Salt River Project Agr. Improvement and Power Dist. v. Federal Power Commission

• Decision Date: 15 February 1968
• Docket Number: No. 20960.,20960.
• Citation: 391 F.2d 470
• Parties: SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Minnkota Power Cooperative, Inc., Committee of Rural Electric Cooperatives, Dairyland Power Cooperative, Holy Cross Electric Association, Inc., and Empire Electric Association, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

391 F.2d 470 (1968)

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent Minnkota Power Cooperative, Inc., Committee of Rural Electric Cooperatives, Dairyland Power Cooperative, Holy Cross Electric Association, Inc., and Empire Electric Association, Intervenors.

No. 20960.

United States Court of Appeals District of Columbia Circuit.

Argued December 7, 1967.

Decided February 15, 1968.

Petition for Rehearing Denied March 14, 1968.

Mr. Wallace L. Duncan, Washington, D. C., with whom Mr. Stephen A. West, Washington, D. C., was on the brief, for petitioners; also entered an appearance for intervenors Holy Cross Electric Association and Empire Electric Association.

Mr. William H. Arkin, Attorney, Federal Power Commission, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of court, with whom Mr. Peter H. Schiff, Solicitor, Federal Power Commission, was on the brief, for respondent. Messrs. Richard A. Solomon, General Counsel, and Israel Convisser, Attorney, Federal Power Commission, also entered appearances for respondent.

Mr. Reuben Goldberg, Washington, D. C., for intervenor Minnkota Power Cooperative, Inc.

Mr. William C. Wise, Boulder, Colo., for intervenor Committee of Rural Electric Cooperatives.

Mr. Floyd E. Wheeler, Madison, Wis., for intervenor Dairyland Power Cooperative.

Before BAZELON, Chief Judge, and WRIGHT and ROBINSON, Circuit Judges.

J. SKELLY WRIGHT, Circuit Judge:

The Colorado-Ute Electric Association, Inc., respondent before the Federal Power Commission, is a non-profit cooperative association financed in large part with loans from the Rural Electrification Administration and organized under Colorado law. It is engaged in the generation, transmission and interstate sale of electric energy at wholesale. Its only customers are its 13 members who wholly own and control the Association and its electric system. Twelve of these 13 member-owners are themselves electric cooperatives engaged in the distribution and sale of electric energy to their consumer-owners in Colorado, Arizona, Utah, Wyoming and New Mexico, while the 13th, Salt River Project Agricultural Improvement and Power District, is a quasi-governmental arm of the State of Arizona. Nine of these cooperatives, along with Salt River, initiated the proceedings before the Commission which culminated in the order now under review.

In their "Petition and Complaint" the member-owners of Colorado-Ute named Colorado-Ute as respondent and sought an order from the Commission asserting jurisdiction over it as a "public utility" within the meaning of Parts II and III of the Federal Power Act¹ and requiring it to file its rate schedules for the transmission and sale of electric energy for resale in interstate commerce.

In Paragraph (5) of their petition and complaint, Colorado-Ute's member-owners request that the Commission assume jurisdiction pursuant to its emergency authority "to require by order that the Respondent Colorado-Ute continue the generation, transmission, distribution, delivery, interchange and sale of electric power and energy at wholesale in interstate commerce at the Hayden Plant, the decision and order of the Supreme Court of Colorado to the contrary notwithstanding." (Emphasis added.) The Colorado Supreme Court, in Western Colorado Power Co. v. Public Utilities Com'n of Colorado, 159 Colo. 262, 411 P.2d 785, appeal dismissed and cert. denied, 385 U.S. 22, 87 S.Ct. 230, 17 L.Ed. 2d 21 (1966), had ordered cancellation of a certificate of convenience and necessity previously issued by the Colorado Public Utilities Commission in 1963 giving Colorado-Ute authority to operate a 150,000-kilowatt normal capacity thermal generating plant at Hayden, Colorado.² These facilities were completed in July 1965 and have been in operation since. They are essential in providing the member-owners of Colorado-Ute with wholesale electric power and energy.

Petitioner's objective in their friendly suit before the Commission against their own Association was to nullify the Colorado Supreme Court's decision ordering cessation of the Hayden generating plant operations.³ In its answer, Colorado-Ute admitted all the allegations in the complaint, except that it was a public utility as defined in the Act (as to which it merely requested a determination of its status), and it conditionally proffered for filing all of its contracts and rate schedules with its members. Petitioners, with Colorado-Ute's concurrence, then submitted the issues presented to the Commission on the pleadings and moved for a "final" decision without intermediate reference to a hearing examiner.

