                                           Volume 1 of 2

                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

PACIFIC NORTHWEST GENERATING          
COOPERATIVE; BLACHY-LANE
COUNTY COOPERATIVE ELECTRIC
ASSOCIATION; CENTRAL ELECTRIC
COOPERATIVE INC.; CLEARWATER
POWER CO.; CONSUMERS POWER,
INC., COOS-CURRY ELECTRIC
COOPERATIVE, INC.; DOUGLAS
ELECTRIC COOPERATIVE; FALL RIVER
RURAL ELECTRIC COOPERATIVE, INC.;
LANE ELECTRIC COOPERATIVE; LOST
RIVER ELECTRIC COOPERATIVE, INC.;
NORTHERN LIGHTS, INC.; OKANOGAN
COUNTY ELECTRIC COOPERATIVE,
                                         No. 05-75638
INC.; RAFT RIVER RURAL ELECTRIC
COOPERATIVE, INC.; SALMON RIVER
ELECTRIC COOPERATIVE, INC.;
UMATILLA ELECTRIC COOPERATIVE
ASSOCIATION; AND WEST OREGON
ELECTRIC COOPERATIVE, INC.,
                       Petitioners,
                v.
DEPT. OF ENERGY; BONNEVILLE
POWER ADMINISTRATION,
                      Respondents.
                                      



                           16513
16514      PACIFIC NORTHWEST GENERATING v. DOE



ALCOA, INC.,                          
                        Petitioner,
PUBLIC POWER COUNCIL,
                                      
                        Intervenor,
                                          No. 05-75639
                v.
BONNEVILLE POWER
ADMINISTRATION,
                       Respondent.
                                      

ALCOA, INC.,                          
                        Petitioner,
COLUMBIA FALLS ALUMINUM
COMPANY; INDUSTRIAL
CUSTOMERS OF NORTHWEST
UTILITIES; PUBLIC POWER COUNCIL,
                       Intervenors,
                                         No. 06-73756

                 v.
BONNEVILLE POWER
ADMINISTRATION; DEP’T OF ENERGY,
                      Respondents.
                                      
           PACIFIC NORTHWEST GENERATING v. DOE      16515



PACIFIC NORTHWEST GENERATING          
COOPERATIVE; BLACHY-LANE
COUNTY COOPERATIVE ELECTRIC
ASSOCIATION; CENTRAL ELECTRIC
COOPERATIVE INC.; CLEARWATER
POWER COMPANY; CONSUMERS
POWER INC.; COOS-CURRY ELECTRIC
COOP., INC.; DOUGLAS ELECTRIC
COOPERATIVE; FALL RIVER RURAL
ELECTRIC COOPERATIVE, INC.; LANE
ELECTRIC COOPERATIVE INC.; LOST
RIVER ELECTRIC COOPERATIVE, INC.;
NORTHERN LIGHTS INC.; OKANOGAN           No. 06-74223
COUNTY ELECTRIC COOPERATIVE
INC.; RAFT RIVER RURAL ELECTRIC
COOPERATIVE, INC.; SALMON RIVER
ELECTRIC COOPERATIVE INC.;
UMATILLA ELECTRIC; WEST OREGON
ELECTRIC COOPERATIVE, INC.,
                       Petitioners,
                v.
BONNEVILLE POWER
ADMINISTRATION,
                      Respondent.
                                      
16516      PACIFIC NORTHWEST GENERATING v. DOE



PACIFIC NORTHWEST GENERATING          
COOPERATIVE; BLACHY-LANE
COUNTY COOPERATIVE ELECTRIC
ASSOCIATION; CENTRAL ELECTRIC
ASSOCIATION INC.; CLEARWATER
POWER COMPANY; CONSUMERS
POWER INC.; COOS-CURRY ELECTRIC
COOP., INC.; DOUGLAS ELECTRIC
COOPERATIVE; FALL RIVER RURAL
ELECTRIC COOPERATIVE; LANE
ELECTRIC COOPERATIVE INC.; LOST
RIVER ELECTRIC COOPERATIVE, INC.;
NORTHERN LIGHTS INC.; OKANOGAN           No. 06-74237
COUNTY ELECTRIC COOPERATIVE
INC.; RAFT RIVER RURAL ELECTRIC
COOPERATIVE INC.; SALMON RIVER
ELECTRIC COOPERATIVE INC.;
UMATILLA ELECTRIC; WEST OREGON
ELECTRIC COOPERATIVE, INC.,
                       Petitioners,
                v.
BONNEVILLE POWER
ADMINISTRATION,
                      Respondent.
                                      

ALCOA, INC.,                          
                        Petitioner,
                v.
                                         No. 06-74797
BONNEVILLE POWER
ADMINISTRATION,
                       Respondent.
                                      
              PACIFIC NORTHWEST GENERATING v. DOE               16517



INDUSTRIAL CUSTOMERS      OF               
NORTHWEST UTILITIES,
                            Petitioners,
                                           
                                                  No. 06-75361
                   v.
                                                   OPINION
BONNEVILLE POWER
ADMINISTRATION,
                          Respondents.
                                           
          On Petition for Review of an Order of the
              Bonneville Power Administration

                   Argued and Submitted
             November 7, 2007—Portland, Oregon

                    Filed December 17, 2008

      Before: Raymond C. Fisher, Marsha S. Berzon,
 Circuit Judges, and Barry Ted Moskowitz,1 District Judge.

                    Opinion by Judge Berzon




  1
    Honorable Barry Ted Moskowitz, District Judge for the Southern Dis-
trict of California, sitting by designation.
            PACIFIC NORTHWEST GENERATING v. DOE         16521
                          COUNSEL

Michael C. Dotten, Matthew Harrington, Heller Ehrman LLP,
Seattle, Washington, for petitioner-intervenor Alcoa, Inc.

Melinda J. Davison, Irion Sanger, Davison Van Cleve, P.C.,
Portland, Oregon, for petitioner Industrial Customers of
Northwest Utilities.

R. Erick Johnson, Lake Oswego, Oregon, for petitioners
Pacific Northwest Generating Cooperative, et al.

Karin J. Immergut, United States Attorney; Randy Roach,
General Counsel; Stephen J. Odell, Assistant U.S. Attorney;
David J. Adler, Special Assistant U.S. Attorney; Timothy
Johnson, Assistant General Counsel; Kurt Runzler, Jon D.
Wright, J. Courtney Olive; Portland, Oregon, for respondent
Bonneville Power Administration.

Leonard J. Feldman, Heller Ehrman LLP, Seattle, Washing-
ton, for intervenor Port Townsend Paper Company.

Mark R. Thompson, Portland, Oregon, for intervenor Public
Power Council.


                          OPINION

BERZON, Circuit Judge:

                     A.   Introduction

  At their origins during the New Deal, the Bonneville Proj-
ect’s hydroelectric operations in the Pacific Northwest,
administered by the Bonneville Power Administration
(“BPA”), were promoted as spreading the benefits of afford-
able federal power widely, to “the farmer and the factory, and
16522          PACIFIC NORTHWEST GENERATING v. DOE
all of you and me.”2 At the same time, the Project gave a vital
boost to the aluminum industry of the Pacific Northwest.
Indeed, in the early days of the Project, what was good for
BPA was good for the aluminum industry, and what was good
for the aluminum industry was good for BPA. Aluminum
manufacturers received low-cost federal hydroelectric power
to operate energy-intensive smelting operations in the Pacific
Northwest, and BPA gained a reliable market for a supply of
electric power that otherwise greatly exceeded demand in a
region where rural electrification was still a work in progress.
See H.R. Rep. No. 96-976, pt. 2, at 27 (1980), as reprinted in
1980 U.S.C.C.A.N. 6023.

   BPA’s synergistic relations with the aluminum industry
during this early period were widely seen as a public good.
The aluminum manufacturers and the region’s nascent avia-
tion industry, which they supplied, not only brought many
high-wage jobs to the Pacific Northwest, but also served as a
vital strategic asset for the United States during World War II
and the Cold War decades that followed.3

   Times have changed. Public utilities and electrical coopera-
tives serve a larger regional population with greater needs for
electrical power, see id., to which they are statutorily guaran-
teed preferential access. See 16 U.S.C. § 832c(a).4 Rising
  2
     WOODY GUTHRIE, Grand Coulee Dam, on THE COLUMBIA RIVER
COLLECTION (Smithsonian Folkways, 1988). Guthrie was commissioned by
the federal Works Progress Administration in 1941 to write songs to pro-
mote the Bonneville Project.
   3
     “Now in Washington and Oregon you can hear the factories hum, mak-
ing chrome and making manganese and light aluminum. And there roars
the Flying Fortress now to fight for Uncle Sam, spawned upon the King
Columbia by the big Grand Coulee Dam.” Guthrie, supra note 1. The
aluminum-bodied B-17 “Flying Fortress” was the world’s first mass-
produced large aircraft, with wartime production levels in Boeing’s Seattle
plant reaching a never-again-equaled sixteen planes per day. See ROBERT
J. SERLING, LEGEND & LEGACY: THE STORY OF BOEING AND ITS PEOPLE 55
(1992).
   4
     Unless otherwise noted, all statutory citations are to Title Sixteen of the
United States Code.
               PACIFIC NORTHWEST GENERATING v. DOE                   16523
energy prices have made the relatively inexpensive federal
power generated by BPA more attractive than ever, not only
to BPA’s regional “ ‘preference’ customers,” Aluminum Co.
of America v. Central Lincoln Peoples’ Util. Dist. (“Alcoa”),
467 U.S. 380, 384 (1984), but also to utilities outside the
Pacific Northwest.5

   At the same time, due to a variety of factors — among
them higher energy costs — the region’s aluminum industry
has fallen on hard times. The smelting operations of the major
aluminum manufacturers, which traditionally ran on electric
power purchased directly from BPA, are generally being
operated at reduced capacity, and in some cases, have shut
down entirely. This case centers on how much BPA can or
must do, under the authority and mandate conferred upon it
by Congress, to aid its longtime, but now ailing, customers.

   The assistance largely at issue here consists of three three-
party contracts BPA executed in June 2006, each with a local
public utility company and one of the aluminum companies
that are “direct service industrial” customers (“DSIs”) of
BPA. In the contracts, BPA committed itself to make pay-
ments to the aluminum company DSIs (“aluminum DSIs”)
totaling a maximum of $59 million per year for five years in
lieu of supplying them with actual electrical power, while
retaining the option to sell them physical power instead in the
final two years. In addition, in September 2006, BPA
arranged for the sale of physical power to Port Townsend
Paper Company (“Port Townsend”), the sole existing DSI that
is not an aluminum manufacturer, via a contract between BPA
and a local utility company, Public Utility District Number 1
of Clallam County (“Clallam”), for the sale of physical
  5
    Numerous opinions of this Court “chronicle the history of BPA and
describe the tangle of statutes that govern its operations.” Golden Nw. Alu-
minum, Inc. v. BPA, 501 F.3d 1037, 1041 (9th Cir. 2007) (citing cases).
Accordingly, we confine our discussion to the particular facts relevant to
this appeal.
16524        PACIFIC NORTHWEST GENERATING v. DOE
power, which Clallam would then supply to Port Townsend.
Challenges to these four contracts by aluminum DSI Alcoa;
the Pacific Northwest Generating Cooperative, an organiza-
tion of electrical cooperatives that are preference customers of
BPA (collectively, “Cooperative”); and Industrial Customers
of Northwest Utilities, an organization of firms which pur-
chase electricity from utility companies, rather than directly
from BPA (collectively, “Industrial Customers”), form the
basis of the seven petitions that have been consolidated in this
case. Both Port Townsend and the Public Power Council, an
association of consumer-owned utilities, have intervened as
interested parties.

                 B.   The Statutory Context

   To set out the complex statutory landscape against which
we consider these challenges, we briefly review the enact-
ments in which Congress over the past seven decades has
established and regulated BPA’s authority to sell the output of
the Federal Columbia River Power System, as the regional
energy generation operations which began with the Bonne-
ville Project are known. See Golden Nw. Aluminum, 501 F.3d
at 1041.

   The Bonneville Project Act of 1937 (“Project Act”), 16
U.S.C. § 832-832j, created BPA as the authority responsible
for the “sale and disposition” of the electric energy generated
by the federal hydroelectric projects in the Pacific Northwest.
See § 832a. The Project Act directed that “in disposing of
electric energy generated at [the Bonneville] project, [BPA
shall at all times] give preference and priority to public bodies
and cooperatives.” § 832c(a). At the same time, the Project
Act also authorized BPA, subject to this preference and prior-
ity restriction, to enter into contracts for the “sale at wholesale
of electric energy . . . to private agencies and persons.”
§ 832d(a). Historically, there have been two types of private
entities that purchase electric power directly from BPA:
investor-owned utility companies (“IOUs”) and DSIs. See
              PACIFIC NORTHWEST GENERATING v. DOE                 16525
Ass’n of Pub. Agency Customers, Inc. v. BPA, 126 F.3d 1158,
1164 (9th Cir. 1997).

   Over the following decades, Congress responded to
increasing demand for BPA’s low-cost federal power within
and outside the Pacific Northwest with four additional pieces
of legislation relevant to this case:

   First, in 1964, Congress passed the Regional Preference
Act, 16 U.S.C. §§ 837-837h (“RPA”), which provides that the
sale of electric energy from “Federal hydroelectric plants in
the Pacific Northwest” to customers outside the region must
be limited to “surplus energy,” § 837a, defined as “energy . . .
which would otherwise be wasted because of the lack of a
market therefor in the Pacific Northwest at any established
rate.” § 837(c).6

  Second, the Transmission Act, 16 U.S.C. §§ 838-838h,
enacted in 1974, established the basic principles that rates for
BPA power must

      be fixed and established (1) with a view to encourag-
      ing the widest possible diversified use of electric
      power at the lowest possible rates to consumers con-
      sistent with sound business principles, (2) having
      regard to the recovery . . . of the cost of producing
      and transmitting such electric power, . . . and (3) at
      levels to produce such additional revenues as may be
      required, in the aggregate with all other revenues of
      the Administrator, to pay when due [expenses related
      to] . . . all bonds issued and outstanding pursuant to
      this chapter . . . .

§ 838g.
  6
   The current definition of “surplus energy” reads “electric energy for
which there is no market in the Pacific Northwest at any rate established
for the disposition of such energy.” See § 839f(c).
16526         PACIFIC NORTHWEST GENERATING v. DOE
   Third, the Northwest Power Act, 16 U.S.C. §§ 839-839h
(“NWPA”), signed into law in 1980, was triggered by Con-
gress’s recognition that demand within the Pacific Northwest
for low-cost federal power threatened to outstrip supply, and
that BPA’s dams were having a significant impact on the
region’s fish and wildlife. See Ass’n of Pub. Agency Custom-
ers, 126 F.3d at 1165. The NWPA contains several provisions
central to this litigation.

