Opinion ID: 467497
Heading Depth: 1
Heading Rank: 3

Heading: Validity of Council's Plan

Text: 26 Having concluded that the Council is constitutional, we examine the substance of the 1983 plan. In this action petitioners challenge only that portion of the 1983 plan which establishes model energy conservation standards for new residential construction. Consequently, we so limit the following discussion.
27 Congress directed that the Administrative Procedure Act, 5 U.S.C. Secs. 701-06, govern our review of Council actions. Adoption of the plan is a final action subject to judicial review for the purposes of the Administrative Procedure Act. 16 U.S.C. Sec. 839f(e)(1)(A); see 5 U.S.C. Sec. 553. 28 While Congress intended that this court's scope of review of Council actions be consistent with 5 U.S.C. Sec. 706, the Act specifically declines to require that the Council follow the hearing provisions of 5 U.S.C. Secs. 554, 556, and 557, which govern formal rulemakings. Sec. 839f(e)(2). Consequently, this court will use neither the substantial evidence standard, 5 U.S.C. Sec. 706(2)(E), nor the de novo standard, 5 U.S.C. Sec. 706(2)(F). The remaining subsection of 5 U.S.C. Sec. 706 provides that an agency's factual findings may be set aside if arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. Sec. 706(2)(A). We adopt this standard of review. 29 Although this court generally reviews legal questions de novo, United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984), amici have urged that we review the Council's interpretations of the Act under a more deferential standard. Amici argue the general rule that where a statutory interpretation is a contemporary construction of a statute by [those] charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly, while they are yet untried and new, a court should review a statutory construction deferentially. Amer. Paper Inst., Inc. v. Amer. Elec. Power Service Corp., 461 U.S. 402, 422, 103 S.Ct. 1921, 1932, 76 L.Ed.2d 22 (1983), quoting Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). Under this deferential review, a court examines only the reasonableness of the interpretation, and need not find that [the agency's] construction [of its enabling act] 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. Amer. Paper Inst., 461 U.S. at 422-23, 103 S.Ct. at 1932-33; quoting Unemployment Compensation Commission v. Aragon, 329 U.S. 143, 153, 67 S.Ct. 245, 250, 91 L.Ed. 136 (1946). See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). 30 The Supreme Court has deferred to BPA interpretations of the Act. ALCOA v. Central Lincoln Peoples' Util. Dist., 467 U.S. 380, 104 S.Ct. 2472, 2479-80, 81 L.Ed.2d 301 (1984). This court has done likewise. See Department of Water and Power v. BPA, 759 F.2d 684, 690-91 (9th Cir.1985); Central Lincoln Peoples' Util. Dist. v. Johnson, 673 F.2d 1076, 1078, as amended, 686 F.2d 708, 710-11 (9th Cir.1982), rev'd on other grounds, 467 U.S. 380, 104 S.Ct. 2472, 81 L.Ed.2d 301 (1984); Columbia Basin Land Protection Ass'n, 643 F.2d at 599-600 (and cases cited therein). 31 The preparation and consideration of the plan is a matter within Council authority over which the Act accords the Council considerable flexibility. For the same reasons that we defer to BPA expertise in construing other sections of the Act, therefore, we will defer to the Council's interpretations of Sec. 839b if reasonable.
