Opinion ID: 751394
Heading Depth: 4
Heading Rank: 1

Heading: Alternative Costs

Text: 43 The U.S./Tribe sought to use as alternative costs, the cost of new plants being constructed while the [PUD] used the preference rate charged public utility districts by the Bonneville Power Administration (BPA). To use the U.S./Tribe's formula would create a massive windfall to the Tribe and result in unreasonable increases in the power rates. 44 The United States and the Tribe claim that it was error to use any measure for alternative costs other than the cost of construction of an alternative source of power. They argue that the district court's only reason for choosing its method of valuation was the court's conviction that the cost of constructing an alternative power source would produce an unreasonably high award. 45 This case, however, is not the standard case, and a review of the record shows that the district court focussed on the facts of the case as well as the Commission's stated purpose to protect ratepayers from unreasonable increases. The district court heard testimony from Dr. Taylor that the Indian lands, located as they were in a thin ribbon or bathtub ring at the top of the reservoir, were incremental to the project, and that the extra power generated from flooding above 2028 feet was incremental or windfall power. The court characterized this as meaning that 46 it does cost a little bit more to produce power above 2028, but it is going to be a relatively small percentage because all of your basic fixed costs have been put in the ground and are there.... [The costs of the additional power] bear a considerably different cost than you would in just getting up to 2028.... 47 The court heard testimony that PUD owned the entire dam site and that PUD bought power from the BPA before and (in a reduced amount) after the dam's construction. The court asked whether the utility could generate power at 2028 feet, and after testimony that it could, characterized the increase as 48 getting to the higher level where your fixed costs are essentially the same and you are really cutting the fat hog because you are up at the upper part where every company wants to be where you are at the maximum just before you hit the point of diminishing returns. 49 The district court characterized this case as unique: All of you have got cases that deal with Government dams, or with other kinds of dams, nobody has a PUD dam that has trespassed on an Indian reservation. We get-you know, this is a virgin case, so that is it. 50 The district judge characterized this case as different because the Indian lands were incremental to the original boundaries of the project, and the power generated by flooding the lands was windfall or extra power. The measure for the alternative cost of the windfall was not the cost of constructing an entirely different alternative project, but the cost of buying extra power from the BPA. If PUD had not trespassed on the Indian lands, it would have had to purchase extra power elsewhere; it would not have had to build an alternative project. Given the flexibility the Commission itself has identified in determining power site value and the statute's requirement that charges be reasonable, it was not clearly erroneous to choose this measure of alternative cost. Kalispel II made no mention of how to implement the details of a power site analysis, and the Commission precedent is sparse and desperately wanting in detail. PGE I, 1980 WL 24161 at  28. Further, the Commission appears to have allowed a similar measure of alternative costs in PGE I when it accepted BPA power rates under an existing contract as a measure of the alternative cost of energy to meet the plant's peaking capacity, i.e., power above and beyond the usual annual production. 1980 WL 24161,  19. 51 The district court did, however, rely almost entirely on cost considerations when explaining why it rejected the estimate by the United States and the Tribe. Nevertheless, the United States and the Tribe must do more than claim that the district court used the wrong measure of alternative cost: they must also show that the resulting amount was unreasonable. While [i]t is the interest of the general consuming public which serves as the paramount concern in determining a reasonable annual charge, the calculation must balance the interests of the consumers, the licensee ... and the Indian landowners. PGE I, 1980 WL 24161 at  3. 52 The United States argues that the charge is unreasonable because it is much lower than the annual charge for the project in issue in PGE I. But in that case, the western half of the dam and reservoir were located on reservation lands, id. at  2, while none of the Box Canyon dam and only a narrow strip of the flooded area included the Indian lands in this case. The rationale adopted by the district court, that the Indian land was incremental to the project and to its production of electricity, is a reasonable basis for distinguishing PGE I. 53 We find it was not clear error to choose the BPA measure for the cost of alternative power.