San Carlos Irrigation and Drainage District (“SCIDD”) appeals from the February 24,1995 revised final judgment of the United States Court of Federal Claims,
San Carlos Irrigation and Drainage District v. United States,
BACKGROUND
The facts giving rise to the litigation are set out in detail in the prior published opinions in this ease.
See San Carlos Irrigation and Drainage Dist. v. United States,
Congress authorized the construction of the Coolidge Dam across the Gila River in Arizona in 1924 as part of the San Carlos Irrigation Project (“Project”), so as to provide irrigation to the Pima Indian Reservation, as well as to the public and private lands in the area without diminishing the water supply for Indian lands. See Act of June 7, 1924, ch. 288, § 1, 43 Stat. 475 (“1924 Act”). The Dam created a reservoir sufficient to irrigate eighty percent of the Project lands, with the balance receiving water from other sources, mainly underground pumped water. Under the 1924 Act, the government entered into a “Repayment Contract” (the “Contract”) with SCIDD, a district embracing both the publicly owned and privately owned lands. 1924 Act § 4. The off-reservation irrigators initially were to repay roughly half the Project’s construction debt, based on their share of the total acreage, over twenty years, although later legislation essentially forgave this debt. See 59 Stat. 469 (1945). The 1924 Act also required off-reservation irrigators to pay a proportionate share of annual operation and maintenance (“O & M”) expenses, to be paid annually in advance. 1924 Act § 3. 2
In 1931, SCIDD entered into the Contract with the Secretary. The Contract outlined the repayment scheme, and contained separate provisions relating to the Project’s water and power operations. With respect to water, both “stored and pumped,” the Contract stated that the Secretary was required to distribute water “as equitably as physical conditions permit.” SCIDD agreed to pay O & M charges, including those for the pumps, as “fixed from time to time by the Secretary,” but the obligation of the government to deliver all or some of the water held in the Dam is contested by the parties. It is, however, not contested that any profit from the sale of “excess water,” as that term appears in the Contract, was to be applied to reduce O & M charges.
With respect to power, the Contract states the Secretary is to supply at-eost power to buildings and pumps on the San Carlos Reservation, and use any “net” revenues from sale of “surplus” power “in accordance with the plan of [the 1928 Act to] reduce the sum to be paid” by the beneficiaries of the Project. The Contract otherwise did not place any limitations on the Secretary.
In June of 1938, the Assistant Secretary of the Interior executed a Joint Works Order defining the Joint Works to include the Coolidge Dam, San Carlos Reservoir and the electrical generating system. The Order provides that the costs of operating and maintaining the works, except for the electric generation plant at the Dam and the power transmission and distribution system, shall be paid by the Project landowners as provided in the Contract.
The Joint Works operated essentially without moment under these agreements until 1983. Only minor problems were encountered before that time. The Power Division, in addition to generating power, also purchased low cost power from other federal hydroelectric projects and slightly higher priced power from the Arizona Public Service Corporation. However, because of excessive pumping during the life of the Project, the water table had fallen, and thus the demand increased for power to operate pumps to provide irrigation to the lands not covered by the water storage in the Reservoir. The government presented evidence that the demand for groundwater pump power was exceeding the total output of the Coolidge Dam in the years preceding the incidents giving rise to the present litigation.
However, the Dam broke, literally, in October of 1983. On October 1, 1983, a storm caused the San Carlos Reservoir to spill over the spillways, and the gates located in the spillways were inoperable. If the spillway gates had functioned properly, the Reservoir would have held additional water. Also, the spilled water caused the foundation under the electric switchyard to settle, and Project officials were forced to shut down power
In May 1982, the Area Director of Interior set 0 & M rates for fiscal 1984 that incorporated charges for power to operate the pumps. See 47 Fed.Reg. 21,926-01 (1982) (notice). Such a proposal had previously been suggested as early as 1953 in a General Accounting Office (“GAO”) audit and subsequently in formal opinions of the Comptroller General and Interior employees, but was rejected on instructions from the Senate Finance Committee.
Charges for pumping power during fiscal 1984 through fiscal 1990 were based on estimates of what it would have cost to produce power at Coolidge Dam and to purchase additional power. 3 The 1991 and 1992 rates were based primarily on the cost of Parker-Davis power which at those times was lower than the Coolidge imputed cost rate.
