Petition — Pacific Gas & Electric Co. v. City of Santa Clara
Supreme Court brief1978
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i} JUL 3 j978 S|
In the Supreme Court ofthe. ..,
United States
—_——
Paciric Gas anp ELectric Company,
Petitioner,
VS.
City or Santa Cuara, CALIFoRNIA,
Respondent.
Petition for Writ of Certiorari
to the United States Court of Appeals
for the Ninth Circuit
Terry J. HouLtinan
Three Embarcadero Center
San Francisco, California 94111
Attorney for Petitioner
Pacific Gas and
Electric Company
Morris M. DoyLe
Cuar.es A. Fercuson
McCutcuHen, Dove, Brown & Enersen
Of Counsel
Joun C. Morrissey
Matcotm H. Fursvsy
THeEopoRE L. LinpBerG, JR.
Of Counsel
TABLE OF CONTENTS
Page
RE ONL TCE Se 1
cc cecesseee 2
oo etc gh OOS SST eo 2
EE Se 2
coc ccceeencsecerseencneen 3
Ee 5
Reasons for Granting the Writ 00000000 10
I. The Court of Appeals’ Interpretation of the Pref-
erence Clause Is Contrary to a Reasonable Ad-
ministrative Construction, and thus Presents Im-
portant Questions Not Settled by the Supreme
Court which Affect the Distribution of Federal
Power to Millions of People 200.000.000.000. 11
II. The Court of Appeals’ Ruling Concerning the
Retroactive Effects of a Decision in This Case
Conflicts with Applicable Decisions of the
Ee 15
III. Petitioner Seeks Review of Issues Fundamental
to the Further Conduct of this Lawsuit: Hence,
a Writ of Certiorari Should Issue ...... 19
Ee Bisa! 21
TABLE OF AUTHORITIES CITED
CASES Pages
Allen v. State Board of Elections, 393 U.S, 544 (1969) 17
Arizona Power Pooling Assoc. v. Morton, 527 F.2d 721
(9th Cir. 1975), cert. denied 425 U.S. 911 (1976) ........ 7
Arizona Power Authority v. Morton, 549 F.2d 1231
(Oth Cir, 1977) .-.ncecccscncsonsnsnscsecsnsoseserensnscccnsecnnvocnsnsvesoooses 7
Atlantic Richfield Co. v. Hickel, 432 F.2d 587 (10th
Cig, TOTO) sonconccncsanccscctsccacecscsonnenessennceneseteonevenstevensasasesosonsers 17
Bentex Pharmaceuticals, Ine. v. Richardson, 463 F.2d
363 (4th Cir. 1977), rev’d on other grounds, 412 U.S.
MES sR 8 RBIS Sa cemanre seeseeennennneeen essen 17
Bowles v. Seminole Rock Co., 325 U.S. 410 (1945) ........ 11
Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) ..........--.--. 17
Cipriano v, City of Houma, 395 U.S. 701 (1969) ............ 18
City of Portland v. Munro, Civil Nos. 77-928 and
77-929 (D. Ore 1978) seseesennnnnnnnnnnnnnensntnnvnnneneenenceneresesstit 7
Corniel-Rodriguez v. ILN.S., 532 F.2d 301 (2d Cir. ;
0 en We teacnaaly 16, 17
Dugan v. Rank, 372 U.S. 609 (1963) ...2.2.----.seeseseseeeeeeees 5)
Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380
CLIT) ccc ececsecibeciaecaneenstenprcenenesanmiannreincnomnmeionceniadenian 16
Fuel Cost Adjustment Clauses in Wholesale Rate
Schedule, Docket No. R-479, Order No. 517, 3 Federal
Power Service 5-36 (November 13, 1974) .................... 13
Fuel Cost Adjustment Tariff Provisions and Pro-
cedures, California Publie Utilities Commission Case
No. 9886, Decision No. 85731 (April 27, 1976) ............ 13
Gillespie v. United States Steel Corp., 379 U.S. 148
»
CRG ED aoncsccnenscecssccccsachnuniesibse nas splecoemeneaseseeananaenninimestecetanrnnt 20
Griggs v. Duke Power Co., 401, U.S. 424 (1971) ............ 11
Hanover Shoe v. United Shoe Machinery Corp., 392
Uy, OBR CRO) cine alctertcones 17
TABLE oF AvuTHoRITIES CITED ili
Pages
Heirs of Denena v. Communication, Splicing and
Engineering Co., 474 F.2d 1249 (3d Cir. ss } ne 17
INS v. Hibi, 414 U.S. 5 (1978) once ccceccccecesccsssoecoccececoeees 17
Ivanhoe Irrigation District v. MeCracken, 357 U.S.
epi ceca, BN ee Ne ae ce NE Nee a 5
Land v. Dollar, 330 U.S, 731 (1947) oooccccccccccccccceeceoeee----. 20
Larson v. Domestic & Foreign Commerce Corp., 337
eS, pheketi Te inet RE Le eee 20
Lemon v. Kurtzman, 411 U.S. 192 DRED we 17
Linkletter v. Walker, 381 U.S, 618 (1965) ..................... 18
McLaren vy. Fleischer, 256 U.S. 477 PRED) cerca ot, 11
Montana v. Kennedy, 366 U.S. 308 (1961) ................ 17
Moore vy. N.Y. Cotton Exchange, 270 U.S, 593 (1926) .... 9
Moser v. United States, 341 U.S. 41 CID esscrciercnsinesnes 16
Power Reactor Co. v, Electricians, 367 U.S, 396 (1961) 11
Santiago vy. LN.S., 526 F.2d 488 (9th Cir. 1975), cert.
dented 425 U.S. 971 (1976) ......ccccccceccecoececoecosoeeee.-....... 17
Schlesinger v, Councilman, 420 U.S, 738 CREED eisssaccreas 20
Thompson v, Washington, 551 F2d 1316 (D.C. Cir.
cl, ER EIS ER SL ROL ra ase 18
Train v. Natural Resources Def. Council, 421 U.S.
NI ihe re aN 11
Ulman y. United States, 558 F.2d 1, 201 Ct. Cl. 888
ae ag: AEN STE Cn Sea 17
United States vy. City of Chicago, 400 U.S. 8 (1970) .... 11
United States v. General Motors Corp., 323 U.S. 373
On OPER a Ried enth Ace ao aa 20
United States v. Gerlach Live Stock Co., 339 U.S. 725
acs ole ctr EASIER Ae che 5
16 U.S.C.
16 U.S.C. §
16 U.S.C. §
16 U.S.C.
28 U.S.C.
28 U.S.C.
28 U.S.C.
28 U.S.C. §
42 U.S.C.
TaBLEe OF AvuTHORITIES CITED
$ 1361
EEE EE EEE EEE EEE EEE EEE TEETER EEE HEHEHE OOD
EEE EEE EEE EEE EE EEE REEL REEL E EEE EEE REEDS OS
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STATUTES Pages
Atomic Energy Act of 1954, 42 U.S.C. § 2064 .............. 5
Bonneville Project Act, 16 U.S.C. § 832¢ .....22------ eee 3
Boulder Canyon Project Act, 43 U.S.C. § 617d(e) ........ 5)
Colorado River Storage Project Act, 43 U.S.C. § 620¢ .. )
Eklutna Project Act of 1950, P.L. 81-628, 64 Stat. 382 .. 5)
Faleon Dam Act of 1954, P.L. 83-406, 68 Stat. 255 ....... 5)
Federal Water Power Act of 1920, 16 U.S.C. § S00 ........ 5)
Flood Control Act of 1944, 16 U.S.C. § 825s -...........-...-.-- 5)
Fort Peck Project Act, 16 U.S.C. § 833¢ .0002.0......ceeceseees 5)
Niagara Project Act, 16 U.S.C. § 836(b)(1) -...........-.-.-- 5)
Raker Act of 1913, P.L. 63-41, 38 Stat. 242 .................... )
Reclamation Act of 1906, 48 U.S.C. § 522-000. 5, 14
Reclamation Project Act of 1939, 4° U.S.C. § 485h(e) — 1, 2,
d, 9, 13
Rural Flectrification Act of 1936, 7 U.S.C. § 904 ........-... 3, 5
Salt River Project Act of 1922, 43 U.S.C. § 598 .............- 5)
Tennessee Valley Authority Act, 16 U.S.C. §§ 831i, } .. 5
Water Conservation and Utilization Act of 1940, 16
WSC. © SOO B Tai 5
United States Code
7 USC. § 9h Wee 5
16 U.S.C. §00@e-7 See 5
16 U.S.C. SO0(@) eee 5)
16 U.S.C. § SOO cnc 5
16 UBC. § SBGe cnc eee Bs)
annmm oocirc
TABLE oF AvtTHorities CiTED
:
Pages
43 U.S.C. § 485h(e) 123,56
|) Se EE aoa » 2) 3, 0, 9, 10, 1
a a) a
| Se Tee ann ; 5)
Soe (aay). t( ag“
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LEGISLATIVE MATERIALS
84 Cong. Ree. 10224-6 (J ae ae 13, 14
S. Rep. 758, 76th Cong. Ist Sess., reprinted 84 Cong.
Rec. 9369 (July 18, 1939) 15
MISCELLANEOUS
30 Op. Att’y. Gen. 197 (1913) 14
K. Davis, Administrative Law Treatise, Section 17,02
a8 IEE SAE ah oa 16
In the Supreme Court of the
United States
Paciric Gas anv Evectrric ComMPAany,
Petitioner,
VS.
Crry or Santa Cuara, CALIFORNIA,
Respondent.
Petition for Writ of Certiorari
to the United States Court of Appeals
for the Ninth Circuit
PRAYER
Petitioner, Pacific Gas and Electric Company (“PGandE”
or “the Company”) asks that a writ of certiorari issue to
review a portion of the judgment and opinion below of the
United States Court of Appeals for the Ninth Cireuit in
this case. PGandE seeks review of two rulings by the Court
of Appeals: first, that certain electric power transactions
between PGandE and the United States sureau of Reela-
mation violate the preference clause of the Reclamation
Act of 1939, 43 U.S.C. § 485h(e), unless excepted from the
coverage of that clause, and, second, that PGandE had no
immediate right to receive over $50,000,000 held in escrow.
2
OPINIONS BELOW
The opinion of the Court of Appeals as amended on
April 4, 1975 is reported at 572 F.2d 660;* a copy is ap-
pended hereto as Appendix A. The order of the Court of
Appeals denying Santa Clara’s petition for rehearing,
granting PGandE’s and the government's petitions for re-
hearing or modification in part, and amending the Feb-
ruary 1, 1978 opinion is unreported; a copy is appended
as Appendix B. The District Court’s first opinion is re-
ported at 418 F. Supp. 1243; a copy is appended as Appen-
dix C. The District Court’s opinion modifying its original
opinion is reported at 428 F. Supp. 315: a copy is ap-
pended as Appendix D.
JURISDICTION
An opinion and judgment of the Court of Appeals was
entered on February 1, 1978. Petitions for rehearing were
timely filed by Santa Clara and PGandF, and the govern-
ment moved for modification. On April 4, 1978 the Court
of Appeals denied Santa Clara’s petition but granted the
eovernment’s motion and granted PGandk’s petition in
part (Appendix B). This petition is being filed within 90
days of April 4, 1978. This Court has jurisdiction to review
the judgment in question by writ of certiorari pursuant to
28 U.S.C. § 1254(1).
STATUTE INVOLVED
The preference clause of the Reclamation Project Act
of 1939, 43 U.S.C. § 485h(c), is the relevant statutory pro-
vision:
*The Federal Reporter advance sheet version of the opinion is
ipeorrect in that it ineludes a sentence ordered deleted by the Court
o: Appeals on rehearing. The third sentence in the second full para-
graph on page 672 of the advance sheet reporter should have been
deleted. See Appendix B at 42, paragraph 4.
3
“(e) ... Any sale of electric power or lease of power
privileges, made by the Seeretary in connection with
the operation of any project or division of a project,
shall be for such periods, not to exceed forty years.
and at such rates as in his judgment. will produce
power revenues at least sufficient to cover an appro-
priate share of the annual operation and maintenance
cost, interest on an appropriate share of the construe-
tion investment at not less than 3 per centum per
annum, and such other fixed charges as the Secretary
deems proper: Provided further, That in said sales
or leases preference shall be given to municipalities
and other public corporations or agencies: and also
to cooperatives and other nonprofit organizations
financed in whole or in part by loans made pursuant
to the Rural Electrification Act of 1936 and anv amend-
ments thereof. Nothing in this subsection ‘shall he
applicable to provisions in existing contracts, made
pursuant to law, for the use of power and miscel-
laneous revenues of a project for the benefit of users
of water from such project. The provisions of this
subsection respecting the terms of sales of electric
power and leases of power privileges shall be in
addition and alternative to any authority in existing
laws relating to particular projects. No contract relat.
ing to municipal water supply or miscellaneous pur-
poses or to electric power or power privileges shall be
made unless, in the judgment of the Secretary, it will
not impair. the efficiency of the project for irrigation
purposes. (emphasis added) 53 Stat. 1194-95, 43 U.S.C.
§ 485h(¢).
QUESTIONS PRESENTED
1. The preference clause of the Reclamation Act of
1939, 43 U.S.C. § 485h(e), requires that a preference be
given to certain entities in the sale of federal hydroelectric
power generated at reclamation project dams. |
7
Should the preference clause be broadly construed
to prohibit the federal government from delivering
power to a non-preference entity under a conditional
sale arrangement which results in the later repurchase
and delivery of power to preference customers, which
is necessary to enable the government to meet the
long-term needs of those preference customers, and
which generates no profit to the non-preference entity?
2, The Court of Appeals held that because completed
power sales violated the preference clause they were “void”
and “of no effect.” 572 F.2d at 677; Appendix A at 535. The
Court of Appeals went on to suggest that such sales should
be rescinded and retroactively reallocated to a preference
customer, even though the power had been resold by the
purchaser at cost to its customers.
Whether, consistently with this Court’s decisions
governing the award of retroactive equitable relief,
a federal court may, after declaring unlawful a fed-
eral agency’s completed power sales to a good faith
purehaser who resold low-cost power at cost to non-
parties to the lawsuit,
a) declare void and order rescinded the ageney’s com-
pleted power sales to the good faith purchaser,
b) recognize the agency’s allegedly unlawful refusal
to sell power to a third-party to the lawsuit as an
equitable defense to the good faith purchaser’s con-
tract claim for higher cost replacement power sold to
and consumed by the third-party, and
ce) place upon the good faith purchaser the burden of
seeking relief against the federal agency for the
$50,000,000 difference in value between the lower cost
and higher cost power.
3]
STATEMENT OF THE CASE
This case began, and at base remains, a dispute among
preference customers over the allocation of low-cost federal
electric power generated at the Central Valley Projeet in
California (“CVP”). PGandE, as a mechanism for the
transmission of CVP power and a purchaser on an interim
basis of some power destined for future delivery to certain
preference customers, is caught in the middle of this
struggle.
The formation, functions, and purposes of the Central
Valley Project are described in the opinions of the courts
below and in Jranhoe Irrigation District +. McCracken.
3o0¢ U.S. 275 (1958); United States v. Gerlach Live Stock
Co., 339 U.S. 725 (1950), and Dugan +. Rank, 372 U.S. 609
(1963). Briefly, the CVP is a water reclamation project
subject to “the provisions of the reclaination law.” 50 Stat.
850 (1937), 16 U.S.C. $ 695(d). As an adjunet to water
reclamation, CVP generates electric power at various dams
and sells the power not required for its own water pump-
ing needs. The preference clause of the Reclamation Act
of 1939, 43 U.S.C. § 485h(e). requires that a preference be
given public entities, such as municipalities, in the sale of
CVP power.*
*There are other, not necessarily identical, clauses in manv
federal statutes governing federal power sales. Preference clauses
have been included in the following enactments: the Reclamation
Act of 1906, 43 U.S.C. § 522; the Raker Act of 1913, P.L. 63-41
38 Stat. 242; the Federal Water Power Act of 1920 16 USC
§ 800; the Salt River Project Act of 1922, 43 U.S.C. $598: the
Boulder Canyon Project Act, 43 U.S.C. § 617d(c); the Veiseense
Valley Authority Act, 16 U.S.C. §§ 831i.j: the Rural Electrification
Act of 1936, 7 U.S.C. § 904: the Bonneville Project Act 16 U.S.C
§ 832c; the Fort Peck Project Act, 16 U.S.C. § 833c; the Reclama
tion Project Act of 1939, 43 U.S.C. § 485h (ec): the Water Consery
tion and Utilization Act of 1940, 16 U.S.C. § 5902-7: the Flood
Control Act of 1944, 16 U.S.C. § 825s: the Eklutna Project (et of
1950, PI. 81-628, 64 Stat. 382; the Faleon Dam Act of 1954 PI
83.406, 68 Stat. 255; Atomic Energy Act of 1954, 42 US C. § 2064.
le Niagara Project Act, 16 U.S.C. § 836(b) (1) - the rado River
Storage Project Act, 43 U.S.C. i" on moe
6
The instant case concerns the plan developed by the
Secretary of the Interior, a party to this case below, for
marketing CVP power. The Secretary's marketing plan in-
eludes a power exchange arrangement with PGandk by
which PGandE acts as a “bank” for electric power de-
livered to it by the government, Under this arrangement, set
forth in the contract between the government and PGandk
referred to below as “Contract 20484," PGandk purchases
federal electric power subject to a commitment to resell an
equal amount of power in the future to the government for
delivery to preference customers of the CVP.
The CVP power exchange arrangement was developed
by the Secretary in 1964 to enable CVP to serve the full
demand of then existing CVP preference customers through
1980, even though the power requirements of those cus-
tomers would grow to exceed the capacity of CVP in the
latter part of that time period. The arrangement enables
CVP to serve the future needs of these customers which it
eould not otherwise meet. Among other reasons for adopt-
ing this plan was the government's belief that supplving all
the needs of these CVP customers until 1980 would provide
them with the time and savings to enable them to develop
their own sources of power independent of PGandF.
