Occidental Chemical Corp. v. Power Authority

• Decision Date: 11 March 1992
• Docket Number: CIV-90-208C.
• Citation: 786 F. Supp. 316
• Parties: OCCIDENTAL CHEMICAL CORPORATION, the Pillsbury Company, General Mills, Inc., Bethlehem Steel Corporation, Nabisco Brands, Inc., and Union Carbide Corporation, Plaintiffs, v. The POWER AUTHORITY OF the STATE OF NEW YORK, Defendant.
• Court: U.S. District Court — Western District of New York

786 F. Supp. 316

OCCIDENTAL CHEMICAL CORPORATION, the Pillsbury Company, General Mills, Inc., Bethlehem Steel Corporation, Nabisco Brands, Inc., and Union Carbide Corporation, Plaintiffs, v. The POWER AUTHORITY OF the STATE OF NEW YORK, Defendant.

CIV-90-208C.

United States District Court, W.D. New York.

March 11, 1992.

Sutherland, Asbill & Brennan (Earle H. O'Donnell, and Michael L. Denger, of Counsel), Washington, D.C., for plaintiff Occidental Chemical Corp.

Connors & Vilardo (Kevin A. Ricotta, of Counsel), Buffalo, New York, for plaintiffs Occidental Chemical Corp. and The Pillsbury Co.

Couch, White, Brenner, Howard & Feigenbaum (Algird F. White, Jr., of Counsel), Albany, N.Y., for plaintiffs General Mills, Inc., Bethlehem Steel Corp., Nabisco Brands, Inc., and Union Carbide Corp.

Charles M. Pratt (Arthur T. Cambouris, of Counsel), New York City, for defendant Power Authority of the State of New York.

Damon & Morey (Sharon M. Porcellio, of Counsel), Buffalo, N.Y., for defendant Power Authority of the State of New York.

CURTIN, District Judge.

BACKGROUND

This case involves a question of statutory construction: Does the Niagara Redevelopment Act ("NRA"), 16 U.S.C. § 836(b)(3), prohibit the Power Authority of the State of New York ("PASNY") from selling Replacement Power from its Niagara hydroelectric project at a rate greater than its cost of producing that power? Plaintiffs seek a declaratory judgment that PASNY's decision to increase its Replacement Power rates beginning on January 1, 1990, is contrary to the NRA. Defendant contends that the NRA does not mandate a cost-based rate for Replacement Power.

FACTS

There are no facts in dispute. Although the court set out the facts in its prior order, Occidental Chem. Corp. v. Power Auth. of the State of New York, 758 F.Supp. 854, 856-57 (W.D.N.Y.1991) ("OCC v. PASNY"), given the importance of the issue here, an outline of those facts is again necessary. See also Federal Power Comm'n v. Tuscarora Indian Nation, 362 U.S. 99, 100-06, 80 S.Ct. 543, 545-48, 4 L.Ed.2d 584 (1960) (detailing history surrounding passage of NRA).

Prior to the enactment of the NRA by Congress on August 31, 1957, a private utility—the Niagara Falls Power Company ("NFPC"), predecessor company of the Niagara Mohawk Power Corporation ("Niagara Mohawk")—controlled the hydroelectric power-generating capabilities of the Niagara River. Around the turn of the century, NFPC built two hydroelectric facilities on the Niagara: the Adams Plant and the Schoellkopf Station. The Adams Plant generated approximately 80,000 kilowatts ("kW"), and the Schoellkopf Station generated approximately 365,000 kW. In the beginning, NFPC obtained water flow to support these facilities from grants issued by the New York State legislature. After 1909, however, when Canada and the United States signed the Boundary Waters Treaty, the diversion of water from the Niagara for power generation was governed by international agreement. Then, with the passage in 1920 of the Federal Water Power Act, NFPC was required to obtain a federal license for its Niagara facilities. NFPC obtained a fifty-year license from the Federal Power Commission ("FPC") on March 2, 1921. 1 F.P.C. 16 (Item 43, Exhs. 12-14).¹ As this was the sixteenth license issued by the newly formed FPC, NFPC's twin hydroelectric plants came to be known as Project 16. NFPC was granted additional small allocations of water in 1926 and 1928, see Item 43, Exhs. 13-14, and a larger allocation in 1941, after an agreement between the United States and Canada to divert more water for hydroelectric power generation. See 2 F.P.C. 461 (Item 43, Exh. 28).

In 1950, the United States and Canada signed a new treaty ("1950 Treaty") which authorized the United States to divert a larger portion of water from the river than Niagara Mohawk could utilize at its twin hydroelectric plants. 1 U.S.T. 694.² During ratification, the United States Senate attached a reservation to this treaty which prohibited redevelopment of the Niagara River without express congressional authorization. Id. at 699. The enactment of this reservation precipitated a seven-year debate in Congress over how to best develop and allocate hydroelectric power from the Niagara resource. Three main questions occupied Congress: (1) Should public bodies and nonprofit cooperatives be given preference to Niagara power and, if so, what form should the preference clause take?; (2) How much power, if any, should be reserved for preference customers in adjacent states?; and (3) Who should be licensed to develop the Niagara resource—a private utility, PASNY, or the federal government? Only the last of these questions directly concerns us here.

