Southern California Edison Co. (""Edison'') v. Jura

Decision Date13 July 1990
Docket NumberNos. 87-7477,87-7499 and 87-7511,87-7486,s. 87-7477
Citation909 F.2d 339
PartiesPage 339 909 F.2d 339 SOUTHERN CALIFORNIA EDISON CO. ("EDISON"); and Department of Water and Power of the City of Los Angeles, Public Service Department of the City of Burbank, Public Service Department of the City of Glendale, and Water and Power Department of the City of Pasadena (Collectively "LADWP, et al."), Petitioner, v. James JURA, Administrator, Bonneville Power Administration, Federal Energy Regulatory Commission, Respondents, Portland General Electric Company, Respondent-Intervenor.Respondent-Intervenor. PUBLIC UTILITIES COMMISSION OF the STATE OF CALIFORNIA, Petitioner, v. BONNEVILLE POWER ADMINISTRATION, Federal Energy Regulatory Commission, Respondents. CALIFORNIA ENERGY COMMISSION, Petitioner, v. BONNEVILLE POWER ADMINISTRATION, Federal Energy Regulatory Commission, Respondents. ASSOCIATION OF PUBLIC AGENCY CUSTOMERS, Petitioner, v. BONNEVILLE POWER ADMINISTRATION; James Jura, Administrator, Bonneville Power Administration, Federal Energy Regulatory Commission, Respondents. United States Court of Appeals, Ninth Circuit
CourtU.S. Court of Appeals — Ninth Circuit

Jonathan Blees, Sacramento, Cal., for California Energy Com'n.

John D. McGrane, Reid and Priest, Washington, D.C., for Southern California Edison Co.

Peter G. Fairchild, San Francisco, Cal., for California Public Utilities Com'n.

Max M. Miller, Jr., Tonken, Torp, Galen, et al., Portland, Or., for Northwest Parties.

Marybeth VanBuren, Portland, Or., for Bonneville Power Admin.

Joanne Leveque, Washington, D.C., for F.E.R.C.

Petition to Review a Decision of the Federal Energy Regulatory Commission.

Before CANBY, THOMPSON and LEAVY, Circuit Judges.

CANBY, Circuit Judge:

A coalition of Northwest utility companies and industrial purchasers of electricity challenges the Bonneville Power Administration's adoption of a schedule of rates for energy sold to customers outside the Northwest region. The Northwest parties claim that the design of the schedule is inconsistent with Bonneville's statutory obligation to attempt to recover costs. Several California utility companies, joined by California's Energy and Public Utility Commissions, also challenge the rate schedule. The California parties claim that the rates inappropriately include costs associated with maintaining certain system reserves, and also unfairly discriminate against non-Northwest purchasers. We reject both challenges, and uphold the rates as set by Bonneville and approved by the Federal Energy Regulatory Commission.

I

The Bonneville Power Administration ("BPA") is a self-financing power marketing agency within the United States Department of Energy. 16 U.S.C. Sec. 832-832l. It generates, collects and distributes electric energy by means of a large network of production and transmission facilities known as the Federal Columbia River Power System. 16 U.S.C. Sec. 839a(10)(A). BPA's primary obligation is to provide electricity to the Pacific Northwest, and it has authority to supply customers outside that region only with power that is surplus to Northwest needs; in addition, it must show a preference for public over private purchasers. 16 U.S.C. Sec. 837a; 16 U.S.C. Sec. 832c(a). BPA periodically revises the rates at which it sells energy to ensure that it "recover[s], in accordance with sound business principles, the costs associated with the acquisition, conservation, and transmission of electric power ... and other costs and expenses incurred by [BPA]." 16 U.S.C. Sec. 839e(a)(1).

In January of 1983, BPA issued public notice that it would review its existing rates; two months later, it proposed new rates. Between March and September, BPA arranged and conducted extensive evidentiary hearings, as required by statute. See 16 U.S.C. Sec. 839e(i). In October, it formally filed "NF-83", the schedule of rates for nonfirm 1 electric power that is at issue in this case. NF-83 contained three distinct rates: Standard (18.5 mills/kWh), Spill (11 mills/kWh), and Displacement (7 mills/kWh or 3 mills/kWh). 2

BPA proposed to offer these rates sequentially, as market conditions changed. The marketing period would begin with the cost-based Standard rate in effect; if and when the supply of unsold energy became so great that hydroelectric plants were "spilling" water rather than running it through their turbines, then BPA would offer the below-cost Spill rate; if and when the market for energy at the Spill rate became saturated, then BPA would offer remaining energy supplies at the further below-cost Displacement rate. To comply with its statutory preference obligations, BPA resolved to offer each rate, beginning with Standard, to potential customers in the following order: Northwest public purchasers, Northwest private purchasers, non-Northwest public purchasers, non-Northwest private purchasers. Thus, BPA nonfirm energy would be available to all customers at one rate before it became available to any customer at a lower rate.

The Federal Energy Regulatory Commission ("FERC") granted interim approval of NF-83 on October 26, 1983, and the schedule went into effect in November 1983. See United States Dep't of Energy--Bonneville Power Admin., 25 F.E.R.C. p 61,140 (1983). 3 During the NF-83 period, BPA offered and sold power to Northwest and California customers at both Standard and Spill rates. Whenever supplies remained unsold at those rates, BPA also offered power at the Displacement rate. Northwest customers, the first to be offered this rate, always purchased the entire supply, however. As a result, BPA never was able to offer Displacement rate power to California customers. United States Dep't of Energy--Bonneville Power Admin., 36 F.E.R.C. p 63,061 at 65,156 (1987).

