Amicus Curiae Brief — Portland General Electric Co. v. Montana Department of Revenue

No. 89-266

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1989

PORTLAND GENERAL ELECTRIC COMPANY,

Petitioner,

vs.

MONTANA DEPARTMENT OF REVENUE, et al.,

Respondents.

APPLICATION TO FILE BRIEF AMICI CURIAE AND

BRIEF OF AMICI CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

EZRA HENDON

(Attorney of Record)

JAMES C. MARTIN

CrosBy, HEAFEY, ROACH & MAY

Professional Corporation

1999 Harrison Street

Oakland, CA 94612

(415) 763-2000

Counsel for Amici Curiae

Pacific Gas and Electric Company, Southern California Edison

Company, Department of Water and Power of the City of Los

Angeles, San Diego Gas and Electric Company, Sacramento

Municipal Utility District, Northern California Power Agency,

Transmission Agency of Northern California, M-S-R Power

Agency, Southern California Power Authority, and Edison

Electric Institute

BOWNE OF SAN FRANCISCO, INC. + 190 NINTH ST. « S.F.. CA 94103 + (415) 86642300

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TABLE OF CONTENTS

Application For Leave To File Brief Amici Curiae .......

I

Montana’s Beneficial Use Tax Poses A Serious Threat To

The Interstate Transmission Of Electrical Power In The

ee ccccedteeaeeeiccnesece

II

Montana’s Beneficial Use Tax Plainly Violates The Anti-

Discrimination Provisions Of 15 U.S.C. Section 391 ....

Ill

Montana’s Beneficial Use Tax Violates The Supremacy

SN eS ck cb caeOse CUS aKRRSivU SE hee RaGateeeues

1. The Out-Of-State Utilities And Their Customers

Who Are Subject To The Beneficial Use Tax Have

No Legitimate Nexus To Montana For Purposes Of

Ne Ss beret how bckb cab iad ee ibb ed SONU Rese

2. There Can Be No Fair Apportionment Of Montana’s

Beneficial Use Tax To Interstate Commerce .......

3. Montana’s Beneficial Use Tax Discriminates Against

lh 5:k nna dd enendiee cenecsves.

4. There Is No Fair Relationship Between Montana’s

Beneficial Use Tax On The Out-Of-State Utilities

And Any Services Provided By The State .........

5. Montana’s Beneficial Use Tax Lacks Internal

11

12

i

TABLE OF AUTHORITIES

Cases

Page

Aloha Airlines v. Director Of Taxation, 464 U.S. 7 (1983) .8, 11

American Trucking Assn. Inc. v. Schneiner, 483 U.S. 226

CORTE oc cnveccsuceeesssaascubenbeapeneeebetests 13, 14

Arizona Public Service Co. v. Snead, 441 U.S. 141

CRIED a0. 000s 0nn0as08 bkeneuseieeaeee 8,9, 11

Ark. Elec. Coop. v. Ark. Pub. Serv. Comm’n, 461 U.S. 375

Pe he re ere AE eg ety 4

Armco, Inc. v. Hadesty, 467 U.S. 638 (1984) .......... 13, 14

ASARCO, Inc. v. Idaho State Tax Com’n, 458 U.S. 307

CORED son ccccnecdsdceeaheknieeeiseeeeeeswcen 19

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984) ..... 13

Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318

CREF ED a ccaccusccconsecadensunaseonensseeeennees 16, 17

Burlington No. R. Co. v. Okla. Tax Com’n., 481 U.S. 454

2.) ee ee ee ae 11

City Of Detroit v. Murray Corp., 355 U.S. 466 (1958) ... 15

Commonwealth Edison Co. v. Montana, 453 U.S. 609

CORED oc cccdwevstccesseveesauseeaeeeaeeeenee 11, 13, 17

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) 13

Consumer Product Safety Comm’n v. GTE Sylvania, 447

ULE, TE GED 6 casi veceucseeceesccweepesteenets> 10

Container Corp. Of America v. Franchise Tax Board, 463

Gs SOP COUOED 6 avcestnedecdssceeedeatsnenebacwes 14

Duquense Light Co. v. State Tax Dept., 327 S.E.2d 683

(1984), cert. denied, 471 U.S. 1029 (1985) ........... 9

Exxon Corp. v. Wisconsin Dept. Of Revenue, 447 U.S. 207

CT iis dine cdabusee shan esheuctehsee es 14, 18

FERC v. Mississippi, 456 U.S. 742 (1982) ............. 4

F. W. Woolworth Co. v. Taxation & Revenue Dept., 458

Ges ST LEED coe ckepecdvecnsncbasneeheebebestee 19

iii

TABLE OF AUTHORITIES

CASES

Page

Halliburton Oil Well Cementing Co. v. Reily, 273 U.S. 64

ee Ben dak acedccssiececcceses 17

Howe v. Smith, 452 U.S. 473 (1981) .................. 10

Maryland v. Louisiana, 451 U.S. 725 (1981) ............ 12

McCuiloch v. Maryland, 4 Wheat 316, 4 L.Ed. 579 (1819) 12

Memphis Bank & Trust Co. v. Garner, 452 U.S. 392 (1983) 12

Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869 (1985) 19

Michigan-Wisconsin P.L. Co. v. Calvert, 347 U.S. 157

ee caw oR icc ccasssccvcsoscescnnes 18

Mississippi Power v. Moore ___. U.S. ___, 101 L. Ed. 2d

EER L § cbc ch seenbs addeRK Ss oes 5

Mobil Oil Corp. v. Commissioner Of Taxes, 445 U.S. 425

TEAR E GLE Lk oGhaccesaceecsecsscsccenss 12

Moorman Manufacturing Co. v. Bair, 437 U.S. 267

Tees Lad ek SCOR S KaAE RAS ecceseaes 15, 19

New Energy Co. v. Limbach, 486 U.S. 269 (1988) ...... 13

New England Power Co. v. New Hampshire, 455 U.S. 331

EE ES 4

Nippert v. Richmond, 327 U.S. 416 (1946) ............ 12, 19

Norfolk & Western Ry. Co. v. Missouri Tax Com., 390 U.S.

EE 14, 16

Pacific Power And Light Co. v. Duncan, 499 F. Supp. 672

euch bbe n beds dace Khvedsscces 5

~ Phillips Chemical Co. v. Dumas School Dist., 361 U.S. 376

eta bekbk ON bob bn0b 6000s 06s0000ss 13, 19

Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959).. 17

State Of Nevada, v. City Of Burbank, 100 Nev. 598, 691

Ne kee a kas vecesenpnceses 10

Tyler Pipe Ind. v. Dept. Of Revenue, 483 U.S. 232 (1987) 14

United States v. City Of Detroit, 355 U.S. 466 (1958) ..12, i5

iv

TABLE OF AUTHORITIES

CASES

Page

United States v. County Of Fresno, 429 U.S. 452

ES AEE TS RR EE. ea ee 1, 11, 12,15

United States v. Township Of Muskegon, 355 U.S. 484

FE ry a ee er er rrr 15

Washington v. United States, 460 U.S. 536 (1983)....... 12

West Point Grocery Co. v. Opelika, 354 U.S. 690 (1957).. 14

Western & Southern Life Ins. Co. v. Bd. Of Equalization,

ee EE oo ok Sg cb GAS Ob 504454405680 058 19

Westinghouse Electric Corp. v. Tully, 466 U.S. 388 (1984) 13

Williams v. Vermont, 472 U.S. 14 (1985) .............. 19

Vv

TABLE OF AUTHORITIES

Statutes

Page

EPCOT TT PTO Pree TT TEP e eT TTT oe passim

EE eke cw h dbsin oe W9 She 0064848040804 ESs 5

ee teN aang ncanesecdehessenees 16

ee ITD nov vtec cnesecssccenscsens 5

i I I OI OA RB gcc c cc crccccecnccnccense 12

ccc aces cccecksssveccncssese 11

Mont--Goede-Amm..6.15-6-135 ..... ccc c ccc csccccccess 7

SUE, SN PUI, BH UOPBREME ccc ieee cncccsesccceces 7

OER, SIGe FN, S ASMA ons cee ccecceseccseseses 7

Texts

Blumm, The Northwest's Hydroelectric Heritage: Prologue

To The Pacific Northwest Power Planning And Conserva-

tion Act, 58 Wash. L.Rev. 175 (1983) ............... 4

Meek, Pacific Northwest Conservation For California: The

Mutual Benefits Of Long-Term Cooperation, 13 Envtl. L.

