Title: Doswell Ltd. Partnership v. Virginia Power
Citation: N/A
Docket Number: 951027
State: Virginia
Issuer: Virginia Supreme Court
Date: March 1, 1996

Present:  Carrico, C.J., Compton, Stephenson, Lacy, Keenan and 
Koontz, JJ., and Cochran, Retired Justice 
 
 
DOSWELL LIMITED PARTNERSHIP 
 
OPINION BY JUSTICE A. CHRISTIAN COMPTON 
v.  Record No. 951027                    March 1, 1996 
 
VIRGINIA ELECTRIC AND POWER COMPANY 
 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
 
Randall G. Johnson, Judge 
 
 
In this breach of contract action, the dispositive issue is 
whether the trial court erred in ruling that the disputed portion 
of a written agreement is clear and unambiguous, thus precluding 
consideration of extrinsic evidence supporting one party's 
interpretation of the document. 
 
In March 1993, appellant Doswell Limited Partnership 
(Doswell) filed this action against Virginia Electric and Power 
Company (Virginia Power) for breach of contract.  In a second 
amended motion for judgment, Doswell sought damages for Virginia 
Power's alleged breach in the principal amount of $10,317,250.23. 
 
The following basic facts are shown by the record, including 
the pleadings, and furnish part of the background for this 
controversy.  Doswell, a Virginia limited partnership with its 
principal office in Los Angeles, California and affiliated with 
the Mitsubishi Corporation, is an independent power producer that 
owns and operates two natural gas-fired electrical generating 
units located near the community of Doswell in Hanover County.  
Virginia Power is a public utility that provides electrical 
service to its customers. 
 
In 1986, Virginia Power issued a solicitation to purchase 
 
 
 
 
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electricity from independent power producers through contracts 
that would base payments on the costs that Virginia Power would 
avoid by not building a new power plant and producing the power 
itself.  In 1987, it entered into two written agreements with 
Intercontinental Energy Corporation to purchase electricity from 
the two generating units that Intercontinental was then planning 
to build near the Doswell community.  The two agreements, one for 
each facility, were virtually identical.  For clarity, we shall 
refer to the two agreements as one. 
 
On June 21, 1989, with the knowledge and consent of Virginia 
Power, Intercontinental assigned the agreement to Doswell, the 
units' present owner and operator.  In August 1989, Virginia 
Power offered Doswell the "option" to modify the agreement and to 
create a new category of payment, called the "Fixed Fuel 
Transportation Charge," sometimes referred to in this opinion as 
the "FFTC." 
 
Subsequently, teams of negotiators representing the 
respective parties engaged in extensive discussions about the 
language to be included in the modified agreement.  These 
negotiations included consideration of drafts and redrafts of 
contract language submitted by the participants dealing with the 
manner in which the FFTC would be determined. 
 
Generally, the parties agreed that Virginia Power would 
measure its payments to Doswell by the costs Virginia Power 
estimated it would incur to construct and operate one of its own 
 
 
 
 
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planned generating stations in Chesterfield County, known as 
Chesterfield 7.  Those projected costs included the costs of 
transporting natural gas to Chesterfield 7.  The costs of 
Chesterfield 7 would serve, in effect, as the "surrogate" or 
"benchmark" to measure the costs Virginia Power would avoid by 
purchasing power from a plant to be built and owned by Doswell. 
 
The negotiations culminated in the execution by the parties 
of the contract in question, an 83-page document, on January 3, 
1990.  It is labelled, "First Amendment and Restatement of the 
Power Purchase and Operating Agreement By and Between Doswell 
Limited Partnership as Successor in Interest to Intercontinental 
Energy Corporation and The Virginia Electric and Power Company." 
 This controversy focuses on Section 10.3 of the agreement. 
 
In the second amended motion for judgment, Doswell alleges 
that Section 10.3 of the agreement requires Virginia Power to pay 
a Fixed Fuel Transportation Charge based on 100 per cent of the 
fixed costs associated with transporting natural gas through a 
pipeline system delivering gas to Chesterfield 7.  Doswell 
further alleges that Virginia Power breached the contract by 
basing its payment on only 44 per cent of its actual fixed costs 
of one segment of the pipeline and on only 50 per cent of its 
actual fixed costs of another segment. 
 
Doswell filed a pretrial motion seeking a declaration that 
it would be permitted to present parol evidence relevant to the 
construction of Section 10.3.  Upon consideration of argument of 
 
 
 
 
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counsel, the court ruled "that Section 10.3 is not ambiguous" and 
that parol evidence would not be admitted at trial. 
 
