Opinion ID: 1321950
Heading Depth: 1
Heading Rank: 10

Heading: Concealed Benefits of the New Fontana Agreement

Text: The Commission found the concealed benefits flowing from Nantahala to Alcoa by virtue of the NFA to be entirely different in nature from those which flow from Nantahala to Tapoco, and ultimately to Alcoa from the 1971 Apportionment Agreement. The basic inequity to Nantahala arising out of the NFA is that the energy entitlement returned to Nantahala and Tapoco from TVA is structured to meet Alcoa's demand for a certain amount of stable electricity for purposes of aluminum production rather than a demand for a public load. Consequently, the NFA returns to the system an average of 218,300 kw of energy at a high load factor with minimal peaking deviation, which is principally designed to service Alcoa's pot-lines and other production electrical requirements. Even the interruptible and curtailable energy entitlement returned to Nantahala-Tapoco is in increments of wattage that conform to the demands of a pot-line so that, if power is interrupted or curtailed, Alcoa can respond by cutting out a particular pot-line. Nantahala, on the other hand, has a fluctuating demand for energy which has peaks and valleys. Its electrical requirement is for assured, but constantly variable amounts of energy. Nantahala needs peaking capacity and its generation projects possess peaking capacity, yet the NFA traded away that peaking capacity to TVA. The Commission agreed with the intervenors that the trade-off of Nantahala's own peaking capacity, at a time when Nantahala's load required such peaking capacity, thus forcing the utility to purchase capacity back at a higher price from TVA, was not the result of enlightened, arm'slength bargaining and that the detriment resulting to Nantahala from the design of the NFA entitlements flows to Alcoa as a benefit. In fact, the intervenors' evidence demonstrated that Alcoa reaped enormous benefits through the trade in the improvement of the availability of Tapoco's secondary energy production from a level of 42 per cent average curtailment to an average curtailment rate of only 8 per cent. In addition, Tapoco's generation statistics reflect the benefits of coordination with the Fontana Project and other forms of integration with TVA. These figures are inconsistent with the isolated system model utilized as a basis for the 1971 Apportionment Study. Again, it was evident that the two operating subsidiaries were treated as a single system for purposes of bargaining with TVA over the value of their combined contribution to the TVA system, and were only separated out as if they were independent systems for the purposes of dividing the return entitlements between them. The Commission noted that Alcoa was in direct control of the [NFA] negotiations, and, unlike the Nantahala ratepayers, has had every ability to protect its own interests during the negotiations. Respondents cannot now be heard to claim that they are dissatisfied with the NFA so as to place the cost responsibility for the deficiencies of that agreement upon Nantahala's ratepayers. In explanation of the design of the NFA, the Commission observed that during the negotiation stage of the NFA, the parties contemplated the sale of Nantahala's distribution system to Duke. The sale would have left Nantahala with its generation, but without a public service load, so that all of its NFA entitlements would be satisfactory for delivery to Alcoa irrespective of quantity and design; in no manner was the NFA structured to meet Nantahala's public service needs. Next, in passing, the Commission rejected the remedy of regulatory reformation of the NFA to properly award to Nantahala its just entitlements as, of necessity, somewhat hypothetical at this stage of the case. Rather, for cost allocation purposes, the Commission concluded that the roll-in technique avoids the need for complete identification of inequities and is nicely suited as a proper alternative to reformation of contracts. On the basis of its discussion of the various detriments to Nantahala resulting in benefits to Alcoa, both directly and through Tapoco, and upon careful consideration of the entire evidence of record, the Commission concluded that it should reject the companies' proposed allocation methodology in that said methodology in all material respects is based upon the New Fontana Agreement and the Tapoco-Nantahala Apportionment Agreement. Under a separate heading, the Commission discussed the manner in which the companies employed the data contained in the NFA and the Apportionment Agreement in greater detail to show why their allocation methodology was not proper for computing Nantahala's retail costs of service.