Pg 1 of 46 Objection Deadline: September 6, 2017 at 4:00 p.m. (Prevailing Eastern Time) Hearing Date and Time: September 13, 2017 at 11:00 a.m. (Prevailing Eastern Time) Evidentiary Hearing Requested JONES DAY Anna Kordas, Esq. 250 Vesey Street New York, New York 10281 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 E-mail: akordas@jonesday.com Counsel for Georgia Power Company, for Itself and as Agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia and the City of Dalton, Georgia JONES DAY Gregory M. Gordon, Esq. Dan B. Prieto, Esq. 2727 North Harwood Street Dallas, Texas 75201 Telephone: (214) 220-3939 Facsimile: (214) 969-5100 E-mail: gmgordon@jonesday.com E-mail: dbprieto@jonesday.com UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------- x In re : : WESTINGHOUSE ELECTRIC : COMPANY LLC, et al., : : Debtors. 1 : ------------------------------------------------------- x Chapter 11 Case No. 17-10751 (MEW) (Jointly Administered) NOTICE OF MOTION OF GEORGIA POWER COMPANY FOR AN ORDER LIFTING THE AUTOMATIC STAY TO ALLOW IT TO TERMINATE REJECTED ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT PLEASE TAKE NOTICE that a hearing on the Motion of Georgia Power Company for an Order Lifting the Automatic Stay to Allow It to Terminate the Engineering, Procurement and 1 NAI-1502804298v3 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (2348), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors' principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania 16066.
Pg 2 of 46 Construction Agreement (the "Motion") filed by Georgia Power Company, on behalf of itself and as agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, as joint owners (collectively, the "Owners") of the Alvin W. Vogtle Electric Generating Plant (the "Vogtle Plant"), will be held before the Honorable Michael E. Wiles, United States Bankruptcy Judge, in Room 617 of the United States Bankruptcy Court for the Southern District of New York, One Bowling Green, New York, New York 10004 (the "Bankruptcy Court"), on September 13, 2017 at 11:00 a.m. (Prevailing Eastern Time), or as soon thereafter as counsel may be heard. PLEASE TAKE FURTHER NOTICE that any responses or objections ("Objections") to the Motion shall be in writing, shall conform to the Federal Rules of Bankruptcy Procedure and the Local Bankruptcy Rules for the Southern District of New York, shall be filed with the Bankruptcy Court (i) by attorneys practicing in the Bankruptcy Court, including attorneys admitted pro hac vice, electronically in accordance with General Order M-399 (which can be found at www.nysb.uscourts.gov), and (ii) by all other parties in interest, on a CD-ROM, in text-searchable portable document format (PDF) (with a hard copy delivered directly to Chambers), in accordance with the customary practices of the Bankruptcy Court and General Order M-399, to the extent applicable, and shall be served in accordance with General Order M-399 and the Order Pursuant to 11 U.S.C. 105(a) and Fed. R. Bankr. P. 1015(c), 2002(m), and 9007 Implementing Certain Notice and Case Management Procedures entered on April 4, 2017 [ECF No. 101] so as to be so filed and received no later than September 6, 2017 at 4 p.m. (Eastern Time) (the "Objection Deadline"). NAI-1502804298v3-2-
Pg 3 of 46 PLEASE TAKE FURTHER NOTICE that if no Objections to the Motion are timely filed and served, the Owners may, on or after the Objection Deadline, submit to the Bankruptcy Court an order substantially in the form of the proposed order annexed to the Motion, which order may be entered with no further notice or opportunity to be heard. Dated: August 25, 2017 (New York, New York) Respectfully submitted, /s/ Anna Kordas JONES DAY Anna Kordas, Esq. 250 Vesey Street New York, New York 10281 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 E-mail: akordas@jonesday.com - and - JONES DAY Gregory M. Gordon, Esq. (pro hac admission granted) Dan B. Prieto, Esq. (pro hac admission granted) 2727 North Harwood Street Dallas, Texas 75201 Telephone: (214) 220-3939 Facsimile: (214) 969-5100 E-mail: gmgordon@jonesday.com E-mail: dbprieto@jonesday.com Counsel for Georgia Power Company, for Itself and as Agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia, and the City of Dalton, Georgia NAI-1502804298v3-3-
Pg 4 of 46 EVIDENTIARY HEARING REQUESTED JONES DAY Anna Kordas, Esq. 250 Vesey Street New York, New York 10281 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 E-mail: akordas@jonesday.com Counsel for Georgia Power Company, for Itself and as Agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia and the City of Dalton, Georgia JONES DAY Gregory M. Gordon, Esq. Dan B. Prieto, Esq. 2727 North Harwood Street Dallas, Texas 75201 Telephone: (214) 220-3939 Facsimile: (214) 969-5100 E-mail: gmgordon@jonesday.com E-mail: dbprieto@jonesday.com UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------- x In re : Chapter 11 : WESTINGHOUSE ELECTRIC : Case No. 17-10751 (MEW) COMPANY LLC, et al., : : (Jointly Administered) Debtors. 1 : ------------------------------------------------------- x MOTION OF GEORGIA POWER COMPANY FOR AN ORDER LIFTING THE AUTOMATIC STAY TO ALLOW IT TO TERMINATE REJECTED ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT Georgia Power Company ("GPC"), on behalf of itself and as agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, as joint owners (collectively with GPC, the "Owners") of the Alvin W. Vogtle Electric Generating Plant 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (2348), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors' principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania 16066. NAI-1502976105v3
Pg 5 of 46 (the "Vogtle Plant"), hereby files this Motion seeking entry of an order, pursuant to section 362(d) of title 11 of the United States Code (the "Bankruptcy Code") and Rule 4001 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), (i) lifting the automatic stay to allow GPC to take steps to terminate the recently rejected Engineering, Procurement and Construction Agreement dated April 8, 2008 (as amended, the "EPC Agreement") entered into between GPC (for itself and as agent for the other Owners) and debtors Westinghouse Electric Company LLC and WECTEC Global Project Services Inc. (together, "WEC"), as described herein; and (ii) granting certain related relief. 2 In support of this Motion, GPC submits the declaration of David L. McKinney attached hereto as Exhibit A (the "Declaration") and respectfully represent as follows: I. INTRODUCTION 1. Under the terms of the EPC Agreement, WEC agreed to construct two new nuclear-fueled electric generating units (together, the "Project") at the Vogtle Plant. As part of the EPC Agreement, WEC assumed full responsibility for the provision of all engineering, procurements of equipment and materials, and construction required to complete the Project and maintain the Project site. Both before and after filing for bankruptcy, however, WEC ceased to perform and made it clear that it no longer intended to perform under the EPC Agreement. This intention recently culminated in WEC's rejection of the EPC Agreement by order of the Court entered on July 20, 2017 (D.I. 954) (the "Rejection Order"). See also WEC's motion seeking rejection of the EPC Agreement (D.I. 769) (the "Rejection Motion") (acknowledging at 48 that 2 As of the filing of this Motion, the Owners have not made a decision regarding whether or not they will complete the nuclear generating units that were to be constructed pursuant to the rejected EPC Agreement. NAI-1502976105v3-2-
