Southwest Power Pool, Inc. v. FERC ( 2013 )


Menu:
  •  United States Court of Appeals
    FOR THE DISTRICT OF COLUMBIA CIRCUIT
    Argued October 18, 2013            Decided December 3, 2013
    No. 12-1158
    SOUTHWEST POWER POOL, INC.,
    PETITIONER
    v.
    FEDERAL ENERGY REGULATORY COMMISSION,
    RESPONDENT
    AMERICAN ELECTRIC POWER CORPORATION, ET AL.,
    INTERVENORS
    On Petition for Review of Orders of the
    Federal Energy Regulatory Commission
    Barry S. Spector argued the cause for petitioner. With
    him on the briefs was Jeffrey G. DiSciullo. Ryan J. Collins
    entered an appearance.
    Sean T. Beeny, Barry Cohen, Amanda Riggs Conner, N.
    Beth Emery, Noel Symons, Lisa Sharp, David W.
    D'Alessandro, M. Denyse Zosa, Gary Newell, and Rebecca
    Sterzinar were on the brief for joint intervenors in support of
    petitioner. Matthew A. Fitzgerald entered an appearance.
    2
    Carol J. Banta, Attorney, Federal Energy Regulatory
    Commission, argued the cause for respondent. With her on
    the brief were David L. Morenoff, Acting General Counsel,
    and Robert H. Solomon, Solicitor.
    Stephen L. Teichler argued the cause for intervenors
    Midwest Independent Transmission System Operator, Inc. and
    Entergy Services, Inc. in support of respondents. With him on
    the brief were Ilia Levitine, John S. Moot, and Gregory W.
    Camet.
    Before: TATEL AND GRIFFITH, Circuit Judges, and
    WILLIAMS, Senior Circuit Judge.
    Opinion for the Court filed by Senior Circuit Judge
    WILLIAMS.
    WILLIAMS, Senior Circuit Judge: This dispute between
    two regional transmission organizations (“RTOs”) turns on
    the interpretation of a single contract provision. The Federal
    Energy Regulatory Commission resolved the conflict against
    petitioner Southwest Power Pool (“SPP”). Applying both the
    Administrative Procedure Act and the “Chevron-like analysis”
    that governs review of such an interpretation, Colorado
    Interstate Gas Co. v. FERC, 
    599 F.3d 698
    , 701 (D.C. Cir.
    2010), we find that the Commission failed to provide a
    reasoned explanation for its decision.         It leapt to an
    interpretation of one item of evidence without explaining its
    implicit rejection of alternative interpretations, and, equally
    without explanation (or at least adequate explanation), it
    disregarded evidence that the applicable law required it to
    consider. See Order on Petition for Declaratory Order, 
    136 FERC ¶ 61,010
     (2011) (“Order”), rehearing denied, Order on
    Rehearing, 
    138 FERC ¶ 61,055
     (2012) (“Order on
    Rehearing”). Accordingly, its decision was arbitrary and
    capricious, and we vacate and remand the orders.
    3
    * * *
    SPP is an RTO adjacent to another RTO, the Midwest
    Independent Transmission System Operator (“MISO”),
    recently renamed Midcontinent Independent System Operator,
    evidently to reflect its continuing expansion to the south.
    Entergy Arkansas, an operating subsidiary of Entergy
    Corporation and at the time of the petition not part of any
    RTO, abuts both SPP and MISO.
    In 2011 Entergy Arkansas made a regulatory filing
    addressing the possibilities of joining MISO or SPP, and
    indicating a preference for MISO. Order, 
    136 FERC ¶ 61,010
    at P 7. That preference rested at least in part on the
    considerable savings in production costs that joining MISO
    would yield relative to joining SPP. Entergy Corp., RTO Path
    for Entergy Operating Companies 4, 9; Joint Appendix
    (“J.A.”) 225, 230. To realize those savings, however, MISO
    must be able to move to Entergy Arkansas electricity
    generated elsewhere in MISO. Although Entergy Arkansas
    has transmission connections to both SPP and MISO, its
    connection to MISO is relatively limited compared to those to
    SPP and others. MISO would therefore need to rely on these
    other, non-MISO transmission providers. MISO believes that
    its Joint Operating Agreement (“JOA”) with SPP gives it the
    right to rely on SPP’s transmission facilities to do so, even
    after Entergy Arkansas becomes part of MISO itself, an event
    that appears imminent—Entergy Arkansas has received
    multiple regulatory approvals to join MISO. See Press
    Release, Entergy Corp., APSC Issues Final Conditional Order
    on Entergy Arkansas’ MISO Integration (Apr. 11, 2013).
