Opinion ID: 779823
Heading Depth: 3
Heading Rank: 3

Heading: The Price Dispute

Text: 14 In late 1995, the BPA calculated the true-up to actuals for the Capacity Owner's portion of the Third AC Intertie and, finding that the actual cost of construction was below the estimated cost, provided a refund of approximately $700,000 to Puget Sound. Later, on September 15, 1997, the Capacity Owners exercised their right under the Capacity Agreement to conduct an audit. They then submitted draft and final versions of their audit report requesting inter alia 1) a reimbursement of $14.5 million on overhead charges related to construction performed by PacifiCorp; and 2) a credit of $1.9 million for charges for spare parts that were capitalized rather than treated as a expense on an accruals basis. 3 While the BPA agreed to refund certain other expenses claimed in the report, it denied any refund for these two expenses. 15 As to the overhead charge, Puget Sound objected to the BPA's allocation of part of its own cost of general overhead for the construction project to work performed by PacifiCorp on the Alvey-Meridian Line. Puget Sound claims before us that this charge reflects double-counting of the fully-burdened work performed by PacifiCorp because its audit showed that it already paid separate charges for PacifiCorp overhead related to this work as well as for support work done by the BPA. The BPA counters that its allocation of general overhead was consistent with the inclusion of indirect and overhead costs on the Alvey-Meridian line in Schedule CO-94 as well as the methodology used to produce the original price estimate, which was subject to scrutiny during the CO-94 Rate Case. It also contends that this was consistent with its normal allocation of overhead costs. 16 As to spare parts, the dispute is as to whether the parts in question can properly be capitalized as emergency spare parts that are of a unique and specialized nature, or whether they should be treated as inventory items like general spare parts. Claiming that the items are specialized spare parts that must be in place for use in an emergency, the BPA capitalized their cost, thus passing it on to Puget Sound and other Capacity Owners as part of construction costs. Puget Sound contends that the BPA has not established that the parts are unique items that must be in place for use in an emergency because it has inadequately documented the location and function of these parts.