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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1984
- **Citation:** 467 U.S. 1241

## Text

&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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1529%3A2. Public record. Not legal advice.