Opinion ID: 1292232
Heading Depth: 2
Heading Rank: 2

Heading: The Litigation Penalty Provisions

Text: Petitioners vigorously challenge the litigation penalty provisions of the 2004 Amendments amending provisions of the CDAs and LRAs to waive $100M of the original $200M payment. Because the parties disagree whether these provisions are related to the 2000 REP Settlement Agreements at issue in PGE (and therefore implicated in our remand in this case), or whether they are independent agreements, we address these provisions separately to provide additional guidance to BPA. We conclude that the litigation penalty provisions of the LRAs are directly related to the 2000 REP Settlement Agreements PacifiCorp and PSE negotiated with BPA and not part of a separate agreement, as respondents argue. In the first place, the provisions are not an integral part of the LRAs. The contracts provide that PacifiCorp and PSE agree to a $200M reduction in their Settlement Agreement benefits in the event that the respective utilities have entered into settlement agreements with certain publicly owned utility and cooperative customers that waive and dismiss legal challenges . . . to the respective utilities' original REP Settlement Agreements. 2003 ROD at 30. These provisions are not central to or directly related to the LRAs, because the penalty is only included in two of the six LRAs BPA signed with IOUs. The penalty is, rather, a direct response to the litigation over the 2000 REP Settlement Agreement and not an independent benefit or program. Furthermore, the 2001 LRA provision's implementation is contingent on the fate of legal challenges to the 2000 REP Settlement Agreements. The contracts providing for the litigation penalty go into effect unless BPA's preference customers waive[ ] and dismiss[ ] legal challenges to a variety of BPA agreements regarding its REP program, including but not limited to the REP Settlement Agreement and its subsequent amendments and accompanying RODs. See BPA and Pacificorp Financial Settlement Agreement at 5. The original Conditional Deferral Agreements PacifiCorp and PSE signed also linked the litigation penalty and the 2000 REP Settlement Agreement. The deferral contracts gave PacifiCorp and PSE the ability to terminate deferment of the litigation penalty if the IOUs determine[ ] that the current comprehensive settlement efforts regarding litigation relating to [the 2000 REP Settlement Agreement] or the [2001 LRAs] are unlikely to be concluded successfully to [the IOU's] satisfaction. The provision was a way for BPA to gain leverage over its preference customers in an attempt to broker a settlement to the legal challenges to its 2000 REP Settlement Agreements. Because the litigation penalty provisions of the LRAs, as amended by the 2004 Amendments, are sufficiently related to the 2000 REP Settlement Agreements, they must be revisited in light of our decision in PGE. As with the other 2004 Amendments, we cannot determine how BPA will treat these provisions. First, for example, it could determine that our prior opinions undermined the entire 2001 LRAs and, consequently, the 2004 Amendments modifying the LRAs are also void. Alternatively, BPA could determine that our decisions invalidated the litigation penalty provisions of the LRAs, but that those provisions are tangential to the main agreement and severable. Finally, BPA might decide to honor the litigation penalty provision as amended by the 2004 Amendments, but decline to charge its preference customers the cost of paying the penalty. Because we cannot determine from the record what BPA intends to doand BPA may have other optionswe remand for further proceedings. Again, we express no judgment on the merits of BPA's options or on the legality of the litigation penalty itself. [8]