United States v. Cajun Electric Power Cooperative, Inc.

United States Court of Appeals,

Fifth Circuit.

No. 95-30941.

In the Matter of CAJUN ELECTRIC POWER COOPERATIVE, INCORPORATED,
Debtor.

UNITED STATES of America, on Behalf of the RURAL UTILITIES
SERVICE, Appellant,

v.

CAJUN ELECTRIC POWER COOPERATIVE, INCORPORATED; Louisiana Public
Service Commission; Concordia Electric Cooperative, Inc.; Dixie
Electric Membership Corporation; Valley Electric Membership
Corporation; Pointe Coupee Electric Membership Corporation;
Washington St. Tammany; Teche Electric Cooperative, Inc.; South
Louisiana Electric; Northeast Louisiana Power Cooperative, Inc.;
Claiborne Electric Cooperative, Inc.; Jefferson Davis Electric
Cooperative, Inc.; Beauregard Electric Cooperative, Inc.;
Southwest Louisiana Electric Membership Corporation; Cajun
Electric Members Committee, Appellees.

April 9, 1997.

Appeal from the United States District Court for the Middle
District of Louisiana.

Before BENAVIDES, STEWART and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

Under the Rural Electrification Act of 1936, as amended, 7

U.S.C. § 901 et seq., ("RE Act") the Secretary of Agriculture

("Secretary") is empowered to make and guarantee loans to wholesale

power supply borrowers that generate electric energy for retail

electrical systems which furnish electricity to persons in rural

areas. The principal issue in the present case is whether the RE

Act authorizes the Secretary by regulation to (1) pre-empt a state

regulatory agency's jurisdiction over a borrower's rates if the

Secretary determines that the borrower has failed to pay as

1
required on loans made or guaranteed pursuant to the RE Act and

that the borrower's rates are inadequate to permit it to do so;

and (2) require the borrower to establish rates sufficient to

satisfy the loan requirements. Alternatively, we are asked to

decide whether the RE Act, under the circumstances of this case,

implicitly pre-empts state ratemaking jurisdiction.

The Secretary (through the Rural Utilities Service ("RUS") of

the Department of Agriculture), pursuant to 7 C.F.R. § 1717.300 et

seq., notified a power supply borrower, Cajun Electric Cooperative

Corporation ("Cajun"), and the Louisiana Public Service Commission

("LPSC") that Cajun had failed to pay as required, Cajun's rates

were found to be inadequate, the LPSC's jurisdiction over Cajun's

rates was pre-empted, and Cajun was required to immediately

establish rates sufficient to satisfy the requirements of its RE

Act loans. Cajun brought this action for a declaratory judgment to

decide whether it must comply with the Secretary's regulation or

the state commission's rate order. The District Court held that

the LPSC rate order was not pre-empted because the Secretary's

regulation was invalid. We affirm.

By enacting and amending the Rural Electrification Act of

1936 (RE Act), 7 U.S.C. § 901 et seq., Congress did not authorize

the Secretary to pre-empt the jurisdiction of a state regulatory

authority over a power supply borrower's rates for the purpose of

raising the rates and revenues of the borrower to enable it to make

payments on loans made or guaranteed pursuant to the RE Act. The RE

Act does not expressly authorize the Secretary to regulate the

2
rates of power supply borrowers. If the Act delegates that power

implicitly, it requires the Secretary to exercise it

comprehensively to further the primary purpose of the statute,

i.e., to provide rural America with low cost electricity, and to

fix just and reasonable rates after balancing the consumer and

other interests involved. The RE Act itself does not implicitly

pre-empt the LPSC's ratemaking jurisdiction under the circumstances

of this case.

BACKGROUND

In 1936 Congress enacted the Rural Electrification Act ("RE

Act"), presently codified at 7 U.S.C. § 901 et seq., empowering the

Rural Electrification Administration ("REA"), an independent

federal agency, to provide rural America with low cost electricity

and telephone service by lending funds to rural electric and

telephone systems directly at below market interest rates. See,

e.g., Morgan City v. South Louisiana Elec. Coop., Ass'n. 31 F.3d

319, 322 (5th Cir.1994), reh'g denied 49 F.3d 1074 (5th Cir.),

cert. denied, --- U.S. ----, 116 S.Ct. 275, 133 L.Ed.2d 196 (1995);

Alabama Power Co. v. Alabama Electric Co-op. Inc., 394 F.2d 672,

677 (5th Cir.1968), reh'g denied, 397 F.2d 809 (5th Cir.), cert.

