Appendix — Montana Power Co. v. Federal Power Commission

Supreme Court brief1971

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TABLE OF CONTENTS

Page

En Banc Opinion of the United States Court of Appeals

for the District of Columbia Circuit la

Order of the United States Court of Appeals for the

District of Columbia Cireuit ................55. dia

7 Opinion of the Panel of the United States Court of

2 Appeals for the District of Columbia l 4.

Opinion and Order of the Federal Power Commission. 76a

mae secarmunrccauemmnmnen sectenncteon

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„ Ne, 21,908

Tus Mortaxa Power Courary, Petitioner

Tun Coxvepsaatep Sausm axp Kooraxar Tunes or ran

Naarn Reservation, Montana, u

or lx ron, Intervenors :

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ment of an arbitrator. That court dismissed, holding that

it would not have jurisdiction unless it was held in the

proceeding pending before the Commission, subject to

review in a court of appeals, that the arbitration provision

in the license controlled. :

The proceeding before the Commission went fo

in 1965, with extensive evidence presented by the Tri

the Company, the Secretary of the Interior, and

Ro FF

not controlling, and readjusted the annual charges

by Montana Power to the Tribes from $238,375 to

with the increase retroactive to *

court with respect to one portion of the order (No. 21767).

The Company’s petition to review (No. 21904) objected

to the level of readjusted charges set by the Commission,

and also presented a threshold contention that the Com-

mission was without jurisdiction to en in the pro-

i ivision of this court

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Artiele 30(D) further set forth as the governing criterion

—‘‘such readjusted annual charges to be reasonable charges

fixed upon the basis provided in Section 5 of i

14 of the Commission, to wit, upon the commercial

of the tribal lands involved, for the most profitable

purpose for which suitable, including power development.

When Congress passed the Public Utility Holding Com-

pany Act of 1935, it retained the Federal Water Power

* Act of August 26, 1935, 49 Stat. 838; see 16 U.S.C. §791a

et seq. (1964), as amended (Supp. IV, 1969).

or tribal lands within reservations, was amended, as in-

dicated in the footnote, so as to read that—

* As amended in 1935, the law provides:

See. 10. All licenses issued under this Part shall be on the

following conditions: ;

(e) That the licensee shall pay to the United States rea-

sonable annnal charges in an amount to be fixed by the Com-

mission for the purpose of reimbursing the United States for n

the costs of the administration of this Part; for recompenaing it ‘

for the use, oceupancy, and enjoyment of its lands or other

property ; and for the expropriation to the Government of ex-

cessive profits until the respective States shall make provision

for preventing excessive profits or for the expropriation thereof

to themselves, or until the period of amortization as herein

provided is reached, and in fixing such charges the Commis-

sion shall seek to avoid increasing the price to the consumers

of power by such charges, and any such charges may be ad-

justed from time to time by the Commission as conditions

may require: Provided, That when licenses are issued involving

the use of Government dams or other structures owned by the

United States or tribal lands embraced within Indian reserva-

tions the Commission shall, subject to the approval of the

Seeretary of the Interior in the case of such dams or structures

in reclamation projects and, in the ease of such tribal lands,

subject to the approval of the Indian tribe having jurisdiction

of such lands as provided in section 16 of the Act of June 18,

1934 (48 Stat. 984), fixed a reasonable annual charge for the

use thereof, and such charges may with like approval be re-

adjusted by the Commission at the end of twenty years after

the project is available for service and at periods of not less

than ten years thereafter upon notice and opportunity for

hearing: Provided further, That licenses for the development,

transmission, or distribution of power by States or municipali-

ties shall be issued and enjoved without charge to the extent

such power is sold to the publie without profit or is used by

such State or municipality for State or municipal purposes,

except that as to projects constructed or to be constructed by

States or municipalities primarily designed to provide or im-

prove navigation, licenses therefor shall be issued without

charge; and that licenses for the development, transmission,

or distribution of power for domestic, mining, or other bene-

ficial use in projects of not more than two thousand horse-

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Act.“ which was not changed, provides:

Section 28 of the

of any licensee thereunder.

III. Consmwezrations Usper.yine run Courr’s Coxcivssiox

ine 1

fit

11115

— — (1964).

plementation. And so changes were made in

1935. Niagara Mohawk Power Co. v. FPC, 126 U.S. App.

D.C. 376, 378, 379 F.2d 153, 155. The 1930 change was

Several minor changes are made in section 10(e),

relating to the charges to be paid by licensees. The

1 Act of June 23, 1930, 46 Stat. 797.

8. Rep. No. 621, 74th Cong., Ist Seas. 45 (1935).

The subsequent House Report, H.R. Rep. No. 1318, 74th Cong.

Ist Seas. 24 (1935) is virtually identical. The pertinent paragraph

reads:

‘There are several minor changes in section 10(e) relating to

the charges to be paid by licensees. The amount to be fixed

for the purpose of reimbursing the United States for the

by the

cost

of administration is limited to the present amount pro-

1111

HORNE 12

241

35111

3°

_ Licenses involving use of tribal lands

proviso, of course, as licenses in

ernment structures.

So far as can now be gleaned, from

uf It,

iil 10

ole), providing for Commission readjustment, to\ the

problem of a pre-existing license containing a procedure

for readjustment solely by agreement or arbitration. The

court is unable, then, to discern any specific legislative

intent, one way or the other, as to the precise issue now

before us.

That being the case, the court must discern the applica-

ble legislative intent by what is necessarily an act of

projection—starting from the areas where the legislative

intent is readily discernible, and projecting to fair and

reasonable corollaries of that intent for the specific issue

before us.“

The question is by no means an easy one. We must

consider what basic pattern of administration of f 10(e)

was likely to have been foreglimpsed by the legislature.

We must take into account that the legislature described its

changes as minor, and that the Company considers the

replacement of a court-selected arbitrator by a federal

commission as a change that is far from minor and ad-

versely affects its ‘‘rights’’ undet the license which § 28

of the act solemnly protects. We must consider the con-

stitutional aura of the Company's contentions, and funda-

mental considerations of fairness.

Taking these various elements into account, our effort

W Sere teleat Saad ae to ew

conclusions :

First, §28 protects the licensee from any change in,

and the legislature did not intend to authorize any change

in, either the substantive duties or rights of the licensee

as already determined, or any of the criteria or standards

® See City of Chicago v. FPC, 128 U.S. App. D. C. 107, 113, 385

F.2d 629, 635 (1967) ; Eastern Airlines, Inc. v. CAB, 122 U.S. App.

D.C. 375, 379, 354 F.2d 507, 511 (1965) ; see also Gray, The Nature

and Sources of the Law 173 (1963 ed.); Cordozo, Nature of Judicial

Procea 15 (1921). 8

—

raised problems of fairness. We do not find this kind of

specific exception available in the case before us.

Fourth, we think this view of the statute fully preserves

the Company’s constitutional rights and guarantees.

We proceed now to a fuller diseussion of these manifestly

inter-related propositions. sk Sires 0

Our view of both the statutory and constitutional

requirements is supported by Pennsylvania Power & Light

Co. v. FPC, 139 F.2d 445 (3d Cir. 1943), cert. denied, 321

U.S. 798 (1944). There the company contended that the

_ Federal Water Power Act, under which the license was

_ granted, did not entrust the Commission with.c@trol of

the licensee’s capital accounts, but merely of the projeet

accounts and that even, as to project accounts final de-

termination of project cost or net investment was entrusted

by the original to the district court rather than to the

Commission.“ The court disagreed and in its opinion,

written by Judge Maris, said (at 453):

We see no merit in these contentions. * * * [T]he

licensee had no vested right to have its investment

insofar as the contention of Pennsylvania Power 4 Licht

—that, there was a prohibition against use of the new

forum (Commission rather than District, Court) and pro- :

Act as well as constitutional considerations. os

Pertinent precedents include,Crane v. Hahlo, 288 US.

142 (1928), cited by Judge Maris, and Hardware Dealers

Mutual Fire Ins. Co. v. Glidden Co., 284 US. 151, 159

‘Berkovitz v. Arbib & Houlberg, pe geen

N.E. 288, 290 (1921) wherein Judge, later Mr.

Cardozo said: - :

- Arbitration is a form of procedure whereby differences, ;

may be settled. If is not. a definition of the rights

In § 28 Congress gave assurance that it would not make

any amendment that shall affect any dicense theretofore

insued . . . or the rights of any licensee thereunder.”

We do not think § 28 was intended to preclude change in

‘remedy and procedure on the ground that they necessarily

affect“ the vindication of the license, even though, as

every lawyer knows, available procedure may make a dif-

ference in result, ¢.g., whether he has pre-trial or pre-

hearing discovery. We do not think it is the fair intend-

ment of Congressional will to read § 28 so broadly as to

or , te ¢ 0 0 5

As to\liebnses involving use of either Government dams

or lands of Indian tribes we think that the 1935 insertion

46a

in §10(e), expressly putting the function of readjustment

of rentals in the hands of the commission, applies to the

generality of -all such licenses outstanding.“ The only

effect of § 28 is to carve out an exception for those cases

where the prior-established procedure had the quality of

a substantive right,“ e.g. in instances where specifically

bargained for by the licensee, a matter that we shall sep-

arately consider under part III, C of this opinion.

Reverting to the general interpretation of §10(e) we

must bear in mind that any of the constructions presently

contended for by the parties before us still leaves § 10(¢)

as involving only a minor“ change—as compared with

the context of the far-reaching changes in national power

policy wrought by this law, the Publie Utility Act of 1935.

The construction we think proper for §§ 10(e) and 28 gives

application to this statute of the general principle that a

prescription of procedure or machinery (and here the ex-

plicit designation of the tribunal assigned with decisional

responsibility), is to apply across the board to all matters

later set for decision, whether under new or existing li-

censes, We see no basis for concluding that the applica-

bility of this general rule is negatived by either express

language or the power of an inference from ‘context.

Montana Power says that the substitution of a tnmmis-

sion for an arbitrator can hardly be called ‘‘minor.’’ The

word must be considered in context. The Publie Utility

Act of 1935 wrought far-reaching changes in national elec-

tric power policy, not only the famous ‘‘death sentence’

u During fiscal year 1935 the Government collected fees from

licensees for the use of federal dams and lands of Indian tribes

totaling $218,185.39. (This is exelusive of fees paid by licensees

who used public lands and national forests.) These amounts were

paid pursuant to 36 outstanding licenses involving either land of

Indian tribes or Government dams; seven of these licenses involved

payments in excess of $1,000.00 (the amount payable under Project

5 during the construction period). Fifteenth Annual Report of the

Federal Power Commission 37-45 (1935).

17a

for public utility holding companies, but also in Title II,

a substantial extension of the Commission's jurisdiction.

Instead of limitation to hydroelectric projects in navigable

~, Streams (and Federal lands} the Commission was given

" regulatory control over interstate activities of operating

electric utilities, and Congress also set up machinery for

Federal assistance to State regulatory commissions, It is

in this context that we must consider the change made in

§ 10(e), which had previously provided that charges be set

by the commission and ‘readjusted in a manner described

in the license.“ This language had been stretched to pro-

vide not only a manner for readjustment of charges (which

would have included, say, a readjustment formula) but

also a change in locus of responsibility for prescribing

charges, to a person or agency other than the commission.

Whatever reasons may have impelled use of another

agency prior to 1930 when the commission consisted of

“three busy cabinet officers and had confliet-of-interest type

problems,” in 1930 the Congress reorganized the com-

mission as an independent regulatory agency. The statu-

tory revision made clear that the decisional responsibility

assigned to the commission embraced not only the original

charge but the readjustment of charges, In another context

this change might have prompted more elaborate consid-

eration and discussion. In the context of the far-reaching

changes in the 1935 legislation it is not hard to see why

the change was described as a minor clarification.

The context of the present statute gives further support

to the general presumption for across-the-board applica-

1 The Secretary of Interior was not only guardian of the Tribes

affected by projects on Indian reservations, but was also head of

the department that contained the Bureau of Reelamation interested

in projects using Government dams, The Secretary of Agriculture

headed a department containing the Forestry Service responsible

for lands used in electric projects. The administration of Commis-

Ssion licenses involved problems of irrigation and reclamation.

18a

tion of procedures by virtue of the fact that otherwise

different procedures and tribunals would be required for

different aspects of the same project, or for plainly inter-

from the Tribes The Commission does not necessarily

license all the project works of a given project at one

time. Montana Power Company v. FPC, 112 U.S. App.

D.C. 7. 11, 298 F.2d 335, 339 (1962). The Company

coneeded, and could hardly deny, that as to the new post-

1935 license which it obtained from the Commission (see

note 13, supra), responsibility for adjustments rests solely

in the Commission. There is no reasonable basis for sup-

posing that the legislature would have intended to assign

responsibility in part to the Commission and in part

to an arbitrator. As appears from the experience in 1929

and 1930, the caleulation of user charges and determination

of the value of the site comes to involve, e. g., calculating

cost of horsepower produced there and making compari-

son with alternatives, determination of the share properly

applicable to the land owned by the Indians and to the

Lake waters, and determining the extent of Lake water

value to be attributed to the Indians (the Lake waters

being owned in part by the Indians and in part by the

State). In these and other matters it cannot fairly be

presumed that the legislature contemplated responsibility

assigned in part to the Commission and in part elsewhere,

with the possibility of conflicting approaches tending to

hamper rather than attain a fair result.

1 That case involved the circumstance that the 1930 license

was amended to provide for two units. After construction of these

was completed, in 1949, Montana Power constructed and in 1954

‘began operating a Third Unit, albeit it had not obtained requisite

licensing authorization. The Commission amended the Kerr

license nune pro tune in 1961, and required annual payments of

$63,375 for additional use of Tribal lands from 1954.

19a

Uniformity of administration of federal water power

permissions was, after all, the reason why in 1920 there

was gathered in a single (eabinet-level) commission the

different jurisdictions therétofore exercised by the War

Department, which controlled the developments in navi-

gable waters, the Department of Agriculture, which con-

trolled the power sites located in the extensive mountain-

ous regions in the national forests, and the Department

of the Interior; which administered the projects on Indian

reservations and public lands. It would be an anomaly

indeed if the 1930 transfer of functions to an independent

commission, as the increasing number of projects and

problems demanded excessive time of cabinet members,

followed by the 1935 enlargement of functions entrusted

to that commission, were to be interpreted to require a

dispersion rather than a centralization of responsibility

for those functions. :

Our approach does not assume for a moment that the

availability of arbitration is a matter of only trivial con-

sequence, It is important enough to be unaffected by the

accident of diversity of residence of the parties and the

fact that diversity permits removal from an ordinary state

court to a federal court (which is treated in diversity

cases as a particular kind of state“ court). Bernhardt

v. Polygraphic Co., 350 U.S. 198 (1956). But this con-

clusion, as is plain from Bernhardt, does not depend on

whether the right to arbitration is labeled as either a

substantive ‘‘right’’ or a matter of procedure,

While the availability of arbitration may not turn on

an accident of forum within a state, it certainly may

properly be affected by the legislature’s subsequent es-

tablishment of a different and appropriate procedure as

exclusive. We refer again to Judge Cardozo’s opinion

in Berkovite v. Arbib & Houlberg, Inc., supra.

20a

We have carefully considered, and we reject, Montana

Power's alternative contention that in this particular li-

cense the arbitration provision had been ‘‘bargained for

as a major element in the agreement, and [is] hence a

vested right’’ which Congress could not and did not take

away.

The materials cited to us reveal that there was con-

siderable study and negotiation over the amount of annual

rentals that would be fair to the Tribes, and whether

they should be on a flat basis or-depend on actual use

of facilities. A flat schedule was finally agreed to.

There is no showing by the Company that arbitration

was ‘‘bargained for’’, or that this was anything more than

a convenient way of providing for readjustment of rentals

by an objective tribunal in case the parties could not agree,

The record contains, and we have examined, Flathead

Power Development, Memorandum on the Development

of Flathead River Power Sites, Montana, Sen, Doe, 153,

71st Cong. 2d Sess, (1930) (hereafter referred to as Sen.

Doc.). The Senate Document contains a memorandum

dated December 30, 1929, by J. Henry Seattergood," As-

sistant Commissioner, Bureau of Indian Affairs, addressed

to Seeretary of Interior Wilbur and the Federal Power

Commission pertaining to the two pending applications

for development of Flathead River Power sites—one from

Rocky Mountain Power Company, and one from Walter H.