   Initially, the NWPA directs that “[w]henever requested,”
by either a “public body and cooperative entitled to prefer-
ence under the [Project Act]” or an “investor-owned utility,”
BPA “shall offer to sell . . . electric power to meet the
[requesting entity’s] firm power load.”7 § 839c(b)(1). In the
same section of the Act, Congress also states that BPA is “au-
thorized to sell in accordance with this subsection electric
power to existing [DSI] customers.” § 839c(d)(1)(A). The
statute then instructs BPA to offer “an initial long term con-
tract” for the sale of electric power to each of its existing DSI
customers, § 839c(d)(1)(B), and, under a separate subsection,
to its public utility and cooperative customers and IOUs.
§ 839c(g). The NWPA also authorizes BPA, in § 839c(f), to
“sell, or otherwise dispose of, electric power, including power
acquired pursuant to this and other Acts, that is surplus to
[BPA’s] obligations incurred pursuant to subsections (b), (c),
and (d) of this section[,] in accordance with this and other
Acts applicable to [BPA] . . . .”

   In addition, the NWPA directs BPA to “establish, and peri-
odically review and revise, rates for the sale and disposition
of electric energy,” § 839e(a)(1), which are subject to “confir-
mation and approval by the Federal Energy Regulatory Com-
mission [(“FERC”)] upon a finding by the Commission” that,
  7
    “Firm power” is power or power capacity that an electric utility prom-
ises to deliver to a customer on a non-interruptible basis. “Firm power
load” is the total amount of “firm power” that a utility has committed to
providing its customers.
             PACIFIC NORTHWEST GENERATING v. DOE            16527
among other things, “such rates . . . are based upon [BPA]’s
total system costs.” § 839e(a)(2)(B). Rates for preference cus-
tomers are mandated, accordingly, to be sufficient to “recover
the costs of that portion of the Federal base system resources
needed to supply such loads,” § 839e(b)(1), with “Federal
base system resources” defined as

    (A) the Federal Columbia River Power System
    hydroelectric projects;

    (B) resources acquired by [BPA] in longterm con-
    tracts . . . ; and

    (C) resources acquired by [BPA] in an amount
    necessary to replace reductions in capability of the
    resources referred to in subparagraphs (A) and (B) of
    this paragraph.

§ 839a(10). Congress also instructed that “rates applicable to
direct service industrial customers shall be established,”
§ 839e(c)(1), at a level that is “based upon [BPA’s] applicable
wholesale rates to [preference] customers and the typical mar-
gins included by such [preference] customers in their retail
industrial rates [plus other considerations] . . . .” § 839e(c)(2).

                 C.   The Present Litigation

   The events that immediately gave rise to this litigation
began in June 2005, when BPA initiated the process that
resulted in the execution of the contracts challenged here. On
June 30, 2005, BPA issued a Record of Decision on Service
to Direct Service Industrial (DSI) Customers for Fiscal Years
2007-2011 (“DSI Service ROD”), in which it announced its
intention to enter into the three-way contracts with the alumi-
num DSIs and the local utility companies. The proposed con-
tracts would provide “service benefits,” with the default form
of delivery of the benefits being “financial payment[s]” by
BPA to the DSIs. BPA retained a one-way option, however,
16528         PACIFIC NORTHWEST GENERATING v. DOE
in the fourth and fifth years of each of the contracts to discon-
tinue a portion of the payments to a particular DSI and supply
that DSI with physical power instead, although the DSI could
then elect to refuse service and terminate the agreement. BPA
specified that before exercising that option, the agency would
conduct a “public process” to consider and explain its deci-
sion.

   The amount of the payments to the DSIs was determined
according to a formula based on the difference between the
market price of power and BPA’s standard rate for power sold
to its preference customers (“PF rate”). Under the default
mode, monetary payments to each DSI would be made in an
amount equal to this price differential multiplied by the
amount of physical power the DSI purchased from the local
utility partner, thus tying the value of the benefit to the DSI’s
electricity use and, therefore, to its level of operations and
employment.8

   Crucially, BPA placed three limitations on the amount of
the payments it would make to the DSIs each year. First, BPA
obligated itself to make the payments only on the first 560
average megawatts (“aMW”)9 of capacity consumed by the
DSIs each year.10 Second, BPA capped the price differential
it was willing to pay the DSIs for the power they purchased
on the open market at no more than $24/MWh. Third, BPA
  8
     Under the alternative mode, BPA would supply physical power to the
local utility for sale to the DSI at a price to be determined by BPA, but
no lower than the PF rate.
   9
     aMW is a measure of capacity. Power is typically priced by megawatt
hours (MWh), a measure of usage, where 1 MWh = 1 hour of use × 1
aMW. Thus, 560 aMW, if used continuously for a year, will equate to
4,905,600 MWh of power usage (560 aMW × 24 hours/day × 365 days/
year).
   10
      Of the 560 aMW, BPA allocated 100 aMW to GNA, 320 aMW to
Alcoa, and 140 aMW to CFAC. Alcoa had requested an allocation of 438
aMW.
               PACIFIC NORTHWEST GENERATING v. DOE                   16529
limited the total annual benefit the DSIs could receive to $59
million.11

   BPA acknowledged in the DSI Service ROD that “service
to the DSIs will come at the expense of higher rates paid by
. . . preference customers.” While BPA stated that it would
“not revisit[ ] its . . . decision to serve some amount of DSI
load at a known and capped cost,” it also indicated — in
apparent contradiction — that both the decision to contract
with the DSIs and the level of service benefits that it would
provide were possibly subject to change. Alcoa and the Coop-
erative both filed in this Court timely petitions for review of
the DSI Service ROD.

   On May 31, 2006, BPA issued a Supplement to the DSI
  11
    The following three simplified hypotheticals illustrate the general con-
tours of the monetary benefit plan and the effect of each of the limitations.
Hypothetical 1: Assume the DSIs use 700aMW of power continuously for
a year, the average market price for power is $32/MWh in that year, and
the rate charged to preference customers (“PF rate”) is $30/MWh. If no
limitations were in place, the DSIs would be entitled to a monetary pay-
ment of $12.3 million (700aMW × 24 hours/day × 365 days/year × ($32/
MWh [Market rate] − $30/MWh [PF rate])). However, because the benefit
extends only to the first 560aMW used by the DSIs, the actual monetary
benefit would total only $9.8 million (560aMW × 24 hours/day × 365
days/year × ($32/MWh − $30/MWh)).
Hypothetical 2: Assume that the DSIs use only 200aMW of capacity con-
tinuously for a year, but the market price of power for that year is $60/
MWh, rather than $32/MWh. Without BPA’s limitations, the monetary
benefit paid to the DSIs would be $52.6 million (200aMW × 24 hours/day
× 365 days/year × ($60/MWh − 30/MWh)). The $24/MWh limitation,
however, reduces that benefit to $42.0 million (200aMW × 24 hours/day
× 365 days/year × $24/MWh [benefit cap]).
Hypothetical 3: Assume the DSIs use only 560aMW of capacity continu-
ously for a year, and the market price of power for that year is $50/MWh.
Without BPA’s limitations, the monetary benefit owed to the DSIs would
be $98.1 million (560 aMW × 24 hours/day × 365 days/year × ($50/Mwh
[Market rate] − $30/MWh [PF rate])). The $59 million total annual cap
applies, however, and limits the total payment to that amount.
16530          PACIFIC NORTHWEST GENERATING v. DOE
Service ROD (“Supplemental ROD”), which announced cer-
tain revisions in the agency’s plan to contract with the DSIs.
In particular, BPA decided to provide “slightly more operat-
ing flexibility” to the aluminum DSIs by reducing the mini-
mum level of energy usage required for eligibility to receive
the monetary benefit payments.12 The plan’s main provisions,
including the service benefit levels and the method of deliv-
ery, remained unchanged. Alcoa and the Cooperative again
both filed in this Court timely petitions, this time for review
of the Supplemental ROD.

   In June 2006, less than a month after the issuance of the
Supplemental ROD, BPA executed contracts with the three
aluminum DSIs — Alcoa, Columbia Falls Aluminum Co. and
Golden Northwest Aluminum Holding Co. — under the terms
described in the Supplemental ROD. Alcoa and the Coopera-
tive petitioned this Court for review of those contracts as well.

   In the DSI Service ROD and the Supplemental ROD, BPA
also announced that it would provide Port Townsend with its
full requirements for power, seventeen aMW, to be supplied
through Clallam. Under the final proposal, the rate for power
sold by BPA to Clallam would be set at a level equal to the
agency’s rate for power sold to local utilities (the PF rate)
plus the margin typically charged by the latter to their indus-
trial customers. BPA, Clallam, and Port Townsend then exe-
cuted contracts providing for power service to Port Townsend
through Clallam. Industrial Customers timely filed a petition
for review of the contracts.

                    D.    BPA’s Rate Schedules

  Because a central dispute among the parties in this case
concerns which of BPA’s various power rate schedules should
  12
    Under BPA’s initial plan, a DSI had to utilize at least 50% of its allo-
cated capacity to be eligible for the monetary benefit. The revised proposal
lowered this requirement to 25%.
            PACIFIC NORTHWEST GENERATING v. DOE            16531
apply to the contracts at issue, a brief overview of the possible
rate categories is in order.

   BPA is required by its governing statutes to “establish” a
number of energy rate schedules for the sale of power to dif-
ferent customer groups. See § 839e(a)(1). BPA calculates
these rate schedules according to detailed statutory guidelines,
see § 839e(a)-(h), and promulgates them through a formal
ratemaking procedure that includes publication of proposed
rates in the Federal Register, public hearings, and FERC
approval. See § 839e(i). Four of BPA’s rate schedules are at
issue in this case: the PF rate, the Industrial Firm Power
(“IP”) rate, the New Resources (“NR”) rate, and the Firm
Power Products and Services (“FPS”) rate.

  (a)   PF rate

   The PF rate is a cost-based rate at which BPA sells firm
power to its preference customers, whose requirements for
firm power the agency is required to fulfill. See §§ 839c(b),
839e(b). It is calculated pursuant to guidelines specified in
§ 839(e)(b), and is BPA’s lowest published rate. For the year
ending September 30, 2007, the average PF rate was $27.33/
MWh.

  (b)   IP rate

   The IP rate is “applicable to [firm power sales] made to
direct service industrial customers” and is “established” pur-
suant to the requirements of § 839(e)(c). Like the PF rate, it
is a cost-based rate. See § 839(e)(c). For the year ending Sep-
tember 30, 2007, the average IP rate was $45.08/MWh.

  (c)   NR rate

  The NR rate applies to power sales to utilities that are used
by those utilities to serve “new large single load[s].” See §
839a(13); the NR rate is intended to penalize DSI customers
16532         PACIFIC NORTHWEST GENERATING v. DOE
who attempt to lower their energy costs by purchasing power
at lower rates from one of the public utilities that BPA serves
instead of purchasing the power directly from BPA at the IP
rate. See H.R. Rep. No. 96-976, pt. 1, at 25, 51 (describing
purpose of NR rate as a deterrent). For the fiscal year ending
September 30, 2007, the average NR rate was $77.03/MWh.

  (d)    FPS rate

   The FPS rate is perhaps the most confounding of BPA’s
rate schedules, but, because all four of the contracts at issue
utilize it, also the most important for this case.

   As it does for the PF, IP, and NR rates, BPA establishes an
FPS rate schedule pursuant to the ratemaking requirements of
§ 839e(i), which it then publishes. See BONNEVILLE POWER
ADMINISTRATION, 2007 WHOLESALE POWER RATE SCHEDULES 55-
59 (November 2006) (hereinafter “Wholesale Power Rate
Schedule”), available at http://www.bpa.gov/power/PFR/
rates/2007-09_Power_Rates.pdf. Unlike the other rate sched-
ules, however, the FPS rate schedule includes a provision,
entitled “Flexible Rate,” which states that energy rates “may
be specified at a higher or lower average rate [than the pub-
lished rate] as mutually agreed by BPA and the Purchaser.”
See id. at 57. In other words, although BPA publishes an FPS
rate schedule, BPA and the contracting customer are free to
deviate from this published rate by mutual agreement. See
Supplemental ROD (“Power is sold under the FPS schedules
at rates mutually agreed to by BPA and the purchaser.”).
Thus, a sale made pursuant to the FPS rate schedule could, in
theory, be made at any price. As such, the FPS rate schedule
is, in effect, no rate schedule at all.13
  13
     No party challenges BPA’s statutory authority to sell power at mutu-
ally agreed upon rates that have not been previously approved by FERC.
This Court therefore assumes, without deciding, that BPA has such author-
ity.
               PACIFIC NORTHWEST GENERATING v. DOE                    16533
                           II.    Jurisdiction

   The NWPA gives this Court, as the “court of appeals for
the region,” jurisdiction to hear any suit challenging “final
actions and decisions taken pursuant to this chapter [of the
NWPA] by [BPA]” or to “the implementation of such final
actions, whether brought pursuant to this chapter, the [Project]
Act, the [Regional Preference Act], or the [Transmission]
Act.” § 839f(e)(5). The NWPA lists certain BPA actions as
representing “final actions subject to judicial review” under
the Administrative Procedure Act, 5 U.S.C. §§ 701-06. See
§ 839f(e)(1)(A)-(H).14 Among the listed actions are “sales . . .
of electric power under section 839c of this title.”
§ 839f(e)(1)(B).

