FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

INDUSTRIAL CUSTOMERS OF

NORTHWEST UTILITIES,

Petitioner,

v.

BONNEVILLE POWER

ADMINISTRATION,

Respondent,

PORT TOWNSEND PAPER

CORPORATION; AVISTA

CORPORATION; ALCOA INC.; IDAHO

POWER COMPANY; PUGET SOUND

ENERGY, INC; PACIFICORP;

PORTLAND GENERAL ELECTRIC

COMPANY,

Respondents-Intervenors.

No. 11-71368

PUBLIC POWER COUNCIL,

Petitioner,

v.

U.S. DEPARTMENT OF ENERGY;

BONNEVILLE POWER

ADMINISTRATION,

No. 11-71396
2 ICNU V. BPA

Respondents,

AVISTA CORPORATION; ALCOA INC.;

IDAHO POWER COMPANY;

PORTLAND GENERAL ELECTRIC

COMPANY,

Respondents-Intervenors.

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; LINCOLN ELECTRIC

COOPERATIVE, INC.; NORTHERN

LIGHTS, INC.; OKANOGAN COUNTY

ELECTRIC COOPERATIVE, INC.; RAFT

RIVER RURAL ELECTRIC

COOPERATIVE, INC.; UMATILLA

ELECTRIC COOPERATIVE

ASSOCIATION; WEST OREGON

ELECTRIC COOPERATIVE, INC.,

Petitioners,

v.

No. 11-71401
ICNU V. BPA 3

U.S. DEPARTMENT OF ENERGY;

BONNEVILLE POWER

ADMINISTRATION,

Respondents,

ALCOA INC.; AVISTA CORPORATION;

IDAHO POWER COMPANY; PUGET

SOUND ENERGY, INC; PACIFICORP;

PORTLAND GENERAL ELECTRIC

COMPANY,

Respondents-Intervenors.

CANBY UTILITY BOARD,

Petitioner,

v.

U.S. DEPARTMENT OF ENERGY;

BONNEVILLE POWER

ADMINISTRATION,

Respondents,

ALCOA INC.; IDAHO POWER

COMPANY; AVISTA CORPORATION;

PUGET SOUND ENERGY, INC;

PACIFICORP; PORTLAND GENERAL

ELECTRIC COMPANY,

Respondents-Intervenors.

No. 11-71419

OPINION

On Petition for Review of the

Bonneville Power Administration
4 ICNU V. BPA

Argued and Submitted

May 9, 2013—Portland, Oregon

Filed September 18, 2014

Before: Alex Kozinski, Chief Judge, and Stephen Reinhardt

and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon;

Partial Concurrence and Partial Dissent by Judge Reinhardt

SUMMARY*

Bonneville Power Administration

The panel denied in part, and granted in part, petitions for

review brought by public utilities and cooperatives who buy

power from the Bonneville Power Administration and

industrial customers who are end-users of BPA power,

challenging the BPA’s decision not to seek refunds of

unlawful subsidies that the BPA previously gave to certain

longtime industrial customers and which were invalidated by

prior Ninth Circuit decisions.

The petitioners alleged that their power costs had been

impermissibly raised by BPA’s decision because, if BPA

sought refunds of the subsidies, it could pass along the

recovered funds to its customers as lower rates. At issue are

three contractual arrangements: the 2007 Block Contracts

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
ICNU V. BPA 5

(three way contracts between BPA, Alcoa Inc. and two other

aluminum direct-service customers, and local public utilities

in which BPA agreed to make payments to the aluminum

companies in lieu of supplying them with actual electrical

power); the Alcoa Amendments (an amended contract in

which BPA again agreed to subsidize Alcoa rather than sell

it power directly); and the Port Townsend Contract (an

arrangement in which BPA supplied Port Townsend Paper

Company, a non-aluminum direct-service customer, with its

full requirements for power at a reduced rate).

The panel held that the BPA had no general constitutional

or statutory duty to seek a refund any time it made an

unlawful payment, but an individual decision not to pursue

such a refund could be arbitrary, capricious or an abuse of

discretion under the Administrative Procedure Act. The

panel also held that the BPA’s decisions in most respects

sufficiently and reasonably balanced its competing

obligations to merit the panel’s deference, but in one respect

did not. Finally, the panel held that the BPA reasonably

explained why the challenged refund decisions were not

inconsistent with BPA’s earlier decision to seek recovery of

the different payments that had been declared unlawful by the

court in Portland Gen. Elec. Co. v. Bonneville Power Admin.,

501 F.3d 1009 (9th Cir. 2007).

The panel denied the petition for review with regard to the

decision not to seek refunds with respect to the 2007 Block

Contracts and the Port Townsend Contract. The panel

granted the petition and remanded to the BPA for further

proceedings with regard to recovery of subsidies paid under

the Alcoa Amendment.
6 ICNU V. BPA

Judge Reinhardt concurred in part, but dissented from

section B.1.a which related to the 2007 Block Contracts. 

Judge Reinhardt would hold that the contractual damages

waiver provision in the 2007 Block Contracts, as applied,

operated in excess of the BPA’s statutory authority.

COUNSEL

Melinda J. Davison (argued) and Irion Sanger, Davison Van

Cleve, P.C., Portland, Oregon, for Petitioner Industrial

Customers of Northwest Utilities.

Zabyn Towner, Pacific Northern Generating Cooperative,

Portland, Oregon, for Petitioners Pacific Northwest

Generating Cooperative and Members.

David F. Doughman, Beery Elsner & Hammond LLP,

Portland, Oregon, for Petitioner Canby Utility Board.

Irene A. Scruggs (argued), Public Power Council, Portland,

Oregon, for Petitioner Power Council.

Randy A. Roach, General Counsel, Timothy A. Johnson,

Assistant General Counsel, Jon D. Wright (argued) and

Hilary Browning-Craig, Attorneys, Bonneville Power

Administration, Portland, Oregon; and S. Amanda Marshall,

United States Attorney, District of Oregon, Stephen J. Odell,

Assistant United States Attorney, David J. Adler and J.

Courtney Olive, Special Assistant United States Attorneys,

Portland, Oregon, for Respondent Bonneville Power

Administration.
ICNU V. BPA 7

Michael C. Dotten (argued) and Dustin T. Till, Marten Law,

Portland, Oregon, for Intervenor Alcoa Inc.

Jay T. Waldron and Sara Kobak, Schwabe Williamson &

Wyatt P.C., Portland, Oregon; and Ryan L. Flynn, PacifiCorp,

Portland, Oregon, for Intervenor PacifiCorp.

Donald G. Kari and Jason Kuzma, Perkins Coie LLP,

Bellevue, Washington; and Dan L. Bagatell, Perkins Coie

LLP, Phoenix, Arizona, for Intervenor Puget Sound Energy,

Inc.

Michael G. Andrea, Avista Corporation, Spokane,

Washington, for Intervenor Avista Corporation.

R. Blair Strong, Paine Hamblen LLP, Spokane, Washington,

for Intervenor Idaho Power Company.

Scott G. Seidman, Tonkon Torp LLP, Portland, Oregon, for

Intervenor Portland General Electric Company.

Leonard J. Feldman, Marcus Wood, and Maren R. Norton,

Stoel Rives LLP, Seattle, Washington, for Intervenor Port

Townsend Paper Corporation.

OPINION

BERZON, Circuit Judge:

The Bonneville Power Administration (“BPA”) is an

agency within the Department of Energy that markets the

energy output of federal power projects in the Pacific

Northwest. In two previous decisions, we invalidated three
8 ICNU V. BPA

sets of contractual arrangements in which BPA agreed to

subsidize certain longtime industrial customers rather than

sell them power directly. See Pac. Nw. Gen. Coop. v.

Bonneville Power Admin. (“PNGC II”), 596 F.3d 1065 (9th

Cir. 2010); Pac. Nw. Gen. Coop. v. Dep’t of Energy (“PNGC

I”), 580 F.3d 792 (9th Cir 2009). We held these subsidy

arrangements unreasonable and contrary to BPA’s statutory

authority, as they did not comport with Congress’s mandate

that BPA operate in a businesslike manner. See 16 U.S.C.

§§ 839f(b), 838g.

In both cases, we remanded to BPA the question whether

it could or should seek refunds of the improper subsidies. On

remand, BPA concluded that it was contractually barred from

seeking refunds as to some of the invalidated contracts, and

that it had no legal or equitable basis for seeking refunds as

to the others. Moreover, BPA concluded, if it did pursue

recovery of the subsidies, it might face counterclaims from

the subsidized entities and become mired in

counterproductive, protracted litigation over the amount, if

any, of refunds owed. As a result, BPA decided not to pursue

recovery of the unlawful subsidies invalidated by PNGC I

and PNGC II.

At issue in this consolidated appeal are challenges by two

groups to BPA’s decision to forgo refunds: public utilities

and cooperatives that buy power from BPA, and that

Congress has designated as BPA’s first-priority or

“preference” customers; and industrial customers who buy

power from public utilities in the Pacific Northwest and so

are end-users of BPA power. The challengers’ core argument

is that their power costs have been impermissibly raised by

BPA’s decision because, if BPA did seek refunds of the
ICNU V. BPA 9

subsidies, it could pass along the recovered funds to its

customers as lower rates.

