Portland General Elec. Co. v. Johnson

Decision Date04 March 1985
Docket NumberNo. 83-7546,83-7546
Citation754 F.2d 1475
PartiesPORTLAND GENERAL ELECTRIC COMPANY, Petitioner, v. Peter JOHNSON, Administrator of the Bonneville Power Administration, Respondent, Intalco Aluminum Corporation, et al., Intervenors.
CourtU.S. Court of Appeals — Ninth Circuit

Alvin Alexanderson, Alvin L. Alexanderson, Portland, Or., for petitioner.

John Cameron, Asst. Gen. Counsel, Bonneville Power Admin., Portland, Or., for respondent.

Harry Poth, Robert T. Hall, III, Reid & Priest, New York City, Charles H. Turner, U.S. Atty., Jack G. Collins, Chief, Civil Div., Portland, Or., for intervenors.

Petition for Review of Sales of Electric Power by the Bonneville Power Administration.

Before KILKENNY, SNEED, and NORRIS, Circuit Judges.

SNEED, Circuit Judge:

Petitioner Portland General Electric Company (PGE) challenges reduced-rate sales of electric power by the Bonneville Power Administration (BPA) to BPA's direct service industrial customers that took place in 1983. 1 Petitioner alleges that BPA failed to follow ratemaking procedures mandated by the Pacific Northwest Electric Power Planning and Conservation Act, 16 U.S.C. Secs. 839-839h (1982).

We find that petitioner had standing to bring this action, that the action is timely, and that the petitioner is not barred from bringing this action by failure to raise its objections before the agency. On the merits, we find that under the circumstances of this case BPA was not required to follow ratemaking procedures.

I. STATEMENT OF THE CASE
A. Background

Respondent BPA is a federal government agency that markets power from federal BPA sells power to public utilities and other public entities, to private, investor-owned utilities, and to direct service industrial customers (DSI's). The public and private utilities purchase power for resale to consumers. The DSI's, primarily aluminum manufacturers, purchase power directly for their own use.

hydroelectric projects and other federally-owned sources of electric power in the Pacific Northwest. BPA's operations and statutory mandate are discussed in detail in Central Lincoln Peoples' Util. Dist. v. Johnson, 686 F.2d 708 (9th Cir.1982), rev'd sub nom. Aluminum Co. of America v. Central Lincoln Peoples' Util. Dist., --- U.S. ----, 104 S.Ct. 2472, 81 L.Ed.2d 301 (1984), and Central Lincoln Peoples' Util. Dist. v. Johnson, 735 F.2d 1101 (9th Cir.1984). We present here only the essential facts necessary to understand this case.

Petitioner Portland General Electric Company (PGE) and intervenors Intalco Aluminum Corporation (Intalco), Martin Marietta Aluminum, Inc., (Martin Marietta) and Pennwalt Corporation (Pennwalt) are all BPA customers. PGE is an investor-owned utility. Intalco, Martin Marietta, and Pennwalt are DSI's; they have intervened on the side of respondent BPA.

The Pacific Northwest Electric Power Planning and Conservation Act, 16 U.S.C. Secs. 839-839h (1982) (hereinafter referred to as the Regional Act), requires BPA to fix rates for electric power that are sufficient both to meet BPA's costs and to recoup the federal investment in its facilities "over a reasonable number of years." 16 U.S.C. Sec. 839e(a). The Act prescribes procedures for establishing or revising rates. The required procedures include publication of notice of proposed rates in the Federal Register, public hearings, and decision on the record. See 16 U.S.C. Sec. 839e(i). New rates must be approved by the Federal Energy Regulatory Commission (FERC) before they become effective. Id. Sec. 839e(a)(2). Rate determinations and other final agency actions are subject to judicial review in this court. See id. Sec. 839f(e).

A fundamental fact necessary to an understanding of this case is that the amount of power that BPA has to sell at any given moment depends on stream flows in the Columbia River basin. These streamflows cannot be predicted with precision. Therefore, BPA sells power under two different basic types of contracts. "Firm" power is sold under long-term contracts. The amount of firm power sold is within the amount that BPA expects to have available under even the most adverse streamflow conditions. "Nonfirm" power is sold on a short-term basis when available power exceeds BPA's firm commitments.