SCIDD filed suit on July 28, 1986 seeking damages for loss of water and hydroelectric power. The Claims Court dismissed the complaint,
SCIDD I,
DISCUSSION
SCIDD appeals both the grant of summary judgment on the damage claim for the loss of water and the damages calculation for the power charges. With respect to the latter, SCIDD asserts the Claims Court erred in two respects by holding: (i) that Interior was entitled to charge the district for replacement power for pumping when the Dam failed to operate properly on account of the government’s malfeasance, and (ii) if a charge were allowable, by overstating the charges through the use of the Parker-Davis power rate to define the “cost” of power to SCIDD instead of historical cost of generating power at the Coolidge Dam and through the use of Interior’s estimates of electrical pump usage rather than actual pump usage.
The government’s cross appeal argues that SCIDD is not entitled to any recovery for excess power charges because it failed to exhaust its administrative remedies within Interior by not adequately participating in the ratemaking process for O & M charges. The government also challenges the propriety of the award of damages for overcharges.
I.
SCIDD argues that it is entitled to damages for the water lost due to the malfunctioning of the spillway gates, which the prior appeal decided the government was obligated to maintain. Its claim, in essence, is as follows: (i) Interior’s Bureau of Indian Affairs breached its contractual duty to maintain the Dam, (ii) as a result of that breach, the Dam stored less water than it otherwise would have, (iii) the 1931 Contract requires all water captured and stored behind the Dam be used for the benefit of the District and Indians, and (iv) the United States is therefore liable for the loss of water that otherwise would have provided benefit to the landowners. Central to SCIDD’s argument
The government argued in the Claims Court, and again here, that there is a distinction between “excess” water as specified in the Contract and the water required to be supplied under the basic annual allocation. The government argues that “the Repayment Contract makes no mention of any obligation on the part of the Secretary to maximize carryover storage or reserve excess water for the exclusive use of irrigators.” All rights in the annual allocation terminate at the end of each year under the Contract, and the government argues that it may allocate excess water (over the annual allocation) “free on an equitable basis” to both Project users and off-Project users (such as other towns or United States agricultural experiment stations).
See 25
C.F.R. 130.65 (1949) (Secretary has authority to deliver water to off-Project users). Because the parties do not dispute that the SCIDD irrigators received all the water they needed during the years immediately following the spills, the government argues the landowners were not damaged later, in 1990, when the irrigators could have used more water. The Contract also states that “losses in all Project canals shall be borne by the project as a whole.” The government therefore contends, relying on
Truckee-Carson Irrigation District v. Secretary of Department of Interior,
The Claims Court rejected SCIDD’s argument, holding that the government “has not failed to meet th[e] obligation [to provide water], despite the 1988 flood.”
SCIDD TV,
While recognizing both that the negligent loss of water over the inoperable spillgates is per se not in “the interests of the project” and that, as SCIDD argues, one purpose of federal irrigation projects is to store water in wet years for use in arid years, we hold nonetheless that the grant of summary judgment was proper. However, we do not reach the grounds upon which the Claims Court rested its grant of summary judgment: that the Contract obligated the government only to deliver an annual allotment of water, set each year, and that the government met this obligation every year (i.e., that the annual allocation sets a “cap” for the government’s contractual liability).
SCIDD TV,
The general rule in common law breach of contract cases is to award damages
Here SCIDD admits that the Contract provides that when there is “excess” water in a given year, the Secretary, if in accordance with law and for the interest of the project, may “supply water for irrigation and other purposes to the State or its subdivisions, municipalities, towns, and villages ... public institutions, and department and agencies or enterprises of the United States ---- upon terms to be fixed by the Secretary.” Nothing in the Contract requires the Secretary to earn a profit from the supply of water to off-site users and apply this profit against SCIDD’s O & M charges. The Secretary further retains the discretionary power to store water only as safety conditions permit, and water in the Dam may evaporate naturally. SCIDD also admits that the allocation of water was 3.0 acre-feet per acre in 1983 and, as stated in its opening brief, “generally remained at this level through 1988.” Implicit in SCIDD’s argument that the water which was in the Dam during the “wet” years in the early 1980’s would have been available in the “dry” years of 1989 and 1990, is the uncontroverted proposition that water delivery was adequate to meet — and perhaps in excess of — demand until 1989.
