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Bonneville Power Administration v. Washington Public Power Supply System

filed: February 25, 1992.

BONNEVILLE POWER ADMINISTRATION, PLAINTIFF-APPELLANT,
v.
WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, V. CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE. BONNEVILLE POWER ADMINISTRATION, PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND PORTLAND GENERAL ELECTRIC COMPANY; PUGET SOUND POWER AND LIGHT COMPANY; PACIFICORP, D/B/A PACIFIC POWER & LIGHT COMPANY; WASHINGTON WATER POWER COMPANY ("WWP"), DEFENDANTS-APPELLANTS. BONNEVILLE POWER ADMINISTRATION, PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND SNOHOMISH COUNTY PUBLIC UTILITIES DISTRICT NO. 1, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND WASHINGTON PUBLIC UTILITIES GROUP, CITY OF TACOMA, MASON COUNTY PUD #3, BENTON COUNTY PUD, PACIFIC COUNTY PUD #2, GRAYS HARBOR PUD, LEWIS COUNTY PUD #1, MASON COUNTY PUD #1, OKANOGAN COUNTY PUD, CITY OF ELLENSBURG, SKAMANIA COUNTY PUD, WAHKIAKUM COUNTY PUD, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND CITY OF RICHLAND; CHELAN COUNTY PUBLIC UTILITY DISTRICT NO. 1; DOUGLAS COUNTY PUBLIC UTILITY DISTRICT; GRANT COUNTY PUBLIC UTILITY DISTRICT NO. 2; CLALLAM COUNTY PUBLIC UTILITY DISTRICT #1, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND CLARK COUNTY PUBLIC UTILITY DISTRICT NO. 1, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND FERRY COUNTY PUD NO. 1; KITTITAS COUNTY PUD NO. 1, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND BENTON RURAL ELECTRIC ASSOCIATION, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND SMALL UTILITIES GROUP, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND INLAND UTILITIES, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND CITY OF SEATTLE, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND COLUMBIA DEFENDANTS, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND INLAND POWER & LIGHT CO., DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND CLATSKANIE PEOPLES UTILITY DISTRICT; NORTHERN WASCO PEOPLES UTILITY DISTRICT; TILLAMOOK PEOPLES UTILITY DISTRICT; EUGENE WATER & ELECTRIC BOARD; CITY OF MCMINNVILLE, OREGON; CITY OF FOREST GROVE, OREGON; SPRINGFIELD UTILITY BOARD; CENTRAL LINCOLN PEOPLES UTILITY DISTRICT, DEFENDANTS-APPELLANTS. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT-APPELLANT. PLAINTIFF, AND CHEMICAL BANK, PLAINTIFF-INTERVENOR APPELLEE, V. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, DEFENDANT, AND PORTLAND GENERAL ELECTRIC COMPANY; PUGET SOUND POWER AND LIGHT COMPANY; PACIFICORP, D/B/A PACIFIC POWER & LIGHT COMPANY; WASHINGTON WATER POWER COMPANY ("WWP"), DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Western District of Washington. D.C. No. CV-82-1252-WDB. D.C. No. CV-82-1252-WDB. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB BONNEVILLE POWER ADMINISTRATION,. D.C. No. CV-82-1252-WDB. William D. Browning, District Judge, Presiding.

Before: Cecil F. Poole, Stephen Reinhardt and Ferdinand F. Fernandez, Circuit Judges. Opinion by Judge Fernandez.

Author: Fernandez

FERNANDEZ, Circuit Judge:

Appellants Bonneville Power Administration ("BPA"), Washington Public Power Supply System ("Supply System"), Portland General Electric Company, Puget Sound Power and Light Company, Pacific Power and Light Company, Washington Water Power Company, Snohomish County Public Utilities District No. 1, Washington Public Utilities Group, City of Richland, Chelan County Public Utility District No. 1, Douglas County Public Utility District, Grant County Public Utility District No. 2, Clallam County Public Utility District No. 1, Clark County Public Utility District No. 1, Ferry County PUD No. 1, Kittitas County PUD No. 1, Benton Rural Electric Association, Small Utilities Group, Inland Utilities, City of Seattle, Columbia Defendants, Inland Power and Light Company, Clatskanie People's Utility District, Northern Wasco People's Utility District, Tillamook People's Utility District, Eugene Water and Electric Board, City of McMinnville, City of Forest Grove, Springfield Utility Board, and Central Lincoln People's Utility District appeal the district court's grant of a partial summary judgment in favor of plaintiff-intervenor-appellee Chemical Bank. The district court ruled that Supply System erroneously allocated costs between "twinned" nuclear plants using the principle of proportional cost sharing, according to which shared costs were allocated based upon the proportion of respective benefit to each plant. According to the district court, Supply System should have used an incremental cost sharing system, under which any cost that would have been incurred regardless of the second unit is charged to the first unit. We disagree and reverse and remand for entry of partial summary judgment in favor of the appellants on that issue.

FACTUAL AND PROCEDURAL BACKGROUND

In 1975, Supply System, a joint operating agency and municipal corporation, undertook the construction of Nuclear Power Plant 1 at Hanford, Washington ("Project 1") and Nuclear Plant 3 at Satsop, Washington ("Project 3"). Projects 1 and 3 are separate utility systems with different ownership interests. Four investor-owned utilities ("IOUs") own 30% of Project 3 and are responsible for 30% of the project's costs.*fn1 Supply System owns 100% of Project 1 and 70% of Project 3. Supply System financed the two projects through the sale of revenue bonds. Under "net billing" agreements executed separately for each project, various regional utilities and municipalities purchased Supply System's share of the generating capability of Projects 1 and 3 and assigned that interest to BPA. BPA thus bears financial responsibility for 100% of Project 1 and 70% of Project 3.

