Petition for Writ of Certiorari — California Energy Resources Conservation & Development Commission v. Bonneville Power Administration

87-1835) Sey

No sMAY 4 1988

| Ck |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

CALIFORNIA ENERGY RESOURCES

CONSERVATION

AND DEVELOPMENT COMMISSION,

Petitioner,

vs.

BONNEVILLE POWER ADMINISTRATION;

JAMES J. JURA, as Administrator;

JOHN S. HERRINGTON, as Secretary of

the Department of Energy of

the United States of America;

and the UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

WILLIAM M. CHAMBERLAIN *

General Counsel

JONATHAN BLEES

Deputy General Counsel

CALIFORNIA ENERGY REX E. LEE

COMMISSION SIDLEY & AUSTIN

1516 Ninth Street, MS-14 1722 “Eye” Street, N.W.

Sacramento, California 95814 Washington, D.C. 20006

(916) 324-3237 (202) 429-4266

*Counsel of Record

May 4, 1988

Publishing and Graphic Electronic Services, Inc. (PAGES) / (213) 474-7855

re

QUESTIONS PRESENTED

1. Whether the Bonneville Power Administration

violated its statutory mandate to provide interregional

electricity transmission services “‘as a carrier” (16 U.S.C.

§837e) to “all utilities on a fair and nondiscriminatory

basis” (16 U.S.C. §838d) by adopting a transmission

policy that discriminates in favor of Northwest utilities

and against California and Canadian utilities and

California ratepayers.

2. Whether a federal proprietary agency must

formulate its sales and marketing policies in a manner

consistent with the Nation’s antitrust laws to the

maximum extent feasible.

LIST OF PARTIES

The parties to the proceeding below were petitioner

California Energy Resources Conservation and Develop-

ment Commission (CEC) and respondents Bonneville

Power Administration (BPA), James J. Jura as Adminis-

trator of BPA, John S. Herrington as Secretary of the

Department of Energy of the United States of America,

and the United States of America. In addition, the Public

Utilities Commission of the State of California (CPUC)

was a petitioner below.

TABLE OF CONTENTS

Page

CORI EPT MEER ETE EEE? | cocksccsscceseresosssnscesensszesece i

Be I UPI IE i diisecdncntnssnsccecccveccnssecscoesstcesecovees ii

CP I BAe BEE B BIB eicscccccccccscncsccsccossosesess Vv

I oils ccccccchnnhsannssinessensnensiane ]

SII sat ccetmananeubdnecswensonneoonenenses 2

PRINCIPAL STATUTES INVOLVED ................ 2

STATEMENT GE THE CASE. ...ccccccccscsccccsscescccese 3

I adil esas cpeescnsedaannonnssietiosonccio 3

BD. FPRGURRD TRG BTOURG 0....ccsccccsesccssccscccscesseseses 3

ED PEDOUID FORIOY cccccccscccccccctcnccsescns 9

D. Ninth Circuit Review of the Access

SPUN Wicidsncatiucdishensapelsinteinsinacainsnenabsesnerenceoense 13

REASONS FOR GRANTING THE WRIT ...... 17

I. BPA’S POLICY OF GRANTING

PREFERENTIAL ACCESS TO

NORTHWEST UTILITIES AND

DISCRIMINATING AGAINST

CALIFORNIA UTILITIES AND

THEIR RATEPAYERS VIOLATES

THE STATUTES REQUIRING BPA

TO MAKE TRANSMISSION

SERVICE AVAILAELE TO “ALL”

UTILITIES ON A “FAIR AND

NONDISCRIMINATORY” BASIS .............. 18

II. THE NINTH CIRCUIT’S OPINIONS

AND BPA’S ACTIONS CONFLICT

WITH THIS COURT’S HOLDINGS

THAT FEDERAL AGENCIES HAVE

—jy¥——

A DUTY TO CONSIDER AND

WEIGH THE ANTICOMPETITIVE

IMPACTS OF THEIR ACTIONS AND

TO CONFORM THEIR POLICIES TO

THE ANTITRUST LAWS TO THE

MAXIMUM EXTENT FEASIBLE ............ 23

ii een el OEE NEI ORE 30

pele cg. ERLE Separately Bound

TABLE OF AUTHORITIES

\

Page

Cases

324 Liquor Corp. v. Duffy, _—_ U.S. ——, 107

SR; TED Cy Siiaadcititivetentahsnscitttamnctiionasen 24

Aluminum Company of America v. Central

Lincoln People’s Utility District, 467

CB. Be Se ivteatenestnnncinnnininietrintatainnccnnimeneee 13

California Energy Commission v. Johnson, 767

FAG 631 CO Cie. UGGS). ccicercciccenscsccsnicssceses 12

California Energy Resources Conservation and

Development Commission v. Bonneville

Power Administration, 831 F.2d 1467

(Seda Cae. GBT). - sacedeseccstsnceniceniiiinesiiiansnscans passim

Chevron, U.S.A, Inc. v. NRDC, 467 U.S. 837

(RDG): snccitisinoniessinssnianincivicisdsiiitinininintealacmnospenintess 20

City of Springfield v. WPPSS, 752 F.2d 1423

(DUR Ge BD sctetisinahipisiinssatccinninscsnnnsnsenintennscnne 8

City of Huntingburg v. Federal Power

Comm’n, 498 F.2d 778

CE. Ge TD scctisensntcitinigiiiiinenguerinvessonne 24, 29

Civil Aeronautics Board v. Delta Air Lines,

Fad, BOT AFB. BIG CHOC) crseccccecceccicecesecccoreee 27

Consumer Product Safety Comm’n v. GTE

Sylvania, Inc, 447 U.S. 102 (1980) .............. 20

Copperweld Corp. v. Independence Tube Corp,

4GT US. T32 C1GGS) cccoceosetecsiscrorccscratesceaseseses 17

Department of Water and Power of the City

of Los Angeles v. Bonneville Power

Administration, 759 F.2d 684 (9th Cir.

BGS) snnsiccedsncsesscassiassinsianiemnenstuintaasudanctitans passim

Federal Maritime Comm'n y. Svenska Amerika

Linien, 390 U.S. 238 (1968) .......cccccccccscseesees 24

Gulf States Utilities Co. v. Federal Power

Comm'n, 411 U.S. 747 (1973) c.cccccccccccccseeeeee 24

Kiefer-Stewart Co. v. Joseph E. Seagram &

BOR, FOO WB, BEE CGE) ccccessecssecsecsreicesenses 27

Latin America/Pacific Coast Steamship Conf.

v. Federal Maritime Comm'n, 465 F.2d

542 (D.C. Cir.), cert. denied, 409 U.S.

SOE CTU thasiciniiitacinuliliaiileie hich eiietinicicdinienns 24

Marine Space Enclosures, Inc. v. Federal

Maritime Comm’n, 420 F.2d 577 (D.C.

Ce REID caltneritaptihtsciiasstisiahncshcaalscantininnes 29

Maryland People’s Counsel v. FERC, 761

FAG TED COC. Car. 19GB) ccccecsesccecsssoces 24, 29

McLean Trucking Co. v. United States, 321

le Ge Ge esi ice 24

New England Power Co. v. New Hampshire,

SBS is Bae GROUND wiccnicctieactaitisinadaesncceies 27

Northern Natural Gas Co. v. Federal Power

Comm'n, 399 F.2d 953

CE Gs FI rhinestone, 24, 29

Perma Life Mufflers, Inc. v. International

Parts Corp, 392 U.S. 134 (1968) .............. 27

United States v. Terminal R.R. Ass’n, 224 U.S.