Later, the parties, by counsel, filed a stipulation that 
placed an unusual twist on the procedure at trial.  In the 
stipulation, Virginia Power promised to waive any objection 
during trial to parol evidence presented by Doswell about the 
negotiations surrounding the agreement and another document 
executed by the parties in June 1990.  Virginia Power reserved 
the right, however, to argue at the conclusion of the evidence 
that "the contract documents are complete and unambiguous," and 
to argue that the court "should not attribute any weight to such 
parol evidence in making its findings and rulings." 
 
Subsequently, during four days of trial, the court, sitting 
without a jury, heard from 17 witnesses and considered more than 
100 exhibits.  Extensive parol evidence was presented by both 
parties. 
 
At the conclusion, the court ruled from the bench in favor 
of Virginia Power, holding Doswell had not "carried its burden of 
proof that there was a breach of contract in this case."  During 
the course of its oral opinion, the court adhered to its earlier 
ruling that "because the contract is clear and unambiguous" parol 
evidence "should not be considered."  We awarded Doswell this 
appeal from a March 1995 order entering judgment for Virginia 
Power. 
 
The agreement in question was negotiated and executed 
 
 
 
 
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against the following additional background.  At the outset, it 
should be understood that when the agreement in question was 
executed in January 1990, the Doswell facility and Virginia 
Power's Chesterfield facility were in the planning stages and had 
not been built. 
 
Both the Doswell facility and Virginia Power's Chesterfield 
7 facility were to be fueled by natural gas supplied from a 
storage site in Pennsylvania and delivered through an 
interconnecting pipeline system that includes the Consolidated 
Natural Gas (CNG) pipeline running through northern Virginia.  
This pipeline feeds into a pipeline, not built at the time of the 
negotiations, operated by Virginia Natural Gas (VNG) running 
through central Virginia and into the Tidewater area. 
 
In order to transport gas to Chesterfield 7, construction of 
an additional pipeline, a spur, approximately 16 miles in length 
was necessary.  This spur is comprised of two sections:  The City 
of Richmond (CR) pipeline, running from Mechanicsville to the 
James River, and the Commonwealth Gas Services (CGS) pipeline, 
running approximately 2,000 feet under the James River and 
connecting to Virginia Power's Chesterfield facility.  This 
controversy relates to the cost allocation of the two sections of 
the spur. 
 
As the reader will soon learn, the foregoing delivery system 
is referred to in the agreement as the "CNG/VNG/CR/CGS" pipeline 
system.  For clarity, we shall often call it the "northern 
 
 
 
 
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pipeline." 
 
Chesterfield 7 is located near another gas-fueled Virginia 
Power generating plant known as Chesterfield 8.  Fuel to 
Chesterfield 8 was to be delivered through another pipeline 
system, which we shall often call the "southern pipeline."  
Chesterfield 7 and Chesterfield 8 connect to the two pipelines 
through a common header.  Thus, each is capable of receiving gas 
from either system.   
 
According to the provisions of the agreement that was 
assigned in 1989, Doswell, as we have said, was required to 
provide, broadly stated, electricity.  There were two aspects to 
this obligation.  First, the capacity to produce electricity 
whenever Virginia Power required it, called "dependable 
capacity."  Second, the duty to physically deliver electricity 
"whenever called upon."  Under the assigned contract, Doswell was 
to be paid a fixed capacity charge for this dependable capacity, 
assuming the proposed plant "was, in fact, available and capable 
of producing power."  In addition, Doswell was to receive an 
"energy charge," a base amount for each kilowatt hour of 
electricity sold, for the electricity that was actually generated 
and delivered. 
 
During the negotiations beginning in the summer of 1989, to 
fulfill the purpose of the agreement for Virginia Power to 
purchase Doswell's generating capacity and electricity employing 
the avoided cost concept, the parties agreed upon a third 
 
 
 
 
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category of payment.  The capacity charge and energy delivery 
charge would remain, but the new FFTC charge was introduced. 
 
