PENNSYLVANIA W. & P. CO. v. CONSOLIDATED GAS EL & P. CO.

• Decision Date: 28 February 1950
• Docket Number: Civ. No. 4179.
• Citation: 89 F. Supp. 452
• Parties: PENNSYLVANIA WATER & POWER CO. v. CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE.
• Court: U.S. District Court — District of Maryland

89 F. Supp. 452

PENNSYLVANIA WATER & POWER CO. v. CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE.

Civ. No. 4179.

United States District Court D. Maryland.

February 28, 1950.

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Piper Watkins, Avirett & Egerton, Baltimore, Md. (James Piper and R. Dorsey Watkins, of Baltimore, Md.) and Wilkie Bushby and Everett I. Willis, of New York City, for plaintiff.

Venable, Baetjer & Howard, Baltimore, Md. (Harry N. Baetjer and Norwood B. Orrick, Baltimore, Md.), and Alfred P. Ramsey and G. Kenneth Reiblich, of Baltimore, Md., for defendant.

WILLIAM C. COLEMAN, Chief Judge.

This suit is brought by the plaintiff, Pennsylvania Water & Power Company, to obtain a declaratory judgment that a certain agreement made in 1931 by the plaintiff with the defendant, Consolidated Gas Electric Light & Power Company of Baltimore, is invalid and no longer enforceable.

The defendant filed a motion for a partial summary judgment with respect to everything done by it which plaintiff alleges in its complaint to be breaches of the agreement, on the ground that all questions of breach must be submitted to arbitration pursuant to the provisions of Article X of the agreement. After full hearing on this motion, the Court granted it and consequently limited the subsequent hearing exclusively to questions relating to the validity of the agreement, as distinguished from questions of its breach.

The plaintiff company, hereinafter referred to as "Power", is a Pennsylvania corporation engaged in generating and transmitting electrical power and energy by means of (1) a generating plant (primarily hydro-electric) located on the Susquehanna River at Holtwood, Pennsylvania, near the Maryland-Pennsylvania boundary; and (2) various transmission lines running to Baltimore and Perryville, Maryland, and to York and Coatesville, Pennsylvania; also a line between a point near Ellicott City and a point near Tacoma Park, Maryland, the lines in Pennsylvania being owned by Power, and the lines in Maryland being owned by a generating subsidiary, wholly owned by Power known as Susquehanna Transmission Company of Maryland.

Apart from Power's obligation to deliver energy under the agreement, here in issue, to the defendant company, which is a Maryland corporation, hereinafter referred to as "Electric", engaged in generating, transmitting and selling electric power and energy in Baltimore and adjacent areas; and with the exception of sales which have at times been made by Power to its wholly owned generating subsidiary above mentioned and to the Baltimore Transit Company which owns and operates Baltimore's transportation system, Power has been serving only other public utilities that in turn distribute or sell to consumers. On the other hand, Electric generates and sells energy direct to the consumer, large and small, throughout Baltimore city and adjacent areas in which it has a monopoly so to do by the public utility laws of Maryland and is subject to the regulatory powers of the Maryland Public Service Commission.

Power's generating and transmission facilities are used exclusively for bulk sales of electrical power and energy to the five following public utility companies: (1) Electric, under the so-called basic agreement of June 1, 1931, here in issue, and its supplements, this agreement (Article I) expressly supplementing and in substantial respects superseding an agreement dated December 31, 1927, for a number of years prior to which Power had supplied energy to Electric, the first transmission lines from Holtwood to Baltimore having been built as early as 1910; (2) Metropolitan Edison Company of Pennsylvania, under a contract dated November 15, 1945, which supplanted earlier contracts with Metropolitan Edison (or its predecessor affiliate, Edison Light & Power Company); (3) Philadelphia Electric Company, owner of the hydro-electric plant on the Susquehanna River at Conowingo, Maryland, under a contract dated August 1, 1933, and supplements, which supplanted an earlier agreement between Power and a predecessor company of Philadelphia Electric; (4) Pennsylvania Water & Light Company, under a contract dated May 1, 1933, and supplements which supplanted an earlier contract between Power and a predecessor company; and (5) the Pennsylvania Railroad Company, under a still existing contract made in 1931 to which Electric is also a party. Electric consented to the execution by the plaintiff of all of these contracts with the utility companies just named which were entered into subsequently to the basic agreement between Power and Electric here in suit.