‘Wheeler, This memorandum concluded that both appli-

cants had made inadequate offers of Indian rentals—a

view later supported by a separate Army study made at

the request of Secretary Wilbur and of the Commission,"

This memorandum appears in Sen. Doc. 1-47. Our review alao

draws on his supplemental memorandum dated May 14, 1930 ad-

dressed to Secretary Wilbur, Sen. Doc. 49.

* gen. Doo. -p..49.

21a

The context of further negotiations is focused by observa-

tions in this memorandum, which may be set forth as

follows: |

The Flathead case was of great importance to the Indians

in establishing principles, The Federal Power Commis-

sion, Secretaries of War, Agriculture and Interior, had a °

new executive secretary and new general counsel. Two

Senators and two Congressmen addressed the Commis-

sion at its hearings, Special care had to be taken because

in addition to the interests of the licensee and the „general

consuming publie,“ the only two parties normally involved

in power site leases under the Federal Water Power Act,

consideration had to be given to the interest of “‘the Indian

tribe, which is entitled to a fair rental for the use of the

power sites,’’

A license to Mr. Wheeler, a civil engineer of good stand-

ing and excellent record of accomplishment would provide

„development advantages of attracting new industries to

the region, which would be in competition with the Ana-

conda Copper interests closely allied with Montana Power.

(Sen. Doc. pp. 3, 46-47.)

Wheeler offered 61.125 per horsepower-year, which would

yield $118,125 annual rental for Site 1 on an estimate of

105,000 hp., a high efficiency ratio and a 100% utilization

factor, The Company offered $1 per horsepower-year, It

estimated 20,000 hp. for Site 1, and a utilization factor of

only 85% reducing hp. produced to only 68,000 hp., and

average ‘‘spot’’ rental of only $68,000,"*

However, Mr, Wheeler’s payments were seen to be limited

by the fact that his costs were in the same range as those of

the Company (close to $14 per horsepower year). More-

over, Wheeler 's selling price could not exceed $15 to at-

tract new industry (perhaps $16.34 to Mountain States

Power), and this could leave no room for the Indians to

Sen. Doe. pp. 12-13, 14 (table), 50,

22a

seek a higher rental (pp. 29, 32). Rocky Mountain Power

on the other hand had an intercompany price of $18, an

advantage to the Indians (p. 32). The Montana Power

System had an immediate need for capacity (indeed had

had a shutdown due to a recent dry season), and the Flat-

head site represented the optimum site available to the

Company, with the cheapest power at the powerhouse and

largest volumes (pp. 4-5).

Accordingly the Indian Bureau put forward the view

that the economic rental value of the site should be ex-

pressed as the difference between the generating cost of

‘service (including fair return to the Company), and the

inter-company pee, and this amount should be divided

between the fins and the general public in proportion

to their respective interests, the Indians owning the land

sites and the part of the Lake within the reservation, and

the State of Montana owning the rest of the Lake and the

right of water use. Assuming the Indians’ interest as

50% (rounding out a calculated 46.5%), this would yield

the Indians $2.25 per horsepower, on an annual average of

80,500 hp. (Sen. Doc. 9, 34). And the possibility of in-

creased rentals was heightened by the Company’s state-

ments at the hearing that the $1 offer was a nominal“

and arbitrary“ offer, based on the fact that this was the

customary charge of the Forest Service—which had no

trust obligations to the Indians (Sen. Doc. 37).

So much for Scattergood’s memorandum dated Dec. 30,

1929. The Senate Document reveals that there then en-

sued four months of discussion in 1930 on the basis of a

different approach—a combination of fixed charge and

energy charge. Mr. Scattergood’s May 14, 1930 supple-

mental memorandum to Secretary Wilbur u notes that

several plans were put forward with this type of schedule:

17 Sen. Doc. p. 49 et seq.

one by the Commission in its schedule of January 2, 1930;

one by the Army engineers, on an independent study re-

quested by Secretary Wilbur, submitted February 27, 1930,

and revised March 20, 1930; and one by the Indian Bureau,

in its Schedule 2, dated April 1, 1930, discussed by the

Secretary with the Montana delegation, The approach of

minimum fixed rental to a given horsepower development,

plus an energy charge above that point, amounted to a

_ profit-sharing contract that gave the Indians large revenues

at high output and the risk. af too little at low brackets.

Mr. Seattergood’s analysis continues (Sen. Doe, p. 51):

Furthermore a number of difficulties were encountered

in all these profit-sharing plans in providing against

any possibility of the use of the Flathead plant for

peaking purposes only or in dull times the giving to it

of only a reduced proportion of the entire system load,

and in general the avoiding of the temptation to starve

this plan in order to reduce the Indian rental, Four

months of negotiations were consumed in discussing

those various plans and the variables upon which they

were based and we were never able to reach an agree-

ment. Several deadlocks actually developed with the

breaking off of negotiations, Finally efforts on these

lines were abandoned and a new approach was entered

upon with the plan of a flat rental,

And so a flat rental basis was finally agreed to. It re-

duced risks te the Indians. And it avoided involvement -by

the Indians with having to monitor the management of the

' hydroelectric project. As Mr. Seattergood puts it, the flat

rental approach ‘‘avoids the difficulties of assuring to the

Flathead plant its fair proportion of system load“ and

‘favoids any inducement that Flathead be used for peak-

ing purposes, or that it be starved unduly at high water

periods when other plants of the system could carry an

increased share of the load.“ (Doc. pp. 51-52.) f

24a

With this change in approach to a flat rental schedule

the problem of readjustment of rentals, which had previ-

ously been visualized as in the nature of implementation of

a predetermined formula with new operating data, now

became an open-end agreement to negotiate and submit to

arbitration. The Company's brief notes (pp. 15-16) that

this proposal was made by the Secretary of the Interior

and promptly agreed to by the Company and the Com-

mission. This recourse to arbitration was in the context of

an open-end agreement, with the parties simply unable to

agrée on n formula approach for rentals that would not

excessively monitor or trammel corporate management, .

would be fair to the Indians.“ The readjustment of flat

1 The whedule agreed on 5 the parties and * in the

license is:

ö For the first two years . „ eer | 60,000 per year

, ORE EET TS 75,000 per year

For the fourth year 100,000 per year

22 6 vc cccbdocccccccesecves 125,000 per year

For the next five years /++++ 150,000 per year

For the next five years .........0....0005 ++ 160,000 per year

For the next five years and/or until read just -

ment of the ual charges payable here-

under shall have been effected pursuant

——— — (D) of this

SE abcde dscibaduidinesicsivess: 175,000 per year

10 The Company 8 brief is skillful but wholly unwarranted inso-

far an it makes, and seeks to gain some support. from, this state-

ment (at Br. 18): ‘‘The Commission's proposal included a provi-

sion that would have given it somewhat the same jurisdiction over

pc na “Ga Report, p. 63, R. ref. 8291. Its

proposal was not f

These are the facts 5 in the record. pirat, both applicants

put forward a rental schedule of a specified fixed rate per horse-

power produced, which had been estimated at a ‘‘spot’’ of produc-

tion, (Sen. Doc. p. 49.) This approach was rejected.

Next, a number of rental plans were put forward, which -con-

tained a Combination of a fixed rental plus an energy charge.

324 and a plan

* *

25a

tee rentals could not be left either to the Company, or to

the Secretary of the Interior, or to the Commission of

which he was a member.

After the issuance of the license in 1930, however, Con-

gress reorganized the Commission. * It no longer had the

initiated i in the Indian Bureau. The first proposal for such a plan

appears in a memorandum dated January 2, 1930, prepared by

F. E. Bonner, executive secretary of the Commission. (a) This

' was a personal memorandum, as appears from his reference to

my judgment of development cost (Sen. Doe. p. 60). (b) The

memorandum was tentative, to stimulate discussion of the fixed

rental plus energy charge approach. In the event the Commis-

sion decides to authorize a license for site 1 in the ve case, it

appears that the following may offer a rough outline of a logical

method for determining the reasonable charge to be fixed for the

use of the Indian land.“ While merely tentative and probably

. embracing some defects, it should at least be helpful in offering

something tangible for further study and 4 (Sen. Doe.

pp. 50, 61.)

The fixed rental plus energy charge was 0 because of

the problems of encroachment on the Company's managerial dis-

eretion, and fluctuation in income for the Tribes. It was because

of these difficulties that four months negotiations led to deadlock,

with negotiations broken off, and then a decision to embark on the

new approach of flat rental. Sen. Doe. p. 51, quoted in opinion,

supra at pp. 24-25.

This solidly documented history shows that the parties simply

could not agree on. initial rentals, for the first 20 * on 4 wanes

rental plus energy charge’ approach.

There is absolutely no. basis for conjecturing whether, if the

parties could have gotten together on the initial approach for

the first 20 years they would have been unable to agree on the

subsidiary concept, also proposed by Mr. Bonner, but without any

discussion, of entrusting to the Commission the task of making the

readjustment to apply the basic approach agreed on for the Tirst

20 years to the subsequent period. There is certainly not the

slightest basis for hinting that such Commission venijustment © was

not acceptable to the Company.

Act of June 23, 1930, 46 Stat. 797.

Secretary of the Interior or any other Cabinet officer as a

member, They, it appeared, had been ‘‘so burdened with

the tasks of their immediate depdrtments that they have

not had the time necessary for the work of the commis-

sion. Indeed the Commission was no longer confined

to the partisan membership of the appointees of one Presi-

dential administration, It was established as a conven-

tional independent regulatory five-map commission, bi- par-

\ isan, with staggered terms, It was organized as.a full-

’ time commission with full-time, expert staff. By the time.

of the amendments to f 10¢e) as part of the Pablic Utility

ond 1935, the Federal Power Commission 's status as

an independent regulatory ‘commission with expertise was

a of some years’ duration, and its standing was ro-

flected in the 1935 law which significantly enlarged its

jurisdiction. ay

The record does not provide the affirmative showing nec-

essary to support a claim that the interposition of the

Commission in this case would violate § 28, as taking away

the essence of a bargained-for right. What the parties

° bargained about for months was the attempt to reach a

-demand-plus-energy schedule, and this was abandoned.

With the adoption of a flat rental echedule, all parties were

in agreement on the need for an objective means of de-

termining readjustment charges if the parties were unable

to agree, The device of providing for agreement, and ar-

bitration in the event of inability to agree, was simply the

conventional device used by business contractors to obtain

"an on-going agreement and the assurance of an objective

tribunal without a special economic interest. As such it

does not differ significantly from the device of setting a

reasonably definite standard, as the parties did in this

in gen. Rep. 878, 71st Cong., 2d Seas. p. 2.

27a

case,” and leaving application of the standard tf the courts

if the parties themselves could not later on its

application.“ g ae ee) en

We see nothing in the negotiations, or in the license it-

self, to suggest that the arbitration provision was more

than simply a means of achievi goal of impartial ap-

' plication of the general standard embodied in the license.

This was the goal, too, of § 10(e), and whether the change

of forum was from the District Court to the Commission,

as in Pennsylvania Light & Power, supra, or from an arbi-

trator appointed by the District Court to the Commission,

as in the case at bar, the essential purpose of both Congress

and the parties to the license agreement is satisfied by our

interpretation. All that is changed is the tribunal: from

a court-appointed arbitrator under this license (perhaps

from a court itself under another license) to an independ-

ent, bi-partisan expert commission subject to judicial re-

view. The Commissioners were by law precluded from

‘engaging in any other business or employment, or from

holding any official relation to any license or any pecuniary

interest therein. 16 U.S.C. $792 (1964). a

There is no specific indication in the record why the

parties preferred an-arbitrator appointed by the court to

decigion directly by a court. Traditional reasons would in-

clude the greater speed, informality, and flexibility of the

arbitral process. The same factors were generally con-

sidered in 1935 to attach to the expert independent com-

mission. Perhaps there was a disinclination to take the

risk that the readjustment language might be thought too

The license provides that the ‘‘ readjusted annual charges [are]

to be reasonable charges fixed upon. . . the commercial value of

the tribal lands involved, for the most profitable purpose for which

suitable, including power development.

n See Corbin on Contracts § 99 (1963). There are decisions

that may be read as indicating that such a standard is too indefinite

for judicial enforcement, but they apparently constitute a minority

view.

28a

indefinite to be enforceable by a court (compare note 23,

supra); this risk would not be applicable either to an arbi-

trator or the Commission. These traditional reasons for

arbitration certainly provide no basis for interposing § 28

as a mandate to carve an exeeption out of the across-the-

board procedure set forth in §10(e). And that disposes

of the case before us in view of the absence of a showing

of any other reason why the parties chose arbitration—the

kind of reason that would be significant enough to warrant

application of the kind of protection afforded by § 28 to

substantive rights and would be frustrated by the pro-

cedure specified in § 10(e).

So far as this case ix concerned the members of the Com-

mission did not have the disqualification formerly attach-

ing to the Secretary of the Interior as special guardians of

the Indian tribes, The Commission was established as an

agency with broad stewardship over various aspects of the

publie interest—ineluding sound development of water re-

sources, and concern for the general consuming publice—as

well as the function and capacity for fair treatment of indi-

vidual parties before it, whether licensees or Indian land-

lords, Looking to the essence of the situation, we see no

showing that the designation of this commission as the

body to determine readjustment of rentals under the out-

standing licenses derogates from rights safeguarded by

§ 28 of the act.

IV. Orner Matters

1, To avoid misunderstanding we emphasize that we are

not casting doubt on the authority of this commission, or

other regulatory agencies, to take account of efforts of

parties to settle differences by agreement or arbitration.

The flexibility that is part of the genius of administra-

tive law and procedure may warrant an agency’s staying

its proceeding while the parties negotiate toward a settle-

ment agreement, or while their arbitrators grapple with the

matter. The award would have the same legal significance

as an agreement between the parties, Compare Brother-

hood of Railroad Trainmen v. Akron d B. B. N. Co., 128

U.S. App. D. C. 59, 74, 385 F. 2d 581, 596 (1967), cert. denied,

390 U.S. 923 (1968). This would at the very least be a

strong advisory“ effect, and in practical terms it might

permit the commission to grapple much better with its

prodigious work load,

This kind of flexibility, like the commission's use of nego-

tinted settlements, takes account of the significant differ-

ence between these two approaches in the settlement of

controversies, An administrative agency, like a court, de-

pends on reasoned disposition, on application of general

rules and standards to the facts of a particular matter.

Arbitration may proceed by that judicial type of disposi-

tion, but it may also partake of the kind of consensual dis-

position which prevails among businessmen, or in the re-

lations between business and labor, and for that matter

even in the halls of the legislature, Arbitrators do not

have to give reasons. In some types of matters that may

be an advantage, It is commonplace that parties may be

able to agree on a particular result more readily than they

can agree on a statement of the general approach that

harmonizes with the particular result. “The parties may

be disposed to avoid the expense and distractions of liti--

gation if the various rates reached in a settlement do not

constitute a binding admission or ruling on principle,”’

City of Chicago v. VO, supra, 128 U.S. App. D.C. at 119,

385 F. ad at 641.

These considerations point to the possibility that a com-

mission might properly conclude that for certain issues the

public interest is better served by limiting devotion of the

time, staff, and resources of an adjudicatory independent

United Steelworkers v. Enterprise Wheel & Car Corp., 363

U.S, 593, 598 (1960) ; ef. Intl. Asan. of Machinista v. Natl. Media-

tion Board | National Airlines], U.8.App.D.C, ——, F.2d

— (Jan. 30, 1970),

30a

regulatory commission, and by providing more scope for

agreement of the parties (including arbitration).™ But

such a judgment made by a commission on assessing all the

factors when the matter is presented for decision, is far

different from the Company’s claim that the proceeding

was never properly before the Commission for decision—

and this by virtue of an agreement made before the Con-

gressional amendments specified readjustment as a function

for the commission.

2. The view we have taken of the legal issues makes it

unnecessary to consider the contention that the Company’s

ability to claim ‘‘rights’’ secure against Congressional

alteration on August 26, 1935, is undereyt by its default at

that time under the license then outstanding.

* Company counsel has lodged an exhibit that reveals that the

license issued by the Commission to the Portland General Electric

Company for a project involving the use of lands of the Warm

Springs Indians provided for readjustment of Indian rentals by

arbitration, pursuant to the agreement of the parties made in 1955

and amended in 1961. 26 F. P. C. 192. We are not called upon

to consider whether this complies with §10(e). In any event, we

are not aware of any instances in which an independent regulatory

agency deferred its decision-making to an arbitration proceeding

where it was considered as one of the parties to the arbitration.

