F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N D U S T R I A L C U S T O M E R S O F N O R T H W E S T U T I L I T I E S , P etitioner
,

v

.

B O N N E V I L L E P O W

E R A D M I N I S T R A T I O N , Respondent

,

P O R T T O W N S E N D P A P E R C O R P O R A T I O N ; A V I S T A C O R P O R A T I O N ; A L C O A I

N C .; I D A H O P O W E R C O M P A

N Y ; P U G E T S O U

N D E N E R G Y , I N C ; P A C I F I C O R

P ; P O R T L A N D G E N E R A L E L E C T R

I C C O M P A N Y , R espondents-Intervenors

. N o. 11-71368

P U B L I C P O W

E R C O U N C I L , P etitioner
,

v

.

U.S. D E P A R

T M E N T O F E N E R

G Y ; B O N N E V I L L E P O W

E R A D M I N I S T R A T I O N , N o. 11-71396I CNU V

. B PA

2

Respondents

,

A V I S T A C O R

P O R A T I O N ; A L C O A I

N C .; I D A H O P O W

E R C O M P A

N Y ; P O R T L A N D G E N E R A L E L E C T R

I C C O M P A N Y , R espondents-Intervenors

.

P A C I F I C N O R

T H W E S T G E N E R A T I N G C O O P E R A T I V E ; B L

A C H L Y -L A N E C O U N T Y C O O P E R

A T I V E E L E C T R

I C A S S O C I A T I O N ; C E

N T R A L E L E C T R

I C C O O P E R A T I V E I N C .; C L E A R

W A T E R P O W E R C O M P A

N Y ; C O N S U M E R S P O W E R , I N C .; C O O S

- C U R

R Y E L E C T R I C C O O P E R

A T I V E , I N C .; D O U G L A S E L E C T R

I C C O O P E R

A T I V E ; F A L L R I V E R R

U R A L E L E C T R

I C C O O P E R A T I V E , I N C .; L A N E E L E C T R

I C C O O P E R A T I V E ; L I

N C O L N E L E C T R

I C C O O P E R A T I V E , I N C .; N O R

T H E R N L I G H T S , I

N C .; O K A N O G A N C O U N T Y E L E C T R I C C O O P E R

A T I V E , I N C .; R A F T R I V E R R

U R A L E L E C T R

I C C O O P E R A T I V E , I N C .; U M A T I L L A E L E C T R I C C O O P E R

A T I V E A S S O C I A T I O N ; W E S T O R E G O N E L E C T R I C C O O P E R

A T I V E , I N C ., Petitioners
,

v

. N o. 11-71401I CNU V

. B PA 3

U.S. D E P A R

T M E N T O F E N E R

G Y ; B O N N E V I L L E P O W

E R A D M I N I S T R A T I O N , Respondents

,

A L C O A I

N C .; A V I S T A C O R

P O R A T I O N ; I D A H O P O W

E R C O M P A

N Y ; P U G E T S O U N D E N E R

G Y , I N C ; P A C I F I C O R

P ; P O R T L A N D G E N E R A L E L E C T R

I C C O M P A N Y , R espondents-Intervenors

.

C A N B Y U T I L I T Y B O A R

D , P etitioner
,

v

.

U.S. D E P A R

T M E N T O F E N E R

G Y ; B O N N E V I L L E P O W

E R A D M I N I S T R A T I O N , Respondents

,

A L C O A I

N C .; I D A H O P O W

E R C O M P A N Y ; A V I S T A C O R

P O R A T I O N ; P U G E T S O U

N D E N E R

G Y , I N C ; P A C I F I C O R

P ; P O R T L A N D G E N E R A L E L E C T R I C C O M P A

N Y , R espondents-Intervenors

. N o. 11-71419

OPI NI ON

On Petition for Review of the B onneville Power AdministrationI CNU V

. B PA

4

Arg ued and Submitted

May 9, 2013—Portland, Oreg on

F iled September 18, 2014

B efore: Alex Koz inski, Chief J udg e, and Stephen Reinhardt

and Marsha S. B erz on, Circuit J udg es.

Opinion by J udg e B erz on; Partial Concu rrence and Partial Dissent by J udg e Reinhardt

SUMMARY *

Bonneville P ow er Adm inistration

The panel denied in part, and g ranted in part, petitions for review b roug h t by

public utilities and cooperatives w ho buy
power from the B o n neville Power Administration a nd i n dustrial customers who are end-users of B PA po w e r, challeng ing the B PA’s decision n ot to seek r efunds o f unlawful subsidies that the B PA previously g ave to c ertain long time industrial customers and which were invalidated b y prior Ninth Circuit decisions.

The p etitioners alleg ed that their power costs had been impermissibly raised b y B PA’s decision because, if B PA
soug h t refunds of the subsid i es , it could pass along the recovered funds to its customers as lower rates. At i s s u e a re three contractual arrang ements: th e 2 0 07 B lock Contracts

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I CNU V

. B PA 5

(three way c ontracts between B PA, A lcoa I nc. and two other aluminum direct-service customers, and local public utilities in which B PA ag reed to make pay ments to the al u m i num companies in lieu of supply ing them with actual electr i cal power); the A l c oa Amendments (an amended contract in

w h ich B PA ag ain ag reed to subsidiz e Alcoa rather tha n s e l l it power d irectly ) ; and the Port Townsend Contract (an
arrang ement in which B PA supplied Port Townsend Paper Company , a non-aluminum direct-service customer, with its full requirements for power at a reduced rate).

The panel h eld that the B PA had n o g eneral constitutional

or st atutory duty to seek a refund a n y time it made an unlawful pay

ment, but an individual decision n o t to pursue such a refund could be arbitrary

, capricious or an abu s e o f discretion u nder the A dministrative Procedure Act. The panel also held that the B PA’s d e c is i o n s in most respects sufficiently and reaso n ab l y balanced its c ompeting oblig ations to merit the panel’s deference, but in one respect did not. F inally

, the p anel held that t h e BP A reasonably

ex p lained why the challeng ed refund decisions w ere not inconsistent with B PA’s earlier decision to seek recovery o f the different pay

ments that had been declared unlawful b y the
court in Portland Gen. Elec. Co. v

. B o nneville Power Admin.

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

The panel denied the petition for r eview with reg ard to the decision not to s e e k refunds with respect to the 2007 B lock Contracts and the P o rt T ownsend Contract. The panel
g ranted the peti t i o n and remanded to the B PA for f urther proceeding s with reg ard to recovery of subsidies paid under the Alcoa Amendment.I CNU V

. B PA

6

J udg e Reinhardt concurred in p art, but dissented from section B .1.a which related to the 2007 B loc k Contracts. J udg e Reinhardt would hold that the contractual damag e s waiver provision in the 2 0 0 7 B lock Contracts, as applied, operated in ex cess of the B PA’s statutory authority

.

COUNSEL

Melinda J . Davison (arg

u ed) a nd I rion Sang er, Davison Van Cleve, P.C., Portland, O r e g on, for Petitioner I ndustrial Customers of Northwest Utilities.

Z a by n Towner, Pacif

i c Northern Generating Cooperative, Portland, Oreg on, f

or Petitio n ers Pacific Northwest Generating Cooperative and Members.

David F

. Doug hman, B e ery Elsner & Hammond L L P, Portland, Oreg on, for Petitioner Canby Utility B oard.

I rene A. Scrug g s (arg

u e d ), Public Power Council, Portland, Oreg on, for Petitioner Power Council.

Randy A. Roach, Gener a l Counsel, Timothy A

. J ohnson, Assistant G eneral Counsel, J on D. W rig ht ( arg u ed) a nd H ilary B rowning -Craig

, Attorney s, B onneville Powe r Administration, Portland, Oreg on; and S. Amanda Marshall, United States Attorney
, District of Oreg on, Stephen J

. O dell, Assistant United States Attorney
, David J

. Adler and J

. Courtney O live, Special Assistant U n i t ed States Attorney s, Portland, Oreg on, f

o r Respondent B onneville Power Administration.I CNU V

. B PA 7

Michael C. Dotten (arg

ued) and Dustin T

. T ill, Marten L aw, Portland, Oreg on, for I ntervenor Alcoa I nc.

J ay T

. W aldron and Sara Kobak, S c h w abe W illiamson & W y a tt P.C., Portland, Oreg on; and Ry an L

. F ly nn, PacifiCorp, Portland, Oreg on, for I ntervenor PacifiCorp.

Donald G. Kar i a n d J ason Kuz ma, Perkins Coie L L P, B ellevue, W ashing ton; and Dan L

. B a g atell, Perk i n s Coie L L P, Phoenix , Ariz ona, for I ntervenor Pug et Sound Energ y , I nc.

Michael G. A n d r ea , A v i s t a C o r p o ration, Spokane, W a shing ton, for I ntervenor Avista Corporation.

R. B lair Strong
, Paine Hamblen L L P, Spokane, Washing ton, for I ntervenor I daho Power Company

.

Scott G. Seidman, Tonkon Torp L L P, Port l a n d

, Oreg on, for I ntervenor Portland General Electric Company

.

L eonard J

. F eldman, Marcus W o od, and Maren R. N orton, Stoel Rives L L P, Seattle, W a shing ton, for I ntervenor Port Townsend Paper Corporation.

OP INION

B ERZ ON, Circuit J udg e :

The B onneville Powe r A d ministration (“B PA”) is an ag en cy w i thin the Department of Energ y that markets the
energ y o utput of federal power p rojects in t h e Pacific Nort h w e st. I n two previous decisions, we invalidated threeI CNU V

. B PA

8

sets of contractual arrang ements in which B PA a g reed to subsidiz e certain long time industr i a l customers rather than sell them power d i re c tly

. See Pac. Nw. Gen. Coop. v

. Bonneville P ower Admin

. (“ P N GC I I ”), 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). W e held these subsidy
arrang ements unreasonable and contrary to B PA’s statutory authority

, as they did not comport with Cong ress’s mandate that B PA operate in a businesslike manner. See 16 U .S.C. §§ 839f(b), 838g

.

I n both cases, we remanded to B PA the question whether it could or should seek refunds of the improper subsidies. On remand, B PA concluded that it was contractually barred from seeking r efunds as to some o f the invalidated contracts, a nd that it had no leg al or equi t ab l e b asis for seeking refunds a s to the others. Moreover, B PA conclu d e d, if it did pursue recovery of the subsidies, it mig ht face coun t erclaims from
t h e s u b s i d i z e d e n t i t i e s a n d b e c o m e m i r e d i n counterproductive, protracted litig ation o ver the amount, if
any , of refunds owed. A s a result, B PA decided not to pursue recovery of the unlawful subsidies invalidated b y P N GC I and PNGC II

.

At issue in this consolidated appeal are challeng es by two g roups to B PA’s decis ion to forg o refunds: public utilities and coo p e r atives that buy p ower from B PA, and that Cong r ess has desig n ate d as B PA’s first-priority o r “preference” c u s tomers; and industrial customers who buy
power fro m public utilities in the Pacific Northwest and so

are e nd-users of B PA power. The c halleng ers’ core arg ument is that their power costs have been impermissibly raised b y B PA’s decision because, if B PA d id se ek refunds of theI CNU V

. B PA 9

subsidies, it could p a s s along the recovered funds to its customers as lower rates.