It is impossible to store the power “hanked” with
PGandE. Accordingly, the power conveyed to PGandE by
the government is immediately delivered hv PGandF to
its own customers, For accounting purposes, the power is
deemed sold to PGandE (subject to the government's right
to repurchase an equal amount later) and is then resold
by PGandE to its own 4,000,000 customers throughout
northern and central California, under rates which require
that the power he resold at PGandk’s cost. Tn other
words, PGandE makes no profit when it resells the federal
power.
7
CVP power facilities are integrated with the PGandE
system. Power from these plants flows into the PGandE
transmission system along with power from PGandF plants
and other resources. CVP customers take power from the
PGandE transmission system, not directly from CVP
plants. All customers thus receive a mix of power, but those
who have received a preference allotment from CVP are
deemed to have purchased CVP> power transmitted or
“wheeled” by PGandFk.
CVP power is cheap.* When PGandE buys federal power
for banking and resells it at rates which pass on its low
cost, PGandE spreads that benefit among all its customers.
PGandE customers include a number of municipal power
systems and other entities which qualify as “preference”
customers, but which do not purchase their power require-
ments directly from the government.
The City of Santa Clara, California (“Santa Clara”)
is a CVP customer and qualifies for preference in the sale
of power. The government did not, however, undertake to
supply all of Santa Clara’s needs through 1980. The goy-
ernment was able to supply all of Santa Clara’s load from
December, 1965 until August, 1971. Thereatter. the govern-
*As the cost of energy from non-hydroelectrie sources grows and
the value of preferential treatment inereases, litigation is unlikely
to diminish. Recently suits have been filed in the United States
District Court for the District of Oregon by the City of Portland
against the Administrator of the Bonneville Power Administration.
the Secretary of Energy and 150 other defendants challenging the
contracts for the marketing of Columbia River power by the Bonne-
ville Power Administration. City of Portland v. Munro, Civil Nos.
77-928 and 77-929 in that court. Other very recent eases challenging
the marketing of federal power are Arizona Power Pooling v.
Morton, 527 F.2d 723 (9th Cir, 1975), cert. denied 425 U.S. 911
(1976), and Arizona Power Authority v. Morton, 549 FP2d 1231
(9th Cir, 1977). Thus far this Court has not provided principles
of decision for disposing of eases arising under any of the various
preference clauses,
8
ment gradually reduced the amount of CVP power sold to
Santa Clara.
PGandE has a contract with Santa Clara requiring the
Company to supply the City’s electric power needs when-
ever they are not met by the federal government. As the
amount of federal power sold to Santa Clara has diminished
and as the City’s load has grown, PGandk has, in compli-
ance with its contract, delivered power to Santa Clara to
meet the City’s needs. Santa Clara refuses to pay for the
PGandE power, claiming that the government's withdrawal
of power from the City was illegal and that the power de-
livered to Santa Clara should therefore be deemed CVP
power. The disputed funds, essentially the difference in
cost between PGandii power and CVP power, have been
placed in an escrow account by Santa Clara pending the
resolution of its controversy with the government.
During the same period that the government has refused
to meet Santa Clara’s full demand, the government has sold
power to PGandE for banking. The quantity of power sold
to PGandk did in some months equal or exceed the amount
necessary to make up the difference hetween the limited
amount of CVP power sold to Santa Clara and the City’s
total demand.
Suit was brought on July 25, 1975 by Santa Clara against
the Secretary of the Interior and the Commissioner of the
Bureau of Reclamation seeking declaratory and injunctive
relief against the reduction in the amount of CVP power
sold to Santa Clara. Essentially Santa Clara claimed that
it had been unfairly treated and discriminated against in
the allocation of power among preference customers. Juris-
diction of the district court was properly inioked pursuant
to 28 U.S.C. § 1346(2), 28 U.S.C. $1361, and 28 U.S.C.
§ 2201.
9
PGandE was permitted to intervene as a defendant and
counterclaimant. The Company's counterclaim alleged that
since August 1971 the Company had fulfilled the obligation
imposed on it by its contract with Santa Clara to supply
electric power to the City but that Santa Clara had not
paid PGandE for the power so supplied. PGandE requested
the money due it—the funds in escrow. The district court
had jurisdiction over PGandk’s claim. Moore v. N.Y. Cotton
Exchange, 270 U.S. 593 (1926).
The district court issued its first opinion on July 23, 1976
on motions of the federal government for summary judg-
ment on all issues and of PGandE and Santa Clara for
summary judgment on specific issues. (Giranting Santa
Clara’s summary judgment motion in part, the district
court remanded the case to the Secretary of the Interior for
administrative hearings to review CVP allocations among
preference customers and entered a judgment of dismissal.
The distriet court did rule, among other things, that the
“hanking” transactions with PGandE do not violate the
preference clause of the Reclamation Project Act of 1939.
43 U.S.C. $485h(ce). With respect to PGandFE’s claim
against Santa Clara, the district court ruled that PGandE’s
right to he reimbursed for electrie power supplied by it to
the City would depend on whether a new allocation schenie
for CVP power was developed by the federal government
during administrative hearings ordered by the court. On
November 12, 1976, the district court issued a second
written opinion denying PGandF’s motion for reconsidera-
tion.*
*The trial court did recognize that the sum of monies plaeed in
escrow by Santa Clara was more than enough to preserve Santa
Clara’s rights against the federal defendants and consequently it
ordered the City to have 25% of the funds in escrow dishursed to
PGandE and to pay 25% of all future PGandE electric power bills
directly to the Company. The original judgment was amended
accordingly.
10
All parties appealed the district court’s judgment to the
Ninth Cireuit Court of Appeals. In its opinion the Ninth
Cireuit reversed most of the district court's rulings. The
Court of Appeals ruled that there was no ground for the
distriet court's order that the government hold administra-
tive hearings concerning how CVP power would be allocated
among preference customers. The Court of Appeals also
reversed the district court’s ruling as to the validity of the
Secretary's banking transactions with PGandF.
Mistakenly assuming that PGandE makes a_ profit or
benefits by purchasing power under the bank account pro-
visions of Contract 2948 A, the Ninth Cireuit held that bank-
ing power with PGandE would contravene the preference
clause if Santa Clara were ready, willing, and able to pur-
chase banked power, unless banking was necessary to maxi-
mize the efficiency of the CVP for irrigation purposes. The
exception to the Court of Appeals’ ruling was thought to be
required by the last sentence of 45 U.S.C. § 485h(e) which
prohibits power sales that “impair the efficiency of the
project for irrigation purposes.” With respect to PGandE’s
counterclaim, the Ninth Cireuit ruled that banking trans-
actions would be void if unlawful and “suggested” a retro-
active restructuring of the transactions hetween the
government, PGandF, and Santa Clara. With this unique
combination of rulings and “suggestions” the case was
ordered remanded to the district court for further proceed-
ings.
REASONS FOR GRANTING THE WRIT
T. The Court of Appeals’ interpretation of the prefer-
ence clause is contrary to a reasonable administrative eon-
struction, and thus presents important questions of federal
11
law not settled by the Supreme Court which affect the dis-
tribution of federal power to millions of people.
II. The Court of Appeals’ ruling concerning the retro-
active effects of « decision in this ease eonfliets with
applicable decisions of the Supreme Court and threatens
serious financial impact to an innocent third party.
IIT. Petitioner seeks review of issues fundamental to
the further conduct of this lawsuit, hence a writ of certiorari
should issue.
I.
The Court of Appeals’ Interpretation of the Preference Clause
Is Contrary to a Reasonable Administrative Construction, and
Thus Presents Important Questions Not Settled by the Su-
preme Court Which Affect the Distribution of Federal Power
to Millions of People.
This Court has ruled that a reasonable interpretation
given a statute by the government official charged with its
administration should not be rejected by a federal court
for some other “reasonable” construction which the court
deems preferable. Train v. Natural Resources Def. Council,
421 U.S. 60, 87 (1975); Grigas v. Duke Power Co.. 401 U.S.
424, 435-34 (1971); United States v. City of Chicago, 400
U.S. 8, 10 (1970); Power Reactor Co. v. Electricians, 367
US. 396, 408 (1961); Bowles +. Seminole Rock Co.. 325
U.S. 410, 417-18 (1945); WeLaren v. Fleischer, 256 U.S. 477.
480-81 (1921). This is especially so where the statute covers
a complex matter, where no one interpretation of the statute
exists which ean be said to be “correct.” and where others
have relied on the government official’s interpretation. Train
v. Natural Resources Def. Council, supra, 421 U.S. at 87: see
also McLaren v. Fleischer, supra, 256 U.S. at 481. In such
circumstances this Court will uphold a “reasonable” inter-
pretation of a statute by the agency assigned to administer
it and prohibit a Court of Appeals from substituting its
interpretation for that of the ageneyv. Train v. Natural Re-
sources Def. Council, supra, 421 U.S. at 87.
12
The Secretary's interpretation is a reasonable interpreta-
tion demonstrably consistent with the Congressional pur-
pose and scheme which the Court of Appeals should have
left undisturbed.
The district court held that sales of power to PGandE do
not violate the preference clause since it was necessary to
make provision in the Secretary’s marketing scheme for
some sort of power banking arrangement and the arrange-
ment involved conditional as opposed to unconditional
“sales” of power to PGand. 418 F.Supp. at 1251; Appen-
dix C at 58-59. Furthermore, the Court of Appeals itself
recognized that the “goal of the banking arrangement is
consonant with the preference clause, inasmuch as all CVP
power is ultimately committed to meet the needs of public
entities.” 572 F.2d at 671; Appendix A at 18.
The Secretary’s application of the preference clause in
this case was reasonable in part because he was not choos-
ing between two equal offers from PGandF and Santa
Clara. The sale to PGandFE was a conditional sale. That
condition, that PGandE agree to act as a bank for the
Secretary, was a condition Santa Clara could not and would
not meet. It has no generating facilities and no source of
power to enable it to resell purchased power back to CVP.
PGandE assumed an obligation that Santa Clara could not
meet. Only if Santa Clara had offered the same terms and
the Secretary had nonetheless sold the power to PGandE
would the requirement of “preference” have heen violated.
Under the circumstances the decision to sell to PGandE
was not only reasonable, it was consistent with the intent of
Congress in passing the preference clause. A basic concept
hehind the preference clause was to preclude private profit
from the purchase of federal hyvdroelectrie power where dis-
13
tribution of the benefits of such power directly to the public
was possible. As explained during the debate on the adop-
tion of this specifie clause in the Reclamation Act: “the
provisions of this amendment are merely prudent provi-
sions in order to prevent some intermediary corporation
from taking advantage of this publicly developed power
and charging an additional amount to the ultimate con-
sumer... .” 84 Cong. Ree. 10224 (July 27, 1939). Sales of
federal power to PGandE for hanking purposes are con-
sistent with this rationale. The power conditionally sold to
PGandF, ultimately goes to preference customers without
any profit to PGandE.* Thus, the Secretary's interpretation
did not contradict the intent of the Congress.
The legislative history of the Reclamation Act of 1939
also indicates that Congress intended to hestow on the
Secretary the discretion to sell power to a non-preference
entity which offered more favorable terms than a prefer-
ence entity. When the bill containing the preference clause
was reported out of the Conference Committee to the House
(which had previously stricken the preference clause),
Representative Leavy of Washington told the House:
~ “Tt has heen the poliev of the Reclamation Service,
made so by the act itself, the basic law. that they may
give preference to municipalities and publie eorpora-
tions in the purchase of power, This amendment goes
one step further and includes cooperatives and rural
*Both the PGandE retail rates and wholesale rates contain fuel
adjustment clauses whose coverage imeludes energy cost Savings
achieved through power purchase transactions. There is thus a
direct pass through to PGandE’s customers of any savings obtained
by PGandE through power purehase transactions. See e.g. Fuel
Cost Adjustment Clauses in Wholesale Rate hedule, Docket No.
R-479, Order No. 517, 3 Federal Power Serviee 5-36, 5-38 (Noy.
13, 1974): Fuel Cost Adjustment Tariff Provisions and Proc cedures,
California Public Utilities Commission Case No. 9886, Decision No.
85731 (April 27, 1976).
14
electrification projects. The gentleman from South
Dakota [Mr. Case] ... is under a misapprehension
when he says that this law will require that such pret-
erence be given irrespective of the bid. That is not the
fact. If a private corporation makes a better bid, then,
under this law, it will become the duty of the Commis-
sioner of Reclamation to consider that fact, but when
the two make bids that are equal, it becomes his duty
then to give preference to the public corporation, or
cooperative, whether it be a city, town, cooperative, or
rural electrification project.” S4 Cong. Reeord 10225
(July 27, 1939).
The conference report was thereupon agreed to by the
House. 84 Cong. Record 10226 (July 27, 1939).
Further evidence of the reasonableness of the Secretary's
construction of the “preference” requirement may be found
in the Attorney General’s construction of a similar provi-
sion in an earlier statute. The first reclamation law, the
Act of April 16, 1906 (84 Stat. 116, 117; 48 U.S.C. § 522
provided, inter alia, that the Secretary of the Interior could
lease surplus power from irrigation projects “giving
preference to municipal purposes.” Tn 1915 the Attorney
General rendered an opinion interpreting this original
preference proviso in which he stated:
“The duty to prefer municipal purposes in the making
of leases is secondary and incidental. If, where a sur-
plus of power became available, opportunities should
oceur to dispose of it for municipal uses, and the terms
offered in return were at least as advantageous to the
project as the terms offered in behalf of other uses,
it would be the duty of the Secretary to make the lease
for the municipal uses, but not so if, in his judgment,
the contract would prove more profitable if made in
the other way.” 30 Op. Att’y. Gen. 197, 201-2 (1913).
15
When the Senate Committee on Irrigation and Reclamation
considered the preference clause in the 1939 Aet it noted its
continuation of existing preference policy in reporting to
the Senate:
“This proviso is considered by the committee to be in
accord with the policy of Congress first incorporated
into law in the Act of April 16, 1906 (34 Stat. 116, 117),
and re-enacted in the Act of February 24, 1911 (36 Stat.
930). The proviso in question does not change this lonq-
continued policy under which surplus power from ree-
lamation projects has been disposed of to the mutual
satisfaction of privately and publicly owned utilities.
... It is therefore deemed appropriate that this proviso
be ineluded.” (emphasis added) S. Rep. 758, 76th Cong.,
Ist Sess., reprinted 84 Cong. Record 9369 (July 18,
1939).
Thus the district court, Congress and the Attorney General
all support the conclusion that the interpretation of the
preference clause adopted by the Secretary was reasonable.
Under the decisions of this Court it should have been
allowed to stand.
II.
The Court of Appeals’ Ruling Concerning the Retroactive Effects
of a Decision in This Case Conflicts with Applicable Decisions
of the Supreme Court.
The Court of Appeals ruled in this case that past, com-
pleted sales of CVP power to PGandE are “void if unlaw-
ful, for administrative actions taken in violation of statu-
tory authorization or requirement are of no effect.” 572
F.2d at 677; Appendix A at 33. The court went on to “sug-
gest” a retroactive reconstruction of completed transactions
between the government, PGandE, and Santa Clara. Both
the ruling and the suggestion appear contrary to controlling
decisions of this Court. They raise important questions con-
Roem
aes
16
cerning the award of retroactive equitable relief, and should
thus be reviewed.
The Court of Appeais’ ruling that unlawful CVP power
sales to PGandE would be void conflicts with this Court’s
holding in Moser v. United States, 341 U.S. 41 (1951), that
a federal agency’s action, though it exceeds statutory
authority, may nonetheless be binding on the ageney if the
other party affected by the action has acted in “justifiable
reliance” on the action. 7d. at 46. In the ease at bar, as in
Moser, the petitioner has relied to its detriment on ageney
actions which subsequently have been held to exceed statu-
tory authority. PGandE has not profited by these trans-
actions and is an innocent bystander to the clash between
the government and Santa Clara. PGandE has resold the
CVP power at rates reflecting its costs to customers who
have consumed the power. Those sales, to millions of indi-
viduals not parties to the suit, cannot be undone. Tf the
sales of CVP power to PGandE are retroactively declared
void, and accounts between the parties reallocated, PGandE
is relegated to claims against the United States instead
of against the escrow fund. PGandE has relied justi-
fiably and to its detriment on the Secretary's decision to
refuse CVP power to Santa Clara and instead to sell the
power to PGandF for banking.
To support its unqualified assertion that all unauthorized
administrative actions are retroactively void, the Court of
Appeals cited Federal Crop Insurance Corp, v. Merrill, 332
U.S. 380 (1947). The Merrill ease preceded Moser, however,
As the Second Cireuit has observed, the decision in Verrill
was “substantially undermined” by the subsequent decision
in Moser. Corniel-Rodriquez v. I.N.S.. 532 F.2d 301, 350
n. 15 (2d Cir, 1976). See K. Davis, Administrative Law
Treatise $17.02 (1958). The Court of Appeals’ failure to
17
recognize the more recent applicable decisions of this Court
should be reviewed.*
Not only has the Court of Appeals ruled that completed
unlawful sales of CVP power are, ipso facto, void, the court
also suggested the award of retroactive equitable rescission
and reallocation of these completed transactions. This
Court, however, recognizing that statutory “rules of law are
hard facts on which people must rely in making decisions
and in shaping their conduct,” has frequently invoked a
“dloetrine of non-retroactivity” to prevent the retroactive
application of its holdings regarding the interpretation or
constitutionality of a statute. Lemon v. Kurtzman, 411 U.S.
192, 197, 199 (1973); Chevron Oil Co. v. Iluson, 404 U.S, 97,
105-07 (1971).
