Alcoa, Inc. v. Bonneville Power Admin.

Decision Date16 October 2012
Docket Number10–70743,10–70782,10–70843.,10–70707,Nos. 10–70211,10–70813,s. 10–70211
Citation698 F.3d 774
PartiesALCOA, INC., Petitioner, Pacific Northwest Generating Cooperative and Members; Public Power Council; Avista Corporation; Idaho Power Company; Pacificorp; Portland General Electric Company; Public Utility Commission of Oregon; Puget Sound Energy, Inc., Intervenors, v. BONNEVILLE POWER ADMINISTRATION; U.S. Department of Energy, Respondents. Canby Utility Board, Petitioner, Alcoa, Inc., Intervenor, v. Bonneville Power Administration, Respondent. Public Power Council, Petitioner, Alcoa, Inc., Intervenor, v. Bonneville Power Administration; U.S. Department of Energy, Respondents. Industrial Customers of Northwest Utilities, Petitioner, Alcoa, Inc., Intervenor, v. Bonneville Power Administration, Respondent. Northwest Requirements Utilities, Petitioner, Alcoa, Inc., Intervenor, v. U.S. Department of Energy; Bonneville Power Administration, Respondents. Pacific Northwest Generating Cooperative; Blachly–Lane County Cooperative Electric Association; Central Electric Cooperative, Inc.; Clearwater Power Company; Consumers Power, Inc.; Coos–Curry Electric Cooperative, Inc.; Douglas Electric Cooperative; Fall River Rural Electric Cooperative, Inc.; Lane Electric Cooperative; Northern Lights, Inc.; Okanogan County Electric Cooperative, Inc.; Raft River Rural Electric Cooperative, Inc.; Umatilla Electric Cooperative Association; West Oregon Electric Cooperative, Inc., Petitioners, Alcoa, Inc., Petitioner–Intervenor, Alcoa, Inc., Intervenor, v. U.S. Department of Energy; Bonneville Power Administration, Respondents.
CourtU.S. Court of Appeals — Ninth Circuit


Michael C. Dotten and Dustin T. Till, Marten Law Group, Portland, OR, for petitioner-intervenor Alcoa, Inc.

R. Erick Johnson, R. Erick Johnson, PC, Lake Oswego, OR, for petitioners Pacific Northwest Generating Cooperative et al.

Melinda J. Davidson and Irion Sanger, Davidson Van Cleve, PC, Portland, OR, for petitioner Industrial Customers of Northwest Utilities.

Mark R. Thompson, Public Power Council, Portland, OR, for petitioner Public Power Council.

Betsy Bridge, Law Office of Betsy Bridge, LLC, Portland, OR, for petitioner Northwest Requirements Utilities.

Daniel Seligman, Seattle, WA; David Doughman, Beery, Elsner & Hammond, LLC, Portland, OR, for petitioner Canby Utility Board.

David J. Adler and J. Courtney Olive, Special Assistant U.S. Attorneys, Portland, OR, Randy A. Roach, Timothy A. Johnson, Herbert V. Adams and John D. Wright, Bonneville Power Administration, Portland, OR, for respondent Bonneville Power Administration.

Jay T. Waldron, Schwabe, Williamson & Wyatt, Portland, OR, on behalf of respondent-intervenors Avista Corporation, Idaho Power Company, Pacificorp, Portland General Electric Company, and Puget Sound Energy, Inc.

On Petition for Review of an Order of the Bonneville Power Administration. BPA No. 10PB–12175.


Opinion by Judge IKUTA; Concurrence by Judge TASHIMA; Partial Concurrence and Partial Dissent by Judge BEA.


IKUTA, Circuit Judge:

These consolidated petitions for review challenge a contract between the Bonneville Power Administration (BPA) and one of its long-time customers, Alcoa Inc. BPA's preference customers, as well as other entities and organizations in the Pacific Northwest, filed this petition for review, requesting that we hold that the contract is unlawful because it is inconsistent with the agency's statutory mandate to act in accordance with sound business principles. They claim that instead of entering into a contract to sell power to Alcoa at the statutorily required Industrial Firm power (IP) rate (a cost-based rate prescribed by 16 U.S.C. § 839e(c)(1) for sales of power to customers such as Alcoa), BPA should sell to other buyers at the market rate. BPA's decision not to do so, petitioners allege, forgoes revenue that could otherwise be used to lower the rates charged to its preference customers. They further argue that BPA relied on flawed data in determining it would make a modest profit by selling surplus power to Alcoa. Alcoa also petitions for review, asking the court to hold that the Equivalent Benefits standard 1 is contrary to BPA's governing statutes, Alcoa makes this request because such a judicial determination is a condition precedent for the commencement of a five-year period (the “Second Period” of the Alcoa Contract) during which time BPA would continue to sell power to Alcoa at the contracted rate. In May 2012, the Alcoa Contract was amended to remove all references to the Second Period. We dismiss the petitioners' and Alcoa's challenge in part as moot, and otherwise reject their claims.2

