Court Opinion

ID: 184990
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:26:29+00
Date Added: 2024-06-11T09:41:43.242864
License: Public Domain

192 F.3d 144 (D.C. Cir. 1999)
Kootenai Electric Cooperative, Inc., et al.,Petitionersv.Federal Energy Regulatory Commission, RespondentPublic Utility District No. 2 of Grant County, Washington, et al., Intervenors
No. 98-1275 Consolidated with 98-1367
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 10, 1999Decided October 8, 1999

On Petition for Review of Orders of the Federal Energy Regulatory Commission
Peter C. Kissel argued the cause for petitioners Kootenai  Electric Cooperative, Inc., et al.  With him on the briefs was  Alan I. Robbins.
Howard E. Shapiro argued the cause for petitioner The  Grant County Purchasers Group and intervenor The Snake  River Power Association, Inc.  With him on the briefs were  Gary D. Bachman and Adelia S. Borrasca.
Adelia S. Borrasca argued the cause and was on the brief  for intervenor The Snake River Power Association, Inc.
Laura J. Vallance, Attorney, Federal Energy Regulatory  Commission, argued the cause for respondent.  With her on  the brief were Douglas W. Smith, General Counsel, Jay L.  Witkin, Solicitor, and Susan J. Court, Special Counsel.
William J. Madden, Jr. and John A. Whittaker, IV were  on the brief for intervenor Public Utilities District No. 2 of  Grant County, Washington.
Before:  Wald, Silberman, and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Silberman, Circuit Judge:

1
Two groups of petitioners seek  review of the Federal Energy Regulatory Commission's  (FERC's) order authorizing the future licensee of a hydroelectric project to charge a market price for 30% of the  project's power.  We deny the petition.

I.

2
The Priest Rapids Project is a federally licensed hydroelectric development located in Grant County, Washington;  the  current licensee, Grant County Public Utility District (Grant),  has held the license since 1955.  Grant entered into long-term  contracts with one group of petitioners--the purchasers  group--to provide them with 63.5% of the Project's firm  power at a price determined by a cost-based formula.  While  both those contracts and Grant's license expire in 2005, Grant  expects its license to be renewed, and has entered into contract negotiations for post-2005 power sales with the  purchasers group on the basis of that expectation.

3
This case arises from Grant's decision not to negotiate with  the second group of petitioners--the Idaho cooperatives-over the sale of power following relicensing.  This rebuff led  the Idaho cooperatives to file a complaint with FERC alleging  that Grant had failed to comply with the 1954 Act authorizing  construction of the dam.  The Act, in relevant part, requires  that the licensee offer "a reasonable portion of the power  output of the project for sale within the economic marketing  area in neighboring States and ... cooperate with agencies in  such States to insure compliance with this requirement," in  order to "assure that there shall be no discrimination between  States in the area served by the project."  See Pub. L. No.  544,  6, 68 Stat. 573, 574 (1954).  The Idaho cooperatives  sought an order requiring Grant to sell them approximately  one-fifth of the Project's output, pursuant to FERC's authority under the Act to, "in the event of disagreement between  the licensee and the power marketing agencies[,] determine  and fix the applicable portion of power capacity and power  output to be made available hereunder and the terms applicable thereto."

4
The purchasers group and Grant opposed the Idaho cooperatives' request, each claiming that the issue of allocation of  power following relicensing would not be ripe until relicensing  had occurred.  The purchasers group also noted that their  contracts with Grant provided them a right of first refusal to  Project power that would be jeopardized by the cooperatives'  desired relief, while Grant contended that the Act would not  apply upon relicensing.  FERC concluded that the Act would  apply upon relicensing, and set the matter for a trial-type  evidentiary hearing before an ALJ.  See Kootenai Elec.  Coop., Inc., et al. v. Public Util. Dist. No. 2, 72 FERC  p 61,222 (1995).  The Commission decided that the case was  ripe, noting that Grant and the purchasers group were already engaged in negotiations for post-relicensing power  sales.  See id. at 62,032-33, reh'g denied, 73 FERC p 61,307  at 61,858 (1995).  Meanwhile, intervenor Snake River Power  Association, a marketing agency selling power in the States of Idaho, Montana, Utah, Nevada, and Wyoming, entered the  case to stake its claim to a post-relicensing allocation of  power.

