BEING PLACED ON SPA FOR FIRM POWER AT THIS TIME. HOWEVER, IF IT IS A POSITIVE QUANTITY, THIS MEANS THAT ARKCO HAS CALLED ON SPA FOR FIRM CAPACITY DURING THIS PERIOD, AND ARKCO SHOULD BE CHARGED WITH IT AS FIRM POWER.' INCLUDED IN THIS CONTRACT FORMULA IS THE TERM ,NAD" , WHICH IS DEFINED AS THE DEMAND OF THE NORTH-ARKANSAS LOAD AT THE VIOLA DELIVERY POINT.

DURING AN INTERNAL REVIEW OF SPA'S BILLING POLICIES, COVERING THE BILLING PERIOD BEGINNING JUNE 1, 1966, IT WAS DISCOVERED THAT FROM THE COMMENCEMENT OF DELIVERIES OF FIRM POWER AT VIOLA ON JUNE 1, 1966, AND AT GRAVETTE ON MARCH 1, 1967, SPA INVOICES HAD GRANTED ARKCO A DISCOUNT OF $0.40 PER KILOWATT OF BILLING DEMAND PER MONTH ON ALL DELIVERY POINTS, INSTEAD OF A $0.10 DISCOUNT PER KILOWATT OF BILLING DEMAND PER MONTH FOR FIRM POWER DELIVERY AT VIOLA AND GRAVETTE, AS PROVIDED FOR BY THE FITZHUGH CONTRACT AND AMENDMENTS. IN ACCORDANCE THEREWITH, SPA REVISED ITS BILLING PRACTICE BEGINNING JUNE 1, 1968, TO REFLECT THE LESSER DISCOUNTS, AND SUBMITTED AN INVOICE TO ARKCO FOR PREVIOUSLY GRANTED DISCOUNTS IN THE AMOUNT OF $39,436.20.

THE APPLICABLE DISCOUNT PROVISIONS ARE CONTAINED IN RATE SCHEDULE "F 1," INCORPORATED BY REFERENCE INTO AMENDMENT NO. 9, WHICH HAD INITIALLY PROVIDED FOR THE SALE OF FIRM POWER TO ARKCO. ARTICLE VI, SECTION 5, STATES, IN PERTINENT PART, AS FOLLOWS:

"SECTION 5. COMPENSATION FOR FIRM POWER AND ASSOCIATED ENERGY. (A) ARKCO SHALL COMPENSATE SPA EACH MONTH FOR FIRM POWER AND ASSOCIATED ENERGY PURCHASED DURING THE PRECEDING MONTH AT THE RATES SET FORTH IN RATE SCHEDULE -F-1,- A COPY OF WHICH IS ATTACHED TO THIS CONTRACT IDENTIFIED AS EXHIBIT -8,- AND BY THIS REFERENCE MADE A PART HEREOF. * * *"

RATE SCHEDULE "F-1" APPLIES TO WHOLESALE POWER CUSTOMERS WHO PURCHASE FIRM POWER SERVICE BY CONTRACT. IT SETS THE MONTHLY RATE, EXPRESSED IN DEMAND CHARGES, OF $1.60 PER KILOWATT OF BILLING DEMAND, AND PROVIDES FOR ADJUSTMENTS FOR CONDITIONS OF SERVICE AS FOLLOWS:

"/A) A DISCOUNT OF $0.10 PER KILOWATT OF BILLING DEMAND PER MONTH WILL BE ALLOWED ON THE TOTAL MONTHLY CHARGE FOR FIRM POWER SERVICE IF DELIVERY OF POWER AND ENERGY IS MADE FROM THE 69 KV, 138 KV, OR 161 KV TRANSMISSION FACILITIES OWNED OR LEASED BY THE GOVERNMENT AND IF TRANSFORMATION AND SUBSTATION FACILITIES ARE REQUIRED AT THE POINT OF DELIVERY AND ARE FURNISHED BY THE POWER CUSTOMER AT NO COST TO THE GOVERNMENT.

"/B) A DISCOUNT OF $0.40 PER KILOWATT OF BILLING DEMAND PER MONTH WILL BE ALLOWED ON THE TOTAL MONTHLY CHARGE FOR FIRM POWER SERVICE IF DELIVERY OF POWER AND ENERGY IS MADE FROM, AND AT THE VOLTAGE OF, THE 138 KV OR THE 161 KV TRANSMISSION FACILITIES OWNED OR LEASED BY THE GOVERNMENT, OR AT LOW OR INTERMEDIATE VOLTAGES FROM SUBSTATIONS DIRECTLY CONNECTED TO SUCH TRANSMISSION FACILITIES, AND IF THE GOVERNMENT IS THEREBY RELIEVED OF ADDITIONAL TRANSMISSION COSTS.'

