Appeal
from the Superior Court No. 3 AN-14-08890 CI of the State of
Alaska, Third Judicial District, Anchorage, Michael D. Corey,
Judge.
Stuart
W. Goering and Megyn A. Greider, Assistant Attorneys General,
Anchorage, and Jahna Lindemuth, Attorney General, Juneau, for
Appellant
Regulatory Commission of Alaska. Michael E. Kreger and Sarah
C. Gillstrom, Perkins Coie LLP, Anchorage, for Appellant and
Appellee Homer Electric Association, Inc. Robin O. Brena,
Matthew C. Clarkson, and Kelly M. Moghadam, Brena, Bell &
Clarkson, P.C., Anchorage, for Appellees
Matanuska Electric Association, Inc. and Chugach Electric
Association, Inc. John J. Burns, Golden Valley Electric
Association, Inc., Fairbanks, Alaska, for Appellee Golden
Valley Electric Association, Inc. Dean D. Thompson and
Jonathon D. Green, Kemppel, Huffman and Ellis, P.C.,
Anchorage, for Appellee
Municipality of Anchorage d/b/a Municipal Light and Power.
Notice of nonparticipation filed by Brian Bjorkquist, Senior
Assistant Attorney General, Anchorage, and Craig W. Richards,
Attorney General, Juneau, for Appellee
Alaska
Energy Authority; and by Jeffrey J. Waller, Assistant
Attorney General, Anchorage, and Craig W. Richards, Attorney
General, Juneau, for Appellee
State
of Alaska Attorney General's Office, Regulatory Affairs
and Public Advocacy Section.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
Carney, Justices.
OPINION
MAASSEN, JUSTICE.
I.
INTRODUCTION
Electrical
utilities entered into agreements for the purchase and
transmission of energy from a hydroelectric project to
utilities in distant service areas. Legislation exempted the
agreements from the review or approval of the Regulatory
Commission of Alaska (RCA); any disputes were to be resolved
instead by a contractually established committee.
Along
the transmission pathway was a substation leased by Homer
Electric Association (HEA) to Chugach Electric Association
(Chugach) and used by Chugach for the transmission of the
distant utilities' electricity. When the lease expired,
HEA filed tariff applications with the RCA, seeking approval
of rates for its own transmission of the other utilities'
energy. The other utilities objected to the RCA's
jurisdiction, citing their agreements and the legislation
exempting the agreements from regulatory review.
The RCA
determined that it had the authority to consider the tariff
applications. The affected utilities appealed to the superior
court, which held that the RCA did not have that authority.
HEA and the RCA petitioned for our review, challenging both
the superior court's appellate jurisdiction and the
merits of its decision regarding the RCA's authority.
We
granted review. We reject the challenges to the superior
court's jurisdiction. Furthermore, like the superior
court, we conclude that the intent of the original agreements
and of the governing statute was to exclude disputes like
this one from the RCA's jurisdiction. We therefore affirm
the decision of the superior court reversing the RCA's
order.
II.
FACTS AND PROCEEDINGS
A.
Facts
1.
The Bradley Lake Hydroelectric
Project
The
Bradley Lake Hydroelectric Project (the Project), located
approximately 27 miles northeast of Homer, began commercial
operation in 1991.[1] It "consists of a 125-foot high
concrete-faced, rock-filled dam structure, three diversion
structures, a 3.5-mile long power tunnel and vertical shaft,
generating plant, interior substation, 20 miles of
transmission line, and substation."[2] The transmission
lines connect the power plant to the switching station at
Bradley Junction, where Bradley Lake energy is transferred to
transmission lines owned by HEA. HEA's lines include
"the Soldotna Segment," a 46.8-mile segment from
Bradley Junction north to the Soldotna Substation, owned by
HEA and - until 2014 - leased to Chugach.
2.
The HEA/Chugach lease
Chugach
entered into the lease with HEA to "operate and
maintain" some of HEA's transmission facilities in
September 1985, six years before the Bradley Lake Project
began commercial operation. The leased facilities included
the Soldotna Substation and two transmission lines connecting
that substation with one near Quartz Creek, owned by Chugach.
The lines from the Soldotna Substation to the Quartz Creek
Substation are called the S/Q Line; they provide the only
physical path for the transmission of electricity to
utilities other than HEA.
The
HEA/Chugach lease expired in January 2014, when HEA removed
Chugach's metering equipment at Soldotna Substation and
took over operation of the S/Q Line.
