City of Fulton v. United States

Decision Date19 May 1982
Docket NumberNo. 509-80C.,509-80C.
Citation680 F.2d 115
Parties(1) CITY OF FULTON, (2) City of Lamar, (3) City of Thayer, (4) City of Piggott v. The UNITED STATES.
CourtU.S. Claims Court

Charles F. Wheatley, Jr., Washington, D. C., attorney of record, for plaintiffs. Wheatley & Wollesen, Washington, D. C., of counsel.

John W. Showalter, Washington, D. C., with whom was Asst. Atty. Gen. J. Paul McGrath, Washington, D. C., for defendant. Richard Correa, Dept. of Energy, Los Angeles, Cal., of counsel.

Before KASHIWA, KUNZIG,* and SMITH, Judges.

ON PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

SMITH, Judge.

This contract case comes before the court on the parties' cross-motions for summary judgment. Plaintiffs are four cities (Cities) in Missouri and Arkansas which entered into contracts with the Southwestern Power Administration (SWPA) of the Department of the Interior for the purchase of electric power pursuant to section 5 of the Flood Control Act of 1944.1 In 1979 SWPA announced an interim rate increase which plaintiffs contend violated section 5 of the Flood Control Act and breached their contracts with the Government. The Government, in turn, argues that the interim rate increase was necessary to cover rapidly rising operating costs and was adopted in compliance with federal statutes and the contracts with the Cities. We reject the Governments' position, and consequently, grant plaintiffs' motion for summary judgment and deny defendant's cross-motion for summary judgment. Plaintiffs are awarded judgment on the issue of liability on their breach of contract claims.

I.

In enacting section 5 of the Flood Control Act of 1944, Congress authorized the Secretary of the Interior to transmit and dispose of electric power generated at reservoir projects under the control of the Department of the Army. Section 5 requires that such power be provided "at the lowest possible rates to consumers consistent with sound business principles, the rate schedules to become effective upon confirmation and approval by the Federal Power Commission."2 For several years the Cities received all or part of their electrical power from the Government, pursuant to contracts entered into between plaintiffs3 and the SWPA.

In 1977, Congress enacted the Department of Energy Organization Act (DEOA),4 which abolished the Federal Power Commission (FPC) and transferred the functions of the Secretary of the Interior under the Flood Control Act to the Secretary of Energy.5 Pursuant to the DEOA, the Secretary of Energy by published order6 delegated to the Federal Energy Regulatory Commission (FERC) the authority to confirm and approve rates on a final basis which was originally conferred upon the FPC. In the same order the Secretary of Energy also delegated to the Assistant Secretary for Resource Applications7 the authority to confirm and place in effect on an interim basis rates for electrical power sold by the SWPA. On March 1, 1979, the Assistant Secretary confirmed the rate increase at issue in this case, effective April 1, 1979, on an interim basis, subject to final confirmation by the FERC. Plaintiffs have paid the increased rate since April 1, 1979, and now seek to recover a money judgment from the Government in the amount of the rate increase. Jurisdiction is proper in this court under 28 U.S.C. § 1491 (Supp. III 1979). The central issue in the case before us is whether the interim rate increase authorized by the Assistant Secretary breached plaintiffs' contracts with the SWPA. We conclude that there was such a breach.

II.

Because the suit before us alleges breach of express contracts between plaintiffs and the SWPA, our inquiry necessarily begins with an analysis of the terms of the contracts. As stipulated by the parties, the relevant portion of the Fulton-SWPA contract pertaining to changes in rates and charges provides:

It is understood and agreed that the rates and/or terms and conditions set forth in the said Rate Schedule "F-1", with the confirmation and approval of the Federal Power Commission, may be increased, decreased, modified, superseded, or supplemented, at any time, and from time to time, and that if so increased, decreased, modified, superseded, or supplemented, the new rates and/or terms and conditions shall thereupon become effective and applicable to the purchase and sale of Firm Power and Firm Energy under this Contract in accordance with and on the effective date specified in the order of the Federal Power Commission containing such confirmation and approval. Emphasis supplied.