Rocky Mountain Power had failed to complete construction

within the 3-year period provided in the 1930 license, even as

extended for an additional two years by Amendment 1 in 1932.

The Company's motion of February 16, 1935, for an extension

from May 1935 to 1938 failed to obtain the approval of the See-

retary of Interior, and was denied by the Commission on April 1,

1935. The Commission ordered the matter referred ‘‘for appro-

priate legal action“ to the Attorney General who had authority

to institute proceedings for revocation of a license, Fifteenth

Annual ‘Report of the Federal Power Commission 178-79 (1935).

These facts are all set forth in the recitals to Amendment No, 2,

issued by the Commission July 17, 1936, after approval by the

Secretary and acceptance by the Company.

The record shows that one of the reasons why the Interior De-

‘partment preferred the Company's proposal over Mr. Wheeler's

3la

3. The Company contends that this court cannot have

jurisdiction if, as the Secretary contended before the Com-

mission, he has a ‘‘veto’’ power permitting him to withhold

approval of either the Board’s order or this court’s order

on review, See Chicago d Southern Air Lines v. Waterman

Steamship Corp., 333 U.S. 103 (1948). To avoid dismissal

of its petition to review, the Company refers to the veto

as a reason for requiring the arbitration remedy. There

are difficulties with the company’s contention, including the

point that it is difficult to square with this court’s 1962

exercise of jurisdiction in the Third Unit case (supra,

note 13),

As the case comes to us it contains the Secretary’s

acceptance of the Commission’s Opinion and Order. 529,

notwithstanding its rejection of contentions put forward

by the Secretary, but without prejudice to the Tribes’ con-

tinuing to urge their contentions. Before this court the

Secretary has disclaimed any right to disapprove the ruling

of this court.

Tn our view this disclaimer is only what the law requires,

The Secretary will be bound whether we affirm the Com-

mission’s ruling on the merits, or hold in favor of the

Company’s contention on the merits, in whole or in part.

The Secretary’s approval under the 1928 law (supra,

note 3), like the approval of the Secretary and of the Indian

was the earlier date in which the Company would be able to begin

construction and service. Sen. Doc. pp. 37-38.

Amendment 2 reduced the project to two generating units, and

provided for a new schedule of payments the Company had worked

out in an agreement reached with the Tribes, which had in 1935

been organized as a self-governing tribe under the Indian Reor-

ganization Act of 1934. 48 Stat. 984, 25 U.S.C..8§ 461-479 (1964).

Annual rental payable, originally limited by a peak rent of

$175,000, was increased to figures exceeding $175,000 for each of

thirteen years. Also the Company agreed to give preference to

members of the Tribe in hiring of employees for both construction

and operation of the power project.

—

32a

Tribes referred to in §10(e) of the Act, is manifested

initially by the concurrence with the licensee which must

exist in order for the application for the original license

(either as filed, or as modified to take account of objections

found in the original filing) to be approved by the Commis-

sion, It is manifested as to readjustment of rentals by the

filing with the Commission, or acquiescing in presentation

to the Commission, of an application requesting rendjust-

ment, The readjustment decision is made by the independ-

ent regulatory agency assigned this function by Congress,

subject to review by the court of appeals, After approval

of the presentation of the application for readjustment the

only further recourse of the Secretary or the Tribes is

the right of appeal provided by law for the correction of

errors made by the commission.”

The case will now proceed to the merits, Since a member

of the original division, Honorable Warren K. Burger, is

no longer a member of this court, his place will be taken

by another member of the court selected by lot in accord-

ance with the long-standing procedure prescribed by rexo-

lution of the Judicial Council. The case will be reargued

on the merits to the division thus constituted,

So ordered.

Bani, Chief Judge, concurring: I admit to substantial

doubt whether Congress in 1935 ever considered the pre-

cise situation we face today. Likewise, I cannot say that a,

change in forum might not, in other circumstances, give rise

to constitutional problems at least of such magnitude that

It cannot sensibly be contended that the approval“ required

under the 1928 law required the Secretary to approve each read-

justment of rentals. If that were so, the Secretary could not

validly have entered into the arbitration agreement in 1930.

The ‘‘approval’’ of the original license, either under the 1928

law or under the provision to § 10 (e), carries with it approval of

the procedure for readjuatment that has been either prescribed

by, or established in accordance with, the Congressional enactment.

33a

we would be constrained to interpret ambiguous statutory

language so as to avoid the constitutional question. I agree,

however, that § 28 of the Act was not intended to preserve

the particular forum in which a given dispute is to be

adjudicated ; and that the 1935 amendment may be applied

to the present case without constitutional difficulty. On

that basis I join Judge Leventhal’s opinion,

Tama, Circuit Judge, with whom Circuit Judges Mo-

(GiowAN and MacKinnon join, dissenting: My views con-

cerning the proper disposition of this case require a more

complete statement of the historical buckground und factual

context of this controversy than ix contained in the majority

opinion,

Prior to 1920, the development of water resources A a

potential source of electric power was governed

visions of the General Dam Acts, 34 Stat. ), 36

Stat. 593 (1910). Under these Acts, the right{to alter or

amend the licenses of power projects was

Congress, and no rights vested in licensees, This policy

rendered investments in power projects quite speculative,

thereby deterring public investors from providing the

capital needed to develop the nation’s water power re-

sources, Congress soon became aware of these short-

coming in the existing law and undertook an-exploration

of alternative solutions to the problem. One of these new

proposals was S. 1419, which ultimately became the Federal

Water Power Act of 1920. In the Senate Report accom-

panying this bill, the existing statutory scheme was sharply

criticized because it provided for the imposition of ‘‘condi-

tions upon which the permit may be granted that render the

terms of the investment so uncertain and ... 80 defeasible

that those having capital can not safely and will not make

investments under them.“ S. Rep. No. 179, 65th Cong., 2d

Sess, 3 (1917). A proponent of the eral Water Power

Act noted that the new approach taken in the 1920 Act was

designed to provide a ‘‘method by which the water powers

34a

of the country... can be developed * public or private

agencies under conditions which will give the necessary

security to the capital invested and at the same time protect

. . . [the] public interest.“ H.R, Rur. No. 61, 66th Cong.,

Ist Sess. 5 (1919).

The primary method that Congress chose for safeguard-

ing the security of investments under the Federal Water

Power Act was embodied in section 28 of that legislation,

which provided:

(T]he right to alter, amend, or repeal this Act is hereby

expressly reserved ; but no such alteration, amendment,

or repeal shall affect any license theretofore issued

under the provisions of this Act, or the rights of any

licensee thereunder.

41 Stat. at 1077 (emphasis added). The 1920 Act also

contained provisions which stated that licenses could be

issued for a term of not more than fifty years, and that

„when licenses are issued involving the use of. .. tribal

lands. .. within Indian reservations the [Federal Power]

commission shall fix a reasonable annual charge for the use

thereof, and such charges shall be readjusted at the end of

twenty years thereafter in a manner to be described in each

license. . . 41 Stat. at ——. The Commission had ocen-

sion to review the effect of these provisions and the Con-

~gressional intent underlying them in Annual Charges Pre-

scribed for Licensees Under the Federal Power Act, 31

F. P. C. 1555, 1557-58 (1964) :

The legislative history of the Federal Water Power

Act reveals several important efforts to include a

provision enabling the Commission to adjust annual

charges. Initially, Rep. Sherley of Kentucky succeeded |

in amending H. R. 16053, 63rd Cong., 2d Sess, (1914)

to provide:

The Secretary of War may provide as a condition

of such approval for the payments to the United

—

35a

States of reasonable annual charges for the benefits

that accrue to the grantee ... and at the end of

twenty years, and every ten years thereafter, the

Secretary of War may readjust the annual charges

as may then be just and reasonable. [Citing 51 Cona.,

Rec, 12,759 (1914); (emphasis added by the Com-

mission ),] ee

When the House was considering H.R. 3184 which, as

amended, became the Federal Water Power Act, the

F Sherley Amendment had its sequel in the unsuccessful

Little Amendment 0 „ 0 *

Representatives Small of North Carolina and Mo- »y

Arthur of Oregon opposed the Little Amendment in

[the floor] debate on the ground that it would discour-

age investment in the hydro-electric industry. Repre-

sentatives Ferris of Oklahoma and Sims of Tennessee

argued that since the Commiasion could /provide for

adjusting annual charges in the licensés, the Little

Amendment was unnecessary, | Representative Sims

made it abundantly clear that adjustment was not ~

possible without a license provision allowing it:

Mr. Little. But they have to do it when they issue

“the license or they forever forfeit any chance to ad-

e charges to changing conditions,

Mr. Sims. They have to put it in the license, [Cit-

ing 58 Cona. Rec, 2223 (1919) (emphasis added) .]

The Little Amendment was rejected, and II. R. 3186

was passed and sent to the Senate.

The Senate report on the bill proposed an amend-

ment which, while it would have confined the purposes

for which annual charges could be flxed, would have

permitted their periodic adjustment [by the Commis-

sion].... The Senate in approving H.R, 3184 adopted

36a

this amendment. The House being in disagreement

with the Senate Amendments, the bill was referred to

conference committee, in which ... the language as

finally enacted in subsection 10(e) was worked out

The legislative history thus shows that Congress re-

jected the two proposals which would have expressly

authorized the Commission to adjust annual charges,

even though both proposals contained a minimum

period for successive adjustments.

It would be difficult indeed to imagine a clearer or more

specific expression of congressional intent to immunize

license provisions, particularly those relating to readjust-

ment, from unilateral governmental action beyond the ambit

‘of the methods and criteria specified in the individual

license.

In the same year that the Federal Water Power Act

was passed by Congress, the Montana Power Company ap-

proached the Government regarding the possibility of ob-

taining a license to construct and operate a hydroelectric

project on the Flathead Reservation. (See S. Dog, No. 153,

71st Cong., 2d Sess. 3 (1930).) The lengthy negotiations

described in the majority opinion ensued, and the record

of these negotiations leaves no question that the problem of

finding a workable method to determine a fair rental charge

for use of the Flathead site was one of the hardest issues

confronting the parties. The Commission, the Army Corps

of Engineers, and the Bureau of. Indifn Affairs all made

various proposals during the period from January 2, 1930

to April 1, 1930; in all, ‘‘[f]our months of negotiations were

consumed in discussing those various plans .. and [the

parties] were never able to reach an agreement. Several

deadlocks actually developed with the breaking off of nego-

tiations.’’ (J.A. 183-84.) Finally, the parties agreed upon

a flat rental system because this method assured the Tribes

37a

of a stable income throughout the fifty-year term of the

license, The rental was set at levels which increased at the

end of the second, third, fourth, and fifth years of the

project, then increased again at two intervals of five years

each, and finally reached the sum of $175,000 per year

„lor the next five years and/or until readjustment of the

annual charges’’ required by the Federal Water Power Act

after twenty years of operation. (J.A. 184-85.)

The readjustment provision ultimately incorporated into

Article 30(D) of the license stated that the readjustments

in the rental amount mandated by the Federal Water Power

Act would be effected ‘‘by mutual agreement between the

commission and the licensee, with the approval of the Seo-

retary of the Interior. In case the licensee, the commis-

sion, and the Secretary of the Interior can not agree upon

the readjustment of such charges, it is hereby agreed

that the fixing of readjusted charges shall be submitted to

arbitration in the manner provided for in the United States

arbitration at. (J. A. 186.) This provision sup-

planted an earlier Commission proposal under which re-

adjustment would have been made upon the facts as found

by the commission at such times of readjustment.’’ (J.A.

203; emphasis added.)

When the Federal Water Power Act was amended to

become part of the Federal Power Act in 1935, section 28

of the former Act, guaranteeing the preservation of rights

vested in existing licensees, was carried forward into the

new legislation without any change. At the same time,

section 10(e) of the 1920 Act, which had provided that

readjustments were to be made in a manner to be de-

‘scribed in each license, was amended to state that read-

justments of the annual charges were to be made by the

Commission, The amendatory language on its face is

wholly prospective, and, as I read it, reflects no Congres-

sional intent to abridge inconsistent readjustment provi-

sions contained in otitstanding licenses.' Both the House“

and the Senate“ Reports accompanying the amendments de-

scribe the changes as ‘‘minor’’ and ‘‘elarifying”’—language

that is surely a classic understatement if it is designed to

convey an intent to let the Commission rewrite readjust-

ment provisions in all existing licenses, In fact, I think

it is fair to say that the available evidence indicates that

Congress did not intend to affect license provisions like the

one in question, and that the majority’s interpretation f

the legislative history rests upon questionable or erronegus

inferences,

On its face, * 28 of the 1920 Act is designed to

protect all rights granted in licenses issued under that legis-

lation, not just those provisions which a court or a different

Congress might later deem ‘‘important’’; this section uses

careful disjunctive phrasing to provide that subsequent

legislative action will not affect any license theretofore

issued . . or the rights of any licensee thereunder.’’ The

lengthy summary of the legislative history of the 1920 Act

' Section 10 of the Act, which is now codified in 16 U.S.C, § 803

(1964), states:

All licenses issued under. . this title shall be on the follow-

ing conditions:

(e). » [When licenses are issucd.involving . . . tribal lands

embraced within Indian reservations the Commiasion shall .

fix a reasonable annual charge for the use thereof, and such

charges may. . . be readjusted by the Commission . . . upon

notice and opportunity for hearing... (Emphasis added.)

Ses also 16 U.8.C. f 799 (1964) :

Licenses under . . . this title shall be issued for a period not

exceeding fifty years, Each such license shall be conditioned

upon acceptance by the licensee of all of the terms and con-

ditions of this chapter and such further conditions, if any, as

the Commission shall prescribe in conformity with this chapter

H.R. Rur. No, 1318, 74th Cong., Ist Sess. 7, 24 (1985).

8. Rur. No. 621, 74th Cong., Ist Seas. 17, 45 (1935).

quoted above clearly indicates that the Congress which first

* enacted section 28 would not have believed or intended that

the present result could be reached under that legislation.

The majority ‘concludes, however—by inferring Congres-

sional intent from evidence that is admittedly equivocal—

that Congress apparently meant something quite different

by the language of section 28 when it reenacted‘this provi-

sion in 1935: now the Commission would be permitted to

readjust all rental amounts even though a different method

had been specified in the license,

Even if I could accept the theory that (1) after 1935 sec-

tion 28 was limited to protecting only those license provi-

sions which the Commission and the courts would deem

‘substantive’? or important,“ and (2) rental readjust-

ment provisions in licenses issued under the 1920 Act are

not prima facie within this category by virtue of the strong

legislative history of the 1920 Act and the congressional

silence in 1935, I still would not be able to agree with the

majority’s analysis of the interests at stake in this case.

The majority asserts that the arbitration clause is ‘“reme-

dial,“ which renders it procedural and hence defeasible,

absent some exceptions which will be discussed below. I

believe that this characterization misconceives the function

of the arbitration clause in Montana Power’s license,

Clearly, such an inquiry into the purpose and functional

role of the provision is necessary here; for, as Judge (later

Justice) Cardozo said in Berkovite v. Arbib & Houlberg,

Inc., 230 N.Y. 261, 271, 130 N. E. 288, 290 (1921) :

The word ‘‘remedy’’ itself conceals at times an am-

biguity, since changes of the form are often closely

bound up with changes of the substance... The prob-

lem does not permit us to ignore gradations of impor-

tance and other differences of degree. In the end, it is

in considerations of good sense and justice that the

solution must be found.

See also Guaranty Trust Co. v. York, 326 US. 99, 108

(1945): „Neither ‘substance’ nor- procedure’ represents

40a

the same invariants, Each implies different variables de-

pending upon the particular problem for which it is used.“

At the outset, it is clear from the Erie doctrine cases and

the majority opinion that even where arbitration ix clearly

being used as a remedial device—most familiarly, in ro-

solving disputes over the construction or performance of

contracts by recourse to an impartial third party—it ‘sub-

stantially affects the cause of action’? and ‘‘may make a

radical difference in ultimate result.“ Bernhardt v. Poly-

graphic Co, of America, Inc., 350 U.S. 198, 203 (1956) ; see

also Byrd v. Blue Ridge Rural Elec, Cooperative, Inc., 356

U.S. 525, 539 (1959). Thus, even under the majority’s anal-

ysis, it is clear that the company may well be forced to pay

substantially greater rentals for thirty years out of the

fifty-year term of the license than it would be if the arbi-

tration clause were given effect. This fact, standing alone,

should make us extremely Wiry of the Commission 's facile

attempts to dismiss the clause as merely“ procedural.”

