Source: http://www.law.cornell.edu/supremecourt/text/467/380
Timestamp: 2013-12-11 08:54:56
Document Index: 199545632

Matched Legal Cases: ['§ 4', '§ 4', '§ 5', '§ 4', '§ 5', '§ 5', '§ 10', '§ 5', '§ 5', '§ 4', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 3', '§ 10', '§ 10']

ALUMINUM COMPANY OF AMERICA et al., Petitioners v. CENTRAL LINCOLN PEOPLES' UTILITY DISTRICT et al. | Supreme Court | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews ALUMINUM COMPANY OF AMERICA et al., Petitioners v. CENTRAL LINCOLN PEOPLES' UTILITY DISTRICT et al.
467 U.S. 380 (104 S.Ct. 2472, 81 L.Ed.2d 301)
ALUMINUM COMPANY OF AMERICA et al., Petitioners v. CENTRAL LINCOLN PEOPLES' UTILITY DISTRICT et al.
Argued: Jan. 9, 1984.
Since enactment of the Bonneville Project Act of 1937, 50 Stat. 731, 16 U.S.C. 832 et seq. (Project Act), the Bonneville Power Administration (BPA) has marketed low-cost hydroelectric power generated by a series of dams along the Columbia River. Although § 4(a) of the Project Act, 16 U.S.C. 832c(a), directs the BPA Administrator to "give preference and priority to public bodies and cooperatives" when selling its power, BPA for many years enjoyed a surplus of power that allowed it to satisfy the needs of all customers in the region. As demand for power increased to exceed BPA's generating capability, however, the allocation of low-cost federal power became an issue of significant area concern. In 1980, Congress moved to avert what appeared to be an emerging customer struggle for BPA power by enacting the Pacific Northwest Electric Power Planning and Conservation Act, 94 Stat. 2697, 16 U.S.C. 839 et seq. (Regional Act). That Act required BPA to offer new contracts to its several customers. Some of the respondents
These entities are "preference" customers, and BPA is required to give priority to their applications for power when competing applications from nonpreference customers are received. See § 4(b) of the Project Act, 16 U.S.C. 832c(b). BPA's other two groups of customers are private, investor-owned utilities (IOUs), and direct-service industrial customers (DSIs). The latter are large industrial end-users that purchase power directly from BPA instead of through a utility. IOUs and DSIs are "nonpreference" customers, and BPA is allowed to contract to sell to them only power for which preference customers do not apply. Once a contract between BPA and a customer is signed, however, the Project Act makes clear that the contract is "binding in accordance with the terms thereof." § 5(a), 16 U.S.C. 832d(a).
Because the Project Act provided no clear way of allocating among preference customers, and because the stakes involved in buying cheap federal power had become very high, this competition for administrative allocations threatened to produce contentious litigation. The uncertainty inherent in the situation greatly complicated the efforts by all BPA customers to plan for their future power needs.
To avoid the prospect of unproductive and endless litigation, Congress enacted the Regional Act. The Act provided for future cooperation in the region by establishing a mechanism for comprehensive federal/state power planning. §§ 4 and 6, 16 U.S.C. 839b and 839d. For the first time, moreover, BPA was authorized to acquire resources to increase the supply of federal power.
In addition, § 5 of the Act, 16 U.S.C. 839c, sought to avert disputes over the allocation of power by requiring BPA to enter into an initial set of contracts with its various types of customers.
Section 5(d)(1)(B) of the Act, 16 U.S.C. 839c(d)(1)(B), required that "after the effective date of this Act Dec. 5, 1980, the Administrator shall offer . . . to each existing direct service industrial customer an initial long term contract that provides such customer an amount of power equivalent to that to which such customer is entitled under its contract dated January or April 1975. . . ." These contracts were to replace the existing DSI contracts that were scheduled to expire at various times during the period 19811991. Section 5(d)(1)(A) indicated that the sales to the DSIs under the new contracts were to "provide a portion of the Administrator's reserves for firm power loads within the region."
