(This is the BPA summary introduction to the paper on transfer of control of BPA transmission to an IGO previously submitted to the PNUCC Legal Committee in 1996.)

Summary

1. Federal legislation would be necessary for Bonneville to sell, lease or transfer operating control of Bonneville's transmission system. Though the Administrator has broad authority to dispose of surplus property, Congress has required in the Urgent Supplemental Appropriations Act of 1986 that any transfer of ownership, management or control of major assets of the Federal power marketing administrations be specifically authorized by an Act of Congress.

2. Legislation would be necessary to modify Bonneville's statutes to better enable Bonneville to act as a Federal IGO. Legislation would also be necessary to create a new Federal entity to act as a Federal IGO and to enable it to efficiently carry out its duties.

3. Bonneville is currently unable to permanently shift to the Treasury financial losses suffered as a Federal IGO. Legislation would be required to shift such losses to the Treasury.

4. A Federal IGO would be subject to state permitting and siting requirements only if Congress clearly and unambiguously so directs in applicable legislation.

5. Bonneville's decision to execute a Transmission Coordination Agreement would be a major regional policy decision requiring opportunity for public comment. Additionally, under the U.S. Constitution a general separation of powers doctrine issue may exist with regard to the authority of NRTA to prohibit facility costs from being recovered.

(This is a BPA paper on tranfer of control of BPA transmission to an IGO previously submitted to the PNUCC Legal Committee in 1996.)

Would legislation be needed for sale, lease or transfer of operating control of Bonneville's transmission system?

A. Congressional Directives and Expectations.

Congress has enacted multiple statutory provisions regarding the operation of transmission facilities by the Bonneville Power Administration. Taken together, these legislative actions are strong indications of a Congressional intent that Bonneville operate and maintain a transmission system to carry out its various purposes. In 1937, Congress directed the Administrator

"to provide, construct, operate, maintain, and improve such electric transmission lines and substations, and facilities and structures appurtenant thereto, as he finds necessary, desirable, or appropriate for the purpose of transmitting electric energy, available for sale, from the Bonneville project to existing and potential markets, and, for the purpose of interchange of electric energy, to interconnect the Bonneville project with other Federal projects and publicly owned power systems now or hereafter constructed."

16 U.S.C. §832a(b). In 1961, the Senate of the United States consented to the U.S.-Canada Columbia River Treaty which imposed transmission-related obligations on the United States. This treaty obligates the United States to "deliver to Canada . . .the downstream power benefits to which Canada is entitled" (Article V, section 2) and to provide "east-west standby transmission service adequate to safeguard the transmission from Oliver, British Columbia, to Vancouver, British Columbia, of the downstream power benefits to which Canada is entitled and to improve system stability of the east-west circuits in British Columbia."

In 1964, Congress approved the construction of Federal transmission facilities comprising large portions of the Pacific Northwest-Pacific Southwest Intertie to facilitate the export of surplus Federal hydroelectric power. Public Works Appropriations Act, 1965, Pub. L. 88-511, 78 Stat. 682 (1964). At the same time, Congress provided for a priority for Federal power over Federal intertie and other Federal transmission capacity. 16 U.S.C. §837e. Congress later directed the Administrator to "operate and maintain the Federal transmission system within the Pacific Northwest . . . ." 16 U.S.C. §838b. In the Northwest Power Act, Congress directed the Administrator to "furnish services including transmission . . . ." 16 U.S.C. §839f(i)(3). More recently in the Energy Policy Act of 1992, Congress explicitly recognized a Bonneville obligation to provide an adequate and reliable service to loads in the Northwest region. 16 U.S.C. §824k(i)(5).

B. Administrator's Authority to Transfer is Limited

The Administrator has broad authority under section 2(e) of the Bonneville Project Act to sell or lease personal property, real property and interests in land acquired in connection with electric transmission facilities and which he determines are not required for Bonneville's statutory purposes.