Pg 6 of 46 "[i]n the current circumstances, continued performance or assumption of the Vogtle EPC would be value destructive."). 3 2. Pursuant to Section 22.2(a) of the EPC Agreement, GPC has the right to terminate that agreement based on WEC's abandonment of work on the Project. In that regard, pursuant to paragraph 6 of the Rejection Order, the Owners expressly reserved their rights to seek relief from the automatic stay to terminate the EPC Agreement. Given (a) WEC's non-performance under the EPC Agreement over an extended period of time, including, as further described below, its prepetition cessation of subcontractor and vendor payments, and the Owners' funding of construction costs after the Petition Date, (b) its failure to provide any assurance that it would resume performance of the EPC Agreement, (c) its decision to reject the EPC Agreement, and, ultimately, (d) its rejection of the EPC Agreement pursuant to the Rejection Order, cause exists to lift the automatic stay to permit GPC to exercise its contractual rights to terminate the EPC Agreement for abandonment. 3. GPC seeks this relief notwithstanding WEC's rejection of the EPC Agreement. It does so out of an abundance of caution to eliminate any uncertainty regarding the Owners' entitlement to seek damages resulting from WEC's abandonment of work on the Project. In the Owners' view, there is no legitimate argument that WEC has not abandoned work under the rejected EPC Agreement, nor any supportable argument that the Owners are not entitled to damages based on that abandonment. Nevertheless, the Owners seek relief from stay to perform 3 The Rejection Motion was part of, and consolidated with, a broader motion filed by the Debtors (the "Approval Motion"), which, upon rejection of the EPC Agreement, also sought authority to enter into and implement a new Services Agreement between the Owners and WEC (the "Services Agreement"). On July 27, 2017, both the Services Agreement and rejection of the EPC Agreement became effective. See Notice of Effective Date of Services Agreement (D.I. 1020). At that time, day-to-day control over the Project previously exercised by WEC as the contractor was assumed by the Owners. Among other things, pursuant to the Services Agreement, WEC will provide engineering and procurement services to the Owners to assist in construction of the Project under the Owners' management. NAI-1502976105v3-3-
Pg 7 of 46 the ministerial act of terminating the EPC Agreement to avoid any technical argument to the contrary. II. JURISDICTION AND VENUE 4. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(G). Venue for this proceeding and this Motion is proper in this judicial district pursuant to 28 U.S.C. 1408 and 1409. 5. The statutory predicates for the relief sought herein are sections 362(d) of the Bankruptcy Code and Bankruptcy Rule 4001. III. FACTUAL BACKGROUND 6. On March 29, 2017 (the "Petition Date"), WEC and the other above-captioned debtors (collectively, the "Debtors") commenced these cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The EPC Agreement and Toshiba Guaranty 7. The Vogtle Plant is located southeast of Augusta, Georgia, near Waynesboro, Burke County, Georgia, and is jointly owned by the Owners in the following percentages: GPC 45.7%, Oglethorpe Power Corporation 30%, Municipal Electric Authority of Georgia 22.7%, and the City of Dalton 1.6%. Currently, the Vogtle Plant has two operating nuclear powered electric generating units (Units 1 and 2). 8. In April 2008, GPC, for itself and as agent for the other Owners, entered into the EPC Agreement with WEC pursuant to which WEC agreed to provide all services and resources to design, engineer, procure, construct, and test the two new electric generating units (Units 3 and 4) comprising the Project at the Vogtle Plant, utilizing WEC's proprietary AP1000 nuclear power plant design. Pursuant to the EPC Agreement, the Owners agreed to pay WEC a NAI-1502976105v3-4-
Pg 8 of 46 lump sum contract price, which, following certain amendments, was set at $9.285 billion. After an amendment to the EPC Agreement, which was part of a 2015 settlement between the Owners and WEC regarding various delays and other disputes, the EPC Agreement guaranteed completion date was June 2019 for Unit 3 and June 2020 for Unit 4. As of the rejection of the EPC Agreement, WEC's engineering and design for the Project was approximately 95% complete, with certain engineering deliverables remaining outstanding. Procurement of plant equipment and materials for the Project was approximately 85% complete, and construction work was approximately 40% complete. In total, the Project was considered to be approximately 60% complete at the time the EPC Agreement was rejected. 9. Under the EPC Agreement, the Owners may declare an event of default for various reasons. Notably, the Owners may declare an Event of Default due to WEC's abandonment of the Project as follows: Owners notify Contractor [i.e., WEC] in writing that Contractor has abandoned the Work, and within fourteen (14) Days after Contractor's receipt of such written notice, Contractor has failed to (A) resume diligent performance of the Work consistent with the Project Schedule or (B) provide reasonable assurances that Contractor has not abandoned the Work[.] EPC Agreement, 22.2(a)(ii). Upon a default by WEC under the EPC Agreement: EPC Agreement, 22.2(b). [I]n addition to any remedy available at Law... Owners may at their option elect to: (i) terminate [the EPC] Agreement; and/or (ii) assume responsibility for and take title to and possession of the Facility and Work and Equipment remaining at the Site and Equipment located outside the Site for which payment in full or in part has been made by Owners; and/or (iii) in Owners' sole discretion, succeed automatically... to the interests of Contractor in any or all Subcontracts entered into by Contractor with respect to the Work.... NAI-1502976105v3-5-
