Petition — SANTA CLARA, CALIFORNIA v. ANDRUS (Nos. 78-35, 78-9)

Supreme Court brief1978

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IN THE

Supreme Court of the United States

OcToOBER TERM, 1978

City OF SANTA Ciara, CALIFORNIA, Petitioner,

Ceci D. Anprus, R. KertrH Hiacinson and

Pactric Gas AND ELEcTRIC Company, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

f Counsel:

Of Couns FrepRicK D. PALMER

Epwin G. Moore JAMES D. PEMBROKE

1500 Warburton Ave. 1775 Pennsylvania Ave., N.W.

Santa Clara, Calif. Suite 1200

95050 Washington, D.C. 20006

Attorneys for Petitioner

Press oF Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

IS7R

TABLE OF CONTENTS

Page

san o's atnie ence saps eT OCT TE Ea ae 1

I Slat piso ickg ou vd beac tees. 2

QuESTIONS PRESENTED ......................0.....,. 2

CoNsTITUTIONAL Provistons AND Statutes INvoLvep 3

STATEMENT OF THE CaSE ............................ 3

A. Before the District Court ................... 7

B. Before the Court of UE aul Sie cvecceee 9

Reasons ror GRANTING THE , Sethe AN adel he ote 2 10

A. Question One—Reviewability ................ 10

B. Question Two—Administrative Procedure Act 16

C. Question Three—Due Process ............... 22

Ee a a 27

APPENDIX

TABLE OF AUTHORITIES

CasEs:

Aberdeen & Rockfish Railroad v. SCRAP, 422 U.S. 289

SEP SIT mere ain 3

Alabama Power Company v. Alabama Electric Coop-

erative, Inc., 394 F.2d 672 (Sth Cir. 1972) ......., 14

Arizona Power Authority v. Morton, 549 F.2d 1231 (9th

Cir.), cert. denied, 98 S.Ct. 124 EE? vheceues ce 12-13

Arizona Power Pooling Association v. Morton, 527 F.2d

Woe Gime OR, TOTO) nnn vcecccccccccccccn,,.

Barlow v. Collins, 397 U.S. 159 ED S04 60e ocsceees 14

Board of Regents v. Roth, 408 U.S. 564 (1972) ...... 23, 24

Bolling v. Sharpe, 347 U.S. 497 | eee 15

Califano v. Sanders, 430 U.S. 99 ae 15

Citizens to Preserve Overton Park v. Volpe, 401 U.S.

WIT 56s scntncwccacunccccccescecee,... 1]

ii Table of Authorities Continued

Page

City of Lafayette v. Louisiana Power and Light Co.,

—— U.S, ——, 46 U.S.L.W. 4265 (March 29, 1978) 14

Environmental Defense Fund, Inc. v. Ruckelshans, 439

F.2d 548 (D.C. Cir. 1971) ....... cece ceccuaueees 19

F. S. Royster Guano Co. v. Virginia, 253 U.S. 412

Ee a aes ohare 15

Gardiner v. Tarr, 341 F. Supp. 442 (D.D.C. 1972) .... 18

Gonzalez v. Freeman, 334 F.2d 570 (D.C. Cir. 1964) . .18, ro

Greenwood Utilities v. Andrus, No. 77-179 (M.D. Ga.) . 5

Holmes v. New York City Housing Authority, 398 F.2d

ee I NE oo oe robs wb bte saan eases eees 25

Ivanhoe Irrigation District v. McCracken, 357 U.S. 275

ge a Oe Be Ie er rey re ere 12

McDonald v. General Mills, 387 F. Supp. 24 (E.D. Cal.

rh cr ahs suc Le oan 19

Memphis Light, Gas & Water Division v. Craft, ——

U.S. ——, 56 L. Ed. 2d 30 (May 1, 1978) ......... 26

Morton v. Ruiz, 415 U.S. 199 (1974) ............. 18, 21-22

Northern California Power Agency v. Morton, 396 F.

Supp. 1187 (D.D.C. 1975), aff’d per curiam, No.

75-1572 (D.C. Cir. June 16, 1976) ........... 18, 19, 25

Pence v. Kleppe, 529 F.2d 135 (9th Cir. 1976) ........ 25

Perry v. Sinderman, 408 U.S. 593 (1972) ............ 23-24

Portland v. Bonneville Power Administration, No. 77-

a as aa diag we pk ahd» oa ON 5

W. G. Cosby Transfer & Storage Co. v. Froehlke, 480

ee TN OU, BOGE ccc cccccspresrccccecven 18

White v. Roughton, 530 F.2d 750 (7th Cir. 1976) ...... 25

CoNnsTITUTION AND STATUTES:

United States Constitution, Fifth Amendment . .3, 15, 16, 19

United States Constitution, Fourteenth Amendment . .15, 19

American River Act of 1949, § 4, 63 Stat. 852 ........ 11

Administrative Procedure Act

§3(a)(1), 5 U.S.C. §552(a)(1) .............. passim

Ee eb arias oN. nuve 46s 3, 17, 20, 21, 22

GO ee eee err 3

Table of Authorities Continued iii

Page

Central Valley Project Authorization Act, 50 Stat. 850 11

Department of Energy Organization Act, 42 U.S.C.

BE Fg ee oy eR, 4, 20

Poe ath eS 5 | i a eee 20

§ 302(a)(1), 42 U.S.C. § 7152(a)(1) 2.0.0.0... 20

§ 302(a) (3), 42 U.S.C. § 7152{a)(3) .........008. 4

§ 501(b) (3), 42 U.S.C. § 7191(b)(3) oo... ccc cee 20

Flood Control Act of 1944, § 5, 16 U.S.C. § 825s ... . passim

National Environmental Policy Act of 1969, § 102(2)

CG), 4B UBS. 4 UBGRBIC) 6.5 oc cccccccccnccuc.

Reclamation Project Act of 1939, §9(c), 43 U.S.C.

LL | La Rend Mevuwuaes crkesctaaes passim

ET I So sv ds'y eb SCRA IVS SELENE CLEA 3

Wer Mee ES 9 5 i oa Ni ud 6 ie 6045 dec kad s gaan, 3

ee rs sows wg vv Gd dn eeu oebuues tak ccs 3

Wr A ED eds cs week sha hd be cea das enkas 2

We NEM PUD 55's sok cau Ninly ao panchuccoennc. 3

MISCELLANEOUS:

K. Davis, §3A Administrative Law of the Seventies

WED Tie Wian cae ete es cease wen eer ee 19

K. Davis, Discretionary Justice (1969) .........0.05. 19

K. Davis, Informal Administrative Actions, Another

View, 26 A.U.L. Rev. 836 (1977) .........ccccue. 19

Federal Power Commission, Hydroelectric Power Re-

sources of the United States (1976) ............. 5

IN THE

Supreme Court of the United States

OctToper TERM, 1978

No.

City or Santa Ciara, CatirorntA, Petitioner,

Vv.

Ceci, D, Anprus, R. Kerra Hiaainson and

Paciric GAs AND EvEctric Company, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner prays that a writ of certiorari issue to

review the decision of the United States Court of

Appeals for the Ninth Circuit.

OPINIONS BELOW

The opinion and order of the United States Court

of Appeals for the Ninth Circuit is set forth at page

la of the Appendix to this Petition and is reported at

572 F.2d 660. The order reversed in part and affirmed

in part a judgment of the United States District

Court for the Northern District of California which

is set forth at page 39a of the Appendix to this Pe-

tion and is reported at 418 F. Supp. 1243.

JURISDICTION

The decision and order of the United States Court

of Appeals for the Ninth Circuit issued and was en-

tered February 1, 1978. The decision was amended on

Denial of Rehearing and Rehearing En Bane on

April 4, 1978. Accordingly, the time for filing this

Petition expires on July 3, 1978. This Court’s jurisdic-

tion is invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. Do federal power marketing statutes vest un-

fettered discretion in an administrator of a federally

owned and operated hydroelectric project to pick and

choose among a group of customers designated by

Congress as preferred customers for electric energy

generated at the project?

2. Does the Administrative Procedure Act, and

specifically 5 U.S.C. §552(a)(1), permit ad hoc de-

cision-making by federal power marketing agencies

with respect to the sale of electric energy generated

at federally owned and operated hydroelectric proj-

ects ?

3. Does a municipally owned and operated electric

utility, which qualifies under acts of Congress as a

preferred customer for electric energy generated at a

federally owned and operated hydroelectric project,

and is in fact treated as such by the federal power

marketing agency in charge of the project, have a

sufficient claim of entitlement to electric service from

that project to warrant due process protection ?*

* Both the District Court and the Court of Appeals rejected

Petitioner’s allegation of a violation of the National Environmental

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

This controversy presents issues with respect to the

following constitutional provisions and statutes, all of

which are set forth in the Appendix beginning at 84a;

The Fifth Amendment to the Constitution of the

United States; The Reclamation Project Act of

1939, 43 U.S.C. § 485h(c); Section 5 of the

pean —— . of 1944, 16 U.S.C. § 825s; The

ministrative Procedure Act, 5 U.S.C. §6 552

(a)(1), 553, 701.

STATEMENT OF THE CASE

This Petition presents the question of whether a

remedy exists for admitted, unjustified and unex-

plained federal discrimination against a municipally

owned and operated electric utility which Congress has

designated as a preferred customer for federally-

generated, low cost hydroelectric power and energy.

43 U.S.C. § 485h(¢) ; 16 U.S.C. § 825s.

The Petition arises from a complaint for injunctive

and declaratory relief filed by the City of Santa Clara,

California, Petitioner, against various officers and offi-

cials employed by the United States Department of

the Interior. The Complaint was filed in the United

States District Court for the Northern District of

California. Jurisdiction was asserted under 28 U.S.C.

§§ 1331, 1361, 1837 and 2201-2202 and 5 U.S.C. $$ 701,

et. seq.

‘ sate

Policy het of 1969, 42 U.S.C. § 4332(2)(C), If the Court grants

this Petition, Petitioner intends to challenge the disposition of the

NEPA issue on the basis of Aberdeen & Rockfish Rail

SCRAP, 422 U.S. 289 (1975) fish Railroad v.

Petitioner is a municipal corporation organized

under the laws of the State of California and is en-

gaged, inter alia, in the retail distribution and sale of

electric power and energy to its citizens and other

customers. As a result, Petitioner qualifies as a pre-

ferred customer of federal power marketing agencies

under 43 U.S.C. § 485h(¢c) and 16 U.S.C. § 825s,

Petitioner, pursuant to contact, purchases an al-

legedly ever diminishing amount of electric power and

energy needed for its consumers from the Central Val-

ley Project (hereafter CVP), now administered by

the United States Department of Energy through the

Western Area Power Administration.’ In addition to

Petitioner, CVP serves numerous customers similarly

situated, including the Cities of Biggs, Gridley, Palo

Alto, Redding, Roseville, the Sacramento Municipal

Utility District, the Shasta Dam Area Public Utility

District, and the Plumas Sierra Cooperative. (40a, fn.

3). All of these entities are wholesale for resale pur-

chasers of CVP power and energy, are competitors of

Petitioner, and will hereafter be referred to as the

‘‘super-preference’’ customers. (45a-48a, and partic-

ularly fn. 14).

As noted by the Court of Appeals:

The Secretary of the Interior, through the Bu-

reau of Reclamation, sells the power generated by

the CVP at a price substantially lower than that

charged by private utilities such as PGandE

[Pacifie Gas and Electric Company]. Conse-

*42 U.S.C. § 7152(a) (3).

quently, CVP power does not lack for willing

purchasers, (2a-3a) (footnote omitted ).’