The principles governing the application of the doctrine
of non-retroactivity are set forth in detail in Chevron Oil
Co. v. Huson, supra, 404 U.S. at 106 (1971). Retroactivity
is not appropriate where: (1) the decision establishes a “new
principle of law” either by overruling past precedent or by
deciding an issue of first impression whose resolution was
not predictable, see Hanover Shoe v. United Shoe Ma-
chinery Corp., 392 U.S. 481, 496 (1968), Allen v. State Board
*In INS v. Hibi, 414 US. 5. 8 (1973) and Montana v. Ke nnedy,
366 U.S. 308, 314-15 (1961), the Court reserved the question
whether, on an estoppel theory, a person's reliance on unauthorized
conduct of government officials should be recognized. In the absence
of guidanee from this Court, the federal] cireuit courts and the
Court of Claims have taken conflicting views of the propriety of
estoppel against the U.S. government and. the standard to be
applied. See Corniel-Rodriquez, supra (2d Cir.) : Heirs of Denena
v. Communication, Splicing and Engineering Co., 474 F.2d 1249
(3d Cir. 1973); Benter Pharmace uticals, Ine. v. Richardson, 463
F.2d 363 (4th Cir. 1972), rew'd on other grounds, 412 U.S, 645
(1973); Santiago v. ILNS., 526 F.2d 488 (9th Cir. 1975), cert.
denied, 425 U.S. 971 (1976): Atlantic Richfield Co. v. Hickel, 432
F.2d 587 (10th Cir. 1970): Timan v. United States, 558 F.2d 1, 201
Ct. Cl. 888 (1977).
18
of Elections, 393 U.S. 544, 572 (1969); (2) the purpose and
effect of the new principle of law will not be advanced by
its retroactive application, see Linkletter v. Walker, 381
U.S. 618, 629, 636-39 (1965); and (3) a retroactive applica-
tion of the new principle of law would create a substantial
inequitable result, for “[wlhere a decision of this Court
eould produce substantial inequitable results if applied
retroactively, there is ample basis in our cases for avoiding
the ‘injustice or hardship’ by a holding of nonretroactivity.”
Cipriano v. City of Touma, 395 U.S. 701, T06 (1969),
The application of those factors to this case mandates a
decision favorable to PGandki with respect to its ecounter-
claim, even if the Court of Appeals’ interpretation of 48
U.S.C. $ 485h(e) as prohibiting the Seecretary’s banking
transactions is correct. In the court below, petitioner care-
fully explained how it had relied in good faith and to its
detriment on the Secretary’s actions vis-a-vis Santa Clara.
But the Court of Appeals, though it recognized that
PGandFE was an “innocent third party caught between the
claims of Santa Clara and the position of the Secretary,”
572 F.2d at 678, simply asserted that if the Secretary could
not prove that the banking of power desired by Santa Clara
was within his statutory power his unauthorized actions
are retroactively “void” and “of no effeet”, id. at 677.
That simplistic reasoning directly conflicts with the analysis
followed by this Court when determining whether to afford
retroactivity to its decisional law.
As illustrated by this Court’s decisions cited above, the
basie question is no longer whether the law would approve
of a banking transaction if it were a new one, but rather
whether those who have relied on past transactions should
be permitted to continue to rely on them given the partieu-
lar cirenmstances of the transactions. See Thompson v.
19
Washington, 551 F.2d 1316, 1319 (D.C. Cir. 1977). By
choosing to regard PGandE’s counterclaim as if PGandk’s
right to the funds held in escrow are dependent on the
validity of banking transactions in the abstract. the Court
of Appeals has brought itself into direct conflict with
the applicable line of cases from this Court cited above.
Such a decision should be reviewed.
TTT.
Petitioner Seeks Review of Issues Fundamental to the Further Con-
duct of This Lawsuit; Hence, a Writ of Certiorari Should Issue.
It is necessary to confront these issues only on account
of the Court of Appeals’ decision to vaeate the district
court’s earlier decision upholding the legality of the bank-
ing arrangement.
The practical result of the Court of Appeals’ ruling is
to allow the eserow fund to continue to grow ata rate of
approximately $2,000,000 per month until the distriet court
ean try these issues. Tf the result on remand is adverse to
petitioner, petitioner will he forced to wait for the ease to
progress through the Cireuit Court of Appeals a second
time before it can finally seek review by this Court of the
points presented in this petition, vinless. of course, this
Court should grant this petition.
The escrow fund currently contains over $50,000,000, Tf
this petition is not granted, the escrow will surely more
than double hefore petitioner will be at this level of appel-
late review again. Meanwhile, petitioner must continue to
borrow at a higher rate of interest than the escrow returns
to replace the monies held in escrow,
As the Court of Appeals observed, PGandE is “an inno-
cent third party, canght between the conflicting elaims of
Santa Clara and the position of the Secretary.” 572 F.2d at
20
678; App. A at 55. The district court tried to mitigate the
harsh effects of the dispute en PGandk by erde: ing a por-
tion of the escrow disbursed to PGandE and ordering Santa
Clara to pay PGandE at least a specified portion of all
future PGandE bills. The Court of Appeals considered the
suit of such importance as to afford it expedited treatment,
notwithstanding—or even perhaps bhecause—the district
court ordered the controversy remanded to the Secretary
for further proceedings. Petitioner respectfully requests
this Court to afford a similar opportunity to avoid extended
proceedings that may not be necessary at all.
Tt is not uncommon fox this Court to review a case despite
its interlocutory status where there is an issue involved
which is “fundamental to the further conduct of the ease.”
United States v. General Motors Corp., 323 U.S. 373, 377
(1945): see also Gillespie v. United States Steel Corp. 379
U.S. 148, 158 (1964). A writ has been issued even where a
Court of Appeals has remanded the case for further pro-
ceedings, see Larson v. Domestic & Foreign Commerce
Corp., 337 U.S. 682, 685 n. 3 (1949): Land v. Dollar, 330
U.S. 731, 734 n. 2 (1947). More recently, important ques-
tions concerning the proper exercise of equitable juris-
diction by a federal court were considered sua sponte by
this Court, without prior consideration by the lower courts,
in Schlesinger v. Councilman, 420 U.S. 738, 745 (1975).
Since the only issues which remain to he considered hy the
district court coneern the legality of the PGandE. banking
transactions and the award of retroactive relief, the Court
of Appeals’ rulings of which we seek review ean fairly be
deseribed as fundamental to the further conduct of this
ease. We respectfully submit that this Court should issue
the writ.
9] P
IV.
CONCLUSION
A writ of certiorari should issue to review the portion
of the judgment and opinion of the United States Court of
Appeals for the Ninth Cireuit deseribed in this petition.
Respectfully submitted,
Terry J. HovtiHan
Attorney for Petitioner
Pacific Gas and
Electric Company
Morris M. Dove
CHartes A. Fercuson
McCutcuen, Doytr, Brown & ENErRSEN
Of Counsel
Joun (. Morrissey
Matcoitm H. Fursvsn
Tueopore L. Lryppere, JR.
Of Counsel
ewer wes
—— ————
Appendix A
City of Santa Clara, California,
Appellant,
v.
Cecil Andrus, Individually and as Secre-
tary of the Interior, and R. Keith Hig-
ginson, Individually and as Commis-
sioner of the Burean of Reclamation,
United States Department of Interior,
Appellees.
Cecil Andrus, Individually and as Secre-
tary of the Interior, and R. Keith Hig-
ginson, Individually and as Commis-
sioner of the Bureau of Reclamation,
United States Department of Interior,
Appellants,
v.
City of Santa Clara, California,
Appellee.
Pacific Gas & Electric Company,
Appellant,
v.
City of Santa Clara, California,
Appellee.
Nos, 77-1110, 77-1270, 77-1189 and 76-3670.
United States Court of Appeals, Ninth Circuit.
Feb. 1, 1978.
As Amended on Denial of Rehearing and
Rehearing En Bane April 4, 1978.
Appeal from the United States District Court for the
Northern District of California.
Appendix
sefore DUNTIWAY and CARTER, Circuit Judges, and
BURNS.* District Judge.
DUNIWAY, Circuit Judge:
This case concerns sales by the Secretary of the Interior
le
of low-cost hydroelectric power generated by the Central
Valley Project in California. The city of Santa Clara filed
this action for declaratory and injunctive relief, challenging
the Secretary’s decisions to withdraw power from the City
and to deny it an allocation of “firm” (non-withdrawab.e)
power. The Pacifie Gas and Electric Company (PG&E) was
allowed to intervene and counterclaim for certain funds
being held in an escrow. All parties moved for summary
judgment. The district court granted the Secretary's motion
as to Santa Clara’s National Environmental Policy Act
(NEPA) claim, denied the other motions, and “remanded”
the case to the Secretary for the promulgation of rules and
procedures concerning the marketing power generated by
the Central Valley Project. The court’s judgment also dis-
missed the action without prejudice. All parties appeal.
We affirm in part, reverse in part, and remand in part.
FACTS
The Central Valley Project (CVP) is a multipurpose
federal reclamation project consisting of numerous dams,
hvdroelectrie power plants, transmission lines, and irriga-
tion canals, located in the Central Valley of California and
its surrounding mountains.’ While production of hydroelec-
trie power is not the primary purpose of the CVP, a
*The Honorable James M. Burns. United States District Judge
for the District of Oregon, sitting hy designation.
1. The CVP is deseribed in detail in Jvanhoe Irrigation District
v. McCracken, 1958, 357 U.S. 275, 280-83, 78 S.Ct. 1174, 2 L.Ed.2d
1313.
Appendir 3
substantial amount of electricity is generated by the project
and ultimately sold to a large and varied group of users
in Northern and Central California.
The Secretary of the Interior, through the Bureau of
Reclamation, sells the power generated by the CVP at a
price substantially lower than that charged by private
utilities such as PG&E? Consequently, CVP power does
not lack for willing purchasers. Section 9(e) of the Recla-
ination Project Act of 1939, 48 U.S.C. § 485h(¢), provides
that in sales or leases of electric power or power privileges,
made by the Secretary, “preference shall be given to
municipalities and other public corporations or agencies”
and REA cooperatives.
Santa Clara first sought an allocation of CVP power
on June 1, 1960, although it was then under contract to buy
power trom PG&E and so could not then take power from
CVP. In 1962, the Seeretary informed Santa Clara and
others that 250,000 kilowatts of firm power would become
available to preference customers upon completion of the
Trinity River Division of the CVP, and invited applica-
tions for this new power, Santa Clara renewed its request
for power on February 19, 1962, acknowledging that it
would be unable to receive the power until the expiration,
on August 27, 1967, of its re juirements contract with PG&E.
The Secretary responded that while he would not commit
himself to such a future allocation, Santa Clara’s applica-
tion would be kept on file for consideration nearer the time
when the City could actually begin purchasing federal
power. When the Trinity River Division of the CVP came
on line in early 1963, the additional power which became
2. In 1976, the price of CVP power ($.005 per kilowatt hour)
was roughly one-fourth of that charged by PG&E ($.019 per kilo-
watt hour).
+ Appendix
available was allocated to other preference customers which
were able to take it immediately.
Between 1963 and 1964, CVP’s generating capacity in-
creased further. Notice of the availability of additional
power was sent to all preference entities, Santa Clara
among them, asking for estimates of present load require-
ments and future load growth. The additional power was
ultimately allocated to then existing preference customers
and Santa Clara was again excluded because of its inability
to take power immediately.
Concerned that all CVP power was fast becoming spoken
for, Santa Clara telegraphed the Secretary in July, 1964,
asserting that its contract with PG&E was not binding
and requesting an immediate allocation of power, on a
withdrawable basis if necessary. The Secretary replied
that, while all anticipated power was committed to meet
the growth needs of other preference customers, 75,000
kilowatts could be offered to the City on a withdrawable
basis.
On November 30, 1965, Santa Clara finally contracted
with the Secretary for the supply of 75,000 kilowatts of
CVP power on a withdrawable basis. At the same time,
Santa Clara entered into an agreement with PG&E which
required the utility to supply the City with sufficient elec-
tricity to meet any power requirements not satisfied by the
CVP allotment.
Santa Clara’s original allotment of 75,000 kilowatts was
revised upward several times after 1965 by contract amend-
ment. The City’s allotment peaked at 120,000 kilowatts
in 1970, after which the Secretary, by unilateral ‘contract
amendment, began withdrawing power from Santa Clara
to meet the needs of its older preference customers.
Between 1971 and 1974, the City’s allotment was cut back
Appendix 3
from 120,000 kilowatts to 71,450 kilowatts. This amount
is likely to dwindle still further if the Secretary has his
way.
During the period when Santa Clara was receiving all of
its power requirements from the CVP, it continued to ask
the Secretary for a nonwithdrawable allocation. However,
as additional power became available. the Secretary decided
to hold it for preference customers already receiving non-
withdrawable allotments, rather than to offer it to custom-
ers with withdrawable allocations such as Santa Clara. On
February 4, 1972, the Secretary finally informed Santa
Clara by letter that he would not allocate nonwithdrawable
power to the City, then or at any time.
In 1971, when the government began withdrawing power
from Santa Clara, PG&E began monthly billings for that
portion of the City’s requirements not met by the CVP allo-
eation and supplied hy PG&F. Contending that the with-
drawals were unlawful and consequently ineffective, Santa
Clara insisted that its power needs were stil] heing fully
supplied by the Seeretary. The City began paving the
moneys demanded by PG&E into an escrow account and
has done so ever since.
PROCEEDINGS IN THE TRIAL COURT
On July 25, 1975, Santa Clara filed this action against the
Secretary and the Commissioner of the Bureau of Reclama-
tion (the federal defendants), seeking declaratory and
injunctive relief. In its complaint th City challenged the
withdrawal of CVP power and the Secretary’s refusal to
supply it with a nonwithdrawable allocation. PG&E inter-
vened as a party-defendant, counterclaiming for declara-
tory relief with respect to the funds held in escrow. Al]
-
parties moved for summary judgment,
=
me
2he En gb AE pete oe ge
6 Appendix
On July 23, 1976, the district court issued its opinion,
City of Santa Clara v. Kleppe, N.D.Cal., 1976, 418 F.Supp.
1245, holding as follows: (1) Santa Clara’s action is not
barred by sovereign immunity; (2) the Seeretary’s con-
tractual relationship with PG&E does not violate the recla-
mation laws: (5) the Seeretary’s decisions allocating CVP
power are reviewable; (4) Congress has not approved the
existing allocation scheme: (5) the Seeretary violated the
Administrative Procedure Act (APA) by failing to pro-
mulgate and publish rules of procedure governing the allo-
eation of CVP power: (6) the Secretary’s actions denied
Santa Clara due process; and (7) the National Environ-
mental Policy Act (NEPA) did not require the Secretary to
file an envircnmental impact statement before withdrawing
power from the City. The district court’s opinion contained
no ruling on defendants’ claim that Santa Clara’s action
was untimely and barred by laches.
Although the trial court held that the Seeretary’s market-
ing decisions were reviewable, it did not pass on the lawful-
ness of the existing allocation scheme. Instead, it remanded
the action to the Secretary with instructions to remedy the
due process and APA violations. With regard to PG&F’s
counterclaim, the court ruled that the utility’s right to be
reimbursed by Santa Clara would depend upon the alloea-
tion scheme adopted by the Secretary on remand. The court
therefore ordered that the disputed funds remain tempo-
rarily in eserow.* Tt also dismissed the action without
prejudice.
3. The court later modified this decision, ordering that one quar-
ter of the funds in escrow be disbursed to PG&E to enable the utility
to recoup the costs inevrred in purchasing the power ultimately
resold to Santa Clara. See City of Santa Clara v. Kleppe, N.D.Cal..
1976, 428 F.Supp. 315.
Appendix 7
I.
JURISDICTION ON APPEAL
Although the dismissal of the action “in its entirety” is
“without prejudice,” we find that the judgment based upon
it is a final judgment, appealable under 28 U.S.C. $ 1291.
The language “without prejudice” avoids the “on the mer-
its” effect of Rule 41(hb), F.R.Civ.P., and permits the filing
of a new action by any party dissatisfied with the Secre-
tary’s action on remand. Tt is still true, however. that the
judgment disposes of the action. Moreover, the remand is,
in substance, a mandatory injunction requiring certain ac-
tion by the Secretary, and so appealable under 28 U.S.C.
$ 1292(a)(1) assuming, but not deciding, that it is not a
final judgment under § 1291,
We have jurisdiction. See Gueory v. Hampton, 1974, 167
U.S.App.D.C. 1, 4, 510 F.2d 1222, 1295: Hines x. D’ Artois,
) Cir., 1976, 531 F.2d 726, 730.
II.
LACHES AND THE STATUTE OF LIMITATIONS
The federal defendants argue that this action is barred
by either the six-year statute of limitations, 28 U.S.C.
§2401(a), or the doctrine of laches. These arguments are
hased on the assumption that Santa Clara’s claim for relief
arose no later than 1965 when the City entered into a con-
tract with the Secretary for the supply of withdrawable
CVP power.
Long after 1965, however, the Secretary, through the
regional director of the Bureau of Reclamation, continued
to assure Santa Clara that its applications for nonwith-
drawable power would receive due consideration in the
future. It was not until 1972 that the Secretary informed
Sey ates great ere
8 Appendix
the City by letter that all firm CVP power was committed
to meet the growth needs of other preference customers.
Until that date, the City could reasonably have believed
that it could, in future, secure an allocation of firm power.
We therefore conclude that Santa Clara’s claim for relief
did not arise until 1972, when the Secretary finally told the
City, in unequivocal terms, that its applications for non-
withdrawable power would not be considered, then or later.
TTT.
REVIEWABILITY OF THE SECRETARY'S
DECISIONS
PG&E and the federai defendants assert that the Secre-
tary’s decisions concerning the allocation of CVP power
are immune from judicial review. Specifically, they contend
that the Secretary’s marketing decisions are actions “com-
mitted to ageney discretion by law” within the meaning of
the APA, 5 U.S.C. § 701(a) (2).
Judicial reviewability of administrative action is the rale
and nonreviewability a narrow exception, the existence of
which must be clearly demonstrated. Arizona Power Pool-
ing Ass’n v. Morton, 9 Cir., 1975, 527 F.2d 721, 727, cert.
denied, 1976, 425 U.S. 911, 96 S.Ct. 1506, 47 L.F.d.2d 761. The
Supreme Court has stated that review is precluded only “in
those rare instances where ‘statutes are drawn in such
broad terms that in a given case there is no law to apply.’ ”
Citizens To Preserve Overton Park v. Volpe, 1971, 401 U.S.