Pg 9 of 46 10. Additionally, the EPC Agreement provides certain negotiated limitations on WEC's liability. As amended, the EPC Agreement provides that in certain circumstances WEC's liability is capped at a maximum of 20% of the "Contract Price of the Unit giving rise to the claim" (the "20% Damage Cap"). In the event of a termination of the EPC Agreement due to an Event of Default arising from WEC's abandonment of the Project (see EPC Agreement, 17.2(a)), however, such liability is capped at a maximum of 40% of the Contract Price (the "40% Damage Cap"). 4 The difference in the damage caps is significant. Application of the 40% Damage Cap results in a damage claim of not less than approximately $3.7 billion as contrasted with a damage claim of not less than approximately $1.86 billion if the 20% Damage Cap were to apply. Despite this difference, the Owners' projected actual damages arising from WEC's abandonment of the Project are potentially billions of dollars in excess of the 40% Damage Cap. 11. Toshiba Corporation ("Toshiba") is the ultimate parent of WEC and is not a debtor in these cases. To induce the Owners to enter into the EPC Agreement, Toshiba provided a guaranty of WEC's obligations under the EPC Agreement pursuant to the Toshiba Corporation Guaranty dated April 8, 2008 (the "Guaranty"). The Guaranty states that if WEC fails to pay or perform under the EPC Agreement, Toshiba will pay for such obligation. Guaranty, 2.1. The liability of Toshiba under the guaranty is subject to the same limitations applicable to WEC's obligations under the EPC, and Toshiba has the full benefit of any and all defenses, counterclaims, and setoff rights available to WEC with respect to the obligations arising under the EPC Agreement, except for defenses arising out of bankruptcy, insolvency, dissolution, or 4 Certain additional damages under the EPC Agreement are not subject to the 40% Damage Cap, including, for example, (a) claims arising from gross negligence or willful misconduct and (b) liquidated damages related to the WEC's guarantee of the minimum generating capacity of the new nuclear units (i.e., the Minimum Performance Guaranty). NAI-1502976105v3-6-
Pg 10 of 46 liquidation of WEC. Id. at 2.3. Pursuant to a settlement agreement between the Owners and Toshiba, which was filed with the Court on June 22, 2017 (D.I. 764, Ex. A) (the "Toshiba Settlement"), the parties have agreed that Toshiba's liability under the Guaranty will be fixed at (and will not be less than or exceed) $3.68 billion, which is based on the 40% Damage Cap and subject to the terms and conditions therein. Notice of Abandonment and the Bankruptcy Filing 12. Prior to the commencement of WEC's bankruptcy cases, it was apparent based on communications from WEC that it did not have sufficient resources, and did not intend to procure or arrange for sufficient resources, to continue to perform under the EPC Agreement. WEC ceased paying invoices to numerous subcontractors and vendors. Such failure to pay resulted in notices of suspension from subcontractors and the filing of liens against the Vogtle Plant. For example, starting in mid March 2017, the Owners received notices of suspension from WEC's primary subcontractor at the Project, Fluor Enterprises, Inc. ("Fluor"), pursuant to which Fluor reserved its right to suspend its performance under its contracts with WEC effective as of March 31, 2017. On March 23, 2017, Fluor filed a notice of lien against the Vogtle Plant in the amount of $105 million for work Fluor provided on the Project. 13. Because of these clear manifestations that WEC had abandoned its obligations under the EPC Agreement, on March 24, 2017, GPC, on behalf of itself and the other Owners, sent WEC a written notice pursuant to Section 22.2(a)(ii) of the EPC Agreement that WEC had abandoned the Project (the "Abandonment Notice") obligating WEC to either resume performance of its obligations under the EPC Agreement or provide reasonable assurances to the Owners that WEC had not abandoned the EPC Agreement. 5 5 A copy of the Abandonment Notice is attached hereto as Exhibit B. NAI-1502976105v3-7-
Pg 11 of 46 14. By email dated March 29, 2017, mere hours before WEC's chapter 11 filing, WEC responded to GPC's Abandonment Notice. 6 While asserting a challenge to the admissibility of certain statements referenced in the Abandonment Notice, WEC failed to respond as required under Section 22.2(a)(ii) of the EPC Agreement, failed to provide any assurance that it had resumed or would resume diligent performance and did not deny that WEC, in fact, had abandoned work under the EPC Agreement. At no time in the 14 days after GPC's Abandonment Notice did WEC provide reasonable assurances to the Owners denying abandonment of the EPC Agreement. However, WEC's bankruptcy filing occurred before the conclusion of the 14-day cure period under Section 22.2(a)(ii) of the EPC Agreement, thereby preventing GPC from declaring a default based on abandonment and terminating the EPC Agreement. Interim Assessment Agreement 15. On the Petition Date, to both provide time for the Owners to assess other possible alternatives for completing the Project and mitigate disruption to the Project resulting from WEC's abandonment, WEC and the Owners entered into a new agreement (as amended from time to time, the "Interim Assessment Agreement") under which the Owners agreed to pay all costs related to the Project for a limited time period. The Interim Assessment Agreement was independent of the EPC Agreement and established funding by the Owners separate and apart from any required payments contemplated by the EPC Agreement. The Interim Assessment Agreement was approved by an order of the Court dated March 30, 2017 (D.I. 68) and, as amended (D.I. 388, 464, 691, 762, 800, and 957), continued in effect until the EPC Agreement was rejected and the Services Agreement became effective on July 27, 2017. In the Interim 6 A copy of WEC's March 29, 2017 response is attached hereto as Exhibit C. NAI-1502976105v3-8-