One of the reasons for the present litigation is that

the federal Respondents have discriminated and are

discriminating against Petitioner in the sale of CVP

power and energy in favor of the superpreference

customers, As the opinions of both the District Court

and the Court of Appeals make clear, the Federal

Respondents maintain that they are entitled to com-

mit the entire capacity of CVP to the superpreference

customers and can deny Petitioner CVP benefits, not-

withstanding Petitioner’s statutory entitlement there-

* This observation is not confined to CVP since it is but one of

many federally owned and operated hydroelectric projects and

since hydroelectric energy, as is generally known, is usually the

least expensive energy available due to the inexpensive nature of

the fuel ; falling water, In fact, as of January 1, 1976, 159 federally

owned hydroelectric projects were in operation with a developed

capacity of 27,700,528 kilowatts. New capacity under construction

at that time equaled 9,304,750 kilowatts of capacity with an addi-

tional 5,306,885 authorized, but not yet in process, Hydroelectric

Power Resources of the United States, Federal Power Commission

(January 1, 1976),

In the recent past administrative and judicial proceedings have

increased in number with respect to both rates and allocation of

capacity and associated energy. Proposed rate increases are pend-

ing for (1) the Central Valley Project; (2) the Southwestern

Power Administration ; (3) the Jim Woodruff Project of the South.

eastern Power Administration ; and (4) Cumberland Project of the

Southeastern Power Administration. Additionally, the Department

of Energy has pending a proposed allocation scheme for peaking

power from the Colorado River Storage Project, and Bonneville

Power Administration is in the process of developing a formula to

allocate energy that it markets, At least two pending cases involve

attempts to obtain allocations of preference power from federal

power marketing agencies, Greenwood Utilities y. Andrus, No, 77-

179 (M.D, Ga.); Portland vy, Bonneville Power Administration,

No. 77-928 (1D, Ore.),

to. Instead, as the Federal Respondents attempt to

withdraw more and more CVP power and energy from

Petitioner, this same power and energy is supposedly

committed to the load growth of competitors of Peti-

tioner, the superpreference customers. (4a; 42a-43a).

As the controversy stands before this Court, there is

no justification nor explanation for the discrimina-

tory treatment of Petitioner, the only justification

advanced by the Federal Respondents (congressional

ratification of the discrimination) having been found

lacking by both the District Court and the Court of

Appeals. (21a; 6la-62a).

Pacific Gas and Electric Company (PGandE), is

also a party to the action and sides with the Federal

Respondents. PGandE, a large, integrated private

utility, purchases CVP electric power and energy un-

der an agreement designated Sale, Interchange and

Transmission Contract No, 14-16-200-2948A (Contract

2948A). PGandE transmits CVP power and energy

to virtually all of the CVP customers over PGandE

transmission lines under Contract No. 2948A. When

CVP power is available in quantities in excess to the

needs of the superpreference customers, it is then

supposedly sold to PGandE, a non-preference custo-

mer. PGandE in turn has agreed to sell to the Federal

Respondents a like amount of power and energy at

such future time as the needs of the superpreference

customers are in excess of the CVP capacity. (13a-

15a).

Another reason for the present litigation is the

Federal Respondents’ relationship with PGandE.

That is, since the Federal Respondents claim that

their superpreference customers have both all present

and future rights to CVP output, the Federal Re-

spondents make present sales to PGandE, a non-

preference customer, ahead of Petitioner, a preference

customer.

Petitioner also has a contractual relationship with

PGandE. In order to assure that it had a sufficient

supply of power and energy to meet its needs, Peti-

tioner executed a contract with PGandE which obli-

gates PGandE to sell Petitioner enough power and

energy to equalize its needs in the event an insufficient

amount of CVP power and energy is available. In

1971, when the Federal Respondents initiated allegedly

improper withdrawals of CVP power and energy uni-

laterally, PGandE commenced monthly billings for

power allegedly delivered by PGandE to Petitioner.

Petitioner refused to pay for any of the power al-

legedly delivered by PGandE to it and, pursuant to

separate agreements with PGandE, commenced de-

posits in an escrow account in an amount equal to the

PGandE billings, less the amount PGandE would re-

ceive for transmission services if Petitioner is found

to have been receiving all requirements service from

CVP, as it has alleged.

As of the date of the filing of this Petition, the

escrow account contains over $50,000,000. and is build-

ing at the rate of approximately $1,500,000. per

month, exclusive of interest.

A. Before the District Court

In an opinion rendered in response to cross motions

for summary judgment, Petitioner’s challenge to the

discrimination practiced by the Federal Respondents

elicited the following findings and holdings by the

District Court:

1. The federal power marketing statutes provide

‘law to apply’’ in reviewing the challenged CVP

power marketing practices. (54a-58a).

2. CVP power marketing practices discriminate

against Santa Clara in favor of ‘‘superprefer-

ence’’ customers similarly situated. (59a-61a).

3. The only justification advanced for the dis-

crimination, congressional ratification, is ‘‘inade-

quate.’’ (63a-64a).

4. The Federal Respondents never published nor

made known any procedures or policies followed

in allocating CVP power ‘‘at any point in time’’,

and therefore violated 5 U.S.C. § 552(a) (1). (67a-

69a).

5. Petitioner has a sufficient interest in CVP

power and energy entitling it to due process pro-

tection and Petitioner’s right to due process was

violated. (70a-77a).

As a consequence, the District Court remanded the

controversy to the Secretary for a new look at CVP

power marketing practices consistent with the man-

dates of the federal power marketing statutes and

procedural due process. At the same time the District

Court expressed no views on the reasonableness vel

non of present practices, and having earlier found

that the legality of the challenged sales to PGandE

turned on the legality of the challenged, discrimina-

tory power marketing practices, ordered preservation

of the escrow mechanism pending the outcome on re-

mand. (76a-77a). Finally, the District Court dismissed

the action without prejudice.

B. Before the Court of Appeals

Following cross-appeals, the Court of Appeals re-

versed the District Court in most respects, the one

major exception being agreement that Congress never

ratified the discriminatory practices under challenge.

(21a).

The Court of Appeals’ contrary holdings were as

follows:

1. Since the federal power marketing statutes do

not specifically deal with which eligible prefer-

ence customers are to receive power allocations,

there is no ‘‘law to apply” to the controversy and

the Secretary may discriminate, without reason,

among preference customers. (9a-13a).

2. Sales to PGandE, a non-preference customer,

ahead of Petitioner, a preference customer, are

suspect and not justified by the CVP power mar-

keting scheme. (13a-21la).

3. Title 5 U.S.C. §552(a)(i1) does not require

the promulgation of rules to be followed in power

marketing decision making and no allegation hav-

ing been made that such rules exist, it was error

for the District Court to find a §552(a)(1) viola-

tion. (2la-26a).

4. Since the Federal Respondents have uncon-

trolled discretion to discriminate in dealing with

preference customers inter sese, Petitioner has no

due process rights with respect to sales of CVP

power among preference customers. (26a-29a).

5. Since Petitioner has a preference to CVP

power against PGandE, Petitioner does have due

process rights with respect to sales of CVP power

to PGand E. (29a-30a).

Accordingly, the Court of Appeals reversed the Dis-

trict Court’s remand to the Secretary and the dismis-

sal of the action. Instead, the Court of Appeals re-

manded the controversy to the District Court with in-

structions to consider the limited issue of the legality

of the suspect CVP sales to PGandE under the fed-

eral power marketing statutes.

REASONS FOR GRANTING THE WRIT

As can be seen from the statement of Questions

Presented, Petitioner believes that the Court of Ap-

peals erred in three significant ways in reversing the

District Court. As will be seen, each of the holdings

presents conflicts with either decisions of this Court

or of the various Courts of Appeal. As will also be

seen, the conflicts must be resolved to give federal

power marketing agencies, and other federal agencies

a clear charter in the now uncertain area of accepta-

ble administrative processes.

Of greater importance, the three holdings, read to-

gether, result in the following principle of law in the

Ninth Cireuit: unexplained and unjustified discrimi-

nation by a federal power marketing agency, practiced

against an entity singled out by Congress for pref-

erential treatment, may not be remedied by the federal

judiciary. Petitioner submits that this is an unac-

ceptable principle of law given the importance of fed-

eral hydropower to the economic and social well being

of preference customers.*

A. Question One — Reviewability

Petitioner maintains that both 43 U.S.C. § 485h(c)

and 16 U.S.C. §825s provide the requisite ‘“‘law to

apply’? in reviewing the power marketing decisions

* See fn. 3, supra.

by the Federal Respondents in the present instance,

See Citizens to Preserve Overton Park v. Volpe, 401

U.S. 402, 410 (1971).

43 U.S.C. §485h(¢c) (a part of the Reclamation

Project Act of 1939) governs CVP sales since the

Central Valley Project Authorization Act, 50 Stat.

850, incorporates the provisions of the reclamation

laws for CVP operation. 43 U.S.C. § 485h(¢) provides

that in the sale of power “‘. . . preference shall be

given to municipalities and other public corporations

or agencies .. .”’

While the CVP was not authorized under 16 U.S.C.

§ 825s, it nevertheless also governs CVP sales by vir-

tue of long standing departmental policy, which the

Federal Respondents have never disputed.’

16 U.S.C. § 825s provides:

Electric power and energy generated at reservoir

projects under the control of the iy maerages 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 im such manner as to encour-

age the most widespread use thereof at the lowest

possible rates to consumers consistent with sound

business principles.

[Emphasis supplied].

‘The Court of Appeals did not accept this proposition, and

indeed found it ‘‘questionable’’, but did not decide the issue in any

event since it viewed the statute as too ‘‘vague and general to pro-

vide law to apply.’’ (11a). The Distriet Court, on the other hand,

did find the statute applicable and Petitioner respectfully refers

this Court to the discussion at 55a, and particularly fn. 22. See

also, Section 4 of the American River Act of 1959, 63 Stat. 852,

which transfers the Folsom Dam, authorized under the Flood Con-

trol Act of 1944, to the Central Valley Project administrator.

As to 43 U.S.C. §485h(c), Petitioner main-

tained and maintains that an unexplained decision to

discriminate among preference customers similarly

situated is as reviewable under the statute as a deci-

sion to sell preference power to non-preference en-

tities first, the deprivation of a congressionally con-

ferred benefit being as real in either event and the

violation of the congressional mandate that preference

‘‘shall’’ be given equally as veal.

As to 16 U.S.C. § 825s, Petitioner maintained and

maintains that the mandate to the Secretary to sell

power to preference entities ‘‘. . . in such manner as

to encourage the most widespread use thereof .. .”

provides a more than adequate guideline for review-

ability where a congressionally intended beneficiary is

completely excluded from power supply for no ra-

tional reason; and particularly where the intended

beneficiary is in the heart of the geographic area that

Congress intended to be benefitted by CVP. See Ivan-

hoe Irrigation District vy. McCracken, 357 U.S. 275

(1958). Simply stated, Petitioner’s claim here is that

exclusion of eligible customers violates the congres-

sional directive that the administrator ‘‘encourage the

most widespread use’’ of the power.

The Court of Appeals disagreed with the Petitioner,

and held with respect to 43 U.S.C. § 485h(e) :

The preference clause requires only that public

entities be given a preference over private entities

in the marketing of power generated by federal

reclamation projects. Arizona Power Pooling As-

sociation v. 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 preference entity chal-

lenges the Secretary’s decision to discriminate

against it in favor of other preference entities,

the reclamation laws provide no law to apply to

the dispute. If he so chooses, the Secretary can

market all available CVP power to a single en-

tity without running afoul of the preference

clause. (10a) (emphasis in original).

Similarly, the Court of Appeals held with respect

to 16 U.S.C. § 825s that:

The Flood Control Act of 1944, while arguably

applicable to the sale of power generated by the

CVP, is so imprecise that its interpretation re-

quires a ‘‘profound exercise of discretion’’ of the

sort described in the Panama Canal ease. (12a).

These holdings of the Court of Appeals are consist-

ent with its previous holding in Arizona Power Au-

thority v. Morton, 549 F.2d 1231 (9th Cir.), cert.

denied, 98 S.Ct. 124 (1977), but are in error nonethe-

less.

In the Morton decision, the Ninth Circuit rejected

a challenge to a power marketing scheme of a federal

power marketing agency due to plaintiff’s failure

‘* . . to carry its burden of demonstrating that the

Marketing Criteria clearly violate the legislative in-

tent behind CRSP.” /bid. at 1251. Here the rationale

is similar in that Petitioner failed to elucidate to the

satisfaction of the Court of Appeals the precise con-

straints placed on the Federal Respondents in making

power marketing decisions under different hypothet-

ical circumstances under both 43 U.S.C. § 485h(¢) and

16 U.S.C. § 825s. (8a).

Petitioner subinits that the Ninth Circuit has thus

shifted the burden from the Federal Respondents to

show legislative intent to preclude judicial review

(Barlow v. Collins, 397 U.S. 159 (1970)) to the plain-

tiff, in each instance, requiring a precise showing of

the limits placed on discretion. Since the statutes here

do not specifically address the subject, judicial review

does not lie according to the Ninth Circuit.