These facts being so, SCIDD has not shown that it would have received any material benefit with respect to the water had the spillgates been operable. SCIDD would be unable to prove that but for the breach, more water would have been directed to its use nine years after the breach. Too many contingencies — including, most importantly, the discretion of the agency to dispose of excess water — exist in the causal chain from the government’s breach to the asserted lack of water in 1989-90.
We further disagree with SCIDD’s contention that failure to enter damages against the United States makes this court’s prior decision in
SCIDD II
“hollow.” Not every injury resulting from a breach of contract is remediable in damages.
Wells Fargo,
II.
A. The government cross appeals the award of $770,900 damages to SCIDD. That award was based on the Claims Court ruling that, although Interior was permitted under the Contract to begin charging for ground water pumping, instead of funding it with power division revenues (since the power plant was not operational), Interior’s projection of pumping power costs (incorporated into the O & M charges) was excessive. The government concedes that it has an obligation to provide pumping power at cost,
see SCIDD IV,
Interpretation of terms in a contract is an issue of law which we review de novo.
Samsung Elec. Am. v. United States,
While we acknowledge the authority cited by the government that rate making is generally inherently a policy decision better left to an agency,
see, e.g., United States v. Jones,
B. The question then becomes whether Interior and the Bureau of Indian Affairs could charge for pumping power at all when the Dam was no longer generating power due to the flood. SCIDD argues the intent of Congress was that the power generating facility at the project was to be self-sustaining, and the only charges for which SCIDD was ever responsible were the construction charges for the project and 0 & M charges for the upkeep of the irrigation system. Thus, the construction charges were the consideration for the delivery of power. It bases this argument first on the language of the 1928 Act which describes the electric plant as “incident” to the Project; from that SCIDD maintains that construction and 0 & M charges were only to pay for the building of the plant and maintenance of the irrigation system, not for delivery of “non-surplus” power to the landowners. Had the power plant been operational, SCIDD maintains, sale from “surplus” power would have generated sufficient revenue to cover the charges for power generation levied against it. Thus, SCIDD maintains it is being charged for the costs of the government’s failure to properly maintain the Dam, because the 1928 Act, on SCIDD’s interpretation, contemplated that revenues from sale would pay for the normal and ordinary operation of the power plant. SCIDD further bases its argument on the “legislative history” of the 1928 Act, primarily a letter from John Truésdell of the U.S. Indian Irrigation Service to Congress, and the general intent garnered from the statute and Contract. In particular, SCIDD notes that Congress was explicit about the cost of charging for power to the Indians on the San Carlos Indian Reservation.
Continuing this line of argument, SCIDD claims that since the power plant now fails to generate power as a result of the failure of the government to maintain the Dam, SCIDD is entitled to either general or consequential damages for cost of the replacement power which had to be purchased from outside sources. It argues that it was “in the ordinary course of events,” see Restatement (Second) of Contracts § 351(2)(a), for the government to require “cover” power to remedy its failure to operate the Dam. Alternatively, SCIDD argues it was forseeable at the time of contract formation that if the Dam overflowed the power plant would shut down and it would be necessary to purchase other power. In essence, SCIDD maintains it had an expectation interest in the continued operation of the power plant sufficient to provide pumping power and adequate economic return to meet its operating expenses. Any loss from the lack of operation of the power plant (here the roughly $4.7 million in power charges paid by the district landowners to the government) should, in SCIDD’s view, be borne by the government.
The government responds by arguing that the costs of power for operating groundwater pumps are properly chargeable to SCIDD as 0 & M expenses under the language of the Contract, which states, “[A] surcharge may be placed against all of the lands of the project for paying the cost of operating and maintaining the pumps and equipment use of pumping drainage or irrigation water.” It takes the position that power for pumping is an integral part of “operating” the pumps.
