Opinion ID: 1204241
Heading Depth: 1
Heading Rank: 4

Heading: BPA has an independent obligation to act in a manner consistent with sound business principles.

Text: BPA's argument that it need not independently demonstrate that its decision to sell power to Alcoa at the IP rate was consistent with sound business principles hinges on this panel's repeated references in PNGC to the agency's improper decision to monetize the sale of power to the DSIs at a rate below what is authorized by statute (i.e., the IP rate) and below what is available on the open market. See PNGC, 550 F.3d at 875. BPA cites the following sentence as particularly clear evidence of this court's narrow and straightforward holding: Because, by its own admission, BPA is not obligated to sell power to the DSIs, its decision to sell power voluntarily at a rate below what it is statutorily required to offer (i.e., the IP rate) and below what it could receive on the open market violates its statutory mandate to act in accordance with sound business principles. See § 838g. Id. at 873-74. According to BPA, this statement indicates that, had it used a rate that was equal to the IP rate or the market rate in the 2007 Contract, it would, by definition, not have violated its statutory mandate to act in accordance with sound business principles. In short, BPA views its decision to premise its benefits to Alcoa on the IP rate as a kind of safe harbor that insulates it from a challenge that its decision to enter into the amended contract was not consistent with sound business principles. BPA's interpretation of PNGC ignores critical aspects of that opinion and is therefore incorrect. First, the panel in PNGC agreed with BPA that it has no statutory obligation to sell power to Alcoa. See id. at 866. Second, the court in PNGC concluded, and BPA in that case acknowledged, that the agency is subject to a statutory obligation to act in accordance with sound business principles. See id. at 875. Other panels have similarly recognized that BPA is required by statute to operate with a business-oriented philosophy and have reviewed BPA's compliance with this standard. See, e.g., Public Power Council, Inc. v. BPA, 442 F.3d 1204 (9th Cir.2006); APAC, 126 F.3d at 1171; Dep't of Water & Power of the City of Los Angeles v. BPA, 759 F.2d 684, 693 (9th Cir.1985); see also Portland Gen. Elec. Co. v. BPA, 501 F.3d 1009, 1029 (9th Cir.2007) (noting that BPA is charg[ed] to function as a business.). [3] Given that BPA is not obligated to sell to the DSIs and that its actions are generally reviewable under the sound business principles standard, it follows that a decision by BPA to enter into a contract with a DSI, like other non-obligatory contractual decisions made by the agency, see APAC, 126 F.3d at 1171, must also conform to the sound business principles standard. BPA would surely have to consider the fact that it must offer DSIs the IP rate when deciding whether to execute a contract with the DSIs. See PNGC, 550 F.3d at 861 (holding that if the agency chooses to offer firm power to the DSIs,. . . it must first offer them the IP rate.). But the fact that the agency entered into a contract at the IP rate does not insulate from review its voluntary decision to enter into the contract in the first place. To put it slightly differently, BPA is certainly authorized to sell power to the DSIs at the IP rate. See PNGC, 550 F.3d at 867-73. But that authority, like its authority to enter into contracts generally, is cabined by its obligation to operate with a business-oriented philosophy. APAC, 126 F.3d at 1169-71 (reviewing BPA's decision to enter into Long-Term Extension Agreements with the DSIs for the sale of unbundled transmission services); see also PNGC, 550 F.3d at 878 (BPA's authority to sell power to the DSIs does not mean that BPA may simply give money to the DSIs by calling the agreement a `power sale' with `monetized service benefits.' (emphasis omitted)). Intervenor CFAC, another aluminum DSI, argues that this interpretation of BPA's governing statutes would render the IP rate a nullity, because it would never make business sense for BPA to sell to the DSIs at the IP rate when market rates exceed the IP rate, and DSIs would never accept the IP rate when market rates fall below the IP rate. We disagree. We can envision several situations in which BPA might reasonably conclude that a below-market rate sale to the DSIs is a sound business decision. First, as the court alluded to in PNGC, BPA's governing statutes likely require it to offer power within the Pacific Northwest at established rates before the agency may sell power outside the region. See PNGC, 550 F.3d at 876 n. 35. [4] If so, BPA might reasonably enter into a contract with the DSIs at the IP rate so as to free up power to sell outside the Pacific Northwest. Id. Second, BPA has asserted that the physical sale of power to the DSIs has indirect benefits that might offset a belowmarket rate sale. For example, BPA noted in its letter explaining its justifications for the amended contract with CFAC that DSI loads have historically benefitted BPA by taking power in relatively flat blocks that require little or no shaping; they have taken power from BPA at light load hours, when power has historically been difficult to market; and they have provided the Administrator with additional power reserves. These and other non-financial benefits to BPA could very well justify a less-than-market rate sale, but they have no direct application when, as here, BPA is not in fact physically selling power to the DSIs. Third, a soundly run business might reasonably offer a large customer a short-term discount with the expectation that the customer's future business at higher prices will more than make up for the short-term loss of revenue. Similarly, a reasonable business might offer a short-term discount to a customer in order to diversify its customer base or to offload unused capacity. As these examples illustrateand they are only examples, not meant to be exhaustivea decision by BPA to enter into a power sale contract with the DSIs at the IP rate, even if the IP rate is below market rates, could under various circumstances be consistent with sound business principles. [5] As explained below, however, although we review such a decision by BPA with great deference, see APAC, 126 F.3d at 1171, the decision must still be reasonable and have some support in the record before the agency at the time the decision is made. In sum, we hold that BPA's voluntary decision to contract with the DSIs, like its other non-obligatory contractual choices, must conform to the congressionally imposed requirement that the agency act in a manner consistent with sound business principles. See 16 U.S.C. §§ 838g; 839e(a)(1); 825s. The mere fact that BPA has chosen to contract with a DSI at the statutorily authorized IP rate does not insulate the decision to contract from review under the sound business principles standard. [6]