One possible result of the decision by the Court of

Appeals will be litigation against federal power mar-

keting agencies under the federal antitrust laws. This

Court recently held that a municipal electric utility

may be sued under the federal antitrust laws where

‘*. , . the state itself has not directed or authorized

an anticompetitive practice ...” City of Lafayette v.

Louisiana Power and Light Co., —— U.S. ——, 46

U.S.L.W. 4265, 4272 (March 29, 1978). Since there

was no indication in Lafayette that the holding would

be restricted to state or municipal agencies, and since

the Court of Appeals here finds no enforceable con-

gressional policy with respect to discriminatory treat-

ment of preference customers, preference customers

suffering discrimination may now only have recourse

to damage and injunctive action under the antitrust

laws. Cf. Alabama Power Company v. Alabama Elec-

tric Cooperative, Inc., 394 F.2d 672, 677-92 (5th Cir.

1972) (Godbold, J., dissenting).

In other words, the Court of Appeals’ refusal to

hear disputes where discrimination is alleged between

or among preference customers on _ reviewability

grounds will not confine these disputes to administra-

tive deliberations and may, in fact, force them into

federal court. The better and less disruptive course is

to require federal power marketing agencies to articu-

late with rationality why a particular course of con-

duct is adopted. Only the judiciary is in a position to

ensure that the agencies meet this standard, and Pe-

titioner suggests that the Ninth Cirecuit’s doctrinal

approach on reviewability must be reversed.

It must be remembered, too, that Petitioner asserts

reviewability not only under the federal reclamation

laws and the Flood Control Act of 1944, but under

the Fifth Amendment as well. (65a). That is, Peti-

tioner alleges a violation of its constitutional right to

be free of discriminatory treatment which is not justi-

fied on any rational basis by the Federal Respondents,

which treatment is forbidden. by the Fifth Amend-

ment as well as the Fourteenth Amendment. Bolling

v. Sharpe, 347 U.S. 497, 499-500 (1954).

This Court has repeatedly asserted that governmen-

tal action

. . must be reasonable, not arbitrary, and must

rest upon some ground of difference having a fair

and substantial relation to the object of the legis-

lation, so that all persons similarly cireumstanced

shall be treated my F.S. Royster Guano Co. Vv.

Virginia, 253 U.S. 412, 415 (1920).

Petitioner has asserted again and again that its

right to equal protection of the laws has been and is

being violated and the Federal Respondents have yet

to advance even a modicum of justification for the dis-

criminatory treatment. This Court has stated that

‘‘when constitutional questions are in issue, the avail-

ability of judicial review is presumed... .’’ Califano

v. Sanders, 430 U.S. 99, 109 (1977).

Petitioner thus submits that even if one accepts

the Ninth Circuit’s finding that the reclamation laws

and the Flood Control Act of 1944 vest unlimited dis-

cretion in the Federal Respondents to discriminate

against preference customers, that the Fifth Amend-

ment provides a vehicle for this controversy to be

heard and that the Court of Appeals erred in not ree-

ognizing this principle.

B. Question Two — Administrative Procedure Act

Title 5 U.S.C. §552(a)(1) provides, in part:

Kach agency shall separately state and currently

publish in the Federal Register for the guidance

of the publie—

” ” u

(D) substantive rules of general applicability

adopted as authorized by law, and statements of

general policy or interpretations of general ap-

plicability formulated and adopted by the agency ;

and u ” 7

Except to the extent that a person has actual and

timely notice 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.

The District Court specifically found that,

The Bureau did not publish any such description

of the procedures followed in making power allo-

cations to preference customers... .

(67a),

In response to the Federal Respondents’ attempt to

invoke the statutory exception which applies when

‘‘actual and timely notice” of the procedures are given,

the District Court held:

The statutory exemption cannot apply where, as

here, such procedures as were followed were in-

completely and imprecisely delineated and com-

municated haphazardly, if at all, to affected par-

ties.

(68a).

In reversing the holding of the District Court, the

Court of Appeals held that:

We cannot read a rulemaking requirement into

Section 552, or interpret the section in such a

way as to render meaningless the publie property

exemption contained in Section 553.

(26a).

In reversing the District Court, the Court of Ap-

peals acknowledged that the result permits ad hoc

decisionmaking by the Federal Respondents. (25a).

The Court of Appeals thus erred in three respects.

First, it misinterpreted both Petitioner’s allegation

with respect to 5 U.S.C. § 552(a)(1) and the District

Court’s holding. Second, it reached a result at con-

flict with decision of this Court and every Circuit

Court of Appeal that has considered the matter.

Third, it ignored a change in law with respect to 5

U.S.C. § 553’s application to the controversy prior to

its holding.

Petitioner has consistently argued that the Federal

Respondents, at all times relevant, did have a erys-

tallized power marketing policy with respect to CVP,

which policy has never made known. Indeed, at all

times relevant the Federal Respondents have never

argued otherwise. Rather, the Federal Respondents

have consistently argued that they were pursuing a

policy that had been ratified by Congress. As has been

seen, both the District Court and the Court of Appeals

rejected the defense, thus recognizing the existence of

an unpublished, but real, policy.

Thus the District Court was required to find a

§ 552(a)(1) violation. And, the remedy which the Dis-

trict Court fashioned as a result of its holding * was

completely consistent with that developed in other cir-

cults. See, e.g., Gonzalez v. Freeman, 334 F.2d 570

(D.C, Cir. 1964); W.G. Cosby Transfer & Storage

Co v. Froehlke, 480 F.2d 498 (4th Cir. 1973); North-

ern California Power Agency v. Morton, 396 F. Supp.

1187 (D.D.C. 1975), aff’d per curiam, No. 75-1572

(D.C, Cir. June 16, 1976). See also Morton v. Ruiz,

415 U.S, 199 (1974) ; Gardiner v. Tarr, 341 F. Supp.

442 (D.D.C. 1972).

The Court of Appeals itself recognized that its de-

cision was out of step with that of Gonzalez and

Cosby, saying:

In each case there is language to the effect that

§552 required the agency to formulate and adopt

rules deseribing 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 eourt did here, order the agency to for-

mulate and adopt such rules. To the extent that

these cases can be said to stand for the propo-

sition that § 552 requires an agency to formulate

and adopt rules, we decline to follow them.

(26a) (Emphasis added).

The attempted distinction implicit in the second

quoted sentence, as can be seen from a review of Gon-

zalez and Cosby, is nonexistent. What does exist, in

the Ninth Circuit, is freedom on the part of federal

°The opinion states: ‘‘As a result of the court’s holding here,

and in Part II. D. infra, [relating to due process] it will be neces-

sary for the Bureau to publish, or disseminate so as to provide

actual notice to all interested parties, specific rules of procedure.

..’” (60a-69a),

agencies to govern the distribution of the benefits of

government programs as they see fit.

The abdication of judicial review in this instance

cannot be countenanced. As the Court of Appeals for

the District of Columbia has said:

Judicial review must operate to ensure that the

administrative process itself will confine and con-

trol, the exercise of discretion. Courts should re-

quire administrative officers to articulate the

standards and principles that govern their discre-

tionary decisions in as much detail as possible

. When administrators provide a framework

for principled decision making, the result will be

to diminish the importance of judicial review by

enhancing the integrity of the administrative

process, and to improve the quality of judicial

review in those cases where judicial review is

sought.’

In attaining this objective, courts have two avail-

able tools, Section 3(a) of the Administrative Pro-

cedure Act and the due process clause of the Constitu-

tion. It is not surprising that the courts have fre-

quently relied upon both to sustain their holdings re-

quiring publication of informal procedural rules."

The action of the Ninth Cireuit, however, would re-

quire reliance solely upon the Constitution itself.

Wiser, Petitioner believes, is the course of action

taken by the Gonzalez court in which Judge Burger

especially relied upon 5 U.S.C. § 552 so as not to ele-

* Environmental Defense Fund, Inc, v. Ruckelshaus, 489 F.2d

548, 598 (D.C. Cir. 1971) (emphasis added) (footnotes omitted).

See also K. Davis, Informal Administrative Action, Another View,

26 A.U.L. Rev. 836 at 843, et seq. (1977) ; K, Davis, Administrative

Law of the Seventies, § 3A, 7 at 75 (June, 1976); K. Davis, Dis-

cretionary Justice (1969).

* See, e.g., McDonald v. General Mills, 387 F.Supp. 24 (E.D.Cal.

1974) ; Northern California Power Agency v. Morton, supra.

vate the controversy to a constitutional dimension.

Gonzalez, supra, at 580.

Finally, the Court of Appeals’ reliance on the pub-

lie property exemption in 5 U.S.C. §553 in holding

that 5 U.S.C. §552 had not been violated was im-

proper at the time of decision.

On August 4, 1977, the Department of Energy Or-

ganization Act*® was enacted. As regards this litiga-

tion, the DOE Act’s relevance and impact stem from

the creation of the Department of Energy (DOE)”

and the transfer to the DOE of the power marketing

functions formerly held by the Secretary of Interior.

42 U.S.C. § 7152(a) (1).

In addition to this transfer of authority, the DOE

Act made the provisions of the rulemaking portions

of the APA applicable to, inter alia, the power mar-

keting functions now exercised by the DOE. The DOE

Act provides:

For the purposes of this subchapter the exception

from the requirement of section 553 of Title 5

provided by subsection (a)(2) of such section

with respect to public property, loans, grants, or

contracts shall not be available.

42 U.S.C. § 7191(b) (3).

As noted, the Court of Appeals relied on the public

property exception in the APA to justify its deter-

mination that the Secretary’s actions were not gov-

erned by Section 4 of the APA. However, the effec-

* Pub. L. 95-91, 91 Stat. 567 (hereinafter DOE Act), The DOE

Act has been recently codified at 42 U.S.C, §§ 7101, et seq.

tive date of the DOE Act preceded the Ninth Cir-

cuit’s decision in this case. Thus, although the Court

of Appeals’ determination that the Secretary’s actions

need not conform to the strictures of Section 4 of

the APA may have been correct as regards actions up

to August 4, 1977, Petitioner submits that actions

taken by the DOE under its power marketing func-

tions subsequent to its establishment on August 4,

1977 must comply with the rulemaking provisions of

Section 4 of the APA. Petitioner further submits that

the Court of Appeals’ failure to make this determina-

tion and impose the rulemaking requirements consti-

tutes further error.

Although a substantial portion of Petitioner’s argu-

ents concerns the past illegal decisions of the Secre-

tary, Petitioner is adversely and severely injured by the

current failure of DOE to review its schemes for the

allocation of preference power pursuant to a rule-

making proceeding conducted under the provisions of

Section 4 of the APA. The present allocation plan,

having been developed by the Secretary on an ad hoc

basis cannot be implemented by the DOD absent See-

tion 4 rulemaking proceedings since the ‘‘publie prop-

erty’’ exception is no longer available in the m»~ket-

ing of federal hydropower.

The propriety of and requirement for the conduct

of rulemaking proceedings in this instance are re-

flected by decision of this Court.

In Morton v. Ruiz, 415 U.S. 199 (1974), this Court,

in the context of a case involving public benefits to

Native Americans, underscored the necessity of plac-

ing the exercise of administrative discretion within

the structure of rulemaking proceedings:

This agency power to make rules that affect

substantial individual rights and obligations car-

ries with it the responsibility not only to remain

consistent with the governing legislation, but also

to employ procedures that conform to the law.

No matter how rational or consistent with con-

gressional intent a particular decision might be,

the determination of eligibility cannot be made

on an ad hoc basis by the dispenser of the funds.

The Administrative Procedure Act was adopted

to provide, inter alia, that administrative policies

affecting individual rights and obligations be pro-

mulgated pursuant to certain stated procedures

so as to avoid the inherently arbitrary nature

of unpublished ad hoe determinations.