402, 410, 91 S.Ct. 814, 821, 28 L.F.d.2d 136. See also, Ness
Investment Corp. v. United States Department of Aqricul-
ture, Forest Service, 9 Cir., 1975, 512 F.2d 706, 713. Tf. how-
ever, no law fetters the exercise of administrative discre-
tion, the courts have no standard against which to measure
the lawfulness of agenev action. In such eases no issues sus-
Appendix 9
ceptible of judicial resolution are presented and the courts
are accordingly without jurisdiction. Arizona Power Au-
thority v. Morton, 9 Cir., 1977, 549 F.9d 1231, 1239, cert.
denied, 1977, ...... 1p . Sato »98S.Ct. 124, 54 L.d.2d 97,
In considering whether administrative action is “com-
nitted to ageney discretion by law” within the meaning of
the APA, the test “is not whether a statute viewed in the
abstract lacks law to be applied, but rather, whether ‘in a
given case’ there is no law to be applied.” Strickland ,
Morton, 9 Cir., 1975, 519 F.2d 467, 470 (emphasis in origi-
nal). Thus the existence of some law generally applicable to
the subject matter in question will not necessarily remove
administrative action from the “eommitted to agency dis-
cretion” rubric. There is “law to apply,” only if a specific
statute limits the agenev’s discretion to act in the manner
which is challenged,
A. The Refusal to Contract with Santa Clara for Firm
Power.
Santa Clara says that two statutes provide “law to ap-
ply” in evaluating the Seeretary’s decisions eoncerning the
sale of power generated by the CVP to Santa Clara. The
first is the Central Valley Project Authorization Act. 50
Stat. 850, which incorporates generally the provisions of
the reclamation laws. Section 9(e) of the Reclamation Proj-
ect Act of 1939, 43 T.S.C. $ 485h(e), defines a class of cus-
tomers which are to receive a preference in the sale of
power generated by federal reclamation projects, The class
of preference customers includes “municipalities and other
public corporations or agencies.”
Our recent decision in the ease of Arizona Power An-
thority v. Morton, sapra, forecloses Santa Clara’s arewment
that the Secretary, by“providing other public entities with
10 Appendix
nonwithdrawable power allocations while denying sueh a
“firm” allocation to Santa Clara, thereby violated the terms
of the preference clause, In that case a group of preference
customers for power in Arizona challenged the Seeretary’s
decision to alloeate most of the power produced by Colorado
River Storage Project (CRSP) generating facilities to
preference customers located in the “upper basin” states of
Wyoming, Colorado, Utah and New Mexico. We held that
the Secretary was obliged to market power generated by
CRSP facilities to preference customers in accord with the
dictates of the Reclamation Project Act of 1939, 43 U.S.C.
§ 485h(¢), but concluded that the preference clause permit-
ted the Secretary to discriminate against some preference
entities in favor of others. “[T]t would appear in light of
his broad discretion that the Secretary may adopt whatever
geographic preference he desires and that we have no juris-
diction to review his action.” 549 F.2d at 1241.
The preference clause requires only that publie entities
be given a preference over private entities in the marketing
of power generated by federal reclamation projects. Ari-
zona Power Pooling Ass’n ». Morton, supra, 527 F.2d at
726-28, It does not require that all preference customers be
treated equally or that all potential preference customers
receive an allotment. Arizona Power Authority v. Morton,
supra, 549 F.2d at 1241, 1252. Where, as here, one prefer-
ence entity challenges the Secretary's decision to diserimi-
nate against it in favor of other preference entities, the
reclamation laws provide no law to apply to the dispute. Tf
he so chooses, the Secretary can market al] available CVP
power to a single public entity without running afoul of the
preference clause.
In Arizona v. California, 1963, 373 U.S. 546, 83 S.Ct. 1468,
10 L.Fd.2d 542, the Court considered the seope of the Seere-
Appendix 11
tary’s authority to allocate the waters of the Colorado
River pursuant to the Boulder Canyon Project Act. The
Court stated:
The general authority to make contracts normally in-
cludes the power to choose with whom and upon what
terms the contracts will be made. When Congress in an
Act grants authority to contract, that authority is no
less than the general authority, unless Congress has
placed some limit on it... . |W Je are persuaded that
had Congress intended . . . to feter the Secretary’s
discretion, it would have done so in clear and unequivo-
eal terms... 373 U.S. at 580, 83 S.Ct. at 1487.
Nothing in the legislative history of the Reclamation Pro}-
ect Act of 1939 suggests that Congress intended to limit the
Secretary’s discretion to interpret the preference clause in
making decisions as to whether or how or on what terms he
will sell power to particular preference customers as com-
pared to other preference customers.
Santa Clara also relies on Section 5 of the Flood Control
Act of 1944, 16 U.S.C. § 825s, as providing an alternative
standard against which the Secretary's marketing decisions
can be measured. In pertinent part, seetion 5 provides that
power is to be disposed of “in sueh manner as to encourage
the most widespread use thereof consistent with sound
business principles.” By its terms this directive governs
only the sale of power generated by flood control projects
operated by the Department of the Army. The standard’s
applicability: to the sale of power generated by the CVP,
which is operated by the Burean of Reclamation, is there-
fore questionable. Santa Clara maintains that the federal
defendants themselves, as a matter of departmental pohiey,
have long regarded the provisions of the Flood Control Act
12 Appendix
as applicable to the marketing of CVP power. We find it
unnecessary to decide whether the Flood Control Act does
apply to the sale of power generated by the CVP because
the standard that it contains, even if applicable, is too
vague and general to provide law to apply.
The Flood Control Act’s directive to market power in
such a way as to “encourage the most widespread use there-
of” could be interpreted in many different ways, such as to
require that power be sold to as many different preference
entities as possible, thereby fostering the most widespread
geographic use of the power, or to mandate sale of the
power to those preference entities whose customers present
the most diversified mix of agricultural, industrial or resi-
dential users, or to require sale of federal power to those
preference entities which serve the largest number of ulti-
mate consumers,
Clearly, the “most widespread use” standard is suscepti-
ble of widely divergent interpretations. As we said of
another law in Strickland v. Morton, supra, “[t]he provi-
sions of this statute breathe discretion at every pore.” 519
F.2d at 469. The statute permits the exercise of the widest
administrative discretion by the Secretary. It does not sup-
ply “law to apply.” See Arizona Power Authority v. Mor-
ton, supra, S49 F.2d at 1252.
Tn Panama Canal Co, v. Grace Lines, Inc., 1958, 356 U.S.
309, TS S.Ct. 752, 2 L.led.2d 788, the Court was asked to
review the federally chartered Canal Company’s decision to
require ships passing through the Canal to pay particular
tolls. While the applicable statute set out in some detail the
criteria to be considered by the Company in prescribing
tolls, the Court concluded that the Company's diseretion in
interpreting the statute was so broad as to bring it within 5
U.S.C. § 701(a)(2) (formerly § 1009) and thus to preclude
judicial reviews:
Appendix 13
Where the matter is peradventure clear, where the
agency is clearly derelict in failing to act, where the
inaction or action turns on a mistake of law, then judi-
cial relief is often available ... But where the duty to
act turns on matters of doubtful or highly debatable
inference from loose statutory terms, the very con-
stri«tion of the statute is a distinet and profound exer-
cise of diseretion, 356 U.S. at 318, 78 S.Ct. at 757.
We conclude that the Seeretary’s refusal to allocate non-
withdrawable power to Santa Clara is unreviewable because
there is “no law to apply.” The preference clause contained
in the Reclamation Project Act of 1939 does not prevent the
Secretary from discriminating against some preference
entities to the benefit of others. The Flood Control Act of
1944, while arguably applicable to the sale of power gener-
ated by the CVP, is so imprecise that its interpretation
requires a “profound exercise of discretion” of the sort
deseribed in the Panama Canal ease. The trial court’s find-
ing that the Secretary's marketing decisions as to the terms
on which he will market power to preference customers are
reviewable is in error. Decisions concerning the proper
allocation of CVP power among preference entities are
“action committed to ageney diseretion by law” within the
meaning of the APA and as such are unreviewable/
4. Although the argument was not raised in the trial] court,
Santa Clara now argues on appeal that inclusion of the Folsom
Dam in the CVP network mandates application of a power market-
ing standard similar to that contained in the Flood Control Act,
Section 4 of the American River Act of 1949, 63 Stat. O82, directs
the Seeretary of the Interior to operate Folsom Dam “in such
manner as will effectuate the fullest and most economic utilization
of the land and water resources of the Central Valley project of
California for the widest publie benefit.” This marketing standard
is as imprecise as that contained in the Flood Control Act and we
reject the argument that it provides law. to apply to the instant
dispute.
14 Appendic
B. The Sale of Power to PG&E.
Santa Clara challenges the Secretary's decision to sell
massive quantities of CVP power to PG&E, a privately
owned utility While we have concluded that the preference
clause contained in section 9(¢) of the Reclamation Project
Act of 1959 does not provide law to apply to the Secretary’s
decision to allocate CVP power among preference customers
in one fashion rather than another, the statute clearly does
provide a standard against which the propriety of sales to
non-preference entities such as PG&E can be measured.
Arizona Power Pooling Ass’n v. Morton, suprae
PG&E and the federal defendants do not argue other-
wise. They concede the applicability of the preference
clause but contend that the present marketing scheme does
not violate the clause because power is not sold outright to
PG&E but is rather “banked” temporarily with the utility
pursuant to government contract. The contract provides
that all CVP power which is sold to PG&E is subject to the
5. As we said in East Oakland-Fruitvale Planning Couneil v.
Rumsfeld, 9 Cir., 1972, 471 F.2d 524:
Agency action is made unreviewable by 5 U.S.C. § 701(a) (2)
only “to the extent” that it is committed to ageney diseretion.
. An “all or nothing” approach to reviewability would, in
specifie cases, either be unfair to persons aggrieved by ageney
action, or impose an unwise burden upon the ageney or the
courts. Accordingly, separable issues appropriate for judicial
determination are to be reviewed, though other aspects of the
agency action may be committed to the agency's expertise and
discretion.
If a statute or regulation establishes a rule governing the
conduct of the ageney with respect to an aspect of the agency
action, a court may determine whether the agency has eom-
plied with that rule, although the court still may not review
other aspects of the ageney action as to which there are no
reasonably fixed rules to apply. The presence of a judicially
enforceable rule both justifies judicial review, and limits its
scope.
471 F.2d at 533-34.
Appendix 15
Secretary's right to repurchase at a later date, at the origi-
nal price plus a “handling charge,” plus the difference in
cost to PG&E of producing the power sold to the Secretary
over PG&E's similar cost at the time it bought.
The Secretary maintains that this arrangement is de-
signed to enable him to supply the growth needs of selected
preference customers until 1980, By “banking” power with
PG&E during periods when the total output of the CVP
exceeds the demands of these selected customers, the Sec-
retary creates an “account” which he can draw on to satisfy
their requirements when demand outstrips supply. It is more
accurate to state that the contract requires that an account
be kept of all power sold to PG&E and that the Secretary
may thereafter purchase power, up to that amount, from
PG&E. PG&E sells the power that it buys from the Seere-
tary to its customers at its price. To describe this arrange-
ment as “banking” is to use an inaccurate and somewhat
misleading figure of speech.
The relationship between the Secretary and PG&E and
the Secretary’s preference customers such as Sar ta Clara is
further complicated by two facts. The first is that CVP
power is fed into PG&E’s distribution system and is trans-
mitted by PG&E over its lines to preference customers and
to PG&E's own customers. At the same time. power pro-
duced by PG&E is also fed into the same distribution sys-
tem. Once that happens, it is physically impossible, or at
least not practicable, to identify any particular unit of
power as CVP power or as PG&E power. Thus, in theory,
PG&E receives CVP power from CVP and transmits it (or
“wheels” it) to Santa Clara over PG&E's lines. In fact, the
transinitted power cannot be and is not so identified. The
problem is solved by bookkeeping. Track is kept of the
amount of CVP power that enters the PG&E system. The
16 Appendix
Secretary tells PG&E how much of it is for each preference
customer. PG&E supplies that amount of power to each.
The Secretary then bills each preference customer for that
power at the Secretary's price. CVP power received by
PG&E and not treated as transmitted to preference cus-
tomers of the Secretary is treated as sold by the Secretary
to PG&E and PG&E pays the Seeretary for it. This is the
power that is said to be “banked” under the PG&E contract
with the Secretary.
The second fact is that there is now being fed into the
PG&Ir system more government produced power than is
being produced by CVP power plants. This is because of
the creation of the Northwest intertie, whereby substantial
amounts of power are being transmitted to the CVP area
from the Northwest. The PG&E contract with the Secretary
relates to that power as well as to CVP power. It is sug-
gested that the Northwest power never would have been
available to preference customers in the CVP area without
the cooperation of PG&i* embodied in the contract with the
Secretary. We assume that this is true, but that fact cannot
diminish the Secretary’s legal obligation to sell to prefer-
ence customers. Neither the Secretary nor PG&E argues
that the full “Project Dependable Capacity” as defined in
the contract, paragraphs 9(a) and (i) and 11, is not subject
to the preference clause. Their only argument is that the
“banking” provisions of the contract satisfy the require-
ments of the preference clause.
The trial court coneluded that the “banking” of CVP
power with PG&E was not violative of the preference
clause. We conclude that the present marketing scheme in-
volves the sale of power to PG&E and that the terms of the
preference provisions are not satisfied by the government's
repurchase right.
Appendix 17
The preference clause states a clear legislative intent and
requirement that the Secretary shall favor public entities
in the sale of power generated by federal reclamation
projects. As we noted recently in Arizona Power Pooling
Ass'n v. Morton, supra, “[t]he text of the preference provi-
sion is couched in mandatory terms, stating that ‘preference
shall be given’ (emphasis added) to certain public entities
in governmental sales or leases of electric power or power
privileges.” 527 F.2d at 727. The Secretary is thus given a
very specific directive to market federal power to preference
customers if any are ready and willing to purchase it. Tt is
only if the available supply exceeds the demands of inter-
ested preference customers that the Secretary may offer
federal power to private entities. 41 Op.A.G. 236, 1955,
Disposition of Surplus Power Generated At Clark ITill
Reservoir Preject®
In this case the Secretary has marketed CVP power to
PG&E, a non-preference entity, during times when a prefer-
ence customer was having its allotment gradually reduced,
6. In advising the Secretary as to the propriety of his proposed
scheme for allocating power generated by the Clark Hill Reservoir
Project, Attorney General Brownell was ealled upon to interpret
the Flood Control Act of 1944, whieh contains a preference clause
almost identical to that contained in the Reclamation Project Act
of 1939. The Attorney General construed the preference provision
to require that “when the Secretary of the Interior has before him
two competing offers to purchase power, one by a preference cus-
tomer, and the former does not have at the time the physical means
to take and distribute the power, he must contract with the preter-
ence customer on condition that such customer will, within a rea-
sonable time to be fixed by the Secretary, obtain the means for
taking and delivering the power.” Disposition of Surplus Power
Generated At Clark Hill Reservoir Project, supra, 41 Op.A.G. at
243-44. Thus, in Attorney General Brownell’s estimation. even ‘the
present inability of a preference customer to take federal power is
insufficient to justify a decision by the Seeretary to permanently
commit the power to a non-preference customer. Here, of course
Santa Clara is able to take its full power requirements from the
CVP and has done so in the past. . c
1 Appendix
over its objection. It is claimed that PG&E’s allotment was
more than adequate to satisfy Santa Clara’s full require-
ments.’ Nevertheless, the Secretary has, since 1971, pro-
gressively reduced Santa Clara’s withdrawable allocation.
In defense of the Secretary's arrangement with PG&E,
gD
he maintains that he is storing up power with the utility
for the future benefit of selected preference customers. In
the meantime, however, to the extent that Santa Clara could
have purchased the power, a private utility is profiting from
the low cost of federal power at the expense of a preference
entity. This result, we think, does violence to the plain
meaning and intent of the preference provision.
While the stated goal of the banking arrangement is con-
sonant with the preference clause, inasmuch as all CVP
power is ultimately committed to meet the needs of public
entities, the propriety of the goal cannot save the scheme
if its interim effects are violative of the statute. That may
be the case here. Congress intended publie entities, when-
ever possible, to benefit from the sale of low cost federal
7. The following is a comparison of the CVP power sold to
Santa Clara as compared to the amount sold to PG&E [in kilo-
watts]:
SANTA CLARA PG&E
BOUED accncttisiivindasmenanan 71,490 282.183
cae AIRES TIS. 78.863 198,063
} NT ER 89,367 81,377
WIRED wvicknccinmicnmaieeteaatae 92,031 79,713
POD cxcimasnicsacnessscibaiaaeannie 106,128 55,944
FOO ccntsininciiamcadiauaae 116,471 26,406
|; f ani HPS NINES 112,696 278,724
BPE niccssnsitiemepeemdalaea 89,200 382,000
BOE acicwscncinsen eee 86.550 382,000
[| RMN er we te 73,300 387,786
j | eames FCT, 73,800 337,000
The sales to PG&E are in such high quantity that this nonprefer-
ence customer has become the Bureau’s largest customer.
(Opening Brief of Santa Clara, pp. 4445). These figures are not
disputed by the Secretary or by PG&E.
Appendix 19
power. An arrangement which enables a nonpreference
entity to reap a benefit which Congress sought to bestow
upon public entities, even temporarily, flies in the face of
that intent.
It is no answer for the Secretary to say that he is merely
“banking” power with the utility, rather than selling it out-
right. A sale is no less a sale because the buyer is obliged,
upon the seller’s demand, to resell an equivalent amount to
the seller. The plain fact is that the power which is con-
veyed to PG&E does not sit idly in storage, awaiting with-
drawal by the government. Instead it is resold by PG&E to
its own customers at a substantial mark up. This is a sale,
regardless of the verbiage employed to characterize the
arrangement.
