Consolidated Aluminum Corp. v. TVA, Civ. A. No. 78-3210-NA-CV.

• Court: United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
• Writing for the Court: MORTON
• Citation: 462 F. Supp. 464
• Parties: CONSOLIDATED ALUMINUM CORPORATION v. TENNESSEE VALLEY AUTHORITY.
• Docket Number: Civ. A. No. 78-3210-NA-CV.
• Decision Date: 30 June 1978

462 F. Supp. 464

CONSOLIDATED ALUMINUM CORPORATION
v.
TENNESSEE VALLEY AUTHORITY.

Civ. A. No. 78-3210-NA-CV.

United States District Court, M. D. Tennessee, Nashville Division.

June 30, 1978.

462 F. Supp. 465

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William J. Peeler, Porch, Peeler, Williams, Thompson & Bradley, Waverly, Tenn., Donald C. Winson, G. Robert Moore, Michael R. Borasky, John P. Lewis, Eckert, Seamans, Cherin & Mellott, Pittsburg, Pa., for plaintiff

Herbert S. Sanger, Jr., Charles A. Wagner, III, James E. Fox, Tennessee Valley Authority, Knoxville, Tenn., for defendant.

MEMORANDUM

MORTON, Chief Judge.

In this action plaintiff Consolidated Aluminum Corporation, a directly served consumer of power of the Tennessee Valley Authority (TVA), seeks to enjoin a rate adjustment approved by the TVA Board of Directors (Board) on May 17, 1978, to become effective July 2, 1978. The adjustment was approved when the TVA Board determined that it was necessary to enable TVA to continue its power program on a financially sound basis. Plaintiff argues that the TVA Board acted arbitrarily, capriciously, and abused its discretion in approving the adjustment; and that the adjustment was otherwise adopted in a procedurally defective manner.

On May 25, 1978, the date the action was filed, plaintiff moved for a preliminary injunction. Plaintiff was authorized to take the deposition of Albert O. Daniels, TVA's Director of the Division of Power Utilization; and that deposition has been filed with the Court. On June 19, 1978, TVA moved to dismiss the action or in the alternative for summary judgment. The motion was supported by the affidavits of Mr. Daniels and William E. Mason, an Assistant Secretary of TVA. A supplemental affidavit of Mr. Daniels was later filed in support of TVA's motion and in opposition to plaintiff's. Plaintiff filed the affidavit of William T. Bosworth in support of its motion. On June 20, 1978, the parties waived oral testimony, and the Court heard arguments of counsel. After considering the entire record in this case, the briefs of the parties, and the arguments of counsel, and based on these findings of fact and conclusions of law, the Court is of the opinion that plaintiff's motion for a preliminary injunction should be denied and TVA's motion to dismiss or in the alternative for summary judgment, which the Court treats as a motion for summary judgment, should be granted.

FINDINGS OF FACT

1. On May 17, 1978, the TVA Board approved a rate adjustment applicable

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across-the-board to all consumers of TVA power to become effective July 2, 1978.¹ This adjustment was approved after the Board's review and consideration of information concerning current and anticipated conditions and costs affecting TVA's operations; TVA's revenue needs during fiscal year 1978 to meet statutory and bond resolution requirements; projections for fiscal year 1979; the need to allow for contingencies; and views and comments received from distributors, industrial customers, and the general public. Following such review and consideration, the Board concluded that it was necessary to increase TVA's power revenues by about $60 million during fiscal year 1978 to enable the Board to conduct TVA's power program on a financially sound basis and in accordance with the TVA Act and the provisions of TVA's bond resolutions. The rate adjustment as approved was designed to produce additional revenues in this amount (exhs. I, K, and G to Daniels' affidavit; Mason's affidavit at 4-5)

2. The TVA Board has the responsibility under the TVA Act for establishing the rates which TVA charges for power. The basic policies governing the sale of TVA power and the fixing of rates therefor are set out in sections numbered 10, 11, 12, 14, and 15d of the TVA Act (16 U.S.C. §§ 831i, 831j, 831k, 831m, and 831n-4 (1976)). Since enactment of section 15d in 1959, TVA's power system has been financed from power revenues and from revenue bonds issued pursuant to section 15d (Daniels' affidavit at 3).