BACK G ROUND

“B PA is an ag ency within the D e p artment o f E n erg y created by Cong ress i n 1 9 37” to “market[ ] the power g enerated by f

ederally o wned dams o n the Columbia River.” Portland Gen. Elec. Co. v. B o nneville P o wer Admin. (“ PGE ”), 501 F .3d 1009, 1013 (9th Cir. 2007); see 16 U .S.C. §§ 832–832m. “ C o n g ress has since ex panded B PA’s mandate to include marketing authority over ne a r ly a ll the electric power g e nerated by federal f a ci lities in the Pacific Northwes t

. ” Ass’n o

f Pub. Agency Customers, Inc. v

. Bonneville Power A d

m i n

. (“ APAC ” ), 126 F .3d 1158, 1163 (9th Cir. 1997); see 16 U.S.C. § 83 8 f

. I n numerous prior opinions, we have provided ex tensive backg round on B PA’s history and operations. See, e.g. , PGE
, 5 01 F .3d at 1013–16; PNGC I
, 5 80 F .3d at 797–800; A PAC
, 126 F .3d at 1163–66. H e r e, we summariz e only those statutory provisions a nd recent developments directly relevant to this appeal.

A. Statutory F r am ew ork

F our statutes g overn B PA’s o p e rations: the Pacific Northwest Electric Power Planning and Conservation Act o f 1980, 16 U.S.C. §§ 839–839h (“Northwest Power Act”); the Pacific Northwest F ederal Transmission Sy stem Act of 1974, 16 U.S.C. §§ 838–838k (“Transmission Act”); the Pacific Northwest Consumer Power Preference Act o f 1964, 16 U.S.C. § § 837–837h (“Preference Act”); and the B onneville P roject Act of 1937, 16 U.S.C. § § 832–832m (“B onneville Project A ct”). A s we have noted before, “[ t] hese statutes subjec t BP A to a variety of detailed a ndI CNU V

. B PA

10

potentially conflicting statutory dir e ctives,” rang ing from f i s cal to environmental concerns. APAC
, 126 F .3d at 116 4

. Of most direct re l e v a nce to this appeal are two sets o f statutory directives: the rate-setting g uidelines and the “sound businesslike principles” oblig a tion.

1. Rate-Setting Guidelines

A complex of statutory provisions d ictates how B PA must proceed when selling federal p o w e r

. F irst, B PA must g ive priority

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

ra t e”), to publicly owned utilities, cooperatives, and federal
ag encies, known as “preference c u stomers.” P NG C I
, 580 F .3d at 7 9 8

– 9 9
, 802; PGE
, 501 F

. 3d at 1013–15; see 16 U.S.C. §§ 839c(b), 839e(b). Preference customers are also the only g roup whose e nerg y n e eds B PA is required

, a s opposed to authorized

, to meet. S ee PNGC I

, 580 F .3d at 811. After meeting the preference c u s t o mers’ needs, B PA
may , if it so chooses, sell surplus power directly to c ertain long standing industrial customers (“direct-serv ice industrial customers” or “DSI s”) a t a hig her bu t s t i ll-cost based rate (“the I P r ate”), or to a

ny o ne else at market rat e s

. I d. at 799, 802–03; PGE
, 501 F .3d at 1014; see 1 6 U

. S .C. § 8 39e(c). 1 “Reg ardless of the ty

p e of customer, B PA must charg e a rate that, at a minimum, r ecoups B PA’s own costs of g e nerating

or acquiring t h e e lectricity .” Alcoa, Inc. v. BPA
, 698 F .3d 774, 780 (9th Cir. 2012); see 1 6 U.S.C. § 839e(a)(1).

1 T h is su m m ary is sim

p lif ied

, an d so o m its so m e o f B P A ’ s less relev an t rate- settin g strictu res, detailed m o re f u l ly in PNGC I

, 58 0 F.3 d at 8 0 2

– 0 3

.I CNU V

. B PA 11

2. Sound Business Principles

I n a ddition to the above rate-setting g uidelines, B PA also
must set r a tes “with a view to encourag ing the widest possible div ersified use of electric power at the lowest possible rates t o c onsumers consistent with sound business principles

. ” 16 U.S.C. § 838g (emphasis a d d e d )

. A different provision similarly r e quires that B PA set rates that “recover, in

accor d a n c e with sound business principles

, the costs

as s o c i a t e d w i t h t h e a c q u i s i t i o n , c o n s er v a t i o n , and transmission of electric po wer.” Id. § 839e(a)(1) (emphasis added). More g enerally

, Cong ress has direct e d BP A to implement the Northwest Power Act “in a sound and businesslike manner .” Id. § 839f(b) (emphas i s added). W e have previously ex plained that B PA’s business decisions a re judicially reviewable f

o r compliance with t h i s overarching “sound business principles” stan dard, albeit with g reat deference to B PA’s conclusions. See A l c o a , 698 F .3d at 788–89; PNGC II

, 596 F .3d at 1075–80.

B. The Alum inum DSI Contracts

Histori c ally

, the a luminum manufacturers of the Pacific Northwest were among B P A ’ s l a r g e s t d i r e c t

- s e rvice industrial
customers. See PNGC I

, 580 F .3d at 797–98. Until recently

, B PA d id not have trouble meeting the needs of its preference
customers while also providing abundant power t o the aluminum DSI s, including Alcoa. See id. B ut, as the Pacific Northwest h as gr o w n , B PA has found itself constrained b y competing demand s

. I ts preference customers now serve a larg e r population with g reater energ y needs, and rising energ y prices have made B PA’s relatively cheap power increasing ly attractive to nonpreferential w ould-be buy ers. See id. at 798.I CNU V

. B PA

12

B e g inning in 2007, B PA e mbarked upon a series o f attempts to aid the aluminum manufacturers without selli n g them power directly

. See id.

1. The 2007 Block Contracts ( PNGC I )

I n 2006, B PA entered into three-way contracts, effective starting in the 2007 fiscal y e ar, between B PA; Alcoa, a nd two other aluminum DSI s; and local public utilities ( “ t he 2007 B lock Contracts” or “B lock Contracts”). The DSI s wanted to

co n t i n u e buy ing phy sical power f rom B PA at a c ost-based
rate. I nstead, B PA a g reed “to mak e p a y m e nts to the [ aluminum DSI s] totaling a max imum of $59 million p er y e ar for five y ears in lieu of supply ing them w ith actual electrical
power, while retaining the option to sell them phy sical power instead in the final two y ears.” PNGC I , 580 F .3d at 798. 2

Alcoa challeng ed these contracts, arg uing that B PA was required to sell it phy sical p ower, sufficient to meet its needs,
at a cost-based rate. Id. at 806–07, 809. Concurrently

, several of B PA’s preference and other industrial customers challeng ed the same contracts from t h e opposite direction, objecting to subsidie s o r sales to the DSI s ex cept for discretionary market-rate sales of surplus p o wer. Id. at 807–09.

W e h eld that, u nder the relevant statutory provis i o n s, B PA is not required to sell phy sical power to the DSI s. Id. at 811–12. Rather, it is required to meet the power needs only

2 T h e tw o o t

h er alu m i n

u m DSIs th at r e c e i v ed B lo ck Co n tracts w ere Go ld en No rth w est A lu m i n u m an d CFA C

. Ho w ev er, Go ld en No r t h w est

su b seq u en t ly allo cated its p o w er allo catio n to A lco a an d CFA C, so BP A

n ev er m ad e an y

p ay m en ts to Go ld en

No rth w est.I CNU V

. B PA 13

of its preference c ustomers, and has the o ption to sell to DSI s thereafter, if it so chooses. I d. However, if B PA does sell to DSI s, it must offer them the I P rate, n ot a market rate. See id.

a t 812–18. W e also held that, “under appro p r i a t e circumstances, B PA may lawfully monetiz e its en e rg y contracts,” “so long as the decision to monetiz e is otherwise consistent with B PA’s statutory o blig ations.” Id. at 819, 820. B ut we did not find the B lock Contracts ju s t i f ied under that standard. As the B lock Contracts wer e e f fectively a sale o f
power “at a rate below what [ B PA ] is statutorily required to offer (i.e., the I P rate), and below what it could receive on the
open ma r k e t ” from non-DSI customers, the contracts were inconsistent with B PA’s statutory oblig ation to f ulfill its role consistent with “ s o u n d b u s i n es s p r i n c i p l e s

. ” Id. Consequently

, “B PA’ s decision to monetiz e the aluminum DSI contracts amount[ ed] to an impermissible subsidy o f those companies’ operations.” Id. at 819.

The question remained whether the aluminum DSI s owed B PA a r efund for any past subsidy pay ments

. E a c h of the B lock Contracts contained a damag es waiver providing

,

I n the event the Ninth Circuit Court o f Appeals or other c ourt of compet ent jurisdiction issues a final order that declares

or r e n d ers this Ag reement void or otherwise unenforceable, no P arty shall be entitled to any damag es or restitution of any nature.

Id. at 8 26. W e did not decide in P NGC I whether this w aiver

was applicable, noting that there was n o indication in the administrative record o f “how B PA believe[ d] the damag e s waiver provision should be construed and, in particular, what

e f f e ct it [was] to have if a contract [ were] only partia l l yI CNU V

. B PA

14

invalidated.” Id. I nstead, we remanded to BP A “ t o determi n e in the first instance the applicability a nd construction” of sever a l elements o f the B lock Contracts, including the damag es waiver

. Id. at 827. I n doing so, we made clear that we were n o t declaring the B lock Contracts void ab initio. Id. a t 826–27. Rather, g iven that the contracts contained a severability clause and, in addition to the invalidated monetary benefits p rovision, a possibly valid phy sical powe r sale option, they were potentially partially enforceable. See id. at 826.

2. The Alcoa Amendment ( PNGC I I )

As it turned out, t he phy sical power sale option in the B lock Contracts was never ex ercised. I nstead, after P NGC I
, B PA entered into an amended c o n t r act with A lcoa (“the Alcoa Amendment”) in which it aga i n ag reed to subsidiz e A l c o a rather than sell it p ower directly

. Specifically

, “B PA
ag reed voluntarily to make a nearly $32 million cash ‘benefit’
p a y ment” to Alcoa d

uring fiscal y ear 2009, which Alcoa could use to “purchas e power from one of B PA’s competitors.” PNGC I

I
, 596 F .3d at 1068–69. 3 B PA a rg u ed that this subsidy w as n ecessary to avoid interruption o f Alcoa’s smelter operations; would assure the continued

ex istence of the DSI load (which had historically benefitted B PA i n v ar i ous way s); and was only an interim fix before B PA could carry out the full administrative process needed to respond to the remand issues in PNGC I. Id. at 1081–84.

