Opinion ID: 3048512
Heading Depth: 2
Heading Rank: 4

Heading: Recovering the Cost of Settling Obligations

Text: to Investor-Owned Utilities [9] The Western Public Agencies Group, Public Power Council, and Public Utility District No. 1 of Grays Harbor petitioners argue that BPA violated the Northwest Power Act by forcing its preference customers to bear the costs of a global settlement between BPA and its investor-owned utility (IOU) customers. In addition to requiring BPA to enter initial contracts with DSIs, the NWPA also created a mechanism— the Residential Exchange Program (REP)—to ensure that IOUs would continue to enjoy access to low-cost power. The details of the REP are set out in section 5(c) of the NWPA. See 16 U.S.C. § 839c(c). The program permits IOUs to sell power to BPA at the IOUs’ “average system cost” and then purchase, in exchange, an equivalent amount of BPA’s power at a lower price, which the IOUs may then sell to their residential customers. Id. § 839c(c)(1). As we explain in our separate opinion filed today, “[t]he REP essentially acts as a cash rebate to the IOUs where the IOUs’ power costs exceed those of the BPA.” Portland Gen. Elec., No. 01-70003, ___ F.3d at ___, slip op. at 4841; see also WUTC, 26 F.3d at 936-37; CP Nat’l, 928 F.2d at 907. [10] The NWPA requires that the IOUs’ exchange benefits not come at the expense of BPA’s preference customers. Under section 7(b)(2), preference customer rates must be calculated as if BPA made “no purchases or sales” under the REP. 16 U.S.C. § 839e(b)(2). Any amounts not charged to preference customers as a result of section 7(b)(2)’s “rate ceiling test” must instead be “recovered through supplemental rate charges for all other power sold by [BPA] to all customers.” 16 U.S.C. § 839e(b)(3). “The practical effect of the rate ceiling is that once it is reached, qualifying IOUs must then pay for the costs of the additional benefit they receive, thereby reducing the overall value of their benefits.” Portland Gen. Elec., No. 01-70003, ___ F.3d at ___, slip op. at 4842. GOLDEN NORTHWEST ALUMINUM v. BPA 4909 Over time, as the cost of BPA power increased, the value of the REP benefit declined, and BPA began to consider new ways to lower the power costs of the IOUs. In its Subscription ROD, BPA proposed a global settlement with its IOU customers. BPA explained that it was acting under its general authority to settle claims arising under its contracts. See 16 U.S.C. §§ 832a(f), 839f(a). The proposed settlement guaranteed the IOUs a certain amount of power at rates no higher than the rates charged to preference customers. In exchange, the IOUs agreed to release BPA from future REP obligations. Portland Gen. Elec., No. 01-70003, ___ F.3d at ___, slip op. at 4854. The total cost of the proposed settlement “significantly exceeded BPA’s own projection of future REP costs.” Id. at 4854. Even though section 7 of the NWPA normally ensures that the costs of the REP are not passed along to BPA’s preference customers, BPA classified the cost of the REP settlement as “an ordinary cost of doing business” that could be recovered through higher rates on all its customers. See id. at 4865; see also 16 U.S.C. § 839e(g). In setting its WP-02 preference rates, BPA first determined how much it could charge its preference customers pursuant to section 7(b)(2)’s rate ceiling. 16 U.S.C. § 839e(b)(2). BPA then adjusted the preference rate upward in order to recover costs associated with the REP settlement. According to petitioners, this additional step contravened the NWPA’s cost allocation rules. Rather than including settlement costs in the preference rate, petitioners explain that BPA should have recovered those costs “through supplemental rate charges for all other power” pursuant to section 7(b)(3). Id. § 839e(b)(3). [11] In Portland General Electric, we hold today that “BPA construed and exercised its settlement authority in a manner that was contrary to the clearly expressed intent of Congress in the Bonneville Project Act and the NWPA.” Portland Gen. Elec., No. 01-70003, ___ F.3d at ___, slip op. at 4860. We explain that BPA’s settlement authority is “sub4910 GOLDEN NORTHWEST ALUMINUM v. BPA ject to the constraints of § 7(b) of the NWPA.” Id. at 4866; see also id. at 4869 (“[BPA] may enter into REP settlement contracts with IOUs, but only on terms that will protect the position of its preference customers, consistent with . . . [section] 7(b).”). By burdening its preference customers with part of the cost of the REP settlement, BPA “ignored its obligations” under sections 7(b)(2) and (3). Id. at 4880. Our holding in Portland General Electric is dispositive here: BPA “plain[ly] violat[ed]” the rule that the rates it charges preference customers must be calculated “as if ‘no purchases or sales . . . were made [under the REP program].’ ” Id. (quoting 16 U.S.C. § 839e(b)(2)(C)).