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09/24/71 Alabama Power Company, v. Federal Power Commission

September 24, 1971




Fahy, Senior Circuit Judge, and Leventhal and Robb, Circuit Judges.




This case is before us on a petition to review an order of the Federal Power Commission requiring petitioner to pay $287,867 as its share of the annual interest, depreciation, and maintenance costs, during the period 1961-63, for that portion of the federally owned Allatoona Dam which supplied headwater benefits to four downstream facilities licensed to petitioner. Petitioner does not dispute its obligations to pay some portion of the costs; its contention is that the amount assessed by the Commission was excessive. The Secretary of the Interior intervened in support of the Commission's order. *fn1 We affirm. I. GENERAL BACKGROUND

Section 10(f) of the Federal Power Act *fn2 applies whenever the owner of a hydroelectric project licensed by the Commission is benefited by the operation of headwater improvement -- for example, through the release of water by the upstream dam that can be used to generate additional power at the licensee's downstream site. It requires the Commission to order the downstream licensee to reimburse the owner of the headwater improvement "for such part of the annual charges for interest, maintenance, and depreciation thereon as the Commission may deem equitable." The costs to be allocated are those charged to the "joint-use" facilities of the upstream plant, i. e. the dam and reservoir, which contribute to the production of power both at the upstream and at the downstream projects. *fn3 There is no allocation under 10(f) of the costs of the "specific power facilities" of the upstream plant -- e.g., its power house and equipment -- which relate solely to the generation of power at that plant, and contribute nothing to the generation of power downstream.

Petitioner Alabama Power ("Alabama") is the licensee of four hydroelectric projects on the Coosa River in the State of Alabama -- the Weiss, Lay, Mitchell, and Jordan Projects. Three of these -- Lay, Mitchell, and Jordan -- began operations between 1914 and 1929. They are run-of-the-river plants, having no seasonal storage capacity, and utilizing pondage flow of the stream as it reaches each project. When the federal Allatoona dam in northwest Georgia was completed in 1950, upstream of petitioner's project. *fn4 its substantial storage capability permitted Alabama to realize energy gains at these three downstream facilities. In a series of proceedings the Commission assessed charges for headwater benefits from the Allatoona dam for the period 1950 through 1960. *fn5 Alabama paid these charges without dispute.

In 1961, Alabama's Weiss Project went into operation. Located between Allatoona and the three older Alabama dams, Weiss has storage capacity and therefore can supply some of the power benefits that had previously been conferred on these facilities by Allatoona. *fn6 On September 28, 1966, the Commission issued its determination, without hearing, assessing Alabama $296,003 for headwater benefits provided by Allatoona to the four downstream projects during the period 1961 to 1963. 36 F.P.C. 701 (1966). Alabama applied for a hearing, which resulted in an order specifying a revised assessment of $287,867, an amount less than that proposed by the Examiner, Staff, or Interior, but higher than that envisaged by Alabama, who has taken this appeal. *fn7 II. REASONABLENESS OF THE COMMISSION'S METHODOLOGY

A. The Value Formula

The parties stipulated that the allocable 10(f) costs for 1961-63 of the upstream Allatoona project totaled $1,762,732, and that the determination of what portion of this amount was to be borne by Alabama, on a determination of benefits, should be governed by the so-called Value Formula used by the FPC in prior cases as well as this one. *fn8 Stated simply, this formula provides for the allocation of 10(f) costs according to the comparative value of the joint-use facilities to the downstream owner and to the production of power at the upstream plant providing the headwater benefit. In other words, if Alabama derived $300 worth of power benefits from Allatoona dam and reservoir, and these facilities had a value of $500 to the production of power at Allatoona itself, then Alabama would be charged with 3/8 of the allocable costs of the facilities. Alabama does not dispute the validity of this formula in general, but only its application in this particular case. Alabama says, in essence, that the Commission both overvalued the power benefits derived by Alabama, and undervalued the power benefits derived by the Government. We examine each of these contentions in turn.

B. Power Benefits Derived by Alabama

In order to calculate the value of benefits derived by Alabama from Allatoona, the Commission first had to estimate the amount of energy gained at its downstream plants from this upstream facility. *fn9 In the usual case this would simply require a comparison between (1) the energy that would have been generated downstream without the upstream regulation, and (2) the energy actually generated at the downstream plant with the upstream project on the river. *fn10 Once these gains are determined, the Commission must calculate their monetary value. This is done by comparing the incremental cost of producing the same amount of energy with alternate facilities, in this case the several steam plants in the area. The difference between these costs -- i. e., the savings in the cost of generation -- is the value of the joint-use facilities to the downstream plants. The Commission found this value to be $392,690 for the three-year period in question.

In this case, however, the calculation of energy gains is complicated by the fact that there are two upstream facilities -- Allatoona and the Weiss project -- that could contribute energy gains to the Alabama system. At the Commission hearing Alabama contended that to the extent its own Weiss facility could contribute the same power benefits as Allatoona, these benefits should not be charged to Alabama in computing its share of the 10(f) costs. Thus Alabama figured its energy gains by calculating the energy that its four downstream plants would have produced without Allatoona, and then subtracting this amount from the actual metered generation at these plants.

The Commission staff, on the other hand, pursued the opposite theory. After making a separate determination of the energy gains at Weiss, the staff sought to charge Alabama for all of the energy gains that Allatoona would have conferred on Lay, Mitchell, and Jordan if Weiss had not been on the river. It attributed to Weiss only the incremental gains accruing to these downstream dams as a result of the operation of both storage projects simulataneously. *fn11

Both the Hearing Examiner and the Commission rejected Alabama's approach and adopted the staff's method for calculating benefits to Lay, Mitchell and Jordan. It was the Commission's view that Alabama's method would, in effect, "permit a project constructed downstream and later in time to discount, cancel out or allocate to itself the benefits originally provided by upstream headwater improvements." 42 F.P.C. at 1130. We think that the Commission's approach was reasonable. Petitioner argues the Commission is requiring Alabama to pay for power benefits which it itself is able to obtain through its own storage facility at Weiss. It contends that the decision violates the "direct benefit" requirement of ยง 10(f). That section merely says that "whenever any license hereunder is directly benefited by the construction work of another licensee, . . . the Commission shall require as a condition of the license that the licensee so benefited shall reimburse the owner" of the facility conferring the benefit "for such part of the annual charges for interest, maintenance, and depreciation thereon as the Commission may deem equitable." Once there is a "direct benefit" in the form of power gain, -- as contrasted with the "indirect benefit" of, ...

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