Opinion ID: 511559
Heading Depth: 2
Heading Rank: 2

Heading: Relevant Contract Provisions.

Text: 10 The Contract, which purports to constitute the entire understanding between the parties superseding any and all previous understandings, Contract p D-5.6, provides that each intervenor will pay a fixed percentage of the sum of all of the costs incurred by [BECO] by virtue of: (1) the construction of, or any modifications or additions to the Unit ... and (2) the operation and maintenance of the Unit.... Id. at p C-1.0, reprinted in AppC at 1. The contractual payment equation, see id. at p C-2.0, reprinted in AppC at 1-2, includes both capacity charges and monthly energy charges. The former are defined as comprising the sum of demand charges plus investment expenses. Id. at p C-6.1, reprinted in AppC at 6. The latter, which are subject to a mathematically precise formula, see id. at p C-7.0, reprinted in AppC at 10, are not in issue in this proceeding. 11 The terms demand charges and investment expenses are themselves further defined. It is clear that petitioner cannot recover the PAI as an investment expense. This is so because, as Appendix C explains, the Contract caps total interest costs, and also specifically limits the construction interest expense which can be recaptured by BECO as an investment expense. The cap is fashioned by Factor BI, see AppC at 9, which restricts BECO's interest costs to the weighted average of interest rates of all bond issues existing at the time of commercial operation of the Unit, revised as required to reflect refinancings of debt issues existing at the time of the commercial operation date. Id. The application of Factor BI leaves no doubt but that the financing formula is too inelastic to encompass petitioner's actual plant addition interest expense. The parties agree, for the purposes at hand, that the interest cost of debt existing at the commercial operation date of the unit, as subsequently refinanced, is 8.06%. 40 F.E.R.C. at p 61,013 n. 10. Conversely, [a]djustment of the interest cost to reflect issuances during construction of the plant additions results in a debt cost of 12.852%. Id. 12 Undaunted by the Factor BI barricade, petitioner resorted to the catch-all clause in the compendium of includable demand charges, see Contract p C-6.2.4, reprinted in AppC at 7, as a recoupment vehicle. Beginning in 1980, BECO billed the PAI costs which it incurred via the catch-all clause, reasoning that Factor BI applied only to the interest expense associated with the original construction of Pilgrim I and the refinancings of that indebtedness. BECO pointed to a general statement in the agreement to demonstrate that it was the parties' intent that the intervenors would pay the sum of all of the costs incurred by the utility. See Contract p C-1.0, reprinted in AppC at 1. Because of this paramount principle, and because Factor BI limited recovery of PAI qua investment expense, BECO argued that equity--and the central theme of the arrangement--demanded that it be permitted to recover the full PAI cost in some other manner, as through the catch-all clause. 13