3.
The Bradley Lake Agreements
Before
the Bradley Lake Project was completed, certain Alaska
utilities executed agreements for the sale, purchase, and
transmission of Bradley Lake energy. Other than HEA, the
utilities were what is known as "railbelt"
utilities: their service areas lay along the route of the
Alaska Railroad from Seward to Fairbanks. None of them owned
transmission lines that would provide direct access to
Bradley Lake energy.
The
primary purpose of the Bradley Lake Agreements, therefore,
was the creation of a transmission route for Bradley Lake
energy for the utilities that operated to the north. Pursuant
to the agreements, HEA transmitted railbelt utilities'
energy from Bradley Lake via its Soldotna Segment, at the end
of which-at the Soldotna Substation - Chugach accepted
delivery. It was Chugach's responsibility to transmit the
Bradley Lake energy farther on, first along the S/Q Line to
the Quartz Creek Substation and then to more distant delivery
points as designated by the other utilities. The sections
that follow describe the Bradley Lake Agreements in more
detail.
a.
The Power Sales Agreement
The
Agreement for the Sale and Purchase of Electric Power (Power
Sales Agreement) had eight signatories: the Alaska Power
Authority (Power Authority), the Alaska Electric Generation
& Transmission Cooperative (AEG&T), [3] Chugach, HEA,
Golden Valley Electric Association (GVEA), Matanuska Electric
Association (MEA), the Municipality of Anchorage d/b/a
Municipal Light & Power (ML&P), and the City of
Seward d/b/a Seward Electric System. Under the Power Sales
Agreement, the Power Authority - the predecessor to
today's Alaska Energy Authority - agrees to sell, and the
other parties agree to purchase, certain shares of the
Bradley Lake Project's energy capacity. The Power Sales
Agreement designates the physical point "at which the
Purchasers accept delivery" of their Project energy: the
switching station at Bradley Junction. The Agreement further
provides that absent mutually-agreed termination or renewal,
it remains in effect either for "50 years after the Date
of Commercial Operation" or until all bonds issued to
fund the Project have been "satisfied or provided for,
whichever occurs later."
The
Power Sales Agreement also establishes a committee -
generally referred to as the Project Management Committee or
BPMC - "responsible for the management, operation,
maintenance, and improvement of the Project," including
the "scheduling, production and dispatch" of
Bradley Lake energy. The Project Management Committee,
composed of the Power Authority and the purchasing utilities,
is required among other things to "[a]dopt procedures
... for the resolution of disputes that may arise between or
among the Purchasers and the Authority concerning the
interpretation of this Agreement, the obligations created by
this Agreement, or the performance of such obligations."
b.
The Services Agreement
Chugach
and the other energy-purchasing utilities, including HEA and
AEG&T, contemporaneously entered into the Agreement for
the Wheeling of Electric Power and for Related Services
(Services Agreement), which governs the transmission of
Bradley Lake energy from the Project to the railbelt
utilities' own transmission systems. The Services
Agreement contemplates that purchasing utilities will deliver
Bradley Lake energy to Chugach at the Soldotna Substation,
which is defined in the Agreement as "[t]he Soldotna
Substation owned and operated by [HEA], or any successor
facility at which Bradley Lake Energy can be and is delivered
to Chugach at Chugach's metering point by a Wheeling
Utility for services under this Agreement." The utility
may then request that Chugach provide "wheeling
services" (meaning a utility's use of its facilities
to transmit another utility's electricity).[4] A request for
wheeling services requires Chugach to wheel the energy to the
requesting utility's "Delivery Point"
designated in the Agreement. The "applicable wheeling
rates" are to be established and modified "only in
accordance with ... Appendix A" attached to the
Agreement.
Alternatively,
the utility may ask Chugach to store or purchase the
electricity delivered to the Soldotna Substation, and Chugach
is required to comply; compensation for these services is
also set out in the Agreement. The Agreement further
obligates Chugach to "operate, maintain, and repair the
electrical facilities used to perform the services provided
hereunder," subject to "the capability of
Chugach's generation and transmission system" as it
then existed and to Chugach's priority to first meet
"the safety, efficiency, and economic needs of [its] own
system."