Following ratification of the 1950 Treaty, Niagara Mohawk and other private utilities were the first to seek congressional authorization to develop additional generating capability. Support for this proposition was strongest in the House, where in 1953 the House passed a bill which provided for private development. See H.R.Rep. No. 862, 85th Cong., 1st Sess. 2, reprinted in 1957 U.S.C.C.A.N. 1585 ("House Report") (Item 42, Exh. 3). Public-power advocates succeeded in having this bill blocked in the Senate, however. These advocates supported development by PASNY, which in 1951 was authorized by the New York State legislature to develop the Niagara River. See generally N.Y. Pub.Auth.Law § 1000 et seq. (McKinney 1982). Prior to 1951, PASNY was limited to developing a hydroelectric facility on the St. Lawrence River. See id. While Congress debated these alternatives, Canada quickly developed additional hydroelectric power-generating capabilities and was permitted to use the United States' share of Niagara water.

On June 7, 1956, a rock slide destroyed Niagara Mohawk's Schoellkopf Station and its 365,000 kW generating capability. The Adams Plant was not affected, but it generated only 80,000 kW. The loss of this power from the Niagara region was potentially devastating to the industries that had located in the region to take advantage of NFPC's low-cost hydroelectric power. NFPC had generated low-cost power from the river for more than fifty years. The price of this power was, by 1915, regulated by the New York Public Service Commission ("NYPSC"), when NFPC filed its first rate tariff. See Item 43, Exh. 16. NFPC charged high-load users³ in the Niagara Falls area approximately three mills⁴ per kilowatt hour ("kWh") for this power. See Item 38, ¶ 6 (explaining rate calculations). This rate was maintained by NFPC up through the destruction of the Schoellkopf Station. Id., ¶¶ 7-9. With the loss of this low-cost source of power, industries were suddenly forced to purchase much more expensive power from Canada, and Canadian sources could not guarantee that this power would be available for any length of time. This crisis brought new urgency to congressional deliberations over development of the river. Congress was very concerned that, given the increased cost and uncertain availability of power to meet their needs, industries in the Niagara region might be forced to leave the area, with serious adverse consequences for the region's economy. Accordingly, Congress quickly resolved its differences and enacted the NRA.

The NRA directed the FPC, since renamed the Federal Energy Regulatory Commission ("FERC"), to issue a license to PASNY to construct and operate a hydroelectric power project on the Niagara River to utilize all of the water allocated to the United States by treaty with Canada. 16 U.S.C. § 836(a). Given the additional water allocation, the new project was capable of producing 1,800,000 kW of firm power, nearly four times the power output of Niagara Mohawk's obsolete power stations. Congress directed the FPC to include in the license, in addition to those conditions deemed necessary by it under the Federal Power Act, 16 U.S.C. § 791a et seq., seven additional conditions governing the distribution and sale of the new project's power. The first condition granted "public bodies and nonprofit cooperatives within economic transmission distance" preference to acquire fifty percent of the project's power. 16 U.S.C. § 836(b)(1). This power was to "be made available at the lowest rates reasonably possible and in such manner as to encourage the widest possible use...." Id. Preference power not purchased by public power companies could be sold to private utilities, as long as "flexible arrangements" were made "to meet the reasonably foreseeable needs of the preference customers." Id. See Power Auth. of the State of New York v. Federal Energy Regulatory Comm'n, 743 F.2d 93, 103-07 (2d Cir.1984) ("PASNY v. FERC") (interpreting preference clause of NRA). The second condition directed PASNY to make available to preference customers in neighboring states up to twenty percent of the fifty percent available to preference customers in New York. 16 U.S.C. § 836(b)(2).

The third condition is at the center of this case. It provided that PASNY "shall contract, with the approval of the Governor of the State of New York, pursuant to the procedure established by New York law" to sell to Niagara Mohawk, "for a period ending not later than the final maturity date of the bonds initially issued to finance" the Niagara project, 445,000 kW of project power

for resale generally to the industries which purchased power produced by project 16 prior to such date, or their successors, in order as nearly as possible to restore low power costs to such industries and for the same general purposes for which power from project 16 was utilized....

16 U.S.C. § 836(b)(3) (emphasis added). The requirement that PASNY contract to sell this power to Niagara Mohawk hinged on a proviso that Niagara Mohawk agree to surrender its FPC license for Project 16 and waive any claims for damages. Id. This block of power was designed to "replace" power lost to local industry as a result of the rock slide, and thus came to be called ...