Appendix — Papago Tribal Utility Authority v. Federal Energy Regulatory Commission

&3.5 1652 Gee Supreme Cout. US

IN THE APR 10 1984

Supreme Court of the Hnited Sess

October Term, 1983

Papago Tribal Utility Authority,

Petitioner,

Vv.

Federal Energy Regulatory Commission,

Respondent.

On Petition For a Writ Of Certio:ari

To The United States Court of Appeals

For The District of Columbia Circuit

Appendix to Petition For A

Writ of Certiorari

Counsel of Record:

Arnold D. Berkeley

Suite 407

1925 K Street, N.W.

Washington, D.C. 20006

202, 785-0611

eS a Ee ee EE REE EE I ET

DiCesare and Associates Printing © Washington. D.C. @ (262) 331-8101

1

No. 83-

IN THE

Supreme Court of the Ruited States

Papago Tribal Utility Authority,

Petitioner,

Vv.

Federal Energy Regulatory Commission,

Respondent.

TABLE OF CONTENTS

TO

APPENDIX TO PETITION FOR A

WRIT OF CERTIORARI

APPENDIX A:Order On Remand of the Federal

Energy Regulatory Commission

(January 25, 1982)

APPENDIX B: Notice of Denial Of Application For

Rehearing

Issued by the Federal Energy

Regulatory Commission

(March 26, 1982)

APPENDIX C: Fupago Tribal Utility Authority v.

Federal Energy Regulatory

Commission, 723 F.2d 950 (D.C. Cir.,

1983)

APPENDIX D: Order of the U.S. Court of Appeals for

the District of Columbia

Denying Petition for Rehearing of

Petitioner

(January 12, 1984)

Order of the U.S. Court of Appeals for

the District of Columbia Denying

Petition for Rehearing En Banc of

Petitioner

(January 12, 1984)

APPENDIX E: Statutes

APPENDIX F: APS-PTUA Contract

APPENDIX A

ORDER ON REMAND

OF THE FEDERAL ENERGY REGULATORY

COMMISSION

JANUARY 25, 1982

APPENDIX A

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners:

C.M. Butler II], Chairman;

J. David Hughes and A.G. Sousa.

Arizona Public Service Company) Docket No. ER76-530

ORDER ON REMAND

(Issued January 25, 1982)

This proceeding involves an application filed with the

Federal Power Commission in the above-captioned docket

on February 26, 1976, by Arizona Public Service Company

’ (Arizona) seeking approval of approximately $4.5 million

annually in its rates for wholesale electric service. Among

Arizona’s wholesale customers affected by the proposed

increase are Arizona Electric Power Cooperative, Inc.

(AEPCO), Papago Tribal Utility Authority (PTUA) and

Electrical District No. | (ED-1). In its suspension order of

March 31, 1976, the FPC held, over the custumers’

objections, that Arizona’s:contracts with AEPCO. PTUA

and ED-! authorized the filing of the proposed increase

under section 205 of the Federal Power Act. The FPC

accepted Anzona’s rates for filing, suspended their

operation for 30 days until May 1, 1976, and set the matter

for hearing.

The FPC’s decision to accept Arizona’s proposed section

205 rate increase to the above-noted wholesale customers

was appealed to U.S. Court of Appeals for the D.C. Circuit.

On August 21, 1979, the court issued its decision in the

appeal, Papago Tribal Utility Authority v. F.E. R.C., 610 F.

2d 914, holding that the Arizona-AEPCO contract did

permit a filing under section 205 of the act, but that the

PTUA and ED-1 contracts did not. The court held that the

latter agreements authorized rate revisions only

prospectively from the date of a Commission order in a

section 206(a) proceeding. The court remanded the FPC’s

suspension and related orders to this Commissicn for

further proceedings consistent with its opinion. The court

left open the questions of whether a new proceeding would

be necessary on remand and whether the Mobile-Sierra'

burden of proof must be employed in determining any

increase in rates to PTUA and ED-! under section 206.

Meanwhile, the hearing ordered by the FPC was held and

concluded. The presiding judge issued his initial decision in

the case on December 19, 1977, approving in part Arizona's

proposed increase in rates. On August |, 1978, this

Commission affirmed the judge’s decision.

On October 9, 1979, PTUA filed a motion requesting the

Commission to take a number of actions in the captioned

docket and two succeeding Arizona rate dockets? in

response to the court’s decision. In docket No. ER76-530,

PTUA requests the Commission to order Arizona to refund

all amounts collected in excess of the contract rate and to

rule that any rate increase approved as to PTUA under

section 206 must meet the full Mobile-Sierra durden of

proof. On October 12, 1979, Arizona filed a motion for an

order on remand. Arizona argues that no further hearings

' United Gas Pipe Line Co. vy. Mobile Gas Service Corp., 350 U.S. 33?

(1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956)

*Docket Nos. ER78-145 and ER 79-126. .

are necessary, that the full Mobile-Sierra burden of proof

need not be met, and that the Commission approved rates

should be applied to PTUA and ED-| as of August I, 1978,

the date of the Commission’s final decision herein. PTUA

answered in opposition to Arizona on October 29, 1979;

Arizona answered in opposition to PTUA on October 31;

and on November 7, PTUA filed a reply to Arizona’s

response.

On October 30, 1979, ED-1 filed a motion for an order on

remand and a response to the Arizona and PTUA motions.

ED-1 argues that under the provisions of Commission-

approved settlement agreements in Docket Nos. ER77-521

and ER78-145, the parties agreed that if the court’s decision

did not clearly decide the burden of proof issue, which in

fact it did not, the parties would “meet and seek to settle”

any questions arising from the court’s decision. ED-1 argues

that the Commission should rule that the motions of both

Arizona and PTUA are premature. It requests the

Commission to convene a conference pursuant to section

1.18 of the rules of practice and procedure and the

settlements for the purpose of determining the issues

presented by the court’s decision. ED-1 also expresses

opposition to Arizona's request that the Commission enter

an order making the previously approved rates effective in

Docket No. ER76-530 as of August 1, 1978.

insofar as the present Docket No. ER76-530 is

concerned, the Commission dees not agree with ED-1 that

the motions of Arizona and PT UA are premature. Arizona

points out that the settlement provisions require a

settlement conference only if the court’s decision does not

clearly rule as to the burden of proof issue and if subsequent

proceedings ordered by the court do not settle this question.

In this order the Commission shall, in accordance with the

court’s remand, consider and decide the burden of proof

issue. Consequently, there does not appear to be any need

for a settlement conference on this issue in this docket either

ufder the settlement agreements or otherwise. In view of the

respective positions of PTUA and ED-! on the one hand

and Arizona on the other, it is clear that a settlement

conference on the burden of proof issue would be

unavailing in any event. ED-I’s request to defer action in

this docket pending a conference among the parties is

therefore denied.

With respect to the motions for an order on remand, the

Commission finds itself in agreement with Arizona ar.¢ will

adopt its recommendations. Despite the extensive

arguments raised by PTUA, we find its position to be

without merit.

First, with respect to the matter cf burden of proof, we

find no basis to require that the stringent Mobile-Sierra

burden of proof be made applicable. It is our view that the

Mobile-Sierra cases establish the applicable standards

governing rate increases which may be allowed in cases

where the utility and its customer have entered into a fixed

rate contract, that is a contract which does not authorize the

utility to seek an increase under either sections 205 or 206.

Under Mobile-Sierra, a utility with a fixed rate contract is

theoretically entitled to a rate increase notwithstanding the

contract if it can show that the contract rate is “so low as to

adversely affect the public interest—as where it might

impair the financial ability of the public utility to continue

its service, cast upon other customers and excessive burden,

or be unduly discriminatory.” (350 U.S. 355). The burden of

proof in such cases is extremely difficult if not impossible to

meet. We are not aware of any case arising under the Federal

Power Act in which rate relief has been granted under the

Mobile-Sierra standard. See e.g. Opinion No. 764,

Metropolitan Edison Company, Docket No. E-8832, issued

June 1, 1976.

The contracts at issue here, however, are not fixed rate

contracts. The language of the Arizona-PTUA contract

reads in pertinent part as follows:

3.6 The rates hereinabove set out in this Section

3 and Exhibits thereto are to remain in effect for

the initial one (1) year of the term of this contract

and thereafter unless and until changed by the

Federal Power Commission or other lawful

regulatory authority, with either party hereto to be

free unilaterally to take appropriate action before

the Federal Power Commission or other

regulatory authority in connection with changes

which may be desired by such party. (emphasis

added)

We hold that under the terms of this contract, Arizona

was entitled unilaterally to file a rate increase application

with the Commission, but that, consistent with the court’s

decision herein, any increase ultimately approved can be

made effective only prospectively. The latter circumstance,

however, does not lead to the conclusion that the Mobile-

Sierra burden of proof must be applied it; determining the

rates to be allowed. While the contracts in question

admittedly do not specify whether a rate increase request by

Arizona would be considered under section 205 or 206 of the

Act, nevertheless, there can be no reasonable doubt that the

contracts authorize the filing of a rate increase application

by Arizona. These contracts are therefore not fixed rate

contracts and the law of the Mobile and Sierra cases is not

applicable to them. To apply the Mobile-Sierra standard,

thereby effectively precluding any change in the contract

rate, would in our judgment be arbitrary and grossly unfair,

as well as directly contrary to the express terms of the

contracts. We find no basis in the parties contracts, the

statute, or the applicable case law requiring imposition of

the Mobile-Sierra burden of proof in a case such as this. We

believe the proper standard is the just and reasonable

standard incorporated in section 206 and that in accordance

with the standard, Arizona’s rates should be determined by

reference to its fully allocated costs, consistent with the

Commission’s normal ratemaking methods. Accordingly,

we conclude the Mobile-Sierra burden of proof does not

apply.

We likewise reject the proposition that a new proceeding

is required as a result of the court's order.’ The hearing in

this docket was held under sections 205 and 206 of the act.

Both sections provide for the establishment of just and

reasonable rates; the principal difference between them is

the suspension and refund procedures of section 205 as

contrasted with the prospective effect of orders resulting

from proceedings under section 206. It appears to us that to

hold a new hearing in this docket would be duplicative of

the hearing already held and would represent a waste of the

Commission's resources as well as the parties’ resources, all

with the likelihood that any decision reached would

conform to that already rendered.

‘The court in Papage specifically stated that its decision was not

meant to imply that a new proceeding would be required. See 610 F. 2d

930, footnote 127.

7°

10

We believe the most reasonable thing to do under the

circumstances is :o make the rates heretofore approved in

this docket applicable to sales to PTUA and ED-| effective

on August |, 1978, the date of the Commission’s final

decision in this docket. The effect of this action would be to

place all parties in the position they would have been in had

the FPC in its prior orders interpreted the PTUA and ED-|

contracts as required by the court’s decision. We firmly

believe the Commission has the responsibility and authority

to place the parties in the same position they would have

been in if the FPC had ruled correctly in the first instance.

