Northern California Power Agency v. Morton, Civ. A. No. 74-617.

• Decision Date: 14 February 1975
• Docket Number: Civ. A. No. 74-617.
• Citation: 396 F. Supp. 1187
• Parties: NORTHERN CALIFORNIA POWER AGENCY et al., Plaintiffs, v. Rogers C. B. MORTON et al., Defendants.
• Court: U.S. District Court — District of Columbia

396 F. Supp. 1187

NORTHERN CALIFORNIA POWER AGENCY et al., Plaintiffs, v. Rogers C. B. MORTON et al., Defendants.

Civ. A. No. 74-617.

United States District Court, District of Columbia.

February 14, 1975.

George Spiegel, Daniel I. Davidson, Washington, D. C., for plaintiffs.

John H. Broadley, Dept. of Justice, Washington, D. C., for defendants.

MEMORANDUM OPINION

GESELL, District Judge.

In this action, plaintiffs¹ seek a judgment declaring unlawful rate increases promulgated by the Department of the Interior for electrical power sold to them as customers of the Central Valley Project in California hereinafter "CVP"). They also pray for an injunction prohibiting the defendants from continuing to implement such rate increases. Under the terms of an agreement between the parties, the funds which have accumulated in an escrow account since April, 1974, representing the amount of the challenged rate increase, would, following any appellate review, be returned.

It is alleged that the procedures followed by the Department prior to setting the new rates failed to comply with statutory requirements and deprived them of due process, and contended on the merits that the rates finally set are inconsistent with the applicable statutes. The procedural issues are before the Court on plaintiffs' motion for summary judgment, the material facts are not in dispute, and the issues have been thoroughly briefed and argued.

The procedural deficiencies alleged are, first, that the Department of Interior failed to comply with 5 U.S.C. § 552(a) (1)(B)-(C) in that it failed to publish in the Federal Register procedures to be followed in the rate-setting process; second, that the actual procedures employed by the Department were contrary to the Wunderlich Act, 41 U.S.C. § 321 et seq.; and, third, that the procedures were, in any event, so deficient that they denied due process.

Background and Proceedings

CVP is a multipurpose project managed by the Bureau of Reclamation of the Department of the Interior hereinafter "Bureau" and "Department," respectively). It consists of numerous dams, hydroelectric power generation and transmission facilities and irrigation canals as described in more detail in Ivanhoe Irrigation Dist. v. McCracken, 357 U.S. 275, 279-284, 78 S.Ct. 1174, 2 L.Ed.2d 1313 (1958). The project is located in the Central Valley of California and in the surrounding mountains. One of the subsidiary purposes of CVP is to generate and sell electric power.

Plaintiff companies are non-profit entities which purchase power from CVP and distribute it to in excess of 80,000 retail customers in a service area with a population approaching 200,000 people. Since these concerns automatically pass along rate increases to consumers in the form of higher electrical bills,² the challenge to the rate increase is, in effect, on behalf of consumer-customers. Under the Federal Reclamation Laws, municipalities and rural electric cooperatives such as plaintiffs are entitled to preference in purchasing power from Bureau-operated projects. 43 U.S.C. § 485h(c). Moreover, the Department interprets its mandate as requiring it to furnish power "at the lowest possible rate to consumers consistent with sound business principles." See 16 U.S.C. § 825. In a general way, as applied to this case, this standard means that rates must be sufficient over a 50-year period to recoup the Government's investment in each given facility. The Department noted that CVP had not been charging rates sufficient to accomplish this recoupment and felt that an increase of some kind was essential.

As early as 1969, the Bureau began to include projected rate increases in 1975 and 1980 in its rate and repayment studies for the CVP project. In January, 1973, the Department decided a rate increase should be placed in effect and began the process which culminated in this litigation. This is the first case of this kind in at least 30 years and the Bureau had no established procedures or practical hearing experience in the area.

The rate increase at issue in this case was promulgated by the Department in a press release dated November 1, 1973, to take effect in two stages: a 28 percent average increase effective April 1, 1974, with a second increase to follow in January, 1977. The customers who buy their power from the plaintiffs will pay between $1.75 and $2 million in additional electrical bills annually as a result of the first step of the increase.