"The administrator is authorized, in the name of the United States, to sell, lease, or otherwise dispose of such personal property as in his judgment is not required for the purposes of this Act and such real property and interests in land acquired in connection with construction or operation of electric transmission lines or substations as in his judgment are not required for the purposes of this Act: Provided, however, That before the sale, lease, or disposition of real property or transmission lines, as herein provided, the administrator shall secure the approval of the President of the United States."

16 U.S.C. §832a(e). Though this grant of authority requires the Administrator to obtain the approval of the President prior to sale or lease of real property or transmission lines, President Clinton has recently delegated such approval authority to the Administrator. (President's Memorandum to Secretary of Energy, "Disposal of Real Property of the Bonneville Power Administration," April 11, 1994). The General Services Administration has adopted the view that the authority granted under section 2(e) of the Bonneville Project Act "exempt[s] [Bonneville] from the disposal requirements of the Federal Property Act and the utilization survey requirements of Executive Order 12512." (Letter from Stasch to Hardy dated December 2, 1993).

However, in view of the various legislative enactments indicating an intent that Bonneville operate a regional transmission system, the administrative sale, lease or other disposition of large portions of the Federal Columbia River Transmission System is not likely within the parameters of the Administrator's authority under section 2(e) of the Bonneville Project Act. Additionally, an administrative disposition of the system would be inconsistent with recent Congressional statements on the subject. In 1986 Congress made its wishes explicit regarding disposal of facilities of the Federal power marketing administrations. In section 208 of the Urgent Supplemental Appropriations Act of 1986, Congress provided that

"[n]o funds appropriated or made available under this or any other Act shall be used by the executive branch for soliciting proposals, preparing or reviewing studies or drafting proposals designed to transfer out of Federal ownership, management or control in whole or in part the facilities and functions of the Federal power marketing administrations located within the contiguous 48 states . . . until such activities have been specifically authorized and in accordance with terms and conditions established by an Act of Congress hereafter enacted: Provided, That this provision shall not apply to the authority granted under section 2(e) of the Bonneville Project Act of 1937 . . . ."

Pub. L. No. 99-349, 100 Stat. 749, July 2, 1986 (emphasis added). Though, as indicated, this prohibition does not apply to actions taken by the Administrator under section 2(e) of the Bonneville Project Act, the exclusion itself indicates the more limited nature of the Administrator's authority:

"We also preserve for the Power Marketing Administration (sic) their ability to dispose routinely of surplus property under existing General Service Administration, Bonneville Power Administration, and Tennessee Valley Authority statutes."

132 Cong. Rec.10190 (May 8, 1986) emphasis added. The Report of the Senate Appropriations Committee on the proposed legislation states that the "language would bar the sale or transfer of major assets of the Power Marketing Administrations . . . unless specifically authorized by Congress." Sen. Report 99-301, May 15, 1986, p. 50 (emphasis added). Notably, Senator Hatfield indicated on the floor of the Senate that the executive branch "recognize[d], with their legal counsel present in these hearings, that they could not divest the Government of its holdings in any of the PMA's without congressional authority." 132 Cong. Rec. 12695 (June 5, 1986).

Congressional approval not only of the sale, lease or transfer of operating control of major portions of the Federal Columbia River Transmission System but also of the terms and conditions of the transfer is therefore necessary.

What legislation is needed for a Federal Independent Grid Operator to shift financial risks to the United States Treasury?

In order to induce efficiency, an independent grid operator might be granted approval to undertake performance-based ratemaking. Though this ratemaking approach allows profit margins to be made for efficiency gains, it also requires the operator to assume any losses not recoverable within the limitations of the approved pricing cap.

The ability of a Federal IGO to shift financial risks to the U.S. Treasury would have to be explicitly authorized by Congress, whether in relation to a new Federal IGO or to Bonneville. Under current law, Bonneville is required to recover its costs, including repayment of the Federal investment in the transmission facilities, from its ratepayers.

16 U.S.C. §§832f, 838g, 839e(a)(1). In the event Bonneville is unable to fully cover all costs, repayment of the Federal investment in the Federal power and transmission facilities is deferred, i.e., Treasury repayment has the lowest priority. 16 U.S.C. §838k(b). But in the absence of additional legislative authority, Bonneville is unable to permanently shift losses to the United States Treasury and the taxpayers.

