Opinion ID: 353770
Heading Depth: 3
Heading Rank: 2

Heading: Valuation of Benefits Under Section 10(e).

Text: 70 Because compensatory fees must be proportionate to the value of the benefit conferred, the valuation of the benefit is an essential predicate to fixing proper charges for the use of a Government dam under Section 10(e). Methods of valuation, of course, must vary with the nature of the benefit under consideration, for there are many ways in which the value of a particular benefit can be measured. The cost to the benefactor, the value to the beneficiary, the market or replacement value all of these are appropriate measures of value in certain circumstances. 71 Section 10(e) requires the Commission to make valuations for several different kinds of benefits. For example, the Commission must fix charges to recompense the Government for any occupancy of its lands. In the absence of special circumstances, one might suspect a national average rental value to be an appropriate measure of the benefits conferred on the licensee through occupancy of the land, and the Commission has recognized this in its regulations. 57 However, Section 10(e) also calls upon the Commission to make more difficult valuations. For example, as in the instant case, it is required to place some value on a licensee's use of water from a dam. Here, the Commission is not seeking to measure the benefit derived from occupancy of a fungible tract of real estate; rather, it is required to measure the value of the licensee's use of the water from a specific dam. 58 Moreover, it is not the value of the use for any purpose that the Commission must ascertain, but the value of use for a particular purpose, namely, generating electric-power. 59 72 The central issue presented in this case by Vanceburg's claim really concerns the problem of valuation. It is this: what is the proper basis for dam-use charges under Section 10(e) is it the actual value of dam use for power purposes to each specific licensee, public or private, as the Commission contends, or is it a more general standard such as the value of dam use for power purposes to the average investor-owned utility in the region, as Vanceburg contends? 73 The Commission's interpretation that Section 10(e) authorizes dam-use charges based on the actual value of dam use to the specific licensee is a reasonable one, and as such is entitled to great weight. 60 We find nothing in the Act which militates against this construction. Moreover, we believe that this interpretation is most consistent with the notion of compensation in that each licensee is to be charged in direct proportion to the fiscal benefit it actually receives. When Congress has failed to provide a formula for the Commission to follow, a court is not warranted in rejecting the one which the Commission employs unless it plainly contravenes the statutory scheme of regulation. 61 Therefore, we conclude that a proper basis for dam use charges under Section 10(e) is the actual value of dam use to the specific licensee. 74 The analogy of a lease in a shopping center might serve to illustrate the arguments and position of the parties here. Assume that two similar type stores lease space identical in size and desirability of location in the same shopping center, the two stores might pay the same or different rental depending on the terms of the leases. If ABC Stores and XYZ Shops each have a lease under which the rental is calculated at a percentage of gross sales, and ABC's dollar volume is twice that of XYZ's, then ABC will pay twice the rent of XYZ. This would be justified on the basis that the benefit conferred on ABC by occupancy of the space is twice the benefit conferred on XYZ. This is the Commission's argument here. 75 On the other hand, ABC might anticipate this situation developing, and argue during negotiation with the shopping center that its greater sales volume will be due to superior salesmanship, better products, a larger expenditure on advertising, a longer established reputation in that community, etc., and that a flat fee rental only should be charged. This is the argument of Vanceburg here, i. e., its tax exempt municipality status enables it to achieve a much greater saving from hydro power instead of fossil fuel, compared to that achieved by an investor-owned taxpaying utility, hence it should pay only a flat fee comparable to that charged private utilities. 76 There is nothing inherently right or wrong, fair or unfair, with either method of calculating rentals. In the commercial example, the rental formula negotiated will be determined by the commercial negotiating strength of the parties. In our case here, the Commission has a discretion within the statute in fixing reasonable annual charges, and thus conceivably might use any one of several methods in calculating the charge, actual value of dam use to the specific licensee being one of them. 77 Tax costs are real costs and tax savings are real savings, and we find nothing in Section 10(e) or in the other provisions of the Water Power Act which precludes the Commission from considering tax costs and tax savings in ascertaining the real value of a dam-use license to a specific licensee. We do not believe that the Commission need close its eyes to tax consequences in order to effectuate