Be IT a rabies 60s b RN US o 8 Since bescksactued ia 2, 6

U.S. Code Cong. & Admin. News, 94th Cong., 2d Sess.

Pe I BR sous tcbccicdsucsctedess 7,8

(THIS PAGE INTENTIONALLY LEFT BLANK)

vii

No. 89-266

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1989

PORTLAND GENERAL ELECTRIC COMPANY,

Petitioner,

VS.

MONTANA DEPARTMENT OF REVENUE, et al.,

Respondents.

APPLICATION TO FILE BRIEF AMICI CURIAE AND

BRIEF OF AMICI CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

I

APPLICATION FOR LEAVE TO FILE BRIEF AMICI CU-

RIAE, INTERESTS OF AMICI CURIAE AND REASONS

FOR APPEARANCE

Amici Curiae Pacific Gas and Electric Company, Southern

California Edison Company, the Department of Water and Power

of the City of Los Angeles, San Diego Gas and Electric Com-

pany, the Sacramento Municipal Utility District, the Northern

California Power Agency, the Transmission Agency of Northern

California, M-S-R Public Power Agency and the Southern Cali-

fornia Public Power Authority are publicly and privately owned

utilities and joint action agencies which together generate, trans-

mit, purchase and distribute more than 90 percent of the electri-

cal power used in the State of California. They are responsible for

delivery of electrical power to more than 26 million people.

Amicus Curiae Edison Electric Institute is an association of the

nation’s investor-owned electric utility companies. Its members

serve 95 percent of all customers whose electric power needs are

met by the investor-owned segment of the electric utility industry.

They generate approximately 77 percent of all the electricity used

in the country, and serve 73 percent of all ultimate consumers of

electricity in the nation.

Because of the magnitude of the electric power requirements

amici are required to meet and because much of that power is

supplied from outside the State of California, amici have a unique

perspective on the effect of taxes like the challenged Montana tax

on the interstate power transmission system. For this reason,

amici believe the Court would be assisted by a brief focusing on

the impact of “beneficial use” taxes, like the Montana tax, on the

many and varied cooperative arrangements that form the back-

bone of the interstate power transmission system in the Western

United States.

As Appendix A attached to this brief shows, Petitioner Port-

land General Electric Company has consented to the filing of

such a brief. As Appendix B shows, the consent of the Montana

Department of Revenue could not be obtained.

Amici are vitally interested in the validity of Montana’s at-

tempt to tax Portland General Electric Company in Case No. 89-

266 and the other Colstrip plant owners in Case No. 89-364

[ Pacific Power & Light Co. v. Montana Department of Revenue]

on the basis of their purported “beneficial use” of federally owned

power lines which transmit power interstate.' If Montana can

impose this tax on the Colstrip owners, then any state can impose

a similar tax on any one of amici any time they transmit or receive

power utilizing federally owned and operated transmission facili-

ties whether or not amici have other contacts with the taxing

state. Since federally operated transmission facilities account for

approximately 80 percent of the transmission lines located in the

Pacific Northwest, the prospect of such taxes poses serious

concerns to amici.

' Amici respectfully request that their brief in this case be considered

with regard to the arguments presented in the petition in Case No. 89-

364 as well.

ix

Amici’s fears are not without foundation. As the petition before

this Court shows, the State of Oregon is contemplating the

imposition of a similar tax on the interstate transmission of power

over federally owned lines if this Court does not act to strike down

Montana’s tax. Amici would be directly affected by the imposi-

tion of the Oregon tax since their power purchase and exchange

contracts with federal, public and private power providers extend

into Oregon and involve the transmission of power over federal

lines interstate into California. Moreover, there is no reason to

suspect that the imposition of these “beneficial use” taxes would

end with the State of Oregon. New Mexico and several other

states unlawfully attempted to discriminatorily tax the generation

of power transmitted interstate until this Court acted to stop that

abuse. Arizona Public Service Co. v. Snead, 441 U.S. 141 (1979).

As shown in the accompanying brief, unlimited and unre-

strained discriminatory taxation on the transmission of power on

federally owned interstate lines will have severe adverse economic

and practical effects on amici and on the millions of customers

they serve. The possibility of multiple taxation by each of these

states puts at risk years and hundreds of millions of dollars of

resource planning and acquisition intended to minimize or avoid

the use of existing thermal electric generating stations (which are

primarily fossil-fuel plants) and the construction of new plants.

Either continued use or construction of such plants would have

long-term adverse environmental effects.

x

Amici have reviewed the briefs on appeal before the Montana

Supreme Court, the opinion of the Supreme Court of the State of

Montana, and the Petition for Certiorari in this case. In view of

the importance of the issues presented to the future transmission,

distribution and sale of electric power by each of these amici, they

believe that a further brief addressing the burdens created by

taxes such as Montana’s in the context of the current system for

transmitting power interstate would be both helpful and

appropriate.

DATED: September 8, 1989.

Respectfully submitted,

Ezra HENDON

(Counsel of Record)

JAMES C. MARTIN

CrosBy, HEAFEY, ROACH & MAY

Professional Corporation

By

EzrA HENDON

Attorneys for Amici Curiae

BRIEF OF AMICI CURIAE

I

MONTANA’S BENEFICIAL USE TAX POSES A SERIOUS

THREAT TO THE INTERSTATE TRANSMISSION OF

ELECTRICAL POWER IN THE WESTERN UNITED

STATES

Montana has enacted a tax which it has gone to great pains to

describe as nothing more than “a beneficial use real property tax”

to be levied, not on the interstate transmission of electric power,

but only on “the contractual right” to use federally exempt

property. Montana then contends that this case simply presents a

challenge to a garden-variety “possessory interest tax” of the type

approved by this Court in United States v. County Of Fresno, 429

US. 452 (1977). To understand the fallacy of that description

and the mischief the tax will engender, it is first necessary to

understand the system of electric power transmission in place

across much of the United States, particularly in the central part

of the West Coast, the Pacific Northwest and the inland

Southwest.

Power is transmitted in these regions by means of numerous

cooperative arrangements involving federal power marketing

agencies and publicly and privately owned utilities.’ Many of

these utilities and agencies own transmission lines, and collec-

tively they form an interconnected, integrated network over which

power flows.” This network is used predominately for three types

'The relevant federal agencies are in the Pacific Northwest, the

Bonneville Power Administration (BPA), and in the west and south-

west, the Western Area Power Administration. These agencies sell the

power generated at the large number of federally owned dams in their

regions to both publicly and privately owned utilities. They also own and

operate extensive transmission facilities used to deliver the power they

sell and to provide transmission service.

? Electricity will flow over all paths available to it, in different

amounts depending on the characteristics of each line. In general, more

electric power will flow over lines at higher voltages with less power lost

to resistance. This is why very high voltage lines are used for long

2

of electrical transactions which are typically interstate: seasonal

exchanges, economy energy and baseload power. A large trade in

all three types occurs to secure economic and often environmental

benefits. Seasonal exchanges are made to defer the need for new

generating plants, which have large capital costs and often create

environmental and safety concerns as well. These exchanges rely

on the fact that different regions have their peak electrical power

needs at different times of the year. For example, California

experiences its peak-demand in the summer, while the Pacific

Northwest has its peak in the winter. Instead of each region

building generating plants to handle peak needs, utilities use their

spare capacity in their “off season” to supply energy to those in

the other region, receiving energy back during their peak demand

period. See, Meek, Pacific Northwest Conservation For Califor-

nia: The Mutual Benefits Of Long-Term Cooperation, 13 Envtl.

