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Potomac Electric Power Company (PEPCO) is an electric utility serving the metropolitan Washington, D.C., area. Panda-Brandywine, L.P. (Panda) is a “qualified facility” under the Public Utility Regulatory Policies Act of 1978. In August 1991, PEPCO and Panda entered into a power purchase agreement (PPA) calling for (1) the construction by Panda of a new 230-megawatt cogenerating power plant in Prince George’s County, Maryland; (2) connection of the facility to PEPCO’s high-voltage transmission system by transmission facilities to be built by Panda but later transferred without cost to PEPCO; and (3) upon commencement of the commercial operation of the plant, for PEPCO to purchase the power generated by that plant for a period of twenty-five years. The plant was built at a cost of $215 million. The PPA is 113 pages in length, is single-spaced, and is both detailed and complex. It gave PEPCO substantial authority to review; influence; and, in some instances, determine important aspects of both the construction and operation of the Panda facility. Section 19.1 of the PPA provided that the agreement was not assignable and not delegable without the written consent of the other party, which consent could not be unreasonably withheld. In 1999, Maryland enacted legislation calling for the restructuring of the electric industry in an effort to promote competition in the generation and delivery of electricity. PEPCO’s proposed restructuring involved a complete divestiture of its electric generating assets and its various PPAs, to be accomplished by an auction. The sale to the winning bidder was to be accomplished by an Asset Purchase and Sale Agreement (APSA) that included the PPA to which PEPCO and Panda were parties. Under the APSA, the buyer was authorized to take all actions that PEPCO could lawfully take under the PPA with Panda. On June 7, 2000, Southern Energy, Inc. (SEI), was declared the winning bidder. On September 27, 2000, the Public Service Commission (PSC) entered an order declaring, among other things, that the provisions in the APSA did not constitute an assignment or transfer within the meaning of Section 19.1 of the Panda PPA, that PEPCO was not assigning “significant obligations and rights under the PPA,” that Panda would not be harmed by the transaction, and that the APSA did not “fundamentally alter” the contract between Panda and PEPCO. The PSC thus concluded that Panda’s consent to the proposed APSA was not required. Panda disagreed. Is Panda correct? Explain. |
Explanation
The control on the facility operations of Pa was given to Pe. Pa relied on the capabilities of Pe and had accepted a joint venture. It is clear that Pa has substantial interest in the performance of Pe, whereas Pe has delegated the work to S. Pa has no connections with S, who is the performer of the contract, and S also has been given the authority to delegate work to anyone. However, section 19 prohibits the transfer of any such rights and responsibilities, so the agreement is considered to be unenforceable and illegal.
Verified Answer
According to the delegation of duties clause, Pa is precise in argument. The delegation by Pe was not done in the rightful manner. There is no delegation or assignment without written consent as per public utility regulatory policies act agreed by the parties. Contractual duties can be assigned only on few cases, such as included in the contract previously, where return performance cannot be received or if assignment is outlawed.
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