the policies of the Water Power Act; nor do we believe that the Commission's consideration of tax consequences frustrates the policies of the Internal Revenue Code. In short, Vanceburg's exemption from federal income tax under Section 115(a) of the Internal Revenue Code does not exempt it from paying compensatory fees under Section 10(e) of the Federal Power Act. 78 Finally, we do not suggest that the Commission is free automatically to assess as charges the full amount of the value conferred on a licensee. Section 10(e) sets a maximum and a minimum charge, and directs the Commission to exercise its discretion and expert judgment in fixing a reasonable charge somewhere within this range. The maximum charge is the fully compensatory charge represented by the full value, or net benefit, of the dam-use license. The second proviso of Section 10(e) sets the minimum charge: . . . but in no case shall a license be issued free of charge for use of a Government dam. 62 Within this range, the Commission must set a reasonable charge by considering all relevant factors and arriving at a charge which minimizes consumer costs, encourages power development, but at the same time, compensates the Government to some extent for the benefit it has conferred on the licensee. This appears to be precisely what the Commission has done in the instant case. The sharing-of-net-benefits formula, it seems strikes a balance which satisfies the statutory requirements that the general public be reasonably compensated by a licensee for its use of a particular Government dam, while at the same time minimizing consumer costs and encouraging power development by providing licensees with net benefits equal to the annual charge. 79 C. Vanceburg's Contention Regarding the Discriminatory Impact of the Assessed Charges 80 Vanceburg's third and final contention, raised inferentially in its supplemental applications for rehearing, is that the tax-exempt utility will always pay higher annual dam-use charges than a similarly situated investor-owned utility under the sharing-of-net-benefits method unless a hypothetical tax liability is imputed to it. 63 Therefore, Vanceburg asserts, (t)he charges thus assessed by the Commission that result in a prohibited discrimination against a class of licensees must, necessarily, be 'unreasonable' charges. . . . 64 Such discriminatory charges, Vanceburg argues further, deter State and municipal participation in water-power development and, thereby, frustrate the policy of the Federal Power Act. 65 81 Annual charges for the use of Government dams fixed under Section 10(e) of the Act are the product of the expert judgment of the Commission. The Commission has a range of discretion in fixing such charges so that it may balance all the relevant factors, including the impact of charges on consumer costs, the compensation of the Government, and the course of power development. 66 A licensee challenging the reasonableness of annual dam-use charges carries the heavy burden of making a convincing showing that the charges are unreasonable or otherwise unauthorized. 67 Vanceburg has simply not met this burden with respect to its contention that the assessed charges are to have a discriminatory or deterrent impact. Vanceburg has not undertaken to explain precisely in what way the charges at issue are discriminatory. This court is confronted only with an unsupported assertion that the charges are necessarily discriminatory. Without further elucidation by petitioner, we simply do not understand how this could be so. Merely because charges for municipal licensees are significantly higher than those assessed for similarly situated investor-owned licensees does not necessarily mean that municipalities are discriminated against. Charges which are proportionate to the actual value of the benefit conferred on a licensee are not discriminatory. If one class of licensees derives greater benefits from its licenses than another class of licensees, there is no discrimination when the first class is required to pay higher charges than the second. The net benefits formula measures the actual benefit conferred upon a licensee, whether public or private, and provides for an equitable sharing of the benefits by the licensee and the Government. All licensees receive net benefits after the Government fee equal to the annual charges, and Vanceburg is no exception. Its charges are higher than an investor-owned utility's would be, but it receives an equally greater benefit from its license. 82 Similarly, Vanceburg has not provided any support for its contention that the assessed charges deter municipalities from developing water power; nor do we see how this deterrent effect could exist. Under the sharing-of-net-benefits formula only one half of the cost savings resulting from the hydroelectric option would be assessed as charges. This means that there are still substantial cost advantages in pursuing that option, cost advantages equivalent to the charges themselves. Indeed, higher charges signify that the particular user finds greater advantages to hydroelectric development. 83 Finding, as we do, Vanceburg's challenges to the dam-use charges assessed by the Commission to be either untimely or not well founded, we affirm the Commission's orders of 29 March and 21 June 1976.