FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PUBLIC UTILITY DISTRICT NO. 1 OF 

SNOHOMISH COUNTY WASHINGTON

WASHINGTON,

Petitioner,

THE WASHINGTON UTILITIES AND

TRANSPORTATION COMMISSION

(WUTC); PORTLAND GENERAL

ELECTRIC COMPANY,

Intervenors, No. 04-74240

v.  BPA No.

BONNEVILLE POWER Power Act

ADMINISTRATION,

Respondent,

AVISTA CORPORATION; IDAHO POWER

COMPANY; PACIFICORP; PORTLAND

GENERAL ELECTRIC COMPANY AND

PUGET SOUND ENERGY, INC.,

Applicant-Intervenor. 

13759
CANBY UTILITY BOARD, 

Petitioner,

PUBLIC UTILITY DISTRICTS OF

CLALLAM, GRAYS HARBOR, AND

KITTITAS COUNTIES; PUBLIC UTILITY

DISTRICTS NO. 1 AND 3 OF MASON

COUNTY, WASHINGTON,

Intervenors, No. 04-74245

v.  BPA No.

BONNEVILLE POWER 00PB-12157

ADMINISTRATION,

Respondent,

AVISTA CORPORATION; PACIFICORP;

PORTLAND GENERAL ELECTRIC

COMPANY; PUGET SOUND ENERGY,

Intervenors. 

ALCOA, INC., 

Petitioner, No. 04-74252

v. BPA No.  FY 2007-2011 BONNEVILLE POWER

ADMINISTRATION, OPINION

Respondent. 

On Petition for Review of an Order

of the Bonneville Power Administration

Argued and Submitted

November 14, 2005—Seattle, Washington

Filed October 11, 2007

13760 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
Before: Stephen Reinhardt, William A. Fletcher, and

Jay S. Bybee, Circuit Judges.

Opinion by Judge Bybee

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13761
COUNSEL

Paul M. Murphy, Murphy & Buchal, Portland, Oregon, for

petitioner Canby Utility Board. 

John H. Hammond & Matthew J. Michel, Beery, Elsner &

Hammond, Portland, Oregon, for petitioner Canby Utility

Board. 

Daniel Seligman, Seattle, Washington, for petitioner Canby

Utility Board. 

Michael A. Goldfarb, Law Offices of Michael A. Goldfarb,

Seattle, Washington, for petitioner Public Utility District No.

1 of Snohomish County. 

Terence L. Mundorf, Marsh Mundorf Pratt Sullivan & McKenzie, Mill Creek, Washington, for petitioners Public Utility

Districts No. 1 of Clallam, Grays Harbor, Kittitas and Mason

Counties and petitioner Public Utility District No. 3 of Mason

County. 

Randy Roach & Timothy A. Johnson, Bonneville Power

Administration, Portland, Oregon, for respondent Bonneville

Power Administration. 

Karin J. Immergut, Stephen J. Odell, David J. Adler & Kurt

R. Casad, United States Attorney’s Office, Portland, Oregon,

for respondent Bonneville Power Administration. 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13763
R. Blair Strong, Paine Hamblen, Spokane, Washington, for

respondent-intervenor Avista Corporation. 

Michael G. Andrea, Avista Corporation, Spokane, Washington, for respondent-intervenor Avista Corporation. 

Marcus A. Wood & Stephen C. Hall, Stoel Rives, Portland,

Oregon, for respondent-intervenor PacifiCorp. Scott G. Seidman & David F. White, Tonkon Torp, Portland, Oregon, for

respondent-intervenor Portland General Electric Company. 

Donald G. Kari & Sheree Strom Carson, Perkins Coie, Bellevue, Washington, for respondent-intervenor Puget Sound

Energy, Inc. 