BACKGROUND

“BPA is an agency within the Department of Energy

created by Congress in 1937” to “market[] the power

generated by federally owned dams on the Columbia River.” 

Portland Gen. Elec. Co. v. Bonneville Power Admin.

(“PGE”), 501 F.3d 1009, 1013 (9th Cir. 2007); see 16 U.S.C.

§§ 832–832m. “Congress has since expanded BPA’s

mandate to include marketing authority over nearly all the

electric power generated by federal facilities in the Pacific

Northwest.” Ass’n of Pub. Agency Customers, Inc. v.

Bonneville Power Admin. (“APAC”), 126 F.3d 1158, 1163

(9th Cir. 1997); see 16 U.S.C. § 838f. In numerous prior

opinions, we have provided extensive background on BPA’s

history and operations. See, e.g., PGE, 501 F.3d at 1013–16;

PNGC I, 580 F.3d at 797–800; APAC, 126 F.3d at 1163–66. 

Here, we summarize only those statutory provisions and

recent developments directly relevant to this appeal.

A. Statutory Framework

Four statutes govern BPA’s operations: the Pacific

Northwest Electric Power Planning and Conservation Act of

1980, 16 U.S.C. §§ 839–839h (“Northwest Power Act”); the

Pacific Northwest Federal Transmission System Act of 1974,

16 U.S.C. §§ 838–838k (“Transmission Act”); the Pacific

Northwest Consumer Power Preference Act of 1964,

16 U.S.C. §§ 837–837h (“Preference Act”); and the

Bonneville Project Act of 1937, 16 U.S.C. §§ 832–832m

(“Bonneville Project Act”). As we have noted before,

“[t]hese statutes subject BPA to a variety of detailed and
10 ICNU V. BPA

potentially conflicting statutory directives,” ranging from

fiscal to environmental concerns. APAC, 126 F.3d at 1164. 

Of most direct relevance to this appeal are two sets of

statutorydirectives: the rate-setting guidelines and the “sound

businesslike principles” obligation.

1. Rate-Setting Guidelines

A complex of statutoryprovisions dictates how BPA must

proceed when selling federal power. First, BPA must give

priority, as well as its most favorable cost-based rate (“the PF

rate”), to publicly owned utilities, cooperatives, and federal

agencies, known as “preference customers.” PNGC I,

580 F.3d at 798–99, 802; PGE, 501 F.3d at 1013–15; see

16 U.S.C. §§ 839c(b), 839e(b). Preference customers are also

the only group whose energy needs BPA is required, as

opposed to authorized, to meet. See PNGC I, 580 F.3d at

811. After meeting the preference customers’ needs, BPA

may, if it so chooses, sell surplus power directly to certain

longstanding industrial customers (“direct-service industrial

customers” or “DSIs”) at a higher but still-cost based rate

(“the IP rate”), or to anyone else at market rates. Id. at 799,

802–03; PGE, 501 F.3d at 1014; see 16 U.S.C. § 839e(c).1

“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.” Alcoa, Inc. v. BPA, 698 F.3d

774, 780 (9th Cir. 2012); see 16 U.S.C. § 839e(a)(1).

1 This summary is simplified, and so omits some of BPA’s less relevant

rate-setting strictures, detailed more fully in PNGC I, 580 F.3d at 802–03.
ICNU V. BPA 11

2. Sound Business Principles

In addition to the above rate-setting guidelines, BPA also

must set rates “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.” 

16 U.S.C. § 838g (emphasis added). A different provision

similarly requires that BPA set rates that “recover, in

accordance with sound business principles, the costs

associated with the acquisition, conservation, and

transmission of electric power.” Id. § 839e(a)(1) (emphasis

added). More generally, Congress has directed BPA to

implement the Northwest Power Act “in a sound and

businesslike manner.” Id. § 839f(b) (emphasis added). We

have previously explained that BPA’s business decisions are

judicially reviewable for compliance with this overarching

“sound business principles” standard, albeit with great

deference to BPA’s conclusions. See Alcoa, 698 F.3d at

788–89; PNGC II, 596 F.3d at 1075–80.

B. The Aluminum DSI Contracts

Historically, the aluminum manufacturers of the Pacific

Northwest were amongBPA’slargest direct-service industrial

customers. See PNGC I, 580 F.3d at 797–98. Until recently,

BPA did not have trouble meeting the needs of its preference

customers while also providing abundant power to the

aluminum DSIs, including Alcoa. See id. But, as the Pacific

Northwest has grown, BPA has found itself constrained by

competing demands. Its preference customers now serve a

larger population with greater energy needs, and rising energy

prices have made BPA’s relatively cheap power increasingly

attractive to nonpreferential would-be buyers. See id. at 798.
12 ICNU V. BPA

Beginning in 2007, BPA embarked upon a series of

attempts to aid the aluminum manufacturers without selling

them power directly. See id.

1. The 2007 Block Contracts (PNGC I)

In 2006, BPA entered into three-way contracts, effective

starting in the 2007 fiscal year, between BPA; Alcoa, and two

other aluminum DSIs; and local public utilities (“the 2007

Block Contracts” or “Block Contracts”). The DSIs wanted to

continue buying physical power from BPA at a cost-based

rate. Instead, BPA agreed “to make payments to the

[aluminum DSIs] totaling a maximum of $59 million per year

for five years in lieu of supplying them with actual electrical

power, while retaining the option to sell them physical power

instead in the final two years.” PNGC I, 580 F.3d at 798.2

Alcoa challenged these contracts, arguing that BPA was

required to sell it physical power, sufficient to meet its needs,

at a cost-based rate. Id. at 806–07, 809. Concurrently,

several of BPA’s preference and other industrial customers

challenged the same contracts from the opposite direction,

objecting to subsidies or sales to the DSIs except for

discretionary market-rate sales of surplus power. Id. at

807–09.

We held that, under the relevant statutory provisions,

BPA is not required to sell physical power to the DSIs. Id. at

811–12. Rather, it is required to meet the power needs only

2 The two other aluminum DSIs that received Block Contracts were

Golden Northwest Aluminum and CFAC. However, Golden Northwest

subsequently allocated its power allocation to Alcoa and CFAC, so BPA

never made any payments to Golden Northwest.
ICNU V. BPA 13

of its preference customers, and has the option to sell to DSIs

thereafter, if it so chooses. Id. However, if BPA does sell to

DSIs, it must offer them the IP rate, not a market rate. See id.

at 812–18. We also held that, “under appropriate

circumstances, BPA may lawfully monetize its energy

contracts,” “so long as the decision to monetize is otherwise

consistent with BPA’s statutory obligations.” Id. at 819, 820. 

But we did not find the Block Contracts justified under that

standard. As the Block Contracts were effectively a sale of

power “at a rate below what [BPA] is statutorily required to

offer (i.e., the IP rate), and below what it could receive on the

open market” from non-DSI customers, the contracts were

inconsistent with BPA’s statutory obligation to fulfill its role

consistent with “sound business principles.” Id.

Consequently, “BPA’s decision to monetize the aluminum

DSI contracts amount[ed] to an impermissible subsidy of

those companies’ operations.” Id. at 819.

The question remained whether the aluminum DSIs owed

BPA a refund for any past subsidy payments. Each of the

Block Contracts contained a damages waiver providing,

In the event the Ninth Circuit Court of

Appeals or other court of competent

jurisdiction issues a final order that declares

or renders this Agreement void or otherwise

unenforceable, no Party shall be entitled to

any damages or restitution of any nature.

Id. at 826. We did not decide in PNGC I whether this waiver

was applicable, noting that there was no indication in the

administrative record of “how BPA believe[d] the damages

waiver provision should be construed and, in particular, what

effect it [was] to have if a contract [were] only partially
14 ICNU V. BPA

invalidated.” Id. Instead, we remanded to BPA “to

determine in the first instance the applicability and

construction” of several elements of the Block Contracts,

including the damages waiver. Id. at 827. In doing so, we

made clear that we were not declaring the Block Contracts

void ab initio. Id. at 826–27. Rather, given that the contracts

contained a severability clause and, in addition to the

invalidated monetary benefits provision, a possibly valid

physical power sale option, they were potentially partially

enforceable. See id. at 826.

2. The Alcoa Amendment (PNGC II)

As it turned out, the physical power sale option in the

Block Contracts was never exercised. Instead, after PNGC I,

BPA entered into an amended contract with Alcoa (“the

Alcoa Amendment”) in which it again agreed to subsidize

Alcoa rather than sell it power directly. Specifically, “BPA

agreed voluntarily to make a nearly $32 million cash ‘benefit’

payment” to Alcoa during fiscal year 2009, which Alcoa

could use to “purchase power from one of BPA’s

competitors.” PNGC II, 596 F.3d at 1068–69.3 BPA argued

that this subsidy was necessary to avoid interruption of

Alcoa’s smelter operations; would assure the continued

existence of the DSI load (which had historically benefitted

BPA in various ways); and was only an interim fix before

BPA could carry out the full administrative process needed to

respond to the remand issues in PNGC I. Id. at 1081–84.

Once again, BPA’s priority customers filed a legal

challenge, and once again we invalidated the subsidy, holding

3 BPA entered into a substantially similar amended contract with CFAC,

not challenged before this court.
ICNU V. BPA 15

that “BPA’s justifications for this unusual transaction . . .

