Public Utility Distict v. Bpa

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PUBLIC UTILITY DISTRICT NO. 1 OF 
SNOHOMISH COUNTY WASHINGTON
WASHINGTON,
Petitioner,
THE WASHINGTON UTILITIES AND
TRANSPORTATION COMMISSION
(WUTC); PORTLAND GENERAL
ELECTRIC COMPANY,
Intervenors, No. 04-74240
v.  BPA No.
BONNEVILLE POWER Power Act
ADMINISTRATION,
Respondent,
AVISTA CORPORATION; IDAHO POWER
COMPANY; PACIFICORP; PORTLAND
GENERAL ELECTRIC COMPANY AND
PUGET SOUND ENERGY, INC.,
Applicant-Intervenor.

13759
13760 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
CANBY UTILITY BOARD, 
Petitioner,
PUBLIC UTILITY DISTRICTS OF
CLALLAM, GRAYS HARBOR, AND
KITTITAS COUNTIES; PUBLIC UTILITY
DISTRICTS NO. 1 AND 3 OF MASON
COUNTY, WASHINGTON,
Intervenors, No. 04-74245
v.  BPA No.
BONNEVILLE POWER 00PB-12157
ADMINISTRATION,
Respondent,
AVISTA CORPORATION; PACIFICORP;
PORTLAND GENERAL ELECTRIC
COMPANY; PUGET SOUND ENERGY,
Intervenors.

ALCOA, INC., 
Petitioner, No. 04-74252
v.
 BPA No.
FY 2007-2011
BONNEVILLE POWER
ADMINISTRATION, OPINION
Respondent.

On Petition for Review of an Order
of the Bonneville Power Administration
Argued and Submitted
November 14, 2005—Seattle, Washington
Filed October 11, 2007
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13761
Before: Stephen Reinhardt, William A. Fletcher, and
Jay S. Bybee, Circuit Judges.
Opinion by Judge Bybee
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13763
COUNSEL
Paul M. Murphy, Murphy & Buchal, Portland, Oregon, for
petitioner Canby Utility Board.
John H. Hammond & Matthew J. Michel, Beery, Elsner &
Hammond, Portland, Oregon, for petitioner Canby Utility
Board.
Daniel Seligman, Seattle, Washington, for petitioner Canby
Utility Board.
Michael A. Goldfarb, Law Offices of Michael A. Goldfarb,
Seattle, Washington, for petitioner Public Utility District No.
1 of Snohomish County.
Terence L. Mundorf, Marsh Mundorf Pratt Sullivan & Mc-
Kenzie, Mill Creek, Washington, for petitioners Public Utility
Districts No. 1 of Clallam, Grays Harbor, Kittitas and Mason
Counties and petitioner Public Utility District No. 3 of Mason
County.
Randy Roach & Timothy A. Johnson, Bonneville Power
Administration, Portland, Oregon, for respondent Bonneville
Power Administration.
Karin J. Immergut, Stephen J. Odell, David J. Adler & Kurt
R. Casad, United States Attorney’s Office, Portland, Oregon,
for respondent Bonneville Power Administration.
13764 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
R. Blair Strong, Paine Hamblen, Spokane, Washington, for
respondent-intervenor Avista Corporation.
Michael G. Andrea, Avista Corporation, Spokane, Washing-
ton, for respondent-intervenor Avista Corporation.
Marcus A. Wood & Stephen C. Hall, Stoel Rives, Portland,
Oregon, for respondent-intervenor PacifiCorp. Scott G. Seid-
man & David F. White, Tonkon Torp, Portland, Oregon, for
respondent-intervenor Portland General Electric Company.
Donald G. Kari & Sheree Strom Carson, Perkins Coie, Belle-
vue, Washington, for respondent-intervenor Puget Sound
Energy, Inc.