32 The Act requires that the Council's plan afford priority to certain resources: 33 The plan shall ... give priority to resources which the Council determines to be cost-effective. Priority shall be given: first, to conservation; second, to renewable resources; third, to generating resources utilizing waste heat or generating resources of high fuel conversion efficiency; and fourth, to all other resources. 34 Sec. 839b(e)(1). 35 The Act further requires that the plan include model conservation standards, Sec. 839b(f)(1), Sec. 839b(e)(3)(A). The Council is directed to adopt model conservation standards applicable to new and existing structures which reflect geographic and climatic differences within the region and which produce all power savings that are cost-effective for the region and economically feasible for consumers. 3 Sec. 839b(f)(1) (emphasis added). The Act defines cost effective resources as those which are forecast to be reliable and available ... to meet or reduce the electric power demand ... of the consumers ... at an estimated incremental system cost no greater than that of the least-cost similarly reliable and available alternative measure or resource, or combination thereof. Sec. 839a(4)(A). The Act defines the term system cost as an estimate of all direct costs of a measure or resource over its effective life including [direct and quantifiable environmental costs and benefits]. Sec. 839a(4)(B). Because the term economically feasible is not defined in the Act, the Council's definition is a major point of contention in this action. 36 Rather than making a single forecast of the need for energy resources, the plan makes four separate, 20-year forecasts of electricity demand, each with separate resource needs. Under the lowest-growth forecast, conservation is the only new energy resource needed to satisfy regional energy demand. 4 Plan Vol. 1 at 5-2 (figure 5-1). Under the medium-low, medium-high and high-growth forecasts, demand is satisfied by a mixture of conservation, hydroelectric, cogeneration, coal and combustion turbine energy sources in accord with statutory priorities. Id. (figures 5-2, 5-3, 5-4). 37 The Council has predicted the probability that each of these growth forecasts will be realized. It has predicted that it is very unlikely that growth will be slower than the low-growth forecast or faster than the high-growth forecast. The plan predicts a 33 per cent chance that growth will be more than the low forecast but less than the medium-low forecast; a 45 per cent chance of growth falling between the medium-low and medium-high forecasts; and a 22 per cent chance that growth will exceed the medium-high forecast but be less than the high forecast. Plan Vol. 1 at 5-17 (and figures 5-13, 5-14). 38 The 1983 plan predicts that the last resource to be acquired under the highgrowth forecast will be a coal generating plant capable of producing electricity at a cost of slightly over four cents per kilowatt hour (4cents/kwh). The plan considers that conservation measures which could displace this coal plant would be considered cost-effective. Plan Vol. 1 at 7-1. It defines as cost effective, therefore, any conservation measure with a marginal cost less than 4cents/kwh in current dollars. Id. 39 The Council concluded that its conservation standards are both cost effective for the region and economically feasible for consumers under Sec. 839b(f)(1) and recommended that BPA impose a surcharge for nonconforming electricity usage beginning January 1, 1986 as authorized by Sec. 839b(f)(2). Plan Vol. 1 at 1-3, 11, Vol. 2 Appendix J at Preface 4. 40 Petitioners argue that it is unreasonable for the Council to interpret cost effectiveness based upon a forecast which the Council itself concedes is very unlikely. Petitioners argue that the Council cannot adopt a cutoff for cost effectiveness unless it is more likely than not that the predictions upon which it is based will be realized. See Industrial Union Department v. American Petroleum Inst., 448 U.S. 607, 653, 100 S.Ct. 2844, 2869, 65 L.Ed.2d 1010 (1980) (OSHA must show that it is more likely than not that health hazard would exist but for its regulations); Bunker Hill Co. v. EPA, 572 F.2d 1286, 1301 (9th Cir.1977) (EPA cannot establish standards which demand technology which is experimental or only theoretically feasible). 41 Unlike the occupational health statute in Industrial Union Department or the environmental protection statute in Bunker Hill, however, the Act allows the Council the flexibility to define cost effectiveness not in terms of current energy needs but by reference to whether a resource is forecast ... to be ... available within the time it is needed. Sec. 839a(4)(A) (emphasis added). See 126 Cong.Rec. H-9514 (daily ed. Sept. 23, 1980). The Council is given the statutory mandate to make a forecast and to base its conservation plan on this forecast. Petitioners also argue that the Council is basing its plan upon projected energy costs and demands that the Council itself is unable to predict with accuracy. The Act does not require the Council to follow any particular method or timetable for forecasting the amount or cost of future energy demand; we do not find the 20-year forecast or the 4cents/kwh cutoff to be unreasonable in light of the inherent indefiniteness of long-term energy forecasting. 