Because Treasury repayment has the lowest priority under Bonneville's existing statutes, the assumption of cost responsibility for nonFederal facilities would further risk repayment of the Federal investment. However, equity argues for all Federal IGO costs, both Federal and nonFederal, to be paid on an equal basis. If Bonneville were to be the Federal IGO, legislation would be required to effect this result.

If a new federal entity were established by Congress to assume the Federal IGO role, this equity problem would likely not arise because payments would be made to all lessors, Federal and nonFederal, on an equal basis.

What legislation would be required to enable a Federal Independent Grid Operator (IGO)?

A. Bonneville's Currently Applicable Statutes

The Bonneville Project Act authorizes the Administrator "to acquire, by purchase, [or] lease . . . such real and personal property, or any interest therein, including lands, easements, rights-of-way, franchises, electric transmission lines, substations, and facilities and structures appurtenant thereto, as the administrator finds necessary or appropriate to carry out the purposes of this chapter." 16 U.S.C.§832a(c). The Federal Columbia River Transmission System Act grants the Administrator the authority to make expenditures for the "rental, lease, or lease-purchase of [transmission] facilities." 16 U.S.C. §838i(b)(5). Combined with the Administrator's broad authority under section 2(f) of the Bonneville Project Act, 16 U.S.C.§832a(f), and reasserted in section 9(a) of the Northwest Power Act, 16 U.S.C.§839f(a), to "enter into such contracts, agreements, and arrangements . . . and to make such expenditures, upon such terms and conditions and in such manner as he may deem necessary," these provisions support Bonneville's authority to assume control of nonFederal transmission facilities by purchase, lease or other contractual arrangement.

Once brought under Bonneville's control, however, various existing statutory mandates and restrictions would arguably apply to both Federal and nonFederal facilities. A determination would have to be made about whether these statutory provisions needed revision in order to effectuate the purposes of an IGO.

• Bonneville must deposit "all receipts, collections and recoveries of the Administrator in cash from all sources, including trust funds" into the Bonneville Treasury fund, 16 U.S.C.§838i(a), and subject any proposed expenditures for transmission system operation, maintenance, repair, additions and replacements to Congressional review in the annual appropriations acts. 16 U.S.C. §838i(b).

• Bonneville's payments to the Treasury to reimburse Federal investments in the Bonneville system are made only after Bonneville's operation, maintenance, repair, rental and lease expenses are met. 16 U.S.C. §838k(b). Consequently, the assumption of costs related to existing nonFederal transmission facilities would provide a priority to payment of nonFederal debt over Federal debt..

• Bonneville has restricted borrowing authority from the Federal Treasury. 16 U.S.C. §838k(a), as amended by section 8(d) of the Northwest Power Act, 97 Stat. 2729. See also Energy and Water Development Appropriation Act of 1984, 97 Stat. 257. Bonneville's proposed borrowings must be approved by the Office of Management and Budget before submittal to Congress as part of the annual budget. Bonneville currently has no authority to borrow on other financial markets.

• Transmission rates to be charged by Bonneville are governed by unique statutory standards and ratemaking procedures. 16 U.S.C. §839e(a). The authority of the Federal Energy Regulatory Commission over Bonneville's transmission rates is more limited than its authority over the transmission rates of investor-owned utilities.

• Bonneville is prohibited from constructing "major transmission facilities" within the Northwest without approval by an Act of Congress (16 U.S.C.§838b(d)). Major transmission facilities are defined to be those "facilities intended to be used to provide services not previously provided by the Bonneville Power Administration with its own facilities." 16 U.S.C.§838a(c). Bonneville is also prohibited from constructing facilities outside the Pacific Northwest without Congressional approval (16 U.S.C. §§837g, 838b(d)).

• Bonneville has environmental obligations under the National Environmental Policy Act (NEPA) to review all actions for potential impact on the human environment.

• Current law requires public involvement in the formulation of major regional power policies. 16 U.S.C. §839b(g). The Administrative Procedures Act applies to Bonneville policymaking actions which have general applicability. 5 U.S.C. §553.

