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Regulatory Commission of Alaska v. Matanuska Electric Association, Inc.

Supreme Court of Alaska

February 22, 2019

REGULATORY COMMISSION OF ALASKA, Appellant,
v.
MATANUSKA ELECTRIC ASSOCIATION, INC.; CHUGACH ELECTRIC ASSOCIATION, INC.; GOLDEN VALLEY ELECTRIC ASSOCIATION, INC.; MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT & POWER; HOMER ELECTRIC ASSOCIATION, INC.; ALASKA ENERGY AUTHORITY; and STATE OF ALASKA ATTORNEY GENERAL'S OFFICE, REGULATORY AFFAIRS AND PUBLIC ADVOCACY SECTION, Appellees. HOMER ELECTRIC ASSOCIATION, INC., Appellant,
v.
REGULATORY COMMISSION OF ALASKA; CHUGACH ELECTRICASSOCIATION, INC.; GOLDEN VALLEY ELECTRIC ASSOCIATION, INC.; MATANUSKA ELECTRIC ASSOCIATION, INC.; MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT & POWER; and ALASKA ENERGY AUTHORITY, Appellees.

          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 ...


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