Pacific Northwest Generating v. Bonneville Power

Decision Date28 August 2009
Docket NumberNo. 09-70236.,No. 09-70228.,No. 09-70988.,09-70228.,09-70236.,09-70988.
Citation580 F.3d 828
PartiesPACIFIC NORTHWEST GENERATING COOPERATIVE; Blachy-Lane County Cooperative Electric Ass.; Central Electric Cooperative Inc.; Clearwater Power Company; Consumers Power Inc.; Coos-Curry Electric Coop., Inc.; Douglas Electric Cooperative; Fall River Rural Electric Cooperative, Inc.; Lane Electric Cooperative Inc.; Lost River Electric Cooperative Inc.; Northern Lights Inc.; Okanogan County Electric Cooperative Inc.; Raft River Rural Electric Cooperative, Inc.; Salmon River Electric Cooperative Inc.; Umatilla Electric; West Oregon Electric Cooperative Inc., Petitioners, Alcoa, Inc.; Avista Corporation; Puget Sound Energy, Inc.; Pacificorp; Idaho Power Company; Columbia Falls Aluminum Company, LLC, Intervenors, v. BONNEVILLE POWER ADMINISTRATION; Dept.of Energy, Respondents. Public Power Council, Petitioner, Avista Corporation; Puget Sound Energy, Inc.; Idaho Power Company; Alcoa, Inc.; Columbia Falls Aluminum Company, LLC, Intervenors, v. Bonneville Power Administration; Department of Energy, Respondents. Industrial Customers of Northwest Utilities, Petitioner, v. Bonneville Power Administration, Respondent.
CourtU.S. Court of Appeals — Ninth Circuit

Karin J. Immergut, United States Attorney; Stephen J. Odell, Assistant United States Attorney; David J. Adler, J. Courtney Olive, Special Assistant United States Attorneys; Randy A. Roach, General Counsel; Timothy A. Johnson, Assistant General Counsel, Portland, OR, for respondent Bonneville Power Administration.

Michael J. Uda, Doney Crowley Bloomquist Payne Uda P.C., Helena, MT, for intervenor Columbia Falls Aluminum Company.

Michael C. Dotten, Lake Oswego, OR, for intervenor Alcoa Inc.

Jay T. Waldron, William J. Ohle, Sara Kobak, Schwabe Williamson & Wyatt P.C., Portland, OR, for intervenors PacifiCorp et al.

On Petition for Review of an Order of the Bonneville Power Administration. BPA No. 06-PB-11744.

Before: RAYMOND C. FISHER and MARSHA S. BERZON, Circuit Judges, and BARRY TED MOSKOWITZ,* District Judge.

BERZON, Circuit Judge:

In Pacific Northwest Generating Coop. v. Dep't of Energy ("PNGC"), 550 F.3d 846 (9th Cir.2008), amended on denial of reh'g, No. 05-75638, 2009 WL 2386294 (9th Cir. Aug. 5, 2009), this court held invalid a central provision of a five-year contract between the Bonneville Power Administration ("BPA") and the aluminum company Alcoa, Inc. ("Alcoa"). Less than a month after we issued the PNGC opinion, BPA announced that it and Alcoa had agreed to an amended version of the invalidated provision that would govern the nine-month period ending September 30, 2009 (the original five-year contract would have expired in September 2011). Petitioners Pacific Northwest Generating Cooperative ("PNGC"), Public Power Council ("PPC"), and Industrial Customers of Northwest Utilities ("ICNU") challenge BPA's decision to execute the amended contract.

We agree with the petitioners' challenge and therefore grant their petitions for review. Although under no obligation to contract with Alcoa, BPA agreed voluntarily to make a nearly $32 million cash "benefit" payment to the aluminum company, so that the company could purchase power from one of BPA's competitors. BPA's justifications for this unusual transaction, under which the agency received nothing directly in exchange for its $32 million, do not demonstrate that the transaction was "consistent with sound business principles," as required by BPA's governing statutes. We therefore hold that BPA exceeded its statutory authority when it agreed to the Alcoa contract amendment.

I. Background
A. The PNGC Opinion

In PNGC, we invalidated a central provision of a five-year contract (the "2007 Contract") between the Bonneville Power Administration and Alcoa, one of BPA's Direct Service Industrial ("DSI") customers. Under the invalidated provision, BPA had agreed to "sell" power to Alcoa at a mutually agreed-upon rate, below both the market rate and the statutorily authorized Industrial Firm Power (IP) rate. See PNGC, 550 F.3d at 854-58. The provision at issue did not, however, require BPA to sell physical power to Alcoa. Rather, BPA had agreed to "monetize" the power sale by making cash "benefit" payments to Alcoa in an amount approximately equal to the difference between the higher wholesale market rate for power and the lower contract rate multiplied by the amount of power consumed by Alcoa each month.1 See id. at 854-55. The idea was that Alcoa could use the monetary benefit payments to subsidize its purchase of power on the wholesale market, such that the aluminum company's net power costs would be approximately equal to the agreed-upon contract rate (assuming that various caps on the monetary benefit were not triggered). See id.