   All four of the contracts at issue either involve sales of
electric power made pursuant to BPA’s authority under
§ 839c or are, at least, “other final” agency actions under
§ 839f(e)(3), and so are reviewable by this court.15 Thus, we
have jurisdiction to review the validity of the contracts,
including (1) whether BPA is authorized and/or obligated to
  14
      The NWPA’s jurisdictional grant also contains a “catch-all” provision
which makes clear that our jurisdiction to review the agency’s action is not
confined to the listed actions. See § 839f(e)(3) (“Nothing in this section
shall be construed to preclude judicial review of other final actions and
decisions by the . . . Administrator.”).
   15
      The aluminum DSI contracts do not, under the monetary benefit
option, involve the physical delivery of power. They may nonetheless
qualify as “sales of electric power” as they are designed to effectuate the
delivery of power to the DSIs at a rate agreed upon by the DSIs and BPA,
by subsidizing the sale of power actually acquired elsewhere. In any event,
the parties do not dispute the characterization of these contracts as “sales
of electric power” for jurisdictional purposes. Moreover, the contractual
provisions regarding monetary benefits would qualify as “final actions”
within the catch-all provision even if not considered to be “sales of electric
power under § 839c.” As we therefore do not need to sort out whether the
monetary benefits provisions are reviewable as “sales of electric power”
or under the catch-all for “other final actions and decisions by the . . .
Administrator,” we do not do so.
16534         PACIFIC NORTHWEST GENERATING v. DOE
sell power to the DSIs under § 839c; (2) whether BPA is per-
mitted to offer the DSIs monetary benefits in lieu of deliver-
ing physical power; (3) whether BPA may offer contract
terms to Port Townsend that differ from those offered to the
aluminum DSIs; and (4) whether BPA must treat Port Town-
send as a “new large single load” for the purposes of its con-
tract with Clallam.16

   Alcoa and the Cooperative also challenge the actual rates
incorporated by BPA into the aluminum DSI contracts. Alcoa
argues that it is entitled to purchase power from BPA at a
cost-based rate, and that, under the monetary benefit provi-
sions of its contract with BPA — which utilize a mutually
agreed upon FPS rate as a baseline — it is, as a practical mat-
ter, subject to a market-based rate.17 The Cooperative, on the
  16
      The Cooperative argues that the DSI Service ROD and the Supple-
mental ROD are also final agency actions subject to our review. We find
it unnecessary to decide this issue. The four DSI contracts — which, as
we have already concluded, are final agency actions subject to our review
— incorporate the final decisions made by BPA in the DSI Service ROD
and/or the Supplemental ROD. Thus, there is no reason for this Court
independently to review the RODs, whether or not they are final agency
actions. Any issue that arises from the RODs and is ripe for review also
arises from the contracts and is likewise ripe for review. Similarly, any
issue unripe for adjudication is unripe under both the RODs and the con-
tracts.
   17
      Determining the “rate” that applies to purchases of power by Alcoa is
complicated because BPA opted to deliver a monetary benefit rather than
physical power. As noted, BPA agreed to pay Alcoa the difference
between the rate that Alcoa must pay to purchase physical power (i.e., the
market rate) and the PF rate for the first 320 aMW of power Alcoa con-
sumes each year. BPA, however, capped the price differential it is willing
to pay at $24/MWh (or less if Alcoa uses more than one-half of its allotted
capacity). Thus, if the market price of power exceeds the PF rate by more
than $24/MWh (or the applicable cap), Alcoa must pay more than the PF
rate for its power purchases, although still less than the market rate. In
addition, Alcoa receives no payment — and therefore must pay the full
market price — for purchases of power in excess of the 320 aMW limit
imposed by BPA. In sum, BPA’s contract with Alcoa requires Alcoa to
pay a market-based rate — although less than the market rate — for the
first 320 aMW Alcoa purchases each year, and the full market rate for any
purchases above 320 aMW.
             PACIFIC NORTHWEST GENERATING v. DOE           16535
other hand, argues that the rate assumptions that determine the
monetary benefit BPA pays to the aluminum DSIs are imper-
missibly low and thereby result in an unlawful subsidy.

   This issue is ripe for review. While this Court ordinarily is
not permitted to review rate-making decisions until those
decisions are final and have been approved by FERC, see
Ass’n of Public Agency Customers, 126 F.3d at 1177, 1179,
BPA affirmatively stated in the Supplemental ROD that “[a]
formal rate proceeding is not legally required for BPA to
negotiate a rate within [the FPS] rate schedule . . . and[,] in
this case in particular, would add little or nothing to the record
already developed . . . .” BPA, in other words, has indicated
that it does not plan to seek approval from FERC of the rate
assumptions underlying the monetary payments or use the for-
mal rate-making procedures outlined in § 839e(i) with respect
to those payments. Because the parties do not challenge
BPA’s assertion that no formal rate-making procedure,
including FERC approval, is required here, we assume, with-
out deciding, that BPA is correct. As BPA plans to take no
further action with respect to the amount of monetary benefits
specified in the DSI contracts or the method by which they
are calculated, the benefit mechanism represents the “consum-
mation of the agency’s decisionmaking process” by which
BPA’s “obligations . . . [were] determined,” see Bennett v.
Spear, 520 U.S. 154, 178 (1997) (internal quotation marks
and citations omitted), and thus qualifies as a final agency
action subject to our review under the catch-all review cate-
gory.

   For similar reasons, Industrial Customers’ challenge to the
rate applicable to the sale of power to Clallam is also ripe for
review. Industrial Customers argues that the BPA/Clallam
contract rate is impermissibly low because it is “not the DSI
rate, the NR rate for new large single loads, or the market
price of electricity.” Like the rate used to calculate the level
of the aluminum DSIs’ monetary benefit, the BPA/Clallam
contract rate is a negotiated rate made pursuant to the FPS
16536          PACIFIC NORTHWEST GENERATING v. DOE
rate schedule. As noted, BPA asserts that it is not legally
required to seek FERC approval of a rate negotiated under the
FPS rate schedule.18 Because the agency provides no indica-
tion that it nonetheless plans to seek FERC approval of the
Clallam contract rates,19 we can only assume that it does not
plan to do so. A review of BPA’s notice of proposed 2007
wholesale power rates, which describes the scope of BPA’s
2007 wholesale rate-making process, confirms this assump-
tion. See 70 Fed. Reg. 67,685 (Nov. 8, 2005). In the ratemak-
ing notice, BPA states:

       The DSI Service decisions [embodied in the RODs]
       finalized and established the manner and method by
       which BPA would provide service and benefits to its
       DSI customers[, including Port Townsend]. The
       decisions in that ROD resolved the method and level
       of service to be provided DSIs in the FY 2007-2011
       period. Pursuant to § 1010.3(f) of BPA Hearing Pro-
       cedures, the Administrator directs the Hearing Offi-
       cer to exclude from the record any material
       attempted to be submitted or arguments attempted to
       be made in the hearing which seek to in any way
       revisit the appropriateness or reasonableness of
       BPA’s decisions made in the DSI ROD.

Id. at 67,689 (emphasis added). Because no parties contest
BPA’s claim that the Clallam contract rates have been “final-
ized” and “established,” we hold that ICNU’s challenge to
that rate is ripe for review.

   In its final challenge, the Cooperative asserts that BPA
  18
     Again, because the parties do not challenge this assertion, we assume,
without deciding, that BPA is not legally obligated to conduct a ratemak-
ing proceeding either before or after it negotiates a rate under the FPS rate
schedule.
  19
     In fact, BPA concedes that this Court has jurisdiction to review
ICNU’s petition.
              PACIFIC NORTHWEST GENERATING v. DOE                   16537
lacks statutory authority to allocate the costs it will incur
under the contracts with the DSIs into the rates the agency
charges its preference customers. We lack jurisdiction to
review this challenge, because it is not, at present, ripe for
adjudication. See, e.g., DBSI/TRI IV Ltd. P’ship v. United
States, 465 F.3d 1031, 1038 (9th Cir. 2006).

   It has long been established in this circuit that petitions
seeking review of BPA’s rate-making decisions — including
both the allocation to rates of the costs of acquiring additional
power, and language in power sales contracts affecting rate-
making — are not reviewable until FERC has approved the
rates in question. See Ass’n of Pub. Agency Customers, 126
F.3d at 1177, 1179; Pub. Utils. Comm’n of Cal. v. FERC, 814
F.2d 560, 561 (9th Cir. 1987); Pub. Utils. Comm’r of Oregon
v. BPA, 767 F.2d 622, 629 (9th Cir. 1985) (“If FERC fails to
correct any defects in the methodology [which affected rate-
setting], redress is available in the court of appeals,” where
“any . . . cognizable challenges will be fully reviewable
. . . .”).20 Until then, we lack jurisdiction to review PNGC’s
challenge to BPA’s allocation of the costs of the DSI con-
tracts to its members’ rates.
  20
     Although ripeness concerns preclude our consideration of PNGC’s
challenges to BPA’s allocation of the costs of contracting with the DSIs,
no such concerns limit our jurisdiction to review BPA’s authority to con-
tract with the DSIs, and more specifically, to provide monetary benefits
in lieu of physical power or to supply power at a rate that has been final-
ized. In considering the ripeness of petitions challenging BPA contracts,
we have distinguished between challenges to contractual provisions on the
grounds that those provisions will affect future rate-making and cost allo-
cation decisions, and challenges premised on the contention that the
agency lacks statutory authority to agree to specific contractual terms,
even though the injury asserted is those terms’ effect on customers’ rates.
See Cal. Energy Res. Conservation & Dev. Comm’n v. Johnson, 807 F.2d
1456, 1458-59, 1461 (9th Cir. 1986) (dismissing as unripe claims that con-
tractual provisions unlawfully impair BPA’s future rate-making and cost
allocation procedures, while reviewing claim that contract violates NWPA
requirements governing resource acquisition in § 839d(b)).
16538       PACIFIC NORTHWEST GENERATING v. DOE
                         III.   Merits

                  A.   Standard of Review

   Petitioners here challenge decisions made by BPA in the
DSI Service ROD and Supplemental ROD and embodied in
the DSI contracts. We affirm BPA’s actions unless they are
“arbitrary, capricious, an abuse of discretion, or in excess of
statutory authority.” Aluminum Co. of Am. v. BPA, 903 F.2d
585, 590 (9th Cir. 1990). The basis for each of the challenges
brought here is a contention that BPA has exceeded its author-
ity under its governing statutes — the Project Act, the Trans-
mission Act, the NWPA and the RPA — or that its decisions
are arbitrary and capricious.

   When reviewing a challenge to an agency’s statutory
authority, “[o]ur inquiry must begin . . . by examining the
statutory language.” Ass’n of Pub. Agency Customers, 126
F.3d at 1169. If “Congress has spoken directly to the issue,”
so that there is a “clearly expressed intent,” id. (citing Chev-
ron U.S.A., Inc. v. NRDC, 467 U.S. 837, 842-43 (1984)), we
“reject administrative constructions of a statute that are incon-
sistent with the statutory mandate or that frustrate the policy
Congress sought to implement.” Aluminum Co. of Am., 891
F.2d at 752. “When relevant statutes are silent on the salient
question, we assume that Congress has implicitly left a void
for [the] agency to fill,” and, therefore, we “defer to the agen-
cy’s construction of its governing statutes, unless that con-
struction is unreasonable.” Ass’n of Pub. Agency Customers,
126 F.3d at 1169; see also Golden Nw. Aluminum, 501 F.3d
at 1045.

   This Court “has been particularly deferential to BPA,”
Portland Gen. Elec. Co. v. BPA, 501 F.3d 1009, 1025 (9th
Cir. 2007), “for three reasons: First, the enabling legislation
is highly technical and complex. Second, the Agency was inti-
mately involved in the drafting and . . . [third,] Congress has,
for nearly half a century, monitored BPA performance in elec-
             PACIFIC NORTHWEST GENERATING v. DOE           16539
tricity regulation and allocation.” Pub. Util. Dist. No. 1 v.
BPA, 947 F.2d 386, 390 (9th Cir. 1991) (internal quotation
marks omitted). In particular, we have identified the question
of “how best to further BPA’s business interests consistent
with its public mission” as a statutory “gap” that Congress left
to BPA to fill. Ass’n of Pub. Agency Customers, 126 F.3d at
1171 (internal quotation marks omitted). Applying appropri-
ate deference, we uphold the agency’s assessment of whether
its actions “further BPA’s business interests consistent with
its public mission,” so long as the assessment is not unreason-
able. Id.

      B. BPA’s Obligation To Supply the DSIs’
 Requirements for Physical Power at a Cost-Based Rate

   Alcoa, the Cooperative, and BPA each offers a different
interpretation of BPA’s statutory authority to sell power to the
DSIs. Alcoa asserts that § 839c(d) obligates the agency to sell
DSIs power at a cost-based rate. By contrast, the Cooperative
contends that § 839c(d) is no longer operative, and that BPA
therefore has no authority to sell power to DSIs thereunder,
but instead must price its sales to DSIs at market rates. BPA
argues for a middle ground: it maintains that § 839c(d) autho-
rizes but does not obligate it to sell power to the DSIs. The
agency does not stop there, however. It further contends that,
because it is not obligated to sell power to the DSIs, it may
use its § 839c(f) authority to sell the DSIs power at an FPS
rate without first offering them power at the cost-based IP
rate.

   For the reasons discussed in detail below, we conclude that
none of these positions is entirely correct. We agree with BPA
that § 839c(d) authorizes but does not obligate the agency to
sell power to the DSIs. However, we also hold that, if the
agency chooses to offer firm power to the DSIs, whether pur-
suant to its § 839c(d) or § 839c(f) authority, it must first offer
them the IP rate.
16540          PACIFIC NORTHWEST GENERATING v. DOE
          1.   Obligation To Sell Power to the DSIs

   Alcoa argues that BPA’s decision to guarantee only a
capped, monetary benefit to the aluminum DSIs in the con-
tracts violated the NWPA, because the NWPA creates a per-
petual obligation for BPA to satisfy the DSIs’ full energy
requirements through sales of power at a cost-based rate. The
Cooperative claims, on the other hand, that since the expira-
tion in 2001 of the initial long term contracts mandated by
§ 839c(d)(1)(B), BPA no longer has authority to sell power to
the DSIs under § 839c(d)(1), and, therefore, any such sale
must be authorized by § 839c(f)’s provisions for the agency’s
sale of surplus power at a market rate. Compare 16 U.S.C.
§ 839c(d)(1)(A) (“[BPA] is authorized to sell in accordance
with this subsection electric power to existing direct service
industrial customers.”) with § 839c(f) (“[BPA] is authorized
to sell, or otherwise dispose of, electric power, including
power acquired pursuant to this and other Acts, that is surplus
to [its] obligations incurred pursuant to subsections (b), (c),
and (d) of this section, in accordance with this and other Acts
applicable to [BPA] . . . .”). Because, as we explain, Congress
has not “clearly expressed [its] intent” in § 839c(d), we defer
to BPA’s reasonable construction of the statutory text. Ass’n
of Pub. Agency Customers, 126 F.3d at 1169. Doing so, we
hold here — as we have previously assumed, but not decided21
—that neither petitioner is entirely correct, and that
   21
      Compare M-S-R Pub. Power Agency v. BPA, 297 F.3d 833, 838 (9th
Cir. 2002) (stating in a case involving a challenge to BPA’s calculation of
the amount of power that the agency could sell to non-DSI customers out-
side the Pacific Northwest under § 832m, that “after October 2001 . . .
§ 839c(d) authorized but did not obligate BPA to sell the DSIs any
power”) with Golden Nw. Aluminum Co., 501 F.3d at 1045 (holding that
an earlier, unpublished decision, which had dismissed as untimely a chal-
lenge to BPA’s contracts to sell power to the DSIs after the expiration of
the initial long-term contracts, was res judicata with regard to BPA’s
authority to sell power to the DSIs under those contracts, but “express[ing]
no independent view as to whether . . . § 839c(d) [ ] permits BPA to con-
tract with its DSI customers”).
              PACIFIC NORTHWEST GENERATING v. DOE                   16541
“§ 839c(d) authorize[s] but d[oes] not obligate BPA to sell the
DSIs any power.” M-S-R Pub. Power Agency v. BPA, 297
F.3d 833, 838 (9th Cir. 2002).22

   Section 839c(d)(1) reads:

       (A) The Administrator is authorized to sell in
       accordance with this subsection electric power to
       existing direct service industrial customers. Such
       sales shall provide a portion of the Administrator’s
       reserves for firm power loads within the region.