L. 841, 849-850 (1983) (Meek).

Economy energy is energy surplus to one utility’s system which

can be sold on the spot market to other utilities because the

energy can be priced lower than the buyer’s short-run marginal

production cost. When this is surplus hydroelectric energy, it

results in environmental benefits as well as economic ones be-

cause it displaces the use of fossil fuels and results in substantial

savings to customers.

Finally, baseload power is used to supply ongoing needs of

customers. Often a baseload power plant is located some distance

from loads because of cost savings and environmental considera-

tions. The result is that utilities in California alone obtain large

portions of their electricity from utilities and agencies in Oregon,

Montana, Washington, Idaho, Nevada, New Mexico and Ari-

zona. Similarly, utilities in Oregon may obtain significant

amounts of electricity from Washington, Idaho, Montana, Wyo-

ming, Utah, and California.

It is only through an integrated interstate transmission network

that this vast bulk power market can function. This market offers

distance transmission. In the west this usually means 500 kilovolt (kV)

lines, although for shorter distances, 230- and 115- kV lines are used.

Lower voltage lines are used for distribution of power at the local level.

3

not only environmental benefits, but significant cost savings for

consumers throughout the western United States.’ Even though

transmission lines are expensive, the power exchange transactions

they make possible more than pay for their cost. This network

also makes the systems it links more reliable, because if one

source of power is suddenly unavailable due to a forced outage,

another source can be made available to keep up with the

demand. Thus, these cooperative arrangements result in a large,

integrated electrical transmission system that has a number of

significant advantages for the public:

—it accommodates seasonal peak demands and provides for

relatively inexpensive exchanges of power,

—it promotes reliability by connecting many sources of

power and minimizing the severity of any single plant or

line failure;

— it provides for routing over direct pathways, thereby reduc-

ing losses and other costs to utilities and their customers;

and

—it is an environmentally sound method of satisfying the

public’s need for reasonably priced electric power, which is

essential to maintaining the quality of life in the United

States.‘

The Montana tax at issue in this case (and the precedent it will

set for other states) poses a serious threat to the efficient bulk

power market using this integrated transmission system, particu-

larly those parts of it that are federally owned and operated. If, as

Montana maintains, a mere service contract for transmitting

> Other regions of the country have similar large scale bulk power

markets and transmission networks.

“The alternatives to economical interstate transmission of power,

including surplus hydroelectric energy, are highly undesirable. In Cali-

fornia, for example, further development of intrastate hydroelectric

resources would require-the damming of the few remaining wild rivers

and displacement of wildlife. Thermal power plants, on the other hand,

are at least as difficult an alternative because of air quality and other

environmental concerns.

4

power over federal lines provides a sufficient basis for a state to

tax the “use” of such lines located in that state, the impact on

amici and their millions of customers would be enormous. That

impact would first be felt on the federal portion of the integrated

transmission system. Then the taxes would affect the bulk power

market dependent on those transmission lines, and finally the

utilities in that market and their retail customers would feel the

impact. In short, unfettered discriminatory taxation of one portion

of the integrated system will have an inevitable ripple effect on

other parts since, despite the diversity in the utility industry, all its

constituent members, especially those doing business in the Pa-

cific Northwest, “are interconnected physically by a transmission

grid and institutionally by the region’s large-scale wholesaler of

electricity, the federal Bonneville Power Administration.”

Blumm, The Northwest's Hydroelectric Heritage: Prologue To

The Pacific Northwesi Electric Power Planning And Conservation

Act, 58 Wash. L. Rev. 175, 178 (1983).

While the case before the Court involves only a single transmis-

sion service contract, there are literally scores of contracts pres-

ently in force between amici and out-of-state utilities for the

purchase, sale and exchange of power across federally owned and

operated power lines. A summary of these contractual arrange-

ments, as well as other interstate purchase, sale and exchange

contrects, is appended to this brief as Appendix C. These types of

contracts form the heart of the interstate bulk power market in

the west, without which customers in many states would be

denied the enormous benefits of efficient exchanges. This Court

has previously recognized the reality of and the need for such

interstate power sharing contracts [see, Ark. Elec. Coop. v. Ark.

Pub. Serv. Comm'n, 461 U.S. 375, 381 (1983); FERC v. Missis-

sippi, 456 U.S. 742, 757 (1982)], and has pointed out that

unreasonable state restrictions on the free interchange of electric-

ity have long been a matter of federal concern. E.g., New England

Power Co. v. New Hampshire, 455 U.S. 331, 340-344 (1982).

Indeed, as this Court stated in FERC v. Mississippi, supra, 456

US. at 757: “[it is] difficult to conceive of a more basic element

of interstate commerce than electrical energy, a product used in

virtually every home and every commercial or manufacturing

5

facility. No State relies solely on its own resources in this

respect.”

Moreover, to the extent that this “beneficial use” tax is added

to the contractual charges for transmission service and power that

the utilities already pay, it will either make otherwise advanta-

geous transactions infeasible or will increase the costs of electric

power to consumers.’ By allowing Montana and other states to

construct a wall of higher costs for bulk power transactions, then,

both reliability and overall market efficiency will suffer. And to

the exteut the costs of purchased power are passed through to

consumers, the higher costs of essential services like heating and

lighting will cause dislocation and hardship.* To the extent

utilities will have to look elsewhere for power, the undesirable

consequences will be just as great, in the form of greater environ-

mental harm and large but inefficient capital expenditures for new

generating plants.

The adverse impacts of the costs imposed by taxes like Mon-

tana’s, with its potential for proliferation, are not limited to the

existing transmission system. The strengthening and growth of

this sytem, in response to new opportunities in the bulk power

market, will also be damaged. An example is the construction of a

third 500-kV line between California and the Pacisic Northwest

which is expected to be completed in 1992. Called the California-

Oregon Transmission Project, this line, which is 342-miles long in

California alone, will add 1,600 megawatts of transmission capac-

‘The rates for transmission service by federal power marketing

agencies are set within the Department of Energy and approved by the

Federal Energy Regulatory Commission. 42 U.S.C. § 7172(a) (1) (B);

16 U.S.C. § 839e; Pacific Power And Light Co. v. Duncan, 499 F.Supp.

672 (D. Ore. 1980). To the extent the Montana tax imposes a surcharge

on these federally-established rates, it is an unlawful intrusion on the

exclusive authority of the Department and the Commission to set these

rates, in violation of the Supremacy Clause. See, Mississippi Power v.

Moore, ___. U.S. —_,, 101 L. Ed. 2d 322, 340-342 (1988).

* These costs will fall most harshly on the elderly and the indigent.

Businesses with power-intensive manufacturing processes will also be

especially hard hit.

6

ity, enough in itself to carry all the power needs of a city the size

of Seattle. This new line will expand the ability of the two regions

to carry out seasonal exchanges and permit use of even more

surplus (economy) energy.’ However, the California portion of

this new line will connect with federally owned lines in the Pacific

Northwest, and its use will involve transmission service provided

by the BPA. If the prospect of multiple taxation on the “benefi-

cial users” of this new project is realized, then the benefits of this

project, and even its viability, could be threatened since use of the

new line, like the Pacific Intertie it augments, is governed by

numerous contractual arrangements. See, Appendix C; Meek,

supra, 13 Envtl. L. at 860.