THE EXACT WORDING OF THE DISCOUNT PROVISIONS CONTINUED UNCHANGED IN SUBSEQUENT AMENDMENTS TO THE CONTRACT.

ARKCO'S POSITION DENYING LIABILITY IS SET FORTH IN A LETTER DATED JULY 15, 1968, FROM ITS ATTORNEY. FIRST, THE ATTORNEY CONTENDS THAT DELIVERY POINTS ARE IRRELEVANT BECAUSE HYDRO POWER PURCHASED FROM SPA IS MIXED WITH ARKCO'S THERMAL POWER AND MAY BE DELIVERED ANYWHERE ON THE SPA SYSTEM BY DISPLACEMENT, CITING THAT PORTION OF THE DISPLACEMENT PROVISION, QUOTED ABOVE, TO THE EFFECT THAT THE DISPLACEMENT CONSTITUTES DELIVERY OF FEDERAL HYDRO POWER, TOGETHER WITH SUPPORTING OZARK THERMAL PLANT POWER. WE AGREE WITH SPA'S CONCLUSION THAT THE ABOVE-STATED PORTION OF THE DISPLACEMENT PROVISION IS MERELY DESCRIPTIVE OF THE PROCESS BY WHICH POWER AND ENERGY ARE TRANSFERRED FROM GENERATING SOURCES TO THEIR ULTIMATE DESTINATIONS, AND HAS NO APPLICABILITY TO THE QUESTION OF THE PROPER DISCOUNT TO BE USED IN COMPUTING DEMAND CHARGES FOR THE DELIVERY OF POWER AND ENERGY. SECONDLY, ARKCO'S ATTORNEY ARGUES THAT THERE ARE NO PROVISIONS IN THE CONTRACT FOR THE DELIVERY OF SPECIFIC TYPES OF POWER AT ANY PARTICULAR DELIVERY POINTS. WE AGREE, ALSO, WITH SPA'S POSITION THAT NORFORK, TABLE ROCK, AND GRAVETTE ARE SPECIFICALLY IDENTIFIED AS DELIVERY POINTS FOR SPA FIRM POWER IN AMENDMENT NO. 9. IN ADDITION, THE SPA REPORT DISCLOSES THAT THE PAST HISTORY OF THE PARTIES' CONTRACTUAL DEALINGS, AMENDMENT NO. 6 TO THE CONTRACT, AND THE FACT THAT DELIVERIES AT VIOLA FOR ARKCO'S ACCOUNT REPLACED A PREVIOUS CONTRACT UNDER WHICH FIRM POWER WAS SOLD BY SPA TO NORTH ARKANSAS, AT VIOLA, INDICATES THAT FIRM POWER WAS IN FACT DELIVERED AT THAT POINT ON OCCASIONS WHEN SUFFICIENT THERMAL POWER WAS NOT AVAILABLE. THE ATTORNEY CONCLUDES BY STATING THAT THE CONTRACT PROVIDES FOR ONLY ONE DEMAND FOR BILLING PURPOSES, WITH NO PROVISION FOR ALLOCATING IT TO DELIVERY POINTS FOR BILLING PURPOSES. THE SPA REPORT POINTS OUT THAT UNDER THIS REASONING FOUR POSSIBILITIES ARE OPEN: (1) ALLOW NO DISCOUNTS; (2) ALLOW A 40 CENT DISCOUNT ACROSS THE BOARD; (3) ALLOW 10[ ACROSS THE BOARD; OR (4) ADOPT SOME REASONABLE METHOD FOR ALLOCATING THE DEMAND TO EACH DELIVERY POINT, AND GRANT THE 10 CENT OR 40 CENT DISCOUNT AS TO EACH SUCH ALLOCATED DEMAND DEPENDING ON THE SITUATION AT EACH SUCH POINT. HOWEVER, SPA EXPRESSES A PREFERENCE FOR THE FOURTH ALTERNATIVE, POINTING OUT THAT THE ALLOWANCE OF NO DISCOUNT WOULD BE JUST AS SUPPORTABLE IN THEORY AS ARKCO'S CONTENTION FOR ALLOWANCE OF 40 CENT DISCOUNT.

