Appendix — California Energy Commission v. Bonneville Power Administration
Supreme Court brief1991
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OF THE
United States
OCTOBER TERM, 1990
CALIFORNIA ENERGY COMMISSION;
CALIFORNIA PuBLIC UTILITIES COMMISSION;
DEPARTMENT OF WATER AND POWER OF THE
City oF LOS ANGELES;
PUBLIC SERVICE DEPARTMENT OF THE CITY OF BURBANK;
PUBLIC SERVICE DEPARTMENT OF THE CITY OF GLENDALE;
WATER & POWER DEPARTMENT OF THE CITY OF PASADENA;
PACIFIC GAS AND ELECTRIC COMPANY;
SOUTHERN CALIFORNIA EDISON COMPANY;
and SAN D1iEGO GaAs & ELECTRIC COMPANY,
Petitioners,
VS.
BONNEVILLE POWER ADMINISTRATION;
JAMES J. JURA, as Administrator;
JAMES WATKINS, as Secretary of the
Department of Energy of the United States of America;
and the UNITED STATES OF AMERICA,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
February 4, 1991
WILLIAM M. CHAMBERLAIN* REX E. LEE
GENERAL COUNSEL CARTER G. PHILLIPS
JONATHAN BLEES GENE C. SCHAERR
DEPUTY GENERAL COUNSEL DANIEL E. MALJANIAN
CALIFORNIA ENERGY SIDLEY & AUSTIN
COMMISSION 1722 “Eye” Street, N.W.
1516 Ninth Street, MS-14 Washington, D.C. 20006
Sacramento, CA 95814 (202) 429-4266
(916) 324-3237
* (‘ounsel of Record for Petitioners (More counsel on inside cover)
Bowne of Los Angeles, Inc., Law Printers. (213) 627-2200
LA!
G
JANICE E. KERR
EDWARD W. O'NEILL
PETER G. FAIRCHILD
CALIFORNIA PUBLIC
UTILITIES COMMISSION
5066 State Building
505 Van Ness Avenue
San Francisco, CA 94102
(415) 557-2786
HOWARD V. GOLUB
STUART K. GARDINER
PaciFIC GAS AND ELECTRIC
COMPANY
Post Office Box 7442
San Franciseo, CA 94120
(415) 973-2040
RICHARD K. DURANT
STEPHEN E. PICKETT
GLORIA M. ING
SOUTHERN CALIFORNIA
EDISON COMPANY
2244 Walnut Grove Avenue
Rosemead, CA 91770
(818) 302-1908
JOHN D. MCGRANE
RICHARD M. MERRIMAN
WILLIAM M. DUDLEY
REID & PRIEST
701 Pennsylvania Ave. N.W.
Suite 800
Washington, D.C. 20004
(202) 508-4080
JAMES K. HAHN
EDWARD C. FARRELL
STANTON J. SNYDER
DEPARTMENT OF WATER
AND .POWER OF THE
City oF Los ANGELES
111 North Hope Street
Los Angeles, CA 90012
(213) 481-6372
JAMES F. WALSH
E. GREGORY BARNES
San DigeGo Gas &
ELECTRIC COMPANY
110 West “A” Street
San Diego, CA 92101
(619) 699-5022
i
APPENDIX
TABLE OF CONTENTS
APPENDIX A— Opinion of the United States
Court of Appeals for the Ninth Circuit in Califor-
nia Energy Commission v. Bonneville Power Admin-
istration et al. Nos. 88-7280, 88-7315, 88-7318,
88-7319, July 26, 1990 (“CEC IT”) .............
APPENDIX B— Opinion of the United States
Court of Appeals for the Ninth Circuit in Califor-
nia Energy Resources Conservation and Develop-
ment Commission v. Bonneville Power
Adminstration et al. Nos. 84-7836, 85-7430, 84-
7838, 85-7470, November 6, 1987 (“CEC I’) ....
APPENDIX C— Opinion of the United States
Court of Appeals for the Ninth Cireuit in Depart-
ment of Water and Power of the City of Los Angeles
v. Bonneville Power Administration, No. 84-7618,
DEE es De EOP PGs vcd sc cccccsces.
APPENDIX D — Order of the United States Court
of Appeals for the Ninth Cireuit denying peti-
tion for rehearing and rejecting suggestion for
rehearing en bane in California Energy Commis-
ston v. Bonneville Power Administration et al. Nos.
88-7280, 88-7315, 88-7318, 88-7319, filed Octo-
gk eR ee er er ee
APPENDIX E — Bonneville Power Administra-
tion, Long Term Intertie Access Policy and Re-
cord of Decision for Long Term Intertie Access
PE Ee BE nk <p 0s vane saveceabunkess
APPENDIX F — Charts presented to Congress de-
picting Intertie shares on Northern and Southern
end of the Pacific Intertie................006.
Page
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APPENDIX A
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A-l
APPENDIX A
CALIFORNIA ENERGY COMMISSION,
Petitioner,
PUGET SOUND POWER & LIGHT COMPANY,
WASHINGTON WATER POWER COMPANY (“WWP’”’),
Petitioner-Intervenor,
¥.
BONNEVILLE POWER ADMINISTRATION;
U.S. Department of Energy,
Respondents,
ASSOCIATION OF PUBLIC AGENCY CUSTOMERS; PUBLIC
POWER COUNCIL; PUBLIC UTILITY DISTRICT No. 1 OF
CHELAN COUNTY, WASHINGTON; PACIFICORP, DBA Pa-
CIFIC PoWER & LIGHT COMPANY (*‘PACIFIC’’); PUBLIC
UTILITY District No. 2 OF GRANT COUNTY, WASHING-
TON; WESTERN PUBLIC AGENCIES GROUP (“WPAG”’);
MONTANA POWER COMPANY; CITY OF SEATTLE, CITY
LIGHT DEPARTMENT (“CITY”); PUBLIC GENERATING
Poo. (“PGP”); EUGENE WaTER & ELECTRIC BOARD
(“EWEB”); DIRECTOR SERVICE INDUSTRIAL CUSTOM-
ERS (“DSIS”),
Respondent-Intervenor,
PACIFIC NORTHWEST GENERATING
CoMPaANny (“PNGC’”’),
Petitioner,
¥.
BONNEVILLE POWER ADMINISTRATION;
U.S. DEPARTMENT OF ENERGY,
UNITED STATES OF AMERICA,
Respondents,
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VANALCO INC.; ALUMINUM COMPANY OF AMERICA;
COLUMBLA FALLS ALUMINUM COMPANY,
Petitioners,
WASHINGTON WATER POWER COMPANY (“WWP’”’);
PUGET SOUND POWER AND LIGHT COMPANY,
Petitioner-Intervenor,
v.
BONNEVILLE POWER ADMINISTRATION;
Respondent,
PORTLAND GENERAL ELECTRIC COMPANY; ASSOCLATION
OF PUBLIC AGENCY CUSTOMERS; ARCO; MONTANA
POWER COMPANY; PUBLIC GENERATING POOL
(“PGP”); EUGENE WaTER & ELECTRIC BOARD
(“EWEB”); NON-GENERATING PUBLIC UTILITIES
(“NGPU”),
Respondent-Intervenor,
CALIFORNIA PUBLIC UTILITIES COMMISSION,
Petitioner,
PUGET SOUND POWER AND LIGHT COMPANY; THE DE-
PARTMENT OF WATER & POWER OF THE CITY OF LOS
ANGELES; PUBLIC SERVICE DEPARTMENT OF THE CITY
OF BURBANK; PUBLIC SERVICE DEPARTMENT OF THE
CITY OF GLENDALE; WATER & POWER DEPARTMENT OF
THE CITY OF PASADENA; SAN DIEGO Gas & ELECTRIC
COMPANY AND SOUTHERN CALIFORNIA EDISON ComM-
PANY; PACIFIC GAS AND ELECTRIC COMPANY,
Petitioner-Intervenor,
Vv.
BONNEVILLE POWER ADMINISTRATION;
U.S. Department of Energy,
Respondents,
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PACIFIC POWER & LIGHT COMPANY; EUGENE WATER &
ELECTRIC BoaRD (“EWEB”); PUBLIC GENERATING
Poo. (“PGP”’); NORTHWEST POWER PLANNING CouN-
CIL; DIRECT SERVICE INDUSTRIAL CUSTOMERS
(“DSIS”),
Respondent-Intervenor.
- Nos. 88-7280, 88-7315, 88-7318 and 88-7319.
United States Court of Appeals,
Ninth Cireuit.
Argued and Submitted March 5, 1990.
Decided July 26, 1990.
Petition to Review Bonneville Power Administration
Agency Action.
Before CANBY, and LEAVY, Circuit Judges, and OR-
RICK, District Judge.*
CANBY, Circuit Judge:
This case involves consolidated challenges to the
Bonneville Power Administration’s (“BPA”) Long-Term
Intertie Access Policy (“LTLAP”) which allocates access
to the Pacific Northwest-Pacific Southwest Intertie, a
system of high voltage lines transmitting federal and non-
federal power between the two regions. The LTLAP is
being attacked on several fronts by parties with diverse
and sometimes competing interests. None of the parties
with an interest in acess to the Intertie is completely
satisfied with the policy. Upon the whole record, however,
we conclude that the LTLAP reasonably balances the
*The Honorable William H. Orrick, Senior United States District
Judge, for the Northern District of California, sitting by designation.
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interests of the affected parties in a manner consistent
with the directives of Congress.
BACKGROUND
A. BPA and the Intertie
BPA is a federal agency within the Department of
Energy that produces and markets power produced from
dams that comprise the Federal Columbia River Power
System. BPA also oversees access to the Intertie. The
Intertie, completed in 1968, was designed to even out the
peaks and troughs in the production and consumption of
power in the Northwest and Southwest. During most of
the year the Northwest produces more electricity than it
can use and the Southwest experiences particularly heavy
cousumption. Less frequently, this pattern is reversed
with the Northwest experiencing heavy demand and the
Southwest able to produce surplus power. The Intertie
allows the regions to assist each other during times of
heavy demand.
That portion of the Intertie extending north of Ore-
gon'’s border with California and Nevada is owned by
BPA, Portland General Electric, and Pacific Power &
Light, with BPA owning approximately 80% of the capac-
ity. The southern end of the Intertie is owned by a group
of California utilities, with PG & E, Southern California
Edison, the Los Angeles Department of Water and
Power, and San Diego Gas & Electric owning approxi-
mately 80% of the capacity.
B. Governing Statutory Authority
The primary authority, obligations and restrictions
which govern BPA’s operation of the Intertie are found in
four statutes: the Pacific Northwest Electric Power Plan-
ning and Conservation Act of 1980, 16 U.S.C. §$§ 839-839h.
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(“Northwest Power Act”); the Federal Columbia River
Transmission System Act of 1974, 16 U.S.C. $§ 838-838k.
(“Transmission Act’); the Pacific Northwest Consumer
Power Preference Act of 1964, 16 U.S.C. §$§ 837-837h.
(“Preference Act’); and the Bonneville Project Act of
1937, 16 U.S.C. $§ 832-8321. (“Project Act’’).
The Northwest Power Act requires BPA, in marketing
federal power, to establish rates that will produce suffi-
cient revenues to ensure BPA’s fiscal independence and
repay the U.S. Treasury for the federal funds that were
borrowed to build the projects in the Federal Columbia
River Power System. 16 U.S.C. §$§ 838g and 839e(a) (1).
At the same time, Congress requires that PBA market
federal power “with a view to encouraging the widest
possible diversified use of electric power at the lowest
possible rates to consumers consistent with sound busi-
ness principles....” 16 U.S.C. §$§ 838g; see also
839e(a) (1). Under the Preference Act, BPA must give
priority to publie bodies, 16 U.S.C. § 832e(a), and to
purchasers within the Northwest, 16 U.S.C. § 837a. Sales
to purchasers outside of the Northwest are limited to
energy “which would otherwise be wasted because of the
lack of a market therefor in the Pacific Northwest at any
established rate.” 16 U.S.C. § 837(c); see also §§ 837(d)
and 837a.
In allocating limited transmission capacity, BPA must
give itself priority. 16 U.S.C. § 837e. Nevertheless, it must
transmit non-federal power to the extent that the Federal
transmission lines have capacity not needed to transmit
federal power. Jd. Congress directed BPA to reserve
sufficient Intertie capacity to meet “current” and “‘fore-
seeable” federal needs. Department of Water and Power of
Los Angeles v. Bonneville Power Admimistration, 759 F.2d
684, 692 (9th Cir.1985) (“LADWP’’). That excess capac-
A-6
ity is to be made available to non-federal utilities “on a
fair and nondiscriminatory basis.” 16 U.S.C. § 838d.
The authority to transmit non-federal power is limited
in two additional ways. First, the transmission must not
be in conflict with BPA’s other marketing obligations,
applicable operating limitations or existing contractual
obligations. 16 U.S.C. §839f(i) (3). Second, any such
transmission must be “[a]t the request and expense of
any customer or group of customers” that sell power by
‘transmitting it on the Intertie. 16 U.S.C. § 839f(i) (1).
In addition to these somewhat conflicting responsibili-
ties to maintain low rates, repay the federal treasury, and
provide transmission access for other utilities, BPA must
also “‘protect, mitigate, and enhance fish and wildlife”
affected by the operation of the federal hydroelectric
system. 16 U.S.C. § 839b(h) (10).
C. The Long-Term Intertie Access Policy
The LTIAP is a result of BPA’s attempt to balance the
mandates of its governing statutes. The long-term policy
had its roots in two temporary allocation policies — the
Interim Intertie Access Policy and the Near Term Inter-
tie Access Policy (‘““NTLAP’’). We found those policies to
be within BPA’s statutory authority and consistent with
the relevant statutes. See LADWP, 759 F.2d at 695;
California Energy Resources Conservation and Develop-
ment Commission v. Bonneville Power Administration, 831
F.2d 1467, 1469 (9th Cir.1987), cert. denied, 488 U.S. 818,
109 S.Ct. 58, 102 L.Ed.2d (1988) (“CEC”). In 1485 and
1986, BPA held public meetings on long-term Intertie
access policy issues which culminated in the release of a
proposed LTIAP in October, 1986. After receiving public
comment, BPA issued a revised LTIAP in December,
1987. In May, 1988, after further public comment, BPA
A-7
adopted the final LTLAP. The policy provides non-federal
utilities with Intertie capacity on two bases: Formula
Allocation and Assured Delivery.
1. Formula Allocation
Formula Allocation is the policy which apportions In-
tertie capacity in excess of that required for firm power
transactions. This policy allows non-federal utilities to
make short-term spot sales of surplus power. The alloca-
tion system varies depending on which of three conditions
exists. Condition 1 exists when there is a likelihood of
spill’ in the Northwest hydro system. Under Condition 1,
BPA and each scheduling utility are allocated a pro rata
share of the available Intertie capacity based on their
declarations of surplus energy.” Whenever BPA is unable
to make sales equal to its pro rata share, BPA takes
larger allocations on subsequent days until it is able to
sell its full pro rata market share.”
Spill” exists when Northwest dams are overflowing and hydro-
electric energy must either be generated immediately for sale outside
the Northwest or the water's electric generative potential will be
wasted.
“Utilities are discouraged from overstating their surplus energy by
a ‘‘take-or-pay” rule which requires the utilities to pay the cost of
transmitting their stated surplus whether or not the entire amount of
the stated surplus is actually transmitted.
“This ability to expand allocation to assure a pro rata share of the
sales is known as the “true up.” BPA must offer power to the
Northwest before it can sell power to California. This allows competi-
tors to learn BPA’s price and enables them to undercut that price.
Often, this situation prevents BPA from making sales. The true up
attempts to reduce the amount of sales lost by BPA as a result of
these circumstances.
A-8
Condition 2 occurs when there is no likelihood of spill
in the power system but BPA and the Northwest utilities
have more than enough surplus nonfirm energy to fill the
Intertie. Under Condition 2, BPA and each scheduling
utility again receive a pro rata share of the available
capacity based on their declared surplus. If BPA’s sales
drop below 75% of its allocation, BPA may take larger
allocations on ensuing days until the difference is
eliminated.
Finally, under Condition 3, which becomes operative
only when BPA and the Northwest utilities lack sufficient
surplus to fill the Intertie, extraregional utilities may gain
access to the Intertie.
In response to the concerns of California utilities and
to test the alternatives we proposed in CEC, BPA is
conducting an 18-month experiment’ that applies during
Conditions 2 and 3. Under the experiment, BPA receives
its allocation first and the remaining Intertie capacity is
made available to Northwest utilities on a competitive
basis.
2. Assured Delivery
The Assured Delivery provisions of the LTLAP allocate
transmission capacity to non-federal sellers on a continu-
ous, long-term basis allowing these non-federal utilities to
make firm power sales and power exchange transactions.
The LTIAP provides 800 megawatts (“MW’’) of Assured
Delivery to non-federal utilities — up to 444 MW for
long-term firm export sales, an amount equal to the
‘This experiment was to end in March 1990. Due to a lack of data,
however, the Administrator has extended the experiment an addi-
tional 18 months, to conclude in September 1991.
A-9
Northwest utilities’ existing average firm surplus, and the
remainder for exchange transactions.
By granting Assured Delivery to non-federal utilities,
BPA precludes itself from using that capacity for its own
sales, resulting in an estimated revenue loss to BPA of a
disecunted net present value of $200 million over the
period 1989-2006.” BPA imposed “operational mitigation”
requirements to help offset this loss. First, the LTLAP
requires that, for southbound deliveries, each utility re-
questing service during Conditions 1 or 2 must deduct its
Assured Delivery from its Formula Allocation. To the
extent that its Assured Delivery exceeds its Formula
Allocation, the utility must purchase the difference (a)
from BPA or a Scheduling Utility with a formula alloca-
tion during Condition 1, or (b) during Condition 2 from
BPA, unless BPA is not then “‘in the market,” in which
ease from any other utility with an allocation. For north-
bound energy returns, Northwest utilities electing to use
“eash-out” provisions will have their available Intertie
capacity reduced by the amount of the eash-out.® This
arrangement is intended to preserve the economy energy
market for all Northwest utilities. Alternatively, mitiga-
tion may be negotiated on a case-by-case basis.
“BPA could avoid this loss by forcing the firm supplier to purchase
surplus BPA power at BPA’s rates when capacity is not otherwise
available and send it along the Intertie as part of the supplier's firm
contract. For reasons that will be discussed below, BPA rejected this
alternative.