    Section 5.2 of the JOA, the provision invoked by MISO,
    provides:
    Sharing Contract Path Capacity. If the Parties have
    contract paths to the same entity, the combined contract
    4
    path capacity will be made available for use by both
    Parties. This will not create new contract paths for either
    Party that did not previously exist. SPP will not be able
    to deal directly with companies with which it does not
    physically or contractually interconnect and the [MISO]
    will not be able to deal directly with companies with
    which it does not physically or contractually interconnect.
    The parties agree that at the time of FERC’s decision,
    with Entergy Arkansas distinct from MISO, both RTOs had
    “contract paths to the same entity,” to wit Entergy Arkansas.
    Thus Section 5.2 allowed one RTO to use the other’s
    transmission network to move electricity to Entergy Arkansas.
    That is where agreement ends.
    The alternative readings of Section 5.2 are these: MISO
    understands “contract path to the same entity” to include any
    physical or contractual interconnection and to apply regardless
    of whether the “entity” is a part of either RTO. So, even if
    Entergy Arkansas becomes part of MISO, Entergy Arkansas
    will (under MISO’s view) be an “entity” to which both RTOs
    have contract paths. SPP argues that an RTO cannot have a
    “contract path to” itself or to part of itself. Thus, once
    Entergy Arkansas joins MISO, Section 5.2 will no longer
    (under SPP’s view) apply, despite the existence of a “physical
    or contractual” interconnection between the part of MISO
    made up of Entergy Arkansas and the other parts of MISO.
    After the parties negotiated for some time in vain, MISO
    petitioned FERC for a declaratory judgment on the
    interpretation of Section 5.2. FERC adopted MISO’s reading,
    finding that the term “contract path” was broad enough to
    encompass any physical or contractual interconnection, and
    that “entity” could include any operating entity, whether or
    not it was part of one of the RTOs. Order, 
    136 FERC ¶ 61,010
     at PP 61-62; Order on Rehearing, 
    138 FERC ¶ 61,055
    5
    at P 19. We discuss the details of the Commission’s decision
    as they become relevant.
    * * *
    Before reaching the merits of SPP’s arguments, we must
    first address FERC’s assertions that SPP lacks standing and
    that, in any case, its claims are unripe.
    On standing, FERC contends that SPP’s interest in the
    interpretation of Section 5.2 is too attenuated to create an
    injury that is “actual or imminent.” Lujan v. Defenders of
    Wildlife, 
    504 U.S. 555
    , 560-61 (1992). It says that no harm
    will ensue for SPP unless Entergy Arkansas elects to join
    MISO and secures the necessary state and federal approval,
    and MISO then seeks to use Section 5.2 to transmit electricity
    to Entergy Arkansas. Thus FERC characterizes SPP’s injury
    as “too speculative.”
    We have held that an agency interpretation that defines
    contractual rights and obligations may itself create enough of
    an injury to confer standing on a party to that contract. See
    Dominion Transportation, Inc. v. FERC, 
    533 F.3d 845
    , 852
    (D.C. Cir. 2008). We need not explore the scope of that
    decision, because the Commission’s decision here cast a very
    present shadow over the three-way maneuvering between
    SPP, MISO and Entergy Arkansas. The latter’s parent
    corporation (Entergy) proclaimed in its 2011 presentation on
    joinder with MISO that “[r]esolution of the JOA issue in
    MISO’s favor would increase the potential production cost
    savings and further tip the benefit ratio in MISO’s favor.”