SOW CROCE Weedicicteniiddharassnanectdacteriainaniansecsabbinnn 23

United States v. Third National Bank, 390

re SFE COU sicihinhaetecennivectanebleee lads n otis 29

a

—_ ¥ii——

FEDERAL STATUTES

Act of June 25, 1948, c.646, 62 Stat. 869:

§1254(1), 28 U.S.C. § 1254 (1) ...cececessseereereers 2

Act of August 31, 1964 (sometimes referred

to as the “Regional Preference Act”):

§1, 16 U.S.C. §837 ...cecrereceeeeserereenensnssrensnsrnenees 3

§1(c), 16 U.S.C. §837(C) -rerererererererenenenensers ae

§1(d), 16 U.S.C. §837(d) .--seecerereererereererereesees 3

§2, 16 U.S.C. § 8378 ...-rererererererersnenensesnensees |

§6, 16 U.S.C. §837€ ....ececeeererererees 2, 6, 7, 18

Bonneville Project Act of 1937:

§1, 16 U.S.C. §832 .....crerererereenessersnenensensnsnsenens 3

§2(b), 16 U.S.C. §832a(0) --.-.---0-rereeeees 3, 4, 25

§4, 16 U.S.C. $8326 ...cecrerereerererserereneserssnsnrenens 5

Department of Energy Organization Act of

1977:

§501(d), 42 U.S.C. §7191(d) --n-rereeeveeeeeenenees 10

Federal Columbia River Transmission

System Act of 1974:

§2, 16 U.S.C. §838 ....-.ereceereeeseerenenrerersesnsenens 3

§6, 16 U.S.C. § 838d ......----00- 2, 7, 18-19, 25

§9, 16 U.S.C. § 838g ...-.-recerereeeeeees 3, 6, 25, 26

§10, 16 U.S.C. §838B .......recereererenenensrresenees 3, 6

Flood Control Act of 1944:

§5, 16 U.S.C. $8258 ......c-crereesereerensersrennsnsesees 25

Pacific Northwest Electric Power Planning

and Conservation Act of 1980:

G2, 16 U.S.C. $839 eaennnnnscccccssereenreecccesssssensnses 3

§7(a), 16 U.S.C. §839¢(a) ecsesseceeeeeesernsssssneees 6

§7(a)(1), 16 U.S.C. §839e(a)(1) ..------++ 25, 26

§7(g), 16 U.S.C. §839¢(g) exesseseeeeeersssssseeeeees 26

§9(e)(5), 16 U.S.C. $8398 (€)(5) evreeereeeeeee 3, 14

—

FEDERAL COURT RULES

Witte Cirewlg Resle 1522.3 ...cccccccccocccocccsccsccecsecceeess 15

FEDERAL LEGISLATIVE MATERIALS

H.R. Rep. No. 590, 88th Cong., 2d Sess.,

reprinted in 1964 U.S. Code Cong. &

ay See FIUE ‘ehshicinibienttinitainiins 5, 6, 20, 21

H.R. Rep. 93-1375, 93d Cong., 2d Sess.,

reprinted in 1974 U.S. Code Cong. &

I EN TUE aiideiisdinpucitiuasiidaniidsidainticscensesences 22

Sen. Rep. No. 93-1030, 93rd Cong., 2d Sess.

[BOT Oa sncesennntntbinindhasibibantinaniessadianbaeeseamaneaneseses 22

FEDERAL ADMINISTRATIVE AGENCY

DECISIONS AND ORDERS

Pacific Gas and Electric Co, FERC Docket

E-7777-000, Initial Decision, 26 FERC

(CCH) 163,048 (1984) woe 4, 5, 7, 28

US. Dep’t of Energy, Bonneville Power

Administration, 26 FERC (CCH)

ee I caeieihtcrladlitendanticcencnacscecsees 6

US. Dep’t of Energy, Bonneville Power

Administration, 39 FERC (CCH)

BAR, | Te 9

MISCELLANEOUS”

BPA, 1982 Annual Report (1982) .......cccscscsceseeeees 6

BPA, 1983 Program and Financial Summary

GE <stssnsesenlataidiesadadinesinleiinaineninansiateditiaaesaiance 6

BPA, 1985 Program and Financial Summary

(1985) .ccccccrcsrscsscccccccccseccesersscrsssscosscsesssososees 6, 17

BPA, 1985 Rate Proceeding, Administrator’s

Record of Decision (1985) ......c.cccsesseeeeeeeees 9

BPA, Columbia River Power For The People:

A History Of The Policies Of The

Bonneville Power Administration (1981) ...... 24

BPA, Draft Long Term Intertie Access

Policy, October 1986 .......ccssccerresereeseees 10, 16

BPA, Environmental Assessment on the

Proposed Near Term Intertie Access

Policy, February 1985. .......csccssscsseesrecssrereeees 12

BPA, Exportable Energy Agreement

(Contract No. 14-03-73155, January 13,

1969) cccccccccccecssecsscossorscescocccsseroesesessoenscooscoscsoosoee 8

BPA, Interim intertie Access Policy,

September 1984 ......scssccsssssssessersesresrseerssesersens 10

BPA, Interim Intertie Access Policy Record

of Decision, September 1984 .. 10, 23, 25, 27

BPA, Near Term Intertie Access Policy,

Seams BOGS secdcctentsctdtnsscinconcnbsenssscccessssscsscescccccess 13

BPA, Near Term Intertie Access Policy

Record of Decision, May 1985 9, 10, 13, 17

BPA, Proposed Near Term Intertie Access

Policy, February 1985 .......ssccsscserrecserrseereeeee 13

BPA, Revised Draft Long Term Intertie

Access Policy, December 1987 .........:ssse+++ 16

Letter from James L. Jones, Assistant BPA

Administrator for Power and Resources

Management to Exportable Energy

Agreement Signatories, August 20, 1984 ...... 9

In the

Supreme Court

of the United States

CALIFORNIA ENERGY RESOURCES

CONSERVATION

AND DEVELOPMENT COMMISSION,

Petitioner,

v.

BONNEVILLE POWER ADMINISTRATION;

JAMES J. JURA, as Administrator;

JOHN S. HERRINGTON, as Secretary of the

Department of Energy of

the United States of America;

and the UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner California Energy Resources Conservation

and Development Commission (CEC) respectfully prays

that a writ of certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the

Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at 831

F.2d 1467 (hereafter “CEC”) and reproduced at

Appendix A. The opinion in an earlier related case,

Department of Water and Power of the City of Los Angeles

y. Bonneville Power Administration, 759 F.2d 684 (9th Cir.

TT

ae

1985) (hereafter “LADWP’’) is reproduced at

Appendix B.!

JURISDICTION

The opinion and judgment of the Ninth Circuit was

entered on November 6, 1987 and amended sometime

thereafter. A timely petition for rehearing was denied on

February 4, 1988 in an order reproduced as Appendix C.

This Court has jurisdiction pursuant to 28 U-S.C.

§1254(1).

PRINCIPAL STATUTES INVOLVED

Section 6 of the Act of August 31, 1964 (sometimes

referred to as the “Regional Preference Act”), 16 U.S.C.

§ 837e, provides in pertinent part: .

Any capacity in Federal transmission lines

connecting, either by themselves or with non-Federal

lines, a generating plant in the Pacific Northwest or

Canada with the other area or with any other area

outside the Pacific Northwest, which is not required

for the transmission of Federal energy [or Canadian

Treaty energy], shall be made available as a carrier

for transmission of other electric energy between

such areas.

Section 6 of the Federal Columbia River Transmission

System Act of 1974, 16 U.S.C. § 838d, provides in full:

The Administrator shall make available to all

utilities on a fair and nondiscriminatory basis, any

capacity in the federal transmission system which he

determines to be in excess of the capacity required to

transmit electric power generated or acquired by the

United States.

! Citations to the Appendix will be noted as “A. at ___ .”

ee

a oe

Additional statutory provisions involved in this case

are 16 U.S.C. §§ 832a(b), 837(c), 837(d), and 837a. Each is

set forth verbatim in Appendix K.

STATEMENT OF THE CASE

A. Introduction

This case involves an anticompetitive policy adopted by

a federal proprietary agency, the Bonneville Power

Administration (BPA), that discriminates against

California utilities and their ratepayers to the benefit of

utilities in the Pacific Northwest. The discrimination

occurs in BPA’s allocation of federally-owned capacity

on an electric transmission system known as the “Pacific

Intertie.” The policy will produce a transfer of wealth

between regions of the United States on the order of

billions of dollars.