[did] not demonstrate that the transaction was ‘consistent

with sound business principles,’ as required by BPA’s

governing statutes.” Id. at 1068–69. We rejected BPA’s

proffered rationales as irrelevant to BPA’s statutorymandate,

unsupported by record evidence, or illogical. As clarified by

PNGC I, we stated, BPA has no obligation to contract with

Alcoa at all, much less “to provide [a] voluntary gift [to

Alcoa] that will lead to higher rates for its other customers”

and effectivelysubsidize its competitors. Id. at 1080–84. We

went on to explain that protecting jobs within the region,

however laudable a goal, is not among the purposes that

Congress has authorized BPA to pursue. Id. at 1082. We

suggested, however, that a “decision to sell physical power to

Alcoa,” as opposed to merely providing monetary benefits,

“might produce a different result.” Id. at 1085.

Finally, like the earlier PNGC I opinion, PNGC II

declined to compel BPA to recover any payments it had

already made to Alcoa. See id. at 1086. Instead, in part

because the PNGC I remand remained pending, we remanded

“to BPA to determine whether and how it [would] seek a

refund from Alcoa.” Id.

3. Alcoa v. BPA

After PNGC II issued, BPA entered into yet another

contract with Alcoa, one that we upheld. See Alcoa, 698 F.3d

at 782–85, 796. Although not directly implicated in this

appeal, this final Alcoa-BPA contract merits some brief

discussion, to complete the story of BPA’s efforts to assist the

aluminum DSIs.
16 ICNU V. BPA

Under this latest contract, BPA agreed to sell physical

power to Alcoa at the cost-based IP rate for a modest profit

(projected at $10,000 for the contract’s initial, roughly 18-

month period). Id. at 783. BPA’s preference customers again

mounted a challenge, arguing that instead of selling to Alcoa

at the cost-based IP rate, BPA should focus on selling to other

customers, whom it can charge higher market rates. Id. at

785. In the preference customers’ view, BPA’s failure to

maximize its profits demonstrated that it “[was] not acting

according to a profit-making purpose,” but rather was still

attempting to “subsidiz[e] Alcoa . . . so as to preserve jobs at

its smelting plant and the surrounding community.” Id. at

788–89.

In Alcoa, we rejected these challenges, explaining that the

“sound business principles” mandate does not mean “that

BPA is required to maximize its profits.” Alcoa, 698 F.3d at

789. To the contrary, BPA has wide discretion as to how best

to pursue its businesslike role while also complying with

other statutory mandates, such as environmental protection. 

Id. Applying the high level of deference owed to BPA’s

business decisions, we allowed the most recent Alcoa-BPA

contract to stand, noting that: (1) unlike the monetized energy

contracts at issue in PNGC I and PNGC II, it provided only

for physical power sales; (2) it was expected to yield some

profit to BPA, albeit modest; and (3) there was no record

evidence to support the preference customers’ speculation

that BPA’s decision was motivated by concerns about job

losses. Id. Therefore, we concluded, we had to “defer to

BPA’s determination” that its power sale to Alcoa comported

“with sound business principles.” Id.
ICNU V. BPA 17

C. The Port Townsend Contracts (PNGC I)

Aside from the 2007 Block Contracts with the aluminum

DSIs, also at issue in PNGC I was an arrangement between

BPA and its sole remaining non-aluminum DSI, the Port

Townsend Paper Company (“Port Townsend”). Under this

arrangement, BPA agreed to “provide Port Townsend with its

full requirements for power . . . to be supplied through” the

Clallam County public utility (“Clallam”). PNGC I, 580 F.3d

at 802. BPA would sell Clallam the power at the PF rate

“plus the margin typically charged by [public utilities] to their

industrial customers,” and Clallam would then sell the power

to Port Townsend. Id. In effect, therefore, BPA would be

selling power to Port Townsend, via Clallam, “at a rate below

both the market rate and the IP rate,” id. at 823, but not as

low as the PF rate.

We invalidated the Port Townsend arrangement as

inconsistent with BPA’s statutory obligations. Id. at 824. 

BPA, we explained, is not obligated to sell Port Townsend

power at all, much less at a subsidized rate, and had provided

no convincing explanation as to why doing so comported

“with ‘sound business principles.’” Id. (quoting 16 U.S.C.

§ 838g).

D. BPA’s Decision on Remand from PNGC I and

PNGC II

The present litigation arises from BPA’s decision-making

process on remand from our decisions in PNGC I and PNGC

II. This decision-making process became known within the

Northwest power community as the “Lookback.”
18 ICNU V. BPA

1. Lookback Proceedings

In June 2009, BPA issued a letter indicating that it would

begin addressing the issues remanded to it by PNGC I.

The Lookback was structured as a two-step process: 

First, BPA would answer the contractual questions identified

in PNGC I: “the applicability and construction of the

severability clause, the damage waiver, and the physical

power sale option in light of our holdings [in PNGC I].” 

580 F.3d at 827. If it was determined that the contracts

barred refunds, then the proceedings would end there. If BPA

determined instead that it could seek recovery

notwithstanding the damages waiver, it would move on to the

second step: determining how much money was owed. BPA

also considered in the Lookback whether it was “permitted to

seek additional payments directly from Port Townsend Power

Company (or indirectly through the Public UtilityDistrict No.

1 of Clallam County) for any undercharges for power

delivered to Clallam by BPA for the benefit of Port

Townsend, both during the Lookback period and

subsequently.” Once PNGC II was decided, BPA expanded

the scope of the Lookback to include any refunds that might

be owed for payments made to Alcoa during the nine-month

period before payments were ceased in compliance with

PNGC II.

BPA issued a draft record of decision (“Draft ROD”) in

June 2010 and invited public comment. The Draft ROD

proposed three sets of conclusions: First, as to the Block

Contracts, the Draft ROD proposed that the invalid rate

provisions were severable from the remainder of the

contracts; that the damages waiver was therefore enforceable;

and that, as a result, BPA was contractually barred from
ICNU V. BPA 19

seeking recovery. BPA also proposed that this conclusion

was not inconsistent with its earlier decision to seek

repayment under a series of settlement agreements

invalidated in PGE.

Second, as to the Alcoa Amendment, the Draft ROD

proposed that BPA was not obligated to seek a refund, and

that it did not have any contractual basis for doing so. 

According to the Draft ROD, “Alcoa did not breach any

obligation to BPA under the Amendment, so it is not clear a

legal claim for money, in the form of damages or otherwise,

could be pursued by BPA under the contract based solely on

PNGC II.” The Draft ROD noted, however, that “BPA

possibly could pursue an extra-contractual or equitable claim

for restitution based on an unjust enrichment theory,” and

“specifically invite[d] the parties to comment on whether

such a claim could or should be pursued against Alcoa.” The

Draft ROD also floated the possibility that BPA could “seek

to administratively recover payments made to Alcoa under

the Amendment” by adding a surcharge to future power sales

to Alcoa. The Draft ROD noted, however, that: (1) such a

surcharge might run into its own legal problems, as BPA is

required to set rates pursuant to the strictures of the

Northwest Power Act, and (2) BPA may have “already

recouped some or all of any illegal overpayments under the

Amendment . . . by withholding payments to Alcoa for the

final two months of the term of the Amendment,” i.e. after

PNGC II was handed down.

Finally, as to the Port Townsend transaction, the Draft

ROD proposed that BPA had no legal or equitable basis for

recovering from Port Townsend directly. “While it appears

BPA could assert an equitable claim for restitution against

Port Townsend, it is not clear that Port Townsend was
20 ICNU V. BPA

unjustly enriched.” Moreover, Port Townsend might have an

equitable estoppel defense, although BPA concluded that it

lacked sufficient information to evaluate this question.

Not surprisingly, Alcoa, Port Townsend, and Clallam all

agreed with the Draft ROD’s proposed findings. Alcoa,

moreover, threatened that, if “BPA were to change its

position and conclude that the damages waiver is not

enforceable,” then Alcoa could bring claims of its own

against BPA “greatly exceeding any amount that BPA could

recover from Alcoa.” Specifically, Alcoa estimated that it

had a potential damages claim against BPA totaling $218

million, based on the difference between Alcoa’s power costs

during the time period covered by the monetized contracts

and what its power costs would have been had BPA sold it

power directly at the IP rate during that time.

The preference customers viewed the Draft ROD very

differently — as yet another instance of BPA capitulating to

the DSIs. Both PPC and PNGC argued that BPA had not just

the legal authority but also the duty to seek repayment of the

unlawful subsidies. ICNU submitted similar comments.

None of BPA’s major conclusions changed in its final

record of decision (“the ROD”), issued February 18, 2011. In

the ROD, BPA decided not to pursue refunds of any of the

subsidies invalidated in PNGC I and PNGC II, explaining its

reasoning as follows:

1. As to the 2007 Block Contracts, BPA is contractually

prohibited from seeking repayment because the damages

waiver in those contracts is applicable and enforceable.
ICNU V. BPA 21

2. As to the Alcoa Amendment, which does not contain a

damages waiver, while BPA is not contractually

prohibited from seeking repayment, it has no “reasonable

legal or equitable basis for doing so.”4 Alcoa fully

performed its contractual obligations, leaving BPA

without any basis for a contract action, and BPA would

be unlikely to prevail in any quasi-contract action. 