This aspect of the new DSI contracts is at the center of the present dispute. Under the Project Act, nonfirm power was allocated hourly on an "if available basis," and was subject to the preference provisions of that Act. Although nonfirm power is too unreliable for preference utilities to use to satisfy the demands of their consumers on a general basis, it nevertheless is attractive to many preference utilities because it could be used as a substitute for power they generated themselves. In this manner, nonfirm power purchases enabled preference utilities to shut down their own facilities when they required maintenance, or if they could not generate power as cheaply as BPA. Alternatively, preference utilities appear to have been able to "arbitrage" BPA's nonfirm power by using it to displace their own power, which they then sold to users that could not purchase power directly from BPA.
By making DSI power interruptible under the new contracts only to protect BPA's firm power obligations, the new contracts reduced the amount of nonfirm power available to preference utilities.
Shortly after the Administrator's decision and the execution of new DSI agreements, respondents challenged the contracts by petition for review in the Court of Appeals. The core of their challenge was that the proposed contracts violated the preference to nonfirm power accorded under the 1975 contracts. That preference, it was said, was reserved by § 5(a) of the Regional Act, 16 U.S.C. 839c, which states: "All power sales under this Act shall be subject at all times to the preference and priority provisions of the Bonneville Project Act of 1937. . . ." Respondents also relied on § 10(c) of the Regional Act, 16 U.S.C. 839g(c), which provides that the Act does not "alter, diminish, abridge, or otherwise affect the provisions of other Federal laws by which public bodies and cooperatives are entitled to preference and priority in the sale of federally generated electric power." Respondents argue that these provisions require that DSI power be interruptible under the new contracts on the same terms as it was under the 1975 contracts. In addition, respondents assert that the conditions in the new contracts effectively provide the DSIs with a greater "amount of power" than their 1975 contracts, in violation of § 5(d)(1)(B) of the Regional Act, 16 U.S.C. 839c(d)(1)(B).
Under established administrative law principles, it is clear that the Administrator's interpretation of the Regional Act is to be given great weight. "We have often noted that the interpretation of an agency charged with the administration of a statute is entitled to substantial deference." Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355, 2361, 72 L.Ed.2d 728 (1982). "To uphold the agency's interpretation 'we need not find that its construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings.' . . . We need only conclude that it is a reasonable interpretation of the relevant provisions." American Paper Institute, Inc. v. American Electric Power Service Corp., 461 U.S. 402, 422423, 103 S.Ct. 1921, 1933, 76 L.Ed.2d 22 (1983), quoting Unemployment Compensation Comm'n v. Aragon, 329 U.S. 143, 153, 67 S.Ct. 245, 250, 91 L.Ed. 136 (1946).
Giving the Administrator's interpretation the deference that it is due, we are convinced that his interpretation is a fully reasonable one. Section 5(d)(1)(B) of the Regional Act, 16 U.S.C. 839c(d)(1)(B), expressly directs the Administrator to offer each existing DSI an initial long-term contract for the same amount of power as provided in its existing contract. It is therefore beyond dispute that the plain language of the statute mandates that contracts be offered. Respondents challenge the contracts, however, because they contain interruptibility provisions different from those in the 1975 contracts. Respondents offer essentially two arguments in support of their position. Neither is persuasive.
Sections 5(d)(1)(A) and 3(17) of the Regional Act lend support to this interpretation. The former expressly requires that power sales to the DSIs "shall provide a portion of the Administrator's reserves for firm power loads." The latter defines reserves as the power needed to protect BPA's "firm power customers" from shortages. It is clear from these provisions that at least some portion of DSI power is interruptible to protect the firm needs of other customers. In addition, however, these provisions support the Administrator's inference that the Regional Act does not require DSI power to be interruptible to meet the nonfirm power desires of preference customers, and the legislative history confirms this view. The Report of the Senate Committee on Energy and Natural Resources clearly explains: "The term 'firm power customers of the Administrator' is intended to mean the firm power loads of such customers. It is not intended that the Administrator's reserves will be used to protect other than firm loads" (emphasis supplied). S.Rep. No. 96272, p. 23 (1979). Because it is clear that the top quartile of DSI power is a part of BPA's reserves, that power is not to be used to serve nonfirm power loads.