However, I think it is perfectly clear that the arbitration

clause in Montana Power’s license is different in fact and

function from the majority’s characterization of it. Unlike

the typical arbitration clause that is used to resolve contract

disputes, this provision is not triggered by one party’s claim

of breach; rather, it is used as a method of defining a key

term in the license at a specified future time, as mandated

by the Federal Water Power Act of 1920. The Supreme

Court has observed the validity of a similar distinction,

while nat making it determinative, in cases involving alleged

impairments of the obligations of contracts:

The provisions [of the contract] dealing with for-

feiture, which is one of the State’s remedies in case of

breach, and reinstatement, which is the purchaser’s

remedy to cure his breach, both operate on the rights

of a party after breach and thus concern the enforce-

ment of the contract, In this sense they are remedial

and the statute of repose challenged here is an altera-

tion of remedy rather than obligation,

41a

City of El Paso v. Simmons, 379 U.S. 497, 506 n.9 (1965)

(emphasis added), As a term-fixing mechanism, the arbi-

tration provision was not intended to be used only for ex-

traordinary contingencies such as a claim of breach, but

rather was designed to be employed during the normal

course of performance in the not-unlikely event that the

parties were unable to agree upon an adjusted rental

amount, One need look no further than the hornbooks to be

reminded that this is a familiar practice in contract law:

In the process of negotiating an agreement, a term

that is most frequently left indefinite and to be settled

by future agreement, or by some other specified meth-

od, is the price in money.. If the parties provide a

practicable, objective method for determining this price

or compensation, not leaving it to the future will of the

parties themselves, there is no such indefiniteness or

uncertainty as will prevent the agreement from being

an enforceable contract.

It is sufficient if the agreement provides that the

price shall be the antount that arbitrators or that | 4

a specific third person, shall fix as a fair price.

1 Connix on Contracts 423-25, 435-36 (1963). Additionally,

the inquiry which would be made pursuant to Montana

Power's arbitration clause is sighificantly different from

having an arbitrator determine how a disputed contract

term should be interpreted or what damages should be as-

sessed for breach. In the latter situation, there is typically

a relatively narrow question, and a relatively large body of

principle to guide the decision, Here, although the major-

ity leaves intact the license provision stating that read-

justed rentals are to be based upon **the commercial value

of the tribal lands involved, for the most profitable purpose

for which suitable,“ it is clear that valuation problems for

hydroclectric projects of this kind are extremely vague and

complex and that the foregoing standard offers little help

42a

in resolving them. This is amply demonstrated by the na-

ture and volume of the arguments which the parties have

addressed to the merits of the Commission’s rental read-

justment, and, unforunately, I suspect that it will also be

reflected in any opinion rerfdered by the division of this

court which is assigned to pass upon the merits, Because

of this lack of readily ascertainable standards guiding the

inquiry, the qualities and characteristics: of the tribunal

making the decision become pro tanto more important to

the parties; and in this regard it must be remembered that

the Commission was a party to the original agreement,

albeit in somewhat different form. .

Therefore, I believe that it is clear on the face of the

license and the legislative history that the arbitration clause

is ‘‘important’’ enough, even under a narrow reading of

section 28, to survive the 1935. amendments; and I think

that this conclusion is supported, rather than controverted,

by the record of license negotiations. Before examining

this question in detail, however, I think it should be empha-

sized that the preliminary negotiations provide a much less

reliable indicator of the substantive importance of a license

provision than an appraisal of the provision’s functional

role in the license. Experience teaches that parties fre-

quently agree upon some of the most important terms of

contracts without a lot of bickering or negotiation; and fair-

ness dictates that Montana Power should not be penalized

for agreeing too readily to the proffer of arbitration as a

term-fixing mechanism. Moreover, it should be remembered

that the published records of the license negotiations are

not by any means verbatim transcripts; rather, they are

summaries prepared for the use of the Government in its

capacity as potential negotiator of similar licenses in the

future. Thus, relying upon these records is a rather specu-

lative enterprise, particularly when making the kind of im-

plication from silence that the majority is asserting on this

point. However, to the extent that the history of negotia-

tions may be useful to elucidate the present inquiry, I think

it points as strongly to the conclusion that the arbitration

43a

clause was considered substantively important and inde-

feasible,

As the majority points out, the parties to this license,

particularly the Government, approached the task of nego-

tiation and drafting with acute awareness that their acts

would have great precedential significance ; the Scattergood

Report states that „it would seem unusually appropriate

that special care be taken to develop the factors for regu-

lation under the Federal water power act... and for the

preparation of a model leuse.“ (J. A. 137.) This care by

the parties extended to the task of making sure that the

precise instances and scope of future governmental regula-

tion would be specified in the license, in accord with the

usages of the 1920 Act. This was done with many sections

of the license, both in the negotiations (see S. Doc. No. 153,

71st Cong., 2d Sess. 7-9 (1930)) and in the license itself

(see J. A. 237-258) ; yet, provision for possible government

regulation is notably absent from the readjustment section

contained in the license. Moreover, as noted above, the

urbitration clause was allowed to become part of Montana

Power’s license only after the company had rejected the

government’s proposal to have rentals readjusted ‘‘upon

the facts as found by the commission.“ (J.A. 203). Finally,

when the license was renegotiated shortly after the passage

of the 1935 amendments, the parties themselves provided

a practical construction of the license which showed that

they believed the arbitration clause to be important enough

to remain fully effective. During these renegotiations, the

Tribes and the Commission were in a very advantageous

bargaining position—and Montana Power was in a very

poor one—by virtue of the company’s default on its con-

~ struction obligations; however, the parties ineluded lan-

gunge in the amended license which reflects their belief that

the arbitration clause remained in full effect. In the Sched-

ule of Annual Charges contained in Amendment No. 2, the

parties stipulated that the rental for the year 1954 would

be $205,000, and that ‘“‘[t]hereafter, until adjustment of

the annual charges payable hereunder shall have been ef-

— — — ... a eS ren Eee

44a

fected pursuant to the provisions of paragraph (D) of this

Article 30 [the arbitration clause],’’? the annual rental

amount would be $175,000. (J. X. 271; emphasis added.)

Against this background, I find the majority’s analysis

of the negotiations extremely artificial. The majority eon—

cedes—as it must—that there was initially a period of hard

bargaining over the price term of the lease, When arbitra-

tion entered the picture, however, these negotiations appar-

ently underwent some strange variety of legal mitosis: sud-

denly, the first twenty-year period of the price term’s ef-

fectiveness became ‘bargained for,’? while the remaining

thirty years of the price term became, not ‘bargained for’?

but rather an “open-end agreement’? or an ‘on-going

agreement’’—phrases which apparently have no legal sig-

Nificance, and unt relationship to what I perceive as the

thrust of the negotiations, Suflice it to say that, in con—

trast the relatively simple and expeditious processes of

arbitration, this readjustment proceeding certainly has

proved to be ‘fopen-ended’’; there is not even an end to

litigation in sight. Other problems remain in the majority

opinion, but none seems substantial enough to warrant ex-

tending these already lengthy opinions any further, or de-

- laying their issuance any longer. I would require that this

controversy be submitted to arbitration forthwith.

MacKinnon, Circuit Judge, with whom Hui, Ludge

McGowan joins dissenting: I concur in Judge Tamm’s dis-

senting opinion, The majority opinion relies uponsthe fact

that the 1920 statute, which provided that the readjustment

in the annual charge was to be made

(oe) ... by the Commission. ee in a manner to be de-

scribed in each license... .”” (Kmphasis added) (41

Stat. 1069)

was amended in 1935 to state:

**(e)... by the Commission ... subjeet to the approval

— of the Indian tribe .. upon notice and opportunity for

hearing.’’ (Emphasis added) (49 Stat. 843)

45a

From this it concludes that the 1935 amendment operated

retroactively to amend the terms and provisions of the

license issued to petitioner in 1930 so as to change the man-

ner of readjusting the annual charges that is specifically

described in petitioner's license, i. e., in thé last analysis,

arbitration,

In reaching such conclusion the majority opinion over-

looks the opening sentence of section 10 which is introduc-

tory to subsection (e) and the other subsections thereof, It

provides:

See, 10. All licenses issiiéd under this part shall be

on the following conditions: ete. (49 Stat. 842),

The intent of Congress in this clause is clearly to prescribe

the conditions upon which licenses “shall be”? issued, not to

amend licenses already issued, If Congress had intended

to amend existing licenses they would have said ‘thereto-

fore or hereafter issued.’? It is also important to note that

the prefatory clause of section 10 was part of the original

1920 Act and so the congressional intent manifest therein

was for a completely prospective application. The re-enact-

ment of the same language would not change the original

intent. And when this introductory clause of section 10 is

read in conjunction with section 28 which provides that

. .. no alteration, amendment . . . shall affect any license

theretofore issued under the provisions of this act, or the

rights of licensees thereunder”? (emphasis added) (41 Stat.

1077; 49 Stat. 847), it seems abundantly clear that Con-

gress in the 1935 amendment only intended to affect licenses

issued thereafter. This interpretation is buttressed by the

well-established rule that a retrospective application of

legislation is not to be implied.

**TA] retrospective operation will not be given to a statute

which interferes with antecedent rights, or by which human action

is regulated, unless such be ‘the unequivocal and inflexible import

of the terms, and the manifest intention of the legislature.’ ’’

46a

If there were any doubt about such interpretation it is

put at rest by noting that the 1985 amendment providing

for notice and opportunity for hearing is not by its terms

inconsistent with readjusting the annual charges here in-

volved in the manner prescribed in petitioner’s license and

doing so upon notice and hearing. It is not necessary to

strike down a material provision of petitioner's license in

order to give prospective effect to the 1935 Act since it only

adds a requirement for notice and hearing, Thus the terms

of petitioner’s license and a prospective operation of the

1935 amendment can both be applied. Statutes are not to

be applied retrospectively unless such legislative purpose

is clearly expressed? There is no support in the legislation

for the suggestion that the quoted provisions of the 1935

Aet were intended to affect existing licenses or to be given

a retrospective operation, Such evidence of legislative in-

tention as does appear in section 28 is expressly to the con-

trary.

— ——— — — h

Union P. R. Co. v. Laramie Stock Yards Co., 231 U.S. 190, 199

(1913).

In the absence of a clearly expressed legislative intent to the

contrary, the court will presume that the law-making power is

acting for the future, and does not intend to impair obligations

incurred or rights relied upon in the past conduct of men when

other legislation was in force.“ Cameron v. United States, 231

U.S. 710, 720 (1914).

Where it is claimed that law is to have a retrospective opera-

tion, such. must be clearly the intention, evidenced in the law and

its purposes, or the court will presume that the lawmaking power

is acting for the future only and not for the past; that it is enact-

ing a rule of, conduct which shall control the future rights and

dealings of men, rather than review and affix-new obligations to

that which has been done in the past.“ White v. d’nited States, 191

U.S, 545, 552 (1903).

® Tlassett v. Welch, 303 U.S. 303. 314 (1938); Miller v. United

States, 294 U.S. 435, 439 (1935); Brewster v. Gage, 280 U.S. 327,

337 (1930).

7 Fa

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term, 1969

No. 21,904

Tux Montana Power Compan Y, Petitioner —

FreperaL Power Commission, Respondent

Tue Conreperatep Sais AND Kootenat TRIBES OF THE

Fatueap Reservation, Monta NA, SECRETARY OF

Interior, Intervenors

No. 21,767

Tun Conreperatep Satish AND Koorenat TRIBES OF THE

FLATHEAD Reservation, Mox TAN A, Petitioners

FrperaL Power Com Mission, Respondent

Tur Montana Power Com PANY, Intervenor

Before: BAAH N, Chief Judge, and Wnianr, McGowan,

Tam, Leventuar, Roni xsox and MacKinnon, Circuit

Judges, sitting en bane.

Order .

These cases came on to be reheard before the Court sit-

ling en bane on the jurisdictional issue presented, and were

reargued by counsel.

On Consiperation Tuerror, and the determination by

this Court en bane that the Federal-Power Commission had

jurisdiction over the proceeding to readjust charges pay-

able by Montana Power to the Tribes, and that this Court

-has jurisdiction to consider on the merits the petitions to

review the order and decision of the Federal Power Com-

mission, it is

Orperep by this Court en banc that these cases shall bo

referred to a division of this Court for consideration of the

merits, in accordance with the opinion of this Court filed

herein this date.

Per Curiam

48a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 21,904

Tur Montana Powgr Company, Petitioner

Freperau Power Commission, Respondent

Tur ConFrEeDERATED SALISH AND KooTenal TRIBES OF THE

FLATHEAD Reservation, MonTANA, SECRETARY OF

Interior, /ntervenors

No. 21,767

Tue CONFEDERATED SALISH AND KoorENAI TRIBES OF THE

FLATHEAD ResERvATION, Montana, Petitioners

FreperaL Power Commission, Respondent

Tur Montana Power Company, Intervenor

Petitions for Review of Orders of the

Federal Power Commission

Decided June 26, 1969

Before Burcer,* Tamm and Leventuat, Circuit Judges.

Tau u, Circuit Judge: We herein consider, review, re-

verse and remand certain orders of the Federal Power

Commission.

The Commission proceeding below was initiated by peti—

tion of the Confederated Salish and Kootenai Tribes of the

Flathead Reservation, Montana (hereinafter ‘‘Tribes’’),

seeking readjustment of annual charges or rentals paid by

the Montana Power Company (hereinafter ‘‘Company”’ or

„ Concurrence in this decision was received from Judge Burger

prior to May 21, 1969—the date on which his nomination for Chief

Justice of the United States was announced,

— — —

49a

„Montana Power’’) pursuant to its license permitting the

use and development of certain lands within the tribal re-

serves in the Company’s production, transmission and sale

of electric power. It is the decision of the Commission that

these annual charges are to be appraised and assessed uni-

laterally by the Commission pursuant to a 1935 amendment

to the Federal Water Power Act.’ It is the position of the

Company that any readjustment must be determined by

resort to arbitration as provided in its lease. These two

positions conflict and their resolution is necessitated. The

Tribes, while agreeing with the Commission’s determina-

tion of method, disagree with its award as to amount. For

reasons hereafter developed, we need not reach that point.

On March 7, 1928,? the Commission was given the author-

ity by Congress to issue licenses involving lands within the

Flathead reservation. The terms of the license were to be

subject to approval by the Secretary of the Interior and

rentals thereunder were to be credited to the Tribes. Sub-

sequently, in 1929, after some informal communications,

the Sceretary of the Interior, the Commission and the Mon-

tana Power Company entered into negotiations for a license

to construct and operate a power project within the reser-

vation. The parties entered into the negotiations under the

controlling statutory authority of the Federal Water Power

Act, of 1920, ch. 285, 41 Stat. 1063. That Act provided for

the issuance of licenses for a term not to exceed 50 years,

and ‘‘when licenses are issued involving the use of . . . tribal

lands embraced within Indian reservations the commission

shall fix a reasonable annual charge for the use thereof, and

such charges may be readjusted at the end of twenty years

after the beginning of operations and at periods of not less

than ten years thereafter in a manner to be described in

each license.. . Federal Water Power Act of 1920,

S 10(e), 41 Stat. 1069. Thereafter, on May 23, 1930, a li-

Federal Power Act, 16 U.S.C. §§ 791 et seg. (1964).

2 Act of March 7, 1928, ch. 137, 45 Stat. 200, 212.

50a

conse for the power project was ixsued for a term of 50

years to a wholly owned subsidiary of the Montana Power

Company, ‘The Commission agreed upon and set en“ ren

sonable’? charge and, in compliance with Section 1000) of

the Act, included in Article 30(d) of the license a provision

requiring that the annual charges could be readjusted by

mutual consent of the parties with approval of the Seere-

tary of the Interior, but that, in the event of disagreement

thereon, the rental amount would be submitted to arbitration

in the manner provided in ‘The United States Arbitration

esse :

Thereafter, in 1985, the Federal Water Power Act of 1920

was amended te provide that the authorization of Licenses

on tribal hinds would be subject to approval by the ‘Tribes

and any readjustment of the annual charges would be un-

dertaken. by the Commission” Following this enactment

the Company took over from its subsidiary (in a manner

not here relevant) and completed the proposed units.“ In

“1939 the first unit became funetional,

„he annual charges payable under this license may be read-

justed_ ut the end of twenty (20) years after the beginning of op-

eration... and at periods of not less than ten (10) years thereafter

by mutual agreement between the Commission and the Licensee,

with the approval of the Seeretary of the Interior. In case the

Licensee, the Commission and the Seeretary ... ean not agree upon

the readjustment of such charges, it is hereby agreed that the

fixing of readjusted charges shall be submitted to arbitration in the

manner provided for in The United States Arbitration Act,

such readjusted annual charges to be reasonable charges fixed upon

the basis provided in Section 5 of Regulation 14 of the Commission,

to wit, upon the commercial value of the tribal lands involved, for

the most profitable — for which suitable, including power

development.“ (J. A. 249-50)

416 U.S.C. 8 8OR(e) (1964).

Originally the license had called for the construction and op-

eration of three power units. That provision was subsequently

modified to require only two units. The second unit was operable

in 1949. It was not until 1954 that a third unit became operational.