    Entergy Corp., RTO Path for Entergy Operating Companies
    9; J.A. 230. It is surprising that FERC should think that
    standing rules require SPP to remain in limbo while its
    competitor MISO woos Entergy Arkansas with FERC’s
    6
    assurance of access to SPP’s infrastructure—an assurance that
    SPP believes is unlawful.
    FERC’s ripeness argument fares no better. Ripeness of
    course typically involves an inquiry into the fitness of the
    issues for judicial review and the hardship to the parties of
    withholding that review. Abbott Labs. v. Gardner, 
    387 U.S. 136
    , 149 (1967). But a showing of hardship is ordinarily
    unnecessary where the agency “has suggested no institutional
    interests in postponing review . . . , and adjudication will not
    benefit from additional facts.” Pub. Serv. Elec. & Gas Co. v.
    FERC, 
    485 F.3d 1164
    , 1168 (D.C. Cir. 2007).
    Neither SPP nor FERC has suggested a need for further
    factual development. And although FERC insists that it may
    address “implementation” issues in a subsequent proceeding,
    it nowhere suggests that its interpretation of Section 5.2 has
    not crystallized enough for this court’s review. Burlington N.
    R. Co. v. Surface Transp. Bd., 
    75 F.3d 685
    , 691 (D.C. Cir.
    1996). Instead, the Commission repackages its standing
    argument, asserting that many “contingencies” lie between the
    order under review and any harm to SPP, rendering the order
    unripe. Our discussion of standing of course dooms that
    argument.
    * * *
    Our review of the Commission’s decision in the end does
    not call on us to answer the “Chevron-like” question whether
    FERC has adopted a “reasonable interpretation” of the
    contract—“not necessarily the only possible interpretation,
    nor even the interpretation deemed most reasonable by the
    courts.” Entergy Corp. v. Riverkeeper, Inc., 
    556 U.S. 208
    ,
    218 (2009); Am. Elec. Power Serv. Corp. v. FCC, 
    708 F.3d 183
    , 186 (D.C. Cir. 2013). Here FERC’s treatment of the
    issue founders on APA principles—the requirements that it
    7
    “examine the relevant data and articulate a satisfactory
    explanation for its action including a ‘rational connection
    between the facts found and the choice made.’” Motor Vehicle
    Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.,
    
    463 U.S. 29
    , 43 (1983) (quoting Burlington Truck Lines Inc.
    v. United States, 
    371 U.S. 156
    , 168 (1962)). Agency action
    that fails either requirement is arbitrary and capricious. 
    Id.
    Neither SPP nor FERC contends that Section 5.2’s
    meaning is unambiguous. Although FERC attempts to draw
    meaning from a couple of terms, its theme is only that they do
    not preclude MISO’s preferred interpretation.             Only
    Intervenor MISO contends that the text is in fact
    unambiguous.       But its argument consists largely of
    declarations that if the parties intended SPP’s interpretation,
    they could have made that clear. Of course; the parties’
    potential ability to make a provision clear is a universal
    characteristic of ambiguity. But it hardly establishes that the
    parties affirmatively made MISO’s preferred reading clear.
    Agreeing with SPP and the Commission that Section 5.2 is
    ambiguous on the relevant issue, we turn to the process by
    which the Commission sought to resolve that ambiguity.
    SPP raises two principal complaints about FERC’s
    decisionmaking, first, that the Commission misinterpreted the
    evidence on which it relied and, second, that it erred in
    refusing to consider relevant evidence before it.
    FERC relied heavily on what it termed “course of
    performance” evidence, to wit the only prior use of Section
    5.2—a transaction between MISO, SPP, and a third party,
    coincidentally, Entergy Arkansas.              The particular
    circumstances of the transaction are critical.