Moreover, if BPA sues Alcoa, Alcoa has indicated that it

will bring its own action against BPA, and the low

likelihood of success of anyBPA suit is not worth the risk

(even if small) of owing a judgment to Alcoa.

3. As to the Port Townsend Contract, BPA has no legal or

equitable basis for seeking repayment. Because the Port

Townsend Contract formally consisted of two separate

bilateral contracts (BPA-Clallam and Clallam-Port

Townsend), BPA had no direct contractual relationship

with Port Townsend, and has no equitable or quasicontract basis for suing Port Townsend. While BPA did

have a direct contract with Clallam, “Clallam was no

more than an intermediary” between BPA and Port

Townsend, and therefore was not “enriched, unjustly or

otherwise,” by the contract. Even if BPA could recover

from Clallam, doing so “would not be fair or just”

because “it would be nearly impossible for Clallam to

recover [in turn] from Port Townsend.”

ICNU, PPC, PNGC and its members, and the Canby

Utility Board filed petitions in this court for review of the

ROD. Port Townsend, Alcoa, and several investor-owned

utility companies (“IOUs”) intervened to defend the ROD.

4 PNGC II mistakenly stated that the Alcoa Amendment incorporated the

damages waiver by reference. PNGC II, 596 F.3d at 1086.
22 ICNU V. BPA

STANDARD OF REVIEW

As petitions for review of BPA decisions are governed by

the Administrative Procedure Act, 5 U.S.C. § 706(2)(A),

“[w]e affirm BPA’s actions unless they are arbitrary,

capricious, an abuse of discretion, or in excess of statutory

authority.” PGNC II, 596 F.3d at 1072 (internal quotation

marks omitted). When, as here, we are measuring BPA’s

actions against the “sound business principles” standard

embodied in BPA’s governing statutes, “we are particularly

deferential to the agency’s assessment of whether its actions

further BPA’s business interests consistent with its public

mission.” Id. at 1080 (internal quotation marks omitted). 

This deferential standard of review is not, however, toothless. 

While “we do not second-guess [BPA’s] policy judgments,”

we do ask “whether the agency considered the relevant

factors and articulated a rational connection between the facts

found and the choices made.” Alcoa, 698 F.3d at 788

(internal quotation marks omitted); see Lands Council v.

McNair, 537 F.3d 981, 987 (9th Cir. 2008) (en banc).5

5 Although BPA and Port Townsend challenge ICNU’s standing, “[o]nly

one of the petitioners needs to have standing to permit us to consider the

petition for review,” Massachusetts v. EPA, 549 U.S. 497, 518 (2007). No

party contests PPC’s standing, and there is no basis for doing so.

In addition, ICNU has standing through at least two of its members,

International Paper andWeyerhauser. The record indicates that both these

companies have “pass-through” contracts to purchase electric power from

BPA preference customers, pursuant to which they are required to “pay for

all BPA rates and charges incurred by” the preference customers in

providing them with electric service. Thus, they are “directly impacted

by any rate increased adopted by BPA.” We recently held similar

contracts and injuries sufficient to support standing in another suit brought
ICNU V. BPA 23

DISCUSSION

A. Constitutional and Statutory Arguments

Petitioners argue, first, that BPA has a duty, under either

the Constitution’s Appropriations Clause or BPA’s governing

statutes, to seek all refunds to which it may be entitled. We

disagree. BPA decisions not to seek refunds must be

evaluated, like all other BPA decisions, case-by-case,

applying BPA’s governing statutes, the APA, and general

principles of administrative law.

1. Appropriations Clause

The crux of Petitioners’ Appropriations Clause argument

is that, “[h]aving disbursed funds to the DSIs from the

Treasury without lawful authority, [BPA] acted in direct

violation of the Constitution. Therefore, it now has a duty to

seek recovery of these illegally-paid funds.” (citations

omitted).

Viewed as a general challenge to BPA contractual

damages waiver provisions, this argument is foreclosed by

Alcoa, 698 F.3d at 791. Alcoa rejected the argument “that

BPA is constitutionally obligated to sue for any damages to

which it is entitled.” Id. at 791. In so ruling, Alcoa noted that

the BPA administrators have statutory authority to

compromise or settle claims, and held that a bilateral waiver

provision is consistent with that authority, as it balances in

advance the risk of being sued for damages against the

against BPA by the customers of its direct customers. Ass’n of Pub.

Agency Customers v. Bonneville Power Admin., 733 F.3d 939, 949–55

(9th Cir. 2013).
24 ICNU V. BPA

opportunity to obtain damages from the contracting party. Id.

at 792.

Viewed as a narrow, case-specific challenge, the

Appropriations Clause argument fares no better. Any

disbursements BPA made under the invalidated monetary

benefits provisions likely did not violate the Appropriations

Clause. BPA is funded by a permanent appropriation, or

revolving fund, which the BPA Administrator has wide

latitude in spending. See 16 U.S.C. § 838i (establishing

revolving fund within the U.S. Treasury for BPA); see also

3 General Accounting Office, Principles of Federal

Appropriations Law15-159 (discussingBPA revolving fund)

and 2-17 (defining revolving funds as permanent

appropriations). So there may well have been an adequate

appropriation for the subsidies, even though they were later

held invalid.

We need not wade further into the “largely uncharted

area” of Appropriations Clause law, however. Md. Dep’t of

Human Res. v. U.S. Dep’t of Agric., 976 F.2d 1462, 1486 (4th

Cir. 1992) (Hall, J., concurring in part and concurring in the

judgment). Even if the subsidy payments did rise to an

Appropriations Clause violation, petitioners have pointed to

no convincing authority establishing that BPA would

therefore have a constitutional duty to recover the subsidies.

Certainly, the text of the Appropriations Clause provides

no basis for inferring such a duty, nor do the cases relied

upon by petitioners. Office of Personal Management v.

Richmond, 496 U.S. 414, 416 (1990), held only that a court

cannot order an agency to expend funds contrary to statute —

not that, if an agency has already done so, the Appropriations

Clause requires the agency to get the funds back. Certainly
ICNU V. BPA 25

agencies are generally permitted to seek recovery of

erroneously or illegally disbursed funds. Even in the absence

of a specific statutory cause of action, “[t]he Government by

appropriate action can recover funds which its agents have

wrongfully, erroneously, or illegally paid,” so long as there is

no clear statutory barrier to doing so. United States v. Wurts,

303 U.S. 414, 415–16 (1938).6

But that recovery authority does not suggest that the

government has a constitutional duty to seek a refund every

time an erroneous or illegal payment has been made. To the

contrary, Wurts suggested that Congress may statutorily

preclude agencies from recovering erroneously paid funds so

long as it “clearly manifest[s] its intention” to do so. 

303 U.S. at 416 (internal quotation marks omitted). If the

Appropriations Clause imposed an affirmative constitutional

duty upon agencies to recover erroneously paid funds,

Congress could not eliminate the duty by statute.7

6

See Wisc. Cent. R.R. Co. v. United States, 164 U.S. 190, 212 (1896)

(“parties receiving moneys illegally paid by a public officer are liable ex

aequo et bono to refund them”); United States v. Fowler, 913 F.2d 1382,

1386–87 (9th Cir. 1990) (holding that government agent’s error in

disbursing funds does not waive government’s right to reimbursement);

Old Repub. Ins. Co. v. Fed. Crop Ins. Corp., 746 F. Supp. 767, 769–70

(N.D. Ill. 1990) (discussing statutory authority under which government

may recover funds erroneously or illegally paid).

7 Petitioners also point to Fansteel Metallurgical Corp. v. United States,

172 F. Supp. 268, 270 (Ct. Cl. 1959), which stated that “when a payment

is erroneously or illegally made, it is in direct violation of article IV,

section 3, clause 2 of the Constitution” and “it is not only lawful but the

duty of the Government to sue for a refund thereof.” Fansteel is not, of

course, binding on us, and we decline to follow it. Fansteel misreads

Wurts as holding that government has a duty to recover illegally paid

funds; in fact, Wurts held only that the government “can recover funds
26 ICNU V. BPA

2. BPA’s governing statutes

Petitioners next argue, more modestly, that BPA has a

statutory dutyto seek recoveryof unlawfully disbursed funds,

relying on the requirement in 16 U.S.C. § 838g that BPA

provide “the lowest possible rates to consumers consistent

with sound business principles.” We reject the suggestion

that BPA has a statutory duty to pursue any potentially

available source of income so as to lower its rates.

As this court recently clarified, the “sound business

principles” mandate does not require BPA to “maximize its

profits” or to “always charge the lowest possible rates”

regardless of any other considerations. Alcoa, 698 F.3d at

789. Rather, Congress has given BPA wide latitude to decide

“how best to further BPA’s business interests consistent with

its public mission.” Id. (internal quotation marks omitted). 

Along these lines, Congress has delegated to the BPA

Administrator broad authorityto compromise orsettle claims. 

See 16 U.S.C. § 832a(f). Thus, Congress contemplated that

BPA may sometimes make a business decision that it is not

worth pursuing a particular potential source of income. 

Petitioners’ argument to the contrary fails.