Section 206 requires the utility’s pre-existing rates be

found by the Commission to be unjust, unreasonable,

unduly discriminatory or preferential before new just and

reasonable rates can be approved and made effective. We

have examined Arizona’s pre-existing rates in relation to

the costs found in the order of August !, 1978, to be

properly allocable to PTUA and ED-!. Our review

indicates that the existing rates produce a return which is

unreasonably low.‘

‘Based on data contained in Arizona's compliance filing of November

3, 1978, in this docket, Arizona's earned rate of return at existing rates

on its service to PTUA would be .552 percent. A similar comparison for

ED-| is not possible since the service did not commence until March 22,

1976. Test year revenue data for the ED-| service are not available in the

record. However, the rate approved in the order of August |, 1978,

applicable to ED-| is substantially higher t han the pre-existing rate. To

the extent of difference between the old and new rates the old rate is less

than compensatory based on fully allocated costs and resulted in a rate

of return below that found in this proceeding to be just and reasonable.

The rate approved for ED-| is the same as the rate approved for

Arizona's other irrigation resale customers. As to those cutomers,

whose rates were established under section 206, the presiding judge

specifically found that the pre-existing rates were unjust, urreason ble

and unlawful! and that Arizona should be permitted prospectively to

increase such rates to the just and reasonable level. We conclude that

Continuation of the existing rates would not allow Arizona

to earn the just and reasonable rate or return (9.41 percent)

approved in the August I, 1978, order. On this basis we

conclude that the existing rates are not just and reasonable

under the standard of section 206(a) and should be adjusted

as of August |, 1978, to conform to the just and reasonable

rates established by the Commission in this docket.

On January 14, 1980, intervenor Citizens Utilities

Company (Citizens) filed a motion seeking essentially the

same relief as PTUA. It appears however that Citizens’

motion has subsequently vecome moot. In a settlement

approved by the Commission on November 13, 1981, in

docket No. ER81-179, Citizens agreed that Arizona's rate

filings affecting Citizens, including that in Docket No.

ER76-530, were properly held to be subject to section 205 of

the Federal Power Act. As part of the settlement, Citizens

agreed to abandon and retract its pending motions seeking

relief based on the non-applicability of section 205. Based

on these facts Citizen's motion of January 14, 1980, is

deemed withdrawn.

On September 28, 1981, PTUA filed a petition requesting

the Commission to reopen the record in this case for an

evidentiary hearing on the burden of proof issue. Basicaily

PTUA argues that it was the understanding of the parties at

the time the Arizona-PT UA contract was negotiated in 197]

that the rate specified in the contract was intended to be in

Arizona's pre-existing rate to ED-1 must likewise be considered unjust

and unreasonable under the terms of section 206 and should be adjusted

as of August |, 1978, to conform to the just and reasonable rate. We

perceive no reasonable basis or legal requirement to establish a rate for

ED-1 different from that approved in the August |, 1978, order for

Arizona's other section 206 irrigation resale customers.

12

the nature of a fixed rate and can be increased only if the so-

called Mobi!e-Sierra burden of proof is met by Arizona.

In support of its request, PTUA cites to an order issued

on September 24, 1981, in Arizona's rate docket ER8i-179,

in which the Commission referred to the rate change

provision of the Arizona-PTUA contract as ambiguous.

PTUA argues that where an ambiguity exists, the

Commission must look beyond the four corners of the

contract and must analyze the parties’ intentions at the time

the contract was entered into. PTUA provides four exhibits

consisting of affidavits from two individuals involved in the

negotiation of the Arizona-PTUA contract’ and two

contemporaneous (1970) letters from Arizona, one to

PTUA and the other to R.W. Beck and Associates,

submitted in connection with contract. PTUA submits

these exhibits as evidence of the parties’ intent to place a

limit on Arizona’s future rate increases. On October 2, 1981,

PTUA filed a supplement to its petition to reopen

accompanied by several additional documents.

On October 9, 1981 Arizona filed a preliminary response

in opposition to PTUA'’s petition to reopen and on

November 16, 1981, filed its answer. Arizona argues that

SMr. John T. McGue, member of PTUA's board of directors; Mr.

G.1. Valdez, former project controlier for Hecla Mining Company

(PTUA was purchasing power from Arizona for resale to Hecla for use

at Hecla's copr . .nining operations on the Papago reservation).

‘These documents include (1) a draft of the Arizona-PTUA contract

dated January 19, 1971, (2) a Hecla Mining Company internal

memorandum dated December 15, 1970, (3) a Hecla internal

. memorandum dated July |, 1970, (4) a draft of PTUA's proposal to

provide service to Hecla, (5) technical explanations of contract

adjustment factors and rate components apparently prepared by

Arizona and provided by PTUA to Hecla, and (6) a September |, 1970,

internal Hecla memorandum.

13

the Arizona-PTUA contract imposes no restriction on

Arizona's right to seek rate changes. It further argues that

relevent contemporaneous documents, notably the May 28,

1971, contract between PTUA and Hecla Mining

Company, compel the conclusion that all parties recognized

Arizona’s right to seek a rate change after expiration of the

initial one year term of the contract. PTUA filed a reply on

December 2, 1981.

The basic question involved in this dispute is what was

the parties’ intent. Pennzoil Company et al. v. F.E.R.C.,

645 F.2d 360, 388 (C.A. 5 1981). More specifically the

question is whether, notwithstanding the specific rate

change provisions of the Arizona-PTUA contract, the

parties intended that there should be a limit or restriction

upon Arizona's right to seek rate changes.

We conclude that the language of the contract is not

reasonably susceptible to the interpretation suggested by

PTUA. Lucie v. Kleen-Leen, Inc., 499 F.2d 220 (7th Cir.

1974). Section 3.1 of the Arizona-PTUA contract sets out

the initial contract rates and states that such rates shall be

“applicable during the initial one (1) year period hereof, and

thereafter unless and until changed as hereinafter provided

in section 3.6 hereof...” Section 3.6 of the contract has been

referred to earlier and is quoted on page 4 of this order. This

section provides that after one year either party to the

contract is free unilaterally to seek changes in rates “whict

may be desired by such party.” Section 3.6 contains nc

limitation such as that suggested by PTUA and in ow

judgment there is no credible evidence upon which tc

conclude that such a limitation was intended by the

contracting parties.

14

>

Inasmuch as the proffered documents attempt to modify

or contradict rather than to explain or interpret the contract

language, the Commission is not required to consider them

further. Since, however, the Commission has reviewed the

documents to determine their purpose, we further conclude

from our review that none of these documents supports the

conclusion that the parties contemplated the rate change

limitation suggested by PTUA. We decline to give

substantial weight to the affadavits. These latter documents

were prepared long after the relevant contracts were

negotiated, they are subjective and largely self-serving, and

they do not demonstrate mutuality of intent.

The Commission further finds that the order of

September 24, 1981, in Docket No. ER8!-179 in no way

supports PTUA's petition to reopen. The ambiguity

mentioned by the Commission in that order referred to the

basic issue before the court in Papago, namely whether the

contract provided for a rate change under section 205 or 206

of the Fedcral Power Act. The question tiiere was whether

the company’s rate increase could become effective

following suspension under section 205 or whether it could

become effective only prospectively under section 206. The

court adopted the latter interpretation thereby removing the

ambiguity.

The Commission orders:

(A) Within 75 days from the date of this order, Arizona

shall refund to PTUA and ED-|! all increased amounts

collected from them in this docket prior to August 1, 1978,

together with interest at the rates specified in section 35.19a

of the Commission's regulations. Within 10 days thereafter

Arizona sha! submit a statement showing the computation

of refunds and interest paid.

(B) PTUA’s petition to reopen the record is denied.

(C) Upon compliance of Arizona with the terms of

paragraph (A) above, this proceeding shall be terminated.

By the Commission.

Commissioner Hughes Concurred with a separate

statement attached.

Kenneth F. Plumb,

Secretary.

Arizona Public Service Company ) Docket No.

ER76-530

(Issued January 25. 1982)

HUGHES, COMMISSIONER, concurring:

1 welcome an opportunity to express separately my views

on the difficult questions that this Commission must

contend within the area of contractual provisions limiting

utilities’ ability to effect rate changes. More particulzrly, |

wish to express some reservations I have about the order

issued by the Commission in this case insofar as it seems to

create two standards within section 206 of the Federal

Power Act.

It is my opinion that section 206 contains but a single

standard by which the Commission can disallow existing

16

rates and charges and that standard is defined by the phrase

“unjust, unreasonable, unduly discriminatory or

preferential.” I have doubts as to the wisdom of following a

procedure by which that statutory standard may be altered

or given different meanings by the wording of a contract

between a utility and its customer. A more fundamentally

sound approach is to view the standard as a unitary one, but

to look to a contract to determine the extent to which a

utility has, by contract, limited or foresworn its right to

invoke its pre-existing rights under either section 205 or

section 206 of the Power Act.

Specifically, the order states, at page 4:

We believe the proper standard is the just and

reasonable standard incorporated in sec*'on 206

and that in accordance with the standard,

Arizona's rates should be determined by reference

to its fully allocated costs, consistent with the

Commission’s normal ratemaking methods.

Accordingly, we conclude the Mobile-Sierra

burden of proof does not apply.

This discuss:on, perhaps unintentionally, seems to

proceed from a notion that there is a Mobile-Sierra

standard that is somehow different from the just and

reasonable standard that applies, for instance, to this case.

The ambiguity lurking in that notion may be dispelled by

noting that the Commission refers to Mobile-Sierra as a

burden of proof, not a standard. And that, i think, comes

closer to my understanding of these cases. A full-Sierra

contract does not establish a different standard than a

moving-Mobile contract, but acts instead as a limitation on

the arguments and proofs a utility can advance to satisfy the

standard. The D.C. Circuit concluded in the decision

remanding this case to us, Papago Tribal Utility Authority

v. FERC, 610 F.2d 914 at 929 (D.C. Cir. 1980):

17

As we have had occasion to observe, the

Mobile-Sierra doctrine is “refreshingly simple:

The contract between the parties governs the

legality of the filing. Rate filings consistent with

contractual obligations are valid; rate filings

inconsistent with contractual obligations are

invalid.” [footnote deleted]

It may be useful to begin this analysis with a review of the

options available to a utility outside of any contractual

commitments. First, it may establish a rate change upon 66

days notice following the procedures of section 205(d) of the

Power Act. A second option recognizes that the company is

free to establish any effective date for new rates beyond 60

days in the future.' Under this option, it may specify that the

rates will become effective upon the Commission's issuance

of a substantive order. A utility has, as a third option, the

right to complain under section 206 against its own rates,

that it, petitioning the Commission to investigate their

justness and reasonableness and upon a finding that they

are not just and reasonable to establish new rates, hoping,

of course, that the Commission will prescribe the rates

suggested by the utility.

