Vermont Dept. of Public Service v. Massachusetts Mun. Wholesale Elec. Co.

• Decision Date: 27 September 1988
• Docket Number: No. 86-555,86-555
• Court: Vermont Supreme Court
• Parties: , 103 P.U.R.4th 515 VERMONT DEPARTMENT OF PUBLIC SERVICE v. MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC CO., et al.

Page 215

558 A.2d 215

151 Vt. 73, 103 P.U.R.4th 515

VERMONT DEPARTMENT OF PUBLIC SERVICE v. MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC CO., et al.

No. 86-555.

Supreme Court of Vermont.

Sept. 27, 1988.

Motion for Reargument Denied

Jan. 30, 1989.

Jeffrey L. Amestoy, Atty. Gen., William E. Griffin, Chief Asst. Atty. Gen., and Michael

Marks, Dinah Yessne and Samuel H. Press, Sp. Asst. Attys. Gen., Montpelier, for plaintiff-appellant Dept. of Public Service.

Edward B. French, Jr., David B. Stackpole Law Offices, Stowe, for plaintiff-appellant Village of Stowe.

Michael L. Burak and Jon T. Anderson of Goldstein, Manello, Burak & Gabel, Burlington, for plaintiff-appellant Vermont Elec. Co-op.

Parker, Lamb & Ankuda, P.C., Springfield, and Daniel O. Mahoney and Jeffrey F. Jones of Palmer & Dodge, Boston, Mass., for defendant-appellee Massachusetts Mun. Wholesale Elec. Co.

Stephen C. Walke, Jr. and Ralph W. Howe, III of Paterson, Walke & Pratt, P.C., Montpelier, for defendants-appellees Washington Elec. Co-op. and Village of Ludlow, Lyndonville, Morrisville and Northfield.

Rubin, Rona, Kidney & Myer, Barre, for amicus curiae Vermont Public Interest Research Group, Inc.

McKee, Giuliani & Cleveland, Montpelier, for amicus curiae Vermont League of Cities and Towns.

Before ALLEN, C.J., PECK, J., and BARNEY, C.J. (Ret.), KEYSER, J. (Ret.) and MARTIN, Superior Judge, Specially Assigned.

ALLEN, Chief Justice.

In 1979, four Vermont municipalities and two electric cooperatives contracted with the Massachusetts Municipal Wholesale Electric Company (MMWEC) for shares of the power generating potential of its Project No. 6. This project consisted of a 6.001 percent ownership interest in two nuclear power plants to be built in Seabrook, New Hampshire. In 1985, the Vermont Department of Public Service (Department) filed a complaint in Washington Superior Court, alleging that the Vermont utilities had violated statutory and common law in executing the contracts with MMWEC. The superior court granted summary judgment for defendants, and this appeal ensued. We reverse and hold that the contracts were void ab initio.

Although the underlying litigation was designated formally as a complex action under the provisions of V.R.C.P. 16.1, only a brief summary of the procedural history is necessary here. The Department filed its complaint, seeking declaratory and injunctive relief, on October 18, 1985. The Village of Stowe intervened shortly thereafter as a plaintiff, and the Vermont Electric Cooperative (VEC), originally a defendant, was denominated a plaintiff after accepting plaintiffs' position. The defendants include MMWEC and the Villages of Ludlow, Lyndonville, Morrisville, and Northfield, as well as the Washington Electric Cooperative (WEC).

MMWEC is a joint planning and action agency, incorporated under the terms of special enabling legislation in Massachusetts, through which municipal electric systems may finance and acquire supplies of electrical power or power sources. Its membership comprises thirty-four Massachusetts municipalities; it is governed by a board of nine directors, two appointed by the Governor and seven elected by the Massachusetts-member municipalities. There is no provision for representation of the Vermont municipalities or cooperatives on the MMWEC Board.

In 1976, MMWEC began development of a bulk power supply system consisting of ownership interests in various existing and planned electric power facilities. Included among the planned facilities were Seabrook nuclear plants No. 1 and No. 2. MMWEC obtained a fractional ownership interest in the two plants and designated this interest as Project No. 6. The contracts at issue here relate to this project.