denied, 393 U.S. 1000, 89 S.Ct. 488, 21 L.Ed.2d 465 (1968); Wabash

Valley Power Ass'n., Inc. v. Rural Electrification Administration,

988 F.2d 1480, 1490 (7th Cir.1993); Public Utility Dist. No. 1 of

Pend Oreille County v. United States, 417 F.2d 200 (9th Cir.1969);

Salt River Project Agr., Imp. & Power Dist. v. Federal Power Comm.,

391 F.2d 470, 473 (D.C.Cir.1968). In 1939, pursuant to the

3
Reorganization Plan No. 2 of 1939, the REA was transferred to the

Department of Agriculture and was placed under the supervision and

direction of the Secretary of Agriculture. 5 U.S.C. § 903. The

REA was later renamed as the Rural Utilities Service ("RUS") by the

Federal Crop Insurance Reform and Department of Agriculture

Reorganization Act of 1994. In response to the RE Act and its

precursor Executive Branch order, cooperative electrical systems

were formed to seek government subsidized loans and deliver

electricity to rural consumers. Concomitantly, groups of rural

electrical cooperative systems formed central generation and

transmission cooperatives ("G & Ts") which also borrow under the RE

Act for the purpose of generating and purchasing electric energy

for sale at wholesale to their respective rural electrical

cooperative members that retail electricity to ultimate consumers.

See, e.g., Morgan City, 31 F.3d at 322.

Cajun Electrical Cooperative Corporation ("Cajun") is a G & T

cooperative that provides wholesale electricity to 12 rural retail

cooperative owner-members. Cajun's retail cooperative members,

Beauregard Electric Coop., Inc., Claiborne Electric Coop., Inc.,

Concordia Electric Coop., Inc., Dixie Electric Coop., Inc.,

Jefferson Davis Electric Coop., Inc., Northeast Louisiana Electric

Coop., Inc., Pointe Coupee Electric Membership Corp., South

Louisiana Electric Coop. Association, Southwest Louisiana Electric

Membership Corp., Teche Electric Coop., Inc., Valley Electric

Membership Corp., and Washington-St. Tammany Electric Coop., Inc.,

provide electricity to one million ultimate consumers in areas

4
comprising 80% of Louisiana lands.

In 1979, Cajun, at the behest of the REA, purchased a 30%

interest in Gulf States Utilities Co.'s unfinished River Bend

nuclear power plant in St. Francisville, Louisiana. In 1981, the

REA loaned Cajun $1.6 billion to finance Cajun's investment in

River Bend. Before approving the loan, the REA conducted site

visits at River Bend, reviewed cost and other data submitted by GSU

and others, and provided Cajun with financial and technical

assistance and advice. The REA, and subsequently the Secretary,

have required, as a condition to making or guaranteeing any loans

to power supply borrowers, that the borrower enter into wholesale

power contracts with its several members and assign and pledge the

contracts as security for the repayment of the loans. 7 C.F.R. §

1717.301. See, e.g., Fuchs v. Rural Electric Convenience Co-op.,

858 F.2d 1210 1212 n. 8 (7th Cir.1988), cert. denied, 490 U.S.

1020, 109 S.Ct. 1744, 104 L.Ed.2d 181 (1989).

Article IV, § 21(B) of The Louisiana Constitution of 1974

provides that the Louisiana Public Service Commission ("LPSC")

"shall regulate all common carriers and public utilities and have

such other regulatory authority as provided by law." The LPSC,

however, did not assert its constitutional jurisdiction over Cajun

as a public utility until September 3, 1987, when it initiated an

examination of Cajun's rates and the prudence of Cajun's River Bend

nuclear generator investment. On September 30, 1987, Cajun and

other nonprofit electrical cooperatives brought suit against the

LPSC seeking declaratory judgment that they were not public

5
utilities within the meaning of Article IV, § 21(B) of the state

constitution and that statutes removing the LPSC's authority over

them were constitutional. The trial court declared that laws

exempting the cooperatives from regulation were unconstitutional.

