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
19
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.
20