OPINION

BYBEE, Circuit Judge: 

Petitioners, publicly owned utilities (“PUDs”) operating in

the Pacific Northwest1 challenge contract amendments entered

into in May 2004 (collectively “2004 Amendments”) between

the Bonneville Power Administration (“BPA”) and several

investor-owned utilities (“IOUs”) arguing that they violate

provisions of the Northwest Power Act (“NWPA”). The

amendments at issue modify various provisions of several

“REP Settlement Agreements” BPA entered into with IOUs

in October 2000 and additionally implement a $100M “Reduction of Risk” or “litigation penalty” implemented in agreements between BPA and two IOUs, PacifiCorp and Puget

Sound Energy, in May and June of 2001. In a previously

1Petitioners include Public Utility District No. 1 of Snohomish County

and Canby Utility Board. Intervenors include Washington and the Washington Utilities and Transportation Commission, Public Utility Districts of

Clallam, Grays Harbor and Kittitas Counties, Public Utility Districts No.

1 and 3 of Mason County, Washington. 

13764 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
issued opinion, we held that BPA was bound by the power

exchange requirements of the Northwest Power Act and exercised its settlement authority contrary to those requirements

when it entered into the REP Settlement Agreements. Portland Gen. Elec. Co. v. BPA, ___ F.3d ___ (9th Cir. 2007).

Because BPA has not had an opportunity to determine the

continued validity of the 2004 Amendments, we remand to

the agency to determine in the first instance how to treat the

amendments in light of our prior decision and this opinion.

I. BACKGROUND

Our prior opinion in PGE provides a thorough explanation

of the underlying regulatory framework, BPA’s operations,

and background on the 2000 REP Settlement Agreements

which form the basis of the 2004 Amendments at issue here.

See ___ F.3d at ___. [*1 WL] Additionally, several other of

our opinions chronicle the history of BPA and describe its

complicated regulatory framework. See, e.g., Golden Nw. Aluminum, Inc. v. BPA, ___ F.3d ___ (9th Cir. 2007); Pub.

Power Council, Inc. v. BPA, 442 F.3d 1204 (9th Cir. 2006);

M-S-R Pub. Power Agency v. BPA, 297 F.3d 833 (9th Cir.

2002) (as amended); Ass’n of Pub. Agency Customers, Inc. v.

BPA, 126 F.3d 1158 (9th Cir. 1997). We only repeat facts

necessary for the disposition of this case and refer the reader

to our prior opinions for a more comprehensive explanation.

A. The 2001 Load Reduction Agreements

In 2001, while the PGE litigation was pending, the Pacific

Northwest experienced a severe drought. Lower precipitation

throughout the region coupled with prior BPA decisions and

contracts (including the 2000 REP Settlement Agreements

which were at issue in PGE, ___ F.3d ___) put the agency in

a position where it could not generate enough power to meet

its contractual obligations. BPA’s Administrator warned in a

public speech that rate increases of “250 percent or more”

were possible since “BPA’s obligations added up to approxiPUBLIC UTILITY DIST. v. BONNEVILLE POWER 13765
mately 11,000 megawatts—about 3,000 megawatts more than

[its] current generating resources [could] provide on a firm

basis.” The Administrator advised that the only way to avoid

massive rate increases was for BPA to reduce its 3,000 megawatt short position. In response, BPA developed a threepronged Load Reduction Program involving conservation by

consumers, reduction in power demand by utilities, and load

curtailments by its direct service industrial customers. After

negotiating several load reduction agreements with various

customers, BPA was able to announce that the effort was “absolutely a stunning success” and that it only had to impose a

rate increase of 46%, instead of a much higher anticipated

increase. 

As part of its load reduction plan, BPA entered into Load

Reduction Agreements with PacifiCorp and Puget Sound

Energy (“PSE”) on May 23, 2001, and June 7, 2001, respectively (collectively “LRA”s). The LRAs eliminated BPAs

obligation to deliver virtually all power to PacifiCorp and

PSE for the FY 2002-2006 time period in exchange for cash

payments.2 One of the provisions in the LRAs provided that

BPA would reduce the payments to PacifiCorp and PSE from

$45.49 per MWh of foregone power to $38 per MWh if by

December 1, 2001, PacifiCorp and PSE were able to negotiate

and enter into litigation settlement agreements with the PUDs

and other of BPA’s preference customers. If the PUDs did not

enter into agreements by the specified date, the clause would

expire and BPA would make cash payments to PacifiCorp and

PSE based on the $45.49 rate for the FY 2003-2006 period.

