Argued and Submitted Feb. 19, 2013.
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Kathleen M. Sullivan (argued), Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY; Michael Alcantar and Donald Brookhyser, Alcantar & Kahl, LLP, Portland, OR; Michael N. Kunselman, Alston & Bird, LLP, Washington, D.C.; John M. Rochefort, Alston & Bird, LLP, Los Angeles, CA; Judith Endejan, Graham & Dunn, PC, Seattle, WA; Jason N. Poulos, Weinberg Wheeler Hudgins Gunn & Dial, Atlanta, GA, for Petitioner.
Kurt R. Casad (argued), Special Assistant United States Attorney, S. Amanda Marshall, United States Attorney, Stephen J. Odell, Assistant United States Attorney, Richard A. Greene, Special Assistant United States Attorney, Portland, OR; Randy A. Roach and Timothy A. Johnson, Bonneville Power Administration, Portland, OR, for Respondent.
Jay T. Waldron (argued) and Sara Kobak, Schwabe Williamson & Wyatt, PC, Portland, OR; Donald G. Kari and Jason Kuzma, Perkins Coie, LLP, Bellevue, WA; Michael G. Andrea, Avista Corporation, Spokane, WA; Scott G. Seidman, Tonkon Torp, LLP, Portland, OR; Dan L. Bagatell, Perkins Coie, LLP, Phoenix, AZ; Ryan L. Flynn, Pacificorp, Portland, OR; R. Blair Strong, Paine Hamblen, LLP,
Spokane, WA, for Intervenors PacificCorp., et al.
Paul M. Murphy (argued), Murphy & Buchal, LLP, Portland, OR; Sarah Dennison-Leonard, Portland, OR, for Intervenors Northwest Requirements Utilities, et al.
Stephanie Andrus, Assistant Attorney General, Salem, OR; Donald L. Howell, II, Deputy Attorney General, Boise, Idaho; G. Catriona McCracken and Raymond W. Myers, Citizens' Utility Board of Oregon, Portland, OR, for Intervenors Idaho Public Utilities Commission, et al.
On Petition for Review of an Order of the Bonneville Power Administration.
Before: ARTHUR L. ALARCÓ N, STEPHEN S. TROTT, and RICHARD A. PAEZ, Circuit Judges.
Opinion by Judge PAEZ; Dissent by Judge ALARCÓ N.
PAEZ, Circuit Judge:
In this opinion, we consider whether a settlement agreement between the Bonneville Power Administration (" BPA" ) and a large number of its customers is lawful. We invalidated a previous settlement between BPA and a class of customers because it did not comply with the Pacific Northwest Electric Power Planning and Conservation Act (" NWPA" ). See Portland Gen. Elec. Co. v. BPA, 501 F.3d 1009, 1036-37 (9th Cir.2007) (" PGE " ); Golden Nw. Aluminum, Inc. v. BPA, 501 F.3d 1037, 1048 (9th Cir.2007) (" Golden Nw. " ). On remand, BPA initiated a complex ratemaking process, under which it calculated both (1) overcharges resulting from the unlawful settlement, and (2) new rates, intended to comply with PGE and Golden Northwest. Its customers, in turn, filed numerous petitions for review in this court, challenging various aspects of BPA's rate-making.
In the face of potentially unending litigation, BPA and a large number of its customers entered into the Residential Exchange Program Settlement Agreement (" REP-12 Settlement Agreement" or " Settlement" ). Record of Decision (" ROD" ) 14. The Settlement sets terms for refunding customers who were previously over-charged, as well as setting terms— including a new rate-making methodology— for the next seventeen years. After a thorough evaluation, the BPA Administrator issued the REP12 Record of Decision, a final agency action, in which he adopted the Settlement and committed BPA to abide by its terms.