       (B) After [the effective date of this Act, BPA] shall
       offer in accordance with subsection (g) of this sec-
       tion to each existing direct service industrial cus-
       tomer an initial long term contract that provides such
       customer an amount of power equivalent to that to
       which such customer is entitled under its contract
       dated January or April 1975 providing for the sale of
       “industrial firm power.”

Alcoa maintains that the use in § 839c(d)(1)(B) of the term
“initial” in describing the initial long term contracts indicates
Congress’s intent that BPA is required to enter into successor
agreements. Alcoa suggests that any interpretation to the con-
trary would render Congress’s use of the word “initial”23
superfluous, in contravention of basic principles of statutory
construction. Boise Cascade Corp. v. EPA, 942 F.2d 1427,
1432 (9th Cir. 1991). The Cooperative argues, to the contrary,
that the phrase “in accordance with this subsection,”
  22
      Although the Supreme Court noted in Alcoa that, under the NWPA,
the “preference rules [for regional customers] will apply to any subsequent
contracts made with DSIs [following the initial long-term agreements],”
it expressed no view regarding whether such “subsequent contracts”
would or could include agreements for sales of firm power under
§ 839c(d). 467 U.S. at 395 n.10.
   23
      “Initial” means “related to, or occurring at the beginning.” AMERICAN
HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (4th ed. 2000).
16542       PACIFIC NORTHWEST GENERATING v. DOE
§ 839c(d)(1)(A), means that BPA’s authority to sell power to
the DSIs extends only to the “initial long term contracts”
specified in § 839c(d)(1)(B), particularly because § 839c
(d)(3) states that the agency “shall not sell amounts of electric
power, including reserves, to [the] existing [DSIs] in excess
of the amount permitted under [§ 839c(d)](1),” unless specific
requirements, not present here, are met.

  The statutory text is far from clear, but, for several reasons,
does not compel the conclusion that successor sales agree-
ments with the DSIs under § 839c(d) are prohibited.

   First, § 839c(d)(3) specifies neither what is meant by the
“the amount permitted under [§ 839c(d)](1),” nor, therefore,
what additional sales are prohibited. It is true that the provi-
sion could be read to ban any sales of industrial firm power
subsequent to those made under the initial long term con-
tracts. On the other hand, it also could be understood as pro-
hibiting only concurrent sales — that is, while the original
long-term contracts were still in effect — “in excess of the
amount permitted under [§ 839c(d)](1),” but not affecting
subsequent sales of power — that is, after the initial agree-
ments expired.

   [1] BPA has adopted the latter interpretation. Its position is
that it now can make new sales of power to the DSIs under
§ 839c(d)(1)(A), even though it previously had asserted in
Kaiser Aluminum & Chem. Corp. v. BPA, 261 F.3d 844 (9th
Cir. 2001), that it could not make such sales during the term
of the initial agreements. See id. at 849-850 (discussing
BPA’s position that during the term of the initial long term
contracts, the agency could not sell power under § 839c(d) in
addition to that provided under the initial long-term agree-
ments mandated in § 839c(d)(1)(B)). BPA’s understanding of
§ 839c(d)(3) is a reasonable construction of ambiguous lan-
guage and is therefore entitled to Chevron deference. The
agency’s construction of the subsection does not contradict
BPA’s position at the time of Kaiser, because Kaiser involved
             PACIFIC NORTHWEST GENERATING v. DOE           16543
sales during, rather than after, the term of the initial agree-
ments. See 261 F.3d at 849-850.

   Second, the use of the phrase “initial contract” gives rise to
a reasonable inference that contracts following the initial long
term agreements are not precluded; “initial” suggests that oth-
ers may follow. The statutory context lends considerable sup-
port to this interpretation, as it provides for “initial long-term
contracts” for BPA’s preference customers and the IOUs as
well as for the DSIs, see § 839c(g)(1), and definitively con-
templated follow-on contracts, after the term of the initial
agreements, for those groups of customers. See § 839c(b)(1),
(b)(3), (c)(1); see also Ass’n of Pub. Agency Customers, 126
F.3d at 1166 (noting that “[t]he DSIs’ 1981 Contracts with
BPA required any DSI wanting to continue purchasing BPA
power after the 20-year term to request a replacement contract
by June 30, 1993,” thereby assuming the authority, but not the
obligation, to enter into such contracts).

   Third, the inclusion of § 839c(d)(1)(A) in the Act as a sepa-
rate, general grant of authority to BPA to sell power to the
DSIs also suggests that the agency’s authority to do so is not
limited to the specific mandate to offer initial long-term con-
tracts set forth in § 839c(d)(1)(B). Subsection 839c(d)(1)(A)
states what BPA “is authorized” to do — sell power — with-
out specifying any time limitation; subsection (d)(1)(B) pro-
vides what BPA “shall” do with respect to a limited time
period. BPA’s authorized-but-not-obligated interpretation
thus has the advantage of giving full effect to the statutory
text. See Cent. Montana Elec. Power Coop., Inc. v. Adm’r of
the BPA, 840 F.2d 1472, 1478 (9th Cir. 1988). In contrast,
under the Cooperative’s interpretation, the general authoriza-
tion contained in subsection (A) is superfluous; subsection (B)
would suffice if all that was intended was an obligation to
enter into one set of contracts.

   Finally, BPA’s authorized-but-not-obligated understanding
of the interrelationship of subsections (A) and (B) is also con-
16544       PACIFIC NORTHWEST GENERATING v. DOE
sistent with the Act’s legislative history. The House Interior
Committee’s report on S. 885 states that “[s]ection 5(d)(1)
authorizes [BPA] to sell power to its existing direct-service
industrial customers and requires [the agency] to offer to such
customers initial long-term power sale contracts.” H.R. Rep.
No. 96-976, pt. 2, at 34 (1980) (emphasis added). Similarly,
the House Commerce Committee Report on S. 885 — the bill
that became the NWPA, see Cal. Energy, 807 F.2d at 1464 —
states that “[s]ection 5(d) authorizes the Administrator to sell
power to existing direct service industrial customers.” H.R.
Rep. No. 96-976, pt. 1, at 61 (1980). The report goes on to
explain that, in addition to mandating that “[i]nitial long-term
20-year contracts are to be offered by BPA” to the DSIs,
“[s]ubsequent contracts . . . are authorized but not mandated.”
H. Rep. No. 96-976, pt.1, at 61 (1980).

  [2] We conclude that BPA is authorized to sell the DSIs
non-surplus power under § 839c(d)(1)(A).

   At the same time, we do not adopt Alcoa’s suggested inter-
pretation — that BPA is obligated, rather than merely autho-
rized, to sell power to the DSIs. Contrary to Alcoa’s
suggestion, the phrase “initial long-term contract” does not
necessarily indicate that successor agreements are required
rather than permitted. That an object is at the “beginning” of
a process in no way dictates that the process will continue in
perpetuity. Certainly, every time Alcoa signs an “initial con-
tract” with one of its customers, the company does not believe
it is entering into a lifelong commitment.

   Alcoa nonetheless contends that if Congress had meant to
obligate BPA to enter into only one long-term contract with
the DSIs, it would have simply referred to a “long-term con-
tract,” not an “initial long-term contract.” But “initial” could
have been meant just as a reference back to subsection (A),
confirming that there may be later contracts as well.

   The interpretation Alcoa suggests is not one that we, BPA,
or, for that matter, Alcoa itself, previously has taken from the
             PACIFIC NORTHWEST GENERATING v. DOE             16545
text of § 839c(d)(1)(B). See M-S-R, 297 F.3d at 838. Nor is
Alcoa’s perpetual obligation position consistent with the
meaning that members of Congress involved in the NWPA’s
enactment ascribed to the section. See H.R. Rep. No. 96-976,
pt. 1, at 61 (stating that after the “[i]nitial long-term 20-year
contracts[,] . . . . [s]ubsequent contracts . . . are authorized but
not mandated.”).

   Alcoa sees evidence to the contrary in the legislative his-
tory of the NWPA and in BPA’s own understanding of the
Act at the time of its passage. The company points to a state-
ment in the House Interior Committee Report on S. 885 that
§ 839c(b) “mandates continued BPA power sales to existing
[DSIs],” H.R. Rep. No. 96-976 Pt. 2 at 48, and a statement by
BPA’s administrator that the NWPA “contemplates in
[§ 839c(d)] additional, future contracts with each existing
[DSI]” following the initial agreements. Alcoa reads too much
into these statements.

   Nothing in the above-quoted sentence from the Committee
Report or its surrounding text indicates that “continued . . .
power sales” is for sales after the initial agreements, as
opposed to the initial agreements themselves (which are, of
course, “mandate[s]”). Indeed, additional language in the
Committee Report supports the latter interpretation: “Existing
DSIs will receive the amount of power to which they are enti-
tled under present ‘Industrial Firm’ power sales agreements.”
H.R. Rep. No. 96-976, pt. 2, at 48. Moreover, BPA’s adminis-
trator’s statement that subsequent contracts are “contemplat-
ed” under § 839c(d) — a far from imperative term — is
completely consistent with the view that the Act “authorized
but did not obligate BPA to sell the DSIs any power.” M-S-R,
297 F.3d at 838.

  [3] Alcoa further argues that because “[u]nder accepted
canons of statutory interpretation, we must interpret statutes
as a whole,” Boise Cascade, 942 F.2d at 1432, Congress’s
mention of sales to the DSIs in various sections of the NWPA
16546       PACIFIC NORTHWEST GENERATING v. DOE
shows that it intended BPA to have an ongoing obligation to
sell power to them. The strongest support for this contention
is the requirement in § 839c(d)(1)(A) that “sales [to the DSIs]
shall provide a portion of the [BPA]’s reserves for firm power
loads.” Alcoa maintains that this language requires ongoing
sales by BPA to the DSIs, so as to provide these reserves.

   [4] Again, the plain text of the statute permits but does not
command the interpretation Alcoa suggests. The language in
question could be read to recognize such a requirement. But
it also reasonably can be read to mean that if BPA elects to
sell power to the DSIs under § 839c(d), a portion of this
power must be available to BPA as reserves. BPA adopted the
latter interpretation as more consistent with the NWPA as a
whole, which, according to BPA, indicates that Congress was
focused on assuring that BPA has some reserves to protect its
operations, rather than on the particular source of these
reserves. See, e.g., § 839a(17) (defining “[r]eserves” as “elec-
tric power needed to avert particular planning or operating
shortages . . . [that are] available to [BPA] (A) from resources
or (B) from rights to interrupt . . . portions of the electric
power supplied to customers.”) (emphasis added). BPA’s
interpretation of the ambiguous “reserves” language is reason-
able, and so entitled to Chevron deference.

   Nor do the other sections of the NWPA which discuss sales
to the DSIs compel us to reach the conclusion Alcoa pro-
poses. Contrary to Alcoa’s assertion, the fact that
§ 839e(b)(2)(A)(I) requires BPA to take into account the costs
of “[DSI] customer loads which are . . . served by [BPA]”
(emphasis added), in its rate ceiling does not prove that DSI
loads must be served by BPA. Again, it is just as reasonable
to read the provision to require that if BPA chooses to serve
DSI loads, it must take the costs of such service into account.

   Along these same lines, the fact that we have construed
§ 839b(d)(2), which provides that BPA must act in accor-
              PACIFIC NORTHWEST GENERATING v. DOE                 16547
dance with a regional power plan,24 to require that BPA’s
regional plan reflect loads for which the DSIs have requested
service, see M-S-R, 297 F.3d at 844, does not mean that BPA
is obligated to satisfy that request. Instead, our stated assump-
tion when announcing this holding was that BPA is “autho-
rized but . . . not obligate[d]” to serve the DSIs. Id. at 838.

   Alcoa’s position that the NWPA must be understood to
mandate perpetual sales to the DSIs is further undermined by
another consideration: When Congress did want to impose an
obligation to supply a class of customers with their require-
ments for power, it did so quite explicitly. With regard to
preference customers and the IOUs, the NWPA provides that,
“[w]henever requested, [BPA] shall offer to sell to each
requesting public body and cooperative entitled to preference
and priority . . . and to each requesting [IOU] electric power
to meet the firm power load of such [customer] . . . .”
§ 839c(b)(1) (emphasis added). The DSIs are not mentioned
as customers to whom this language applies, and the NWPA
does not contain any other equivalent provision concerning
BPA’s sales to them. While Congress specifically directed
BPA to provide “initial long-term contracts” to all of its tradi-
tional classes of customers, see § 839c(g)(1)(A)-(D), it only
mandated that the agency provide power “whenever request-
ed,” § 839c(b)(1), to only some of them — and not to the
DSIs. We must infer, therefore, that Congress intended to
exclude service to the aluminum DSIs from this general man-
date. See White v. Lambert, 370 F.3d 1002, 1011 (9th Cir.
2004) (“It is axiomatic that when Congress uses different text
in ‘adjacent’ statutes it intends that the different terms carry
a different meaning.”); see also, e.g., Barnhart v. Peabody
  24
    Section 839b(d)(2) states: “Following adoption of the [regional con-
servation and electric power] plan and any amendment thereto, all actions
of the Administrator pursuant to section 839d of this title [— which con-
cerns the acquisition of resources to meet BPA’s contractual obligations
—] shall be consistent with the plan and any amendment thereto, except
as otherwise specifically provided in this chapter.”
16548            PACIFIC NORTHWEST GENERATING v. DOE
Coal Co., 537 U.S. 149, 168 (2003) (applying the canon of
expressio unius est exclusio alterius).25

   [5] We conclude, in sum, that BPA’s interpretation of the
NWPA as authorizing but not obligating the agency to sell
nonsurplus firm power to the DSIs is a reasonable one. We
therefore reject both the Cooperative’s contention that such
sales are prohibited and Alcoa’s contention that BPA has an
ongoing obligation to sell power to the DSIs under
§ 839c(d)(1).