Respondents' claim that the top quartile of power must be interruptible "at any time" in order to provide the DSIs with the same "amount of power" is incorrect even under respondents' own interpretation of the phrase. The parties agree that the DSIs' second quartile of power can be interrupted in more situations under the new contracts than under the 1975 contracts, and that the power quality of the second quartile is therefore lower than before. See Respondents' Memorandum in Opposition to Motion for Temporary Injunction or Stay Pending Review, filed Sept. 8, 1981, App. 21 (table comparing interruptibility of second quartile of DSI power in 1975 and new contracts). The legislative history of the Regional Act makes clear that Congress expressly endorsed, perhaps even required, that the new contracts contain the conditions making the second quartile power more interruptible than before.
If, as respondents would have it, the top quartile of power remained interruptible in the same situations as under the 1975 contracts, but the second quartile became more interruptible than before, it is apparent that the new contracts would provide the DSIs with a smaller total "amount of power," as respondents seek to define that phrase. In short, Congress could not have contemplated interruptibility terms for the second quartile different from those in the 1975 contracts, and at the same time have insisted that DSIs get the "same amount of power" under respondents' definition of the phrase; it is clear therefore, that that definition is not what Congress intended.
Respondents' second argument is that the terms of the new contracts conflict with § 5(a) of the Regional Act. It is true, as respondents assert, that that section preserves the priority and preference provisions that existed under the Project Act. But the preference system merely determines the priority of different customers when the Administrator receives "conflicting or competing" applications for power that the Administrator is authorized to allocate administratively. § 4(b) of the Project Act, 16 U.S.C. 832c(b). In the instant case, the initial contracts offered by the Administrator to the DSIs are not part of an administrative allocation of power. The power sold pursuant to those contracts is allocated directly by the statute. Because there is no administrative allocation of power, there can be no competing applications. The preference provisions of the Project Act as incorporated into the Regional Act therefore simply do not apply to the initial contracts that the statute requires the BPA to offer.
Respondents' argument that power sold to DSIs under the new contracts is subject to preference implicitly proves too much. There is nothing in either the rules governing preference or the Project Act that distinguishes the top quartile of DSI power from the other three quartiles. Under the 1975 contracts, the difference between the top quartile and the other quartiles was the provision in those contracts that made the top quartile subject to interruption "at any time." That contract term allowed the Administrator to treat the top quartile of power as if it were uncommitted, and subjected it to preference. The other three quartiles were not subject to preference simply because the terms of the contracts did not so provide. Thus, the distinction among the different quartiles under the 1975 contracts was a product of the terms of the contracts, not a requirement of the Project Act's preference provisions. There is likewise nothing in the Regional Act that distinguishes between the top quartile and the other quartiles for purposes of applying preference when offering the new DSI contracts. If respondents are correct that the power sold to the DSIs under the new contracts is subject to preference, then respondents have preference not only for power in the top quartile, but for the other three quartiles as well. For as long as that power is uncommitted, the preference provisions apply. Once committed by contract, the interruptibility of the power is determined by the terms of the contract. § 5a, 16 U.S.C. 832d(a).
It appears, therefore, that respondents' view of the Regional Act would render meaningless the initial contracts contemplated by § 5(d)(1)(B). Respondents' argument is essentially that the allocation of power under the mandated contracts should be the same as it would be if the preference rules applied. But Congress presumably included § 5(d)(1)(B) precisely because it wanted to achieve an allocation of power that differs from what allocation by preference would produce; preference was the perceived problem, not the chosen solution.
The Administrator's interpretation of the Regional Act also is supported by § 5(g)(7) of that Act, 16 U.S.C. 839c(g)(7). That section "deems" the Administrator "to have sufficient resources for the purpose of entering into the initial contracts" mandated by the statute. Through this express legal fiction, Congress ensured that the initial contracts could not be challenged by a claim that BPA lacked the power to enter into contracts with nonpreference customers. Congress clearly intended BPA to offer the DSI contracts even if that necessitated the acquisition by BPA of additional power through outside purchases and construction of new generating facilities. If preference were to apply to the initial contracts, however, they could be executed only after preference customers have purchased all the power they desire. Such a condition would be truly incongruous, for it could require BPA to obtain an almost unlimited amount of power. When Congress "deemed" the Administrator "to have sufficient resources for the purpose of entering into the initial contracts specified" by the Act, it is only sensible to assume that Congress intended such contracts to be made without regard to the preference rules that govern sales that are not statutorily mandated.