The Mobile- Sierra line of cases teaches that a utility may

by contract bargain away some of these options or agree to

conditions precedent to their exercise. In the simplest case,

a utility gives up its right to file rate increase to be effective

on 60 days notice. It then preserves the right to file rate

increases subject to section 205(d}, but to be effective only

118 C.F.R.§35.3(a) requires Commission permission for an effective

date more than 120 days from the filing date. In addition, 18 C.F.R.

§35.2(e) seems to require a Commission waiver for any effective date

other than 60 days after filing.

after a Commission order. It can also foreswear that right,

as the court found the utility to have done in this case. The

utility has closed off all its avenues under section 205, but

still retains the right to file a complaint under section 206 to

cause the Commission to investigate its rates. In the special

situation of the fixed rate contract, as was present in the

Mobile and Sierra cases, the company can be found to have

foresworn the right to invoke section 206 for its own

interest, and thus its complaint under section 206, while still

invoking the just and reasonable standard, must invoke a

public interest rather than its private interests as the

predicate to the Commission’s finding that its rates and

charges are not just and reaSonable. It is worth emphasizing

that what is ultimately to be protected through any exercise

of our section 205 and 206 powers is a public interest in

prices that are fair to both buyer and seller of electric power.

The Power Act does not give primacy either to economic

health of the utility or to consumer protection. It requires us

to pursue both goals, because in the end, one is meaningless

if the other is tramrueied. That is why section 206 is a two-

way street whick. enables the Commission to make upward,

downward to lateral rate adjustments required to fulfill the

ultimate public purposes of the Act.

In a the distinctions between procedures under

section and section 206, the courts in the Mobile-Sierra

cases and in later Court of Appeals cases have focussed on

differences in the timing of rate increases.2 Other

distinctions are move subtle, but perhans sometimes more

important.

2Under Section 206, rate changes can take effect only prospectively

from the date of a Commission order, but as | have said above, that

result is also available to a utility under section 205 procedures. Section

205, on the ofher hand, absent a contractual bar, permits increases to

become effective on 60 days notice subject to the Commission's power to

affect the timing of an increase through the suspension and refund

mechanisms, but these would be nonsensical in connection with a

prospective increase.

19

The first is the conceptual focus and required findings of

an investigation. In a section 205 case, the existing rates are

extinguished by the mere fact of the utility’s filing, either at

the effective date designated by t. ¢ utility or at the end of

any suspension period set by the Commission. Under

section 206, however, the lawfulness ve/ mon of existing rates

is, in a juridical sense, the central issue at the outset of the

investigation. Existing rates can be extinguished only if the

commission finds them unjust and unreasonable. And that

finding is a necessary predicate which must be met before

the commission can prescribe new rates to be effective

prospectively. Thus, a section 206 case automatically

involves both an inquiry into the old rate levels and into the

new rate levels. This distinction is not often meaningful

during the trial of a case under the Commission’s current

practice,’ but it cannot be ignored in the Commission’s final

disposition or on judicial review.

3jWe recently discussed this in //linois Power Company, 17 FERC

q 61,064, at footnote 7:

We note that there is little practical difference in a non-

Sierra Section 206(a) and a Section 205-with-a-prospective-

effective-date proceeding. In both cases, no rates are

collected subject to refund or prior to Commission approval

of the new rate level. The only important difference is

whether the Commission must find the proposed new rate

unjust and unreasonable before setting the lawful rate, or

whether it must find the old contract rate unjust and

unreasonable before setting the lawful rate. Since proposed

rates are evaluated from the ground up in either case, as

discussed infra, there is little difference in results. We note

that in the past the Commission has interpreted similar

contract language (absent extrinsic evidence to the contrary

as is present here) as providing for a section 206(a)

proceeding with a just and reasonable burden of proof. See

20

A second distinction, highiighted in Public Service

Commission of New York v. FERC, 642 F.2d 1335

(D.C.Cir. 1980), cert. denied October 5, 1981 is the

allocation of the burden of proof. Ordinarily, under section

205 the utility must carry the burden of supporting increases

in its rates.4 Under section 206, the Commission may well

ber the burden of supporting the prescribed rate even if the

moving party has carried the initial burden of proving the

existing rate unjust and unreasonable under the

Administrative Procedure Act, 5 U.S.C. §556(d). I think it

is undesirable as an ordinary matter for the Commission to

be in the position of bearing the burden of establishing rate

increases sought by utilities and | think that in most

instances it would be advantageous for a utility to carry that

burden itself, since its revenues are at risk. For these

reasons, it would seem to me best for the Commission, as its

general policy, to require a clear expression in a contract

that a company has sworn away its rights to use section 205

ie, pp. 56, supra. However, this was because the

Commission, prior to the Kaukauna case [City of Kaukauna

v. FERC, 581 F.2d 993 (D.C. Cir. 1978)] believed that a

section 206(a) proceeding was the only course available

under the Federal Power Act for achieving a prospective

only effective date. The Court in Kaukauna made it clear

that this was not the case and that a section 205 proceeding

with a delayed effective date could also achieve this result

and must be considered as a possible interpretation of sucha

contract. 581 F.2d at 997-8.

‘In the Public Service Commission decision, known more familiarly

as the Transco decision, the Court held that the Commission had the

burden of proof as to a modification of the utility's filed rate design,

where that modification involved use of the Commission's powers under

section 5 of the Natural Gas Act, which is the courterpart of section 206

of the Power Act.

rate-changing procedures. Thus, | would be disposed to

resolve most contractual ambiguities in favor of a

prospective section 205 filing rather than a section 206

requirements.

The court in this case, however, was not presented with

the Kaukauna option. The Commission had decided that

the contract language here in dispute permitted a garden-

variety suspendible section 205 filing. The Court held

squarely that the Commission was wrong and accepted the

customers’ argument that a section 206(a) filing was

intended. The Court’s language leaves us no choice but to

treat this as a section 206 case. Accordingly there has been

no need for me to consider whether the contract language in

this case is susceptible of a Kaukauna interpretation, or

what other language might permit that interpretation.

As .o the remaining steps in this decision, | am in fuil

agreement with my colleagues. There is no suggestion in this

proceeding that the company has foresworn its right to

invoke its own private interest through a section 206

complaint filing. This case, therefore, is not a Sierra case. |

further agree that in today’s circumstances, the contract

rates for Papago Tribal Utility Authority are unjust and

unreasonable to the company and that the contract rates for

the Electric District | are unduly discriminatory and for

that reason are unjust and unreasonable. The Commission’s

prescription of new just and reasonable rates in the instant

order is, therefore, entirely proper.

J. David Hughes

APPENDIX B

NOTICE OF DENIAL OF APPLICATION FOR

REHEARING

ISSUED BY THE FEDERAL ENERGY REGULATORY

COMMISSION

MARCH 26, 1982

APPENDIX B

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Arizona Public Service Docket No.

Company ER 76-530-00!

)

NOTICE OF DENIAL OF

APPLICATION FOR REHEARING

(Issued March 26, 1982)

On February 24, 1982, Papago Tribal Utility Authority

filed an application for rehearing of the Commission’s

order issued in captioned proceeding on January 25, 1982.

Take notice that the Commission agreed at its meeting of

March 23, 1982, to take no action on the application for

rehearing, and accordingly the application is denied

pursuant to section 1.34(c) of the Commission’s rules of

practice and procedure.

Kenneth F. Plumb,

Secretary.

APPENDIX C

PAPAGO TRIBAL UTILITY vy.

FEDERAL ENERGY REGULATORY COMMISSION,

723 F.2d 950 (D.C. Cir., 1983)

APPENDIX C

PAPAGO TRIBAL UTILITY

AUTHORITY, Petitioner,

v.

FEDERAL ENERGY REGULATORY

COMMISSION, Respondent,

Arizona Public Service Company,

Intervenor.

Nos. 82-1338, 82-1339.

United States Court of Appeals,

District of Columbia Circuit.

Argued Jan. 21, 1983.

Decided Dec. 13, 1983.

As Amended Dec. 22, 1983.

Before EDWARDS and SCALIA, Circuit Judges, and

VAN DUSEN,* Senior Circuit Judge of the United States

Court of Appeals for the Third Circuit.

Opinion for the Court filed by Circuit Judge SCALIA.

SCALIA, Circuit Judge.

Papago Tribal Utility Authority petitions under 16

U.S.C. §825/ (b)( 1982) for review of an order of the Federal

Energy Regulatory Commission approving an increase in

rates paid to the Arizona Public Service Company. The

issues On appeal are whether the parties’ contract authorized

the Commission to fix “just and reasonable” rates, whether

the Commission's finding under § 206(a) of the Federal

Power Act that prior rates were unjust and unreasonable

‘of was procedurally and substantively sound, and whether the

new rates could be made effective as of a date before that

explicit finding was made.

*Sitting by designation pursuant to 28 U.S.C. §294(d).

On February 26, 1976, the Arizona Public Service

Company (“APS”) filed with the Federal Power

Commission a Notice of Rate Change affecting electricity

rates to its wholesale for resale customers, including the

Papago Tribal Utility Authority (*“PTUA”). PTUA filed a

Protest, Petition to Intervene, and Motion to Reject,

alleging, inter alia, that its contract with APS did not permit

unilaterally proposed rate changes under §205 of the

Federal Power Act, 16 U.S.C. § 824d (1982). The Federal

Power Commission held to the contrary, and permitted the

filed rates to take effect May |, 1976, pending investigation

into their lawfulness and subject to refund on the basis of

that investigation. Arizona Public Service Co., 55 F.P.C.

1503, 1507-08 (1976) (Order Accepting in Part, Rejecting in

Part, etc.); Arizona Public Service Co., 56 F.P.C. 1834,

1837-38 (1976) (Order Denying Application for Rehearing,

etc.). On August |, 1978, the Federal Energy Regulatory

Commission, statutory successor to the Federal Power

Commission,' approved the proposed rates as just and

reasonable, subject to minor adjustment and to

corresponding refund for the period during which the

unadjusted rates had been in effect. Arizona Public Service

Co., 4 FERC (CCH) 4 61,101 (“Order Affirming Initial

Decision”).

In a previous appeal, this court disagreed with the

Commission's interpretation of the contract between APS

and PTUA, holding that it did not contemplate unilateral

change under §205 of the Act, Papago Tribal Utility

Authority v. Federal Energy Regulatory Commission, 610

‘In 1977, most functions of the Federal Power Commission were

transferred to the Federal Energy Regulatory Commission. Department

of Energy Organization Act, Pub.L. No. 95-91, §402(a), 91 Stat 565,

583-84 (codified at 42 U.S.C. 7172(a) (Supp. V 1981)).

F.2d 914, 930 (1979) (‘Papago I”). Reconsidering the

contractual language on remand, the Commission found

that it authorized a Commission-initiated proceeding to set

just and reasonable rates under § 206 of the Act, 16 U.S.C.

§ 824e (1982). Arizona Public Service Co., 18 FERC (CCH)

q 61,066, at 61,110 (Jan. 25, 1982) (‘Order on Remand”).