Pg 12 of 46 Assessment Agreement, WEC acknowledged that, absent this new agreement, WEC would have sought to reject the EPC Agreement as of the Petition Date. See Interim Assessment Agreement, p. 2 (stating that "the Debtors would move to reject the EPC [Agreement] effective as of the Petition Date absent [the Interim Assessment Agreement] or funding by another party"). 16. Since the Petition Date, WEC has not performed under the EPC Agreement, but instead has provided services at additional cost under the separate Interim Assessment Agreement and then under the new Services Agreement. All work on the Project since the Petition Date, which otherwise would have been covered by the EPC Agreement, has been paid for by the Owners. The Owners also have paid certain unpaid subcontractors for prepetition work and paid additional amounts to WEC for its cooperation in providing assistance in lieu of services under the EPC Agreement. Since the Petition Date, the Owners have paid millions of dollars in costs relating to the Project under the terms of the Interim Assessment Agreement and continue to pay for the work themselves now that the EPC Agreement has been rejected and they have taken over the Project. 17. As described above, the additional time afforded by the Interim Assessment Agreement allowed the Owners to engage in extensive negotiations with WEC and Toshiba to put in place agreements that would provide a potential basis for the Owners to complete the Project. Ultimately, these negotiations proved successful, leading to a settlement agreement with Toshiba and the Services Agreement between the Owners and WEC that provides a framework for the Owners to complete the Project without the EPC Agreement or WEC's role as contractor, but with cooperation and certain services from WEC. On June 23, 2017, WEC filed the Approval Motion to authorize its entry into and performance under the Services Agreement and rejection of the EPC Agreement, both of which were approved by the Rejection Order and NAI-1502976105v3-9-
Pg 13 of 46 became effective on July 27, 2017. Rejection of the EPC Agreement was one of the conditions to the effectiveness of the Services Agreement. Termination 18. WEC's decision to cease work under the EPC Agreement has been obvious since before the Petition Date, and GPC sent its Abandonment Notice in March 2017 before the commencement of these cases. Nevertheless, the automatic stay in these cases prevented GPC from taking further steps to terminate the EPC Agreement, and GPC deferred any further action to obtain relief from the automatic stay (i.e., to terminate the EPC Agreement) pending the parties' efforts to negotiate a resolution of these issues. Although the Owners and WEC reached agreement on the Services Agreement, no agreement was reached on termination of the EPC Agreement. Notwithstanding this failure to reach agreement on termination, the parties agreed in the Rejection Order that the Owners reserved their rights to later seek relief from the automatic stay to terminate the EPC Agreement. 7 7 In particular, paragraph 6 of the Rejection Order states: The Vogtle Owners reserve and retain any rights to later file a motion for relief from the automatic stay to terminate or take steps to terminate the Vogtle EPC in accordance with its terms (any such filing or steps, a "Termination Action"), and any such Termination Action, when taken, shall be deemed to have been timely taken, but only to the extent the Termination Action would have been timely as of June 28, 2017; provided that the Debtors reserve and retain any rights to object to or otherwise challenge any such Termination Action, other than on the basis that the Termination Action was not timely taken because it was taken on a date after June 28, 2017. Subject to the terms of this paragraph 6, the Vogtle Owners and the Debtors reserve all of their respective rights and arguments with respect to the basis or nature of a termination of the Vogtle EPC, including whether an abandonment of the Work has occurred. The Vogtle Owners further reserve and retain all of their respective rights to assert claims in any amount against the Debtors under or in connection with the Vogtle EPC, including claims based on an alleged abandonment of the Work ("Vogtle Claims"), and the Debtors further reserve and retain all of their rights to object to or otherwise challenge any such Vogtle Claims, including the amount of any such claims. NAI-1502976105v3-10-
Pg 14 of 46 19. In view of WEC's unequivocal abandonment of work on the Project, GPC, on behalf of itself and the other Owners, seeks relief from the automatic stay to allow it to take any and all steps necessary or appropriate to terminate the EPC Agreement for abandonment in accordance with Sections 22.2(a)(ii) and 22.2(b) of the EPC Agreement. Permitting GPC to terminate the EPC Agreement in accordance with its terms will eliminate any technical issue, uncertainty or dispute regarding the threshold question of whether the Owners have satisfied all contractual prerequisites for claiming damages for WEC's abandonment of work on the Project. IV. REQUEST FOR RELIEF 20. By this Motion, the Owners seek the entry of an order: (a) lifting the automatic stay, pursuant to section 362(d) of the Bankruptcy Code and Bankruptcy Rule 4001, to allow the Owners to take any all necessary or appropriate steps to terminate the EPC Agreement; and (b) granting related relief. V. BASIS FOR RELIEF A. The Court Should Lift the Automatic Stay to Permit GPC to Terminate the EPC Agreement. 21. The Court should lift the automatic stay pursuant to section 362(d) of the Bankruptcy Code to permit GPC to exercise its contractual right to terminate the EPC Agreement. Section 362(d) of the Bankruptcy Code provides, in pertinent part, that: (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay... such as terminating... the stay (1) for cause, including the lack of adequate protection of an interest in property of such party in interest; [or] (2) with respect to a stay of an act against property under subsection (a) of this section, if (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization. NAI-1502976105v3-11-
Pg 15 of 46 11 U.S.C. 362(d)(1) and (2). 22. The burden of proof on a motion for relief from the stay under section 362(d) is a shifting one. Section 362(g) of the Bankruptcy Code provides that: In any hearing... concerning relief from the stay of any act under subsection (a) of this section (1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and (2) that the party opposing such relief has the burden of proof on all other issues. 11 U.S.C. 362(g). In this case, the burden is on the Debtors to establish that the automatic stay should not be lifted to permit GPC to exercise its termination right under the EPC Agreement. 23. Pursuant to section 362(d)(1) of the Bankruptcy Code, a party in interest may seek relief from the automatic stay for cause. "Neither Section 362(d)(1) nor the legislative history defines 'cause.' 'Cause' is an intentionally broad and flexible concept which must be determined on a case-by-case basis." See In re Project Orange Assocs., LLC, 432 B.R. 89, 103 (Bankr. S.D.N.Y. 2010) (citations omitted). Bankruptcy courts have found "cause" when the party seeking such relief can show that: (a) (b) (c) the debtor or the debtor's estate will not be greatly prejudiced; the hardship to the movant by maintenance of the automatic stay considerably outweighs the hardship to the debtor; and the movant has a reasonable chance of prevailing on the merits. In re Rexene Prods. Co., 141 B.R. 574, 576 (Bankr. D. Del. 1992) (citing In re Fernstrom Storage & Van Co., 938 F.2d 731, 735 (7th Cir. 1991)). 24. Here, the Debtors have not performed, and have clearly and unequivocally manifested an intent not to perform, under the EPC Agreement since prior to the Petition Date. Moreover, the EPC Agreement has now been rejected by the Debtors, eliminating any possible NAI-1502976105v3-12-
