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$32M Power Deal Doesn't Add Up, 9th Circuit Rules by Staff Courthouse News Service, August 31, 2009

(CN) - The 9th Circuit invalidated an Oregon-based power company's agreement to pay aluminum producer Alcoa Inc. $32 million cash, so Alcoa could buy power from a competitor. Judge Berzon called it an unsound business arrangement.

The three-judge panel in Seattle said the deal between Portland-based Bonneville Power Administration and Alcoa amounted to a "gift" that would drive up energy rates for other customers.

"BPA's justifications for this unusual transaction, under which the agency received nothing directly in exchange for its $32 million, do not demonstrate that the transaction was 'consistent with sound business principles,' as required by BPA's governing statutes," Berzon wrote.

The court previously rejected BPA's plan to essentially subsidize Alcoa's aluminum smelter in Washington. BPA agreed to "sell" power to Alcoa at a below-market rate, but instead gave it "benefit" payments that it could use to buy power on the wholesale market.

The court invalidated these "monetized provisions" of the aluminum contract, prompting the parties to amend their agreement in 2009.

The 9th Circuit also rejected the amended contract as an unsound business judgment. BPA failed to explain its decision "to incur a $32 million expense that will increase the rates of its preference customers, provides no direct benefit to the agency, and subsidizes the operations of its competitors," the court concluded.

(bluefish: Referring to the BPA as being "Oregon-based" is off the mark. Their web home page states, "The Bonneville Power Administration, headquartered in Portland, Oregon, is a federal agency under the U.S. Department of Energy. BPA serves the Pacific Northwest through operating an extensive electricity transmission system and marketing wholesale electrical power at cost from federal dams, one non-federal nuclear plant and other nonfederal hydroelectric and wind energy generation facilities. BPA aims to be a national leader in providing high reliability, low rates consistent with sound business principles, responsible environmental stewardship and accountability to the region.")