°A “cash-out” provision in an exchange contract allows the South-
west utility to purchase, in effect, the energy at nonfirm prices in lieu
of actually returning it to the Northwest utility.
A-10
3. Fish and Wildlife Protection
To effectuate BPA’s responsibilities to protect fish and
wildlife, the LTIAP provides that a utility obtaining
power from or constructing a hydroelectric plant located
in a designated Protected Area will lose a portion of its
formula allocation equal to the amount of power so ac-
quired. New hydroelectric projects constructed in pro-
tected areas will be denied access to the Intertie unless
they demonstrate that they will benefit BPA’s fish and
wildlife efforts.
Several parties now raise various challenges to the
LTIAP. The parties include petitioners California Energy
Commission (“CEC’’), Pacific Gas & Electric Company
(“PG & E”), the California Public Utilities Commission
(“CPUC”), the Southern California Utilities, and Direct
Service Industrial Customers (“DSI”), and intervenors
Western Public Agencies Group (“WPAG”), Puget
Sound Power & Light Company (“PSP’’), the Northwest
Power Planning Council (““NPPC”’), and the Publie Gen-
erating Pool (“PGP’’).
JURISDICTION
[1] We have original jurisdiction to review final] ac-
tions and decisions of the BPA taken pursuant to any of
the BPA’s four enabling statutes. 16 U.S.C. § 839f(e) (5);
LADWP, 759 F.2d at 685 n. 1. CPUC contends, however,
that BPA’s adoption of the LTLAP constitutes ratemak-
ing and thus requires approval by the Federal Energy
Regulatory Commission (FERC) before judicial review is
available. See 16 U.S.C. $§ 839e(i) (6) and 839e(k). We
reject this contention.
CPUC first argues that the LTLAP, by allocating the
capacity of the Intertie to BPA and Northwest utilities on
the basis of fixed, proportionate shares, effectively elimi-
a ennai aan
A-11
nates competition and allows BPA to charge higher rates
in its transactions with California. It asserts that this
process constitutes ratemaking. In CEC we ruled that
virtually identical provisions in the NTLAP did not con-
stitute ratemaking.’ CEC, 831 F.2d at 1471-74. That
holding compels a similar conclusion here.
CPUC also argues that the LTLAP’s mitigation provi-
sions constitute ratemaking. These provisions were not
part of the NTLAP. Therefore, we did not address this
issue in CEC." CPUC notes that the LTLAP allows utili-
ties the option of negotiating mitigation measures on a
case-by-case basis, LTILAP § 4(d) (2), and that such mea-
” FERC also ruled that the NTIAP was not ratemaking subject to
its approval. 33 FERC (CCH) { 61,235, at p. 61,486 (Dee. 12, 1985.)
"Though CEC is not controlling on the question of whether the
mitigation provisions constitute ratemaking, its reasoning is instruc-
tive. As with the provisions of the NTIAP found not to constitute
ratemaking, the mitigation provisions do not “impose any charge at
all or define any formula for computing charges.” CEC, 831 F.2d at
1472. They do not “give BPA authority to increase or decrease its
own established charges for energy.” Jd. Nor are these measures “a
statement describing rates and charges for service.” Id. at 1473,
(citing 18 C.F.R. § 300.1(7); 10 C.F.R. § 903.2(n)). Moreover. these
measures do not conflict with any existing rate schedule, Jd. at 1473.
CPUC relies on Jorlland General Electric Co. v. Johnson, 754 F.2d
1475 (9th Cir.1985) in which the court found a mitigation formula to
be a change in the availability provision of BPA’s NF-2 rate schedule
for economy energy. In CEC we distinguished Portland General
stating:
Unlike the action in |Poriland General], the BPA action chal-
lenged here does not conflict with the agency's existing rate
schedules. The Access Policy is a formal statement of BPA’s
Intertie allocation policies. It does not make BPA energy available
to purchasers at charges authorized for other purchasers or in any
way attempt to avoid established rates.
CEC, 831 F.2d at 1473. The same is true here.
Best ese RR
A-12
sures could inelude establishing a rate. But if it does, that
rate would be subject to the procedural requirements of
Section 7(i) of the Northwest Power Act, 16 U.S.C.
§ 839e(i). That fact does not turn the preceding negotia-
tions into ratemaking. The LTILAP may have some ulti-
mate effect on rates, but the mere fact that an agency
action has an indirect effect on revenues does not mean
that the action constitutes ratemaking. See CEC, 831 F 2d
at 1473.
STANDARD OF REVIEW
[2] We must affirm BPA’s action unless it is arbitrary,
capricious, an abuse of discretion, or in excess of statu-
tory authority. 16 U.S.C. $839f(e) (2); 5 U.S.C. § 706;
CEC, 831 F.2d at 1472. This standard of review is defer-
ential and presumes the agency action to be valid. Citizens
to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91
S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). Because BPA
drafted the Northwest Power Act, its interpretation of
the Act is to be given “great weight” and should’ be
upheld if reasonable. Aluminum Co. of America v. Central
Lincoln Peoples’ Util. Dist., 467 U.S. 380, 389-90, 104 S.Ct.
2472, 2479-80, 81 L.Ed.2d 301 (1984) (ALCOA I); Alumi-
num Co. of America v. Bonneville Power Administration,
891 F.2d 748, 752 (9th Cir.1989) (ALCOA II). Neverthe-
less, we are required to reject the BPA’s constructions of
a statute that are inconsistent with the statutes or that
frustrate the policy Congress sought to implement. South-
ern Cal. Edison Co. v. FERC, 770 F.2d 779, 782 (9th
Cir.1985). While we may not substitute our judgment for
that of the Administrator, our factual inquiry is to be
‘searching and ecareful.’” LADWP, 759 F.2d at 691
(quoting Citizens to Preserve Overton Park, 401 U.S. at
416, 91 S.Ct. at 824).
TT
A-13
Petitioners suggest, however, that BPA should be af-
forded less deference here because it has an economic
interest in obtaining a larger share of the economic
benefits of the interregional transactions. In support, they
cite National Fuel Gas Supply Corp. v. FERC, 811 F.2d
1563, 1571 (D.C. Cir.), cert. denied, 484 U.S. 869, 108
S.Ct. 200, 98 L.Ed.2d 151 (1987) (“if the agency itself
were an interested party... deference might lead a court
to endorse self-serving views that an agency might offer.
...’). We disagree. As we will explain below, BPA did not
draft the LTLAP to maximize its revenues. Moreover, we
have rejected the argument that BPA is entitled to no
deference in ratemaking decisions, even where it has an
interest in the outcome. ALCOA II, 891 F.2d at 757 n. 12.
There is no reason for a different result here.
ANALYSIS
A. Justiciability of the Direct Service Industrial Cus-
tomers’ Claims
1. Standing
{3} The Direct Service Industrial Customers (DSI)
and the Western Public Agencies Group (WPAG) argue
that their rates under the LTIAP will be higher than
allowed by statute. BPA responds that any harm to DSI
and WPAG resulting from a future rate increase caused
by the LTLAP is merely speculative and, having suffered
no direct injury by BPA’s adoption of the LTLAP, DSI
and WPAG have no standing to challenge the policy. To
have standing petitioners must show 1) that the chal-
lenged action caused them injury in fact, 2) that the
injury was within the zone of interests to be protected by
the statutes that were allegedly violated, and 3) that the
relief sought would cure the injury. ALCOA II, 891 F.2d
at 752. DSI and WPAG satisfy these requirements.
A-14
Contrary to BPA’s claim, DSI and WPAG do not
suggest that they will be injured by a possible rate hike.
Rather, they claim that their current rates under the
LTIAP are higher than they would be if the LTLAP
complied with the statutory requirement that BPA’s cus-
tomers be charged the lowest rate possible. 16 U.S.C.
§ 838g. BPA has estimated that by providing Assured
Delivery to non-federal utilities under the LTLAP it will
bring in $764 million less over a 20-year period than it
would if it adopted a policy whereby it exhausted its
surplus before allowing non-federal utilities access to the
Intertie (a “federal-first’” policy). LTIAP Administra-
tor’s Decision (Ad.Dec.) at 170. This ‘‘cost’’ must be
borne by either the total requirements ratepayers or the
Treasury. DSI argues that since the Treasury is being
repaid on time, the ratepayers are bearing the burden.
“There is harm in paying rates that may be excessive... .”
ALCOA II at 753. Thus, DSI and WPAG have alleged an
immediate economic injury. That the injury is to their
members does not deprive the organizations of standing.
See Hunt v. Washington Apple Advertising Comm’n, 432
U.S. 333, 343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977).
DSI and WPAG have alleged a violation of 16 U.S.C.
§§ 838g and 839e(a) (1), which direct BPA to establish
rate policies encouraging “the lowest possible rates to
consumers.” As consumers of BPA power, DSI and
WPAG are within the zone of interest protected by the
statute.
Finally, the alleged injury could be remedied by our
directing BPA to adopt an allocation policy which seizes
more of the Intertie for potential federal spot market
sales or imposes higher costs for non-federal use. Al-
though we do not direct BPA to adopt such measures, the
fact that this relief is sought and that we have the power
it ieee amelie
A-15
to give it satisfies the third requirement for standing. DSI
and WPAG have standing to challenge the LTLAP.
2. Reviewability
[4] BPA further argues that the statutory directive
that BPA sell power at “the lowest possible rates...
consistent with sound business principles” is a matter
committed to the Administrator’s discretion and thus is
not reviewable. Generally, final agency actions are review-
able. “[N]onreviewability [is] a narrow exception, the
existence of which must be clearly demonstrated.” City of
Santa Clara v. Andrus, 572 F.2d 660, 666 (9th Cir.) cert.
denied, 439 U.S. 859, 99 S.Ct. 177, 58 L.Ed.2d 167 (1978).
A matter is committed to agency discretion by law only
when the statutory terms are so broad that there is “no
standard against which [the court can] measure the
lawfulness of the agency action.” Jd. The test is not
applied in the abstract, but is “whether ‘in a given case’
there is no law to be applied.” Jd. (quoting Strickland v.
Morton, 519 F.2d 467, 470 (9th Cir.1975)) (emphasis in
original ).
BPA cites three cases for the proposition that there is
no law for this court to apply in this action: City of Santa
Clara v. Andrus, 572 F.2d 660 (9th Cir.), cert. denied, 439
U.S. 859, 99 S.Ct. 177, 58 L.Ed.2d 167 (1978); Pacific
Power and Light Co. v. Duncan, 499 F.Supp. 672
(D.Or.1980); and Montana Power Co. v. Edwards, 531
F.Supp. 8 (D.Or.1981). Each of these cases found that
the standards there at issue did not provide applicable
law. Nevertheless, the cases are not controlling here. City
of Santa Clara does not apply here because it involved a
different standard. The other cases involved the same
standard, but in a different context. Both Pacific Power &
Light and Montana Power Co. addressed the reviewability
A-16
of the “lowest possible rates” provision of 16 U.S.C.
§ 838g and found there was no law to apply to a challenge
to BPA’s rate design decision. Rate design is a method of
allocating costs among BPA’s customers. Thus, the court
correctly decided that the “lowest possible rates” stan-
dard would provide no law for resolving a dispute among
purchasers of federal power. In this case, however, the
petitioners’ claim is directed at the impact on BPA’s
energy customers of its decision to provide Intertie access
to non-federal utilities for the purpose of permitting those
utilities to sell non-federal firm energy. In other words,
DSI and WPAG claim that the LTLAP causes BPA to
waste federal energy and to recover the lost revenues
through higher rates for the federal energy BPA seiis io
DSI, WPAG and others. Here, the “lowest possible rates”
standard provides applicable law. Cf. ALCOA IJ at 761.
B. DSI’s Challenges to the LTLAP
1. DSI’s Statutory Claims
[5] We turn now to the merits of DSI’s and WPAG’s
claim that the LTIAP is inconsistent with BPA’s gov-
erning statutes because it does not fully satisfy federal
needs for Intertie capacity before providing access to
non-federal utilities, it fails to maximize BPA returns and
it fails to recover from Northwest utilities all the revenue
BPA forgoes by allowing these utilities access to the
Intertie. We reject these contentions.
“In allocating Intertie capacity among itself and other
Northwest electricity producers, BPA is statutorily re-
quired to give itself preference. 16 U.S.C. §837e.”
LADWP, 759 F.2d at 687. BPA may make the federal
Intertie available to non-federal utilities if: 1) its assis-
tance is at the expense of those entities whose power is
transmitted, 16 U.S.C. § 839f(i) (1); 2) the transmissions
A-17
are ‘not in conflict with [BPA’s] other marketing obliga-
tions,” 16 U.S.C. § 839f(i) (1) (B); and 3) the transmis-
sion does not cause a “substantial interference with
{BPA’s] power marketing program.” 16 U.S.C.
§ 839f(i) (3). BPA’s statutory marketing obligations in-
elude 1) collecting sufficient revenues on sales of federal
power to recover its costs and repay the Treasury, while
2) fixing rates “with a view toward encouraging the
widest possible diversified use of electric power at the
lowest possible rates to consumers consistent with sound
business principles.”” 16 U.S.C. §$§ 838g and 839e(a) (1).
In developing the LTIAP, BPA balanced three inter-
ests: the desires of the Northwest generators to sell or
exchange power on a firm basis to California; the desires
of BPA’s total requirements customers for stable and
favorable rates; and BPA’s obligation to repay the U.S.
Treasury. DSI and WPAG argue that only the duties to
repay the Treasury and to charge consumers the lowest
possible rates are statutorily mandated and that by con-
sidering the welfare of Northwest utilities, BPA elevated
a non-statutory policy consideration to the level of BPA’s
statutory marketing obligations. DSI suggests this ap-
proach was error because BPA ignored the priorities
Congress decreed.
Although DSI’s and WPAG’s interpretation of the
statutes is plausible, that fact does not require us to
overturn the LTLAP. “This court need not find that the
BPA interpretation of the four statues ‘is the only reason-
able one, or even that it is the result we would have
reached had the question arisen in the first instance in
judicial proceedings.’ We need only conclude that it is a
reasonable interpretation.” LADWP, 759 F.2d at 693
(quoting ALCOA I, 467 U.S. at 389, 104 S.Ct. at 2479).
setae
A-18
The statutes cited above afford BPA a measure of discre-
tion which it has exercised reasonably.
First, BPA gives itself preference on the Intertie,
though not in the manner DSI suggests it should. BPA
reserves sufficient capacity to satisfy its firm sales. More-
over, with the true up mechanism, BPA ensures that it
has access to the Intertie for its spot sale needs. Thus, the
LTLAP gives BPA sufficient access to carry the energy it
produces while recognizing that the Intertie was envi-
sioned in part as a resource available to non-federal
utilities.
Also, the statutes do not dictate that BPA always
charge the lowest possible rates. 16 U.S.C. § 838g directs
that rates be set “with a view to encouraging... the
lowest possible rates to consumers... .”’ The words “with
a view to encouraging” do not constitute a statutory
command that the prices charged to consumers always be
the lowest possible. Moreover, nearly every action by BPA
has some arguable impact on future rates. If the strict
interpretation of the “lowest possible rates’? standard
advanced by DSI were accepted, the discretion that Con-
gress vested in the Administator would be eliminated.
In addition, the direction to charge the lowest possible
rates is tempered by the addition of the clause “consis-
tent with sound business principles.” 16 U.S.C. § 838g.
The federal-first policy espoused by DSI would preclude
some Northwest non-federal generating utilities from
gaining access to the Intertie. This exclusion would force
those utilities to sell their energy in the Northwest,
displacing BPA power sales. BPA reasonably concluded
that a federal-first policy is not consistent with sound
business principles.
A-19
Finally, unlike DSI, we read § 839f(i)(1)(B) to re-
quire a customer to compensate BPA only for the expense
of the actual transmission, not for revenues BPA forgoes
by not using the capacity itself. Consequently, BPA is not
undercharging the Northwest utilities to transmit their
power as DSI suggests.
2. DSI’s Procedural Claims
{6] DSI further argues that BPA’s adoption of the
LTIAP was arbitrary and capricious in three ways:
1) BPA failed to explain why, when the LTIAP produced
net benefits, the interests of BPA’s customers and non-
federal utilities could not be balanced to benefit the non-
federal utilities without imposing additional costs on
BPA’s customers; 2) BPA did not explain its failure to
require any compensation from transmitiing utilities for
forgone returns resulting from Formula Allocation; and
3) BPA based its determination of the amount of Assured
Delivery it would provide and the amount of mitigation
for Assured Delivery on inconsistent assumptions of In-
tertie capacity. Although BPA may not have addressed
these specific questions directly, our review of the Admin-
istrative Decision reveals that BPA gave sufficient rea-
sons for its decisions to satisfy the arbitrary and
capricious standard.
BPA addressed the concerns of its total requirements
customers directly, and adequately explained its reasons
for not adopting the federal-first policy promoted by DSI.
Ad.Dee. at 26-27. BPA reasonably concluded that the
economic impacts of the non-federal Assured Delivery
provisions, given mitigation requirements, were accept-
able, id. at 92, while providing significant interregional
benefits, 1d. at 18, 26, 91, as well as benefits to BPA, id. at
26-27. BPA also deseribed how its distribution policy
Se
i
A-20
under Formula Allocation protected its ability to gener-
ate revenue and maintain low rates. Jd. at 27. Moreover,
BPA recognized its responsibility to avoid imposing on
its Northwest customers the burden of revenues lost as a
result of its policies and stated that if the revenue-
protective measures adopted in the LTLAP proved un-
workable, it would turn to a federal-first policy to main-
tain rate stability. Jd. at 28.
Finally, DSI suggests that BPA assumed the availabil-
ity of a third AC line in the Intertie in calculating the
amount of mitigation for Assured Delivery but did not
consider that increased capacity in determining the
amount of Assured Delivery. Consequently, DSI claims, if
the third line is not completed, the savings due to the
mitigation provisions will be insufficient to cover BPA’s
forgone revenues. Although one of the studies upon which
BPA relied did assume the availability of the third line,
BPA also relied on a study by the Pacific Northwest
Utilities Conference Committee (PNUCC) that did not
assume the third line. Thus, BPA’s decision was based
upon estimates under the current Intertie capacity as well
as under the proposed increased capacity of the Intertie
in 1991.