Pg 16 of 46 uncertainty regarding their intention to permanently cease performance under the EPC Agreement. 25. Although rejection constitutes a court-authorized breach of the EPC Agreement, it does not itself terminate the agreement. See, e.g., In re Lavigne, 114 F.3d 379, 386-87 (2d Cir. 1997) ("While rejection is treated as a breach, it does not completely terminate the contract."); Abboud v. Ground Round Inc. (In re Ground Round), 335 B.R. 253, 261 (B.A.P. 1st Cir. 2005) ("Pursuant to 365, a debtor can decide to reject an unexpired lease in the course of its bankruptcy case. Rejection does not constitute a termination of the contract."); Sir Speedy Inc. v. Morse, 256 B.R. 657, 659 (D. Mass. 2000) ("Rejection does not cause a contract magically to vanish. The post-rejection rights and obligations of the debtor and the non-debtor are exactly the same as they would have been had the debtor first breached the contract and then filed for bankruptcy."); In re Drexel Burnham Lambert Grp., Inc., 138 B.R. 687, 709 (Bankr. S.D.N.Y. 1992) ("Consistent with bankruptcy law's general deference to state-law rights in or to specific property, rejection of a contract does not terminate such rights that arise from rejected contracts."). In that regard, notwithstanding the rejection of the EPC Agreement, GPC retains its rights to terminate that agreement. See In re Drexel Burnham Lambert Grp., Inc., 138 B.R. 687, 709 (Bankr. S.D.N.Y. 1992) ("rejection of a contract does not terminate such rights that arise from rejected contracts") (citations omitted). 26. Moreover, rejection of a contract itself constitutes grounds for lifting the automatic stay to allow termination of such contract. See In re Deppe, 110 B.R. 898, 905 (Bankr. D. Minn. 1990) (finding, among other grounds, that the debtors' "deemed rejection" of a franchise agreement constituted justification to lift the automatic stay to allow termination of the agreement); see also In re El Paso Refinery, L.P., 220 B.R. 37, 49 (Bankr. W.D. Tex. 1998) NAI-1502976105v3-13-
Pg 17 of 46 (stating that "a party can... easily move for relief from stay to terminate after rejection of [a] contract") (emphasis in original). 27. In addition, the existence of an incurable contractual default constitutes grounds to lift the automatic stay to allow termination. See id. at 906 (finding that the automatic stay should be lifted to allow termination of a contact when the debtors had committed a noncurable breach of the agreement); In re Quinones Ruiz, 98 B.R. 636, 638 (Bankr. D.P.R. 1988) (same). For example, in Deppe, a basis for termination of the franchise agreement included the abandonment of certain business premises for seven consecutive days. Deppe, 110 B.R. at 900. There was no dispute that the debtor, starting on the petition date, failed to operate on the premises for more than 19 days. Id. Even though the debtor resumed operations after that time, the bankruptcy court found that such an interruption was a non-curable default, and therefore grounds for lifting the automatic stay to allow termination of the franchise agreement. Id. at 906. 28. Similarly, relief from the automatic stay has been determined to be appropriate to allow a non-debtor to terminate a contract where a debtor is unable to assume the contract under section 365 of the Bankruptcy Code. See, e.g., In re West Electronics, 852 F.2d 79, 83-84 (3d Cir. 1988) (finding that the automatic stay should be lifted to allow termination of a contract when the debtor was unable to assume the contract); In re Hernandez, 287 B.R. 795, 807 (Bankr. D. Ariz. 2002) (same). 29. This Court should lift the automatic stay to permit GPC, on behalf of itself and the other Owners, to exercise its rights to terminate the EPC Agreement because: (a) WEC is in material breach of the EPC Agreement; (b) WEC has no intention of performing under the EPC Agreement but instead abandoned all work thereunder and ultimately rejected such agreement; NAI-1502976105v3-14-
Pg 18 of 46 and (c) preventing the Owners from terminating could prejudice their ability to pursue abandonment damages at the 40% cap level despite the parties' clear intent in the EPC Agreement. 30. Because WEC has ceased all work under the terms of the EPC Agreement and has rejected the EPC Agreement, there can be no dispute that WEC has abandoned all work on the Project and a clear basis for termination for abandonment exists. Further, because of WEC's rejection of the EPC Agreement, WEC is no longer able to assume that agreement and the breach is uncurable. 31. Steps to terminate the EPC Agreement are purely ministerial. GPC intends to send a notice of termination of the EPC Agreement pursuant to Sections 22.2(a)(ii) and 22.2(b) of the EPC Agreement and any related notices. Under the circumstances particularly with the EPC Agreement already having been rejected GPC's administrative steps to terminate the EPC Agreement for abandonment will not impose any burden or hardship on the Debtors or their estates. 32. By contrast, the Owners may be harmed if WEC elects to use the automatic stay as a shield to argue that the Owners are not entitled to claim damages for WEC's abandonment of the work due to GPC's inability, as a result of the stay, to satisfy a technical requirement contained in the EPC Agreement. Absent a termination of the EPC Agreement, WEC could potentially argue that damages under the EPC Agreement are limited to 20% of Contract Price (as defined in the EPC Agreement) 8 notwithstanding that an abandonment has unquestionably occurred entitling the Owners to damages in the amount of up to 40% of the Contract Price (a 8 See EPC Agreement, 17.2(a). NAI-1502976105v3-15-