5
The ALJ, without much discussion, decided that 30% of the  Project's firm power should be sold to power marketing  agencies serving Idaho, Oregon, and Montana, and fixed a  percentage allocation for each party to the proceeding based  upon the number of retail customers they would likely serve  following relicensing.  He noted that the Act requires sales to  Washington's "neighboring States," and while no States but  Idaho and Oregon directly border Washington, Montana is  sufficiently mentioned in the legislative history that it should  be deemed neighboring for purposes of the Act.

6
The Commission upheld the ALJ's finding that a 30%  allocation would satisfy the statute's "reasonable portion"  requirement,1 noting that the percentages proposed by the  parties were self-serving and that "nothing ... proscribes the  Commission's discretion in determining what is a 'reasonable'  portion."  Kootenai Elec. Coop., Inc., et al. v. Public Util.  Dist. No. 2, 82 FERC p 61,112 at 61,402 (1998).  However,  FERC, explaining that division of the allocation among the  purchasers using any of the proposed numerical formulas  would be "inherently arbitrary and fundamentally inconsistent with the Commission's policy of promoting competition,"  decided that the future licensee would be required to allocate  the power using a non-discriminatory market mechanism-i.e., market pricing--with petitioners given first crack at  purchasing the power.  Id.  Without deciding what "neighboring States" meant, the Commission broadened the geographic scope of sales to include those States serviced by  Snake River Power Association, reasoning that the Act's  purpose would be best served by distributing power within  the broader "economic marketing area."

7
None of the parties was completely satisfied with this  order, and all requested a rehearing, with three different  views as to which states qualify as "neighboring States" and  four different views as to the appropriate allocation.  All  petitioners argued that use of a market mechanism is inconsistent with the Act, which they claim requires both that the  power be sold at cost and that the Commission allocate the  power itself.  It was also claimed that their right of first  refusal would be meaningless if the power were sold at a  market price.  Grant, which expects to be the future licensee,  of course did not join in this argument, but rather asked the  Commission to decrease the amount of power the licensee  would be required to sell (Grant appears before us as an  intervenor in support of respondent).  The Commission denied rehearing.  See Kootenai Elec. Coop., Inc., et al. v.  Public Util. Dist. No. 2, 83 FERC p 61,289 (1998).

8
We consolidated separate petitions for review by the purchasers group and the Idaho cooperatives.  Though their  arguments differ in certain respects, both claim that the 1954  Act forbids use of a market mechanism to allocate the Project's power, and that respondent did not engage in reasoned  decisionmaking when it selected 30% as the reasonable portion of power to be allocated;  the Idaho cooperatives alone  ask us to review the proper geographic scope of power  distribution, i.e., the scope of the term "neighboring States."In addition to defending its order on the merits, the Commission asserts that petitioners lack standing and that this case  is not ripe.

II.

9
We start, as of course we must, with the Commission's  jurisdictional objections.  FERC argues that the case is not  ripe because the new license has not been awarded and one  cannot know now what price the new licensee--Grant or  another entity--would charge any purchaser.  Petitioners cry  foul;  after all, they argue, FERC itself determined the  controversy was ripe before it.  But whether or not an  agency determines a proceeding is "ripe" for its purposes, that conclusion is not determinative when the question is  ripeness in a federal court.  See Pfizer Inc. v. Shalala, 182 F.3d 975, 979-80 (D.C. Cir. 1999).  An agency is not bound to  observe such judicial strictures, either constitutional or prudential, as are Article III courts.  See id.

10
Nonetheless, we think the case is ripe for the same reasons  that persuaded FERC when it was acting as an adjudicator. Although it is possible that another entity would be awarded  the license rather than Grant, that contingency, as a practical  matter, is too remote to trouble us.  So too is the possibility  that the market price for power would sink to a cost-based  price.  The important point is that the petitioners and Grant  have entered the negotiation stage for post-relicensing power,  and their respective bargaining power would be substantially  altered if FERC's decision were reversed.  Cf. Associated  Gen. Contractors v. Coalition for Economic Equity, 950 F.2d 1401, 1407 n.5 (9th Cir. 1991) (challenge to minority business  preference ripe where contractors' bidding decisions would  differ depending upon resolution of issue);  Fort Sumter  Tours v. Andrus, 564 F.2d 1119, 1123-24 (4th Cir. 1977)  (challenge to denial of statutory preference ripe where denial  affected negotiations for tour concession).