C. The Formula Allocation Provisions
[7] The California petitioners argue that BPA abused
its discretion by adopting the Formula Allocation provi-
sions because they are “anticompetitive” and BPA’s
stated objectives could be achieved by more competitive
alternatives. Before addressing these arguments, we note
that, although the antitrust laws do not apply to BPA,
BPA must consider some federal antitrust policies when
allocating Intertie capacity. CEC, 831 F.2d at 1475; see
"LADWP, 759 F.2d at 693 n. 12.
A-21
also Gulf States Utilities Co. v. FPC, 411 U.S. 747, 757-60,
93 S.Ct. 1870, 1877-79, 36 L.Ed.2d 635 (1973); City of
Huntingburg v. FPC, 498 F.2d 778, 783 (D.C.Cir.1974);
but cf. Pension Benefit Guaranty Corp v. LTV Corp., ——
US., ; , 110 S.Ct. 2668, 2674-78, 110 L.Ed.2d 579
(1990) (Pension Benefit Guaranty Corp. not required to
take explicit account of policies of bankruptcy or labor
laws when rendering decision under ERISA). Neverthe-
less, if this responsibility to consider antitrust policies
conflicts with BPA’s obligation to be fiscally self-support-
ing, the responsibility to the Treasury takes precedence.
831 F.2d at 1475. In other words, BPA may allocate
Intertie capacity on a pro rata basis to satisfy the de-
mands of its governing statutes.
[8] The California petitioners first contend that BPA
has failed even to consider its responsibility to promote
antitrust policies. They are wrong. BPA has given ade-
quate consideration to the effect of the LTLAP on compe-
tition in the interregional energy markets. The most
extensive section of the Administrator's Decision dis-
cusses the issues and concerns raised by the California
petitioners here. Ad.Dec. at 48-71. In addition, before
releasing the final LTIAP, BPA commissioned the Sulli-
van Report to assess the effect of the proposed policy on
competition. Now, BPA is conducting an experiment to
observe the effects of allowing competition among non-
federal utilities for access to the Intertie during Condi-
tions 2 and 3.’° Clearly, BPA did give the anticompetitive
effect of its policy significant consideration. This conclu-
sion does not end the inquiry, however. We must now
address whether BPA’s policy is reasonable.
lu
Although this experiment is further evidence of BPA’s attention
to concerns of competitiveness, it is not a permanent part of the
LTLAP and we do not consider it in our review of the access policy.
A-22
{9] Petitioners argue that Formula Allocation is not
necessary to assure BPA’s financial stability. Formula
Allocation allows the Northwest non-federal sellers to
charge more for their nonfirm energy than they could if
they were competing with each other. BPA asserts that
federal revenues would be adversely affected by competi-
tion among the non-federal sellers because lower energy
prices paid to those sellers would result in 1) decreased
purchases by some of those utilities of BPA’s firm power,
and 2) increased “residential exhange’ payments by BPA
to some of these utilities." BPA has estimated these
impacts at approximately $10 million a year in lost firm
sales and $6 million a year in increased residential ex-
change costs under a worst-case scenario. Ad.Dec. at
50-51.
These estimated costs of allowing competition for ac-
cess appear to be overstated. In arriving at the $10
million estimate for lost firm power sales, BPA neglected
to consider that it may be able to sell the displaced power
to California on the spot market. Moreover, a majority of
BPA’s alleged residential exchange losses were to come
from assumed increases in subsidy payments caused by
lower PG & E and PP & L prices. The fixed shares of the
Intertie of these utilities, however, are not subject to che
"Under Section 5(c) of the Northwest Power Act, an electric
utility in the Northwest may elect to sell power to BPA at the
“average system cost of that utility’s resources.” 16 U.S.C.
§ 839¢e(c) (1). BPA then sells the same amount of power back to the
utility at BPA’s lower wholesale rate. This enables the utility to sell
power to its residential customers at the priority rate given to
residential customers receiving BPA federal power. Surplus energy
revenues are used as a credit in calculating the utility’s “average
system cost” under the program. Thus, when Northwest utilities
make less money on sales to California, BPA’s residential exchange
payments increase.
A-23
LTLAP. These utilities would suffer some losses from a
general decline in prices, but those losses would be
tempered by the fact that there is no competition for their
shares of the Intertie. Nevertheless, although BPA’s esti-
mate is exaggerated, BPA could reasonably assume that a
policy allocating nonfirm capacity on a competitive basis
would have some negative impact on BPA’s revenues.
BPA offers four other justifications for the pro rata
allocations: 1) without the allocations, the ability of
Northwest utilities to underbid BPA because of their
statutory right to know BPA’s prices wouid threaten lost
BPA revenues and wasted federal energy; 2) the alloca-
tions provide BPA with a mechanism to enforce restric-
tions on new hydroelectric plants in Potected Areas;
3) the allocations maintain prices during a time when
spill conditions would drive Northwest prices below the
cost of providing spot market energy; and 4) Northwest
utilities, particularly smaller ones, receive continued as-
surance of their ability to export power and avoid waste-
ful spill. Because we find the fourth justification adequate
to support BPA’s decision, we need not assess the validity
of the first three.
BPA supports it fourth justification by arguing that the
pro rata allocation scheme is necessary to preserve the
export market for small non-federal utilities such as the
PGP in order to avoid spill and protect its own revenues.
BPA’s consideration of these factors is not inconsistent
with any congressional directive.’* In fact, pro rata alloca-
“Congress has never disapproved a policy allocating Intertie ac-
cess on a pro rata basis despite being aware that BPA contemplated
such a policy even before the Intertie was constructed. During early
congressional hearings on the Intertie, Secretary of Interior Udall
said, “It would be in the national] interest and the interest of the
electric consumers of both regions that all electric utilities partici-
a
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A-24
pate fully in using such interconnections.” Hearings before the
Subecomm. on Irrigation and Reclamation of the Senate Comm. on
Interior and Insular Affairs, 87th Cong., 2d Sess. 4 (1962). At those
same hearings, former BPA Administrator Paul J. Raver also spoke
in favor of the Intertie saying:
It is also essential that the rights of the Northwest region as a
whole be preserved directly. Likewise, it is necessary that no single
utility or group of utilities, whether federally, municipally, or
stockholder owned, be permitted to use the tie line or lines for the
transmission of Federal power in such a manner as to control the
destiny of any other utility or group of utilities. ...
This bill, in our opinion, will provide the regulatory guidelines
needed to insure that any tie line or tie lines, regardless of
ownership, will be operated with due consideration to the rights
and responsibilities of all the utilities of the Northwest and will be
in the national] interest.
Id. at 75. Later, a Department of Interior Report informed Con-
gress that:
BPA ha|dJ assured the public and private utilities of its service
area access over Bonneville’s lines to California, Nevada, and
Arizona markets proportionate to the respective surpluses of the
various utilities.
Department of Interior Report to the Appropriations Commit-
tees of the Congress of the United States, Recommending a Plan
of Construction and Ownership of EHU Electric Interties Be-
tween the Pacific Northwest and Pacific Southwest 34
(Comm.Print 1964).
Once construction of the Intertie was authorized, the Department
of Interior presented copies of the Exportable Agreement — the
original Intertie access policy — to Congress. The Exportable Agree-
ment allocated the federal Intertie capacity on a pro rata basis.
Congress never took any action to change this policy.
In outlining this history we do not mean to suggest that Congress
has approved Formula Allocation. This history does indicate, how-
ever, that Congress has not prohibited such a policy and that it is
within BPA’s discretion to adopt a pro rata allocation scheme.
A-25
tion is consistent with the statutory requirement that
excess capacity be made available to non-federal utilities
‘“‘on a fair and nondiscriminatory basis.” 16 U.S.C. § 838d.
Therefore, it is within BPA’s discretion to develop a
policy to protect the access of small utilities to the
Intertie. If access were available only on a competitive
basis, the larger utilities would nearly always be in a
position to underbid the small utilities. This denial of
access would be devastating to these small utilities which
would be faced with the prospect of having to spill during
Condition 1. Their only alternative would be to use the
power which would otherwise be spilled to displace power
purchases from BPA. BPA could sell some of that dis-
placed power on the spot market, but the rates it could
charge for the spot sales would generally be lower than
those for the contemplated firm sales and its revenues
would suffer. As we have already pointed out, BPA may
consider its revenues when formulating its access policy.”
Our task is not to determine whether the BPA policy is
the best available, but whether BPA considered the
proper factors and acted reasonably in light of its gov-
erning statutes. In developing the Formula Allocation
provisions, BPA reasonably balanced the interests it is
required to consider.’
“BPA also justifies the pro rata allocation mechanism as a re-
sponse to the monopsony power of California utilities over the
southern portion of the Intertie. The parties dispute whether
Formula Allocation may be upheld on this basis. Because evidence in
the record of anticompetitive conduct among the California petition-
ers is inconclusive and resolution of this issue is not necessary for
our decision, we decline to rule on the issue here.
CEC also asserts that the Preference Act and the Transmission
Act prohibit BPA from affording Northwest non-federal power pnor-
ity over non-treaty Canadian power for access to Intertie transmis-
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A-26
D. The Assured Delivery Provisions
The California petitioners and PSP challenge the As-
sured Delivery Provisions of the LTLAP, but on different
grounds from those proposed by DSI and WPAG. These
challenges take two forms: 1) that the Assured Delivery
limitations are inconsistent with BPA’s governing stat-
utes; and 2) that the 800 MW limitation and mitigation
provisions are arbitrary and capricious and not ade-
quately supported in the Administrator’s Decision.
1. Compliance With the Governing Statutes
[10] 16 U.S.C. § 837e requires that any Intertie capac-
ity which is not required for the transmission of federal
energy “shall be made available as a carrier for transmis-
sion of other electric energy.” In addition, the Transmis-
sion Act requires BPA “to make available to all utilities
on a fair and nondiscriminatory basis” excess capacity
which is available in the transmission system. 16
U.S.C. § 838d. The legislative history of § 837e explains
that
In determining the existence of capacity excess to the
needs of the Government, Federal needs reasonably
forseeable may be included but the Secretary may not
decline to enter into a wheeling agreement merely
because he may have energy available for sale to serve
the same load.
H.R.Rep. No. 590, 88th Cong., 2d Sess. (1963); 1964
U.S.Code Cong. & Ad.News at 3342, 3350. We interpret
this statement to mean that
BPA is permitted ...to reserve sufficient Intertie ca-
pacity not only for its current needs but also for its
sion. We expressly rejected this argument in LADWP. 759 F.2d at
693-94.
A-27
“foreseeable” future needs, so long as the agency does
not compete with other utilities on the mere speculation
that it “may have energy available’ sometime in the
future to sell to the same customer.
LADWP, 759 F.2d at 692.
The LTLAP provides 800 MW of Intertie capacity —
out of a total capacity of approximately 5200 MW owned
by BPA —to Northwest utilities for Assured Delivery
service. BPA has projected that it will have a maximum of
approximately 2100 MW of firm power and exchange
contracts with California. Petitioners argue, then, that
2100 MW is the maximum ecapacity BPA can foreseeably
have available to sell to California, and therefore should
be the maximum amount BPA can reserve on the Intertie.
The remaining 3100 MW, they claim, should be available
to non-federal utilities for firm transactions. This result is
plausible under, but not compelled by, the statutes.
As long as the BPA is fair and nondiscriminatory, it
has the discretion to allocate excess transmission capac-
ity as it sees fit. LADWP, 759 F.2d at 693. There is no
requirement in the governing statutes that BPA provide
any access on a firm basis. In fact, in normal years, BPA 3
own surplus economy energy supply is sufficient to load
the entire Intertie with federal energy 46% of the year. If
BPA satisfied all of its needs before making capacity
available to others, there would be no capacity available
for year-round, non-federal, firm transactions. Thus, BPA
could make all of the excess capacity on the Intertie
available only on a non-firm basis or on a firm basis for
only part of the year.” Instead, BPA has responded to
“We recognize that utilities are able to use Intertie capacity more
efficiently and profitably if allocated on a firm rather than a nonfirm
basis. Nevertheless, this ability is but one of several factors BPA
‘ij
A-28
the request of these non-federal utilities and provides
capacity for some firm transactions.
Moreover, BPA is statutorily required to satisfy
its own needs before providing access to other utili-
ties and to furnish transmission only as long as it does
not interfere with its power marketing program. 16
U.S.C. §$839f(i) (3). BPA’s power marketing program
includes its responsibility to recover its costs and to
repay the Treasury. As we said in LADWP:
[I]t is clear from the legislative history that Congress
did not intend BPA to compete with other Northwest
utilities for access to the Intertie. The theme of the
[Preference] Act is that BPA, as owner and operator
of the Intertie, should be allowed preference in trans-
mission of its electricity over the Intertie as necessary
to meet its statutory mandate of being self-financing.
LADWP, 759 F.2d at 692. By limiting Assured Delivery to
800 MW —the amount BPA concluded it could supply
and still meet its repayment obligations — BPA complied
with the mandate of § 839f(i) (3). Although § 837e and its
legislative history lends itself to various interpretations,
that of BPA is reasonable. We therefore defer to BPA’s
interpretation.
2. Whether the 800 MW Limit Is Arbitrary and
Capricious
To establish that BPA acted arbitrarily and capri-
ciously in setting the 800 MW limit on Assured Delivery,
petitioners must demonstrate that BPA “has relied on
factors which Congress has not intended it to consider,
considers in formulating the access policy. As will be discussed
below, the disadvantages of allocating more power on a firm basis
outweigh the benefits of efficiency.
A-29
entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implau-
sible that it could not be ascribed to a difference in view
or the product of agency expertise.’’ Motor Vehicle Manu-
facturers Ass'n v. State Farm Mutual Automotive Insurance
Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d 443
(1983). Petitioners have failed to meet this standard.
BPA offers three justifications for the 800 MW limit:
revenue impacts; operational concerns; and environmental
effects. The Administrator’s Decision contains adequate
support for these justifications.
a. Revenue Considerations
{11] In setting the limit on Assured Delivery, BPA
considered its need to sell its own economy energy, the
potential economie effects of Assured Delivery, and the
benefits to BPA of providing opportunities to Northwest
utilities to sell their surplus power to the Southwest. BPA
based its decision on its own public assessment of the
revenue impact of its Assured Delivery proposal and on a
study by the PNUCC. BPA’s study indicated that provid-
ing Assured Delivery would cause it to lose economy
energy sales in the Southwest and priority firm sales in
the Northwest due to seasonal exchanges in the winter.
BPA estimated its losses at $9 million each year through
2006 even with the mitigation requirements. PNUCC
estimated the losses at $3 million to $24 million per
year.’® Despite these losses, BPA determined for reasons
16
CEC argues that BPA has not established that seasonal ex-
changes would reduce BPA revenues because neither BPA por
PNUCC accounted for the fact ihat if BPA failed to make sales of
firm power in the winter, it could cover some of those losses by selling
that energy on the spot market. These sales would increase BPA’s
pro rata share of the Intertie and its revenues from nonfirm energy
A-30
discussed previously that its Assured Delivery policy was
superior to a federal-first policy.
Petitioners argue that increasing the limit on Assured
Delivery would not threaten BPA’s ability to market its
surplus power, because BPA could force the firm suppli-
ers to buy BPA’s surplus power at BPA’s prices and send
it along the Intertie as part of the suppliers’ firm contract
sales. This argument fails to consider the impact on
BPA’s revenues of the market for non-federal surplus
economy energy. Many Northwest utilities depend on
economy energy exports during high water months for a
significant portion of their revenues. If all excess capacity
on the Intertie were filled under firm contracts, these
utilities could not export their surplus economy energy.
This inability would cause these utilities either to spill or
to displace their normal purchases from BPA with their
own surplus power, resulting in lost revenue to BPA from
reduced sales and greater costs under the residential
exchange program established by the Northwest Power
Act. 16 U.S.C. § 839e(¢c). Again, BPA is entitled to take
into account its own revenue requirements when it allo-
cates time on the Intertie. The 800 MW Assured Delivery
limitation adequately balances the interests of the utili-
ties in having Intertie capacity available for firm transac-
sales in the winter. Consequently, CEC contends, both BPA’s and
PNUCC’s estimates of revenue losses were substantially overstated.
On the other hand, BPA noted that its estimate was based on
assumptions which may change, causing greater losses. Moreover,
after BPA grants contractual rights to Assured Delivery, it cannot
retrieve that Intertie capacity to minimize the effects of changed
conditions until the contract terminates. Under LTIAP § 1.4, these
contracts can last up to 20 years. Thus, BPA’s conservatism in
granting Assured Delivery is justified by its prudent reluctance to
decrease greatly its flexibility to respond to the uncertainties of the
future.
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A-31
tions and BP<A’s interest in minimizing its losses incurred
in allowing firm transactions.”
b. Operational Considerations
[12] In establishing the 800 MW limit on Assured
Delivery, BPA considered the ability of Northwest utili-
ties to generate firm surplus power, the limitations on
power generation during the summer, and the stated
needs of utilities in both regions for exchange transac-
tions. First, BPA relied on an annual PNUCC report
which observed that non-federal firm surplus in the
Northwest has never exceeded 420 MW. Moreover, BPA
expects regional firm surplus supplies to decline in the
future due to increased demand in the Northwest. Thus,
BPA’s allocation of 444 MW for firm sales closely tracks
available supply and is reasonable.
Furthermore, August is a high demand month in the
Southwest, but a low water month in the Northwest and a
time when some reservoirs retain water for recreational
needs. The 800 MW limit was the BPA estimate of the
amount of Northwest non-federal generation prudently
available for export during August. In addition, BPA met
with the utilities and concluded that there was no need
"CEC also questions BPA’s authority to impose the mitigation
requirements. 16 U.S.C. § 832a(b) authorizes the Administrator to
operate Bonneville project transmission lines “as he finds necessary,
desirable, or appropriate’ to transmit energy. This delegation of
authority is broad, allowing the Administrator substantial discretion.
This discretion is tempered only by the implied limitation that the
Administrator's action not be inconsistent with other congressional
decrees. The mitigation provisions offend no statute. Therefore, it
was within the Administrator's authority to adopt these provisions.
A-32
for a near-term Assured Delivery greater than 800 MW.”*
There is a reasoned basis in operational considerations
for the 800 MW limit.”
This rationale, however, although alluded to, is not
explicit in the Administrator’s Decision. The Supreme
Court has stated that an agency must “articulate a satis-
factory explanation for its action... .’”” Motor Vehicle Mfrs.