2During FY 2002, PacifiCorp and PSE each agreed to forego 10 percent

of their power deliveries (25 and 37 annual aMW, respectively) in

exchange for a cash payment of $20 per MWh and agreed to forgo the balance (90 percent) of the power deliveries (226 and 331 annual aMW,

respectively) in exchange for a cash payment of $38 per MWh. During FY

2003-2006, PacifiCorp and PSE agreed to forego all of their power deliveries (241 and 368 annual aMW, respectively) in exchange for a cash payment of $45.49 per MWh, which amount would be reduced to $38 per

MWh, if certain lawsuits were dismissed. 

13766 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
This clause—referred to as the “litigation penalty” by the

PUDs and a “Reduction of Risk Discount” by BPA3 — operated as a strong incentive for the PUDs to settle their ongoing

litigation (including litigation over the 2000 REP Settlement

Agreements) with BPA. If the PUDs settled, the cash payments BPA was obligated to make to PacifiCorp and PSE

would be reduced by approximately $200M. If the PUDs

refused to settle, they would in effect have to pay an additional $200M to acquire BPA power, as BPA announced it

would recover the $200M through its wholesale power rates

which would affect all of its customers, including the PUDs.

B. The Deferral Agreements and the Failed 2003 Global

Settlement

When none of the PUDs or other of BPA’s preference customers entered into settlement agreements by the December

1, 2001 deadline, BPA deferred payment of the “litigation

penalty” and entered into renewed settlement talks. In anticipation of a broad settlement, PacifiCorp and PSE executed

Conditional Deferral Agreements (“CDAs”) in June 2002

with BPA. Under the CDAs, PacifiCorp and PSE agreed to

defer payment of the $200M beginning October 1, 2002,

while settlement discussions progressed. The payments would

be automatically deferred for continuing six month periods

unless PacifiCorp or PSE elected to terminate the deferral

period. BPA agreed to pay the companies 4.46 percent interest on the $200M during the deferral period. In 2003, BPA

proposed a global litigation settlement which called for the

preference customers to agree to a new formula for IOU benefits for FY 2007-2011; dismiss all their pending Ninth Circuit

litigation, including challenges to the 2000 REP Settlement

Agreements; and enter “covenants not to sue” regarding

future claims. In exchange, the IOUs would waive payment of

the $200M litigation penalty. In a Record of Decision pub3At least one internal BPA document refers to this clause as a “litigation

penalty.” 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13767
lished October 21, 2003 (“2003 ROD”), BPA made it clear

that if the settlement failed, it would raise rates in order to pay

the litigation penalty to PacifiCorp and PSE.4

BPA failed to garner the required unanimous support for its

settlement proposal by the January 21, 2004, deadline. A day

later, BPA issued a press release announcing that the agreement had failed and giving notice that it was implementing

the $200M litigation penalty: “[h]ad the proposal succeeded,

BPA’s wholesale power rates would have dropped by nearly

7 percent, retroactive to Oct. 1, 2003. . . . The proposed rate

decrease would have been possible largely due to elimination

of the $200 million in payments to investor-owned utilities.

. . . In the absence of a settlement, BPA will continue to

implement its existing power contracts.”