Pg 19 of 46 substantial difference, resulting in an estimated $1.84 billion in additional capped damages). 9 Not only would this outcome deprive the Owners of their contractual right to seek damages at the 40% cap level, it would further harm Georgia ratepayers whether the Project is ultimately completed or not by significantly reducing recoveries from WEC that would otherwise mitigate the damages caused by WEC s abandonment of the Project. 33. Particularly since the EPC Agreement in certain circumstances already imposes substantial limitations on the Owners' damage claim (reducing it by potentially billions of dollars of additional losses), it would be highly inequitable to prohibit GPC from providing notices contemplated by the EPC Agreement as part of a misguided effort to argue, based on that prohibition, that the Owner's damages are subject to an even lower cap. Further underlining this point, it is black letter law that claims in bankruptcy are calculated pursuant to non-bankruptcy law. See, e.g., In re Chateaugay Corp., 53 F.3d 478, 497 (2d Cir. 1995) ("A claim exists only if before the filing of the bankruptcy petition, the relationship between the debtor and the creditor contained all of the elements necessary to give rise to a legal obligation 'a right to payment' under the relevant non-bankruptcy law.") (citations omitted). GPC, on behalf of itself and the other Owners, should therefore be permitted to exercise its contractual rights to terminate the EPC Agreement, and assert damage claims consistent with the EPC Agreement and nonbankruptcy law. 10 9 10 Of note, the Owners are not attempting to use this Motion to elevate the priority of their rejection damages. Instead, the Owners recognize that their rejection damages with respect to the EPC Agreement will constitute prepetition unsecured claims. The Owners reserve the right to seek damages in excess of the 40% Damage Cap, and intend to do so in their proofs of claim. Further, the Owners reserve the right to argue that the 40% Damage Cap applies even if this Motion is not granted and termination cannot be pursued at this time as a result of the automatic stay. NAI-1502976105v3-16-
Pg 20 of 46 B. Limited Nature of the Requested Relief. 34. By this Motion, GPC seeks relief from the automatic stay only to take the contractual steps necessary to terminate the EPC Agreement based on WEC's abandonment of the Project. The Owners understand that, notwithstanding termination of the EPC Agreement, WEC may still challenge the size of the Owners' damage claim, including on the basis that in fact no abandonment of the work under the EPC Agreement occurred or that the lower 20% Damage Cap in the EPC Agreement otherwise applies. Those issues are not joined by this Motion. VI. REQUEST FOR EVIDENTIARY HEARING 35. The Case Management Order contemplates that, with a few exceptions not applicable here, most initial hearings are non-evidentiary unless the Court directs otherwise in advance of the hearing. See Case Management Order, 31. GPC has supported this Motion with the Declaration of David L. McKinney, attached hereto as Exhibit A. Although GPC does not contemplate presenting direct testimony on the issues addressed in the Declaration, it respectfully requests that it be allowed to use the Declaration as evidence in any hearing on this Motion. As GPC does not contemplate using any live testimony, absent any cross or associated redirect, allowing the Declaration to be used as evidence will not extend the time necessary to hear the Motion. GPC has conferred with the Debtors regarding this request, and the Debtors have indicated that they object to the use of the Declaration at the initial hearing on the Motion. VII. WAIVER OF STAY OF ORDER 36. Bankruptcy Rule 4001(a)(3) provides that "any order granting a motion for relief from the automatic stay made in accordance with Bankruptcy Rule 4001(a)(l) is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise." The decision to waive the stay provided for under Bankruptcy Rule 4001(a)(3) is committed to NAI-1502976105v3-17-
Pg 21 of 46 the sound discretion of the bankruptcy court. See Foster v. Wynne, No.-6:12-cv-00024, 2012 WL 4458476, at *3 (W.D. Va. June 5, 2012) ("the rule does not require the bankruptcy court to find that there is 'good cause' or any other similar type of condition for waiving this default stay period"). Because WEC has already ceased performance and rejected the EPC Agreement, no party would be harmed by a waiver of the stay in this case. VIII. NOTICE 37. Notice of this Motion will be provided in accordance with Case Management Order. GPC submits that, in view of the relief requested herein, such notice is sufficient and no other or further notice need be provided. IX. NO PRIOR REQUEST 38. No prior request for the relief sought herein has been made by GPC to this or any other court. WHEREFORE, GPC, on behalf of itself and the other Owners, respectfully requests that the Court enter an order, substantially in the form attached as Exhibit D, (i) lifting the automatic stay, pursuant to section 362(d) of the Bankruptcy Code and Bankruptcy Rule 4001, to allow GPC to take any all steps necessary or appropriate to terminate the EPC Agreement in accordance with the terms thereof; and (ii) granting such other and further relief to GPC as the Court determines is just and proper. NAI-1502976105v3-18-
Pg 22 of 46 Dated: August 25, 2017 (New York, New York) Respectfully submitted, /s/ Anna Kordas JONES DAY Anna Kordas, Esq. 250 Vesey Street New York, New York 10281 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 E-mail: akordas@jonesday.com - and - JONES DAY Gregory M. Gordon, Esq. (pro hac admission granted) Dan B. Prieto, Esq. (pro hac admission granted) 2727 North Harwood Street Dallas, Texas 75201 Telephone: (214) 220-3939 Facsimile: (214) 969-5100 E-mail: gmgordon@jonesday.com E-mail: dbprieto@jonesday.com Counsel for Georgia Power Company, for Itself and as Agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia, and the City of Dalton, Georgia NAI-1502976105v3-19-
Pg 23 of 46 Exhibit A NAI-1502976105v3
Pg 24 of 46 JONES DAY Anna Kordas, Esq. 250 Vesey Street New York, New York 10281 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 E-mail: akordas@jonesday.com Counsel for Georgia Power Company, for Itself and as Agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia and the City of Dalton, Georgia JONES DAY Gregory M. Gordon, Esq. Dan B. Prieto, Esq. 2727 North Harwood Street Dallas, Texas 75201 Telephone: (214) 220-3939 Facsimile: (214) 969-5100 E-mail: gmgordon@jonesday.com E-mail: dbprieto@jonesday.com UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------- x In re : Chapter 11 : WESTINGHOUSE ELECTRIC : Case No. 17-10751 (MEW) COMPANY LLC, et al., : : (Jointly Administered) Debtors. 1 : ------------------------------------------------------- x DECLARATION OF DAVID L. MCKINNEY IN SUPPORT OF MOTION OF GEORGIA POWER COMPANY FOR AN ORDER LIFTING THE AUTOMATIC STAY TO ALLOW IT TO TERMINATE REJECTED ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT I, David L. McKinney, hereby declare under penalty of perjury: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (2348), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors' principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania 16066. NAI-1502792950
