Opinion ID: 3036826
Heading Depth: 2
Heading Rank: 1

Heading: SN CRAC Trigger Decision

Text: BPA was entitled to trigger the SN CRAC proceedings if it forecasted a fifty percent or greater probability that it would miss the next payment to the United States Treasury. Here, PUBLIC POWER COUNCIL v. BPA 3795 BPA made that forecast, but PPC asserts that the forecast was made arbitrarily and capriciously because at least $76,000,000 of available cash was not considered. We agree with BPA that it did not need to consider that cash and, therefore, reject PPC’s claims. We shall explain. [1] It is noteworthy that the SN CRAC does not itself set any new rates; rather, once it is triggered, a proceeding to determine the amount of the increase in rates, if any, is commenced. Moreover, the SN CRAC does not spell out any particular methodology that BPA must use in making the forecast that will trigger the proceeding. It does not state that all cash reserves must be considered to be available for use, or even that there must be an emergency. It simply refers to the making of a “forecast.” Certainly, nothing in the provision indicates that before the SN CRAC trigger can be invoked, BPA must find itself driven to the wall and must project the use of every last scrap of available cash that could conceivably be used to make a payment to the Treasury. Of course, $76,000,000 does not exactly sound like a scrap, so more must be said about that amount and its provenance. As it is, the cash came from a particular source. Energy Northwest (ENW) is a joint operating agency that manages several power generating stations in the Pacific Northwest. BPA markets the power generated at ENW’s Columbia Generating Station. In exchange, BPA is contractually obligated to pay the principal and interest on ENW-issued bonds that were sold in order to finance ENW’s generation projects. As a result, when ENW refinances its bond debt at BPA’s request, BPA is temporarily relieved of making those principal and interest payments—that can free up significant amounts of cash for BPA’s use. At an earlier time, ENW had agreed to extend the principal due in fiscal year 2003 into the 2013-2018 period by refinancing the bonds. The result was that BPA would have up to $315,000,000 in surplus cash available to it, and by February 3796 PUBLIC POWER COUNCIL v. BPA 2003, when the SN CRAC was triggered by BPA, it had already realized $76,000,000 from that particular source. That is the money which PPC insists BPA had to take into account in making its TPP forecast, and it is essentially undisputed that had the amount been taken into account, the TPP would have exceeded fifty percent. Therefore, the SN CRAC could not have been triggered. But it is not quite as simple as that. What PPC chooses to overlook is the fact that ENW was not required to make the refinancing decision in the first place, but that it was induced to do so for a particular business reason. That reason was bound up with BPA’s Debt Optimization Program, a program that had been in place for some three years before the trigger date came around. Under the Debt Optimization Program, when ENW agrees to refinance its bonds, the cash that is freed up is to be used by BPA for the purpose of paying down BPA’s United States Treasury debt, which carries a higher interest rate. That paydown has significant financial benefits for BPA in the long run and, ultimately, reduces its fixed debt costs. It does not, however, affect BPA’s obligation to make the current payment. Because the very reason for the ENW refinancing was to fund a particular use of the savings thereby generated, sound and honorable business practices pointed to BPA’s use of the money in the manner anticipated by both it and ENW. Most immediately, BPA would breach faith with ENW were it to divert the money to a use other than that intended. But there is more. In essence, that diversion would also have a bad effect on the market for ENW bonds because analysts would see that the saved money was just being used up on what amounted to current BPA expenses, rather than being used to reduce future expenses. Moreover, the high interest rate debt to the United States Treasury would remain as a burden. In a sense, the seed corn of the future would be devoured in the famine of the present. And, of course, the ultimate financial problem would not be solved, but, rather, would be deferred to future years. In the long term, the ENW bond debt would PUBLIC POWER COUNCIL v. BPA 3797 remain, while the debt to the United States Treasury would not be commensurately reduced. That might well then require BPA to raise its power rates even further in order to cover accumulated shortfalls. [2] In light of those eximious reasons for BPA’s forecasting in the way it did, we are not able to say that BPA failed to proceed in accordance with “sound business principles.” Ass’n of Pub. Agency Customers, 126 F.3d at 1171 (internal quotation marks omitted). On the contrary, this is a situation where “it seems particularly wise to defer to the agency’s actions in furthering its business interests, especially when the agency is responding to unprecedented changes in the market.” Id. Especially is the above true when we reflect on the fact that the SN CRAC is itself a part of the GRSPs, which are much more than mere contract terms. See Cent. Lincoln, 735 F.2d at 1128. They are entirely bound up with BPA’s rate making responsibilities, and we owe deference to the BPA in that area. See Cal. Energy Comm’n, 909 F.2d at 1306; see also Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S. Ct. 2381, 2386-87, 129 L. Ed. 2d 405 (1994). [3] In fine, although other approaches were possible, even reasonable, the confluence of the reasons given by BPA and the deference we owe to it preclude us from determining that BPA acted arbitrarily or capriciously when it made its forecast and pulled the SN CRAC trigger.