Ass’n, 463 U.S. at 43, 103 S.Ct. at 2866. Nevertheless, the
Court also said that it will “ ‘uphold a decision of less
than ideal clarity if the ageney’s path may reasonably be
“In its reply brief, CEC alleges that BPA ignored the fact that
utilities had expressed a need for seasonal exchanges in excess of 800
MW. PG & E alone, for example, had one signed contract and two
letters of intent for three seasonal exchanges with Northwest utilities
that would require 650 MW of Assured Delivery. These exchanges
were to begin within three years of the issuance of the LTIAP. CEC
argues, therefore, that BPA knew that the 800 MW was inadequate.
BPA, however, has stated that the 800 MW limit is sufficient to
meet non-federal Assured Delivery needs for the near future. The
limit is not permanent. BPA has committed itself to reassess the
limit when the third AC Intertie Project is energized or abandoned in
1993. LTLAP § 4(c) (1). Thus, BPA can accommodate any increased
future needs of PG & E or other utilities.
“CEC also supports its contention that the limits on Assured
Delivery are arbitrary by noting that a BPA staff witness stated that
there was no analytic basis for the ormginal 440 MW limit on
exchanges, and that it was simply the product of subtracting 360 MW
of firm power sales from a predetermined 800 MW limit. Then, when
firm power sales in the final LTLAP were increased from 360 MW to
444 MW, the amount of additional Assured Delivery for exchanges
automatically dropped to 356-MW, to preserve the 800 MW total. In
A response, BPA explained that the 800 MW limit was the operational
: estimate of the proper sum of exchanges and firm sales. Conse-
: quently, given that maximum, the amount of alloweu exchanges
, varied as a function of the amount of allowed firm sales transactions.
: Thus, the allocation for exchanges was not arbitrary.
A-33
discerned.’ ” Id. (quoting Bowman Transportation, Inc. v.
Arkansas-Best Freight System, Inc., 419 U.S. 281, 286, 95
S.Ct. 438, 442, 42 L.Ed.2d 447 (1974) ). We conclude that
the rationale for the 800 MW limit can reasonably be
discerned from the Administrator’s Decision.
c. Environmental Impacts
[13] Finally, there is support in the Administrator’s
Decision for BPA’s concerns that Assured Delivery above
800 MW could harm the environment. See Ad. Dee. at 95,
99-100. Failing to limit exports of firm surplus power to
an amount equal to the region’s existing non-federal
supply would enable and encourage Northwest utilities to
increase their surplus supplies and marketing opportuni-
ties by developing new resources for export, which could
adversely affect the Northwest environment. In addition,
the Intertie Development and Use Environmental Impact
Statement (“Use EIS”) indicated that seasonal ex-
changes above 500 MW may also have a deleterious affect
on the reservoir system of the Northwest. Id. at 99.
CED suggests that the LTLAP can avoid environmental
problems associated with exchanges by structuring the
exchanges differently (e.g., avoiding drawdowns on
Northwest reservoirs during August by requiring night-
time energy returns from the Southwest when necessary
to moderate reservoir fluctuations) rather than simply
putting a limit on exchanges. CEC claims that BPA failed
to evaluate sufficiently this and other alternatives. ‘While
an agency may not rely on unsupported conjecture to
explain its decisions, neither is an agency forced to
document copiously every collateral inference it draws
from its experience with a regulated industry and its
general economic views.” Natural Resources Defense Coun-
cil, Inc. v. Herrington, 768 F.2d 1355, 1424 (D.C.Cir.1985)
‘
A-34
(citations omitted). Here, BPA’s projections are based
upon the Intertie Development and Use EIS and upon its
experience in the industry. Any prediction about the
future impact of standards necesserily involves an in-
formed attempt to resolve uncertainties. Jd. BPA ac-
knowledges that its conclusions are sensitive to changes
in its assumptions and, accordingly, has been conserva-
tive in setting Assured Delivery limits. It has made a
rational prediction in light of limited available evidence.
Thus, BPA’s environmental justifications for the 800 MW
limit are not arbitrary or capricious.
E. The Fish and Wildlife Provisions of the LTLAP
[14] Section 7 of the LTLAP allows BPA to reduce the
Formula Allocation of a non-federal utility that owns or
acquires the output from a hydroelectric project located
in a “protected area.” Petitioner Puget Sound Power
challenges this provision on two grounds: 1) that BPA
has no authority to limit access to the Intertie because of
a perceived impact of generating facilities on fish and
wildlife; and 2) that such restrictions are the sole prov-
ince of FERC through its licensing procedures. These
arguments are without merit.
In CEC, we recognized BPA’s “statutory obligation
under the [Northwest Power Act] to use its ‘authorities
... to protect, mitigate, and enhance fish and wildlife’ in
the Columbia River basin. 16 U.S.C. § 839b(h) (10(A).”
831 F.2d at 1477. We also stated that the Northwest
Power Act’s “focus on preservation and conservation
modifies BPA’s preexisting directives....” Id. at 1478.
Finally, we held that BPA had the authority to ban all
new resources from the Intertie in order to protect fish
and wildlife, at least until the long-term policy was
developed. Thus, in CEC we determined that BPA has at
A-35
least some authority to protect wildlife by imposing re-
strictions on Intertie access. We reserved ruling, however,
on whether a wholesale ban on new generating sources
would be reasonable in a long-term access policy. We do
not face that question here. Unlike the interim policy, the
LTIAP does not impose a wholesale ban on new generat-
ing facilities. It allows Intertie access to utilities acquir-
ing energy from new projects outside protected areas.
Although the CEC opinion addressed only the temporary
NTLAP, nothing in the opinion suggests that BPA’s
authority to protect wildlife by restricting Intertie access
should be reduced when a long-term policy is at issue. In
fact, this authority would be meaningless if it did not
apply to long-term access policies.
Puget Sound Power's related argument, that BPA is
usurping FERC’s authority, is similarly inconsistent with
CEC. In upholding the NTLAP in CEC, we implicitly
rejected the notion that exclusive authority to limit Inter-
tie access in order to protect fish and wildlife is vested in
FERC.
Conclusion
In drafting the statutes at issue here, Congress painted
in broad strokes, outlining general directives for allocat-
ing Intertie access while delegating substantial discretion
to the Administrator to develop specific access policies in
compliance with those directives. Some of the petitioners
have argued that the LTLAP does not go far enough to
achieve a particular statutory goal, while others claim it
goes too far. In light of the Administrator's many respon-
sibilities, it is relatively easy for petitioners to focus
solely on isolated responsibilities and argue that the
LTLAP fails to meet those responsibilities to the fullest
extent possible. The task of the Administrator, however,
A-36
was to consider and reconcile all of the responsibilities
delegated to him by Congress. The LTLAP is not without
flaws. Nevertheless, the Administrator has complied with
statutory requirements while adequately balancing the
varied interests of the petitioners. We conclude that
BPA’s actions and decisions in developing the LTLAP
were not arbitrary and capricious and we affirm the
LTIAP in its entirety.
AFFIRMED.
APPENDIX B
B-1
APPENDIX B
CALIFORNIA ENERGY RESOURCES
CONSERVATION
And DEVELOPMENT COMMISSION, Petitioner
Vv.
BONNEVILLE POWER ADMINISTRATION;
James J. Jura, as Administrator, *
and John S. Herrington, as Secretary of
the Department of Energy of the
United States of America, Respondents.
Publie Utilities Commission of the
State of California, Petitioner
ve
JAMES J. JURA, as Administrator
of the Bonneville Power Administration*;
John S. Herrington, as Secretary of
the Department of Energy of the
United States of America;
_ and the United States of America, Respondents.
Nos. 84-7836, 85-7430, 84-7838 and 85-7470.
*
* James J. Jura, the current Administrator of the Bonneville
Power Administration, is substituted for his predecessor in office
pursuant to Fed.R.App.P. 43(¢) (1).
B-2
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Nov. 13, 1986.
Decided Nov. 6, 1987.
Before TANG, SCHROEDER and NORRIS,
Circuit Judges.
SCHROEDER, Circuit Judge:
Introduction
These are consolidated petitions to review the Bonne-
ville Power Administration’s [BPA] interim access policy
for Pacific Northwest-Pacifiec Southwest Intertie, a sys-
tem of high voltage lines transmitting federal and non-
federal power from the Pacific Northwest to the South-
west. The petitioners are: (1) the California Public Utili-
ties Commission (CPUC), a government entity
responsible for insuring reasonable rates for the State’s
energy consumers, Cal.Pub.Util.Code §§ 301-322, and
(2) the California Energy Resources Conservation and
Development Commission (CEC), a state agency that
adopts energy policies, forecasts energy needs, and certi-
fies construction of power plants in California, Cal. Pub.
Res. Code §$§ 25200, 25216. The essence of their claim is
that the access policy unlawfully excludes low cost energy
generated in the Pacific Noftthwest and Canada from
BP4A’s transmission lines and thus prevents that lower
cost energy from reaching California electric power
consumers.
This is the second challenge to the interim policy. In
the first, we upheld it over the objections of the Los Ange-
les Department of Water and Power. Department of
Water & Power of the City of Los Angeles v. Bonneville
Power Admin., 759 F.2d 684 (9th Cir.1985). Several of the
en, are, er ne
B-3
objections of these petitioners are similar to objections
which we discussed in that case.
Before reaching the merits of petitioner’s objections,
however, we must first discuss a threshold jurisdictional
question. The question is whether the policy can be con-
sidered final agency action that is now reviewable on the
merits by this court, or whether the policy is in the nature
of a rate that is not final, and therefore not yet subject to
our review, until reviewed by the Federal Energy Regula-
tory Commission [FERC]. See 16 U.S.C. §$§ 839e(i), (k);
Central Lincoln Peoples’ Util. Dist. v. Johnson, 735 F.2d
1101, 1109 (9th Cir.1984). We conclude that we have
jurisdiction to review because the policy is not a rate. On
the merits, we find no basis for overturning the agency’s
actions, adopting the policy on a temporary interim basis
pending implementation of a long term policy.
Facts
In Department of Water &: Power, this court recently set
forth a description of BPA’s operations and the provi-
sions of the Intertie Access Policy. See 759 F.2d at 685-90.
Because they are important to this case, we will again
review the background facts.
BPA is a federal agency that markets hydroelectric
power within the Pacific Northwest and oversees distribu-
tion of power from the Pacific Northwest to California
and the Southwest desert. See 16 U.S.C. $§832a. Its
operations are governed in part by the Pacific Northwest
Electric Power Planning and Conservation Act,
16 U.S.C. §§ 839-839h (the Regional Act). The Regional
Act prescribes procedures for setting and modifying rates
for the sale and transmission of energy, and requires
FERC approval of rates. 16 U.S.C. $§ 839e (i), 839e(k). It
also requires BPA to establish rates that are sufficient to
B-4
insure BPA’s fiscal independence. 16 U.S.C. § 839e(a)
(1). BPA’s operations are also governed by the Bonne-
ville Project Act, 16 U.S.C. §§ 832-8321, the Pacific
Northwest Power Preference Act, 16 U.S.C. §§ 837-837h,
and the Federal Columbia River: Transmission System
Act, 16 U.S.C. $§ 838-838k. See generally Blumm, The
Northwest’s Hydroelectric Heritage: Prologue to the Pacific
Northwest Electric Power Planning and Conservation Act,
58 Wash.L.Rev. 175 (1983).
In the late 1960's, Congress established the Pacific
Northwest-Pacific Southwest Intertie. 16 U.S.C. $§ 838-
838k. The purpose of the Intertie is to allow the Pacific
Northwest and Pacific Southwest to exchange power when
one region has a surplus supply and the other region has a
heavy demand. BPA owns and operates most of the
Intertie transmission lines above the Oregon-California
border. A small group of California utilities owns the
lines south of Oregon. See Department of Water & Power,
759 F.2d at 686.
On its lines, BPA transmits both federal “firm” and
‘“nonfirm”’ power. Firm power is provided with the assur-
ance of continued availability, and nonfirm power is pro-
vided only when supply exceeds firm power commitments.
BPA also “wheels” non-federal firm and the less expen-
sive nonfirm power for public and private utilities at
established rates. See id. at 686. In selling its own firm
and nonfirm power, BPA is statutorily required to give
priority to purchasers within the Northwest, 16 U.S.C.
§ 837a, and to public bodies and cooperatives, 16 U.S.C.
§ 837¢(a). Sales to purchasers outside the Northwest are
limited to surplus energy, or energy “which would other-
wise be wasted because of the lack of a market therefor in
the Pacific Northwest at any established rate. 16 U.S.C.
$§ 837(¢c), (d) and 837a.
B-5
Because the Intertie has a limited transmission capac-
ity, BPA must provide for allocation of Intertie capacity
among competing power producers. In allocating Intertie
capacity, BPA is statutorily required to give itself prior-
ity. 16 U.S.C. § 837e. Any capacity in the Intertie “which
is not required for the transmission of federal energy...
shall be made available as a carrier for transmission of
other electric energy.” Jd. Additionally, BPA “shall make
available to ail utilities on a fair and nondiscriminatory
basis, any [excess] capacity in the Federal transmission
system.” 16 U.S.C. § 838d.
Before adoption of the policies challenged here, BPA
generally al)owed access to the Intertie to be determined
by the spot market. This meant that producers offering
the most attractive prices at any given moment could
make sales and obtain Intertie access until capacity was
reached. On September 7, 1984, BPA promulgated an
interim Near Term Intertie Access Policy to provide a
more predictable mechanism for allocating Intertie capac-
ity. 49 Fed.Reg. 44,232 (Nov. 5, 1984). The policy was
adopted after a series of public hearings and publication
of notices in the Federal Register. See 48 Fed.Reg. 33,515
(July 22, 1983); 49 Fed.Reg. 5,990 (Feb. 16, 1984);
49 Fed.Reg. 30,346 (July 30, 1984); 50 Fed.Reg. 19,781
(May 10, 1985). In 1985, the Los Angeles Department of
Water and Power challenged the policy as an abuse of
discretion and beyond BPA’s statutory authority. This
court upheld the policy. See Department of Water & Power,
759 F.2d at 695. :
On June 1, 1985, BPA adopted a revised Near Term
Intertie Access Policy. See 50 Fed.Reg. 26,827 (June 28,
1985). This policy is substantially identical to the inteiim
policy. Both policies are challenged here and are referred
to collectively as the Access Policy.
B-6
Under the Access Policy, assured transmission service
is available for firm power sold by Pacific Northwest
producers to California purchasers under BPA-approved
sales contracts. Extraregional producers, including Cana-
dian »roducers, cannot obtain assured service for firm
power. Any capacity on the Intertie in excess of firm
power needs is sold on an hourly or daily (“nonfirm’’)
basis under one of three “conditions.”’ Revised Near Term
Intertie Access Policy, 50 Fed.Reg. at 26,830-31.
Condition One incorporates the Exportable Energy
Agreement of 1969. This Agreement becomes operative
only when river flows into Pacific Northwest dams are
sufficiently high to threaten wasteful “spillover” condi-
tions. Under this Agreement, BPA and each Northwest
utility that declares a surplus of energy at BPA’s “‘appli-
cable rate’’ may sell and transmit a pro rata portion of its
surplus to California purchasers. Non-regional producers,
like Canadian utilities, may not use the Intertie when the
Exportable Agreement takes effect. Jd. at 26,831.
Condition Two becomes operative when ever BPA and
Pacific Northwest utilities have enough surplus nonfirm
energy to fill the Intertie at any price. Again, access to the
Intertie is limited to BPA and Pacific Northwest produc-
ers. Each receives access to a pro rata portion of its
declared surplus. Jd.
Finally, under Condition Three, which becomes opera-
tive only when BPA and the Northwest utilities lack
eufficient surplus to fill the Intertie at any price, extra-
regional utilities, including Canadian utilities, may gain
access to the Intertie. Jd.
Although the revised Near Term Intertie Access Policy
was originally, set to terminate on September 30, 1986,
with the adoption of a long term policy, BPA extended
a eR ee
B-7
the expiration date to June 30, 1987, to allow further
evaluation of the long term policy. See 51 Fed.Reg. 23,819
(July 1, 1986). BPA has not yet adopted a long term
policy, and the expiration of the interim policy has further
been extended until June 30, 1988, or upon implementa-
tion of the long term policy, whichever occurs first. See 52
Fed.Reg. 9,530 (March 25, 1987).
Jurisdiction: Is the Policy a Rate?
CEC and CPUC argue here that BPA’s adoption of the
Access Policy constituted ratemaking and thus requires
FERC approval before judicial review is available. The
parties in Department of Water & Power did not raise this
jurisdictional issue, and the court there did not address
it. Since the question of jurisdiction was neither raised
nor decided, this court’s assumption of jurisdiction in
Department of Water and Power does not establish con-
trolling precedent on the appealability issue. See Matter of
Baker, 693 F.2d 925, 925-26 (9th Cir.1982) (per curiam).
Now that it is squarely presented, we must decide the
issue.
The Regiona! Act requires BPA to set rates for electric
power that are sufficient to cover costs and to recoup the
federal investment in BPA’s facilities “over a reasonable
period of years.” 16 U.S.C. §§ 839e(a) (1), 832f, and 838g.
The Act prescribes procedures for establishing and modi-
fying rates. The procedures include notice in the Federal
Register, public hearings with limited cross-examination,
and decisions on the record. See id. § 839e(i). FERC
must approve rates before they become final and effective.
Id. §839e(a)(2). For a brief historical discussion of
federal power marketing agencies’ ratemaking and review
procedures, see United States v. Ter-La Elec. Co-op., 693
F.2d [sic] 392, 405-07 (5th Cir.1982).
B-8
Final rate determinations and other final agency ac-
tions are subject to original judicial review in this court.
See 16 U.S.C. § 839f(e); Public Util. Comm’n of the State of
Calif. v. FERC, 814 F.2d 560, 561 (9th Cir.1987); Califor-
nia Energy Comm’n v. Johnson, 767 F.2d 631, 633 (9th
Cir.1985); Central Lincoln Peoples’ Util. Dist. v. Johnson,
735 F.2d 1101, 1108-09 (9th Cir.1984). On review, we
must affirm the agency's action unless it is arbitrary,
capricious, an abuse of discretion, or in excess of statu-
tory authority. 16 U.S.C. § 839f(e) (2); 5 U.S.C. § 706;
Department of Water & Power, 759 F.2d at 690. Addition-
ally, BPA’s interpretation of the Regional Act is to be
given great weight and should be upheld if reasonable.
