August 14, 1975 Staff presented Agreement to Board for approval. Action delayed one week at request of Mr. Moore. August 19, 1975 Staff met with District representatives. All aspects of contract discussed. August 21, 1975 Staff presented Agreement to Board for approval. Action delayed until late September, 1975. August 28, 1975 Letter with PEPCO's Cost Estimates for Phases II and Ila. Letter to R. T. Dodge from John Derrick, Jr. September 4, 1975 Letter to PEPCO stating status of Agreement and requesting that all response be directed to General Manager. September 8, 1975 Letter to PEPCO stating that because of large amount of work to be done, it would take some time to verify the estimate.. Letter to John M. Derrick, Jr. from Vernon K. Garrett, Jr. September 9, 1975 Staff met with District representatives. All aspects of contract discussed. District requested file on negotiations. September 12, 1975 All files relating to negotiation over 2-1/2 year period delivered to Jack Hartley. Letter to Jack Hartley from Vernon K. Garrett, Jr. September 16, 1975 Letter from PEPCO stating that they would have to stop work if Contract is not signed or if Letter of Intent is not forthcoming. Letter to Jackson Graham from Frank S. Walters. September 22, 1975 Telephone call by Vernon K. Garrett and Lucius Pinkney to J. Hartley to inform him of PEPCO's letter. He was not in. Mr. J. Hartley returned call stating that their lawyers were reviewing contract. He would let us know when it was completed. September 29, 1975 Telephone call from Mr. Volner, D. C. DOT's lawyer, who asked questions concerning length of contract, Cost of Service Study, Cost estimates. Mr. Garrett explained our position and also informed him of the urgency of the matter. Telephone call from John Drayson of DOT, who said that they would have a response for us on Wednesday, October 1, 1975. September 30, 1975 Telephone call by Lucius Pinkney to Mr. Smidth of PEPCO. Because of computer difficulties, they would have Cost of Service Study by week of October 6-10, 1975. Telephone call from J. Hartley of D. C.DOT. He said that the District was meeting today on their recommendations and would let WMATA know on October 1, 1975. October 2, 1975 Telephone call by L. Pinkney and V. Garrett to J. Hartley and Doug Schneider of DC DOT to find out status of Agreement. Both were not Calls were not returned. in. Mr. Garrett and Mr. Pinkney talked with Drayson of D. C. DOT at WMATA's Board Meeting concerning PEPCO Agreement. Mr. Drayson said that D. C. DOT had met on the Agreement and the report would be forthcoming. October 3, 1975 Telephone call by L. Pinkney to F. Walters of PEPCO to check on Cost of Service Study. He was out of town until October 6, 1975. Telephone call to J. Hartley of D. C. DOT. Mr. Hartley said they had a memo but were withholding it until they received clearance to send it to us. He was informed that PEPCO had computer problems and would get the Cost of Service Study to us the week of October 13-17, 1975. October 9, 1975 PEPCO's counsel (Mr. Danzanky) visited Mr. Garrett to inform him that PEPCO was at the point of suspending further activities unless the proposed Contract was executed. October 15, 1975 Letter from PEPCO stating that they would not guarantee further work, after October 23, 1975, if Contract is not signed or Letter of Intent is not forthcoming.. Letter from Mr. W. Reid Thompson to Mr. Jackson Graham. By letter dated September 16, 1975, Mr. Frank S. Walters, Vice President, Rates and Regulatory Practices, responded to a September 4, 1975, letter from Vernon K. Garrett, Jr. of your staff, wherein Mr. Garrett outlined a chronology projecting further delays to the execution of a final Service Agreement between PEPCO and WMATA. In his letter of reply, Mr. Walters, expressing PEPCO's growing concern over the lack of final action by the WMATA Board of Directors, recounted the following history: that PEPCO had, in good faith, participated in 18 months of arduous negotiations with the WMATA staff; that these negotiations had resulted in the drafting of a "final" Service Agreement between the parties; that on July 2, 1975, that Agreement was executed on behalf of the company by Ellis T. Cox, Executive Vice President; and that the WMATA Board, for reasons not made clear, has not yet authorized the Authority to execute the document in question. Mr. Walters thereupon urged the Authority to either sign the contract or execute some interim document such as a "letter of intent" to assure PEPCO that the construction services performed over the past year under a very uncertain contractual arrangement would be compensated. In absence of any affirmative action on the part of WMATA, PEPCO's only remaining course of action, Mr. Walters suggested, "would be to stop work on the project." Nearly a month has passed since Walters wrote his letter and thus far, we have heard nothing by way of response from the Mr. Jackson Graham POTOMAC ELECTRIC POWER COMPANY October 15, 1975 Authority. This latest series of events, or rather non-events, is deeply disturbing. As you know, during Phase I construction, PEPCO performed close to $3,000,000.00 worth of services in the design and construction of such service facilities as are required to supply electricity to the subway system. The parties operated by the terms of a July 7, 1972, "letter of intent" whereunder all work performed by PEPCO was funded by cash advances made by the Authority at appropriate intervals; the Authority's obligation re compensation owing to PEPCO for the construction of service connection facilities was to be more definitely established in a separate general agreement to be negotiated. When Phase II construction commenced in July of 1974, PEPCO continued to perform work despite the fact that its costs exceeded the initial advance made under Phase I and further despite the fact that in 1974, the WMATA Board of Directors instructed its General Manager not to advance any further sums to PEPCO under the July 7, 1972, "letter of intent" until a final general agreement had been negotiated between the parties. As an expression of corporate citizenship, and because negotiations, though lengthy and quite technical, were proceeding smoothly, I personally authorized the continuation of construction work under Phase II. As of September 30, 1975, the cost of this work to the company has amounted to $3,925,331.00. From October to December, 1975, new construction is expected to average about $925,000.00 a month, adding an additional exposure by year's end of $2,775,000.00 or a total of uncompensated service by year's end (less approximately $1,000,000.00 of Phase I overage) of $5,606,622.00. Aside from the severe cash squeeze that such a deficit imposes upon a publicly held corporation, my legal staff has advised me that in light of last year's action by the Authority's Board of Directors shutting off further advances and/or obligations under the July 7, 1972, "letter of intent", it would be unwise and imprudent for me to authorize the perfor¬ mance of any additional construction work without some legally binding document setting forth the rights and/or obligations of the parties as well as the terms of payment. Such a document must, of course, be accompanied by sufficient funds to cover almost $4,000,000.00 worth of construction work performed under Phase II. Mr. Jackson Graham Page Three POTOMAC ELECTRIC POWER COMPANY October 15, 1975 Because of the confusion which has ensued since PEPCO and the WMATA staff committed to writing the final terms of a Service Agreement, I thought it appropriate to set forth hereinabove the company's position. I have been informed that our legal counsel has consulted with your staff and that as a result, this matter has been placed on the agenda of the meeting of the Authority's Board scheduled for Thursday, October 16, 1975. I have been further informed that the matter will be finalized, if possible, at that meeting but in no event later than at the meeting scheduled for October 23, 1975. Please be assured that PEPCO stands ready to assist you and your staff by providing any and all relevant background materials, information or expertise. We look forward to a final resolution on either the 16th or the 23rd. If by the end of October, I receive no affirmative word from the Authority's Board of Directors on a course of action legally acceptable to PEPCO as hereinabove outlined, we will have no alternative but to halt all further investment in the Metro project. Sincerely When W. REID THOMPSON |