Opinion ID: 2735161
Heading Depth: 3
Heading Rank: 1

Heading: The 2007 Block Contracts (PNGC I)

Text: In 2006, BPA entered into three-way contracts, effective starting in the 2007 fiscal year, between BPA; Alcoa, and two other aluminum DSIs; and local public utilities (“the 2007 Block Contracts” or “Block Contracts”). The DSIs wanted to continue buying physical power from BPA at a cost-based rate. Instead, BPA agreed “to make payments to the [aluminum DSIs] totaling a maximum of $59 million per year for five years in lieu of supplying them with actual electrical power, while retaining the option to sell them physical power instead in the final two years.” PNGC I, 580 F.3d at 798.2 Alcoa challenged these contracts, arguing that BPA was required to sell it physical power, sufficient to meet its needs, at a cost-based rate. Id. at 806–07, 809. Concurrently, several of BPA’s preference and other industrial customers challenged the same contracts from the opposite direction, objecting to subsidies or sales to the DSIs except for discretionary market-rate sales of surplus power. Id. at 807–09. We held that, under the relevant statutory provisions, BPA is not required to sell physical power to the DSIs. Id. at 811–12. Rather, it is required to meet the power needs only 2 The two other aluminum DSIs that received Block Contracts were Golden Northwest Aluminum and CFAC. However, Golden Northwest subsequently allocated its power allocation to Alcoa and CFAC, so BPA never made any payments to Golden Northwest. ICNU V. BPA 13 of its preference customers, and has the option to sell to DSIs thereafter, if it so chooses. Id. However, if BPA does sell to DSIs, it must offer them the IP rate, not a market rate. See id. at 812–18. We also held that, “under appropriate circumstances, BPA may lawfully monetize its energy contracts,” “so long as the decision to monetize is otherwise consistent with BPA’s statutory obligations.” Id. at 819, 820. But we did not find the Block Contracts justified under that standard. As the Block Contracts were effectively a sale of power “at a rate below what [BPA] is statutorily required to offer (i.e., the IP rate), and below what it could receive on the open market” from non-DSI customers, the contracts were inconsistent with BPA’s statutory obligation to fulfill its role consistent with “sound business principles.” Id. Consequently, “BPA’s decision to monetize the aluminum DSI contracts amount[ed] to an impermissible subsidy of those companies’ operations.” Id. at 819. The question remained whether the aluminum DSIs owed BPA a refund for any past subsidy payments. Each of the Block Contracts contained a damages waiver providing, In the event the Ninth Circuit Court of Appeals or other court of competent jurisdiction issues a final order that declares or renders this Agreement void or otherwise unenforceable, no Party shall be entitled to any damages or restitution of any nature. Id. at 826. We did not decide in PNGC I whether this waiver was applicable, noting that there was no indication in the administrative record of “how BPA believe[d] the damages waiver provision should be construed and, in particular, what effect it [was] to have if a contract [were] only partially 14 ICNU V. BPA invalidated.” Id. Instead, we remanded to BPA “to determine in the first instance the applicability and construction” of several elements of the Block Contracts, including the damages waiver. Id. at 827. In doing so, we made clear that we were not declaring the Block Contracts void ab initio. Id. at 826–27. Rather, given that the contracts contained a severability clause and, in addition to the invalidated monetary benefits provision, a possibly valid physical power sale option, they were potentially partially enforceable. See id. at 826.