Pacificorp v. F.E.R.C.

• Citation: 795 F.2d 816
• Decision Date: 28 July 1986
• Docket Number: 84-7862 and 85-7103,Nos. 84-7569,s. 84-7569
• Parties: PACIFICORP, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Respondents, and Atlantic Richfield Co., et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 816

795 F.2d 816

PACIFICORP, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Respondents, and Atlantic Richfield Co., et al., Intervenors.

Nos. 84-7569, 84-7862 and 85-7103.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 10, 1985.

Decided July 28, 1986.

Marcus Wood and Peter R. Jarvis, Stoel, Rives, Boley, Fraser & Wyse, Portland, Or., for petitioners.

Harvard P. Spigal, Gen. Counsel, John A. Cameron, Jr., Asst. Gen. Counsel, David J. Adler, Portland, Or., and Randy A. Roach, Seattle, Wash., Bonneville Power Administration, and Charles H. Turner, U.S. Atty., Jack G. Collins and Thomas C. Lee, Asst. U.S. Attys., Portland, Or., for respondents.

Paul M. Murphy, Heller, Ehrman, White & McAuliffe, Portland, Or., for intervenors.

Petitions for Review of Orders of the Bonneville Power Administration and the Federal Energy Regulatory Commission.

Before WALLACE, HUG and SCHROEDER, Circuit Judges.

SCHROEDER, Circuit Judge.

I. INTRODUCTION

These consolidated petitions require us once again to construe provisions of the Pacific Northwest Electric Power Planning and Conservation Act (Regional Act), 16 U.S.C. Sec. 839-839h (1981), which we have termed "a unique piece of energy legislation." Central Lincoln Peoples' Utility District v. Johnson, 735 F.2d 1101, 1106 (9th Cir.1984). The general background and history of the Act are explained in Aluminum Co. of America v. Central Lincoln Peoples' Utility District, 467 U.S. 380, 104 S.Ct. 2472, 2476-79, 81 L.Ed.2d 301 (1984), and do not bear further repetition here.

The statutory provision at issue in this case is section 5(c), 16 U.S.C. Sec. 839c(c) (1981). This section establishes a power exchange program between the Bonneville Power Administration (BPA) and investor-owned utilities (IOUs) in the Pacific Northwest. The program enables IOUs to furnish residential power at lower rates than their costs would permit. The IOUs otherwise would have to sell power to their residential customers at rates much higher than rates paid by residential customers of publicly owned utilities, who receive lower-cost federal power.

Under the exchange system contemplated by section 5, each electric utility in the Northwest may elect to sell power to BPA at the "average system cost [ASC] of [a] utility's resources." 16 U.S.C. Sec. 839c(c)(1); see also 16 U.S.C. Sec. 839a(19) (defining "resource"). BPA then sells the same amount of power back to the utility at BPA's lower wholesale rate. This enables the utility to sell power to its residential customers at the priority rate given to residential consumers receiving BPA federal power. In reality the exchange is a paper transaction. It is designed to eliminate the disparity that developed between the rates paid by residential customers of the IOUs and the lower rates paid by residential customers of publicly owned utilities. This disparity began after projections showed that electric demand would exceed supply in the 1970s. Accordingly, BPA informed the IOUs in 1973 that it would not renew its contracts with them because it could not continue to meet their requirements. To meet the increased demand, the IOUs constructed more expensive generating resources, ultimately resulting in rate disparity between IOU and federal residential ratepayers. See H.R.Rep. No. 976 (Part I), 96th Cong., 2d Sess. 24-29, reprinted in 1980 U.S.Code Cong. & Ad.News 5989, 5990. See also Aluminum Co. of America v. Central Lincoln Peoples' Utility District, 467 U.S. 380, 104 S.Ct. 2472, 2477, 81 L.Ed.2d 301 (1984); see generally Blumm, The Northwest's Hydroelectric Heritage: Prologue to the Pacific Northwest Electric Power Planning and Conservation Act, 58 Wash.L.Rev. 175, 221-30 (1983).

Section 5(c)(1) of the Regional Act creates the residential exchange program. It states:

Whenever a Pacific Northwest electric utility offers to sell electric power to the Administrator at the average system cost of that utility's resources in each year, the Administrator shall acquire by purchase such power and shall offer, in exchange, to sell an equivalent amount of electric power to such utility for resale to that utility's residential users within the region. 16 U.S.C. Sec. 839c(c)(1).

Section 5(c)(7) of the Act requires BPA to develop a "methodology" for determining each utility's average system cost in proceedings akin to rate making proceedings.