The government further argues that the Bureau of Indian Affairs has always had authority to charge for pumping power but had not done so in the past because it had received sufficient revenues from the sale of excess power to pay for the power component of the 0 & M expenses. It responds to SCIDD’s argument that the surplus power was meant to make the plant self-sustaining by arguing that the Secretary has discretion to sell the power at any rate he or she “thinks best,” 1928 Act,
SCIDD’s arguments regarding the language and history of the statute are unconvincing. The word “incident” does not sufficiently convey congressional intent that the project was meant to be self-sustaining and that the government could not charge for power as part of the ordinary 0 & M expenses of the pumps. The only piece of legislative history contemporaneous with the passage of the 1928 Act, the Truesdell letter, is hardly a certain source of the intent of the 1928 Congress. Rather, Truesdell was drawing his own conclusions based on what he perceived as silence in the statute: “If Congress had had any thought that the power used for pumping project water for irrigation would be charged for in any way ... it would have specifically mentioned that fact____” SCIDD’s other “legislative history” consists of testimony in hearings for appropriations bills which occurred years after the 1928 Act, and which states nothing more than the bare proposition that “[r]evenues collected from the sale of electrical energy are appropriated to cover the costs of operation and maintenance of the power system.” Hearings on H.R. 4590 Before the Subcomm. on Appropriations, 77th Cong. 220 (1942) (statement of Mr. Greenwood). Such a statement does not prove SCIDD’s argument that the government was obligated, by statute or contract, to generate sufficient revenues from sale of excess power to cover all costs of power for pumping.
Rather, the granting of discretion to the Secretary to set the price for sales of power to other users evidences that the statute does not assure that there will be sufficient revenue to provide for free pumping power. The government’s position in maintaining that the Secretary was in effect entitled to give the power away is both an exaggeration of the terms of the Contract, which requires that the power be “sold,” and contrary to the general principle of discretion (since presumably the Secretary is required to act reasonably in setting the rate). However, the basic principle behind the government’s interpretation is valid and controlling: namely, that nothing in the 1928 Act or the Contract provides an obligation on the part of the government to provide free (or in the government’s terms, subsidized) power to SCIDD. All that the Contract obligates is: (i) power be provided at cost, (ii) any revenue from the sale of power be applied to reduce the costs of power for the pumps (i.e., that the project be self-sustaining when possible), and (iii) in return for participation in the payment of construction costs (a requirement later essentially forgiven by legislation), that the government provide the pumps and irrigation system. We agree with the government’s contention that providing power for the pumps is properly considered part of “operation” of the pumps. There is no statement that free power to run the pumps is assured in the Contract or the Act.
C. The Government next argues that if the Bureau of Indian Affairs was entitled to charge for the pumping power at “cost,” SCIDD cannot contest the charges assessed against it. Relying on
Chevron U.S.A. Inc. v. Natural Resources Defense Council,
The government has acknowledged and conceded its obligation to provide power at cost under the contract.
See SCIDD IV,
26
D. Finally, SCIDD maintains that the Claims Court erred in assessing the damages owed to SCIDD due to the government’s overcharges from 1984 to 1994. SCIDD claims that the figure used by the Claims Court as the actual cost of the power is incorrect for two reasons: (i) the Bureau of Indian Affairs was charging SCIDD for the cost of replacement Parker-Davis power rather than basing it on the historical average generating costs at the damaged Coolidge Dam power plant over the ten years prior to 1983 (and diverting the profits to a create a “fund” of money in New Mexico) and (ii) rather than using actual pump electrical usage, the Bureau of Indian Affairs was charging for pumping power based on advance estimates of pump electrical usage.
With respect to (i), SCIDD asserts the annual average power cost for the decade prior to the first overflow was $70,113, while the government’s charges for the power in the years after charging began in 1984 ranged from $488,000 to $1,200,000. It claims it was thus awarded approximately $3.2 million less of a refund than it deserved ($770,000 instead of $3,902,591). This discrepancy, it theorizes based on the trial testimony of Ralph Esquerra, a Bureau of Indian Affairs employee and former engineer at the project, was used to pay for repairs to the power plant. SCIDD’s central contention is that it is being charged for the loss of low-cost power due to the government’s breach and the overcharge should therefore be refunded under the Contract.
As for (ii), SCIDD asserts its damages should have at least been $1,842,536 instead of $770,900, because the charge should have been based on actual pump electric usage rather than Bureau of Indian Affairs advance estimates. The Bureau of Indian Affairs charges for O & M two years in advance, pursuant to the Contract, to permit the District sufficient time to levy assessments and for purposes of its own budget. SCIDD argues that, assuming it was proper to use the Parker-Davis rate, Interior erred by not refunding any use that fell short of the advance estimate, thereby effectively charging SCIDD between $0.0192 per kilowatt-hour (kwh) and $0.259 per kwh in contrast to the actual Parker-Davis rate of $0.02712 per kwh. Recalculating the actual usage with the actual rate, SCIDD arrives at the $1,842,-536 damages amount.
