Southern CA Edison Co. v. U.S.

• Decision Date: 11 September 2000
• Citation: 226 F.3d 1349
• Parties: (Fed. Cir. 2000) SOUTHERN CALIFORNIA EDISON COMPANY, Plaintiff-Cross Appellant, and LOS ANGELES DEPARTMENT OF WATER AND POWER, Plaintiff-Cross Appellant, v. UNITED STATES, Defendant/Third Party Plaintiff-Appellant, and ARIZONA POWER AUTHORITY, Third Party Defendant- Appellant, and COLORADO RIVER COMMISSION OF NEVADA, Third Party Defendant- Appellant, and METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, Third Party Defendant-Appellant, and CITY OF BOULDER CITY, NEVADA, Third Party Defendant-Appellant, and THE CITY OF BURBANK, CALIFORNIA, Third Party Defendant-Appellant, and THE CITY OF GLENDALE, CALIFORNIA, Third Party Defendant-Appellant, and THE CITY OF PASADENA, CALIFORNIA, Third Party Defendant-Appellant. 99-5074,-5075,-5076,-5077,-5089,-5090 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1349

226 F.3d 1349 (Fed. Cir. 2000)

SOUTHERN CALIFORNIA EDISON COMPANY, Plaintiff-Cross Appellant, and LOS ANGELES DEPARTMENT OF WATER AND POWER, Plaintiff-Cross Appellant, v. UNITED STATES, Defendant/Third Party Plaintiff-Appellant, and ARIZONA POWER AUTHORITY, Third Party Defendant- Appellant, and COLORADO RIVER COMMISSION OF NEVADA, Third Party Defendant- Appellant, and METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, Third Party Defendant-Appellant, and CITY OF BOULDER CITY, NEVADA, Third Party Defendant-Appellant, and THE CITY OF BURBANK, CALIFORNIA, Third Party Defendant-Appellant, and THE CITY OF GLENDALE, CALIFORNIA, Third Party Defendant-Appellant, and THE CITY OF PASADENA, CALIFORNIA, Third Party Defendant-Appellant.

99-5074,-5075,-5076,-5077,-5089,-5090

United States Court of Appeals for the Federal Circuit

DECIDED: September 11, 2000

Appealed from: United States Court of Federal Claims Judge John P. Wiese

Brad Fagg, Morgan, Lewis, Bokius, L.L.P, of Washington, DC, argued for plaintiff-cross appellant. With him on the brief was Thomas C. Hokinson, Office of City Attorney, of Los Angeles, California, for plaintiff-cross appellant Los Angeles Department of Water and Power.

C. Max Vassanelli, Attorney, Civil Division, Department of Justice, argued for Defendant/Third Party Plaintiff-Appellant United States. With him on the brief wasDavid W. Ogden, Assistant Attorney General.

Michael N. McCarty, Brickfield, Burchette & Ritts, P.C., of Washington, DC, argued for Third Party Defendants-Appellants. With him on the brief were Gerald A. Lopez, Senior Deputy Attorney General, State of Nevada, Colorado River Commission of Nevada, of Las Vegas, Nevada, for Third Party Defendant-Appellant Colorado River Commission of Nevada; Jerome C. Muys, Muys & Associates, P.C., of Washington, DC, and N. Gregory Taylor and Diana Mahmud, The Metropolitan Water District of Southern Calofornia, of Los Angeles, California, for Third Party Defendant-Appellant The Metropolitan Water District of Southern California; B.G. Andrews, City of Boulder City, Nevada, of Boulder City, Nevada, for Third Party Defendant-Appellant City of Boulder City, Nevada; Vivien C. Ide, Assistant City Attorney, City of Glendale, of Glendale, California, for Third Party Defendant-Appellant City of Glendale, California; Terry B. Stevenson, Senior Assistant City Attorney, City of Burbank, of Burbank, California, for Third Party Defendant-Appellant City of Burbank, California; Frank L. Rhemrev, Senior Deputy City Attorney, City of Pasadena Water & Power Department, of Pasadena, California, for Third Party Defendant-Appellant City of Pasadena.

Before LOURIE, GAJARSA and LINN, Circuit Judges.

GAJARSA, Circuit Judge.

The United States and seven third-party defendants appeal the decision of the Court of Federal Claims holding that the methodology adopted by the Western Area Power Authority ("Western") to refund excess revenues collected under energy sales contracts was unreasonable, and ordering Western to calculate the appropriate refund to which plaintiffs Southern California Edison ("SCE") and Los Angeles Department of Water and Power ("LADWP") were entitled. In addition, the third-party defendants contend that the Court of Federal Claims improperly exercised jurisdiction over them. We conclude that the Court of Federal Claims had jurisdiction over the third-party defendants, and thus affirm-in-part. However, because the Court of Federal Claims erred in determining that Western's refund methodology was unreasonable, we reverse-in-part.