   2.      Obligation to Offer Power at a Cost-Based Rate

   As explained in note 17, supra, under the monetary benefit
provisions in the aluminum DSI contracts, the rate the DSIs
ultimately pay for the physical delivery of power once the
BPA monetary payments are taken into account, while below
the market rate, is nonetheless subject to market fluctuations
and increases when market rates rise above a certain point.
Unhappy with this exposure to market volatility, Alcoa argues
  25
     The difference in treatment between sales to preference customers and
IOUs on the one hand and sales to DSIs on the other is reflected in the leg-
islative history of the NWPA. Concerning sales of power to preference
customers and the IOUs, the House Interior Committee Report states,
       [S]ection 5(b)(1) requires the Administrator, if requested, to enter
       into long-term power sale contracts with both preference and
       investor-owned utilities in the region to supply them with the
       firm power they need to meet their firm loads . . . .
H. Rep. No. 96-976, pt. 2, at 33 (1980). “The practical effect of this man-
date,” the report observes, is that “preference utilities . . . will continue to
have all their firm power needs in the region met by BPA . . . .” Id. No
such consequences are noted in regard to sales to the DSIs. See id. at 34
(“Section 5(d)(1) . . . authorizes the Administrator to sell power to its
existing direct-service industrial customers and requires him to offer to
such customers initial long-term power sale contracts. . . .”) (emphasis
added). Thus, the committee report suggests that Congress was creating an
ongoing requirement that BPA provide “long-term power sale contracts”
to preference customers and the IOUs, but was only requiring “initial
long-term power sale contracts” for the DSIs. Id. (emphasis added).
            PACIFIC NORTHWEST GENERATING v. DOE           16549
that BPA must sell it power at a purely cost-based rate that
does not vary with market rates. By contrast, BPA asserts that
its governing statutes do not obligate it even to offer the DSIs
a cost-based rate, let alone supply power (or its monetary
equivalent) at such a rate. Rather, BPA contends that it may
offer power to the DSIs as “surplus” power under § 839c(f)
at the FPS rate schedule — which, as discussed, we are
assuming permits BPA to offer power at any mutually-agreed
upon rate, including market-based rates — without first offer-
ing that power to the DSIs at one of its FERC-approved, cost-
based rates.

   Alcoa does not clearly indicate which of BPA’s three pub-
lished cost-based rates — the PF rate, the IP rate, and the NR
rate — it believes it is statutorily entitled to. Because the IP
rate, which § 839e(c) describes as “the rate . . . applicable to
direct service industrial customers,” is the most obvious con-
tender, we consider that rate first.

                       a.   The IP rate

   According to BPA’s interpretation of the NWPA, the IP
rate applies only to sales that BPA makes to DSIs pursuant to
§ 839c(d). Id. BPA then notes, as we have also concluded,
that § 839c(d) authorizes, but does not obligate, the agency to
sell power to the DSIs. The agency concludes from this cir-
cumstance that any power in excess of that (1) which is
requested by its preference customers or IOUs under
§ 839c(b) and (c), or (2) which the agency itself elects to sell
the DSIs under § 839c(d), qualifies as “[s]urplus power” that
BPA is authorized “to sell, or otherwise dispose of” under
§ 839c(f). BPA sells such “surplus power” pursuant to the
FPS rate schedule at a negotiated FPS rate. Thus, by refusing
to sell to the DSIs pursuant to its authority under section
839c(d), BPA believes, it can effectively create “surplus
power” that it can then offer to sell to the DSIs (or any other
in-region customers) at any rate it chooses.
16550         PACIFIC NORTHWEST GENERATING v. DOE
   BPA’s interpretation of § 839e(c) and its relationship with
§ 839c(d) is unreasonable on two grounds. First, it ignores the
plain language of the statute and, in so doing, renders the IP
rate superfluous. Second, it runs counter to the NWPA’s leg-
islative history, which evinces Congress’s intent that BPA
offer power to the DSIs, if at all, at the IP rate, not at some
other rate of its choosing. For these reasons, we hold that
BPA, when entering into contracts for the sale of firm power
to a DSI, must initially offer the IP rate.26 Only after the DSIs
have refused to purchase power at the IP rate may BPA offer
them power under the FPS rate schedule.




  26
     This holding pertains to sales, like the contracts at issue, of “firm
power” to DSI customers. See Wholesale Power Rate Schedule at 130
(defining “firm power” as “electric power (capacity and energy) that BPA
will make continuously available under contracts executed pursuant to
Section 5 of the Northwest Power Act”). We are not deciding whether
BPA must offer the IP rate to DSIs when selling “nonfirm” power.
PACIFIC NORTHWEST GENERATING v. DOE     16551
                                Volume 2 of 2
            PACIFIC NORTHWEST GENERATING v. DOE          16555



                   i.   Statutory Analysis

  [6] The language of § 839e(c), which is entitled “Rates
applicable to direct service industrial customers,” does not
support BPA’s contention that the IP rate applies only to sales
made pursuant to § 839c(d). Section 839e(c) states, in rele-
vant part,
16556       PACIFIC NORTHWEST GENERATING v. DOE
    (1) The rate or rates applicable to direct service
    industrial customers shall be established — . . .

    (B) for the period beginning July 1, 1985, at a level
    which the Administrator determines to be equitable
    in relation to the retail rates charged by the public
    body and cooperative customers to their industrial
    consumers in the region.

    (2) The determination under paragraph (1)(B) of
    this subsection shall be based upon the Administra-
    tor’s applicable wholesale rates to such public body
    and cooperative customers and the typical margins
    included by such public body and cooperative cus-
    tomers in their retail industrial rates but shall take
    into account —

    (A) the comparative size and character of the loads
    served,

    (B) the relative costs of electric capacity, energy,
    transmission, and related delivery facilities provided
    and other service provisions, and

    (C) direct and indirect overhead costs, all as related
    to the delivery of power to industrial customers,
    except that the Administrator’s rates during such
    period shall in no event be less than the rates in
    effect for the contract year ending on June 30, 1985.

The statutory text does not reference section 839c(d) or other-
wise suggest the limitation BPA reads into it. Rather, it
straightforwardly — and generally — states “the rate or rates
applicable to direct service industrial customers shall be
established” pursuant to certain standards. § 839e(c) (empha-
sis added).
              PACIFIC NORTHWEST GENERATING v. DOE                   16557
   Second, and more importantly, BPA’s position would ren-
der the IP rate a nullity. If this Court were to adopt BPA’s
interpretation of §§ 839e(c) and 839c(d), BPA would retain
complete discretion over the decision whether to offer DSIs
power at the purely cost-based IP rate or at an FPS rate of
BPA’s choosing, including a market-based rate higher than
the IP rate. Basic economics establishes that a rational seller
of a commodity product, if provided a choice between the
market rate and a cost-based rate, will either choose to offer
the market rate (if the market rate exceeds the cost-based rate)
or be forced to accept the market rate (if the market rate is
below the cost-based rate). Thus, BPA, if acting rationally and
in accordance with its “mandate to operate with a business-
oriented philosophy,” see Ass’n of Pub. Agency Customers,
126 F.3d at 1171, would never sell power to the DSIs at the
IP rate.27 Why would Congress have required BPA to “estab-
lish” a rate, specified the formula it would be “based upon,”
and stated that “the rate or rates” are “applicable to [DSI] cus-
tomers,” § 839e(c) (emphasis added), if that rate could not
possibly apply to any sale?

   In its initial ROD, BPA states that it chose not to use the
IP rate as the baseline for calculating the monetary benefits
payable to the DSIs because it believed the DSIs could not
afford the rate and would therefore reject any contract that
provided power (or its monetary equivalent) at that rate.
Whether or not this assertion is correct, it does not excuse
BPA’s failure to at least offer the rate, because the DSIs will
not always prefer an FPS rate.

   [7] In Kaiser, for example, the DSIs sought to purchase
power at the IP rate once that rate became more economical
than a market-based FPS rate. See Kaiser, 261 F.3d at 848.
Were we to agree that BPA has complete discretion to select
between the IP rate and an FPS rate, BPA would, as noted,
  27
    Except, of course, in the extremely unlikely event that the IP rate and
the market rate were identical.
16558          PACIFIC NORTHWEST GENERATING v. DOE
always choose an FPS rate, and the DSIs would never receive
the option to purchase power at the IP rate. Our conclusion is
supported by BPA’s actions in Kaiser, where, when presented
with the opportunity to charge an FPS rate rather than the IP
rate, BPA did so. See id. Because Congress must have
intended the IP rate to apply to at least some contracts, we
conclude that BPA must at least offer the IP rate, established
pursuant to section 839e(c), to the DSIs before entering into
a contract with the DSIs at a rate authorized under the FPS
rate schedule.28

                       ii.   Legislative History

   Our conclusion that BPA’s interpretation of its governing
statutes is unreasonable is further underscored by the fact that
it contradicts the legislative history of the Act. That history
contains extensive evidence that Congress intended the IP rate
to be the default price for sales of power to the DSIs, and
   28
      At oral argument, as in its opening brief, Alcoa alleged that the rate
BPA agreed to charge Clallam — a rate “equal to [the PF rate] . . . plus
the typical industrial margin used to establish the [IP rate]”— “mirror[s]
the statutory standard for [the IP] rate[ ] found at” § 839e(c). See
§ 839e(c)(1)-(2) (stating that the IP rate shall be established at a rate “eq-
uitable in relation to . . . [the PF rate plus] the typical margins included
by [public utilities and cooperatives] in their retail industrial rates [plus
other factors]”). Counsel for Alcoa then asserted that, because the Clallam
contract rate is equivalent to the IP rate, the company is entitled to the
Clallam contract rate. This argument is without merit for two reasons.
First, although the language BPA used to describe the Clallam contract
rate is similar to the language that describes the method by which the IP
rate is calculated, the Clallam contract expressly indicates that the rate is
an agreed-upon FPS rate, not the IP rate. Second, the rate which appears
in the Clallam contract could not possibly be the equivalent of the rate that
BPA is required to establish under § 839e(c), because the agreed-upon rate
of approximately $28/MWh is $17/MWh less than the published IP rate
for the year ending September 30, 2007. In short, although the Clallam
contract rate appears, at first glance, to be the same thing as the IP rate,
it is not the IP rate to which the DSIs are entitled. The IP rate that BPA
must offer the DSIs is the one it establishes pursuant to § 839e(c) and (i).
             PACIFIC NORTHWEST GENERATING v. DOE            16559
gives little indication that Congress intended BPA to have dis-
cretion to offer them power at a self-created FPS rate instead.

   First, relevant Committee Reports make clear that “rates
applicable to direct service industrial customers” are those set
under Section 7(c) of the Act, i.e., § 839e(c). H.R. Rep. No.
96-976, pt. 1, at 69 (“Section 7(c) prescribes the rates applica-
ble to direct service industrial customers.”); S. Rep. No. 96-
272 at 59 (“This rate applies to all ‘Industrial Firm’ sales to
BPA’s direct-service industries . . . [for] 1985-86 and all
future [sales].”) (emphasis added).

   By contrast, there is no indication that Congress intended
BPA to offer power to the DSIs at rates set under § 839e(f),
when it can do so at a rate set under § 839e(c). The House
Commerce Committee Report describes Section 7(f) of the
Act, which became 16 U.S.C. § 839e(f), as providing the
authority for “establish[ing] the rate or rates for sales to
investor-owned utilities other than sales pursuant to the [resi-
dential] exchange [program], preference customers for power
needed to meet the requirements of new large single ‘loads’
and all other miscellaneous sales.” H.R. Rep. No. 96-976, pt.
1, at 69. Noticeably absent from this list are direct sales to
DSIs. Similarly, sales made under § 7(f) are described in the
Senate Report as exclusive of sales to the DSIs under §7(c)
(§ 839e(c)). Compare S. Rep. 96-272 at 56 (discussing § 7(c)
and stating that “after June 1985 the rate applicable to BPA
direct service industrial customers will be based upon the
retail rates applicable to industry served by BPA preference
utility customers.”) with id. at 60 (“[S]ubsection 7(f) of the
proposed legislation[:] . . . [t]his rate applies to all other firm
sales including but not limited to (1) Investor-owned utility
total load growth . . . (2) New Large Industrial loads served
by preference customers; (3) Amounts of additional power
needed by Regional Rate loads . . . once such loads exceed the
16560          PACIFIC NORTHWEST GENERATING v. DOE
capability of the Federal Base System resources and the IOU
Exchange Power . . . .”) (emphasis added).29

                        iii.   Kaiser Aluminum

  BPA’s capstone argument on this point is that its decision
not to sell power to the DSIs at the IP rate cannot be unrea-
sonable as it is consistent with the decision in Kaiser Alumi-
num & Chem. Corp. v. BPA, 261 F.3d 843 (9th Cir. 2001). In
Kaiser Aluminum,

       Petitioners argue[d] that the only rate established for
       the sale of the Surplus Firm Power is the IP-96 rate,
       and BPA abused its authority when it refused to sell
       the Surplus Firm Power at that rate. Petitioners fur-
       ther contend[ed] that because BPA refused to sell
       Petitioners the Surplus Firm Power at the IP-96 rate
       and evidence indicates that BPA sold power at the
       FPS-96 rate outside the Pacific Northwest, Petition-
       ers were not granted their regional preference under
       the Preference Act.
  29
    Contrary to BPA’s assertions, the legislative history of 16 U.S.C.
§ 832m, the later-enacted provision which establishes “excess Federal
power,” id., as a “subspecies of surplus power,” M-S-R-, 297 F.3d at 837,
does not support the agency’s contentions regarding the rate at which BPA
must offer power that is not “excess federal power” to regional customers
before selling it outside the region. Congress’s expectation that BPA
“would offer excess power first to regional customers under the same
essential rate . . . as for the proposed out-of-region sale[s],” H.R. Rep. No.
104-293, at 91 (1995) is not a basis for inferring that the same would be
true of sales that do not involve excess power.
   As the passage in the conference report that BPA cites in support of its
argument makes clear, the only energy that can be sold as excess power
is “power abandoned by regional customers and . . . power generated or
purchased for the benefit of fish and wildlife.” Id. A key reason for creat-
ing the “excess federal power” category was to remove otherwise applic-
able regional preference restrictions in the case of sales of power that has
been “abandoned by regional customers.” Id. The passage BPA cites does
not speak to the “applicable rate schedule” for sales to regional customers
of power that they have not “abandoned.” Id.
               PACIFIC NORTHWEST GENERATING v. DOE                   16561
261 F.3d at 848. The IP-96 rate was, at that time, the rate “ap-
plicable to [DSI] customers” under § 839e(c), while the FPS
rate was a rate schedule for sales of “all other . . . power,”
under § 839e(f). See Kaiser, 261 F.3d at 850. Our holding in
Kaiser was that “BPA acted reasonably and in conformity
with governing statutes when it offered to sell [the DSIs] Sur-
plus Firm Power at the FPS-96 rate, and rejected Petitioners’
offers to purchase such power from BPA at the IP-96 rate.”
Id. at 851. Despite a superficial similarity to the circum-
stances of this case, for reasons we now explain Kaiser does
not negate but, instead, underscores the unreasonableness of
BPA’s interpretation of its governing statutes as applied here.