415 U.S. at 232 (citations omitted).

The power marketing scheme applied prospectively

from August 4, 1977 is tainted by the ad hoe decision-

making process undertaken by the Secretary prior to

the DOE Act. The failure of the Court of Appeals to

require rulemaking proceedings pursuant to Section

4 of the APA to determine the proper allocation of

preference among preference agencies was error.”

C. Question Three — Due Process

The Court of Appeals’ holding with respect to due

process is equally erroneous and at odds with deci-

sions of this Court, other Courts of Appeals, and the

Ninth Circuit itself.

“ The change in law was brought to the attention of the Court of

Appeals in Petitioner’s Petition for Rehearing.

The Court of Appeals relied on Board of Regents

v. Roth, 408 U.S. 564 (1972) in holding that Peti-

tioner lacks entitlement to due process protection as

against other preference entities. In its treatment of

Roth, the Court of Appeals observed:

Having completed a year of teaching, Roth, like

Santa Clara, could differentiate himself from

others who sought the government benefit in ques-

tion. 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 entitle-

ment.’’ Because the Board of Regents could re-

fuse to rehire Roth for any reason whatsoever,

Roth’s interest did not rise to a level of entitle-

ment.

(29a).

The problem with this analysis is that Roth had no

“special status as a former employee’’ and could not

‘‘differentiate himself from others who sought the

benefit in question.’’ Had Roth been able to do either,

the Roth result would have been different, as the com-

panion case, Perry v. Sinderman, 408 U.S. 593 (1972),

makes clear.

Tn Perry, the complainant alleged a “special status

as a former employee’’ under a theory of ‘‘de facto

tenure.’’ That is, while the complainant was employed

on a year to year basis, and while he could not dem-

onstrate either a state statute or official school policy

granting him “‘special status’’, he did allege ‘‘that the

college had a de facto tenure program, and that he

had tenure under that program” and that he could

legitimately rely upon non-binding guidelines issued

by a state-wide board establishing tenure. Perry,

supra, at 599-601.

es ~

Oe ee ee

EE SIT EE TE

Thus, this Court concluded in Perry:

In this case the, respondent has alleged the ex-

istence of rules and understandings, promulgated

and fostered by state officials, that may justify his

legitimate claim of entitlement to continued em-

ployment absent ‘‘sufficient cause.’’ [bid. at 602-

603.

Under both Roth and Perry, it is thus submitted

that the District Court’s holding is unassailable:

Were Santa Clara before us as just another

potential customer of Bureau power, unclothed of

any Congressional recognition of special privilege

in the fight for power, we would have to conclude

that the City’s interest did indeed go no further

than an ‘‘abstract need or desire’’ or ‘‘unilateral

expectation”. But the fact that Congress has seen

fit to distinguish municipalities from non-public

potential customers of CVP power lends a certain

legitimacy to Santa Clara’s claim of entitlement.

Granted, the ‘‘dimensions”’ of this property in-

terest are statutorily restricted to ‘‘preferential”’

consideration therefor; nevertheless, a restriction

on a property right does not eviscerate its status

as a right. The preferential treatment Congress

has afforded public entities clearly raises the

probability that such a customer will receive

power over and above that of other customers.

The long history of the various laws directing the

disposition of public power first to the public, at-

tests to the existence of some claim of entitlement

for public agencies. Accordingly, the court holds

that a sufficient statutory property interest exists

to call forth some degree of due process protec-

tion.”

(70a). (Footnotes omitted).

*® See 40a-42a, for a summation of the myriad congressional enact-

ments and federal pronouncements dealing with the genesis and

policy of the preference clause. (45a, n.14).

It is also submitted that the Ninth Circuit’s hold-

ing cannot be squared with its own holding in Pence

v. Kleppe, 529 F.2d 135 (9th Cir. 1976) (Alaska Na-

tives seeking discretionary allotments under the

Alaska Native Allotment Act), the Second Circuit’s

holding in Holmes v. New York City Housing Au-

thority, 398 F.2d 262 (2d Cir. 1968) (applicants for

scarce publie housing), the Seventh Circuit’s holding

in White v. Roughton, 530 F.2d 750 (7th Cir. 1976)

(applicants for welfare assistance), and the District

of Columbia Circuit’s holding in Northern California

Power Agency, supra (federal power marketing

agency rate setting and due process).

The vice of the Court of Appeals’ holding in the

present case was succinctly stated by the Second Cir-

cuit in Holmes:

It hardly need be said that the existence of an

absolute and uncontrolled discretion in an agency

of government vested with the administration of

a vast program, such as public housing, would be

an intolerable invitation to abuse. See cab V.

Allen, 326 F.2d 605, 609-610 (5th Cir., 1964),

Holmes, supra, at 265.

In view of the vast nature of federal hydropower

marketing activities and the enormous worth of that

power to preference customers, it seems to Petitioner

clear beyond argument that preference customers are

entitled to due process protection in all of their deal-

ings with federal agencies. This Court must intercede

to remove the doubt that now exists and to prevent the

“intolerable invitation for abuse’’ the Ninth Circuit

has extended.

Finally, the Ninth Circuit’s decision on due process

is flatly inconsistent with this Court’s recent holding

in Memphis Light, Gas & Water Division v. Craft,

— US. —, 56 L. Ed.2d 30 (May 1, 1978).

In Memphis, this Court held that since under Ten-

nessee law an electric utility may not terminate serv-

ice at will, a customer of that utility has a legitimate

claim of entitlement to continued electric service re-

quiring due process proceedings prior to termination

of service. Here, Petitioner is served pursuant to con-

tract as a preferred customer of Federal Respondents

under federal law. (51a). Yet the Federal Respond-

ents are continuing in their attempts to withdraw

CVP power and energy from Petitioner in a manner

that Petitioner alleges is in violation of its contractual

rights and is in violation of its rights as a preferred

customer under federal law.

Petitioner submits that Federal Respondents’ con-

tinual refusal to afford due process protection to Peti-

tioner prior to attempted contractual withdrawals un-

der the circumstances of this dispute runs afoul of

Memphis and provides still another basis for the

granting of Petitioner’s request for a Writ of Cer-

tiorari.

CONCLUSION

For all of the foregoing reasons, Petitioner respect-

fully prays that the Writ of Certiorari issue so that

this Court can resolve the uncertainty introduced into

the relationship of federal power marketing agencies

with preference customers by the decision of the Ninth

Circuit.

Respectfully submitted,

Of Counsel: FREDRICK D. PALMER

Epwin G. Moore JAMES D. PEMBROKE

1500 Warburton Ave. 1775 Pennsylvania Ave., N.W.

Santa Clara, Calif. Suite 1200

95050 Washington, D.C. 20006

Attorneys for Petiti

Dated: July 3, 1978 sib po

Certificate of Service

I, Fredrick D. Palmer, hereby certify that on July

3, 1978 the foregoing Petition for Writ of Certiorari

in the above captioned proceeding was served upon all

counsel, pursuant to Rule 33 of the Supreme Court

Rules, by mailing copies by first class mail, postage

prepaid as follows:

Wade H. McCree, Jr., Solicitor General

Office of Solicitor General

Department of Justice

10th and Constitution Avenue, N.W.

Washington, D.C. 20530

Max Vassanelli, Esquire

Department of Justice

10th and Constitution Avenue, N.W.

Washington, D.C. 20530

Terry J. Houlihan, Esquire

McCutchen, Doyle, Brown & Enersen

28th Floor

Three Embarcadero Center

San Francisco, California 94111

Freprick D. PALMER

1775 Pennsylvania Avenue, N.W.

Suite 1200

Washington, D.C. 20006

Attorney for Petitioner

APPENDIX

UNITED STATES COURT OF APPEALS, NINTH CIRCUIT

City or Santa Cuara, Cauirornia, Appellant,

Cecil Anprus, Individually and as Secretary of the In-

terior, and R. Keith Higginson, Individually and as

Commissioner of the Bureau of Reclamation, United

States Department of Interior, Appellees.

Cecil Anprus, Individually and as Secretary of the In-

terior, and R. Keith Higginson, Individually and as

Commissioner of the Bureau of Reclamation, United

States Department of Interior, Appellants,

City or Santa Ciara, Cairornia, Appellee.

Paciric Gas & Exvecrric Company, Appellant,

City or Santa Cuara, Cartrornia, Appellee.

Nos. 77-1110, 77-1270, 77-1189 and 76-3670,

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

Before Duniway and Carrer, Circuit Judges, and

Burns,® District Judge.

* The Honorable James M. Burns, United States District Judge

for the District of Oregon, sitting by designation.

Duniway, Cireuit Judge:

This case concerns sales by the Secretary of the In-

terior 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-withdrawable) power. The Pacific 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, de-

nied the other motions, and “remanded” the case to the

Secretary for the promulgation of rules and procedures

concerning the marketing power generated by the Cen-

tral Valley Project. The court’s judgment also dismissed

the action without prejudice. All parties appeal. We af-

firm 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,

hydroelectric power plants, transmission lines, and irri-

gation canals, located in the Central Valley of California

and its surrounding mountains.’ While production of

hydroelectric power is not the primary purpose of the

CVP, a substantial arnount 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

*The CVP is described in detail in Ivanhoe Irrigation District v.

McCracken, 1958, 357 U.S. 275, 280-83, 78 S.Ct. 1174, 2 L.Bd.2d

1313.

price substantially lower than that charged by private

utilities such as PG&E.? Consequently, CVP power does

not lack for willing purchasers. Section 9(c) of the Ree-

lamation Project Act of 1939, 43 U.S.C. § 485h(¢), pro-

vides 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 from PG&E and so could not then take power

from CVP, In 1962, the Secretary informed Santa Clara

and others that 250,000 kilowatts of firm power would

become available to preference customers upon comple-

tion of the Trinity River Division of the CVP, and in.

vited applications for this new power. Santa Clara re-

newed its request for power on February 19, 1962, ac-

knowledging that it would be unable to receive the power

until the expiration, on August 27, 1967, of its require-

ments contract with PG&E. The Secretary responded

that while he would not commit himself to such a future

allocation, Santa Clara’s application 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 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 re-

quirements and future load growth. The additional power

*In 1976, the price of CVP power ($.005 per kilowatt hour) was

roughly one-fourth of that charged by PG&E ($.019 per kilowatt

hour).

was ultimately allocated to then existing preference cus-

tomers 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 Secre-

tary replied that, while all anticipated power was ecom-

mitted to meet the growth needs of other preference cus-

tomers, 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 suffi-

cient electricity 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

amendment. The City’s allotment peaked at 120,000 kilo-

watts 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 from 120,000 kilowatts to 71,450 kilowatts.

This amount is likely to dwindle still further if the Sec-

retary 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. How-

ever, as additional power became available, the Secretary

decided to hold it for preference customers already re-

ceiving nonwithdrawable allotments, rather than to offer

it to customers with withdrawable allocations such as

Santa Clara. On February 4, 1972, the Secretary finally

informed Santa Clara by letter that he would not allo-

cate 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 allocation and supplied by PG&E. Contending

that the withdrawals were unlawful and consequently in-

effective, Santa Clara insisted that its power needs were

still being fully supplied by the Secretary. The City be-

gan paying the moneys demanded by PC&E into an es-

crow account and has done so ever since.

PROCEEDINGS IN THE TriaAL Court

On July 25, 1975, Santa Clara filed this action against

the Secretary and the Commissioner of the Bureau of

Reclamation (the federal defendants), seeking declara-

tory and injunctive relief. In its complaint the City chal-

lenged the withdrawal of CVP power and the Secretary’s

refusal to supply it with a ‘nonwithdrawable allocation.

PG&E intervened as a party-defendant, counterclaiming

for declaratory relief with respect to the funds held in

escrow. All parties moved for summary judgment.

On July 23, 1976, the district court issued its opinion,

City of Santa Clara v. Kleppe, N.D.Cal., 1976, 418 F.

Supp. 1243, holding as follows: (1) Santa Clara’s action

is not barred by sovereign immunity; (2) the Secretary’s

contractual relationship with PG&E does not violate the

reclamation laws; (3) the Secretary’s decisions allocating

CVP power are reviewable; (4) Congress has not ap-

proved the existing allocation scheme; (5) the Secretary

violated the Administrative Procedure Act (APA) by

failing to promulgate and publish rules of procedure

governing the allocation of CVP power; (6) the Secre-

tary’s actions denied Santa Clara due process; and (7)

the National Environmental Policy Act (NEPA) did not

require the Secretary to file an environmental impact

statement before withdrawing power from the City. The

district court’s opinion contained no ruling on defend-

ants’ claim that Santa Clara’s action was untimely and

barred by laches.