Respondents rely on the legislative history to establish two points, neither of which is controverted. First, respondents use the legislative history to demonstrate what § 5(a) already makes clearthat the Regional Act does not alter the priority provisions of the Project Act. See Brief for Respondents Central Lincoln Peoples' Utility District et al. 2330. Petitioners and the Administrator do not contest this point. But the issue in this case is not whether the preference rules have been changed; the issue is whether the preference rules apply to power that the statute requires BPA to sell to DSIs. Because it is clear that the power sold under the initial contracts is committed to DSIs by statute, it is equally clear that it is not uncommitted power to which preference applies.
Because the Regional Act does not comprehensively establish the terms on which power is to be supplied to DSIs under the new contracts, it is our view that the Administrator has broad discretion to negotiate them. Such discretion is especially appropriate in this situation, because DSI sales are merely one part of a complicated statutory allocation plan designed to achieve several goals. Most important, sales to DSIs under the Regional Act are intricately related to the "exchange" program established by the Regional Act on behalf of nonpreference utilities. § 5(c), 16 U.S.C. 839c(c).
Because this exchange program essentially requires BPA to trade its cheap power for more expensive power, it is obviously a money-losing program for BPA. The Act expressly contemplates that much of the cost of this program is to be covered by power sales to DSIs, which pay a considerably higher price for power than other users. Section 7(c)(1), 16 U.S.C. 839e(c)(1), expressly directs the Administrator initially to charge the DSIs a rate "sufficient to cover the net costs incurred by the Administrator" under the exchange program. The House Report explained the interrelationship between sales to DSIs and the exchange program in some detail:
"The DSIs will also pay significantly higher rates under the new contracts. These higher rates permit the Administrator to enter into contracts with the region's investor-owned utilities for an exchange of power equal to the utilities' residential load. This exchange will permit residential customers of investor-owned utilities to share in the benefits of the lower-cost Federal resources. The power sold to BPA will be sold at the utilities' average system cost and purchased back at the rate paid by the preference customers' utilization sic their general requirements. The loss in revenue to the Administrator is in effect returned by the higher direct service industry rates. By providing these residential customers wholesale rate parity with residential customers of preference utilities, the amendment serves in a substantial way to cure a major part of the allocation problem." H.R.Rep. No. 96976, pt. 1, p. 29 (1980), U.S.Code Cong. & Admin.News 1980, 5995.
This passage makes clear that the DSI sales and the power exchange program are integrally related. BPA's ability to finance the exchange program is related to the amount of power that BPAs sell to DSIs, which in turn is determined by the interruptibility terms of the new DSI contracts. It is the responsibility of the Administrator to manage the complex relationship among these various aspects of the statute, and, absent an express statutory statement requiring particular terms in the contracts, it is appropriate that we give him broad discretion to determine them.
"The Administrator shall offer in accordance with subsection (g) of this section to each existing direct service industrial customer an initial long term contract that provides such customer an amount of power equivalent to that to which such customer is entitled under its contract dated January or April 1975 providing for the sale of 'industrial firm power.' " 16 U.S.C. 839c(d)(1)(B).
Under the 1975 contracts 75 percent of the specified amount of power was virtually guaranteed; the "top quartile," however, was subject to interruption at any time to meet the demands of preference customers. Thus, the actual amount of power delivered under the 1975 contracts was an amount somewhere between 75 percent and 100 percent of the amount stated in the contracts.
"contracts will provide power in amounts equal to, but not greater than, that which these companies are now entitled under existing contracts with BPA, and the terms of these contracts will require that these companies continue to supply reserves for the region." H.R.Rep. No. 96976, pt. 2, p. 29 (1980) (emphasis supplied), U.S.Code Cong. & Admin.News 1980, 6027.
Thus, the new contracts do not comply with the plain language of the 1980 Act.