A divided panel of the Ninth Circuit, acting pursuant

to its original jurisdiction (16 U.S.C. §839f(e)(5)), found

that the policy is anticompetitive but nonetheless upheld

it. A. at A16-A20. Dissenting Judge Norris noted that the

policy “creates a cartel for the Northwest utili

companies in the sale of power to the Southwest... fandl

seems plainly incompatible with the statutory language

requiring that the BPA be ‘fair and non-discriminatory’

in its treatment of ail utilities ....” A. at A26-A27

(emphasis in original).

B. Factual Background

BPA is a federal power marketing agency created to

sell federal electricity generated in the Pacific Northwest.

16 U.S.C. §§ 832, 837-839. BPA was formed in part “to

prevent the monopolization [of federal energy] by limited

groups” and, in order to help realize that purpose, was

matic

authorized to construct and own transmission lines. 16

U.S.C. § 832a(b).

BPA owns and operates almost all of the northern end

of the Pacific Intertie, which links the Pacific Northwest

and Canadian power markets with the California power

market.* A. at B3. The southern end of the Intertie is

owned by a group of publicly and privately owned

utilities. A. at L7. In order for energy sellers and buyers

in the Northwest, Canada, and California to consummate

mutually beneficial power sales and exchange? transac-

tions between regions, they must have access to the

Intertie. A. at LY.

2 The historical facts concerning the development and ownership

of the Intertie are well summarized in an initial decision by an

administrative law judge of the Federal Energy Regulatory

Commission (FERC) in a case concerning claims that certain of the

California owners of the southern end of the line should be required

to provide increased access to California municipal utilities who do

not own any Intertie capacity. Pacific Gas and Electric Co, FERC

Docket E-7777-000, Initial Decision, 26 FERC (CCH) 163,048,

pp. 65,178, 65,195-202 (1984) (hereafter ‘“‘Quad-7 Initial Decision”’).

The decision currently has no force of law and many of its lega)

conclusions are being contested before the FERC, but the historical

discussion is largely uncontested and provides helpful factual

background. Therefore, it is reproduced in Appendix L. In that

discussion, the administrative law judge noted:

The Pacific Intertie is considered to be the greatest electrical

transmission achievement in this country in this century. It

established high voltage, high volume, long distance transmis-

sion between northern Oregon and its terminal near Los

Angeles, the greatest distance over which commercial electrical

transmission had ever been accomplished in this country, and in

the greatest volume that long distance transmission had ever

reached anywhere in the world. :

A. at LI.

3 Seasonal power exchanges over the Intertie, in particular, are

beneficial to both regions because the peak demands for electricity in

many parts of the two regions occur at different times of the year.

aii Manis

This proceeding involves BPA’s decision in 1984 to

change the manner in which it provides access to the

federally-owned portion of the Intertie.

Until the Intertie became operational in 1969, BPA’s

marketing area was limited to the Northwest. Although

the concept of linking the Northwest and California

power markets through an intertie had been proposed

many times since the 1940s, a serious political obstacle

had to be overcome before the Intertie could become a

reality. This obstacle was the fear of Northwest interests

that the Intertie would enable California municipal

utilities to obtain priority rights to inexpensive BPA

hydropower pursuant to the statutory preference public-

ly-owned utilities enjoy for the purchase of federal

energy. See, e.g, 16 U.S.C. §832c; A. at L13-L16. This

political problem was resolved by the enactment of a

“regional preference” to BPA power which restricted the

sale of federal energy outside the Northwest to “surplus

energy” for which BPA had no market in the Northwest.

16 U.S.C. §§ 837(c), 837a. The compromise protected the

Northwest’s first call on BPA power — although it said

nothing about access to transmission facilities — and, at

the same time, allowed BPA to generate additional

revenues by selling hydropower to California that

otherwise would be wasted. See H.R. Rep. No. 590, 88th

Cong., 2d Sess., reprinted in 1964 U.S. Code Cong. &

Admin. News 3342, 3343-44.4

4 A Federal Power Commission (FPC) report to Congress on the

1964 Regional Preference Act estimated that “[a]bout 6 billion

kilowatt-hours of surplus energy which could have been transmitted

during 1962 from the Bonneville system to the Pacific Southwest, if

such a tieline had been in existence, were wasted to the sea. Estimates

of the revenue value of this wasted energy approach $12 million.”

H.R. Rep. No. 590, 88th Cong., 2d Sess., reprinted in 1964 U.S. Code

Cong. & Admin. News 3342, 3354. The FPC report thus assumes the

energy would have been sold at about two tenths of a cent per

kilowatt hour. BPA now markets the same energy at about ten times

a

The federal portion of the Intertie (consisting of most

of the facilities north of the Oregon border) was financed

through U.S. taxpayer funding. The U.S. Treasury is

being repaid over time through user charges assessed for

transmission services.’ The southern portion of the

Intertie (located south of the Oregon border in California

and Nevada) was constructed and paid for primarily by

California utilities, who recoup their substantial invest-

ment in the Intertie by making beneficial purchases of

low cost energy from time to time and by engaging in

seasonal exchange transactions. The differences between

these methods of financing, and the resulting patterns of

ownership at either end of the line, were understood and

accepted by BPA and by Congress itself when it

authorized the construction of the Intertie in 1964. H.R.

Rep. No. 590, 88th Cong., 2d Sess., reprinted in 1964 U.S.

Code Cong. & Admin. News 3342, 3390-93. BPA’s

current refusal to accept the implications of these

differences is central to the present dispute.

that price.

Moreover, in a good water year, such as 1982, 1983, or 1985, BPA

can sell about three times as much surplus energy to California as was

available in 1962. See BPA 1982 Annual Report 45 (1982) (16.7

billion kWh); BPA, 1983 Program and Financial Summary 29 (1983)

(19.8 billion kWh); BPA, 1985 Program and Financial Summary 33

(1985) (17.3 billion kWh). Thus BPA can realize up to 300 to 400

million dollars a year of revenue from Intertie transactions. This

accounts for about 60 percent of the Northwest energy sold to

California. Therefore, small differences in the price that can be

charged have dramatic potential for transferring wealth. See also

infra note 18.

5 In establishing rates for power sales and transmission services,

BPA must separately track and account for the costs of the federal

generation and transmission systems and is prohibited from using

revenues from either system to subsidize the other. U.S. Dep’t of

Energy, Bonneville Power Administration, 26 FERC (CCH) 161,096,

p. 61,237 (1984); see 16 U.S.C. §§ 837e, 838g, 838h, and 839e(a).

_~ a

When Congress authorized construction of the Intertie

in 1964, it directed BPA to make Intertie capacity that it

does not need for transmission of federal energy (and

Canadian Treaty energy®) available to others “as a

carrier.” 16 U.S.C. §837e. In 1974, Congress again

directed BPA to make excess Intertie capacity available

to “all utilities” on a “fair and nondiscriminatory” basis.

16 U.S.C. §838d (emphasis added). Thus the statutes

authorized a preference only for federal energy and

Canadian Treaty energy transmitted over the Intertie.

Beyond those two preferences, there was to be no

discrimination in allocating transmission capacity.

For 20 years after the Intertie was authorized, BPA

gave these statutes a plain, common-sense interpretation:

BPA reserved the capacity it needed to transmit federal

energy that it sold to California utilities, but it made the

remaining capacity available to other utilities based on

free market allocation. The only exception was when the

Northwest hydroelectric system was in a “spill”

condition, that is, when Northwest dams were essentially

overflowing.’ At all other times, Northwest and

6 Canadian Treaty energy is a large quantity of energy for which

the United States agreed to provide a market in exchange for

Canadian agreement to coordinate hydroelectric development of the

Columbia River. In the Quad-7 proceeding, former BPA Administra-

tor Charles Luce testified that the Intertie was made possible by

bringing together BPA’s desire for a treaty with Canada, Canada’s

desire for a market for its share of the energy created by coordination

of the river system, and California’s desire to obtain inexpensive

Canadian power. A. at L10-L13. Canadian Treaty energy has the

same preference to Intertie capacity as federal energy. 16 U.S.C.

§837e.

