UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


KOOTENAI ELEC COOP

v.

FERC


98-1275a

D.C. Cir. 1999


*	*	*


Silberman, Circuit Judge: Two groups of petitioners seek  review of the
Federal Energy Regulatory Commission's  (FERC's) order authorizing the
future licensee of a hydro- electric project to charge a market price
for 30% of the  project's power. We deny the petition.


I.


The Priest Rapids Project is a federally licensed hydroelec- tric
development located in Grant County, Washington; the  current
licensee, Grant County Public Utility District (Grant),  has held the
license since 1955. Grant entered into long-term  contracts with one
group of petitioners--the purchasers  group--to provide them with
63.5% of the Project's firm  power at a price determined by a
cost-based formula. While  both those contracts and Grant's license
expire in 2005, Grant  expects its license to be renewed, and has


contract negotiations for post-2005 power sales with the  purchasers
group on the basis of that expectation.


This case arises from Grant's decision not to negotiate with  the
second group of petitioners--the Idaho cooperatives-- over the sale of
power following relicensing. This rebuff led  the Idaho cooperatives
to file a complaint with FERC alleging  that Grant had failed to
comply with the 1954 Act authorizing  construction of the dam. The
Act, in relevant part, requires  that the licensee offer "a reasonable
portion of the power  output of the project for sale within the
economic marketing  area in neighboring States and ... cooperate with
agencies in  such States to insure compliance with this requirement,"
in  order to "assure that there shall be no discrimination between 
States in the area served by the project." See Pub. L. No.  544, s 6,
68 Stat. 573, 574 (1954). The Idaho cooperatives  sought an order
requiring Grant to sell them approximately  one-fifth of the Project's
output, pursuant to FERC's authori- ty under the Act to, "in the event
of disagreement between  the licensee and the power marketing
agencies[,] determine  and fix the applicable portion of power
capacity and power  output to be made available hereunder and the


The purchasers group and Grant opposed the Idaho coop- eratives'
request, each claiming that the issue of allocation of  power
following relicensing would not be ripe until relicensing  had
occurred. The purchasers group also noted that their  contracts with
Grant provided them a right of first refusal to  Project power that
would be jeopardized by the cooperatives'  desired relief, while Grant
contended that the Act would not  apply upon relicensing. FERC
concluded that the Act would  apply upon relicensing, and set the
matter for a trial-type  evidentiary hearing before an ALJ. See
Kootenai Elec.  Coop., Inc., et al. v. Public Util. Dist. No. 2, 72
FERC  p 61,222 (1995). The Commission decided that the case was  ripe,
noting that Grant and the purchasers group were al- ready engaged in
negotiations for post-relicensing power  sales. See id. at 62,032-33,
reh'g denied, 73 FERC p 61,307  at 61,858 (1995). Meanwhile,
intervenor Snake River Power  Association, a marketing agency selling


Idaho, Montana, Utah, Nevada, and Wyoming, entered the  case to stake
its claim to a post-relicensing allocation of  power.


The ALJ, without much discussion, decided that 30% of the  Project's
firm power should be sold to power marketing  agencies serving Idaho,
Oregon, and Montana, and fixed a  percentage allocation for each party
to the proceeding based  upon the number of retail customers they
would likely serve  following relicensing. He noted that the Act
requires sales to  Washington's "neighboring States," and while no
States but  Idaho and Oregon directly border Washington, Montana is 
sufficiently mentioned in the legislative history that it should  be
deemed neighboring for purposes of the Act.


The Commission upheld the ALJ's finding that a 30%  allocation would
satisfy the statute's "reasonable portion"  requirement,1 noting that
the percentages proposed by the  parties were self-serving and that
"nothing ... proscribes the  Commission's discretion in determining
what is a 'reasonable'  portion." Kootenai Elec. Coop., Inc., et al.
v. Public Util.  Dist. No. 2, 82 FERC p 61,112 at 61,402 (1998).
However,  FERC, explaining that division of the allocation among the 
purchasers using any of the proposed numerical formulas  would be
"inherently arbitrary and fundamentally inconsis- tent with the
Commission's policy of promoting competition,"  decided that the
future licensee would be required to allocate  the power using a
non-discriminatory market mechanism-- i.e., market pricing--with
petitioners given first crack at  purchasing the power. Id. Without
deciding what "neigh- boring States" meant, the Commission broadened
the geo- graphic scope of sales to include those States serviced by 
Snake River Power Association, reasoning that the Act's  purpose would
be best served by distributing power within  the broader "economic




__________

n 1 The Commission expanded the ALJ's requirement to cover both  firm
and non-firm power, an issue not before us.