Pg 25 of 46 1. I am currently serving in the role of Vice President of Nuclear Development at Southern Nuclear and Georgia Power Company ("GPC"). My business address is 241 Ralph McGill Boulevard, N.E., Atlanta, Georgia 30308. 2. I submit this declaration (this "Declaration") in support of the Motion of Georgia Power Company for an Order Lifting the Automatic Stay to Allow it to Terminate the Rejected Engineering, Procurement and Construction Agreement (the "Motion"), 2 filed by GPC, for itself and as agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, as joint owners (collectively, the "Owners") of the Alvin W. Vogtle Electric Generating Plant (the "Vogtle Plant"). Except as otherwise indicated, I have personal knowledge of all facts in this Declaration. As Vice President of Nuclear Development, I have overseen all activities relating to monitoring the progress of the Project on behalf of the Owners since the first excavation work began on site in summer 2009. As such, I am familiar with virtually all aspects of the Project and its status, including the activities on the Project since the commencement of WEC's bankruptcy cases on the Petition Date. If called upon to testify, I could and would testify competently to the facts and opinions set forth in this Declaration. 3. The Vogtle Plant is located southeast of Augusta, Georgia, near Waynesboro, Burke County, Georgia, and is jointly owned by the Owners in the following percentages: GPC 45.7%, Oglethorpe Power Corporation 30%, Municipal Electric Authority of Georgia 22.7%, and the City of Dalton 1.6%. Currently, the Vogtle Plant has two operating nuclear powered electric generating units (Units 1 and 2). 4. In April 2008, GPC, for itself and as agent for the other Owners, entered into the EPC Agreement with WEC pursuant to which WEC agreed to provide all services and 2 Capitalized terms not otherwise defined herein shall have the meanings given to them in the Motion. NAI-1502792950-2-
Pg 26 of 46 resources to design, engineer, procure, construct, and test the two new electric generating units (Units 3 and 4) comprising the Project at the Vogtle Plant, utilizing WEC's proprietary AP1000 nuclear power plant design. Pursuant to the EPC Agreement, the Owners agreed to pay WEC a lump sum contract price, which, following certain amendments, was set at $9.285 billion. After an amendment to the EPC Agreement, which was part of a 2015 settlement between the Owners and WEC regarding various delays and other disputes, the EPC Agreement guaranteed completion date was June 2019 for Unit 3 and June 2020 for Unit 4. As of the rejection of the EPC Agreement, WEC's engineering and design for the Project was approximately 95% complete, with certain engineering deliverables remaining outstanding. Procurement of plant equipment and materials for the Project was approximately 85% complete, and construction work was approximately 40% complete. In total, the Project was considered to be approximately 60% complete at the time the EPC Agreement was rejected. 5. I understand that the EPC Agreement provides that in certain circumstances WEC's liability is capped at a maximum of 20% of the "Contract Price of the Unit giving rise to the claim" (the "20% Damage Cap"). In the event of a termination of the EPC Agreement due to an Event of Default arising from WEC's abandonment of the Project, however, I understand that such liability is capped at a maximum of 40% of the Contract Price (the "40% Damage Cap"). 3 The difference in the damage caps is significant. Application of the 40% Damage Cap results in a damage claim of not less than approximately $3.7 billion as contrasted with a damage claim of not less than approximately $1.86 billion if the 20% Damage Cap were to apply. Despite this 3 I further understand that certain additional damages under the EPC Agreement are not subject to the 40% Damage Cap, including, for example, (a) claims arising from gross negligence or willful misconduct and (b) liquidated damages related to the WEC's guarantee of the minimum generating capacity of the new nuclear units (i.e., the Minimum Performance Guaranty). NAI-1502792950-3-
Pg 27 of 46 difference, the Owners' projected actual damages arising from WEC's abandonment of the Project are potentially billions of dollars in excess of the 40% Damage Cap. 6. Toshiba Corporation ("Toshiba") is the ultimate parent of WEC and is not a debtor in these cases. To induce the Owners to enter into the EPC Agreement, Toshiba provided a guaranty of WEC's obligations under the EPC Agreement pursuant to the Toshiba Corporation Guaranty dated April 8, 2008 (the "Guaranty"). The Guaranty states that if WEC fails to pay or perform under the EPC Agreement, Toshiba will pay for such obligation. The liability of Toshiba under the guaranty is subject to the same limitations applicable to WEC's obligations under the EPC, and Toshiba has the full benefit of any and all defenses, counterclaims, and setoff rights available to WEC with respect to the obligations arising under the EPC Agreement, except for defenses arising out of bankruptcy, insolvency, dissolution, or liquidation of WEC. Pursuant to a settlement agreement between the Owners and Toshiba, which was filed with the Court on June 22, 2017 (D.I. 764, Ex. A) (the "Toshiba Settlement"), the parties have agreed that Toshiba's liability under the Guaranty will be fixed at (and will not be less than or exceed) $3.68 billion, which is based on the 40% Damage Cap and subject to the terms and conditions therein. Notice of Abandonment and the Bankruptcy Filing 7. Prior to the commencement of WEC's bankruptcy cases, it was apparent based on communications from WEC that it did not have sufficient resources, and did not intend to procure or arrange for sufficient resources, to continue to perform under the EPC Agreement. Prior to the Petition Date, WEC failed to pay invoices to numerous subcontractors and vendors. Such failure to pay resulted in notices of suspension from subcontractors and the filing of liens against the Vogtle Plant. For example, starting in mid-march 2017, the Owners received notices of suspension from WEC's primary subcontractor at the Project, Fluor Enterprises, Inc. ("Fluor"), NAI-1502792950-4-