On c e a gain, B PA’s p riority customers filed a leg al challeng e, and once ag ain we invalidated the subsidy

, holding

3 B P A en t ered in to a su

b stan tially sim ilar am en d ed co n tract w ith CFA C,

n o t ch allen g ed

b ef o re th is co u rt.I CNU V

. B PA 15

t h at “ B PA’s justifications f or this unusual transaction

. . . [ did] not d emonstrate that the transaction was ‘consiste n t with sound busin e ss principles,’ as required by B PA’s
g overning statutes.” I

d. at 1068–69. W e rejected B PA’s proffered rationales as irrelevant to B PA’s statutory mandate, unsupported b y record evidence, or illog ical. As clarified b y PNGC I
, we stated, B PA has no oblig ation to contract with Alcoa at all, much less “to provide [ a] voluntary g i f t [ to Alcoa] that w ill lead to h ig h er rates for its other customers” and effectively subsidiz e its competitors. Id. at 1080–84. W e went on to e x plain that protecting jobs within t h e reg ion, however l a u d ab le a g o al, is not among the purposes that Cong r ess has a

uthoriz e d B PA to pursue. Id. at 1082. W e sug g ested, however, that a “decision to sell phy sical p ower to Alcoa,” a s opposed to merely provi d i n g monetary benefits, “mig ht produce a different result.” I d. a t 1085.

F inally

, like the earlier PNGC I opi n i o n , PNGC II d e c lined to compel B PA to recover any pay ments it h ad already made to Alcoa. See id. at 108 6

. I nstead, in part because the PNGC I r e mand remained pending

, we remanded “to B PA to det e r m i ne whether and how it [ would] seek a refund from Alcoa.” Id.

3. Alcoa v. B PA

After P N G C II issued, B PA entered into y et another
contract w ith Alcoa, one that we upheld. See Alcoa

, 698 F .3d
at 782–85, 796. Althoug h not directly implicate d i n t his appeal, this final Alcoa-B PA c ontract meri t s some brief discussion, to complete the story o f B PA’s efforts to assist the aluminum DSI s.I CNU V

. B PA

16

Under t h i s l atest contract, B PA ag reed to sell phy sical
power to Alc o a at the cost-based I P rate for a modest profit (projected at $10,000 for the contract’s ini t i a l

, roug hly 18- month period). Id. at 783. B PA’s p reference customers ag ain mounted a challeng e, arg uing that instead of selling to Alcoa
at the cost-based I P rate, B PA should focus on selling to other

c ustomers, whom it can charg e hig her market rates. I d

. at 785. I n the preference customers’ view, B PA’s failure to

max imiz e its p rofits demonstrated that it “[ was] not acting according to a profit-making purpose,” but rather was still attempting to “ subsidiz [ e] A lcoa

. . . so a s to preserve jobs at its smelting plant and the surrounding communi t y

. ” Id. at 788–89.

I n Alcoa

, w e rejected these challeng es, ex plaining that the “sound business principles” mandate d oes not mean “that B PA is required to max imiz e its profits.” Alcoa

, 698 F

. 3d at 789. To the contrary , B PA has wide discretion as to how best
to pursue its businesslike role while al s o comply ing with other statutory mandates, such as envir o n m e ntal protection. I d

. A pply ing the hig h level of d eference owed to B P A ’s business decisions, we allowed the most recent A l c o a -B PA
contract to stand, noting that: (1) u nlike the monetiz ed energ y contracts at issue in PNGC I and P N G C II
, it p rovided only for phy sical power sales ; ( 2) it was ex p ected to y ield some profit to B PA, albeit modest; and (3) there w a s no record evidence to support the preference customers’ speculation that B PA’s d ecision was motivate d b y c oncerns about job losses. Id. T herefore, w e c o n cluded, we had to “defer to B PA’s determination” that its p ower sale to A lcoa comported “with sound business principles.” Id.I CNU V

. B PA 17

C. The P ort Tow nsend Contracts ( PNGC I )

Aside from the 2 007 B lock Contracts with the aluminum D S I s, also a t issue in PNGC I was an arrang ement b e t w e e n B PA and its sole remaining n on-alu m i n um D SI
, the Port Townsend Paper Company ( “Port Townsend”). U n d e r this
arrang ement, B PA a g reed to “provide Port Townsend with its full requ i r e m ents f

or p o wer

. . . to b e supplied throug h” the Clallam County public utility (“Clallam”). PNGC I
, 580 F .3d
at 802. B PA w o u l d sell Clallam the p ower at the PF rate “plus the marg in ty

pically charg ed by [ public utilities] to their industrial customers,” and Clallam w ould then sell the power to Port Townsend. I

d. I n effect, therefore, B PA would be selling power to Port T o wnsend, via Clallam, “at a rate below both the market rate a n d t h e I P rate,” id. at 8 2 3, but not a s low as the PF rate.

W e invalidated the Port To wnsend arrang ement a s inconsistent w ith B PA’s statutory o blig ati o n s. Id. at 824. B PA, we ex plained, is n o t oblig ated to s e l l Port Townsend
power at all, much less at a subsidiz e d rate, and had provided

no c onvincing e x p l anation as to why doing so comported “with ‘sound business principl e s

. ’ ” Id. (quoting 16 U .S.C. § 838g ).

D. BP A’s Decisi o n on R em and f rom PNGC I a nd PNGC II

The present litig ation arises from B PA’s decision-making
process on r emand from our decisions in PNGC I and PNGC II

. This decision-making process became k nown wit h i n the Northwest power community as the “L ookback.”I CNU V

. B PA

18

1. Lookback Proceedings

I n J u ne 2009, B PA issued a letter indicating that it would beg in addressing the issues remanded to it by PNGC I.

The L o okback was structured as a two-step p r ocess: F irst, B PA w ould answer the contractual questions identified in P NGC I : “the applicability and construction of the severabil i t y clause, the damag e waiver, and the phy sical
power sale o p t i on in lig ht of our h olding s [in PNGC I ]

. ” 580 F .3d a t 827. I f it was de t e r m ined that the contracts barred refunds, then the proceeding s would end there. I f B PA d e t e r m i n e d i n s t e a d t h a t i t c o u l d s e e k r e c o v e r y notwithstanding the d amag es waiver, it would move o n to the second step: determining how much money was owed. B PA also considered in the L ookback whether it was “permitted to seek additional pay

ments directly from Port Townsend Power Company (or indirectly throug h the Public Utility District No. 1 of Clallam County ) fo r any undercharg es for power delivered to Clallam by B PA for the b enefit of Port Townsen d

, both during the L ookback period a nd subsequently .” Once PNGC II was decided, B PA e x panded the scope of the L ookback to include any refunds that mig ht be owed for pay

ments made to Alcoa during the nine-month
pe r iod b efore pay

ments w ere ceased in compliance with PNGC II.

B P A i s s u e d a d

raft record of decision ( “Draft ROD”) in J une 2010 and inv i ted public comment. T he Draft ROD proposed three sets of concl u s i ons: F irst, a s to the B lock Contracts, the Draft ROD proposed that the invalid rate provisions were severable from the rema i n d e r of the contracts; that the damag e s waiver was therefore enforceable; and that, as a result, B PA w a s c ontractually barred fromI CNU V

. B PA 19

seeking r ecovery

. BP A a lso proposed that this conclusion

was not inconsistent with its earlie r d ecision to seek
repay ment under a series o f settlement ag reements invalidated in PGE

.
Second, as to th e A lcoa Amendment, the Draft ROD proposed that B PA was not o b l i ga t e d to seek a refund, a nd that i t d i d n o t have any contractual basis f or doing so. According to the D r aft ROD, “Alcoa did not breach any oblig ation to B PA under the Amendment, so it is not clear a leg al claim for money , in the form of damag es or otherwise, could be pursued by B PA u nder the contract based solely on P N GC II .” The Draft ROD noted, however, that “ BP A possibly could pursue an ex tra-contractual or equitable claim for restitution based on an u njust enrichme n t theory ,” a nd “specifically invite[ d] the parties to comment on whether such a claim could o r should be pursued ag ainst Alcoa.” The Draft ROD also floated the p ossibility that B PA could “seek
to administratively recover pay ments made to Alcoa under the A mendment” by adding a surcharg e to future power sales
to Alcoa. The Draft ROD noted, however, t h a t : (1) such a surcharg e mig h t run into its own legal problems, as B PA is required to set rates pursuant to the strictures of the Northwest Po w e r A c t, and (2) B PA may have “already recouped some o r all of any illegal overpay ments under the Amen d m e n t

. . . by w ithholding pay ments to Alcoa for the final two months o f the term of the Amendment,” i.e. a fter PNGC II was handed down.

F inally

, as to the Port Townsend transacti o n , the Draft ROD proposed that B PA had no leg al or equitable ba s i s f o r recovering from Port Towns en d d irectly

. “W hile it appears BP A c o uld a ssert an equitable claim for restitution ag ainst Port Townsend, it is not c lear that Port Townsend wasI CNU V

. B PA

20

unjustly e nriched.” Moreover, Port Townsend mig ht have an

e quitable estoppel defense, a lthoug h B PA concluded that i t lacked sufficient information to evaluate this question.

Not surprising ly

, Alcoa, Port Townsend, and Clallam all
ag reed wit h the Draft ROD’s proposed finding s. Alcoa,
moreover, threatened that, if “B PA were to c hang e it s p osition and conclude that the damag es waiver i s n o t enforceable,” then A lcoa could b ri n g claims of its o wn ag ainst B PA “g reatly

ex ceeding any amount that B PA could

recover f rom A lcoa.” Specifically

, Alcoa estimated that it had a p o t en t i al d a mag es claim ag ainst B PA totaling $218 million, based on the difference between Alcoa’s power costs during the time period covered by the monetiz ed contracts and what its p ower c osts w o uld have been had B PA sold it power directly

at the I P rate during that time.

The preference customers viewed the Draft ROD very differently

— as y et another instance of B PA capitulating to the D SI s. B oth PPC and PNGC a rg ued that B PA h a d not just the leg al authority but also the duty to seek repay ment of the unlawful subsidies. I CNU submitted similar comments.

None of B PA’s m aj o r conclusions chang ed in its final record of d ecision (“the ROD”), issued F ebruary 18, 2011. I n the R O D
, BP A decided n ot to pursue r efunds of any of the subsidies invalidated in PNGC I and PNGC II
, ex plaining its reasoningas follows:

1. As to the 2007 B lock Contrac t s, B PA is contractually prohibited from seeking r epay ment b ecause the damag e s waiver in those contracts is applicable and enforceable.I CNU V

. B PA 21

2. As to the A lcoa Amendment, which does not co ntain a damag es wa i v er, while B PA is not contractually prohibited from seeking repay ment, it has no “reasonable leg al o r e quitable basis for doing so.” 4 Alcoa f ully performed its contractual o b lig ations, leaving B PA

w i thout any basis for a contract action, and B PA wou l d be u nlikely to prevail in any q uasi-contract action. Moreover, if B PA sues Alcoa, Alcoa has indicated that it will bring its own a c tion ag ainst B PA
, a n d the low likelihood of success of any B PA suit is not worth the risk (even if small) of owing a judg ment to Alcoa.

3. A s to the Port Townsend Contract, B PA has no leg al or equitable basis for seeking repay ment. B ecause the Port Townsend Cont r act formally consisted of two separate bilat eral contracts (B PA-Clallam and Clallam-Port Townsend), B PA h ad n o direc t c ontractual relationship with Port Townsend, an d h as no equitable or quasicontract b a sis for suing Port Townsend. W h ile B PA did have a direct co n t r a c t with Clallam, “Clallam was no

m o r e t han an intermediary ” between B PA and Port To w n s e nd, and therefore was not “enriched, unjustly o r otherwise,” b y the contract. Even if B PA could r e c over from Clallam

, d oing so “would not be fair or just” because “it would be nearly impossible for Cla l l a m to recover [ in turn] from Port Townsend.”