Taxation of each of these transmission service contracts by

every state along the route of the affected federal power lines, as is

possible on Montana’s theory of this case, is troubling to say the

least. Montana’s efforts to raise tax revenue from such “beneficial

use” taxes accordingly comes at the direct expense of those who

reside elsewhere and who rely on federal agencies for transmission

of power interstate over federally owned lines.

pat

MONTANA’S BENEFICIAL USE TAX PLAINLY VIO-

LATES THE ANTI-DISCRIMINATION PROVISIONS OF

15 U.S.C. SECTION 391

The transmission of electricity is governed not by the particular

voltage that a transmission line can carry, but by the laws of

physics. In an integrated, non-dedicated system, once electricity

is generated and thereafter transmitted, the market where any

particular watt of electricity will end up cannot be determined.

’ This project is noteworthy because it is being undertaken jointly by

17 California public and investor-owned utilities and agencies, including

the federal Western Area Power Administration, which collectively

serve a large majority of the electric power needs in California. Amicus

Curiae Transmission Agency of Northern California, which manages the

project, is now acquiring rights of way for the new power line and has

issued and sold $60 million of revenue anticipation notes to finance the

initial stages of the project.

7

Electricity follows the path of least resistance along transmission

lines in any direction with no regard for a particular destination.

While any voltage electric line can be used to transmit power

intrastate or interstate without distinction, generally high-voltage,

high-capacity transmission lines (like the 500-kV lines that are

the target of Montana’s taxation statute) are used to transmit

power over long distances because their carrying capacity is

greater. In contrast, lines of 230-kV and below are most often

used in regional transmission. Thus, any tax on transmission that

is levied solely on high-capacity, high-voltage lines will of neces-

sity have a disparate impact on the transmission of power

interstate.

That fact was not lost on the Legislature of Montana when it

purported to tax the “beneficial use” only of 500-kV electrical

transmission lines within the state and exempted any transmission

lines within the state of design capacity less than 500-kV even if

such lines received power from a 500-kV line. E.g., Mont. Code

Ann. §§ 15-6-135, 15-6-141, 15-24-1203. Both the net effect and

the intent of this statutory scheme are discriminatory. (Pet. for

Certiorari, Case No. 89-266 at 16-18, 21-22) Portland General

Electric and other out-of-state public and private utilities which

receive power transmitted over 500-kV lines from Montana pay

this tax while local residents whose power is also transmitted by

BPA over lower voltage lines pay no tax at all. (/d.) While the

activity remains the same—the transmission of electric

power—Montana’s tax falls more heavily on the interstate trans-

mission of power and creates a burden on those who receive that

power that is not shouldered by local residents.

This type of discrimination, directed as it is at the interstate

transmission of power, is precisely what Congress sought to

prevent with the passage of 15 U.S.C. Section 391. U.S. Code

Cong. & Admin. News, 94th Cong., 2d Sess. 1976, Vol. 4 at 3866

(Jan.-Oct. 1976). In Section 391 Congress broadly and unam-

biguously prohibited discrimination in the generation and trans-

mission of electricity in interstate commerce without regard to the

capacity of the transmission line. According to the final commit-

tee report:

8

The Senate’s amendment prohibits any State or political

subdivision of a State from directly or indirectly imposing

any tax on the generation or transmission of electricity which

discriminates against out-of-state users. This provision is

effective for taxable years beginning after June 30, 1974. Id.

at 4206.

Consistent with Congress’ intent to prohibit all forms of tax

discrimination relating to the interstate transmission of electrical

power, 15 U.S.C. Section 391 provides that:

No State, or political subdivision thereof, may impose or

assess a tax on or with respect to the generation or transmis-

sion of electricity which discriminates against out-of-State

manufacturers, producers, wholesalers, retailers, or consum-

ers of that electricity. For purposes of this section a tax is

discriminatory if it results, either directly or indirectly, in a

greater tax burden on electricity which is generated and

transmitted in interstate commerce than on electricity which

is generated and transmitted in intrastate commerce.®

It is difficult to conceive of a situation that more directly

conflicts with the express terms or the spirit of this statute than

the Montana beneficial use tax at issue here. Despite the state’s

argument to the contrary, there can be no legitimate dispute that

the tax “either directly or indirectly” inflicts a greater tax burden

“on or with respect to” electricity that is “generated and transmit-

ted in interstate commerce” than on electricity that is generated

and transmitted in intrastate commerce. Interstate transmission

of power is expressly singled out by the Montana taxation scheme,

*One of the discriminatory taxation schemes Congress sought to

prevent was struck down by this Court in Arizona Public Services Co. v.

Snead, 441 U.S. 141 (1979). U.S. Code Cong. & Admin. News, 94th

Cong., 2d Sess. 1976, Vol. 4 at 3£65 (Jau.-Oct. 1976). As the final

Senate Committee Report reflects, however, this was but “an example

of discriminatory state taxation which is properly within the ability of

Congress to prohibit through its power to regulate interstate commerce.”

Id. at 3866. Thus, Congress selected the broadest possible language for

its anti-discrimination provision. Cf, Aloha Airlines v. Director Of

Taxation, 464 U.S. 7, 12-14 (1983).

ik ee We LN th a Ea tM

9

much of the intrastate transmission of power is expressly ex-

empted from it, and the tax directly falls on out-of-state wholesal-

ers, retailers and consumers of electrical power transmitted in

interstate commerce.

Describing the tax as one that is levied on the “contractual

right” to use a transmission line, as Montana purports to do, does

not avoid Section 391’s proscription. The statute expressly makes

generation and transmission subject to its reach, and when the

power here is being transmitted through the BPA’s line it is

indisputably being transmitted in interstate commerce. At a

minimum, the tax indirectly falls on power transmitted in inter-

state commerce. And more pragmatically, the tax is a direct tax

“on or with respect to” transmission since once the power leaves

the generating facility the “use” to which the line is being put, by

contractual right or otherwise, is nothing more than the transmis-

sion of power over the line. Accordingly, Montana’s efforts to

characterize the tax as on or with respect to something other than

transmission is a subterfuge to avoid the congressional purpose in

enacting Section 391.

Montana’s claim that all 500-kV transmission within the state

and out of it are treated the same also does not place its

discriminatory tax beyond the reach of Section 391. The statute

expressly prohibits discrimination—direct or indirect—in any

form, in any amount and at any level of electric power transmis-

sion. Accordingly, any burden shouldered by power transmitted in

interstate commerce that is not shouldered by all power transmit-

ted locally gives rise to prohibited discrimination. Arizona Public

Service Co. v. Snead, supra, 441 U.S. at 146. The state must tax

everyone transmitting or receiving power equally or not tax

anyone at all. Jd. at 150-151; compare, e.g., Duquense Light Co. v.

State Tax Dept., 327 S.E.2d 683 (1984), cert. denied, 471 U.S.

1029 (1985). As the Nevada Supreme Court opined in invalidat-

ing a state tax on the receipt of electric power:

The specific subject matter of the quoted federal statute

[15 U.S.C. Section 391] is the discriminatory taxation of the

generation or transmission of electricity. Although paragraph

two of our amended statutes purports to tax only the value of

the right to receive electricity, the difference is one without a

10

distinction. Nevada’s tax directly impacts on the transmis-

sion of electricity to Cities, who in turn, must increase the

cost of electrical power to their resident-consumers. Under

§ 391 such an impact would be permissible providing the

resident-consumers of Nevada were subject to the same

burden. They are not.

We reject the notion that Nevada’s citizens are taxed in

different forms thereby compensating for the added tax

burden imposed by paragraph two on Cities. This contention

is unsound simply because § 391 eliminates its availability.

Regardless of a given state’s choice of taxing and alterna-

tives, the United States Congress has clearly foreclosed the

right of states to directly or indirectly yoke the generation

and transmission of electricity with an unequal burden.

[ Citation. ]

State of Nevada v. City of Burbank, 100 Nev. 598, 691 P.2d 845,

848 (1984).