B. BPA’s decision

Although BPA has no general constitutional or statutory

duty to seek a refund any time it makes an unlawful payment,

an individual decision not to pursue such a refund could be

“arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law.” 5 U.S.C. § 706(2)(A).

which its agents have wrongfully, erroneously, or illegally paid,” 303 U.S.

at 415 (emphasis added).
ICNU V. BPA 27

1. The aluminum DSI contracts

With respect to the aluminum DSI contracts, Petitioners

maintain that BPA’s ROD had several of these faults,

because: the damages waiver is not enforceable; BPA does

have available quasi-contractual or common law avenues of

recovery against the aluminum DSIs, such as an unjust

enrichment suit; and it is not a sound business decision to

forgo those avenues entirely because of speculation that its

counterparties might assert defenses.

After reviewing these challenges, we conclude that we

must defer to BPA’s reasonable interpretation of the 2007

Block Contracts as including a severable, enforceable

damages waiver, and so do not disturb BPA’s decision as to

refunds of the 2007 Block Contracts subsidy payments. We

grant the petition for review, however, as to the Alcoa

Amendment, as we conclude that the ROD’s reasons for not

pursuing refunds for the subsidies proved by that Amendment

are, as they stand, so insufficiently grounded in the record as

to be “arbitrary, capricious, [or] an abuse of discretion.”

a. 2007 Block Contracts

Each of the 2007 Block Contracts included a damages

waiver providing that, “[i]n the event the Ninth Circuit Court

of Appeals . . . issues a final order that declares or renders this

Agreement void or otherwise unenforceable, no Party shall be

entitled to any damages or restitution of any nature, in law or

equity, from any other Party, and each Party hereby waives

any right to seek such damages.” Each Contract also

included a severability clause providing that “[i]f any term of

this Agreement is found to be invalid by a court of competent

jurisdiction,” “[a]ll other terms shall remain in force unless
28 ICNU V. BPA

that term is determined not to be severable from all other

provisions of this Agreement by such court.”

BPA’s conclusion that the damages waivers are

enforceable was consistent with the statute and otherwise

within BPA’s authority. To begin, the Alcoa court enforced

a very similar mutual damage waiver in another Alcoa-BPA

contract. Its reasons for doing so apply equally here.

Contrary to petitioners’ contention that no entity

operating according to “sound business principles” would

agree to a sweeping waiver, Alcoa interpreted such a mutual

waiver as a valid exercise of BPA’s general claim-settling

authority. 698 F.3d at 791–92. Noting that such a waiver

equally protects BPA against claims brought by the customer,

Alcoa concluded that “[i]t is not our place to second-guess the

agency’s considered judgment regarding the balance of risks

embodied in a damage waiver or similar release or settlement

provision.” Id. Moreover, the waiver provision is severable

from the contracts’ void subsidy provisions. BPA received

consideration in exchange for waiving its rights to seek

damages from the aluminum DSIs — namely, a

corresponding waiver providing that the contracting parties

could not recover damages from BPA. “Legal portions of

contracts are severable from illegal portions where there is

separate legal consideration attributable to the severed portion

of the agreement.” Consul Ltd. v. Solide Enters., Inc.,

802 F.2d 1143, 1148 (9th Cir. 1986). Finally, as such a

waiver is a valid exercise of BPA’s power to compromise or

settle claims and could likewise protect BPA’s interests, it

cannot be contrary to public policy as allowing an unlawful

subsidy.
ICNU V. BPA 29

The dissent’s assertion that this determination is

controlled by PGE, and not Alcoa, is incorrect. PGE did not

concern provisions in BPA power purchase contracts

mutually waiving damages in the event the agreement is

invalidated. Alcoa did.

PGE invalidated a series of settlement agreements BPA

had entered into with IOUs that participated in its Residential

Exchange Program (“REP” or “Exchange Program”). See

PGE, 501 F.3d at 1025–37; Golden Nw. Aluminum, Inc. v.

Bonneville Power Admin., 501 F.3d 1037, 1047–48 (9th Cir.

2007). The Exchange Program “essentially acts as a cash

rebate to the IOUs where the IOUs’ power costs exceed those

of BPA,” but requires that the Exchange Program’s costs be

covered only by supplemental rate charges assessed on nonpreference customers, not by passing costs on to preference

customers. See PGE, 501 F.3d at 1015–16. BPA and certain

IOUs entered into “settlement” agreements inconsistent with

this pass-through limitation, maintaining that the limitation

did not apply because the costs were “settlement costs,”

pursuant to BPA’s general authority to make and settle

contracts, rather than Exchange Program costs. We

disapproved this approach, holding that BPA could not

circumvent the statutory restrictions on power exchanges “by

calling its actions . . . [a] ‘settlement’” when those actions

were “inextricably intertwined” with BPA’s Exchange

Program authority. Id. at 1032.

In short, the exercise of settlement authority at issue in

PGE concerned the whole of a comprehensive agreement, in

which BPA sought directly to avoid the statutory restrictions

placed on it. PGE did not concern a severable agreement

provision allocating among the contracting parties the purely

retroactive liability risks that could arise in the event the
30 ICNU V. BPA

agreement is otherwise declared invalid — a second-level

pact, so to speak, covering the past, not the future, and

governing relief in the event the agreement is invalidated,

rather than the agreement itself.

In contrast, Alcoa considered precisely that sort of purely

retroactive, partial, and mutual waiver: As here, the waiver at

issue in Alcoa was a bilateral waiver of retroactive damages;

it gave up both parties’ rights to seek compensation in the

event that a portion of the contract in which it was contained

was invalidated in the future. 698 F.3d at 791. In both Alcoa

and here, the larger agreement of which the waiver was a part

was risky for both parties that agreed to the provision, not just

for BPA. Here, for example, the aluminum DSIs gave up

their ability to sue BPA to recover any costs associated with

purchasing power through other means if the contracts were

invalidated, costs that could have been, and that the DSIs

contend were, extensive.

The fact that the damages waivers significantly benefitted

BPA is important. Upholding the validity of the waivers here

does not preclude a finding in a future case that a damages

waiver is invalid, if the waiver at issue in that case does not

benefit the agency and is instead designed principally to

prevent an unlawful subsidy from being recouped.

Despite the large differences between the waiver issue

here and the settlement authority question in PGE, and

despite the close similarity between the waiver approved in

Alcoa and the one at issue here, the dissent dismisses Alcoa

as the controlling precedent and relies on PGE instead. 

Principally, the dissent relies for this odd choice on the

understanding that Alcoa upheld the other portions of the

agreement in which the waiver appeared, and so was not
ICNU V. BPA 31

approving a damages waiver linked to statutorily unlawful

contract provisions.

The dissent’s account mischaracterizes Alcoa. As one

would expect, the damages waiver in Alcoa applied not to

valid contractual provisions, but only when “a court renders

any part of the agreement void or unenforceable”— in other

words, unlawful. 698 F.3d at 791. And, after holding the

damages waiver lawful, Alcoa went on to decline to decide

whether the “Second Period” portion of the Alcoa contract

there at issue was valid, as the question was not yet ripe. Id.

at 793–94. This sequence necessarily left open the possibility

that the Second Period agreement would later be voided —

and yet, the damages waiver provision that would be

contained in that agreement had already been declared valid.

The panel deciding Alcoa was entirely cognizant of this

possibility. Had the Second Period agreement been similar

to, and valid for the same reason as, the agreement covering

the initial period, there would be no reason to put off deciding

the legality of the Second Period agreement. And the

dissenting opinion in Alcoa specifically recognized that the

waiver provision was valid and would apply if and when the

Second Period agreement is challenged. Alcoa, 698 F.3d at

799, 806–807 & n.7 (Bea, J., dissenting). The dissent’s

concern was with the majority’s decision to forego addressing

the Second Period dispute before BPA suffered a monetary

loss was that, because of the damages waiver, those losses

could not be recovered. Id.

Alcoa therefore decided essentially the same issue that

arises here regarding the enforceability of a bilateral damages

waiver in a BPA power agreement. PGE covers the

predecessor issue — was the power agreement there in fact
32 ICNU V. BPA

void? Under such circumstances, we must follow Alcoa and

uphold the damages waiver.

As BPA properly determined the Block Contracts waiver

provisions were enforceable, its decision not to pursue

refunds under those Contracts was likewise proper.

b. Alcoa Amendment

As the Alcoa Amendment does not contain a damage

waiver, BPA is not contractually barred from seeking

recovery of the subsidies invalidated in PNGC II. BPA

nonetheless declined to seek recoupment of subsidies it

provided pursuant to the Amendment, viewing the chances of

succeeding in doing so as slight, and outweighed by the

potential recovery costs.

BPA’s rationales for this conclusion boiled down to two:

(1) Alcoa may have defenses to any equitable or quasicontract claim, including perhaps an estoppel defense; and

(2) Alcoa may be able to defeat a claim for unjust enrichment,

and succeed on a counterclaim against BPA, by showing that,

far from being enriched, it obtained less in monetary value

than it was entitled to under the governing statutes. We hold

both rationales “so implausible that [they] could not be

ascribed to a difference in view or the product of agency

expertise.” Lands Council, 537 F.3d at 987. As a result, we

cannot approve the current ROD’s conclusion as to recovery

of the Alcoa Amendment subsidies.