I C N U
, PPC, PNGC and its members, and the Can b y Utility B oard filed p e titions in this court for review of the ROD. Port Towns end, Alcoa, a n d several investor-owned utility companies (“I OUs”) intervened to defend the ROD.

4 PNGC II m istak en ly stated th at th e A lco a A m en d m en t in co rp o rated th e d am ag es w aiv er b y

ref eren ce. PNGC II

, 5 9 6 F.3 d at 1 0 8 6

.I CNU V

. B PA

22

STANDARD OF REVIEW

As petitions for review of B PA decisions are g overned b y the Administrative Pro c e d u r e Act, 5 U.S.C. § 706(2)(A), “[ w] e affirm B PA’s actions unless they are arbitrary

, capricious, an abuse of d iscretion, or in ex cess of statutory authority .” PGNC II

, 596 F .3d at 1072 (internal quotation marks omitted). W hen, a s h er e , we are measuring B PA’s actions a ga inst the “sound business principles” standard embodied in B PA’s g overning statutes, “we are p a rticularly deferential to the ag ency ’s assessment of whether its actions furt h er B PA’s business interests consistent with its public mission.” Id. at 1080 (internal quotation marks omitted). This d e ferential standard of review is n o t, however, toothless. W h ile “we do not second-g uess [ B PA’s] policy judg ments,”

we do ask “whether the ag e n c y considered the relevant factors and a

rticulated a rational c onnection between the facts f o u n d 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 A lth o u g h B P A an d P o rt T o w n sen d ch allen g e ICNU’ s stan din g , “ [o ]n ly

o n e o f th e p etitio n ers n eed s to h av e stan d in g to p erm it u s to co n s id er th e p etitio n f o r rev iew ,” Ma ssa ch u setts v. EPA
, 54 9 U.S. 4 9 7
, 5 1 8 (2 0 07 ). No
p arty co n tests P P C’ s stan d in g , an d th ere is n o b asis f o r d o in g so

.

In ad d itio n , ICNU h as stan din g th ro u g h at least tw o o f

its m em b ers, In tern atio n al P ap er an d W ey erh au ser. T h e reco rd in d icates th at b o th th ese

co m pan ies h av e “ p ass- th ro u g h ” co n tracts to p u rch ase electric p o w er f ro m B P A p ref eren ce cu sto m ers, pu rsu an t to w h ich th ey are req u ired to “ p ay f or all B PA rates an d ch arg es in cu rred b y ” th e p r e fe r e n ce cu sto m ers in
p r o v id in g th em w ith electric serv ice. T h u s, th ey are “ d irectly im p acted b y an y rate in creased ad o p ted b y B P A .” W e recen tly h eld sim i lar

co n tracts an d i n

j u ries su f f icien t t o su

p p ort stan din g in an o th er su it b ro u g h tI CNU V

. B PA 23

D ISCUSSION

A. Constitutional and Statutory Argum ents

Petitioners arg u e, first, that B PA has a duty

, under either the Constitution’s App r o p r i a t i o ns Clause or B PA’s g overning statutes, to seek all refunds to which it may b e e ntitled. W e disag ree. B PA decisions not to seek refunds m u s t be evaluated, like all other B PA d e c isions, case-by -case,

a pply ing B PA’s g overning statutes, the APA, and g ene ra l principles of administrative law.

1. Appropriations Clause

The crux o f Petitioners’ A ppropriations Clause arg ument is that, “[ h ]aving disburse d f u n ds to the DSI s from the Treasury without lawful authority

, [ BP A] a cted in direct violation of the Constitution. Therefore, it now h as a duty to seek recovery o f these illeg ally

- paid f u n d s .” (citations omitted).

Viewed as a g eneral c halleng e to BP A contractual damag es waiver provisions, this arg ument i s foreclosed b y Alcoa

, 698 F .3d at 791. A lcoa rej e c t e d the arg ument “that B PA is constitutionally o blig ated to sue for any damag es to which it is entitled.” Id. at 791. I n so ruling

, Alcoa noted that the B PA administrators have statutory authority to compromise or settle claims, and h eld that a bilateral waiver provision is consistent with that a u t h o rity

, as it balances in advance the risk o f b eing sued for damag es ag ainst the

ag ain st B P A b y th e cu sto m ers o f its d i rect cu sto m ers. Ass’n o f P u b

. Ag en cy Cu sto mers v. Bo n n eville Po wer Ad min

. , 7 3 3 F

. 3 d 9 3 9
, 9 4 9

– 5 5 (9 th Cir. 2 01 3 ).I CNU V

. B PA

24

opportunity to obtain damag es from the contracting party

. Id. at 792.

Viewed as a narrow, case-s p ecific challeng e, the Appropriation s C l a use arg ument fares no better. Any disbursements B PA made under the invalidate d m o netary benefits provisi o n s likely did not violate the Appropriations Clause. B PA is funded by a permanent appr o p ri a tion, o r revol v i n g fund, which the B PA Administrator has wide latitude in spending

. See 16 U

. S.C. § 838i (establishing revolving fund within the U.S. Treasury for B PA ) ; see also 3 General Accounting Office, P rinciples of Federal Appropriations Law 15-159 (discussing B PA revolving fund) and 2-17 (defining revolving funds as p ermanent appropriations). So there may w el l h a v e been an adequate
ap p r o priation f

or the subsidies, even thoug h they were later held invalid.

W e need n ot wa d e further into the “larg ely uncharted area” of Appropriations Clause law, however. Md. Dep’t of Human Res. v. U.S. Dep’t of A g ric.
, 976 F .2d 1462, 1486 (4th Cir. 1992) (Hall, J
., c oncurring in part and concurring in the judg ment). Even if the subsidy pay ments did rise to an Appropriations Clause violation, petitioners have pointed to

n o convincing authority establishing that B PA woul d therefore have a constitutional duty to recover the subsidies.

Certainly

, the tex t of the Appropriations Clause provides

no basis for i n f

e r r i n g such a duty

, nor do the cases relied
upon by petition e r s

. Office of Personal Management v

. Richmond

, 496 U.S. 414, 416 (1990), held o nly that a court cannot order an ag e n cy to ex pend funds contrary to statute

— not that, if an ag ency has already done so, the Appropriations Clause requires the ag ency to g e t the funds back. CertainlyI CNU V

. B PA 25

ag encies a

re g enerally p ermitted to seek recovery o f erroneously or illeg ally disbursed f unds. Even in the absence of a specific statutory cause of action, “[ t] he Government b y

a p p ropriate a ction c a

n recover funds which its ag ents h a v e wrong fully

, erroneously

, or illeg ally paid,” so long as there is

no clear statutory barrier to doing so. U nited States v. W

urts , 303 U.S. 414, 415–16 (1938). 6

B u t that recovery a uthority d oes not sug g est that the
g overnment has a constitutional duty to seek a refund every time an erroneous or illeg al pay ment has been made. To the contrary , W

u rts sug g ested that Cong ress may statutorily preclude ag encies from recovering erroneously paid funds so long as it “clearly mani fe st[ s] its intention” to do so. 303 U.S. at 416 (internal q uotation marks omitted). I f the Appropriations Clause imposed an affirmative constitutional duty upon a g encies to recover erroneously paid f unds, Cong r ess could not eliminate the duty b y statute. 7

6 S ee W isc. C en t. R

. R

. C

o

. v

. Un ited S ta tes , 1 64 U.S. 1 9 0, 2 1 2 (1 8 9 6) (“ p arties receiv in g m o n ey s illeg ally p aid b y a p u

b lic of f icer are liab l e ex aeq u o et bo n o to ref

u n d t h em ”); Un ited S ta tes v. Fo wler

, 9 1 3 F .2 d 1 3 8 2
, 1 3 8 6

– 8 7 (9 t

h Cir. 1 9 9 0) (h o ld i n g th at g o v ern m en t ag en t’ s erro r in d i s b u rsin g f

u n ds d o es n o t w aiv e g o v ern m en t’ s rig h t to reim b u rsem en t) ; Old Rep u b. In s

. Co

. v. Fed

. Cro p In s. Co rp

. , 7 4 6 F. Su

p p. 7 6 7
, 7 6 9

– 7 0 (N.D. Ill. 1 99 0 ) (d iscu s sin g statu to ry au th o rity u n d er w h ich g o v ern m en t

m ay reco v er f u n d s erro n eo u sly

o r illeg ally

p aid ).

7 P etitio n ers also p oin t to Fa nsteel Meta llu r g ica l Co rp

. v. Un ited Sta tes , 1 7 2 F. Su p p

. 26 8
, 2 7 0 (Ct. Cl. 1 9 5 9 ), w h ich stated th at “ w

h en a p ay m en t is erro n eo u sly o r i l l e g ally m ad e, it is in d irect v io latio n of article IV, sectio n 3, clau se 2 o f th e Co n stitu tio n ” an d “ it is n o t o n ly law f u l b u t th e d u ty o f th e Go v ern m en t to su e f o r a ref u n d th ereo f

. ” F a n steel i s n o t, of

co u rse, b in din g o n u s, an d w e d eclin e to f o l lo w it. Fa n steel m isread s W u rts as h o ld i n g th a t g o v ern m en t h as a d u ty t o reco v er i lleg ally paid f u n d s; in f act, W u rts h eld o n ly th at th e g o v e r n m en t “ ca n reco v er f u n d sI CNU V

. B PA

26

2. BPA’s governing statutes

Petitioners nex t arg ue, more modestly

, that B PA has a statutory d

uty to seek recovery of unlawfully d isbursed f unds, rely ing on the requirement i n 1 6 U.S.C. § 838g that B PA provide “the lowest possible rates to consumers cons i stent with sound business principles.” W e reject the sugg estion that B PA h as a statutory duty to pursue an y potentially available source of income so as to lower its rates.

As this court recently clarified, t h e “ s ound business principles” mandate does not require B PA to “max imiz e its profits” or to “alway s charg e the lowest possible rates”
reg ardless of any other considerations. Alcoa

, 698 F .3d at 789. Rather, Cong ress has g iven B PA wide latitude to decide “how best to further B PA’s business interests consistent with its pub l ic mission.” Id. (internal quotation marks omitted). A l o n g these lines, Cong ress has deleg ated to the B PA Administrator broad authority to compromise o r settle c l a ims. See 16 U.S.C. § 832a(f). T hus, Cong re s s c o ntemplated that B PA may sometimes make a business d ecisi o n t h at it is not

wo r th pursuing a p a

r ticular potential source of income. Petitioners’ arg ument to the contrary fails.

B. BP A’s decision

Althoug h B PA has no g eneral constitutional or statutory duty to seek a refund any time it makes an unlawful pay ment,

an individua l decision not to pursue such a refund c ould be “arbitrary

, capricious, a

n abuse of d iscretion, o r o therwise not in accordance with law.” 5 U.S.C. § 706(2)(A).

w h ich its ag en ts h av e w

ro n g f u lly

, erro n eo u sly

, o r illeg ally p aid ,” 3 0 3 U .S. at 4 1 5 (em

p h asis ad d ed ).I CNU V

. B PA 27

1. The aluminum DSI contracts

W ith respect to the aluminum DSI contracts, Petitioners

ma i n t a i n that B PA’s ROD had several of these f aults, b ecause: the damag es waiver is not enforceable; B PA d o e s have available quasi-cont r a ctual o r common law avenues o f
recovery ag ainst the aluminum DSI s, such as an unjus t enrichment suit; and it is not a sound business decision to forg o those a venues e n tirely because o f s peculation that its counterparties mig ht assert defenses.