OPINION
BYBEE, Circuit Judge:
Petitioners, publicly owned utilities (“PUDs”) operating in
the Pacific Northwest1 challenge contract amendments entered
into in May 2004 (collectively “2004 Amendments”) between
the Bonneville Power Administration (“BPA”) and several
investor-owned utilities (“IOUs”) arguing that they violate
provisions of the Northwest Power Act (“NWPA”). The
amendments at issue modify various provisions of several
“REP Settlement Agreements” BPA entered into with IOUs
in October 2000 and additionally implement a $100M “Re-
duction of Risk” or “litigation penalty” implemented in agree-
ments between BPA and two IOUs, PacifiCorp and Puget
Sound Energy, in May and June of 2001. In a previously
1
Petitioners include Public Utility District No. 1 of Snohomish County
and Canby Utility Board. Intervenors include Washington and the Wash-
ington Utilities and Transportation Commission, Public Utility Districts of
Clallam, Grays Harbor and Kittitas Counties, Public Utility Districts No.
1 and 3 of Mason County, Washington.
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13765
issued opinion, we held that BPA was bound by the power
exchange requirements of the Northwest Power Act and exer-
cised its settlement authority contrary to those requirements
when it entered into the REP Settlement Agreements. Port-
land Gen. Elec. Co. v. BPA, ___ F.3d ___ (9th Cir. 2007).
Because BPA has not had an opportunity to determine the
continued validity of the 2004 Amendments, we remand to
the agency to determine in the first instance how to treat the
amendments in light of our prior decision and this opinion.
I. BACKGROUND
Our prior opinion in PGE provides a thorough explanation
of the underlying regulatory framework, BPA’s operations,
and background on the 2000 REP Settlement Agreements
which form the basis of the 2004 Amendments at issue here.
See ___ F.3d at ___. [*1 WL] Additionally, several other of
our opinions chronicle the history of BPA and describe its
complicated regulatory framework. See, e.g., Golden Nw. Alu-
minum, Inc. v. BPA, ___ F.3d ___ (9th Cir. 2007); Pub.
Power Council, Inc. v. BPA, 442 F.3d 1204 (9th Cir. 2006);
M-S-R Pub. 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). We only repeat facts
necessary for the disposition of this case and refer the reader
to our prior opinions for a more comprehensive explanation.
A. The 2001 Load Reduction Agreements
In 2001, while the PGE litigation was pending, the Pacific
Northwest experienced a severe drought. Lower precipitation
throughout the region coupled with prior BPA decisions and
contracts (including the 2000 REP Settlement Agreements
which were at issue in PGE, ___ F.3d ___) put the agency in
a position where it could not generate enough power to meet
its contractual obligations. BPA’s Administrator warned in a
public speech that rate increases of “250 percent or more”
were possible since “BPA’s obligations added up to approxi-
13766 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
mately 11,000 megawatts—about 3,000 megawatts more than
[its] current generating resources [could] provide on a firm
basis.” The Administrator advised that the only way to avoid
massive rate increases was for BPA to reduce its 3,000 mega-
watt short position. In response, BPA developed a three-
pronged Load Reduction Program involving conservation by
consumers, reduction in power demand by utilities, and load
curtailments by its direct service industrial customers. After
negotiating several load reduction agreements with various
customers, BPA was able to announce that the effort was “ab-
solutely a stunning success” and that it only had to impose a
rate increase of 46%, instead of a much higher anticipated
increase.
As part of its load reduction plan, BPA entered into Load
Reduction Agreements with PacifiCorp and Puget Sound
Energy (“PSE”) on May 23, 2001, and June 7, 2001, respec-
tively (collectively “LRA”s). The LRAs eliminated BPAs
obligation to deliver virtually all power to PacifiCorp and
PSE for the FY 2002-2006 time period in exchange for cash
payments.2 One of the provisions in the LRAs provided that
BPA would reduce the payments to PacifiCorp and PSE from
$45.49 per MWh of foregone power to $38 per MWh if by
December 1, 2001, PacifiCorp and PSE were able to negotiate
and enter into litigation settlement agreements with the PUDs
and other of BPA’s preference customers. If the PUDs did not
enter into agreements by the specified date, the clause would
expire and BPA would make cash payments to PacifiCorp and
PSE based on the $45.49 rate for the FY 2003-2006 period.