In United States v. City and County of San Francisco,
1940, 310 US. 16, 60 S.Ct. 749, 84 L.Ed. 1050 the Court
considered a challenge to the sale by San Francisco to
PG&E of power generated from the Heteh Hetchy project
in Yosemite National Park Section 6 of the Raker Act, 38
Stat. 242, which governed disposition of the power by San
Francisco, prohibited the City “from ever selling or letting
to any corporation or individual, except a municipality or
municipal water district or irrigation district, the right to
sell or sublet the water or the electric energy soid or given
to it” by the United States. San Francisco argued that
although it conveyed power to PG&E, section 6 was not
violated because the power was “consigned” and not sold, to
the utility, which acted as “agent” for the City in transmit-
ting and selling the power. The court concluded that San
Francisco's contractual relationship with PG&E contra-
vened the legislative intent behind the Raker Act regardless
of the words used to describe it:
20 Appendix
Terminology of consignment of power, rather than
of transfer by sale, and verbal description of the power
Company as the City’s agent or consignee, are not suffi-
cient to take the actions of the parties under the con-
tract out of $6. Congress, in effect trustee of public
lands for all the people, has by this Act sought to pro-
tect and control the disposition of a section of the
public domain. The City has in fact followed a course
of conduct which Congress, by § 6, has forbidden. Mere
words and ingenuity of contractual expression, what-
ever their effect between the parties, cannot by descrip-
tion make permissible a course of conduct forbidden
by law. When we look behind the word description of
the arrangement between the City and the power Com-
pany to what was actually done, we see that the City
has—contrary to the terms of § 6—abdicated its con-
trol over the sale and ultimate distribution of Hetch-
Hetechy power. 310 U.S. at 28, 60 S.Ct. at 756.
While the preference clause directs the Secretary to
extend a preterence to public entities in the sale of power
generated by federal reclamation projects, that mandate is
qualified slightly by the following proviso:
No contract relating to... electric power or power
privileges shall he made unless, in the judgment of the
Secretary, it will not impair the efficieney of the project
for irrigation purposes. 43 U.S.C. § 485h(e).
Thus the Secretary is prohibited from selling CVP power
to a preierence entity if, in his estimation, to do so would
have the effect of cutting back on the power necessary to
operate the project’s pumping facilities.
Before the trial court, the Secretary sought to justify
the sale of power to PG&E on the sole ground that the gov-
Appendix 21
ernment’s right to repurchase power “banked” with the
utility satisfied the preference clause. The issue of the
CVP’s efficiency for irrigation purposes, and the likely im-
pact of the present marketing scheme, or of Santa Clara’s
attack upon it, on that efficiency, were not addressed by
any of the parties in their moving papers upon which the
trial court rendered its decision.
In light of the paucity of information adduced on this
key issue, we are loathe to hold the sale of power to PG&E
at Santa Clara’s expense flatly invalid. Tt is conceivable
that the Secretary’s decision to favor PG&E over Santa
Clara in the marketing of CVP power could be justified as
a measure designed to maximize the project’s efficiency for
its primary purpose, which is irrigation.
PG&E and the Seeretary argue that during at least part
of the period beginning in 1972, when the Secretary was
gradually reducing Santa Clara’s allotment, CVP did not
have the energy necessary to supply Santa Clara, and
Santa Clara was not willing or able to take such intermit-
tent power as was being sold to PG&E. Tt is also claimed
that some of the power sold by the Secretary to PG&E may
not have heen subject to the preference clause. The trial
court did not decide these questions. They can be consid-
ered on remand, as can the issue of CVP’s efficiency for
irrigation purposes if the Secretary chooses to raise it.
C. Congressional Approval.
The federal defendants argue that Congress ratified the
existing power allocation scheme when it appropriated
moneys for the construction of an extra high voltage inter-
tie hetween the Pacifie Northwest and Pacifie Southwest.
To show ratification, the government must sustain the
heavy burden of demonstrating congressional knowledge
22 Appendix
of the precise course of action alleged to have been aequi-
esced in. United States v. Beebe, 1901, 180 U.S. 348, 354,
21 S.Ct. 871, 45 Led. 563; United States v. Georgia-Pacific
Co., 9 Cir, 1970, 421 F.2d 92, 102 n. 28.
We fully agree with the distriet court’s determination
that the record in this case “does not support a finding of
congressional knowledge of the exclusion of post-1964 pref-
erence customers from receiving nonwithdrawable CVP
power sufficient to equate passage of the appropriations
hills with ratification of the exclusion.” City of Santa Clara
vr. Kleppe, supra, 418 F.Supp. at 1256. Similar efforts to
infer congressional approval of specific ageney actions
from the enactment of general appropriations measures
proved unsuccessful in Arizona Power Pooling Ass'n v.
Morton, supra, 527 F.2d at 725-26. See also, Associated
Electric Cooperative Inc. v. Morton, 1974, 165 U.S.App.D.¢.
844, 951-52, 507 F.2d 1167, 1174-75, cert. denied. 1975, 423
TLS. 830, 96 S.Ct. 49, 46 L.ed.2d 47. We think that those
decisions are controlling here.
IV.
RULE MAKING AND THE
ADMINISTRATIVE PROCEDURE ACT
Santa Clara urges, and the district court found. that the
procedures followed by the Secretary in arriving at his
marketing decisions failed to comport with certain provi-
sions contained in the APA. While we have concluded that
the Seeretary’s scheme for allocating CVP power among
preference customers is substantially unreviewable, the
adequacy of the procedures utilized in formulating the
marketing scheme is a separable issue. Faust Oakland-F ruit-
vale Planning Council v. Rumsfeld, 9 Cir.. 1972, 471 F.9d
524, 555-35, See also, Moore-McCormack Lines. Ine. v.
Appendix 23
United States, Ct.Cl., 1969, 413 F.2d 568, 581; Saferstein,
“Nonreviewability: A Functional Analysis of ‘Committed
to Agency Discretion,’ ” 82 Harv.L.Revy. 367, 272 (1968),
The rule making section of the APA, 5 U.S.C. § 553, re-
quires federal agencies to notify the public, conduct hear-
ings, and consider the input of interested parties, before
promulating new substantive rules. However, that section
expressly exempts from the rule making requirements all
matters “relating to... public property.” 5 U.S.C. § 553(a)
(2). Power generated hy federal reclamation projects is
certainly public property: hence the Secretary, in deciding
how to allocate CVP output, is not hound to follow the
procedures mandated by 5 U.S.C. § 553. Associated Electric
Cooperative, Inc. v. Morton, supra, 165 U.S. App.D.C. at
394-55, 507 F.2d at 1177-78. Northern California Power
Agency «. Morton, D.D.C.. 1975, 396 F.Supp. 1187, 1191 n.
6, aff'd 1976, 176 U.S.App.D.C. 241, 339 F.2d 243.
Santa Clara nonetheless argues, and the trial eourt held,
that 5 U.S.C. § 552, the “Public Information” section of the
APA, requires the Secretary to promulgate rules to be
followed in arriving at power marketing decisions. In
pertinent part, 5 U.S.C. $552(a)(1) provides that each
agency shall publish in the Federal Register:
(B) statements of the general course and method by
which its functions are channeled and determined .. .
(C) rules of procedure...
(D) substantive rules of general applicability adopted
as authorized by law, and statements of general poliey
or interpretation of general applicability formulated
and adopted by the agency . .
As amended in 1966, section 352 also provides that “[felx-
cept to the extent that a person has actual and timely notice
24 Appendix
of the terms thereof, a person may not in any manner
be required to resort to, or be adversely affected by, a
matter required to be published in the Federal Register
and not so published.”
On its face, section 552 requires only the publication of
existing rules and not the promulgation of new ones.
The section requires agencies to make “available” proce-
dures by which their functions “are channeled and deter-
mined,” and the substantive rules and general policies
which have been “adopted” or “formulated and adopted.”
This interpretation is bolstered by the existence of an
entirely separate section, $553, headed “rule making,” and
by the legislative history of the APA itself. The legisla-
tive history suggests that in enacting § 552, Congress was
concerned exclusively with the dearth of published deserip-
tions concerning agency structure, function, and procedure.
In 1941, the Senate Judiciary Committee held extensive
hearings on the soon to be enacted APA. During those
hearings, spokesmen for numerous agencies repeatedly
voiced that fear that the publica’ion provisions contained
in the proposed law might be construed to require them
to develop new rules and regulations, Dean Acheson, Chair-
man of the Committee appointed by President Roosevelt
to make recommendations for improving administrative
procedure, addressed these fears in a formal statement
to the Senate Judiciary Committee. Of the predecessor
provision of section 552, Acheson said:
. . [I]n order that persons may know what the
policies and interpretations of an agency are, we
suggest in section 201(2) that all such policies and
interpretations, and the procedures whether formal
or informal, and the forms of an ageney be made
available.
Appendix 25
There has been some misunderstanding about the
scope of this subsection (2). It is not intended to
require agencies to make up policies and interpreta-
tions of law, or procedures, out of whole cloth merely
for the sake of making them. Rather this section is
intended to require agencies to make available to the
public those policies and procedures which have he-
come crystallized, which through experience have been
formulated and adopted. Hearings before a subeom-
mittee of the Senate Judiciary Committee on S, 674,
S. 675 and S. 918, 77th Cong., Ist Sess. 829 (1941)
The House and Senate Reports on the APA likewise
suggest that Congress, in enacting § 552. sought only to
insure that those administrative rules which had “erys-
tallized” would be made available to the publie:
The public information requirements of section 2
are In many ways the most important, far-reaching,
and useful provisions of the bill. For the information
and protection of the public wherever located, these
provisions require agencies to take the mystery out
of administrative procedure by stating it. The section
has been drawn upon the theory that administrative
operations and procedures are public property which
the general public, rather than a few specialists or
lobbyists, is entitled to know or to have the ready
means of knowing with definiteness and assurance.
Senate Committee on the Judiciary, Administrative
Procedure Act, S.Rep.No. 752, 79th Cong., Ist Sess.
198 (1945). See also House Committee on the Judici-
ary, Administrative Procedure Act, H.Rep. No. 1980,
79th Cong., 2d Sess, 255 (1946),
Santa Clara cites Vorton +. Ruiz, 1974, 415 U.S. 199, 94
S.Ct. 1055, 39 L.ed.2d 270, for the proposition that § 552
requires not simply the publication of established rules but
26 Appendir
also the formulation of new ones. In that case the Bureau
of Indian Affairs (BIA) refused to provide general assist-
ance benefits to an Indian couple who had left their reserva-
tion to settle in a nearby Indian community. In summarily
denying the couple’s application for benefits, the BIA
cited a provision contained in its Indian Affairs Manual, an
internal operations brochure, which restricted benefits to
Indians remaining on the reservation. The Court held that
this restriction was based on an impermissible construction
of the act which established the assistance program and
on this basis the Court held it invalid.
The Conrt went on to announce in dicta that even if the
restriction were consonant with congressional intent, section
552 required publication of the eligibility requirements for
receiving benefits. The policy of restricting benefits to
on-reservation Indians involved in orton v. Ruiz had
clearly “crystallized.” Indeed, it was enshrined in an in-
ternal operations manual. Because the rule had already
been formulated by the BIA and was routinely applied by
the ageney, section 552 required publication,
Here, in contrast, it is not alleged that the Secretary has
formulated any rules, substantive or procedural, for the
allocation of CVP power. That being so, there is apparently
nothing to publish. While some may deplore this state of
affairs, the rule making section of the APA, § 553, mani-
fests a clear legislative intent to permit ad hoc decision
making in the distribution of publie property. Senate Com-
mittee on the Judiciary, Administrative Procedure Act,
S.Rep.No. 752, 79th Cong., Ist Sess. 199 (1945).8 Duke City
8. With regard to the publie property exemption to the rule
making requirement, the Senate Report on the APA states:
The exception of proprietary matters is included because the
principal consideration in most such cases relate to mechanics
and interpretations or policy, and it is deemed wise to encour-
Appendix 27
Lumber Co, v. Butz, D.D.C., 1974, 382 F.Supp. 362, 373,
aff'd, 176 U.S.App.D.C, 218, 539 F.2d 220, cert. denied, 1977,
429 U.S. 1039, 97 S.Ct. 737, 50 L.Fd.2d 751. We cannot read
a rule making requirement into $552, or interpret the
section in such a way as to render meaningless the publie
property exemption contained in § 553.
In Gonzalez v. Freeman, 1964, 118 U.S.App.D.C. 180, 334
F.2d 570, and W. G. Cosby Transfer & Storage Corp. v.
Froehlke, 4 Cir., 1973, 480 F.2d 498, 5 U.S.C. $552 was
interpreted to require agencies to promulgate rules and
procedures which had not theretofore been “erystallized.”
The actual holding in each case was that the agency involved
could not terminate a business relationship existing be-
tween the agency and the plaintiff without affording a due
process type hearing. In each case there is language to the
effect that $552 required the agency to formulate and
adopt rules describing the grounds upon which the agency
would act and the procedures that it would follow. But in
neither case did the court do what the trial court did here,
order the agency to formulate and adopt such rules. To the
extent that these cases can be said to stand for the proposi-
tion that $552 requires an agency to formulate and adopt
rules, we decline to follow them. The trial court’s decision
in this case, insofar as it reqnires the Secretary to form-
ulate and adopt rules governing his decisions in marketing
power to preference customers, is in error,
age and facilitate the issuance of rules by dispensing with all
mandatory procedural requirements. None of these exceptions
however, is to be taken as encouraging agencies not to adopt
voluntary public rule making procedures where useful to the
agency or beneficial to the public. The exceptions merely
confer a complete diseretion upon agencies to decide what. if
any, public rule making procedures they will adopt in a given
situation. ... ;
S.Rep.No. 752, 79th Cong., Ist Sess., at 199 (1945),
28 Appendix
V.
DUE PROCESS
Santa Clara argues that it has a sufficient property
interest in CVP power to entitle it to due process protee-
tion. The trial court agreed, and further held that the
federal defendants had failed to accord Santa Clara that
process which was due. The court therefore ordered the
federal defendants, infer alia, to (1) re-evaluate the present
power allocation scheme with an eye toward possible revi-
sion: (2) announce the standards used in devising the
allocation scheme then proposed; (38) afford all interested
parties an opportunity to comment on the proposed market-
ing plan: (4) hold a public hearing on the proposed market-
ing plan; and (5) announce the specifie findings relied on
in devising the plan ultimately adopted. City of Santa
Clara v. Kleppe, supra, 418 F.Supp. at 1261-62.
PG&E argues that Santa Clara is not a “person” entitled
to due process protection under the Fifth Amendment.
PG&E relies primarily on South Carolina ve Katzenbach,
1966, 383 U.S. 301, 323-24, 86 S.Ct. 803, 15 L.ld.2d 769,
where the Court held that a state is not a “person” entitled
to due process protection, reasoning that a municipality
eannot be a “person” if its progenitor, the state, is not.
We are by no means convinced that PG&E's argument is
eorrect. See Township of River Vale v. Town of Orange-
town, 2 Cir., 1968, 403 F.2d 6S4, 686, holding that “a munici-
pal corporation like any other corporation is a ‘person
within the meaning of the [Constitution!.” See also, Aquavyo
v. Richardson, 2 Cir. 1973, 478 F.2d 1090, 1100-01, cert.
denied, 1974, 414 U.S. 1146, 94 S.Ct. 900, 39 L.ed.2d 101. We
need not decide the question. For the purpose of this case,
we assume that Santa Clara is a “person.”
Appendix 29
PG&E and the federal defendants assert that Santa
Clara has no protectible “property” interest in CVP power.
The trial court based its holding that Santa Clara has such
an interest on the City’s status as a preference customer
under the reclamation laws. In so holding, the trial court
was speaking of an interest of Santa Clara vis-a-vis other
actual and potential preference eustomers. The court had
already held that sales of CVP power to PG&E under the
contract between it and the Secretary did not violate the
preference clause. Thus the court had no occasion to decide
whether Santa Clara had a “property” interest vis-a-vis
PG&E.
We first consider “property” interest as against other
preference entities. While the test for identifying a prop-
erty interest sufficient to merit invocation of the Due Proc-
ess clause “is not clearly defined,” Pence v. Kleppe, 9 Cir.,
1976, 529 F.2d 135, 141, the Supreme Court has stated that:
To have a property interest in a benefit, a person
clearly must have more than an abstract need or desire
for it. He must have more than a unilateral expectation
of it. He must, instead, have a legitimate claim of
entitlement to it. Board of Regents v. Roth. 1972, 408
U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548. ~
See also, Geneva Towers Tenants Organization v. Fed-
erated Mortgage Investors, 9 Cir., 1974, 504 F.2d 483 at
489,
The exact perimeters of the “entitlement” concept are
as yet unclear. See Note, “Statutory Entitlement and the
Concept of Property,” 86 Yale L.J.No. 4. p. 695 (1977).
After reviewing the Supreme Court’s recent decisions con-
cerning statutorily created property interests, the author
of the note concluded that “a statute will create an entitle-
ment to a governmental benefit either if the statute sets
30 Appendix
out conditions under which the benefit must be granted or
if the statute sets out the only conditions under which the
benefit may be denied.” 86 Yale L.J. at 696 (emphasis in
original). Under this test, Santa Clara has no “entitlement”
to CVP power, as against other preferred entities. We
think that Roth itself is dispositive of this phase of the
ease. There the Court held that an untenured teacher had no
property interest in being rehired because his employment
contract gave his employer unbridled discretion to refuse
to renew after one vear. The employer did not have to
justify its decision not to renew the contract by showing
“sufficient cause.” Thus Roth had only an “abstract concern
in being rehired,” rather than a legitimate claim of entitle-
ment. Roth v. Board of Regents, supra, 408 U.S. at 578,
92 S.Ct. 2701.
Having completed a vear of teaching, Roth, like Santa
Clara, could differentiate himself from others who sought
the government benefit in question. However, Roth’s desire
to be rehired, his eligibility for contract renewal, and his
special status as a former employee, were all insufficient to
clothe him with a “legitimate claim of entitlement.” Be-
eause the Board of Regents could refuse to rehire Roth
for any reason whatsoever, Roth’s interest did not rise to
the level of an entitlement.