7 A “spill” condition exists when the predominantly hydroelectric

generation system in the Northwest experiences streamflows in excess

of the storage capability of the dams on the Columbia River system.

During these “spill” conditions, all Northwest loads are met by

hydroelectric generation and “‘must-run” thermal generation (such as

nuclear facilities at Hanford military reservation). When this

nisin

Canadian sellers of energy competed among themselves

and with BPA for available California buyers of energy.

BPA provided access on a competitive, first-come-first-

served basis to parties who had successfully negotiated

energy transactions.®

In the early 1970s, BPA forecast that the Northwest

would soon face energy demands in excess of the region’s

generating capacity. Those forecasts led BPA to

underwrite construction of three very expensive nuclear

facilities. See City of Springfield vy. WPPSS, 752 F.2d

1423, 1425 (9th Cir. 1985). Unfortunately, BPA’s

forecasts proved to be wrong, and, in the early 1980s,

BPA was forced to halt construction of two of the three

facilities indefinitely. The construction costs of these

“‘mothballed” plants nonetheless added substantial debt

to the federal generation system and forced BPA to adopt

painful rate increases for all of its power customers.

In order to keep the rate increases for its Northwest

customers as low as possible, BPA sought ways of

increasing its revenues from sales of surplus energy to

California. More revenue could have been raised by

happens, available hydroelectric energy must either be generated

immediately for sale outside the Northwest or the water will spill over

the dams or past unloaded turbines and be wasted. Spill conditions

tend to happen in the Spring.

8 During periods of “spill,” BPA moderated this competitive effect

by allocating capacity on the Intertie under an agreement known as

the “‘Exportable Energy Agreement.” This agreement provided for

pro rata allocation of the Intertie among Pacific Northwest sellers

based on the amount of energy each had for sale at BPA’s “‘applicable

rate.” A. at A6, M5-M6, M10-M12, M24-M27.

The Exportable Energy Agreement protected each seller from price

competition, but did so only during the portions of the year when

such competition could drive the price of energy very close to zero

because the energy would be immediately wasted if not sold. It also

historically provided some protection to buyers, however, because the

requirement that sellers had to sell at the “‘applicable” BPA rate

prevented price gouging. See infra note 13.

a"

increasing the amount of federal energy BPA sells to

California (especially during spill conditions when BPA

wastes large volumes of federal power in order to make

part of the Intertie available to other Northwest utilities).

Instead, BPA chose to try to increase its revenues by

substantially increasing the rates it charged its California

customers.’ This, in turn, had a marked effect on demand

for access to the Intertie.!°

C. The Intertie Access Policy

Before 1984, BPA had maintained its California market

by underselling its competitors. A. at B7. In 1984,

however, BPA adopted an Intertie Access Policy that

eliminated all competition from other Northwest and

9 The average price of federal energy sold to California (under spill

and all other conditions) rose from 1.46 cents per kWh in the last 4

months of 1983 to 2.6 cents per kWh during the first four months

under the Access Policy. A. at H23, H91.

10 As BPA increases its “applicable rate” during spill conditions

under the Exportable Energy Agreement, Northwest utilities find

that they can economically generate more energy for export to

California. Until 1984, BPA’s “‘applicable rate” was very low, never

exceeding 1.1 cents per kWh. At this low rate, the Exportable Energy

Agreement acted as a market clearing mechanism for surplus

hydropower; most thermal generation could not compete for space on

the Intertie. Since the introduction of the Access Policy, however, the

“‘applicable rate” has been much higher. Immediately upon adoption

of the Policy, the “applicable rate” went to 1.85 cents per kWh. U.S.

Dep’t of Energy, Bonneville Power Administration, 39 FERC (CCH)

161,069, at p. 61,195 (1987); Letter from James L. Jones, Assistant

Administrator for Power and Resources Management to Exportable

Energy Agreement Signatories, August 20, 1984, A. at N2. A few

months later, it was increased to 2.34 cents. BPA, 1985 Rate

Proceeding, Administrator’s Record of Decision, D-41, D-42 (1985).

By doubling the “applicable rate” BPA actually sells Jess energy on

the Intertie than it did when the rate was lower, because several

thousand megawatts of nonfederal coal-fired generation can now

compete for a pro rata share of the limited Intertie capacity.

_

Canadian sellers and thus enabled BPA to sell its surplus

energy to California at substantially higher prices than

the competitive market would allow.'!

The 1984 Policy went beyond protecting BPA sales

from competition, however. It also protects each

Northwest utility seller of surplus energy from competi-

tion from (1) other Northwest sellers including BPA and

(2) Canadian sellers. By eliminating such competition, the

policy distributes most of the benefits of Intertie

transactions to the Northwest sellers.!2

'! The policy adopted in September 1984 was called the “Interim”

or “Initial” Near Term Intertie Access Policy. A. at D3, E5,H1. BPA

adopted this policy for a period of six months and stated its intent to

adopt a “Near Term Intertie Access Policy” that would have a life of

about 18 months, followed by a “‘Long Term Intertie Access Policy.”

A. at ES. The Long Term Policy is to be in effect indefinitely. A. at

16.

The Interim Policy was adopted after a notice and comment

procedure in which BPA responded in a “Record of Decision”

(ROD) to the written comments of interested parties. A. at E1-E2; see

42 US.C. §7191(d) (requiring a record of decision). BPA did not,

however, provide any evidentiary support beyond conclusory

statements in the ROD for key factual underpinnings of the Policy,

including the critically important assertion that the Policy was

necessary to permit BPA to meet its repayment obligations to the

federal treasury. When BPA adopted its Near Term Policy in June,

1985, it released a second ROD which provided more response to

comments but no further evidence relating to the necessity for the

Policy. A. at H2-H3.

12 The benefits of each Intertie transaction are the difference

between (1) the costs the buyer avoids by substituting the purchased

energy for some other energy source and (2) the costs the seller incurs

to make the sale. During spill, for example, the costs the seller incurs

are nearly zero; the costs the buyer avoids are the cost of another

purchase that can be turned back, or the operating cost of its most

expensive displaceable source of generation. The Access Policy

permits sellers to price their energy just below the costs avoided by

the buyer without fear of losing the sale to another seller. Thus, most

of the difference between the seller’s and buyer’s costs can be

captured by the seller under the Policy.

hiecnaeeeniamaniieaiiiaiaiaaasiasaiiaiaaaiiial

ntfs

The Access Policy provides for transmission service for

two types of power transactions: long-term “firm” sales

and short-term (generally hourly) “nonfirm” sales. Most

of BPA’s Intertie capacity is allocated on a “nonfirm”

basis, according to formulae that change depending on

which of three “conditions” exists at any given time.

During Conditions 1 and 2, BPA allocates the Intertie to

itself and Northwest utilities only, and horizontally

divides the market among those parties. During

Condition 3, BPA allocates enough Intertie capacity to

itself and Northwest utilities to allow transmission of all

of the surplus energy those parties may have, and permits

Canadian and California utilities to have direct access

only to any remaining capacity.

Condition 1 exists when the 1969 “Exportable Energy

Agreement” is in effect. As explained in footnote 8, this

occurs during “spill” conditions when there is so much

energy available that sellers in the Northwest could

afford to offer their surplus energy at virtually any price,

since it would be immediately wasted if not sold. Under

Condition 1, each Northwest seller receives a fixed share

of the Intertie based on its pro rata share of the available

surplus, defined as only the electricity that Northwest

utilities are willing to sell at the price BPA sets for federal

energy. Additional energy that Northwest utilities would

be willing to sell only at higher prices (e.g. more expensive

thermal generation) is not included within the available

surplus under Condition 1. A. at A6, B11-B12.

In most respects, Condition 1 operates as the

Exportable Energy Agreement had operated before the

Intertie Access Policy. In one key respect, however, the

Policy is different. Where BPA had previously required

Northwest sellers who received a pro rata allocation to

sell their energy at BPA’s market clearing rate,!? BPA

'3 The requirement that sellers actually sell at BPA’s “applicable

rate” was reflected in a 1982 BPA memorandum explaining the

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now allows Northwest sellers under Condition 1 of the

Policy to negotiate any price they can get after they

receive their fixed shares.!* The result is to remove the

protection the buyers formerly enjoyed against

nonfederal sellers using their fixed allocation to charge

more than BPA’s “applicable rate.”