2
During FY 2002, PacifiCorp and PSE each agreed to forego 10 percent
of their power deliveries (25 and 37 annual aMW, respectively) in
exchange for a cash payment of $20 per MWh and agreed to forgo the bal-
ance (90 percent) of the power deliveries (226 and 331 annual aMW,
respectively) in exchange for a cash payment of $38 per MWh. During FY
2003-2006, PacifiCorp and PSE agreed to forego all of their power deliv-
eries (241 and 368 annual aMW, respectively) in exchange for a cash pay-
ment of $45.49 per MWh, which amount would be reduced to $38 per
MWh, if certain lawsuits were dismissed.
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13767
This clause—referred to as the “litigation penalty” by the
PUDs and a “Reduction of Risk Discount” by BPA3 — oper-
ated as a strong incentive for the PUDs to settle their ongoing
litigation (including litigation over the 2000 REP Settlement
Agreements) with BPA. If the PUDs settled, the cash pay-
ments BPA was obligated to make to PacifiCorp and PSE
would be reduced by approximately $200M. If the PUDs
refused to settle, they would in effect have to pay an addi-
tional $200M to acquire BPA power, as BPA announced it
would recover the $200M through its wholesale power rates
which would affect all of its customers, including the PUDs.
B. The Deferral Agreements and the Failed 2003 Global
Settlement
When none of the PUDs or other of BPA’s preference cus-
tomers entered into settlement agreements by the December
1, 2001 deadline, BPA deferred payment of the “litigation
penalty” and entered into renewed settlement talks. In antici-
pation of a broad settlement, PacifiCorp and PSE executed
Conditional Deferral Agreements (“CDAs”) in June 2002
with BPA. Under the CDAs, PacifiCorp and PSE agreed to
defer payment of the $200M beginning October 1, 2002,
while settlement discussions progressed. The payments would
be automatically deferred for continuing six month periods
unless PacifiCorp or PSE elected to terminate the deferral
period. BPA agreed to pay the companies 4.46 percent inter-
est on the $200M during the deferral period. In 2003, BPA
proposed a global litigation settlement which called for the
preference customers to agree to a new formula for IOU bene-
fits for FY 2007-2011; dismiss all their pending Ninth Circuit
litigation, including challenges to the 2000 REP Settlement
Agreements; and enter “covenants not to sue” regarding
future claims. In exchange, the IOUs would waive payment of
the $200M litigation penalty. In a Record of Decision pub-
3
At least one internal BPA document refers to this clause as a “litigation
penalty.”
13768 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
lished October 21, 2003 (“2003 ROD”), BPA made it clear
that if the settlement failed, it would raise rates in order to pay
the litigation penalty to PacifiCorp and PSE.4
BPA failed to garner the required unanimous support for its
settlement proposal by the January 21, 2004, deadline. A day
later, BPA issued a press release announcing that the agree-
ment had failed and giving notice that it was implementing
the $200M litigation penalty: “[h]ad the proposal succeeded,
BPA’s wholesale power rates would have dropped by nearly
7 percent, retroactive to Oct. 1, 2003. . . . The proposed rate
decrease would have been possible largely due to elimination
of the $200 million in payments to investor-owned utilities.
. . . In the absence of a settlement, BPA will continue to
implement its existing power contracts.”