• Bonneville is limited in its ability to defend and settle claims brought against it for "losses, injuries, or damages to persons or property, or for the death of persons, resulting from acts or omissions of employees acting within the scope of their employment . . . ." 16 U.S.C. §832k(a). It may only compromise and pay claims not in excess of $1000. The Federal Tort Claims Act is applicable to all other tort claims.

• The United States Department of Justice must represent the agency in all litigation. 16 U.S.C. §832k(b).

• Current law references a priority for Federal transactions over the Federal transmission system. 16 U.S.C.§§837e, 838d, 839f(i)(3).

• Bonneville's procurement practices are governed by the Federal procurement statutes and regulations. These include a large number of requirements and restrictions, including competitive bidding requirements and contractor/subcontractor employment guidelines.

B. Enabling Legislation for a New Federal Entity

Establishment

Federal legislation would be needed to create a new federal agency. The entity could be a BPA-like federal agency with even less administrative limitations, a wholly-owned government corporation or a federal independent establishment. Because of established precedent, the better way to legislate a federal entity that is self-sustaining, has some level of independence, and has some regional oversight is through the government corporation or independent establishment (Postal Service) model.

The functions of the Administrator under the Federal Columbia River Transmission System Act to operate and collect revenues from the federal transmission system would have to be transferred to the Federal IGO. Ownership of the system would remain with BPA (assuming BPA is not the IGO).

The legislation would provide that the Federal IGO is an agency and instrumentality of the United States. If independence from a cabinet level department is desired, either the legislation or legislative history should be clear that the agency is a separate establishment apart from any Department of the government.

The legislation should include a provision stating that the functions of the Secretary and the Department of Energy that relate to the operation of the Federal Columbia River Transmission System are transferred to the Federal IGO. Although there are probably no DOE functions that affect the transmission system, this provision would safeguard the Federal IGO in any event.

Powers and Duties

Perpetual succession unless dissolved by law. If the Federal IGO cannot perform its functions such that the Treasury is ensured repayment of the federal debt related to the transmission system, Congress may dissolve the entity.

The Federal IGO would need "sue and be sued" status. The typical federal agency cannot sue or be sued in its own name - only in the name of the United States and the United States is responsible for payment of judgments from the Judgment Fund. Most government corporations and independent establishments may sue or be sued in their own name. Also, most pay for judgments and settlements from their own funds. In the Federal IGO case, sufficient certainty would be needed that judgments would be paid without reliance on the Judgment Fund or Treasury. Contingency funds and insurance might adequately address this concern. Finally, the Federal IGO should be able to represent itself without the approval of the Attorney General.

The Federal IGO will have to be able to determine the character and necessity for its financial obligations and expenditures and the manner in which they are incurred and paid, including the authority to retain and use its revenues. The Federal IGO’s efficiency and competitiveness depends on its ability to quickly address and pay for maintenance, restoration, new facilities, etc. without having to seek appropriations from Congress or without running into arbitrary fiscal year limitation. The Federal IGO should be authorized to issue bonds, notes, and other evidence of indebtedness to the Treasury.

The Federal IGO should have broad contractual authority and discretion.

The Federal IGO should have the authority to use binding arbitration or other alternative dispute resolution methods. The ability of federal agencies to enter binding arbitration is relaxing from the past restriction on binding arbitration; however, this authorization would ensure that the Federal IGO had this authority in the event the issue is not resolved.

Congress would determine the extent to which the Federal IGO would be subject to federal and state taxation. Generally, federal agencies are not subject to federal or state taxation; however, some agencies are required to make payments in lieu of state taxes. Employees of the Federal IGO will be subject to income tax withholding.

The Federal IGO should be authorized to purchase, lease, and own real and personal property without GSA limitations, including the authority to purchase, lease, and maintain computers and other technical equipment. It is assumed that the Federal IGO-light would not have the authority to dispose of any portions of the transmission system. However, Federal IGO-owner, may be authorized to dispose of portions of the transmission system that it later acquires and owns.