The
Services Agreement requires the parties to meet at least
quarterly to discuss any "difficulties encountered"
or alleged failures to perform; and the parties agree that
"any further procedures for dispute resolution under
[the Services Agreement] shall be entrusted (if the Authority
concurs) to good faith negotiation and adoption by the
Project Management Committee, with Chugach's affirmative
vote required for adoption of such procedures." Finally,
the Services Agreement provides that the "Agreement in
its entirety reflects the meeting of the minds among the
Parties" and that "there exists no agreement among
the Parties that services will be provided to the Wheeling
Utilities for Bradley Lake Energy... on terms or conditions
other than as set forth in this Agreement."
c.
The Capability Agreement
A third
Bradley Lake Agreement is the Amendment to Agreement for Sale
of Transmission Capability (the Capability Agreement),
executed by HEA, AEG&T, Chugach, GVEA, and
ML&P.[5] The Capability Agreement confirms
HEA's intent to construct two transmission lines from
Bradley Junction, one of them "the Soldotna
Segment" between Bradley Junction and the Soldotna
Substation. HEA commits to sell, and the other parties commit
to buy, shares of the carrying capacity of the Soldotna
Segment equal to their shares in the Bradley Lake Project.
HEA assumes the duty to "in good faith and at all times
operate, maintain and repair the electrical facilities used
to perform the services provided" under the Capability
Agreement. The parties again "agree that any procedures
for dispute resolution under [the Capability Agreement] be
entrusted to good faith negotiations and adoption by the
Project Management Committee," this time "with
HEA's affirmative vote required for adoption of such
procedures."
In sum,
thus, the Bradley Lake Agreements describe the following
transmission pathway for Bradley Lake energy purchased by
utilities other than HEA: (1) pursuant to the Power Sales
Agreement, the utilities accept the Power Authority's
delivery of energy at the Bradley Lake Substation; (2)
pursuant to the Capability Agreement, HEA transmits the other
utilities' energy from there to the Soldotna Substation
via the Soldotna Segment; and (3) pursuant to the Services
Agreement, Chugach wheels the energy from there to the Quartz
Creek Substation via the S/Q Line before wheeling the energy
farther north along its own transmission lines to delivery
points designated by the railbelt utilities.
4.
Legislative action
Bradley
Lake's energy potential was studied for decades before
the Project became a reality.[6] In 1982 the Power Authority
assumed responsibility for moving it forward.[7] At that time the
Alaska Public Utilities Commission (APUC) - the predecessor
of the RCA[8] - "did not have review and approval
authority for power sales contracts" such as those
contemplated by the Project.[9] That changed in 1986, when the
legislature amended AS 42.05.431 to require that wholesale
power agreements receive the APUC's
approval.[10]
A bill
introduced the following year, supported by the Power
Authority, [11]was intended in part to remove the
APUC's jurisdiction to review wholesale power
agreements.[12] The bill was passed by the
legislature[13] but vetoed by Governor Cowper,
[14]and his veto was sustained.[15] The
governor's veto message focused on the bill's
deregulatory effect on dozens of "small public utilities
in the state"; the governor specifically "did not
reach the question of whether the exemption of Bradley Lake
from [APUC] review is in the public interest at this
time," saying he "hope[d] to have an opportunity to
review that question in the interim."[16]
Meanwhile,
interested utilities were waiting to execute the Power Sales
Agreement pending the outcome of legislative action on
proposed electric energy interties from Homer to
Fairbanks.[17] By the end of the 1987 legislative
session, however, the legislature had not authorized the
interties or appropriated funds for them, and there was
"not a lot of hope" for such action in the
future.[18] At that point, the Power Authority
refused to proceed with the Bradley Lake Project until it had
binding agreements for the sale of Bradley Lake energy
"in hand."[19] In later testimony to the legislature,
the Power Authority's executive director, Bob LeResche,
described the negotiations resulting in the "paper
interne" laid out in the Services and Capability
Agreements, by which the interested utilities "concocted
a way in which they could get the Bradley power distributed
to each of the buyers on existing interties with people
paying certain amounts under certain
principles."[20]
The
Bradley Lake Agreements, however, would only become effective
upon receipt of"all necessary
approvals."[21] And as LeResche explained, there were
only two ways to get the necessary approvals: "One is to
run them through the [APUC] and through the courts thereafter
if someone appeals the [APUC's] decision . . . [a]nd the
second way is by passing [a] bill which eliminates the
necessity for those [APUC] agreements."[22]
To
address these concerns the House Rules Committee, at the
governor's request, introduced a bill in January 1988
that again sought to amend AS 42.05.431 to limit regulatory
oversight of Bradley Lake power.[23] During a House Judiciary
Committee hearing on the bill, H.B. 356, the committee chair
described the bill's threefold purpose: (1) "to
ensure the completion of Bradley Lake in a timely manner
without any potential delays caused by intervenors in [APUC]
hearings"; (2) to ensure that Project bondholders
"are adequately secured"; and (3) to "minimize
the deregulation of the railbelt utility" (ostensibly
addressing the concern of Governor Cowper's 1987
veto).[24] During a later hearing of the Senate
Resources Committee, LeResche stressed the importance of
avoiding the costs of further delay, which he estimated to
be" 10 to 12 million dollars a year as we sit on this
project"; he also testified that "the bond buying
community puts a significant premium on revenue bonds ...