BACKGROUND

In 1928, Congress passed legislation authorizing the construction of a dam and hydroelectric power plant at Boulder Canyon, located on the Colorado River at the Nevada/Arizona border. See Boulder Canyon Project Act ("BCPA"), Pub. L. No. 70-642, 45 Stat. 1057 (codified as amended at 43 U.S.C. §§ 617-617v (1994)). The dam was later named the Hoover Dam. In order to fund this mammoth construction project, Congress decided to take advantage of the revenue generating potential of the power plant. To this end, Congress granted the Secretary of the Interior ("Secretary") the authority to enter into contracts for the sale of energy produced at the Hoover Dam, and required these contracts to generate sufficient revenue to ensure "payment of all expenses of operation and maintenance of said works [i.e., the dam and power plant] incurred by the United States, and the repayment, within fifty years from the date of completion of said works, of all amounts advanced [by the United States] for such works." 43 U.S.C. § 617c(b).

The Boulder Canyon Project Adjustment Act ("Adjustment Act"), Pub. L. No. 76-756, 54 Stat. 774 (codified as amended at 43 U.S.C. §§ 618-618p (1994)), enacted twelve years later, specified additional details surrounding the sale of energy produced at the Hoover Dam, such as the allocation of revenues collected from energy contracts. Additionally, Congress authorized the Secretary to "promulgate such regulations . . . as he may find necessary or appropriate for carrying out the purposes of [the Adjustment Act] and the [BCPA]." Id. § 618g. Finally, because the Hoover Dam began producing energy in 1937, the Adjustment Act specified that the duration of the contracts would be the fifty-year period from June 1, 1937 to May 31, 1987, and mandated that energy rates be set to repay construction, operation, and maintenance costs by the end of that contract period. See 43 U.S.C. § 618.

Pursuant to the Adjustment Act, the Secretary promulgated General Regulations ("Regulations") governing contracts for the sale of energy generated at the Hoover Dam. These Regulations established two categories of energy--firm energy and secondary energy. See Regulations, art. 3. Firm energy was described a pre-defined minimum amount of energy that the Secretary reasonably expected the Hoover Dam to generate each year. See id. For example, in the first year of operation, the Regulations defined the firm energy as the first 4,330,000,000 kilowatt-hours generated at the site. See id. In each subsequent year, the amount of energy designated as firm energy decreased by 8,760,000 kilowatt-hours per year. See id. Over the fifty-year duration of the contracts, the total amount of firm energy was to be 205 billion kilowatt-hours. Secondary energy was defined as the amount of energy generated in any given year in excess of firm energy. See id. Unlike the firm energy, the yearly availability of secondary energy was speculative and depended upon the vicissitudes of the Colorado River's hydrology. While the availability of secondary energy in any given year could not be predicted, the Secretary assumed, based upon expert analysis, that 40 billion kilowatt-hours of secondary energy would be produced over the contract period. See id.

Under the Regulations, the Secretary had the authority to set the rates for firm and secondary energy. See id., art. 6. These rate-setting determinations were to be made at five-year intervals, subject to annual adjustments to take into account the actual expenditures and costs incurred each year. See id., art. 14. In making rate-setting determinations, the Secretary assumed that the full amount of firm energy would be generated each year, and that over the fifty-year term of the contracts, the entire 40 billion kilowatt-hours of secondary energy would be available for sale. See id., art. 3. Based on these output assumptions, rates were set so as to ensure that the revenues collected from the sale of energy would "be sufficient, but not more than sufficient" to cover the costs associated with the construction and operation of the Hoover Dam and the appurtenant power plant. Id., art. 6.

Aside from the revenue requirements, a number of additional requirements had to be satisfied in setting energy rates. For example, the Regulations established a fixed mathematical relationship between the rates for firm and secondary energy, and a 0.2 mill per kilowatt-hour minimum charge for secondary energy. See id., art. 8. Also, the Regulations required uniformity of rates among all customers, that is, the rate for firm energy was required to be the same for all purchasers of firm energy, and the rate for secondary energy was required to be the same for all purchasers of secondary energy.

Finally, at the end of the fifty-year contract period, the Regulations provided for a final accounting of project costs and revenues collected. See id., art. 14. If revenues collected did not exactly offset the costs associated with the project, the Regulations mandated that "adjustments shall be made, through refunds or collections as the Secretary may find necessary to achieve consummation of the principle that the revenues shall be sufficient but not more than sufficient to" cover project costs. Id., art. 14(e).

Between 1941 and 1960, all of the parties to this litigation entered into contracts with the United States for the purchase of energy generated at the Hoover Dam. These contracts incorporated the terms and conditions of the Regulations described above, which were made a part of the contracts "as fully and completely as though set forth herein in length." Under these contracts, each customer was allocated a certain percentage of firm energy for purchase each year. See id., art. 4(a). In addition, three customers, SCE, LADWP, and Metropolitan Water District of Southern California ("Metropolitan") were granted options to purchase secondary energy. See id., art. 4(c). Metropolitan had the first opportunity to buy any or all secondary energy, with the balance made available for purchase by SCE and LADWP. For most of the contract period, SCE had the right to 55 percent and LADWP had the right to 45 percent of the secondary energy not bought by Metropolitan.

Following the mandate of the Regulations, the Secretary set the rates for energy at five-year intervals, and made annual adjustments to account for fluctuations in...