Opinion ID: 3048509
Heading Depth: 2
Heading Rank: 1

Heading: The Scope of BPA’s Settlement Authority

Text: We give administrative agencies considerable leeway in the interpretation of the scope of their authority. See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000) (explaining that agencies possess “deference in the interpretation of statutes that they administer.”). Owing to the 14 The petitioners do not allege that the REP settlement is arbitrary and capricious, but that the settlements violate the NWPA as a matter of law. PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4861 complexity of BPA’s regulatory scheme, and its “unusually expansive mandate to operate with a business-oriented philosophy,” we have been particularly deferential to BPA. Ass’n of Pub. Agency Customers, Inc., 126 F.3d at 1171; see also Dep’t of Water & Power v. BPA, 759 F.2d 684, 690-91 (9th Cir. 1985). Our deference, however, does not abrogate our responsibilities to construe BPA’s organic acts consistent with Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See M-S-R Public Power, 297 F.3d at 841 (declining to defer to BPA’s statutory interpretation). As we review BPA’s construction of the acts under which it operates, “[o]ur first question is always ‘whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ ” Id. at 841 (quoting Chevron, 467 U.S. at 842-43). “On the other hand, where Congress expressly or implicitly confers authority to fill in a gap in the enacted law or resolve a statutory ambiguity, we accord the agency’s ensuing decision considerable deference.” Id. (citing United States v. Mead Corp., 533 U.S. 218, 229 (2001)). Where “the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. At the same time, “[r]egardless of how serious the problem an administrative agency seeks to address, . . . it may not exercise its authority ‘in a manner that is inconsistent with the administrative structure that Congress enacted into law,’ ” Brown & Williamson, 529 U.S. at 125 (quoting ETSI Pipeline Project v. Missouri, 484 U.S. 495, 517 (1988)), because “an administrative agency’s power to regulate in the public interest must always be grounded in a valid grant of authority from Congress.” Id. at 161. We therefore begin by identifying the precise scope of the statutory authority Congress has granted to BPA. 4862 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER [3] BPA’s settlement authority is found in provisions in two of its organic acts: § 2(f) of the Bonneville Project Act and § 9(a) of the NWPA. First, § 2(f) of the Bonneville Project Act states that Subject only to the provisions of this chapter, the Administrator is authorized to enter into such contracts, agreements, and arrangements, including the amendment, modification, adjustment, or cancelation [sic] thereof and the compromise or final settlement of any claim arising thereunder, and to make such expenditures, upon such terms and conditions and in such manner as he may deem necessary. 16 U.S.C. § 832a(f); see also 16 U.S.C. § 832d(a) (“Contracts entered into with any utility engaged in the sale of electric energy to the general public shall contain such terms and conditions . . . as the administrator may deem necessary, desirable or appropriate to effectuate the purposes of this chapter. . . .”). Second, in § 9(a) of the NWPA, Congress reauthorized BPA’s contract and settlement authority in connection with its new authority. “Subject to the provisions of this chapter, the Administrator is authorized to contract in accordance with section 2(f) of the Bonneville Project Act of 1937 (16 U.S.C. 832a(f)).” 16 U.S.C. § 839f(a) (emphasis added). Congress thus incorporated its prior grant of contract and settlement authority by reference and subjected it to the new requirements of the NWPA. [4] In § 5 of the NWPA, Congress, for the first time, granted explicit authority to BPA to exchange power with IOUs and DSIs. Even as it did so, Congress first reaffirmed that “[a]ll power sales under this chapter shall be subject at all times to the preference and priority provisions of the Bonneville Project Act.” 16 U.S.C. § 839c(a). Next, Congress either granted BPA new authority or constrained BPA’s existing authority over three kinds of power sales: (1) sales to public bodies, cooperatives, and Federal agency customers; (2) sales PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4863 to DSIs; and (3) purchase and exchange sales. 