Santa Clara’s situation vis-a-vis other preferred entities
is comparable. While the City enjoys a statutory preference
under the reclamation laws, the Secretary remains free to
allocate the total power output of the CVP to other pref-
erence users. The Secretary need not justify his decision
to discriminate against some preference entities in favor
of others and, as we hold today, his decision to so discrimi-
nate is not judicially reviewable, Given the discretion which
the reclamation laws vest in the Secretary in this respect,
Appendix 31
we cannot accept Santa Clara’s contention that it has any
“entitlement” to power generated by the CVP as against
other preferred entities. The trial court’s holding that
Santa Clara’s status as a preference entity supported a
claim of entitlement as against other preferred entities is
erroneous. The City has no “property” interest in CVP
power as against other preferred entities and consequently
no procedural safeguards are constitutionally required in
deciding between them.
We next consider “property” interest as against non-
preference entities such as PG&E. It is clear that Santa
Clara does have such an interest. In essence, our decision
in Arizona Power Pooling Ass’n v. Morton, supra, so holds.
To similar effect is Pence v. Kleppe, supra. There we held
that Alaska natives, seeking allotments under the Alaska
Native Allotment Act, had sufficient property interests to
entitle them to due process. 529 F.2d at 140-42.
What process is due? We have held in part TIT B, supra,
that it is a violation of the preference clause for the Secre-
tary to sell CVP power to PG&E to the extent that he is
refusing to sell it to an eligible preference entity that has
offered to buy it and is ready, willing and able to receive it.
There is but one justification possible for a refusal to sell
to such a preference entity while selling to a non-preference
entity: that, in the judgment of the Secretary, to sell to the
preference entity will “impair the efficiency of the project
for irrigation purposes,” 43 U.S.C. § 485h(e).
It is not disputed that Santa Clara is a preferred entity
that has asked for the power. The Secretary and PG&E
claim that Santa Clara was not willing or able to receive
what the Secretary could sell to it, and that during certain
times the Secretary did not have power available to sell to
Santa Clara. The Secretary may also claim that selling to
32 Appendix
Santa Clara would or will impair the efficiency of the
project for irrigation purposes. All of these claims can be
considered and decided by the trial court. We see no need
to remand this case to the Secretary for a due process type
hearing.
VL.
PG&E’S COUNTERCLAIM
In 1971, the Secretary began withdrawing power from
Santa Clara, gradually cutting back on the City’s 1970
allotment of 120,000 kilowatts. Pursuant to a contract be-
tween PG&E and Santa Clara, executed in 1969, PG&E. is
obligated to supply Santa Clara’s power requirements to
the extent that they are not met by the Secretary. Taking
the position that the Secretary’s attempted withdrawals
were illegal and therefore ineffective, Santa Clara refused
after 1971 to pay PG&E for any of the power purportedly
supplied by it. Because, as we have seen, PG&E transmits
CVP power over its own lines pursuant to government
contract, so that it is not possible to differentiate CVP
power from PG&E power except by reference to written
records, Santa Clara took the position that the power
purportedly furnished by PG&E was actually CVP power
coming in over PG&E’s transmission lines. Since 1971, the
money claimed by PG&E has been paid into an escrow
account which as of March 1, 1977, contained nearly
$30,000,000.
PG&E and the Secretary both argue that regardless of
the result in this case, PGCE is entitled to all of the money
in the escrow. As we have seen, the trial court has, as an
interim measure, awarded one-fourth of the money in the
escrow to PGCE. (note 3, supra)
If, as we surmise, the government cannot justify the
marketing of power to PG&E while denying it to Santa
Appendts 33
Clara as a measure designed to safeguard the CVP’s
efficiency for irrigation purposes, then the past sales to
~ PG&E of so much power as Santa Clara sought and was
refused exceeded the Secretary’s statutory authority under
the reclamation laws. These past sales are void if unlawful,
for administrative actions taken in violation of statutory
authorization or requirement are of no effect. Utah Power
& Light Co. v. United States, 1917, 248 U.S. 389, 410, 37
S.Ct. 387, 61 Led. 791; Federal Crop Insurance Corp. v.
Merrill, 1947, 332 U.S. 380, 384, 68 S.Ct. 1, 92 L.Ed. 10;
Federal Maritime Commission v. Anglo-Canadian Shipping
Co., 9 Cir., 1964, 335 F.2d 255, 258.
The trial court decided that PG&E's right to the disputed
funds hinges on the lawfulness of the Secretary’s decision
to sell power to PG&E while refusing to allocate as much
power to Santa Clara as that City requested. Consequently,
the court concluded, the fate of the escrow account must
await action by the district court on remand.
PG&E and the Secretary vigorously attack this ruling.
Their position, as stated by counsel for PG&E, is that
power cannot be retroactively allocated to Santa Clara
because “[a]t all times pertinent to this case all commer-
cially available CVP power was sold to someone... .
Accordingly, any retroactive reallocation of CVP power
would necessarily entail either a whole or partial recission
of some or even all of the sales transactions between the
United States and its CVP customers from Angust 1971 to
the present.” Opening Brief of PG&E at 17. We think,
however, that a reallocation of power to Santa Clara, retro-
active to 1971 when the withdrawals began, can be ae-
complished without affecting past sales to other CVP
customers. This is so because the Secretary has, over the
years, and pursuant to his contract with PG&E, built up a
34 Appendix
sizeable “bank account” with PG&E. Presumably, that bank
account is now available to retroactively satisfy the City’s
power needs.
Should the district court conelude on remand that the
marketing of power to PG&E cannot be justified by ref-
erence to the reclamation laws, the government’s “bank
account” can simply be adjusted downward to reflect past
sales to Santa Clara of so much power as the City sought
unsuccessfully in the vears after 1971. Such a readjustment
of the bank account need affect neither past sales of power
to other CVP users nor prior transactions between PG&E
and its customers, aside from Santa Clara.
Without intending to bind the trial court to our sug-
gestions, it seems to us that the consequences would be
substantially as follows:
First, PG&E would be entitled to draw from the escrow
the full amount (less, of course, what it has already re-
ceived) that Santa Clara would have paid to the Secretary
for the power that it is “receiving” retroactively. PG&E
has paid the Secretary for that power, thereby discharging
what should have been Santa Clara’s dutv. In addition,
because it is Santa Clara that withheld the money, PG&E
should receive interest at a reasonable rate on the moneys
paid to it from the dates when those moneys should have
been paid. (See 28 U.S.C. § 1961.) The remaining money in
the escrow would go to Santa Clara.
Second, the power reallocated to Santa Clara should be
treated as drawn from the Secretary’s “bank account” with
PG&E, thereby diminishing the amount of the power that
the Secretary is entitled, under the PG&E contract, to
repurchase.
Third, because PG&E will have received for the power
sold by it to Santa Clara only the price that Santa Clara
Appendix 35
would have paid to the Seeretary if he had allocated that
power to Santa Clara, but that power is being treated as
drawn by the Secretary from the “bank account,” it would
appear that PG&E will have a claim against the Seeretary.
Presumably, that claim would be for the contract price
applicable under the Secretary's contract with PG&E at the
times as of which reallocation is made, less the price
PG&E will have received from Santa Clara, plus reasonable
interest for late payment. (See 28 U.S.C. § 2411(b) and
$ 2516.)
Ifowever, PG&E has countereclaimed only against Santa
Clara. It has not filed any claim for relief against the
Secretary. We express no opinion as to whether such a
claim against the Secretary can be filed or considered by
the trial court, see 28 U.S.C. § 1346(a) (2), Lowell O. West
Lumber Sales +. United States, 9 Cir., 1959, 270 F.2d 12,
19-20, or in the Court of Claims, see 28 U.S.C. § 1491.
We base our assumptions as to interest upon a further
assumption that PG&E is an innocent third party, ecanght
between the conflicting claims of Santa Clara and the posi-
tion of the Secretary.
These suggestions are in line with the ancient and
favorite maxim of equity, that equity regards that as done
which ought to be done. It is readily applicable here, be-
cause all parties to the contracts that are involved, PG&E,
the Secretary, and Santa Clara, are before the court, and
because what we suggest does not invalidate or violate
either contract. The contract between PG&E and the Seere-
tary expressly provides that the Secretary is to supply all
of his preferred customers before sclling to PG&E. Tt also
expressly provides for the so-called banking arrangement.
The contract between PG&E and Santa Clara requires sale
by PG&E and purchase by Santa Clara of only that amount
36 Appendix
of power that exceeds the amount sold by the Secretary to
Santa Clara.
The foregoing suggestions are just that: they are not
directions because we recognize that the questions giving
rise to them have not been fully considered up to now, and
all parties should have an opportunity to present their
views about them to the trial court. That court is to arrive
at its own decision, tating into account, but not being
bound by, our suggestions.
VI.
SOVEREIGN IMMUNITY
On October 21, 1976, Congress enacted Public Law 94-
574, amending 5 U.S.C. § 702, to remove the defense of
sovereign immunity in an action seeking relief other than
money damages and stating a claim that an agency or
officer or employee thereof acted or failed to act in an
official capacity or under color of legal authority. In Hill v.
United States, 9 Cir., 1978, 571 F.2d 1098 at 1102 (Slip op.,
page 45 at 49) we held that this amendment is applicable
to a pending action. This statute would have the effect
of removing the defense of sovereign immunity, if it were
otherwise available in this case. However, it is not neces-
sary to rely on that statute here.
It has long been established that sovereign immunity
poses no bar to a suit against a federal officer who is alleged
to have acted unconstitutionally or in excess of his statutory
authority. Larson v. Domestic & Foreign Commerce Corp.,
1949, 337 U.S. 682, 689, 69 S.Ct. 1457, 93 L.Ed. 1628;
Starbuck v. City and County of San Francisco, 9 Cir., 1977,
556 F.2d 450, 457 n. 14: Washington v. Udall, 9 Cir., 1969,
417 F.2d 1310, 1314.
Appendix 37
PG&E and the federal defendants concede that Santa
Clara’s various claims fall squarely within these exceptions
to the general rule that an action cannot be maintained
against the soverign, absent consent. However, they cite
Larson v. Domestic & Foreign Commerce Corp., supra, for
the proposition that
. a suit may fail, as one against the sovereign, even
if it is claimed that the officer being sued has acted
unconstitutionally or beyond his statutory powers,
if the relief requested cannot be granted by merely
ordering the cessation of the conduct complained of
but will require affirmative action by the sovereign
or disposition of unquestionably sovereign property.
337 U.S, at 691, n. 11, 69 S.Ct. at 1462.
This court has never interpreted Larson as an absolute
bar to every action against the sovereign in which affirma-
tive relief or the recovery of government property is
sought. Washington +. Udall, supra, 417 F.2d at 1317-18.
We have construed the case more narrowly to mean “not
that a suit must fail but only that it may fail if the relief
sought would work an intolerable burden on the eovern-
ment which outweighs any considerations of private harm.”
De Lao v. Califano, 9 Cir., 1977, 560 F.2d 1384 at 1391.
The retroactive power allocation which Santa Clara seeks
would not, we think, work an intolerable burden on govern-
mental functioning. As noted above, the relief requested
by the City can be granted by simply adjusting the govern-
ment’s bank account with PG&E. Such an adjustment would
not affect prior transactions between the government and
its other CVP customers, It would merely hasten depletion
of the bank account and so would aceclerate the date upon
which customer demand for CVP power will exceed the
3
available supply. Inasmueh as all of the banked power
w
Appendix
is ultimately committed te preference users, depletion of
the account with PG&E is, in any event, inevitable. We
do not think that the government will bear an intolerable
burden if it is forced to repurchase banked power at an
earlier date than was initially anticipated. Balancing the
economie injury which Santa Clara has suffered by virtue
of its partial exclusion from the CVP against the minimal
inconvenience which the government will experience if the
Secretary is foreed to alter slightly his long-range market-
ing plan, we conclude that this action is not barred on
grounds of sovereign immunity.
VIII.
THE NATIONAL ENVIRONMENTAL
POLICY ACT
Santa Clara argued below and reiterates here that the
Secretary violated NEPA, 42 U.S.C. $ 4821 et seq., by fail-
ing to file an environmental impact statement before
denying the City’s requests for firm power and initiating
power withdrawals, NEPA, which requires agencies to file
environmental impact statements whenever “major Federal
actions” are contemplated, defines those actions as ones
“significantly affecting the quality of the human environ-
ment.” 42 U.S.C. § 4332(2)(C). The trial court concluded
that the Secretarv’s marketing decisions were not major
Federal actions of this kind and because no factual dispute
was presented with respect to that key issue, granted the
federal defendants’ motion for summary judgment.
Seeking to bring the Secretarw’s allocation decisions
within NEPA’s definition of major Federal action, Santa
Clara alleges that the government’s refusal to sell it firm
power will (1) foree the City to construct its own generat-
Appendir 39
ing facilities, and (2) cause industries to relocate to ecom-
munities where electricity is available at lower cost. These
effects, the City claims, will have a significant deleterious
impact on the environment.
Because the amount of low cost CVP power is finite,
demand will likely outstrip supply in the future as it has
in the past. Regardless of whether it is Santa Clara or
some other preference entity that forced to look to private
sources for the supply of eleetric power, the environmental
consequences will be similar. Tf the demand for power
exceeds the available supply, then new generating facilities
must be constructed somewhere, if not in Santa Clara.
Even accepting as true Santa Clara’s rather fanciful
hypotheses concerning the likely impact of the Secretary’s
decisions on its small piece of the environment, we think
it highly improbable that one allocation scheme will have
a more deleterious impact than any other when the total
geographic area served by the CVP is considered. As the
court stated in HTanly v. Nleindienst, 2 Cir., 1972, 471 F.2d
825, 850, cert. denied, 1973 412 U.S. 908, 93-S.Ct. 2290, 36
L.Ed.2d 974, an agency must consider “in deciding whether
a major federal action will ‘significantly’ affect the quality
of the human environment ... the absolute quantitative
adverse environmental effects of the action itself.” No such
absolute effeets are threatened by the Secretary’s decision
to allocate CVP power in one way rather than another.
CONCLUSION
The summary judgment against Santa Clara on its claim
under the National Environmental Policy Act is affirmed.
The judgment dismissing the action is reversed,
The decision that the Seeretary’s aetions in deciding
the terms on which he will sell power to one preference
40 Appendix
customer as compared to others are reviewable is reversed.
The decision that the Secretary’s sale of power to PG&E
does not violate the preference clause is vacated.
The decision that the Secretary is required to formulate
and adopt rules governing the sale of CVP power is
reversed. The remand of the action to the Secretary for
that purpose is reversed.
In all other respects the decision of the trial court is
affirmed.
The case is remanded to the trial court for further
proceedings consistent with parts ITI B, V, and VI of this
opinion.
Appendix B
United States Court of Appeals
lor the Ninth Circuit
City of Santa Clara, California,
Appellant,
Vs.
Cecil Andrus, Individually and as Secretary of
the Interior, and R. Keith Higginson, Indi-
vidually and as Commissioner of the Bureau
of Reclamation, United States Department
of the Interior,
Appellees.
Cecil Andrus, Individually and as Secretary of
the Interior, and R. Keith Iligginson, Indi-
vidually and as Commissioner of the Bureau
of Reclamation, United States Department
of the Interior,
Appellants,
City of Santa Clara, California,
Appellee.
Pacific Gas & Electric Company,
Appellant,
Vs.
City of Santa Clara, California,
Appellee.
Nos. 77-1110, 77-1270, No. 77-1189, No. 76-3670
ORDER
Before: DUNIWAY and CARTER, Circuit Judges,
and BURNS, District Judge
.
This court’s opinion of February 1, 1978 (1978 Slip
Opinions at 339), is amended as follows:
42 Appendix
1. The first full paragraph on page 351 of the slip
opinion is amended to read:
In this case the Secretary has marketed CVP power
to PG&E, a non-preference entity, during times when
a preference customer was having its allotment grad-
ually reduced, over its objection. It is claimed that
PG&E’s allotment was more than adequate to satisfy
Santa Clara’s full requirements. Nevertheless, the
Secretary has, since 1971, progressively reduced Santa
Clara’s withdrawable allocation.
2. The second sentence of the first full paragraph in
the right-hand column of page 351 is amended to read as
follows:
In the meantime, however, to the extent that Santa
Clara could have purchased the power, a private utility
is profiting from the low cost of federal power at the
expense of a preferred entity.
3. The sentence in the first line on page 352 is amended
to read:
That may be the case here.
4. The third sentence of the second full paragraph on
page 353, beginning with the words “Because we think,” is
stricken.
3. A new paragraph is added, in the first column on page
353, immediately preceding the heading “C. Congressional
Approval,” reading as follows:
PG&E and the Secretary argue that during at least
part of the period beginning in 1972, when the Secre-
tary was gradually reducing Santa Clara’s allotment,
CVP did not have the energy necessary to supply
Santa Clara, and Santa Clara was not willing or able
to take such intermittent power as was being sold to
PG&E. It is also claimed that some of the power sold
by the Secretary to PG&E may not have been subject
Appendir 43
to the preference clause. The trial court did not decide
these questions. They can be considered on remand,
as can the issue of CVP’s efficiency for irrigation pur-
poses if the Secretary chooses to raise it.
6. The first full paragraph in the second column on
page 358, beginning with the words “Here, the Secretary
does not deny,” is stricken, and a new paragraph is inserted
reading as follows:
It is not disputed that Santa Clara is a preferred
entity that has asked for the power. The Secretary
and PG&E claim that Santa Clara was not willing
or able to receive what the Secretary could sell to it.
and that during certain times the Secretary did not
have power available to sell to Santa Clara. The
Secretary may also claim that selling to Santa Clara
would or will impair the efficiency of the project for
irrigation purposes. All of these claims can be con-
sidered and decided by the trial court. We see no
need to remand this case to the Secretary for a due
process type hearing.
7. The footnote signal “9” at the top of page 361, and
the footnote at the hottom of that page, are stricken.