Aluminum Co. of Am. v. Central Lincoln Peoples’ Util.
Dist., 467 U.S. 380, 389, 104 S.Ct. 2472, 2479, 81 L.Ed.2d
301 (1984); California Energy Resources Conservation &
Dev. Comm’n v. Johnson, 783 F.2d 858, 860 (9th Cir.
1986), modified, 807 F.2d 1456, 1459 (1987).
This court’s most recent discussions of BPA ratemak-
ing are in Atlantic Richfield Co. v. Bonneville Power
Admin., 818 F.2d 701 (9th Cir.1987) (per curiam), and
City of Seattle v. Johnson, 813 F.2d 1364 (9th Cir.1987)
(per curiam). In Atlantic Richfield, we held that a ““eus-
tomer charge” imposed by BPA as part of its overall
charge for energy is a rate for the sale or disposition of
power and is subject to FERC review. 818 F.2d at 705.
Similarly, in City of Seattle, we held that an “availability
charge” imposed on certain contract customers is also a
rate. 813 F.2d at 1367. The availability charge is a fee
designed to recover some fixed costs associated with
BPA’s duty under the contracts to stand ready to deliver
energy when demanded. We expressly rejected the utili-
ties’ contention that the availability charge was a penalty
for not purchasing energy, rather than a rate. We rea-
soned that so limiting the meaning of “rate’’ would
B-9
improperly limit FERC’s authority under the Regional
Act to review BPA charges. Id.
Neither Atlantic Richfield nor City of Seattle is apposite
to the facts presented here. As we noted in City of Seattle,
‘“[rJates are simply the charges BPA imposes on its
customers for the provision of service.” 813 F.2d at 1367;
see also Black’s Law Dictionary 1134 (5th ed. 1979)
(defining “‘rate” when used in connection with public
utilities as “price stated or fixed for some commodity or
service ... measured by a specific unit or standard”). In
its rules establishing procedures for reviewing rates of
other power marketing agencies, FERC itself defines a
rate as “the monetary charge or the formula for comput-
ing such a charge for any electric service.” 10 C.F.R.
§ 903.2(1).
The Access Policy, however, does not impose any
charge ai all or define any formula for computing charges.
Nor does it give BPA authority to increase or decrease its’
own established charges for energy. Because it does not
do so, FERC review of the Access Policy would not
further the purposes of such review, which are first to
insure that BPA’s regional and nonregional rates are
adequate and equitable, and second to insure that nonre-
gional rates comply with BPA’s organic statutes, see 16
U.S.C. §839e(a) (2) and (k); Central Lincoln Peoples’
Util. Dist. v. Johnson, 735 F.2d 1101, 1110-13 (9th
Cir.1984). FERC apparently agrees, for it has stated that
the Access Policy is not ratemaking subject to its ap-
proval. See 33 FERC (CCH) 961,235, at p. 61,486
(Dee. 12, 1985).
In support of their argument that adoption of the
Access Policy constituted ratemaking, the petitioners
here rely principally on Portland General Elec. Co. v.
Johnson, 754 F.2d 1475 (9th Cir.1985). In that ease, we
B-10
held that BPA’s offer to sell energy to one class of
customers at a rate approved for another class was
ratemaking. Id. at 1481. We explained thai “BPA’s rates
are not an interchangeable set of prices among which it is
free to choose in any particular sale of energy....A
change in the availability provisions of the rate schedules
constitutes ratemaking.” Jd. Similarly, in a companion
ease to Portland General, we held that BPA engaged in
ratemaking when it agreed to purchase several regional
utilities’ scheduling rights to a nucvear power plant, and
that agreement was “inextricably linked” to BPA’s agree-
ment to sell those same utilities federal power as replace-
ment. California Energy Resources Conservation & Dev.
Comm’n v. Bonneville Power Admin., 754 F.2d 1470, 1474
(9th Cir.) (noting that “paying the buyer to buy is the
same thing as reducing the price the buyer must pay’),
cert. denied, 474 U.S. 1005, 106 S.Ct. 524, 88 L.Ed.2d 457
(1985). In both cases we concluded that agency action
which had the effect of changing those schedules was
ratemaking in nature.
Unlike the action in those cases, the BPA action chal-
lenged here does not conflict with the agency's existing
rate schedules. The Access Policy is a forma! statement of
BPA’s Intertie allocation policies. It does not make BPA
energy avai'able to purchasers at charges authorized for
other purchasers or in any way attempt to avoid estab-
lished rates. See Near Term Intertie Access Policy: Ad-
ministrator’s Record of Decision, at 11-16 (Sept. 1984)
(Record of Decision I); Revised Near Term Intertie
Access Policy: Administrator’s Record of Decision at 11
(May 1985) (Record of Decision II).’ At most, by alter-
‘To the extent that the petitioners argue that adoption of the
Access Policy contemporaneously altered the rates that apply to
nonfirm energy, they are incorrect. Although BPA previously uses its
B-11
ing market forces the Access Policy can affect only the
prices non-federal Pacific Northwest producers charge
consumers. Yet the ratemaking provisions of
16 U.S.C. § 839e apply only to the rates for federal energy
and for the transmission of non-federal power. See
16 U.S.C. § 839e(a).
Morover, the parties have not pointed to any allocation
provisions of established rate schedules with which the
allocation policies challenged here are inconsistent. They
probably cannot do so because federal power marketing
agencies generally have not included resource allocation
policies in rate schedules. FERC defines a rate schedule
as a statement describing rates and charges for service,
the type of services to which the rates and charges apply,
and the classifications and other provisions which directly
affect the rates and charges. 18 C.F.R. § 300.1(7); 10
C.F.R. §903.2(n). This definition does not include re-
source allocation decisions which indirectly affect prices
of non-federal energy. Rather, before the more recent
adoption of formal policies through rulemaking, power
aliocation decisions of federal power marketing agencies
have principally been made on an ad hoc basis by the
exercise of the agencies’ contracting authority. See Elec-
tricities of N. Carolina v. Southeastern Power Admin., 774
F.2d 1262, 1265 (4th Cir.1985); cf. City of Santa Clara v.
Andrus, 572 F.2d 660, 673-74 (9th Cir.1978) (Secretary
of Interior is not required to follow rulemaking proce-
“spill rate” as the “applicable rate” under the Exportable Energy
Agreement, its decision to apply the “standard rate” instead is
specifically anticipated by the applicable rate schedule NF-83. See 33
FERC (CCH) $61,235, at p. 61,489. That schedule provides that
nonfirm energy shall be sold at the standard rate, unless BPA
“offer|s|, at its discretion, to schedule Nonfirm Energy at the Spill
Rate.’ By electing to exercise this discretion, BPA did not change
any rates.
B-12
dures when disposing of federal hydroelectric power).
Access has never historically been considered an aspect of
rulemaking for before BPA adopted the Access Policy, it
informally allowed access to the Intertie to be determined
by the spot market. See Record of Decision I, at 39.
We consider the totality of the cireumstances to deter-
mine if BPA action was ratemaking. See Portland General,
754 F.2d at 1481; California Energy Resources Conserva-
tion & Dev. Comm’n v. Bonneville Power Admin., 754 F.2d
at 1474; see also City of Seattle, 813 F.2d at 1367 n. 5.
Upon examination of all of these considerations, we con-
clude BPA’s action, which followed the rulemaking proce-
dures, did not amount to ratemaking requiring FERC
review. We therefore have jurisdiction to review the Ac-
eess Policy.
The Merits
CEC and CPUC attack the Access Policy on essentially
four grounds. Three of these grounds are discussed in
Department of Water and Power. They are that the Access
Policy lacks factual justification, that it is discriminatory
in violation of 16 U.S.C. §§ 837e and 838d, and that it fails
to conform to federal antitrust policy. We deal with those
issues first. We then turn to the remaining issue not
discussed in prior opinion, namely, that the policy ex-
cludes new generating sources in violation of 16 U.S.C.
§ 839f(d) and 837e.
A. Lack of Factual Justification
The petitioners argue that BPA’s purported justifica-
tions for the policy lack a reasonable basis in fact and
that BPA’s action was therefore arbitrary, capricious, and
B-13
an abuse of discretion.” In Department of Water and
Power, however, this court specifically found that the
interim Access Policy was factually justified. There, we
stated that “BPA has presented reliable evidence that
without a policy which carefully allocates Intertie access,
it will experience significant revenue shortfalls in coming
years. To the extent that the LAP [the Access Policy] is
designed to mitigate projected deficits, therefore, the
policy is not only statutorily authorized but statutorily
mandated.” Department of Water and Power, 759 F.2d at
693. As the petitioners concede, the interim policy and the
revised policy are identical for these purposes. They point
to nothing in the record of the revised proceedings that
would require reexamination of their contention. There-
fore, our earlier determination forecloses review here. See
Royal Development Co. v. National Labor Relations Bd.,
703 F.2d 363, 358 (9th Cir.1983). CEC’s contention that
Department of Waier and Power should not control be-
cause the court there was unaware of BPA’s huge net
revenues and relied on conclusory evidence is merely an
assertion that the case would have been decided differ-
ently on a different record. It does not provide a basis for
disregarding the decision.
*BPA's justifications include:
1. to “assure|| that BPA has use of its portion of the Pacific
Intertie as necessary for BPA's power marketing program”;
2. to “enhance| | BPA’s ability to recover revenue that otherwise
would be lost if BPA failed to manage prudently its portion of
the Pacific Intertie”; and
3. to “respond|| to the recent influx of requests for more space
on the Pacifie Intertie that there is available capacity.”
Near Term Intertie Access Policy, 49 Fed.Reg. at 44,233.
B-14
B. Discrimination
CEC and CPUC contend that the Access Policy dis-
criminates against extraregional utilities in violation of
16 U.S.C. §§ 837e and 828d by denying them transmission
access whenever a non-federal Pacific Northwest utility
has unsold surplus available. Again, their challenge is
foreclosed by Department of Water and Power. There,
after specifically examining sections 837e and 838d, we
stated that “BPA is required to allocate use of federally-
owned transmission facilities in a manner which accords
preference first to transmission of federal power and then
to transmission of other Northwest-generated power.”’
Department of Water and Power, 759 F.2d at 692-93, 695.
C. Antitrust Arguments
The petitioners challenge the Access Policy as failing to
conform to the maximum extent possible to the federal
antitrust laws and policies. We held in the Department of
Water and Power case that the anticompetitive effects
there challenged were justified by fiscal concerns. Depart-
ment of Water and Power, 759 F.2d at 693. In addition, we
observed in a footnote that the antitrust laws were not
applicable to BPA. Id. at 693 n. 12. We did not in that
decision discuss to what extent BPA may be required to
consider the policies of the antitrust laws, though we did
stress the monopoly power which it had been given. Jd. at
693.
BPA is required to consider some federal antitrust
policies when providing for allocation of Intertie capacity.
Congress specifically articulated its intent that BPA
operate its transmission lines in part “to prevent the
monopolization thereof by limited groups.” 16 U.S.C.
B-15
§ 832a(b) This need to consider the interests of preserv-
ing competition, however, does not override BPA’s statu-
tory obligations, repeatedly expressed in 16 U.S.C.
§§ 852f, 838g, and 839e(a)(1), to be fiscally self-
supporting.
The aspect of the policy which the petitioners attack
here and which was not dealt with in our prior decision in
Department of Water and Power is the pro rata allocation
formula for surplus nonfirm energy. Under the Access
Policy, firm energy needs are satisfied first and any
remaining capacity is used for nonfirm energy. Under
Conditions One and Two, Intertie capacity for surplus
nonfirm energy is allocated daily or hourly among BPA
and Pacific Northwest producers so that each receives a
pro rata portion of its declared surplus. Under Condition
Three, capacity for surplus nonfirm power is allocated
among BPA, Northwest producers, and extraregional pro-
ducers again based on a pro rata portion of each pro-
ducer’s declared surplus. Revised Near Term Intertie
Access Policy, 50 Fed.Reg. at 26,830-31. The result is a
regularly shifting, horizontal division of the market for
surplus nonfirm energy; each eligible producer is tempo-
rarily granted sole access to a specified share of the
“This statutory language is more specific than the Federal Power
Commission's broad authority to issue public utility securites if
“compatible with the public interest,’ an authority which the Su-
preme Court held to incorporate from other sections of the Federal
Power Act an obligation to consider federal antitrust policies. See
Gulf States Ul:l. Co. v. Federal Power Comm’n, 411 U.S. 747, 756-59, 93
S.Ct. 1870, 1876-78, 36 L.Ed.2d 635 (1973); see also Oller Tail Power
Co. v. Uniled Slales, 410 U.S. 366, 374, 93 S.Ct. 1022, 1028, 35 L.Ed.2d
359 (1973) (rather than insulate electric power companies from
antitrust policies, the Federal Power Act intended to incorporate
antitrust concerns).
B-16
capacity, which it may either use or allow to remain
unused without fear of competition by other producers.
CEC and CPUC argue that this pro rata allocation
formula is an abuse of discretion because it is anticompe-
titive and BP.A’s stated justifications could be achieved
by a less anticompetitive alternative. They assert that
BPA should be required to adopt a policy whereby it
would first allocate to itself whatever capacity is needed
to satisfy its revenue obligations, and then allow the
remainder capacity to be filled by competitive, spot mar-
ket transactions rather than by the pro rata formula.
The alternative which petitioners now propose was
apparently not, however, directly raised during the notice
and comment proceedings for the policy on review here.
The agency did not evaluate it and we have no record on
which to review the petitioner's contentions. See
Kunaknana v. Clark, 742 F.2d 1145, 1149 (9th Cir.1984);
see also Association of Daia Processing Serv. Orgs. v. Board
of Governors of the Fed. Reserve Sys., 745 F.2d 677, 684
(D.C. Cir.1984). During these interim phases of its action
BPA and interested parties were concerned with the
broader questions of its authority to allocate the Intertie
as proposed.’ In the circumstances presented here, where
we deal with a temporary policy, and administrative
proceedings on a long term policy are ongoing, we should
defer consideration of the alternative proposed by CEC
and CPUC until the agency has been given an opportunity
‘In its Record of Decision for the revised policy, BPA specifically
stated that it elected in the interim proceedings to focus on questions
regarding its statutory authority to allocate the Intertie capacity
because it had never adopted an allocation policy before. See Record
of Decision II, at 3. In the wake of this court's decision in Depariment
of Waler and Power upholding the interim policy, BPA did not
reanalyze all of its prior decisions. See Id.
B-17
to analyze and act upon the alternative in its Long Term
Policy.
We have reviewed the record to determine the reasona-
bleness of BPA’s evaluation of the alternatives it did have
an opportunity to consider. There were two such alterna-
tives, and both bear a close relationship to the alternative
petitioners now propose.
One was that BPA reserve sufficient Intertie capacity
for itself before providing ary access to non-federal pro-
ducers. The proponents of this alternative were concerned
that BPA obtain the maximum revenues possible. See
Record of Decision I, at 9. BPA rejected this proposal for
the interim Near Term Policy because it believed that it
could satisfy its revenue obligations without adopting
such an extreme policy. The agency noted that the Access
Policy's provisions for firm access would enable it to
increase revenues by insuring that firm energy would be
sold at firm energy rates. See id. at 9-11. It also believes
that its role as a federal steward for transmission services
would be best served by sharing the Intertie with Pacific
Northwest producers. See id. The agency again rejected
the alternative in its revised policy when its experience in
recovering revenues under the initial Near Term Policy
showed its revenue expectation to be justified. See Record
of Decision II, at 18. Given these justifications and the
experience under the initial policy, the agency's decision
to reject this alternative in favor of the adopted allocation
formula was rational. See Motor Vehicles, 463 U.S. 29, 43,
103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983).
Other parties expressed concern that the allocation
formula was anticompetitive and recommended that BPA
retain its practice of allowing spot market transactions to
determine access to the Intertie for surplus nonfirm
energy. See Record of Decision I, at 35-36. In response,
B-18
BPA found that the monopsony power of California buy-
ers prevented the market from being competitive even
under the spot market practice and that the distressed
prices stemming from the monopsony power resulted in
BPA revenue shortfalls. See id. at 2, 40. It also found that
a pro rata formula would help to equalize Intertie benefits
between Pacific Northwest producers and California buy-
ers of energy. See id. at 39-41. Finally, the agency re-
marked that the proposed policy was not as
anticompetitive -as the opponents asserted because it
opened up a new market for firm energy and because
other market forces still worked to encourage Pacific
Northwest sellers to retain prices competitive with alter-
nate forms of energy. See id. at 36-44. After several
months experience with the interim policy, BPA reevalu-
ated the anticompetitive effects in promulgating the re-
vised policy. Based on data of non-federal prices provided
by the parties, it found that although its revenues had
increased as a result of firm energy sales over the Inter-
tie, Pacifie Northwest prices had not risen significantly.
See Record of Decision II, at 1, 7-8. The agency explained
that Pacific Northwest producers must still compete with
other energy sources. See id. at 8. Also, the allocation
mechanism results in overestimation of available Intertie
capacity and, therefore, producers must remain price
competitive to make sales. See id.
To counter concerns that the pro rata formula would
result in unused Intertie capacity from higher prices,
BPA initially proposed ar economic overrnde provision
that would allow it to reduce the pro rata share of non-
federal producer if that producer's share would go unused
because of its rates. See Record of Decision I, at 33-35.
Almost all parties that commented on this provision,
including both Pacific Northwest and California parties,
objected to this provision as being too intrusive of the
B-19
business practices to the parties. See id.; Record of
Decision II, at 41-43. Given the widespread objection to
what was intended to be a mitigation provision in favor of
California energy buyers, BPA’s rejection of the economic
override alternative was reasonable.
On the basis of the record before us, we cannot say that
the agency’s interim decision to allocate the Intertie as
undertaken in the Access policy is arbitrary, capricious,
or an abuse of discretion. Rather, the record shows that
among the alternatives proposed and considered, BPA
adopted what it reasonably believed would be a predict-
able, fair, and nondiscriminatory basis for allocating the
Intertie while insuring adequate BPA revenues.
D. Exclusion of New Generating Sources
With the exception of two specific sources, the Access
Policy denies access for firm power to Pacific Northwest
resources not operational on September 7, 1984. See
Revised Near Term Intertie Access Policy, 50 Fed.Reg. at
26,828-29. CEC argues that this exclusion discriminates
against utilities which develop new generating sources in
violation of 16 U.S.C. §§ 837e and 839f(d).° Because CEC
represents California energy interests, it has standing to
challenge the overall exclusion of new generating sources
which may result in higher prices to California consum-
ers. See California Energy Resources Conservation & Dev.