16 U.S.C. §§ 839c(b)-(d). Only the latter situation is relevant to this appeal: the purchase and exchange of power. Section 5(c)(1) of the NWPA provides: Whenever a Pacific Northwest electric utility offers to sell electric power to the Administrator at the average system cost of that utility’s resources in each year, the Administrator shall acquire by purchase such power and shall offer, in exchange, to sell an equivalent amount of electric power to such utility for resale to that utility’s residential users within the region. 16 U.S.C. § 839c(c)(1). As previously explained, this provision affords Northwest utilities the opportunity to sell their power to BPA at their average system costs. BPA must purchase the power and offer the utility BPA’s power at BPA’s average system cost. This process is essentially a paper transaction, where BPA subsidizes the cost of a utility’s high-cost power. Following the enactment of the NWPA, BPA entered into a series of long-term Residential Exchange Program agreements, or REPs, with various customers. In anticipation of the agreements’ expiration in 2000, BPA proposed revising its practices and offering its non-preference customers two options: (1) enter into a traditional REP agreement with BPA, or (2) enter into a new agreement for a global, long-term “settlement” of BPA’s prospective REP obligations. In other words, BPA offered its non-preference customers the option of maintaining the status quo or settling out of any future benefits. According to BPA, its legal obligations were different, depending on which of those two options its non-preference customers pursued. In BPA’s view, in a traditional REP agreement with a non-preference customer, such as an IOU, § 5(c) (and, by extension, § 7(b)) would apply. By contrast, 4864 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER with regard to a non-preference customer who chose to enter into a settlement agreement and settle out of any future power claims, BPA took the position that the agreement was governed by § 2(f) only, and it expressly denied that the settlement agreement would be subject to §§ 5(c) and 7(b). In the 2000 REP Settlement Agreement ROD, BPA flatly stated that “section 5(c) does not establish conditions for the settlement of IOUs’ rights to participate in the REP. Instead, the guidelines for BPA’s Settlement Agreements are found in section 2(f).” 2000 REP Settlement Agreement ROD at 36, 53. In its brief to this court, BPA repeated that in the REP settlements, “BPA is not interpreting section 5(c) of the Northwest Power Act.” Thus, BPA argued that “Petitioners’ argument about section 5(c) is irrelevant with respect to the 2000 REP Settlement Agreements. BPA has interpreted section 2(f) of the Bonneville Project Act, not section 5(c) of the Northwest Power Act, as providing BPA authority to settle disputes arising under the RPSAs.”15 If we needed further evidence of BPA’s position, BPA argued elsewhere in its brief: REP Settlement Agreements are entered into pursuant to and are authorized by section 2(f) of the Bonneville Project Act. Accordingly, REP Settlement Agreements are not required to include elements required by section 5(c) of the Northwest Power Act to be included in RPSAs, such as the ASC Method- ology, ASCs, in lieu transactions, and the PF Exchange rate (including the section 7(b)(2) test. 15 By contrast, in response to our request for supplemental briefing following oral argument, see supra note 13, BPA argued that “BPA has not argued and does not argue that it can enter into REP settlements and disregard sections 7(b)(2)-(3) and 5(c) of the Act pursuant to its section 2(f) settlement authority.” BPA’s latest argument is “newly-minted, it seems, for this lawsuit, and inconsistent with prior agency actions.” Defenders of Wildlife v. Norton, 258 F.3d 1136, 1145-46 n.1 (9th Cir. 2001). To the extent BPA’s latest statement purports to be an interpretation of its statutory authority, we owe no deference to it. To the extent BPA’s latest statement is a characterization of its historic position, it is not true. PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4865 BPA took a similar position with respect to its obligation under § 7(b). That section provides that preference customers are entitled to rates as if no REP program existed. 