If Montana’s efforts to avoid the statute are successful, Section

391 will become a meaningless piece of legislation. If the trans-

mission of power can be relabeled a contractual right to use a

federally owned line and then taxed in a discriminatory manner,

virtually all such interstate transmissions will be open to such

discriminatory taxation because such transmissions are invariably

accomplished by transmission service contracts like the one

involved here. Further, if a state can legitimately single out 500-

kV lines for discriminatory treatment, then high-capacity inter-

state transmission will feel the brunt of special property taxes in

each state through which those lines pass. This is the precise

result Congress sought to avoid, and the result that amici curiae

are most concerned about.

Where the language of a statute is clear, there is no room for

further “interpretation” and courts must give effect to its plain

meaning. E.g, Howe v. Smith, 452 U.S. 473, 483 (1981);

Consumer Product Safety Comm'n v. GTE Sylvania Inc., 447

U.S. 102, 108 (1980). This Court has previously resorted to the

plain language of Section 391 to head off an even less threatening

discriminatory taxation practice than the one involved here [Ari-

11

zona Public Service Co. v. Snead, supra, 441 U.S. 141] and, in

keeping with the plain meaning of the statute, the outcome here

must be the same. See, Burlington No. R. Co. v. Okla. Tax

Com’n, 481 U.S. 454, 461 (1987); Aloha Airlines v. Director Of

Taxation, supra, 464 U.S. at 12-4. Unless this Court sends a

firm message that Section 391 means what it says, state legisla-

tures will continue to use beneficial use taxes as a means to

discriminate against the interstate transmission of electric power

and thereby to defeat the congressional purpose in enacting the

statute.

Il

MONTANA’S BENEFICIAL USE TAX VIOLATES THE

SUPREMACY CLAUSE

The discriminatory impact of Montana’s beneficial use tax not

only runs afoul of Section 391’s demand for equality of treatment

for those who receive interstate transmissions on federally owned

lines, it also violates the Supremacy Clause [U.S. Const. art. VI,

cl. 2] for the same reason.

The Supremacy Clause is not avoided, as Montana contends,

simply because the tax falls on a private interest (like PGE’s

contractual right) as opposed to a federal instrumentality (like

the BPA’s transmission line). Nor is that the distinction that this

Court “validated” in cases like United States v. County Of Fresno,

supra, 429 U.S.-452. Rather, the taxes on privately held posses-

sory interests like the one involved in County Of Fresno, survived

scrutiny under the Supremacy Clause because they were imposed

in a nondiscriminatory manner so as to equalize the tax burdens

between those who used federally exempt property within a state

* Applying Section 391 as Congress intended creates no insuperable

burden for Montana. The state already taxes the withdrawal of the coal

that fires the Colstrip plant. Commonwealth Edison Co. v. Montana, 453

U.S. 609 (1981). The state also imposes a property tax on the Colstrip

plant itself. The only tax that Montana will not be permitted to levy by

virtue of applying Section 391 is its discrete tax on electrical transmis-

sion—the precise sort of tax that Congress expressly intended to

foreclose.

12

and those who used similar, but non-exempt property, within the

state. See, e.g., Washington v. United States, 460 U.S. 536, 542-

$47 (1983); Memphis Bank & Trust Co. v. Garner, 452 U.S. 392,

397-398 (1983).

Through the imposition of its beneficial use tax, however,

Montana is not making any nondiscriminatory effort to “equalize”

a disparity that exists between those who use federally exempt

property within Montana and those who do not. Compare, e.g.,

United States v. City Of Detroit, 355 U.S. 466, 473-474 (1958).

On the contrary, Montana’s tax is intended to and does create an

additional burden on those out-of-state who contract with the

federal government for transmission service that is not borne by

all those within the state who contract with the federal govern-

ment for the same service. No possessory interest or beneficial use

tax case decided by this Court can possibly be relied upon to

justify a greater tax burden of this character imposed on those

who deal with the federal government. Since McCulloch v.

Maryland, 4 Wheat 316, 4 L.Ed. 579 (1819), this Court has

consistently stated that that sort of blatant discrimination against

those who deal with the federal government violates the

Supremacy Clause. See, United States v. County Of Fresno,

supra, 429 U.S. at 462; and see, Washington v. United States,

supra, 460 U.S. at 542-543; Memphis Bank & Trust Co. v.

Garner, supra, 459 U.S. at 397.

IV

MONTANA’S BENEFICIAL USE TAX VIOLATES THE IN-

TERSTATE COMMERCE CLAUSE

In evaluating the validity of any state property tax under the

Interstate Commerce Clause [U.S. Const. art. I, sec. 8, cl.3], this

Court has always looked beyond the state’s description of the

challenged tax to determine its “practical effect” on interstate

commerce. Mobil Oil Corp. v. Commissioner Of Taxes, 445 U.S.

425, 443 (1980); accord, Nippert v. Richmond, 327 U.S. 416, 431

(1946). If the practical operation of the tax discriminates against

interstate commerce, this Court has never hesitated to invalidate

it. E.g., Maryland v. Louisiana, 451 U.S. 725, 754-756, 759

13

(1981). Thus, while the commerce clause does not prohibit taxes

levied on interstate commerce per se, the clause does provide a

substantive guarantee that the taxation of intrastate and interstate

commerce will be kept on an equal plane. American Trucking

Assn. Inc. v. Schneiner, 483 U.S. 226, 280 (1987); Westinghouse

Electric Corp. v. Tully, 466 U.S. 388, 403 (1984); Phillips

Chemical Co. v. Dumas School Dist., 361 U.S. 376, 383 (1960)."°

A state “may not tax a transaction or incident more heavily when

it crosses state lines than when it occurs entirely within the

State.” Armco, Inc. v. Hardesty, 467 U.S. 638, 642 (1984).

In making its practical assessment of a tax’s discriminatory

impact, this Court has looked to four factors to determine

whether a property tax will withstand constitutional scrutiny

under the commerce clause:

—Whether the tax is applied to an activity that has substan-

tial nexus with the taxing state;

—Whether the tax is fairly apportioned to activities carried

on by the taxpayer in that state.

—Whether the tax discriminates against interstate com-

merce; and

—Whether the tax is fairly related to services provided by

the taxing state.

See, e.g.. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,

277-279 (1977); and see, Commonwealth Edison Co. v. Mon-

tana, supra, 453 US. at 617.

Moreover, this Court has also emphasized that the discrimina-

tory character of a tax cannot be climinated simply because

interstate and intrastate taxpayers, who appear to be similarly

situated, pay the same tax. “[A] tax must have ‘what might be

called internal consistency—that is the [tax] must be such that, if

applied by every jurisdiction,’ there would be no impermissible

©The volume of in-state business favored or the volume of the

interstate business disfavored is irrelevant to this discrimination analysis.

New Energy Co. v. Limbach, 486 U.S. 269, 100 L.Ed. 2d 302, 310

(1988); Bacchus Imports, Lid. v. Dias, 468 U.S. 263, 268-270 (1984).

14

interference with free trade.” Armco, Inc. v. Hardesty, supra, 467

U.S. at 644-656 (quoting Container Corp. Of America v.

Franchise Tax Board, 463 U.S. 159, 169 (1983) ); accord, Ameri-

can Trucking Assn. Inc. v. Schneiner, supra, 483 U.S. at 284;

Tyler Pipe Ind. v. Dept. Of Revenue, 483 U.S. 232, 243-248

(1987).

Montana’s beneficial use tax fails to withstand scrutiny under

the factors identified in Complete Auto Transit or- under the

internal consistency test articulated in Armco. Montana’s benefi-

cial use tax accordingly must be held unconstitutional under the

Interstate Commerce Clause.

1. The Out-Of-State Utilities And Their Customers Who Are

Subject To The Beneficial Use Tax Have No Legitimate

Nexus To Montana For Purposes Of That Tax

The discrete tax at issue here is imposed only on the contrac-

tual right to receive transmission services from the BPA. That

contract creates no presence on the part of the Colstrip owners in

Montana. It simply creates an intangible right to receive trans-

mission services out-of-state that are undertaken and performed

by a separate and independent entity (the BPA) in the state.