The discussions included consideration of the "capacity" of 
both the pipelines and the parties' facilities.  The maximum 
daily capacity of Chesterfield 7 was projected to be 
approximately 42,500 dekatherms.  The use of dekatherms (Dth) is 
a technique employed in the industry to measure the volume of 
natural gas; historically, it was measured in cubic feet.  
Virginia Power planned to reserve approximately 42,500 Dth of 
"firm transportation" on the northern pipeline.  This means that 
Virginia Power had the right to "push gas" down the pipeline 
without interruption and without giving priority to other users 
along the pipeline.  In contrast, "interruptible transportation" 
means the ability of a user "to move gas down the pipeline . . . 
subject to the availability of that pipeline capacity with other 
users on the pipeline" that may have priority of use.  The 
companies that own the pipelines charge the user for the reserved 
capacity.  Generally, the discussions proceeded on the basis that 
Virginia Power's two Chesterfield units would receive fuel from 
both the northern and southern pipelines, with lateral pipelines 
(spurs) to be constructed to "hook up" those two routes with 
Chesterfield 7 and Chesterfield 8, and incidentally with a third, 
nearby Virginia Power unit at Darbytown. 
 
During the negotiations, the parties understood that the 
spur (CR/CGS) would be constructed with more capacity than needed 
 
 
 
 
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for Chesterfield 7.  The CR section (planned to be built by the 
City of Richmond but ultimately built and operated by Virginia 
Power) has 96,000 Dth capacity.  Virginia Power reserved 86,000 
Dth of firm capacity on the CGS section.  The parties also 
understood that the gas service to Chesterfield 7 would be on a 
firm basis, and that Chesterfield 8 and Darbytown would receive 
interruptible service from the northern pipeline and the spur. 
 
Shortly after execution of the agreement in January 1990, 
Doswell sought construction financing from Credit Suisse.  In 
connection with the financing, Virginia Power, Doswell, and 
Credit Suisse executed on June 4, 1990 a document labelled 
"Virginia Electric and Power Company Consent to Assignment of 
Agreements" (the Consent).  This document evidenced Virginia 
Power's consent to Doswell's assignment of the January 1990 
agreement to Credit Suisse as security for Doswell's repayment of 
a construction loan. 
 
During negotiations preceding execution of the Consent, the 
parties focused on the provisions of the January 1990 agreement, 
including the Fixed Fuel Transportation Charge.  In paragraph 
(13)(g) of the executed Consent, there is language dealing with 
the determination of the FFTC. 
 
Subsequently, Virginia Power computed the charges due 
Doswell according to its interpretation of the agreement.  The 
allocation of costs for the CR/CGS spur pipeline, as we have 
said, is the basis of this controversy.  Because the maximum 
 
 
 
 
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capacity of Chesterfield 7 is 42,500 Dth and the total capacity 
available to it as owner of the CR section is 96,000 Dth, 
Virginia Power attributed only 44 per cent (42,500 divided by 
96,000) of its fixed costs on the CR section to Chesterfield 7.  
Likewise, because Virginia Power has contracted for 86,000 Dth of 
firm capacity on the CGS section, with the maximum capacity of 
Chesterfield 7 being 42,500 Dth, Virginia Power attributed only 
49.4 percent, rounded to 50 per cent, (42,500 divided by 86,000) 
of its fixed costs on the CGS section to Chesterfield 7. 
 
Doswell disagreed with Virginia Power's computation, 
insisting on 100 per cent of the actual fixed costs on both the 
CR and CGS sections.  This action ensued. 
 
On appeal, Doswell contends that the trial court erred in 
ruling that Section 10.3 is unambiguous and constituted the 
complete agreement between the parties, and "in failing to 
consider parol or extrinsic evidence showing the entirety of the 
agreement."  Also, Doswell contends that the trial court erred in 
"ignoring" testimony it presented of trade custom and usage in 
the gas pipeline industry with respect to the meaning of certain 
phrases defining the FFTC.  Additionally, Doswell contends the 
trial court erred in relying on the Consent, which it says was 
extrinsic evidence offered by Virginia Power.  Finally, Doswell 
contends the trial court erred in concluding it "had not carried 
its burden of proof to establish that it was entitled to recover 
100% of the fixed costs associated with transporting gas through 
 
 
 
 
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the Spur delivery system to its sole `firm' user, Chesterfield 7, 
and that Doswell was only entitled to 44% of the fixed costs of 
one portion of the Spur and 50% of another as a matter of law." 
 
Urging affirmance, Virginia Power argues the agreement and 
the Consent comprise an integrated contract that the trial court 
properly read together.  Alternatively, it argues that the 
agreement is unambiguous, even without consideration of the 
Consent.  Finally, it argues that the trial court was not 
required "to accord controlling weight" to Doswell's evidence of 
trade usage. 
 