The Supreme Court of Louisiana held that Article IV, § 21(B) of the

state constitution delegated to the LPSC the plenary legislative

power to regulate and make rates for all public utilities and that

Cajun and the other electrical cooperatives were utilities for

purposes of the constitutional provision. Cajun Elec. Power Coop.,

Inc. v. Louisiana Public Service Commission, 544 So.2d 362

(La.1989)(on rehearing), cert. denied, 493 U.S. 991, 110 S.Ct. 538,

107 L.Ed.2d 536 (1989); see also, Cajun Elec. Power Coop., Inc. v.

Louisiana Public Service Commission 532 So.2d 1372 (1988)(original

opinion vacated on rehearing).

In 1987, Cajun defaulted on its RE Act loans and began debt

restructuring negotiations. On May 31, 1990, Cajun and the REA

entered a debt restructuring agreement ("DRA"), dividing the debt

into note A of $2,147,994,670 and note B of $1,037,007,550, subject

to LPSC approval. On July 20, 1990, the LPSC approved the DRA,

subject to the conditions that the LPSC retained jurisdiction to

determine the justness and reasonableness of Cajun's rates and

services, the LPSC was not required to set rates at any particular

level, the LPSC was not committed to set rates at a level

sufficient to meet the debt service payments provided by the DRA,

and the appropriate rates for Cajun would depend on ratemaking

considerations that could not be considered in the expedited

6
proceeding. The LPSC authorized 54.5 mills as the maximum average

rate for Cajun through December 31, 1991, subject to any ratemaking

adjustments ordered by the LPSC as a result of rate investigation.

Nevertheless, by December 20, 1994, despite the payment of $450

million pursuant to the DRA, Cajun's RE Act debt increased by $ 1

billion (to $4.2 billion) as a result of accrued but deferred

interest.

On December 16, 1994, the LPSC entered a rate order directing

Cajun by December 21, 1994 to reduce its annual revenues by $30.23

million and its average rates from 54.4 mills to 48.81 mills. The

rate order was based on studies and analyses from which the LPSC

determined that Cajun's investment in the River Bend nuclear

generator project was imprudent and that Cajun's interest in River

Bend was not used and useful under traditional regulatory

principles. The LPSC found that inter alia allowing recovery of

the River Bend investment would have catastrophic effects upon

Cajun's member cooperatives and the rural economy of the state.

Accordingly, the LPSC ordered that the River Bend investment must

be excluded from Cajun's rate base.

The Secretary (acting through RUS) on December 20, 1994

notified Cajun that the rate order was pre-empted by federal law.

On December 21, 1994, Cajun filed (1) a new tariff in accordance

with the LPSC rate order; (2) a petition for relief under Chapter

11 bankruptcy; and (3) the present suit for declaratory judgment

as to whether the Secretary or the LPSC had jurisdiction over

Cajun's rates. Cajun's members intervened in support of the

7
District Court's judgment, asserting additionally that the

Secretary's pre-emption regulations violate the Bankruptcy Code. We

pretermit the bankruptcy issue because we conclude that the

Secretary was not authorized to pre-empt the LPSC's ratemaking

jurisdiction or to raise Cajun's rates to facilitate RE Act debt

collections. The Secretary filed a third-party complaint seeking

a declaration that the LPSC's ratemaking jurisdiction over Cajun is

pre-empted by federal law.

After motions had been filed by the parties, the district

court granted summary judgment in favor of the LPSC, holding that

neither the RE Act nor the Secretary's regulations expressly or

impliedly pre-empt the LPSC's rate order. The Secretary appealed.

DISCUSSION

The pre-emption doctrine, which is derived from the Supremacy

Clause, U.S. Const., Art. VI, cl. 2, requires us to examine

congressional intent. Fidelity Federal Sav. and Loan Ass'n v. de

la Cuesta, 458 U.S. 141, 152, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664

(1982). Pre-emption may be either express or implied, and "is

compelled whether Congress' command is explicitly stated in the

statute's language or implicitly contained in its structure and

purpose." Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct.

1305, 1309, 51 L.Ed.2d 604 (1977). Without explicit pre-emptive

language in the relevant statute, congressional intent to displace

state law may be inferred because the "[t]he scheme of federal

regulation may be so pervasive as to make reasonable the inference

that Congress left no room for the States to supplement it,"

8
because "the Act of Congress may touch a field in which the federal

interest is so dominant that the federal system will be assumed to

preclude enforcement of state laws on the same subject," or because

"the object sought to be obtained by federal law and the character

of obligations imposed by it may reveal the same purpose." Rice v.

Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91

L.Ed. 1447 (1947).

Even where Congress has not totally supplanted a state law,

the state law is voided to the extent that it directly conflicts

with federal law. de la Cuesta, 458 U.S. at 153, 102 S.Ct. at 3022.