3. Subsection (f) of section 15d provides that TVA

. . . shall charge rates for power which will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system; payments to States and counties in lieu of taxes; debt service on outstanding bonds, including provision and maintenance of reserve funds and other funds established in connection therewith; payments to the Treasury as a return on the appropriation investment pursuant to subsection (e) of this section; payment to the Treasury of the repayment sums specified in subsection (e) of this section; and such additional margin as the Board may consider desirable for investment in power system assets, retirement of outstanding bonds in advance of maturity, additional reduction of appropriation investment, and other purposes connected with the Corporation's power business, having due regard for the primary objectives of the Act, including the objective that power shall be sold at rates as low as are feasible emphasis added.

In 1960, pursuant to authority contained in subsection (a) of section 15d, TVA adopted a Basic Bond Resolution which by its own terms constitutes a contract between TVA and the holders of its bonds. The Resolution includes provisions as to rates and revenues which repeat the above quoted requirement of section 15d(f), as well as expanding

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on the statutory requirements in various ways

4. Section 10 of the TVA Act authorizes TVA to "include in any contract for the sale of power such terms and conditions, including resale rate schedules, and to provide for such rules and regulations as in its judgment may be necessary or desirable for carrying out the purposes" of the Act. Section 11 states that TVA's power projects "shall be considered primarily as for the benefit of the people of the section as a whole and particularly the domestic and rural consumers to whom the power can economically be made available, and accordingly that sale to and use by industry shall be a secondary purpose, to be utilized principally to . . . permit domestic and rural use at the lowest possible rates." Section 15d(h) states a congressional intent that TVA have "adequate authority and administrative flexibility to obtain the necessary funds with which to assure an ample supply of electric power" in its area.

5. Under the express terms of subsections (a) and (b) of section 15d, TVA's bonds are secured solely by TVA's power revenues and are not obligations of, nor guaranteed either as to principal or interest by, the United States. Issuance of up to $15 billion of such bonds outstanding is presently authorized by section 15d, and as of September 30, 1977, the end of TVA's last fiscal year, $4,725,000,000 of such bonds was issued and outstanding. From 1960 through a part of 1974, TVA sold its revenue bonds to private underwriters, who in turn sold them to financial institutions, organizations, and members of the public. Since 1974, TVA has sold its bonds to the Federal Financing Bank. Of the $4,725,000,000 of such bonds outstanding as of September 30, 1977, $2,900,000,000 was held by the Federal Financing Bank and $1,825,000,000 by financial institutions, organizations, and members of the public. Bonds in the latter category were of varying maturities, some as late as January 1, 1999 (1977 TVA Ann. Rep., vol. II, at 5, 12).

6. The statute establishing the Federal Financing Bank authorizes it to purchase up to a specified amount of bonds issued by Federal agencies, and also to resell such bonds in the public markets. The statute requires that federal agencies generally sell their bonds only to the Bank, but contains an exception applicable to any agency whose bonds cannot by law be obligations of or guaranteed by the United States (12 U.S.C. § 2286(a) (1976)). The legislative history shows that this exception was included for the express benefit of TVA, which by reason of the exception may sell its bonds either to the Bank or in the public markets as it may determine to be most desirable from its standpoint in the case of any particular issue (H.R. Rep.No. 93-299, 93d Cong., 1st Sess. reprinted in 1973 U.S. Code Cong. & Admin. News, pp. 3153, 3157; Federal Financing Bank Act Hearings Before the House Comm. on Ways and Means, 93d Cong., 1st Sess. 19, 21, 33 (1973); S.Rep.No. 93-166, 93d Cong., 1st Sess. (1973)). The Federal Financing Bank may resell in the public markets any bonds of federal agencies which it holds (12 U.S.C. § 2285(a) (1976).

7. TVA power is sold to three types of customers: (a) some 160 municipalities and cooperatives (together with one small private utility) which in turn resell to about 2,500,000 residential, commercial, industrial, and federal agency consumers in an area comprising 80,000 square miles within seven different states; (b) a small number of industrial customers, including plaintiff, which have very large or unusual power demands; and (c) a small number of federal agencies which, as in the case of directly served industrial customers, have power demands that are very large or involve unusual characteristics (Daniels' affidavit at 2).

8. In 1970, TVA and its municipal and cooperative distributors agreed to amend their power contracts by incorporating in them a procedure for adjustments and changes in rates. Changes relate to general or major modifications in the Schedule of Rates and Charges attached to and made a part of each of these contracts. Adjustments relate to: (a) modifications of the

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demand and energy charges in the wholesale rate portion of the Schedule of Rates and Charges to provide TVA with revenues which will enable it to meet statutory and bond resolution requirements; and (b) modifications in the resale rate portion of the Schedule of Rates and Charges to compensate for increases or decreases in payments by...