secured by contracts" that are subject to regulatory
review, meaning that "the rate payers who are going to
pay off these bonds . . . would have to pay significantly
higher interest on the bonds if the contract were under
[APUC] review now and in the future."[25]
LeResche
also described the negotiating process that resulted in the
Bradley Lake Agreements.[26] He explained the Agreements'
interdependency and why H.B. 356 should be viewed as
excluding all of them from regulatory oversight: "[T]he
bargain between the State and the utilities isn't just
the power sales agreement, nor just the wheeling agreements,
but it's the intertwined sum of those three agreements.
That's the bargain they've
struck."[27] Because of this contractual
interdependency, he testified, "[t]here is no logic and
no good sense to trying to excise some of those agreements
out for special regulatory treatment from the
others."[28]
House
Bill 356 was passed into law in 1988.[29] As enacted,
it amended AS 42.05.431 by adding the following subsection:
(c) Notwithstanding (b) of this section [requiring APUC
review of wholesale power agreements],
(1) a wholesale agreement for the sale of power from a
project licensed by the Federal Energy Regulatory Commission
on or before January 1, 1987, and related contracts for the
wheeling, storage, regeneration, or wholesale repurchase of
power purchased under the agreement, entered into between the
Alaska Power Authority and one or more other public utilities
or among the utilities after October 31, 1987, and before
January 1, 1988, and amendments to the wholesale agreement or
related contract, are not subject to review or approval by
the commission until all long-term debt incurred for the
project is retired; and
(2) a wholesale agreement or related contract described in
(1) of this subsection may contain a covenant for the public
utility to establish, charge, and collect rates sufficient to
meet its obligations under the contract; the rate covenant is
valid and enforceable.[30]
The
bill also amended AS 42.05.511 - subsequently renumbered to
AS 42.05.431(e)[31] - by adding the following subsection:
(d) Validated costs incurred by a utility in connection with
the related contracts described in AS 42.05.431 (c)(1) must
be allowed in the rates charged by the utility. In this
subsection, "validated costs" are the actual costs
that a utility uses, under the formula set out in related
contracts described in AS 42.05.431(c), to establish rates,
charges for services and rights, and the payment of charges
for services and rights. This subsection does not grant the
commission jurisdiction to alter or amend the formula set out
in those related contracts.[32]
B.
Proceedings
1.
The RCA proceedings
In
November 2013, in anticipation of the expiration of the
HEA/Chugach lease, HEA filed two tariff letters with the RCA.
One - the transmission tariff application-sought
"approval of transmission and related ancillary services
tariffs" for HEA's contemplated assumption of the
S/Q Line's operation. The other-the line loss tariff
application - sought compensation for "transmission line
losses due to transmitting energy from the [Project]." A
number of utilities objected to HEA's choice of forum:
Chugach, GVEA, MEA, and ML&P (the Protesting Utilities).
They argued that the RCA should reject the tariff filings
because they sought to "fundamentally change the rights,
obligations, and rates associated with wheeling Project power
across the S/Q line." According to the Protesting
Utilities, "[t]hose rights, obligations, and rates are
defined in the Bradley Lake Agreements," which, along
with "any amendments to those agreements, are exempt
from Commission review or approval under AS
42.05431(c)."
In June
2014 the RCA issued Order 10, entered in both the
transmission tariff docket and the line loss docket. Order 10
addressed the RCA's authority to decide HEA's
tariffapplications, the applications' substance, and
anumber of procedural issues. The RCA prefaced the summary of
its findings and conclusions by stating that they were
"[b]ased on the record developed so far in these
dockets, and only for the purpose of setting interim and
refundable inception rates for wheeling Bradley Lake energy
...