This type of conflict arises when "compliance with both federal and

state regulations is a physical impossibility." Florida Lime &

Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct.

1210, 1217, 10 L.Ed.2d 248 (1963); or when state law "stands as an

obstacle to the accomplishment and execution of the full purposes

and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67,

61 S.Ct. 399, 404, 85 L.Ed. 581 (1941).

Federal regulations have no less pre-emptive effect than

federal statutes. City of New York v. F.C.C., 486 U.S. 57, 63, 108

S.Ct. 1637, 1641-42, 100 L.Ed.2d 48 (1988); Louisiana Public

Service Comm'n v. F.C.C., 476 U.S. 355, 368, 106 S.Ct. 1890, 1898,

90 L.Ed.2d 369 (1986); Capital Cities Cable, Inc. v. Crisp, 467

U.S. 691, 699, 104 S.Ct. 2694, 2700, 81 L.Ed.2d 580 (1984); de la

Cuesta, 458 U.S. at 153-154, 102 S.Ct. at 3022-23 In general, where

"Congress has directed an administrator to exercise his discretion,

his judgments are subject to judicial review only to determine

9
whether he has exceeded his statutory authority or acted

arbitrarily." Id.; United States v. Shimer, 367 U.S. 374, 381-

382, 81 S.Ct. 1554, 1559-60, 6 L.Ed.2d 908 (1961). Regulations

seeking to pre-empt state law, are subject to the following

judicial scrutiny:

"If [h]is choice represents a reasonable accommodation of
conflicting policies that were committed to the agency's care
by the statute, we should not disturb it unless it appears
from the statute or its legislative history that the
accommodation is not one that Congress would have sanctioned."

de la Cuesta, 458 U.S. at 154, 102 S.Ct. at 3022-23 (quoting

Shimer, 367 U.S. at 383, 81 S.Ct. at 1560-61). See also Blum v.

Bacon, 457 U.S. 132, 145-146, 102 S.Ct. 2355, 2363-64, 72 L.Ed.2d

728 (1982); Ridgway v. Ridgway, 454 U.S. 46, 57, 102 S.Ct. 49, 56,

70 L.Ed.2d 39 (1981)(regulations must not be "unreasonable,

unauthorized, or inconsistent with" the underlying statute); Free

v. Bland, 369 U.S. 663, 668, 82 S.Ct. 1089, 1093, 8 L.Ed.2d 180

(1962).

Consequently, the primary questions upon which resolution of

this case rests are whether the Secretary meant to pre-empt the

LPSC's rate order, and, if so, whether that action is within the

scope of the Secretary's delegated authority.

The Secretary's intent to pre-empt the rates set for Cajun by

the LPSC is unambiguous. The regulations on "Federal Pre-emption

in Rate Making in Connection With Power Supply Borrowers"

promulgated by the Secretary, 7 C.F.R. §§ 1717.300-309, in

pertinent parts, provide:

§ 1717.305 Pre-emption.

10
 (a) Inadequate rates. State regulatory authority
jurisdiction over a power supply borrower's rates shall be
pre-empted by the RE Act if the Administrator shall have
determined that the borrower's rates approved by the state
regulatory authority are, after taking into account the
borrower's costs and expenses, inadequate to produce revenues
sufficient to permit the borrower to make required payments on
its secured loans and the borrower has failed to make required
payments on its secured loans.

(b) Public Notice. The Administrator shall:

(1) Notify the borrower and the state regulatory
authority in writing of the determination, indicating the
jurisdiction of the state regulatory authority over the rates
of the borrower has been pre-empted pursuant to this part and
the borrower shall henceforth establish its rates in
accordance with the term of the REA documents.

* * * * * *

§ 1717.306 REA required rates.

(a) Upon the publication in the FEDERAL REGISTER of the
notice of pre-emption of state regulatory authority as
provided in this subpart, REA will exercise exclusive
jurisdiction over the rates of the borrower pursuant to the
terms of the REA documents. The borrower shall immediately
establish rates with the approval of REA that are sufficient
to satisfy the requirements of the REA wholesale power
contract and other REA documents described in § 1717.303 of
this subpart. The borrower shall establish such rates
notwithstanding any provision of the REA documents referring
to such laws, rules, orders or actions.

