Opinion ID: 3048512
Heading Depth: 2
Heading Rank: 5

Heading: Fish and Wildlife Costs

Text: Confederated Tribes of the Umatilla Indian Reservation and the Yakama Nation (“the Tribes”) contend that BPA underestimated the cost of fish and wildlife programs when it set its WP-02 rates. According to the Tribes, those rates therefore provide insufficient revenue to satisfy BPA’s fish and wildlife obligations. Unlike the other petitioners, the Tribes seek review not only of BPA’s rate determination but also of FERC’s decision to confirm and approve the WP-02 rates. Apart from structuring the relationship between BPA and its customers, one of the primary purposes of the Northwest Power Act was “to protect, mitigate and enhance the fish and wildlife, including related spawning grounds and habitat, of the Columbia River and its tributaries, particularly anadromous fish which are of significant importance to the social and economic well-being of the Pacific Northwest and the Nation.” 16 U.S.C. § 839(6). The NWPA requires BPA and other federal agencies to “exercise [their] responsibilities consistent with the purposes of this chapter and other applicable laws, to adequately protect, mitigate, and enhance fish and wildlife . . . in a manner that provides equitable treatment for such fish and wildlife with the other purposes for which the system and facilities are managed and operated.” Id. GOLDEN NORTHWEST ALUMINUM v. BPA 4911 § 839b(h)(11)(A)(I); see also Nw. Envtl. Def. Ctr. v. BPA, 477 F.3d 668, 672-76 (9th Cir. 2007); Nw. Res. Info. Ctr., Inc. v. Nw. Power Planning Council, 35 F.3d 1371, 1377-78 (9th Cir. 1994); Nat’l Wildlife Fed’n v. FERC, 801 F.2d 1505, 1513-14 (9th Cir. 1986). [12] The NWPA requires BPA to take into account its fish and wildlife obligations when it sets its wholesale power rates. Rates must be high enough to ensure that BPA will recover its total costs, including costs associated with “fish and wildlife measures.” 16 U.S.C. §§ 839e(a), (g). A 1999 amendment to the NWPA further specifies that “rates established by [BPA] . . . shall recover costs for protection, mitigation and enhancement of fish and wildlife . . . not to exceed such amounts [BPA] forecasts will be expended during the fiscal year 2002-2006 rate period, while preserving [BPA’s] ability to establish appropriate reserves and maintain a high Treasury payment probability for the subsequent rate period.” Id. § 839e(n). “Treasury payment probability” (“TPP”) refers to the likelihood that BPA will satisfy its obligation to repay on schedule “the Federal investment in the Federal Columbia River Power System.” Id. § 839e(a)(1); see also id. § 839(4). Before setting the WP-02 rates, BPA was required to estimate its fish and wildlife costs for the rate period. Prior to the rate proceeding, BPA conducted a public process that led to the development in 1998 of the “Fish and Wildlife Funding Principles” (the “Principles”), which included thirteen alternatives for carrying out BPA’s fish and wildlife obligations. Each alternative had its own projected cost. Because “final decisions and approvals on a fish and wildlife recovery strategy” had not been made when the WP-02 proceeding began, BPA decided to rely on all thirteen alternatives as a way of “keep[ing] [its] options open.” BPA explained that it would “treat the alternatives as if each [was] equally likely to occur.” BPA also expressed its intention to establish rates that would “yield a very high probability of meeting all post-FY 2001 4912 GOLDEN NORTHWEST ALUMINUM v. BPA financial obligations” for whatever alternative was ultimately adopted. WP-02 Announcement, 64 Fed. Reg. at 44,321. Having already undertaken extensive consultations during the development of the Principles, BPA announced that the WP-02 proceeding would not “in any way revisit the policy merits or wisdom of the strategy to ‘keep the options open.’ ” Id. at 44,322. Nor would the rate proceeding consider, among other things, “the content, merits, or level of costs for the fish and wildlife recovery strategies reflected in each of the 13 alternatives,” “the decision to include the full range of costs for all 13 alternatives,” “the TPP goal of 88 percent over the 5-year rate period with a ‘floor’ of 80 percent,” “the assumption that all 13 alternatives are equally likely to occur,” or “the assumption that BPA’s annual fish and wildlife operations and maintenance costs have an equal probability of falling anywhere within the range of $100 million and $179 million.” Id. at 44,322-23. Instead, BPA stated that the WP-02 proceeding would “address implementation of the Principles.” Id. at 44,322. During the initial rate proceeding, the Tribes argued that giving equal weight to each of the thirteen alternatives, as opposed to assuming that the more expensive alternatives were particularly likely to be implemented, was “arbitrary and unrealistic” and amounted to “willful blindness.” The Tribes also argued that it was necessary for BPA to update the projected cost of each alternative based on new information, including new risk analysis from various fish and wildlife agencies. According to the Tribes, BPA’s reliance on outdated projections increased the likelihood that BPA would be unable to achieve its TPP targets and would fail to accumulate sufficient financial reserves to meet its post-2006 funding obligations. In the Initial ROD, BPA replied that, “[i]n the absence of clear science or regional consensus, [BPA] considered it prudent to assume that all options identified in the Principles are GOLDEN NORTHWEST ALUMINUM v. BPA 4913 equally likely to occur.” BPA did, however, use a “slightly broader range” of total expected costs in light of an “updated market forecast.” At the time the Principles were adopted, BPA had anticipated annual fish and wildlife costs of $438 million to $721 million; in the Initial ROD, BPA estimated costs of $430 million to $780 million. BPA explained that it was reasonable “to update one set of data, the market prices, with the most recent data . . . and not update other data (on fish and wildlife costs) where the source of that data is substantially less authoritative.” Controversy over fish and wildlife costs continued during the supplemental WP-02 proceeding, which BPA undertook in response to unexpected market volatility. BPA announced that the supplemental proceeding would “address the problems created by increased purchaser power costs . . . resulting from higher prices in a volatile market environment.” Supplemental Announcement, 65 Fed. Reg. at 75,275. It would not “open issues previously determined to be outside the scope of the first phase of the rate case,” including “the policy merits or wisdom of the strategy to ‘keep the options open’ or of the Fish and Wildlife Funding Principles.” Id. In the supplemental proceeding, the Tribes again insisted that BPA had failed to adopt realistic fish and wildlife cost estimates. In particular, the Tribes pointed to new legal obligations under the Clean Water Act and a new Biological Opinion issued by the National Marine Fisheries Service shortly after the initial WP-02 proceeding had concluded. The Biological Opinion indicated that the cost of habitat and hatchery restoration would be significantly higher than BPA’s previous estimates. The Tribes also argued that BPA’s new cost adjustment mechanisms were flawed because they might not be triggered until after BPA declared a financial emergency and “operat[ed] the river to the detriment of salmon.” BPA responded that the thirteen alternatives already “incorporate[d] a wide range of fish and wildlife costs” and that it 4914 GOLDEN NORTHWEST ALUMINUM v. BPA would be able to address “unexpectedly high costs” through its revised CRACs. Before turning to the substance of the Tribes’ claims, we must decide whether their petition was timely with respect to FERC. Although the NWPA gives parties ninety days to challenge a final BPA action, see supra Part II, we have previously noted that the NWPA “says nothing about our jurisdiction to review FERC’s decisions confirming or rejecting BPA rate determinations.” WUTC, 26 F.3d at 940. Instead, our jurisdiction to review FERC’s approval and confirmation of BPA’s rate determinations is governed by the Federal Power Act. See id. (citing 16 U.S.C. § 825l(b)). Unlike the NWPA, the Federal Power Act requires petitioners to seek judicial review within sixty days after FERC issues an order granting or denying rehearing. 