Department of Water and Power of City of Los Angeles v. Bonneville Power Admin.

Decision Date24 April 1985
Docket NumberNo. 84-7618,84-7618
Citation759 F.2d 684
PartiesDEPARTMENT OF WATER AND POWER OF the CITY OF LOS ANGELES, Petitioner, v. BONNEVILLE POWER ADMINISTRATION, Respondent.
CourtU.S. Court of Appeals — Ninth Circuit

Henry C. Thuman, O'Melveny & Myers, Los Angeles, Cal., for petitioner.

R. John Seibert, Dennis G. Linder, Portland, Or., for respondent.

Appeal from final action of the Administrator of the Bonneville Power Administration.

Before KILKENNY, GOODWIN and SKOPIL, Circuit Judges.

GOODWIN, Circuit Judge.

The Department of Water and Power of the City of Los Angeles brings a direct appeal 1 challenging a policy implemented by the Administrator of the Bonneville Power Administration [BPA] which allocates use of electricity transmission lines connecting the Pacific Northwest with California. Reviewing the regulation in light of the broad range of powers statutorily granted to the Administrator, we uphold the validity of the regulation.

This case asks whether, to what extent and for what reasons, BPA can exercise control over the marketing of electricity generated in the Pacific Northwest. Like many similar cases, this one involves a complex web of four federal statutes and a complex factual background. 2 The real issue here is whether the City of Los Angeles can purchase low-cost electricity from vendors in Canada and transmit that electricity at rates favorable to Los Angeles The City of Los Angeles provides electricity to customers in and near Los Angeles. Bonneville Power Administration is a federal agency within the Department of Energy organized for three purposes: to produce electric power at the Bonneville Dam on the Columbia River, to market power produced from numerous dams on the Columbia River as part of the Federal Columbia River Power System, and to supervise distribution of power within and from the Pacific Northwest. BPA itself is subject to regulatory supervision by the Federal Energy Regulatory Commission. 16 U.S.C. Secs. 839e(i)(6), 839e(k).

contrary to the pricing strategy of the Administrator.

Producers of electricity in the Pacific Northwest are linked to producers and consumers of electricity in the Pacific Southwest through the Pacific Northwest-Pacific Southwest Intertie, a system of three high-voltage transmission lines. 3 BPA owns and operates almost all of the lines north of the Oregon-California and Oregon-Nevada borders. South of Oregon, the lines are owned by a number of California utilities. The City owns 40 per cent of one of those lines.

The purpose of the Intertie, established by Congress in the late 1960's, see Pub.L. No. 88-257, 77 Stat. 844 (1964); Pub.L. No. 88-511, 78 Stat. 682 (1965) (appropriations for construction of the Intertie), is to even out the peaks and troughs in the production and consumption of power between the Northwest and the Southwest. At certain times of year the Northwest produces more electricity than it can use and the Southwest experiences particularly heavy electricity consumption. At other times, the Northwest has heavy demand and the Southwest can produce surplus power. By allowing electricity to flow either north or south, each region can assist the other during times of heavy demand. 4

BPA produces approximately half the hydroelectric power sold in the Pacific Northwest. The remainder is produced by 15 publicly-owned or investor-owned utilities. BPA and the other utilities store the generation capacity of hydroelectric energy as water, held behind dams with finite storage capacities. This means that the generation capacity is perishable, because limits to storage and replenishment depend upon reservoir capacity and river flows. As a result, a major responsibility of BPA is the management of water levels consistent with seasonal water flows and electricity demands.

The water management process is complicated because the seasonal periods of high and low river flow do not necessarily correspond to seasons of high and low electricity demand. In marketing hydroelectric energy, BPA must distinguish between power which can be generated during periods of the lowest river flow and power which can be generated only during peak river flow. A distinction has arisen, therefore, between so-called firm power (which is always available) and so-called nonfirm or interruptible power (which is available only during peak river flows). See ALCOA v. Central Lincoln Peoples' Util. Dist Over the years, BPA has entered into numerous contracts for the sale of firm power, both within the Northwest and outside the region. BPA has had such a contract with the City. The City also buys nonfirm hydroelectric power from BPA from time to time as it is available and as the City has demand for it. During times of electricity shortage, parties to firm power contracts receive priority over any nonfirm energy purchasers. See e.g. 16 U.S.C. Sec. 837f; ALCOA, 104 S.Ct. at 2477-79.