In its petition for review, the Association of Public Agency Customers (" APAC" ) challenges the Settlement, alleging that it violates several provisions of the NWPA, 16 U.S.C. §§ 839c(c), 839e(b), the Bonneville Project Act, 16 U.S.C. § 832d(a), regulations of the Federal Energy Regulatory Commission, 18 C.F.R. §§ 300.1(b)(6), 300.21(e)(1), and this court's decisions in PGE and Golden Northwest.  In response,
BPA and the intervening parties argue, in part, that APAC's members lack standing to bring this challenge, because they are merely the customers of BPA's customers, not direct customers themselves. We conclude that APAC has standing to challenge the Settlement, due to the " pass-through" contracts under which its members pay rates that directly reflect the rates BPA charges its direct customers. With respect to the merits, however, we conclude that the Settlement complies with the relevant statutory requirements and with our prior decisions, and we therefore deny APAC's petition for review.
We have previously chronicled the history of BPA, a federal agency that markets power generated by federal hydroelectric projects in the Columbia River Basin. See, e.g., Alcoa, Inc. v. Bonneville Power Admin., 698 F.3d 774, 779 (9th Cir.2012); Pac. Nw. Generating Co-op. v. Dep't of Energy, 580 F.3d 792, 797-800 (9th Cir.2009); Golden Nw., 501 F.3d at 1041; PGE, 501 F.3d at 1013-16; Pub. Power Council, Inc. v. Bonneville Power Admin., 442 F.3d 1204, 1206 (9th Cir.2006); M-S-R Pub. Power Agency v. Bonneville Power Admin., 297 F.3d 833, 836-37 (9th Cir.2002) (as amended); Ass'n of Pub. Agency Customers, Inc. v. Bonneville Power Admin., 126 F.3d 1158, 1163-65 (9th Cir.1997) (" APAC" ). Nevertheless, because of the complexity of the case, we begin with a brief review of the relevant history of the agency and provisions of the NWPA, one of " the tangle of statutes that govern [BPA's] operations." Golden Nw., 501 F.3d at 1042. We then discuss the specific facts relevant to this appeal.
Congress created BPA, an agency within the Department of Energy, in 1937. PGE, 501 F.3d at 1013. The agency was initially " tasked with marketing the power generated by federally owned dams on the Columbia River." Id. For the first thirty years of its existence— from the 1930s through the 1960s— BPA had sufficient resources to meet the power demands of two classes of customers. Id. at 1014. First, BPA provided power to " preference utilities," also known as " consumer-owned utilities" or " COUs." This class consists of publicly-owned utilities, cooperatives, and federal agencies, who are accorded priority to federal power under the Bonneville Project Act. Id.; see also 16 U.S.C. § 832c(a), (d). Second, BPA provided power to " non-preference utilities." PGE, 501 F.3d at 1014. This class of customers is made up of two sub-classes: (1) investor-owned utilities (" IOUs" ), who purchase power for re-sale, and (2) direct service industrial customers (" DSIs" ), who purchase power for direct consumption. Id.; see also APAC, 126 F.3d at 1164.
As demand for low-cost federal power rose in the 1970s, BPA forecast that it would be unable to meet all of its customers' power needs by the end of the decade. PGE, 501 F.3d at 1014. An " uncertain and unstable" period followed, during which BPA advised non-preference customers— and, later, preference customers— of its looming inability to provide them with power. APAC, 126 F.3d at 1165; see also PGE, 501 F.3d at 1014. As a result, many non-preference customers were forced to purchase power elsewhere, " at a severe cost disadvantage in the marketplace." Id.
In response to the pending energy crisis, Congress enacted the NWPA in 1980. The NWPA " transformed BPA from an agency that merely sold whatever power was available from generating facilities in the Federal Columbia River Power System to one charged with the responsibility of meeting the region's future power needs." APAC, 126 F.3d at 1165. Of particular importance here, the statute authorizes BPA to " exercise greater control over its power supply and to augment that supply by purchasing electric power in the market." PGE, 501 F.3d at 1014. It also authorizes the BPA Administrator to " establish and revise the rates at which BPA's power is sold," and— subject to certain limitations— to " enter into contracts, agreements, and settlements of claims and contractual obligations." Id. Two of the provisions granting BPA such authority, section 5, 16 U.S.C. § 839c, and section 7, 16 U.S.C. § 839e, are at issue in this appeal.