5la

_Upon the expiration of twenty years from that date, the

Tribes, in 1959, petitioned the Commission for readjust-

ment of the annual charges. Phe Jompany thereupon

brought suit in the II. S. District Court in Montana to com-

pel arbitration, That court held that a determination of

jurisdiction must first be contested before the Commission

and then tested on appeal under 16 U.S.C. § 825/(b) (1964).

In the meantime, however, the Commission had been hold-

ing hearings on the Tribes? petition with participation of

all concerned parties. On October 4, 1967, the Commission

held that it had jurisdiction and that the annual rentals

would be inereased to $956,000 per year and included the

so-called Third Unit in their determination, Both the Com-

pany and the Tribes petitioned for rehearing and each peti-

tion was finally denied on March 21, 1968. Each, as before

noted, petitioned this court for review.

The basie and controlling question in this dispute is sim-

ply whether the readjustment of the annual charges is sub-

ject to unilateral action by the Commission under the

amended statute or whether the language of the original

license commands arbitration. 55

The Commission admits that when Montana Power’s li-

cense was first issued, Section 10(e) of the Federal Water

Power Act of 1920 was controlling. It also agrees that this

statute authorized readjustment “in a manner to be de-

scribed in each license .. .. It is not disputed that at the

time this license was issued that“ manner“ was to be by

mutual consent among the parties or, failing that, submittal

of the question to arbitration. The Commission urges, how-

ever, that Section 10(e) of that Act was later amended by

the Federal Power Act in 1935 to accord uniformity in all

readjustment procedures in that the annual charges would

thereafter be readjusted “by the Commission“ after notice

and hearing, 16 U.S.C. § 803(e) (1964). It argues that this

language was merely corrective of certain problems exist-

ing in the earlier Act and that Congress was empowered to

vest the Commission with „broad new jurisdiction’’ over

owe

in {ie

uy RET

re 11 ＋ ji uy | 4 4

faiths HE HTH Hut ies

10 He i

if? 1 Hi AHH Ii 11

A At

Hale i Hy] :

i 1 HH i

1 % .

1 0 0 112411 Hi 111 41 1

au 111 e

ili 10 Ht lft

| 10 11 Le 10 i

11 fil 22 1

e 14 d

fri

sit

clarifying the purpose of the See.

tion 10 of the Act, the Report noted that this “‘section

issued,” Shall be,“ and “‘shall fix”’ are phrases express-

img an unambiguous intent to command future rt.

H.R. Rep. No. 1318, 74th Cong., lst Seas. 24 (1935). 5

? Py

1111 0 l

“new approach” which was adopted was Article 30 of the

the dollar over that period gave rise to the spetem of an

nual change inthe rental with readjustment at the end of

say

readjustment amount? The Secretary's proposal, Ar-

ids Sh, an ————— That

answer was an arbitrator. It was then, and only then, that

11210 ee aH

Hit 10 if 110 He E i

17324

Hy 1% 0

ili a ii inh

* City of El Paso v. Simmons, 379 0.8. 497, 515 (1965)..

”

HUI

i i

eee

Hf 1

HHT 123 11

11 i

The other alternative argument, advanced principally by

the Secretary, is that Montana Power’s acceptance of the

1936 amendment to its license expressly indicated its will.

ingness to be governed b¢ the provisions of “the Federal

Water Power Act of June 10, 1920 (41 Stat. 1063); as

amended . ..”” (emphasis supplied). (J. A. 274.) However,

that same instrument contained the proviso that ‘‘the license

issued to the Licensee . . . is hereby amended as follows

upon the express condition, however, that such amendment

shall not operate to_alter or amend said license in any other

respect than as herein specified, and shal! not in any way

constitute a waiver of any other part, provision, or condi-

tion of said license.”” (Emphasis supplied.) (J. A. 283).

Again, we cannot imply from the instrument, as written,

any intention by the Company to waive its rights under the

earlier Act except as expressly outlined in the document.

To the contrary, we find express reservation of those —

rights. | 0

f Absent any explicit statutory intent to the eontrary and

absent waiver on the part of the Company, we hold: the

di i il i Hi 0

t e 145 at

The license was issued under the Federal Water Power

Act of 1920,' which, amended, became Title I of the Federal

Power Act in 1935. The “Act authorizes the Commission

to issue licenses for the purpose, inter alia, of constructing

dams, power houses, or other project works, for the utiliza-

tion of power from bodies of water over which Congress

has jurisdiction (§4). Section 6 of the Act provides that

licenses shall be issued for a period not exceeding 50 years,

and each license shall be conditioned on acceptance by the

licensee of all terms and conditions of the Act and such

further conditions as the Commission — preseribe in eun-

formity with the Act.

Our particular attention goes to section 10 whieh provides

that all licenses shall be on certain prescribed conditions.

Subsection (d) sets forth the condition requiring the licensee

to establish amortization reserves from excess profits

earned after the project has been in operation for 20 years.

Other provisions give the Commission power to apply these

reserves to reduce net investment in the project, and also

(see § 14) give the Government the right to take over the

project on expiration of the license on payment of net

investment. See Niagara Mohawk Power Corp. v. FPC,

126 U.S.App.D.C. 376, 379 F. ad 153 (1967).

Section 10(e) contains certain general provisions—that

the licensee shall pay the United States reasonable annual

charges, as fixed by the Commission, as reimbursement for

the cost of administration and to recompense it for the use

of its lands or other property, that charges for the expropri-

ation of excessive profits may be 23 from time to

time as conditions may require.

* Act of June 10, 1920, 41 Stat. 1063.

216 U.S.C. § 791a et seg. (1964), as amended (Supp. IV, 1969).

to be described in each license. As amended in 1935 the

statutory provision sets forth that: ö

able annual charge for the use thereof, and such charges

may with like approval be readjusted by the Commis.

sion at the end of twenty years after the project is

available for service and at periods of not leas than ten

years thereafter upon notice and opportunity for hear-

ing. |

It is this 1935 provision for readjustment of annual

charges that was invoked by the petition of the Tribes filed

with the Commission in 1959, and by the Commission in

its order of readjustment of charges that is brought here on

petition to renew. Montana Power claims the 1935 read-

justment provision is inapplicable because, when the origi-

nal license was issued in 1930, the statute provided only

for readjustment of charges “in a manner to be described

in each license.

Montana Power elaims that since the 1930 license pro-

vided for readjustment only by agreement or arbitration,

the Commission is without jurisdiction to readjust charges. |

| Power Co. v. FPC, supra, 126 U.S. Ap. D.C. at 378, 379

F. ad at 155. The 1930 change was one whereby the Com-

l " * * 2 " lofa itt of hi ' offi-

Licenses involving use of tribal lands are in the same pro-

viso, of course, as licenses involving the use of government

structures.

In my opinion the intent of Congress is furthered, and

constitutional guarantees are safeguarded, by a general

* Act of June 23, 1930, 46 Stat. 77.

8. Rep. No. 621, 74th Cong., Ist Seas. (1935), at 45.

We see no merit in these contentions, * * Tine

licensee had no vested right to have its investment

determined by one procedure rather than by another

and an 80 long as it was accorded a right to be heard

only for lack of jurisdiction, fraud, or wilful misconduct

of members of the board. The Supreme Court found no

constitutional inhibition, saying, in a unanimous opinion de-

livered by Justice Clarke (258 U.S. at 147-48, citations

omitted) : :

No one has a vested right in any given mode of pro-

cedure and so long as a substantial and efficient remedy

remains or is provided due process of law is not denied

by a legislative change... . [The amendment] afforded

ample protection for the fundamental rights’ of the

— in error, and the taking away of the right to

ve examined mere elaims of honest error in the con-

duct of the proceeding by the Board did not invade any

federal constitutional right.- Even courts have been

known to make rulings thought by counsel to be er-

roneous.

As for the complaint that the board was composed of

three city officials appointed by the mayor, the Court ap-

proved the opinion below which noted that the city’s pay-

ment of any claim would be covered by an assessment, and

continued : ‘‘Officials acting really as an auditing board are

not condemned because they have been selected by the mu-

nicipality or other division against which the claim is

made. Crane was cited with approval in Hardware Dealers

Mut. Fire Ins. Co. v. Glidden, 284 U.S. 151 (1931), which

considered a law that ‘‘substitutes a determination by arbi-

tration for trial in courts of the single issue of the amount

of loss suffered under a fire insurance policy’’ (p. 158).

The Court, per Justice Stone, held that ‘‘the requirements

of the Fourteenth Amendment, so far as now inwoked, are

67a

satisfied if the substitute-remedy is substantial and .

cient.”’ See Crane v. Hallo, %8 U.. 142, 147 (1922).

rine Precedents underetf any claim that the legislature's

substitution of arbitration for a commission, or viee versa,

The same kind of consideration is pertinent to determina.

tion of the sound construction given the 1935 act, as estab.

lishing uniformity of decisi responsibility, so long as

there is no alteration of accrued substantive rights. Penn-

sylvania Power & Light Co. v. FPC, supra. This view ‘is

179 F.2d 179 (3d Cir. 1949), cert. denied, 339 U.8. 957

(1950). The legislative history already cited supports the

conelusion that the 1935 act intended the Commission to

have the responsibility for fixing annual charges, in all li-

censes thereafter issued, and to have jurisdiction over any

The discussion of precedents should also take note of

oBerkovitz v. Arbib 4 Houlberg, Inc., 230 N.Y. 267, 130

“law could be applied to contracts entered into before its

enactment. Judge Cardozo’s opinion said (230 N.Y. at

262, 130 N.E. at 290): =

»_____ Atbitration is a formof procedure whereby dif.

ferences may be settled. It is not a definition of the

rights and wrongs out of which differences grow. This

statute did not attach a new obligation to sales already

made. It vindicated by a new method the obligation

then existing.

Montana Power points to Bernhardt v. Polygraphic Co.,

350 U.S. 198 (1956), where the Supreme Court held that

in diversity actions federal district courts must apply the

law concerning availability of the arbitration) remedy that

would have applied if the suit action had brought in

the state court. The Court said, through Justice Douglas

(350 U.S. at 202-03) :

The federal court enforces the state-created right by

rules of procedure which it has acquired from the

Federal Government and which therefore are not iden-

tical with those of the state courts. Yet, in spite of

that difference in procedure, the federal court enforcing

a state-created right in a diversity case is, as we said in

Guaranty Trust Co. v. York, 326 U.S. 99, 108, in sub-

stance ‘only another court of the State.’ The federal

court therefore may not ‘substantially affect the en-

forcement of the right as given by the State.’ Id.,

109. If the federal court allows arbitration where the

state court would disallow it, the outcome of litigation

might depend on the courthouse where suit is brought.

For the remedy by arbitration, whatever its merits or

shortcomings, substantially affects the cause of action

created by the State. The nature of-the tribunal where

suits are tried is an important part of the parcel of

rights behind a cause of action.’’

The limited significance of Polygraphic for present pur-

poses is illuminated by the case it cites, Guaranty Trust Co.

v. York, 326 U.S. 99 (1945). The Court there held that

a federal court could not maintain a diversity action that

would have been barred by the statute of limitations if

brought in a state court. Justice Frankfurter pointed out

that the issue is not resolved by inquiring whether a statute

of limitations ‘‘is deemed a matter of ‘procedure’ in some

that alone is relevant to our namely, does it

significantly affect the result of a litigation.” (326 U.S. at

109.) The need to focus on context is by

“Matters of ‘substance’ and matters of ‘procedure’

defined u gra about in the books as though they

of law. But, of course, ‘substance’ and “procedure? gre

the same keywords to very different problems. Neither

‘substance’ nor ‘procedure’ represents the same invari-

sented by constitution=] clajfas like ex post facto legislation

or impairment of contract obligations, or the related issue

of statutory intent involved in determining whether a new

remedy applies to outstanding matters, For that purpose

by the Court to bear on cajun fl different problems pre-

the pre-Polggraphic precedents, and their analysis discussed

above, stand unshaken.

Montana Power makes an alternative contention that in

this particular license ‘‘the arbitration provision is a sub-

stantive provision, bargained for as a major element in the

agreement, and hence a vested right which Congress could

not and did not take away. The materials cited to us reveal

amount of annual rentals that would be fair to the Tribes,

and whether they should be on a flat basis or depend on

actual use of facilities. A flat sehedule was finally agreed

to. But there is nothing to indicate a deep concern over the

method of readjustment. Whoever proposed readjustment

be decided through arbitration in the event of inability to

agree, it seems ta,have won general acceptance, no doubt

because of the potentially conflicting responsibilities of the

Secretary of the Interior, who was then both a member of

the Commission and a trustee for the Indians. But after

the license was issued the Commission was reorganized from

a Cabinet committee to a five-member independent con-

mission. When Congress placed readjustment responsibil-

ity in the Commission in 1935, the arbitration provision was

vo longer necessary in order to provide a disinterested

agency for the readjustment function. Compare Crane v.

Hale, supra.

Indeed consideration of the particular situation of Mon-

amended two generating units (instead of three), °

and for a e of 154,000 hp (instead of a minimum of

charges no higher than $175,000, the amended license called

ae ae

for rents rising to $205,000, | |

These spatters were all negotiated directly with the Tribe,

but it is hard to reconeile this 1936 activity, resulting in

substantial amendments of the license, thus avoiding the

But there is more to be said about post-1930 develop-

ments, Montana Power, which had succeeded to the license

in 1938, completed the second unit i .

and began operating a third unit in $054, alleit (ryt

The new license for the third unit is an illuminating aspect

of this case, in my mind. Montana Power would have to

9 72a |

agree that it has no vested right of arbitration which could

preclude Commission jurisdiction to engage in readjustment

of rental charges as to the third unit. But it seems to me

manifest. good sense that the same tribunal should have

_, Teadjustment jurisdiction for the different units of this

Kerr projeet putting aside for the moment the differences

between the parties as to when this readjustment authority

may be exercised so far as the third unit is concerned. This

also bears on legislative intent. Can it be supposed that the

1935 legislature, reconstructing as best we can what it

would have said about the problem if its attention had

been expressly directed to it, would rule that arbitration .

would govern as to units atready authorized but the Com-

mission would exercise readjustment jurisdiction as to units

thereafter authorized? This seems patently unlikely, quite

apart from the point already noted that the construction of

the two units eventually constructed was not authorized

until 1936. . :

This leads me into an aspect of this case in which I take

issue with the position of the Commission, the Secretary

and the Tribes. They seem to feel that § 10(2) as amended

in 1935 requires the Commission to fix readjustment of

charges. But § 10(e) only says that the charges „may be

readjusted’’ by the C ission after twenty years. I think

the Congress has given the Commission the jurisdiction and

responsibility, But I think the Commission would have dis-

cretion to abstain from taking on this assignment, and con-

ducting the requisite hearing, if the parties agreed among

themselves to the readjusted rentals. And even if they did

not come to an agreement as to the amount of the read-

justed rentals, the Commission might respect their agree-

ment to submit the matter to arbitration. There is scope

for settlement agreements, subject to approval by the Com-

mission, even in the setting of rates for the public. City of

Chicago v. FPC, 128 U.S. App. D. C. 107, 116-19, 385 F. 2d 629,

638-41 (1967). Here what is involved is allocation of costs

between parties, Although/the subject-matter is quite dif-

ferent it may not be entirely irrelevant to lie the absten-

— ‘

» !

not be a total abstention. There. is room for flexibility in

agency either all or an important part of the

controversy. Similarly an agency may stay its

jurisdiction, But the award would have the sa: sig-

nificance as an agreement ee lg in —

Brotherhood of Railroad Trainmen v. Akron @ B. B. N. Co.,

74a

128 U.S. App. D. C. 59, 74, 385 F.2d 581, 596 (1967), cert.

denied, 390 U.S. 923 (1968). This would at the very least

be a strong ‘‘advisory effect, and in practical terms it

might permit the commission to grapple much better with

its prodigious work load. ;

This kind of flexibility, like the commission’s use of

negotiated settlements, takes account of the significant dif-

ference between these two approaches in the settlement of

controversies. Disposition by an administrative agency, like

disposition by a court, depends on reasoned disposition, on

application of general rules and standards to the facts of a

particular matter. Arbitration may proceed by that judicial

type of disposition, but it may also partake of the kind of

consensual disposition which prevails among businessmen,

or in the relations between business and labor, and for that

matter even in the halls of the legislature. Arbitrators do

not have to give reasons and in some types of matters that

may be an advantage. It is commonplace that parties may

be able to agree on a particular result more readily than

they can agree on a statement of the general approach that

harmonizes with the particular result. The parties may be

disposed to avoid the expense and distractions of litigation

if the various rates reached in a settlement do not constitute

a binding admission or ruling on principle. City of Chicago

v. FPC, supra, 128 U.S.App.D.C. at 119, 385 F.2d at 637.