Comm’n v. Johnson, 783 F.2d 858, 860 n. 2 (9th Cir.1986),
modified, 807 F.2d 1456 (1987); California Energy Re-
sources Conservation & Dev. Comm’n v. Bonneville Power
Admin., 754 F.2d 1470, 1473 (9th Cir.), cert. denied, 474
U.S. 1005, 106 S.Ct. 524, 88 L.Ed.2d 457 (1985).
“CPUC does not raise a similar challenge.
B-20
Section 9(d) of the Regional Act requires that in
providing transmission access BPA not discriminate
against a utility on the basis of independent development
of resources. 16 U.S.C. § 839f(d).° From this language
CEC finds a statutory obligation to provide Intertie
access to all new generating sources. Section 9(d), how-
ever, specifically states that the duty to provide nondis-
criminatory service is “subject to.. and other obligations
under existing law.” Jd. BPA points to two other obliga-
tions to justify its decision to exclude newly operational
resources under the interim and revised Near Term
policies.
"In full, section 9(d) provides:
(d) Disposition of power which does not increase amount of firm
power Administrator is obligated to provide to any customer
[sic |
—~No restrictions contained in subsection (c) of this section shall
limit or interfere with the sale, exchange or other disposition of
any power by any utility or group thereof from any existing or
new non-Federal resource if such sale, exchange or disposition
does not increase the amount of firm power the Administrator
would be obligated to provide to any customer. In addition to the
directives contained in subsections (i) (1)(B) and (1) (3) of this
section and subject to:
(1) any contractual obligations of the administrator,
(2) any other obligations under existing iaw, and
(3) the availability of capacity in the Federal transmission
system,
the Administrator shall provide transmission access, load factoring,
storage and other services normally attendant thereto to such utili-
ties and shal! not discriminate against any utility or group thereof on
the basis of independent development of such resource in providing
such services.
16 U.S.C. § 839f(d).
B-21
The first is BPA’s statutory obligation under the Re-
gional Act to use its “authorities ...to protect, mitigate,
and enhance fish and wildlife’ in the Columbia River
basin. 16 U.S.C. § 839b(h) (10) (A); see Record of Deci-
sion I, at 82-85; see also Forelaws on Board v. Johnson, 743
F.2d 677, 682 (9th Cir.1984), cert. denied, U.S. , 106
S.Ct. 3293, 92 L.Ed.2d 709 (1986).’ During notice_and
comment proceedings, interested parties expressed con-
cern that the policy “not enable or encourage resources
which adversely affect anadromous fish.” Record of Deci-
sion I, at 66. BPA was legitimately concerned lest its
allocation policy encourage new development harmful to
fish and wildlife.” By excluding new generating sources in
its interim and revised Near Term policies, BPA could
avoid encouraging harmful development while it evalu-
ated less restrictive alternatives. BPA could also pursue
"Section 4(h) (10) (A) provides:
The Administrator shall use the Bouneville Power Administra-
tion fund and the authorities available to the Administrator
under this chapter and other laws administered by the Adminis-
trator to protect, mitigate, and enhance fish and wildlife to the
extent affected by the development and operation of any hydroe-
leetme project of the Columbia River and its tributaries in a
manner consistent with the plan, if in existence, the program
adopted by the Council under this subsection, and the purposes
of this chapter. Expenditures of the Administrator pursuant to
this paragraph shal! be in addition to, not in lieu of, other
expenditures authorized or required from other entities under
other agreements or provisions of law.
16 U.S.C. § 839b(h) (10) (A).
"The Access Policy also réstricts access by existing resources when
it will result in a use of resources that adversely affects fish and
wildlife. See Revised Near Term Intertie Access Policy, 50 Fed.Reg.
at 26,829. CEC does not contend that BPA lacks authority to
establish this condition for access.
B-22
its statutory obligation to be fiscally self-supporting while
it developed an alternative.”
Additionally, under the National Environmental Policy
ict [NEPA], 42 U.S.C. §$§ 4321-4361, BPA must prepare
an environmental impact statement before undertaking
any action that would significantly affect the quality of
the environment. See Forelaws on Board v. Johnson, 743
F.2d 677, 681-82 (9th Cir.1984), cert. denied, US.
, 106 §.Ct. 3293, 92 L.Ed.2d 709 (1986). Because of
the uncertain impact of the allocation policy on the
environment, the agency reasonably concluded that it
should exclude new generating sources in the interim and
revised Near Term policies.
CEC nevertheless recites 16 U.S.C. § 837e is support of
its assertion that the exclusion provision exceeds statu-
tory authority. That section provides that the Intertie
‘“‘shall be made available as a carrier for transmission of
[non-federal] electric energy.” 16 U.S.C. § 837e.’° CEC
"The Near Term Policy expressly indicates that the Long Term
Policy will eliminate the total exclusion of new generating sources in
favor of a less restrictive exclusion. As anticipated, the Long Term
Policy will exclude new resources “if construction or operation of
these resources will adversely impact fish and wildlife resources.” See
Revised Near Term Intertie Access Policy, 50 Fed.Reg. at 26,830
(emphasis added).
‘°§ 837e. Transmission lines for other electric energy; rates
Any capacity in Federal transmission lines connecting, either
by themselves or with non-F'ederal lines, a generating plant in
the Pacific Northwest or Canada with the other area or with any
other area outside the Pacific Northwest, which is not required
for the transmission of Federal energy or the energy described
in section 837h of this title, shall be made available as a carrier
for transmission of other electric energy between such areas. The
transmission of other electric energy shall be at equitable rates
determined by the Secretary, but such rates shall be subject to
B-23
argues that it mandates access to all new sources regard-
less of environmental impact. The legislative history of
the subsequently enacted Regional Act makes clear, how-
ever, that environmental concerns are to be given a
heightened priority and that the Regional Act “creates a
new obligation on the region, the BPA, and other Federal
agencies to protect, mitigate and enhance fish and wild-
life.” 126 Cong.Ree. 29809 (1980) (statement of chief
sponsor Rep. Dingall), reprinted in United States Depart-
ment of Energy, Legislative History of the Pacific Northwest
Power Planning and Conservation Act 138 (1981); see 16
U.S.C. §839(6); see also 126 Cong.Ree. 27825 (1980)
(statement of Rep. Bonker) (“The language in this bill —
if interpreted according to the historical development and
record of this legislation — will insure that power needs
and fish needs are considered equally in the allocation of
available water resources. That is the intent of Con-
gress.”), reprinted in Legislative History at 190. The
Regional Act’s focus on preservation and conservation
modifies BPA’s preexisting directives emphasizing wide-
spread use of energy, sound business principles, and the
lowest rates possible. See Blumm, The Northwest’s Hydro-
electric Heritage: Prologue to the Pacific Northwest Electric
Power Planning and Conservation Act, 58 Wash.L.Rev.
175, 232-35 (1983).
We deal here with an interim ban. The petitioners do
not point to any planned source which has yet been
equitable adjustment at appropriate intervals not less frequently
than once in every five years as agreed to by the parties. No
contract for the transmission of non-Federal energy on a firm
basis shall be affected by any increase, subsequent to the execu-
tion of such contrac’, in the requirements for transmission of
Federal energy, the energy described in section 837h of this title,
or other electric energy.
16 U.S.C. § 837e.
a
B-24
affected adversely. Although we do not purport to decide
whether an absolute exclusion of new generating sources
would be reasonable in a long term access policy, the
present interim exclusion of new generating sources is
not facially invalid.
The petitions are DENIED.
NORRIS, Circuit Judge, dissenting:
I am troubled by Judge Schroeder’s opinion in this
obviously important case. While it may be that Depart-
ment of Water and Power of the City of Los Angeles v.
Bonneville Power Administration, 759 F.2d 684 (9th
Cir.1985), forecloses appellants’ claims that the BPA’s
Interim Access Policy arbitrarily favors the BPA itself
and discriminates against Canadian utilities in violation
of the statutory mandate,’ that case does not foreclose a
challenge to the BPA’s policy of discriminating against
Pacific Southwest utilities and energy consumers in favor
of Pacific Northwest utilities.
The BPA’s pro rata allocation scheme for available
intertie capacity — a scheme which if implemented by a
private party would plainly violate the antitrust laws —
paternalistically restricts price competition among North-
west utilities and denies Southwest utilities and energy
consumers the benefit of free market pricing for surplus
energy offered for sale by privately-owned Northwest
utilities. The interim access policy's interference with free
'Parenthetically, it also seems to me that the panel in Deparlment
of Waler & Power may have wrongly decided the Canadian issue. The
exclusion of Canadian power, though arguably unobjectionable in its
discrimination against Cenadian producers, also discriminates
against Southwest energy purchasers — intended beneficiaries of the
intertie. That issue may be important enough to ment en banc
consideration.
B-25
market pricing simply creates a cartel for the Northwest
utility companies in the sale of power to the Southwest.”
The BPA’s statutory mission, however, does not extend to
acting as the guardian angel for Northwest utilities in
their market relationship with Southwest utilities. If
Northwest energy companies believe that the Southwest
utilities are exercising some sort of unfair monopsony
power, let them sue under the applicable antitrust laws. It
is not the mission of the BPA to fight this battle for the
Northwest utilities through the promulgation of a region-
ally biased access policy.
I can see no statutory authority under which the BPA
is authorized to discriminate so clearly in favor of North-
west utilities and against Southwest utilities and energy
users. Indeed, the relevant statutory language appears to
point the other way. The anti-competitive, pro-Northwest
utility slant of the pro rata intertie access plan seems
plainly incompatible with the statutory language requir-
ing that the BPA be “fair and non-discriminatory”’ in its
treatment of all utilities, 16 U.S.C. § 838d, as well as the
clear understanding recognized in Department of Water &
Power that the purpose of the intertie was to benefit both
the Northwest and Southwest, 759 F.2d at 694.
* To the extent that Northwest utilities are under no obligation to
use their pro rata share of intertie access, the BPA’s interim plan
also acts as a restriction on output. Output restrictions, like restric-
tions on price competition, raise prices above the competitive market
level. Thus, the interim access policy — suppressing both prices and
output — is a double curse for Southwest utilities and energy
consumers.
APPENDIX C
C-1
—_
APPENDIX C
DEPARTMENT OF WATER AND POWER
OF
THE CITY OF LOS ANGELES,
Petitioner
Vv.
BONNEVILLE POWER ADMINISTRATION,
Respondent.
No. 84-7618
United States Court of Appeals,
Ninth Cireuit.
Argued and Submitted Jan. 16, 1985.
Decided April 24, 1985.
Before KILKENNY, GOODWIN and
SKOPIL, Circuit Judges.
GOODWIN, Circuit Judge.
The Department of Water and Power of the City of Los
Angeles brings a direct appeal’ challenging a policy im-
plemented by the Administrator of the Bonneville Power
Administration [BPA] which allocates use of electricity
transmission lines connecting the Pacific Northwest with
California. Reviewing the regulation in light of the broad
‘The Pacific Northwest Electric Power Planning and Conservation
Act, 16 U.S.C. §§ 839-839h, makes this court a court of orginal]
jurisdiction for suits challenging BPA administrative actions. 16
U.S.C. § 839f(e) (5). Any “final actions and decisions ...or the im-
plementation of such final actions” taken pursuant to any of the four
enabling statutes are subject to direct review by the Ninth Circuit.
Sce Forelaws on Board v. Johnson, 743 F.2d 677, 679 (9th Cir.1985);
Central Lincoln Peoples’ Utility District v. Johnson, 735 F.2d 1101,
1108 (9th Cir.1984)
C-2
range of powers statutorily granted to the Administrator,
we uphold the validity of the regulation.
This case asks whether, to what extent and for what
reasons, BPA can exercise control over the marketing of
electricity generated in the Pacific Northwest. Like many
similar cases, this one involves a complex web of four
federal statutes and a complex factuai background.” The
real issue here is whether the City of Los Angeles can
purchase low-cost electricity from vendors in Canada and
transmit that electricity at rates favorable to Los Angeles
contrary to the pricing strategy of the Administrator.
The City of Los Angeles provides electricity to custom-
ers in and near Los Angeles. Bonneville Power Adminis-
tration is a federal agency within the Department of
Energy organized for three purposes: to produce electric
power at the Bonneville Dam on the Columbia River, to
market power produced from numerous dams on the
Columbia River as part of the Federal Columbia River
Power System, and to supervise distribution of power
within and from the Pacific Northwest. BPA itself is
subject to regulatory supervision by the Federal Energy
Regulatory Commission. 16 U.S.C. §§ 839e(i) (6),
839e(k).
“The four federal statutes provide the statutory authority for
electricity generation, regulation and marketing of electricity in the
Pacific Northwest and for the marketing of Northwest electricity in
the Pacific Southwest. Those statutes are the Pacific Northwest
Electric Power Planning and Conservation Act, 16 U.S.C. §§ 839-
839h |“Northwest Power Act”], the Federal Columbia River Trans-
mission System Act, 16 U.S.C. §§ 838-838k. |““Columbia River Act” J,
the Pacific Northwest Power Preference Act, 16 U.S.C. §§ 837-837h
|*Preference Act” |, and the Bonneville Project Act, 16 U.S.C. § [sic]
832-4321. |“Project Act” J.
C-3
Producers of electricity in the Pacific Northwest are
linked to producers and consumers of electricity in the
Pacific Southwest through the Pacific Northwest-Pacific
Southwest Intertie, a system of three high-voltage trans-
mission lines.” BPA owns and operates almost all of the
lines north of the Oregon-California and Oregon-Nevada
borders. South of Oregon, the lines are owned by a
number of California utilities. The City owns 40 percent
of one of those lines.
The purpose of the Intertie, established by Congress in
the late 1960's, see Pub.L. No. 88-257, 77 Stat. 844 (1964);
Pub.L. No. 88-511, 78 Stat. 682 (1965) (appropriations
for construction of the Intertie), is to even out the peaks
and troughs in the production and consumption of power
between the Northwest and the Southwest. At certain
times of year the Northwest produces more electricity
than it can use and the Southwest experiences particu-
larly heavy electricity consumption. At other times, the
Northwest has heavy demand and the Southwest can
produce surplus power. By allowing electricity to flow
either north or south, each region can assist the other
during times of heavy demand.’
Although the Intertie was designed to link the Northwest with the
Southwest, the system is being used largely by Northwest and
California utilities. A new Intertie connection between the Northwest
and Arizona is planned. See BPA, Columbia River Power for the
People: A History of Policies of the Bonnemlle Power Adminisiralion
237-46 (1981).
‘It is useful to think of the Intertie as a pipeline in which electricity
flows. The electricity can flow in either direction: from Pacific North-
west producers to California consumers or from California producers
to Northwest consumers. Like a pipe, the Intertie has a finite capacity
for transmitting electricity flows. In recent years, the flow in the
Intertie has been almost entirely from the Northwest to California.
Heavy river volume and lower than projected electmcity demand in
C-4
BPA produces approximately half the hydroelectric
power sold in the Pacific Northwest. The remainder is
produced by 15 publicly-owned or investor-owned utili-
ties. BPA and the other utilities store the generation
capacity of hydroelectric energy as water, held behind
dams with finite storage capacities. This means that the
generation capacity is perishable, because limits to stor-
age and replenishment depend upon reservoir capacity
and river flows. As a result, a major responsibility of BPA
is the management of water levels consistent with sea-
sonal water flows and electricity demands.
The water management process is complicated because
the seasonal periods of high and low river flow do not
necessarily correspond to seasons of high and low elec-
tricity demand. In marketing hydroelectric energy, BPA
must distinguish between power which can be generated
during periods of the lowest river flow and power which
can be generated only during peak river flow. A distine-
tion has arisen, therefore, between so-called firm power
(which is always available) and so-called nonfirm or
interruptible power (which is available only during peak
river flows). See ALCOA v. Central Lincoln Peoples’ Util.
Dist., U.S. ___, 104 S.Ct. 2472, 2475, 81 L.Ed2d 301
(1984).
Over the years, BPA has entered into numerous con-
tracts for the sale of firm power, both within the North-
west and outside the region. BPA has had such a contract
the Northwest have resulted in consistent surpluses of Northwest
electricity. Furthermore, the cost of Northwest hydroelectric power
(the source of most Northwest electricity) historically has been less
than the cost of thermal power produced in California, making it
financially attractive for California utilities to purchase as much
Northwest electricity as the Intertie can hold. See generally D.W.
Meek, Pacific Northwesl Conservation for California: The Mulual Bene-
fils of Long Term Cooperation, 13 Environmental Law 841 (1983).
C-5
with the City. The City also buys nonfirm hydroelectric
power from BPA from time to time as it is available and
as the City has demanded for it. During times of electric-
ity shortage, parties to firm power contracts receive prior-
ity over any normirm energy purchasers. See e.g. 16 U.S.C.
§ 837f; ALCOA, 104 S.Ct. at 2477-79.
In the sale of both firm and nonfirm power, BPA is
statutorily required to give priority to purchasers within
the Northwest, 16 U.S.C. § 837a, and to publie bodies and
cooperatives, 16 U.S.C. § 832c(a). Sale to utilities outside
the region is limited to electricity “which would otherwise
be wasted because of the lack of a market therefor in the
Pacific Northwest at any established rate.” 16 U.S.C.
§$§ 837(c), 837(d). This electricity is known as surplus
power.
Sale of any power by a Northwest utility to a California
utility, such as the City requires the transmission of that
power to the California purchaser. The Intertie transmits
this energy. But, because there are many purchasers of
power and because seasonal availability may affect the
amount of power which utilities wish to transmit over the
Intertie to California purchasers, BPA must allocate
Intertie capacity among both purchasers and producers.
In allocating Intertie capacity among itself and other
Northwest electricity producers, BPA is statutorily re-
quired to give itself preference. 16 U.S.C. §837e. Any
capacity in the Intertie “‘which is not required for the
transmission of Federal energy... shall be made availa-
ble as a carner for transmission of other electric energy
~~ oa
When Northwest utilities must generate more electric-
ity than they can possibly use in the Northwest (to avoid
the wasteful spilling of water over their damis), the
C-6
electricity so generated is sometimes not only too much to
be used in the Northwest but also exceeds the capacity of
the Intertie to transmit.