Yet, a direct connection with the taxing state, involving the

purposeful availment of that state’s benefits and protections,

historically has been required for any real property tax to pass

constitutional muster. E.g, Norfolk & Western Ry. Co. v. Mis-

souri Tax Com., 390 U.S. 317, 323-324 (1968); and see, Exxon

Corp. v. Wisconsin Dept. Of Revenue, 447 U.S. 207, 219-220

(1980); West Point Grocery Co. v. Opelika, 354 U.S. 390, 391-

392 (1957). That historic justification is absent, however, in a

case involving nothing more than a mere contractual right to

receive power transmitted interstate. For that purpose, the Col-

strip owners have no office in Montana, no employees in Mon-

tana, no marketing efforts in Montana and no sales in Montana.

In short, the Colstrip owners have no nexus with Montana that

could conceivably support the imposition of any real property tax,

no matter what its label, with respect to the contractual right to

15

receive transmission service from the BPA that Montana is

attempting to tax here."

2. There Can Be No Fair Apportionment Of Montana’s Benefi-

cial Use Tax To Interstate Commerce

This criterion, like the need for a sufficient nexus to impose a

property tax, requires that the tax be fairly apportioned to the

taxpayer’s activities in the taxing state. E.g, Moorman Manufac-

turing Co. v. Bair, 437 U.S. 267, 276-277 (1978). For purposes of

the tax here, however, there are no activities. The right to possess,

own and operate the transmission lines, as well as the control of

the transmission of power over them, all reside exclusively in the

BPA which provides the transmission service. For this pur-

"' No case of which amici are aware has ever extended the concept of

a beneficial use real property tax to private persons who, while they may

gain a benefit from a contract with the federal government, do not

thereby acquire the direct right to physically use or possess the govern-

ment’s tax exempt property within the taxing state’s borders. E.g.,

United States v. County Of Fresno, supra, 429 U.S. 452 (possession and

use of federal government owned housing within the state); City Of

Detroit v. Murray Corp., 355 U.S. 489 (1958) (use of machinery and

property owned by the government within the state); United States v.

City Of Detroit, supra, 355 U.S. 466 (use and occupancy of property

within the state); United States v. Township Of Muskegon, 355 U.S. 484

(1958) (same). The transmission service contract here in no way

involves an assignment of the right to use any federal property. The most

that can be said of the contract is that it gives the utilities the right to

obtain a certain amount of power transmitted by the BPA over transmis-

sion lines the BPA owns, maintains and controls. By attempting to

equate the intangible contractual right to obtain a service with a

“beneficial use of government property,” Montana is not only aban-

doning any previously established basis for the assessment of a real

United States and many of these services, like electrical power transmis-

sion, are interstate in character. It will be a short step from the taxation

concept proposed by Montana here to a plethora of state “beneficial use

taxes” on those recipients of interstate government services who are

deemed to acquire a “sufficient nexus or presence” within the taxing

state solely by receiving services that pass through it.

16

pose—transmission service—therefore, the activity in interstate

commerce is paying more than its fair share of the tax burden.’

This is simply a form of discriminatory taxation that subjects out-

of-state businesses and their customers to a tax not shouldered by

local residents. Thus, while Montana purports to have a fair

formula for allocating the tax, that begs the question. No tax can

be fairly apportioned in the absence of any activity to which it can

be apportioned. See, Norfolk & Western Ry. Co. v. Missouri Tax

Com., supra, 390 U.S. at 325.

3. Montana’s Beneficial Use Tax Discriminates Against Inter-

state Commerce

By limiting the tax to transmission lines of 500-kV and

higher—high-capacity lines which transmit power inter-

state—Montana intended to inflict a disproportionate economic

burden on those who receive electric power transmitted interstate.

Intrastate customers who receive power off the very same line

using 230-kV transmission are not subjected to the tax. Nor are

intrastate customers who receive power over identical tax-exempt

‘BPA lines at voltages lower than 500-kV. (Pet. for Certiorari in

Case No. 89-266 at 16-18, 21-22)

The out-of-state residents in Oregon, Washington, California

and elsewhere obviously are powerless to prevent the imposition

of these discriminatory taxes. It is precisely this type of parochial

taxation policy that should be subjected to the closest scrutiny

under the commerce clause. Cf, Boston Stock Exchange v. State

Tax Comm'n, 429 U.S. 318, 330-336 (1977). The reasons are

plain enough. Out-of-state residents cannot resort to the ballot

box to ameliorate the effects of discriminatory taxes and therefore

are inviting targets for the imposition of those taxes. Conse-

quently, states like California, and more particularly the custom-

ers of the publicly and privately owned utilities involved here, will

To the extent that any burdens were created by the construction of

the federal lines, those burdens already have been paid for. When the

lines were constructed, Congress passed an accompanying impact tax

which reimbursed all affected counties for any dislocation. resuliing from

the placement of the lines. Pacific Northwest Electric Power Planning

and Conservation Act of 1980, 16 U.S.C. § 839e(m) (1982).

17

subsidize the residents of Montana although they have neither

sought nor obtained any benefit within the borders of Montana.

Again, that result cannot survive constitutional scrutiny. See, pp.

12-13, supra (and cases cited therein); and see, Boston Stock

Exchange v. State Tax Comm'n, supra, 429 U.S. at 329; Halli-

burton Oil Well Cementing Co. v. Reily, 273 U.S. 64, 72 (1963).

4. There Is No Fair Relationship Between Montana’s Benefi-

cial Use Tax On The Out-Of-State Utilities And Any

Services Provided By The State

To withstand scrutiny under the commerce clause, a tax must

also be reasonably related to the taxpayer's activities within the

state imposing the tax. Thus, those who take advantage of a

state’s police and fire protection or other resources can be taxed in

order to pay their fair share of those services as a result of their

presence and activities within the state. Commonwealth Edison

Co. v. Montana, supra, 453 U.S. at 626; see, Portland Cement Co.

v. Minnesota, 358 U.S. 450, 464-465 (1959).

The Colstrip owners, however, already pay taxes for their

presence in the state. They have no presence at all for purposes of

the beneficial use tax imposed on the transmission of electricity

over federal power lines. The only presence in Montana for that

purpose is, as noted, exclusively federal: the BPA owns, operates

and uses the lines and it also controls the transmission over them.

The utilities involved, including PGE, merely receive the trans-

mitted power outside the state. For that purpose, the utilities do

not exercise any property or other rights within Montana and

Montana provides the utilitics with no police, fire protection or

any other service that relates to the bare contractual right to

receive the power.

5. Montana’s Beneficial Use Tax Lacks Internal Consistency

To avoid creating an unlawful burden on interstate commerce,

a property tax must also be imbued with internal consistency.

That is “the tax must be such that, if applied by every jurisdiction,

there would be no impermissible interference with trade.” See, pp.

13-14, supra (and cases cited therein). A state-imposed property

tax that conceptually could be relied upon by other states to

impose multiple burdens on those who do business in interstate

18

commerce constitutes invidious discrimination because it creates

the potential to interrupt the flow of free trade. Jd; also see,

Michigan-Wisconsin PL. Co. v. Calvert, 347 U.S. 157, 166-167

(1954). Yet, that would be precisely the pernicious effect of

sanctioning Montana’s beneficial use tax here.

The pretext for the tax is simply the presence of a 500-kV

federally owned power line in the state and a transmission services

contract that entitles a utility to receive power over the line when

its needs may require. That condition exists in every state in the

integrated system that cooperatively promotes the exchange of

surplus electrical power. Every one of these states could impose

such a tax thereby creating an onerous burden on the free flow of

electrical power. This Court has never condoned that level of

adverse impact on the distribution of goods in interstate com-

merce and, given the public’s demonstrable need for inexpensive

sources of electrical power, it should not do so here.

