Utility Reform Project v. Bonneville Power Admin.

Decision Date07 June 1989
Docket Number85-7701 and 85-7702,Nos. 85-7678,85-7699,s. 85-7678
Citation869 F.2d 437
PartiesThe UTILITY REFORM PROJECT, Petitioner, v. BONNEVILLE POWER ADMINISTRATION and Peter Johnson, Administrator, Respondent, Washington Water Power Company, Respondent/Intervenor. PUBLIC UTILITY DISTRICT NO. 1 OF CLARK COUNTY, a Washington municipal corporation, Petitioners, v. BONNEVILLE POWER ADMINISTRATION; Peter J. Johnson, Administrator of Bonneville Power Administration; Puget Sound Power & Light Company, a Washington corporation; Washington Water Power Company, a Washington corporation; Portland General Electric Company, An Oregon corporation, et al., Respondents. CITY OF BONNERS FERRY, IDAHO; City of Burley, Idaho; City of Centralia, Washington; Clearwater Power Co., Idaho; City of Declo, Idaho; East and Mutual Electric Co., Idaho, et al., Petitioners, v. BONNEVILLE POWER ADMINISTRATION; Peter T. Johnson, Administrator of Bonneville Power Administration; Puget Sound Power & Light Company; Pacific Power & Light Company; Portland General Electric Co., et al., Respondents. COLUMBIA RURAL ELECTRIC ASSOCIATION, INC., Blachly-Lane County Cooperative Electric Association, Columbia Basin Electric Cooperative, Inc., et al., Petitioners, v. BONNEVILLE POWER ADMINISTRATION; Peter T. Johnson, Administrator of the Bonneville Power Administration; Puget Sound Power & Light Co.; Washington Power Co.; Portland General Electric Co.; Pacific Power & Light Co.; and Washington Public Power Supply System, Respondents.
CourtU.S. Court of Appeals — Ninth Circuit

Robert B. Ross, Asst. U.S. Atty., Portland, Or., William N. Mathias, Seattle, Wash., for Washington Public Power Supply System.

Stoel, Rives, Boley, Jones & Grey, Stephen S. Walters, Alan R. Merkle, Portland, Or., for Pacific Power & Light Co.

Perkins Coie, David E. Wagoner, Donald G. Kari, Eugene C. Chellis, Seattle, Wash., for Puget Sound Power & Light Co.

Paine, Hamblen, Coffin, Brooke & Miller, Gary A. Dahlke, Robert E. Neate, Spokane, Wash., for The Washington Water Power Co.

Tonkon, Torp, Galen, Marmaduke & Booth, William F. Martson, Barbee Lyon, Portland, Or., for Portland General Elec. Co.

Petition for Review of an Order of the Bonneville Power Administration.

Before TANG and CANBY, Jr., Circuit Judges, and CURTIS, * District Judge.

CANBY, Circuit Judge:

Introduction

This is an original proceeding brought under the Pacific Northwest Electric Power Planning and Conservation Act ("the Regional Act"), 16 U.S.C. Sec. 839f(e)(5). The petition challenges the legality of a settlement agreement entered by the Bonneville The petitioners are: a group of rural electric cooperatives in Washington, Oregon, Idaho and California ("Coops"); the city of Bonners Ferry and 26 other small municipal and rural electric cooperatives known as the Small Utilities Group ("SUG"); and a group of Public Utility Districts from the State of Washington ("Washington Group") 1. The primary respondent is BPA. 2 Certain investor-owned utilities ("IOUs") have also intervened as respondents. Pursuant to a motion by the IOUs, all affirmative claims against the IOUs are dismissed; 3 the IOUs remain in the case only as intervenors defending BPA's action. The Washington Public Power Supply System ("WPPSS" or "Supply System") is also named as a respondent. Claims against the Supply System are similarly dismissed for lack of jurisdiction. 4

Power Administration ("BPA") to settle claims brought by four Investor-Owned Utilities ("IOUs") as a result of BPA's decision to cease construction of a partially-completed nuclear power plant. For reasons we will set forth, we conclude that BPA's settlement was lawful.

Petitioners are challenging the settlement agreement (embodied in several documents) entered into by respondent BPA and the IOUs as a partial resolution of the case of Bonneville Power Admin. v. Washington Pub. Power Supply Sys., C-82-1252 (Browning, J.) (W.D.Wash.) ("BPA v. WPPSS "). The settlement agreement resolves the dispute over the "mothballing" of the Supply System's partially-constructed Nuclear Project 3 reactor ("WNP-3"). Collectively, the IOUs owned thirty percent of WNP-3. The Supply System owned seventy percent of the project. Under the initial agreements (Net Billing Agreements), the Supply System was the agent for the IOUs in constructing the plant. The IOUs exercised their ownership rights through a committee, established by contract, called the "Owners Committee."