To allocate Intertie capacity for surplus power sales
outside the region, BPA has entered into an agreement
with Northwest utilities known as the Exportable Agree-
ment.” The Exportable Agreement allocates Intertie ca-
pacity among competing producers during times of
potential spillover by permitting each Northwest utility to
seil a pro rata portion of its surplus power to California
purchasers and to transmit that power over the Intertie
until Intertie capacity has been reached. When the Ex-
portable Agreement triggers an allocation of scarce Inter-
tie capacity, nonregional producers (1.e., electricity
producers in Canada) are precluded from using the Inter-
tie. That agreement was, until the policy which is the
subject of this litigation, the only means of allocating
Intertie capacity.
In the past, when river flows did not threaten a spill-
over condition, BPA did not regulate Intertie access.
Instead, BPA allowed access to the Intertie (up to its
maximum capacity) to both Northwest and Canadian
utilities. Market forces determined how much energy each
Northwest or Canadian utility could sell to purchasers in
California. If Canadian utilities offered the most attrac-
tive price to California purchasers, for example, those
utilities were permitted to use potentially all Intertie
capacity, at the exclusion of Northwest utilities which
were offering less attractive prices. Canadian producers
“Agreement Executed by the United States of America Department
of the Interior by and through the Bonneville Power Administrator
and Utilities in the Pacific Northwest (BPA Contract No. 14-03-
73155, January 13, 1969).
a ath
C-7
as a group have been the second largest user of Intertie
capacity, after BPA itself.
There are several different ways by which California
utilities purchase Northwest power. The first, known as a
bilateral purchase, is a spot-market purchase of electric-
ity. After the seller and purchaser agree upon a price,
quantity and duration, the energy is “wheeled” over the
Intertie directly from the producer to the purchaser.®
Wheeling agreements provide a significant percentage of
the energy needs of some California utilities including the
City.’
The second major power sale arrangement is the ex-
change agreement. An exchange agreement is a reserva-
tion by a purchaser to borrow electricity which is later
returned to the producer. A purchaser reserves capacity
on the Intertie to accommodate the electricity it needs to
borrow (usually for peak daily usage), and reserves
capacity to return the same amount of electricity at a
later time (often the same day) when its own generation
capacity is not being fully used. Because this energy
transaction is used to accommodate peak electricity de-
"Wheeling is the procedure by which the owner of transmission
lines transmits electricity produced by another party for a specified
charge. See M.C. Blumm, The Norlhwest’s Hydroelectric Herilage:
Prologue lo the Pacific Norlthwesl Electric Power Planning and Conser-
valion Act, 58 Wash.L.Rev. 175, 212-13 (1982). While the statutory
authority for BPA wheeling originally was doubtful, wheeling has
long been a BPA practice. See BPA, Columbia River Power for the
People: A History of Policies of the Bonneville Power Adminisiralion,
201-07 (1981); Columbia River Act, 16 U.S.C. § 838d.
"Such agreements help California utility entities avoid the cost of
building expensive generating plants to accommodate demand which
arises only during peak daily usage..Of course, Northwest utilities
also benefit from the sale of electricity which might otherwise be
wasted. See generally D.W. Meek, 13 Environmental! Law 841.
C-8
mands, the arrangement is known as a peaking return
exchange agreement. The energy so transmitted is known
as obligation energy. Because the Intertie can be used for
transmitting electricity either to the north or to the south,
the Intertie can be used for both ends of the transaction:
the borrowing of electricity during peak times by Califor-
nia utilities and the return of electricity to Northwest
utilities during California’s off-peak hours.
The City and BPA have had a long-standing exchange
agreement. Because market conditions in recent years
have made Canadian power very attractive, however, the
City has been satisfying its obligation to return borrowed
energy by purchasing electricity from British Columbia
Hydro Authority and having that electricity returned to
BPA at the British Columbia — Washington border. Con-
sequently, the Intertie has been used by the City to
borrow BPA power but not to return the obligation
energy. BPA and the City have an ongoing dispute over
whether this arrangement is permissible under their ex-
change agreement. " BPA has demanded that the City
return obligation energy at the same location where it
borrows it: the Oregon — Nevada border. If the City did
return borrowed electricity in the manner demanded by
BPA, Intertie capacity would be needed for both bor-
rowed and return obligation energy meaning that less
power could be transmitted from north to south on the
Intertie.
"The City has sued the federal government over the BPA interpre-
tation of the exchange agreement. Deparlmeni of Waler & Power of the
Cily of Los Angeles v. Uniled Slales, No. 181-84C (U.S.Ct.Cl. pend-
ing). Each party has claimed the other to be in material breach of the
exchange agreement.
C-9
BPA INTERTIE ACCESS POLICY:
THIS DISPUTE
BPA is facing a potentially significant revenue
shortfall in coming years which may jeopardize its ability
to recover costs as is required by the Columbia River Act.
See 16 U.S.C. § 838g (3). It is this threat which BPA cites
as a primary reason for the policy which is the subject of
this litigation. The agency offers two explanations for this
unanticipated revenue shortfall. First is a lower-than-
expected demand for firm power from those industrial
customers who purchase huge quantities of electricity
directly from BPA. Many of these customers are large
aluminum producers which have been affected by a de-
pressed aluminum market. Cf. ALCOA, 104 S.Ct. at 2478.
Secondly, BPA has sold less than predicted amounts of
surplus power to extraregional utilities. In part because
of lower prices offered by Canadian vendors to California
customers (including the City), the market has shrunk
for BPA surplus power. See Calif. Energy Resources Cons.
and Develop. Comm’n v. BPA, 754 F.2d 1470, 1472 (9th
Cir.1985); Portland Gen. Elec. Co. v. Johnson, 754 F.2d
1475, 1477-78 (9th Cir.1985).
On September 7, 1984, BPA promulgated its Near
Term Intertie Access Policy [IAP]. 49 Fed.Reg. 44,232-38
(November 5, 1984). The policy was adopted after a
series of public hearings and Federal Register notices. 48
Fed.Reg. 33,515 (July 22, 1983) (notice of intent to
develop policy on Intertie access); 49 Fed.Reg. 5,990
(Feb. 16, 1984) (comments on notice of intent); 49
Fed.Reg. 30,098 (July 13, 1984) (proposed Intertie Ac-
eess Policy). See generally Near Term Intertie Access
Policy: Administrator’s Record of Decision (September 7,
1984). The policy is to remain in effect until May 1, 1985,
at which time the agency will decide on a Long Term
C-10
Intertie Policy. 50 Fed.Reg. 6,379 (Feb. 15, 1985) (ex-
tending expiration date from March 1 to May 1, 1985).
While the LAP sets out three different allocation formu-
lae for different market and electricity supply conditions,
several assumptions underlie all three formulae. Priority
in aecess to the Intertie is always afforded to Northwest
electricity suppliers selling firm power to California pur-
chasers. [AP € D.1, 49 Fed.Reg. at 44236. The LAP as-
sures delivery of power for existing firm power contracts,
LAP ¢ D.1.a., and allows those Northwest utilities capable
of doing so to enter into additonal firm power contracts
with California utilities. LAP § D.1.b. Among those con-
tracts which will be afforded assured delivery are ex-
change agreements including that between BPA and the
City. Only after firm power contracts are satisfied will
BPA allocate Intertie access for movement of nonfirm
power. LAP ¢ D.2. Canadian utilities can never use the
Intertie to transmit firm power. LAP § E.
Once firm power contracts are satisfied, formulae for
allocation of Intertie capacity for nonfirm energy depend
upon supply and demand under three different
conditions.
Condition 1 applies when there is a surplus of North-
west electricity and Northwest utilities are willing to sell
electricity to California purchasers at a BPA-established
rate. This portion of the LAP does not change existing
BPA policy; it incorporates the terms of the Exportable
Agreement. LAP § D.2.b.(1). The City does not challenge
this formula.
Condition 3 is the opposite of Condition 1. LAP
§ D.2.b.(3). This formula applies when: (1) demand for
Intertie use among Northwest utilities is less than availa-
ble Intertie capacity, and (2) California utilities want to
4
C-11
purchase more electricity than Northwest utilities have
available to sell but the amount available will not fill the
Intertie to capacity. Under this condition, BPA makes
Intertie transmission capacity freely available to any
Northwest or Canadian utility desiring access. The City
does not challenge this formula.
The text of the Condition 2 formula appears in the
margin.” Condition 2 applies when there is a slight over-
supply of Northwest electricity but not such an extreme
oversupply that Northwest utilities must generate excess
electricity to avoid spilling water over their dams. LAP
§ D.2.b.(2). In this situation (when California utilities
are willing to purchase, and Northwest utilities are will-
ing to sell, more electricity than the Intertie can handle),
there is competition among Northwest utilities. Canadian
utilities may not use the Intertie to enter the competition
unless those utilities first enter into acceptable planning
agreements with BPA. LAP 7 E.3. No Canadian utilities
currently have acceptable agreements with BPA.
°(2) Condilion 2. When the Exportable Agreement allocation
formula is not in effect, but BPA and other Scheduling Utilities
declare amounts of power available for access to the Pacific Intertie
that exceed the available Intertie Capacity determined as described
in paragraph a. above, the capacity will be allocated pursuant to the
following procedure:
(a) On any day the Scheduling Utilities observe as a normal
workday, each Scheduling Utility shall submit to BPA declara-
tions of daily quantities of energy and hourly capacity it has
available for sale to the Southwest for the period beginning at
midnight of the day of declaration and continuing through
midnight of the next normal workday.
(b) Allocations for each hour among Scheduling Utilities will be
determined and will approximate the ratio of each Scheduling
Utility’s declaration to the sum of all declarations for each hour
multiplied by the available Intertie Capacity ....
IAP ¢ D.2.b.(2), 49 Fed. Reg. at 44,237.
C-12
Under Condition 2, all Northwest utilities (and quali-
fied Canadian utilities, if any) wishing to sell power
would notify BPA of the amount of power available for
sale each day. If the total available power is greater than
Intertie capacity, each seller (including BPA) is allo-
cated a share of Intertie capacity based upon a pro rata
reduction from its declared available electricity, just as it
is under Condition 1. Allocations cannot be exceeded or
traded even if a utility later discovers it requested too
much or too little capacity.
The effect of Condition 2 is to reduce competition
among Northwest utilities both for Intertie capacity and
for California purchasers and to equalize the prices at
which Northwest power can be sold. The question on
which this litigation turns is whether the Condition 2
restrictions are consistent with BPA’s statutory
authority.
One related issue also has been raised in this litigation.
The City challenges the formula by which the LAP e¢aleu-
lates Intertie capacity for the purpose of allocating access
under Condition 2. Instead of allocating physical Intertie
capacity, BPA allocates net scheduled Intertie capacity.
IAP § A.8. Scheduled Intertie capacity is a measure not
of physical capacity but of “capacity ...controlled...
through ownership or contract right.” That capacity in-
cludes the amount of any return electricity which Califor-
nia utilities are obligated to return to Northwest utilities
pursuant to peaking return exchange agreements. /d.
Because peaking return exchange agreements permit the
utilities to use the Intertie, the BPA definition presumes
that all electricity transactions as part of those agree-
ments use the Intertie.
The scheduled capacity would be, therefore, larger than
the physical capacity of the line if all parties to exchange
C-13
agreements actually used the Intertie to return their
obligation energy. But some utilities do not use the
Intertie to satisfy their return obligations. The City, for
example, satisfies its obligations by purchasing from Brit-
ish Columbia Hydro Authority electricity which is deliv-
ered to BPA without passing through the Intertie. Other
utilities may purchase electricity from one Northwest
utility and have that electricity transmitted to another
Northwest utility to satisfy peaking return obligations.
That energy, also, does not pass through the Intertie.
Because scheduled capacity allocates capacity which need
never be physically used, the City argues that it is
arbitrary and capricious for BPA to use scheduled rather
than actual capacity to allocate Intertie access.
THIS COURT’S REVIEW
This detailed history provides the background for our
analysis of the case at bar. The City asks this court to find
that the IAP exceeds BPA’s statutory authority and is
arbitrary and capricious. Under the Administrative Pro-
cedure Act, this court may set aside an agency action if it
is found to be arbitrary, capricious, an abuse of discre-
tion, or in excess of statutory authority. 5 U.S.C.
§ 706(2). This standard of review is highiy deferential
and assumes the agency action to be valid. Citizens to
Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S.Ct.
814, 823, 28 L.Ed.2d. 136 (1971). Insofar as agency
action is the result of its interpretation of organic stat-
utes, the agency’s interpretation is to be given great
weight. ALCOA, 104 S.Ct. at 2479-80 (discussing BPA
administrative actions).
In reviewing actions BPA takes under its enabling
legislation, this court gives substantial deference to the
agency for three reasons. First, the enabling legislation is
cineca
Perper tee sheen
C-14
highly technical and complex. Second, the agency was
intimately involved in the drafting and consideration of
the legislation at the time of its passage. ALCOA,
104 S.CT. at 2480. Finally, Congress has, for nearly half a
century, monitored BPA performance in electricity regu-
lation and allocation. Statutory interpretations offered by
BPA represent “contemporaneous construction of a stat-
ute by [those] charged with the responsibility of setting
its machinery in motion, of making the parts work effi-
ciently and smoothly while they are yet untried and new.”
Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801,
13 L.Ed.2d 616 (1965). See Central Lincoln Peoples’ Util.
Dist. v. Johnson, 686 F.2d 708, 710-11 (9th Cir.1982),
rev'd on other grounds, U.S. —_, 104 S.Ct. 2472,
81 L.Ed.2d 301. See also American Paper Inst. v. American
Elec. Power Service Corp., 461 U.S. 402, 423, 103 S.Ct.
1921, 1933, 76 L.Ed.2d 22 (1983).
Nevertheless, in making this review, this court must
determine whether the challenged decision was based
upon a consideration of the relevant factors and whether
there has been a clear error of judgment. Citizens to
Preserve Overton Park, 401 U.S. at 416, 91 S.Ct. at 823.
While this court may not substitute its judgement for that
of the Bonneville Power Administrator, its factual inquiry
is to be “searching and careful.” Jd.
ALLOCATION OF INTERTIE CAPACITY”
We first examine the Administrator's authority to allo-
cate use of the Intertie. Each of the four applicable
statutes imposes restraints upon the manner in which
10
The City only challenges Intertie allocation under Condition 2.
We therefore address only those restrictions which apply under that
Condition.
C-15
BPA may exercise its discretion in managing electricity
and operating the Intertie. A review of applicable legisla-
tion reveals the boundaries of BPA authority.
The Project Act authorizes and directs BPA to con-
struct, operate and maintain the Intertie for transmitting
federal energy. 16 U.S.C. § 832a(b). The Act makes no
reference to sharing these facilities with other electricity
producers. Preference in BPA sale of electricity is to be
accorded to public bodies. 16 U.S.C. § 832c(a). Conse-
quently, allocation of Intertie use is not inconsistent with
BPA’s statutory authority to use the federally-owned
portions of the Intertie in any manner consistent with
“transmitting electric energy, ... from [BPA] to existing
and potential markets....” 16 U.S.C. § 832a(b).
The Preference Act was passed at the time the Intertie
plan was considered and approved. See Pub.L. No. 88-257,
77 Stat. 844 (1964); Pub.L. No. 88-511, 78 Stat. 682
(1965) (appropriations for construction of the Intertie).
The purpose of the Act was, inter alia, to permit intercon-
nection of the Bonneville power system with the systems
of other regions without the risk that BPA’s customers in
the Pacific Northwest would lose their preference for
electricity needed to meet present and future needs.
H.R.Rep. No. 590, 88th Cong., 2d. Sess., reprinted in 1964
U.S.Code Cong. & Ad. News 3342, 3342-43 (1964). Con-
gress was concerned to ensure that this interconnection,
so vital to the economic interests of both the Northwest
| and the Southwest, was not made at the expense of the
| loweost electricity needed to support economic growth in
| the Northwest. Jd. at 3342-44. At the same time that
Congress recognized the availability of electricity surplus
to the needs of the Northwest, it also recognized the
temptation for consumers elsewhere in the West to use
C-16
this cheap power for their own economic development at
the expense of the Northwest. Jd. at 3343-44.
The Act establishes a preference both for electricity
sales, 16 U.S.C. § 837a, and for use of Intertie capacity to
transmit that electricity. 16 U.S.C. § 837e. This is also the
statute which limits the sale, delivery or exchange of BPA
electricity outside the Northwest to “surplus energy and
surplus peaking capacity.” 16 U.S.C. § 837a. Surplus en-
ergy is defined to be that energy which would otherwise
be wasted because of the lack of a market in the North-
west. Surplus peaking capacity is that peaking capacity
for which there is no demand in the Northwest at any
established rate. 16 U.S.C. §837(c), (d).
Transmission lines used for BPA energy in the North-
west are to be made available to other users if not needed
by BPA, 16 U.S.C. §837e. The legislative history of the
Act explains that
In determining the existence of capacity excess to
the needs of the Government, Federal needs reasona-
bly foreseeable may be included, but the Secretary
may not decline to enter into [agreements to ‘trans-
mit other utilities’ power] merely because he may
have energy availabie for sale to serve the same load.
H.R.Rep. No. 590; 1964 U.S.Code Cong. & Ad.News at
3350. BPA is permitted, therefore, to reserve sufficient
Intertie capacity not only for its current needs but also
for its “foreseeable” future needs, so long as the agency
does not compete with other utilities on the mere specula-
tion that it “may have energy available” sometime in the
future to sell to the same customer.
Underlying Congressional passage of the Preference
Act was its concern to ensure that BPA could repay the
huge federal debt incurred in constructing Northwest
a
C-17
hydroelectric facilities. See 1964 U.S.Code Cong. &
Ad.News at 3382 (Additional views of Rep. Craig Hos-
mer). In its statement of the need for the Preference Act,
the House Committee explained that construction of the
Intertie would permit BPA to raise additional revenue
which “would go a long way toward putting the Bonne-
ville power system back on a sound financial basis.”
H.R.Rep. No. 590, 1964 U.S.Code Cong. & Ad.News at
3343.
The City has argued that the IAP violates the Prefer-
ence Act, 16 U.S.C. § 837e, by automatically giving BPA
priority in sale of electricity to California regardless of
market price and competition from other Northwest elec-
tricity producers. Nevertheless, it is clear from the legis-
lative history that Congress did not intend BPA to
compete with other Northwest utilities for access to the
Intertie. The theme of the Act is that BPA, as owner and
operator of the Intertie, should be allowed preference in
transmission of its electricity over the Intertie as neces-
sary to meet its statutory mandate of being self-financing.