C. BPA’s 2004 ROD and Contract Amendments 

After the global litigation settlement failed, BPA

announced in a Record of Decision on May 25, 2004 (“2004

ROD”), that it had implemented several contract Amendments

(collectively the “2004 Amendments”) modifying the 2000

REP Settlement Agreements and establishing IOU benefits

for FY 2007-2011. The Amendments include provisions that:

(1) specified that BPA elected to provide payments, not physical power, pursuant to the 2000 REP Settlement Agreements

and the 2001 LRAs during FY 2007-2011; (2) replaced the

established rate case price forecast, which was used to calculate the cash payments BPA would make to the IOUs, with a

mark-to-market methodology5; (3) obligated BPA not to

4The 2003 ROD specifically stated “The amount of the reduction in risk

benefits, for PacifiCorp and Puget combined, is approximately $200 million. Absent settlement, the $200 million would be included in and recovered through BPA’s wholesale power rates.” 2003 ROD at 30 (emphasis

added). 

5Mark-to-market is an accounting methodology of assigning value to a

position held in a financial instrument based on the current market price

for that instrument. In BPA’s case, it would replace its previous rate case

method for pricing its power—for the purpose of calculating the cash payments it would make to the IOUs—with a new system based on the market

price for electricity. 

13768 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
reduce IOU benefits even if a reduction was required by Section 7(b)(2) of the NWPA; (4) establish an annual guaranteed

$100M floor and a $300M cap on the financial benefits provided to the IOUs for FY 2007-2011 even if Section 7(b)(2)

required reduction of IOU benefits below $100M; (5) modify

the time allowed the IOUs to pass monetary benefits of the

2000 REP Settlement Agreement through to their residential

and small-farm consumers; and (6) implement $100M of the

“litigation penalty” embedded in the 2001 LRAs through rate

increases for FY 2007-2011.6

Finally, the 2004 Amendments provided that if any of its

provisions were held void, then the underlying agreement in

effect prior to the 2004 Amendments would apply and the

provisions of the 2004 Amendments would have no further

force or effect unless the parties could negotiate mutually

acceptable replacement terms. These 2004 Amendments form

the basis of the instant litigation. 

D. Litigation Over the 2000 REP Settlement Agreements

In 2001, several preference customers challenged the 2000

REP Settlement Agreements. In PGE, we held that BPA’s

broad settlement authority under § 2(f) of the NWPA, 16

U.S.C. § 832a(f), did not give it license to create an exchange

program divorced from the stringent requirements imposed by

Congress in § 5(c) and 7(b) of the NWPA, 16 U.S.C.

§§ 839c(c) & 839e(b). The agreements BPA entered into conflicted with its governing statutes and, consequently, were

“not in accordance with law.” 5 U.S.C. § 706(2)(A). We held

that the 2000 REP Settlement Agreements which created this

6Only the contracts with PacifiCorp and PSE which implement the 2004

ROD contain provisions modifying the litigation penalty. Per the amendments, PacifiCorp and PSE agreed to forego the remaining $100M of the

litigation penalty in consideration for the 2004 Amendments, but would

forego the payment only if other elements of the 2004 Amendments were

not found to be unlawful. 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13769
new benefit system were inconsistent with the NWPA and

exceeded the authority delegated to BPA by Congress.

Accordingly, we granted the petitions for review. See PGE,

___ F.3d at ___. [*21 WL] In a companion case dealing with

the 2002-2006 wholesale power rates set by BPA, we held,

among other things, that BPA violated the NWPA when it

allocated to its preference customers part of the cost of the

REP Settlement. See Golden Nw., ___ F.3d at ___. [*1 WL]

II. JURISDICTION AND JUDICIAL REVIEW

[1] We have original subject matter jurisdiction over BPA’s

“final actions and decisions . . . or the implementation of such

final actions” taken pursuant to the NWPA. 16 U.S.C.

§ 839f(e)(5). We have previously identified four types of suits

for which we have jurisdiction: 

[S]uits challenging (1) the constitutionality of the

Act; (2) the constitutionality of any action taken pursuant to the Act’s statutory authority; (3) final

actions or other decisions by BPA . . . taken pursuant

to the Act’s statutory authority; and (4) the implementation of final actions by BPA . . . taken pursuant

to the authority of any of four enumerated federal

power statutes. 