Condition 2 exists when spill is not imminent but there

is still sufficient surplus Northwest energy to fill

available Intertie capacity if emergy that sellers are

willing to offer above BPA’s price is included as available

surplus. Under Condition 2, each Northwest seller

receives a fixed share of the Intertie based on its pro rata

share of this different definition of available surplus. A.

at A6-A7.

No utility outside the Northwest is provided any access

to BPA Intertie capacity during Conditions 1 and 2. A. at

operation of the Exportable Energy Agreement. This memorandum is

quoted by the Ninth Circuit in California Energy Comm'n v. Johnson,

767 F.2d 631 (9th Cir. 1985):

When a party schedules its apportioned “‘Exportable Energy” to

BPA, such party’s energy is combined with all other Exportable

Energy, and sold by BPA as Federal energy to California

utilities under existing power sales contracts at the lowest rate

specified under BPA’s Wholesale Nonfirm Energy Rate

Schedule. The scheduling party is credited (i-c., paid) for its

“sale” of Exportable Energy by BPA at the referenced rate.

767 F.2d at 634 (citation omitted).

14 BPA’s Environmental Assessment on the Proposed Near Term

Intertie Access Policy, issued in February 1985, explains (at page 10):

A party to [the Exportable Energy] Agreement may schedule

under section 5(c) all or part of its apportioned share of an

Exportable Energy schedule on a bilateral basis to a specific

California entity at a price other than the “applicable rate.”

Since each seller receives a fixed share of the limited Intertie, there is

no incentive to reduce the price below the “applicable rate.”

Therefore, this provision simply allows sellers to use the applicable

rate as a floor rate, above which they are free to exert their monopoly

power over a fixed share of the Intertic.

| wo

A6-A7. This means that, under Conditions 1 and 2,

purchases of Canadian or Northwest power can be made

by California consumers only from the Northwest

utilities which control the ‘“tollgate” transmission

capacity. Those Northwest utilities are thus empowered

to act as unnecessary middlemen, who can use their

exclusive access rights to purchase and resell electricity

from outside the region — especially Canada — over the

Intertie at a premium reflecting the value of their

monopoly allocation.!>

Condition 3 exists when BPA and other Northwest

utilities lack sufficient surplus to fill the Intertie

regardless of price. Under Condition 3, BPA apportions

Intertie capacity first to itself and then to Northwest

utilities that have surplus energy for sale. Any remaining

capacity is then, and only then, made available to utilities

outside the Northwest. A. at G21.

D. Ninth Circuit Review of the Access Policy

Just thirteen days after its adoption in September 1984,

the Interim Policy was challenged by the Los Angeles

Department of Water and Power (LADWP), which filed

15 BPA asserted in its Near Term Policy Record of Decision that

the Policy “does not provide use of BPA Intertie capacity for

arbitrage of extraregional power.” A. at H32. BPA went on to admit,

however, that the Policy does not prohibit purchase of Canadian

power to displace Northwest resources. Jd. The Proposed Near Term

Policy issued in early 1985 was more candid, and stated that during

implementation of the interim version of the Policy, approximately

two-thirds of the Canadian energy previously sold directly to

California reached that market indirectly through this artificial

arbitrage or “‘tollgate’” market. A. at F2. Cf. Aluminum Co. of

America v. Central Lincoln People’s Util. Dist. 467 U.S. 380, 388 &

n. 7 (1984) (finding that parties who purchased BPA nonfirm energy

to “displace” their own generation which was then sold to others had

conceded that they “arbitrage” the BPA energy).

oe

an emergency request to stay the Policy. In pursuit of a

prompt decision, LADWP agreed to forego normal

briefing on the merits. After expedited oral argument, the

Ninth Circuit issued a sweeping decision upholding the

Policy. The court, apparently relying on a few short

conclusory affidavits BPA filed in court to oppose

LADWP’s request for a stay, found that “BPA has

presented reliable evidence that without a policy which

carefully allocates Intertie access, it will experience

significant revenue shortfalls in coming years.” A. at B20.

There was absolutely no evidence to that effect in the

record created during BPA’s notice and comment

proceeding.

The LADWP panel found that the Policy limited

competition (A. at B13), but held that, if restriction of

competition was necessary to prevent BPA revenue

deficits, such restriction was not only authorized, it was

mandated. A. at B20. The court also held that the statutes

requiring BPA to share excess transmission capacity with

all utilities on a fair and nondiscriminatory basis

authorize BPA to discriminate against Canadian and

California utilities. In the LADWP panel’s view, those

statutes mandate a preference, not just for federal and

Canadian Treaty power, but for Northwest utilities as

well. A. at B25. The panel also dismissed as “frivolous”

any duty by BPA to comply with antitrust policy

“because the antitrust laws do not apply to the federal

government.” A. at B20 n. 12 (citation omitted). LADWP

did not seek review by this Court of the decision.

Pursuant to the judicial review provisions of the Pacific

Northwest Electric Power Planning and Conservation

Act of 1980, 16 U.S.C. §839f(e)(5), the CEC and the

CPUC filed their own challenges to the Interim Policy .

within the statutory 90 day time period.!® The divided

16 Both agencies sought to consolidate these cases with LADWP in

order to bring that decision directly to this Court for review, but BPA

| nei

panel which decided these challenges unanimously found

that the Policy, in both its versions, is anticompetitive.

Thus the majority opinion in CEC candidly stated that

the Policy’s pro rata allocation scheme creates

a regularly shifting, horizontal division of the

market for surplus nonfirm energy [whereby] each

eligible producer is temporarily granted sole access

to a specified share of the capacity, which it may

either use or allow to remain unused without fear of

competition by other producers.

A. at A16. Similarly, the dissent stated that:

The BPA’s pro rata allocation scheme for available

intertie capacity — a scheme which if implemented

by a private party would plainly violate the antitrust

laws — paternalistically restricts price competition

among Northwest utilities and denies Southwest

utilities and energy consumers the benefit of free

market pricing for surplus energy offered for sale by

privately-owned Northwest utilities. The interim

access policy’s interference with free market pricing

simply creates a cartel for the Northwest utility

companies in the sale of power to the Southwest.

A. at A26 (footnote omitted).

Despite its recognition of the effects of the Policy, the

CEC majority concluded that it was bound by the

LADWP panel’s conclusion that BPA was required to

discriminate against utilities outside the Northwest in

providing access to excess transmission capacity. A. at

Al14. The majority recognized that BPA has a duty as a

federal agency to “consider” federal antitrust policies,

but the court did not require BPA to show how it had

harmonized those policies with the agency’s fiscal needs,

objected and the LADWP panel rejected our attempts to intervene or

consolidate the cases. This problem would not occur under a new

Ninth Circuit rule that automatically consolidates such cases. 9th

Cir. R. 15-2.3(b).

a oe

or to demonstrate that BPA had sought to protect

competition as much as possible. See A. at A15-A20. The

majority also did not identify any specific statutory

justification for BPA’s elimination of competition among

nonfederal sellers. However, noting several BPA argu-

ments (including the claim that the Policy counters

alleged “monopsony” power by California buyers), the

court decided that given the state of the record on a

temporary policy, consideration of more competitive

alternatives should await review of the Long Term

Policy.!7 A. at Al7,A18.

Judge Norris sharply disagreed with the majority:

I can see no statutory authority under which the

BPA is authorized to discriminate so clearly in favor

of Northwest utilities and against Southwest utilities

and energy users. Indeed, the relevant statutory

language appears to point the other way. The anti-

competitive, pro-Northwest utility slant of the pro

rata intertie access plan seems plainly incompatible

with the statutory language requiring that the BPA

be “fair and non-discriminatory” in its treatment of

all utilities, 16 U.S.C. §838d, as well as the clear

understanding recognized in Department of Water &

Power that the purpose of the intertie was to benefit

both the Northwest and Southwest, 759 F.2d at 694.