Justice and law have room for both approaches—for the

reasoned application of rules to instances, and for the dis-

position without statement of reasons, either by virtue of

agreed settlement or by virtue of agreed arbitration.

I have already noted that the technique of arbitration,

however useful in appropriate instances, might have serious

drawbacks for the controversy before us because of the

third unit problem, But there are other problems that

trouble me. The case before us involves a license issued by

the Commission, and agreed to by Montana Power. Is the

Commission to become involved before the district court as

75a

a party agreeing to arbitration? Is the matter to be

re-constructed as an agreement to arbitrate between the

“company and the Secretary because the company accepted

and the Secretary approved (in more than one capacity) the

terms of the license? Is it the Tribes or the Secretary who

conducts the arbitration? I dare say these matters can be

handled with the application of ingenuity and problem-

solving spirit, especially since the landowner is anxious for

the adjustment. But they are a troublesome factor in the

case that undercuts the apparent simplicity of Montana’s

presentation.

As I take leave of this case, relieved. of the necessity of

coping with loose ends“ and the issues on the merits, I

suppose my main concern is dismay at the necessity of

further prolongation of an already long and bitter contro-

versy. I am confident that my brethren regret this on-

coming delay as much as I, but feel that it is an unfortunate

residue of sound principle. Perhaps we can take comfort

in the possibility that even if the case now goes to arbi-

tration the District Court for Montana could appoint the

Federal Power Commission as arbitrator. I have not

studied the matter in depth, but offhand I see no reason

why this appointment would not be permissible under the

Arbitration Act. If it were permissible and were made, it

would avoid unnecessary delay in settling this overdue

controversy, and would avoid unseemly. divergence in

readjustment charges as between the different units.

*Such as the so-called ‘‘veto’’ power asserted by the Secretary

of the Interior. The Secretary 's brief expressly disavows any

authority to overrule a judgment of this court. Commissioner

ar ver was of the view that the Indian tribes’ 1959 petitions for

readjustment by the Commission constituted the approval required

by the proviso to § 10(e).

76a

UNITED STATES OF AMERICA

FEDERAL POWER COM MISSION

Axx VAL CHAN

Before Commissioners: Lee C. White, Chairman; L. J.

O’Connor, Jr., Charles R. Ross, Carl E. Bagge, and

John A. Carver, Jr.

Prosect No. 5

Tue Moxraxa Power Company

Opinion No. 529

Opinion and Order Readjusting Annual Charges

(Issued October 4, 1967)

Ross, Commissioner :

This matter is before us pursuant to the filing, on May 19,

1959, of a-petition by the Confederated Salish and Kootenai

Tribes of the Flathead Reservation (Tribes) to readjust

the annual charges paid by the Montana Power Company

(Montana Power) for the use of tribal lands used in the

Kerr Hydroelectric Development, Project No. 5, in ae-

cordance with Section 10(e) of the Federal Power Act

and Article 30(D) of the project license. ~

Following a hearing, Examiner Ames W. Williams

issued his decision finding that Montana Power should

increase its annual charges to the Tribes from $238,375

to $850,000 annually. The three parties—Tribes, Montana

Power, and the Secretary of Interior (Seeretary) and

Staff filed exceptions to the Examiner’s decision which

raise the following issues:

1. Whether the Commission has jurisdiction to establish

annual charges under Section 10(e) of the Federal Power

Act as opposed to arbitration.

2. The exact date of expiration of the initial twenty-year

period of commercial operation of Project No. 5 and

* 77a

whether the readjusted charge should be made retroactive

to this date. >.

3. Whether the readjustment of charges should include

the third unit of the current installation. |

4. The determination of the readjusted charge. This

includes the consideration of net benefits or profitability

or some other method of computation and, after that, a

consideration of what share the Tribes should have in such

net benefits or profitability,

5. The appropriate interest rate on any increased annual

charges,

We hold that: (1) The Commission has jurisdiction under

Section 10(e) of the Act to readjust. annual charges;

(2) the project was available for and began commercial

operations on May 20, 1939; (3) the readjusted annual

charges should be effective 20 years from May 20, 1939;

(+) the readjustment should include the third unit of the

current installation; (5) the readjusted annual charge is

$950,000 with simple interest at 6 persent.

In large meaure, the Examiner reached the same con-

clusions, and we are adopting his decision to the extent

consistent with this opinion. ° ca

Background

Project No. 5, which has an installed capacity of 168,000

kilowatts, is located on Flathead River and Flathead Lake

about five miles downstream from Poulson, in Flathead.

and Lake Counties, Montana. Flathead Lake serves as the

project reservoir,

Pursuant to the Hell Gate Treaty of July 16, 1855, (12

Stat. 975), the Tribes own the lands underlying the southern

half of the lake and the lands occupied by the dam and

powerhouse, g

78a

Kerr Dam is a variable radius concrete arch, 381 feet

long and 200 feet high, with a radius of 179 feet at the top.

The storage capacity of Flathead Lake between elevations

2883 and 2893 feet i is 1,217,000 acre feet. The installation

has three generating units, the first and second of which

are 77,000 horsepower and were placed in service on May

20, 1939, and May 31, 1949, respectively. The third unit, a

78,000 horsepower turbine, came on the line December 5,

1954.

The Commission issued the original license for the Kerr

Project on May 23, 1930, for a term of fifty years pursuant

to the Federal Water Power Act (41 Stat. 1063, 16 U.S.C.

791-823). The licensee did not complete construction

within the period prescribed by the license. When it applied

for an amendment to extend the time, the Secretary op-

posed the application and the matter was referred to the

Attorney General. Section 10(e) was thereafter amended

as part of the 1935 amendments to the Federal Water

Power Act, and the Tribes were organized. Subsequently,

the Secretary consented to the amendment of the license

which was granted by the Commission on June 23, 1936.

Section 10(e) of the Federal Power Act,-as amended,

authorizes the readjustment of annual charges for the use

of Indian lands after the development has been available

for service for twenty years and thereafter at intervals of

not less than ten years. The annual charges as originally

fixed by the Commission and supplemented by the Com-

mission’s decision involving the installation of the third

turbine in 1954 presently amount to $238,375.

The Tribes petitioned for readjustment on May 19, 1959,

but no action was taken thereon because a proceeding was

A special act of March 7, 1928, 45 Stat. 200, 212-213, authorized

the Commission to issue a license for the use of lands within the

Flathead Indian Reservation upon terms satisfactory to the See-

retary of Interior.

2 79a

then pending with respect to the fixing of annual charges

for the third unit. That matter was finally determined

on January 25, 1962, in the case of M Power Com-

pany v. F. P. C., 298 F.2d 335. a 5

We thereafter set this matter for hearing upon failure

of the parties to negotiate a mutually satisfactory read-

justment of the annual charges,

JURISDICTION or FPC

Shortly before hearings commenced the Company sought

to stay the proceeding and to compel compliance with the

arbitration provision of Article 30(D) of the license by

filing a petition in the U. S. District Court for the District

of Montana, Butte Division. The Court, however, dis-

missed the action forthwith, s that

jurisdiction to determine the isaue lies with the Federal

Power Commission and the Court of Appeals under Sec-

tion 313(b) of the Federal Power Act (16 U.S.C. 8251).

In setting the hearing in this case, the

recognized as a question of law the contention of Com-

pany that the Commission lacks the jurisdiction to hear

the dispute and permitted argument and the presentation

of briefs upon this basic issue.

Section 30 (D) of the subject license, which was issued

on May 23, 1930, provides:

The annual charges payable under this license may

be readjusted at the end of twenty (20) years after

the beginning of operation under this license and at

justment of such charges, it is hereby agreed that the

fixing of readjusted charges shall be submitted to

arbitration in the manner provided for in The United

States Arbitration Act,’’ (U.8.C., Title 9), such read-

Justed annual charges to be reasonable charges fixed

upon the basis provided in Section 5 of Regulation 14

of the Commission, to wit, upon the commercial value

of the tribal lands involved, for the most profitable

purpose for which suitable, including power develop-

ment. (Emphasis added.)

This license was issued under the Federal Water Power

Act, Section 10(e) of which, in pertinent part, read as

follows:

. (W)hen lechses are issued involving the use of

Government dams or other structures owned by the

United States or tribal lands embraced within Indian

reservations the Commission shall fix a reasonable

annual charge for the use thereof, and such charges

may be readjusted at the end of twenty years after

the beginning of operations and at periods of not less

than ten years thereafter in a manner to be described

in each license. -

The Act of August 26, 1935, amended Section 10(e) in

relevant part as follows:

(When licenses are issued involving the use of

Government dams or other structures owned by the

United States or tribal lands embraced within Indian

reservations the Commission shall, subject to the ap-

proval of the Secretary of the Interior in the case

of such dams or structures in reclamation projects

and, in the case of such tribal lands, subject to the

approval of the Indian tribe having jurisdiction of such

lands as provided in section 16 of the Act of June 18,

1934 (48 Stat. 984), fix a reasonable annual charge for

the use thereof, and such charges may with like ap-

proval be readjusted by the Commission at the end

of twenty years after the project is available for

;

813

service and at periods of not less than ten yes there.

after upon notice and opportunity for ao

(Emphasis added.) 7, ,

Montana Power contends that Article 30(D) of the

License calling for arbitration of readjustment of charges

confers a substantive right upon it and asserts that this

is confirmed by Section 28 of the Federal Power Act which

provides that ‘‘no ... amendment . . . shall affect any

license theretofore issued under the provisions of this

Act, or the rights of any licensee thereunder. Hence,

Montana Power claims that it is not affected by the changes

in Section 10(e) in the 1935 Act which provides that the

„Commission shall . . fix a reasonable annual charge.

and such charges may .. . be readjusted by the Commission

. Rather, it argues, it is governed by the provision

of the original Section 10(e) which provided that readjust-

ment of annual charges be made in the manner described

in each license,

The Commission must determine whether arbitration

controls the method of adjustment, or whether Section

10(e) controls it. a

If Section 300 D) of the License confers a substantive

right on the Licensee that right is expressly reserved by

Section 28 of the Federal Power Act, If, however, the

method of determination of annual fees is procedural

rather than substantive in nature, then Congress may from

time to time describe or change that procedure without

abrogating constitutional rights.

The substantive right. conferred by Section 30(D) of the

license consists of the expression: of the criterion for the

readjustment of the annual charge, to wit, upon the,

commercial value of the tribal lands involved, for the

most profitable purpose for which suitable, including power

development.“ But that criterion will govern irrespective

of the procedure employed for its application, Thus, it is

}

; ll

apparent that the procedural alteration preseribed by Con-

gress does not work any substantive change, Whatever

the procedure employed, the final result must be the estab-

lishment of a reasonable annual charge.’ Certainly it was

not unreasonable for Congress to eqnelude that the appli-

5 cation of this substantive standard, one which requires inti-

wate familiarity with the technical operations of hydro-

electric developments, could better be applied by a com-

mission with establishdd expertise than by arbitrator who

— ete reggae

lying technical and legal complexities, 4

Arbitration by reason of its inherent nature in a pro-

. g cedural process, namely: a means, mechanism or device

by which differentes may be adjusted, reconciled or settled.

The 1935 amendment of Section 10(e), by providing a

hearing procedure before the Commission, obviously did not

predetermine or deprive the Company of a reasonable

means of determining a readjustment of annual charges.

In addition to allowing the opportunity for a hearing, the

1935 amendment furnished the license with a facility for

obtaining judicial review of the resulting determination,

Tho cases support this conclusion, Particularly in point

is Pennsylvania Power d Light Company v. F. P. C., 19

F. 2d 445 (3d Cir, 1943), cert, denied, 321 U.S. 798 (1944),

wherein it was contended that Section 14 of the Water

Power Act, providing for a determination of net_invest-

ment by a district court if the Commission and licensee dis-

_ agreed, was a substantive right and, therefore, unaffected

by the 1935 amendment of such sections of the Act which —

provided for a determination of the issue by the Commis-

: sion, The court stated, in material part, at page 483

The licensee had no vested right to havo its invest-

ment determined by one procedure rather than another

at least so long as it was accorded a right to be heard

° 298 F.2d 335, 340 (CADO 1962),

83a

and an ultimate judicial review. Accordingly the

change of procedure which the 1935 amendment brought -

about did not, as applied to the present proceeding,

Also, in Safe Harbor Water Power Corp., 5 FPC 221

(1946), aff’d 179 F.2d 179 (3d Cir. 1949), cert. denied,

' 339 U.S. 957 (1950), a licensee under the Water Power

‘Act contended that any enlargement of Commission juris-

diction by reason of the enactment of Part II of the Federal

contends that it cannot be regulated under any pro-

visions other than those in Section 20, because it

construes its license to be a contract, and argues that

the effect of Section 28, which saves

- - lieenses from alteration, together with its license, issued

subject to the provisions of the Federal Water Power

Act of 1920, is to protect the license from alteration by

Congress without Safe Harbor’s consent. It does not

contend that the rate fixed by this Commission under

Section 20 would be any different from that fixed under

Part II. Safe Harbor’s objection, then, amounts to no

more than that Congress is without power to substi-

__ tute determination by one agency, for that by another.

The alteration opposed here is one of procedure, and

procedural changes may be effected without consent ff

the „licensee.“ ‘

Under Section 20 of the Federal Water Power Act the states

could regulate the wholesale rates of hydroelectric licensees whereas

the FPC was granted exclusive wholesale rate jurisdiction in Part

II of the Federal Power Act. . :

—

84a

Oshkosh Waterworks Co. v. Oshkosh, 187 U.S. 437

(1903), involved a change of procedures for enforcement

of the rights of the contract after the contract was entered

into. The Court there pointed out that the legislature may

not withdraw all remedies and thus, in effect, destroy the

contract. Nor may it impose new restrictions or conditions

as would materially delay or embarrass the enforcement

of justice as was established when the contract was made.

\ of rights under the contract according to the usual course

* Court held, however, that the legislature may modify

r existing remedies or procedures without impair-

ing obligation of. contract, provided that a sybstantial

and us remedy remains or is given by which means

the party can enforce his rights under the contract.

We find that Congress by amending Section 10(e) did

nothing more than change a procedure while retaining a

substantial and efficacious remedy protecting the rights of

the parties insofar as annual charges are concerned. In-

deed, Congress materially improved the rights of the

parties in the determination of a fair and reasonable charge

by the amendment to Section 10(e). The parties now have

the right to have an official record of the proceedings. They

obtained the right to cross-examination. They obtained the

right to rebuttal. They obtained the right to file excep-

tions. They obtained the — to apply for a rehearing if

aggrieved.

Wu Reapsustment or CHARGES

) May Bz Errrorno

SBooction 10(e) of the Federal Water Power Act and

Article 30(D). of the Kerr License provide for readjust-

ment of annual charges for the use of Indian lands ‘‘at

the.end of twenty years after the beginning of operations“

and at the end of twenty (20) years after the beginning

of operation under the license,“ respectively. In Section

10(e) 0 of. the Federal Power Act, as amended, the phrase

was altered to read at the end of twenty years the

Projest is available for service.’’