16 U.S.C. § 825l(b). In this case, the Tribes filed their petition for review on December 17, 2003—61 days after FERC denied their petition for rehearing on October 17, 2003. Consequently, while we may consider the Tribes’ claims against BPA, we have no jurisdiction over their claims against FERC. [13] However, our inability to review FERC’s actions is of little practical consequence. We have emphasized that “the clear focus of the review provisions [of the NWPA] is on BPA, not FERC.” CP Nat’l, 928 F.2d at 911. FERC’s review of BPA’s ratemaking decision is limited to “assuring that rates are adequate, but not excessive, in relation to cost recovery.” Cent. Lincoln, 735 F.2d at 1110; see also id. at 1114 (“The [NWPA’s] structure reveals Congress’s clear choice to depart from the previous pattern of FERC review in favor of a more limited, oversight role.”); 16 U.S.C. § 839e(2) (setting out the three findings FERC must make before it approves BPA’s rates). FERC’s final order, which contained only a single page of “discussion,” confirmed and approved BPA’s rates in relation to cost recovery. In reviewing the Tribes’ claims against BPA, the NWPA directs us to consider whether BPA’s rate determination is GOLDEN NORTHWEST ALUMINUM v. BPA 4915 supported by “substantial evidence in the rulemaking record.” 16 U.S.C. § 839f(e)(2). As we recently explained, “substantial evidence is simply ‘more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ ” Pub. Power Council, 442 F.3d at 1209 (quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)). “In addition, we may not approve [a rate determination] if we determine that it represents BPA action that is ‘arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.’ ” See S. Cal. Edison Co. v. Jura, 909 F.2d 339, 342 (9th Cir. 1990) (quoting 5 U.S.C. § 706(2)(A)). That is, we must “assess whether BPA relied on improper factors, failed to consider an important aspect of the question, ‘offered an explanation for its decision that runs counter to the evidence before [it], or [rendered a decision that] is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.’ ” Pub. Power Council, 442 F.3d at 1209 (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). The Tribes’ core complaint is that BPA based its WP-02 rates on an unrealistically low estimate of BPA’s fish and wildlife costs. According to the Tribes, by understating its likely costs, BPA created an unacceptable risk that it would not produce sufficient revenue to cover its costs, repay its Treasury debt, maintain adequate financial reserves for the next rate period, and satisfy its fish and wildlife commitments. We agree with the Tribes that BPA’s failure to recalculate its fish and wildlife costs in light of the evidence presented during the initial and supplemental rate proceedings was arbitrary and capricious and resulted in a rate determination not supported by substantial evidence. We accept that, at the time it initiated the WP-02 rate proceeding, BPA faced uncertainty regarding its fish and wildlife costs because no fish and wildlife plan had been adopted. We also accept that the Fish and Wildlife Funding Principles 4916 GOLDEN NORTHWEST ALUMINUM v. BPA developed in 1998 provided a useful foundation for the WP02 rate case. We do not second guess, for example, BPA’s decision to set a minimum five-year TPP of 80 percent and a target five-year TPP of 88 percent. Nor do we question the propriety of developing the thirteen alternatives. The problem is that BPA adhered to the 1998 cost estimates —and to the assumption that each of the thirteen alternatives were equally likely to be implemented—long after subsequent events revealed their significant shortcomings. For example, during the initial proceeding, the Tribes introduced a May 1999 report authored by staff members of the Environmental Protection Agency, the Fish and Wildlife Service, and the National Marine Fisheries Service (the “Staff Report”). As we have previously explained, fisheries managers and agencies responsible for managing fish and wildlife possess “unique experience and expertise,” which requires that their analysis be given substantial weight. Nw. Resource Info. Ctr., 35 F.3d at 1388. The Staff Report described some of the “[s]ignificant new information” that had emerged since the development of the thirteen alternatives and calculated refined cost estimates for two alternatives that were “under serious consideration.” Undisputed testimony from the Tribes also revealed that the adoption of certain fish and wildlife alternatives—alternatives particularly likely to satisfy the requirements of the Endangered Species Act (“ESA”)—would cause BPA’s chances of making its Treasury payments to fall well below 80 percent. BPA sought to minimize the significance of this information by citing a subsequent letter from a National Marine