As to the ROD’s first rationale, the evaluation of the

merits of any possible defenses Alcoa might assert was far

too generous. In particular, BPA’s prediction that “Alcoa

would have a reasonably good chance of . . . mounting a
ICNU V. BPA 33

viable estoppel defense against any claim by BPA,” is

particularly dubious.

It is unlikely that the DSIs could successfully estop the

government from recovering a refund if, in fact, a court

determined that they had received unlawful overpayments.

As Richmond emphasized, although the Supreme Court has

never categorically foreclosed estoppel against the

government with regard to monetary payments, it has

“reversed every finding of estoppel that [it has] reviewed.” 

496 U.S. at 422. Ignoring this history, BPA looked only at

this court’s estoppel cases, concluding “the Ninth Circuit is

more receptive to claims of estoppel against the Government

than some other circuits.” Whether that vague comparison is

correct or not is beside the point. It is of no help in assessing

the actual risk of a successful estoppel claim in this case.

What is relevant is our actual standard: the party claiming

estoppel must show both (1) “affirmative misconduct” on the

part of the government and (2) that “the government’s

wrongful act will cause a serious injustice, and the public’s

interest will not suffer undue damage.” United States v.

Hatcher, 922 F.2d 1402, 1409, 1411 n.12 (9th Cir. 1991)

(internal quotation marks omitted). Under this standard, we

have very occasionally applied estoppel against the

government in immigration cases. See, e.g., Salgado-Diaz v.

Gonzales, 395 F.3d 1158, 1165–66 (9th Cir. 2005). But we

know of no Ninth Circuit case estopping the government

from recovering an erroneous monetary payment, nor have

the parties identified one. Cf. Heckler v. Cnty. Health Servs.

of Crawford Cnty., Inc., 467 U.S. 51 (1984).

The ROD also reasoned that BPA may not be able

successfully to pursue an unjust enrichment claim against
34 ICNU V. BPA

Alcoa for several reasons. One concern expressed in the

ROD was that a claim for unjust enrichment cannot lie where

the relationship between the parties is governed by a valid

express contract concerning the particular issue. See Sutter

Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401,

408–09 (9th Cir. 1992). But by the time the ROD here

challenged issued, this court had already invalidated the

relevant portion of the Alcoa Amendment. See PNGC II,

596 F.3d at 1085–86. That being so, no valid contractual

provision stood in the way of an unjust enrichment claim.

The ROD’s second rationale — that Alcoa may be able to

show that it was not enriched, but rather illegally

disadvantaged, by the subsidies in the Alcoa Amendment —

has more support in the record. The record does establish, at

least, that the amount of any damages BPA could actually

recover from the aluminum DSIs is uncertain and disputed. 

Moreover, if BPA sues, Alcoa could well counterclaim,

arguing that it actually lost money through the partially

invalidated contracts.

Had BPA not insisted on a monetized contract, Alcoa

maintains, BPA could have (and, according to BPA, likely

would have) sold Alcoa physical power instead at the IP rate. 

The ROD noted Alcoa’s contention that, as matters turned

out, Alcoa had to pay a significantly higher rate during the

Alcoa Amendment period than the IP rate because of rising

market rates.8 The ROD also acknowledged that Alcoa had

 

8

 More specifically, Alcoa’s explanation in its briefs to this court of its

position begins by pointing out that, if BPA sells to DSIs, it must offer

them the IP rate, rather than a market rate. See PNGC I, 580 F.3d 812–13;

PNGC II, 596 F.3d at 1073. Alcoa then represents that, as demanded by

BPAand required under the 2007BlockContracts and Alcoa Amendment,
ICNU V. BPA 35

argued previously that it “is potentially entitled to recoup

those additional payments.” Alcoa’s brief to this court

elaborates on its overpayment argument, maintaining that, far

from receiving overpayments under the 2007 Block Contracts

and the Alcoa Amendment, the company ended up paying

“$218 million more for power than it would have” had BPA

sold it power directly, including $26.1 million during the

Amendment period.

One major flaw in Alcoa’s argument, and BPA’s

acceptance of it as sufficiently meritorious to constitute a

substantial risk in any litigation to recover, is that BPA could

— under our PNGC decisions — have refused to sell Alcoa

power at all, leaving Alcoa to buy power at full market rates. 

But Alcoa’s position is still not entirely implausible. Given

BPA’s practices regarding Alcoa, it might be hard for BPA to

establish as a factual matter that it would have refused to sell

Alcoa power at the IP rate. And Alcoa’s persistence as to its

contention suggests that it would take an equally aggressive

litigation position in anycollection action BPA might initiate. 

In that light, as BPA argued, choosing to pursue recovery

it entered into forward power purchase contracts “at a time when power

prices were relatively high.” The rates it obtained were well above what

it could afford and, even after applying the credits that it received from

BPA under the 2007 Block Contracts and Amendment, were significantly

higher than the IP rate. The third link in Alcoa’s net loss argument is that,

assuming that BPA would have offered to sell to Alcoa at the IP rate in the

absence of the Amendment (as it has said it would have), Alcoa paid

more, rather than less, than had it not entered into the Amendment. 

Further, when the contracts were invalidated, Alcoa had to resell the

power back into the market to “unwind” its purchases, and because the

market had declined, it sold this power at a rate significantly lower than

what it had paid.
36 ICNU V. BPA

from Alcoa “would expose BPA to some risk of a judgment

to Alcoa under its theory of underpayment.”

But the ROD did not objectively evaluate the degree of

this risk so much as capitulate to Alcoa’s threats. As noted,

the above explanation of the possible counterclaim comes

largely from Alcoa’s briefs and comments, not the ROD. The

ROD vaguely implies that the costs and risks of litigation

would outweigh its possible benefits, citing statutory and

regulatory provisions requiring agencies to weigh costs of

collection actions against benefits. At the same time, the

ROD acknowledged, in a conclusory fashion, that “Alcoa’s

purported claim that it has been underpaid by almost $200

million is dubious,” yet nowhere ventured any alternative

estimate of a likely litigation outcome, or of the litigation

costs likely to be incurred in obtaining that outcome.

In fact, as petitioners point out, BPA never attempted “to

calculate the actual amounts paid” to the aluminum DSIs, and

so was in no position to determine whether there were or

were not net overpayments to Alcoa. Those gaps are reason

enough for skepticism about the ROD’s conclusion that,

whatever those amounts are, they are not worth trying to

recover. In addition, the final ROD evaluated only possible

avenues for litigation, not other ways BPA might seek to

recover the subsidies, such as offsets from future sales

contracts with Alcoa.

We may not uphold an agency decision that “entirely

failed to consider an important aspect of the problem.” Lands

Council, 537 F.3d at 987. BPA’s assumption that Alcoa

might succeed in showing that it was not enriched, and could

even recover on an affirmative counterclaim, suffers from

such a lapse. We therefore remand to BPA to provide a
ICNU V. BPA 37

defensible estimate of the amount of the subsidy it provided

to Alcoa under the Alcoa Amendment prior to its

invalidation; to provide some analysis of whether Alcoa’s

claim of net underpayment has any fair chance of success; to

analyze alternative plans for recovery of any overpayment to

Alcoa; and either to adopt one of those plans or to explain

why, with respect to each of them, the costs and downside

risks justify abandonment of the opportunity to recover any

overpayment.

2. Port Townsend-Clallam

In contrast to its treatment of the Alcoa Amendment,

BPA’s decision not to seek repayment from Port Townsend

was in no respect unreasonable. Whether and how much

BPA could recover from Port Townsend is entirely uncertain,

both legally and practically. And, given the small amount of

power sold under the Port Townsend Contract, the amount of

any recovery would necessarily be quite small, making it

unlikely that the costs of litigation would be justified.

First, unlike the aluminum DSI contracts, the Port

Townsend Contract involved a sale of power, not a subsidy,

though at an unlawfully low rate. So it is unclear exactly

what amount, if any, Port Townsend would owe BPA. 

Perhaps BPA could argue that Port Townsend owes it the

difference between what it paid and what the same amount of

power would have cost at the higher IP rate. But Port

Townsend could plausibly counter that, had the rate been

higher, it would have purchased less power, or even no power

at all, given its struggles to stay open in the face of large

financial losses and its reliance on the power prices provided

by BPA to do so.
38 ICNU V. BPA

A second, supervening problem with recoveringunder the

Port Townsend Contract, BPA concluded, is that, unlike the

aluminum DSI contracts, this arrangement was structured as

two separate bilateral contracts: one between BPA and

Clallam, and one between Clallam and Port Townsend. The

ROD observed that BPA had no direct contract with Port

Townsend, and that, although it could try to back-bill

Clallam, “it is far from clear . . . that Port Townsend would

voluntarily remit [the back-billed] amount to Clallam” in

return.

Third, the ROD noted that Port Townsend could argue

that any claims against it were discharged in Port Townsend’s

bankruptcy. BPA expressed skepticism about this

assessment, noting that Port Townsend’s bankruptcyplanwas

approved in January 2007, while PNGC I was not issued until

December 2008. Thus, BPA could argue that its claims

against Port Townsend were not yet within “fair

contemplation” at the time of the bankruptcy proceedings,

and therefore were not discharged. But even if not a legal bar

to recovery, Port Townsend’s bankruptcysupports the overall

reasonableness of BPA’s decision, as it casts doubt on Port

Townsend’s practical ability to satisfy any judgment that

BPA might secure.