None of the parties was completely satisfied with this  order, and all
requested a rehearing, with three different  views as to which states
qualify as "neighboring States" and  four different views as to the
appropriate allocation. All  petitioners argued that use of a market
mechanism is incon- sistent with the Act, which they claim requires
both that the  power be sold at cost and that the Commission allocate
the  power itself. It was also claimed that their right of first 
refusal would be meaningless if the power were sold at a  market
price. Grant, which expects to be the future licensee,  of course did
not join in this argument, but rather asked the  Commission to
decrease the amount of power the licensee  would be required to sell
(Grant appears before us as an  intervenor in support of respondent).
The Commission de- nied rehearing. See Kootenai Elec. Coop., Inc., et
al. v.  Public Util. Dist. No. 2, 83 FERC p 61,289 (1998).


We consolidated separate petitions for review by the pur- chasers group
and the Idaho cooperatives. Though their  arguments differ in certain
respects, both claim that the 1954  Act forbids use of a market
mechanism to allocate the Pro- ject's power, and that respondent did
not engage in reasoned  decisionmaking when it selected 30% as the
reasonable por- tion of power to be allocated; the Idaho cooperatives
alone  ask us to review the proper geographic scope of power 
distribution, i.e., the scope of the term "neighboring States."  In
addition to defending its order on the merits, the Commis- sion
asserts that petitioners lack standing and that this case  is not


II.


We start, as of course we must, with the Commission's  jurisdictional
objections. FERC argues that the case is not  ripe because the new
license has not been awarded and one  cannot know now what price the
new licensee--Grant or  another entity--would charge any purchaser.
Petitioners cry  foul; after all, they argue, FERC itself determined
the  controversy was ripe before it. But whether or not an  agency
determines a proceeding is "ripe" for its purposes, 


that conclusion is not determinative when the question is  ripeness in
a federal court. See Pfizer Inc. v. Shalala, 182  F.3d 975, 979-80
(D.C. Cir. 1999). An agency is not bound to  observe such judicial
strictures, either constitutional or pru- dential, as are Article III
courts. See id.


Nonetheless, we think the case is ripe for the same reasons  that
persuaded FERC when it was acting as an adjudicator.  Although it is
possible that another entity would be awarded  the license rather than
Grant, that contingency, as a practical  matter, is too remote to
trouble us. So too is the possibility  that the market price for power
would sink to a cost-based  price. The important point is that the
petitioners and Grant  have entered the negotiation stage for
post-relicensing power,  and their respective bargaining power would
be substantially  altered if FERC's decision were reversed. Cf.
Associated  Gen. Contractors v. Coalition for Economic Equity, 950
F.2d  1401, 1407 n.5 (9th Cir. 1991) (challenge to minority business 
preference ripe where contractors' bidding decisions would  differ
depending upon resolution of issue); Fort Sumter  Tours v. Andrus, 564
F.2d 1119, 1123-24 (4th Cir. 1977)  (challenge to denial of statutory
preference ripe where denial  affected negotiations for tour


Moreover, the question presented is in Abbott Laboratories  terms
"purely legal," and any decision we reach can hardly be  thought of as
interfering with agency deliberations; the Com- mission has finally
determined the issue. See Abbott Labora- tories v. Gardner, 387 U.S.
136, 149 (1967); cf. Weinberger v.  Salfi, 422 U.S. 749, 765 (1975).
We therefore conclude the  case is ripe.


The standing issue, after oral argument, actually disap- peared. The
Commission had challenged petitioners' stand- ing to protest the
reasonableness of the allocation percentage  and the Commission's
failure to define "neighboring States."  But petitioners freely
admitted that if market pricing is  legitimate they would have no
particular interest or stake in  the amount of power allocated to
"purchasers," wherever they  are. Power is fungible, and the output of
the Priest Rapids  project would have a trivial impact on the national


price. Since we determine that the Act does not preclude the 
Commission's market-rate authorization, the petitioners' al- ternative
claim is abandoned and therefore we never get to  their standing to


III.