The Net Billing Agreements required the Supply System to sell its 70 percent share of the output of WNP-3 to the 103 "participant" utilities, which in turn assigned their respective shares of the output to BPA. These agreements required BPA ultimately to pay for the Supply System's 70 percent of all costs associated with WNP-3. During construction, the Supply System was to finance these costs with borrowed funds, to be repaid later through power sales by BPA.

In 1983, BPA recommended that construction of WNP-3 be delayed and the plant "mothballed." The reasons were that the Supply System could no longer sell bonds and that the projected need for power in the Northwest did not support construction In that suit against BPA, WPPSS and the 103 utilities that had signed the Net Billing Agreements, the IOUs claimed that these agreements prohibited the construction delay and obligated BPA to pay the costs of construction out of its current revenues if other funds were unavailable.

of an additional nuclear power plant. A halt to construction followed, and in 1983 the IOUs brought an action in district court challenging the suspension. BPA v. WPPSS.

District Judge Richard Bilby ruled against Bonneville and the Supply System. Judge Bilby held that the Ownership Agreements require BPA to fund construction costs out of its current revenues and that BPA and WPPSS had breached the Agreement by delaying construction of Project 3. He reserved for later adjudication the issues of whether any breach was material and whether there were recoverable damages. Judge Bilby then recused himself. Judge William Browning took over for Judge Bilby and vacated all of Judge Bilby's rulings. On July 10, 1985, Judge Browning reinstated most of Judge Bilby's rulings except for the ruling on the IOU claims for breach of contract.

In September 1985, BPA, the IOUs and the Supply System executed various documents embodying a settlement of the WNP-3 construction delay claims. It is this settlement that petitioners now challenge.

The Settlement Agreement

The settlement agreement provides that BPA, over a 30 year period, will transfer to the IOUs an amount of power intended to equal that which WNP-3 would have generated for the IOUs if it had been completed, with a downward adjustment to reflect the fact that the IOUs had not completed their total capital investments in the interrupted project. 5 The calculation of the amount of power that would have been produced by WNP-3 is based on the average performance of four surrogate nuclear plants of design and size similar to WNP-3. Since the IOUs would have paid operation and maintenance costs on power received from WNP-3, they will make payments to Bonneville based on the average costs of the surrogate plants. The IOUs will be reimbursed for preservation costs of WNP-3 that they would not have incurred had the plant been completed.

In return for BPA power, the IOUs are obligated to make an equal amount of energy available to BPA annually. If BPA chooses to accept this energy, it pays for it at the IOUs higher costs. The availability of the IOU energy, in amounts equal to its obligations, will assure Bonneville's ability to meet its other firm contractual commitments.

The agreements for the exchange of power also contained a "fallback" agreement that took effect if the power exchange were held to be invalid. In essence, the fallback agreement provided for BPA to pay cash to the IOUs so that they could purchase the power BPA would have provided them in the exchange.

As a further part of the settlement agreement, the IOUs irrevocably offered to BPA their 30 percent share of WNP-3 project capability (the electrical generating capability of the plant). BPA has not accepted the offers and, under the terms of the offers, cannot do so until after it satisfies the resource acquisition procedures of the Northwest Power Act. 16 U.S.C. Sec. 839d(c). If BPA decides to restart construction of WNP-3, it will acquire the IOUs' shares of project capability and reimburse them for their costs to complete the project. If the plant is restarted, of course, there will no longer be any preservation costs, and BPA's duty to reimburse the IOUs for these costs will end.

The IOUs, in turn, agreed not to cast their WNP-3 Owners Committee votes contrary to BPA, except as to certain matters relating to cost-sharing, or if they are otherwise legally required to do so.

Finally, the parties covenanted not to proceed further in the mothballing litigation against each other, and agreed to dismiss the claims in that suit. Only if the IOUs lose the benefits of the exchange agreement (and the fallback), and the right to reimbursement of WNP-3 costs, may they reopen the litigation, and then only to seek prospective relief from their obligations under the Ownership Agreement for WNP-3.

Issues

The petitioners contend that the settlement agreement violates a number of statutory restrictions on BPA's operating authority. The significant issues they present may be consolidated as follows:

(1) Is the purported exchange of power between BPA and the IOUs actually a "sale" of power to the IOUs, entered without...

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