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ARVIN-EDISON WATER STORAGE DIST. v. HODEL

March 28, 1985

ARVIN-EDISON WATER STORAGE DISTRICT, et al., Plaintiffs,
v.
DONALD P. HODEL, et al., Defendants; ARVIN-EDISON WATER STORAGE DISTRICT, et al., Plaintiffs, v. DONALD P. HODEL, et al., Defendants


Greene.


The opinion of the court was delivered by: GREENE

In these two consolidated actions, plaintiffs, eleven irrigation and water storage districts organized under the laws of California, challenge certain decisions of the Western Area Power Administration of the Department of Energy (WAPA), the Federal Energy Regulatory Commission (FERC), and the Bureau of Reclamation of the Department of the Interior, concerning the marketing of electric power from the federal government's Central Valley Project (CVP) in California. *fn1" Plaintiffs maintain that the CVP's primary purpose is irrigation, and that they, as irrigators, are entitled under section 9(c) of the Reclamation Project Act, 43 U.S.C. § 485h(c), and section 2 of the Rivers and Harbors Act, to special rates in the purchase of power from the CVP and to an allocation of power ahead of other CVP power customers. The parties *fn2" have filed cross-motions for summary judgment. *fn3" For the reasons explained below, the Court concludes that these reclamation laws do not require that plaintiffs receive special treatment or a super-preference with respect to rates for or the allocation of CVP electric power sold by WAPA.

I

 Prior to 1977, the Bureau of Reclamation operated the CVP and marketed all CVP power. In the Department of Energy Organization Act of 1977, the Congress transferred the power marketing function to the Department of Energy which, in turn, delegated those functions in part to WAPA. The actual division of responsibilities was formalized in a March 1980 Agreement between WAPA and the Bureau. Under this agreement, the Bureau continues to operate the CVP and to allocate power used for CVP functions (i.e., project use power) *fn4" and WAPA, in accordance with section 9(c) of the Reclamation Project Act, markets all power and energy generated by the CVP in excess of that needed by the Bureau for CVP functions. *fn5" All eleven plaintiffs are under contract with WAPA to receive electric power for irrigation pumping from the CVP. *fn6" Eight of the plaintiffs also receive CVP water for irrigation from the Bureau. Plaintiffs have always received allocations of surplus power from the CVP in the same manner and at the same rates as other preference customers.

 In 1975, the City of Santa Clara, California, a CVP preference customer, filed a lawsuit against the Bureau alleging inequalities in the allocation of CVP power. *fn7" After the District Court and the Court of Appeals for the Ninth Circuit had rendered their decisions, the parties negotiated a settlement which, among other things, gave the United States the option to market an additional 102 megawatts (MW) of electric power. *fn8" WAPA subsequently notified CVP customers of the Santa Clara settlement of its intention to develop a plan for allocating the 102 MW. Between July of 1980 and October of 1981, WAPA held a series of public information and comment forums to solicit comments on the issues of whether it should market the additional 102 MW and, if so, how and to whom. In connection with the rulemaking proceedings, WAPA received a large number of comments, including those of the plaintiffs who opposed the marketing proposal.

 On August 17, 1981, WAPA published its final decision to market the 102 MW, and it announced its final allocation criteria along with a solicitation for applications for allocations of the 102 MW. 46 Fed. Reg. 41,547. *fn9" A number of irrigation and water districts, including four of the plaintiffs, were among the 74 entities that applied to WAPA for an allocation of the 102 MW. *fn10" On January 25, 1982, WAPA announced its final power allocations as follows: 46 MW was reserved for Westlands Water District, one of the plaintiffs in this action, but 42 of this 46 MW were allocated to other applicants on a withdrawable basis to be made available when Westlands had a need for the additional power. Another 26 MW went to preference entities on a firm basis, 21 of it to irrigation or water districts. *fn11" The remaining 30 MW was allocated as "firming" power for renewable resources and cogeneration facilities. *fn12" Both the decision to market this additional 102 MW of electric power and the manner in which it was allocated are challenged by plaintiffs in the first action -- Civil Action No. 82-2466.