    It is undisputed that both SPP and MISO have (or at least
    had at the relevant times) contract paths to Entergy Arkansas
    8
    within the meaning of Section 5.2. MISO’s is an interchange
    agreement between MISO (in the form of a MISO
    transmission owner, Ameren Company), Entergy Arkansas
    and a third party. Order, 
    136 FERC ¶ 61,010
     at P 3; Affidavit
    of Carl A. Monroe on behalf of SPP ¶ 12; Affidavit of
    Thomas J. Mallinger on behalf of MISO ¶ 13. During a
    period when that contract path was out of order, MISO used
    SPP’s path to Entergy Arkansas in order to “allow Ameren to
    continue to serve its radial load on the Entergy transmission
    system.” Mallinger Aff. ¶ 13; Order on Rehearing, 
    138 FERC ¶ 61,055
     at P 20.
    The Commission regarded this episode as supporting
    MISO’s view of Section 5.2. Though acknowledging that it
    was a “use of SPP’s path to Ameren through SPP and across
    Entergy Arkansas,” the Commission seemed to find decisive
    the fact that the path in question “was still used to provide
    transmission service to Ameren, an internal MISO operating
    member.” Order on Rehearing, 
    138 FERC ¶ 61,055
     at P 20.
    Thus, so far as we can see, FERC acknowledges that the
    only service provided by SPP under Section 5.2 was between
    MISO and a third party, Entergy Arkansas. Why it is
    important that the MISO member using this service then went
    on to reach its own operating area via Entergy Arkansas is
    never explained. The service SPP provided appears consistent
    both with its view of Section 5.2 and with MISO’s broader
    view (though not in any way relying on that broader view).
    Given the episode’s apparent complete consistency with both
    parties’ competing views, we are at a loss to see why FERC
    regarded the episode as decisive in favor of MISO. Its
    unexplained leap from neutral evidence to a decision in favor
    of one side rendered its order arbitrary and capricious.
    FERC’s confident reading of the single use of Section 5.2
    led it to dismiss additional types of evidence offered by SPP.
    9
    First, SPP introduced an affidavit by Carl Monroe, SPP’s
    chief negotiator for the JOA, stating that at the time of the
    negotiations, SPP understood that Section 5.2 would apply
    only when the electricity was transmitted to a third party, not
    when it was delivered to part of the originating RTO. Monroe
    Aff. ¶ 15. Second, SPP pointed to definitions of “contract
    path” used by the North American Electric Reliability
    Corporation and the North American Energy Standards Board.
    It urged the relevance of these by pointing to our statement
    that “[r]elying on the trade usage of [a] term is appropriate, as
    construing terms in light of their commonly understood
    meaning is a hallmark of reasonable interpretation.”
    Colorado Interstate Gas Co. v. FERC, 
    599 F.3d at 703
    (quoted in SPP’s Request for Rehearing at 10 n.27, J.A. 333).
    The trade materials SPP cited are replete with words of art,
    and without the Commission’s having explored them at all we
    are in no position to assess their force in support of SPP’s
    contention.
    FERC, however, “decline[d] to consider” these materials.
    It observed, correctly, that the Restatement (Second) of
    Contracts § 203(b) and Delaware law (agreed by the parties to
    be controlling) accord “greater weight” to course of
    performance evidence than to evidence based on usage of
    trade or course of dealing (as FERC characterized the Monroe
    Affidavit). In a literal sense, of course, FERC afforded
    “greater weight” to course of performance evidence, as it
    accorded no weight at all to any other. See Order on
    Rehearing, 
    138 FERC ¶ 61,055
     at PP 21-22 (“declin[ing]” to
    consider either type of evidence). But FERC points to nothing
    in Delaware law or the Restatement supporting total disregard
    of either type of extrinsic evidence. We may assume
    arguendo that in some instances course of performance
    evidence would be so overwhelming as to justify disregard of
    other evidence, but the seemingly neutral impact of the single
    episode of Section 5.2’s use makes any such assumption
    10
    irrelevant. Thus, together with its unexplained reading of that
    episode, the Commission’s complete failure to consider the
    evidence proffered renders its orders arbitrary and capricious.
    * * *
    The orders are therefore
    Vacated and remanded.