We are brought then to the core issue. Does this rather  unusual
statute require the Commission to set cost-based  rates for the
portion of the power Priest Rapids produces that  is to be allocated
to purchasers in neighboring states?2 In  the administration of the
basic Federal Power Act, FERC has  since moved to a market-rate
deregulatory posture.3 And as  the parties recognize, FERC actually
lacks authority to set  the rates of state utilities under the FPA.
See 16 U.S.C.  s 824(f); Village of Bergen v. FERC, 33 F.3d 1385, 1387
(D.C.  Cir. 1994). Petitioners' argument is that the special statute 
governing the construction of this project implicitly granted  FERC
rate-making authority; indeed obliges FERC to exer- cise that
authority notwithstanding the exemption for state  utilities under the
FPA, and notwithstanding the present 




__________

n 2 Petitioners also make a rather frail argument that the Commis- sion
failed to provide them sufficient notice that it might settle on 
allocation via a market mechanism. But in Williston Basin Inter- state
Pipeline Co. v. FERC, 165 F.3d 54, 63-64 (D.C. Cir. 1999), we  held
that a pipeline company had sufficient notice that FERC might  adopt
GDP growth as a benchmark for price increases where  FERC had given
notice that it would set a benchmark at the  hearing, even though FERC
had never stated that it was consider- ing using GDP growth as the
benchmark. Since in this case all  parties challenged the ALJ's
allocation on exceptions to the Com- mission, the possibility was left
open that some other method of  allocation would be adopted, and
petitioners do not argue that the  market is, in general, an
unreasonable means of allocating a scarce  resource.


3 See Promoting Wholesale Competition Through Open Access 
Non-Discriminatory Transmission Services by Public Utilities; Re-
covery of Stranded Costs by Public Utilities, Order No. 888, FERC 
Stats. and Regs. 31,036 (1996).


deregulatory regime.4


Nothing in the actual language of the Act explicitly re- quires FERC to
set cost-based rates--or any other kind of  rates--but petitioners
contend that the legislative history is  instructive and there is
language in the statute that necessari- ly implies a congressional
intent to require FERC to set cost- based rates if the parties
disagree. Petitioners never make  clear whether they are claiming that
the congressional intent  is so specific that the case should be
treated as a Chevron  step I candidate, see Chevron U.S.A. Inc. v.
Natural Re- sources Defense Council, Inc., 467 U.S. 837 (1984), or
whether  they only contend that under Chevron step II the agency's 
interpretation is unreasonable. Be that as it may, petitioners  rely
primarily on the legislative history.


There is no question that the legislative deliberations re- flect a
general understanding that the project would provide  low-cost power
to the Northwest. See, e.g., 100 Cong. Rec.  10,215 (daily ed. July
10, 1954) (statement of Sen. Magnuson)  ("When we talk about more
kilowatts for the Northwest, we  also have in mind cheap kilowatts.");
100 Cong. Rec. 6,850  (daily ed. May 19, 1954) (statement of Rep.
Angell) ("[T]he  power will be distributed equitably throughout the
areas as is  now the case under Federal procedure."); Priest Rapids
and  Cougar Hydroelectric Projects: Hearings on S. 1743 and S.  2920
Before a Subcomm. of the Comm. on Public Works, 83d  Cong., 2d Sess.
12 (May 20, 1954) ["May 20th Hearings"]  ("The effect of the House
language is to insure ... that  neighboring States get a fair share of
the benefits produced 