Concluding that a new hearing would be duplicative and

wasteful, the Commission made an explicit finding (for the

first time) that APS’s pre-existing rates were not “just and

reasonable,” and made the rates approved in its 1978 Order

effective from August |, 1978 so as to put the parties in the

position they would have occupied had the Commission

initially interpreted the contract as later required by Papago

I. Id. PTUA's Application for Rehearing was denied on

March 26, 1982, Arizona Public Service Co., 18 FERC

(CCH) 462,582; this petition for review followed.

THE RATE-CHANGE STANDARD UNDER THE

APS/PTUA CONTRACT

The Federal Power Act provides two routes for changing

electricity rates: The seller may initiate rate changes under

§ 205 of the Act, by fi'ing a new schedule, which is subject to

Commission review for justness and reasonableness, but

which takes effect immediately (after the sixty-day notice

period required by subsection (d)), subject to Commission

suspension of no more than five months pending

investigation;? and the Commission itself may initiate rate

*Section 205, 16 U.S.C. §824d (1982), provides:

(a) All rates and charges made. . . by any public utility for or

in connection with the transmission or sale of electric

energy. ..shall be just and reasonable, and any such rate or

changes (usually, of course, upon application of one of the

parties to the contract) under § 206, but only upon finding

that the existing rates are unjust, unreasonable, unduly

discriminatory or preferential.

These provisions permit essentially three contractual

arrangements for revision. First, the parties may agree

that new rates can be unilaterally and immediately imposed

by the utility, subject, under §205, to Commission

charge that is not just and reasonable is hereby declared to be

unlawful.

(d) [N}o change shall be made by ary public utility in

any...rate...except after sixty days’ notice.. Such

notice shall be given by filing with the Commuission.. .new

schedules...

(e) Whenever any such new schedule is filed the Commission

shall have authority. ..to enter upon a hearing concerning

the lawfulness of such rate...; and, pending such hearing

and the decision thereon, ...may suspend the operation of

such schedule and defer the use of suc> rate... . but not fora

longer period than five months beyond the time when it

would otherwise go into effect; and after full hearings. . .the

Commission may make such orders with reference thereto as

would be proper in a proceeding inititated after it had

become effective

Section 206(a), 16 U.S.C. §824e(a) (1982), provides

Whenever the Commission, after a hearing had upon its own

motion or upon complaint, shall find that any

rate...collected by any public utility...is unjust,

unizasonable, unduly discriminatory or preferential, the

Commission shall determine the just and reasonabic

rate. ..to be thereafter observed and in force, and shall fix

the same by order.

29

suspension for no longer than five months, and to

ultimate Commission disallowance if they are not just

and reasonable. Second. by broad waiver, the parties may

eliminate both the utility's right to make immediately

effective rate changes under § 205 and the Commission's

power to impose changes under § 206, except the

indefeasible right of the Commission under § 206 to replace

rates that are contrary to the public interest, “as where [the

existing rate structure] might impair the financial ability of

the public utility to continue its service, cast upon other

consumers an excessive burden, or be unduly discriminatory.”

FPC v. Sierra Pacific Power Co., 350 U.S. 348, 355, 76

S.Ct. 368, 372, 100 L.Ed. 388 (1956). Third, the parties may

contractually eliminate the utility's right to make

immediately effective rate changes under § 205 but leave

unaffected the power of the Commission under § 206 to

replace not only rates that are contrary to the public interest

but also rates that are unjust, unreasonable, or unduly

discriminatory or preferential to the detriment of the

contracting purchaser. See Public Service Co. of New

Mexico v. FERC, 628 F.2d 1267, 1270 (10th Cir. 1980), cert.

denied, 451 U.S. 907, 10! S.Ct. 1974, 68 L.Ed.2d 295 (1981);

Louisiana Power & Light Co. v. FERC, 587 F.2d 671. 676

(Sth Cir.1979). The first issue in the present case is whethe:

the Commission was correct in concluding that the

APS/PTUA contract adopted the last of these three

‘This apparently means unduly discriminatory or

preferential to the detriment of purchasers who are not

parties to the contract. Discrimination or preference tha:

operates against the contracting purchaser can presumably

be waived—just like unreasonableness—up to the point

where it produces some independent harm tc the public

interest.

30

regimes. In approaching that question, we accord

appropriate deference, though not of course conclusive

validity, to the judgment of the expert agency that deals with

such contracts regularly. Aansas Cities v. FERC, No. 81-

2248, 723 F.2d 82 at 87 (D.C.Cir. 1983).

The portion of the APS’ PTUA contract that governs

rates is Section 3. It sets forth a base monthly rate and a base

monthly minimum, the former consisting of local facilities

charge, demand charge, and energy charge, each subject to

monthly adjustment. It also permits adjustments for

reductions in maxim.im demand attributable to canccilation

of PTUA contracts with third parties. Subsection 6, the last

subsection of section 3, provides:

The rates hereinabove set out in this Section 3... are

to remain in effect for :he initial one (1) year of the term

of this contract and thereafter unless and until changed

by the Federal Power Commission or other lawful

regulatory authority, with either party hereto to be free

unilaterally to take appropriate action before the

Federal Power Commission or other lawful regulatory

authority in connection with changes which may be

desired by such party.

In Papago /, we held that the contract did not permit

a effected rate increases under § 205. In its Order

on Remand, the Commission held that the contract

permitted changes under § 206 on the basis of a just-and-

reasonable standard.

PTUA makes essentially three objections to the

Commission's conclusion. First, that the language of the

contract excludes just-and-reasonable changes; second, that

apart from the language, the reasoning of Papago / requires

31

such a conclusion; and third, that the issue deserved an

evidentiary hearing. We find none of these objections well

taken.

PTUA contends that the contractual language merely

recognized the possibility of future rate change and

that such recognition does not constitute an agreement to

apply a just-and-reasonable standard in § 206 proceedings.

We disagree. The contract draws a clear distinction between

“the initial one (1) year.” during which the originally

specified rates “are.to remain in effect.” and subsequent

years, during which those rates are to subsist “unless and

until changed by the Federal Power Commission or other

lawful regulatory authority.” The limitation envisioned

during the initial year cannot abridge the right of the parties

to bring to the attention of the Commission during that

period rates not in the public interest. The Commission's

obligation to insure that rates do not violate that

prescription is imposed for the direct benetit of the public at

large rather than (like the prescnption of just and

reasonable rates) for the direct benefit of the seller and

purchaser; and it therefore cannot be waived o> eliminated

by agreement of the latter. Even agreement not to bring a

rate contrary to the public interest to the Commission's

attention would be akin to a contract to suppress evidence,

and therefore void. See RESTATEMENT OF CON-

TRACTS § 554 (1932); 14 WILLISTON ON CONTRACTS

§1716 at 881 (3d ed. 1972); 6A CORBIN ON

CONTRACTS § 1430 at 380 (1962). Thus, applying the

principle that a contractual provision should, if possible, be

interpreted in such a fashion as to render it lawful rather

than unlawiul (us magis valeat quam pereat), the restriction

envisioned during the first year of the contract must allow

32

rate changes required by the public interest. The scheme to

be in effect “thereafter” — obviously intended to be less

restrictive—must therefore permit changes that are just and

reasonable.

Moreover, specific acknowledgment of the possibility of

future rate change is virtually meaningless unless it

envisions a just-and-reasonable standard. The _ public-

interest standard is practically insurmountable; the

Commission itself is unaware of any case granting relief

under it. Order on Remand, 18 FERC (CCH) 4 61,066 at

61,109. Future rate changes would be a dim prospect, hardly

worthy of recognition, if the parties did not intend the just-

and-reasonable standard to govern. All but one of the cases

cited by petitioner in which a contractual recognition of

alteration by regulatory action was held to establish only a

public-interest standard involved clauses recognizing the

possibility of regulatory change in general, not rate change

in particular. See cases discussed in Kansas Cities, supra, at

87-88. In the one exception,the issue was neither discussed

nor understood.°

PTUA contends that the contract’s provisions for

automatic adjustment in the base monthly rate reflect an

intent to restrict other rate changes as much as possible.

There is some force to that argument, but we cannot say that

Sin Carolina Power & Light Co., 47 F.P.C. | (1972), the Federal

Power Commission adopted a hearing examiner's conclusion that the

relevant contract did not permit §205 changes. It was only in connection

with that issue that the hearing examiner had considered the regulatory

change provision. /d. at 13-14. And once that issue was resolved. the

Commission automatically scheduled hearings in which the utility was

to satisfy the public-interest standard—in the belief that F PC v. Sierra

Pacific Power Co., supra, made that standard applicable in all §206

proceedings. /d. at 4. As our earlier discussion indicates, that early

interpretation of Sierra was incorrect.

it overcomes the strong textual argument based upon the

separate provision for changes before and after the first year

of the contract. The automatic adjustments are of course not

rendered entirely superfluous if just and reasonable rate

revisions are allowed. Since reasonableness is not a fixed

point but a zone, see FPC v. Conway Corp., 426 U.S. 271,

278, 96 S. Ct. 1999, 2004, 48 L.Ed.2d 626 (1976); FPC v.

Natural Gas Pipeline Co., 315 U.S. 575, 585-86, 62 S.Ct.

736, 742-43, 86 L.Ed. 1037 (1942), there would be scope for

operation of the adjustment provisions before the factors

producing the adjustment took the rate entirely outside the

zone of reasonableness.

Finally, our decision in Papago / did not restrict § 206(a)

increases under this contract to those in the public interest.

The opinion held that the second clause of subsection 3.6

does not permit unilateral rate changes under § 205. but

“simply preserves the right of either party to petition the

Commission for relief pursuant to Section 206(a),” 610 F.2d

at 928. It did not address the standard of proof to be applied

in the § 206 proceeding, and indeed explicitly disclaimed any

ruling on that point. /d. at 930 n. 127. As for its invocation of

the canon that ambiguous contracts are to be construed

against the drafter: That canon does have force with regard

to the point at issue in Papago /, since application of § 205

invariably favors the utility. The adoption of a strict or

lenient standard for rate change, however, does not

necessarily favor either side, since its effect will depend upon

whether upward or downward revision is sought. See

Kansas Cities, supra, at 87.

PTUA also objects to the Commission’s refusal to

consider evidence extrinsic to the contract with regard to

34

this issue of interpretation, including such matters as

proposals put forward in the negotiations and eliminated in

the final contract. We have held with specific reference to

this issue or rate revision in federal power contracts that

‘‘ {iJn the absence of ambiguity the intent of the parties to a

contract must be ascertained from the language thereof

without resort to parol evidence or extrinsic circumstances.’ ”

Appalachian Power Co. v. FPC, 529 F.2d 342, 347-48

(D.C.Cir.1976) (footnsic omitted) (quoting Simpson Bros.