After r eviewing these challeng es, we conclud e t h a t we must defer to B PA’s reasonable interpretation of the 2007 B lock Con t racts as including a severable, enforceable damag es waiver, and so do not disturb B PA’s decision as to refunds of the 2007 B lock Contracts subsidy pay ments. W e g rant the petition for r eview, h o w e v e r , as to the Alcoa Amendment, as we conclude that the ROD’s reasons for not pursuing refunds for the subsidies proved by that A mendment
are, a s they stand, so insufficiently g rounded in the record a s to be “arbitrary , capricious, [ or] an abuse of discretion.”

a. 2007 Block Contracts

Each of the 2007 B lock Contracts included a damag e s waiver p roviding that, “ [ i] n the event the Ninth Circuit Court of Appeals

. . . issues a f

inal o rder that declares or r enders this Ag reement void o r otherwise unenforceable, no Party shall be entitled to any damag es or restitution of any nature, in law o r equity

, from any other Party
, a n d each Party hereby waives
any rig ht to seek such damag es.” E ach C o n t ra c t also included a severability clause p roviding that “[ i] f any term o f this Ag reement is found to be invalid by a court of competent jurisdiction,” “[ a] ll other terms shall remain in fo r c e u nlessI CNU V

. B PA

28

t h a t term is d etermined not to be severable from all othe r provisions of this Ag reement by such court.”

B PA’s conclusion that the damag es waivers a re enforceable was consiste nt with the statute and otherwise within B PA’s authority

. To beg in, the A lcoa court enforced
a very similar mutual damag e waiver in another Alcoa-B PA contract. I ts reasons for doing so apply equally

here.

Contrary to petitioners’ c ontention that no entity operating accor d i n g to “sound business principles” would
ag ree to a sweeping

waiver, A lcoa interpreted such a mutual waiver as a valid ex e r cise of B PA’s g eneral c l a i m -settling authority

. 698 F .3d at 791–92. Noting that such a w aiver equally protects B PA ag ainst claims broug ht b y the customer, Alcoa concluded that “[ i] t is not our place to second-g uess the
ag ency ’s c onsidered judg ment reg arding the balance o f risks embodied in a damag e w aiver or similar release or settlement provision.” Id. Moreover, the waiver provision is severable from the contracts’ void subsidy provi s i o n s. B PA received consideration in ex c hang e for waiving its righ ts to seek damag es from the a luminum DSI s — namely

, a corresponding waiver p roviding t h a t the contracting parties could not re c o v e r damag es from B PA. “L e g al p ortions o f
contracts are sev e r ab l e from illeg al portions where there is

s e p a r a te leg al consideration attributable to the severed por t i o n of the a greement.” Consul Ltd. v

. Solide Enters., Inc.
, 802 F .2d 1 1 4 3
, 1 148 (9th Cir. 1986). F inally

, as such a waiver is a v alid ex ercise of B PA’s power to compromise o r settle c laims and could likewise protect B PA’s interests, it
cannot b e contrary to p ublic policy as allowing an unlawful subsidy

.I CNU V

. B PA 29

The dissent’s ass e r t i on that this determination is controlled by PGE
, a

nd n ot Alcoa

, is incorrect. P GE did not

concern provisions in B PA power purchase contra c ts

m u t ually waiving d amag es in the event the ag reemen t i s invalidated. Alcoa did.

P G E invalidated a series of settlement ag r eements B P A had entered into with I OUs that participated in its Residential Ex cha n ge Prog ram (“REP” or “Ex c hang e Prog ram”). See PGE
, 5 01 F

. 3d at 1025–37; Golden Nw. A l u minum, Inc. v

. Bonneville Power A dmin

., 501 F .3d 1037, 1047–48 ( 9th Cir. 2007). The Ex chan ge P rog ram “ essentially acts as a cash rebate to the I OUs where the I OUs’ power costs ex ceed those of B PA,” but requires that the Ex chang e Prog ram’s costs be covered only by supplemental rate charg es assessed on nonpreference c ustomers, not by passing costs on to pr e f e r e nce customers. S

ee PGE
, 501 F .3d at 1 015–16. B PA and c ertain I OUs entered into “settlement” ag reements inconsistent with this p ass-throug h limitation, maintaining that the limitation did not apply because the costs were “sett l e ment costs,”
pursuan t t o B PA’s g eneral a uthority to make and settle contracts, rather than Ex chang e Prog ram costs. W e disapproved this approach, holding that B PA could not circumvent the statutory restrictions on p ower ex chang es “by calling i t s actions

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

were “ inex tr i cably intertwined” with B PA’s Ex chang e Prog r am authority

. Id. at 1032.

I n short, the ex ercise of set t l e m ent authority at issue in PGE c oncerned the whole of a comprehensive ag reement, in which B PA soug ht directly to a v o id the statutory r e strictions placed on it. PGE did not concern a severable ag reement provision allocating among the contracting p a rties the purely retroactive liability r isks that could arise in the event theI CNU V

. B PA

30

ag reement is o therwise d eclared invalid

— a second-level pact, so to speak, co v e r i n g the past, not the future, a nd
g overning relief in the event t h e ag reement is invalidated, rather than the ag

reement itself.

I n contrast, Alcoa considered precisely that sort of purely retroactive, p artial, and mutual waiver: As here, the waiver at issue in Alcoa was a bilateral waiver of retroactive damag e s; it g a ve up bo t h parties’ rig hts to seek compensation in the
event that a portion of the contract in which it was contained

was invalidated in the future. 6 98 F .3d at 791. I n both A lcoa and here, the larg er ag reement of which the waiver was a part

was risky for b oth parties that ag reed to the provision, not just for B PA. He re , for ex ample, the aluminum DSI s g ave up their ability

to sue B PA to recover any costs associated with purchasing power throug h other means if the contracts were invalidated, costs that could have b een, a nd that the DSI s contend were, ex tensive.

The fact that the damag es waivers sig nificantly benefitted B PA is important. Upholding the validity of the waivers here does not p reclude a finding in a future case that a damag e s waiver is invalid, if the waiv e r a t i s s u e in that case does not benefit the a g ency and is instead desig ned p ri n c i pally to prevent an unlawful subsidy from being recouped.

D e spite the larg e d ifferences between the waiver i s s u e he re a n d the settlement a u thority question in PGE
, a nd despite the c l ose similarity between the waiver approved in Alcoa and the one a t issue here, the dissent d ismiss e s A lcoa

as the controlling precedent and relies on PGE instead. Principally

, the dissent r e l i e s for this odd choice on the understanding that Alcoa upheld the other portions of the
ag reement in which the waiver a ppeared, and s o was notI CNU V

. B PA 31

approving a damag es w aiver linked to statutorily unlawful contract provisions.

The dissent’s a ccount mis c h ar acteriz es Alcoa

. As o ne

w o u ld ex pect, the damag es waiver in Alcoa a pplied not t o valid contractual provisions, but only when “a court renders
any part of the ag reement void or unenforceable”— in other words, unlawful. 698 F .3d at 791. And, after hol d i n g the damag es waiver lawful, Alcoa w ent on to decline to decide whether the “Second Period” p o r t i on o f the Alcoa contract there a t issue was valid, a s the question was not y et ripe. Id.
at 793–94. T his sequence n ecessarily left open the possibility that the Second Perio d a greement would later be voided

— and y et, t h e damag es waiver provision that would be contained in that ag reement had already been declared valid.

The panel deciding Alcoa was ent i r el y cog niz ant of this possibility

. Had the Second Period ag re e m e n t been similar to, and valid for the same reason as, the ag reement covering the initial period, there would be no reason to put off deciding the leg a lity of the S econd Period ag reement. And the dissenting opinion in Alcoa spec i fically recog niz ed that the waiver provision was valid and would apply if and when the Second Period ag reement is challen g e d

. Alcoa

, 698 F .3d at 7 9 9
, 8 0 6 –807 & n.7 (B ea, J
., dissenting ). The dissent’s

concern was with the majority ’s decision to foreg o addressing the Sec o nd Period dispute before B PA suffered a monetary loss w as that, because of the d a mag es waiver, those losses could not be recovered. Id.

Alcoa therefore d ecided essentially the same issue that arises h ere reg arding the enforceability of a bilateral damag e s waiver in a B PA power ag reement. PGE covers the predecessor issue

— was the power ag reement there in f a ctI CNU V

. B PA

32

void? Under such circumstances, we must follow Alcoa a nd uphold the damag e s waiver.

As B PA properly determined the B lock Contracts w aiver provisions were enforceable

, its decision not to pursue refunds under those Contracts was likewise proper.

b. Alcoa Amendment

A s the Alcoa Amendment d oes n ot contain a da m a ge waiver, B PA is not contract u a l ly barred from seeking

r e covery of the subsidies invalidated in PNGC II. BP A nonetheless declined to seek recoupment of subsidies it provided p ursuant to the A mendment, viewing the chances o f succeeding in doing so as slig ht, and outweig hed by the potential recovery

costs.

B PA’s rationales for this conclusion boiled down to two: (1) Alcoa may have d efenses to any equitable or quasicontract claim, including perhaps an e s t o ppel defense; a nd (2) Alcoa may be able to d efeat a claim for unjust enrichment, and succeed on a counterclaim ag ainst B PA, b y showing that, far f rom being enriched, it o b tained less in monetary value than it was entitled to under the g overning statutes. W e hold b o t h rationales “so implausible that [they ] could not be ascribed to a difference in view or the product of ag ency

ex p ertise.” Lands Council

, 537 F .3d at 987. As a r esult, we cannot approve the current ROD’s c onclusion as to r e covery of the Alcoa Amendment subsidies.

As to the ROD’s first rationale, the evaluation o f the merits of any p ossible def en s e s Alcoa mig ht assert was far
too g enerous. I n particu lar, B PA’s p rediction that “Alcoa would have a reasonably g ood chance of

. . . mounting aI CNU V

. B PA 33

v i a b l e e stoppel defense a g ainst any claim by B PA,” i s particularly

dubious.

I t is unlikely that the D SI s c ould successfully estop the
g overnment f

rom recovering a refund if, in fact, a court d e t ermined that they had received unlawful o verpay ments. As R ichmond empha s i z ed, althoug h the Supreme Court has

never categ orically foreclosed es t o p p e l a ga i n s t the government with reg ard to monetary pay ments, i t h a s “reversed e very finding o f estoppel that [ it has] r eviewed.” 496 U.S

. a t 4 2 2. I g noring this h istory

, B PA looked only at this court’s estoppel cases, c oncluding “t h e Ninth Circuit is

more receptive to claims of estoppel ag ainst the Government than some other circuits.” Whether that vag ue comparison is
correct o r not is beside the point. I t is o f no help in assessing the actual risk of a successful estoppel claim in this case.