A. at A26-A27 (emphasis in original).

17 The Long Term Intertie Access Policy, originally scheduled for

adoption in 1986, still has not emerged from BPA, though its release

is said to be imminent.

Adoption of the Long Term Policy will not moot this case. As

shown in the Appendix, both published drafts of the Long Term

Policy have had the same anticompetitive features with respect to

hourly sales of surplus nonfirm energy as did the Interim and Near

Term Policies. That is, both drafts have granted to BPA and

Northwest utilities, under Conditions 1 and 2, exclusive access to the

federally owned portion of the Intertie and have also horizontally

divided that access among those utilities. A. at I1 8-122, J14-J18.

eo

REASONS FOR GRANTING THE WRIT

This case involves the transfer of billions of dollars of

wealth from electric utilities and consumers in California

to electric utilities and consumers in the Pacific

Northwest.!® The transfer occurs because BPA’s Intertie

Access Policy horizontally divides the California market

for Northwest electricity, eliminates competition for that

market among Northwest energy sellers, and eliminates

competition from other utilities (principally Canadian)

who would also supply the California market if they

could gain access to it. The Policy thus enables the

Northwest utilities to raise the price they receive from

California utilities. Neither panel of the Ninth Circuit

has disputed that the scheme is anticompetitive and that

it would be per se illegal if it were imposed by a private

party. See Copperweld Corp. v. Independence Tube Corp.

467 U.S. 752, 768 (1984).

This Court’s review is required for two reasons. First,

the plain language of the governing federal statutes

prohibits discrimination-in allocating Intertie transmis-

sion capacity. Yet the Ninth Circuit has held that

'8 According to BPA’s annual report for 1985 (the first full year in

which the Policy operated), BPA collected approximately $400

million that year from California purchasers. BPA, 1985 Program

and Financial Summary 33 (1985). This amount does not include

substantial additional energy sold to California by Northwest

nonfederal utilities. Although uncertainties in future weather

conditions and fuel prices make it impossible to predict the precise

impact of the Policy’s restrictions on competition, the Near Term

Policy ROD establishes that the Policy has been successful in

achieving BPA’s goa! of substantially increasing its prices to

California. The record shows that BPA’s prices to California nearly

doubled the year after the Policy took effect. A. at H23, H91. Over a

period of several years, the Policy’s restrictions on competition will

certainly cost California ratepayers billions of dollars, particularly if

California's alternative generation costs substantially increase due to

oil or natural gas shortages. See also supra note 4.

aac |

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discrimination is what the statutes require. Second, the

Ninth Circuit has ignored this Court’s well-settled rule

that federal agencies must consider and balance antitrust

policies in implementing their Congressional mandates.

The absence of a conflict in the circuits is irrelevant.

BPA operates in only one circuit; hence there can never

be a conflict. Because of the lower court’s clear errors of

law, and because of the enormous economic impact of

those errors on California electric consumers, the issue

merits consideration by more than one court.

I. BPA’S POLICY OF GRANTING PREFEREN-

TIAL ACCESS TO NORTHWEST UTILITIES

AND DISCRIMINATING AGAINST CALI-

FORNIA UTILITIES AND THEIR RATE-

PAYERS VIOLATES THE STATUTES RE-

QUIRING BPA TO MAKE TRANSMISSION

SERVICE AVAILABLE TO “ALL” UTILI-

TIES ON A “FAIR AND NONDISCRIMINA-

TORY” BASIS

Congress has required BPA to make Intertie capacity

that it does not need for transmission of federal energy

available “‘as a carrier” to “all utilities” on a “fair and

nondiscriminatory” basis. 16 U.S.C. §?37e provides

(emphasis added):

Any capacity in Federal transmission lines connect-

ing, either by themselves or with non-Federal lines, a

generating plant in the Pacific Northwest or Canada

with the other area or with any other area outside the

Pacific Northwest, which is not required for the

transmission of Federal energy or [Canadian Treaty

energy], shall be made available as a carrier for

transmission of other electric energy between such

areas.

16 U.S.C. § 838d provides (emphasis added):

yom a

The Administrator shall make available to all

utilities on a fair and nondiscriminatory basis, any

Capacity in the Federal transmission system which

he determines to be in excess of the capacity

required to transmit electric power generated or

acquired by the United States.

Despite the unequivocal requirement of these statutes

that BPA be fair and not discriminate in providing access

to its transmission lines, the Access Policy does precisely

the opposite by granting priority to Northwest utilities

and by shielding them from competition.

Sections 837e and 838d provide a two-tiered preference

scheme based on the origin of the energy to be sold: first

priority goes to federal energy and Canadian Treaty

energy, and second priority goes to other nonfederal

energy. The Ninth Circuit, however, found in the statutes

a three-tiered preference scheme based on the identity of

the utility desiring access: first, BPA and utilities desiring

to transmit Canadian Treaty energy; second, Northwest

nonfederal utilities; third, U.S. utilities located outside the

Northwest, including those in California and Canada. A.

at B25.!9 Neither the language of the statute, its

legislative history, nor common sense supports this re-

writing of the statute, which gives Northwest utilities a

preference over other nonfederal electric utilities.

The most fundamental canon of statutory construction

is that “the starting point for interpreting a statute is the

language of the statute itself. Absent a clearly expressed

19 The majority in CEC simply deferred to the LADWP panel’s

interpretation of these critical statutory provisions, based on the

Ninth Circuit’s rule of interpanel deference. A. at A14-A15.

20 Thus the LADWP court has clearly erred in concluding that

“BPA is required to allocate use of federally-owned transmission

facilities in a manner which accords preference first to transmission

of federal power and then to transmission of other Northwest-

generated power.” A. at B25 (emphasis added).

= =

legislative intention to the contrary, that language must

ordinarily be regarded as conclusive.” Consumer Product

Safety Comm’n v. GTE Sylvania, Inc. 447 U.S. 102, 108

(1980). If the intent of Congress is clear from the statute,

“that is the end of the matter.” Chevron, U.S.A, Inc. v.

NRDC, 467 U.S. 837, 842 (1984).

Rather than implementing the plain meaning of the

statutes quoted above, the LADWP decision (by which the

panel in the present case deemed itself bound) redefined

BPA’s statutory authority and justified doing so based on

three passages of legislative history. First, the court

selectively quoted the legislative history of section 837e

as follows:

[BPA] may enter into agreements for the wheeling of

energy generated in Canada, but such energy ...

does not have the priority granted to Federal energy

and Canada’s entitlement to [treaty] power benefits

A. at B23 (emphasis and ellipses in the court’s opinion).

Focusing on the word “may,” the panel concluded that

BPA retains discretion to discriminate against direct

Canada-to-California sales and may adopt a Northwest

utility priority following the priority for federal energy.

A. at B23. In reaching that conclusion, however, the

LADWP court edited the legislative history’s language in

a way that turns the intended meaning of the statute on

its head. The unedited language shows that Congress’s

intent was exactly the opposite:

[BPA] may enter into agreements for the wheeling of

energy generated in Canada, but such energy stands

on the same basis as any other non-Federal energy. It

does not have the priority granted to Federal energy

and Canada’s entitlement to [treaty] power benefits

H.R. Rep. No. 590, 88th Cong., 2d Sess., reprinted in 1964

U.S. Code Cong. & Admin. News 3342, 3350 (emphasis

added to the portion omitted by the Ninth Circuit). Thus

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Congress expressly indicated, in the very passage on

which the LADWP panel purported to rely, that Canadian

energy was not to be treated any differently from any

other nonfederal energy. Canadian energy should

therefore enjoy the same mandatory and nondiscrimina-

tory access to BPA’s excess Intertie capacity as the

energy of any other nonfederal utility.

Second, the Ninth Circuit stated that the use of the

word “may” in the above-quoted statement “is in

contrast to the immediately prior paragraph in the

legislative history which requires BPA to make excess

Intertie capacity available to other non-Federal utilities.”

A. at B23 (emphasis in original). A review of the “prior

paragraph,” however, reveals no distinction between

Canadian and other nonfederal energy.*!