Inc. v. District of Columbia, 179 F.2d 430, 434

(D.C.Cir. 1949), cert. denied, 338 U.S. 911, 70 S.Ct. 350, 94

L.Ed. 561 (1950)). And as we have noted in other contexts,

“[a] contract is not ambiguous simply because the parties

disagree on its interpretation,” Clayman v. Goodman

Properties, Inc.. 518 F.2d 1026, 1034 (D.C.Cir.1973)

(footnote omitted). Rather, the “standard for determining

ambiguity [that] appears to be in fairly general use by

American courts” is whether the contract is * ‘reasonably

susceptible of different constructions or interpretations.’ ”

Lee v. Flintkote Co., 593 F.2d 1275, 1282 (D.C.Cir. 1979)

(footnotes omitted) (quoting /90/ Wyoming Ave. Coop.

Ass'nv. Lee, 345 A.2d 456, 461 n. 7(D.C. 1975)). In rejecting

the proffer of extrinsic evidence, the Commission

specifically found that “the language of the contract is not

reasonably susceptible to the interpretation suggested by

PTUA.” Order on Remand, 18 FERC (CCH) 4 61,066 at

61,111. We think it proper to give the Commission the same

degree of deference with regard to this issue as we accord it

with regard to the ultimate question of the meaning of the

contract. In light of the analysis of the contractual terms set

forth above, we sustain the refusal to consider extrinsic

evidence.

35

VALIDITY OF THE FINDING THAT EXISTING

RATES WERE NOT JUST AND REASONABLE

PTUA makes procedural and substantive attacks on the

Commission's holding that the existing rates were not just

and reasonable. It argues that the finding that APS would

only earn a .552 percent rate of return under the existing

rate schedule lacked substantial evidence and that the

Commission’s reliance on the compliance filing, which was

made before the justness and reasonableness of existing

rates was at issue, was unfair.

We find the first claim wholly without merit. The

Commission's .552 percent figure was derived from the

application of standard ratemaking principles to data from

the compliance filing. Brief for Respondent at 20 n. 15.°

PTUA has neither refuted the data nor disputed the

principles nor questioned the accuracy of the computation.

PTUA’s procedural claim is similarly ill founded. The

compliance filing was part of the record, see R. 4127-4311.

When it was originally submitted, PTUA had ample

opportunity and incentive to challenge any inaccuracies.

PTUA’s assertion that its challenge to the compliance filing

“would have been out of order” because it did not contend

lack of compliance with the Commission's orders, Reply

Brief at 20, is of course circular. If it believed the filing

contained significant factual inaccuracies, it could and

should have made such a contention. It is true that at the

time the compliance filing was made PTUA believed that it

would be used only for the purpose of fixing new rates and

not in addition for the purpose of showing the

*We note that some of the page citations set forth in the Commission's

brief for the figures used in this computation are inaccurate, their

substance, however, is correct.

36

unreasonableness of old rates. But that establishes, at most,

that PTUA “would have tried harder” if the full ultimate use

of the data had been known—a complaint we have

elsewhere found inadequate to excuse failure to challenge.

Association of Massachusetts Consumers, Inc. v. SEC, 516

F.2d 711, 716 (D.C.Cir. 1975), cert. denied, 423 U.S. 1052,

96 S.Ct. 781, 46 L.Ed.2d 641 (1976). Moreover, the Order on

Remand, by alluding to the compliance filing, made it clear

that it was being used by the Commission to determine the

reasonableness of the old rates, and thus provided

“sufficient detail to allow for meaningful adversarial

comment” in that specific context, United States Lines, inc.

v FMC, 584 F.2d 519, 535 (D.C.Cir. 1978). PTUA declined

to make such comment in its Application for Rehearing,

identifying not a single element of inaccuracy in the

compliance filing, and making only the same generalized

demand put forth here, that a new opportunity for

evidentiary hearing was required. /d. at 9. Even at the

current stage of these proceedings, PTUA notably makes no

assertion that the existing rates were in fact just and

reasonable. In these circumstances, we are persuaded that

even if the Commission's use of the compliance filing were

an improper reliance on extra-record evidence, it would not

justify invalidation of the agency’s action because no

substantial prejudice has been shown to result. See United

States v. Pierce Auto Freight Lines, Inc., 327 U.S. 515, 530,

66 S.Ct. 687, 695, 90 L.Ed. 821 (1946); Association of

Massachusetts Consumers, Inc. v. SEC, supra.

RETROACTIVITY OF THE COMMISSION'S ORDER

In addition to setting new rates under § 206, the

Commission in its January 25, 1982 order made the rates

effective from August |, 1978, the date of its prior rate

determination. The Commission reasoned that

The effect of this action would be to place al! parties in

the position they would have been in had the FPC in its

prior orders interpreted the PTUA and ED—|!

contracts as required by the court's decision. We firmly

believe the Commission has the responsibility and

authority to place the parties in the same position they

would have been in if the FPC had ruled correctly in the

first instance.

Order on Remand, 18 FERC (CCH) 4 61,066 at 61,110.

Section 206(a) of the Federal Power Act empowers the

Commission to determine and impose just and reasonable

rates only after finding that existing rates are unjust,

unreasonable, unduly discriminatory or preferential. In this

case the Commission did not make such an explicit finding

on August I, 1978, because it believed it was properly

proceeding under § 205, which requires only that the utility's

newly filed rates be found just and reasonable, and not that

the old ones be found unjust, unreasonable, unduly

discriminatory or preferential. The Commission did not

explicitly make the latter finding until its January 25, 1982

Order on Remand, after we had made clear that the contract

would not permit a § 205 proceeding. The Commissior. then

determined that the rates in effect before August |, 1978

produced an unjust and unreasonable rate of return. /d. The

final issue we must address is whether the Commission's

actions in this regard were sufficient to comply with

§ 206(a).

The Supreme Court has told us to look to the

substance of the requirements of § 206(a) rather than to its

rigid formalities, FPC v. Sierra Pacific Power Co., supra,

350 U.S. at 353, 76 S.Ct. at 371. In the circumstances of the

38

present case, we think the substance of a finding of

unjustness and unreasonableness was adequately met on

August |, 1978. In its decision of that date, theCommission

affirmed, with minor modifications not now relevant, the

Initial Decision of its ALJ. Order Affirming Initial

Decision. That decision had not only found that 9.41

percent was a just and reasonable composite rate of return

on capital to be derived from the PTUA contract; but had

also found that the joint proposal of Arizona Electric Power

Cooperative and PTUA fora 12.25 percent rate of return on

equity capital was outside the zone of reasonableness.

Arizona Public Service Co., |FERC(CCH) € 63,045 (Dec.

19, 1977), at 65,332 (“/nitial Decision’). Even if one assumes

that a zero rate of return on debt capital could be reasonable

(though in fact even PTUA itself suggested 7.43 percent for

bonds and 7.90 percent for preferred stock, see I/nitial

Decision at 65,329), at the debt-equity ratio found by the

Commission (64.46 percent debt to 35.54 percent equity, see

Order Affirming Initial Decision, 4 FERC (CCH) 4 61,101

at 61,211), the 12.25 percent equity figure would have

yielded a composite rate of return of 4.35 percent. Thus,

even allowing for a wide margin of error, the ALJ had

necessarily found that a composite rate of .552 percent was

outside the zone of reasonableness.

Even if we assumed that the ALJ's finding on this

point was not authoritatively adopted by the Commission,

we must still find that a determination of the unrea-

sonableness of a .552 percent rate of return was effectively

made in the 1978 Order. To be sure, there is, as we have

noted, no single reasonable rate for any contract, but rather

a zone of reasonableness, see FPC v. Conway Corp., supra;

FPC vy. Natural Gas Pipeline Co., supra, so that the

Commission's finding that 9.41 percent was just at

reasonable did not amount to a finding that every other rat

of return was not. But the zone of reasonableness is not

endless, or else ratemaking would be a barren exercise and

judicial review would be impossible. There is some point at

which two rate dispositions are so far apart that they cannot

possibly be embraced within the same zone. We are not

normally inclined to enter into such an inquiry, but the

distinctive circumstances of the present case justify it. We

find as a matter of law that rates under a particular contract

yielding a .552 percent rate of return and rates yielding a

9.41 percent rate of return—an 1800 percent differential—

cannot both possibly fall within the zone of reasonableness.

The Commission's 1978 determination that the latter were

reasonable therefore amounted to a finding that the former

were not.

Thus, either through reliance upon adoption of the ALJ's

finding, or through our independent evaluation of the sheer

expanse of the differential, we conclude that the

Commission determined in 1978 that rates producing a .552

percent rate of return were unreasonable. As we now know,

that amounted to a determination that the existing rates

were unreasonable; even PTUA does not assert that the

return from those rates was sufficiently above the .552

figure to avoid invalidation on the basis described above.

The only genuine dispute is whether, in order to permit the

new rates to take eff:ct from 1978, the Commission must

have then undergone the calculation which revealed the fact

of a .552 percent rate of return. We think not. If, as the

Commission has subsequently found, that was the actual

rate of return; and if that rate of return was in 1978 found to

be unreasonable; we believe that in the distinctive

40

circumstances of this case, the substantial purpose of the

§ 206(a) requirement has been met. We note in this regard

that the 1977 ALJ and 1978 Commission opinions which

approved APS's rate increase under its contract with PTUA

also approved similar increases under APS's other supply

contracts, some of which were from the beginning

recognized by the Commission to require § 206 procedures.

That portion of the opinions which, with regard to those

§296 contracts, pertained to consideration and deter-

mination of the unreasonableness of existing rates,

consisted entire/y of two paragraphs in the ALJ's /nitial

Decision. First, under the heading “Ultimate Findings and

Conclusions”:

(4) Applicant's rates which are the subject of a

Section 206 investigation in these dockets, as noted

above, are unjust and unreasonable and unlawful, and

Applicant should, therefore, be required to file just and

reasonable rates as necessary to conform to this

decision.

Initial Decision, | FERC (CCH) ¢ 63,045 at 65,343. And

under the heading “Order”:

Wherefore, /t is ordered, subject to review by the

Commission that: .. .

(B) The existing rates referred to in paragraph (4)

above are unjust and unreasonable and unlawful, and

shall be changed to conform to this decision.

Id. There is no doubt in our mind that, had it been

understood that the present contract was also subject to

§ 206, it would have been routinely included among the

referenced contracts, after routine receipt of the additional

factual data necessary for that purpose. One circuit has held

4)

that when new rates are fixed under § 206 “[t]here is no

validity to the contention. . . that there must be a finding or

determination directed to the old schedule.” Public Service

Co. of New Mexico v. FERC, supra, 628 F.2d at 1270. We

are not prepared to go that far, but neither are we prepared

to “make a fetish” of the § 206 requirement, United States v.

Pierce Auto Freight Lines, Inc., supra, 327 U.S. at 530, 66

S.Ct. at 695, by requiring a three and one-half year deferral

of a justified rate increase because, although the tacts are

clear, not all the magic words were uttered.

