Court Opinion

ID: 9731340
Source: CourtListenerOpinion
Date Created: 2023-08-26 15:42:30.413596+00
Date Added: 2024-06-11T18:26:17.121543
License: Public Domain

Morse, J.,
dissenting. The Court says “this case is about regulatory law, not VPX contracts” and concludes that regulatory law does not mandate enforcement of the letter of intent because it is not a “legally enforceable obligation.” I respectfully depart from the Court’s interpretation of the language “legally enforceable obligation for the delivery of energy or capacity over a specified term” found in FERC regulation § 292.304(d)(2). I believe Ryegate obligated itself to provide power in the letter of intent so long as certain conditions were met. Conditional “obligations” may be “legally enforceable,” and nothing in the regulations says they are not. I would reverse.
*129I.
For purposes of this case, I read the words “legally enforceable obligation for the delivery of energy or capacity over a specified term” simply to mean a contract “for the delivery of energy or capacity over a specified term.” How can the words “legally enforceable obligation” mean anything less in this context?
The phrase “legally enforceable obligation” has been interpreted expansively. In Snow Mountain Pine Co. v. Maudlin, 84 Or. App. 590, 599, 734 P.2d 1366, 1370-71 (1987), the mere tender of a contract by a qualifying facility to provide power was a “legally enforceable obligation” because under FERC regulations a “facility’s self-imposed obligation to deliver energy triggers a utility’s obligation to purchase energy.” (Emphasis in original.) Thus, contrary to the Court’s analysis that “regulatory law” restricts the common law of contracts, the common law is expanded. Therefore, at the very least, “legally enforceable obligation” means a contract. Why this case isn’t about contract law is bewildering.
Furthermore, the Court’s opinion flatly contradicts an important policy set forth in the regulatory law. As the introduction to the regulations found at 18 C.F.R. § 292.304(b)(5) states:
The import of this section is to ensure that a qualifying facility which has obtained the certainty of an arrangement is not deprived of the benefits of its commitment as a result of changed circumstances. This provision can also work to preserve the bargain entered into by the electric utility; should the actual avoided cost be higher than those contracted for, the electric utility is nevertheless entitled to retain the benefit of its contracted for, or otherwise legally enforceable, lower price for purchases from the qualifying facility.
(Emphasis added.)
Because “certainty of an arrangement” can be achieved by the mere tender of a contract, the Court turns the regulatory landscape upside down by holding that not even a contract provides “certainty of arrangement.” I suspect, given this approach, the Court does not think the letter of intent is a contract. Its analysis of the validity of the letter of intent is as follows:
*130We have examined carefully the letter of intent in the context of the entire Vermont scheme to implement PURPA and the VPX producer’s guide. The letter clearly binds VPX as a matter of allocation of the power purchase obligations and rates available to it. Nowhere, however, has Rye-gate assumed a legally enforceable obligation to deliver any energy to VPX and through it to the utilities and consumers in the state. At best, Ryegate has obligated itself to go through a number of development and regulatory steps that may lead to an obligation to deliver energy, if all goes well.
Under applicable precedent, however, I believe the Court is wrong.
In the letter of intent, VPX and Ryegate agreed to enter into a long-term contract for the purchase and sale of a specified amount of power at a specified rate provided certain conditions were met. The parties exchanged promises: VPX to buy and Ryegate to sell power. A party’s promise is consideration for the other party’s promise. H.P. Hood & Sons v. Heins, 124 Vt. 331, 337, 205 A.2d 561, 565 (1964). The contract was conditioned on four events happening: (1) within 45 days, Ryegate must have applied for a certificate of public good, 30 V.S.A. § 248; (2) within six months of receiving the certificate (excluding winter months), Ryegate must have begun construction of its power facility; (3) Ryegate must then have completed construction of the facility and be prepared to deliver power within twenty-four months after construction commenced; and (4) Ryegate must have executed a long-term agreement within sixty days of rate approval by PSB. If Ryegate failed to meet all these conditions, the obligations to sell and to buy would have terminated.