C. BPA’s 2004 ROD and Contract Amendments
After the global litigation settlement failed, BPA
announced in a Record of Decision on May 25, 2004 (“2004
ROD”), that it had implemented several contract Amendments
(collectively the “2004 Amendments”) modifying the 2000
REP Settlement Agreements and establishing IOU benefits
for FY 2007-2011. The Amendments include provisions that:
(1) specified that BPA elected to provide payments, not physi-
cal power, pursuant to the 2000 REP Settlement Agreements
and the 2001 LRAs during FY 2007-2011; (2) replaced the
established rate case price forecast, which was used to calcu-
late the cash payments BPA would make to the IOUs, with a
mark-to-market methodology5; (3) obligated BPA not to
4
The 2003 ROD specifically stated “The amount of the reduction in risk
benefits, for PacifiCorp and Puget combined, is approximately $200 mil-
lion. Absent settlement, the $200 million would be included in and recov-
ered through BPA’s wholesale power rates.” 2003 ROD at 30 (emphasis
added).
5
Mark-to-market is an accounting methodology of assigning value to a
position held in a financial instrument based on the current market price
for that instrument. In BPA’s case, it would replace its previous rate case
method for pricing its power—for the purpose of calculating the cash pay-
ments it would make to the IOUs—with a new system based on the market
price for electricity.
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13769
reduce IOU benefits even if a reduction was required by Sec-
tion 7(b)(2) of the NWPA; (4) establish an annual guaranteed
$100M floor and a $300M cap on the financial benefits pro-
vided to the IOUs for FY 2007-2011 even if Section 7(b)(2)
required reduction of IOU benefits below $100M; (5) modify
the time allowed the IOUs to pass monetary benefits of the
2000 REP Settlement Agreement through to their residential
and small-farm consumers; and (6) implement $100M of the
“litigation penalty” embedded in the 2001 LRAs through rate
increases for FY 2007-2011.6
Finally, the 2004 Amendments provided that if any of its
provisions were held void, then the underlying agreement in
effect prior to the 2004 Amendments would apply and the
provisions of the 2004 Amendments would have no further
force or effect unless the parties could negotiate mutually
acceptable replacement terms. These 2004 Amendments form
the basis of the instant litigation.
D. Litigation Over the 2000 REP Settlement Agreements
In 2001, several preference customers challenged the 2000
REP Settlement Agreements. In PGE, we held that BPA’s
broad settlement authority under § 2(f) of the NWPA, 16
U.S.C. § 832a(f), did not give it license to create an exchange
program divorced from the stringent requirements imposed by
Congress in § 5(c) and 7(b) of the NWPA, 16 U.S.C.
§§ 839c(c) & 839e(b). The agreements BPA entered into con-
flicted with its governing statutes and, consequently, were
“not in accordance with law.” 5 U.S.C. § 706(2)(A). We held
that the 2000 REP Settlement Agreements which created this
6
Only the contracts with PacifiCorp and PSE which implement the 2004
ROD contain provisions modifying the litigation penalty. Per the amend-
ments, PacifiCorp and PSE agreed to forego the remaining $100M of the
litigation penalty in consideration for the 2004 Amendments, but would
forego the payment only if other elements of the 2004 Amendments were
not found to be unlawful.
13770 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
new benefit system were inconsistent with the NWPA and
exceeded the authority delegated to BPA by Congress.
Accordingly, we granted the petitions for review. See PGE,
___ F.3d at ___. [*21 WL] In a companion case dealing with
the 2002-2006 wholesale power rates set by BPA, we held,
among other things, that BPA violated the NWPA when it
allocated to its preference customers part of the cost of the
REP Settlement. See Golden Nw., ___ F.3d at ___. [*1 WL]
II. JURISDICTION AND JUDICIAL REVIEW
[1] We have original subject matter jurisdiction over BPA’s
“final actions and decisions . . . or the implementation of such
final actions” taken pursuant to the NWPA. 16 U.S.C.
§ 839f(e)(5). We have previously identified four types of suits
for which we have jurisdiction:
[S]uits challenging (1) the constitutionality of the
Act; (2) the constitutionality of any action taken pur-
suant to the Act’s statutory authority; (3) final
actions or other decisions by BPA . . . taken pursuant
to the Act’s statutory authority; and (4) the imple-
mentation of final actions by BPA . . . taken pursuant
to the authority of any of four enumerated federal
power statutes.