BPA’s justifications for not pursuing recovery under the

Port Townsend Contract are perhaps not as well substantiated

as they could be. Nevertheless, BPA’s decision not to pursue

recovery from Port Townsend does have a sufficient

reasonable basis, to which this court must defer. See PNGC

II, 596 F.3d at 1085.
ICNU V. BPA 39

C. Inconsistency with the Residential Exchange

Program Settlement Agreements

Finally, BPA reasonably explained why the refund

decisions here challenged were not inconsistent with BPA’s

earlier decision to seek recovery of the different payments

that had been declared unlawful by this court in PGE.

After we invalidated the settlement agreements in PGE,

the question then arose whether BPA would seek to recover

the improperly passed-on payments from the IOUs. BPA

concluded that, after our PGE decision, the IOUs could not

legally retain the funds, reasoning that,

because the Court held that BPA acted beyond

the scope of its statutory authority when it

executed the 2000 REP Settlement

Agreements and the Court did not carve out

any exception with respect to the invalidity

clause or any other clause, BPA believes the

2000 REP Settlement Agreements are invalid

in their entirety. As a result, the invalidity

clause is also invalid and cannot be used as a

shield to prohibit BPA from recovering 2000

REP Settlement Agreement benefits from the

IOUs through the Lookback proposal.

2007 SupplementalWholesale Power Rate Case Final Record

of Decision, p. 178.

In the ROD here challenged, BPA provided two bases for

reconciling its decision not to seek repayment in this instance

with its contrary decision regarding the Exchange Program

settlement agreement overpayments. First, BPA interpreted
40 ICNU V. BPA

PGE as a ruling “that the REP Settlement Agreements were

void ab initio,” whereas PNGC I and PNGC II only partially

invalidated the contracts at issue. Second, BPA characterized

the DSI contracts here at issue as exercises of BPA’s

“commercial role” as a power marketer, and thus

distinguishable from the Exchange Program settlement

agreements, which it characterized as exercises of “BPA’s

sovereign role as a regulatory administrator of the REP.”9

“Unexplained [agency] inconsistency is . . . a reason for

holding an interpretation to be an arbitrary and capricious

change from agency practice under the Administrative

Procedure Act.” Nat’l Cable & Telecomms. Ass’n v. Brand

X Internet Servs., 545 U.S. 967, 981 (2005); see also 5 U.S.C.

§ 706(2)(A). Here, however, BPA has provided a reasoned

explanation as to how the two situations vary sufficiently that

they may be treated differently. BPA’s decision not to seek

refunds here is therefore not arbitrary or capricious as

inconsistent with its contrary conclusion post-PGE.

CONCLUSION

We have noted before that BPA’s governing statutes

subject the agency “to a variety of . . . potentially conflicting

statutory directives.” APAC, 126 F.3d at 1164. “BPA’s

peculiarly dual role, as both a federal agency and a power

business, can create situations in which it can fulfill neither

9

In addition, the waiver provisions in the two contracts differ; the 2007

Block Contracts at issue in PNGC I contained a mutual damage waiver,

whereas the REP Settlement Agreements contained a one-way waiver that

protected only the IOUs and therefore is less defensible as a sound

business decision.
ICNU V. BPA 41

role very well and so has reasons to test the limits of its

statutory authority.” PNGC II, 596 F.3d at 1086.

In this instance, BPA’s decisions in most respects

sufficiently and reasonably balance its competing obligations

to merit our deference, but in one respect, on the current

record, do not. We therefore DENY the petition for review

with regard to the decision not to seek refunds with respect to

the 2007 Block Contracts and the Port Townsend Contract. 

We GRANT the petition and REMAND to BPA for further

proceedings, consistent with this opinion, with regard to

recovery of subsidies paid under the Alcoa Amendment.

DENIED IN PART, AND GRANTED AND

REMANDED IN PART. The parties shall bear their own

costs on appeal.

REINHARDT, Circuit Judge, concurring in part and

dissenting in part:

I concur in the majority opinion in part, but dissent from

section B.1.a which relates to the 2007 Block Contracts. The

question in that section is whether BPA may use a contractual

damages waiver provision to strip itself of its obligation to

seek recovery of $100 to $200 million in funds that it

expended not only illegally but contrary to the statutory limits

on its authority. The answer to that question is necessarily

no. The majority’s contrary answer allows BPA to violate its

statutory limitations at will and to shield itself against taking

any measure to remedy its unlawful actions. I would hold

that this damages waiver provision, as applied, operates in

excess of BPA’s statutory authority.
42 ICNU V. BPA

In my view, this case is controlled by our holding in

Portland General Electric Co. v Bonneville Power

Administration (PGE), 501 F.3d 1009 (9th Cir. 2009). In

PGE, we held that BPA’s contracting and settlement powers

are “limited bythe constraints of the [Northwest Power Act].” 

We explained:

Section 2(f) grants BPA the power to enter

into contracts,1

but it says nothing about the

kind of contracts which BPA may sign. We

think it obvious, as a matter of general

administrative law, that the contracts into

which BPA may enter must be grounded in

the authority, express or implied, that

Congress has granted BPA.

Id. at 1030. We then went on to list a series of contracts that

would clearly lie outside of the authority that Congress

granted to BPA. For example, we stated that BPA could not

enter into a contract to acquire an NBA franchise.2Id. So

1 Section 2(f) of the Bonneville Project Act provides that, “Subject only

to the provisions of this chapter, the Administrator is authorized to enter

into such contracts, agreements, and arrangements, including the

amendment, modification, adjustment, or cancelation [sic] thereof and the

compromise or final settlement of any claim arising thereunder, and to

make such expenditures, upon such terms and conditions and in such

manner as he may deem necessary.” 16 U.S.C. § 832a(f). Section 9(a) of

the Northwest Power Act later reaffirmed this grant of contracting and

settlement authority. 16 U.S.C. § 839f(a); see also PGE, 501 F.3d at

1017.

2

In Pacific Northwest Generating Cooperative v. Bonneville Power

Administration (PNGC II), we similarly made clear that BPA’s mere

authority to enter into a contract could “not insulate from review” its

decision to do so. 596 F.3d 1065, 1073 (9th Cir. 2010).
ICNU V. BPA 43

too, as we held in PNGC I, it may not enter into a

monetization contract that functions as an impermissible

subsidy of the aluminum industry. Pac. Nw. Generating

Coop. v. Dep’t of Energy (PNGC I), 580 F.3d 792, 823 (9th

Cir. 2009).

Admittedly, BPA’s authority to monetize and thus

subsidize its DSI customers presented a closer question in

PNGC I than the example given in PGE in which BPA would

acquire the Portland Trail Blazers, and likely rename them the

Bonneville Smelters. Nevertheless, in PNGC I, we held that

BPA’s monetization of power at subsidized rates was (as

would be the purchase of the Trail Blazers) “inconsistent with

BPA’s authority under the [Northwest Power Act].” PNGC

I, 580 F.3d at 823. In other words, BPA’s decision to “giv[e]

a few of its customers $300 million,” id., was “so arbitrary

and capricious as to violate its statutory obligation.” Alcoa

Inc. v. Bonneville Power Admin., 698 F.3d 774, 789 (9th Cir.

2012).

BPA argues that it is not permitted to seek recovery of the

illegally transferred funds because the contracts contain

damages waiver provisions. The majority holds that the

contractual waivers are a valid exercise of BPA’s power to

settle claims. Maj. Op. at 28. But just as BPA’s authority to

enter into contracts is constrained by its statutory limitations,

so too is its authority to settle claims. As we stated in PGE,

“Congress could not have made it any clearer that it intended

for BPA to exercise its general settlement authoritywithin the

confines of the [Northwest Power Act].” 501 F.3d at 1028. 

That BPA’s settlement authority is constrained by its

statutory limitations in the same manner as is its contracting

authority follows necessarily because otherwise BPA could

accomplish by settlement precisely what it could not
44 ICNU V. BPA

accomplish by contract in the first instance. A settlement

provision allowing BPA to retain title to the Bonneville

Smelters and permitting the former owners of the Trail

Blazers to retain the illegally transferred purchase price

would, for example, certainly not lie within BPA’s settlement

authority.

Here, the majority’s holding allows BPA to accomplish

the very subsidy of the aluminum DSIs that we held in PNGC

I to be unlawful and outside of its statutory authority. 

Because we held in PGE that “[a] settlement agreement must

not be a means of bypassing congressionally mandated

requirements,” a damages waiver provision must be

interpreted in a manner that forbids such circumvention of the

limitations on BPA’s statutory powers. See 501 F.3d at 1030. 

Construing the provision consistently with BPA’s statutory

mandate requires that we hold that the damages waiver

provision may not be applied here so as to shield the illegal

subsidy and allow the aluminum industry to retain the

unlawful payments provided for in the 2007 Block Contracts. 

Unfortunately, the majority fails to acknowledge that PGE is

the controlling case.