Meanwhile there was pending before the Commission a proceeding commenced in July 1963 to determine generally whether non-profit REA-financed rural electric cooperatives, like Colorado-Ute, should be required to comply with the Commission's reporting, accounting and rate schedule filing requirements as "public utilities" under the Act. Dairyland Power Cooperative et al., Docket No. E-7113 (July 22, 1963). Extensive hearings were held in which many REA-financed cooperatives intervened and set forth numerous reasons why they should not be considered "public utilities" under the Act even if they own or operate facilities for transmission or sale of electric energy in interstate commerce. The Secretary of Agriculture, on behalf of REA, intervened in support of the cooperatives' position. On January 5, 1967, the Commission issued its opinion finding that cooperatively-owned electric suppliers financed by REA do not fall within the scope of the Commission's regulatory jurisdiction over "public utilities." Dairyland Power Cooperative, Docket No. E-7113, 37 F.P.C. 12 (1967). The Commission concluded:

"* * * Congress never intended this Commission to regulate cooperatives under the Federal Power Act. This intention is reflected in the legislative history of the Federal Power Act, is confirmed by the legislative history of the Rural Electrification Act, is strengthened by subsequent expressions by the Congress and is ratified by this Commission\'s legislative interpretation. Over the past 30 years, these factors compel the conclusion that cooperatives financed by REA are not public utilities within the meaning of Part II of the Federal Power Act." 37 F.P.C. at 15.

Relying on its decision in Dairyland, the Commission on January 6, 1967, dismissed the petition and complaint of Colorado-Ute's member-owners and directed return of the rate schedules and service contracts Colorado-Ute had tendered. Petitioners subsequently filed for a rehearing and stay which were denied by the Commission on March 3, 1967. Petitioners now appeal to this court for review of the Commission's January 6 and March 3 orders.

I

Though review here is not strictly of the Commission's Dairyland decision, the issues are precisely the same, and a determination that Colorado-Ute is a public utility under Parts II and III of the Act would topple the Dairyland determination as to REA-financed rural electric cooperatives generally. It is against this larger backdrop that the competing claims of the petitioners and the Commission must be appraised.

There are now nearly 1,000 rural electric cooperatives which own and operate electric systems financed by the United States, acting through REA, pursuant to the Rural Electrification Act of 1936. Approximately 45 of these cooperatives, such as Colorado-Ute, own and operate electric generating plants as well as transmission systems. The remainder simply own and operate distribution systems and buy the power and energy from others.

The Rural Electrification Administration which finances these cooperatives was first established by executive order⁴ in 1935 to "initiate, formulate, administer, and supervise a program of approved projects with respect to the generation, transmission, and distribution of electric energy in rural areas." The objective was to provide electricity to those sparsely settled areas which the investor-owned utilities had not found it profitable to service. To this end REA makes long-term low-interest loans to approved non-profit cooperatives organized and owned by their consumer members, usually farmers, who have been unable to obtain electricity from any other source.

Through its lending authority REA exercises extensive supervision over the planning, construction and operation of the facilities it finances. The REA borrower as a condition of securing its loan must secure REA approval of its manager, engineer and counsel; of its construction contracts and contracts for purchase of materials, equipment and supplies; of its contracts for purchase and sale of power; of its insurance coverage, its purchase of land, and so on.⁵ Moreover, REA's concern is not only with providing high standards of electric service and guaranteeing its loan, but also with reducing the cost of service to the cooperative's consumers. It furnishes retail rate schedules designed for rural use and assists distribution cooperatives in obtaining electric energy at reasonable costs.

Though REA regulation and supervision of cooperatives are, in many respects, far more comprehensive than those which the Federal Power Commission exercises over investor-owned utilities, there are certain areas, such as ratemaking, where the cooperatives enjoy a freer hand. But it is in these areas that, by their structural nature, the cooperatives are effectively self-regulating. They are completely owned and controlled by their consumer-members, and only consumers can become members. They are non-profit.⁶ Each member has a single vote in the affairs of the cooperative, and service is essentially limited to members. No officer receives a salary for his services and officers and directors are prohibited from engaging in any transactions with the cooperative from which they can earn any profit.

The question, then,...