W h at is relevant is our actual standard: the party claiming estoppel must show both (1) “ affirmative misconduct” on the part of the g overnment and (2) that “the g overnment’s
wrong ful act will cause a serious injust i ce, a nd the p ublic’s interest will not suffer undue d amag e.” United States v

. Hatcher

, 9 22 F .2d 1402, 1409, 1411 n .12 (9th Cir. 1 991) (internal quotation marks omitted). Under this standard, we have very occasionally applied estoppel ag a inst th e g overnment in immig ration cases. See, e.g. , Salgado-Diaz v

. Gonzales

, 395 F .3d 1158, 1165–66 (9th Cir. 200 5 )

. B u t we kn o w of no Ninth Circuit case e stopping the g overnment from recovering an erroneous monetary pay ment, nor have the parties identified one. Cf. Heckler v. Cnty. Health Servs. of Crawford Cnty., Inc. , 467 U.S. 51 (1984).

The ROD also r easoned that B PA may not b e able

s u ccessfully to pursue an unjust e n richment claim ag a i n s tI CNU V

. B PA

34

Alcoa for several reasons. One concern e x p r e ssed in the ROD was that a claim for unjust enrichment cannot lie where the relationship between the p a r ties is g overned by a valid

ex p ress contract concerning the parti c u l a r issue. See Sutter Home W inery, Inc. v. Vintage Selections, Ltd.

, 971 F

. 2d 401, 408–09 (9th Cir. 1992). B ut by the time th e R O D h e r e challeng ed issued, this co urt had already invalidated the relevant portion of the A l c o a Amendment. See PNGC II
, 596 F .3d at 1085–86. T hat b e ing 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 n ot enriched, but rather illeg ally disadvantag e d, by the subsidies in the Alcoa Amendment

— has more support in the record. T h e record does establish, at least, that the amount of any d a m a g es B PA could actually

recover from the aluminum DSI s is un c e r tain and disputed. Moreover, if B PA sues, Alcoa c o uld well count e rclaim,
arg uing that it a ctually lost money th r oug h the partially invalidated contracts.

Had B PA not i n s i s ted on a monetiz ed contract, Alcoa maintains, B PA could have (and, according to B PA, l i kely would have) sold Alcoa p hy sical power instead at the I P rate. T he ROD noted Alcoa’s contention that, as matters turned out, Alcoa h ad to pay a sig n ificantly hig her r ate during the Alcoa Amendment period than the I P rate becaus e o f rising market r ates. 8 The ROD also a cknowledg e d that Alcoa h ad

8 Mo re sp ecif

ically , A lco a’ s ex plan atio n in its b rief

s to th is co u rt o f

its
p o sitio n b eg i n s b y p o in tin g o u t th at, if B P A sells t o D SIs, it m u st o f f er th em th e IP rate, rath er th an a m ark et rate. S ee PNGC I

, 5 8 0 F.3 d 8 12

– 13 ; PNGC II
, 59 6 F.3 d at 1 0 73 . A lco a t h en rep resen ts th at, as d em an ded b y B P A an d req u i red u n d er th e 2 00 7 Blo ck Co n tracts an d A lco a A m en d m en t,I CNU V

. B PA 35

arg ued previously that it “is potentially entitled to r ecoup those additional pay

ments.” A lcoa’s brief t o t h i s court elaborates on its overpay

ment arg ument, maintaining that, far from receiving overpay

ments under the 2007 B lock Contracts and the Alcoa A m e n dment, the company ended up pay ing “$218 million more for power than it would have” had B PA sold it power directly

, including $26.1 million dur i n g t h e Amendment period.

On e m a j or flaw in Alcoa’s arg ument, and B PA’s acceptance of it as suffici e n t l y meritorious to constitute a substantial risk in any litig ation to recover, is that B PA could

— under o ur P

N G C decisions — have refused to sell Alcoa
power at a ll, leaving Alcoa to buy power at full market rates. B ut A lcoa’s position is still not ent i r el y implausible. Given B PA’s practices reg arding Alcoa, it mig ht be hard for B PA to establish a s a factual matter that it would have refused to sell Alcoa power at the I P r ate. And Alcoa’s persistence as to its contention sug g ests that it would take an equal l y a ggressive litig ation position in any collection action B PA mig h t initiate. I n that lig ht, as B PA a

rg u ed, choosing t o p u r s ue r e covery

it en tered in t o f

orw ard p o w er p u

rch ase co n tracts “ at a tim e w h en p o w er p rices w ere relativ ely h ig h .” T h e rates it o b tain ed w ere w ell ab o v e w h at it co u l d af

f ord an d

, e v e n a fter ap p l y in g th e cred its th at i t receiv ed f ro m B P A u n d er th e 2 0 0 7 B lo ck Co n tracts an d A m en d m en t, w ere s ig n if ican tly h ig h er th an th e IP rate. T h e th ird lin k in A lco a’ s n et lo ss arg u m en t is t h at,

assu m in g th at B P A w o u ld h av e o f f ered to sell to A lco a at th e IP rate in th e ab sen ce o f th e A m en d m en t (as it h as said it w o u ld h av e), A lco a paid

m o re, rath e r t h an less, th an h ad it n o t en t ered in to th e A m en d m en t. Fu rth er, w h en th e co n t

racts w ere in v a lid ated

, A lco a h ad to resell th e p o w er b ack in to th e m ark et to “ u n w i n d ” its p u rch ases, an d b eca u s e t h e

m ark et h ad d eclin ed

, it so ld t h i s p o w e r at a rate sig n if ican tly lo w er th an

w h at it h ad p aid

.I CNU V

. B PA

36

from Al c o a “ would e x pose B PA to some risk of a judg ment to Alcoa under its theory o f underpay ment.”

But the ROD did not o bjectively evaluate the deg re e o f this risk so much as c apitulate to Alcoa’s threats. As n oted,
t h e above ex planation of the possible counterclaim comes larg e ly from Alcoa’s briefs and comments, not the ROD. The ROD vag uely implies that the costs and r isks of litig ation would o utweig h its possible benefits, citing stat u t ory a nd
reg ulatory provisions requiring ag encies to weig h costs o f collect i o n a c tions ag ainst benefits. A t the same time, the ROD acknowledg e d

, i n a conclusory fashion, that “Alcoa’s purported claim that it has b een u nderpaid by almost $200 million is dubious,” y et nowhere v e n tured any a lternative estimate of a likely l i tig ation outcome, or of the litig ation costs likely

to be incurred in obtaining that outcome.

I n fact, as petitioners point out, B PA never attempted “to calculate the actual amounts paid” to the aluminum DSI s, a nd

so was in no position to d etermine whether there were o r were not net overpay

ments to Alcoa. Those g aps are reason enoug h f o r ske p t i c i sm about the ROD’s conclusion that, whatever those a mounts a re, they are not worth try i n g t o

recover. I n a ddition, t h e fi nal ROD evaluated only possible

avenues for litig ation, not other way s B PA mig ht seek to

reco v er t he subsidies, such as offsets from future sales contracts with Alcoa.

W e m a y not u

p hold a n ag ency decision that “entirely failed to consider an important aspect of the problem.” Lands Council

, 537 F .3d at 9 8 7

. B PA’s assumption that Alcoa mig ht succeed in showing that it was not enriched, and could

even recover on an affirmative counterclaim, suffers from such a lapse. W e therefore remand to B PA to p r o v i de aI CNU V

. B PA 37

defensible estimate of the a mount of the subsidy it provided
to Alcoa under t h e Alcoa Amendment prior to its invalidation; to provi de some analy sis of whether Alcoa’s claim o f net u n derpay

ment has any fair chance of success; to analy z e alternative plans for recovery of any overpay ment to Alcoa; a nd either to a d o p t one of those plans o r to e x plain why

, with respect to each o f t h e m , the costs and d ownside risks justify ab a n donment of the o pportunity to recover any overpay ment.

2. Port Townsend-Clallam

I n contrast to its treatment of the Alcoa Amendme n t , B PA’s decision n o t t o s e ek repay ment f rom Port Townsend

was in no respect unreasonable. W h ether and how much B PA could recover from Port T ownsend is entirely uncertain, both leg ally and p r actically

. And, g iven the small amount o f
power sold under the Port Townsend Contract, the amount o f
any r ecovery would necessarily be quite s m a ll, making it unlikely that the costs of litig ation would be justified.

F irst, unlike the aluminum DSI c o n t racts, the Port Townsend Contract involved a sale of power, not a subsidy

, thoug h at an unlawfully low r a t e

. S o it is unclear ex actly what amo u n t , if any , Port Townsend would owe B PA. Perhaps B PA could a

r g ue that Port Townsend o w e s i t the difference between what it paid and what the same amount o f
po we r would have cost a t the h ig her I P rate. B ut Port Townsend coul d plausibly counter that, had the rate been hig her, it would have purchased less power, or even no power at all, g iven its strug g les to s t a y o p en in the f ace of larg e financial losses and its reliance on the power prices provided by B PA to do so.I CNU V

. B PA

38

A secon d, supervening problem with recovering under the Port Townsend Contract, B PA concluded, is that, unlike the aluminum DSI contracts, this arrang ement was structured a s two separate bilateral c o n t racts: one between B PA a nd Clallam, a

nd one between Clallam and Port T o wnsend. The ROD observ ed t h at B PA had no direct contract w ith Port Townsend, and that, althoug h it could try to back-bill Clallam, “it is far from clear

. . . that Port Townsend would voluntarily remit [ the back- b i lled] amount to Clallam” in
return.

Third, the ROD noted that Port Tow nsend could a rg ue that any claims ag ainst it were discharg ed in Port Townsend’s bankruptcy

. B PA ex pressed skepticism about this

a s s essment, noting that Port Townsend’s bankruptcy pla n w a s approved in J anuary 2007, w hile PNGC I was not issued until December 2008. Thus, B PA could arg u e that its c laims
ag ainst Port Townsend w e r e n ot y et within “ fair contemplation” a t the time of the b ank r u ptcy proceeding s, and therefore were not discharg ed. B u t even if not a leg a l bar
to recovery , Port Townsend’s bankruptcy supports the overall reasonableness of B PA’s d ecision, a s i t casts doubt on Port Townsend’s practical ability to satisfy an y j udg ment that B PA mig ht secure.

B PA’s justifications for not pursuing recovery under the Port Townsend Contract a re perhaps not as well substantiated

as they c ould be. Nevertheless, B PA’s decision not to pursue recovery f

r om Port Townsend does have a sufficient reasonable basis, to w hich this court must defer. See PNGC II , 596 F .3d at 1085.I CNU V

. B PA 39

C. Inconsistency w ith the Residential Exchange P rogram Settlem ent Agreem ents

F inally

, B PA reasonably ex p l a ined why the refund decisions here challeng ed were n ot inconsistent with B PA’s earlier decision to se e k r ecovery of the different pay ments that had been declared unlawful by this court in PGE.

After we invalidated the settle ment ag reements in P G E
, the question then arose wheth e r BPA would seek to r ecover the improperly passed-on pay ments fr o m the I OUs. B PA concluded that, after our PGE decision, the I O Us could not leg ally retain the funds, reasoning that,

because the Court held that B PA acted bey ond the scope of its statutory aut h ority when it

e x e c u t e d t h e 2 0 0 0 R E P S e t t l e m e n t Ag reements and the Court did not carve out any ex ception with resp ect to the invalidity clause or any other clause, B PA believes the 2000 REP Settlement Ag reements are invalid in their entirety

. As a r esult

, the invalidity clause is also invalid and cannot be used as a shield to prohibit B PA from recovering 2000 REP Settlement A g reement benefits from the I OUs throug h the L ookback proposal.