Pac. Power & Light Co. v. BPA, 795 F.2d 810, 814 (9th Cir.
1986). Here, in deciding whether we have jurisdiction, we
must determine first whether BPA’s challenged action was
either a final agency action or the implementation of an action
and second, whether the challenge to the action was timely
filed within 90 days of either a final action or implementation
of a final action. 16 U.S.C. § 839f(e)(5).
[2] The NWPA identifies eight final actions which are
expressly subject to judicial review:
(A) adoption of the plan or amendments thereto by
the [Northwest Power Planning] Council under sec-
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13771
tion 839b of this title, adoption of the program by the
Council, and any determination by the Council under
section 839b(h) of this title;
(B) sales, exchanges, and purchases of electric
power under section 839c of this title;
(C) the Administrator’s acquisition of resources
under section 839d of this title;
(D) implementation of conservation measures under
section 839d of this title;
(E) execution of contracts for assistance to sponsors
under section 839d(f) of this title;
(F) granting of credits under section 839d(h) of this
title;
(G) final rate determinations under section 839e of
this title; and
(H) any rule prescribed by the Administrator under
839e(m)(2) of this title.
16 U.S.C. § 839f(e)(1). Additionally, the Act provides a juris-
dictional “catch-all” for other final actions: “Nothing in this
section shall be construed to preclude judicial review of other
final actions and decisions by the Council or Administrator.”
16 U.S.C. § 839f(e)(3). We have interpreted this “catch-all”
provision to extend only to actions based on the record devel-
oped before the agency, and expressly to exclude any causes
of action arising from actions divorced from and unrelated to
an administrative record. See Pub. Util. Dist. No. 1 of Clark
County v. Johnson, 855 F.2d 647, 649-50 (9th Cir. 1988)
(declining to exercise jurisdiction over contract and tort
claims against BPA).
13772 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
[3] The 2004 Amendments arguably come within the enu-
merated actions as a “sale, exchange or purchase of electric
power”; however, because they modify provisions of existing
agreements, including the 2000 REP Settlement Agreements
which were entered into pursuant to 16 U.S.C. §§ 839f(e)(3)
and 839f(e)(1)(B), we think they are more properly analyzed
under the “catch-all” provision. We only have jurisdiction
under the “catch-all” provision if an agency action was
“final.” The Act does not specify what constitutes a “final”
agency action, so we have looked to the “more general doc-
trine of finality in administrative agency law.” See Puget
Sound Energy, Inc. v. United States, 310 F.3d 613, 624 (9th
Cir. 2002). The primary inquiry is “concerned with whether
the initial decisionmaker has arrived at a definitive position
on the issue that inflicts an actual, concrete injury.” Darby v.
Cisneros, 509 U.S. 137, 144 (1993) (internal quotation marks
omitted); see also Franklin v. Massachusetts, 505 U.S. 788,
797 (1992).
[4] In Bennett v. Spear, 520 U.S. 154 (1997), the Supreme
Court held that an agency action is “final” when two condi-
tions are met: “First, the action must mark the ‘consumma-
tion’ of the agency’s decisionmaking process—it must not be
of a merely tentative or interlocutory nature.” Id. at 177-78(citations omitted). Second, “the action must be one by which
‘rights or obligations have been determined,’ or from which
‘legal consequences will flow.’ ” Id. at 178 (citations omit-
ted). Applying this test, we have found that certain factors
“provide an indicia of finality, such as ‘whether the [action]
amounts to a definitive statement of the agency’s position,
whether the [action] has a direct and immediate effect on the
day-to-day operations of the party seeking review, and
whether immediate compliance [with the terms] is expect-
ed.’ ” Indus. Customers of Nw. Utils. v. BPA, 408 F.3d 638,
646 (9th Cir. 2005) (quoting Cal. Dep’t of Water Res. v.