Although the trial court held that the Secretary’s mar-

keting decisions were reviewable, it did not pass on the

lawfulness 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&E’s counterclaim, the court ruled that the utility’s

right to be reimbursed by Santa Clara would depend

upon the allocation scheme adopted by the Secretary on

remand. The court therefore ordered that the disputed

funds remain temporarily in escrow.’ It also dismissed

the action without prejudice.

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 merits” effect of Rule 41(b), F.R.Civ.P., and permits

the filing of a new action by any party dissatisfied with

the Secretary’s action on remand. It is still true, how-

ever, that the judgment disposes of the action. Moreover,

the remand is, in substance, a mandatory injunction re-

quiring certain action by the Secretary, and so appeal-

’ The court later modified this decision, ordering that one quarter

of the funds in escrow be disbursed to PG&E to enable the utility to

recoup the costs incurred in purchasing the power ultimately resold

to Santa Clara. See City of Santa Clara v. Kleppe, N.D.Cal., 1976,

428 F.Supp. 315.

able under 28 U.S.C. §1292(a)(1) assuming, but not de-

ciding, 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, 1225; Hines v.

D’ Artois, 5 Cir., 1976, 581 F.2d 726, 730.

TI.

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

based on the assumption that Santa Clara’s claim for

relief arose no later than 1965 when the City entered

into a contract 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

the City by letter that all firm CVP power was commit-

ted to meet the growth needs of other preference custo-

mers. Until that date, the City could reasonably have be-

lieved 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 appli-

cations for nonwithdrawable power would not be con-

sidered, then or later.

TTI.

REVIEWABILITY OF THE SECRETARY’S DECISIONS

PG&E and the federal defendants assert that the Sec-

retary’s decisions concerning the allocation CVP power

are immune from judicial review. Specifically, they con-

tend that the Secretary’s marketing decisions are actions

“committed to agency discretion by law” within the

meaning of the APA, 5 U.S.C. § 701(a) (2).

Judicial reviewability of administrative action is the

rule and nonreviewability a narrow exception, the exist-

ence of which must be clearly demonstrated. Arizona

Power Pooling 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.Ed.2d 761. The Supreme Court has stated that re-

view is precluded only “in those rare instances where

‘statutes are drawn in such broad terms that in a given

ease 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.Ed.2d 136. See also, Ness Investment Corp.

v. United States Department of Agriculture, Forest Ser-

vice, 9 Cir., 1975, 512 F.2d 706, 713. If, however, no law

fetters the exercise of administrative discretion, the

courts have no standard against which to measure the

lawfulness of agency action. In such cases no issues sus-

ceptible of judicial resolution are presented and the

courts are accordingly without jurisdiction. Arizona

Power Authority v. Morton, 9 Cir., 1977, 549 F.2d 1231,

1239, cert. denied, 1977, —— U.S. ——, 98 S.Ct. 124, 54

L.Ed.2d 97.

In considering whether administrative action is “com-

mitted to agency 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.” Strick-

land v. Morton, 9 Cir., 1975, 519 F.2d 467, 470 (empha-

sis in original). Thus the existence of some law generally

applicable to the subject matter in question will not neces-

sarily remove administrative action from the “com-

mitted to agency discretion” rubric. There is “law to ap-

ply,” only if a specific statute limits the agency’s discre-

tion 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

apply” in evaluating the Secretary’s decisions concern-

ing the sale of power generated by the CVP to Santa

Clara. The first is the Central Valley Project Authoriza-

tion Act, 50 Stat. 850, which incorporates generally the

provisions of the reclamation laws. Section 9(c) of the

Reclamation Project Act of 1939, 43 U.S.C. § 485h(c),

defines a class of customers which are to receive a pref-

erence in the sale of power generated by federal recla-

mation projects. The class of preference customers in-

cludes “municipalities and other public corporations or

agencies.”

Our recent decision in the case of Arizona Power Auw-

thority v. Morton, supra, forecloses Santa Clara’s argu-

ment that the Secretary, by providing other public en-

tities with nonwithdrawable power allocations while de-

nying such 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 Secretary’s decision to allocate most of

the power produced by Colorado River Storage Project

(CRSP) generating facilities to preference customers lo-

cated 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(c), but

concluded that the preference clause permitted the Secre-

tary to discriminate against some preference entities in

favor of others. “[I]t would appear in light of his broad

discretion that the Secretary may adopt whatever geo-

graphic preference he desires and that we have no juris-

diction to review his action.” 549 F.2d at 1241.

10a

The preference clause requires only that public entities

be given a preference over private entities in the mar-

keting of power generated by federal reclamation pro)-

ects. Arizona Power Pooling Ass’n v. Morton, supra, 527

F.2d at 726-28. It does not require that all preference

customers be treated equally or that all potential pref-

erence customers receive an allotment. Arizona Power

Authority v. Morton, supra, 549 F.2d at 1241, 1252.

Where, as here, one preference entity challenges the

Secretary’s decision to discriminate against it in favor

of other preference entities, the reclamation laws pro-

vide no law to apply to the dispute. If he so chooses, the

Secretary can market all available CVP power ‘o 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.Ed.2d 542, the Court considered the scope of

the Secretary’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]e are persuaded

that had Congress intended . . . to fetter the Sec-

retary’s discretion, it would have done so in clear

and unequivocal terms . . . 373 U.S. at 580, 83 S.Ct.

at 1487.

Nothing in the legislative history of the Reclamation

Project Act of 1939 suggests that Congress intended to

limit the Secretary’s discretion to interpret the prefer-

ence clause in making decisions as to whether or how or

on what terms he will sell power to particular preference

customers as compared to other preference customers.

lla

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 mar-

keting decisions can be measured. In pertinent part, sec-

tion 5 provides that power is to be disposed of “in such

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

Bureau of Reclamation, is therefore questionable. Santa

Clara maintains that the federal defendants themselves,

as a matter of departmental policy, have long regarded

the provisions of the Flood Control Act 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 stand-

ard 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

thereof” “could be interpreted in many different ways,

such as to require that power be sold to as many dif-

‘erent 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 agri-

cultural, industrial or residential users, or to require

sale of federal power to those preference entities which

serve the largest number of ultimate consumers.

Clearly, the “most widespread use” standard is suscep-

tible 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

12a

does not supply “law to apply.” See Arizona Power Au-

thority v. Morton, supra, 549 F.2d at 1252.

In Panama Canal Co. v. Grace Lines, Inc., 1958, 356

U.S. 309, 78 S.Ct. 752, 2 L.Ed.2d 788, the Court was asked

to review the federally chartered Canal Company’s deci-

sion 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 Com-

pany’s discretion 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:

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

judicial 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 construction of the statute is a distinct and pro-

found exercise of discretion. 356 U.S. at 318, 78

S.Ct. at 757.

We conclude that the Secretary’s refusal to allocate non-

withdrawable power to Santa Clara is unreviewable be-

cause 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 generated by the CVP, is so impre-

cise that its interpretation requires a “profound exercise

of discretion” of the sort described in the Panama Canal

case. The trial court’s finding that the Secretary’s mar-

keting decisions as to the terms on which he will market

power to preference customers are roviewable is in error.

Decisions concerning the proper allocation of CVP power

13a

among preference entities are “action committed to agency

discretion by law” within the meaning of the APA and

as such are unreviewable.*

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 pref-

erence clause contained in section 9(c) of the Reclama-

tion Project Act of 1939 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, supra.*

* 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 marketing stand-

ard similar to that contained in the Flood Control Act. Section 4

of the American River Act of 1949, 63 Stat. 852, directs the Secre-

tary of the Interior to operate Folsom Dam ‘‘in such a 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 public benefit.’’ This marking 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.

*As we said in Kast Oakland-Fruitvale Planning Council 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 agency discretion.

... An ‘fall or nothing’’ approach to reviewability would, in

specific cases, either be unfair to persons aggrieved by agency

action, or impose an unwise burden upon the agency or the courts.

Accordingly, separable issues appropriate for judicia) determina-

tion are to be reviewed, though other aspects of the agency ac-

tion may be committed to the agency’s expertise and discretion.

If a statute or regulation establishes a rule governing the conduct

of the agency with respect to an aspect of the agency activa, a

l4a

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 out-

right 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 Secretary’s right to repurchase at a later

date, at the original 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 se-

lected 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 custo-

mers, the Secretary creates an “account” which he can

drawn on to satisfy their requirements when demand out-

strips supply. It is more accurate to state that the con-

tract requires that an account be kept of all power sold

to PG&E and that the Secretary may thereafter pur-

chase power, up to that amount, from PG&E. PG&E

sells the power that it buys from the Secretary to its

customers at its price. To describe this arrangement as

“banking” is to use an inaccurate and somewhat mislead-

ing figure of speech.

The relationship between the Secretary and PG&E and

the Secretary’s preference customers such as Santa Clara

is further complicated by two facts. The first is that

court may determine whether the agency has complied with that

rule, although the court still may not review other aspects of the

agency action as to which there are no reasonably fixed rules

to apply. The presence of a judicially enforceable rule both justi-

fies judicial review, and limits its scope.

471 F.2d at 533-4.

15a

CVP power is fed into PG&E’s distribution system and

is transmitted by PG&E over its lines to preference

customers and to PG&E’s own customers. At the same

time, power produced by PG&E is also fed into the same

distribution system. 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 transmitted power can-

not 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 Secretary tells PG&K

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 customers of the

Secretary is treated as sold by the Secretary to PG&K

and PG&E pays the Secretary 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&E 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 Secre-

tary relates to that power as well as to CVP power, It is

suggested that the Northwest power never would have been

available to preference customers in the CVP area without

the cooperation of PG&E 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

preference customers. Neither the Secretary nor PG&E

argues that the full ‘‘ Project Dependable Capacity’’ as de-

fined in the contract, paragraphs 9(a) and (i) and 11, is

l6a

not subject to the preference clause. Their only argument

is that the ‘‘banking’’ provisions of the contract satisfy the

requirements of the preference clause.

The trial court concluded that the ‘‘banking’’ of CVP

power with PG&E was not violative of the preference

clause. We conclude that the present marketing scheme

involves the sale of power to PG&E and that the terms of

the preference provisions are not satisfied by the govern-

ment’s repurchase right.

The preference clause states a clear legislative intent

and requirement that the Secretary shall favor public en-

tities 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 pro-

vision is couched in mandatory terms, stating that ‘pref-

erence 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. It is only if the available supply exceeds the

demands of interested preference customers that the Sec-

retary may offer federal) power to private entities. 41

Op.A.G. 236, 1955, Disposition of Surplus Power Generated

At Clark Hill Reservoir Project.*

*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 called upon to interpret

the Flood Control Act of 1944, which 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

iwo 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 prefer-

ence customer on condition that such customer will, within a rea-

17a

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,

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,

he maintains that he is storing up power with the utility

for the future benefit of selected preference customers. In

oe ee ee ee

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 Secretary 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.

’ The following is a comparison of the CVP power sold to Santa

Clara as compared to the amount sold to PG&E [in kilowatts] :

SANTA CLARA PG&E

1965 71,490 282,183

1966 78,863 198,063

1967 89,367 81,377

1968 92,031 79,713

1969 106,128 55,944

1970 116,471 26,406

1971 112,696 — 278,724

1972 89,200 382,000

1973 86,550 382,000

1974 73,300 387,786

1975 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. 44-45). These figures are not

disputed by the Secretary or by PG&E.

18a

the meantime, however, to the extent that Santa Clara

could have purchased the power, a private utility is proft-

ing 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

consonant 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 public entities, when-

ever possible, to benefit from the sale of low cost federal

power. An arrangement which enables a nonpreference en-

tity to reap a benefit which Congress sought to bestow npon

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

outright. A sale is no less a sale because the buyer is ob-

liged, upon the seller’s demand, to resell an equivalent

amount to the seller, The plain fact is that the power which

is conveyed to PG&E does not sit idly in storage, awaiting

withdrawal 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 character-

ize the arrangement.