8. At the top of page 361, immediately following the
heading “SOVEREIGN IMMUNITY,” a new paragraph is
inserted reading as follows:
On October 21, 1976, Congress enacted Publie Law
94-574, amending 5 U.S.C. § 702, to remove the defense
of sovereign immunity in an action seeking relief other
than money damages and stating a claim that an
agency or officer or emplovee thereof acted or failed
to act in an official capacity or under color of legal
authority. In Hill v. United States, 9 Cir.. 1978,
gt Ee (Slip op., page 45 at 49) we held that this
amendment is applicable to a pending action. This
44 Appendix
Statute would have the effect of removing the defense
of sovereign immunity, if it were otherwise available in
this case. However, it is not necessary to rely on that
statute here.
Il.
The statement of amici curiae City of Palo Alto, et al.,
may be filed. Except as they have been granted in part by
the foregoing amendments, the Petition for Rehearing
of Pacific Gas and Electric Company and the Federal
Defendants-Appellees’, Cross-Appellants’ Motion for Modi-
fication are denied. The Petition for Rehearing of the City
of Santa Clara is denied.
The Suggestion of a Rehearing In Banc by the City of
Santa Clara has been transmitted by the Clerk to all
judges of the court who are in regular active service, and
no judge in reguiar active service, or who was a member of
the panel that rendered the decision, has requested a vote on
such suggestion. The suggestion of a rehearing in banc is
rejected.
Appendix C
City of Santa Clara, California,
Plaintiff,
v.
Thomas Kleppe, Individually and as Secretary
of the Interior, and Gilbert Stamm, Indi-
vidually and as Commissioner of the Bureau
of Reclamation, United States Department
of the Interior,
Defendants,
Paciric Gas & Evecrric Co.,
Intervenor-Def endant.
No. C-75-1574.
United States District Court,
N. D. California.
July 23, 1976.
DECISION
CONTI, District Judge.
This case brings for judicial resolution a controversy
over low cost federal hydroelectric power emanating from
the Bureau of Reclamation’s Calitornia Central Valley
Project (CVP). The principal parties are the California
City of Santa Clara on one side and the U. S. Department
of the Interior and its Bureau of Reclamation on the other.
Pacific Gas & Electric, a private utility company, has inter-
vened as party defendant. Simply stated, Santa Clara wants
more low cost federal power than the federal defendants
have allocated to it, and suggests that the Bureau's alloca-
tion scheme is legally defective. The Bureau responds that
how it allocates the CVP power under its control is unre-
viewably discretionary, but, for that matter, the allocation
46 Appendix
scheme was fairly formulated and is rationally based.
PG&E, long an integral part of the Bureau's power alloca-
tion plan, and the source to which Santa Clara would most
likely have to look for satisfaction of its power needs if
the court upholds the Bureau’s scheme, supports the Bu-
reau’s position. Santa Clara would prefer to purchase CVP
power at $.005 per kilowatt-hour rather than PG&E power
at $.019 per kilowatt-hour.'
I. Project Authority and Background.
CVP is a multipurpose project consisting of numerous
dams, hydroelectric power generation and transmission
facilities and irrigation canals, located in the Central Valley
of California and the surrounding mountains.? Although the
production of hydro-generated power is not the primary
purpose of the Project, the amount of electricity generated
is substantial and serves a large number of customers in
northern and central California.’
The Central Valley Project Authorization Act, 50 Stat.
850, provides in part:
Sec. 2... . The entire Central Valley project, Califor-
nia, heretofore authorized and established under the
1. See Plaintiff's Opposition to Defendants’ Motion for Sum-
mary Judgment, Doc.No. 16, at page 5, n. 1.
2. The Project is described in fine detail in Ivanhoe Irrigation
Dist. v. McCracken, 357 U.S. 275, 78 S.Ct. 1174, 2 L.Ed.2d 1313
(1958).
3. At the time the complaint in this action was filed, the direct
customers of the CVP were five municipal corporations in addition
to Santa Clara (Roseville, Palo Alto, Redding, Biggs and Gridley) ;
one public utility district (Shasta Dam Area Public Utility Dis-
trict) ; six federal agencies; five state agencies: one rural electric
cooperative (Plumas Sierra Cooperative) ; and PG&E. The number
of ultimate consumer-customers receiving power from these direct
customers is in the hundreds of thousands. See Defendants’ Motion
for Summary Judgment, Doe.No. 15, at page 5, n. 2.
Appendix 47
provisions of the Emergency Relief Appropriation Act
of 1935 (49 Stat. 115) and the First Deficieney Appro-
priation Act, fiscal vear 1936 (49 Stat. 1622), is hereby
reauthorized and declared to be for the purposes of
improving navigation, regulating the flow of the San
Joaquin River and the Sacramento River, controlling
floods, providing for storage and for the delivery of
the stored waters thereof, for the reclamation of arid
and semiarid lands and lands of Indian reservations,
and other beneficial uses, and for the generation and
sale of electric energy as a means of financially aiding
and assisting such undertakings and in order to permit
the full utilization of the works constructed to acecom-
plish the aforesaid purposes: Provided further, That,
except as herein otherwise specifically provided, the
provisions of the reclamation law, as amended, shall
govern the repayment of expenditures and the con-
struction, operation, and maintenance of the dams,
canals, power plants, pumping plans, transmission
lines, and incidental works deemed necessary to said
entire project, and the Secretary of the Interior may
enter into repayment contracts, and other necessary
contracts, with State agencies, authorities, associations,
persons, and corporations, either publie or private,
ine uding all agencies with which contracts are author-
ized under the reclamation law, . . .: -lnd provided
further, That the said dam and reservoirs shall be
used first, for river regulation, improvement of naviga-
tion, and flood control: second, for irrigation and
domestic uses; and third, for power. See also, Central
Valley Project Reauthorization Act, 16 U.S.C. § 695d.
Thus incorporated into the Central Valley Project Authori-
zation Act is the following provision of the Reclamation
Project Act of 1939, found in Section 9(¢), 43 U.S.C.
$485h(e):
Any sale of electric power or lease of power privileges,
made by the Secretary in connection with the opera-
48 Appendix
tion of any project or division of a project, shall be
for such periods, net to exceed forty years, and at
such rates as in his judgment will produce power
revenues at least sufficient to cover an appropriate
share of the construction investment at not less than
3 per centum per annum, and such other fixed charges
as the Secretary deems proper: Provided further, That
in said sales or leases preference shall be given to
municipalities and other public corporations or agen-
cies; and also to cooperatives and other nonprofit or-
ganizations financed in whole or in part by loans made
pursuant to the Rural Electrification Act of 1936 [and
any amendments thereof]... .
No contract relating to :1unicipal water supply or
miscellaneous purposes or to electric power or power
privileges shall be made unless, in the judgment of the
Secretary, it will not impair the efficiency of the
project for irrigation purposes.
There is no question, and no argument to the contrary, that
the “preference clause” of Section 9(c) applies to sales of
federaily-generated hydroelectric power from CVP, see Ari-
cona Power Pooling Assn. v. Morton, 527 F.2d 721 (9th Cir.
1975), nor does the government dispute that Santa Clara
is entitled to preference in the sale of the CVP power.
Rather, the controversy centers around the Bureau’s alloca-
tion decision which treats other preference customers more
favorably than Santa Clara in the fierce competition for
limited low cost federal CVP power.
Santa Clara has received varying amounts of CVP power
since 1965. The City had lodged many requests for power
with the Bureau, beginning in 1960, but its early requests
acknowledged that it could not provide a market for federal
power until late 1967, at which time its then existing power
Appendir 49
requirements contract with PG&E, which had been supply-
ing all the City’s power needs, would expire. Wishing to
insure a supply of federal power at the earliest opportunity,
however, the City sought a prospective allocation to satisfy
its future, post-1967, needs.4 The Bureau responded that
it could not then commit itself to such a future allocation,
in view of anticipated Project requirements, but that the
City’s application would he kept on file for consideration
nearer the time Santa Clara could actually purchase power,
free from the PG&E contract
Meanwhile, early in 1963 additional hydroelectrie power
became available to the CVP with the coming on line of
power from the Trinity River Division of the CVP.* More
energy hecame available as the generating units of that
division proceeded to completion in May of 1964. While
a notice of this additional power was sent to all entities
entitled to preference status, including Santa Clara,” re-
questing estimates of present load requirements and future
load growth, this additional power was allocated to then
existing preference customers only, excluding Santa Clara,
because of the City’s inability to take power immediately.’
Concerned that all CVP power was fast becoming spoken
for, and dissatisfied with the Bureau's repeated assurances
that the City’s application would receive due consideration,
the City, in July, 1964, telegraphed the Secretary of the
Interior directly, requesting an immediate allocation of CVP
power, on a withdrawable basis if absolutely necessary. The
4. See Plaintiffs’ Exhibit 2 and 4.
5. See Defendants’ Exhibit 3.
6. See Plaintiff’s Exhibit 3.
7. See Plaintiff’s Exhibit 3.
8. See Defendants’ Motion for Summary Judgment, Doe.No.15,
at page 7.
50 Appendix
City asserted that its contraet with PG&E was not binding
on it and should not bar its eligibility to receive CVP power.
The Secretary responded that 75 megawatts of power could
be offered if the City could make arrangements with PG&E
for its transmission. The letter warned, however, that the
power would be withdrawn when required to meet previously
promised, long-term firm allocations to other preference
customers.® The City thereupon submitted a formal applica-
tion for that amount, but again requested that it be kept in
mind for a firm, non-withdrawable allocation when and if
additional power became available, and set forth its pre-
dicted power needs through 1980."°
PG&E objected to the Department’s offering power to
Santa Clara while the utility’s requirements contract with
the City was still outstanding. The Secretary of the Interior
concluded, however, that the Department had to recognize
its statutory responsibilities in the marketing of federal
power to preference customers, including Santa Clara, and
that the fact of a dispute between the City and PG&E
over the validity of their power requirements contract
would not relieve the Department of its statutory duty to
provide available service to Santa Clara.”
On November 30, 1965, Santa Clara and the Bureau
finally contracted for the purchase of CVP power on a
withdrawable hasis.’*? Santa Clara’s allotment under the
9. See Plaintiff's Exhibit 9.
10. See Plaintiff’s Exhibit 10.
11. See Plaintiff’s Exhibit 12. The Secretary’s decision was
based in part on advice requested and received from the U.S. Solici-
tor’s office to the effect that the statute unequivocally mandated
offering available power to preference customers, and that the
Department could not legally be involved in the contract dispute
between Santa Clara and PG&E. See Plaintiff’s Exhibit 13.
12. See Defendants’ Exhibit 7.
Appendix 51
original contract was 75,000 kilowatts, but was revised
upward several times by amendments until it reached a
peak of 120,000 kilowatts in November, 1970. All these
increases had the City’s assent. In 1971, however, the
Bureau began to withdraw power from the City, by con-
tract amendments which were not consented to, such that
by July, 1974, the maximum kilowattage receivable wis
71,450. Subsequent withdrawals will most probably take
place,” and it is alleged that in the not too distant future,
the power and associated energy available for purchase
by Santa Clara from the federal CVP source will drop to
zero. At times when the City’s requirements could not be
met from federal power sources, Santa Clara has had
to purchase the difference from PG&E pursuant to an
existing contract.
During the period Santa Clara was receiving withdraw-
able power, it reiterated its request for a non-withdrawable
allocation. As additional power became available, however,
the Bureau decided to hold most, if not all, of it for
preference customers already receiving a non-withdrawable
allocation, so as to meet their load growth needs, rather
than to offer this power to existing customers with with-
drawable allocations, such as Santa Clara, on a non-with-
drawable basis.
13. See Plaintiff's Exhibit 24, which indicates that as of May 1,
1976, there was an anticipated withdrawal from Santa Clara of an
additional 24,200 kilowatts.
14. See Plaintiff’s Exhibits 17, 20, 21, and 22, and Defendants’
Exhibits 11, 12, and 13.
For example, on March 22, 1966, the Bureau agreed to sell to the
Sacramento Municipal Utility District up to 70,000 kilowatts of
power in addition to the District's then contract rate of delivery of
290,000 kilowatts. Between the contract execution date and April
1, 1978, the District could receive as much as 70,000 kilowatts in
addition to its then allotment by requesting such in writing. After
52 Appendix
It is this discrimination against Santa Clara, a prefer-
ence customer with only a short term, withdrawable
April 1, 1973, the contract rate of delivery to the District was set at
360,000 kilowatts. This new allocation to the District was not sub-
ject to withdrawal to meet the demands of other preference cus-
tomers, as was the allocation of power made to Santa Clara in 1965.
See Plaintiff's Exhibit 16, Letter Agreement between Sacramento
Municipal Utility Distriet and the Bureau, at par. 4 and 5. A simi-
lar contract was entered into in December, 1966, with Westlands
Water District. See Plaintiff's Exhibit 23.
Again, on August 22, 1967, the Bureau agreed to sell to the City of
Palo Alto, California, an additional 21,000 kilowatts of firm power
over its then contract rate of delivery of 79,000 kilowatts. Further,
the City of Palo Alto was promised its total future load growth
requirements through 1980, with the proviso that if total firm load
of all preference agencies exceeded the Project output, as preference
agency required load inereased in subsequent vears, a pre rata allo-
cation would be made, based on the ratio of city load to total load.
See Art. 7 of Contract between Palo Alto and Bureau, Plaintiff's Ex-
hibit 18. See also original Bureau-Palo Alto Contract, Plaintiff’s
Exhibit 8. Contrast the language found in Article 7 of the revised
Palo Alto-Bureau contract, Plaintiff's Exhibit 18, with the lan-
guage found in Article 9 of the Santa Clara-Bureau contract,
Plaintiff's Exhibit 14. The latter contract states, in pertinent part:
Provided, That power and energy deliveries made under the
terms of this agreement are deemed to be power and energy
temporarily available from unused allocated firm Central
Valley Project power and is also power and energy available
within the project dependable capacity for preference agency
use. Therefore, power and energy deliveries as contemplated
herein will be withdrawn upon 30 days written notice to
[Santa Clara], to any extent necessary to limit the total pref-
erence agency power demand to an amount within the project
dependable capacity of the Central Valley Project. With-
drawal of power and energy up to a total amount equal to the
contract rate of delivery specified herein shall constitute ter-
mination of this agreement.
The effect of this language vis-a-vis the language found in Bureau
contracts with other preference agencies with non-withdrawable
allocations, such as Palo Alto, is to provide for withdrawals of
power from Santa Clara and other customers with withdrawable
allocations, when such power is necessary to meet load growths of
preference customers with non-withdrawable allocations, within
project dependable capacity. Thus, once project dependable eapac-
ity is reached due to loan growths of these customers, which the
Bureau has contracted to satisfy, Santa Clara’s allocation will have
Appendix 53
been completely withdrawn, and its contract with the Bureau will
be considered terminated. It is only at this point—when project de-
pendable capacity is reached—that the eustomers with non-with-
drawable allocations will have to suffer a limitation on power to
meet load growth, according to the pro rata scheme in their eon-
tracts. See Defendants’ Exhibit 13. The effeet of this difference in
contract language is, of course, to treat Santa Clara substantially
differently from other preference customers in terms of the CVP
power it can receive.
Preference customers with contracts providing for a long-term,
non-withdrawable allocation of firm power, like Palo Alto’s, include
the California cities of Biggs, Gridley, Redding, and Roseville, the
Plumas-Sierra Rural Electrie Cooperative, and the Shasta Dam
Publie Utilities District, as well as the Sacramento Municipal Util-
ity District and the Westlands Water District noted above,
Preference customers with contracts providing for a short-term,
Withdrawable alloeation of power, like Santa Clara's, inelude Stan-
ford Linear Accelerator Center, A.E.C. Livermore, A.E.C. Sandia.
Beale Air Force Base, DeWitt Hospital, State of California, Grape-
vine Power Plant, State of California, Mather Air Force Base.
Mather Wherry Housing, Mare Island Naval Shipyard, NAS
LeMoore, NAS Moffett, Naval Communieations Station Stockton,
Naval Radio Station, Dixon, Naval Weapons Station, Concord,
Northern California Youth Center, University of California at
Davis, and U.S. I.A., Voice of America. As of May 1, 1971, Santa
Clara’s share of this short term, withdrawable power constituted
roughly two-thirds of the total CVP power marketed in this man-
ner. See Defendants’ Exhibit 16, particularly the attachment. to
the Bureau's letter showing anticipated withdrawals from each such
customer, Santa Clara is the only major municipality on the list of
preference customers with short-term, withdrawable allocations of
CVP power, Thus, as far as the record shows, all other municipal
users of CVP power fall into the category of preference customers
receiving a long-term, non-withdrawable allocation. See also De-
fendants’ Submission of CVP Data, Doe.No.23, which shows kilo-
watt and kilowatt-hour usage for each CVP customer for 1960-1975.
The 1975 consumption figures for municipal users are shown in that
submission to be as follows:
Municipal Customer Kilowatts
City of Biggs 2,440
City of Gridley 5,967
City of Palo Alto 139,793
City of Redding 52,980
City of Roseville 36,520
City of Santa Clara 73,800
Sacramento Municipal Utility Dist. 360,000
Shasta Dam Publie Utilities Dist. 4,186
Plumas-Sierra Rural Elee. Coop. 10,220
54 Appendix
allocation, in favor of other similarly situated™ preference
customers, who not only originally received a long-term,
non-withdrawable allocation but who also were afforded
additional non-withdrawable power as it became available,
of which the City primarily complains here. Santa Clara
alleges that the Bureau’s creation of this class of what the
City terms “super-preference customers” contravenes gov-
erning legal principles. The defendants do not dispute that
such discrimination between preference customers has been
practised ;’* rather, it is their position that it is within
the unreviewable discretion granted them by Congress to
so discriminate. Alternatively, they assert that the diserim-
inatory aspects of the allocation scheme are rationally
based.
li. Specific Legal Claims.