We held this monetization provision invalid on the ground that "[t]he decision to monetize embodied in the agreements violated [BPA's] statutory obligation[ ] . . . to provide `the lowest possible rates to consumers consistent with sound business principles.' § 838g." Id. at 875. We explained:

In essence, BPA has voluntarily agreed to forgo revenues by charging the DSIs a rate below what is authorized by statute (i.e., the IP rate) and below what is available on the open market. These foregone revenues result in higher rates for all other customers. This outcome is in apparent and direct conflict with BPA's statutory mandate, see § 838g, and renders BPA's decision to "monetize" the DSI contracts in an amount reflective of those underlying rate decisions—albeit a capped amount—highly suspect.


We then considered and rejected as "flawed" BPA's three proffered justifications for this decision. Id. at 875-78. In so doing, we noted that "[b]y subsidizing the DSIs' smelter operations beyond what it is obligated to do, BPA is simply giving away money," id. at 877, and that such an act was "not reflective of a `business-oriented philosophy,'" id. at 878 (quoting Ass'n of Pub. Agency Customers, Inc. v. BPA ("APAC"), 126 F.3d 1158, 1171 (9th Cir.1997)). We also explained that "BPA's authority to sell power to the DSIs does not mean that BPA may simply give money to the DSIs by calling the agreement a `power sale' with `monetized service benefits.'" PNGC, 550 F.3d at 878 (emphasis in original).

We concluded our discussion of the validity of the monetary benefit provision of the 2007 Contract with the following summary:

In sum, BPA has not advanced a "reasonable interpretation[] of its governing statutes" that supports its actions. Golden Nw. Aluminum [Inc. v. BPA, 501 F.3d 1037, 1045 (9th Cir.2007)]. Nor has the agency shown how offering the DSIs rates below the market rate and below what it is statutorily authorized to offer "further[s] BPA's business interests consistent with its public mission." Ass'n of Pub. Agency Customers, 126 F.3d at 1171. We conclude that BPA's decision to offer the subsidized rates to the DSIs and then monetize those rates is inconsistent with BPA's statutory authority under the NWPA, and therefore hold that the monetization provisions of the aluminum contracts are invalid.


The PNGC opinion was filed on December 17, 2008. Two weeks later, on December 31, 2008, BPA sent a letter to its regional customers and stakeholders, including Petitioners. In the letter, BPA informed its customers that, in light of the PNGC opinion, the agency would cease making monetary benefit payments to Alcoa.

The agency also announced a proposed amendment to the 2007 Contract "so that service thereunder will conform to the [PNGC] Opinion." The critical change that BPA proposed was that the parties would begin using the IP rate as the basis for the monetary benefit calculation, rather than the previous contract rate (which, as noted, was below the IP rate). BPA also informed its customers that the amendment would only govern "sales" to Alcoa from January 1, 2009 through September 30, 2009.

BPA concluded its letter by providing a web address where interested parties could view the proposed amended contract. The agency also stated that it would accept public comments about the amendment until January 6, 2009, less than a week later. Although it recognized that it was providing only "a limited time to comment on the proposed amendment," the agency stated that it "believe[d] that it is important to implement this amendment in a timely manner to avoid, if possible, any unnecessary interruption of smelter operations, especially given the difficult economic times and potential loss of additional jobs in the region."

B. The Amended Contract

On January 9, 2009, BPA signed the amended contract. Like the 2007 Contract, the amended contract did not require BPA to deliver physical power to Alcoa. Instead, BPA once again agreed to provide a "monetary benefit" to Alcoa, which Alcoa could then use to offset the cost of purchasing physical power on the open market.

Unlike under the previous contract, however, the monetary benefit in the amended contract is calculated using the IP rate as the base rate, rather than an agreed-upon rate lower than the IP rate. More specifically, BPA agreed in the amended contract to pay Alcoa the difference between a forecasted market rate for power of $48.05/MWh and the IP rate of $32.70/MWh—that is, $15.35/MWh—for every megawatt hour of power purchased by Alcoa on the open market between January 1, 2009 and September 30, 2009, up to a total of $31.9 million.2

BPA announced the execution of the amended contract in a letter to its customers dated January 13, 2009. In the letter, BPA explained the reasons for its decision to enter into the amended...

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2 cases
  • Alcoa, Inc. v. Bonneville Power Admin.
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    • U.S. Court of Appeals — Ninth Circuit
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