Because of the view we take of the ambiguity issue, it is 
unnecessary for us to determine whether the agreement and the 
Consent constitute an integrated document.  The principle debated 
is that when parties have entered into two documents relating to 
a business transaction, the writings will be construed together 
to determine the parties' intent.  Daugherty v. Diment, 238 Va. 
520, 524, 385 S.E.2d 572, 574 (1989); J.M. Turner & Co. v. 
Delaney, 211 Va. 168, 171, 176 S.E.2d 422, 425 (1970).  See Dime 
Deposit & Discount Bank v. Wescott, 113 Va. 567, 573, 75 S.E. 
179, 182 (1912).  The reason we do not address this issue is that 
we hold the agreement is clear and unambiguous without reference 
to the Consent. 
 
"Parol evidence of prior or contemporaneous oral 
negotiations are generally inadmissible to alter, contradict, or 
explain the terms of a written instrument provided the document 
 
 
 
 
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is complete, unambiguous, and unconditional."  Renner Plumbing, 
Heating & Air Conditioning, Inc. v. Renner, 225 Va. 508, 515, 303 
S.E.2d 894, 898 (1983).  "An ambiguity exists when language 
admits of being understood in more than one way or refers to two 
or more things at the same time."  Id.; Berry v. Klinger, 225 Va. 
201, 207, 300 S.E.2d 792, 796 (1983). 
 
The question whether an agreement is ambiguous is not one of 
fact but one of law, and the function of the court is to construe 
the contract made by the parties, not to make a contract for 
them.  Wilson v. Holyfield, 227 Va. 184, 187, 313 S.E.2d 396, 398 
(1984).  Contracts are not rendered ambiguous merely because the 
parties or their attorneys disagree upon the meaning of the 
language employed to express the agreement.  Id.  Even though an 
agreement may have been drawn unartfully, the court must construe 
the language as written if its parts can be read together without 
conflict.  Berry, 225 Va. at 208, 300 S.E.2d at 796. 
 
And, parol evidence may not be used to first create an 
ambiguity and then to remove it.  Cohan v. Thurston, 223 Va. 523, 
525, 292 S.E.2d 45, 46 (1982).  Finally, an agreement is not 
rendered ambiguous merely because it deals with a technical 
subject that may be considered complex to the uninformed lay 
person who is not familiar with the topic. 
 
Guided by these settled principles, we turn to the center of 
this controversy, Section 10.3(a) of the agreement, included 
within Article X of the document labelled "Compensation, Payment, 
 
 
 
 
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and Billings."  Section 10.3(a) provides as follows: 
 
 
"10.3  (a) Operator [Doswell] shall be compensated 
by Virginia Power for the fixed transportation charges 
associated with transporting gas to Chesterfield 7 
through the use of the Fixed Fuel Transportation 
Charge.  The Fixed Fuel Transportation Charge 
($/kW/Month) shall be determined on a Monthly basis 
using the following equation: 
 
 
Fixed Fuel   CNG/VNG/CR/CGS Transportation Fixed Charges
     Transportation -                214,000 [kW] 
 
Charge 
 
 
The CNG/VNG/CR/CGS Transportation Fixed Charges shall 
be determined on a Monthly basis and shall be equal to 
all costs associated with natural gas transportation 
and storage that do not vary with the volume of gas 
consumed at Chesterfield 7 for the Month in question.  
Fixed costs for natural gas transportation and storage 
shall include demand charges for natural gas pipeline 
transportation, pipeline operation and maintenance, and 
demand and capacity charges for natural gas storage 
services.  The CNG/VNG/CR/CGS Transportation Fixed 
Charges shall be based on all the fixed costs 
associated with transporting gas through the 
CNG/VNG/CR/CGS delivery system.  In determining the 
CNG/VNG/CR/CGS Transportation Fixed Charges, any 
discount prices received by Virginia Power for 
transporting gas through such delivery system through 
settlement of litigation and not applicable to Operator 
shall be adjusted to offset the effect of such 
discount.  Any retroactive adjustments based on changes 
in the tariffs shall be included in the current Month's 
CNG/VNG/CR/CGS Transportation Fixed Charges.  An 
example calculation for determining the Fixed Fuel 
Transportation Charge is shown in Exhibit B." 
 