The "average system cost" for electric power sold to the Administrator under this subsection shall be determined by the Administrator on the basis of a methodology developed for this purpose in consultation with the Council, the Administrator's customers and appropriate State regulatory bodies in the region. Such methodology shall be subject to review and approval by the Federal Energy Regulatory Commission.... 16 U.S.C. Sec. 839c(c)(7).

This case concerns BPA's revision of the initial methodology which it had adopted in 1981. FERC granted interim approval of the 1981 methodology on October 1, 1981, and the methodology was put into effect on that date. FERC ultimately granted final approval to the initial methodology on October 6, 1983, retroactive to October 1, 1981. FERC Order No. 337, 48 Fed.Reg. 46,97 0 (1983). On October 7, 1983, the BPA initiated consultation proceedings to revise the original methodology, and on October 1, 1984, FERC approved the revised methodology. Order No. 400, "Final Rule," 49 Fed.Reg. 39,293 (1984). FERC clarified the final order and denied a petition for rehearing on February 1, 1985. Order No. 400-A, 50 Fed.Reg. 4,970 (1985).

The revised methodology had the effect of reducing the average system cost in two material ways. First, it eliminated income taxes from average system cost calculations, and second, it eliminated return on equity as a cost factor and substituted for it the embedded cost of long-term debt. The result is a substantial reduction in the amount of money which BPA pays to the IOUs under the exchange program.

The petitioners in this case challenge the revised methodology. Petitioners are eight IOUs and four state regulatory agencies of the region. The respondents are BPA and FERC.

In addition, certain direct service industrial customers (DSIs) and the Public Power Council have intervened on behalf of the respondents. The payments which BPA makes to the IOUs under the Regional Act's exchange program must be recovered through the rates that BPA charges to other customers. The DSIs, principally large aluminum companies buying power directly from BPA, are to make up most of that difference. Thus the reduction in Regional Act payments to the IOUs caused by the revised methodology is reflected in reduction in rates paid by the DSIs. The Public Power Council represents consumer-owned utilities in the region whose rates are also affected by the ASC exchange program.

Although section 5 of the Regional Act provides for the development of a method of calculating the "average system cost" of each utility's resources, the Act does not explain the term. Section 5(c)(7) provides that the methodology for calculating the ASC shall not include three categories of costs: the costs of resources needed to serve new large single loads, the costs of resources used to serve new loads outside the region, and terminated plant costs. 16 U.S.C. Sec. 839c(c)(7). Other than these express exclusions, "average system cost" is not defined anywhere in the Act. Controlling issues in this case therefore turn on interpreting section 5, and, more specifically, on the extent of BPA's discretion in developing an average system cost methodology.

In addition to their challenge to the substance of the revised methodology, petitioners object to its timing. They argue that BPA's institution of proceedings to revise the methodology was premature and in violation of a contractual commitment contained in their Residential Agreements with BPA. They ask that we invalidate the methodology on that ground as well.

II. JURISDICTION

Petitioners have filed three petitions because of uncertainty over application of the 90-day limitation period prescribed in the jurisdictional provision of the Regional Act. That statute provides:

Suits to challenge the constitutionality of this chapter, or any action thereunder, final actions and decisions taken pursuant to this chapter by the Administrator ... or the implementation of such final actions ... shall be filed in the United States Court of Appeals for the region. Such suits shall be filed within 90 days of the time such action or decision is deemed final....

Regional Act Sec. 9(e)(5), 16 U.S.C. Sec. 839f(e)(5).

Petitioners filed their first petition in this court, No. 84-7569, on August 31, 1984, after BPA first adopted its rules revising the ASC. They filed the second, No. 84-7862, on December 26, 1984, after FERC entered its order approving the methodology in what was termed a "final rule." The third, No. 85-7103, filed on February 25, 1985, sought review after FERC's subsequent order denying petitioners' petition for rehearing and clarifying its earlier final rule.

This court has held, and the parties do not dispute, that under the jurisdictional provisions of Regional Act section 9(e)(5), we have jurisdiction to review only final actions in BPA rate proceedings. "[S]ection 839f(e)(4)(D) precludes us from treating rate determinations as final actions before FERC has confirmed and approved the rates." Central Lincoln Peoples' Utility District v. Johnson, 735 F.2d at 1109. In this proceeding, which is akin to a rate proceeding, the methodology did not become final until FERC denied the petitioners' petition for rehearing. Therefore, our jurisdiction has properly been invoked in petition number 85-7103, and the remaining petitions are dismissed. California Energy Commission v. Johnson, 767 F.2d 631, 635 (9th Cir.1985).

III. THE SCOPE OF OUR REVIEW OF BPA'S INTERPRETATION OF THE ACT

At the heart of the struggle between the...