Section 5(c) of the NWPA makes low-cost power available to IOUs, one of the classes of non-preference customers. Under this provision, IOUs are entitled to " exchange power they have purchased or generated for lower-cost power generated by BPA." PGE, 501 F.3d at 1015; see also 16 U.S.C. § 839c(c)(1); Golden Nw., 501 F.3d at 1047. This process, known as the Residential Exchange Program (" REP" ), " essentially acts as a cash rebate to the IOUs," allowing the IOUs to benefit from BPA's low rates even when BPA cannot itself provide them with power. PGE, 501 F.3d at 1015 (explaining that the " ‘ exchange’ is a paper transaction" ). The IOUs, in turn, are required to pass on this financial benefit to their customers. 16 U.S.C. § 839c(c)(3); see also Cal. Energy Res. Conservation & Dev. Comm'n v. Johnson, 807 F.2d 1456, 1460 (9th Cir.1986) (explaining that without the REP, " consumers living in areas served by private utilities faced higher power prices than consumers living in areas served by public utilities" ).
The traditional formula for deciding if an IOU is entitled to a " REP Benefit" is as follows: first, the IOU offers to sell power to BPA at its " average system cost" (" ASC" ) for producing power. Second,
BPA calculates the " PF Exchange rate," which is the sum of a base rate for power, see 16 U.S.C. § 839e(b)(1), plus any supplemental charges triggered by the " rate ceiling," see id. at (b)(3), discussed infra. If the PF Exchange rate is lower than the ASC, the IOU is entitled to a REP Benefit, which will be the difference between those two amounts, multiplied by the IOU's residential load. See 16 U.S.C. § 839c(c)(1) (stating that the Administrator " shall acquire by purchase such power and shall offer, in exchange, to sell an equivalent amount of electric power" (emphasis added)); ROD 2.
While section 5 provides low-cost power to the IOUs, section 7 ensures that the preference customers— i.e., the COUs— will not bear the cost of this benefit. See PGE, 501 F.3d at 1015 (" The legislative history of the NWPA suggests that Congress viewed the NWPA as a compromise between the preference and non-preference utilities" ). Section 7 governs the rates that BPA charges its customers, Golden Nw., 501 F.3d at 1041, and it contains two relevant restrictions.
First, BPA may not charge its preference customers higher rates than it would in the absence of the REP. 16 U.S.C. § 839e(b)(2)(C). In order to ensure this does not happen, BPA is required to perform a " rate test," through which it compares the " PF Public rate" — i.e. the projected rate for the COUs— to a hypothetical rate based on five assumptions, including the assumption that no exchanges were made through the REP. Id. at (A)-(E). If the " rate test" shows that the PF Public rate is higher than the hypothetical rate, BPA must adjust the PF Public rate downward by the amount of the difference. This is called the " rate ceiling" trigger.
The triggering of the " rate ceiling" leads to the second restriction: if the PF Public rate is adjusted downward, the cost of making such an adjustment must be recovered from all of the other rates BPA charges for power, including the PF Exchange rate that BPA sets for the IOUs. Id. at (b)(3). This brings us somewhat full circle: the practical effect of adding a supplemental charge to the PF Exchange rate charged to IOUs is simply a reduction in REP Benefits for the IOUs. See PGE, 501 F.3d at 1015.
Put simply, the REP is complicated. It was the source of " almost continuous litigation" in the 1980s, during which period many IOUs chose to settle with BPA rather than actively participate in the program. ROD 5; see also Cal. Energy Res. Cons. & Dev. Comm'n v. Johnson, 807 F.2d 1456, 1458 (9th Cir.1986). And it was at the heart of the 2000 REP Settlement Agreement, which this court struck down in PGE and Golden Northwest.
