no other tortious conduct by GE, we reject PP&L's tortious interference claim.
The bulk of our discussion, however, will relate to the contract issues. In that discussion we conclude, inter alia, that: (1) there was no U.C.C. § 2-207 contract, on Ebasco terms or otherwise; and (2) the Ebasco standard terms themselves, when construed in the light of the Ebasco-GE course of dealing and the usage of the trade, limit PP&L's recovery for the most part to the cost of replacement and repair and do not permit recovery for cost of replacement power under any theory, I. e. contract, negligence, or strict liability.
The "bottom line" of the foregoing is our finding that Supplement 16 is valid, insulating GE from PP&L's claims for cost of replacement power under the steam turbine generator contract, and further that GE is also insulated from liability for cost of replacement power on the other contracts that it had with Ebasco, even though those other contracts were made according to Ebasco's standard terms and were not covered by Supplement 16. We add that on the contract issues, just as on the authority and tortious interference issues, the result flows primarily from the facts developed at trial. This should not be surprising since Ebasco I suggested that the intent of the contracting parties needed illumination from such sources as course of dealing, trade custom and understanding, and the events involving Brunner # 3. Indeed, although Ebasco I focused in large measure on the tension between the July 15, 1964 GE quotation and the July 21, 1964 Ebasco letter of intent and purchase order, the record on which the case is now to be decided is infinitely more ample; we did not appreciate when we filed Ebasco I the extent to which the interstices would be augmented by a full trial record.
This opinion constitutes our findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).
II. Findings of Fact A. Background: The Parties; the Steam Turbine Generator; PJM; and "Cost of Replacement Power"
1. The Parties to the Case
PP&L, headquartered in Allentown, Pennsylvania, is an investor-owned Pennsylvania public utility that provides electric power to large areas of northeastern and central Pennsylvania. This case concerns the third unit at PP&L's Brunner Island power plant, south of Harrisburg, Pennsylvania. Brunner # 3 was erected between 1965 and 1968 to augment PP&L's generating capacity. Ebasco, headquartered in New York, is a corporation engaged in designing and constructing power plants and acts in various capacities on behalf of its scores of utility clients throughout the world. Foster Wheeler and Combustion manufacture and sell components of power plants and supplied major equipment for Brunner # 3. GE is a New York corporation that, since 1900, has been engaged in the business of building and supplying to the electric power industry turbine generators and other equipment employed in the generation of electricity. GE is a large diversified corporation and is highly decentralized, with many independent and autonomous divisions.
2. The Steam Turbine Generator
Although this lawsuit has involved a considerable number of the myriad components of a power plant, the piece of equipment that mainly concerns us is the steam turbine generator. A steam turbine generator is at the heart of any power plant. The turbine obtains steam, under pressures up to super-critical pressure of 3500 lbs per square inch, from either a coal- or oil-fired boiler or a nuclear steam supply system. The steam causes the turbine rotor and its blades (or "buckets") to rotate at very high speeds, often 3600 revolutions per minute. The energy thus created is transferred to the generator, which converts this energy to electricity. This electricity is passed, first through a transformer and then through transmission lines, to the electrical user.
3. PJM and Cost of Replacement Power
The electric utilities throughout the eastern two-thirds of the United States and Canada are, with the exception of those in Texas, interconnected. Each utility is joined to its neighboring utility by electric transmission lines and generates electricity that flows over the transmission lines from one utility to the next throughout the country. Through these interconnections utilities can purchase or sell electricity as the situation warrants. By a series of transfers, electricity generated in the Midwest may supply the needs of consumers in Pennsylvania. The oldest and one of the most fully integrated interconnections in the United States is PJM (the Pennsylvania-New Jersey-Maryland Interconnection). Originally started in 1927 by three utilities, PJM is currently comprised of eleven utilities and operates as an integrated power pool. It serves an area that extends from northern New Jersey to Washington, D.C. and from the Atlantic Ocean to Lake Erie. There are six member utilities (including PP&L) and five associated utilities. The six member companies are signatories of the PJM agreement, which is the charter of PJM.
Interconnections such as PJM permit utilities to operate with enhanced reliability and greater economy. Each of the eleven inter-connected utilities in PJM generates a certain amount of electricity in order to supply the total customer demand in the PJM area at the least total cost. The electricity generated passes through free-flowing ties from utility to utility within PJM. Meters record this exchange of electricity between member utilities.
Every day of the year, PJM calculates the anticipated customer demand. It then directs the member companies to operate a sufficient number of generating units to meet that projected demand and also to provide an adequate available reserve. The reserve protects against the loss of a generating unit or inaccuracies in the prediction of customer demand. The most economical units on the interconnection are scheduled for operation, regardless of which utility owns the units.
During the day, PJM continuously monitors the customer demand and directs the eleven utilities to use their least expensive generating units to produce the energy to meet that demand. Customer demand follows a fairly regular daily pattern, which varies seasonally, and is predictably at its highest level at certain hours of the day. By means of the interconnection, the percent of generating capacity that any one utility must place in reserve is reduced. The diversity of the hour, day, week, and month of each interconnected utility's peak demand leads to substantial savings throughout the interconnection.
Because the cost of electric power varies with the cost of the fuel burned and the efficiency of a generating unit, it is different for each generating unit. Units with the lowest costs are called "base-load" units, and are operated continuously in order to meet the basic customer demand most economically. As demand increases, the "peak-load" units with higher incremental costs must be brought into operation.
Since it began operation, Brunner # 3 has always been a base-load unit. Brunner # 3 therefore operates at or near the highest capacity of which it is capable whenever it is available for operation. When a base-load unit, or any unit, is unavailable to meet the customers' demand, the utility is required to replace that lost power generation. It accomplishes this replacement either by operating its own more expensive equipment or by purchasing power from a neighboring utility, whichever is less expensive.
The foregoing discussion illuminates the notion, central to this case, of "cost of replacement power." The cost of this replacement power is always higher than the power that is replaced. Because, during 1968-1970, Brunner # 3, a base-load unit, would always have been scheduled and operated at or near its rated capacity if available, but was unavailable to supply PP&L load demand for some portion of that period, PP&L had to purchase replacement power from PJM.
The nature of "cost of replacement power" has a number of implications for this case. We note initially that because the PJM Interconnection is a fully integrated power pool to which PP&L and many other utilities belong, PP&L's sales or purchases of energy are dependent on and relative to the power supply and requirements of all the members of the PJM. In particular, Wilmer S. Kleinbach, the able manager of PJM, noted as follows during the course of his testimony:
There are too many variables to predict, with any reasonable degree of accuracy, the dollar cost of replacement power for a unit that is presently being planned to go into operation at a future date.
The principal factors affecting the cost of replacement power are within the exclusive control of the utility and include the installed cost of various units, operating costs, load forecasts, the size and type of units installed, the forced outage predictions and in-service date.