Portland General Elec. Co. v. Bonneville Power

• Decision Date: 03 May 2007
• Docket Number: No. 01-70003.,No. 01-70005.,No. 01-70010.,No. 01-70041.,No. 01-70012.,01-70003.,01-70005.,01-70010.,01-70012.,01-70041.
• Citation: 501 F.3d 1009
• Parties: PORTLAND GENERAL ELECTRIC COMPANY; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; Public Generating Pool (PGP); Industrial Customers of Northwest Utilities; the Public Utility Commission of Oregon; Alcoa Inc., Intervenors, v. BONNEVILLE POWER ADMINISTRATION; Department of Energy; Judi Johansen, Administrator of the Bonneville Power Administration, Respondents. Pacificorp; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; Public Power Council; Avista Corporation; The Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. Bonneville Power Administration, Respondent. Public Power Council; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group, Petitioners, Avista Corporation; Public Generating Pool (PGP); The Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. United States of America; Bonneville Power Administration, Respondents. Benton Rural Electric Association; Washington, City of Port; Washington, City of Cheney, Washington, City of Ellenburg; Washington, City of Fircrest; Washington, City of Milton; Washington, Town of Eatonville, Washington, Town of Steilacoom; Washington, Alder Mutual Light Company, Washington, Elmhurst Mutual Power and Light Company; Washington, Lakeview Light and Power Company; Washington, Peninsula Light Company, Washington, Parkland Light and Water Company; Washington, Public Utility District No. 1 of Kittitas County; Washington, Public Utility District No. 1 of Lewis County; Washington, Public Utility District No. 2 of Pacific County, et al.; Fall River Rural Electric Cooperative; Columbia River People's Utility District; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; the Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. Department of Energy; Bonneville Power Administration, Respondents. Puget Sound Energy, Inc.; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Washington Utilities and Transportation Commission, Intervenor, v. U.S. Dept. of Energy; Bonneville Power Administration, Respondents.
• Court: U.S. Court of Appeals — Ninth Circuit

501 F.3d 1009

PORTLAND GENERAL ELECTRIC COMPANY; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; Public Generating Pool (PGP); Industrial Customers of Northwest Utilities; the Public Utility Commission of Oregon; Alcoa Inc., Intervenors, v. BONNEVILLE POWER ADMINISTRATION; Department of Energy; Judi Johansen, Administrator of the Bonneville Power Administration, Respondents.

Pacificorp; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; Public Power Council; Avista Corporation; The Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. Bonneville Power Administration, Respondent.

Public Power Council; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group, Petitioners, Avista Corporation; Public Generating Pool (PGP); The Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. United States of America; Bonneville Power Administration, Respondents.

Benton Rural Electric Association; Washington, City of Port; Washington, City of Cheney, Washington, City of Ellenburg; Washington, City of Fircrest; Washington, City of Milton; Washington, Town of Eatonville, Washington, Town of Steilacoom; Washington, Alder Mutual Light Company, Washington, Elmhurst Mutual Power and Light Company; Washington, Lakeview Light and Power Company; Washington, Peninsula Light Company, Washington, Parkland Light and Water Company; Washington, Public Utility District No. 1 of Kittitas County; Washington, Public Utility District No. 1 of Lewis County; Washington, Public Utility District No. 2 of Pacific County, et al.; Fall River Rural Electric Cooperative; Columbia River People's Utility District; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Avista Corporation; the Public Utility Commission of Oregon; Alcoa, Inc., Intervenors, v. Department of Energy; Bonneville Power Administration, Respondents.

Puget Sound Energy, Inc.; Public Utility District No. 1 of Snohomish County, Washington; Utilities of the Western Public Agencies Group; Northwest Requirements Utilities, Petitioners, Washington Utilities and Transportation Commission, Intervenor, v. U.S. Dept. of Energy; Bonneville Power Administration, Respondents.

No. 01-70003.

No. 01-70005.

No. 01-70010.

No. 01-70012.

No. 01-70041.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 14, 2005.

Filed May 3, 2007.

Scott G. Seidman, Tonkon Torp LLP, Portland, OR, for petitioner Portland General Electric Company.

Michael A. Goldfarb, Law Offices of Michael A. Goldfarb, Seattle, WA, for petitioner Public Utility District No. 1 of Snohomish County, Washington.

Terence L. Mundorf, Marsh Mundorf Pratt Sullivan & McKenzie PSC, Mill Creek, WA, for petitioner Utilities of the Western Public Agencies Group.

Susan K. Ackerman, Portland, OR, for petitioner Northwest Requirements Utilities.

Mark R. Thompson, Richardson & O'Leary PLLC, Boise, Idaho, for Petitioner Public Power Council.

R. Blair Strong, Paine Hamblen Coffin Brooke & Miller LLP, Spokane, WA, for intervenor Avista Corporation.

Melinda J. Davison and Irion A. Sanger, Davison Van Cleve PC, Portland, OR, for intervenor Industrial Customers of Northwest Utilities.

Kurt R. Casad, Office of United States Attorney, Portland, OR, for respondent Bonneville Power Administration.

On Petition for Review of an Order of the Bonneville Power Administration. BPA No. Power Act.

Before: STEPHEN REINHARDT, W. FLETCHER, and JAY S. BYBEE, Circuit Judges.