Fisheries Service staff member, which stated that Service saw “no reason to conclude that BPA will not be able to cover its anticipated costs.” The letter also stated, however, that “BPA’s financial obligations for fish and wildlife and environmental mitigation . . . [were] likely to increase substantially through the next rate period,” and it recommended that “BPA consider strengthening its proposed contingencies.” GOLDEN NORTHWEST ALUMINUM v. BPA 4917 The letter did nothing to undermine the updated cost estimates included in the Staff Report. By the time of the supplemental WP-02 proceeding in late 2000 and early 2001, the difficulties with BPA’s approach had become even more apparent. At least three new developments underscored the need for new cost projections. First, the market volatility of 2000 caused BPA to declare a financial emergency, which meant it would not meet the operating requirements of the ESA. These changed market conditions, which led BPA to revisit its cost adjustment mechanisms, should have prompted BPA to take a fresh look at fish and wildlife costs. Second, a district court ruling in February 2001 imposed new Clean Water Act requirements on certain Army Corps of Engineers dams. See Nat’l Wildlife Fed’n v. U.S. Army Corps of Engineers, 132 F. Supp. 2d 876 (D. Or. 2001). Testimony indicated that BPA would bear most of the costs of complying with that decision. Third, and perhaps most significantly, the government issued a Biological Opinion in December 2000 describing what fish and wildlife actions would be necessary pursuant to the ESA. Despite signing a Memorandum of Understanding indicating that it would implement the Biological Opinion, and despite new projections from fisheries managers that BPA had underestimated its fish and wildlife costs by more than $300 million per year, BPA did not retreat from its prior calculations. (We note that a federal district court subsequently held that even the Biological Opinion failed to set forth adequate measures for salmon preservation. See Nat’l Wildlife Fed’n v. Nat’l Marine Fisheries Serv., 254 F. Supp. 2d 1196, 1212 (D. Or. 2003).) [14] Based on the information presented during the initial and supplemental rate proceedings, it should have been apparent to BPA that its 1998 cost estimates were too low and that the thirteen alternatives were not, in fact, equally likely to be implemented. Relying on outdated assumptions did not help BPA to “keep its options open”; rather, such reliance made it less likely that BPA would ultimately be able to live up to its 4918 GOLDEN NORTHWEST ALUMINUM v. BPA statutory obligations and other commitments, including its commitment in the Principles to maintain sufficient financial reserves for the post-2006 rate period. Because BPA discounted and ignored crucial facts presented to it, we hold that BPA’s fish and wildlife cost estimates and, by extension, the rates set pursuant to those estimates, were not supported by substantial evidence. [15] We also hold that, to the extent BPA simply excluded information related to fish and wildlife costs, it acted contrary to law. The NWPA requires that BPA periodically revise its rates in order to ensure that it recovers its costs. See 16 U.S.C. § 839e(a)(1). This requirement presupposes that BPA knows its costs or, at the very least, that it estimates them “in accordance with sound business principles.” Id. Although we understand that the WP-02 rate case was not the forum for making decisions regarding which fish and wildlife alternative to implement, BPA was nevertheless required to develop a realistic projection of fish and wildlife costs that accurately reflected the information available at the time the rates were set and the cost recovery mechanisms adopted. The Tribes separately argue that BPA failed to adhere to its statutory obligation to “provide[ ] equitable treatment for . . . fish and wildlife.” 16 U.S.C. § 839b(h)(11)(A)(i). We have explained that, when making final decisions, BPA must “demonstrate, by means that allow for meaningful review, that it has treated fish and wildlife equitably.” Nw. Envtl. Def. Ctr., 117 F.3d at 1534; see also Confederated Tribes of the Umatilla Indian Reservation v. BPA, 342 F.3d 924, 931 (9th Cir. 2003). Because we have already concluded that BPA failed to adopt rates sufficient to cover its true fish and wildlife costs, we need not separately address the Tribes’ equitable treatment argument.