Pac. Power & Light Co. v. BPA, 795 F.2d 810, 814 (9th Cir.

1986). Here, in deciding whether we have jurisdiction, we

must determine first whether BPA’s challenged action was

either a final agency action or the implementation of an action

and second, whether the challenge to the action was timely

filed within 90 days of either a final action or implementation

of a final action. 16 U.S.C. § 839f(e)(5). 

[2] The NWPA identifies eight final actions which are

expressly subject to judicial review: 

(A) adoption of the plan or amendments thereto by

the [Northwest Power Planning] Council under sec13770 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
tion 839b of this title, adoption of the program by the

Council, and any determination by the Council under

section 839b(h) of this title;

(B) sales, exchanges, and purchases of electric

power under section 839c of this title;

(C) the Administrator’s acquisition of resources

under section 839d of this title;

(D) implementation of conservation measures under

section 839d of this title;

(E) execution of contracts for assistance to sponsors

under section 839d(f) of this title;

(F) granting of credits under section 839d(h) of this

title;

(G) final rate determinations under section 839e of

this title; and

(H) any rule prescribed by the Administrator under

839e(m)(2) of this title. 

16 U.S.C. § 839f(e)(1). Additionally, the Act provides a jurisdictional “catch-all” for other final actions: “Nothing in this

section shall be construed to preclude judicial review of other

final actions and decisions by the Council or Administrator.”

16 U.S.C. § 839f(e)(3). We have interpreted this “catch-all”

provision to extend only to actions based on the record developed before the agency, and expressly to exclude any causes

of action arising from actions divorced from and unrelated to

an administrative record. See Pub. Util. Dist. No. 1 of Clark

County v. Johnson, 855 F.2d 647, 649-50 (9th Cir. 1988)

(declining to exercise jurisdiction over contract and tort

claims against BPA). 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13771
[3] The 2004 Amendments arguably come within the enumerated actions as a “sale, exchange or purchase of electric

power”; however, because they modify provisions of existing

agreements, including the 2000 REP Settlement Agreements

which were entered into pursuant to 16 U.S.C. §§ 839f(e)(3)

and 839f(e)(1)(B), we think they are more properly analyzed

under the “catch-all” provision. We only have jurisdiction

under the “catch-all” provision if an agency action was

“final.” The Act does not specify what constitutes a “final”

agency action, so we have looked to the “more general doctrine of finality in administrative agency law.” See Puget

Sound Energy, Inc. v. United States, 310 F.3d 613, 624 (9th

Cir. 2002). The primary inquiry is “concerned with whether

the initial decisionmaker has arrived at a definitive position

on the issue that inflicts an actual, concrete injury.” Darby v.

Cisneros, 509 U.S. 137, 144 (1993) (internal quotation marks

omitted); see also Franklin v. Massachusetts, 505 U.S. 788,

797 (1992). 

[4] In Bennett v. Spear, 520 U.S. 154 (1997), the Supreme

Court held that an agency action is “final” when two conditions are met: “First, the action must mark the ‘consummation’ of the agency’s decisionmaking process—it must not be

of a merely tentative or interlocutory nature.” Id. at 177-78

(citations omitted). Second, “the action must be one by which

‘rights or obligations have been determined,’ or from which

‘legal consequences will flow.’ ” Id. at 178 (citations omitted). Applying this test, we have found that certain factors

“provide an indicia of finality, such as ‘whether the [action]

amounts to a definitive statement of the agency’s position,

whether the [action] has a direct and immediate effect on the

day-to-day operations of the party seeking review, and

whether immediate compliance [with the terms] is expected.’ ” Indus. Customers of Nw. Utils. v. BPA, 408 F.3d 638,

646 (9th Cir. 2005) (quoting Cal. Dep’t of Water Res. v.

FERC, 341 F.3d 906, 909 (9th Cir. 2003) (citations omitted)).