In United States v. City and County of San Francisco,

1940, 310 U.S. 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 Hetch 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 sold or given

19a

to it’’ by the United States. San Francisco argued that al-

though it conveyed power to PG&K, section 6 was not

violated because the power was ‘‘consigned”’ and not sold,

to the utility, which acted as ‘‘agent’’ for the City in trans-

mitting and selling the power. The court concluded that

San Francisco’s contractual relationship with PG&E con-

travened the legislative intent behind the Raker Act re-

gardless of the words used to describe it:

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

sufficient to take the actions of the parties under the

contract 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 pub-

lic 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 de-

scription make permissible a course of conduct for-

bidden by law. When we look behind the word descrip-

tion of the arrangement between the City and the

power Company to what was actually done, we see that

the City has—contrary to the terms of § 6—abdicated

its control over the sale and ultimate distribution of

Hetch-Hetchy power. 310 U.S. at 28, 60 S.Ct. at 756.

While the preference clause directs the Secretary to ex-

tend a preference 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 be made unless, in the judgment of the

Secretary, it will not impair the efficiency of the proj-

ect for irrigation purposes. 43 U.S.C. § 485h(c).

20a

Thus the Secretary is prohibited from selling CVP power

to a preference 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

government’s right to repurchase power ‘‘banked’’ with

the utility satistied 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

eny 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. It 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. Because we

think that the Secretary should be given an opportunity to

defend the present marketing scheme on this basis, we con-

clude that we should remand for further fact finding on the

limited issue of the sale of power to PG&E and its propriety

under the reclamation laws.

PG&E and the Secretary 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 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 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

purposes if the Secretary chooses to raise it.

2la

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 bigh voltage inter-

tie between the Pacific Northwest and Pacific Southwest.

To show ratification, the government must sustain the

heavy burden of demonstrating congressional knowledge

of the precise course of action alleged to have been ac-

quiesced in. United Stutes v. Beebe, 1901, 180 U.S. 343, 354,

21 S.Ct. 371, 45 L.Ed. 563; United States v. Georgia-Pacific

Co., 9 Cir., 1970, 421 F.2d 92, 102 n. 28.

We fully agree with the district 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

bills with ratification of the exclusion.’’ City of Santa Clara

v. Kleppe, supra, 418 F.Supp. at 1256. Similar efforts to

infer congressional approval of specific agency 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 Co-

operative Inc. v. Morton, 1974, 165 U.S.App.D.C. 344, 351-

52, 507 F.2d 1167, 1174-75, cert. denied, 1975, 423 U.S. 830,

96 S.Ct. 49, 46 L.Ed.2d 47. We think that those decisions

are controlling here.

IV.

Rute MAKING AND THE ADMINISTRATIVE ProcepurE 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 Secretary’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. East Oakland-Fruit-

22a

vale Planning Council v. Rumsfeld, 9 Cir., 1972, 471 F.2d

524, 533-35. See also, Moore-McCormack Lines, Inc. v.

United States, Ct.Cl., 1969, 413 F.2d 568, 581; Saferstein,

‘‘Nonreviewability: A Functional Analysis of ‘Committed

to Agency Discretion,’ ’’ 82 Harv.L.Rev. 367, 372 (1968).

The rule making section of the APA, 5 U.S.C. $553,

requires federal agencies to notify the public, conduct hear-

ings, and consider the input of interested parties, before

promulgating new substantive rules. However, that section

expressly exempts from the rule making requirement all

matters ‘‘relating to . . . public property.’’ 5 U.S.C. § 553

(a)(2). Power generated by federal reclamation projects

is certainly public property; hence the Secretary, in de-

ciding how to allocate CVE output, is not bound 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 354-55, 507 F.2d at 1177-78. Northern California

Power Agency v. Morton, D.D.C., 1975, 396 F.Supp. 1187,

1191 n. 6, aff’d 1976, 176 U.S.App.D.C. 241, 539 F.2d 243,

Santa Clara nonetheless argues, and the trial court 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 per-

tinent 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 ...

(D) substantive rules of general applicability adopted

as authorized by law, and statements of general policy

or interpretation of general applicability formulated

and adopted by the agency .. .

As amended in 1966, section 552 also provides that ‘‘[e]x-

cept to the extent that a person has actual and timely notice

23a

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’’ procedures

by which their functions ‘‘are channeled and determined,”’

aud the substantive rules and general policies which have

been ‘‘adopted”’ or ‘‘formulated and adopted.’’ This inter-

pretation is bolstered by the existence of an entirely sep-

arate section, $553, headed ‘‘rule-making,’’ and by the

legislative history of the APA itself. The legislative history

suggests that in enacting § 552, Congress was concerned ex-

clusively with the dearth of published descriptions concern-

ing agency structure, function, and procedure.

In 1941, the Senate Judiciary Committee held extensive

hearings on the soon to be enacted APA. During those hear-

ings, spokesmen for numerous agencies repeatedly voiced

that fear that the publication provisions contained in the

proposed law might be construed to require them to de-

velop new rules and regulations. Dean Acheson, Chairman

of the Committee appointed by President Roosevelt to

make recommendations for improving administrative pro-

cedure, 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 sug-

gest in section 201(2) that all such policies and inter-

pretations, and the procedures whether formal or in-

formal, and the forms of an agency be made available.

There has been some misunderstanding about the

scope of this subsection (2). It is not intended to re-

qui~e agencies to make up policies and interpretations

of law, or procedures, out of whole cloth merely for

24a

the sake of making them. Rather this section is in-

tended to require agencies to make available to the

public those policies and procedures which have become

crystallized, which through experience have been for-

mulated and adopted. Hearings before a subcommittee

of the Senate Judiciary Committee on S. 674, 8. 675

and S. 918, 77th Cong., 1st Sess. 829 (1941),

The House and Senate Reports on the APA likewise

suggest that Congress, in enacting § 552, sought only to in-

sure that those administrative rules which had ‘‘crystal-

lized’? would be made available to the public:

The public information requirements of section 3 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 provi-

sions require agencies to take the mystery out of ad-

ministrative procedure by stating it. The section has

been drawn upon the theory that administrative opera-

tions and procedures are public property which the

general public, rather than a few specialists or lobby-

ists, 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 Judiciary,

Administrative Procedure Act, H.Rep.No. 1980, 79th

Cong., 2d Sess, 255 (1946),

Santa Clara cites Morton v. 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

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

25a

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 Court went on to announce in dicta that even if the

restriction were consonant with congressional intent, sec-

tion 552 required publication of the eligibility requirements

for receiving benefits. The policy of restricting benefits to

on-reservation Indians involved in Morton v. Rute 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 agency, 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, manifests

a clear legislative intent to permit ad hoc decision making

in the distribution of public property. Senate Committee

on the Judiciary, Administrative Procedure Act, S.Rep.No.

752, 79th Cong., 1st Sess. 199 (1945).* Duke City Lumber

* With regard to the public property exemption to the rule

making requirement, the Senate Report on the APA states:

The exception of propriety matters is included because ss

principal consideration in most such cases relate to mechanics a

interpretations or policy, and it is deemed wise to encourage an

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 discretion

upon agencies to decide what, if any, public rule making pro-

cedures they will adopt in a given situation. ...

8.Rep.No. 752, 79th Cong., 1st Sess., at 199 (1945).

26a

Co. v. Bute, 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.Ed.2d 751. We cannot read a rule

making requirement into § 552, or interpret the section in

such a way as to render meaningless the public property

exemption contained in § 553.

In Gonealez 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 “crystallized.”

The actua) holding in each case was that the agency in-

volved could not terminats a business relationship exist-

ing between the agency and the plaintiff without afford-

ing 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 formu-

late and adopt such rules. To the extent that these cases

can be said to stand for the proposition that § 552 re-

quires an agency to formulate and adopt rules, we de-

cline to follow them. The trial court’s decision in this

case, insofar as it requires the Secretary to formulate

and adopt rules governing his decisions in marketing

power to preference customers, is in error.

Dvr Process

Santa Clara argues that it has a sufficient property in-

terest in CVP power to entitle it to due process protec-

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, inter alia, to (1) re-evaluate the

27a

present power allocation scheme with an eye toward pos-

sible revision; (2) announce the standards used in devis-

ing the allocation scheme then proposed; (3) afford all

interested parties an opportunity to comment on the

proposed marketing plan; (4) hold a public hearing on

the proposed marketing plan; and (5) announce the spe-

cific 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” en-

titled to due process protection under the Fifth Amend-

ment. PG&E relies primarily on South Carolina v. Kat-

zenbach, 1966, 383 U.S. 301, 323-24, 86 S.Ct. 803, 15 L.Ed.

2d 769, where the Court held that a state is not a “per-

son” entitled to due process protection, reasoning that a

municipality cannot be a “person” if its progenitor, the

state, is not. We are by no means convinced that PG&E’s

argument is correct. See Township of River Vale v.

Town of Orangetown, 2 Cir., 1968, 403 F.2d 684, 686,

holding that “a municipal corporation like any other cor-

poration is a ‘person’ within the meaning of the [Consti-

tution].” See also, Aguayo v. Richardson, 2 Cir., 1973,

473 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.”

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 customers.

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

—-

aes > ~~ + — —-- - ™ “42

ee Dr, ee a a ee

28a

no occasion to decide whether Santa Clara had a “prop-

erty” 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

Process clause “is not clearly defined,” Pence v. Kleppe,

9 Cir., 1976, 529 F.2d 125, 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 de-

sire for it. He must have more than a unilateral ex-

pectation 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

concerning statutorily created property interests, the au-

thor of the note concluded that “a statute will create an

entitlement to a governmental benefit either if the statute

sets 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

no “entitlement” to CVP power, as against other pre-

ferred entities. We think that Roth itself is dispositive of

this phase of the case. There the Court held that an un-

tenured teacher had no property interest in being rehired

because his employment contract gave his employer un-

bridled discretion to refuse to renew after one year, The

29a

employer did not have to justify its decision not to re-

new the contract by showing “sufficient cause.” Thus Roth

had only an “abstract concern in being rehired,” rather

than a legitimate claim of entitlement. Roth v. Board of

Regents, swpra, 408 U.S. at 578, 92 S.Ct. 2701.

Having completed a year of teaching, Roth, like Santa

Clara, could differentiate himself from others who sought

the government benefit in question. However, Roth’s de-

sire 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 en-

titlement.” Because 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 en-

tities is comparable. While the City enjoys a statutory

preference under the reclamation laws, the Secretary re-

mains free to allocate the total power output of the CVP

to other preference users. The Secretary need not justify

his decision to discriminate against some preference en-

tities in favor of others and, as we hold today his deci-

sion to so discriminate is not judicially reviewable. Given

the discretion which the reclamation laws vest in the

Secretary in this respect, we cannot accept Santa Clara’s

contention that it has any “entitlement” to power gen-

erated 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 safe-

guards 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 deci-

— +s

-*s =>

[9 oe > oO ~~

30a

sion 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 III B,

supra, that it is a violation of the preference clause for

the Secretary 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 ‘‘im-

pair the efficiency of the project for irrigation purposes,”

43 U.S.C. § 485h(c).

It is not disputed that Santa Clara is a preferred en-

tity 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 dur-

ing certain times the Secretary did not have power avail-

able to sell to Santa Clara. The Secretary may also claim

that selling to Santa Clara would or will impair the effi-

ciency 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.

VI.

PG&E’s CounTEeRcLAmM

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

3la

to the extent that they are not met by the Secretary.

Taking the position that the Secretary’s attempted with-

drawals 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 pur-

suant 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 posi-

tion 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, PG&E 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 PG&E. (note 3, supra)

If, as we surmise, the government cannot justify the

marketing of power to PG&E while denying it to Santa

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 un-

der the reclamation laws. These past sales are void if un-

lawful, for administrative actions taken in violation of

statutory authorization or requirement are of no effect.

Utah Power & Light Co. v. United States, 1917, 243 U.S.

389, 410, 37 S.Ct. 387, 61 L.Ed. 791; Federal Crop Insur-

ance Corp. v. Merrill, 1947, 332 U.S. 380, 384, 68 S.Ct. i

92 L.Ed. 10; Federal Maritime Commission v. Anglo-

Canadian Shipping Co., 9 Cir., 1964, 385 F.2d 255, 258.