FERC, 341 F.3d 906, 909 (9th Cir. 2003) (citations omitted)).
[5] Applying the Bennett factors, we conclude that we have
jurisdiction to review the 2004 Amendments, as they are final
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13773
actions of BPA. After holding the standard notice and com-
ment period, BPA announced its adoption of the 2004
Amendments in a Record of Decision. The 2004 ROD is the
consummation of BPA’s decision making process and expres-
sion of BPA’s final decision on an issue. It is not merely a
intermediate step. See Ass’n of Pub. Agency Customers, 126
F.3d at 1182-83 (treating the date of execution of the ROD as
the date on which the decision becomes final). Three days
after BPA issued the 2004 ROD, it executed agreements
implementing the ROD with the six IOUs, Avista Corp.,
Idaho Power Co., PacifiCorp, Portland General Electric Co.,
Northwestern Energy, and Puget Sound Energy, further proof
that it had reached a final decision.
[6] The 2004 Amendments also satisfy the second prong of
the test: they fix specific rights from which legal conse-
quences flow. For example, in altering the panoply of benefits
BPA was giving to the IOUs, the ROD notes, among other
things, that the 2004 Amendments will result in a short term
rate decrease of six percent for FY 2005-2006, and a pro-
jected rate increase of one percent for FY 2007-2011 over the
pre-Amendment projected rate. Additionally, in the contracts
with PacifiCorp and PSE, in exchange for a waiver of $100M
of the “litigation penalty,” BPA agreed to apply the remaining
$100M with the costs to be recouped through its FY 2007-
2011 rates. Alterations and changes to existing contracts
clearly have legal consequences if they directly result in rate
changes to BPA customers.
[7] The 2004 Amendments did not merely change the
implementation of a prior agreement. Rather they created new
benefits and obligations vis-a-vis BPA’s customers and, as
such, constitute a final agency action. Therefore, we conclude
that the 2004 Amendments meet both prongs of the Bennett
test and their adoption is a reviewable agency action. Petition-
ers timely filed their challenge to the 2004 ROD within 90
days of its adoption, see 16 U.S.C. § 839f(e)(5), and we have
jurisdiction to review their petition.
13774 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
III. STANDARD OF REVIEW
The Administrative Procedure Act (“APA”), 5 U.S.C.
§ 706, governs our review of BPA’s actions. See 16 U.S.C.
§ 839f(e)(2) (incorporating the scope of review provisions of
the APA). Accordingly, we may set aside BPA’s decisions
only if they are “arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). See PGE, ___ F.3d at ___; [*11 WL] Pub.
Power Council, Inc., 442 F.3d at 1209.
IV. ANALYSIS
The challenged 2004 ROD and subsequent contracts imple-
menting the ROD alter three groups of prior agreements: the
vast majority of the provisions amend contract provisions
implementing the 2000 REP Settlement Agreements; the
remaining provisions modify and implement various provi-
sions of the CDAs and the 2001 LRA agreements with Pacifi-
Corp and PSE dealing with the “litigation penalty.”
In PGE, we concluded that BPA’s settlement authority
under § 2(f) of the Bonneville Project Act is subject to and
constrained by the REP requirements in § 5(c) and the rate
ceiling in §7(b) of the NWPA, and we held that “BPA’s broad
reading of its settlement authority is contrary to a plain read-
ing of [its organic statutes], and it is inconsistent with general
principles of administrative law.” ___ F.3d at ___ [*14 WL].
We further held that BPA was operating from a faulty legal
premise and “ignored the exchange program that Congress
created in the NWPA and that BPA has implemented through
its regulations,” instead creating “a new residential exchange
benefit system under § 2(f).” Id. at [*21 WL]. This we held
was “not in accordance with law.” 5 U.S.C. § 706(2)(A).
