Case summaries.

• Position: P. 599-630 - Case overview

10. Alcoa, Inc. v. Bonneville Power Administration, 698 F.3d 774 (9th Cir. 2012).

    Numerous entities and organizations throughout the Pacific Northwest filed petitions for judicial review of a direct power contract between Bonneville Power Administration (BPA) and Alcoa, Inc. These petitions were consolidated for direct review (144) by the United States Court of Appeals for the Ninth Circuit. Petitioners were primarily power companies, power suppliers, and major power purchasers within the Pacific Northwest. Additionally, Alcoa sought review of a BPA interpretation of a prior Ninth Circuit holding from which BPA concluded that financial benefits of its transactions must outweigh costs to comply with its statutory mandate. After making an initial determination that the case was not moot, the Ninth Circuit affirmed the validity of all BPA contracts and actions at issue in this case as not arbitrary and capricious. It further held that BPA's contract fell within a categorical exclusion to the National Environmental Policy Act (NEPA). (145)

    BPA is a federal agency charged with marketing wholesale electrical power generated by federal facilities in the Pacific Northwest. It sells electricity to public bodies and cooperatives (preference customers), private, investor-owned utilities, and, at BPA's choosing, to direct service industrial customers (DSIs). Preference customers receive a priority firm rate (PF rate). (146) DSI customers, on the other hand, pay a cost-based rate (IP rate) that must be "equitable in relation to the retail rates charged" by BPA's preference customers to industrial customers. (147) Further, BPA must set rates in accordance with sound business principles. (148)

    Prior to this case, the Ninth Circuit reviewed two other contracts between BPA and Alcoa. In the first case, Pacific Northwest Generating Cooperative v. Department of Energy (PNGC I), (149) the court held that offering power to a DSI at the PF rate was inconsistent with BPA's statutory authority. In the second case, Pacific Northwest Generating Cooperative v. Bonneville Power Administration (PNGC II), (150) the court held that the obligation to set rates was consistent with sound business principles applied to sales of power at the IP rate. The court determined that BPA must offer the IP rate if BPA elected to sell Alcoa power. In turn, BPA understood PNGC II to mean that in order to sell power to a DSI, BPA had to first "conclude based on evidence in the record that the proposed transaction will result in benefits that equal or exceed the costs to BPA of the transaction." (151) BPA referred to this interpretation as the "equivalent benefits standard."

    Alcoa's current contract was divided into four stages: 1) an "Initial Period," 2) an "Extended Initial Period," 3) a "Transition Period," and 4) a "Second Period." The Initial Period lasted from December 22, 2009 to May 26, 2011. BPA determined that it could supply 320 average megawatts of electricity to Alcoa during the Initial Period at the IP rate and satisfy its equivalent benefits standard. In turn, it would earn a net profit of $10,000. The Extended Initial Period (152) was not at issue in this case. Following the Initial Period and any Extended Initial Period, the contract stated that the Transition Period would occur only if "the Ninth Circuit issues an opinion or other ruling holding, or that BPA determines can reasonably be interpreted to mean, that the equivalent benefits standard does not apply to sales under [the Alcoa Contract]." (153) If this contingency were met, BPA would have one year to study whether it could provide service to Alcoa for a five year term in the Second Period, again for 320 average megawatts of electricity at the IP rate. Following the Extended Initial Period, the parties made three rapid short-term contract amendments that extended the Initial Period to facilitate negotiations in 2012.

    Two other relevant occurrences took place prior to this case. First, BPA released a draft of its Alcoa contract for public comment in 2009 and explained that it did not need to prepare an environmental impact statement (EIS) under NEPA because the contract fell under a Department of Energy categorical exclusion of contracts involving physical changes to property. Second, the Ninth Circuit amended its PNCG II opinion to distinguish BPA's voluntary act of providing $32 million to Alcoa--effectively providing it with the IP rate--from the act of actually providing power at the IP rate. The court noted that the latter would warrant considerably more deference because providing power is explicitly within BPA's agency expertise and its sale of power to DSIs at the IP rate is expressly statutorily authorized. Thus, providing power at the IP rate at a loss might warrant judicial deference.