BPA's contracts with its DSI customers fall into a special third category. The DSI's receive their power under twenty-year contracts, and in that sense their power is "firm." Unlike utilities that serve residential customers, however, the DSI's can tolerate unexpected interruptions of their power. Therefore, part of the power that BPA sells to the DSI's serves as a reserve which BPA may call on in the event that an emergency threatens its ability to serve its other firm customers. See 16 U.S.C. Secs. 839a(17), 839c(d)(1)(A); Aluminum Co. of America, --- U.S. at ----, 104 S.Ct. at 2481. The "interruptible" nature of BPA's service to the DSI's places that service in an intermediate category between firm and nonfirm. The Regional Act requires that the rates that BPA charges the DSI's be adjusted to reflect the interruptible nature of the service that the DSI's receive. See id. Sec. 839e(c)(3).

B. The Transactions at Issue

At the beginning of 1983, BPA found itself with a projected surplus of marketable electric power for the coming year, and with projected revenues insufficient to meet its costs. Abnormally high stream flows were filling BPA's reservoirs to capacity, but demand was less than previously forecast, due to a general downturn in the national and regional economies.

Sales of both firm and nonfirm power were less than projected. In addition to the general decrease in demand caused by According to BPA's forecasts, if additional sales could not be arranged, its hydroelectric facilities would be in a "spill condition" through much of 1983. That is, water would have to be spilled over dams, without generating electric power, in order to maintain reservoirs at safe levels for flood-control purposes. At the same time, projected shortfalls in revenues would require BPA to defer interest and amortization payments to the United States Treasury.

the economic recession, the same high stream flows that were filling BPA's reservoirs were also filling the reservoirs of public utilities that had hydroelectric facilities of their own, thus further decreasing their need for BPA power. Further, BPA's sales to utilities in the Southwest were only a small fraction of what BPA had projected. Finally, because of a slack demand for aluminum, most of the DSI's had cut back their operations and were purchasing only about one-half of the power available to them under their long-term contracts with BPA.

The rates in effect at the time had been established in a ratemaking proceeding during the spring and summer of 1982, and had gone into effect under temporary FERC approval on October 1, 1982. See 20 F.E.R.C. p 61, 359 (1982). BPA's DSI customers, under rate schedule "IP-2," were paying approximately 2.6 cents per kilowatt-hour for power purchased under their long-term contracts. At the same time, nonfirm power was available for short-term purchase by other customers, under schedule "NF-2," at approximately 1.1 cents per kilowatt-hour.

BPA concluded that it could increase its revenues, and stimulate the regional economy, by making power available to the DSI's at the lower, nonfirm (NF-2) rate for purchases in excess of their current demand. If, as anticipated, the availability of reduced-rate power induced the DSI's to restart idle production lines, then badly-needed jobs would be created and BPA would profit from the sale of energy that would otherwise be wasted. Accordingly, BPA issued on March 9, 1983, and published in the Federal Register on March 15, 1983, a "Notice of Availability and Request for Comments" proposing a sale of energy to the DSI's at NF-2 rates. See 48 Fed.Reg. 10,903 (1983). The notice invited public comments "by phone or mail through March 21, 1983." BPA received comments from thirty-four parties, including citizen's organizations, state and local government officials, members of Congress, utilities, and DSI customers.

Two of the DSI's, intervenors Intalco and Martin Marietta, objected to the terms of the proposed offer on the grounds that it unfairly favored their competitors. Unlike most of the other northwestern aluminum producers, Intalco and Martin Marietta had not substantially curtailed their operations in response to the decline in demand for aluminum. At the time, Intalco was operating at approximately 98% of capacity, and Martin Marietta was operating at approximately 91% of capacity. Because they were already operating so near their capacities, the proposed offer, which made power available at the NF-2 rate only for purchases in excess of current consumption, was of little benefit to them. They therefore argued that the offer unfairly favored DSI's that were currently operating below capacity, and penalized those, like themselves, who had maintained operations near capacity through the recession. Because the cost of electric power is such a large part of the cost of producing aluminum, the inequality in electric rates threatened to give the below-capacity group a significant competitive advantage over the near-capacity group. Intalco and Martin-Marietta argued that such effective price discrimination violated the Regional Acts' mandate that BPA "equitably allocate ... all costs and benefits ... including ... the sale of or inability to sell excess electric power." 16 U.S.C. Sec. 839e(g) (1982).

Responding to these objections, BPA incorporated into the proposed sales contracts a "mitigation factor" that allowed DSI's that were already operating near capacity to substitute nonfirm energy at the In response to comments BPA also incorporated a "price of aluminum adjustment" into the proposed offer. That...

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