30, 1948 (7 FPC 528, 530) deter that interest costs

would be deemed to have terminated on August 1, 1938,

when Project No, 5 ‘‘was placed in commercial opera-

tion The record indicates that the August 1, 1938,

date was utilized for a limited accounting purpose relating

primarily to the termination of interest charges and that

it has no direct bearing upon the commencement of com-

moreial operations, g

Commencing on October 2, 1938, 1,103,000 kwh were

generated during a three-day period, but that date does not

appear to be either the date marking the beginning of

comercial operations or when the project became avall-

able for service, This generation amounted to only a test

run and generation was termin During this period,

Montana Power experienced t with a circuit breaker,

Additjonally, other technical adjustments were required,

No further power was generated until May, 1939 when- the

project began commercial operations, As noted in the third

unit case, ‘‘The first of the two units was placed in opera-

tion May 20, 1939... 298 F. 2d 335, 336,

There is no convincing evidence indicating that Montana

Power failed to commence the operation of this particu-

larly efficient project as soon as it was ready. We there-

fore find that the project began commercial operations

when it was available and that May 20, 1939, is the opera-

tive date under Section 10(¢), This conclusion finds sup-

port in the fact that, in accordance with the schedule of

charges, the charge accelerated on June 1, 1939, the first

full month after the commencement of operations, from

$1,000 to $5,000 a month. Further, the Tribes, apparently

relying on the same date as subsequently found by the

86a

Circuit Court, filed their petition for readjustment of

annual charges on May 19, 1959, it being the conclusion of

twenty years commencing May 20, 1939.

The date when the project began commercial operations

and hence when twenty years shall have expired becomes

important only if the annual charge is to be readjusted

and only if it is to be readjusted effective with the expira-

tion of the first twenty years.

Montana Power asserts that if the annual charge is to

be readjusted, it is to become effective beginning with the

determination and the readjustment can have no retroactive

effect. Montana Power alleges that the Tribes were

dilatory in waiting until the very end of the twentieth year

before petitioning for readjustment.

We are not persuaded by Montana Power’s contentions.

Section 10(e) of both the Federal Water. Power Act and

the Federal Power Act contemplated that annual charges

may be readjusted after twenty years. To hold that no

readjusted charge-could become effective until promulgated

after appropriate hearing not only would encourage liti-

gation but would place a premium on delay, dilatory tactics

and protraction of that litigation. The purpose of Sec-

tion 10(e) both of the Federal Water Power Act and the

Federal Power Act was to provide that the Indian pro-

prietors of the land would be compensated for use of their

lands by reasonable rentals thereon. It would be grossly

inequitable to allow a tenant to occupy premises during a

dispute over the establishment of a fair and reasonable

rental charge if such charge were not effective during the

full period of the dispute. The owner is entitled to his

proper rental for the period of occupancy although the

final determination as to the proper amount may not be

reached until long afterward. Indeed, it is not difficult to

imagine a situation where the final determination may not

be reached until after the premises have been vacated.

The logical extension of Montana Power’s argument is that

87a

the owner would be entitled to no readjusted rents in that

case, 7

Montana Power's argument that it would be irreparably

injured by a retroactive determination is not convincing.

Montana Power had available the obvious and normal prac-

tice of making adequate provision for possible increased

payments by maintaining a reserve account. It chose not to

avail itself of this practice but instead used the money in

its normal operations. It should not now be excused from

making proper payments because of its own failures.

Where, as here, the claim for readjustment is made con-

temporaneous with the expiration of the statutory period,

we conclude that the statute contemplates that any read-

justment ultimately determined becomes effective upon the

date which marks the completion of the first twenty years

after the project is available for service.

INTEREST

We further conclude that Montana Power should pay

interest on the difference between the rent it actually paid

and that rent we have found to be fair and reasonable

herein. That rate of interest is reasonably and properly

six percent simple interest per annum, which rate is in

accord with other holdings of this Commission in closely

analogous situations, Wisconsin and Michigan Power Com-

pany, Opinion No, 432, 31 FPC 1445, 1462.

In determining that interest shall be paid at six percent

we are aware that in the third unit proceeding (25 FPC at

224) we provided, without explanation, that interest should

be paid at the rate of four percent per annum. We are

not bound by that.decision. Based upon our consideration

of the arguments advanced here we find that.to perpetuate

that unrealistically low interest rate would unjustly enrich

Montana Power at the expense of the Tribes, Accordingly,

we find that equity requires selection of a rate of interest

which more closely approximates the prevailing commercial

rate of return, i. e., 6 percent.

Tue Tap Unir Issuz

Whether the rent assessed by reason of the construction

of the third unit is to be deemed separate and distinct from

the rentals assessed against the first two units constitutes

a separate issue. If separate and distinct, the rental for

the third unit would remain for twenty years from De-

cember 1, 1954, and any readjustment would be limited as

of May 20, 1959, to the first two units. The resolution

of this issue rests on whether rents are to-be applied to

a project or to project works. In the third unit case,

Montana Power took the position that rents are applicable

to a project, that only a single project exists since only a

single license has ever been issued for Project No. 5, that

rents were fixed at the beginning of such project which

could not be readjusted before the expiration of twenty

years from that beginning and that the rentals must be

deemed to have covered the third unit.

The company now contends that having found a separate

and additonal rental due by reason of the third unit, it must

be deemed a separate part for the purposes of readjust-

ment.

A project“ is defined in Section 3(11) of the Act as a

„complete unit of improvement or development.“ On the

other hand, Section 3(12) of the Act defines ‘‘project

works’’ as ‘‘the physical structures of a project.’’ Section

4(e) of the Act empowers the Commission to license the

construction, operation and maintenance of water power

„project works’’; it does not authorize the licensing of

„projects“ as such.

The Commission does not necessarily license all the

project works of a given project at one time. It may, as

in Project No. 5, grant authority for the installation,

operation and maintenance of certain project e upon

prescribed conditions as to construction and payments; but

such a license does not cover additional works, as Montana

recognized by applying for the licensing of the third unit.

All three units are part of Project No. 5—all have been

constructed pursuant to the license of May 23, 1930, as

amended.

Section 10(e) says that readjustment may be made at the

end of twenty years after the project is available for

service. There is one project here. It became available

for service on May 20, 1939, although a second unit did not

come on stream until 1949 and a third unit not until 1954.

To assert that readjustments are applicable in separate

years is to assert separate licenses, separate projects.

There are separate preject works but there are no separate

licenses; there are no separate projects.‘

In Arkansas Power d Light Company, Project No. 271,

26 F PC 549, the Commission rejected a piecemeal approach

as urged by the Company, with respect to a Section 10(d)

determination (amortization reserves) stating:

.. + In any event, the provisions of Section 10(d)

apply to the project defined in the license as distin-

guished from some specified part thereof. Conse-

quently, the amortization reserve period can commence

only once with respect to the project defined in the

license for Project No. 271, the application will be

denied.

The most reasonable conclusion is that the readjustment

of annual charges should be undertaken for the project in

its entirety and not with respect to the time each generator

began commercial operations. The logic of Montana

Power’s argument requires separate determinations of the

rentals applicable to the first and second units, which were

* See, for example Montana Power Co., 15 FPC 1330, 1335.

90a

placed in service ten years apart. Not even Montana Power

contends these two units comprise separate projects.

BEADJUSTMENT OF ANNUAL CHARGES

Section 10(e) of the Federal Power Act provides that the

Commission shall ‘‘fix a reasonable charge for the use

thereof. .. and Section 30(D) of the License provides

reasonable charges shall-be fixed upon the basis of tho

commercial value of the tribal lands involved, for the most

profitable purpose for which suitable, including power do-

velopment.’’ .

Montana Power argues that the Commission should be

limited in its determination of reasonable annual charges

to modifying the annual charges previously determined to

reflect any changed circumstances. We do not agree. Noth-

ing in Section 10(e) of the Federal Power Act or in the

Kerr license suggests such a limitation. These sources

provide two broad standards: one, that the charges be

based on the commercial value of the lands for the most

profitable purpose; and second, that they be reasonable.

In our opinion the reasonable commercial value of the land

cannot be determined by considering individual factors

in isolation. Instead, in fairness to all parties the entire

analysis must be made de novo. This, it should be noted, is

the established practice in rate cases followed by this, and

most other regulatory agencies.

Montana Power’s argument that such a procedure

amounts to changing the rules in midstream cannot be

adopted, for Congress has directed us in Section 10(e) of

the Act to readjust annual charges. And Congress has

given us a broad standard—that of reasonableness—as a

guide. Essentially, Montana Power is complaining about

the requirements of the statute. Such a complaint is prop-

erly directed to Congress, not to this agency.

Of course it cannot be assumed that a reasonable charge,

once established, will remain the appropriate charge indefi-

nitely. Indeed, it is precisely because the rental value of

land will vary that the statute and license provide for its

readjustment in order to assure that the Licensee will not

be unjustly enriched at the expense of the tribal owners.

Obviously the parties did their best to set an initial charge

—but all recognized that the charge set would not be bind-

ing for the life of the license,

While it is true that an annual charge cannot be viewed

as immutable, it is equally clear that a prescribed charge

will continue as the lawful charge under Section 10(e) until

demonstrated to be inappropriate, Therefore, while under

the statute we could readjust the annual charge once

again to be effective May 20, 1969, such a readjustment will

be made only if it is demonstrated that the charge here

is inappropriate. In view of the proximity of our coyclu-

sion here with the expiration of the present sta pe-

riod, we expect that the annual charge here fixdd will re-

main the appropriate charge for a reasonable period be-

yond May 20, 1969, the earliest date on which a er

readjustment could be made effective,

This brings us to the readjustment of the annual charges.

Each party and Staff proposed at least one computation,

the end results of which range from a low of $248,102

~ annually, advocated by Montana Power’s witness Woy, to

a high of $1,667,000 recommended .by the Secretary’s

witness Mohler. With minor exceptions, all of the parties

approached the problem in two parts. First, they computed

the annual commercial value of the Kerr project. Second,

they allocated a portion of this value to the Tribes based

on the Tribes’ ownership. of lands and waters associated

with the project. The portion so allocated to the Tribes

was the annual rental they recommend -we assess. A

graphic summary of the methods and results advocated by

the parties follows:

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93a

As shown above Staff, Sporseen, and Mohler advocated

the ‘‘net benefits’? approach in computing the annual com-

mercial value of the project. Under this method, the value

of a project is determined by figuring the cost of providing

an amount of energy equivalent to that provided by the

project by the most likely alternative at the time the

project was constructed. The amount by which the. costs

of an alternative source (or sources). exceeds the costs of

the subject project is said to, be the ‘‘net benefits“ of the

project. Van Scoyoc’s profitability method consists of a

detailed study of the revenues attributable to the Kerr

project for the years 1958 through 1964, The study em-

braces that share of the Company’s total electric revenues

reasonably attributed to Kerr together with a determina-

tion of the annual costs of producing power at Project

No. 5, including a reasonable return on the net investment

of the Company in the facilities used in the generation of

such power, The annual costs deducted from the annual

revenues according to the witness, reflect the actual com-

mercial value of the Kerr site or the profitability of the

development to the Company. £5

The above two methods, as the Examiner observed, are

the two principal techniques utilized in this proceeding for

determining the value of the Kerr site.“

Finally, witness Seymour offered a computation compris-

ing the existing annual charge, modified to reflect known

changes.

The decision in the Third Unit case constitutes the only

precedent in this area.“ And that offers little in the way

5 Montana Power initially argued for two methods: one based on

the Pelton-Round Butte formula, and a second based on the Com-

mission’s formula for the determination of reimbursement to the

United States for Administrative costs. However, the Examiner

properly rejected these methods as inapplicable here, and Montana

Power has not pursued these arguments. It is therefore unneces-

sary to treat them further.

* Montana Power Co. v. F. P. O., supra.

ban

of conerete criteria, In appraising the Commission's deter-

mination of annual charges, the Court said;

The annual charges shall be reasonable, Scction

10(¢) says, and must be approved by the Secretary of

the Interior and the Indians themselves; otherwise,

the statute ia silent as to how Indian rentals shall be

computed, So the only question is whether the rental

fixed by the Commission is reasonable, o

Whether the Commission properly adopted and cor-

rectly applied the ‘Sharing of Net Benefits’? method

of computing the additional payment in not the ques-

tion, The question is, rather, whether the end result

le a reasonable one, as the statute requires it to be,

After spending considerable time over the various

methods advapeed, it becomes quite evident why Congress,

the Court, previous Commissions and Examiners, and the

Examiner herein are extecdingly general in their expres-

sions on the subject, It also explains why the parties

appeared most reluctant to discuss this particular insue at

the oral argument, notwithstanding that. this was the mont

dificult and most important issue, There in no one right

method—all the others being totally wrong. Rather, there

in a logic and rationality supporting most of the computa-

tions, but also obvious shortcomings, |

We have decided that annual charges of #950,000 are

reasonable’ within the meaning of Section 10(e) of the

Federal Power Act for the following reasons,

After considering the various methods for computing

the value of the project we adopt Van Seoyoc’s method as

the one which most conforms to the statutory intent. This

ia the only method which ascertains the value of the Kerr

project for the most profitable purpose for which the Tribal

lands are used, which all parties agree is for power produc-

tion, We agree with the Examiner's observation that:

95a

„Mr. Van Scoyoc’s analysis provides a realistic and im-

pressive demonstration of the profitability of Project No.

5. . While the Examiner was concerned with the com-

plexity and the uncertain allocations involved, no party

has excepted to the manner in which this analysis was

performed, and we believe from our independent scrutiny

that the method was implemented in a reasonable manner.

Moreover, while this method involves judgment factors, it

has the advantage over the net benefits approach in that

it is directly concerned with the actual operation of the

project being considered and does not depend on such

speculative aspects of the net benefits theory, as, for ex-

ample, what alternative project the company would have

constructed, a subject on which there is considerable de-

bate, whether to use trended costs, or the appropriate

level of coal costs for an alternative steam plant.

The examiner criticizes the profitability method as a

form of profit sharing not contemplated or intended by

the parties, and appeared to reject the method for that

reason, Along these lines, Staff argues that the annual

charge could be nothing under this concept if the project

were unprofitable. We disagree on two grounds. First,

the parties by the very terms of Article 30(D) of the

License in readjusting charges spoke in terms of fixing

them ‘‘upon the basis provided in Section 5 of Regulation

14 of the Commission,’ to wit, upon the commercial value

of the tribal lands involved, for the most profitable purpose

for which suitable, including power development.“ It

seems to us that a form of profit sharing was indeed con-

templated, or, at the very least, reasonably within the

scope of the language.

——

Seo. 5. When licenses are issued involving the use of tribal

lands embracd within Indian reservations, the commission will fix

a reasonable annual charge for the use thereof, based upon the

commercial value of the land for the most profitable purpose for

which suitable, including power development. The charge shall

commence upon date license is issued.

Second, this method does not mean that the Tribes are

completely dependent upon how Montana Power operates

the project. In this case, there is no evidence or contention

that the company operated the project other than in the

most economical manner. If such a contention were made

and proved, annual charges in that event would not be

based on the actual use of the project.

In addition to our previously expressed objections to

witness Seymour’s approach, we agree with the Examiner “'s

criticism that it inconsistently relies on the results of the

third unit proceeding, which utilized the net benefits

method; yet at the same time, the approach essentially

rejects using the net benefits method.“

This brings us to considering the appropriate percentage

of the commercial value of the Kerr project which should

be allocated to the Tribes by virtue of the ownership of

related lands and waters. Similar to the figures in the

first step, there, are widely varying recommendations

ranging from 25 percent by Staff, Woy and Seymour to

57.53 percent by Van Scoyoc, er

Before describing the various methods, it is helpful to

understand the three factors accounting for the value of

the Kerr project. These three factors are the dam site

(owned by tho Tribes), Flathead Lake (the proprietary

interest in which is equally divided between the Tribes

and Montana Power), and releases from Hungry Horse,

(respecting which neither Montana Power nor the Tribes

have any proprietary interest), During critical water

We, of course, recognize that the net benefits method has been

used, at least in some fashion, in prior determinations, As among

these variations, but without recounting the merits and demerits

of each of the several variations advanced, we believe that Staff’s

C computation of $2,550,400, which approximates Sporseen’s

$2,474,000, to be the most reasonable based on our analysis of the

record. In the absence of the Van Scoyoc method which we con-

sider more reliable, we would be persuaded that the commercial

value of the Kerr project approximates $2,500,000.

97a

conditions, Kerr generation totale 1069 MW months: 161

MW months by natural stream flow, Le., the dam site;

251 MW months by, Flathead Lake storage; and 657 MW

months by Hungry Horse storage, .

