Holbrook v. Tenn. Valley Auth.
| Decision Date | 07 September 2022 |
| Docket Number | 21-1415 |
| Parties | DAVID HOLBROOK, Plaintiff-Appellant, v. TENNESSEE VALLEY AUTHORITY; BVU AUTHORITY, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Martin Bienstock, BIENSTOCK PLLC, Washington, D.C., for Appellant.
Maria Victoria Gillen, TENNESSEE VALLEY AUTHORITY, Knoxville Tennessee; Cameron Scott Bell, PENN, STUART & ESKRIDGE Abingdon, Virginia, for Appellees.
ON BRIEF:
Mark T. Hurt, Abingdon, Virginia, for Appellant.
Karissa H. Range, PENN, STUART & ESKRIDGE, Abingdon, Virginia, for Appellee BVU Authority.
David D. Ayliffe, Director of Litigation, TVA GENERAL COUNSEL'S OFFICE, Knoxville, Tennessee, for Appellee Tennessee Valley Authority.
Before RICHARDSON, RUSHING, and HEYTENS, Circuit Judges.
The Tennessee Valley Authority sells its power to the BVU Authority in Virginia, one of its many customers. The BVU Authority in turn sells its power to local consumers who need electricity. Among those local consumers is David Holbrook, and Holbrook thinks he has been paying too much for power. He believes that the TVA has a statutory duty to use the fruits of its sales to large industrial buyers to subsidize consumers' electricity consumption. He bases this view largely on § 11 of the Tennessee Valley Authority Act of 1933, Pub. L. No. 73-17, § 11, 48 Stat. 58, 64-65 (codified at 16 U.S.C. § 831j). That provision gives the TVA two goals: The first goal is to operate "primarily . . . for the benefit of the people . . . particularly the domestic and rural consumers to whom the power can economically be made available," and a "secondary" goal is to use sales to industry "principally to secure a sufficiently high load factor and revenue returns which will permit domestic and rural use at the lowest possible rates." Holbrook reads that language as a command to the TVA to subsidize consumers from the pockets of industry. Under that reading, Holbrook believes that a string of TVA rate changes, shifting costs from industry to consumers, were illegal. So he sued BVU Authority and TVA under three theories, which all more or less amount to claims that the TVA failed to live up to its statutory duties under § 11. The district court dismissed all three claims because TVA's ratemaking authority is committed to agency discretion and thus unreviewable. We affirm.
"Congress created the TVA-a 'wholly owned public corporation of the United States'-in the throes of the Great Depression to promote the Tennessee Valley's economic development." Thacker v. TVA, 139 S.Ct. 1435, 1439 (2019) (quoting TVA v. Hill, 437 U.S. 153, 157) (1978)).[1] Congress created the TVA through the Tennessee Valley Authority Act of 1933.[2] And Congress gave the TVA a lot to do. It was tasked with improving the navigability of the Tennessee River, preparing for flood control along the river, reforesting parts of the Valley, and putting other areas to more productive use. TVA Act, §§ 1, 22-23. It was even told to act "in the interest of the national defense" by operating a fertilizer plant in Muscle Shoals, Alabama. §§ 1, 5, 11.[3]
What matters for our purposes is TVA's role in producing electricity. To this day, the TVA is a major purveyor of electricity to the Tennessee Valley.[4] It sells electricity wholesale to federal agencies, industrial users, localities, local governments, and co-ops who do the retail selling to consumers (or use the power themselves).
David Holbrook is one of those consumers. He lives in Bristol, Virginia, and buys his power from the BVU Authority, a power company created by the State of Virginia. The TVA sells power to the BVU Authority who serves local customers. Holbrook's suit here focuses on the rates that TVA requires BVU Authority, as a wholesale buyer, to charge Holbrook, as a retail power consumer.
When the TVA sets rates, it aims to meet a slew of policy objectives that Congress laid out in the Act. To start, § 10 of the Act instructs the TVA to give preferences to "States, counties, municipalities, and cooperative organizations of citizens or farmers, not organized or doing business for profit, but primarily for the purpose of supplying electricity to its own citizens or members."