[5] Applying the Bennett factors, we conclude that we have

jurisdiction to review the 2004 Amendments, as they are final

13772 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
actions of BPA. After holding the standard notice and comment period, BPA announced its adoption of the 2004

Amendments in a Record of Decision. The 2004 ROD is the

consummation of BPA’s decision making process and expression of BPA’s final decision on an issue. It is not merely a

intermediate step. See Ass’n of Pub. Agency Customers, 126

F.3d at 1182-83 (treating the date of execution of the ROD as

the date on which the decision becomes final). Three days

after BPA issued the 2004 ROD, it executed agreements

implementing the ROD with the six IOUs, Avista Corp.,

Idaho Power Co., PacifiCorp, Portland General Electric Co.,

Northwestern Energy, and Puget Sound Energy, further proof

that it had reached a final decision. 

[6] The 2004 Amendments also satisfy the second prong of

the test: they fix specific rights from which legal consequences flow. For example, in altering the panoply of benefits

BPA was giving to the IOUs, the ROD notes, among other

things, that the 2004 Amendments will result in a short term

rate decrease of six percent for FY 2005-2006, and a projected rate increase of one percent for FY 2007-2011 over the

pre-Amendment projected rate. Additionally, in the contracts

with PacifiCorp and PSE, in exchange for a waiver of $100M

of the “litigation penalty,” BPA agreed to apply the remaining

$100M with the costs to be recouped through its FY 2007-

2011 rates. Alterations and changes to existing contracts

clearly have legal consequences if they directly result in rate

changes to BPA customers. 

[7] The 2004 Amendments did not merely change the

implementation of a prior agreement. Rather they created new

benefits and obligations vis-a-vis BPA’s customers and, as

such, constitute a final agency action. Therefore, we conclude

that the 2004 Amendments meet both prongs of the Bennett

test and their adoption is a reviewable agency action. Petitioners timely filed their challenge to the 2004 ROD within 90

days of its adoption, see 16 U.S.C. § 839f(e)(5), and we have

jurisdiction to review their petition. 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13773
III. STANDARD OF REVIEW

The Administrative Procedure Act (“APA”), 5 U.S.C.

§ 706, governs our review of BPA’s actions. See 16 U.S.C.

§ 839f(e)(2) (incorporating the scope of review provisions of

the APA). Accordingly, we may set aside BPA’s decisions

only if they are “arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.” 5 U.S.C.

§ 706(2)(A). See PGE, ___ F.3d at ___; [*11 WL] Pub.

Power Council, Inc., 442 F.3d at 1209.

IV. ANALYSIS

The challenged 2004 ROD and subsequent contracts implementing the ROD alter three groups of prior agreements: the

vast majority of the provisions amend contract provisions

implementing the 2000 REP Settlement Agreements; the

remaining provisions modify and implement various provisions of the CDAs and the 2001 LRA agreements with PacifiCorp and PSE dealing with the “litigation penalty.” 

In PGE, we concluded that BPA’s settlement authority

under § 2(f) of the Bonneville Project Act is subject to and

constrained by the REP requirements in § 5(c) and the rate

ceiling in §7(b) of the NWPA, and we held that “BPA’s broad

reading of its settlement authority is contrary to a plain reading of [its organic statutes], and it is inconsistent with general

principles of administrative law.” ___ F.3d at ___ [*14 WL].

We further held that BPA was operating from a faulty legal

premise and “ignored the exchange program that Congress

created in the NWPA and that BPA has implemented through

its regulations,” instead creating “a new residential exchange

benefit system under § 2(f).” Id. at [*21 WL]. This we held

was “not in accordance with law.” 5 U.S.C. § 706(2)(A). 

Specifically, we held that BPA violated congressional mandate when it implemented the REP Settlement Agreements

and abandoned its traditional ASC methodology in favor of a

13774 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
new calculation which took into account legal challenges and

future fluctuations in the energy market. This change “served

to enlarge the group of IOUs eligible for the settlement and

to increase the benefits of those already qualified for the

REP” and altered the allocation of the settlement benefits.