In this technological age when lead time between planning, financing, and construction is considerable and critical to the success of major construction, projects are often undertaken under conditional agreements. Restatement (Second) Contracts § 224 (1981) defines a “condition” as “an event, not certain to occur, which must occur ... before performance under a contract becomes due.” Cases upholding such contracts are legion. See id. (cases collected in appendix).
The asymmetry of obligation inherent in the letter of intent does not undermine its enforceability. What apparently bothers *131the Court is that the letter of intent is, as the Board stated, “not founded on mutual voluntary undertakings,” that is, VPX promised certain rates but Ryegate was not bound to produce any power. “Mutuality of obligation,” however, is not essential to an enforceable contract; any independent meaning that this term may once have had has been subsumed into the concept of adequacy of consideration. Restatement (Second) Contracts § 79(c) and comment a (1981). Further, the requirement that there be consideration is not synonymous with a requirement of equal or coextensive promises. See Hood, 124 Vt. at 338, 205 A.2d at 566; 1 S. Williston, Law of Contracts § 105A, at 425 (3d ed. 1957). Even if one party has options not provided to the other party— e.g., to cancel or renew the contract or to determine the extent of performance — the contract is not per se unsupported by consideration. Rather, a contract is incomplete only if one party’s obligations are so attenuated as to render consideration merely illusory. Williston at 424-25.
Although Ryegate could have put an end to the venture by failing to meet one of the conditions and VPX had no corresponding power to end it if Ryegate continued to meet the conditions, consideration (the exchange of promises) was not illusory. A promise is illusory only if the promisor’s future action is not limited in any way. 1 A. Corbin, Corbin on Contracts § 149, at 657 (1963). See, e.g., Scott v. Moragues Lumber Co., 202 Ala. 312, 314, 80 So. 394, 396 (1918), which Corbin uses to illustrate this principle. If A promises to charter a boat to B on specified terms and the promise is conditioned on A buying the boat, then A is bound either to buy the boat and charter to B or not to buy the boat at all; A cannot buy the boat and not charter to B. Although a letter of intent does not obligate a producer to build a plant or to produce any power, once a producer performs, it must sell the agreed upon amount of power to VPX at the agreed upon rate.
That a “locked-in” rate was critical to Ryegate in going forward with its project cannot be doubted. Would a producer undertake the planning, the financing, the regulatory process, and the construction of a power plant, knowing that anytime along the way the “certainty of the arrangement” on rates was in doubt depending on economic fluctuations in the electric utility market? Indeed, the assumption behind PURPA is that without *132a locked-in rate ensuring a basis for economic planning and profit, small producers would not be induced reasonably to enter the market. See, e.g., 18 C.F.R. § 292.304(d)(2) (small power producers contracting to deliver energy may choose to have purchase price based on avoided costs calculated either at the time of delivery or at the time of contract). The producer’s promise is not merely illusory, and therefore the letter of intent is an enforceable contract.
The Department is candid that its action is based on changed conditions in the energy marketplace since the letter of intent with Ryegate and similar letters with others were signed. The Department’s position, however, denies small power producers like Ryegate the very sense of stability and predictability that the PURPA and the Board’s rule were intended to promote. I cannot doubt that the letter of intent is an enforceable agreement fulfilling the very purposes that the Board intended for it, at least viewed from the moment of the adoption of Rule 4.100, rather than with the benefit of hindsight viewed from atop the remains of a collapsed oil market.
In sum, the letter of intent was a “legally enforceable obligation” by Ryegate “for the delivery of energy,” 8855 kilowatts, “over a specified term,” 30 years. The plain meaning of the applicable regulation was met.
II.
Because I would reverse the Board’s decision, I address the issue raised by the date of on-line capability as it relates to the thirty-year rate schedule. A reason for denying Ryegate the 4933 thirty-year rates was the Board’s view that being on-line by April 30,1988, was a condition precedent for receiving them. The Board and Department do not contend that adjustments in the rate schedule for 4933 would be theoretically impossible or practically unmanageable. Rather, they argue that to make adjustments in a particular case would result in a rate that was not a “docket 4933 rate” and hence would not be what Ryegate bargained for. This is a brittle view of contract law in the face of the complexity of forecasting “avoided costs” into the distant future. The Board is correct that a 4933 rate adjusted to the date of appellant’s actual commencement of operations is not literally the “same” schedule as that ordered in the proceeding. *133But that position, if determinative, would bar the equitable adjustment of contract provisions to allow for changes in circumstances and to fulfill the intention of the parties.