Pg 28 of 46 pursuant to which Fluor reserved its right to suspend its performance under its contracts with WEC effective as of March 31, 2017. On March 23, 2017, Fluor filed a notice of lien against the Vogtle Plant in the amount of $105 million for work Fluor provided on the Project. 8. Because of these clear manifestations that WEC had abandoned its obligations under the EPC Agreement, on March 24, 2017, GPC, on behalf of itself and the other Owners, sent WEC a written notice pursuant to Section 22.2(a)(ii) of the EPC Agreement that WEC had abandoned the Project (the "Abandonment Notice") obligating WEC to either resume performance of its obligations under the EPC Agreement or provide reasonable assurances to the Owners that WEC had not abandoned the Agreement. 4 9. By email dated March 29, 2017, mere hours before WEC's chapter 11 filing, WEC responded to the GPC's Abandonment Notice. While asserting a challenge to the admissibility of certain statements referenced in the Abandonment Notice, WEC failed to respond as required under Section 22.2(a)(ii) of the EPC Agreement, failed to provide any assurance that it had resumed or would resume diligent performance and did not deny that WEC, in fact, had abandoned work under the EPC Agreement. 5 At no time in the 14 days after GPC's Abandonment Notice did WEC provide reasonable assurances to the Owners denying abandonment of the EPC Agreement. However, WEC's bankruptcy filing occurred before the conclusion of the 14-day cure period under Section 22.2(a)(ii) of the EPC Agreement thereby preventing GPC from declaring a default based on abandonment and terminating the EPC Agreement. 4 A copy of the Abandonment Notice is attached to the Motion as Exhibit B. 5 A copy of WEC's correspondence dated March 29, 2017 is attached to the Motion as Exhibit C. NAI-1502792950-5-
Pg 29 of 46 Interim Assessment Agreement 10. On the Petition Date, to both provide time for the Owners to assess other possible alternatives for completing the Project and mitigate disruption to the Project resulting from WEC's abandonment, WEC and the Owners entered into a new agreement (as amended from time to time, the "Interim Assessment Agreement") under which the Owners agreed to pay all costs related to the Project for a limited time period. The Interim Assessment Agreement was independent of the EPC Agreement and established funding by the Owners separate and apart from any required payments contemplated by the EPC Agreement. 11. I understand that the Interim Assessment Agreement was approved by an order of the Court dated March 30, 2017 (D.I. 68) and, as amended (D.I. 388, 464, 691, 762, 800, and 957), continued in effect until the EPC Agreement was rejected and the Services Agreement became effective on July 27, 2017. In the Interim Assessment Agreement, WEC acknowledged that, absent this new agreement, WEC would have sought to reject the EPC Agreement as of the Petition Date. See Interim Assessment Agreement, p. 2 (stating that "the Debtors would move to reject the EPC [Agreement] effective as of the Petition Date absent [the Interim Assessment Agreement] or funding by another party"). 12. Since the Petition Date, WEC has not performed under the EPC Agreement, but instead has provided services at additional cost under the separate Interim Assessment Agreement and then under the new Services Agreement. All work on the Project since the Petition Date has been paid for by the Owners on new cost reimbursable terms that were wholly different from those in the lump sum EPC Agreement. Under these new contractual arrangements the Owners also have paid certain unpaid subcontractors for prepetition work and paid additional amounts to WEC for its cooperation in providing assistance in lieu of services NAI-1502792950-6-
Pg 30 of 46 under the EPC Agreement. Since the Petition Date, the Owners have paid millions of dollars in costs relating to the Project under the terms of the Interim Assessment Agreement and continue to pay for the work themselves now that the EPC Agreement has been rejected and they have taken over the Project. 13. As described above, the additional time afforded by the Interim Assessment Agreement allowed the Owners to engage in extensive negotiations with WEC and Toshiba to put in place agreements that would provide a potential basis for the Owners to complete the Project. Ultimately, these negotiations proved successful, leading to a settlement agreement with Toshiba and the Services Agreement between the Owners and WEC that provides a framework for the Owners to complete the Project without the EPC Agreement or WEC's role as contractor, but with cooperation and certain services from WEC (to be paid for by the Owners). 6 I understand that on June 23, 2017, WEC filed the Approval Motion to authorize its entry into and performance under the Services Agreement and rejection of the EPC Agreement, both of which were approved by the Rejection Order and became effective on July 27, 2017. Rejection of the EPC Agreement was one of the conditions to the effectiveness of the Services Agreement. Termination 14. WEC's decision to cease performance of its work obligations under the EPC Agreement has been obvious since before the Petition Date, and GPC sent its Abandonment Notice in March 2017 before the commencement of these cases. Nevertheless, I understand that the automatic stay in these cases prevented GPC from taking further steps to terminate the EPC Agreement, and GPC deferred any further action to obtain relief from the automatic stay (i.e., to terminate the EPC Agreement) pending the parties' efforts to negotiate a resolution of these 6 As described above, the Owners also entered into a Settlement Agreement with Toshiba. NAI-1502792950-7-
Pg 31 of 46 issues. Although the Owners and WEC reached agreement on the Services Agreement, no agreement was reached on termination of the EPC Agreement. Notwithstanding this failure to reach agreement on termination, the parties agreed in the Rejection Order that the Owners reserved their rights to later seek relief from the automatic stay to terminate the EPC Agreement. Conclusion 15. Given WEC's non-performance under the EPC Agreement over an extended period of time, its failure to provide any assurance that it would resume performance of the EPC Agreement, and WEC's ultimate rejection of the EPC Agreement, GPC, for itself and as agent for the Owners, has determined to exercise its contractual rights to terminate the EPC Agreement for abandonment. Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing statements are true and correct to the best of my knowledge, information, and belief. Dated: August 25, 2017 /s/ David L. McKinney David L. McKinney Vice President, Nuclear Development Southern Nuclear and Georgia Power Company NAI-1502792950-8-
Pg 32 of 46 Exhibit B NAI-1502976105v3
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