42 The Act requires the plan to define cost effectiveness in terms of incremental system cost, which the Council has interpreted to be an estimate of all direct and environmental costs of all the measures required by the conservation standards as a whole. See Sec. 839a(4)(B). Consequently, the Council's measure of cost effectiveness is based on the average cost of a package of conservation measures, none of which has a marginal cost exceeding 4cents/kwh. Although it selected 4cents/kwh as the outer limit for cost effective conservation components, the Council estimates that the average system cost of its conservation standards is only 1.8cents/kwh, Plan Vol. 1 at 10-4, considerably less than the cost of other energy resources. See Plan Vol. 1 at 4-3, 4-6 (figure 4-4, table 4-3). 43 Petitioners allege that this interpretation of cost effectiveness is contrary to the Act. They contend that the plan must examine the cost effectiveness of each individual conservation measure because the Act uses the singular in referring to cost effectiveness of any measure or resource. Sec. 839a(4)(A). The Council's approach is correct. The Act does not require that each individual component of the model conservation standards be cost effective. The purpose of the conservation standards is to require the Council to examine cost effectiveness of standards which, when adopted in their entirety, result in cost effective energy savings. All that is required is that the model conservation standards be cost effective, when viewed as a whole. See Sec. 839b(f)(1). 44 Petitioners also allege that the Council's definition of cost effectiveness is unreasonable because the 1983 plan does not adequately consider potential conservation in the government, commercial and industrial sectors. The plan does include operational conservation programs applicable to government, Plan Vol. 1 at 10-17, 10-18, commerce, Plan Vol. 1 at 10-14, 10-15, and industry, Plan Vol. 1 at 10-15, 10-16, and sets conservation requirements for all sectors. Plan Vol. 1 at 7-7--7-12, 10-12--10-17; see Plan Vol. II Appendix J. The model energy conservation standards for new buildings apply equally to residential and nonresidential structures. See Plan Vol. II Appendix J. Whether the plan provides similar or dissimilar conservation standards for different sectors is a matter within Council discretion under the Act. See Secs. 839a(4)(A), 839b(f)(1). We find the Council's interpretation of the term cost effective to be reasonable. 45 In addition to requiring cost effectiveness for the region as a whole, the Act requires the model conservation standards to be economically feasible for consumers. Sec. 839b(f)(1). The Act does not define the term but the plan contains a functional definition: 46 Although a house built to the Council's model standard will have a slightly higher initial cost, over the life of the house the consumer will be economically better off than if living in a house built to current codes. 47 Plan Vol. 1 at 7-3. 48 In measuring economic feasibility, the plan considers the cost and efficiency of the conservation standards as a whole. Petitioners argue that economic efficiency, like cost effectiveness, should properly be measured on a component-by-component basis. Petitioners assert that a particular conservation component is economically feasible only if that particular component pays for itself: each individual component must save the homeowner more in electricity than it adds to the cost of the house. Instead of reflecting the marginal (or avoided) cost of energy resources, the petitioners insist, economic efficiency should be a function of the average market cost for electricity, which is not predicted to exceed 3.6cents/kwh. Plan Vol. 1 at 4-6 (table 4-3). Because the plan relies on marginal cost to measure economic efficiency, petitioners argue, the standards for economic feasibility are only theoretically feasible and therefore unreasonable. See Bunker Hill, 572 F.2d at 1301. 49 The Council believes that marginal cost is a more accurate measure of energy cost than is average cost because of differences in market price for different consumers. See Plan Vol. 1 at 4-6. Furthermore, economic efficiency should be based upon avoided cost which is measured by marginal, not average, cost. See 126 Cong.Rec. 30181 (1980) (report of the Office of Technology Assessment). Cf. H.R.Rep. No. 96-976 (Part I), 96th Cong., 2d Sess. 50 (1980), U.S.Code Cong. & Admin.News 1980 p. 5989 (cost comparison is done on the basis of incremental, or marginal, costs). 