The legislation would have to provide for the continuation of any contracts affected by the creation of or functions of the Federal IGO. Presumably, BPA power sales, purchase, and transmission agreements, MOUs with the Corp and Bureau, ROWs, Canadian Entitlement delivery agreements, etc. would have to be dealt with, either by transferring to the Federal IGO or some other resolution, in manner that ensures no defaults.

Rate Making and FERC Jurisdiction

The legislation must define the extent of FERC’s jurisdiction.

The Federal IGO legislation would have to establish a rate making process. The rates would have to cover the federal debt as well as any non-federal debt on the leased non-federal projects. Provision must be made for the possibility of the Federal IGO’s inability to make Treasury payments, i.e. increase rates, defer Treasury payments, etc.

Suits by and against the Federal IGO

As a federal agency, the Federal IGO would be subject to the Tucker Act, Federal Tort Claims Act, and title 28 of the United States Code regarding service, venue, etc. Jurisdiction would be in the federal courts. No attachment, garnishment, or lien, or similar process could be issued against the property of the Federal IGO. This provision probably does not extend to non-federal property. Also, as a federal agency, the Federal IGO should have the authority to condemn and issue title opinion.

Management

Since the Federal IGO would be a regionally-based entity, a board may be suitable. The legislation could provide that the board would be made up of regional representatives, including a BPA representative(s). Since the Federal IGO would be a federal entity, the Appointments Claus of the Constitution requires the President to appoint the board members with Senate confirmation. Other than the board, there could be a managing director or CEO, either elected by the Board or also appointed by the

Employees

There could be a transfer and conversion of federal and non-federal employees respectively to Federal IGO employees. For employees transferred to the Federal IGO from BPA, their federal health benefits, etc. could be transferred administratively under current federal rules. For employees converted from non-federal to federal, the legislation needs to prescribe the conditions of the transfer. Also, the legislation could provide that the board may appoint employees and establish their duties, etc.

Transfers of Delegations and Exemptions to the Federal IGO

BPA would have to transfer to the Federal IGO the delegations of authority and other exemptions from GSA regarding the telecommunications used to operate and control the transmission system. For example, BPA has an exemption from GSA’s required use of FTS2000. Note, however, that these transfers would be unnecessary if the legislation were to exempt the Federal IGO from all GSA regulations on telecommunications systems.

Budget Laws and Limitations

The receipts of the Federal IGO should not be construed to be appropriated funds.

The Federal IGO, as any other federal agency, would have to submit an annual budget to the President for consideration by Congress. However, if the Federal IGO is a government corporation or independent establishment (or a normal federal agency that is subject to the Government Corporation Control Act), submission of the budget would not prevent the Federal IGO from carrying out or financing its activities.

The Federal IGO should be audited by private auditors under standard accounting principles and by the GAO at its election.

Federal Laws that are Good Candidates for Exemption

The Federal Property and Administrative Services Act (FPASA) and the Office of Federal Procurement Policy Act. These laws limit or place burdensome requirements on an agency’s procurement of federal property for program operations. This law would conflict with the Federal IGO’s ability to maintain efficiency and competitiveness.

The Public Buildings Act. The Federal IGO should be able to construct, acquire, and manage public office space without GSA interference.

Section 759 of title 40, United States Code. This law restricts an agency’s ability to procure computer and other technical equipment. This law would conflict directly with the Federal IGO’s ability to maintain efficiency and competitiveness.

Would a Federal IGO be subject to state siting laws and regulations?

Under the Supremacy Clause of the U.S. Constitution, "the laws of the United States...shall be the supreme law of the land." U.S. Const., Art. VI, cl. 2. As the Supreme Court has stated, "State law may run afoul of the Supremacy Clause in two distinct ways: the law may regulate the Government directly or discriminate against it,... or it may conflict with an affirmative command of Congress." North Dakota v. United States, 495 U.S. 423, 434 (1990). Unless Congress clearly and unambiguously waives sovereign immunity, state laws and regulations do not apply to a Federal entity.