Vv

MONTANA’S BENEFICIAL USE TAX VIOLATES THE

FOURTEENTH AMENDMENT

By virtue of its discriminatory impact on those who receive

transmission of power interstate, Montana’s beneficial use tax also

violates the equal protection and due process clauses of the

Fourteenth Amendment. While Montana claims that its tax is not

discriminatory because all those who receive power over 500-kV

lines are taxed in a similar manner in Montana, that classification

is illusory. There is no distinction among the generators and

transmitters of electrical power no matter what voltage is used

and no logical way to determine who is using any particular

voltage line and what electricity at any particular time. The

classification here, by design and in practice, discriminates against

those who receive electrical power through interstate transmission

service while those who receive that same service intrastate, by

design and in practice, escape any tax burden.

A tax differential directly burdening interstate commerce is a

due process and equal protection violation of the most basic sort.

£.g., Exxon Corp. v. Wisconsin Dept. Of Revenue, supra, 447

ws

19

U.S. at 219-220: Phillips Chemical Co. v. Dumas School Dist.,

supra, 361 U.S. at 384-387. The discriminatory aspect of the

beneficial use tax—imposed as it is on a bare intangible contrac-

tual right for transmission service to an out-of-state recipient for

which there is no presence in Montana—is not rationally related

to any legitimate state purpose. Cf, Williams v. Vermont, 472

U.S. 14, 23-27 (1985); compare, e.g, Moorman Mfg. Co. v. Bair,

supra, 437 U.S. at 274; Western & Southern Life Ins. Co. v. Bd.

Of Equalization, 451 U.S. 648, 668-674 (1981). Montana’s

attempt to impose this discriminatory extraterritorial tax on

utilities which are disenfranchised within Montana and incapable

of doing anything about it, is unlawful under the Fourteenth

Amendment and should be condemned on this ground as well.

E.g., Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 878-882

(1985). ASARCO, Inc. v. Idaho State Tax Com’n, 458 U.S. 307,

315 (1982); F. W. Woolworth Co. v. Taxation & Revenue Dept.,

458 U.S. 354, 363-364 (1982).

VI

CONCLUSION

As this Court recognized more than forty years ago, where

extraterritorial taxation is concerned “[t]here is no limit to the

human mind’s capacity to carve out from what is an entire or

integral economic process particular phases or incidents, label

them as ‘separate or distinct’ or ‘local’ and thus achieve its desired

result.” Nippert v. Richmond, supra, 327 U.S. at 423. Unless this

Court acts to declare Montana’s discriminatory tax unlawful,

other states from which these amici receive power over federally

owned transmission lines will most certainly follow suit with

“beneficial use” taxes of their own. The public cannot afford that

result and Congress and the Constitution will not permit it.

No one disputes that states can exact their fair share of tax

revenue from those who do business within their borders. Mon-

tana’s beneficial use tax, however, creates discrimination in viola-

tion of 15 U.S.C. Section 391, improperly burdens interstate

commerce, and creates the kind of discrimination and favoritism

that the due process and equal protection clause plainly forbid.

20

The use, transmission, interchange and allocation of electrical

energy is a matter of nationwide concern. The integrated system

that exists throughout the western, northwestern and southwest-

ern United States hangs in a delicate balance and hinges on

interstate contractual arrangements with both federal power agen-

cies and public and private generators and transmitters of electri-

cal power. These contracts are the precise target of Montana’s tax

and when similar beneficial use taxes are imposed by other states,

the problems will be compounded.

Certiorari should be granted to review the erroneous decision of

the Supreme Court of Montana.

DATED: September 8, 1989.

Respectfully submitted,

EZRA HENDON

(Counsel of Record)

JAMES C. MARTIN

CrosBy, HEAFEY, ROACH & May

Professional Corporation

By

EzRA HENDON

Attorneys for Amici Curiae

Os

és

Pix

—

A-1l

APPENDIX A

Stoel Rives Boley

Jones & Grey

[LETTERHEAD]

August 25, 1989

James C. Martin, Esq.

Crosby, Heafey, Roach & May

Attorneys at Law

1999 Harrison Street

Oakland, CA 94612-3573

Re: Consent to Filing of Amicus Brief

Dear Mr. Martin:

This is to advise you formally that Portland General Electric

Company consents to your firm’s filing of an amicus brief on

behalf of various publicly and privately owned electric utilities

regarding Portland General Electric Company’s Petition for Issu-

ance of Writ of Certiorari to the Montana Supreme Court in

Portland General Electric Company v. Montana Department of

Revenue, et al., Supreme Court Docket No. 89-266.

Please let me know if you have any questions.

Very truly yours,

THOMAS H. NELSON

Thomas H. Nelson

Counsel of Record

A-2

APPENDIX B

State of Montana

[LETTERHEAD]

VIA FEDERAL EXPRESS

August 18, 1989

Thomas H. Nelson, Esq.

Stoel, Rives, Boley,

Jones & Grey

900 SW Sth Avenue

Suite 2300

Portland, OR 97204-1268

RE: Pacific Power and Light Company, et al, v. Department of

Revenue, et al, Nos. ADV-86-069, ADV-87-081, and

ADV-88-032

Dear Tom:

I have your letter dated August 14, 1989, concerning the

beneficial use tax litigation in Montana. I attempted to contact

Don Murray by telephone on several occasions concerning your

request for an extension of time in which to file the post-trial

findings and post-trial briefs in the third beneficial use tax case. I

was unable to contact him.

The next matter raised in your letter dated August 14, 1989, is

amicus curiae appearances by certain California utilities. Please

be advised that I have no authority to accede to any amicus filings

by such entities. I have no idea at this point what their interest in

the litigation might be, and your letter dated August 14, 1989,

sets forth no such explanation. Nor do I have the time to

investigate what their interests and positions might be in this

litigation. Very frankly, I view any intrusion by third parties into

our litigation as being unnecessary. For that reason, I will not

support or consent to any amicus curiae briefs in support of the

petition for a writ of certiorari which the Colstrip owners have

filed.

A-3

I hope that I have addressed the matters set forth in your letter

dated August 14, 1989. If you have any questions, please call me.

Sincerely,

LARRY

Larry G. Schuster

Counsel

LLGS:rk

lgs44q

cc: Mary Whittinghill

Donald R. Murray

A-4

APPENDIX C

SUMMARY OF CONTRACTUAL ARRANGEMENTS

ENTERED INTO BY AMICI FOR THE INTERSTATE

PURCHASE AND TRANSMISSION OF POWER

Amici have surveyed the number and value of the contracts

they have entered into for the transmission of power across state

lines, both utilizing federally-owned and operated facilities and

using other facilities. This survey reflects the following:

Pacific Gas and Electric Company (PG&E) which is the

largest investor-owned gas and electric utility in the United

States, is the principal source of electric power for four million

customers, serving an area of northern and central California with

a population of more than ten million. PG&E has entered into

contracts with three Pacific Northwest utilities to exchange

650 MW of power between 1991 and 2011 at an estimated value

between $10 and $15 million per year. These exchanges rely on

transmission service over federal lines.

In addition, PG&E buys large amounts of economy energy

from the Northwest, pursuant to contracts with over a dozen

utilities. In 1988, purchases from non-federal sellers which re-

quired transmission service from federal agencies totalled

2,837,978 kilowatt hours of energy, at a cost of over $65 million.

The Sacramento Municipal Utility District (SMUD) which

supplies electric power to all of the greater Sacramento, Califor-

nia, area has entered into three long term power purchase

contracts with Pacific Power and Light Co., located in Portland,

Oregon, covering the period between 1990 and 2014. These

contracts provide for the sale of 100 MW of power and the total

value of the purchases is approximately $28 million per year. In

addition, SMUD has contracted with other California companies

for the transmission of power across interstate lines at an esti-

mated cost of $670,000 per year and as a participant in the

Transmission Agency of Northern California is entitled to receive

207 MW of power from a proposed 500-KV line on the Intertie

system at a cost of $83 million.