PGE, ___ F.3d at ___ [*19 WL]. We concluded that BPA had

“[i]n effect . . . settled the REP program as if it had changed

its regulations, which it had not.” Id. at ___ [*20 WL]. In

addition, BPA erred in charging both its preference and nonpreference customers for the costs of the REP Settlement it

had created. At the time it passed the NWPA, Congress made

it clear that BPA’s “primary purpose remained to protect [its]

preference customers and that any steps BPA took to

exchange power with its non-preference customers could not

result in an increase in the preference customers’ rates.” PGE,

___ F.3d at ___ [*20 WL]. We concluded that BPA acted outside the authority delegated to it by Congress when it classified the costs of the REP as a “settlement cost” to be recouped

through BPA’s general power rates: BPA cannot impose costs

related to its REP program on its preference customers when

Congress has expressly guaranteed preference customers rates

as if “no purchases or sales . . . were made [under the REP

program].” 16 U.S.C. § 839e(b)(2)(C); see also PGE, ___

F.3d at ___ [*21 WL]. Keeping these principles in mind, we

now turn to the 2004 Amendments and the litigation penalty

provisions.

A. Amendments to the 2000 REP Settlement Agreement

Contracts

[8] The bulk of the 2004 ROD and the implementing contracts concern amendments to the 2000 REP Settlement

Agreements. The continued validity of the 2004 Amendments

depends on how BPA treats the underlying 2000 Settlement

Agreement in light of our opinion in PGE. From our vantage

point, BPA has at least two options. First, for example, BPA

may conclude that our decisions undermined the basis for the

2000 REP Settlement Agreements and treat these 2004 agreePUBLIC UTILITY DIST. v. BONNEVILLE POWER 13775
ments as null and void. This would, consequently, render the

provisions of the 2004 Amendments that amend the 2000

REP Settlement Agreements void ab initio.

7

 Second, BPA

might conclude that at least some of the contract provisions

continue to be valid and enforceable subject to modifications

to make them conform to our prior opinions and the requirements of the NWPA. From the record before us, we cannot

determine BPA’s likely course of action. We, therefore,

remand the 2004 Amendments modifying the 2000 REP Settlement Agreements to BPA to permit it to determine, in the

first instance, their continued validity in light of our recent

opinions. We do so without offering any opinion as to the

validity of either course of action and without prejudice to

other options available to BPA. 

B. The “Litigation Penalty” Provisions

Petitioners vigorously challenge the “litigation penalty”

provisions of the 2004 Amendments amending provisions of

the CDAs and LRAs to waive $100M of the original $200M

payment. Because the parties disagree whether these provisions are related to the 2000 REP Settlement Agreements at

issue in PGE (and therefore implicated in our remand in this

7

In its 2004 ROD BPA stated that the amendments (with the exception

of “litigation penalty” modifications) would “become meaningless” if we

were to invalidate the underlying 2000 REP Settlement Agreements. 2004

ROD at 21. The parties agreed that: 

“[i]f the courts strike down the manner in which BPA provides

benefits under the REP Settlement Agreements, the foundation

for the [2004 Amendments] disappears. As a result, if the court

were to invalidate the REP Settlement Agreements, BPA and the

investor-owned utilities have agreed that the [2004 Amendments]

would be void ab initio since the foundation for calculating benefits in the REP Settlement Agreement would no longer exist.” 

2004 ROD at 11. Additionally, the contracts between BPA and each of the

IOUs provide that if a court holds “section 4(c) of the [2000] Settlement

Agreement [ ] void, unenforceable, or unlawful,” the 2004 Amendments

will be void ab initio. 

13776 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
case), or whether they are independent agreements, we

address these provisions separately to provide additional guidance to BPA. 