In the spring of 1984, FERC initiated its procedure for final approval of NF-83. See United States Dep't of Energy--Bonneville Power Admin., 27 F.E.R.C. p 61,251 (1984). Eighteen parties, including all of those involved in this case, participated in the FERC hearing. Relying upon another administrative decision on an earlier set of rates, Administrative Law Judge Leventhal accepted the Northwest Parties' contention that NF-83 violated BPA's statutory mandate to recover all of its production costs. 36 F.E.R.C. p 63,061 at 65,165. Judge Leventhal also agreed with the California Parties that NF-83's Standard rate improperly included costs associated with industrial reserves; however, he ruled that because these costs did not greatly affect the rate, their inclusion was not a sufficient ground for invalidation. See id. at 65,163. Finally, Judge Leventhal found that NF-83 was not "unduly discriminatory", and that, in any event, "no specific law ... limit[ed] BPA to selling nonfirm energy on a nondiscriminatory basis." See id. at 65,157 and 65,154 (1986). 4 On exceptions by the parties, the entire Commission reviewed Judge Leventhal's decision, reversing on the first issue, and affirming on the second and third; consequently, NF-83 received final approval. See United States Dep't of Energy--Bonneville Power Admin., 39 F.E.R.C. p 61,069 at 61,192.

II

Our authority to hear these cases derives from a specific grant of jurisdiction to review final rate determinations by BPA. See 16 U.S.C. Secs. 839f(e)(1)(G), (e)(4)(D), (e)(5). That grant circumscribes the scope of our review. Accordingly, we must decide whether "substantial evidence in the rulemaking record" supports the NF-83 rates. 16 U.S.C. Sec. 839f(e)(2); see also, Aluminum Co. of America v. Bonneville Power Admin., 891 F.2d 748, 752 (9th Cir.1989) ("Alcoa "). In addition, we may not approve NF-83 if we determine that it represents BPA action that is "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law." 5 U.S.C. Sec. 706 (made applicable to BPA action by 16 U.S.C. Sec. 839f(e)(2)); see also Alcoa, 891 F.2d at 752. Applying these standards, we uphold the NF-83 rate schedule against the objections of the California and Northwest parties.

A. Rate Design and Cost Recovery

Contrary to the position of the Northwest Parties, BPA did not act unlawfully by designing NF-83 so that its highest rate was equal to cost and its other rates were below cost. The two rate schedules that preceded NF-83, NF-1 and NF-2, also shared this feature. In reviewing FERC's approval of them, we considered the same argument that the Northwest Parties make here, namely that BPA's statutory mandate to recover its costs prohibits it from adopting any below-cost rate that is not offset by an above-cost rate. Alcoa, 891 F.2d 748 at 760-61. We concluded in Alcoa that a nonfirm energy rate design containing "cap rates at the full cost of production as well as below-cost rates.... comports with all the statutory requirements." Id. at 761. That conclusion applies equally to NF-83.

B. Industrial Reserve Costs

Through contractual arrangements, BPA agrees to provide power directly to a number of large industrial users of electricity ("Direct Service Industries" or "DSIs"). These contracts permit BPA to interrupt this service when necessary to protect its ability to meet its primary or "firm" energy demands. In exchange, the industrial customers receive a credit for providing what is in effect a reserve supply of energy. BPA treated DSI credits as part of the cost of nonfirm power, and included them in calculating the cost-based Standard rate. This inclusion was proper.

Section 7(g) of the Northwest Power Act provides that BPA "shall equitably allocate" the cost of reserves to "power rates." 16 U.S.C. Sec. 839e(g). Both BPA and FERC interpret the provision to mean that the credits to direct service industrial customers are in principle allocable to nonfirm energy rates. See 39 F.E.R.C. p 61,069 at 61,184-85. 5 Both also implicitly interpret the standard of equitable allocation to mean that BPA should allocate the credits to nonfirm rates only if the reserves produced by DSI credits benefit nonfirm energy...

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4 cases
  • Association of Public Agency Customers, Inc. v. Bonneville Power Admin.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • September 24, 1997
    ...be able to produce when the streamflows are at their lowest possible level as determined by historical data. Southern Cal. Edison Co. v. Jura, 909 F.2d 339, 341 n. 1 (9th Cir.1990). Put another way, firm power is the minimum amount of power that BPA can expect to have available for sale dur......
  • Golden Northwest Alum. v. Bonneville Power Admin.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • May 3, 2007
    ...BPA action that is `arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.'" S. Cal. Edison Co. v. Jura, 909 F.2d 339, 342 (9th Cir.1990) (quoting 5 U.S.C. § 706(2)(A)). That is, we must "assess whether BPA relied on improper factors, failed to consider an im......
  • Pacific Northwest Generating v. Dept. of Energy
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • December 17, 2008
    ...we have noted previously, "that phrase refers to the acquisition and construction of transmission facilities," S. Cal. Edison Co. v. Jura, 909 F.2d 339, 343 n. 6 (9th Cir.1990), but does not constrain BPA's setting of rates for the power it sells once these facilities have been acquired or ......
  • Pacific Northwest Gen. Co-Op. v. Dept. of Energy
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • December 17, 2008
    ...we have noted previously, "that phrase refers to the acquisition and construction of transmission facilities," S. Cal. Edison Co. v. Jura, 909 F.2d 339, 343 n. 6 (9th Cir. 1990), but does not constrain BPA's setting of rates for the power it sells once these facilities have been acquired or......

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