Specifically, we held that BPA violated congressional man-
date when it implemented the REP Settlement Agreements
and abandoned its traditional ASC methodology in favor of a
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13775
new calculation which took into account legal challenges and
future fluctuations in the energy market. This change “served
to enlarge the group of IOUs eligible for the settlement and
to increase the benefits of those already qualified for the
REP” and altered the allocation of the settlement benefits.
PGE, ___ F.3d at ___ [*19 WL]. We concluded that BPA had
“[i]n effect . . . settled the REP program as if it had changed
its regulations, which it had not.” Id. at ___ [*20 WL]. In
addition, BPA erred in charging both its preference and non-
preference customers for the costs of the REP Settlement it
had created. At the time it passed the NWPA, Congress made
it clear that BPA’s “primary purpose remained to protect [its]
preference customers and that any steps BPA took to
exchange power with its non-preference customers could not
result in an increase in the preference customers’ rates.” PGE,
___ F.3d at ___ [*20 WL]. We concluded that BPA acted out-
side the authority delegated to it by Congress when it classi-
fied the costs of the REP as a “settlement cost” to be recouped
through BPA’s general power rates: BPA cannot impose costs
related to its REP program on its preference customers when
Congress has expressly guaranteed preference customers rates
as if “no purchases or sales . . . were made [under the REP
program].” 16 U.S.C. § 839e(b)(2)(C); see also PGE, ___
F.3d at ___ [*21 WL]. Keeping these principles in mind, we
now turn to the 2004 Amendments and the litigation penalty
provisions.
A. Amendments to the 2000 REP Settlement Agreement
Contracts
[8] The bulk of the 2004 ROD and the implementing con-
tracts concern amendments to the 2000 REP Settlement
Agreements. The continued validity of the 2004 Amendments
depends on how BPA treats the underlying 2000 Settlement
Agreement in light of our opinion in PGE. From our vantage
point, BPA has at least two options. First, for example, BPA
may conclude that our decisions undermined the basis for the
2000 REP Settlement Agreements and treat these 2004 agree-
13776 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
ments as null and void. This would, consequently, render the
provisions of the 2004 Amendments that amend the 2000
REP Settlement Agreements void ab initio.7 Second, BPA
might conclude that at least some of the contract provisions
continue to be valid and enforceable subject to modifications
to make them conform to our prior opinions and the require-
ments of the NWPA. From the record before us, we cannot
determine BPA’s likely course of action. We, therefore,
remand the 2004 Amendments modifying the 2000 REP Set-
tlement Agreements to BPA to permit it to determine, in the
first instance, their continued validity in light of our recent
opinions. We do so without offering any opinion as to the
validity of either course of action and without prejudice to
other options available to BPA.
B. The “Litigation Penalty” Provisions
Petitioners vigorously challenge the “litigation penalty”
provisions of the 2004 Amendments amending provisions of
the CDAs and LRAs to waive $100M of the original $200M
payment. Because the parties disagree whether these provi-
sions are related to the 2000 REP Settlement Agreements at
issue in PGE (and therefore implicated in our remand in this
7
In its 2004 ROD BPA stated that the amendments (with the exception
of “litigation penalty” modifications) would “become meaningless” if we
were to invalidate the underlying 2000 REP Settlement Agreements. 2004
ROD at 21. The parties agreed that:
“[i]f the courts strike down the manner in which BPA provides
benefits under the REP Settlement Agreements, the foundation
for the [2004 Amendments] disappears. As a result, if the court
were to invalidate the REP Settlement Agreements, BPA and the
investor-owned utilities have agreed that the [2004 Amendments]
would be void ab initio since the foundation for calculating bene-
fits in the REP Settlement Agreement would no longer exist.”
2004 ROD at 11. Additionally, the contracts between BPA and each of the
IOUs provide that if a court holds “section 4(c) of the [2000] Settlement
Agreement [ ] void, unenforceable, or unlawful,” the 2004 Amendments
will be void ab initio.
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13777
case), or whether they are independent agreements, we
address these provisions separately to provide additional guid-
ance to BPA.