Section 11 of the Act is of particular importance to this suit:
It is hereby declared to be the policy of the Government so far as practical to distribute and sell the surplus power generated at Muscle Shoals equitably among the States, counties, and municipalities within transmission distance. This policy is further declared to be that the projects herein provided for 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 secure a sufficiently high load factor and revenue returns which will permit domestic and rural use at the lowest possible rates and in such manner as to encourage increased domestic and rural use of electricity.
Holbrook reads this piece of the statute as a directive to use industry sales to subsidize "domestic and rural consumers." See § 11.
Holbrook's claims concern several revenue-neutral rate changes implemented through BVU Authority contracts under a new TVA policy called the "Strategic Pricing Plan." J.A. 107. To understand that claim, we need to understand how the TVA sets its rates. To grossly simplify, when the TVA sets rates, it takes two distinct steps. First, it determines the amount of revenue it needs to collect from all its sales. Then, it determines how to assign prices to various customers to meet that overall goal. When the TVA changes that total amount it needs, that's called a "rate adjustment." In contrast, a "rate change" occurs when the TVA rearranges or otherwise changes the various rates among customers while keeping its overall revenue goal the same. So rate changes must be revenue neutral.
The TVA sets its rates largely through entering power contracts with local power companies, who then resell the power to different classes of customers at different rates as required by the power contracts with TVA.
Back to the Strategic Pricing Plan. In 2010, the TVA began putting the Plan, which focused on "TVA's long-term pricing," into motion in power contracts with local power companies. J.A. 249. The Plan aimed to achieve fairness in pricing and increase competitiveness by charging customers based on their proportion of total cost of service. The TVA aimed to change rates so "that revenue [would] be recovered in proportion to costs by customer class." J.A. 187. Because supplying power to industry is cheaper, TVA sought to create new benefits and discounts for industrial consumers, things like manufacturing credits and high-volume discounts. TVA hoped the Plan would better transform the TVA's savings from efficient, industrial-energy use into savings for the industrial consumers who made those efficiencies possible. But Holbrook alleges that all those changes to benefit industrial customers unjustifiably shifted costs onto consumers.
To illustrate the effect of these changes, Holbrook says that in 2015, compared to its rivals, TVA had industrial rates in the cheapest quartile and consumer rates around the median, which already suggests that consumers were not top priority. But then the TVA added a "General Manufacturing Credit," which reduced industry rates by an average of 6.4% and increased consumer rates by 1.1%. By 2016, Holbrook says this shifted nearly half a billion dollars in costs from industry to consumers, and that has only increased since then.
Holbrook's power supplier BVU entered contracts with TVA over the past decade, carrying out the rate structure envisioned by the Strategic Pricing Plan. Based on his theory that TVA was illegally requiring his electric company to charge him too much for power, Holbrook brought this Complaint on behalf of "[a]ll persons who within the statute of limitations period were domestic customers of TVA" and "[a]ll persons who within the statute of limitations period were domestic customers of BVU and who received energy pursuant to a contract between the TVA and the BVU." J.A. 119. The Amended Complaint focuses on three claims: a third-party breach of contract claim against both TVA and BVU, an Administrative Procedure Act claim under 5 U.S.C. § 702 against TVA alone, and an "Unlawful Exaction" claim against both TVA and BVU, which alleges that TVA caused Plaintiffs to pay more for electricity than "could lawfully be charged under the TVA Act." J.A. 121-22.
While we do not have the exact contracts used during the relevant period since the district court dismissed the case by granting a motion to dismiss, we do have an example of a similar contract from 2006. Holbrook alleges that this contract is representative of the contracts they have used since. The 2006 contract reiterates many of the TVA's goals and purposes as laid out in the TVA Act. It may be more accurate to say that the statutory language is copied into the contract. And importantly, the contract includes the § 11 language that "power shall be primarily for the benefit of the people of the section as a whole and particularly the domestic and rural consumers, to whom it is desired to make power available at the lowest possible rates." J.A. 10.
The district court relied on precedent from cour...
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