    As a threshold issue, the Ninth Circuit addressed whether this case was moot as to claims regarding the Initial Period because that portion of the contract had already passed. The court concluded that these claims were not moot because they fell within the "special category of disputes that are capable of repetition while evading review." (154) The "evading review" (155) prong of that exception was met because the seventeen-month Initial Period was too short of a time to fully litigate claims involving that portion of the contract. The court noted that it had applied this mootness exception to actions lasting as long as two years. The second prong, that the conduct is "capable of repetition," (156) was met because power contracts are by their nature short in length since they are responsive to market conditions. This finding was evinced by BPA's several short-term contract extensions in 2012. Thus, the court proceeded to the merits of the petitioners' and Alcoa's claims.

    Petitioners made two separate arguments regarding BPA's alleged failure to maximize profits. First, they claimed that BPA's sale of power to Alcoa at the IP rate caused BPA to forego readily available profits and therefore, BPA did not operate in accordance with sound business principles. Moreover, petitioners reasoned that this failure to maximize profits led to increased rates paid by other customers. Second, they claimed that BPA's conclusion that it would receive $10,000 in profit was flawed.

    In response, the court first held that BPA is not required to maximize profits, recognizing that it had previously reached the same conclusion in California Energy Commission v. Bonneville Power Administration. (157) In short, BPA has multiple mandates, only one of which is to charge low rates. For example, its public mission also includes ensuring "diversified use of electric power." (158) Here, BPA physically sold power at the IP rate to Alcoa, which PNCGC II's amended opinion explained would likely warrant deference. And further, BPA earned a profit. In light of these facts, the court deferred to BPA, finding BPA's contract with Alcoa was neither arbitrary nor capricious.

    The court also explained that BPA's conclusion that it would earn a $10,000 profit from this contract was not arbitrary or capricious based on several rationales. First, BPA backed this forecast with significant findings of fact. (159) Second, this type of determination is explicitly within BPA's realm of expertise, such that BPA is warranted in receiving substantial deference from the court. Third, even though petitioners presented additional evidence such as updated meteorological data, this evidence was available only after the administrative record had been closed.

    In addition to these arguments, petitioners also challenged the waiver-of-damages provision in the contract, which stated that BPA and Alcoa may waive any right to seek damages or restitution when a court finds a part of the contract void or unenforceable. The court concluded that the BPA Administrator has "broad powers to enter and modify contracts, including the power to compromise or settle claims" and that it is not the court's proper place to second-guess BPA's judgment. (160)

    The Ninth Circuit then discussed Alcoa's argument that BPA's use of the "equivalent benefits standard" was arbitrary and capricious. The court explained that Alcoa premised its argument on incorrect facts and law, first because the record did not support the contention that BPA refused to sell power at the IP rate unless the equivalent benefits standard was met, and second because BPA has no obligation to sell any power to Alcoa. The court explained its reluctance to fashion categorical rules regarding matters within BPA's discretion. Rather, the court explained that such evaluations must be made on a case-by-case basis, and BPA was within its statutory authority regarding the Initial Period of the contract.

    Petitioners also argued that the Second Period of the contract violated BPA's mandate to act in accordance with sound business principles because the contract could yield a $300 million net loss to BPA. The majority disposed of this argument on the ground that the petitioners' potential injury was too speculative to meet either ripeness (161) or standing. (162) The court provided three reasons for this determination. The first two focused squarely on the fact that neither of the two contingencies for the Second Period to come to fruition had yet been met. (163) Third, mid most importantly, the parties had expressly removed all references to the Second Period from the contract in their May 2012 amendment, meaning that they would have to rewrite the provision to once again include the Second Period for the threat to petitioners to be realized. The contingencies required to create the injury were not concrete and particularized enough to establish standing, which also prevented petitioners from seeking protection under the "capable yet evading review" doctrine.

    Finally, the court addressed the petitioners' NEPA argument that BPA was required to prepare an EIS prior to moving forward with this contract. The...