The trial court decided that PG&E’s right to the dis-

puted funds hinges on the lawfulness of the Secretary’s

decision to sell power to PG&E while refusing to allocate

32a

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 re-

mand,

PG&E and the Secretary vigorov ly attack this ruling.

Their position, as stated by couns.! 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... . Ac-

cordingly, any retroactive reallocation of CVP power

would necessarily entail either a whole or partial recis-

sion of some or even all of the sales transactions between

the United States and its CVP customers from August

1971 to the present.” Opening Brief of PG&E at 17. We

think, however, that a reallocation of power to Santa

Clara, retroactive to 1971 when the withdrawals began,

can be accomplished 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 sizeable “bank account” with PG&E. Presum-

ably, that bank account is now available to retroactively

satisfy the City’s power needs.

Should the district court conclude 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 years after 1971. Such a re-

adjustment of the bank account need affect neither past

sales of power to other CVP users nor prior trnsactions

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 es-

crow the full amount (less, of course, what is has already

33a

received) that Santa Clara would have paid to the Secre-

tary 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 duty. 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

would have paid to the Secretary 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 Secre-

tary. 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.)

However, PG&E has counterclaimed 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 v. United States, 9 Cir., 1959, 270

F.2d 12, 19-20, or in the Court of Claims, see 28 U.S.C.

§ 1491.

34a

We base our assumptions as to interest upon a further

assumption that PG&E is an innocent third party, caught

between the conflicting claims of Santa Clara and the

position of the Secretary.

These suggestions are in line with the ancient and

favorite maximum of equity, that equity regards that as

done which ought to be done. It is readily applicable here,

because 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 Secretary expressly provides that the Secretary

is to supply all of his preferred customers before selling

to PG&E. It 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 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, taking into account, but not

being bound by, our suggestions.

VIL.

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 ap-

35a

plicable 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 necessary 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; Washing-

ton v. Udall, 9 Cir., 1969, 417 F.2d 1310, 1314.

PG&E and the federal defendants concede that Santa

Clara’s various claims fall squarely within these excep-

tions to the general rule that an action cannot be main-

tained against the sovereign, absent consent. However,

they cite Larson v. Domestic & Foreign Commerce Corp.,

supra, for the proposition that

. & 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 pow-

ers, if the relief requested cannot be granted by

merely ordering the cessation of the conduct com-

plained 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 affirm-

ative relief or the recovery of government property is

sought. Washington v. 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 govern-

~~ wWwoee wx“ ee eee Le eee

36a

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

governmental functioning. As noted above, the relief re-

quested by the City can be granted by simply adjusting

the government’s bank account with PG&E. Such an ad-

justment 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 accel-

erate the date upon which customer demand for CVP

power will exceed the available supply. Inasmuch as all

of the banked power is ultimately committed to prefer-

ence users, depletion of the account with PG&E is, in

any event, inevitable. We do not think that the govern-

ment will bear an intolerable burden if it is forced to

repurchase banked power at an earlier date than was

initially anticipated. Balancing the economic injury which

Santa Clara has suffered by virtue of its partial exclu-

sion from the CVP against the minimal inconvenience

which the government will experience if the Secretary is

forced to alter slightly his long-range marketing plan, we

conclude that this action is not barred on grounds of

sovereign immunity.

\ ITI.

Tae Nationa, EnvrronMENTAL Pouicy Act

Santa Clara argued below and reiterates here that the

Secretary violated NEPA, 42 U.S.C. § 4321 et seq., by

failing 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

37a

environment.” 42 U.S.C. §4332(2)(C). The trial court

concluded that the Secretary’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 sum-

mary judgment.

Seeking to bring the Secretary’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) force the City to construct its own gen-

erating facilities, and (2) cause industries to relocate to

communities 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 is forced to look to

private sources for the supply of electric power, the en-

vironmental consequences will be similar. If the demand

for power exceeds the available supply, then new gen-

erating 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 Secre-

tary’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 Hamly v. Kleindienst, 2 Cir., 1972,

471 F.2d 823, 830, 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 ‘signifi-

cantly’ affect the quality of the human environment...

the absolute quantitative adverse environmental effects

of the action itself.” No such absolute effects are threat-

38a

ened 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 Secretary’s actions in deciding

the terms on which he will sell power to one preference

customer as compared to others are reviewable is re-

versed.

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 re-

versed. 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 pro-

ceedings consistent with parts III B, V, and VI of this

opinion.

39a

UNITED STATES DISTRICT COURT, N. D. CALIFORNIA.

City or Santa Ciara, Cauirornia, Plaintiff,

Vv.

Thomas Kuepre, Individually and as Secretary of the In-

terior, and Gilbert Stamm, Individually and as Com-

missioner of the Bureau of Reclamation, United States

Department of the Interior, Defendants,

Pacific Gas & Electric Co.,

Intervenor-Defendant.

No. C-75-1574.

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 California 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 in-

tervened as party defendant. Simply stated, Santa Clara

wants more low cost federal power than the federal de-

fendants have allocated to it, and suggests that the Bu-

reau’s allocation scheme is legally defective. The Bureau

responds that how it allocates the CVP power under its

control is unreviewably discretionary, but, for that matter,

the allocation scheme was fairly formulated and is ration-

ally based. PG&E, long an integral part of the Bureau’s

power allocation 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

40a

the Bureau’s position. Santa Clara would prefer to pur-

chase 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 consisiing of numerous

dams, hydroelectric power generation and transmission

facilities and irrigation canals, located in the Central Val-

ley of California and the surrounding mountains.’ Al-

though the production of hydro-generated power is not

the primary purpose of the Project, the amount of elec-

tricity 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, Cali-

fornia, heretofore authorized and established under

the provisions of the Emergency Relief Appropriation

Act of 1935 (49 Stat. 115) and the First Deficiency

Appropriation Act, fiscal year 1936 (49 Stat. 1622),

is hereby reauthorized and declared to be for the

purposes of improving navigation, regulating the flow

* See Plaintiff's Opposition to Defendants’ Motion for Summary

Judgment, Doc.No.16, at page 5, n. 1.

*The Project is described in fine detail in Jvanhoe /rrigation

Dist. v. McCracken, 357 U.S. 275, 78 S.Ct. 1174, 2 L.Ed.2d 1313

(1958).

* 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 pubiie 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.

4la

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 reclama-

tion 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 accomplish the aforesaid purposes:

Provided further, That, except as herein otherwise

specifically provided, the provisions of the reclama-

tion law, as amended, shall govern the repayment of

expenditures and the construction, operation, and

maintenance of the dams, canals, power plants, pump-

ing plans, transmission lines, and incidental works

deemed necessary to saiu entire project, and the Sec-

retary of the Interior may enter into repayment con-

tracts, and other necessary contracts, with State agen-

cies, authorities, associations, persons, and corpora-

tions, either public or private, including all agencies

with which contracts are authorized under the reclama-

tion law, ... : And provided further, That the said

dam and reservoirs shall be used first, for river regu-

lation, improvement of navigation, and flood control;

second, for irrigation and domestic uses; and third,

for power. See also, Central Valley Project Reau-

thorization Act, 16 U.S.C. § 695d.

Thus incorporated into the Central Valley Project Au-

thorization Act is the following provision of the Reclama-

tion Project Act of 1939, found in Section 9(c), 43 U.S.C.

§ 485h(c):

Any sale of electric power or lease of power priv-

ileges, made by the Secretary 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 rev-

42a

enues 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 municipal 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 proj-

ect 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 federally-generated hydroelectric power from

CVP, see Arizona 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

CVP power. Rather, the controversy centers around the

Bureau’s allocation 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 vith 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 requirements contract with PG&K, which

had been supplying all the City’s power needs, would ex-

pire. Wishing to insure a supply of federal power at the

earliest opportunity, however, the City sought a prospec-

43a

tive allocation to satisfy its future, post-1967, needs.* 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 be 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 hydroelectric power

became available to the CVP with the coming on line of

power from the Trinity River Division of the CVP.* More

energy became 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 fu-

ture 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 imme-

diately.*

Concerned that all CVP power was fast becoming spoken

for, and dissatisfied with the Bureau’s repeated assur-

ances that the City’s application would receive due consid-

eration, the City, in July, 1964, telegraphed the Secretary

of the Interior directly, requesting an immediate alloca-

tion of CVP power, on a withdrawable basis if absolutely

necessary. The City asserted that its contract 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

* See Plaintiff's Exhibits 2 and 4.

* See Defendants’ Exhibit 3.

* See Plaintiff’s Exhibit 3.

" See Plaintiff’s Exhibit 3.

* See Defendants’ Motion for Summary Judgment, Doc.No.15, at

page 7.

doa

letter warned, however, that the power would be with-

drawn when required to meet previously promised, long-

term firm allocations to other preference customers.’ The

City thereupon submitted a formal application 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 predicted 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 In-

terior 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 con-

tract would not relieve the Department of its statutory

duty to provide availabic service to Santa Clara.”

On November 30, 1965, Santa Clara and the Bureau

finally contracted for the purchase of CVP power on a

withdrawable basis."* Santa Clara’s allotment under the

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 Bu-

reau began to withdraw power from the City, by contract

amendments which were not consented to, such that by

* See Plaintiff’s Exhibit 9.

"See Plaintiff's Exhibit 12. The Secretary’s decision was based

in part on advice requested and received from the U.S. Solicitor’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.

“ See Defendants’ Exhibit 7.

45a

July, 1974, the maximum kilowattage receivable was 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 wil! 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 exist-

ing contract.

During the period Santa Clara was receiving withdraw-

able power it reiterated its request for a non-withdraw-

able 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-with-

drawable allocation, so as to meet their load growth

needs, rather than to offer this power to existing custo-

mers with withdrawable allocations, such as Santa Clara,

on a non-withdrawable basis.**

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.

‘*See Flaintiff’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, 1973, the District could receive as much as 70,000 kilowatts in

addition to its then allotment by requesting such in writing. After

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

subject to withdrawal to meet the demands of other preference

customers, as was the allocation of power made to Santa Clara in

1965. See Plaintiff’s Exhibit 16, Letter Agreement between Sacra-

mento Municipal Utility District and the Bureau, at par. 4 and 5.

A similar contract was entered into in December, 1966, with West-

lands 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

46a

Footnote 14 Continued

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 increased in subsequent years,

& pro rata allocation 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 Exhibit 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 language 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 enerry deliveries made under the

terms of this agreement are deemed to be power and energy

temporarily available from unused alloeated firm Central Val-

ley Project power and is also power and energy available with-

in 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 preference

agency power demand to an amount within the project depend-

able capacity of the Central Valley Project. Withdrawal of

power and energy up to a total amount equal to the contract

rate of delivery specified herein shall constitute termination of

this agreement.

The effect of this language vis-d-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 load growths of these customers, which the

Bureau has contracted to satisfy, Santa Clara’s allocation will have

been completely withdrawn, and its contract with the Bureau will

be considered terminated, It is only at this point—when project

dependable capacity is reached—that the customers 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 con-

tracts. See Defendants’ Exhibit 13. The effect of this difference in

contract language is, of course, to treat Santa Clara substantially

47a

Footnote 14 Continued

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 Electric Cooperative, and the Shasta Dam

Publie Utilities District, as well as the Sacramento Municipal Util-

ity District and the Westiands Water District noted above,

Preference customers with contracts providing for a short-term,

withdrawable allocation of power, like Santa Clara’s, include 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 Le-

Moore, NAS Moffett, Naval Communications 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 Public Utilities Dist. 4,186

Plumas-Sierra Rural Elec. Coop. 10,229

Even assuming that Santa Clara’s actual utilization of power is

presently somewhat in excess of 120,000 kilowatts (the maximum

48a

It is this discrimination against Santa Clara, a prefer-

ence customer with only a short term, withdrawable allo-

cation, 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 dis-

criminatory aspects of the allocation scheme are rationally

based.

II. Specific Legal Claims.

Santa Clara marshals the following legal arguments in

support of its claims:

(1) It contends that the federal government has trans-

gressed the commands of the Federal Reclamation Laws,

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

treatment of Santa Clara cannot be attributed to any such factor.