We emphasize that we will not generally be drawn

into the complex analysis here indulged. Whether or not the

finding that a new rate is reasonable (or that a proposed new

rate is unreasonable) amounts to a finding that the old one

was unreasonable, it will ordinarily be an abuse of the

Commission's discretion not to make the latter finding

explicit; and we will ordinarily inquire no further. We have

been willing to probe into the “substance [of] the

requirements,” F PC v. Sierra Pacific Power Co., supra, 350

U.S. at 353, 76S.Ct. at 371, in the present case only because

of the understandable reason for the Commission's failure

to comply in form as well as in substance with the terms of

the statute (viz., the confusion produced by an unclear

contract), and because of the Commission's subsequent

explicit finding of unreasonableness which leaves no doubt

that we are making a rate judgment with which the

Commission fully agrees.

Petition denied.

APPENDIX D

ORDERS OF THE U.S. COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA

JANUARY 12, 1984

43

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term 1983

No. 82-1338

PAPAGO TRIBAL UTILITY AUTHORITY

Petitioner

V.

FEDERAL ENERGY REGULATORY COMMISSION

Respondent

ee eee

ARIZONA PUBLIC SERVICE COMPANY

Intervenor

And Consolidated Case No. 82-1339

Before: EDWARDS and SCALIA, Circuit Judges and

VAN DUSEN, Senior Circuit Judge, U.S. Court of Appeals

for the 3rd Circuit.

January i2, 1984

ORDER

On consideration of the Petition for Rehearing of

Petitioner, filed December 27, 1983, it is

Ordered by the Court that the aforesaid Petition is

denied.

Per Curiam

For The Court:

GEORGE A. FISHER, CLERK

By:

ROBERT A. BONNER

Chief Deputy Clerk

44

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 82-1338

PAPAGO TRIBAL UTILITY AUTHORITY

Petitioner

V.

FEDERAL ENERGY REGULATORY COMMISSION

Respondent

Arizona Public Service Company

Intervenor

And Consolidated Case No. 82-1339

Before: ROBINSON, Chiet Judge; WRIGHT, TAMM,

WILKEY, WALD, MIKVA, EDWARDS, GINSBURG,

BORK, SCALIA and STARR, Circuit Judges, and VAN

DUSEN, Senior Circuit Judge, U.S. Court of Appeals for

the 3rd Circuit.

January 12, 1984

ORDER

The Suggestion for Rehearing en banc of Petitioner, filed

December 27, 1983, has been circulated to the full Court and

no member has requested the taking of a vote thereon. On

consideration of the foregoing, it is

Ordered by the Court en banc that the aforesaid

suggestion is denied.

Per Curiam

For The Court:

GEORGE A. FISHER, CLERK

By:

ROBERT A. BONNER

Chief Deputy Clerk

45

APPENDIX E

Statutes

46

APPENDIX E

Federal Pewer Act

Section 205, 16 U.S.C. § 824d.

§824d. Rates and charges; schedules; suspension of new

rates

(a) All rates and charges made, demanded, or received by

any public utility for or in connection with the transmission

er sale of electric energy subject to the jurisdiction of the

Commission, and all rules and regulations affecting or

pertaining to such rates or charges shall be just and

reasonable, and any such rate or charge that is not just and

reasonable is hereby declared to be unlawful.

(b) No public utility shall, with respect to any

transmission or sale subject to the jurisdiction of the

Commission, (1) make or grant any undue preference or

advantage to any person or subject any person to any undue

prejudice or disadvantage, or (2) maintain any unreasonable

difference in rates, charges, service, facilities, or in any other

respect, either as between localities or as between classes of

service.

(c) Under such rules and regulations as the Commission

may prescribe, every public utility shall file with the

Commission, within such time and in such form as the

Commission may designate, and shall keep open in

convenient form and place for public inspection schedules

showing all rates and charges for any transmission or sale

subject to the jurisdiction of the Commission, and the

classifications, practices, and regulations affecting such

rates and charges, together with all contracts which in any

manner affect or relate to such rates, charges, classifications,

and services.

47

(d) Unless the Commission otherwise orders, no change

shall be made by any public utility in any such rate, charge,

classification, or service, or in any rule, regulation, or

contract relating thereto, except after thirty days’ notice to

the Commission and to the public. Such notice shall be

given by filing with the Commission and keeping open for

public inspection new schedules stating plainly the Change

or changes to be made in the schedule or schedules then in

force and the time when the change or changes will go into

effect. The Commission, for good cause shown, may allow

changes to take effect without requiring the thirty days’

notice herein provided for by an order specifying the

changes so to be made and the time when they shall take

effect and the manner in which they shall be filed and

published.

(ec) Whenever any such new schedule is filed the

Commission shall have authority, either upon complaint or

upon its own initiative without complaint, at once, and, if it

so orders, without answer or formal pleading by the public

utility, but upon reasonable notice, to enter upon a hearing

concerning the lawfulness of such rate, charge, classification,

or service; and, pending such hearing and the decision

thereon, the Commission, upon filing with such schedules

and delivering to the public utility affected thereby a

statement in writing of its reasons for such suspension, may

suspend the operation of such schedule and defer the use of

such rate, charge, classification, or service, but not for a

longer period than five months beyond the time when it

would otherwise go into effect; and after full hearings, either

completed before or after the rate, charge, classification, or

service goes into effect, the Commission may make such

orders with reference thereto as would be proper in a

proceeding initiated after it had become effective. If the

proceeding has not been concluded and an order made at the

48

expiration of such five months, the proposed change of rate,

charge, classification, or service shall go into effect at the

end of such period, but in case of a proposed increased rate

or charge, the Commission may by order require the

interested public utility or public utilities to keep accurate

account in detail of all amounts received by reason of such

increase, specifying by whom and in whose behalf such

amounts are paid, and upon completion of the hearing and

decision may by further order require such public utility or

public utilities to refund, with interest, to the persons in

whose behalf such amounts were paid, such portion of such

increased rates or charges as by its decision shall be found

not justified. At any hearing involving a rate or charge

sought to be increased, the burden of proof to show that the

increased rate or charge is just and reasonable shall be upon

the public utility, and the Commission shall give to the

hearing and decision of such questions preference over other

questions pending before it and decide the same as speedily

as possible.

Federal Power Act

Section 206, 16 U.S. C. §824¢.

§824e. Power of Commission to fix rates and charges;

determination of cost of production or transmission

(a) Whenever the Commission, after a hearing had upon

its own motion or upon complaint, shall find that any rate,

charge, or classification, demanded, observed, charged, or

collected by any public utility for any transmission or sale

subject to the jurisdiction of the Commission, or that any

rule, regulation, practice, or contract ¢ ffecting such rate,

charge, or classification is unjust, unreasonable, unduly

discriminatory or preferential, the Commission shall

determine the just and reasonable rate, charge, classifica-

tion, rule, regulation, practice, or contract to be thereafter

observed and in force, and shall fix the same by order.

49

(b) The Commission upon its own motion, or upon the

request of any State commission whenever it can do so

without prejudice to the efficient and proper conduct of its

affairs, may investigate and determine the cost of the

production or transmission of electric energy by means of

facilities under the jurisdiction of the Commission in cases

where the Commission has no authority to establish a rate

governing the sale of such energy.

50

APPENDIX F

APS-PTUA CONTRACT

$1

WHOLESALE POWER SUPPLY AGREEMENT

PAPAGO TRIBAL UTILITY AUTHORITY

THIS AGREEMENT .,entered into this 28th day of May,

1971, by and between ARIZONA PUBLIC SERVICE

COMPANY, an Arizona corporation (hereinafter called

“Company”), and THE PAPAGO TRIBAL UTILITY

AUTHORITY, acting by authority granted from the

Papago Council, (hereinafter called “PTUA”),

WITNESSETH:

WHEREAS, the PTUA and the Papago Tribe desire to

facilitate mining and industrial development on the Papago

Reservation and the furnishing of electricity for such

purposes and for other purposes on the Papago

Reservation; and

WHEREAS, the Papago Tribe has heretofore granted

certain mining rights, leases and privileges to Hecla Mining

Company and Newmont Mining Company, and it is

contemplated that the development of such mines and

refining, smelting and related activities will be of benefit to

the Papago Tribe, and the Papago Tribe desires to foster

and encourage such development; and

WHEREAS, the PTUA plans to furnish electric power

for such mining, milling, smelting and related operations

and to distribute power elsewhere on the Reservation, and

the PTUA desires to purchase its total power requirements

for such purposes from the Company in an amount up to 25

MW, unless increased as provided in Section 2.2 hereof; and

WHEREAS, in order to facilitate and permit the

achievement of the plans hereinabove referred to, the

following Agreement is hereby entered into:

$2

|. Specific Facilities to be Provided.

1.1 The delivery point for power sold to the PTUA

hereunder shall be the point of division of ownership of the

electric facilities of Company and the electric facilities of the

PTUA, at approximately the location indicated on the plat

attached hereto as Exhibit A, said power to be delivered at

approximately 230 Kv, with Company to own and maintain

and operate the necessary facilities on its side of the delivery

point for the delivery of electricity to the PTUA at the

delivery point. The PTUA will provide, at no cost to the

Company, necessary right of way for any lines or substation

sites necessary to deliver power to the delivery point. The

PTUA will provide, maintain, and operate or cause to be

provided, maintained, and operated the necessary facilities

to permit it to receive electricity at the delivery point.

1.2 The parties respectively will plan and carry out the

construction schedules for the aforesaid facilities with the

purpose of both being ready for the commencement of

electric deliveries hereunder at the delivery point on the

commencement date hereinafter stated.

2. Power Supply.

2.1 Company will supply or make available, and PTUA

will take or pay for electric power and energy in the amount

of its requirements up to a maximum demand (defined

hereafter) of 25 MW, unless said limit is changed as

provided in Section 2.2. Electric service supplied hereunder

shall be in the form of three-phase, 60-cycle electricity at a

nominal voltage of approximately 230 KV.

2.2 In the event PTUA shall desire to increase the

maximum demand as specified in Section 2.1, it may do so

by notice given in writing two (2) years in advance of the

$3

effective date of such increase; provided. however, tha

Company shall have the right to refuse to accept such

proposed increase in demand by notice given to PTUA

within thirty (30) days after receipt of notice of such desire to

increase the maximum demand. In theevent thatthe PTUA

should procure a source of energy to supply such amount in

excess of 25 MW, whether from an outside supplier or by

means of acquiring its own generating facilities, the PTUA

agrees that such power and energy from such other source or

its own generating facilities shall not be utilized in place of

nor operated in parallel with the power and energy which

the PTUA is obligated to purchase hereunder and which the

Company is obligated to supply or make available.

2.3 Once a peak demand (hereinafter defined) has been

established. which is higher than the maximum demand,

specified in Section 2.1, whether or not inadvertent or

occurring without notice or consent of Company, this shall

constitute a new maximum demand for the current billing

period and for all subsequent billing periods hereunder,

unless and until increased pursuant to the terms and

conditions of this contract, subject to the right of Company

to have the maximum demand in effect prior to such peak

demand remain in effect unaffected by the existence of such

peak, and, in addition PTUA shall reimburse Company for

any expenses or damages incurred by Company, as a result,

of the occurrence of such peak demand.