In determining the amount of the increase the Bureau decided not to promulgate or adhere to a formal code of procedural rules to govern this and other rate proceedings. Instead, it felt that informal procedures developed on an ad hoc basis as the matter went along could better serve efficiency and "cut red tape." Since the CVP serves only 54 customers directly, face-to-face meetings between experts working on the technical phases of detailed accounting and hydrological background studies were deemed feasible.

The plaintiffs in this case received a great deal of information concerning the proposed rate increase by two methods. First, they received information which was transmitted generally to all the customers of the CVP. Second, they received extensive, detailed information in response to numerous specific requests made by them to the Department over a substantial period of time and almost continuously until decision. This information was requested in writing, orally and over the telephone and was supplied, depending on its nature, by all these means. No request for data was refused.³ However, in view of the naturally adversarial relationship of the parties and the absence of a code of procedures to define the ground rules, the process gradually became unmanageable. Thus, a massive computer study updating hydrological data for the 1954-1971 period, a crucial input to the ratesetting process, was made available to plaintiffs' experts only four days prior to the deadline for submitting written comments. The Bureau has since conceded to Congress that it "goofed" in failing to define in advance clear procedures for making in-depth background materials available.⁴

On June 8, 1973, a letter was sent to all customers of CVP by the Bureau inviting them to attend an open hearing on July 10, 1973, in Sacramento, California. Interested parties were invited to express their views on the proposed rate increase and were urged to submit written statements in addition to oral presentations. An agenda was attached. Included with those letters was a 32-page brochure setting forth the Bureau's proposal. Included in the brochure was a print-out of a rate and repayment study performed for CVP in May, 1973.

On May 7, 1973, Mr. George Spiegel, one of the attorneys for plaintiffs in this proceeding, wrote to Secretary Morton requesting, among other things, that the procedures which would be used to enable interested parties to present evidence and argument be detailed. On June 1, 1973, Deputy Assistant Secretary Wilson responded to Mr. Spiegel's letter of May 7, 1973, stating in pertinent part:

We have scheduled an open hearing for the CVP on July 10, 1973. At this hearing interested representatives of our customers, such as yourselves, and other interested members of the public will be afforded the opportunity to comment on the proposed rate schedules and the studies on which they are based.

On June 25, 1973, Deputy Assistant Secretary Wilson wrote to Mr. Spiegel to clarify the nature of the July 10 hearing. Mr. Wilson stated, inter alia:

In answer to your specific questions regarding the scheduled hearing, sworn testimony will not be submitted and there will be no opportunity for cross-examination. The Regional Director will preside. A transcript will be made and you are free to purchase a copy from the reporter for your own use. No "initial decision" will be made as this is not a formal adversary-type proceeding. The record will be reviewed by officials of the Bureau of Reclamation and others; the final decision will be made by the Secretary.

It is apparent from your questions that you misconstrue the nature of this hearing. The sole responsibility for deciding upon the rates to be charged by the Bureau for the sale of Federal power is vested in the Secretary —43 U.S.C. 485h(c). This matter is covered by the public property and public contracts exemption to the rulemaking requirements of the Administrative Procedure Act, 5 U.S.C. 553(a)(2). No public hearing is required by law.

Nonetheless, it is our desire to afford the public a reasonable opportunity to offer comments and advice before the final decision is made. It is to this end that we have established the indicated opportunities for public information and comment.

On July 10, 1973, a hearing was held in Sacramento at which interested parties, including the plaintiffs herein, made statements and submitted written comments on the Bureau proposal.⁵ The time for submission of additional written comments was extended to August 31, 1973. On November 1, 1973, after reviewing the hearing transcript and discussions with Bureau personnel, Assistant Secretary Horton announced the final rate increases for CVP by press release without stating the factors relied on or the underlying reasoning. It appears the final decision was based in part on factual considerations different from those originally advanced in support of the rate increase and subject to comment at the public hearing.

Failure to Publish Procedures

The Administrative Procedure Act, 5 U.S.C. § 552(a)(1), requires "each agency" to publish in the Federal Register for the guidance of the public:

(B) statements of the general course and method by which its functions are channeled and determined . . .. and

(C) rules of procedure . . ..

It is undisputed that the Bureau failed to publish any such description of the procedures to be followed in these ratemaking proceedings.⁶ The statute clearly provides that no administrative action...