--- U.S. ----, 104 S.Ct. 2472, 2475, 81 L.Ed.2d 301 (1984).

In the sale of both firm and nonfirm power, BPA is statutorily required to give priority to purchasers within the Northwest, 16 U.S.C. Sec. 837a, and to public bodies and cooperatives, 16 U.S.C. Sec. 832c(a). Sale to utilities outside the region is limited to electricity "which would otherwise be wasted because of the lack of a market therefor in the Pacific Northwest at any established rate." 16 U.S.C. Secs. 837(c), 837(d). This electricity is known as surplus power.

Sale of any power by a Northwest utility to a California utility, such as the City, requires the transmission of that power to the California purchaser. The Intertie transmits this energy. But, because there are many purchasers of power and because seasonal availability may affect the amount of power which utilities wish to transmit over the Intertie to California purchasers, BPA must allocate Intertie capacity among both purchasers and producers.

In allocating Intertie capacity among itself and other Northwest electricity producers, BPA is statutorily required to give itself preference. 16 U.S.C. Sec. 837e. Any capacity in the Intertie "which is not required for the transmission of Federal energy ... shall be made available as a carrier for transmission of other electric energy...." Id.

When Northwest utilities must generate more electricity than they can possibly use in the Northwest (to avoid the wasteful spilling of water over their dams), the electricity so generated is sometimes not only too much to be used in the Northwest but also exceeds the capacity of the Intertie to transmit.

To allocate Intertie capacity for surplus power sales outside the region, BPA has entered into an agreement with Northwest utilities known as the Exportable Agreement. 5 The Exportable Agreement allocates Intertie capacity among competing producers during times of potential spillover by permitting each Northwest utility to sell a pro rata portion of its surplus power to California purchasers and to transmit that power over the Intertie until Intertie capacity has been reached. When the Exportable Agreement triggers an allocation of scarce Intertie capacity, nonregional producers (i.e., electricity producers in Canada) are precluded from using the Intertie. That agreement was, until the policy which is the subject of this litigation, the only means for allocating Intertie capacity.

In the past, when river flows did not threaten a spillover condition, BPA did not regulate Interie access. Instead, BPA allowed access to the Intertie (up to its maximum capacity) to both Northwest and Canadian utilities. Market forces determined how much energy each Northwest or Canadian utility could sell to purchasers in California. If Canadian utilities offered the most attractive price to California purchasers, for example, those utilities were permitted to use potentially all Intertie capacity, at the exclusion of Northwest utilities which were offering less attractive prices. Canadian producers as a group have been the second largest user of Intertie capacity, after BPA itself.

There are several different ways by which California utilities purchase Northwest power. The first, known as a bilateral purchase, is a spot-market purchase of electricity. After the seller and purchaser The second major power sale arrangement is the exchange agreement. An exchange agreement is a reservation by a purchaser to borrow electricity which is later returned to the producer. A purchaser reserves capacity on the Intertie to accommodate the electricity it needs to borrow (usually for peak daily usage), and reserves capacity to return the same amount of electricity at a later time (often the same day) when its own generation capacity is not being fully used. Because this energy transaction is used to accommodate peak electricity demands, the arrangement is known as a peaking return exchange agreement. The energy so transmitted is known as obligation energy. Because the Intertie can be used for transmitting electricity either to the north or to the south, the Intertie can be used for both ends of the transaction: the borrowing of electricity during peak times by California utilities and the return of electricity to Northwest utilities during California's off-peak hours.

                agree upon a price, quantity and duration, the energy is "wheeled" over the Intertie directly from the producer to the purchaser. 6   Wheeling agreements provide a significant percentage of the energy needs of some California utilities including the City. 7
                

The City and BPA have had a long-standing exchange agreement. Because market conditions in recent years have made Canadian power very attractive, however, the City has been satisfying its obligation to return borrowed energy by purchasing electricity from British Columbia Hydro Authority and having that electricity returned to BPA at the British Columbia--Washington border. Consequently, the Intertie has been used by the City to borrow BPA...

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