 
Plainly, Section 10.3(a) limits the fixed costs to be used 
in computing the FFTC payment to those costs associated with 
transporting natural gas to Chesterfield 7.  The first sentence 
of 10.3(a) clearly states that Doswell "shall be compensated by 
Virginia Power for the fixed transportation charges associated 
with transporting gas to Chesterfield 7 through the use of the 
 
 
 
 
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Fixed Fuel Transportation Charge."  The third sentence of 10.3(a) 
provides that the charges to be used to compute monthly the FFTC 
payment "shall be equal to all costs associated with natural gas 
transportation and storage that do not vary with the volume of 
gas consumed at Chesterfield 7 for the Month in question." 
 
The calculation example for determining the FFTC included in 
Exhibit B, referenced in the last sentence of 10.3(a), confirms 
that the FFTC payment is limited to Chesterfield 7's costs, and 
does not include 100 per cent of Virginia Power's fixed costs on 
the CR and CGS pipelines.  The example contains estimates of the 
CNG and VNG portions of the payment.  These estimates are limited 
by certain assumptions in the example to the fixed costs 
associated with transporting that volume of gas equal to the 
maximum daily capacity of Chesterfield 7, assumed to be 43,000 
Dth in the example.  Nowhere does the agreement provide that the 
CR and CGS portions of the FFTC payment should be computed 
differently. 
 
As the calculation example makes clear, the denominator in 
the equation, 214,000 kW, represents Chesterfield 7's capacity in 
terms of producing electricity, not accepting fuel.  As 
demonstrated in the example, the equation, by employing the 
denominator, tabulates the monthly payment on a per kilowatt 
basis. 
 
Doswell implicitly argues, however, that even if the 
agreement, standing alone, is unambiguous, the judgment must be 
 
 
 
 
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reversed because the trial court considered the Consent, which 
Doswell says is extrinsic evidence.  We do not agree that the 
judgment should be reversed. 
 
Apparently, the trial court, in making its pretrial ruling, 
considered the Consent.  In the letter to counsel announcing the 
ruling, the court said, "After again reviewing Section 10.3 of 
the Amended Agreements, the Consent to Assignment of Agreements, 
and your arguments, I am of the opinion that Section 10.3 is not 
ambiguous." 
 
At the trial held ten months later, however, and when final 
judgment was pronounced, the record shows that the trial court 
did not give controlling consideration to the Consent.  During 
its oral opinion, the court, in first discussing the agreement, 
plainly stated that Section 10.3 "is clear and unambiguous" and 
that parol evidence should not be considered.  Later during its 
comments, the court said, "If that [the agreement] were not clear 
enough in and of itself, it's made even more clear, if that's 
possible, in the Consent."  Thus, even assuming the Consent 
qualifies as prohibited extrinsic evidence, the record shows that 
the trial court based its judgment primarily on the agreement, 
including Section 10.3.  But even if the court erroneously 
considered the Consent, we will affirm the judgment because the 
court reached the correct conclusion arguably for the wrong 
reason.  Robbins v. Grimes, 211 Va. 97, 100, 175 S.E.2d 246, 248 
(1970).  Accord Richmond, Fredericksburg & Potomac R.R. v. 
 
 
 
 
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Metropolitan Washington Airports Auth., 251 Va. ___, ___, 
___S.E.2d ___, ___ (1996), decided today. 
 
Finally, we reject Doswell's contention that the trial court 
erroneously "ignored" testimony it presented of trade custom and 
usage with respect to the meaning of certain contract terms 
defining the FFTC.  Evidence that contract phrases or terms have 
acquired, by custom in the locality, or by usage of the trade, a 
peculiar meaning not attached to them in their ordinary use is 
admissible even though the phrases or terms themselves are 
unambiguous.  Richlands Flint Glass Co. v. Hiltebeitel, 92 Va. 
91, 94-95, 22 S.E. 806, 807 (1895).  See Code § 8.2-202(a) (terms 
in commercial sales agreements may be explained or supplemented 
by course of dealing or usage of trade evidence). 
 
But Doswell has not referred us to any specific part of the 
record to support its claim that such evidence was "ignored" by 
the trial court, and we have found no support for Doswell's 
conclusion.  Moreover, the trial court was not required to accept 
such evidence that was contradicted by other evidence in the 
record and that related to usage in a separate business, that is, 
the formula the Federal Energy Regulatory Commission uses to fix 
rates operators of interstate natural gas pipelines may charge 
their customers. 
 
Consequently, we hold there is no reversible error in the 
judgment below and it will be 
 
Affirmed.