__________

n 4 The Idaho cooperatives alternatively argue that FERC cannot 
require the licensee to use market rates because the Federal Power 
Act excludes state utilities like Grant from FERC's rate-making 
authority. Although the cooperatives claim that this has been their 
argument all along, this spin is not supported by even the most 
generous reading of their argument to FERC--indeed, the coopera- tives
argued below that the 1954 Act repeals by implication the  Federal
Power Act as it applies to Priest Rapids, and nowhere  argued that
cost-based rates were required by state law, as opposed  to the 1954
Act itself. Since this argument was not presented to  FERC, it is not


by the licensee in this stretch of the river."). That under- standing
was premised, however, on governing state rate  regulations that were
and are typically cost based. Indeed,  Congress assumed that the
licensee as a non-profit agency  would be obliged to sell at cost.5
This assumption, however,  may no longer be accurate, since Grant
informs us that it has  been selling excess power at market prices. A
congressional  assumption about an existing state regulatory
framework, as  a backdrop against which it is legislating, does not
translate  into a congressional command that that regulatory backdrop 
shall remain controlling as to the subject of its legislation  despite
intervening regulatory changes. That would be a tiny  legislative tail
wagging a giant legislative dog. If Congress  had intended the Act to
include a requirement that FERC set  rates at cost, it would have said
something like it said in  another special statute--that the rates be
"just and reason- able." See Farmers Union Cent. Exch., Inc. v. FERC,
734  F.2d 1486, 1504 (D.C. Cir. 1984).


Petitioners point to actual language in the statute that they  argue at
least implies that Congress intended FERC to set  rates at cost. The
Act imposes on the Commission the  responsibility to "determine and
fix the applicable portion of  power capacity and power output to be
made available here- under and the terms applicable thereto."
According to peti- tioners, that language makes no sense if it was
contemplated  that FERC could simply authorize Grant to sell at market
 prices. Petitioners again have a point; the language does  seem to
assume a regulated rate. On the other hand, if  Congress meant this
provision to constitute an independent  mandate on the Commission to
set cost-based rates for the  project, it would hardly have provided
that such authority  was triggered only by the parties'


Similarly unpersuasive is petitioners' suggestion that the 
nondiscrimination clause--"no discrimination between 




__________

n 5 See May 20th Hearings at 13-14 ("First, the licensee is a 
nonprofit agency and therefore must sell power at cost: Second,  power
sold must be at a rate competitive with Bonneville [which  sells power
at cost] ...: Third, the cost of money to the licensee-- the interest
rate--will reflect the licensee's status as a local govern- ment


States"--is inconsistent with a market-based rate. One  might think a
nondiscrimination clause contemplates a below- market rate. But again
that notion goes to Congress' back- ground assumption--not its
command. In other words, the  nondiscrimination clause serves a
prophylactic purpose if  below-market rates are required. But, we
cannot say the  clause mandates below market rates.


It is even argued that FERC's position violates the non- discrimination
clause: Grant sells power to its own customers  at cost (as required
by state regulation) and therefore Wash- ington consumers and
consequently the State of Washington  is preferred against its
neighboring States. This reading of  the nondiscrimination clause
seems strained, however, since it  reduces FERC's authority to
"determine and fix ... the  terms applicable" for sales to power
marketing agencies to a  requirement that FERC set terms equal to
those Washington  State requires for sales by its public utilities to
local custom- ers. We cannot say that this statute evinces a clear
congres- sional intent to impose a Most Favored Nation clause on the 
licensee--indeed, Congress considered and rejected an  amendment that
would have required sales to be "upon the  same terms and conditions
as power is offered for sale by the  licensee in the State of


In sum, we think the statute is ambiguous; there is no  clear
congressional intent, and therefore the Chevron doctrine  applies and
we ask whether the Commission's interpretation  is a permissible one.
The question is not easy; if we were  interpreting the statute de novo
we might well conclude that  petitioners have the better argument. But
we are not, and  we cannot say that FERC's interpretation is
unreasonable.  FERC logically concluded both that no discrimination
would  occur if power marketing agencies in each State were provid- ed
an equal opportunity to bid for the available power, and  that it had
fulfilled its statutory role of determining the  portion of power to
be made available to petitioners by  requiring the future licensee to
offer a "reasonable portion" of  the power to them as a group.6




__________

n 6 FERC's interpretation finds support in the legislative history. 
See May 20th Hearings at 12 ("[T]he Federal Power Commission 


* * * *


Accordingly, we deny the petition.




__________

n may decide the issue, if there is a dispute between the licensee and 
power marketing agencies ... over what constitutes a reasonable 
portion.").