Moreover, it is questionable whether the second quartile interruptibility provisions of the 1980 Act constitute a real difference from the interruptibility provisions of the 1975 contracts with respect to that quartile. As the majority explains, ante, at 392, n. 8, the 1980 Act anticipated interruption of the second quartile only because of delayed completion or unexpectedly poor performance of generating resources or conservation measures. Prior to the 1980 Act, BPA had no authority to acquire or expand its resources; its function was merely to market power generated at dams constructed by the Army Corps of Engineers. See ante, at 386 and n. 5. Hence, the 1980 Act permits second quartile interruption only on a basis that would not have arisen under the 1975 contracts.
Surely this relatively insignificant and somewhat esoteric modification of the second quartile provisions is less persuasive evidence of congressional intent than the plain language of the statute itself.
"The Administrator is authorized to sell in accordance with this subsection electric power to existing direct service industrial customers. Such sales shall provide a portion of the Administrator's reserves for firm power loads within the region." 16 U.S.C. 839c(d)(1)(A).
I read the subsection to mean what it says. The sales that the Administrator makes to the DSIs are part of the reserve for firm power loads.
In the event of a shortfall, the Administrator is obligated to use top quartile DSI power to meet his firm power obligations even when there is a preference customer seeking to purchase power; in this respect § 5(d)(1)(A) was necessary to change the law with respect to the rights of preference customers, which would otherwise have had priority even over purchasers of firm power.
But a provision ordering the Administrator to use top quartile power as a reserve for firm loads sheds no light on the extent of his obligation to sell power to the DSIs. That obligation is governed not by § 5(d)(1)(A), but by § 5(d)(1)(B).
In addition to the three relevant customer categories, BPA is also authorized to sell power to federal agencies in the region. See § 5(b)(3) of the Regional Act, 16 U.S.C. 839c(b)(3). Sales to such agencies have no pertinency for this litigation.
Section 3 of the Project Act, 16 U.S.C. 832b, defines "public bodies" as "States, public power districts, counties, and municipalities, including agencies or subdivisions of any thereof." It defines "cooperatives" as "nonprofit-making . . . organizations of citizens supplying . . . members with any kind of goods, commodities, or services, as nearly as possible at cost."
The statute defines "reserves" as "the electric power needed to avert particular planning or operating shortages for the benefit of firm power customers. . . ." § 3(17), 16 U.S.C. 839a(17) (emphasis added).
The reliance by respondents and the Court of Appeals on § 10(c) of the Regional Act, 16 U.S.C. 839g(c), is similarly misplaced. Section 10 is entitled "Savings Provisions." The purpose of § 10(c) was to reassure preference customers in other regions of the country who feared that the Regional Actby statutorily allocating power directly to nonpreference customers would set a precedent that would weaken the commitment to preference that exists in other statutes governing the sale of federal power generated in other regions. See H.R.Rep. No. 96976, pt. 1, pp. 3435 (1980); cf. 126 Cong.Rec. 29803 (1980) (remarks of Rep. Udall). That section thus is irrelevant to the issue in this case.
To say that the preference provisions do not apply to the initial set of contracts does not make preference meaningless. As was the case prior to the Regional Act, preference continues to govern the allocation of all power that is not committed by contract. Thus, the preference rules will apply to any subsequent contracts made with DSIs. Even during the period of the initial contracts, the preference provisions apply to any surplus power that exists. See 16 U.S.C. 839c(f). Such surplus might exist, for example, because of especially high annual or seasonal streamflow fluctuations, or because BPA's power acquisition program secures additional power faster than BPA's increasing contractual commitments. See Mellem, Darkness to Dawn? Generating and Conserving Electricity in the Pacific Northwest: A Primer on the Northwest Power Act, 58 Wash.L.Rev. 245, 269273 (1983).
" 'Reserves' means the electric power needed to avert particular planning or operating shortages for the benefit of firm power customers of the Administrator (A) from resources or (B) from rights to interrupt, curtail, or otherwise withdraw, as provided by specific contract provisions, portions of the electric power supplied to customers." 16 U.S.C. 839a(17).