In upholding BPA’s decision not to seek the return of the

illegally transferred funds, the majority relies primarily on

our holding in Alcoa v. Bonneville Power Administration that

a damages waiver provision similar to the ones at issue here

falls within BPA’s claim-settling authority. Maj. Op. at

30–32. Alcoa does not control this case. Alcoa upheld

BPA’s sale of power to a DSI at a below-market rate,

concluding that the terms of sale specified in the agreement

— unlike the unlawful subsidies that are the subject of this

case — were lawful and valid. 698 F.3d at 789. Finding no

violation of the agency’s statutory mandate, we then turned
ICNU V. BPA 45

to the petitioners’ challenge to the agreement’s damages

waiver provision and upheld its inclusion in the contract. Id.

at 791–92.3In short, the damages waiver provision we

upheld in general was included in a contract that did not itself

provide for illegal subsidies or otherwise for violations of

BPA’s governing statutes. Because we held that the

transaction at issue in Alcoa was consistent with the statutory

limits on BPA’s authority, we had no occasion to consider

whether a damages waiver provision that would allow BPA’s

customers to retain unlawful benefits afforded them contrary

to BPA’s statutory limits lies within BPA’s settlement

authority. The answer appears otherwise.

That Alcoa did not address the issue we encounter in this

case is evident from BPA’s brief in Alcoa. There, BPA

argued that any holding recognizing BPA’s general authority

to waive damages in a contract would have no bearing on a

3

It is immaterial that Alcoa declined to address the validity of the

“Second Period” portion of the Alcoa contract. In Alcoa, we held that

petitioners’ challenge to the Second Period did not survive our standing

or ripeness inquiry in part because an amendment to the Alcoa contract

“eliminated all references to the Second Period,” meaning that “BPA and

Alcoa would need to enter into a new contract that includes a similar

Second Period before the petitioners could point to even the threat of

suffering harm.” 698 F.3d at 793–94. It would have been quite peculiar

to speculate howthe damages waiver provision might have operated in the

context of an agreement that no longer existed. In any event, our decision

not to address petitioners’ challenge to the Second Period does not change

the fact that, at the time we addressed the damages waiver provision in

Alcoa, we did so in the context of an otherwise valid agreement, and

therefore did not encounter the application of a damages waiver provision. 

What the majority would need to substantiate its point — and what it is

clearly lacking — is a statement in Alcoa that the damages waiver

provision could be validly applied to prevent BPA from recouping funds

that it dispersed as a result of the Second Period of the Alcoa contract

even if the terms of the Second Period violated BPA’s statutory mandate.
46 ICNU V. BPA

situation like the one we are now presented with, in which the

underlying transaction lies beyond BPA’s statutory authority. 

BPA explicitly distinguished the case before it from the

application of a damages waiver provision under the

circumstances present here. Its brief told us: “The Alcoa

Contract involves a sale of power, not a monetized

transaction such as those under review in PNGC I and II. 

Therefore, this case does not involve any issue of BPA

‘recouping illegal payments’ because no such payments will

be made.” Answering Br. of Resp’t Bonneville Power

Admin. at 75, Alcoa, 698 F.3d 774 (No. 10-70211). This

statement makes clear that BPA expressly disclaimed the

authority to apply a damages waiver provision to prevent the

agency from recouping funds transferred without statutory

authority. The fact that the majority has now, on the basis of

Alcoa, granted BPA the authority it expressly disclaimed is

striking.

4 But even setting that concern aside, BPA’s brief to

the Alcoa court proves that Alcoa could not have possibly

decided the issue present in this case – whether a damages

waiver provision which does prevent BPA from recouping

funds transferred without statutory authorization is

permissible – because BPA explicitly distinguished that issue

from the one presented in Alcoa.

4

I note but need not rely on the argument that BPA may be precluded

by judicial estoppel from relying on Alcoa. Judicial estoppel bars a party

frommaking an argument in a judicial proceeding that directly contradicts

an argument on which it prevailed in a prior proceeding. See Russell v.

Rolfs, 893 F.2d 1033, 1037–39 (9th Cir. 1990). BPA assured this Court

that if we ruled for it in Alcoa, our decision would not concern “any issue

of BPA ‘recouping illegal payments.’” Having prevailed on its argument,

it now tells us the opposite – that our decision in Alcoa decided precisely

the issue that BPA said our decision would not affect.
ICNU V. BPA 47

That we did not intend Alcoa to authorize the settlements

at issue here is further evident from the Alcoa court’s failure

to discuss or even mention PGE. PGE clearly requires BPA

to exercise both its contracting and its settlement authority in

a manner consistent with its statutory obligations. See

501 F.3d at 1030–31. Thus, Alcoa did not and could not have

authorized BPA, by means of its settlement authority, to

surrender its right to seek restitution from the beneficiary of

funds transferred to them in excess of BPA’s statutory

authority without creating a direct conflict with the principles

that we established in PGE. The only reading of Alcoa that

is consistent with PGE is that Alcoa approved the general

authority of BPA to include damages waiver provisions in its

agreements, a conclusion with which I firmly agree. Viewed

in this light, it is obvious why the Alcoa court did not discuss

PGE — we were simply not presented with the unlawful

application of a damages waiver provision because we did not

rule any part of the agreement at issue invalid. Had we done

so, and had the damages waiver provision applied, we

certainly could not have escaped the requirement expressed

in PGE that BPA must exercise its contracting and settlement

authority within the confines of its governing statutes.

The majority disagrees, reasoning that the damages

waiver provisions at issue here and in Alcoa look alike, and

that Alcoa therefore controls. That Alcoa did not consider the

application of a damages waiver provision to a disbursement

of funds in contravention of BPA’s statutory authority is of

no consequence to the majority. To my colleagues, the fact

that the provisions are similar ends the inquiry. Thus, the

necessary consequence of the majority opinion is that Alcoa

— without mentioning PGE — has blessed not only BPA’s
48 ICNU V. BPA

general authority to include a damages waiver provision in its

agreements, but also every application of such a provision.5

Recognizing that this position is unsustainable, the

majority attempts to disclaim such a holding by noting that if

a damages waiver “does not benefit the agency and is instead

designed principally to prevent an unlawful subsidy from

being recouped,” then such a waiver would be invalid. Maj.

Op. at 30. However, this case demonstrates why the

majority’s ostensible limit on its decision will have no

practical effect. Before our Court, ICNU made the precise

argument that the majority claims would be sufficient to

invalidate a damages waiver; it argued that the waiver “was

designed to ensure that . . . BPA could circumvent Congress’

goal of prohibiting sales to the DSIs at rates lower than the

market or legal rate” (emphasis added). BPA countered that

“the damages waiver is intended to broadly protect both BPA

and Alcoa from damages claims that either party could bring

against the other.” In fact, an agency’s motive in agreeing to

a waiver of damages may well be mixed. There will

ordinarily be some potential benefit to it if it is protected

against damages. In short, it may very well be true that the

5 The majority also relies on the fact that in each of the 2007 Block

Contracts, the damages waiver provision is severable from the invalid

provisions that unlawfully subsidize the aluminum industry. It is difficult

to understand why. No one has suggested that the damages waiver

provision is itself invalid. Rather, it is only its applicability to the

unlawful subsidization that is at issue. To suggest that severing the

unlawful subsidization provisions from the damages waiver provision

somehow precludes BPA from seeking to recover the amounts it paid

under those unlawful provisions makes no sense whatsoever. In fact, the

severance shows only that the payments were beyondBPA’s authority, not

that BPA’s customers must be allowed to keep the $100 to $200 million

in subsidies that BPA unlawfully gave them.
ICNU V. BPA 49

damages waiver provisions both protect BPA from potential

liability and were “designed principally” to ensure that the

aluminum companies could retain their subsidies — whether

they were lawful or not.

Here, it was “apparent” that charging the DSIs a rate that

was below both the rate authorized by statute and the rate

available on the open market conflicted with BPA’s statutory

mandate, and was therefore “highly suspect.” PNGC I,

580 F.3d at 821. Under these circumstances, it is reasonable

to conclude that when BPA included a damages waiver

provision in its contracts with the DSIs, it knew that there was

at least a substantial likelihood that this Court would declare

the $100 to $200 million in subsidies to have been unlawfully

paid, it knew that the damages waiver provisions would allow

the DSIs to keep their ill-gotten gains, and such was a

principal reason for including the damages waiver provisions

in the contracts. In my view, however, it is not even

necessary to reach the question of why BPA included the

damages waiver provisions in its contracts with the DSIs. 

The proper approach is simply to apply our binding precedent

in PGE and ask whether BPA is invoking a damages waiver

provision in a manner that is contrary to its statutory

authority.

6

 The answer to that question is clearly, yes.

In this case, BPA operated contrary to its statutory

authority in subsidizing the aluminum companies in the

amount of $100 to $200 million, not only by making the

6 Of course, PGE does not bar the application of all damages waiver

provisions. Such a provision could still apply if an agreement is otherwise

invalid for a reason that does not implicate BPA’s statutory authority, such

as when an agreement is invalid for conflicting with general principles of

contract law.
50 ICNU V. BPA

initial payments but by failing to seek restitution of the

amounts illegally transferred. Its reliance on general damages

waiver provisions in the agreements as precluding it from

securing the return of those payments is without support in

the law. Therefore, I would hold, consistent with PGE, that

applying a damages waiver provision to prevent BPA from

obtaining recovery of illegally transferred funds is beyond

BPA’s statutory authority. I respectfully concur in part and

dissent in part.