The government responds by arguing: (i) the Coolidge Dam imputed cost was not necessarily lower than the Parker-Davis rate, since SCIDD’s estimate of the historical cost does not contemplate the high inflation rate which occurred in the 1970’s and 1980’s resulting in an insufficient estimate; (ii) the historical rate was too low because it did not reflect maintenance costs which had been deferred and would have been necessary even if the overflows had not occurred; (iii) even if cash charges exceeded outlays, the “fund” alleged by SCIDD to have been created with the overcharges is permitted under 25 U.S.C. § 385c (1994), which allows for reserves to finance major repairs, and “SCIDD has made no showing that the Project misallocated funds” from the accounts nor shown that the funds are not available for the uses allowed by Congress; (iv) SCIDD waived objection to the Parker-Davis rate since it preferred that rate (over imputed historical cost) in its submissions to Interior during the ratemaking process and waived objection to the use of estimated
With respect to the rate for power, the Claims Court was correct in using the Parker-Davis rate for the entire damages period. Although Interior used several rates for power during the eleven year period (the imputed cost of Coolidge Dam power, Parker-Davis power, and the projected cost of purchasing commercial power after the anticipated divestiture of the power division of the Project), as discussed above, any rate other than the Parker-Davis rate was an abuse of discretion by the Secretary, even if deference is accorded to the Secretary under Chevron. Because the parties do not dispute the obligation on the part of the government was to provide pumping power at “cost,” and because we hold that the government may charge for power but only at “cost,” the sole question remaining is “What was the cost of the power available after the power plant became inoperable?” Without power available from the Coolidge plant, the least expensive power throughout the damages period was Parker-Davis power. SCIDD is not entitled to guaranteed power production from the Coolidge plant under the Contract; thus, its argument that imputed cost must be used so that SCIDD will not be absorbing damages from the government’s breach rests on a false premise. The government is not, as SCIDD argued “escap[ing] responsibility for its own fault,” because SCIDD has no right to the production of a certain amount of power from the Project plant. SCIDD’s only extant damage claim is that the lowest price available to the government be passed along to them.
Moreover, SCIDD itself argued to the Claims Court that “if it is to be charged for power it should pay no more than the
actual
average replacement cost of power.”
SCIDD IV,
On the issue of the charge for estimated rather than actual power usage, the terms of the Contract again govern the resolution of SCIDD’s claim. The Contract provides, “The Secretary of the Interior will give notice to the District of the amount of charges to be paid annually in sufficient time to permit the District to make the annual tax levies, or toll charges, in order that the District may comply with the laws of the State of Arizona relative to the levy and collection of taxes by irrigation districts.” The Contract therefore provides for charges in advance of use, necessarily implicating the use of estimates.
The government represents in its opening brief that “when 0 & M collections exceed expenses for a given year, the balance is retained in the Irrigation Division account to meet future expenses.” Thus, the government maintains that any overcharges merely result in prepayments by irrigators for future irrigation 0 & M expenses. The government represented that, following an audit to uncover transfers made in error, funds have only been transferred from the irrigation division, which has collected the 0 & M charges for the pumps (including power for pumping), to the power division for actual power used during the entire period.
CONCLUSION
Although in SCIDD II we held that the government had a duty to maintain the Project, a breach of that duty can entitle plaintiff to damages only where there was a contractual expectation interest flowing to SCIDD. Here, the only discernible interest was to receive power at cost and as available. Although SCIDD urges the implication of other contractual obligations from the “plan” of the Contract and the 1924 and 1928 Acts, the language of these instruments belies such an interpretation. The revised final judgment of the Court of Federal Claims is therefore affirmed in all respects.
AFFIRMED.
COSTS
SCIDD shall bear costs.
Notes
. For simplicity, the trial court here will be referred to at all times as the Claims Court, even though the later decisions of the trial court occurred after the court had been renamed the Court of Federal Claims.
. Section 3 of the Act provides in part, "[T]he operation and maintenance charges on account of land in private ownership ... shall be paid annually in advance.”
. During parts of the period, the O & M cost included both imputed generation costs and transmission and distribution costs, while at other times, the O & M cost only included generation costs.
. The water allocation by the Bureau of Indian Affairs for 1983 was 3.0 acre-feet per acre, but only .60 acre-feet in 1990.