As stipulated by the parties, the relevant portion of the Lamar-SWPA contract exactly follows the Fulton-SWPA contract. Although worded slightly differently, the Thayer-SWPA and Piggott-SWPA contracts contain language virtually identical to that set forth in the Fulton-SWPA contract quoted above.8

An examination of each of the four Cities' contracts with the SWPA reveals that each contract provided for periodic rate increases to be effective upon the order of the FPC confirming and approving such increases. However, by the time the interim rate increases now at issue were made effective, the FPC had been abolished by the DEOA. The Government seizes upon the abolition of the FPC and the concurrent transfer of its administrative functions in formulating an ingenious defense to plaintiffs' breach of contract claim.

The Government asserts that a specific provision of the DEOA, appearing at 42 U.S.C. § 7151(b), confers upon the Secretary of Energy the power to perform former FPC functions, including rate approval and confirmation under section 5 of the Flood Control Act. 42 U.S.C. § 7151(b) (Supp. III 1979) provides:

(b) Except as provided in subchapter IV of this chapter, there are transferred to, and vested in, the Secretary the function of the Federal Power Commission, or of the members, officers, or components thereof. The Secretary may exercise any power described in section 7172(a)(2) of this title to the extent the Secretary determines such power to be necessary to the exercise of any function within his jurisdiction pursuant to the preceding sentence.

Specifically, the Government contends (1) that section 7151(b) places the rate-making authority of the former FPC (including an assumed power to effect interim rates) in the Secretary of Energy; (2) that the decision to raise the rates paid by the Cities on an interim basis was a proper exercise of that authority; and (3) that such exercise was a "confirmation and approval" within the meaning of these contracts.

The Government's first contention fails upon a close examination of section 7151(b). Of critical importance is the introductory clause to the subsection, which states, "except as provided in subchapter IV of this chapter." Subchapter IV (42 U.S.C. §§ 7171-7177) creates the FERC as an independent regulatory commission within the Department of Energy. Significantly, many of the rate approval functions of the FPC were transferred to the FERC in subchapter IV, such administrative review to be exercised independently of the Secretary of Energy. The first sentence of 42 U.S.C. § 7151(b), therefore, does not clearly provide a statutory basis for the Secretary of Energy's claimed authority to adopt an interim rate increase for SWPA customers.

The Government's argument, however, does not fail solely upon an examination of the first sentence in section 7151(b). The second sentence of the subsection provides, "The Secretary may exercise any power described in section 7172(a)(2) of this title to the extent the Secretary determines such power to be necessary to the exercise of any function within his jurisdiction pursuant to the preceding sentence." In essence, the Government contends that section 7172(a)(2) powers encompass interim rate orders under the Flood Control Act. A review of 42 U.S.C. § 7172(a)(2) does reveal references to FERC rate-approval powers under the Federal Power Act and the Natural Gas Act, but no reference to similar powers under the Flood Control Act.9 Thus, section 7151(b) of the DEOA, considered as a whole, does not on its face authorize the Secretary of Energy to effect interim rate increases under the Flood Control Act.10

Moreover, the Government's argument that the Secretary of Energy was empowered by the DEOA to implement interim rates under the Flood Control Act ignores an explicit provision of the DEOA, which provides in pertinent part:11

If any provision of any Act, the functions of which are transferred, vested, or delegated pursuant to this chapter, provides administrative procedure requirements in addition to the requirements provided in this subchapter, such additional requirements shall also apply to actions under that provision.

Under section 5 of the Flood Control Act, confirmation and approval of the FPC was required prior to the implementation of any rate increase for SWPA customers. This FPC confirmation and approval function constitutes an additional "administrative procedure requirement" which, by the literal terms of section 7191(a)(1), continues to apply to administrative actions under the Flood Control Act. In short, the Secretary of Energy is bound by the administrative procedures set forth in the Flood Control Act, as was his predecessor, the Secretary of the Interior.

The Government's elaborate argument that the Secretary of Energy was provided with authority to enact interim rate increases under the DEOA also fails to address plaintiffs' central theory of recovery is this case, breach of contract. As the Government concedes, we must enforce a mutually agreed-upon contract according to its terms.12 The contracts in question state that rates may be increased "with the confirmation and approval of the Federal Power Commission * * * in accordance with and on the effective date specified in the order of the Federal Power Commission containing such confirmation and approval." While this court is not...

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