A-5

The Los Angeles Department of Water and Power (LADWP),

the largest municipally-owned utility in the United States, sup-

plies the electric power needs for the City of Los Angeles. It has

entered into numerous separate contracts for the purchase of

power from out of state, including the following: eight contracts

with separate utilities for specified amounts of power, enabling

agreements with 25 out-of-state utilities or governmental agencies

which specify no fixed amount, but under which transfers of

energy could occur; an additional three contracts in which the

amount of power purchased is a function of the capacities and

operating characteristics of the particular plant. Los Angeles has

nine separate transmission agreements for the receipt of interstate

power. The great bulk of this power is transported across feder-

ally-owned facilities.

Los Angeles purchases capacity and energy from Bonneville

Power Administration (BPA) and other Pacific Northwest utili-

ties to be delivered over the Pacific DC Intertie +/— 1000 kV

high-voltage DC line. These purchases are used by Los Angeles

during on-peak hours in conjunction with other resources for

economic system operation. In addition, purchases of economy

energy are made from utilities in Nevada, Arizona, New Mexico

and Colorado. LADWP’s entitlement from the Hoover Power

Plant in Nevada (491 MW) is considered a long term firm

purchase. LADWP also purchases capacity from Utah Power &

Light Company (64 MW) and from the Montana Power Com-

pany (105 MW).

~Southern California Edison Company (SCE) which delivers

electric power to 3.8 million customers in 15 central and southern

California counties and 150 incorporated communities, has con-

tracts with several utilities or governmental agencies for the

purchase of power. These include Arizona Public Service Com-

pany, Pacific Power and Light Company, Portland General Elec-

tric Company, Washington Water Power, and the Bonneville

Power Administration. In addition, SCE transmits power from

three power piants located outside the State of California, which

it owns. In total, these agreements account for the transmission of

over 3,400 MW of power, utilizing the Pacific Intertie and other

federally and publicly operated power lines.

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San Diego Gas and Electric Company (SDG&E) which is

responsible for the electric power needs of 1,030,000 customers

has a contract for the purchase of 75 megawatts of power through

the year 2013 with Petitioner Portland General Electric Company

and a transmission service agreement on the northern section of

the Pacific Intertie for transmission of 75 megawatts. Pursuant to

a series of transmission agreements between Pacific Gas and

Electric, Southern California Edison, Western Area Power Ad-

ministration, SDG&E and various municipal utilities relating to

the southern section of the Pacific Intertie, San Diego Gas and

Electric Company has transmission rights for 269 megawatts of

power supplied under the Portland General Electric Company

contract and for surplus hydro-electric power which SDG&E

when it is available from various utilities in the north-

west. SDG&E makes economy spot purchases and sales of power

utilizing BPA lines, the Pacific Intertie and Western Area Power

Administration lines.

Southern California Public Power Authority (SCPPA) is a

joint powers agency created to finance the acquisition of genera-

tion and transmission projects on behalf of its members. The

members of SCPPA are the California cities of Anaheim, Azusa,

Banning, Burbank, Colton, Glendale, Pasadena, Riverside,

Vernon, the Department of Water and Power of the City of Los

Angeles (LADWP), and the Imperial Irrigation District.

SCPPA’s transmission facilities in which its members have

ownership or entitlement are as follows:

1. The Cities of Anaheim, Azusa, Banning, Colton, Riv-

erside and Vernon are participants in the California~Oregon

Transmission Project (“COTP”), have an entitlement of

approximately 121 megawatts in the COTP.

2. LADWP, and the Cities of Burbank, Pasadena and

Glendale, own 50 percent of the Pacific DC Intertie Trans-

mission Line. Each of those utilities has a variety of con-

tracts of purchase capacity and energy from BPA and other

Pacific Northwest utilities for delivery over the DC transmis-

sion facilities. In addition, the Cities of Anaheim, Azusa,

Banning, Colton and Riverside are preparing to enter into an

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Agreement with the Cities of Burbank, Glendale and

Pasadena to purchase transmission service for a term of 20

Banning, Colton and Riverside contemplate entering into a

20 year agreement with BPA to purchase firm capacity and

energy. Such capacity and energy will be delivered at the

Nevada/Oregon border by BPA over its entitlement in the

3. LADWP and the Cities o Anaheim, Burbank, Glen-

dale, Pasadena and Riverside are participants in the Inter-

mountain Power Project, a large coal-fired generating plant

consisting of a 2,800 megawatt unit located in Delta, Utah.

As a part of the Intermountain Power Project, these Cities

are also participants in a DC transmission line running from

the Intermountain Power Project in Delta, Utah through the

states of Nevada and California and terminating at a switch-

ing station near Adelanto, California.

The Transmission Agency of Northern California (TANC) is a

public entity of the State of California formed pursuant to

California Government Code Sections 6500 ef seg., by which

public entities may jointly exercise the powers they have in

common.

The members of the TANC are the cities of Alameda, Biggs,

Gridley, Healdsburg, Lodi, Lompoc, the Modesto Irrigation Dis-

trict, the City of Palo Alto, the City of Redding, the City of

Roseville, the Sacramento Municipal Utility District, the City of

Santa Clara, the Turlock Irrigation District, the City of Ukiah,

and its associate member, the Plumas-Sierra Rural Electric

Cooperative, Inc. All of the members, except the cities of Biggs

and Gridley, are participating through TANC in the development

of the California~-Oregon Transmission Project. Through COTP

the members intend to contract for power from utilities in the

Pacific Northwest.

Three of the members of TANC, through the M-S-R Public .

Power Agency, described below, are also entering into a 20-year

agreement with BPA for electric power.

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The M-S-R Public Power Agency was also formed pursuant to

California Government Code Section 6500 et seg. in 1980, and is

comprised of the cities of Santa Clara and Redding, and the

Modesto Irrigation District.

In 1983 M-S-R acquired an interest in Unit Four of the San

Juan Unit Four Electric Generating Station located in New Mex-

ico, near the City of Farmington. This coal-fired plant is operated

by the Public Service Company of New Mexico (PNM). Among

its owners are PNM, Tucson Electric Power Company (TEP),

the City of Farmington, the City and County of Los Alamos, and

the Century Power Corporation. In that region M-S-R has

entered into wholesale power contracts with a number of entities,

one of which, an Interconnection Agreement between M-S-R and

TEP, provides for the use of TEP’s contract right to transfer

power over the federal transmission lines of Western Area Power

Administration.

The Northern California Power Agency (NCPA) has a mem-

bership which includes all of the members of TANC except for

the Sacramento Municipal Utility District and the Modesto

Irrigation District. It was organized to represent its members in

sale of electricity. Each of NCPA’s members owns and operatcs

an electrical system to distribute electric power and energy for

public and private use. C of NCPA’s members range the

gamut typical of electric users, including the federal government.

For example, the City of Alameda supplies power to the Alameda

Naval Air Station.

To supply its members’ needs, NCPA built approximately 200

MW of electric generating capacity in 1983 in the Geysers Known

Geothermal Resource Area in Sonoma and Lake Counties, Cali-

fornia. The steam is a federal resource piped up wells from federal

leaseholds held by NCPA. NCPA is awaiting the completion next

year of the North Fork Stanislaus Hydroelectric Project, a water

and power project licensed under the Federal Power Act to the

Calaveras County Water District, from which NCPA and its

members will have another approximately 200 MW of generating

capacity. Additionally, NCPA is currently reviewing proposals for

additional supplies to serve its member entities in the future,

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including contracts for the purchase of wholesale power from the -

Pacific Northwest. NCPA also purchases power from sources as

far away as Montana and sells surplus power. These purchases of

power and sale of surplus power rely heavily on federally operated

ission li