In the 2000 REP Settlement Agreement, BPA attempted to settle its REP obligations to the IOUs for fiscal years 2002-2011. Golden Nw., 501 F.3d at 1047. It
then adjusted the rates for the COUs upward, in order to recover the costs associated with the settlement. Id. at 1048. We held that BPA's actions were contrary to the NWPA. In PGE, we held— contrary to BPA's argument— that BPA must comply with sections 5 and 7 " whenever [it] engages in a purchase and exchange of power," including in settlement agreements. 501 F.3d at 1032 (emphasis added). We concluded that BPA had failed to do so, because the settlement did not rely on the IOUs' current ASCs— that is, the rates at which the IOUs offer to sell power to BPA— when calculating their REP settlement benefits. Id. at 1033; see also id. at 1037 (concluding that the settlement did not " resemble the REP program created in §§ 5(c) and 7(b) that it purports to be settling" ). And in PGE 's companion case, Golden Northwest, we further held that it was a violation of section 7(b) for BPA to distribute the costs of the settlement to its preference customers. 501 F.3d at 1048. We remanded both cases to BPA to set rates in accordance with our opinions.
On remand, BPA initiated proceedings to set new rates in compliance with PGE and Golden Northwest. This resulted in several final decisions: (1) the " WP-07 Supplemental Record of Decision," which set a refund schedule for past over-charges from the unlawful 2000 settlement, (2) the " 2008 Residential Purchase and Sale Agreement Record of Decision," which applied specifically to IOUs, and (3) the " WP-10 Record of Decision," which established future rates for 2010-2011. The details of these decisions do not matter here. What does matter is that each of these decisions resulted in an onslaught of appeals to this court, which have been stayed pending the outcome of this case. ROD 29.
Against this backdrop, we turn to the subject of this appeal: the REP-12 Record of Decision. In the face of " seemingly endless litigation" over the REP, a large number of BPA's customers entered into settlement negotiations.  This resulted in the REP-12 Settlement Agreement, which was signed by parties representing 94 percent of the total load that BPA serves.  The Settlement was then submitted to the BPA Administrator, who conducted a seven-month evaluation to determine if it was reasonable and if it complied with BPA's statutory mandates, as well as with PGE and Golden Northwest. After concluding that the Settlement was lawful and reasonable, the BPA Administrator adopted it and committed BPA to abide by its terms. ROD 419. The REP12 Record of Decision replaces the Administrator's previous REP-related decisions. See ROD 20; 29.
Although the Settlement includes " many complicated formulas and terms," ROD 29, its three key elements can be described succinctly. First, the Settlement sets a
lump sum of REP benefits to be paid to the IOUs as a class over the seventeen-year term of the settlement. These lump sums are broken down by year— for example, in FY 2012, the IOUs will collectively be paid $182.1 million, and in FY 2028, they will collectively be paid $286.1 million. ROD 30. Although the yearly lump sums are fixed, the payments to any particular IOU are not. Rather, the individual IOUs will still be required to file their ASCs with BPA every two years. Pursuant to section 5(c), if an IOU's ASC does not exceed the applicable exchange rate for a particular period, that IOU will not receive REP benefits for that period. The BPA Administrator, in his analysis of the Settlement, concluded that the net present value of the REP benefits under the Settlement— $2.05 billion— is approximately $1 billion less than the net present value of the projected REP benefits over the same period of time, should BPA continue to pay out REP benefits without the Settlement. ROD 59.
Second, the Settlement sets a new " rate test" methodology to meet the requirements of section 7(b). Under its traditional approach, BPA conducts a " rate test" every two years to determine the rate ceiling (i.e. the maximum rate that can be charged to COUs) and the PF Exchange rate. See 16 U.S.C. § 839e(b)(2). But under the Settlement, BPA prospectively conducted the rate test for each year of the Settlement. Thus, it ran seventeen separate rate tests, under which it determined the prospective cost of REP benefits (and the rate ceiling) for fiscal years 2012-2028, should the Settlement not take effect. In addition, it ran these tests using twenty-six different scenarios, to account for a range of different rate levels and litigation outcomes in the absence of the Settlement. BPA then compared the projected cost of REP benefits under these rate tests to the cost of REP benefits under the Settlement. It concluded that the COUs' interests were adequately protected, because in twenty-three of the twenty-six scenarios, the Settlement results in lower rates for the preference customers than would be allowed by the section 7(b)(2) rate ceiling absent the Settlement.
