Opinion ID: 810192
Heading Depth: 3
Heading Rank: 2

Heading: BPA’s Failure to Maximize Its Profits

Text: The petitioners argue that BPA violated its statutory responsibilities in agreeing to sell surplus power at the IP rate to Alcoa pursuant to the terms of the Initial Period. First, the petitioners argue that by selling the power to Alcoa at the statutorily mandated IP rate, and thus forgoing the profits that could be made by selling surplus power on the market, BPA violated its statutory responsibility to operate pursuant to sound business principles. Second, the petitioners challenge the analysis supporting BPA’s conclusion that it will make a modest profit of $10,000 by selling power to Alcoa at the IP rate during the Initial Period. The petitioners claim that BPA erred in its method for determining the cost of the program and will likely fail to make a profit, contrary to the Equivalent Benefits standard. Third, the petitioners claim that BPA’s waiver of potential claims against Alcoa violates BPA’s statutory and constitutional authority. Finally, Alcoa argues that it is arbitrary and capricious for BPA to adhere to the Equivalent Benefits standard because neither PNGC II nor the governing statutes requires BPA to sell power to DSIs at the market rate. In reviewing these arguments, we consider merely whether “the agency considered the relevant factors and articulated a rational connection between the facts found and the choices made”; we do not second-guess its policy judgments. Cal. Wilderness Coal. v. U.S. Dep’t of Energy, 631 F.3d 1072, 1084 (9th Cir. 2011) (quoting Nw. Ecosystem Alliance v. U.S. Fish & Wildlife Serv., 475 F.3d 1136, 1140 (9th Cir. 2007)). First, we consider petitioners’ argument that BPA’s statutory obligation to operate in accordance with “sound business principles” requires BPA to forego selling its power at the IP rate to Alcoa, and instead to maximize its profits, as a private corporation would strive to do. See 16 U.S.C. §§ 839e(a)(1), 839f(b), 838g. The failure to maximize profits that could otherwise be used to lower the rates charged to its preference 12406 ALCOA, INC. v. BPA customers, petitioners argue, violates BPA’s duty to provide power “at the lowest possible rates to consumers consistent with sound business principles.” See also PNGC I, 580 F.3d at 821 (noting that because BPA’s rates are based on its “total system costs,” 16 U.S.C. § 839e(a)(2), a “side-effect” of selling power at the lower IP rates for the DSIs “will be an increase in the rates paid by a much larger set of customersthe businesses, industries, farms, and residences served by public utilities, electrical cooperatives, and investor-owned utilities with BPA power”). According to ICNU, BPA did not operate in accordance with sound business principles because the sale of power to Alcoa at the IP rate during the Initial Period will net the agency a profit of only $10,000. ICNU alleges that BPA has undervalued the profits it could obtain from selling power in the open market rather than to Alcoa by approximately $20 million, that forgoing such profits is not businesslike, and that BPA violated the APA by relying on an inadequate record and reasoning. PNGC claims that BPA is not operating according to sound business principles because it is not acting according to a profit-making purpose, but rather is subsidizing Alcoa (by selling it power at the IP rate, which is lower than the market rate) so as to preserve jobs at its smelting plant and the surrounding community. [3] We disagree that BPA is required to maximize its profits. The Northwest Power Act mandates that BPA establish the IP rate for DSIs “at a level which [BPA] determines to be equitable in relation to the retail rates charged by the [BPA’s preference] customers to their industrial consumers in the region,” taking into account certain factors. 16 U.S.C. § 839e(c)(1)(B). Further, BPA must set rates “with a view to encouraging the widest possible diversified use of electric power at the lowest possible rates to consumers consistent with sound business principles,” id. § 838g(1). But as we have previously noted, BPA’s governing statutes “do not dictate that BPA always charge the lowest possible rates.” Cal. Energy Comm’n v. BPA, 909 F.2d 1298, 1307-08 (9th Cir. 1990). Rather, we are mindful that Congress has delegated to ALCOA, INC. v. BPA 12407 BPA the discretion to determine “how best to further BPA’s business interests consistent with its public mission,” APAC, 126 F.3d at 1171, and we “may only set aside such an assessment if it is unreasonable, meaning that it is ‘contrary to clear congressional intent or that [it] frustrate[s] the policy Congress sought to implement,’ ” PNGC II, 596 F.3d at 1080 (alteration in original) (quoting Biodiversity Legal Found. v. Badgley, 309 F.3d 1166, 1175 (9th Cir. 2002)). [4] In light of the deference we are to give BPA, we cannot say that BPA’s decision to enter into the Alcoa Contract was so arbitrary and capricious as to violate its statutory obligation. First, the Alcoa Contract requires BPA to sell power to Alcoa at the IP rate, not merely transfer funds as in PNGC I and II. We stated in PNGC II that a “physical” sale of power, with the attendant balancing of market factors, resource constraints, and business judgments it entails, would be more likely to merit our deference than would a cash payout by BPA for Alcoa to use in buying power from one of BPA’s competitors. Id. at 1085. Second, BPA anticipated earning a profit during the Initial Period, which contrasts sharply with the hundreds of millions of dollars BPA expected to forego under the agreements in PNGC I and II, where BPA did not identify any profit from its agreement to provide funding to Alcoa. See id.; PNGC I, 580 F.3d at 823. [5] Nor is there evidence supporting PNGC’s claim that BPA entered into the Alcoa Contract to subsidize Alcoa. The ROD expressly disclaimed reliance on job impacts as a factor in its decision and declined to include such impacts in its Equivalent Benefits analysis. PNGC’s speculation is an insufficient basis for upsetting the agency’s contracting decision. See Ctr. for Biological Diversity v. Kempthorne, 588 F.3d 701, 710-11 (9th Cir. 2009). We therefore defer to BPA’s determination that a sale on the terms specified for the Initial Period is in keeping with sound business principles and find no violation of the agency’s statutory mandate. 12408 ALCOA, INC. v. BPA