USGen New England, Inc. v. Ocean State Power, a general partnership et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In re: 	:
USGen New England, Inc. 	: 	Case no. 03-30465 PM
Chapter 11
:
Debtor.
____________________________________
USGen New England, Inc. 	:
Plaintiff, 	:
Adv. Proc. No. 05-1958
v. 	:
Ocean State Power and 	:
Ocean State Power II
:
Defendants.
___________________________________________________________________
MEMORANDUM OF DECISION
Plaintiff filed a Motion for Summary Judgment on May 5, 2006 (“Plaintiff’s Motion”).
Defendants filed a Cross-Motion for Summary Judgment on June 2, 2006 (“Defendants’
Motion”). Oppositions and replies were filed in response to both Motions. A hearing was held
on the Motions on July 11, 2006. For the reasons stated below, Plaintiff’s Motion will be
granted and Defendants’ Motion will be denied.
Date signed July 19, 2006
Entered: July 20, 2006 Case 05-01958 Doc 43 Filed 07/20/06 Page 1 of 5

2
The basic facts underlying the Motions are undisputed. Plaintiff and Defendants entered
into a contract entitled “Equalization Agreement” on June 28, 2002 (the “Agreement”). Under
the Agreement, Defendants agreed to pay an “Equalization Payment” of $1,615,635.50 in equal
monthly installments of $31,234.76 per month for sixty months. Defendants made a payment of
$187,408.56 representing six months of payments as a security deposit.
Defendants made their first monthly payment under the Agreement on September 3,
2002, and made their last monthly payment on August 3, 2004. After August 3, 2004, Plaintiff
applied the security deposit to Defendants’ next six monthly payment obligations through
February 2005. A demand letter was sent to Defendants by Plaintiff on February 28, 2005, and
this adversary proceeding was commenced on September 16, 2005.
The parties entered into the Agreement at approximately the same time as the Plaintiff
and Defendants separately entered into negotiated rate agreements with Tennessee Gas Pipeline
Company (“Tennessee Gas”). According to the terms of the Agreement, the Equalization
Payment was to “equalize the economic benefit conferred by [the negotiated rate agreement
between Tennessee Gas and Plaintiff] by adjusting [Plaintiff’s] fixed transportation costs in the
form of a payment by [Defendants] to [Plaintiff]”. The Agreement was conditioned upon the
issuance by the Federal Energy Regulatory Commission (“FERC”) of orders approving the
negotiated rate agreements between Plaintiff and Tennessee Gas and between Defendants and
Tennessee Gas. The parties agree that the orders approving the negotiated rate agreements were
entered by FERC on July 1, 2002 and August 2, 2002.
Plaintiff rejected its negotiated rate agreement with Tennessee Gas as part of its Chapter
11 proceeding as of September 5, 2003. Plaintiff contends that the rejection of its negotiated rate
Case 05-01958 Doc 43 Filed 07/20/06 Page 2 of 5