2.4. PTUA will exercise due diligence to assure that the

electrical characteristics of its load, such as deviation from

sine wave form or unusual short interval fluctuations in

demand, shall not be such as to result in impairment of

service to other customers or in interference with operation

of telephone, television or other communication facilities.

The deviation from phase balance will not be greater than

54

ten (10) per cent of the demand it all times. Each party shal!

supply the reactive power requirements for its own system

and there shall be no transfer or flow of reactive Kilovolt-

amperes at points of interconnection hereunder except

when transfer of reactive Kilovolt-amperes may be agreed

upon from time to time by authorized representatives of the

contracting parties.

2.5. Use on Reservation Only. Electric power and

energy to be supplied by Company to PTUA hereunder

shall be solely for consumption and use within the Papago

Reservation.

3. Rates for Power Supply.

3.1. The rates applicable during the initial one (1) year

period hereof and thereafter unless and until changed as

hereinafter provided in Section 3.6 hereof, for power and

energy delivered to PTUA hereunder, will be computed in

accordance with the following rate provisions, subject to

changes from time to time as hereinafter provided:

(a) Base Monthly Rate:

(i) Local Facilities Charge:

1.55% of local investment (as hereinbelow defined),

plus

(ii) Demand Charge:

$2.915 per KW of billing demand, plus

(uli) Energy Charge:

$0.0024 per Kwh

$5

(b) Base Monthly Minimum:

(i) Local Facilities Charge, plus

(ii) Demand Charge

(c) Monthly Adjustments:

(1) The demand and local facilities charge of the

monthly rate shall be adjusted up or down each month

by adding or subtracting an amount as provided in

Section 3.3.

(it) The energy charge shall be subject to adjustments

based on the cost to Company's electric operations for

any changes in the prices of fuel consumed in electric

generating plants owned by or supplying energy to the

Company from prices in effect March |, 1962, for then

existing plants, or on the dates of initial commercial

operation for subsequent and future plants as more

specifically detailed in the amended Plan for

Administration of Adjustment for Cost of Fuel filed

from time to time with the Federal Power Commission.

(ui) The total monthly bill shall be subject to the

applicable proportionate part of any taxes or

governmental impositions which are or may in the

future be assessed on the basis of gross revenue of

Company and/or the price of revenue from the electric

energy or service sold and/or the volume of energy

generated or purchased for sale and / or sold hereunder.

$6

(d) Monthly Billing Demand:

The monthly billing demand will be the higher of the

following:

(i) The highest 30 minute integrated demand (K W)

measured during the 24 months ended with the billing

montana, or

(ui) The contract demand (hereinafter defined).

3.2 The quantities of power and energy delivered shall

consist of the amount of electricity delivered as determined

from the monthly meter readings at the delivery point.

3.3 The monthly adjustments to be added to or

subtracted from the Locai Facilities Charge and the

Demand Charge in accordance with Paragraph 3.1 (c)(i)are

intended to reflect the effect on Company's cost of service of

changes in applicable (a) ad valorem tax rates and or

assessment ratios, (b) Federal and State income tax rates, (c)

prices for materials and supplies, and (d) labor rates. These

monthly adjustments will be computed in accordance with

Exhibit B attached hereto and made a part hereof.

3.4 Reduction in Maximum Demand and Payment for

Unused Capacity.

In the event that Hecla Mining Company and/or

Newmont Mining Company shall exercise rights under their

respective power purchase contracts with PTUA so as to

cancel their respective purchase obligations under either or

both such contracts effective at any time after ten (10) years

from the effective date of this Agreement. PTUA shall have

the right, by written notice, given within three (3) months

after notice by Hecla or Newmont, as to exercise of such

cancellation right, to effect a reduction hereunder

57

equivalent in amount to the amount cancelled under such

purchase contract or contracts, provided that in such event.

PTUA Shall forthwith pay the Company for unused power

prod

uction and integrated transmission system capacity

according to the following terms and conditions:

A

d

A. The previously established maximum demand

KW will be reduced by the amount specified in the

notice given by PTUA to establish a new maximum

demand KW. Thereafter the maximum demand KW

will be determined according to the provisions of

Section 2 hereof.

B. Payment for unused production and integrated

transmission system capacity:

1. PTUA shall pay the Company for unused

production and integrated transmission system

capacity as follows:

a. in the event PTUA gives the Company seven

(7) years notice there shall be no charge.

b. In the event PTUA gives the Company less

than seven (7) years notice, PTUA shall pay the

Company for unused power production and

integrated transmission system capacity as computed

by the following formula:

A = 9dk(7-n)

where:

= dollar amount of payment

= dollars per KW of Demand Charge specified in

Section 3.1(a)

= Ky - K5,

58

where:

K = maximum demand KW established in Section 2.

K, = new maximum demand KW established under

Paragraph A.

n = number of years notice given, not to be more than

six (6) years or less than two (2) years.

C. Notice must be given not less than two (2) years

prior to the date of the requested reduction in

maximum demand. Such notice must be in writing and

sent by registered mail to t':1e Company's general offices

in Phoenix, Arizona.

D. Billing under this Section is to be on or after the

effective date of the reduction in maximum demand,

and payment shall be due fifteen (15) days after date of

billing. Amounts not paid on or before the due date

shall be payable with interest accrued at a monthly rate

of 1.0% compounded monthly from the due date to the

date of payment.

3.5. Definitions.

“Local Investment” - the cost to Company of the facilities

and related metering equipment installed to deliver energy

from the Company’s integrated transmission system to the

respective delivery points hereunder.

“Company's Integrated Transmission System™ - the

present or future integrated transmission system of

Company, consisting of circuits of 230 KV or higher, which

interconnect the Company's generating stations.

“Peak Demand” - the highest 30 minute integrated

demand measured at the delivery point during any month.

59

“Maximum Demand” - the maximum demand is the

maximum number of Kilowatts that PTUA is entitled to

receive and the maximum number of Kilowatts that

Company is obligated to furnish.

“Contract Demand” - the contract demand is equal to the

peak demand until December 31, 1975, or until it reaches

2/3 of the maximum demand thereafter the contract

demand is equal to 2) 3 of the maximum demand specified in

Section 2.1, or modified as provided in Section 2.2 and

Section 2.3.

3.6. The rates hereinabove set out in this Section 3 and

Exhibits thereto are to remain in effect for the initial one (1)

year of the term of this contract and thereafter unless and

until changed by the Federal Power Commission or other

lawful regulatory authority, with either party hereto to be

free unilaterally to take appropriate action before the

Federal Power Commission or other lawful regulatory

authority in connection with changes which may be desired

by such party.

4. Billing and Payment.

4.1. Company will endeavor to render bills to PTUA on

or before the 15th day of each calendar month for services

furnished during the preceding billing month. In such bills,

Company may designate certain items as being on an

estimated basis due to unavailability of final underlying

data, in which event adjustments to the correct amounts,

when correct amounts are determined, shall be included ina

bill for a subsequent month. Billing month for purposes

hereof shall be a calendar month.

4.2. Payment by PTUA to Company shall be due on the

25th day of the calendar month following the billing month,

60

or on the 10th day after mailing of bill, yes, ed day be

later. Amounts not paid on or before the due date shall be

payable with interest accrued at the rate of 1% a month

compounded monthly from the due date to the date of

payment.

Payment to the account of the Company shall be effected

by or on behalf of the PTUA at the Downtown office of the

First National Bank of Arizona, in Tucson, Arizona. The

PTUA agrees, in consideration of the Company's entering

into this agreement, that it will irrevocably, during the term

of this agreement, direct the Hecla Mining Company and

the. Newmont Mining Company, their successors and

assigns, to which the PTUA expects to resell a substantial

amount of the power and energy purchased by it from the

Company hereunder, that payments due to the PTUA for

sales of electric power and energy by the PTUA to said

mining corporations be paid to the said Downtown office of

the said bank, for the account of the PTUA, and further that

the PTUA agrees to irrevocably direct the said Bank to ©

make monthly payments to the Company out of the

amounts so paid to the account of the PTUA at said Bank by

the mining corporations, the amount of payment to be made

to the Company to be that shown to be due on the bills to be

submitted by the Company to said Bank each month. This

agreement is contingent upon an instrument setting out in

full the terms and conditions relating to the said payments

by the mining corporations to the said Bank and the

payment by the said Bank to the Company, signed on behalf

of the Bank, the mining corporations, the PTUA and the

Company, and approved by the Tribal Council, such

instrument shall be in accordance with the terms and

procedures set forth in Exhibit C attached hereto and made

a part hereof.

61

4.3. In case a portion of any bill be in dispute, the PTUA

shall notify the payment bank of such fact and of the

amount in dispute, and only the undisputed amount shall be

paid to the Company when due, and the remainder, if any,

shall be held by the Bank and, upon determination of the

correct amount, shall be paid promptly after such

determination, with interest accrued as aforesaid from the

original due date.

4.4. If failure by PTUA to pay any amount due, and not

in bona fide dispute, shall continue for thirty (30) days after

demand of Company for payment, Company shall have the

right to suspend power delivery hereunder until all amounts

due have been paid. Such suspension shall not relieve PTUA

of any amounts previously due or of any minimum bills due

in the future, nor shall such suspension invalidate any other

agreements with the PTUA.

5. Measurement of Power. Ee

5.1. Company will own and maintain the metering

equipment for measuring the flow of power and energy

delivered hereunder at the point of delivery.

5.2. Company will at its own expense make such periodic

tests, at least once each year, and inspection of its meters as

may be necessary to maintain a commercial standard of

accuracy, will restore to a condition of accuracy any meters

found to be inadequate, and will advise PTUA promptly of

the results of any such test which show any inaccuracy more

than 2% slow or fast. PTUA shall be given notice of, and

may have representatives present at, such tests and

inspections. Company will make additional tests of its

meters at the request of PTUA and in the presence of

PTUA's representatives. If any such periodic or additional

62

tests show that a meter is inaccurate by more than 2% slow

or fast, correction shall be made in the billing tothe PTUA

for the previous billing month, or from the date of the latest

test if within the previous billing month, and correction shall

be made in meter records for the elapsed period inthe month

during which the test was made. The cost of any additional

test requested by PTUA shall be borne by PTUA if such test

shows a meter accurate within 2% slow or fast, and by

Company if such test shows a meter inaccurate by more than

2% slow or fast. If at any time a meter should fail to register

or its registration should be so erratic as to be meaningless,

the estimated correct registration for billing purposes shall

be based on records of check meters, if available, or

otherwise upon the best obtainable data.

5.3. Representatives of PTUA shall be afforded

opportunity to be present at monthly readings of kilowatt-

hour meters involved in settlements hereunder, and to

examine records of demand meters.