21 The full text of this paragraph, which the court in LADWP

characterized but did not quote, provides:

Excess capacity in any Federal transmission lines interconnect-

ing the Pacific Northwest with another marketing area is made

available for wheeling non-Federal energy. Federal energy and

downstream power benefits to which Canada would be entitled

under the proposed treaty would have priority to the use of

Federal lines. Wheeling agreements on either an excess capacity

basis or a firm basis are authorized. However, if the wheeling

agreement is on a firm basis the existence of excess capacity will

be determined and frozen at the time the wheeling contract is

executed. Thereafter, the energy of any party for whom the

Secretary has agreed to wheel, cannot be displaced by any

subsequent increase in the needs of the Federal Government or

in the amount of Canadian energy which would be transmitted.

Similarly the energy which the Secretary has agreed to wheel

cannot be displaced by energy of others for whom the Secretary

subsequently might agree to wheel. In determining the existence

of capacity excess to the needs of the Government, Federal

needs reasonably foreseeable may be included, but the Secretary

may not decline to enter into a wheeling agreement merely

because he may have energy available for sale to serve the same

load.

H.R. Rep. No. 590, 88th Cong., 2d Sess., reprinted in 1964 U.S. Code

|

—

Third, the court cited a quotation from the legislative

history of section 838d to the effect that the statutory

requirement that BPA provide transmission service to all

utilities on fair and nondiscriminatory terms “is not

intended to represent a policy having application other

than in the Pacific Northwest.” A. at B23 (quoting H.R.

Rep. 93-1375, 93d Cong., 2d Sess., reprinted in 1974 U.S.

Code Cong. & Admin. News 5810, 5814). There is only

one reading of this quotation that is consistent with the

plain language of the statute: Congress intended that the

duty to provide nondiscriminatory service to all utilities

would apply only to BPA transmission lines (all of which

are within the Northwest), and would not therefore affect

the obligations of federal agencies operating outside the

Northwest.” By contrast, the LADWP panel’s reading of

this snippet from a House Report rewrites the express

legislative command that all utilities are to be protected

against discrimination. In the Ninth Circuit’s view, “‘all”

does not mean all. And unfortunately, the issue can never

be presented to any other circuit.

The LADWP court also found support for BPA’s

discrimination in its view that “Congress intended that

the Intertie be used primarily for the benefit of

Northwest and Southwest utilities and not for the benefit

Cong. & Admin. News 3342, 3350.

22 The parallel Senate Committee Report supports this reading:

Section 6 provides that the Administrator of the Bonneville

Power Administration shall not discriminate among classes of

customers in making agreements to transmit electric power over

Federal transmission lines. The intention of this provision is to

enable the Administrator to carry out the responsibilities

assigned to him in this measure. Jt is not the Committee’s

intention to make an expression of Congressional policy

regarding the transmission of energy over Federal systems

outside the Pacific Northwest.

Sen. Rep. No. 93-1030, 93d Cong., 2d Sess. 10 (1974) (emphasis

added).

_ OO

a aR

of Canadian utilities.” A. at B23. This reasoning is doubly

flawed. First, aside from the preference for the

transmission needs of the United States and Canadian

Treaty power, the statute requires that ail utilities be

treated on a fair and nondiscriminatory basis. There is no

exception for Canadian utilities. Second, discrimination

against Canadian energy harms California consumers —

intended beneficiaries of the federal Intertie investment

— by reducing the number of competitors in the market

and by making inexpensive Canadian energy available to

California only on a “pass through” or arbitrage basis.

II. THE NINTH CIRCUIT’S OPINIONS AND

BPA’S ACTIONS CONFLICT WITH THIS

COURT’S HOLDINGS THAT FEDERAL

AGENCIES HAVE A DUTY TO CONSIDER

AND WEIGH THE ANTICOMPETITIVE

IMPACTS OF THEIR ACTIONS AND TO

CONFORM THEIR POLICIES TO THE

ANTITRUST LAWS TO THE MAXIMUM

EXTENT FEASIBLE

All six judges of the Ninth Circuit who have reviewed

the Access Policy have found it anticompetitive.2> BPA

has granted one group of private competitors and denied

another access to a “‘tollgate” facility (see United States v.

Terminal R.R. Ass’n, 224 U.S. 383 (1912)), and has

insulated the former group from price competition among

themselves. However, the Ninth Circuit has failed to

require BPA to make any meaningful showing that these

extreme anticompetitive effects of the Policy are

necessary to achieve any legitimate statutory objective.

23 A. at Al6, A26, B13; see also A. at E78 (BPA indicates that

under the Access Policy “buyers in California face Pacific Northwest

sellers who are unable to compete with each other. . .”).

|

a,’

Federal agencies charged with regulating carriers and

utilities, including the electric power industry, must

accord careful consideration to “the fundamental

national economic policy expressed in the antitrust laws.”

Gulf States Utilities Co. v. Federal Power Comm'n, 411

U.S. 747, 759 (1973); see also Federal Maritime Comm'n v.

Svenska Amerika Linien, 390 U.S. 238, 244 (1968); |

McLean Trucking Co. v. United States, 321 U.S. 67, 80 |

(1944); Maryland People’s Counsel v. FERC, 761 F.2d

780, 786-87 (D.C. Cir. 1985); City of Huntingburg yv.

Federal Power Comm’n, 498 F.2d 778, 783 (D.C. Cir.

1974). Even where other economic, social, or political

considerations are found to be of sufficient importance to

justify deviation from antitrust principles, those agencies

may not take such action without conforming their

conduct, to the maximum feasible extent, to antitrust

policies. See Latin America/ Pacific Coast Steamship Conf.

v. Federal Maritime Comm’n, 465 F.2d 542, 547 (D.C.

Cir.), cert. denied, 409 U.S. 967 (1972); Northern Natural

Gas Co. v. Federal Power Comm'n, 399 F.2d 953, 961 (D.C.

Cir. 1968). This requirement reflects the fact that the

antitrust laws “‘are as important to the preservation of

economic freedom and our free enterprise system as the

Bill of Rights is to the protection of our fundamental

personal freedoms.” 324 Liquor Corp. v. Duffy, __ US.

——, 107 S.Ct. 720, 729 (1987), quoting United States v.

Topco Associates, Inc., 405 U.S. 596, 610 (1972).

The obligation to consider antitrust principles in

formulating and implementing federal policy applies with

special force to federal power marketing administrations

such as BPA, which were established to sell federal

electricity at inexpensive prices, thereby providing a

“yardstick” to encourage competitive pricing by privately

owned utilities.2* BPA’s enabling statutes in particular

24 BPA, Columbia River Power For The People: A History Of The

Policies Of The Bonneville Power Administration 26 (1981).

——————

a

demonstrate a consistent Congressional intent to foster

rather than restrain competition.*>

The Ninth Circuit did not deny the severe anticompeti-

tive consequences of the Access Policy. It simply tried to

justify these violations of antitrust principles based on the

alleged need for increased BPA revenues. A. at B20. Yet

it is very clear, both from BPA’s own Record of Decision

and from the LADWP and CEC opinions, that the Policy

does not simply protect BPA’s sales of surplus energy

from competition; it also protects all nonfederal sellers

from competition from Canada, among themselves, and

even from BPA. A. at E78; A. at Al6, A26, B13. While

protecting federal energy sales from competition may

increase federal revenues, neither of the Records of

Decision nor the two Ninth Circuit opinions has even

remotely suggested how protecting nonfederal energy

sales from competition has anything to do with BPA’s

mandate to be a self-financing agency.*®

Moreover, BPA has alternative ways of enhancing its

revenues which are either less anticompetitive or not

anticompetitive at all. For example, BPA could raise its

rates to its Northwest customers in order to recover a

higher percentage of its total costs from the customers

25 See, e.g, 16 U.S.C. §832a(b) (“to prevent monopolization”); 16

U.S.C. §825s (made applicable through 16 U.S.C. §839e(a)(1)) (“to

make [federal energy] available . . . on fair and reasonable terms and

conditions” and “at the lowest possible rates to consumers consistent

with sound business principles’); 16 U.S.C. §838d (excess transmis-

sion capacity shall be made “available to all utilities on a fair and

nondiscriminatory basis”); 16 U.S.C. §838g (“consistent with sound

business principles”); 16 U.S.C. §839e(a)\(1) (BPA rates to be set “in

accordance with sound business principles”).