In 1976, Supply System decided to construct Nuclear Plants 4 and 5 ("Projects 4 and 5"). Projects 4 and 5 were designed as "twins" to Projects 1 and 3. Project 4 was to be built alongside Project 1 in Hanford, and Project 5 was to be built alongside Project 3 in Satsop. Projects 4 and 5 were financed together as a single utility system. Supply System owns 100% of Project 4 and 90% of Project 5; Pacific Power and Light Company ("Pacific Power") owns 10% of Project 5. Supply System entered into Participants' Agreements with 88 regional utilities, cooperatives, and municipalities ("Participants") under which the Participants agreed to purchase a share of the generating capability of Projects 4 and 5 and in return agreed to bear a portion of the costs of the Projects. Supply System and Pacific Power executed an agreement ("Project 5 Ownership Agreement") in which Pacific Power agreed to bear a portion of the costs of Project 5. Supply System financed Projects 4 and 5 by issuing bonds pursuant to Bond Resolution 890.

The Participants' Agreements were executed on July 14, 1976. Section 14 of those agreements relates to the determination of the costs between twin projects and states that:

costs solely attributable to [Plants 4/5] shall be allocated to such Plants and costs solely attributable to Nuclear Projects Nos. 1 and 3 shall not be so allocated.

Costs not solely attributable to the Plants [4/5] and attributable to both the Plants [4/5] and Nuclear Projects Nos. 1 or 3 shall be allocated to the Plants [4/5] on the basis of the proportion of respective benefit to the Plants, or if such proportion is not determinable, on the basis of an equal allocation between the Plants [4/5] and Nuclear Projects Nos. 1 and 3, respectively.

The Project 5 Ownership Agreement contained the same provision.

In the fall of 1976, Supply System developed a "Policy Statement on Equitable Cost Sharing For Twin-Unit WPPSS Projects" ("Policy Statement"). The Policy Statement provided that "each project should benefit from the economies of dual construction." The Policy Statement indicated that "incremental cost allocation" had been used up to that time. Under incremental cost allocation, "any cost that would have been incurred, regardless of the addition of the second unit, is charged to the first unit," while "any cost that is incurred because of the addition of the second unit is charged to the second unit." The Policy Statement proposed the adoption of "equitable cost allocation,"*fn2 under which "each project pays for 'shared cost' components on the basis of the proportion of respective benefit to each project." Supply System sent the Policy Statement to BPA and the IOUs, each of which reviewed and approved it.

On December 17, 1976, Supply System adopted Resolution 1224, "A Resolution Adopting a Policy Concerning Cost Sharing at Dual Sited Projects." Resolution 1224 noted that the Participants' Agreements and the Project 5 Ownership Agreement called for the allocation of shared costs on the basis of proportion of respective benefit, or if such proportion is not determinable, on the basis of equal allocation between the respective projects. The Resolution stated that,

based on the recommendation of the Supply System staff and subject to the approval of [BPA, the Participants' Committee and the Owners' Committees] . . . the equitable cost sharing principles and guidelines set forth in the position paper entitled 'Policy Statement on Equitable Cost Sharing for Twin-Unit WPPSS Projects' are accepted and approved as a reasonable and appropriate means of implementing an equitable cost sharing arrangement for dual-sited projects.

On February 23, 1977, Supply System adopted Bond Resolution 890, which authorized the issuance of bonds to finance Projects 4 and 5. The Bond Resolution broadly defines "Cost of Construction" as "all costs paid or incurred in connection with the planning, acquisition, and construction of the Projects, and the costs of Capitalized Fuel, as such costs are defined in Section 6.9 of this Resolution." § 1.1(h). Section 6.8 of Bond Resolution 890 creates a "Projects Construction Fund" to be held in trust by Supply System. Section 6.9 of Bond Resolution 890 requires that "payment of the Cost of Construction of [Projects 4 and 5] shall be made from the money in the Construction Fund." Section 6.9 states that

the Cost of Construction of the WPPSS No. 4 Project shall include all costs of constructing, acquiring, and installing said Project as generally described in Section 2.2 hereof, and the Cost of Construction of the WPPSS No. 5 Project shall include the System's Ownership Share of the "Costs of Construction" as defined in the WPPSS No. 5 Project Ownership Agreement . . . .

Section 6.9 contains a non-exhaustive list of items included in the cost of construction, including "paying or reimbursing expenses incident and properly allocable to the acquisition and construction of each Project." § 6.9(I). The Bond Resolution provides that Projects 4 and 5 do not include any facilities constructed as a separate utility system. § 1.1(y)-(z). It also contains numerous references to the Project 5 Ownership and Participants' Agreements.

At the time that Resolution 890 was adopted letters were issued by the Construction Engineers on Projects 4 and 5. Those letters were made part of the prospectus for the bonds and stated that the projects would "benefit from the economies of dual construction and therefore share certain costs on the basis of the proportion of respective benefit."

Between 1977 and 1981, construction budgets for Projects 1, 3, 4, and 5 were developed. Supply System allocated management costs, including Architect-Engineer, Construction Manager, and Owner Administrative and General Costs, on a 50-50 basis. In 1981, Supply System decided to slow down the construction of Projects 4 and 5, and revaluated its previous method of allocating shared costs.*fn3 Supply System determined that during a construction slowdown it would not be equitable to continue to share common costs on an equal basis, and decided to ...


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