16 U.S.C. § 839e(b)(2)(C). The costs of the REP program must be charged in a supplemental rate against other BPA customers, and not against preference customers. Id. § 839e(b)(3). Notwithstanding this clear instruction, BPA treated the REP settlement as though it were not a rate subject to §§ 7(b)(2) and 7(b)(3). Instead, BPA treated the REP settlement as an ordinary cost of doing business and allocated the cost to all customers, including preference customers. See 16 U.S.C. § 839e(g).16 Again, this was clear in BPA’s proceedings and briefs. For example, in its briefs in a companion case, Golden Northwest Aluminum v. BPA, Nos. 03-73426+, BPA advised us that while it “allocated the total ‘trigger amount’ resulting from the section 7(b)(2) test only to non-preference customers’ rates,” it “also equitably allocated Residential Exchange Program settlement costs and benefits to BPA’s power rates under Section 7(g) of the Northwest Power Act because such settlement costs are not otherwise allocated under section 7 of the Act.” As BPA stated: “The record in this proceeding establishes that BPA allocated the costs of the REP Settlement to both non-preference and preference rates pursuant to section 7(g).” In another instance, BPA argued that “section 7(b)(2) says nothing about subtracting REP Settlement costs, or any other settlement costs, from the 7(b)(2) [calculation].” 16 Section 7(g) provides in part: Except to the extent that the allocation of costs and benefits is governed by provisions of law in effect on December 5, 1980, or by other provisions of this section, the Administrator shall equitably allocate to power rates, in accordance with generally accepted ratemaking principles and the provisions of this chapter, all costs and benefits not otherwise allocated under this section . . . . BPA thus treated the REP settlement as though it were an “allocation of costs and benefits” and not “allocated . . . by other provisions of this section.” 4866 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER [5] BPA’s broad reading of its settlement authority is contrary to a plain reading of the Bonneville Project Act and the NWPA, and it is inconsistent with general principles of administrative law. In these two acts, Congress has clearly established three propositions: BPA’s general settlement authority is subject to the constraints of the Bonneville Project Act and the NWPA; whenever BPA exchanges power with a Pacific Northwest utility, it acts pursuant to its § 5(c) power; and when BPA acts under § 5(c), the projected power rates to be charged to BPA’s non-preference customers are subject to the constraints of § 7(b) of the NWPA. We discuss each of these propositions in turn. [6] First, Congress has plainly stated that BPA’s settlement authority is subject to the constraints of the NWPA. Section 9(a) of the NWPA, which makes BPA’s § 2(f) contracting and settlement authority applicable to the NWPA, is directly prefaced by the express requirement that such authority is “[s]ubject to the provisions of this chapter.” 16 U.S.C. § 839f(a) (emphasis added). Congress could not have made it any clearer that it intended for BPA to exercise its general settlement authority within the confines of the NWPA. In Northwest Forest Resource Council v. Glickman, 82 F.3d 825 (9th Cir. 1996) (as amended), we considered the definition and scope of the words “subject to section 318” in § 2001(k)(1) of the 1995 Rescissions Act, Pub. L. 104-19, 109 Stat. 194 (1995). We concluded, inter alia, that the phrase “subject to” means “governed or affected by.” Nw. Forest Res. Council, 82 F.3d at 833; see also U.S. ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 547 (D.C. Cir. 2002) (“[A]n entity is ‘subject to’ a particular legal regime when it is regulated by, or made answerable under, that regime.”); Texaco Inc. v. Duhe, 274 F.3d 911, 918-19 (5th Cir. 2001) (holding that natural gas became “ ‘subject to’ an existing contract” within the meaning of the Natural Gas Policy Act when it was “governed by” terms of that contract); Michelin Tires (Canada) Ltd. v. First Nat’l Bank of Boston, 666 F.2d 673, 677 (1st Cir. 1981) (“The words ‘subject to,’ used in their ordinary sense, mean PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4867 ‘subordinate to,’ ‘subservient to,’ or ‘limited by.’ ”); Burgess Const. Co. v. M. Morrin & Son Co., 526 F.2d 108, 113 (10th Cir. 1975) (“The words ‘subject to’ usually indicate a condition to one party’s duty of performance and not a promise by the other.”). And we concluded in Northwest Forest Resource Council that a contrary conclusion would make mere surplusage of the provision. See 82 F.3d at 834; see also id. (“[A] statute must be interpreted to give significance to all of its parts.”). We therefore cannot agree with BPA’s general characterization that its § 2(f) settlement authority is not subject to the NWPA. As the plain language of the NWPA indicates, BPA’s settlement authority is governed and limited by the remaining provisions of the Act. [7] Second, Congress has plainly stated that § 5(c) applies whenever BPA exchanges power with a Pacific Northwest utility. In § 5(c), Congress for the first time conferred explicit authority on BPA to exchange power with all qualified utilities, including non-preference customers. Whenever a nonpreference utility offers to sell power to BPA at the utility’s average system cost, BPA must purchase the power at that cost and offer to sell an equivalent amount of power to such utility for resale to that utility’s customers. Congress further provided that the average system cost is to be determined by BPA “on the basis of a methodology developed for this purpose,” and approved by FERC. See 16 U.S.C. § 839c(c)(7). [8] Third, Congress has plainly stated that all purchase and exchange sales under § 5 are governed by § 7(b) of the NWPA. Section 5(a) of the NWPA, which is a preamble of sorts to § 5(c), states that “[a]ll power sales under this chapter . . . shall be at rates established pursuant to section 839e of this title.” See 16 U.S.C. § 839c(a). Section 839e, of course, is § 7 of the NWPA. In turn, § 7(b)(3) states that “[a]ny amounts not charged to [preference] customers . . . shall be recovered through supplemental rate charges for all other power sold by the Administrator to all customers.” 16 U.S.C. § 839e(b)(3). 4868 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER [9] Even if we thought that Congress had not spoken plainly, BPA’s interpretation of its scope of its § 2(f) authority is not reasonable under “established administrative law principles.” Aluminum Co. of Am. v. Cent. Lincoln Peoples’ Util. Dist., 467 U.S. 380, 389 (1984). Section 2(f) of the Bonneville Project Act and § 5(c) of the NWPA serve different functions. Consistent with BPA’s charge to function as a business, § 2(f) is a general corporate power.17 We observed in Utility Reform Project v. BPA that the “unrestricted language of the statute gives the Administrator expansive authority to settle contract claims.” 869 F.2d 437, 443 (9th Cir. 1989). We pointed out that Congress thought “ ‘[t]he discretion to compromise and settle [claims] should be a part of Bonneville’s business operations. It should not be compelled to lose, or run the risk of losing, advantageous settlements because of the delays involved in sending offers back and forth across the continent for consideration by a number of agencies before acceptance is possible.’ ” Id. (quoting H.R. REP. NO. 79-777, at 4 (1945), reprinted in 1945 U.S.C.C.A.N. 874, 875). [10] As important as it may be, the power to compromise claims is not a substantive power in the sense that it defines BPA’s mission or jurisdiction, but a facilitative power to place BPA on an equal footing with the public and corporate entities with which it must contract. By styling BPA’s § 2(f) 17 Unlike many regulatory agencies, “Congress endowed the Administrator with broad-based powers to act in accordance with BPA’s best business interests,” allowing BPA “to function more like a business than a governmental regulatory agency.” Ass’n of Pub. Agency Customers, 126 F.3d at 1170; see 16 U.S.C. § 838i; id. § 839f(b) (“the Administrator shall take such steps as are necessary to assure the timely implementation of this chapter in a sound and businesslike manner.”). When Congress added § 2(f) in 1945, Harold Ickes, Secretary of the Interior, noted in his departmental report on the bill that “The Bonneville Power Administration is not engaged in a governmental regulatory program. It operates a business enterprise . . . [Section 2(f)] will facilitate its operations as a regional and business agency.” S. REP. NO. 79-469, at 13 (1945). PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4869 power “facilitative,” we do not mean to diminish at all its importance to BPA. The ability to settle claims without resort to litigation or full-throated regulatory proceedings is certainly