26 Even with respect to its own sales, BPA has not shown that it

needs to act anticompetitively in order to maintain adequate

revenues, nor has BPA shown that the method it has chosen to

achieve its revenue goals is the least anticompetitive action available

consistent with its revenue needs.

_

who receive high quality firm power from BPA.’ It

could also exercise the express priority over transmission

capacity that Congress provided in sections 837e and

838d in order to ensure that all federal energy could be

sold to produce needed federal revenue.*® BPA could also

consider a more limited protection of its sales from

competition (e.g. restricting competition only during spill

periods, or only when market conditions would not

permit BPA to recover a FERC-approved cost-based

surplus energy rate). It is only because BPA has decided

(1) to keep its rates to Northwest utilities low, (2) to sell

only a “pro rata” share of its own energy, and (3) to

ignore alternatives that restrict competition to a lesser

degree, that BPA deems it necessary to adopt a total

27 BPA’s mandate to be self-financing is simply the obligation to

recover enough revenues from ail of its power sales to repay its

treasury obligations within a reasonable time. 16 U.S.C. §839e(a)(1).

BPA has not been established to make a profit; rather, it sells its

power at cost “‘at the lowest rates to consumers consistent with sound

business principles.” 16 U.S.C. §§838g, 839e(a)(1). However, within

this statutory framework, BPA must decide how much of its total

costs must be recovered from its firm power customers and how

much must be recovered from sales of surplus energy. 16 U.S.C.

§839e(g). Therefore, BPA’s obligation to be a self-financing agency

involves a zero sum game: every increase in the rates charged to

California permits a decrease in the rates charged to the Northwest,

and vice versa. We do not suggest that this Court needs to become

involved in the intricacies of BPA ratemaking in this case. We do

submit, however, that BPA may not double its rates to California (to

the benefit of the Northwest) by horizontally dividing up the market

for sales of surplus energy to California, without demonstrating how

every anticompetitive consequence of that action is both (1) necessary

to protect BPA’s ability to recover adequate revenues and (2) the least

anticompetitive alternative available for that purpose.

28 The question here is why BPA should be permitted to violate

Congress’s antitrust policies when it has not even made full use of the

express power Congress provided to reserve Intertie capacity so that

BPA could sell all of its own energy.

~~.

restriction on competition for sales of energy to

California.

Although BPA does not expressly articulate it as an

independent rationale for the elimination of competition

among the nonfederal utilities, the implication in the

Interim Policy Record of Decision is that BPA took this

action to counter an alleged lack of competition among

California buyers of surplus Northwest energy. A. at

E75-E79; see also A. at Al8-A19. If this was BPA’s

justification, it is insufficient for several reasons.

First, BPA is not a regulatory agency.2? FERC

regulates the wholesale electricity market in the

Northwest and California, not BPA. See New England

Power Co. v. New Hampshire, 455 U.S. 331, 340 (1982).

Congress has not delegated to BPA the authority to

exerci governmental police powers for the purpose of

regulating alleged anticompetitive conduct by others. As

stated by Judge Norris, “BPA’s statutory mission ...

does not extend to acting as the guardian angel for

Northwest utilities in their market relationship with

Southwest utilities.” A. at A26.

Second, BPA ignored the well-settled rule that those

who commit antitrust violations may not justify such

conduct on the ground that it was undertaken to

compensate for or retaliate against antitrust violations by

their adversaries. Perma Life Mufflers, Inc. v. Internation-

al Parts Corp., 392 U.S. 134, 138 (1968); Kiefer-Stewart

Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 214 (1951).

As Judge Norris observed:

If Northwest energy companies believe that the

Southwest utilities are exercising some sort of unfair

23 BPA quite clearly has only those powers delegated to it by

Congress: “[An agency] is entirely a creature of Congress and the

determinative question is not what [the agency] thinks it should do

but what Congress has said it can do.” Civil Aeronautics Board v.

Delta Air Lines, Inc., 367 U.S. 316, 322 (1961).

a, ae

monopsony power, let them sue under the applicable

antitrust laws. It is not the mission of the BPA to

fight this battle for the Northwest utilities through

the promulgation of a regionally biased access

policy.

A. at A26.

Third, as discussed at pages 4-6, supra, the southern

end of the Intertie, unlike the northern end, was paid for

and is owned by nongovernmental entities, who have not

been obliged to make their capacity available to non-

owners.” Moreover, to the extent that BPA’s complaint

relates to its inability to reach potential customers in

California, BPA has no legitimate grievance. According

to testimony given during the Quad-7 proceeding by

Charles Luce (BPA Administrator from 1961 to 1966),

the idea of limiting California utility Intertie participa-

tion to large generating utilities actually came from BPA

itself and related to its political concerns about regional

versus public preference. A. at L13-L16.

Finally, the Ninth Circuit’s failure to require BPA to

consider less anticompetitive alternatives violated the

% In the Quad-7 Initial Decision, the administrative law judge

pointed out that requiring “owner” utilities to surrender their Intertie

shares to “‘non-owners” would not necessarily produce a fair result:

The costs to and rates charged by the various municipalities

may be reduced if access to the Intertie is given them, but there

will be a corresponding increase in the cost to PG&E and

Edison and an increase in their rates to cover the cost increase

assuming full retail rate recovery of costs. The stockholders of

PG&E and Edison will not lose money, nor will the executives

of PG&E and Edison have their salaries reduced. Essentially

what we deal with here is the question of whether the

consumers supplied by the municipalities will have their rates

reduced while other customers of PG&E and Edison find their

rates increased.

A. at L10. In this case, it is also the ratepayers of PG&E and Edison

(as well as of the various other California utilities which own

portions of the Intertie) who are hurt by the Access Policy.

1: (anaemia

a,

well-established principle that agencies must consider on

their own initiative whether such alternatives exist. As the

D.C. Circuit said in Northern Natural Gas Co.:

[T]he duty imposed upon the Commission by Section

7 of the Natural Gas Act is not merely to determine

which of the submitted applications is most in the

public interest, but also to give proper consideration

to logical alternatives which might serve the public

interest better than any of the projects outlined in the

applications.

399 F.2d at 973 (footnote omitted, emphasis in original);

see also Maryland People’s Counsel, 761 F.2d at 786; City

of Huntingburg, 498 F.2d at 788; Marine Space

Enclosures, Inc. v. Federal Maritime Comm’n, 420 F.2d

577, 585 (D.C. Cir. 1969); cf. United States v. Third

National Bank, 390 U.S. 171, 189-92 (1968).

Congress has recognized only two exceptions — for

federal and Canadian Treaty energy — to the require-

ment that BPA allocate Intertie transmission capacity on

a nondiscriminatory basis. Even if that governing

language were not so clear, the undisputable anticompeti-

tive consequences of the respondent’s allocation must,

under this Court’s precedents, have some bearing on how

the statute is to be interpreted. Yet the Ninth Circuit has

disregarded both the plain language of the statute and

also the well-settled rule that federal legislation should be

interpreted and implemented so as to harmonize antitrust

and regulatory principles.

The economic consequences of the Ninth Circuit’s

error amount potentially to billions of dollars. Clearly,

the issue is too important to leave exclusively to one court

as the first and last judicial body to pass on the matter.

_—

CONCLUSION

The Court should grant the Petition for a Writ of

Certiorari.

May 4, 1988

Respectfully submitted,

CALIFORNIA ENERGY

RESOURCES CONSERVATION

AND DEVELOPMENT

COMMISSION

WILLIAM M. CHAMBERLAIN*

General Counsel

JONATHAN BLEES

Deputy General Counsel

1516 Ninth Street, MS-14

Sacramento, California 95814

(916) 324-3237

REX E. LEE

SIDLEY & AUSTIN

1722 “Eye” Street, N.W.

Washington, D.C. 20006

(202) 429-4266

Attorneys for Petitioner

*Counsel of Record