6. Arbitration.

6.1. Reference to Arbitration. In the event the parties

should be unable to reach agreement with respect to any

matter arising under or in connection with this agreement,

either party may call for submission of such matter to

arbitration in the manner herein set forth. The party calling

for arbitration shall give notice to the other party, setting

forth in such notice the issues to be arbitrated, and within

ten (10) days from receipt of such notice, the other party

may give notice to the first party setting forth additional

related issues to be arbitrated.

6.2. Appointment of Arbitrators. Within fifteen (15)

days from its notice calling for the arbitration, the first party

shali appoint a person to serve as one arbitrator with notice

to the other party of such appointment, and, within fifteen

63

(15) days after receipt of notice of appointment of the first

arbitrator, the other party shall appoint a person to serve as

a second arbitrator with notice to the first party of such

appointment. The two persons so appointed shall then agree

upon and secure a third arbitrator. If the third arbitrator

should not be secured within fifteen (15) days from the

appointment of the second arbitrator, or if the second

arbitrator should not be appointed within fifteen (15) days

from the appointment of the first, either party, with notice

to the other party, may request the Secretary of the Interior

to appoint the third arbitrator, or the second and third

arbitrators, as the case may be. In case the Secretary should

decline to act upon such request or for twenty (20) days

should fail to act, then either party, with notice to the other

party, may call upon American Arbitration Association for

such appointment or appointments.

6.3. Arbitration Procedure. The arbitrators so appointed

shall hear the evidence submitted by the respective parties

and may call for additional information, which additional

information the party called upon shall furnish to the extent

feasible. A determination signed by a majority of the

arbitrators shall be conclusive with respected to the issue

submitted and shall be binding upon both parties.

6.4. Expenses of Arbitration. Each party shall bear the

fee and personal expenses of the arbitrator appointed by it

or for it, together with the fees and expenses of its counsel

and its own witnesses, and all other costs and expenses of the

arbitration shall be borne in equal parts by the parties,

unless the decision of the arbitrators shall specify a different

apportionment of any or all of such costs and expenses.

7. Special Provisions.

7.1. In order to induce Company to enter into this .

Wholesale Power Supply Agreement between the Company

64

and the PTUA, and the Construction Agreement, and the

Operating and Maintenance Agreement, dated concur-

rently herewith, providing for the construction and

maintenance by it on behalf of the PTUA, of facilities

located on the Papago Reservation for transmission of

electricity from the delivery point under the Wholesale

Power Supply Agreement to the point at which the

electricity is delivered by the PTUA to the Hecla Mine and

the Newmont Mine, the PTUA and the Papago Tribe

hereby covenant as follows:

7.2. The Tribe will not tax, assess or regulate in any

manner whatsoever the property of the Company located on

the Reservation or the Company's activities under this

Wholesale Power Supply Agreement or the Operating and

Maintenance Agreement, or the Construction Agrcement,

or the transmission facilities on or off the Reservation, or

the transmission, sale or disposition of power at such

delivery point or over such facilities, or any activities

entered into thereunder or any operating, maintenance or

replacement work done in connection therewith.

7.3. The PTUA and the Papago Tribe hereby agree, that

in the event of a dispute arising hereunder not settled by

arbitration, such dispute shall be submitted to the

jurisdiction of the Courts of the State of Arizona or Federal

Courts.

7.5. Separability. In the event that any of the terms or

conditions of this Agreement, or the application of any term

or condition to any person or circumstance, shall be held

invalid by any Court having jurisdiction in the premises, the

remainder of this Agreement, and the application of such

terms and conditions to persons or circumstances other than

those as to which it is held invalid, shall not be affected

thereby.

65

8. General Provisions.

8.1. Uncontrollable Forces. Company shall not be held

responsible or liable for any loss or damage to PTUA on

account of non-delivery of power hereunder occasioned by

uncontrollable forces, the term “uncontrollable forces”

meaning for purposes hereof, causes beyond Company's

control, including, but not limited to, failure of facilities,

flood, earthquake, storm, lightning, fire, explosion,

epidemic, war, riot, civil disturbance, labor stoppage,

sabotage, or restraint by court or public authority, which by

exercise of due diligence it shali be unable to overcome.

Company will, however, exert every practicable effort to

assure continuing of power supply to PTUA. Nothing

herein shall be construed to obligate Company to forestall

or settle a strike against its will.

8.2. Responsibility as to Use of Service or Apparatus.

Company and FT UA each assume all responsibility on their

respective sides of the points of delivery for the electric

service supplied to PTUA hereunder, as well as for any

apparatus used in connection with such supply. Company

and PTUA each will save the other harmless from and

against all claims for injury or damage to persons or

property on their respective sides of the points of delivery,

occasioned by or in any way resulting from the electric

service supplied hereunder or the use thereof.

8.3. Waivers. A waiver at any time bya party of its rights

with respect to default, or with respect to any other matter

arising in connection with this agreement, shall not be

deemed a waiver with respect to any subsequent default or

matter.

ae.

66

8.4. Notices. All formal notices, demands or requests

given or made under this agreement shall be in writing and

shall be deemed properly given or made if delivered

personally or sent by registered mail, certified mail or

telegram to the person designated below:

Notices to Company:

Secretary of the Company

Arizona Public Service Company

501 South Third Avenue

Phoenix, Arizona

Notices to the PTUA:

Chairman of the Papago Tribal Utility Authority

Papago Tribal Utility Authority

500 Transamerica Building

Tucson, Arizona

9. Term.

9.1. Effective Date. Company and PTUA will endeavor

to have the necessary facilities for delivery and receipt of

service hereunder ready for commercial operation by April

15, 1972. In the event the Company has constructed the

facilities necessary to enable it to render service hereunder,

payment by the PTUA to the Company pursuant to the

rates hereinabove set out.shall commence on April 15, 1972,

or. if the approvals referred to in Section 10 have not been

procured by that date, as soon thereafter as such approvals

have been received, whether or not the PTUA is ready to

receive service, regardless of the reason therefor. In no

event, however, shall this agreement become effective unless

and until the mines have duly executed guarantees of the

performance and payment of this contract by PTUA.

67

9.2 Duration. This agreement shall run for an initial

period of thirty (30) years from April 15, 1972.

9.3. Extension of Term. This agreement shall auto-

matically continue for successive periods of ten (10) years

each beyond the initial period, unless and until cancelled by

either party as of the expiration date of the initial period, or

of any extension period, by notice given not less than five (5)

years in advance of the intended termination date.

10. Approvals. It is understood that to become effective

(i) the aforesaid power supply agreement shall have been

executed and approved, and {ii) this agreement shall have

been approved by the Papago Tribal Council and the

Council Resolution approving this agreement shall have

been approved by the Superintendent and reviewed by the

Secretary of the Interior. In addition, to the extent that the

Federal Power Commission may have jurisdiction pursuant

to the Federal Power Act, this agreement is subject to that

Commission and to the procuring by Company of any

requisite authorization or acceptance for filing as a rate

schedule or other action by that Commission.

11. Guarantee by Mines. This agreement is contingent

upon Hecla Mining Company and/or Newmont Mining

Company each having furnished to the Company a

guarantee of payment by the PTUA. in form and substance

satisfactory to the Company, with due autherization of their

respective Boards of Directors.

68

IN WITNESS WHEREOF, the parties have caused this

Agreement to be executed as of the day and year first above

set out

ARIZONA PUBLIC SERVICE COMPANY

By s/ Keith L. Turley

Its Executive Vice President

THE PAPAGO TRIBAL UTILITY AUTHORITY

s/ Arnold F.Smith

Sina sahnanhnenyeimmetiipahnititinanintteniningimiidi

Vice Chairman

Its a

ATTESTED

5

Secretary

ATTESTED

Secretary

69

APPROVED pursuant to RESOLUTION

NO. 18-71 of The Papago Council

THE PAPAGO TRIBI

Augustine B. Lopez

Chairman

The Papago Council

ATTEST

5

Secretary

EXHIBIT A

[map not reproduced]

E &

>

70

WHOLESALE POWER SUPPLY AGREEMENT

PAPAGO TRIBAL UTILITY AUTHORITY

EXHIBIT B

Base Monthly Rate Local Facilities Charge and

Demand Charge Adjustment Formulae

A. Monthly Local Facilities Charge Adjustment

(i) The adjustment for changes in income tax rates

shall equal

0.26% * local investment multiplied by

(aimtt# + ote) -

where:

T = the composite federal and state income tax rate in

per cent that is applicable to APS’ taxable income

during the billing month.

(ii) The adjustment for changes in ad valorem tax

rates and/or assessment ratio shall equal

0.24% = local investment multiplied by

where

T = the tax rate for the applicable school districts

(including state, county and local rates) for the

Ti

calendar year that includes the current billing

month.

R = the assessment ratio applicable to APS on its

operating properties during the billing month.

(iii) The adjustment for changes in the price of

materials and supplies and labor rates shall equal

0.12% = local investment multiplied by

ee

where:

A = the U.S. Bureau of Labor Statistics Wholesale Price

Index for the calendar month preceding the billing

month.

B = the average hourly earnings for utility employees in

Arizona for the calendar month preceding the billing

month as computed and published by the Arizona

Employment Security Commission Unemployment

Compensation Division.

B. Monthly Billing Demand Adjustment

(i) The adjustment for changes in income tax rates

shall equal

ow [seit = ty)

where:

T = the composite federal and state income tax rate in

per cent that is applicable to APS’ taxable income

during the billing month.

(ti) The adjustment for changes in ad valorem tax

rates and or assessment ratio shall equal

vr [(tad) - ]

72

where:

= the weighted average tax rate for the calendar year

that includes the current billing month for all

Arizona ad valorem taxes as computed and

published annually by the Arizona State Tax

Commission.

= the assessment ratio applicable to APS on its

operating properties during the billing month.

(iii) The adjustment for changes in the price of

materials and supplies and labor rates shall equal

0.5850 Ee * zl . | $/Rw

where:

= the U.S. Bureau of Labor Statistics Wholesale Pric

Index for the calendar month preceding the billing

month.

= The average hourly earnings for utility employees in

Arizona for the calendar month preceding the billing

month as computed and published by the Arizona

Employment Security Commission Unemployment

Compensation Division.

. Corrections of Formulae

In the event of changes in tax laws, allowable income

tax depreciation rates, methods of computing taxes or

changes in any other circumstances which cause the

above formulae to become inapplicable or to produce

improper results, the parties will compute and agree on

new formulae which will properly reflect the intent of

such formulae. If the price and labor indexes spec fied

above become unavailable or have their bases changed.

the parties will agree on new indexes and/or proper

adjustments to the formulae to reflect such changes.

73

CERTIFICATE OF SERVICE

| hereby certify that on this 10th day of April, 1984,

three copies of this Appendix to Petition for a Writ of

Certiorari were mailed, postage prepaid, to all counsel of

record for the parties below.

Arnoid D. Berkeley