When withdrawals from short-term allocation customers have

become necessary, apparently the Bureau has calculated 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.

'® “Similarly situated’’ in the sense of being a municipal user

with load demands roughly equivalent to other municipal users of

CVP power,

'°See Defendants’ Motion for Summary Judgment, Doc.No.15,

at pages 6-9, 10.

a oO

49a

43 U.S.C. § 371 et seq. (a) by selling power to PG&E, a

private entity not entitled to the statutory preference con-

tained in 43 U.S.C. § 485h(¢c), and (b) by discriminating

against one preference customer, Santa Clara, in favor of

other preference customers;

(2) It says that if not the statute, then the Fifth

Amendment, with its equal protection concepts of due

process, bars such discrimination ;

(3) 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, without oppor-

tunity 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 determining

allocations and types of allocations were so deficient as to

deny due process; and, finally,

(5) Santa Clara maintains that defendants’ actions vio-

late the National Environmental Policy Act, 42 U.S.C.

§ 4321 et seq.

The Department and the Bureau, and PG&E, in addi-

tion to maintaining that their allocation scheme is unre-

viewable or in any event rational, respond first, that this

is an unconsented suit against the sovereign and is, there-

fore, barred; second, that Congress has approved the

Bureau’s allocation scheme; third, that the provisions of

the Administrative Procedure Act, 5 U.S.C. § 551 et seq.,

cited by plaintiff are either inapplicable or were satisfied;

fourth, 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

50a

process issues and alleged violations of the Federal Re-

clamation Laws; (2) defendants’ motion for summary

judgment on the NEPA claim; (3) plaintiffs motion for

summary 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 interest-

ingly enough in the first instance by PG&E and not the

sovereign’s officers, of whether this suit is barred by the

doctrine of soverign immunity, must logically be enter-

tained 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 case is relatively clear. Since Ex parte Young, 209 U.S.

123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), it has been estab-

lished that sovereign immunity is no defense in suits against

officers who allegedly act unconstitutionally or én excess

of authority. Georgia R. R. € Banking Co. v. Redwine, 342

U.S. 299, 72 S.Ct. 321, 96 L.Ed. 335 (1952); Philadelphia

Co. v. Stimson, 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 a!lega-

tions. PG&E’s cases, Larson v. Domestic & Foreign Vorp.,

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 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 (1963), while presenting some fas-

cinating 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.

Sla

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 im-

munity, which question is in a state of considerable con-

fusion. Compare Adams v. Witmer, 271 F.2d 29 (9th Cir.

1958) (APA authorized suit against officer; sovereign im-

munity not discussed), with State of Washington v. Udall,

417 F.2d 1310 (9th Cir. 1969) (court avoided sovereign im-

munity by holding that the Secretary exceeded his author-

ity); Scanwell Laboratories v. Shaffer, 137 U.S.App.D.C.

371, 424 F.2d 859 (1970) (APA waives sovereign immu-

nity); Kletschka v. Driver, 411 F.2d 436 (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 years’ and maintains

that had this power heen allocated to preference custom-

ers, as the statute requires, there would be no controversy

since all of Santa Clara’s requirements for power would

be met. There is no dispute as to the basic facts: the

preference clause clearly applies, and PG&E is not a pref-

erence 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 been 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 equivalent amount of energy at a later date for deliv-

ery to preference customers.

1 See Defendants’ Submission of CVP Data, Doc.No.23. Since

1965, PG&E has purchased in excess of 80,000 kilowatts annually ;

the 1975 allocation to the utility was 337,000 kilowatts.

52a

This is indeed the case. The contract between the Bu-

reau 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, c, & e) and Article 21. In

essence, energy is ‘‘banked” by PG&E for future Bureau

use. The bank account provisions of the contract were in-

cluded 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 withdraw-

als of power from Santa Clara beginning in 1971 were

made as a part of this plan.” In order for the Bureau to

satisfy load growth of the then existing preference cus-

tomers through 1980 (the time targeted in the 1964 mar-

keting scheme), and at the same time have power avail-

able 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 Bureau—PG&E

contract does just that. Hence, the court finds that the

“sales” of power to PG&E do not violate the preference

provisions of 43 U.S.C. § 485h(c).”

**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, Doc.No.27.

° The bank accounts and the Secretary’s marketing plan are dis-

cussed in Defendants’ Exhilit 23, ‘‘Report to the Appropriations

Committees of the Congress of the United States Recommending a

Plan of Construction and Ownership of EHV Electric Interties

Between the Pacific Northwest and the Pacific 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.

2° See Plaintiff’s Exhibit 22, at pages 1-2.

*! 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

53a

(2) Discrimination in Treatment of Preference Custom-

ers,

The relevant provisions of the Central Valley Authori-

zation Act and the Federal Reclamation Laws are set out

above. For purposes of this section, the operative provi-

sion is that found in 43 U.S.C. §485h(c) which mandates

that in the sales of CVP power, ‘‘ preference shall be 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) Reviewability of Defendants’ Actions.

The defendants and PG&E argue strenuously that the

federal statutes governing the sales of CVP power to

preference customers represent such a broad grant of dis-

cretion in the Secretary of the Interior that his actions

thereunder are not subject to judicial review. They rely on

the Administrative Procedure Act, 5 U.S.C. § 701(a) (2)

which makes that Act, with its provision for judicial re-

view of agency action under Section 702, inapnlicable “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 niust be

demonstrated, and which should result only from a show-

ing of ‘‘clear and convincing evidence’’ of a legislative in-

tent to restrict judicial review. Barlow v. Collins, 397 U.S.

preference entities which were Bureau CVP customers in 1964,

when the plan was devised, were promised not only nonwithdraw-

able present allocations of CVP power, but a'so 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 gruwth. As such, Santa

Clara would claim, these sales are just one more example of dis-

crimination 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.

54a

159, 90 S.Ct. 832, 25 L.Ed.2d 192 (1969); Abbott Labora-

tories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Bid.2d

681 (1967); Arizona Power Pooling Assn. v. Morton, 527

F.2d 721 (9th Cir. 1975). See also H.R.Rep.No.1980, 79th

Cong., 2d Sess., 41.

As the Supreme Court has stated, the “eommitted to

agency discretion’’ exception is a very narrow one, appli-

cable 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, 401 U.S. 402, 410, 91 S.Ct. 814, 820, 28 L.Ed.2d 136

(1971).

Searching for law to apply, Santa Clara makes alter-

native contentions. First, the City says that the prefer-

ence clause itself, mandating as it does that “preference

shall be given” to municipalities, places limits on the Sec-

retary’s discretion sufficient to say that the agency action

is not so far commited to agency discretion that judicial

review is barred. This argument, like so many in cases

seeking to invoke Section 701, ignores the qualifying lan-

guage found there: “to the extent that... agency action

is committed to agency discretion by law.”’ Looking for

shackles on discretion in the abstract is of no aid; rather,

there must appear circumscription of discretion on the

particular issue sought to be challenged. While the Sec-

retary cannot, under the statutory mandate, sell power

to a non-preference customer over a preference cus-

tomer, see Arizona Power Pooling Assn. v. Morton, supra,

the statutory admonition does not address the question of

whether the Secretary can, for example, sell ail available

power to one preference customer while refusing to sell

any to another preference customer. Since on this particu-

lar issue 43 U.S.C. § 485h(c) does not speak, theoretically,

judicial review of such a decision, no matter how arbi-

trary or capricious, is barred under the Administrative

Procedure Act.

55a

Looking beyond the confines of the Reclamation Laws,

however, San Clara finds in Section 5 of the Flood Con-

trol Act of 1944, 16 U.S.C. § 825s, the following:

Electrie power and energy generated at reservoir

projects 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 wide-

spread use thereof at the lowest possible rate to con-

sumers consistent 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

* The Department's position in this regard is found in a letter

from then Secretary 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

U.S.C. § 485h(¢)], section 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, because

a single system may be used to market power from three differ-

ent sources, the three statutes have to be read together and in-

terpreted 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 possi-

ble rates to consumers consistent with sound business princi-

ples’’ applies also to power marketed from reclamation pro)-

ects under reclamation law.

56a

Northern Calif. Power Agency v. Morton, 396 F.Supp.

1187, 1189 (D.D.C. 1975), aff'd per curiam without writ-

ten opinion,” 539 F.2d 243 (D.C.Cir. 1976) (assumed by

the court to be the case.)

While the Department’s interpretation of the interre-

lationship between the two Acts is not binding, it is the

opinion of the court that at least as far as power market-

ing is concerned, Congress likely did intend that CVP

power was to be disposed of “in such manner as to encour-

age the most widespread use thereof at the lowest possible

rates to consumers consistent with sound business prin-

ciples.” The court notes that the subject provisions of the

See Federal Reclamation and Related Laws Annotated, Vol. I, at

649 (1972). See also 41 Op.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, Doc.No.24, is

merely an interpretation of the Reclamation Laws by the Depart-

ment 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 Control Act to control the

Interior Secretary's power marketing discretion under the Recla-

mation Laws, by noting that Flood Control Act power rate struc-

tures are subject to regulatory jurisdiction of the FPC, whereas

Reclamation Act rates are not. Also, PG&E notes, under the Flood

Control Act, the FPC is given standards to apply in regulating

rates whereas under the Reclamation Laws there is no such regula-

tory agency to oversee power sales; rather the Secretary of the In-

terior directly is given such standards and guide-lines. The statu-

tory difference in administration of power rate-setting is without

significance on the issue of how power should be marketed in the

public interest. The rate structure guidelines in both statutes are

designed to insure that the government recoups 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.

57a

Flood Control Act, drafted in language of general appli-

cability to sales of public power, came just after the Ree-

lamation Laws, and thus represent the most recent, but

at the same time contemporaneous expression of Congres-

sional desire concerning the marketing of publie power.

Of greater moment, there is no dearth of Congressional

pronouncements that publie projects funded by public

money should inure to the benefit 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 Congres-

sional acts,** including, not insignificantly, that governing

power sales from CVP, Publie agencies and co-ops were to

get first shot at the power generated by federal projects,

a concept tracing back to publie ownership of water re-

sources and the power flowing therefrom.” Finally, as

then Secretary Udall stated,’ as a practical matter, be-

cause the Department may often find itself using a single

system to market power from many sources, it would seem

more convenient to the agency itself to operate under one

set of standards, albeit imprecise, in the marketing of

public power.

*9 See, e.g. Cong.Rec.—Senate (Nov. 22, 1944) at 8323.

**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, 43 U.S.C. § 598; Boulder Canyon Project Act

of 1928, 45 Stat. 1057, 43 U.S.C. § 617d(c) ; Tennessee Valley Au-

thority Act of 1933, 48 Stat. 58, 16 U.S.C, § 831 et seq. ; Rural Elec-

trification Act of 1936, 49 Stat. 1863, 7 U.S.C. § 901 et seq.; Fort

Peck Project Act of 1938, 52 Stat. 403, 16 U.S.C. § 833 et seq.

*°See Preference to Public Bodies in the Marketing of Public

Power, Library of Congress, Legislative Reference Service, Jan.

20, 1956.

** See footnote 22, supra.

58a

For these reasons, the court holds that the standards

for power marketing set forth in Section 5 of the Flood

Control Act of 1944—that the Secretary must dispose of

power “in such manner as to encourage the most wide-

spread use thereof at the lowest possible rates to consumers

consistent with sound business principles’’—were intended

to apply to the marketing of CVP power, and since such

standards exist, there is law to apply regarding the allo-

cation scheme here challenged. Thus, the court is not

barred from judicially reviewing the allocation scheme by

the provisions of 5 U.S.C. § 701(a) (2).

(b) Congressional Approval of Power Marketing

Scheme.

Defendants’ next line of defense which, if established,

would bar judicial review of the Secretary’s exercise of

discretion, is that the specific marketing program at issue

here, including its discriminatory impact on Santa Clara

and others received Congressional imprimatur by virtue

of the enactment of various appropriations bills imple-

menting construction of the Pacifie power intertie.*"

The Department of the Interior in mid-1964 submitted

to the House and Senate Appropriations Committees a re-

port * regarding negotiations with non-federal entities for

construction of extra-high-voltage intertie lines linking the

Pacific Northwest and the Pacific S

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