1 	It should be noted that Defendants continued to make monthly payments under the
Agreement for at least ten months after Plaintiff’s rejection of the negotiated rate agreement with
Tennessee Gas, and that Defendants are wholly owned subsidiaries of TransCanada Corporation,
an active participant in the main bankruptcy case.
3
agreement with Tennessee Gas had no effect on Defendants’ obligations under the Agreement,
and that Defendants’ are liable for the remaining payments due under the Agreement.
Defendants dispute this argument in their Motion, arguing that Plaintiff’s rejection of its
negotiated rate agreement with Tennessee Gas eliminated the underlying purpose of the
Agreement, resulting in an implied rejection of and material breach of the Agreement.
Defendants’ argument is based on its assumption that the Agreement and the two separate
Tennessee Gas negotiated rate agreements are interrelated contracts.
In the first instance, this adversary proceeding does not involve the rejection by Plaintiff
of its executory contract with Tennessee Gas, an entirely independent transaction. The rejection
of the negotiated rate agreement with Tennessee Gas has no bearing upon this adversary
proceeding. 1 A review of the terms of the Agreement is useful here. The Agreement provides as
follows:
This Agreement is entered into the 28 th day of June, 2002, by and between
USGen New England, Inc. (“USGenNE”) and Ocean State Power and Ocean
State Power II (“OSP”) (referred to as a “Party” or the “Parties”) to govern the
terms of payment from OSP to USGenNE as a result of the negotiated rate
agreements entered into on or about the date hereof, between USGenNE and
Tennessee Gas Pipeline Company (“Tennessee”) and OSP and Tennessee.
WHEREAS, USGenNE has entered into a negotiated rate agreement with
Tennessee under which USGenNE will convert its existing transportation
contracts under Rate Schedule NET-284 to a Rate Schedule FT-A contract
(collectively, the “USGenNE Tennessee Agreements”);
WHEREAS, OSP has also entered into a negotiated rate agreement with
Tennessee under which OSP will convert its existing transportation contracts to
Rate Schedule FT-A contracts (“OSP Tennessee Agreements”);
WHEREAS, USGenNE has executed the USGenNE Tennessee
Case 05-01958 Doc 43 Filed 07/20/06 Page 3 of 5

4
Agreements based in part on OSP’s commitment to equalize the economic benefit
conferred by the USGenNE Tennessee Agreements by adjusting USGenNE’s
fixed transportation costs in the form of a payment by OSP to USGenNE
(“Equalization Payment”); and
WHEREAS, the Agreement will govern the amount and terms of the
Equalization Payment to be paid by OSP to USGenNE.
The remainder of the contract details Defendants’ obligation to Plaintiff, including the
amount of the monthly installment payments and security deposit, as well as wire transfer
information. The terms of the Agreement specifically provide that Defendants’ “obligation to
pay the Equalization Payment is subject to and conditional upon” FERC’s issuance of orders
approving the negotiated rate agreements with Tennessee Gas. The Agreement contains no other
conditions to performance by Defendants.
The Court cannot overlook the extreme financial sophistication of the parties to this
Agreement. Its terms are unambiguous and call for no further explanations. Nothing in the
Agreement ties the payments to the continued performance by either party. The only condition
contained in the Agreement was the issuance by FERC of orders approving the negotiated rate
agreements, and the parties agree that such orders were entered by FERC in 2002. No other
conclusion can be reached than that Plaintiff converted its then existing rate schedule with
Tennessee Gas to the benefit of Defendants, and that Defendants agreed to pay Plaintiff
$1,615,635.50 for this benefit.
Defendants argue that the underlying purpose of the Agreement was that both parties
would continue performing under their separate negotiated rate agreements with Tennessee Gas.
These terms are not included within the Agreement, and as the court has determined that the
Agreement is unambiguous, any evidence as to the alleged purpose underlying the Agreement is
barred by the parole evidence rule. “Ordinarily, parol evidence is inadmissible to vary, alter, or
Case 05-01958 Doc 43 Filed 07/20/06 Page 4 of 5

5
contradict a contract that is complete and unambiguous.” Higgins v. Barnes, 530 A.2d 724, 726
(Md. 1987) (citation omitted). See also Markoff v. Kreiner, 23 A.2d 19, 23 (Md. 1941) (“The
reason for [the parole evidence rule] is that when contracting parties have discussed and agreed
upon their obligations to each other and reduced them to writing, their written contract is more
reliable as evidence than the uncertain memory of man.”). Accordingly, Plaintiff’s Motion will
be granted, and Defendants’ Motion will be denied.
Plaintiff’s counsel shall submit an appropriate order.
cc: 	Earl M. Forte, Esq.
Leslie Polt, Esq.
Marc Richards, Esq.
Adam M. Spence, Esq.
David W. Elrod, Esq.
Office of the United States Trustee
End of Order
Case 05-01958 Doc 43 Filed 07/20/06 Page 5 of 5