U.S. v. Sacramento Municipal Utility Dist.

• Decision Date: 13 August 1981
• Docket Number: No. 79-4507,79-4507
• Citation: 652 F.2d 1341
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. SACRAMENTO MUNICIPAL UTILITY DISTRICT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1341

652 F.2d 1341

UNITED STATES of America, Plaintiff-Appellee, v. SACRAMENTO MUNICIPAL UTILITY DISTRICT, Defendant-Appellant.

No. 79-4507.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 11, 1981.

Decided Aug. 13, 1981.

David S. Kaplan, Sacramento, Cal., for defendant-appellant.

Robert Fullerton, Western Area Power, Golden, Colo., argued, for plaintiff-appellee; Herman Sillas, U.S. Atty., Sacramento, Cal., on brief.

Appeal from the United States District Court for the Eastern District of California.

Before FLETCHER and NELSON, Circuit Judges, and KEEP ^*, District Judge:

KEEP, District Judge:

The United States of America brought this action for declaratory relief, seeking judicial interpretation of its contract with the Sacramento Municipal Utilities District (SMUD). The district court granted summary judgment in favor of the government ruling that 1) the contract was clear and unambiguous on its face and thus extrinsic evidence was inadmissible; 2) the interpretation urged by SMUD would restrict Congress' plenary power to define the scope of the Central Valley Project and therefore would be illegal. SMUD appeals.

We find that the contract is not unambiguous on its face and thus extrinsic evidence is admissible if relevant to determine if there is a genuine issue of material fact with regard to the meaning of the contract.

Further, we find the interpretation of the contract urged by SMUD does not produce an illegal result in that it does not unlawfully intrude on Congress' plenary power to define the scope of the Central Valley Project. Accordingly, we reverse and remand the case to the district court for reconsideration.

FACTS

In 1952, the United States, through the Bureau of Reclamation, Department of the Interior, entered into a contract to sell electrical power to SMUD. Under the terms of the contract, which were revised in 1954, the government agreed to sell quantities of hydro-electric power from the Central Valley Project in Northern California, subject to a rate formula based on the following: 1) costs incurred in operating and maintaining Project facilities; and 2) other costs recoverable under Federal Reclamation Law in effect in 1954. The contract also permitted the recovery of costs which are not relevant to this appeal.

In 1964, Congress authorized the Secretary of Interior to import power from the Pacific Northwest for use in California. Pursuant to this congressional mandate, the government contracted in 1967 to buy thermo-electric power from a non-federal coal-fired plant in Centralia, Washington, and to import this power into the Central Valley Project. The amount of power allocated to SMUD under the contract was not increased after the arrangements for the purchase of Centralia power were made, although allocations to many other Central Valley Project customers have risen accordingly.

In 1974, the government increased Central Valley Project rates to reflect, in part, the costs of buying and importing power from Centralia. SMUD refused to pay and the government sued for declaratory relief seeking judicial interpretation of its contract with SMUD. ¹

Before us is the propriety of the district judge's ruling granting a motion for summary judgment in favor of the government as to the first cause of action. ²

DISCUSSION

A. Standard of Review

The role of the appellate court in reviewing a grant of summary judgment is to determine whether there is any genuine issue of material fact underlying the adjudication, and, if there is none, to determine whether the substantive law was correctly applied. Yazzie v. Olney, Levy, Kaplan & Tenner, 593 F.2d 100, 102 (9th Cir.1979); Inland Cities Express Inc. v. Diamond National Corp., 524 F.2d 753, 754 (9th Cir.1975). The inferences to be drawn from the underlying facts must be reviewed in the light most favorable to the party opposing the motion. United States v. Diebold Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962).

Whether a contract is ambiguous is a question of law, freely reviewable by

the appellate court. United States ex rel. Union Building Materials Corp. v. Haas & Haynie Corp., 577 F.2d 568, 572 (9th Cir.1978); United States ex rel. White Masonry Inc. v. F.D. Rich Co., 434 F.2d 855, 858 (9th Cir.1970). If the appellate court determines that the contract is unclear, ordinarily summary judgment is improper as differing views of the intent of parties will raise genuine issues of material fact. Freeman v. Continental Gin Co., 381 F.2d 459, 465 (5th Cir.1967).