We conclude that the “litigation penalty” provisions of the
LRAs are directly related to the 2000 REP Settlement Agree-
ments PacifiCorp and PSE negotiated with BPA and not part
of a separate agreement, as respondents argue. In the first
place, the provisions are not an integral part of the LRAs. The
contracts provide that PacifiCorp and PSE agree to a $200M
“reduction” in their Settlement Agreement benefits “in the
event that the respective utilities have entered into settlement
agreements with certain publicly owned utility and coopera-
tive customers that waive and dismiss legal challenges . . . to
the respective utilities’ original REP Settlement Agreements.”
2003 ROD at 30. These provisions are not central to or
directly related to the LRAs, because the penalty is only
included in two of the six LRAs BPA signed with IOUs. The
penalty is, rather, a direct response to the litigation over the
2000 REP Settlement Agreement and not an independent ben-
efit or program. Furthermore, the 2001 LRA provision’s
implementation is contingent on the fate of legal challenges
to the 2000 REP Settlement Agreements. The contracts pro-
viding for the “litigation penalty” go into effect unless BPA’s
preference customers “waive[ ] and dismiss[ ] legal chal-
lenges” to a variety of BPA agreements regarding its REP
program, including but not limited to the REP Settlement
Agreement and its subsequent amendments and accompany-
ing RODs. See BPA and Pacificorp Financial Settlement
Agreement at 5. The original Conditional Deferral Agree-
ments PacifiCorp and PSE signed also linked the “litigation
penalty” and the 2000 REP Settlement Agreement. The defer-
ral contracts gave PacifiCorp and PSE the ability to terminate
deferment of the “litigation penalty” if the IOUs “determine[ ]
that the current comprehensive settlement efforts regarding
litigation relating to [the 2000 REP Settlement Agreement] or
the [2001 LRAs] are unlikely to be concluded successfully to
[the IOU’s] satisfaction.” The provision was a way for BPA
13778 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
to gain leverage over its preference customers in an attempt
to broker a settlement to the legal challenges to its 2000 REP
Settlement Agreements.
[9] Because the “litigation penalty” provisions of the
LRAs, as amended by the 2004 Amendments, are sufficiently
related to the 2000 REP Settlement Agreements, they must be
revisited in light of our decision in PGE. As with the other
2004 Amendments, we cannot determine how BPA will treat
these provisions. First, for example, it could determine that
our prior opinions undermined the entire 2001 LRAs and,
consequently, the 2004 Amendments modifying the LRAs are
also void. Alternatively, BPA could determine that our deci-
sions invalidated the “litigation penalty” provisions of the
LRAs, but that those provisions are tangential to the main
agreement and severable. Finally, BPA might decide to honor
the “litigation penalty” provision as amended by the 2004
Amendments, but decline to charge its preference customers
the cost of paying the penalty. Because we cannot determine
from the record what BPA intends to do—and BPA may have
other options—we remand for further proceedings. Again, we
express no judgment on the merits of BPA’s options or on the
legality of the “litigation penalty” itself.8
V. CONCLUSION
From the record before us, we cannot determine how BPA
will treat the 2004 Amendments in light of our decision in
PGE. Consequently, we remand this case to BPA to make that
8
The petitioners argue that the “litigation penalty” violates the First
Amendment. See BE&K Constr. Co. v. NLRB, 536 U.S. 516, 525 (2002)
(holding that the First Amendment right to petition the government
extends to the courts); Mt. Healthy City School Dist. Bd. of Educ. v. Doyle,
429 U.S. 274 (1977) (holding that the government cannot take retaliatory
actions against persons because they exercise their constitutional rights);
O’Keefe v. Van Boening, 82 F.3d 322, 325 (9th Cir. 1996) (holding that
unconstitutional restrictions may arise from the “chilling” effect of gov-
ernment action). We decline to reach that issue here.
PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13779
determination in the first instance. All remaining motions are
dismissed as moot.
REMANDED.