BYBEE, Circuit Judge:

Petitioners, publicly owned utilities ("PUDs") operating in the Pacific Northwest,¹ and Intervenor Industrial Customers of Northwest Utilities, challenge the actions taken by the Bonneville Power Administration ("BPA") in reaching settlement agreements in 2000 with six investor-owned utilities ("IOUs"). While the statutory and factual background in this appeal is quite complicated, the ultimate issue is relatively straightforward: whether BPA's authority to settle out of power contracts is bound by the power exchange requirements of the Northwest Power Act ("NWPA"), and if so, whether the exercise of its settlement authority was contrary to those requirements. We hold that BPA was bound by the power exchange requirements of the NWPA, and that BPA exercised its settlement authority contrary to those requirements.

I. STATUTORY AND REGULATORY BACKGROUND

Our prior opinions have discussed BPA's operations in some detail. See, e.g., M-S-R Public Power Agency v. BPA, 297 F.3d 833 (9th Cir.2002) (as amended); Ass'n of Pub. Agency Customers, Inc. v. BPA, 126 F.3d 1158 (9th Cir.1997). Nevertheless, because of the complexity of this case, we review the statutory and regulatory framework surrounding BPA to understand its actions in this case.

A. Bonneville Project Act and the Northwest Power Act

BPA is an agency within the Department of Energy created by Congress in 1937. See Bonneville Project Act, 16 U.S.C. §§ 832-832m (2000). BPA was tasked with marketing the power generated by federally owned dams on the Columbia River.² BPA serves two principal classes of customers: (1) preference utilities and (2) everyone else. Preference utilities (also "preference customers") comprise publicly-owned utilities, cooperatives, and federal agencies (including petitioners Western Public Agencies Group, Northwest Requirements Utilities, and Public Utility District No. 1 of Snohomish County), all of which are accorded priority to federal power under the Bonneville Project Act. See 16 U.S.C. § 832c(a), (d). Non-preference utilities include investor-owned utilities ("IOUs")³ (including intervenors Avista, Pacificorp, Portland General Electric, and Puget Sound Energy), direct service industries customers ("DSIs"),⁴ and all others who purchase BPA power in the market. BPA originally operated under an annual congressional appropriation, but was restructured as a self-financed agency in 1974. See The Bonneville Power Administration Fund, 16 U.S.C. § 838i (2000).

From the 1930s through the 1960s, BPA's relatively inexpensive power costs and broad control over most of the transmission facilities in the Pacific Northwest made it the region's dominant power supplier. During this period, BPA's power resources were sufficient to meet the needs of its preference and non-preference customers. However, increasing demand for low-cost federal power in the 1970s led BPA to forecast that it would not have sufficient resources to meet demand by the end of the decade. In order to protect the preference customers' access to its power, BPA advised the non-preference utilities that it would not be renewing existing power contracts or entering into new power contracts with them. See Ass'n of Pub. Agency Customers, 126 F.3d at 1165. This action forced BPA's non-preference customers to pursue power and power-generation facilities elsewhere, and it put them at a severe cost disadvantage in the marketplace vis-a-vis BPA's preference customers.

In order to avoid an energy crisis and to redress BPA's diminishing ability to satisfy the region's power demands, Congress enacted the Pacific Northwest Electric Power Planning and Conservation Act of 1980, 16 U.S.C. §§ 839-839h (2000) ("Northwest Power Act" or "NWPA"). The NWPA authorized the BPA Administrator to establish and revise the rates at which BPA's power is sold, 16 U.S.C. § 839e, and, "[s]ubject to the provisions of [the NWPA]," to enter into contracts, agreements, and settlements of claims and contractual obligations upon such terms and conditions and in such manner as he may deem necessary. 16 U.S.C. § 839f(a) (citing 16 U.S.C. § 832a(f)). The NWPA authorized BPA to exercise greater control over its power supply and to augment that supply by purchasing electric power in the market, with the intent that the IOUs and their customers would have access to BPA's cheaper power while meeting the preference customers' power needs. Although the NWPA cleared the way for IOUs and others to contract with BPA for power, the Act made clear that "[a]ll power sales under[the NWPA] shall be subject at all times to the preference and priority provisions of the Bonneville Project Act . . . and, in particular, sections 4 and 5 thereof." 16 U.S.C. § 839c(a).⁵

Congress's mechanism for granting the IOUs access to BPA's cheaper power was § 5(c) of the NWPA, which established the Residential Exchange Program ("REP"). See 16 U.S.C. § 839c(c). Section 5(c) permits IOUs to exchange power they have purchased or generated for lower-cost power generated by BPA. The REP provides that whenever a Pacific Northwest utility offers to sell to BPA electricity intended for residential customers at the utility's average system cost ("ASC") for producing such power, BPA shall purchase that power and offer, in exchange, to sell an equivalent amount of power to the utility for resale to its residential customers. Id. § 839c(c)(1). A utility's ASC is determined according to a methodology to be developed by BPA and approved by the Federal Energy Regulatory Commission ("FERC"). Id. § 839c(c)(7). The REP essentially acts as a cash rebate to the IOUs where the IOUs' power costs exceed those of BPA. This "exchange" is a paper transaction, see CP Nat'l Corp. v. BPA, 928 F.2d 905, 907 (9th Cir.1991) (as amended), and the NWPA requires that any exchange benefit be passed through to the utility's residential customers.⁶

While § 5(c) authorizes BPA to sell power to IOUs for resale to their residential users, "[s]uch sales shall be at rates established pursuant to section 839e [, or § 7,] of [the NWPA]." 16 U.S.C. § 839c(a). Section 7 contains two important...