50 The plan's definition is consistent with congressional intent. See S.Rep. No. 96-272, 96th Cong., 1st Sess. 25 (1979) (the cost to consumers must be such that the cost of complying with the standards ... should not exceed, for the individual or entity to which the standards apply, the direct financial savings produced by compliance). Petitioners have not shown the Council's definition of economic feasibility to be unreasonable. 51 Finally, the conservation standards cannot be economically feasible for owners of rental housing, petitioners argue, because the market will not support additional rents necessary to compensate for an increase in construction costs. Not only have petitioners not presented any support for their assertion, but the Council notes that homes which meet the conservation standards may command higher rents because of the savings tenants can enjoy in energy costs. Petitioners have not provided us with sufficient evidence upon which to disturb the Council's conclusion that the standards are economically feasible for owners of rental housing. Application of the model standards to rental housing is not arbitrary or capricious.C. Methodology for determining conservation value 52 Petitioners challenge the technical, analytic process by which the Council arrived at its model conservation standards. The dispute centers on whether it was acceptable for the Council to arrive at its standards using industry engineering standards and computer simulations of energy usage, conservation and efficiency of various conservation measures. 53 Petitioners argue that the Council's failure to conduct component field testing to determine the value of various conservation measures was an abuse of discretion, and that such component testing is statutorily mandated. See, e.g. Secs. 839a(4)(A), 839b(f)(1). They assert that component testing was feasible, would have yielded valuable data and could have been done in the two-year period the Act allows for preparation of the 1983 plan. See Sec. 839b(d). 54 The Act does not, however, mandate any particular method of forecasting under either the definition of cost effectiveness, Sec. 839a(4)(A), or the section requiring the preparation of model conservation standards, Sec. 839b(f)(1). The Council is given the discretion under the statute to develop a forecast which provides model conservation standards that are cost effective, economically efficient and reflect regional geographic and climatic differences. Sec. 839b(f)(1). See S.Rep. No. 96-272, 96th Cong., 1st Sess. 2 (1979) (value of conservation is to be determined on the basis of a methodology developed by the Council as part of the plan). As we have concluded above, the Council's use of four, 24-year forecasts was reasonable in light of its statutory mandate. 55 To test the value of particular conservation measures, the Council used a computer simulation model, Plan Vol. 1 at 10-4, Glossary-3, combined with standardized coefficients for building materials, components and assemblies. See generally Plan Vol. II Appendix K. The choice of methodology is a highly technical question which falls within the unique expertise of the Council. Unless an abuse of discretion is demonstrated, this court will not substitute its judgment on particular testing methodology. See Department of Water & Power v. BPA, 759 F.2d at 691 (and cases cited therein). While petitioners may be correct in asserting that the Council could have done component testing in lieu of simulations, the Act does not require the Council to do so. The methodology used in the 1983 plan employed accepted industry standards and principles of analysis. See American Society of Heating, Refrigerating and Air Conditioning Engineers, Inc., Ashrae Handbook 1981 Fundamentals (1981). We express no opinion on the methodology and definitions proposed by the petitioners. Petitioners have not presented evidence before this court to raise serious doubt about the accuracy or reliability of the Council's computer simulation program or the Handbook of Fundamentals, upon which the Council relied. We conclude that the Council did not abuse its discretion when it chose to rely upon industry standards and computer simulations in its calculations of the value of various conservation components. 56 In our evaluation of the validity of the Council's technical methodology and of the conservation standards, two factors are crucial. First is the technical nature of the Council's decisions which even Congress recognized should be the result of technical, scientific choices. See Secs. 839b(c)(11)-(13), 839b(g). Second is the deferential standard for our review of the Council's action which we have already recognized above. The Council's interpretations of the Act are reasonable and its model conservation standards are not arbitrary or capricious. See Chevron, U.S.A., 104 S.Ct. at 2782-83 (and cases cited therein); see generally 5 K.C. Davis, Administrative Law Treatise Sec. 29.20 (2d ed. 1984).