* * * * * *

The regulations plainly provide that state regulatory

jurisdiction over a power supply borrower's rates shall be

pre-empted when the Secretary determines that the borrower's rates

set by the state regulatory authority are inadequate to produce

revenues to permit the borrower to make required payments on its

secured loans and the borrower has in fact failed to make such

payments. Id. § 1717.305(a). Furthermore, the regulations also

provide that, upon pre-emption, the Secretary will exercise

11
exclusive jurisdiction over the rates of the borrower and that the

borrower shall immediately establish rates with the approval of the

Secretary that are sufficient to satisfy the requirements of the

loans made or guaranteed pursuant to the RE Act.

It remains to be seen, however, whether the Secretary acted

nonarbitrarily within his statutory authority in issuing the

pre-emption regulations. The Rural Electrification Act of 1936

("RE Act"), as amended, 7 U.S.C. § 901 et seq., authorizes and

empowers the Secretary of Agriculture (A) to make loans for (1)

rural electrification and the furnishing of electric energy to

persons in rural areas who are not receiving central station

service, (2) furnishing and improving electric and telephone

service in rural areas, and (3) assisting electric borrowers to

implement demand side management, energy conservation programs, and

on-grid and off-grid renewable energy systems; (B) to promote

studies, investigations, and reports concerning the condition and

progress of the electrification of and the furnishing of telephone

service in rural areas; and to publish and disseminate information

with respect thereto, § 902(a); (C) to issue interim regulations

to implement the authority contained in § 902(a) to make loans to

implement demand side management, energy conservation programs, and

on-grid and off-grid renewable energy systems, § 902(b); and (D)

to make loans to finance the construction and operation of

generating plants, electric transmission and distribution lines or

systems for the furnishing of electric energy to persons in rural

areas who are not receiving central stations service and for the

12
furnishing and improving of electric service to persons in rural

areas, § 904.

The RE Act plainly does not expressly empower or authorize

the Secretary to pre-empt the jurisdiction of a state regulatory

agency or to regulate the rates of a power supply borrower. The

language and history of the RE Act convince us that, if Congress

implicitly delegated to the Secretary any power to pre-empt state

jurisdiction or to fix rates, the Act does not authorize the

Secretary to do so with the narrow objective of raising a

borrower's rates and revenues for the purpose of satisfying the

requirements of the borrower's RE Act loan obligations.

There are reasons to doubt that the Secretary is authorized to

pre-empt state ratemaking power or to fix borrowers' rates for any

purpose. As the Supreme Court observed, "[n]othing in the Rural

Electrification Act expressly pre-empts state rate regulation of

power cooperatives financed by the REA" and "the REA is a lending

agency rather than a classic public utility regulatory body in the

mold of either FERC or the Arkansas PSC." Arkansas Elec. Coop.

Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375, 385-386, 103

S.Ct. 1905, 1913, 76 L.Ed.2d 1 (1983). The Court further noted

that "the legislative history ... makes abundantly clear ... that,

although the REA was expected to play a role in assisting the

fledgling rural power cooperatives in setting their rate

structures, it would do so within the constraints of existing state

regulatory schemes." Id. at 386, 103 S.Ct. at 1913, (citing 80

Cong.Rec. 5316 (1936)(Rep.Lea); Hearing on S. 3483 before the

13
House Committee on Interstate and Foreign Commerce, 74th Cong., 2d

Sess., 30, 37, 51, 52 (1936)). Moreover, the Supreme Court pointed

to REA Bulletin 111-4, at 1-2 (1972) which stated that "[b]orrowers

must, of course, submit proposed rate changes to any regulatory

commissions having jurisdiction and must seek approval in the

manner prescribed by those commissions." Id. at 387-388, 103 S.Ct.

at 1914. In light of these factors, the Court acknowledged, "an

argument might be made that state rate regulation of rural power

cooperatives engaged in sales for resale is not only not

pre-empted, but is indeed affirmatively authorized by the Rural

Electrification Act." Id. at 388 n. 15, 103 S.Ct. at 1914 n. 15. On

balance, however, the Court concluded, Congress and the Secretary

most likely "intended no more than to leave in place state

regulation otherwise consistent with the requirements of the

Commerce Clause." Id.

The developments subsequent to Arkansas Elec. raise fresh

doubts about inferring a Congressional intent to delegate to the

Secretary the authority to pre-empt state ratemaking jurisdiction.

The enormously unprofitable RE Act loans for nuclear generators

magnify the Secretary's interest and concerns as a creditor and

appear to impair his eligibility as a fair and impartial ratemaker.