We conclude that the “litigation penalty” provisions of the

LRAs are directly related to the 2000 REP Settlement Agreements PacifiCorp and PSE negotiated with BPA and not part

of a separate agreement, as respondents argue. In the first

place, the provisions are not an integral part of the LRAs. The

contracts provide that PacifiCorp and PSE agree to a $200M

“reduction” in their Settlement Agreement benefits “in the

event that the respective utilities have entered into settlement

agreements with certain publicly owned utility and cooperative customers that waive and dismiss legal challenges . . . to

the respective utilities’ original REP Settlement Agreements.”

2003 ROD at 30. These provisions are not central to or

directly related to the LRAs, because the penalty is only

included in two of the six LRAs BPA signed with IOUs. The

penalty is, rather, a direct response to the litigation over the

2000 REP Settlement Agreement and not an independent benefit or program. Furthermore, the 2001 LRA provision’s

implementation is contingent on the fate of legal challenges

to the 2000 REP Settlement Agreements. The contracts providing for the “litigation penalty” go into effect unless BPA’s

preference customers “waive[ ] and dismiss[ ] legal challenges” to a variety of BPA agreements regarding its REP

program, including but not limited to the REP Settlement

Agreement and its subsequent amendments and accompanying RODs. See BPA and Pacificorp Financial Settlement

Agreement at 5. The original Conditional Deferral Agreements PacifiCorp and PSE signed also linked the “litigation

penalty” and the 2000 REP Settlement Agreement. The deferral contracts gave PacifiCorp and PSE the ability to terminate

deferment of the “litigation penalty” if the IOUs “determine[ ]

that the current comprehensive settlement efforts regarding

litigation relating to [the 2000 REP Settlement Agreement] or

the [2001 LRAs] are unlikely to be concluded successfully to

[the IOU’s] satisfaction.” The provision was a way for BPA

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13777
to gain leverage over its preference customers in an attempt

to broker a settlement to the legal challenges to its 2000 REP

Settlement Agreements. 

[9] Because the “litigation penalty” provisions of the

LRAs, as amended by the 2004 Amendments, are sufficiently

related to the 2000 REP Settlement Agreements, they must be

revisited in light of our decision in PGE. As with the other

2004 Amendments, we cannot determine how BPA will treat

these provisions. First, for example, it could determine that

our prior opinions undermined the entire 2001 LRAs and,

consequently, the 2004 Amendments modifying the LRAs are

also void. Alternatively, BPA could determine that our decisions invalidated the “litigation penalty” provisions of the

LRAs, but that those provisions are tangential to the main

agreement and severable. Finally, BPA might decide to honor

the “litigation penalty” provision as amended by the 2004

Amendments, but decline to charge its preference customers

the cost of paying the penalty. Because we cannot determine

from the record what BPA intends to do—and BPA may have

other options—we remand for further proceedings. Again, we

express no judgment on the merits of BPA’s options or on the

legality of the “litigation penalty” itself.8

V. CONCLUSION

From the record before us, we cannot determine how BPA

will treat the 2004 Amendments in light of our decision in

PGE. Consequently, we remand this case to BPA to make that

8The petitioners argue that the “litigation penalty” violates the First

Amendment. See BE&K Constr. Co. v. NLRB, 536 U.S. 516, 525 (2002)

(holding that the First Amendment right to petition the government

extends to the courts); Mt. Healthy City School Dist. Bd. of Educ. v. Doyle,

429 U.S. 274 (1977) (holding that the government cannot take retaliatory

actions against persons because they exercise their constitutional rights);

O’Keefe v. Van Boening, 82 F.3d 322, 325 (9th Cir. 1996) (holding that

unconstitutional restrictions may arise from the “chilling” effect of government action). We decline to reach that issue here. 

13778 PUBLIC UTILITY DIST. v. BONNEVILLE POWER
determination in the first instance. All remaining motions are

dismissed as moot. 

REMANDED. 

PUBLIC UTILITY DIST. v. BONNEVILLE POWER 13779