11
Moreover, the question presented is in Abbott Laboratories  terms "purely legal," and any decision we reach can hardly be  thought of as interfering with agency deliberations;  the Commission has finally determined the issue.  See Abbott Laboratories v. Gardner, 387 U.S. 136, 149 (1967);  cf. Weinberger v.  Salfi, 422 U.S. 749, 765 (1975).  We therefore conclude the  case is ripe.

12
The standing issue, after oral argument, actually disappeared.  The Commission had challenged petitioners' standing to protest the reasonableness of the allocation percentage  and the Commission's failure to define "neighboring States."But petitioners freely admitted that if market pricing is  legitimate they would have no particular interest or stake in  the amount of power allocated to "purchasers," wherever they  are.  Power is fungible, and the output of the Priest Rapids  project would have a trivial impact on the national market price.  Since we determine that the Act does not preclude the  Commission's market-rate authorization, the petitioners' alternative claim is abandoned and therefore we never get to  their standing to raise it.

III.

13
We are brought then to the core issue.  Does this rather  unusual statute require the Commission to set cost-based  rates for the portion of the power Priest Rapids produces that  is to be allocated to purchasers in neighboring states?2  In  the administration of the basic Federal Power Act, FERC has  since moved to a market-rate deregulatory posture.3  And as  the parties recognize, FERC actually lacks authority to set  the rates of state utilities under the FPA.  See 16 U.S.C.  § 824(f);  Village of Bergen v. FERC, 33 F.3d 1385, 1387 (D.C.  Cir. 1994).  Petitioners' argument is that the special statute  governing the construction of this project implicitly granted  FERC rate-making authority;  indeed obliges FERC to exercise that authority notwithstanding the exemption for state  utilities under the FPA, and notwithstanding the present deregulatory regime.4

14
Nothing in the actual language of the Act explicitly requires FERC to set cost-based rates--or any other kind of  rates--but petitioners contend that the legislative history is  instructive and there is language in the statute that necessarily implies a congressional intent to require FERC to set cost based rates if the parties disagree.  Petitioners never make  clear whether they are claiming that the congressional intent  is so specific that the case should be treated as a Chevron  step I candidate, see Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), or whether  they only contend that under Chevron step II the agency's  interpretation is unreasonable.  Be that as it may, petitioners  rely primarily on the legislative history.

15
There is no question that the legislative deliberations reflect a general understanding that the project would provide  low-cost power to the Northwest.  See, e.g., 100 Cong. Rec.  10,215 (daily ed. July 10, 1954) (statement of Sen. Magnuson)  ("When we talk about more kilowatts for the Northwest, we  also have in mind cheap kilowatts.");  100 Cong. Rec. 6,850  (daily ed. May 19, 1954) (statement of Rep. Angell) ("[T]he  power will be distributed equitably throughout the areas as is  now the case under Federal procedure.");  Priest Rapids and  Cougar Hydroelectric Projects:  Hearings on S. 1743 and S.  2920 Before a Subcomm. of the Comm. on Public Works, 83d  Cong., 2d Sess. 12 (May 20, 1954) ["May 20th Hearings"]  ("The effect of the House language is to insure ... that  neighboring States get a fair share of the benefits produced by the licensee in this stretch of the river.").  That understanding was premised, however, on governing state rate  regulations that were and are typically cost based.  Indeed,  Congress assumed that the licensee as a non-profit agency  would be obliged to sell at cost.5  This assumption, however,  may no longer be accurate, since Grant informs us that it has  been selling excess power at market prices.  A congressional  assumption about an existing state regulatory framework, as  a backdrop against which it is legislating, does not translate  into a congressional command that that regulatory backdrop  shall remain controlling as to the subject of its legislation  despite intervening regulatory changes.  That would be a tiny  legislative tail wagging a giant legislative dog.  If Congress  had intended the Act to include a requirement that FERC set  rates at cost, it would have said something like it said in  another special statute--that the rates be "just and reasonable."  See Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1504 (D.C. Cir. 1984).

