Kootenai Elec Coop v. FERC , 192 F.3d 144 ( 1999 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 10, 1999 Decided October 8, 1999
No. 98-1275
Kootenai Electric Cooperative, Inc., et al.,
Petitioners
v.
Federal Energy Regulatory Commission,
Respondent
Public Utility District No. 2 of Grant County,
Washington, et al.,
Intervenors
Consolidated with
98-1367
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: Two groups of petitioners seek
review of the Federal Energy Regulatory Commission's
(FERC's) order authorizing the future licensee of a hydro-
electric project to charge a market price for 30% of the
project's power. We deny the petition.
I.
The Priest Rapids Project is a federally licensed hydroelec-
tric 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.
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, s 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 authori-
ty 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 applica-
ble thereto."
The purchasers group and Grant opposed the Idaho coop-
eratives' 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 al-
ready 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.
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.
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 inconsis-
tent 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 "neigh-
boring States" meant, the Commission broadened the geo-
graphic 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."
__________
1 The Commission expanded the ALJ's requirement to cover both
firm and non-firm power, an issue not before us.
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 incon-
sistent 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 de-
nied rehearing. See Kootenai Elec. Coop., Inc., et al. v.
Public Util. Dist. No. 2, 83 FERC p 61,289 (1998).
We consolidated separate petitions for review by the pur-
chasers 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 Pro-
ject's power, and that respondent did not engage in reasoned
decisionmaking when it selected 30% as the reasonable por-
tion 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 Commis-
sion asserts that petitioners lack standing and that this case
is not ripe.
II.
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 pru-
dential, as are Article III courts. See id.
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).
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 Com-
mission has finally determined the issue. See Abbott Labora-
tories 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.
The standing issue, after oral argument, actually disap-
peared. The Commission had challenged petitioners' stand-
ing 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' al-
ternative claim is abandoned and therefore we never get to
their standing to raise it.
III.
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.
s 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 exer-
cise that authority notwithstanding the exemption for state
utilities under the FPA, and notwithstanding the present
__________
2 Petitioners also make a rather frail argument that the Commis-
sion failed to provide them sufficient notice that it might settle on
allocation via a market mechanism. But in Williston Basin Inter-
state 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 consider-
ing using GDP growth as the benchmark. Since in this case all
parties challenged the ALJ's allocation on exceptions to the Com-
mission, 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; Re-
covery of Stranded Costs by Public Utilities, Order No. 888, FERC
Stats. and Regs. 31,036 (1996).
deregulatory regime.4
Nothing in the actual language of the Act explicitly re-
quires 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 necessari-
ly 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 Re-
sources 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.
There is no question that the legislative deliberations re-
flect 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
__________
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.
by the licensee in this stretch of the river."). That under-
standing 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 reason-
able." See Farmers Union Cent. Exch., Inc. v. FERC, 734
F.2d 1486, 1504 (D.C. Cir. 1984).
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 here-
under and the terms applicable thereto." According to peti-
tioners, 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.
Similarly unpersuasive is petitioners' suggestion that the
nondiscrimination clause--"no discrimination between
__________
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 govern-
ment agency." )
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' back-
ground 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.
It is even argued that FERC's position violates the non-
discrimination clause: Grant sells power to its own customers
at cost (as required by state regulation) and therefore Wash-
ington 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 custom-
ers. We cannot say that this statute evinces a clear congres-
sional 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.
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 provid-
ed 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
__________
6 FERC's interpretation finds support in the legislative history.
See May 20th Hearings at 12 ("[T]he Federal Power Commission
* * * *
Accordingly, we deny the petition.
__________
may decide the issue, if there is a dispute between the licensee and
power marketing agencies ... over what constitutes a reasonable
portion.").