I agree that the Board could have set a coming-on-line deadline in Docket 4933 or VPX could have included a deadline as a condition in its letter of intent. Neither was done, and reference to Docket 4933 in the letter of intent does not necessarily imply such a deadline.
The Board stated that producers like Ryegate “do not deny that the temporal limitation of 4933 rates is inherent in the rate structure or that they were unaware of it,” but constructive knowledge of the rate schedule’s temporal nature cannot be bootstrapped into becoming a contract condition where none previously existed.
A qualifying facility executing a letter of intent with VPX ' with respect to the rates in Docket 4933 would be aware that these rates were lagged to six different periods, with a concluding date for the last period of April 30, 2018. Such knowledge, however, simply does not define the reasonable expectation of a qualifying facility agreeing expressly to lock in 4933 rates.
The Board’s position is basically that time was of the essence: if Ryegate was to benefit from the terms of the letter of intent, it had to meet the time requirements specified in the contract. See Mouat v. Wolfe, 150 Vt. 637, 639, 556 A.2d 99, 101 (1989) (quoting 6 S. Williston, Law of Contracts § 846, at 181 (3d ed. 1962)). Even if the parties had expressly stated a deadline, time would riot necessarily be of the essence. Colony Park Associates v. Gall, 154 Vt. 1, 4, 572 A.2d 891, 893 (1990). Rather,
[t]he general rule in equity is that time is not of the essence of the contract, and equity will not treat it as of the essence of the contract unless it affirmatively and clearly appears that the parties so regarded it. . . . It is not enough that a specific time be named in the contract; the court is to look at the whole scope of transaction to see whether the parties really meant the time named to be of the essence of the contract.
Id. (quoting McLean v. Windham Light & Power Co., 85 Vt. 167, 182, 81 A. 613, 619 (1911)).
Here no coming-on-line deadline was specified. Although the contract contains some intermediate deadlines presumably in*134tended to keep the project on track, it notably omits a specific closing date. Nothing in the parties’ conduct at the time of signing the contract or subsequently indicates that they were operating under a deadline. There is no indication that VPX checked up on Ryegate’s progress or warned it that it was in danger of losing its rates by falling short of a deadline. See id. at 4-5, 572 A.2d at 893-94.
That Docket 4933 rates ended on April 30, 2018, does not mandate interpreting the letter of intent to include a coming-on-line deadline. More plausible interpretations are that once 4933 rates were exhausted, say, for example, in twenty-nine years, either new rates could be formulated consistent with 4933 projections to cover the thirtieth year or rates from whatever docket was then in effect could be substituted. Further, under appellant’s letter of intent, the 4933 rates apply only to the first 8855 kilowatts of power produced (less than half of the total contracted for). As a practical matter, Ryegate would have switched over to another docket rate well before its thirtieth year. The inconsistency between the length of the docket and the length of the contract would then not be an issue. In short, the fact that Ryegate may be subject to only twenty-nine or so years of the 4933 thirty-year rate schedule is not a large enough tail to wag the dog. The Department is obviously not concerned with the thirtieth year of the contract; rather, it is concerned that producers who signed letters of intent referenced to Docket 4933 will be receiving rates that now look inflated. But that was precisely the risk that both parties took.
The Board legitimately should be concerned that letters of intent not be open-ended. It is reasonable that producers must take action within specified time frames or lose the benefit of the rates stated in the letter of intent. This case does not present an open-ended schedule. So long as Ryegate proceeded in good faith, it had a reasonable time to open its plant.
The Court’s hands-off approach to the Board’s sleight of hand may serve as a blessing to ratepayers in this case, but, in my opinion, is bad utility law. If a contract is not a contract when ratepayers are adversely affected, would-be power producers will think twice before committing capital to projects, and that will eventually drive up energy costs for everyone. The Court’s analysis reminds me of the “curdled cliche” that an oral promise isn’t worth the paper it’s written on.
I dissent.