IBPA's Statutory Duties
A. Categories of Customers BPA Serves

BPA is a federal agency within the Department of Energy which “has marketing authority over nearly all the electric power generated by federal facilities in the Pacific Northwest.” Ass'n of Pub. Agency Customers, Inc. v. BPA ( APAC ), 126 F.3d 1158, 1163 (9th Cir.1997). We have previously detailed the “complex statutory landscape” under which BPA operates at length. See Pac. Nw. Generating Coop. v. Dep't of Energy ( PNGC I ), 580 F.3d 792, 799 (9th Cir.2009). For present purposes, we focus on BPA's statutory obligations to three different types of customers.

First, “in disposing of electric energy generated” at BPA projects, BPA is required to “give preference and priority” to “public bodies 3 and cooperatives” that purchase power from BPA for resale to their consumers. 16 U.S.C. § 832c(a). These entities are “preference” customers, and BPA is required to give priority to their applications for power when competing applications from nonpreference customers are received. See id. § 832c(b).

Second, BPA is authorized to sell power to private, investor-owned utilities (IOUs), which, like the preference customers, buy power for resale to ultimate consumers. See id. § 832d(a); APAC, 126 F.3d at 1164.

Third, BPA may sell to a limited group of “direct service industrial customers” (DSIs), which are large industrial companies with a high demand for electricity. 16 U.S.C. § 839c(d). Unlike BPA's other customers, DSIs purchase power directly from BPA for their own consumption, not for resale. Id. § 839a(8); APAC, 126 F.3d at 1164. Alcoa, the power purchaser in the contract at issue here, is one of BPA's DSI customers, and runs an aluminum smelting operation at its Intalco plant in Ferndale, Washington.

B. BPA's Rate Structure and “Sound Business Principles”

BPA's statutory framework also sets out the specific criteria by which BPA determines the rates it may charge for power to these different customers. Regardless of the type of customer, BPA must charge a rate that, at a minimum, recoups BPA's own costs of generating or acquiring the electricity. See16 U.S.C. § 839e(a)(1).

BPA charges preference customers a cost-based rate, referred to as the priority firm or “PF rate,” that allows BPA to recover the costs of generating or obtaining the power required to meet the preference customers' needs. Id. §§ 839c(a), 839e(b); 4see also PNGC I, 580 F.3d at 802. IOUs can elect to sell power to BPA “at the average system cost of the utility's resources,” id. § 839c(c)(1), and then buy power back from BPA at the PF rate. Id. §§ 839c(c); 839e(b). This subsidy “enables the [IOU] to sell power to its residential customers at the priority rate given to residential consumers receiving BPA federal power.” Central Elec. Coop., Inc. v. BPA, 835 F.2d 199, 201 (9th Cir.1987) (quoting Pacificorp v. Fed. Energy Regulatory Comm'n, 795 F.2d 816, 818 (9th Cir.1986)).

DSI customers also pay a cost-based rate (the “IP rate”), which is prescribed by § 839e(c).5PNGC I, 580 F.3d at 812 ([W]hen entering into contracts for the sale of firm power to a DSI, [BPA] must initially offer the IP rate.”) The IP rate must be “equitable in relation to the retail rates charged” by BPA's preference customers to their own industrial consumers in the region, 16 U.S.C. § 839e(c)(1)(B), and is always higher than the PF rate, Golden Nw. Alum., Inc. v. BPA, 501 F.3d 1037, 1046–47 (9th Cir.2007).

In addition to charging all customers at a rate that recoups BPA's costs of generating or acquiring electricity, 16 U.S.C. § 839e(a)(1), BPA is also responsible for setting rates in accordance with “sound business principles.” Thus, § 838g prescribes general factors BPA must balance when setting rates for the sale and transmission of federal power:

Such rate schedules ... shall be fixed and established (1) with a view to encouraging the widest possible diversified use of electric power at the lowest possible rates to consumers consistent with sound business principles, (2) having regard to the recovery (upon the basis of the application of such rate schedules to the capacity of the electric facilities of the projects) of the cost of producing and transmitting such electric power ... and (3) at levels to produce such additional revenues as may be required, in the aggregate with all other revenues of the Administrator, to pay [all expenses associated with] bonds issued and outstanding pursuant to this chapter, and amounts required to establish and maintain reserve and other funds and accounts established in connection therewith.

Id. § 838g (emphasis added). Section 839e similarly sets guidelines for fixing “rates for the sale and disposition of electric energy and capacity and for the transmission of non-Federal power.” Id. § 839e(a)(1). Specifically, those rates:

shall ... recover, in accordance with sound business principles, the costs associated with the acquisition, conservation, and transmission of electric power, including the amortization of the Federal investment in the Federal Columbia River Power System ... and the other costs and expenses incurred by the [BPA] pursuant to this chapter and...

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