IT SHOULD BE NOTED THAT ARKCO'S ATTORNEY FAILED TO ADDRESS HIMSELF TO THE APPLICABLE DISCOUNT PROVISIONS IN THE EFFECTIVE RATE SCHEDULE, OR ENTERTAIN ANY DISCUSSION OR DISCLOSE ANY REASONING IN SUPPORT OF HIS POSITION CONCERNING THESE PROVISIONS. IN ADDITION, GOVERNMENT RECORDS AND BILLING INVOICES DISCLOSE A SUBSTANTIAL DEMAND FOR FIRM POWER IMPOSED ON SPA DURING THE PERIOD OF THE DISCOUNT DISPUTE. ALSO, SINCE ARKCO'S ATTORNEY ARGUES THAT THE HIGHER DISCOUNT IS PROPER, HE THEREBY IMPLIEDLY CONCEDES ACTUAL DELIVERY OF FIRM POWER BY SPA AND ARKCO'S RESULTANT RESPONSIBILITY FOR PAYMENT, ALTHOUGH THE RATE OF PAYMENT IS OBVIOUSLY IN ISSUE.

THE RECORD DISCLOSES, IN FACT, THAT THE DELIVERY VOLTAGE AT BOTH VIOLA AND GRAVETTE ARE TAKEN FROM SPA 69 KV TRANSMISSION LINES, AND THAT THE SUBSTATION AND TRANSFORMATION FACILITIES ARE NOT OWNED BY SPA. IN LIGHT THEREOF, AND WITH DUE REGARD TO A LITERAL READING OF THE CONTRACT WHICH PRESCRIBES A $0.10 DISCOUNT FOR DELIVERY OF POWER AND ENERGY FROM 69 KV. TRANSMISSION FACILITIES OWNED OR LEASED BY THE GOVERNMENT, WE CONCLUDE THAT SPA'S DECISION TO REVISE ITS DISCOUNT SCHEDULE TO CONFORM WITH THE CONTRACT WAS NOT ONLY PROPER BUT REQUIRED.

ARKCO'S ATTORNEY IMPLIES THAT THE PRIOR HANDLING OF THE DISCOUNT RATE ESTOPS THE GOVERNMENT FROM COLLECTING THE PREVIOUSLY UNEARNED DISCOUNTS. HOWEVER, WE REGARD THE CREDITING OF A HIGHER THAN ALLOWABLE DISCOUNT TO BE IN THE NATURE OF AN OVERPAYMENT TO ARKCO. IN THIS REGARD, SEE FANSTEEL METALLURGICAL CORPORATION V UNITED STATES, 172 F.SUPP. 268 (1959), WHERE THE COURT HELD, AT PAGE 271, IN RESPONSE TO A DEFENSE THAT THE GOVERNMENT WAS ESTOPPED FROM ASSERTING THE ALLEGED BREACH OF CONTRACT AND OVERPAYMENT:

"WE SEE NO MERIT IN THIS CONTENTION. THE SUPREME COURT HAS MANY TIMES HELD THAT ESTOPPEL MAY NOT BE INVOKED AGAINST THE GOVERNMENT IN A SITUATION SUCH AS PRESENTED HERE * * *. THIS IS ESPECIALLY SO SINCE, AS STATED EARLIER, WHERE MONEY IS ALLEGEDLY ERRONEOUSLY PAID IT IS THE DUTY OF THE GOVERNMENT TO SUE FOR ITS RETURN. FURTHER, LONG CONTINUANCE OF ILLEGAL OR ERRONEOUS OVERPAYMENTS DOES NOT PREVENT THEIR RECOVERY EVEN WHEN CONTRACTUAL RELATIONS ARE INVOLVED. NOR DOES IT MATTER HOW MUCH TIME ELAPSED BEFORE THE ERROR OF OVERPAYMENT WAS DISCOVERED OR HOW LONG THE ACT TO RECOVER IT WAS DEFERRED.'

ACCORDINGLY, YOU MAY PROPERLY CERTIFY AN INVOICE FOR COLLECTION FOR THE UNEARNED DISCOUNTS, AND CONTINUE TO PURSUE COLLECTION OF THE UNPAID PORTION OF THE MONTHLY INVOICES. HOWEVER, WE DO NOT BELIEVE THAT THE ATTACHED INVOICE IN THE AMOUNT OF $39,436.20 SHOULD BE CERTIFIED FOR COLLECTION. RATHER, AN INVOICE BASED ON THE BILLING METHOD SET OUT IN EXHIBIT 15 TO THE MAY 26, 1969, REPORT, SHOULD BE ISSUED IN THE AMOUNT OF $50,360 TO COVER THE PERIOD UP TO AND INCLUDING THE MONTH OF JANUARY 1969, AND SUCH BILLING METHOD SHOULD BE USED FOR PERIODS THEREAFTER.