an important aspect for making BPA an efficient agency and fulfilling the Administrator’s charge to conduct BPA as a well-run business. The ability to compromise claims, by its nature, requires flexibility and discretion. Regulatory claims are rarely capable of a sum-certain determination and an either/or assessment of the likelihood of success on the merits. It is thus implicit in the grant of settlement power that BPA have the flexibility to take into account a variety of considerations, including its litigation costs, differing damage assessments, and the risk of loss on the merits. [11] By contrast, §§ 5(c) and 7(b) are part and parcel of more traditional regulatory powers,18 and are substantive grants of authority that both enable and restrict BPA. Section 5(c) enables in the sense that BPA acquired authority it did not previously possess: the ability to exchange power with non-preference utilities. Sections 5(c) and 7(b) are restrictive in that they establish the conditions upon which BPA may exercise that newfound § 5(c) authority. BPA may not provide power under the REP program on whatever terms—whether good business or not—that BPA likes. It may enter into REP settlement contracts with IOUs, but only on terms that will protect the position of its preference customers, consistent with §§ 5(c) and 7(b). In short, it must exercise its § 5(c) power according to the NWPA. We cannot agree with BPA that § 2(f) functions wholly independent of BPA’s substantive authority. Section 2(f) grants BPA the power to enter into contracts, but it says noth18 When Congress amended BPA’s authority through the NWPA, it added “new, more typically governmental responsibilities” which “donned BPA with more of the usual trappings of a federal regulatory agency than it had previously worn.” Ass’n of Pub. Agency Customers, 126 F.3d at 1170. 4870 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER ing about the kind of contracts which BPA may sign. We think it obvious, as a matter of general administrative law, that the contracts into which BPA may enter must be grounded in the authority, express or implied, that Congress has granted BPA. Congress may have authorized BPA to enter into contracts, but BPA cannot acquire an NBA franchise just because it can be accomplished by contract; BPA has broad authority to settle claims, but it cannot buy timeshares in the Bahamas by calling them a “settlement.” Taken at face value, BPA’s argument—that its settlement authority is essentially unlimited, and free from the constraints of the NWPA—would allow it to run circles around the express requirements Congress sought fit to impose in the NWPA.19 In our view, however, settlement of BPA’s REP obligations must be grounded in the REP program authorized by § 5(c) that creates the occasion for the settlement in the first place. A settlement agreement cannot be a means of bypassing congressionally mandated requirements. To support its general argument that § 2(f) is not subject to these constraints, BPA relies on a series of power cases previously decided by our court that interpreted BPA’s § 2(f) authority broadly. None of these cases, however, controls the circumstances of this case. In Utility Reform Project, certain BPA preference customers challenged a settlement agreement between BPA and its IOU customers. The settlement agreement resolved a dispute arising from BPA’s recommendation that the construction of a nuclear power plant be delayed. When construction halted, the IOUs filed suit challenging the delay. BPA and the IOUs subsequently negotiated a settle19 By relying exclusively on § 2(f) of the Bonneville Project Act, BPA has effectively claimed that it could have entered into REP settlements prior to the passage of the NWPA in 1980, which created the REP program. We do not think that BPA’s § 2(f) authority is so capacious that it could create ex nihilo a REP program if Congress had not authorized one in § 5(c). But even if BPA’s general charge were so broad, BPA surely cannot ignore what Congress has required once Congress took the initiative and established the REP. PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4871 ment agreement whereby BPA would transfer power to IOUs with certain conditions, and, in return, the IOUs were obligated to make an equal amount of energy available to BPA. The settlement agreement was thus a power exchange. We considered the scope of BPA’s § 