[W]here ‘Congress does not affirmatively declare its instrumentalities or property subject to regulation,’ ‘the federal function must be left free’ of regulation...Because of the fundamental importance of the principles shielding federal installations and activities from regulation by the States, an authorization of state regulation is found only when and to the extent there is ‘a clear congressional mandate,’ ‘specific congressional action’ that makes this authorization of state regulation ‘clear and unambiguous.’

Hancock v. Train, 426 U.S. 167, 179 (1976). See also Mayo v. United States, 319 U.S. 441, 445-47 (1943); Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 122 (1954); Johnson v. Maryland, 254 U.S. 51, 57 (1920). Thus, construction of transmission facilities across state, local or private lands by a Federal IGO would not be clearly and unambiguously directs.

Congress has so directed with respect to grants of rights of way over certain Federal lands. Section 505(a)(iv) of the Federal Lands Policy and Management Act (FLPMA) provides that in issuing rights of way through certain federal public lands,

Each right of way shall contain...terms and conditions which will...(iii) require compliance with applicable air and water quality standards established by or pursuant to applicable Federal and State law; and (iv) require compliance with State standards for public health and safety, environmental protection, and siting, construction, operation, and maintenance of or for rights of way for similar purposes if those standards are more stringent than applicable Federal standards."

43 U.S.C. § 1765(a)(iv). Courts have found in this language the required clear and unambiguous congressional authorization of state (but not local) substantive regulation of federal rights of way through the public lands administered by the Bureau of Land Management and through the national forest lands of the Department of Agriculture, but no such congressional authorization of state procedural regulation. See Columbia Basin Land Protection Ass’n v. Schlesinger, 643 F.2d 585, 602-06 (9th Cir. 1981)(BPA as holder of right of way through BLM land must comply with substantive standards of Washington State Energy Facility Siting Act [e.g., tower height and spacing], but is not required to obtain siting certificate); Montana v. Johnson, 738 F.2d 1074 (9th Cir. 1984)(BPA must comply with substantive standards of Montana Major Siting Facility Act on federal public land, including ad hoc measures for environmental protection, but need not obtain state certification); Citizens for a Better Henderson v. Hodel, 768 F.2d 1051 (9th Cir. 1985)(FLPMA does not subjugate activities on Federal rights of way to local ordinance.)

A Federal IGO’s transmission construction activities would not be regulated by state or local law, regulation or ordinance unless the Congress clearly and unambiguously waives immunity from such regulation. Currently, such activities would be subject to state substantive law and regulation if taking place on public lands administered by the Bureau of Land Management or on national forest lands of the Department of Agriculture.

What issues face Bonneville in executing a Transmission Coordination Agreement?

Under the Transmission Coordination Agreement (TCA) option, individual transmission system owners would retain ownership and operational control of existing and new transmission facilities but would contractually agree to operate, plan, maintain, and collect and allocate revenues in accordance with the TCA. The TCA would allocate transmission use rights over parallel path facilities to owners. A single regional FERC-approved transmission tariff methodology would be used by all signatories and approval by the Northwest Regional Transmission Association (NRTA) would be required before a utility owner could include in its wheeling rates the cost of new facilities which it initiates. Costs of facilities required to be built under the Energy Policy Act or which are initiated by NRTA on a regional planning basis would be included in wheeling rates without separate NRTA approval.

Contractually granting a nonfederal entity the authority to preclude Bonneville from incorporating certain new facility costs in its rates raises significant constitutional issues. Because Bonneville has no other source of revenues to cover such excluded costs, the authority of NRTA under the TCA option to disapprove construction is tantamount to plenary authority over Bonneville's construction decisions. Such authority may violate the general separation of powers doctrine under the U.S. Constitution.

Beyond this major issue, a decision to execute a TCA would likely be a major regional policy decision requiring opportunity for public review and comment under section 4(g)(1) of the Northwest Power Act, 16 U.S.C. §839b(g)(1). It is not clear whether a TCA structure would be expected to sufficiently change the environmental landscape as to require a full-scale EIS prior to Bonneville execution. Bonneville would have to subject the regional rate methodology to a formal section 7(i) rates process before it could contractually commit to implementing it.