16
Petitioners point to actual language in the statute that they  argue at least implies that Congress intended FERC to set  rates at cost.  The Act imposes on the Commission the  responsibility to "determine and fix the applicable portion of  power capacity and power output to be made available hereunder and the terms applicable thereto."  According to petitioners, that language makes no sense if it was contemplated  that FERC could simply authorize Grant to sell at market  prices.  Petitioners again have a point;  the language does  seem to assume a regulated rate.  On the other hand, if  Congress meant this provision to constitute an independent  mandate on the Commission to set cost-based rates for the  project, it would hardly have provided that such authority  was triggered only by the parties' disagreement.

17
Similarly unpersuasive is petitioners' suggestion that the  nondiscrimination clause--"no discrimination between States"--is inconsistent with a market-based rate.  One  might think a nondiscrimination clause contemplates a below market rate.  But again that notion goes to Congress' background assumption--not its command.  In other words, the  nondiscrimination clause serves a prophylactic purpose if  below-market rates are required.  But, we cannot say the  clause mandates below market rates.

18
It is even argued that FERC's position violates the nondiscrimination clause:  Grant sells power to its own customers  at cost (as required by state regulation) and therefore Washington consumers and consequently the State of Washington  is preferred against its neighboring States.  This reading of  the nondiscrimination clause seems strained, however, since it  reduces FERC's authority to "determine and fix ... the  terms applicable" for sales to power marketing agencies to a  requirement that FERC set terms equal to those Washington  State requires for sales by its public utilities to local customers.  We cannot say that this statute evinces a clear congressional intent to impose a Most Favored Nation clause on the  licensee--indeed, Congress considered and rejected an  amendment that would have required sales to be "upon the  same terms and conditions as power is offered for sale by the  licensee in the State of Washington."  May 20th Hearings at  12.

19
In sum, we think the statute is ambiguous;  there is no  clear congressional intent, and therefore the Chevron doctrine  applies and we ask whether the Commission's interpretation  is a permissible one.  The question is not easy;  if we were  interpreting the statute de novo we might well conclude that  petitioners have the better argument.  But we are not, and  we cannot say that FERC's interpretation is unreasonable. FERC logically concluded both that no discrimination would  occur if power marketing agencies in each State were provided an equal opportunity to bid for the available power, and  that it had fulfilled its statutory role of determining the  portion of power to be made available to petitioners by  requiring the future licensee to offer a "reasonable portion" of  the power to them as a group.6

20
* * * *

21
Accordingly, we deny the petition.

Notes:

1
 The Commission expanded the ALJ's requirement to cover both  firm and non-firm power, an issue not before us.

2
 Petitioners also make a rather frail argument that the Commission failed to provide them sufficient notice that it might settle on  allocation via a market mechanism.  But in Williston Basin Interstate Pipeline Co. v. FERC, 165 F.3d 54, 63-64 (D.C. Cir. 1999), we  held that a pipeline company had sufficient notice that FERC might  adopt GDP growth as a benchmark for price increases where  FERC had given notice that it would set a benchmark at the  hearing, even though FERC had never stated that it was considering using GDP growth as the benchmark.  Since in this case all  parties challenged the ALJ's allocation on exceptions to the Commission, the possibility was left open that some other method of  allocation would be adopted, and petitioners do not argue that the  market is, in general, an unreasonable means of allocating a scarce  resource.

3
 See Promoting Wholesale Competition Through Open Access  Non-Discriminatory Transmission Services by Public Utilities;  Recovery of Stranded Costs by Public Utilities, Order No. 888, FERC  Stats. and Regs. 31,036 (1996).

4
 The Idaho cooperatives alternatively argue that FERC cannot  require the licensee to use market rates because the Federal Power  Act excludes state utilities like Grant from FERC's rate-making  authority.  Since this argument was not presented to  FERC, it is not properly before us.

5
 See May 20th Hearings at 13-14 ("First, the licensee is a  nonprofit agency and therefore must sell power at cost:  Second,  power sold must be at a rate competitive with Bonneville [which  sells power at cost] ...:  Third, the cost of money to the licensee-the interest rate--will reflect the licensee's status as a local government agency." )

6
 FERC's interpretation finds support in the legislative history. See May 20th Hearings at 12 ("[T]he Federal Power Commission may decide the issue, if there is a dispute between the licensee and  power marketing agencies ... over what constitutes a reasonable  portion.").