2(f) authority and concluded that “[t]he unrestricted language of the statute gives the Administrator expansive authority to settle contract claims.” Util. Reform Project, 869 F.2d at 443; see also id. (characterizing BPA’s settlement authority as “broad”). But in doing so we recognized that the broad authority is subject to clear congressional directives: This is not to say that BPA could act contrary to a clear statutory directive in settling, but if there is room for doubt, we ought not to resolve it in a man- ner that sends the parties back to litigation. This settlement will therefore be set aside only for the strongest of reasons. Id. We similarly recognized BPA’s broad § 2(f) powers in Ass’n of Pub. Agency Customers, 126 F.3d at 1170-71, but deferred to BPA’s legal interpretation of its statutory authority because “Congress did not directly communicate its desire.” Id. at 1169. The issue in that case, whether BPA possessed the authority to transmit non-federal power, highlighted a statutory gap that Congress had not filled. Id. (“[N]one of BPA’s four organic statutes explicitly grants BPA authority to transmit non-federal power.”). Our judgment rested upon the absence of contrary congressional directive and BPA’s general “authority to run BPA like a business.” Id. at 1171. By contrast, where Congress has spoken to an issue and BPA acts inconsistent with Congress’s directions, we will not defer to BPA’s judgment. See M-S-R Public Power Agency, 297 F.3d at 844 (refusing to extend deference to BPA’s statutory interpretation where Congress had clearly spoken to the issue). 4872 PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER Finally, in Coos-Curry Electric Cooperative, Inc. v. Jura, 821 F.2d 1341 (9th Cir. 1987), BPA argued that its authority under §§ 2(f) and 9(a) was so broad that the court was jurisdictionally barred from hearing the case under 5 U.S.C. § 701(a)(2), which applies when agency action “is committed to agency discretion by law.” Id. at 1345. We rejected BPA’s argument. Id. at 1346. Section 701(a)(2) is a “narrow exception to judicial review” that applies only “ ‘in those rare instances where . . . there is no law to apply.’ ” Id. (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971) (citations omitted)). Or, expressed differently, when no law limits the exercise of administrative discretion, the courts have no standard to guide judicial review. See id. We found that the “flaw” in BPA’s argument was that there was law to apply. See id. at 1345-46. If BPA had an unfettered power to settle claims, there might indeed be no law by which we could judge the REP settlement. But, as in Coos-Curry, we do have law that governs contracts for the exchange of power, and we have to measure BPA’s settlements against those constraints. [12] In sum, BPA is not excused from § 5(c) by calling its actions here a § 2(f) “settlement.” Sections 5(c) and, by extension, 7(b) are triggered because what BPA seeks to settle out of is the Residential Exchange Program. Settlement of BPA’s REP obligations is thus directly related to, and inextricably intertwined with, the authority conferred to it under § 5(c). Indeed, § 5(c) is the express provision granting BPA the power to exchange power instead of merely selling it at market rates. See 16 U.S.C. § 832d. Without § 5(c), there are no REP “claims” to be settled; and without REP claims, there can be no “settlement.” Thus, whenever BPA engages in a purchase and exchange of power—whether on a yearly basis, under a REP program, or pursuant to a settlement agreement —BPA acts pursuant to its § 5(c) authority, and is thus subject to the Congressionally imposed limitations on that authority as expressed in § 5(c) and § 7(b). PORTLAND GENERAL ELECTRIC v. BONNEVILLE POWER 4873 [13] Because Congress has clearly spoken to the issue at hand, we decline to afford BPA’s construction of § 2(f) Chevron deference. Its position is neither consistent with the plain language of its organic acts nor with general principles of administrative law.20 BPA’s contract and settlement powers must facilitate and be grounded in its substantive authority contained in “this chapter.” 16 U.S.C. § 839f(a). “While we generally accord substantial deference to BPA’s decisions interpreting its organic statutes, extending such deference is unwarranted where, as here, Congress has squarely addressed the issue.” M-S-R Pub. Power Agency, 297 F.3d at 844.