 Plaintiffs' second action, Civil Action No. 83-0232, challenges the rate increases for CVP power. Beginning in 1977, the government initiated rate proceedings in order to raise rates for CVP power because existing power rates did not produce enough revenue to satisfy legal requirements. *fn13" The government first considered adopting two alternative rate schedules: (1) a flat rate for all CVP power customers and (2) a dual rate schedule, one rate which would apply to customers with fixed allocations and to that portion of load-growth customers' loads established prior to 1967, and another, higher rate which would apply to the growth portion of the load-growth customers' loads, reflecting the higher cost of "purchased power" needed to supply these customers. *fn14" After receiving comments on the rate proposals, WAPA in October of 1979 issued an order rejecting the dual rate concept and adopting a single uniform rate for all CVP customers. FERC, however, disapproved and rejected the proposed rate schedule in 1982 on the ground that it was too low to provide sufficient revenues to recover CVP's operating costs and to repay the federal investment within a reasonable time. *fn15"

 Another round of CVP rate adjustment proceedings was conducted, *fn16" and in April 1983, WAPA submitted substitute rate schedules, i.e., a "uniform rate with periodic energy stair steps." These rates were given effect on an interim basis on May 25, 1983, and they were ultimately confirmed and approved by FERC for a five-year period on November 30, 1983.

 II

 The problem these consolidated actions address is the increase in plaintiffs' power rates as a consequence of the government's CVP power marketing activities. Plaintiffs claim that because the primary purpose of the reclamation laws and the CVP is to reclaim arid land through irrigation, they, as irrigators, are entitled to a separate, lower rate and a greater preference in the allocation of CVP electric power than other customers. As they view it, the decision of WAPA to charge them the same rates it charges non-irrigators and its decision to market CVP power in a manner which benefits other preference customers -- which results in a direct or indirect increase in their own rates -- violates these reclamation laws.

 More specifically, although plaintiffs claim that they are entitled to the so-called project use rate, they also state that they are willing to settle for an alternative rate which excludes, at a minimum, certain cost components included in WAPA's commercial power rates -- i.e., interest on capital investment, aid to the project's irrigation function, and most particularly, purchased power costs. Beyond that, plaintiffs note that if the Court grants them the rate relief they seek, their claims in the allocation complaint concerning WAPA's decision to market the additional 102 MW and its allocation of that power "will virtually disappear" and that the Court may treat these matters as moot. Plaintiffs' Motion for Summary Judgment at 86.

 A. Plaintiffs are clearly not entitled to CVP power at the project use rate. In the first place, in spite of its name, this is not a rate but an interdepartmental accounting mechanism, a bookkeeping entry to account for the power used by the Bureau in operating the CVP. This accounting procedure permits the Bureau to transfer a portion of power-related expenses to the water-related functions which use project power, i.e., irrigation, municipal and industrial water, fish and wildlife conservation, and water rights. *fn17"

 This distinction in treatment makes good sense. The CVP facilities which were specifically authorized by Congress were built exclusively with federal funds, and they are owned and operated by the federal government. By contrast, plaintiffs are entities organized under state law whose facilities are not federally owned and which, except in the case of two plaintiffs, were financed with private funds. It is clear that the "project" in this case consists of only those CVP facilities owned by the federal government; it does not include facilities owned by local entities such as plaintiffs. *fn18" Indeed, the contracts between the irrigators and WAPA specifically provide that they are receiving surplus power not required for project operations. *fn19"

 B. Plaintiffs also cite to the "Minidoka precedent" where the irrigation districts within the project area were provided project power for irrigation pumping at the project use rate. The Minidoka situation, however, is clearly different. The federal government constructed and operated the Minidoka Project pursuant to the provisions of an earlier reclamation statute. While the project's day-to-day operations and management were ...


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