Consequently, it is difficult to conceive that Congress would

sanction the Secretary's displacement of state regulatory authority

under the circumstances of the present case.

Nevertheless, the Supreme Court in Arkansas Elec. left the

question partly open by adding an admonitory dictum evidently

14
designed to deter state regulatory agencies from engaging in

unprincipled ratemaking at the expense of the federal government.

The Court suggested what it might decide under two hypotheses:

"There may come a time when the REA changes its present
policy, and announces that state rate regulation of rural
power cooperatives is inconsistent with federal policy. If
that were to happen, and if such a rule was valid under the
Rural Electrification Act, it would of course pre-empt any
further exercise of jurisdiction by the Arkansas PSC.
Similarly, as Arkansas already recognizes, the PSC can make no
regulation affecting rural power cooperatives which conflicts
with particular regulations promulgated by the REA. Moreover,
even without an explicit statement from the REA, a particular
rate set by the Arkansas PSC may so seriously compromise
important federal interests, including the ability of the AECC
to repay its loans, as to be implicitly pre-empted by the
Rural Electrification Act. We will not, however, in this
facial challenge to the PSC's mere assertion of jurisdiction,
assume that such a hypothetical event is so likely to occur as
to preclude the setting of any rates at all."

Id. at 389, 103 S.Ct. at 1915 (citations omitted).

We cannot derive much guidance from the passage in the

present case, however. First, it has the distinctive earmarks and

weaknesses of dictum, i.e., it "could have been deleted without

seriously impairing the analytical foundations of the

holding—[and], being peripheral, may not have received the full and

careful consideration of the court that uttered it." Sarnoff v.

American Home Products Corp., 798 F.2d 1075, 1084 (7th

Cir.1986)(Posner, J.) Moreover, it is ambiguous and may not be

relevant here at all. The first hypothesis assumes a change in

policy—"if such a rule was valid under the [RE Act]." Arkansas

Elec., 461 U.S. at 389, 103 S.Ct. at 1915—under which the Secretary

pre-empts all state regulation of power supply borrowers and

undertakes comprehensive federal rate regulation, rather than

15
displacing individual rate orders on an ad hoc basis. The

Secretary concedes that his regulations purporting to pre-empt a

particular state's ratemaking jurisdiction and to index a

particular borrower's rates with its RE Act debt payment

obligations do not constitute "ratemaking" at all, much less

comprehensive ratemaking. The second hypothetical situation

evidently refers to an unreasonable and unjust rate that is the

product of improper or unprincipled state ratemaking, i.e., a

particular rate that may "so seriously compromise important federal

interests, including the ability of the [borrower] to repay its

loans, as to be implicitly pre-empted by the [RE Act]." Id. The

record designated for our review does not reflect improper

ratemaking or a failure to establish just and reasonable rates;

and the dictum does not necessarily indicate that the important

federal interests in just and reasonable rates and low cost

electricity for rural America should be seriously compromised for

the sake of enabling a power supply borrower to repay its

government loans.

Assuming arguendo, however, that the RE Act impliedly

authorizes and empowers the Secretary, under some circumstances, to

pre-empt the jurisdiction of a state public utilities commission

and exercise ratemaking power over an RE Act borrower's rates, we

conclude that the Act does not authorize the types of pre-emption

and rate fixing at issue in the present case. The uncontested

primary purpose of the RE Act is to "bring[ ] abundant, low cost

electric energy to rural America." Alabama Power Co. v. Alabama

16
Elec. Co-op., Inc., 394 F.2d 672, 677 (5th Cir.1968), reh'g denied,

397 F.2d 809 (5th Cir.), cert. denied, 393 U.S. 1000, 89 S.Ct. 488,

21 L.Ed.2d 465 (1968) (quoting from Dairyland Power Coop., 37

F.P.C. 12, 18, 35 L.W. 2385 (1967)). Accord, Morgan City v. South

Louisiana Elec. Coop. Ass'n., 31 F.3d 319, 324 (5th Cir.1994),

reh'g denied, 49 F.3d 1074 (5th Cir.), cert. denied, --- U.S. ----,

116 S.Ct. 275, 133 L.Ed.2d 196 (1995)(federal purpose of providing

low cost, reliable electric service to rural areas); Wabash Valley

Power Ass'n., Inc. v. Rural Electrification Admin., 988 F.2d 1480,

1490 (7th Cir.1993)(the REA promotes and facilitates investment in

electricity ... for rural areas in order to ensure that these

regions receive power at reasonable prices); Public Utility Dist.