The method used by Staff (which also forms a part

of certain of the recommendations of other partiés) is

denominated as the sharing of net benefits method. This

method assigns 50 percent of the net project benefits to

the ownership of the power site and 50 percent to the

developer for taking the risks associated with developing

the site, The dam site and Flathead Lake are considered

as a unit, Since the Tribes own one-half of Flathead -

Lake, their portion is said to be one-half of one-half,

or 25 percent of the net benefits, This was the method

nominally followed by the Commission in the third uni

case, :

Three other methods have been suggested. Mohler

began by assuming that the benefits should be apportioned

based on the ownership of land and water. Since the

Tribes own the land on which the project is located,

he assigned the entire 50 percent attributable to land to

the Tribes, He then determined that Flathead Lake

represented 23.5 percent of the value of the project which

is attributable to water. The Tribes’ allocable portion of

this 23.5 percent is 5.7 percent, This was derived by

dividing 23.5 percent by one-half since Flathead was

assumed to be on the water side of the equation, with

another 50 percent reduction to reflect the Tribes one-half

ownership of the lake.

Van Scoyoc also attempted to weigh the contribution

of tribal lands and water with nontribal lands and waters

based on critical water conditions. Because the Tribes

own 100 percent of the dam site, they are assigned 100

percent of the natural stream flow. Since the ownership

of Flathead Lake is equally divided, he assigned 50 percent

of the power value of Flathead to the Tribes, Finally, he

98a

divided Hungry Horse releases 50-50 because they flowed

into Flathead Lake. To summarize graphically:

MW Months Tribes’ Share

Kerr Plant Site 161 x 1.00 = 161.0

Flathead Lake 251 x 50 = 125.5

Hungry Horse 657 x 50 = 328.5

1069 615.0

615 = .5753 or 57.53%

1069

Sporseen’s approach is similar to the sharing of the

net benefits in that it does not lump land and water rights.

Sporseen attributed water rights to the Company on the

basis of its proprietary interest, and land rights to the

Tribes and Montana Power on the basis of their respective

interests thereto. Like Van Scoyoc and Mohler, the basis

of his computations is Kerr generation under critical water

conditions. He segregated Flathead Lake from Kerr gen-

eration. The value of Kerr without Flathead is 818 MW

months (161 MW months natural stream flow and 657 MW

months from Hungry Horse), i.e., 68.5 percent of the total.

The Tribes’ share, based on 50-50 division between land

and water is 34.25 percent. To this must be added one-half

the value of Flathead; 50-50 split between land and water

with a further 50-50 split to reflect the ownership of one-

half of the lands. One-fourth of Flathead’s power value

of 376 MW months“ or 31.3 percent of total Kerr is nearly

8 percent which, when added to the above-mentioned 34.23

percent produces his result of 42.13 percent.

According to the proponents, the sharing of the net

benefits has the advantage of having been used before.

In our view, there is very little else to be said in its

favor. Indeed, Staff’s briefs are almost silent on this

issue. It is true this method was allegedly used in the

third unit case. However, the Examiner's decision therein

He multiplied the value of Flathead by 1.5 to reflect its im-

portance to Hungry Horse releases.

99a

casts considerable doubt on that proposition (25 FPC

225, 229). Moreover, the use of that method was based

on the Commission’s use of it in determining annual charges

a licensee should pay for sharing a government dam.

As Staff conceded at the oral argument, there is a world

of difference between the government in such a situation

and the Tribes here. The government maintains control

over the dam and its project works. It continues to derive

benefits from them. In contrast, the Tribes are completely

without the use of these lands and derive no benefit other

than the annual charges we assess. The reviewing Court

apparently was not overly impressed with this method

kor it sustained the Commission on the basis of the end

result not the methodology.

There are further objections. Staff’s method assigns

50 percent of the net value to the developer. Since we are

using Van Scoyoe’s profitability method, Montana Power’s

risks, such as they are, are fully reflected in the rate of

return element of project costs which were deducted from

the project revenues in determining the project’s net

benefits. Additionally, this method lumps the values

attributable to natural stream flow,;Flathead Lake and

Hungry Horse, and fails to weigh the interests of each

party in these three principal contributors to the Kerr

Project. -

The Secretary has shown the strange and illogical

results this method can produce by applying it to other

situations. (1) If the Tribes own all of the land under-

lying the generating site and lake bed, they receive half of

the net benefits, and the Company receives half ; (2) if,

as in this case, the Tribes own all of the generating site

land and half of the lake bed, they receive 25 percent of

the net benefits and the Company, 75 percent; (3) if

the Tribes own all of the generating site lands but none

of the lake bed, they receive one percent of the net benefits,

10 Kanawha Valley Power Co., Project No. 1290, Item F.

100a

while the Company receives 99 percent; (4) if the Tribes

own none of the generating site lands but half of the lake

bed, they receive 24 percent of the net benefits and the Com-

pany, 76 percent; and (5) if the Tribes own none of the

land underlying the generating site but all of the lake bed,

they receive about 49 percent of the net ee and the

Company, 51 percent.

In none of the situations described above does the Com-

pany own any land within the project. Yet it may receive

from 50 percent to 99 percent of the net benefits. In the

first three situations the Tribes own all the land under-

lying the dam and powerhouse. Yet they may receive from

one percent to 50 percent of the net benefits. But in the

last two situations, even though they own none of the

power site lands, the Tribes may receive from 24 percent

to 49 percent of the net benefits. The unreasonableness,

inconsistency, and inequity of these diverse results are

directly attributable to the failure in the method employed

to properly distinguish between land underlying the dam

and powerhouse and land underlying the lake bed.

With one exception, we believe Montana Power has

expressed the most appropriate concept for making the

allocation in its brief opposing exceptions. It there criticizes

the allocations of Mohler as conceptually wrong because

power value requires an inseparable combination of both

land and water. The same criticism is also applicable to

Van Scoyoc’s method, at least insofar as it allocates the

value of the dam site exclusively to the Tribes. Montana

Power states: ‘‘If the combination of land and water is

to be used as a basis for sharing a net benefit, some group-

ing of land ownership and water associated with that land

ownership must be made.“

This is precisely what Sporseen has done, and we believe

his method to be the most reasonable of those advanced in

this proceeding. The only difference between what Spor-

seen did and what Montana Power argues relates to

Hungry Horse. Sporseen included it. Montana Power

101a

would not on the basis that none of the land required to

develop Hungry Horse storage is owned by the Indians

and because headwater payments are made by the licensee.

Regarding the latter, headwater payments were dedueted

in computing the benefits, so that point is not meritorious.

Regarding the former, we think Hungry Horse should be

included because the value of a parcel of realty depends

not only on its intrinsic worth, but also upon its location

relative to other realty. Thus, land adjacent to the inter-

section of two interstate freeways is more valuable for

commercial purposes than an identical parcel of property

on a little used secondary road. And the property on which

Kerr is located is similarly more valuable by reason of its

location relative to Hungry Horse. To close our eyes to

Hungry Horse would be to fail to recognize the value of

Kerr.

Accordingly we adopt Sporseen’s 42.13 percent allocation

figure which, when applied to Van Scoyoe’s computation of

profitability of $2,254,286 produces annual charges of

$949,731, which we will round off to $950,000.

We consider this end result reasonable. It is certainly

much closer to reality than the existing annual charges of

$238,375, or the charges Montana Power recommends here-

in. The Secretary showed the relationship of the present

charges to Montana Power’s electric revenues:

ANNUAL CHARGES as %

oF ToTaL ELEcTRIc

REVENUE OF MONTANA

Power CoMPANY

$238,375

YEAR ELEcTRIC REVENUE Wor

1959 $31,382,095 0.745%

1960 33,651,530 0.695 %

1961 35,319,552 0.662% «

1962 37,301,369 0.627%

1963 37,395,371 0.625 %

1964 39,301,704 0.595 %

102a

Kerr represents 35.75% of the Company’s total installed

generating capacity. In critical water years it supplies

approximately 40 percent of the Company’s total hydro-

electric capability. The estimated annual generation at

Kerr is 32.05 percent of the Company’s total hydroelectric

generation during median years. Kerr contributed 30.53

percent of the Company’s total hydroelectric net genera-

tion during 1958-64. During 1958-64 Kerr contributed ap-

proximately 25 percent of the Company’s total system re-

sources to the earning of its revenues. In light of the

above, the Company’s proposals are not reasonable after

giving apropriate weight to the Company’s transmission,

distribution and other expenses.

The Commission further finds:

That the decision of the Presiding Examiner should be

adopted to the extent consistent with this opinion.

he Commission orders:

(A) Readjusted annual charges for the use of Confed-

erated Salish and Kootenai tribal lands by Project

No. 5 are $950,000 per year.

(B) Readjusted annual charges for Project No. 5 shall be

effective as of May 20, 1959, and shall bear simple

interest at the rate of 6 percent per annum from

such date.

By the Commission.

Carver, Commissioner, concurring:

The Secretary of the Interior, when he initially inter-

vened in this case, asserted a position not subsequently

withdrawn, and not dealt with either by the Examiner or

by the Commission. That position was that there inhered

in the Secretary the right to reject a determination made

by this Commission in these proceedings, in other words

to ‘‘veto’’ it.

103

As originally articulated to the Examiner, the Secre-

tary’s position was that he has both a duty and a right

to approve any readjustments of annual charges ordered

by the Federal Power Commission .... This veto power is

based upon general and specific statutes and is expressly

preserved in the terms of the license. [Plarticipation

[in these proceedings] shall not be construed as abandon-

ment of the Secretary’s ultimate power [of] approval over

such readjusted charge as may be ordered by the Commis-

sion.“ ! |

In another document, the Secretary ‘‘reaffirm[ed] his

intention to participate ... in full compliance with the

Commission’s rules and regulations. lalfter, however,

the proceeding has reached its conclusion, including the

exhaustion of appellate procedures, the Secretary then has

a responsibility to determine whether the Commission’s

findings should be accepted or rejected.“ (Emphasis

added.)

Essentially the same position was restated in oral argu-

ment at Tr. 1561-1571 and Tr. 1585-1586.

The Sceretary's position in this respect should not re-

main unchallenged and undiscussed. Parties to proceed-

ings before this Commission, whether the Secretary of the

Interior or anyone else, cannot be permitted to assert, un-

challenged, a right to „veto“ the Commission and the

courts. If Congress has in fact given the Secretary such

power, then it is only fair to the other parties litigant and.

to the Commission and the courts, to be spared the vain

exercise of notice, hearing, and adjudication.

In his citation of statutory authority for his position,

section 4(e) of the Federal Power Act is listed. This sec-

1 Tr. 73.

2% Objection and Answer of Secretary of the Interior Stewart

L. Udall to Montana Power Company's Motion for Issuance and

Subpoena, dated and filed October 22, 1965, pp. 4-5.

104a

tion gives the Secretary the prerogative of inserting con-

ditions in licenses on property within his supervision in

order to safeguard the purpose for which such reservation

was created. This power relates to the initial issuance of

licenses; the Secretary of Interior is granted no absolute

power to overrule a Commission determination under sec-

tion 10(e), which provides

„that when licenses are issued involving the use of

government dams or other structures owned by the

United States or tribal lands embraced within Indian

reservations the Commission shall, subject to the ap-

proval of the Secretary of the Interior in the case of

such dams or structures in reclamation projects and,

in the case of such tribal lands, subject to the approval

of the Indian tribe having jurisdiction of such lands

_... fix a reasonable annual charge for the use thereof,

and such charges may with like approval be ss

by the Commission at the end of twenty years.

(Emphasis added.)

The tribes gave their approval to the Commission’s re-

adjustment subject to judicial review by filing a petition

with this Commission in 1959, the petition now being de-

cided.

The reference to ‘‘like approval’’ has as its antecedent,

approval by the Indians. Seemingly, the Secretary’s argu-

ment is that this becomes his approval inasmuch as he is

trustee for the Indians. This is not helpful on the pro-

cedural question posed: if the Secretary has such over-

riding power is it proper for the parties, the Commission,

and the reviewing courts to go through the motions of de-

termining the charges?

The Secretary states (Brief on 8 p. 12) that

this power stems from the Act of March 7, 1928 (45 Stat.

200, 212-213).““ That Act was an appropriation bill allow-

ing the Secretary to spend money for an irrigation and

105a

generation system on the Flathead Reservation and grant-

ing the Federal Power Commission the authority

‘fin accordance with the Federal Water Power Act and

upon terms satisfactory to the Secretary of the Inte-

rior, to issue a permit or permits on a license or licen-

ses for the use, for the development of power, or power

sites on the Flathead. Reservation and of water *

reserved or appropriated for irrigation projects ...”’

Nowhere in this 1928 appropriations act is the Secretary

given any greater power than to require conditions be in-

serted in any license or permit. This grants no veto over

readjustments in charges. The other statutes upon which

the Seeretary relies (Footnote 4, Brief on Exceptions) do

no more than grant him various powers over irrigation and

power sites, as well as general responsibility for Indian

relations. None grants any veto“.

A reference to the Secretary’s ‘‘veto’’ power is contained

in a footnote to the Court of Appeals of the District of

Columbia’s opinion on the Third Unit case, Montana Power

Company v. FPC, 1962, 298 F.2d 335. Chief J udge Miller,

in his statement of the background of the case, noted the

Commission’s adoption of an order fixing section 10(e)

charges for the Third Unit of the Kerr Project at $50,000

„subject to the approval of the Secretary of the Interior. ”

The Secretary in that case did not approve, and reopened

proceedings took account of his objections as to the method

of computation of the charges, but without his participa-

tion or submission of evidence. On this point, the footnote

reads:

It was unnecessary and, perhaps, not even proper for

him to do so. The Secretary was not a party tocthe

proceeding. While he has a veto power, he so re-

quired to aid the Commission in reaching its de ermi-

nation.’? Montana Power Company v. Federal Power

Commission, CADC, 1962, 298 F.2d 335, 338. (Empha-

sis added.)

106a

What the Court of Appeals presumably had in mind

about the ‘veto power’? was the explicit provision of the

Commission order making its determination subject to the

Socretary’s approval, In the reopened proceedings, the

Secretary's recommendations as to the appropriate level of

10(e) charges wore adepted by the Commission,

The Commission has probably diminished the possibility

of the Secretary exercising his supposed ‘veto’ power,

and thus furnishing a fair judicial test of his asserted pre-

rogative, by adhering somewhat closely to the Secoretary’s

contentions as to the method of computation and by fixing

an award materially higher than that determined by the

Examiner,

In the event the Court of Appeals should be axked to

review the determination of appropriate rental to be paid

to the Indian landowners—a distinet possibility in the light

of the divergent views and fierce contest of this matter at

every stage—it will have the opportunity to ponder whether

the trust responsibilities of the Secretary of the Interior

extend, as he has urged, both to nullify our determination

and that of the Court of Appeals if he so chooses,

The reviewing court, if appeal is taken can also consider

the relationship of the present case to the Third Unit case,

cited above, When the District of Columbia Court of Ap-

peals in 1962 affirmed the Commission's determination of

section 10(e) charges for the Third Unit of Project No. 5,

the redetermination case being decided today was three

years old, having been commenced on May 19, 1959. The

rationale of the Third Unit case was not the profitability

rationale of today's decision; it was the net benefits. ra-

tionale, The Third Unit 's contribution to the whole of

Project No. 5 is roughly half, in terms of gonerating capac-

ity and energy generated, The Court of Appeals in 1962

determined annual charges of $63,000 attributable to that

half, beginning in 1954, and presumably continuing until

redetermined in accordance with the statute, Today’s ro-

107a

determination is premised upon treating all three units to-

.gether, thus making the effective date of redetermination

for the Third Unit the same as that for the project as a

whole, or May 1959. The effect of today’s opinion is to

wipe away that part of the 1961 Commission order, and its

1962 affirmance by the Court of Appeals, which covers the

period from 1959 forward. If the prior Commission action,

as affirmed by the Court, is to be rendered a partial nullity

—in other words if the pro rata share of the Third Unit

charges from 1959 to 1962, or from 1959 until the present,

is to be raised from $63,000 to eight times that amount,

then a judicial prerogative question might be presented to

the Court of Appeals, namely, whether its earlier action

was intended to be conditional to that extent. The present

action, it must be remembered, was then pending.

An overriding consideration of fairplay is important in

determining fair charges for hydroelectric projects licensed

by the Commission. When a license is tendered, the ap-

plicant has the option of declining if he is not satisfied with

the terms and conditions of the license. In the case before

us today, one term of the license was that annual charges

would be adjusted at the end of twenty years, and at ten-

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