Only if the agency still has capacity remaining on the
Intertie after it has sold available and foreseeable power,
is it required to make the Intertie available to other
utilities.
The Columbia River Act deals primarily with financing
arrangements for BPA. The Act does, however, require
BPA to make its facilities available to all utilities fairly
once its own needs are satisfied:
The Administrator shall make available to all utili-
ties on a fair and nondiscriminatory basis, any capac-
ity in the [Intertie] which he determines to be in
excess of the capacity requir? to transmit electric
power generated or acquired by the United States.
C-18
16 U.S.C. § 838d.
Neither the Act nor the Congressional Report provide
any further guidance for the Administrator's diseretion in
making excess capacity available to other utilities. The
Act recognizes, however, that BPA must make available
only excess capacity, not all Intertie capacity.
The Northwest Power Act reaffirms the authority of
BPA to allocate and manage Intertie capacity. 16 U.S.C.
§ 839f(i) (1) (B). BPA is explicitly limited to providing
transmission services over the Intertie which are “not in
conflict with the [BPA’s] other marketing obligations,”
id., and which do not cause a “substantial interference
with [the BPA] power marketing program....” 16
U.S.C. § 839f(i) (3)."" See H.R.Rep. No. 976, Part II, 96th
Cong.2d Sess., reprinted in 1980 U.S.Code Cong. & Ad.
News 5989, 6054.
The City argues that the LAP alters free market forces
which would otherwise alocate Intertie access according
to price and demand. The City’s argument, however, fails
because electricity generation, transmission and distribu-
tion in the Pacific Northwest have not been subject to free
market forces since passage in 1937 of the Project Act
which created a virtual federal monopoly over transmis-
sion of hydroelectric energy in the region. Notwithstand-
ing the fact that BPA has permitted the operation of
market forces to allocate Intertie usage at some times in
the past, Congress has repeatedly expressed its intent
that BPA control sale and transmission of power in the
Northwest consistent with Congressional statemerts of
policy. See H.R.Rep. No. 590, 1964 U.S.Code Cong. &
Ad.News at 3342-44; H.R.Rep. No. 976, Part I, 96th
“The LAP was likewise designed to “enhance BPA's power market-
ing program.” 49 Fed.Reg. at 44233.
ns en at oR a tae
C-19
Cong., 2d Sess., 1980 U.S.Code Cong. & Ad.News at
5989- 93."
The history of BPA’s enabling legislation further dem-
onstrates that Congress has repeatedly required BPA to
operate in a manner which assures that the agency is
fiscally self supporting. See 16 U.S.C. § 832f (BPA rate
schedules designed to recover BPA costs) H.R.Rep.
No. 590, 1964 U.S.Code Cong. & Ad.News at 3343 (statute
designed to put BPA back on sound financial ground); 16
U.S.C. § 838g(2) (rate schedules to be based upon BPA
need to recover operating and capital costs); 16 U.S.C.
§ 839e(a) (1) (rates to be designed consistent with sound
business principles and with need to recover BPA costs);
H.R.Rep. No. 976, Part I, 1980 U.S.Code Cong. &
Ad.News at 6001 (BPA must be self supporting and must
maintain financial independence subject to Congressional
oversight). While market forces at times in the past may
not have threatened BPA’s Congressional mandate, BPA
has presented reliable evidence that without a policy
which carefully allocates Intertie access, it will experience
significant revenue shortfalls in coming years. To the
extent that the LAP is designed to mitigate projected
deficits, therefore, the policy is not only statutorily autho-
rized but statutorily mandated. Calif. Energy Resources,
754 F.2d at 1472; Portland Gen. Elec. Co., 754 F.2d at
1477-78.
These four statutes show repeated Congressional insis-
tence that BPA have preference in using Intertie capacity
and that, so long as the agency is fair and nondiscrimina-
tory, BPA have the discretion to allocate remaining trans-
“The City argues that, by displacing competition, the LAP violates
the antitrust laws. That argument is frivolous because the antitrust
laws do not apply to the federal government. See Sea-Land Service,
Inc. v. Alaska R.R., 659 F.2d 248, 244 (D.C.Cir. 1981).
|
C-20
mission capacity. Under this court’s narrow review, the
IAP is neither arbitra.y and capricious, nor an abuse of
discretion nor in contravention of statutory authority.
This court need not find that the BPA interpretation of
the four statutes “‘is the only reasonable one, or even
that it is the result we would have reached had the
question arisen in the first instance in judicial proceed-
ings. We need only conclude that it is a reasonable
interpretation.” ALCOA, 104 S.Ct. at 2480, quoting, Amer-
ican Paper Inst. 461 U.S. at 423, 103 S.Ct. at 1933.”
EXCLUSION OF CANADIAN POWER
The City argues that the LAP violates BPA’s statutory
mandate to provide Intertie access to power generated in
Canada. 16 U.S.C. §837e See H.R.Rep. No. 590, 1964
U.S.Code Cong. Ad.News [sic] at 3350 (Canadian energy
“stands on the same basis as any other non-Federal
energy’); 16 U.S.C. § 838d (capacity must be made avail-
able on a fair and nondiscriminatory basis). The LAP
currently prohibits Intertie access for Canadian power
under Conditions 1 and 2."*
“The legislative scheme is confusing and overlapping. It is not at
all clear that Congress considered all the ramifications of the lan-
guage used in different enactments since the Project Act was enacted
in 1937. Nevertheless, statutes dealing with the same subject must be
read together and harmonized where possible. See 2A Sulherland on
Slalulory Consiruction § 52.02. The BPA policy is not inconsistent
with the legislative scheme and is not an abuse of discretion.
‘Access by Canadian utilities under Condition 2 is dependent
upon those utilities’ “participation in the Pacific Northwest's coordi-
nated planning and operation to a greater extent than in the past, or
agreement to provide other appropriate consideration of value to the
Pacific Northwest.” LAP ¢ E.3, 49 Fed.Reg. 44237. This clause is
entirely consistent with the environmental planning concerns ex-
pressed in the Northwest Power Act. See 16 U.S.C. § 839b. As we
C-21
There are two types of Canadian power for which
Intertie access could be provided. The first is Canadian
treaty power, see 16 U.S.C. § 837h, which is firm power
generated in the Northwest as a result of water flows
from dams on Canadian rivers. Columbia River Basin
Treaty, 15 U.S.T. 1555, TLAS No. 5638 (Jan. 17, 1961).
See M.C. Blumm, 58 Wash.L.Rev. at 215-19; BPA, Colum-
bia River Power for the People: A History of Policies of the
Bonneville Power Administration 227-36 (1981). Firm
treaty power is not affected by this litigation.” BPA is
obligated to afford preference to firm treaty power. 16
U.S.C. §$§ 837e, 837h.
The second type of power is nontreaty surplus power
which Canadian utilities particularly B.C. Hydro) sell to
California utilities and which is wheeled to those purchas-
ers over the Intertie. Surplus power does not enjoy any
preference at all. The agency:
may enter into agreements for the wheeling of energy
generated in Canada, but such energy... does not
have the pmority granted to Federal energy and
Canada’s entitlement to [treaty] power benefits. ...
H.R.Rep. No. 590, 1964 U.S.Code Cong. & Ad.News at
3350 (emphasis added). That statement is in contrast to
the immediately prior paragraph in the legislative history
which requires BPA to make excess Intertie capacity
available to other non-Federal utilities.
have already noted, negotiations to enter into such an agreement have
not been successful.
“Because Canada did not need the power to which it was entitled
under the Treaty, treaty power was sold back to BPA under the
Canadian Storage Power Exchange. BPA sold this firm power to
California utilities. The last remaining contract for the sale of this
power to California utilities expired two years ago. See D.W.Meek 13
Env't! L. at 894-96.
C-22
The legislative history of both the Preference Act and
the Cumbia River Act demonstrates that Congress in-
tended that the Intertie be used primarily for the benefit
of Noriliwest and Southwest utilities and not for the
benefit of Canadian utilities. Cf. 16 U.S.C. § 838d (excess
intertie capacity to be made available on a fair and
nondiscriminatory basis); H.R.Rep. 93-1375, 93d Cong.2d
Sess., reprinted in, 1974 U.S.Code Cong. & Ad.News 5810,
5814 (section 838d “‘is not intended to represent a policy
having application other than in the Pacific Northwest’).
While Canadian treaty power is to be accorded preference
in Intertie allocation, nontreaty power is given nonprefer-
ence Intertie access, only once BPA chooses to exercise
its authority to enter into wheeling agreements. The
legislative history indicated no Congressional mandate
that BPA must enter into such agreement. See H.R.Rep.
No. 590, 1964 U.S.Code Cong. & Ad.News at 3350. See
generally U.S. Dep’t of the Interior, Report to the Appro-
priations Committees of the Congress of the United
States Recommending a Plan of Construction and Owner-
ship of EHV Electric Interties Between the Pacific
Northwest and Pacific Southwest, at X, 2, 33-34 (1964)
(discussing allowing Intertie access for Canadian treaty
power without any reference to other Canadian power
sales).
ALLOCATION OF SCHEDULED CAPACITY
Instead of allocating physical Intertie capacity, the
LAP allocated contractual electricity flow, known as
scheduled capacity. The agency’s use of scheduled capac-
ity is based on the agency’s conclusion that the scarce
commodity being allocated is not physical Intertie capac-
ity but interregional energy exchange between California
and the Northwest. Because of exchange agreements,
C-23
electricity is transmitted both inte and out from both
regions. Consequently, the LAP allocates the sum total of
all energy exchange, whether or not the energy is physi-
cally transmitted over the Intertie. This enables BPA to
coordinate scheduling of Intertie access so that purchases
and sales between utilities can be offset against each
other. Allocation of scheduled capacity is apparently an
established industry practice designed to promote equita-
ble cost sharing and efficient planning. Evidence
presented by BPA suggests that this is a more efficient
uge of the Intertie than is allocation according to physical
capacity.’®
Although the City’s objections to the use of scheduled
capacity as unwise may have some validity, a court is not
the proper forum in which to address such extremely
technical, discretionary issues. Scheduling transmission
service capacity is a highly technical field. Congress has
consistently committed broad discretion to BPA. This
court does not substitute its judgment for that of the
administrative agency in technical fields within the
agency's unique expertise. ALCOA, 104 S.Ct. at 2480;
Pacific Gas & Elec. Co. v. FERC, 746 F.2d 1383, 1387 (9th
Cir.1984). See Cincinnati Gas & Elec. Co. v. FERC, 724
F.2d 550, 554 (6th Cir.1984).
CONCLUSION
The four BPA enabling statutes must be read in para
materia. Two common themes appear clear from these
“The agency has presented evidence to show that, in the last five
months of 1984 (including four months in which the LAP controlled
Intertie access), the Intertie was used to 93 per cent of its capacity.
During a comparable period in 1983, the Intertie was used to 81 per
cent of capacity. The BPA attributes this 12 per cent increase in
Intertie usage to more efficient allocation of capacity under the LAP.
| :
{
C-24
statutes. The first is that BPA is required to market
federal power in a manner which ensures that the agency
is self-supporting. Secondly, BPA is required to allocate
use of federally-owned transmission facilities in a manner
which accords preference first to transmission of federal
power and then to transmission of other Northwest-
generated power. Once such preferences are accommo-
dated, the agency is prohibited from denying access to the
Intertie by other extraregional utilities within the United
States. BPA is permitted, but not required, to enter into
wheeling agreements to transmit Canadian-generated
power.
Recognizing these common themes, we find that the
LAP is consistent with BPA statutory authority and is not
an arbitrary and capricious exercise of its discretion.
Accordingly, we uphold the validity of the Near Term
Intertie Access Policy.
APPENDIX D
Pater AT a NE RTS CR
D-1
APPENDIX D
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIA ENERGY COMMISSION,
Petitioner,
PUGET SOUND POWER & LIGHT COMPANY,
WASHINGTON WATER POWER COMPANY (“WWP’”’),
Petitioner-Intervenor
¥.
BONNEVILLE POWER ADMINISTRATION;
U.S. DEPARTMENT OF ENERGY;
Respondents
ASSOCIATION OF PUBLIC AGENCY CUSTOMERS; PUBLIC
POWER COUNCIL; PUBLIC UTILITY DISTRICT No. 1 OF
CHELAN COUNTY, WASHINGTON; PACIFICORP, DBA
PacIFiIC POWER & LIGHT COMPANY (““PACIFIC’’);
PUBLIC UTILITY DISTRICT No. 2 OF GRANT COUNTY,
WASHINGTON; WESTERN PUBLIC AGENCIES GROUP
(“WPAG”’); MONTANA POWER CUMPANY; CITY OF
SEATTLE, CITY LIGHT DEPARTMENT (“CITY’’); PUBLIC
GENERATING PooL (“PGP”); EUGENE WATER &
ELECTRIC BoaRD (“EWEB”); DIRECTOR SERVICE
INDUSTRIAL CUSTOMERS (“DSIS”’)
Respondent-Intervenor
CA No. 88-7280
DC No. 0972-2; LTLAP
D-2
PACIFIC NORTHWEST GENERATING CUMPANY
(“PNGC”)
Petitioners,
Vv.
BONNEVILLE POWER ADMINISTRATION;
U.S. DEPARTMENT OF ENERGY;
UNITED STATES OF AMERICA,
Respondents.
CA No. 88-7315
DC No. 0979-3; NPA
VANALCO INC.; ALUMINUM COMPANY OF AMERICA;
COLUMBIA FALLS ALUMINUM COMPANY;
Petitioners,
WASHINGTON WATER POWER COMPANY (“WWP’”’);
PUGET SOUND POWER AND LIGHT COMPANY,
Petitioner-Intervenor
Vv.
BONNEVILLE POWER ADMINISTRATION;
Respondent
PORTLAND GENERAL ELECTRIC COMPANY; ASSOCIATION
OF PUBLIC AGENCY CUSTOMERS; ARCO; MONTANA POWER
COMPANY; PUBLIC GENERATING PooL (“PGP”);
EUGENE WATER & ELECTRIC BoaRD (“EWEB”);
NON-GENERATING PUBLIC UTILITIES (“NGPU”),
Respondent-Intervenor
CA No. 88-7318
DC No. 0979-3; LTLAP
ibid mide Roma Datn Sand dais > en
D-3
CALIFORNIA PUBLIC UTILITIES COMMISSION,
Petitioner,
PUGET SOUND POWER AND LIGHT COMPANY;
THE DEPARTMENT OF WATER & POWER OF THE
City OF Los ANGELES; PUBLIC SERVICE DEPARTMENT
OF THE CITY OF BURBANK; PUBLIC SERVICE
DEPARTMENT OF THE CITY OF GLENDALE;
WaTER & POWER DEPARTMENT OF THE CITY
OF PASADENA; SAN DIEGO Gas & ELECTRIC
COMPANY AND SOUTHERN CALIFORNIA EDISON COMPANY;
PACIFIC GAS AND ELECTRIC COMPANY,
Petitioner-Intervenor,
V.
BONNEVILLE POWER ADMINISTRATION;
U.S. DEPARTMENT OF ENERGY,
Respondents,
PACIFIC POWER & LIGHT COMPANY;
EUGENE WATER & ELECTRIC BoarD (“EWEB”);
PUBLIC GENERATING POOL (“PGP”);
NORTHWEST POWER PLANNING COUNCIL;
DIRECT SERVICE INDUSTRIAL CUSTOMERS (“DSIS”’),
Respondent-Intervenor.
CA No. 88-7319
DC No. 0971-3; LTLAP
D-4
ORDER
BEFORE: CANBY AND LEAVY, CIRCUIT JUDGES
AND ORRICK DISTRICT JUDGE*
The panel as constituted in the above case has voted to
deny the petition for rehearing and to reject the sugges-
tion for a rehearing en banc.
The full court has been advised of the suggestion for an
en bane rehearing, and no judge of the court has re-
quested a vote on the suggestion for rehearing en bance.
Fed.R.App. P. 35(b).
The petition for rehearing is denied and the suggestion
for a rehearing en banc is rejected.
*The Honorable William H. Orrick, Senior United States District
Judge, for the Northern District of California, sitting by designation.
APPENDIX E
E-1
APPENDIX E
LONG-TERM INTERTIE ACCESS POLICY
GOVERNING TRANSACTIONS OVER FEDERALLY
OWNED
PORTIONS OF THE
PACIFIC NORTHWEST — PACIFIC SOUTHWEST
INTERTIE
U.S. DEPARTMENT OF ENERGY
BONNEVILLE POWER ADMINISTRATION
MAY 17, 1988
EXECUTIVE SUMMARY
_LONG-TERM INTERTIE ACCESS POLICY
U.S. DEPARTMENT OF ENERGY
BONNEVILLE POWER ADMINISTRATION
MAY 17, 1988
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A Rete we BE
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Sites Rds pa: a cintnne Glo ALnasi ne
oe
E-3
INTRODUCTION
The Pacific Northwest-Pacific Southwest Intertie began
operation in 1968. Congress authorized the construction
of the Intertie to provide an additional market for surplus
- BPA power, thereby providing greater assurance that we
would repay the U.S. Treasury for the Federal invest-
ments in the Northwest’s power system. To the extent
there was capacity excess to Federal needs, Congress also
intended that the Intertie allow nonfederal utilities in the
Northwest and California to take advantage of the diverse
load patterns and resource types between the two regions.
The present capability of the Intertie is about 5,200
megawatts (MW), 3,200 MW on the two alternating-
current (AC) lines and 2,000 MW on the direct-current
(DC) line. Ownership of the Intertie in the Northwest is
shared by BPA, Portland General Electric Company
(PGE) and Pacific Power & Light Company (PP&L). We
provide access to all Northwest generating utilities. Own-
ership in California is shared by four investor-owned and
municipal utilities.
In the early 1980s demand for sales over the Intertie
increased dramatically. Nearly every utility in the North-
west had excess power to sel! and forecasted a surplus
into the next decade and beyond. orthwest utilities
frequently filled the Intertie with nonfirm energy and
sought to negotiate long-term transactions with Califor-
nia. Prior to 1984 and the implementation of the Interim
Intertie Access Policy (LAP), BPA lost significant reve-
nue opportunities by allowing other utilities unfettered
access to the Intertie. Combined effec
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