2007 Suppl e m e n t

a l W h o l e sale Power Rate Case F

inal Record of Decision , p. 178.

I n the ROD here challeng ed, B PA p rovided two bases for reconciling its decision not to seek repay ment in this instance with its contrary decision reg a rding the Ex chang e Pr o gram settlement ag reement o ve r p a y ments. F irst, B PA interpretedI CNU V

. B PA

40

PGE as a ruling “that the REP Settlement A gr e ements were void ab initio ,” whereas P NGC I and PNGC II only partially invalidated the contracts a t issue. Second, B PA characteriz ed the DSI c ontracts here at i s s ue as e x ercises of B PA’s “commercial role” as a power mar k e t er, and thus disting uishable from the E x chang e Prog r am settlement
ag reements, which it chara c t e riz ed as e x ercises of “B PA’s sovereig n role as a reg

ulatory administrator of the REP.” 9

“Unex plained [ ag ency ] inconsi s t ency is

. . . a reason for holding a n i n terpretation to be an arbitrary and capricious chang e from ag ency practice under the A d m i nistrative Procedure Act.” Nat’ l Ca b le & Telecomms. A ss’n v

. Brand X Internet S

ervs. , 545 U .S. 967, 981 (2005); see also 5 U .S.C. § 706(2)(A). Here, however

, BP A has provided a reasoned

ex p lanation as to how the two situations vary sufficiently that they may be treated differently

. B PA’s decision not to s e ek refunds here is therefore not arbitr a ry or capricious a s inconsistent with its contrary conclusion post- PGE

.

CONCLUSION

W e h ave noted b efore that B PA’s g overning statu t e s subject the ag ency “ to a variety of

. . . potentially conflicting statutory directi v e s

. ” APAC
, 126 F .3d at 1164. “B PA’s peculiarly dual role, as b oth a fe d e r al ag ency and a power business, can create situations in which it can f u l f ill neither

9 In ad d itio n , th e w aiv er p ro v i sio n s in th e tw o co n tracts d if f er; th e 2 0 0 7 B lo ck Co n tracts at issu e in PNGC I c o nt a i n e d a mu tu a l d am ag e w aiv er,

w h ereas th e R EP Settlem en t A g reem en ts co n tain ed a o n e- w ay w aiv er th at p ro tected o n ly th e IOUs an d th eref o re is less d ef

en sib le as a so u n d b u sin ess d ecisio n

.I CNU V

. B PA 41

role v e ry well and so has r e a sons to t e s t t h e limits of its statutory authority .” PNGC II

, 596 F .3d at 1086.

I n this inst an c e , B PA’s decisions in most respects sufficiently and r easonably balance its competing o blig ations
to merit our deference, but in one respect, on the c u r re n t

r ecord, do not. W e therefore DENY the petition f or r e v i e w with reg ard to the decision not to seek refunds with respect to the 2007 Bl o c k Contracts and the Port Townsend Contract. W e GRANT the petition and REMAND to B PA for f urther proceeding s, consistent with t h is o pinion, with reg ard to recovery of subsidies paid under the Alcoa Amendment.

DENIED IN P ART, A ND G RANTED AND REMANDED IN P ART. The parties shall bear their ow n costs on appeal.

REI NHARDT, Circuit J udg e, concurring in part a nd dissenting in part:

I concur in the majority

opinion in part, but dissent from section B .1.a which relates to the 2007 B lock Contracts. The question in that section is whether B PA may use a contractual damag es w aiver provi s i o n t o strip itself of its oblig ation to seek r ecov ery of $100 to $200 million in f unds that it

ex p ended not o nly illeg ally but contrary to the statutory limits

on its a uthority

. The answer to that question is necessaril y

no. The majority ’s contrary answer allows B PA to v iolate its statutory limitations a t w ill and to shield itself ag ainst taking
any measu r e t o remedy its unlawful a ctions. I would hold that this damage s w ai ver p rovision, a s applied, operates in

ex c e ss of B PA’s statutory authority

.I CNU V

. B PA

42

I n my v iew, this case is controlled by our holding i n Portland General Electric Co. v Bonn e v i l le P ower Administration (

PGE ), 501 F .3d 1009 (9th Cir. 2 0 0 9 )

. I n PGE
, we held that B PA’s c ontracting and settlement powers

are “limited by the constraints of the [ Northwest Power A ct]

. ” W e ex plained:

Section 2(f) g rants B PA the power to enter into c ontracts, 1 but it say s nothin g about the kind of contracts which B PA may s i gn. W e think it obvious, a s a matt e r o f g eneral administrative law, that the c ontracts into which B PA m a y e n ter must b e g rounded in the autho rity

, e x press or implied, that Cong r ess has g r anted B PA.

Id. at 1030. W e then went on to list a series of contracts that would clearly lie outside of the aut hority that Cong ress g ranted to B PA. F or ex ample, w e stated that B PA c ould not

e n t er into a contract to acquire an NB A franchise. 2 I d

. S o

1 S ectio n 2 (f

) o f th e B o n n ev ille P ro

j ect A ct pro v id es th at, “ Su b j ect o n ly
to th e p ro v isio n s o f

th is ch ap ter, th e A d m in istrato r is au th orized to en ter in to su ch co n tracts, ag reem e nt s, an d arran g em en ts, in clu d in g th e

am en d m en t, m o d if

icatio n , ad j u stm en t, or can celatio n [sic] th ereo f an d th e

co m pro m ise o r f

in al settlem en t o f an y claim arisin g th ereu n d er, a n d to

m ak e su ch ex p en d itu

res, u p o n su ch term s an d co n d itio n s an d in s uc h

m an n er as h e m ay d eem n ecessary .” 1 6 U.S.C. § 8 3 2 a(f ). Sectio n 9 (a) of
t h e N o rth w est P ow er A ct l ater reaf f irm ed t h is g ran t o f co n tractin g an d settlem en t au th o rity

. 1 6 U

. S .C. § 8 3 9f (a); see a lso PGE
, 5 0 1 F.3 d at 1 0 1 7

.

2 In Pa cific No rth west Gen era tin g Co o p e r a tive v. Bo nn eville Po wer Ad min istra tio n (

P N G C II)

, w e sim ilarly m ad e clear th at BP A ’ s m ere

au th ority to en te r in to a co n tract co u ld “ n o t in su late f ro m rev iew ” its d ecisio n to d o so . 5 9 6 F.3 d 1 0 6 5 , 1 0 7 3 (9 t h Cir. 2 0 1 0 ).I CNU V

. B PA 43

too, as we held i n P

NGC I
, it may n ot enter into a monetiz ation contract that functions as an i m permissible subsidy o f the a luminum industry

. Pac. Nw. G e n e rating Coop. v. Dep’t of Energ

y (P NGC I)

, 580 F .3d 792, 823 (9th Cir. 2009).

Admittedly

, B PA’s authority to mone t iz e and thus subsidiz e its DSI customers presented a closer que s t i o n in PNGC I than the ex ample g iven in PGE in which B PA would acquire the Portland T rail B laz ers, and likely rename them the B onneville Smelters. N evertheless, in PNGC I
, we held that B PA’s m o n e t iz a tion of power at subsidiz ed rates was (as would be the p urchase of the Trail B laz ers) “inconsistent with B PA’s a uthority under the [ Northwest Power Act] .” PNGC I
, 580 F .3d at 823. I n other words, B PA’s decision to “g iv[ e]

a f e w o f i ts customers $300 million,” id.

, was “so arbitrary and capricious as t o violate its statutory oblig ation.” A lcoa Inc. v. B onneville Power Admin.

, 698 F

. 3d 774, 789 (9th Cir. 2012).

B PA arg u es that it is n ot permitted to seek recovery of the illeg ally transferred f

unds because the c o ntracts c ontain damag es w a i v e r provisions. The majority holds that the contractual waivers are a valid ex ercise of B PA’s power to settle claims. Maj. Op. at 28. B ut just as B PA’s authority to enter into contracts is c onstrained by its statutory limitations, so too is its authority

to settle claims. As we stated in P G E
, “Cong ress could not have made it any clearer that it intended for B PA to ex ercise its g eneral settlement authority within the confines of the [ Northwest P o w e r A c t]

. ” 501 F .3d at 1028. Tha t B PA’s settlement authority is constrained by its statutory limitations in the same manner as is its contracting authority follows necessarily because otherwise B PA c o uld accomplish b y settle m e n t precisely what it could notI CNU V

. B PA

44

accomplish by contract in the first i n s t a n c e. A settlement provision allowing B PA to retain title to th e Bonneville Smelters a

nd permitting the former owners o f the Trail B laz ers to retain the illeg ally transferred p u rchase p r ice would, f or ex ample, c ertainly not lie w ithin B PA’s settlement authority

.
Here, th e m a

j ority ’s holding allows B PA to accomplish the very subsidy of the aluminum DSI s that we held in PNGC I to be unla w f

u l and o utside o f its statutory a uthority

. B ecause we held in PGE that “[ a ] settlement ag reement must not be a means of by

p assing cong ressio n a l ly mandated requirements,” a damag es waiver provision must be interpreted in a manner that forbids such circumvention of the limitations o n B PA’s statutory powers. See 501 F .3d at 1030. Construing the provision consistently with BP A’s statutory mandate requires that w e hold that t h e d a mag es w aiver
p r o v i s i o n may not be applied here so as to shield the illeg a l

s u b sidy and allow the aluminum industry to retain the unlawful pay

ments provided for in the 2007 B lock Contracts. Unfortunately

, the majority fails to acknowledg e that PGE is the controlling case.

I n upholding B PA’s decision not to seek the return of the illeg ally tr a n sferred funds, the majority relies primarily on

our holding in A lcoa v. Bonneville Power Administration that

a damag es waiver provision similar to the ones at issue here falls within B PA’s claim-settling authority

. M aj. Op. at 30–32. Alcoa does not c ontrol this c a se. Alcoa upheld B PA’s sale of power to a DSI at a below-market rate, concluding that the terms of sale specified in t h e a gr eement

— unlike the unlawful subsidies that are t h e subject of this case — were lawful and valid. 698 F .3d at 789. F inding no

v iolation of the ag ency ’s statutory mandate, we then tur n e dI CNU V

. B PA 45

to the petitioners’ challeng e to the ag re ement’s damag e s waiver provision and upheld its inclusion in the contract. Id.
at 791–92. 3 I n short, the damag es waiver provision we upheld in general w as included in a c ontract that did n o t itself provide for illeg al subsidies or otherwise f or violations o f B PA’s go v e rning statutes. B ecause we held that the transaction at issue in Alcoa was consistent with the statutory limits on B PA’s authority

, we h ad no o ccasion to consider whether a d amag es waiver p rovision that would allow B PA’s
customers to r etain unlawful benefits afforded them contrary to B PA’s statutory limits lies within B PA’s s ettlement authority . The answer appears otherwise.