No. 1 of Pend Oreille County v. United States, 417 F.2d 200 (9th

Cir.1969). See also, Salt River Project Agr., Imp. & Power Dist.

v. FPC, 391 F.2d 470, 473 (D.C.Cir.1968)("The [REA's] objective was

to provide electricity to those sparsely settled areas which the

investor-owned utilities had not found it profitable to service.").

The rate-making process requires the fixing of just and reasonable

rates and involves the balancing of the investor and the consumer

interests. See Federal Power Commission. v. Hope Natural Gas Co.,

320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1943); Jersey

Cent. Power & Light v. F.E.R.C., 810 F.2d 1168, 1177-78

(D.C.Cir.1987)(en banc ). See also, Wabash Valley Power Ass'n.

Inc. v. Rural Electrification Admin., 903 F.2d 445, 448 (7th

Cir.1990)( [P]erhaps the "real" owners—at least the effective

controllers—of an electric co-op are the debt investors, who would

17
be tempted to raise prices past the competitive level in order to

make their loans more safe or hike up the rate of interest.)

If the RE Act implicitly delegates pre-emption and ratemaking

powers to the Secretary, it must be presumed that Congress intended

for the Secretary to use the powers to make and apply regulations

in conformity with the purpose of the Act and the principles of

ratemaking. In other words, the Secretary is required to use such

powers in furtherance of the RE Act's purpose of bringing abundant,

low cost electric energy to rural America—or at least to seek a

reasonable accommodation of this primary goal and any momentarily

conflicting subsidiary policy; and the Secretary is obliged in

exercising any ratemaking power to balance the consumer and

investor or creditor interests in the fixing of just and reasonable

rates.

It is evident, therefore, that in the present case the

Secretary's regulations and actions did not comport with ratemaking

principles or the principal RE Act purpose. Instead, the

pre-emption and rate fixing measures were taken solely for debt

collection purposes and without any consideration of their impact

on the goals of affording low cost electricity to the consumer or

of balancing his interest with that of the investor or creditor to

establish a just and reasonable rate. We do not believe Congress

intended to authorize the Secretary to fix a power supply

borrower's rates to be passed on to consumers by mechanistically

tying them to whatever charge per unit is necessary to raise

revenues sufficient to meet the requirements of loans made or

18
guaranteed pursuant to the RE Act. Consequently, it is clear that

the Secretary exceeded his statutory authority or acted arbitrarily

in promulgating and applying the pre-emption and rate indexation

regulations. Accord, Wabash Valley Power Ass'n. v. Rural

Electrification Admin., 988 F.2d 1480, 1491 (7th Cir.1993)("The REA

has not identified a source of authority in either the express

language or the purpose and operation of the RE Act to justify its

pre-emption regulations.... [I]t is clear that the REA may not

dictate who shall bear the risk because that would amount to the

agency conferring power on itself.").

Nor are we persuaded by appellant's alternative argument

based on the Supreme Court's dictum in Arkansas Elec. The Secretary

contends that the rate set for Cajun by the LPSC so seriously

compromises important federal interests, including Cajun's ability

to repay its loans, as to be implicitly pre-empted by the RE Act.

The argument, however, bases its conclusion on assumptions that are

as much in need of proof or demonstration as the conclusion itself.

Although it may reasonably be assumed that the subsidiary federal

interest in debt collection will not be strongly promoted by the

LPSC-set rates, it can as plausibly be assumed that the federal

interest of primary importance under the RE Act—affordable electric

energy for rural consumers—would be seriously compromised by the

increased consumer rates that would be required by the Secretary's

pre-emption and rate escalation regulations. Also, it bears

elaborating, the record presented with this appeal does not

demonstrate that the LPSC acted arbitrarily or improperly, that the

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rates established for Cajun were unjust or unreasonable, or that

the rates were less just or reasonable than rates that would have

been fixed by any other fair and impartial ratemaker balancing the

consumer, creditor and investor interests.

Accordingly, the District Court's judgment declaring that the

jurisdiction of the LPSC over Cajun's rates is not pre-empted and

that Cajun must comply with the LPSC rate order rather than the

Secretary's pre-emption regulations or notices is AFFIRMED.

STEWART, Circuit Judge, concurs in the judgment only.

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