   Most importantly, BPA glosses over key distinctions
between the statutory and factual context in Kaiser and the
one we face here. In Kaiser, the DSIs sought to purchase
power from BPA in 1999, prior to the 2001 expiration date of
the initial longterm contracts mandated by the NWPA. See id.
at 846, 848. The DSIs had, however, terminated or waived
portions of their purchase rights under the initial longterm
contracts, so the power the DSIs wanted to buy was “surplus
to BPA’s long term obligations” to them under the contracts.
Id. at 846-47, 851.30
   30
      As we recounted in Kaiser, the reason the DSIs relinquished these
rights was that in the mid-1990s the market price for electric energy, and,
thus, the FPS rate, was, for a time, actually lower than the IP rate for
power sold to the DSIs under the initial longterm contracts. Id. at 846. As
a result, “the market prevent[ed] BPA from selling any additional power
to the DSIs under their [initial] power sales contract[s].” Id. at 850 (quot-
ing BPA 1996 Rate ROD). When the DSIs terminated or waived the por-
tions of their power allotments, the power they could have purchased
under the initial contracts thus became surplus firm power. Id. at 850
(“[O]ne of the reasons BPA has available surplus power is because [DSI]
Petitioners reduced their obligation to purchase power under their previous
long term power sales contracts.”). When energy prices rose again in the
late 1990s, making the IP rate attractive once again, these DSIs tried to
obtain new agreements from BPA to purchase power at that rate. See id.
at 848.
16562          PACIFIC NORTHWEST GENERATING v. DOE
   The agency’s position in Kaiser, therefore, was not simply
that it had no obligation to make the new sales under the
§ 839e(c) rates that the DSIs wanted, but that it also lacked
statutory authority to do so under § 839c(d). BPA’s conten-
tion, which we accepted, was that the requested transactions
would constitute a sale under § 839c(d) of power “in excess”31
of the initial longterm contracts, which was prohibited by
§ 839c(d)(3).32 Kaiser, 261 F.3d at 850. BPA, we concluded,
could not sell power to the DSIs at the IP-96 rate because this
rate was established only for industrial firm power, which, at
that time, could be sold only under the original longterm
agreements. See id. at 850 (“[A]dditional power sales to DSIs
are not covered by Section [839e](c), under which the IP-96
rate was authorized, because that section requires the estab-
lishment of rates for DSIs under Section [839c](d), the section
which provides for the sale of Industrial Firm Power by
means of long term contracts with the DSIs.”).

   In sum, the power the DSIs sought to purchase from BPA
in Kaiser was energy that was not required by the agency’s
preference customers or the IOUs, but that also could not be
sold to the DSIs at the IP-96 rate. See id at 848-50. We did
not face in Kaiser, as we do here, a situation in which the
agency has failed to offer the DSIs contracts for industrial
firm power at the IP rate even though it is authorized to do so.
  31
      Section 839c(d)(3) states: “The Administrator shall not sell amounts
of electric power, including reserves, to existing direct service industrial
customers in excess of the amount permitted under [§ 839c(d)(1)] unless
[certain specific conditions are met].”
   32
      The position BPA articulated in Kaiser was that: (1) “the IP-96 rate”
was “applicable [only] to the sale of Industrial Firm Power” (2) “Industrial
Firm Power” is limited to power that “that BPA will make continuously
available to a direct-service industrial (DSI) purchaser subject to the terms
of the Purchaser’s power sales contract with BPA”; and (3) as a result, the
DSIs “are entitled to purchase under the IP-96 rate only that amount of
power each has agreed to purchase under the 1981 power sales contracts
or the 1996 Block Sales Contracts.” Kaiser, 261 F.3d at 849.
             PACIFIC NORTHWEST GENERATING v. DOE           16563
   Indeed, BPA does not assert here, as it did in Kaiser, that
its governing statutes preclude it from offering power to the
DSIs at the IP rate. See id. at 849. In fact, BPA makes the
opposite assertion: It argues that it is statutorily authorized to
sell firm power to the DSIs at the IP rate, but is simply choos-
ing not to do so. Thus, BPA’s and this Court’s justification in
Kaiser for allowing BPA to sell power at the FPS rate rather
than the IP rate — namely, that BPA was precluded by statute
from offering the IP rate due to its prior contractual obligation
— is wholly absent here. See Kaiser, 261 F.3d at 850.

   Our interpretation of the governing statutes as requiring
that BPA first offer the DSIs power at the IP rate is not only
faithful to the statutes’ text, it is also more consistent with
BPA’s own understanding at the time of Kaiser and before of
the requirements of §§ 839c and 839e. The key claim raised
by the DSIs in Kaiser was that BPA’s decision to offer energy
only at the FPS-96 rate schedule was inconsistent with the
agency’s position in its 1996 Rate ROD concerning the appli-
cability of the FPS-96 and IP-96 rates. See Kaiser, 261 F.3d
at 849. The position adopted by BPA in the 1996 Rate ROD
was, in essence, the opposite of the one that the agency argues
here. In the 1996 Rate ROD, BPA stated that

    BPA will not sell power to the DSIs under the FPS
    rate schedule if it is able to make the sale at the IP
    rate . . . . Any DSI load that BPA obtains under the
    FPS schedule rate is load it otherwise would have
    lost to the competition; BPA will make sales to the
    DSIs under the FPS rate schedule only when the
    alternative is the loss of the load. The FPS rate
    schedule is not an alternative to the IP-96 rate.

Kaiser, 261 F.3d at 849 (quoting 1996 Rate ROD). In other
words, BPA’s position was that it would only sell power to
the DSIs at an FPS rate if it was not “able to make the sale
at the IP rate.” Id. We relied upon this position of BPA’s in
Kaiser, noting that
16564       PACIFIC NORTHWEST GENERATING v. DOE
    [t]he fact that BPA indicated the IP and FPS rates are
    not interchangeable, and it will not make sales under
    the FPS rate when it can make sales at the IP rate,
    does not answer the question of when BPA is per-
    mitted to make sales under the IP rate. If BPA is not
    permitted to make sales of Surplus Firm Power
    under the IP rate, then it is not impermissibly substi-
    tuting the FPS rate for the IP rate.

Id. at 850. Following the expiration of BPA’s pre-2001 con-
tracts, the “question of when BPA is permitted to make sales
under the IP rate,” id., now has a different answer, see Part
III.B.1, supra. The interpretation of the NWPA that BPA
adopted in the 1996 Rate ROD, and that we upheld as reason-
able in Kaiser, therefore leads to a different outcome in this
case.

   As we recently noted, “[a]n agency is entitled to change its
course when its view of what is in the public’s interest
changes[,]” but “an agency changing its course must supply
a reasoned analysis indicating that prior policies and standards
are being deliberately changed, not casually ignored . . . .”
Nw. Envtl. Def. Ctr. v. BPA, 477 F.3d 668, 687-688 (9th Cir.
2007) (internal quotation marks and citation omitted). Here,
BPA does not simply ignore the interpretation of the NWPA
that it relied upon in Kaiser. Instead, the agency argues that
our holdings in that case now support a view of its authority
quite contrary to its prior position. In other words, BPA asks
us to accept that a change in course is no change at all. An
agency that does not admit to have changed its position does
not “supply a reasoned analysis” for having done so. Id. at
687.

   We conclude that Kaiser supports, rather than conflicts
with, our understanding that BPA does have an obligation to
offer the DSIs a cost-based rate — namely, the IP rate —
before declaring energy as surplus under § 839c(f) and selling
it to the DSIs at a market-based — or other — FPS rate.
               PACIFIC NORTHWEST GENERATING v. DOE                   16565
               iv.    The Regional Preference Act

   Alcoa goes on to argue at length that the Regional Prefer-
ence Act precludes BPA from offering power outside of the
Pacific Northwest unless it first offers that power to in-region
customers at a cost-based rate. As BPA correctly points out,
the contracts at issue involve sales of power to customers (the
DSIs) who are in-region customers; BPA is not, in other
words, attempting in the challenged contracts to sell surplus
power outside the Pacific Northwest. Moreover, BPA states in
footnote 20 of its brief that it

       makes . . . offers [to sell surplus power outside the
       Pacific Northwest] by postings on its website. If
       such sales takes place and if, at that time, Alcoa
       believes BPA has not complied with its obligations
       under the Regional Preference Act, then Alcoa can
       challenge such sale(s) by filing a timely petition for
       review. At this juncture, however, there is no credi-
       ble issue that arises under the Regional Preference
       Act.

Resp. Br. at 84 n.20. In light of BPA’s assurances that Alcoa
can challenge out-of-region power sale contracts and the fact
that it has not done so in this action, we hold that Alcoa’s
RPA-based arguments are not ripe for adjudication at this time.33

                            v.   Conclusion

   [8] We conclude that BPA’s interpretation of its governing
statutes as providing authority to sell surplus power to the
DSIs under § 839c(f) at an FPS rate without first offering to
sell that amount of power under either § 839c(d) or § 839c(f)
at a rate set under § 839e(c) is not reasonable. The statutory
  33
    Should Alcoa later challenge an out-of-region sale in the manner BPA
describes, the agency, of course, will be bound by its representation in this
case that such a challenge is procedurally proper.
16566       PACIFIC NORTHWEST GENERATING v. DOE
text of the NWPA, the agency’s own prior interpretation of
the Act, and the NWPA’s legislative history, are all to the
contrary. We therefore hold that BPA improperly refused to
offer the aluminum DSIs energy at a rate set under § 839e(c)
before selling them power at an FPS rate.

                       b.   The PF rate

   [9] Having concluded that BPA must first offer DSIs the IP
rate — and in light of Alcoa’s failure to identify which cost-
based rate it thinks it deserves — we next consider whether
the DSIs are also entitled to an offer at the PF rate. We hold
that they are not. Section 839e(b), which provides for the
establishment of the PF rate, expressly states the customer
groups to which that rate applies: “public body, cooperative,
and Federal agency customers within the Pacific Northwest
and . . . [investor-owned] electric utilities [who participate in
the residential exchange program].” § 839e(b). The DSIs are
none of these. See Barnhart v. Peabody Coal Co., 537 U.S.
149, 168 (2003) (“[W]hen the items expressed are members
of an associated group . . . the inference [is] that items not
mentioned were excluded by deliberate choice . . . .”) (internal
quotation marks omitted). In addition, the fact that Congress,
in the very next subsection, defined a distinct rate applicable
specifically — and solely — to “direct service industrial cus-
tomers” demonstrates that it intended to treat the DSIs sepa-
rately from those customer groups defined in § 839e(b). See
§ 839e(c). In sum, the plain language of § 839e(b) & (c) per-
mits only one conclusion: that the DSIs are not entitled to the
PF rate.

          C.   Monetization of Energy Contracts

   Both Alcoa and the Cooperative challenge BPA’s authority
to offer the DSIs a monetary benefit in lieu of delivering
physical power. Alcoa argues that the text, structure, and leg-
islative history of the NWPA require BPA to physically
deliver power. The Cooperative contends, likewise, that BPA
            PACIFIC NORTHWEST GENERATING v. DOE            16567
lacks statutory authority for the payments to the DSIs, which
the Cooperative claims are “subsidies” and barred by the gov-
erning statutes. BPA’s counter to both of these challenges is
that its ability to monetize the DSI contracts is consistent with
(1) its statutory mandate to sell power “with a view to encour-
aging the widest possible diversified use of electric power at
the lowest possible rates to consumers consistent with sound
business principles,” see § 838g, and (2) its general authority
to enter into contracts, see §§ 832a(f), 839f(a). We conclude
that BPA’s interpretation of its governing statutes is reason-
able and that, under appropriate circumstances, BPA may
lawfully monetize its energy contracts. Such circumstances,
however, do not exist here. We therefore also hold that BPA’s
decision to monetize the aluminum DSI contracts amounts to
an impermissible subsidy of those companies’ operations.
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 vio-
lates its statutory mandate to act in accordance with “sound
business principles.” See § 838g.

           1.   Authority to Monetize Generally

   [10] Other than a provision related to the sale of energy to
IOUs, see § 839c(c), there is no explicit statutory language in
the NWPA that either allows or prohibits BPA from monetiz-
ing energy contracts. To the extent that “the relevant statutes
are silent on the salient issue,” we “defer to [BPA]’s [statu-
tory] construction . . . unless that construction is unreason-
able.” Ass’n of Pub. Agency Customers, 126 F.3d at 1169.

   [11] BPA’s explanation of its purported authority to “mon-
etize” the sale of power — that is, to provide the DSIs with
money in lieu of physical power — begins with the observa-
tion that the agency has broad authority under its governing
statutes to enter into contracts. See §§ 832a(f) (“Subject only
to the provisions of this chapter [of the Project Act], [BPA]
16568       PACIFIC NORTHWEST GENERATING v. DOE
is authorized to enter into such contracts, agreements, and
arrangements . . . upon such terms and conditions and in such
manner as [it] may deem necessary.”), 839f(a) (“Subject to
the provisions of this chapter [of the NWPA], the [BPA] is
authorized to contract in accordance with [§ 832a(f)]”). Con-
gress also vested BPA with the authority to acquire power,
including purchasing energy on the open market, if needed to
meet its contractual obligations. See § 839d(a)(2)(A) (“[T]he
Administrator shall acquire . . . sufficient resources — (A) to
meet his contractual obligations . . . .”); see also Alcoa, 467
U.S. at 386 & n.5 (noting that the NWPA, for the first time,
provided BPA with the “authority to own, construct, or pur-
chase the output or capability of electricity generating
plants”) (emphasis added). And, as already discussed, BPA is
authorized by statute to contract with the DSIs for the sale of
power, and must offer to do so at the IP rate. See Part III.B,
supra. Because BPA has the statutory authority to sell power
to the DSIs at valid contract rates and to purchase at market
rates the power needed to service those contracts, it is reason-
able for BPA to conclude that it has the authority to simply
pay the difference between the valid contract rates and a
higher market rate, if any. If BPA places no cap on the
amount of its monetary payments to the customer, the cus-
tomer should be largely indifferent between the payment and
the delivery of physical power. Moreover, as BPA asserts,
monetization reduces its financial costs because it circum-
vents the risk that a customer will default on payment after
power is physically delivered. When BPA lowers its costs, all
customers, including preferential customers, benefit. Thus,
monetization, if utilized under appropriate circumstances, is
also consistent with BPA’s mandate to maintain “the lowest
possible rates to consumers consistent with sound business
principles.” § 838g.