Santa Clara marshals the following legal arguments in
support of its claims:
(1) It contends that the federal government has
transgressed the commands of the Federal Reclama-
Even assuming that Santa Clara’s actual utilization of power is
presently somewhat in excess of 120,000 kilowatts (the maximum it
received from CVP in 1971), the above figures show that the City’s
power usage is neither significantly greater nor significantly lesser
than the usage of other municipal preference customers, who have
long-term, non-withdrawable allocations, and the difference in treat-
ment of Santa Clara cannot be attributed to any such factor.
When withdrawals from short-term allocation customers have be-
come necessary, apparently the Bureau has ecaleulated the amount
of such withdrawals per customer on some sort of pro rata basis.
For example, for the withdrawals anticipated during the summer
months of 1971, see Defendants’ Exhibit 16, attachment.
15. “Similarly situated” in the sense of being a municipal user
with load demands roughly equivalent to other municipal users of
CVP power.
16. See Defendants’ Motion for Summary Judgment, Doc.No.
15, at pages 6-9, 10.
Appendix 55
tion Laws, 43 U.S.C. § 371 et seq. (a) by selling power
to PG&E, a private entity not entitled to the statutory
preference contained in 43 U.S.C. § 485h(e), and (b)
by discriminating against one preference customer,
Santa Clara, in favor of other preference customers:
(2) It savs that if not the statute, then the Fifth
Amendment, with its equal protection concepts of due
process, bars such discrimination;
(5) The City claims a denial of the procedural due
process protected by the Administrative Procedure
Act, 5 U.S.C. $551 et seq., in the federal defendants’
failure to establish, by regulation or otherwise, with-
out opportunity for input by interested parties, any
standards or guidelines by which is regulated the
method of CVP power allocation among preference
customers;
(4) It likewise claims that whatever procedures
that might have been followed by the Bureau in deter-
mining allocations and types of allocations were so
deficient as to deny due process; and, finally,
(5) Santa Clara maintains that defendants’ actions
violate the National Environmental Poliev Act, 42
U.S.C. § 4321 et seq.
The Department and the Bureau, and PG&E, in addition
to maintaining that their allocatiorwscheme is unreviewable
or in any event rational, respond first, that this is an
unconsented suit against the sovereign and is, therefore,
barred; second, that Congress has approved the Bureau’s
allocation scheme; third, that the provisions of the Admin-
istrative Procedure Act, 5 U.S.C. $551 et seq.. cited by
plaintiff are cither inapplicable or were satisfied: fourth,
56 Appendix
that the City has no property interest entitled to due
process protection; and fifth, that NEPA does not apply.
We now have before us (1) federal defendants’ motion,
joined in by PG&E, for summary judgment on all due
process issues and alleged violations of the Federal Reela-
mation Laws; (2) defendants’ motion for summary judg-
ment on the NEPA claim; (3) plaintiff’s motion for sum-
mary judgment on the due process issues; and (4) PG&E’s
motion for summary judgment on its counterclaim against
Santa Clara for monies due under its power sale contract.
For reasons hereinafter stated, the court denies (1), (3),
and (4), and grants (2).
A. Sovereign Immunity.
The threshold jurisdictional question raised interestingly
enough in the first instance by PG&E and not the sovereign’s
officers, of whether this suit is barred by the doctrine of
sovereign immunity, must logically be entertained first.
While the law of the subject in some respects is confusing,
Land v. Dollar, 330 U.S. 731, 67 S.Ct. 1009, 91 L.Ed. 1209
(1947), the inapplicability of the doctrine to this ease is
relatively clear. Since Ex parte Young, 209 U.S. 123, 28
S.Ct. 441, 52 L.Ed. 714 (1908), it has been established that
sovereign immunity is no defense in suits against officers
who allegedly act unconstitutionally or in excess of author-
itv. Georgia R. R. € Banking Co. v. Redwine, 342 U.S. 299,
72 S.Ct. 321, 96 L.Ed. 335 (1952); Philadelphia Co. v. Stim-
son, 223 U.S. 605, 32 S.Ct. 340, 56 L.Ed. 570 (1912) ; Ickes v.
Fox, 300 U.S. 82, 57 S.Ct. 412, 81 L.Ed. 525 (1937) ; United
States v. Lee, 106 U.S. 196, 1 S.Ct. 240, 27 L.Ed. 171 (1882).
This case presents just such allegations. PG&E’s cases,
Larson v. Domestic & Foreign Corp., 337 U.S. 682, 69 S.Ct.
1457, 93 L.Ed. 1628 (1949); Malone v. Bowdoin, 369 U.S.
643, 82 S.Ct. 980, 8 L.Ed.2d 168 (1962); Dugan v. Rank, 372
Appendix 57
U.S. 609, 83 S.Ct. 999, 10 L.Ed.2d 15 (1963); and City of
Fresno v. California, 372 U.S. 627, 83 S.Ct. 996, 10 L.Ed.2d
28 (1965), while presenting some fascinating questions
regarding the future course of the law of the doctrine
as it applies in suits against officers who act within valid
authority, are not to the contrary. See generally 3 Davis,
Administrative Law Treatise, $$ 27.03-27.05: and 1970
Supp. § 27.01.
Since we hold that under established law, the doctrine
of sovereign immunity does not bar this action, we need
not consider the possibility that the Administrative Pro-
cedure Act operates as a partial waiver of sovereign
immunity, which question is in a state of considerable
confusion. Compare Adams v. Witmer, 271 F.2d 29 (9th
Cir. 1958) (APA authorized suit against officer: sovereign
immunity not discussed), with State of Washington v.
Udall, 417 F.2d 1310 (9th Cir, 1969) (eourt avoided sov-
ereign immunity by holding that the Secretary exceeded
his authority): Scanwell Laboratories v. Shaffer, 137 U.S.
App.D.C, 371, 424 F.2d 859 (1970) (APA waives sovereign
immunity): Aletschka v. Driver, 411 F.2d 486 (2d Cir.
1969) (APA waives sovereign immunity concerning those
claims which come within its scope).
B. Violation of Federal Reclamation Laws.
(1) Preference Clause Issue.
Plaintiff notes that substantial amounts of CVP power
have been sold to PG&E over the vears'™ and maintains
that had this power been allocated to preference customers,
as the statute requires, there would be no controversy since
all of Santa Clara’s requirements for power wonld be
17. See Defendants’ Submission of CVP Data, Doe.No.23. Sinee
1965, PG&E has purchased in excess of 80,000 kilowatts annually;
the 1975 allocation to the utility was 337,000 kilowatts.
58 Appendix
met. There is no dispute as to the basic facts: the prefer-
ence clause clearly applies, and PG&E is not a preference
customer.
There is, however, some dispute as to whether this power
has actually been unconditionally “sold” to PG&E in the
standard sense. If so, the statute has heen violated, PG&E
and the Bureau maintain that while power is sold to PG&E,
it is subject to the Bureau’s right to repurchase an equiv-
alent amount of energy at a later date for delivery to
preference customers.
This is indeed the case. The contract hetween the Bureau
and PG&E" provides that capacity and energy sold to
PG&E must be recorded in special capacity and energy
accounts and is subject to Bureau repurchase rights. See
Contract 2948A, Article 20(a, b, e. & e) and Article 21.
In essence, energy is “hanked” by PG&E for future Bureau
use. The hank account provisions of the contract were
included to enable the Secretary of the Interior to carry
out a power marketing plan developed in 1964 to meet the
long-term needs of preference customers.’® The withdrawals
of power from Santa Clara beginning in 1971 were made
as a part of this plan.*° In order for the Burean to satisfy
load growth of the then existing preference customers
18. The PG&E-Bureau contract (Contract 2948A) is attached
as Appendix C to Supplemental Memorandum of PG&E in Support
of Defendants’ Motion for Summary Judgment, Doe.No.27.
19. The bank accounts and the Secretary’s marketing plan are
discussed in Defendants’ Exhibit 23, “Report to the Appropriations
Committees of the Congress of the United States Recommending a
Plan of Construction and Ownership of EHV Electrie Interties
Between the Pacifiie Northwest and the Pacifie Southwest” (Com-
mittee Print, 1964) at pp. 21. 35-37, 39, and 43-46. The discussion
at pages 35, and 43-46, describes the role of the bank accounts in
the power marketing scheme.
20. See Plaintiff's Exhibit 22, at pages 1-2.
Appendix 59
through 1980 (the time targeted in the 1964 marketing
scheme), and at the same time have power available for
anticipated Bureau loads coming on line (such as the San
Luis pumping unit scheduled for 1966-67), it was necessary
to make provision in the scheme for some sort of power
banking arrangement, and the Bureaun—PG&FE contract
does just that. Henee, the court finds that the “sales” of
power to PG&E do not violate the preference provisions
of 43 U.S.C. § 485h(¢).73
(2) Discrimmation in Treatment of Preference
Customers.
The relevant provisions of the Central Valievy Authoriza-
tion Act and the Federal Reclamation Laws are set out
above. For purposes of this section, the operative provision
is that found in 43 U.S.C. § 485h(¢) which mandates that
in the sales of CVP power, “preference shall he given to
municipalities.” Santa Clara argues that this language
should be read to mean that all preference entities shall
be treated equally in the allocation of CVP power.
(a) Reviewahbility of Defendants’ Actions.
The defendants and PG&E argue strenuously that the
federal statutes governing the sale of CVP power to pref-
erence customers represent such a broad grant of discretion
21. While there is no legitimate preference clause issue in this
ease, Santa Clara’s objection to the sales to PG&E is one aspect of
its larger challenge to the marketing scheme in general, under
which preference entities which were Bureau CVP customers in
1964, when the plan was devised, were promised not only non-with-
drawable present allocations of CVP power, but also allocations for
load growth through 1980. The sales to PG&E, and the banking of
such power by that company, were for the purpose of reserving
power for the existing preference customers’ load growth. As such,
Santa Clara would claim, these sales are just one more example of
discrimination between preference customers, because they are for
the purpose of satisfying the power needs of a group of preference
customers of which Santa Clara was not allowed to become a part.
60 Appendix
in the Secretary of the Interior that his actions thereunder
are not subject to judicial review. They rely on the Admin-
istrative Procedure Act, 5 U.S.C. §$ 701(a)(2) which makes
that Act, with its provision for judicial review of agency
action under Section 702, inapplicable “to the extent that
. agency action is committed to agency discretion by
law.”
Judicial reviewability of administrative action is the
rule, and nonreviewability an exception which must. be
demonstrated, and which should result only from a showing
of “clear and convincing evidence” of a legislative intent
to restrict judicial review. Barlow v. Collins, 397 U.S. 159,
90 S.Ct. 832, 25 L.Ed.2d 192 (1969): Abbott Laboratories
v. Gardner, 387 U.S. 136, 87 S.Ct. 1507. 18 L.F.d.2d 681
(1967); Arizona Power Pooling Assn. v. Morton, 527 F.2d
721 (9th Cir. 1975). See also Hf.R.Rep.No.1980, 79th Cong.,
2d Sess., 41.
As the Supreme Court has stated, the “committed to
agency discretion” exception is a very narrow one, applica-
ble only in “those rare instances where ‘statutes are drawn
in such broad terms that in a given case there is no law
to apply.’” Citizens to Preserve Overton Park v. V olpe,
401 U.S. 402, 410, 91 S.Ct. 814, 820, 28 L.Fd.2d 136 (1971).
Searching for law to apply, Santa Clara makes alterna-
tive contentions. First, the City says that the preference
clause itself, mandating as it does that “preference shall
be given” to municipalities, places limits on the Secretary’s
discretion sufficient to say that the agency action is not so
far committed to agency discretion that judicial review
is barred. This argument, like so many in cases seeking
to invoke Section 701, ignores the qualifving language
found there: “to the extent that ._ . agency action is
committed to agency discretion by law.” Looking for shakles
Appendix 61
on discretion in the abstract is of no aid; rather, there
Inust appear circumscription of discretion on the particular
issue sought to be challenged. While the Secretary cannot,
under the statutory mandate, sell power to a nonpreference
customer over a preference customer, see Arizona Power
Pooling Assn, v. Morton, supra, the statutory admonition
does not address the question of whether the Secretary can,
for example, sell all available power to one preference
customer while refusing to sell any to another preference
customer. Since on this particular issue 43 U.S.C. § 485h (e)
does not speak, theoretically, judicial review of such a deci-
sion, no matter how arbitrary or capricious, is barred under
the Administrative Procedure Act.
Looking beyond the confines of the Reclamation Laws.
however, Santa Clara finds in Section 5 of the Flood Control
Act of 1544, 16 U.S.C. § 825s, the following:
Eleetrie power and energy generated at reservoir proj-
ects under the control of the Department of the Army
and in the opinion of the Secretary of the Army not
required in the operation of such projects shall be
delivered to the Secretary of the Interior, who shall
transmit and dispose of such power and energy in such
manner as to encourage the most widespread use
thereof at the lowesfpossible rates to consumers con-
sistent with sound business principles.
It is admitted by the City that the power generated from
CVP is not statutorily controlled by the Flood Control
Act. Rather, Santa Clara notes that the Department and
the Bureau themselves, and their attorneys here, as a matter
of departmental policy consider the provisions of that Act
to be applicable to the marketing of CVP power.®? See
22. The Department’s position in this regard is found in a letter
from then Seeretary Udall to Representative Aspinall dated May
15, 1965: ;
The provisions relating to power marketing and power rates
in section 9(c) of the Reclamation Project Act of 1939 [43
62 Appendix
Northern Calif. Power Agency v. Morton, 396 F.Supp.
1187, 1189 (D.D.C. 1975), aff’d per curiam without written
opinion,” 539 F.2d 243 (D.C.Cir. 1976) (assumed by the
court to be the case.)
U.S.C. §485h(e) ], seetion 5 of the Flood Control Act of 1944,
and section 6 of the Bonneville Power Act are in pari materia,
and each may be examined to shed light on the Congressional
intent with respect to the others. Indeed, as a practical matter,
as illustrated by the Bonneville Power Administration, be-
cause a single system may be used to market power from three
different sources, the three statutes have to be read together
and interpreted as establishing identical criteria for power
rates. Consequently, the mandate of the Flood Control Act of
1944 to market power from Army projects “in such manner as
to encourage the most widespread use thereof at the lowest
possible rates to consumers cons stent with sound business
principles” applies also to power marketed from reclamation
projects under reclamation law. —_
See Federal Reclamation and Related Laws Annotated, Vol. I, at
649 (1972). See also 41 Opp.Atty.Gen. 236 (1955).
PG&E hastens to point out that this statement of Departmental
policy, which is in the utility’s view “unduly solicitous of Santa
Clara’s interests”, see PG&E’s Memo.Add.Pts. & Auth. in Support
of Defendants’ Motion for Summary Judgment, Doe.No.24, is
merely an interpretation of the Reclamation Laws by the Depart-
meni of the Interior, and, as such, is not binding on the Department
or the court. Wilbur v. United States, 281 U.S. 206, 50 S.Ct. 320,
74 L.Ed. 809 (1930). PG&E attempts to show that Congress would
not have wanted this aspect of the Flood Controi Act to control the
Interior Secretary’s power marketing discretion under the Recla-
mation Laws, by noting that Flood Control Act power rate strue-
tures are subject to regulatory jurisdiction of the FPC, whereas
Reclamation Act rates are not. Also, PG&E notes, under the Flood
Control Aet, the FPC is given standards to apply in regulating
rates, whereas under the Reclamation Laws there is no such regu-
latory ageney to oversee power sales; rather the Seeretary of the
Interior directly is given such standards and guide-lines. The stat-
utory difference in administration of power rate-setting is without
significance on the issue of how power should be marketed in the
publie interest. The rate structure guidelines in both statutes are
designed to insure that the government reeoups its investment and
covers operating expenses, and in no sense does the presence of the
FPC in one scheme give rise to an inference that discretion in for-
mulating power marketing plans is to be greater or lesser in one
statute or the other.
Appendix 63
While the Department's interpretation of the interrela-
tionship between the two Acts is not binding, it is the
opinion of the court that at least as far as power marketing
is concerned, Congress likely did intend that CVP power
was to he disposed of “in such manner as to encourage the
most widespread use thereof at the lowest possible rates
to consumers consistent with sound business principles.”
The court notes that the subject provisions of the Flood
Control Act, drafted in language of general applicability
to sales of public power, came just after the Reclamation
Laws, and thus represent the most recent, but at the same
time contemporaneous expression of Congressional desire
eoncerning the marketing of public power. Of greater
moment, there is no dearth of Congressional pronounce-
ments that public projects funded by public money should
inure to the henefit of the public as a whole to the greatest
extent possible.“ This is clearly the goal of the preference
clauses found in a multitude of Congressional acts. in-
cluding, not insignificantly, that governing power sales
from CYP. Publie agencies and co-ops were to get first shot
at the power generated by federal projects, a concept
tracing back to public ownership of water resources and
the power flowing therefrom.” Finally, as then Secretary
93. See, e. e. Cone.Ree.—Senate (Nov. 22, 1944) at 8323.
24. In addition to the present Reclamation Laws, the Bonneville
Power Act, and the Flood Control Act, noted above, preference
clauses appeared in the following: Reclamation Act of 1906, 34
Stat. 116: Raker Act of 1913, 38 Stat. 242: Federal Water Power
Act of 1920, 41 Stat. 1063. 16 U.S.C. § 800: Salt River Project Act
of 1922, 42 Stat. 847, 48 U.S.C. $598; Boulder Canyon Project Act
of 1928, 45 Stat. 1057, 43 U.S.C. § 617d(e) ; Tennessee Valley Au-
thority Act of 1933, 48 Stat. 58, 16 U.S.C. $831 et seq.; Rural
Electrification Act of 1936, 49 Stat. 1363, 7 U.S.C. $901 ct seq.:
Fort Peek Projeet Act of 1938, 52 Stat. 403. 16 T.S.C. $ 833 et seq.
25. See Preference to Public Bodies in the Marketing of Public
Power, Library of Congress, Legislative Reference Service, Jan 20,
1956.
64 Appendix
Udall stated,** as a practical matter, because the Depart-
ment may often find itself using a single system to market
power from
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