The basic theory under which the parties operate is as follows: MMWEC finances its construction and other costs by issuing bonds; in return, the participants commit a sufficient portion of their utility revenues to cover MMWEC's monthly debt service on the bonds. To this end, MMWEC and public utilities from several states, including the Vermont participants, executed "power sales agreements" (PSAs) regarding Project No. 6. ¹

Under the agreements, which became effective upon the execution and delivery of PSAs covering 100 percent of the project, participants purchased shares of "project capability." "Project capability" is defined in the PSAs as "the amounts of electric capacity and energy, if any, which the Project is capable of producing at any particular time (including times when the Project is not operable or operating or the operation thereof is suspended, interrupted, interfered with, reduced or curtailed, in each case in whole or in part for any reason whatsoever), less Project station use and losses...."

Each month, the participants are required to pay their proportional shares of MMWEC's costs relating to the project, including debt service; an additional ten percent of the debt service figure is paid monthly for deposit in a reserve and contingency fund. MMWEC is empowered to fix these monthly payments so as to provide revenues sufficient to meet its obligations. The participants are not required to make payments from any source other than revenues derived from their electric departments or systems, but they are obligated to fix their rates in amounts at least sufficient to meet their obligations under the PSAs. Participants also agree to pay any unrelated debts or amounts which might otherwise constitute a charge or a lien upon their revenues, and, except in certain circumstances, they forego the right to issue any of their own revenue bonds without first providing for the payment of all operating expenses and the monthly payments to MMWEC. Further, the agreements include a so-called "step-up" provision, under which each participant's monthly obligation will increase proportionately to cover MMWEC's costs should any participant default.

The participants must make the scheduled monthly payments to MMWEC without regard to whether the project is completed, operating, or even undertaken. Such provisions are known variously as "take-or-pay" or "hell or high water" because of the unconditional nature of the obligation imposed. Here, the monthly payments are required in their full amounts, even if no electricity is ever produced. Participants do not acquire any ownership interest in the physical plant.

The agreements provide further that MMWEC, acting in good faith and in accordance with the tenets of "Prudent Utility Practice" (a term defined in the agreements), will use its best efforts to arrange for the financing, planning, engineering, design, acquisition, construction, operation and maintenance of the project; obtain all necessary permits and rights; and issue revenue bonds to finance all costs. While the Vermont participants share in the costs and risks of the project, they retain no decision-making power with respect to the incurrence of debt, plant construction, or operation.

In the superior court, the parties filed an extensive stipulation of facts, a procedural stipulation, and subsequent motions and cross-motions for summary judgment. After hearing, the court granted summary judgment in favor of defendants. The judgment was entered pursuant to V.R.C.P. 54(b) on the cross-claims for summary judgment.

Three principal questions are presented on appeal. First, plaintiffs contend that the lower court erred in concluding that the Vermont utilities had statutory authority to enter into contracts that include take-or-pay provisions. Second, we must determine whether the PSAs are void, in any event, because the participants attempted to transfer all decision-making authority with regard to the project to MMWEC, thereby violating the fundamental principle of nondelegation. Finally, plaintiffs maintain that the municipal utilities could not legally incur the financial obligations at issue without obtaining voter approval and that the cooperatives were required to obtain the approval of the Public Service Board.

I.

In concluding that the Vermont participants were authorized to enter into the PSAs, the superior court relied upon 30 V.S.A. § 4002, which provides in part that:

Any cooperative or municipal electric utility shall have:

....

(2) authority to act in participation with other such utilities in arranging for the purchase of supplies of capacity and energy from other utilities, either within or without the state of Vermont, including purchases from private electric utilities, municipal electric utilities, cooperatives, associations of utilities, or public authorities; ...

The plain language of this section authorizes Vermont utilities to act jointly in obtaining supplies of electrical capacity and energy. Here, however, the participants in the project are not involved in the ordinary purchase of capacity and energy. Instead, they have obtained shares of "project capability," defined in the agreements as "the amounts of electric capacity and energy, if any, which the Project is capable of producing at any particular time...." (emphasis supplied). Section 4002 provides basic joint purchasing authority; it does not follow that municipal and cooperative utilities are free to enter into speculative contracts that impose unconditional, long-term obligations in the face of "if any" disclaimers. The statute authorizes joint purchases of supplies of capacity and energy. It is contemplated that these supplies will be ascertainable in amount and that contractual remedies will be available in the event of any deficiencies.

A comparison with the provisions of two other statutes illustrates the limited scope of the plain language in question. 30 V.S.A. § 604(a)(2) provides that, in addition to the general powers granted to municipal utilities, Burlington and Lyndonville may enter into utility contracts, "including, without limitation, contracts for the payment of obligations imposed without regard to the operational status of a...