That Alcoa did not address the issue we encounter in this

case is evident fro m B PA’s brief in Alcoa

. T here, B PA
arg ued that any holding recog niz ing B PA’s g eneral authority
to waive d amag es in a contract would h a v e no bearing o n a

3 It is im m aterial th at Alco a d eclin ed to ad d ress t h e v a lid ity o f th e

“ S eco n d P erio d ” p o rtio n o f th e Al c oa co n t ract. In Alco a , w e h eld th at p etitio n ers’ ch allen g e to t h e S e c o n d P erio d did n o t su rv iv e o u r stan d in g

o r rip en es s i n q u iry in p art b ecau se an am en d m en t to th e A lco a co n t ract

“ elim i n ated all ref

eren ces to th e S eco n d Perio d ,” m ean in g th at “ B P A an d A lco a w o u ld n eed to en t er in to a n ew co n tract th at in clu d es a sim i lar Seco n d P erio d befo r e t h e p etitio n ers co u ld po i n t to ev en th e th rea t of

su f f erin g h arm .” 6 9 8 F.3 d at 7 9 3

– 9 4

. It w o u ld h av e been q u ite p ecu l iar
to sp ecu late h o w th e d am ag es w aiv er pro v isio n m ig h t h av e op erated in th e

co n tex t o f an ag reem en t th at n o lo n g er ex isted

. In an y ev en t, o u r d ecisio n

n o t to ad d ress p etitio n ers’ ch allen g e to t h e Seco n d P erio d d o es n o t ch an g e th e f act th a t , a t th e tim e w e ad d ressed th e d am ag es w aiv er p ro v isio n in Alco a , w e did so in th e c o n t e x t of an o th erw i se v alid ag reem en t , an d th eref o re d id n o t en co u

n ter th e a p p lica tio n o f a d am ag es w aiv er p ro v i sio n

. W h at th e m aj o ri t y w o u l d n eed to su b stan tiate its p oin t — an d w h at it is clearly lack in g — is a statem en t in Alco a th at th e d a m ag es w aiv er p ro v isio n co u l d b e v alid l y ap p lied to p rev en t BP A f ro m reco u

p i n g f u n d s th at it d isp ersed a s a resu lt o f th e S eco n d P erio d o f th e A l co a co n t ract

ev en if th e term s o f th e Seco n d P erio d v io lated B P A ’ s statu to ry m an d ate.I CNU V

. B PA

46

situation like the one we a re n ow presented with, in which the underly ing transaction lies bey o nd B PA’s statutory a uthority

. B PA ex plicitly disting uished the case before it from the application of a damag es waiver provision under the circumstances present here. I ts brief told us: “The A l c oa Contract involves a sale of power, not a m o n e tiz ed
tra n s a ction such as those under review in P NGC I and II

. Therefore, this case d oe s n o t involve any issue of B PA ‘recouping

illeg al pay

ments’ because no such pay ments will be made. ” A n s wering B r. of Resp’t B onneville Power Ad m i n. at 75, Alcoa

, 698 F .3d 774 (No. 10-70211). This
stateme nt makes clear that B PA ex pressly disclaimed the authority to a

pply a damag es waiver provision to p revent the
ag ency from recouping funds trans f erred without statutory authority

. The fact that the majority has now, o n the basis o f Alcoa

, g ranted B PA the authority it ex pressly discl ai m e d is striking

. 4 B ut even setting that concern aside, B PA’s brief to the Alcoa court proves that Alcoa c ou l d n o t have possibly decided the issue p resent in this case

– whether a damag e s waiver provision which does prevent B PA from recouping funds transferred without statuto r y authoriz ation is permissible – b ecause B PA ex p licitly disting uished that issue from the one presented in Alcoa

.

4 I n o te b u t n eed n o t rely o n th e arg u m en t th at B P A m ay b e p reclu ded b y j u d icial esto p p el f

ro m rely in g o n Alco a

. J u d icial esto p p el b ars a p arty f ro m m ak in g an arg u m en t in a j u d icial p ro ceed in g th at directly co n trad icts

a n arg u m en t o n w

h ich i t p rev ailed in a p rio r p ro ceed in g

. S ee Ru ssell v

. Ro lfs , 8 9 3 F.2 d 1 0 3 3 , 1 0 37

– 39 (9 th Cir. 1 99 0 ). B P A

assu red th is Co u rt th at i f w e ru led f

o r it in Alco a , o u r d ecisio n w o u ld n o t co n cern “ an y issu e

o f B P A ‘ reco u

p in g illeg al p ay

m en ts.’ ” Hav in g p rev ailed o n its arg u m en t, it n o w tells u s th e o p p o site – t h at o u r d ecisio n in Alco a d ecid ed p recisely th e issu e th at B P A

said o u r d ecisio n w o u ld n ot af

f ect.I CNU V

. B PA 47

That we did not intend Alcoa to a uthoriz e the settlements
at issue here is further evident from the Alcoa court’s failure
to discuss or e ven mention PGE

. PGE c learly requires B PA
to ex ercise b oth its contracting and its settlement a uthority in

a m anner consistent with its statutory oblig ations. S e e 501 F .3d at 1030–31. Thus, Alcoa did not and could not have
aut h o r i z ed B PA, b y means of its settlement authority

, to

surren d er its rig ht to seek r estitution from the beneficiary o f funds transferred to them in ex c ess of B PA’s statutory authority without creating a d irect conflict with the principles that we established in PGE

. The o nly reading o f Alcoa that is consistent with P G

E is that A lcoa approved the g eneral authority o f B PA to include damag es waiver provisions in its
ag reements, a conclusion with which I firmly ag ree. Viewed in this lig ht, it is obvious why the Alcoa court did not discuss PGE — we were simply not prese n ted with the unlawful application of a damag e s w aiver p rovision because we did not rule any part o f the ag reement at issue invalid. Had we done
so, and had t h e damag es waiver p rovision applied, we certainly could not have escaped the requirement ex pressed in P GE that B PA must ex ercise its contracting and settlement authority within the confines of its g overning statutes.

The majority d isag rees, reasoning that the damag e s waiver p rovisions a t issue here a nd in Alcoa look alike, a

nd that Alcoa therefore controls. That Alcoa did not consider the application of a damag es waiver provision to a disbursement of f unds in contravention o f B PA’s statutory authority is o f

no consequen c e t o t he majority

. To my colleag ues, the fact
t hat the provisions are similar e nds the inquiry

. T h u s , t h e

necess a ry consequence of the majority opinion is that A lcoa

— without me n t i o n ing PGE — has blessed not only B PA’sI CNU V

. B PA

48

g eneral authority to include a damag es waiver provision in its
ag reements, but also every application of such a provision. 5

Re c o gniz ing that this position is unsustainable, the majority attempts to disclaim such a holding by n oting that if

a damag es waiver “ does not benefit the ag ency and is instead des i gn ed p rincipally to prevent an unlawful subsidy from being recouped,” then such a waiver would be invalid. Maj. Op. at 30. However, this case demonstrates wh y the majority ’s o s t e n s ible limit on its decision will have no practical effect. B efore our Court, I CNU made the precise
arg ument that the m a

j ority claims would be sufficient to i n v a lidate a damag es waiver; it arg ued that the waiver “was designed to ensure that

. . . B PA c o uld circumvent Cong ress’
g oal of prohibiting s a l e s t o t he D SI s a t rates lower than the market or leg a l rate” (emphasis a d d ed). B PA countered that “the damag es waiver is intended to broadly protect both B PA and Alcoa from damag es c laims that either party could bring
ag ainst the o ther.” I n fact, an ag ency ’s motive in ag reeing to

a w a i v e r of damag e s may well be mix ed. There will ordinarily be some potential benefit to i t i f i t is protected
ag ainst damag es. I n short, it ma y v e r y w e l l be true that the

5 T h e m aj ority also relies on th e f act th at in each o f th e 2 0 0 7 B l ock Co n tracts, th e d am ag es w aiv er p ro v isio n is sev erab l e f ro m t h e in v alid
p ro v isio n s th at u n law f

u lly su b sid ize th e alu m i n

u m in d u stry

. It is d if

f icu l t to u n d erstan d w

h y

. No o n e h as s u g g e s t ed th at th e d am ag es w aiv er p ro v isio n is itself in v alid

. Rath e r , i t is o n ly its a p p lica b ility to th e

u n law f u l su b s id izatio n th at is a t issu e. T o s u g g est th at sev erin g th e

u n law f u l su b sid izatio n p ro v isio n s f

ro m th e dam ag e s w a i v er p ro v isio n

so m eh o w preclu d es B P A fr o m seek in g t o reco v er th e am o u n ts i t paid

u n d er th o se u n law f

u l p ro v i sio n s m ak es n o sen se w h atso ev er. In f

act, th e

sev eran ce sh ow s o n ly th at th e pay m en ts w ere b ey o n d B P A ’ s au th o rity

, n o t th at B P A ’ s cu sto m ers m

u st b e allo w ed to k eep th e $ 1 0 0 to $ 2 0 0 m illio n in su b sid i es th at B P A

u n law f u lly g av e th em

.I CNU V

. B PA 49

damag es w aiver provisions both protect B PA from potential liability and were “desig ned principally ” to ensure that the aluminum companies could retain their subsidies — whether they were lawful or not.

Here, it w as “apparent” that charg ing the DSI s a r ate that

was below both the rate authoriz e d by statute and t h e r a t e available on the open market conflicted w ith B PA’s statutory mandate, and was t h erefore “hig hly suspect.” PNGC I
, 580 F .3d at 821. Under these circumstances, it is reasonable
to conclude that when BPA included a damag es w aiver provision in its contracts with the DSI s, 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 damag es w aiver p rovisions would allow the DSI s to keep their ill- go t ten g ains, and such was a principal reason f

or including the damag es w aiver provisions in the contracts. I n my v iew, however, it is n ot even necessary to reach the question of why B PA i n c l u d ed the damag es waiver provisions in its contra c t s with the D SI s. The proper approach is simply to apply our binding p recedent in PGE and ask whether B PA is invoking a damag es waiver provisi o n in a manner that is contrary to its statutory authority

. 6 The answer to that question is clearly

, y es.

I n this case, B PA operated contrary t o its statutory authority in subsidiz ing the aluminum companies i n the

am o u nt of $100 to $200 million, n ot only by making the

6 Of co u r s e , PGE d o es n o t b ar th e ap plicatio n o f a ll d am ag es w aiv er p ro v isio n s. Su ch a p ro v isio n co u ld still ap p ly if an ag reem en t is o th erw ise in v alid f or a reaso n th at d o es n o t im p licate B P A ’ s statu to ry au th o rity

, su ch

as w h en an ag reem en t is in v alid f o r co n f l ictin g w ith g en eral p rin cip les of

co n tract law

.I CNU V

. B PA

50

i n itial pay

ments but by failing to seek restitution of th e amounts illeg ally transferred. I ts reliance on g e neral damag e s waiver provisions in t h e ag r eements as precluding it from securing the return of those p ay m e n ts is without support in the law. Therefore, I would hold, consistent with PGE
, t hat apply ing a damag es waiver p rovision to prevent B PA from obtaining r e covery of illeg ally transferred funds is bey ond B PA’s sta t u t o ry authority

. I respectfully concur in part a nd dissent in part.