Third, the Settlement provides a schedule of refunds to the COUs, who were overcharged under the terms of the 2000 REP Settlement Agreement. See Golden Nw., 501 F.3d at 1048. The Settlement provides that the COUs can retain the refunds they have already received from BPA— which total $587 million, for the period fiscal years 2008-2011— without further dispute.  It also provides that BPA will continue to refund the COUs during fiscal years 2012-2019, paying a total of $612 million over the course of eight years. ROD 253. The mechanism for making these refunds is to withhold a certain amount of the IOUs' REP benefits, which
the IOUs have agreed can be used to " pay for" the refunds to which the COUs are entitled.
APAC is an " unincorporated ad hoc organization." It is composed of six member groups, all of whom own and operate industrial facilities in the Pacific Northwest. The member groups are not customers of BPA; rather, they purchase electricity from BPA's preference customers, the COUs. On appeal, APAC submitted an affidavit from the director of energy procurement at Georgia-Pacific LLP (" GP" ), stating that GP contracts to buy power from two different COUs, the Clatskanie Public Utility District (" CPUD" ) and the Central Lincoln Public Utility District (" CLPUD" ). The affidavit describes the contractual relationship between GP and CPUD as follows:
The electrical contract between BP and CPUD is a cost-based pass-through contract according to which GP buys power from CPUD at CPUD's cost to purchase the power from BPA and other sources, plus additional charges for overhead. Thus the rates and charges incurred by CPUD to purchase power from BPA for the Wauna mill are recovered by GP.
The affidavit describes GP's contractual relationship with CLPUD in nearly identical terms. As a result of these " pass through" contracts, GP claims to be " directly impacted financially by any rate increases or decreases adopted by BPA."
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction to review the REP-12 Record of Decision, because it is a final agency action. See 16 U.S.C. § 839f(e)(5); PGE, 501 F.3d at 1023. At the outset, however, we must address an important threshold question: does APAC, a group whose members are not direct customers of BPA, have standing to challenge the Settlement? Our answer to this question requires two separate inquiries. First, we ask if at least one of APAC's members has " suffered sufficient injury to satisfy the ‘ case or controversy’ requirement of Article III." Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir.2004). Second, if APAC has established Article III standing, we " ask whether a statute has conferred ‘ standing’ on [at least one of
APAC's members]," id. at 1175, such that the member is " within [its] zone of interests," thereby meeting the requirements for prudential standing, Cent. Ariz. Water Conservation Dist. v. U.S. E.P.A., 990 F.2d 1531, 1538 (9th Cir.1993). We conclude that APAC has met the requirements for both constitutional and prudential standing, for the reasons explained below.
1. Constitutional Standing
The requirements for Article III standing are familiar. First, the petitioner must show that it has suffered " an injury in fact," i.e., " an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (quotation marks and citations omitted). Second, it must show that the injury is " fairly traceable to the challenged action of the defendant," and is not " the result of the independent action of some third party not before the court." Id. (quotation marks and alternations omitted). Finally, " it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Id. at 561, 112 S.Ct. 2130 (quotation marks omitted). We address each requirement in turn, focusing on whether it has been satisfied by one of APAC's members, GP.
a. Injury in Fact
The alleged injury in this case is economic: according to APAC, its members will " suffer the burden" of over-inflated power rates, which BPA will set in order to ensure it can make the required REP payments to the IOUs.  Put another way, the Settlement will cause BPA to set higher rates for the COUs, who will in turn set higher rates for members of APAC. The intervening IOUs counter that " because APAC's members' rates are set by COUs, not BPA, they have no legal right to any particular rate under the NWPA," and thus do not have a legally protected interest in non-inflated rates. We disagree.
First, we must clarify that a petitioner's " legally protected interest" need not be a statutorily ...