This basic agreement which bears date of June 1, 1931, is by its terms (Article I) to run for forty-nine years, that is, until April 22, 1980, or for a little more than thirty years from the present time. Power's annual report to its stockholders for the year 1931 gives a very concise description of the purposes and effect of the agreement as follows: "A supplemental power agreement, dated June 1, 1931, for a period of forty-eight years, was also made between your Company and the Consolidated Company, under which the Consolidated Company has purchased the entire supply of power and energy available to your Company not otherwise disposed of under existing contracts, the payments again being based on annual sums, rather than upon amount of output. The proceeds received from sales to other customers will be credited on the annual payments which the Consolidated Company is required to make to your Company."

"The new contractual arrangement with the Consolidated Company covers a period of forty-eight years and constitutes virtually a guarantee of earnings on your Company's capital stock, since all the payments which the Consolidated Company is obligated to make to your Company are an operating expense of that company and thus come ahead of the dividends on its own preferred and common stock."

The underlying reason for the parties making this agreement is more specifically set forth in the preamble recitals in the agreement itself, as follows: "Whereas an agreement has been made between Power and Electric dated December 31, 1927, and terminating December 31, 1970, providing among other things that the investment programs of said companies for additional generating and transmission facilities shall be co-ordinated well in advance, to the greatest benefit to the parties and to the public served by them; and

"Whereas in accordance with this intent of said agreement, Power and Electric have made an agreement of even date herewith, terminating April 22, 1980, with Safe Harbor Water Power Corporation, a corporation of the State of Pennsylvania, hereinafter called Safe Harbor, for the transmission and purchase of electrical power and energy, by Power one-third, and by Electric two-thirds, of the electrical output of the initial development of a hydroelectric project of Safe Harbor, known as the Safe Harbor Development, whereby the operation of the hydroelectric and steam-electric generating plants of Power at Holtwood, Pennsylvania, and of the Safe Harbor Development, will be so co-ordinated that the greatest possible combined amount of power and energy will be derived therefrom; and

"Whereas determination of the relative pecuniary rights and obligations of Electric and Power under said two agreements is difficult and expensive, and likely to become increasingly so, and is not conducive to the most effective utilization of output, and coordination in operation, of the two plants; and more complete co-ordination can be attained and greater economies effected by the sale to Electric of all of Power's electrical power and energy (including that to be purchased from Safe Harbor) available for such sale, and by payment therefor on the basis of an annual charge, (instead of unit rates for power and energy), which together with payments from other customers is expected to yield to Power approximately the same net power revenue now received by Power from all its customers, including Electric, plus a reasonable income on any additional investments hereafter made by Power to serve any customers."

In order that the agreement may be fully presented and understood at the outset of this opinion, we give the following summary of the contents of each of its ten Articles:

Article I provides that the agreement is to supplement the agreement of December 31, 1927 between the parties, and to re-affirm all consistent provisions thereof, and then prescribes the forty-nine year term, which we have heretofore explained.

Article II provides for the purchase by Electric of all of Power's electrical capacity and energy not otherwise disposed of by Power in the performance of (1) Power's then existing contracts (namely, those with its Pennsylvania customers); (2) new contracts entered into by Power with Electric's approval; and (3) "any duty or obligation to serve imposed on Power by its charter or otherwise by law."

Article III provides that subject to the orders of "any regulatory authorities in the exercise of their respective powers and jurisdiction under the laws of Pennsylvania, Maryland, and/or the United States to fix reasonable rates," and subject to increase or decrease "by agreement of the parties subject to the regulatory powers of such authorities", Electric shall make annual payments to Power consisting of: (1) a large fixed sum, computed and fixed as set forth in this Article to be approximately $2,832,259.75 as of the year 1930, subject, however, to reduction for certain years, according to a formula set forth in Article III as modified by the supplemental agreement of September 29, 1939; (2) also a sum equal to a substantial percentage (as much as 19.30% after 1938) of the cost of net additions made by Power and its subsidiaries to plant and related facilities as modified by the supplemental agreement of September 29, 1939; (3) also an amount equal to all of Power's...