B. The contract is not unambiguous on its face regarding the right of the government to recover the cost of importing Centralia power.

In support of its decision that there was no issue of fact as to whether the costs of importing Centralia power are properly recoverable by the government under the contract, the district court found that the relevant provisions of the agreement were clear and unambiguous. In so doing, the court ruled inadmissible SMUD's proffered extrinsic evidence of the parties' intent pursuant to the parole evidence rule.

In his findings, the district judge did not state which contract provision clearly and unambiguously provided for the recovery of the cost of purchased power. ³ Therefore, this court may affirm the district court's decision on appeal based on any clause we find which plainly allows for the recovery of such expenses. Paskaly v. Seale, 506 F.2d 1209, 1211 n.4 (9th Cir.1974). Each of the relevant provisions will be discussed separately below.

(1) "Operation and Maintenance Expenses"

Article 5(b) of the contract establishes rates for the sale of power; it reads in pertinent part:

The schedule of rates and charges shall be subject to review and modification ... in accordance with any changes made in the United States' schedule of rates and charges for the sale of Project firm power for resale, and any such charges shall establish a level of rates and charges to produce revenue which, considered together with all other revenue, from the sale or disposition of all other Project power, is not in excess of that required:

... (i) to defray the annual operation and maintenance expenses of the Project ... (Emphasis added).

Article 1(a) of the contract defines "Project" as follows:

The electric power facilities of the Central Valley Project, California, as now and hereafter authorized by the Congress of the United States, or pursuant to Acts thereof, including that portion of multi-purpose facilities properly allocable to electric power production.

A plain reading of the "operation and maintenance" clause requires reference to the definition of "Project", which is stated in terms of the actual facilities of the power production plant in the Central Valley. Taken together, Articles 5(b)(i) and 1(a) provide for the recovery of the "operation and maintenance expenses of the ... electric power facilities of the Central Valley Project, California." Therefore, the "operation and maintenance" clause of the contract cannot be used to support the district court's legal conclusion that the parties clearly intended to permit the recovery by the government of the cost of bulk power purchased and imported from non-Project facilities in other states. The contract is too specific to encompass such an expense.

In 1964, Congress authorized the importation of power for the benefit of Central Valley Project customers through the Pacific Northwest Intertie. See Reclamation Project Act of 1939, 43 U.S.C. § 485h(c) (1976). The government contends that the

definition of "Project" has been expanded as allowed in Article 1(a), by Congress' action. We reject this argument. Article 1(a) defines "Project" in terms of the Central Valley facilities, as then and thereafter authorized by Congress. The Intertie Program does not authorize the expansion of Project facilities; it merely authorizes the purchase of power from non-Project sources. Although Project power is increased, no expansion of Project facilities has taken place. As such, Congress' action does not clarify or expand the definition of "Project" as that term is used in the rate setting provisions of the contract.

(2) "Other costs as are properly recoverable under the

Reclamation Act"

Article 5(b) of the contract states that government rates for the sale of Central Valley Project power shall not exceed that required:

(iv) to return to the United States, within a minimum repayment period of fifty (50) years, or such repayment period as is provided for in the Federal Reclamation Law, such other costs as are properly recoverable from Project power revenue, pursuant to Federal Reclamation Law in effect on the date of the execution of this contract. (Emphasis added.)

The federal reclamation law in effect on the date of the contract, 43 U.S.C. § 485h (c) (1976), reads in pertinent part:

Any sale of electric power ... made by the Secretary (of the Interior) in connection with the operation of any project or division of a project, shall be ... at such rates as in his judgment will produce power revenues at least sufficient to cover an appropriate share of the annual operation and maintenance cost, interest on an appropriate share of the construction investment at not less than 3 per centum per annum, and such other fixed charges as the Secretary deems proper.

On its face this statute does not appear to permit the recovery of the cost of buying imported power. The Secretary is authorized to consider only maintenance, construction and other fixed costs in setting rates for the sale of electric power to Project customers. The purchase price of imported power is not a fixed cost.

Courts interpreting the Reclamation Act, however, have long recognized the inherent power of the Secretary to purchase power on "credit" from other sources when conditions prevent hydro-electric facilities from functioning at capacity. See Kansas City Power & Light Co. v. McKay, 115 F.Supp. 402 (D.D...