   Further, as BPA represents, monetization of energy con-
tracts appears to be a common industry practice, confirming
that the practice is not inherently inconsistent with “sound
business practices.” BPA states that “[l]ong-term power sales
               PACIFIC NORTHWEST GENERATING v. DOE                   16569
and exchange contracts frequently include provisions that spe-
cifically provide the option to cash out an energy delivery
under specific circumstances.” As evidence of this practice,
BPA cites its decision to buy back energy obligations from
customers, including DSI customers, during the west coast
energy crisis of 2001. Neither Alcoa nor the Cooperative chal-
lenges the existence of this general industry practice.

   [12] For the above reasons, we hold that BPA can monetize
its energy contracts with the DSIs, so long as the decision to
monetize is otherwise consistent with BPA’s statutory obliga-
tions. See Portland Gen., 501 F.3d at 1036-37 (holding that
BPA’s statutory authority to enter into settlement agreements
pursuant to section 2(f) of the Project Act is cabined by the
agency’s other statutory obligations).

       2.   Monetization of Aluminum DSI Contracts

   [13] Despite our conclusion that BPA has, in some circum-
stances, the statutory authority to monetize its contracts, we
hold that monetization of the aluminum DSI contracts was
improper. The decision to monetize embodied in the agree-
ments violated other statutory obligations, namely, BPA’s
mandate to provide “the lowest possible rates to consumers
consistent with sound business principles.” § 838g. When it
committed itself to the particular monetary benefit provisions
in the DSI contracts, BPA, in effect, agreed to supply some
power to the DSIs — although not as much as they wanted —
at a rate that is below both the market rate and the IP rate and
could be as low as the PF rate.34 See DSI Service ROD
   34
      The monetization provisions do not, of course, involve the actual sale
of physical power by BPA to the DSIs. Those provisions, however, com-
mit BPA to paying the DSIs the difference between the rate they pay for
power on the open market and a rate denominated an FPS rate but essen-
tially equivalent in amount to the PF rate, subject to the limitations dis-
cussed at pp. 16528-29, supra. Assuming that power is readily available
for purchase on the open market by the DSIs, the monetization provisions
will therefore achieve a result functionally equivalent to the sale of power
by BPA to the DSIs at the baseline rate used to calculate the monetary
benefit.
16570         PACIFIC NORTHWEST GENERATING v. DOE
(acknowledging that the rates embodied in the monetization
provisions would permit the DSIs to purchase power at a rate
below the market and below the IP rate). BPA also concedes
that its decision to sell power to the aluminum DSIs at below-
market and below-IP rates will increase rates for its non-DSI
customers. DSI Service ROD (“BPA is mindful that service
to the DSIs will come at the expense of higher rates paid by
its public preference customers . . . .”). Finally, by its own
admission, BPA was not obligated to sell power to the DSIs,
and was not obligated to offer a rate below the IP rate if it did
sell them power. In essence, BPA has voluntarily agreed to
forgo revenues by charging the DSIs a rate below what is
authorized by statute (i.e., the IP rate) and below what is
available on the open market. These foregone revenues result
in higher rates for all other customers. This outcome is in
apparent and direct conflict with BPA’s statutory mandate,
see § 838g, and renders BPA’s decision to “monetize” the
DSI contracts in an amount reflective of those underlying rate
decisions — albeit a capped amount — highly suspect.

   BPA offers three rationales in an attempt to justify its deci-
sion to utilize a below-market and below-IP rate as a base rate
for calculating the DSIs’ monetary benefit. First, it asserts that
offering the DSIs a subsidized rate furthers the agency’s man-
date to “encourage the widest possible diversified use of elec-
tric power.” See § 839g. Second, BPA suggests that the rate
assumptions are consistent with its authority to market power,
because the agency already sells power at below cost rates to
IOUs under the “residential exchange program” mandated by
the NWPA. See § 839c(c). Finally, BPA argues that its deci-
sion was reasonable because providing aid to long-term cus-
tomers is in its business interests. Each of these justification
is flawed and therefore incapable of supporting BPA’s deci-
sion to offer DSIs capped monetized power at a rate below
both the IP rate and the market rate. We therefore hold that
that decision was unreasonable.35
  35
    There are situations in which BPA’s decision to monetize its energy
contracts with the DSIs would likely qualify as reasonable. For example,
               PACIFIC NORTHWEST GENERATING v. DOE                    16571
   BPA’s first argument — that helping the DSIs furthers its
mandate to “encourage the widest diversified use of electric
power” — does not justify a sale of power at below market
or statutorily mandated rates. See § 838g. This explanation is
undercut, first of all, by the fact that the subsidized rates are
supplied to just three firms, all of which use electric power for
the same industrial purpose — smelting aluminum. Thus, the
payments do not encourage “diversified” use of electric
power, but targeted use. Morever, because, as BPA acknowl-
edges, its rates are “based upon the [BPA]’s total system
costs,” § 839e(a)(2), a side-effect of the payments to the alu-
minum DSIs will be an increase in the rates paid by a much
larger set of customers — the businesses, industries, farms,
and residences served by public utilities, electrical coopera-
tives, and investor-owned utilities with BPA power.

   Common sense suggests that increasing these rates will
cause consumers, overall, to employ electric power for nar-
rower and less diverse uses. When the price of a particular
source of energy goes up, uses of that energy that were afford-
able or profitable at the old price tend to be less so at the new
one. An increase in rates will lead at least some consumers to
either restrict their usage or substitute another source of
power.

  Furthermore, BPA’s conclusory claim that the contracts
will facilitate the diversified use of power could justify almost

if BPA entered into a contract with a DSI at the IP rate (which it is statu-
torily authorized to do) in order to free up power to sell outside the Pacific
Northwest, and the market rate for power exceeded the IP rate, the deci-
sion to monetize would probably conform to “sound business principles.”
In such a case, monetization would reduce the risk of a default by the DSI
and would thereby lower BPA’s financial costs. Similarly, if BPA entered
into a contract with a DSI at a valid contract rate (whether the market rate
or the IP rate) and BPA’s costs to acquire power rose unexpectedly during
the performance of the contract, exercising the option to monetize the now
money-losing contract would likely be valid. This situation appears to
have occurred during the west coast energy crisis, when BPA chose to
monetize several contracts.
16572         PACIFIC NORTHWEST GENERATING v. DOE
any sale of power, including an agreement to give power
away. Absent a specific explanation as to why sales to the
DSIs on more favorable terms than required by statute or by
market circumstances is necessary to diversify the use of
power in the region, the agency’s argument is unpersuasive.

   BPA’s next contention, that the IOU residential exchange
program supports its decision to offer the DSI below-cost
rates, is likewise untenable. In fact, the program’s existence
not only fails to support BPA’s position, it actually under-
mines that position. Under the “residential exchange pro-
gram,” BPA exchanges high-priced power generated by the
IOUs for low-cost federal energy to be supplied to their resi-
dential customers. See § 839c(c); Alcoa, 467 U.S. at 399.
Rather than actually trade power with the IOUs, BPA simply
pays the cost differential to the IOUs. See, e.g., Cent. Elec.
Coop., Inc. v. BPA, 835 F.2d 199, 200-01 (9th Cir. 1987).

   But the exchange program is a specific exception that
proves a general rule — and the rule is that Congress intended
BPA to operate as a business selling power for profit, not as
a charitable institution distributing “benefits.” See, e.g., Ass’n
of Pub. Agency Customers, 126 F.3d at 1171 (citing BPA’s
“mandate to operate with a business-oriented philosophy”).
As the Supreme Court has observed, “[b]ecause th[e]
exchange program essentially requires BPA to trade its cheap
power for more expensive power, it is obviously a money-
losing program for BPA.” Alcoa, 467 U.S. at 399. In the case
of the exchange program, Congress specifically directed BPA
to conduct its operations in a manner that does not conform
with the “sound business principles” that the agency is gener-
ally required to follow. No such exception to § 838g’s statu-
tory mandate applies here. By subsidizing the DSIs’ smelter
operations beyond what it is obligated to do, BPA is simply
giving away money.36
  36
     At oral argument, counsel for BPA conceded that “[i]t’s not Bonne-
ville’s responsibility to ensure that [the DSIs] exist.”
              PACIFIC NORTHWEST GENERATING v. DOE                   16573
   There is another provision in the NWPA that authorizes
BPA to make monetary payments to specific parties. See, e.g.,
16 U.S.C. § 839e(m) (authorizing “annual impact aid pay-
ments to the appropriate local governments within the region”
affected by BPA power generation or transmission projects).
But the DSIs are not among the entities to which any of these
payments are authorized. See id. Again, the fact that Congress
explicitly gave permission to BPA to provide subsidies to
these other entities weighs against BPA’s claim that Congress
implicitly authorized it to provide such subsidies as it chooses
to the DSIs. Cf. Tang v. Reno, 77 F.3d 1194, 1197 (9th Cir.
1996).37

   The NWPA also specifies certain circumstances in which
BPA can sell power to the DSIs at a discounted rate. See 16
U.S.C. § 839e(d) (authorizing a “special rate” for power sold
to any DSI “using raw materials indigenous to the region as
its primary resource”). But § 839e(d) makes clear that such
discounts are only available in specific circumstances not
present here.38

  Finally, BPA maintains that the decision to give the DSIs
favorable rates of BPA’s choosing is authorized because
  37
      The inclusion of a provision for subsidies in the NWPA also counsels
somewhat against our deferring to the agency’s interpretation of the stat-
ute, as it suggests that the question of BPA’s authority to make such pay-
ments is not one where “Congress has . . . left a void for [the] agency to
fill.” Ass’n of Pub. Agency Customers, 126 F.3d at 1169.
   38
      There is no indication that the aluminum DSIs that are to receive the
payments “us[e] raw material indigenous to the region as [their] primary
resource.” § 839e(d)(1). The primary raw material used in aluminum
smelting is bauxite, which is imported. Cf. In re Kaiser Aluminum &
Chem. Co., 214 F.3d 586, 590 (5th Cir. 2000) (discussing use of imported
bauxite in domestic aluminum production). And the legislative history of
the subsection confirms that it was not the aluminum DSIs Congress had
in mind when it adopted this provision. See H.R. Rep. No. 96-976, pt. 2,
at 52-53 (1980) (“The Committee is aware of only one [DSI], the Hanna
Nickel and Mining and Smelting Company[,] . . . which would meet the
criteria of this paragraph.”).
16574       PACIFIC NORTHWEST GENERATING v. DOE
doing so “further[s] BPA’s business interests consistent with
its public mission.” Ass’n of Pub. Agency Customers, 126
F.3d at 1171. This Court “defers to the [BPA]’s actions in fur-
thering its business interests.” Id. at 1171. Still, BPA fails to
explain how the payments are consistent with its “mandate to
operate with a business-oriented philosophy,” id., as it has
identified no business interests forwarded by its actions. The
agency cites its “historic relationship with the DSIs, the
important role the DSIs played in the development of the [fed-
eral power systems], and the importance to local economies
of DSI jobs” as reasons for the payments. These justifications
for simply giving a few of its customers nearly $300 million,
however laudable, are simply not reflective of a “business-
oriented philosophy,” nor do they “further [BPA’s] business
interests.” Id.

   As we made clear recently in another context, BPA’s gov-
erning statutes restrain BPA’s activities even when, on a pure
policy basis, those policies have much to recommend them.
See Portland Gen., 501 F.3d at 1036-37. Applying this very
basic principle, Portland General held that BPA’s general
statutory authority to enter into settlement agreements under
§ 832a(f) of the NWPA does not allow BPA to avoid the
requirements governing power sales to the IOUs simply by
labeling such sales as “settlements.” 501 F.3d at 1030. Here,
similarly, 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 bene-
fits.” In Portland General, BPA’s actions violated the specific
requirements of the REP; here they violate the agency’s gen-
eral statutory mandate to operate like a business. In both
cases, however, the lesson is the same: an agency cannot
expand its mandate solely through creative use of nomencla-
ture.

   [14] In sum, BPA has not advanced a “reasonable interpre-
tation[ ] of its governing statutes” that supports its actions.
Golden Nw. Aluminum Co., 501 F.3d at 1045. Nor has the
              PACIFIC NORTHWEST GENERATING v. DOE                  16575
agency shown how offering the DSIs rates below the market
rate and below what it is statutorily authorized to offer “fur-
ther[s] BPA’s business interests consistent with its public mis-
sion.” Ass’n of Pub. Agency Customers, 126 F.3d at 1171. We
conclude that BPA’s decision to offer the subsidized rates to
the DSIs and then monetize those rates is inconsistent with
BPA’s statutory authority under the NWPA, and therefore
hold that the monetization provisions of the aluminum con-
tracts are invalid.

             D.    BPA’s Contract with Clallam to
                     Supply Port Townsend

   Industrial Customers challenge BPA’s decision to supply
Port Townsend with power on two related grounds. First,
Industrial Customers argues that the rate applicable to the sale
is impermissibly low because it is “not the DSI rate, . . . or
the market price of electricity” and is instead “designed to
closely mimic the low PF rate only available to preference
customers.” Second, Industrial Customers contends that Port
Townsend is a “new large single load” to which the agency’s
New Resources (NR) rate, a rate higher than both the PF rate,
the IP rate, and BPA’s forecasted market rate, applies. We
agree with Industrial Customers that the Clallam/Port Town-
send contract rate is invalid because it commits BPA to sell
power to Port Townsend (through Clallam) at a rate below
both the market rate and the IP rate. As a result of this hold-
ing, we need not reach Industrial Customers’ additional argu-
ment that the Port Townsend energy contract should be priced
at BPA’s “New Resources” rate for “new large single loads,”
rather than at the rate set in the contract.39
  39
    Although we do not decide the “new large single load” question, we
note that BPA’s contract with Clallam to supply Port Townsend, as cur-
rently structured, would likely not qualify as a “new large single load,”
and BPA would therefore not be obligated to charge Clallam or Port
Townsend the NR rate. Section 839a(13) defines a “new large single load”
as one that increases the “power requirements” of a public utility such as
16576          PACIFIC NORTHWEST GENERATING v. DOE
   [15] BPA’s contract with Clallam/Port Townsend suffers
from the same central deficiency as BPA’s contracts with the
aluminum DSIs. Namely, BPA, although under no obligation
to supply Port Townsend with power, has nonetheless agreed
to sell power to the paper company at a rate below both the
market rate and the IP rate.40 The agency provides no unique

Clallam, but does not supply a definition for the term “power require-
ments.” BPA attempts to fill this gap by arguing that “power require-
ments” refers to sales it is required to make to public utilities pursuant to
§ 839c(b). In light of § 839a(13)’s legislative history, we conclude that the
agency’s interpretation is reasonable, and therefore entitled to deference.
   Congress’s intent in passing § 839a(13) was to deter DSI customers
from cancelling their direct service contracts with BPA that were priced
at the IP rate and, instead, purchasing their power at a lower rate from
local public utilities served by BPA. See H.R. Rep. No. 96-976, pt. 2, at
51. The fear was that, because BPA must serve the firm power require-
ments of its public utility customers under § 839c(b) at the low PF rate,
a sudden increase in those requirements due to strategic behavior by the
DSIs could place financial and operating burdens on the agency. See id.
In other words, the obligation imposed on BPA by § 839c(b) was the driv-
ing force behind the “new large single load” provision. BPA’s interpreta-
tion of “power requirements” as referring to its § 839c(b) obligation is
therefore reasonable.
   In this case, BPA and Clallam structured their contract as a “surplus
firm power” sale under § 839c(f), not as a firm power sale under
§ 839c(b). Clallam was not exercising its statutory entitlement to firm
power at the PF rate, and BPA was under no obligation to enter into the
contract. As a result, the BPA/Clallam contract does not appear to be the
type of contract to which the preventative NR rate was intended to apply.
   40
      The Port Townsend sale is structured somewhat differently than the
aluminum DSIs sales in that it involves two separate contracts, rather than
a single contract. The first of the two contracts is an agreement between
BPA and Clallam, the utility that serves Port Townsend, and provides for
the sale of 17 annual aMW of power by BPA to Clallam at the PF rate plus
a “typical industrial margin” of $0.57/MWh, for a total cost of approxi-
mately $28/MWh. (For a discussion of why this rate, although calculated
in a manner which appears to mimic the methodology BPA must follow
when determining the IP rate, see § 839e(c), is not in fact equivalent to the
IP rate, see note 28, supra.). Under the second contract, Clallam agreed to
              PACIFIC NORTHWEST GENERATING v. DOE                   16577
reasons to explain why supplying Port Townsend with subsi-
dized energy is consistent with “sound business principles.”
See § 838g. Therefore, for the reasons discussed supra, Part
III.C.2, BPA’s decision to subsidize Port Townsend’s energy
rates is unreasonable because it is contrary to BPA’s statutory
mandate.41 We therefore hold that the Clallam/Port Townsend
contract is also invalid.42

sell that power to Port Townsend at the BPA/Clallam rate plus “Other
Costs” of approximately $0.94/MWh. Through the combined contracts,
therefore, BPA has agreed to supply Port Townsend with 17 aMW of
power at a rate approximately equal to $29/MWh. This rate is below both
BPA’s forecasted market rate for 2007-2009 of $42/MWh, see DSI Ser-
vice ROD, and the average IP rate for the year ending September 30, 2007
of $45/MWh.
  41
     Even if we considered only the BPA/Clallam contract, our conclusion
that the contract rates are invalid would not change. BPA concedes that
the “sale of 17 aMW of . . . power to Clallam for service to Port Town-
send” is a “discretionary sale,” and not one BPA is obligated to make to
the public utility under § 839c(b). Because BPA admits it is not required
to sell the power to Clallam — and no party argues that Clallam is entitled
to the PF or any other cost-based rate under the circumstances involved
here — the decision to sell power to Clallam at a below-market rate under
the FPS rate schedule violates BPA’s mandate to operate according to
“sound business principles” for the same reasons that a decision to offer
the aluminum DSIs and Port Townsend a subsidized rate does. See Part
III.C.2, supra.
  42
    BPA’s contract with Clallam/Port Townsend may also run afoul of
BPA’s statutory requirement to first offer power to a DSI at the IP rate
before selling it to the DSI under the FPS rate schedule. See Part III.B.2,
supra. The record is somewhat ambiguous as to whether BPA offered Port
Townsend the IP rate. In the DSI Service ROD, BPA indicated it would
offer power to Port Townsend “under its market based rate schedule (or
the IP rate if viable).” Yet, BPA ultimately applied an FPS rate to the
Clallam/Port Townsend contract. It can therefore be presumed that BPA
did not offer Port Townsend the IP rate. Should BPA decide to enter a
future contract with Port Townsend at an FPS rate, it must first offer the
company the IP rate.
16578          PACIFIC NORTHWEST GENERATING v. DOE
               E.    Alcoa’s Discrimination Claim

   [16] Alcoa also challenges BPA’s contract with Clallam to
supply power to Port Townsend on the ground that it discrimi-
nates against other DSIs with regard to both price and method
of service. This argument is without merit for at least two rea-
sons. First, BPA’s governing statutes do not contain an anti-
discrimination requirement that applies to the challenged con-
tracts. Second, even if such a requirement existed, BPA’s
decision to offer Port Townsend contract terms different from
those it offered the aluminum DSIs was justified by Port
Townsend’s unique characteristics, most notably its small
size. We therefore deny this aspect of BPA’s petition.

   BPA’s primary argument is that § 832d(a), which requires
BPA’s contracts with “any utility engaged in the sale of elec-
tric energy to the general public” to “contain such terms and
conditions . . . necessary . . . to insure that resale by such util-
ity to the ultimate consumer shall be at rates which are rea-
sonable and nondiscriminatory,” precludes BPA from treating
Port Townsend differently from the aluminum DSIs. A plain
reading of § 832d(a)’s statutory text — which we have not
previously construed — indicates that its purpose is to prevent
discrimination by a utility among its customers, not discrimi-
nation by BPA between utilities and the DSIs, or even among
DSIs. Although § 832d(a) may well forbid BPA from entering
into a contract with Clallam that permits Clallam to discrimi-
nate against the aluminum DSIs, the aluminum DSIs are not
seeking service from Clallam. In short, the provision is inap-
plicable here.43
   43
      Similarly off-base is Alcoa’s claim that BPA’s contract with Clallam
is governed by the transmission line requirement contained in 16 U.S.C.
§ 825s (authorizing the Secretary of Energy “to construct or acquire . . .
only such transmission lines and related facilities as may be necessary” to
“make the power and energy generated at [federal] projects available in
wholesale quantities for sale on fair and reasonable terms”). As we have
noted previously, “that phrase refers to the acquisition and construction of
               PACIFIC NORTHWEST GENERATING v. DOE                   16579
   Alcoa’s second argument — that the NWPA defines DSIs
as a single class of customers and therefore requires BPA to
treat them all identically — is also unavailing. The NWPA
does define and treat the DSIs as a common class for the pur-
poses of allocating power and setting rates for power sales.
See §§ 839a(8) (defining DSI); 839c(d)(4)(A) (defining “ex-
isting” DSI); 839c(e)(1) (reallocating power which a customer
does not require among others in same class); 839e(c)(1)(B)
(establishing rates for sale of power to DSIs). And, as already
discussed, the NWPA requires BPA to offer its DSI customers
firm power at the IP rate before it offers those customers an
FPS rate. But once a DSI refuses to buy power at the rate to
which it is statutorily entitled (i.e., the IP rate), it has surren-
dered the primary benefit that the class of DSI customers
receives under the NWPA and becomes subject to the same
treatment as any other in-region customer seeking to purchase
surplus firm power. Perhaps more to the point, nothing in the
NWPA suggests that BPA must treat members within the
same customer class identically. The NWPA authorizes, but
does not obligate, BPA to sell power to a DSI. See Part
III.B.1, supra. BPA could therefore refuse to serve some of its
DSIs altogether, while supplying the full power requirements
of others.

   Lastly, even if there were some applicable nondiscrimina-
tion requirement in BPA’s governing statutes — which, as we
have explained, there is not — BPA’s different means for
supplying the aluminum DSIs and Port Townsend would not
be discriminatory. As BPA points out, the considerations
associated with serving Port Townsend with 17 aMW of
physical power are different from the considerations associ-

transmission facilities,” S. Cal. Edison Co. v. Jura, 909 F.2d 339, 343 n.6
(9th Cir. 1990), but does not constrain BPA’s setting of rates for the power
it sells once these facilities have been acquired or built. See id. at 344
(holding that 16 U.S.C. § 825s does not impose a “substantive nondiscrim-
ination standard for BPA ratemaking”).
16580          PACIFIC NORTHWEST GENERATING v. DOE
ated with serving the DSIs with 560 aMW. The latter would
expose the agency to much greater risk from fluctuation in
energy prices and default by the DSIs.

  For all of these reasons, we deny this portion of Alcoa’s
petition.

       F.   Damages Waiver in Aluminum DSI Contracts

   The final issue the Cooperative raises is the enforceability
of a damages waiver provision that appears in each of the alu-
minum DSI contracts. See, e.g., Alcoa Contract (“In the event
the Ninth Circuit Court of Appeals or other court of compe-
tent jurisdiction issues a final order that declares or renders
this Agreement void or otherwise unenforceable, no Party
shall be entitled to any damages or restitution of any nature.”).44
The Cooperative argues that the contracts are void ab initio,
thereby invalidating the waiver provisions. Unless BPA is
able to recoup the payments already made to the DSIs, the
Cooperative asserts, the Cooperative’s members will be stuck
with the bill, as the agency will have to recover these costs
through higher rates. See 16 U.S.C. § 839(g).

   BPA’s contracts with the DSIs, however, each contain a
severability clause, which states that “[i]f any term of this
Agreement is found to be invalid by a court of competent
jurisdiction then . . . . [a]ll other terms shall remain in force
unless that term is determined not to be severable from all
other provisions of this Agreement . . . .” The contracts pro-
vide for an alternative mode of performance by BPA, delivery
of physical power, beginning in FY 2010. The validity of this
aspect of the contract is not ripe for review at this time
because BPA has not yet exercised its option to deliver physi-
cal power, nor has it defined the terms that would govern a
physical power sale. So the monetized service benefit provi-
  44
    The corresponding waiver provision in the Clallam contract bars only
Clallam, not BPA, from recovering damages.
             PACIFIC NORTHWEST GENERATING v. DOE           16581
sions of the agreements are, at least potentially, severable
from the agreement as a whole, leaving a possibly valid
option, the sale of physical power at an as-yet unspecified
rate.

   In addition, the record does not reveal how BPA believes
the damages waiver provision should be construed and, in
particular, what effect it is to have if a contract is only par-
tially invalidated. In the Supplemental ROD, BPA rejected as
“unreasonable under the circumstances” a proposal by the
Cooperative that the contracts with the aluminum DSIs
include a provision “requiring the [DSIs] to refund payments
in the event the Ninth Circuit holds that the contracts are
void.” (emphasis added). The Agency’s reasoning was that
even if “the contracts are held void (so that no contract ever
existed as a matter of law) and the payments are ‘illegal,’ ” it
would be inequitable to require restitution, because

    the companies will have little realistic prospect of
    operating their smelters . . . [y]et they may, at their
    own risk and expense, have made commitments with
    respect to operating their facilities, including making
    market power purchases, in anticipation of benefits
    being available.

   The actual contract language and factual circumstances
here are significantly different from the proposal BPA
rejected in the Supplemental ROD. First, invalidating the pay-
ments does not necessarily foreclose the DSIs’ “prospect[s] of
operating their smelters.” We do not hold that the contracts
are void “as if no[ne] . . . ever existed.” Instead, we affirm the
authority of BPA to sell physical power to the DSIs,
§ 839c(d), at a valid rate.

   [17] Second, the question of contractual interpretation
before us is whether, if the agreements are partially invali-
dated, BPA is permitted to seek restitution, not whether it is
“requir[ed]” to do so. Whether BPA intended to retain the
16582       PACIFIC NORTHWEST GENERATING v. DOE
flexibility to seek or forgo repayment, depending on (a) the
DSIs’ “commitments with respect to operating their facili-
ties,” and (b) BPA’s interest in still making sales of physical
power to them, is an issue the agency did not address in the
Supplemental ROD. Because, “[f]rom the record before us,
we cannot determine BPA’s likely course of action,” we
remand to BPA to determine in the first instance the applica-
bility and construction of the severability clause, the damage
waiver, and the physical power sale option in light of our
holdings here. Pub. Util. Dist. No. 1 v. BPA, 506 F.3d 1145,
1154 (9th Cir. 2007).

   [18] Finally, the Cooperative’s allegation that the waiver
provision, if valid, will result in higher rates for non-DSI cus-
tomers is not ripe for adjudication at this time. Until FERC
approves the relevant PF rate schedule, this court lacks juris-
diction to review the Cooperative’s claim. See Ass’n of Pub.
Agency Customers, 126 F.3d at 1179; Pub. Utils. Comm’n of
the State of Cal., 814 F.2d at 561; Pub. Utils. Comm’r of Ore-
gon, 767 F.2d at 629 (“If FERC fails to correct any defects in
the methodology [which affected rate-setting], redress is
available in the court of appeals,” where “any . . . cognizable
challenges will be fully reviewable . . . .”).

                      IV.   Conclusions

  We GRANT the Cooperative’s and Industrial Customers’
petitions as to the challenges they bring regarding BPA’s stat-
utory authority to offer the aluminum DSIs and Port Town-
send (through Clallam) energy at rates below both the IP rate
and the market rate, and REMAND to the agency for determi-
nation of the applicability of the agreements’ severability and
damage waiver provisions in light of our holdings.

   We GRANT Alcoa’s petition as to its challenge to BPA’s
refusal to offer the aluminum DSIs the amount of physical
power requested at a rate established under § 839e(c) prior to
            PACIFIC NORTHWEST GENERATING v. DOE            16583
offering them a market-based rate or selling the power outside
the region.

   We DISMISS the Cooperative and Industrial Customers’
petitions as to their challenges to BPA’s allocation of costs
incurred under the aluminum DSI and Port Townsend con-
tracts to the agency’s power rates, as both premature and
moot in light of our invalidation of those contracts in pertinent
part.

   We otherwise DENY the petitions of Alcoa, the Coopera-
tive, and Industrial Customers.

 PETITIONS GRANTED IN PART, DENIED IN PART,
AND DISMISSED IN PART.
