Panoche Energy Center, LLC v. Pacific Gas & Electric Co. , 205 Cal. Rptr. 3d 39 ( 2016 )

Filed 7/1/16
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
PANOCHE ENERGY CENTER, LLC,
Plaintiff and Respondent,
A140000
v.
PACIFIC GAS AND ELECTRIC (City & County of San Francisco
COMPANY, Super. Ct. No. CPF13513060)
Defendant and Appellant.
I. INTRODUCTION
This case involves a long-running dispute between Panoche Energy Center, LLC
(Panoche), a producer of electricity, and Pacific Gas and Electric Company (PG&E), a
utility that purchases electricity from Panoche, over which of them should bear the costs
of complying with a legislatively mandated program to reduce greenhouse gas (GHG)
emissions pursuant to the Global Warming Solutions Act of 2006 (Assem. Bill No. 32
(2005–2006 Reg. Sess.) (Assem. Bill 32, sometimes referred to as “AB 32”).
In an effort to resolve the matter, PG&E invoked the arbitration clause in its power
purchase and sale agreement (PPA) with Panoche, seeking an arbitral declaration of
Panoche’s obligations under the PPA. Panoche resisted the arbitration, moving to
dismiss or stay it on grounds the controversy was not ripe for resolution because of
ongoing regulatory proceedings at the California Air Resources Board (CARB) and the
California Public Utilities Commission (CPUC). These proceedings, Panoche argued,
would at least provide guidance in the arbitration and could render the proceeding
unnecessary.
1
The arbitration panel denied Panoche’s motion, and after a five-day hearing
rendered a decision declaring that Panoche had indeed assumed the cost of implementing
AB 32 under the PPA and fully understood this to be the case at the time of signing. In
response to a counterclaim for declaratory relief filed by Panoche, the arbitrators also
concluded that the parties “provide[ed] for recovery of GHG costs” by Panoche through a
“payment mechanism” in Section 4.3 of the PPA.
Panoche filed a petition to vacate the arbitration award under Code of Civil
Procedure1 section 1286.2, subdivision (a)(5), alleging its rights were “substantially
prejudiced” by the arbitrators’ refusal to “postpone” the hearing “upon sufficient cause
being shown” (i.e., until the regulatory proceedings were completed so that the outcome
of those proceedings could be considered in the arbitration). PG&E, for its part,
requested confirmation of the award under section 1287.4. The trial court agreed with
Panoche, ruled that the arbitration had been premature, and vacated the arbitration award.
PG&E now appeals. We shall reverse the court’s order vacating the arbitration
award and direct that the award be confirmed.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Power Purchase Agreement
PG&E, an investor-owned utility (IOU) regulated by the CPUC, provides gas and
electrical service to some 15 million end users in northern and central California. In
2004, with the CPUC’s approval, PG&E published a Long Term Request for Offers
(LTRFO) for the construction and operation of new electrical generating facilities to help
meet anticipated future demands for electricity in northern California. Panoche, a
Delaware-based privately-owned energy production company, submitted a proposal to
build a 400-megawatt, natural gas-fired electrical production facility in Firebaugh, near
Fresno.
1
Statutory references, unless otherwise indicated, are to the Code of Civil
Procedure. References to subdivisions without statutory designations are to the
subdivisions of section 1286.2.
2
The ensuing negotiations concerning Panoche’s proposal culminated in a PPA
executed on March 28, 2006, which was approved by the CPUC in November 2006.
Under the PPA, PG&E supplies natural gas to the Firebaugh facility, Panoche converts
that gas into electricity, and PG&E purchases the electricity under a 20-year “tolling
agreement” for a “peaking plant,” meaning that PG&E dictates when the facility will be
operated and how much electricity will be generated, and the plant runs only when
PG&E’s power needs are especially high and it needs extra power on its grid to ensure
consistent power supply.
B. AB 32: The Global Warming Solutions Act of 2006
While the PPA was being negotiated, proposed legislation aimed at addressing
climate change through the regulation of GHG emissions came before the California
Legislature. As introduced in December 2004, AB 32 dealt primarily with carbon
emissions recordkeeping, reporting and protocols. It did not require electricity generators
such as Panoche to bear any costs associated with reducing GHG emissions. But AB 32
went through several amendments before it was finally passed at the end of August 2006,
and as the bill progressed through the legislative process, it focused increasingly on
reduction of GHG emissions.
The Legislature was not alone in moving on this issue. In June 2005, Governor
Schwarzenegger issued an Executive Order directing the California Environmental
Protection Agency (CEPA) to coordinate the efforts of various state agencies to reduce
California GHG emissions by certain target amounts between 2010 and 2050.
(Governor’s Exec. Order No. S–3–05 (June 1, 2005) at
[as of July 1, 2016].) Specifically, the
Governor called for reduction of GHG emissions to 1990 levels by 2020 and to 80
percent below 1990 levels by 2050. (Ibid.)
On August 15, 2005, an amendment to AB 32 was introduced, including The
California Climate Act of 2006, which would have required the CEPA “to institute a cap
on greenhouse gas emissions” from, among other sectors, the electrical power industry.
3
(Legis. Counsel’s Digest, Assem. Bill 32, as amended Aug. 15, 2005, & introducing
proposed Health & Saf. Code § 42877, subd. (a)(2) & (3), at

[as of July 1, 2016].) The intent of the proposed amendments was to require the CEPA to
“institute a schedule of emissions reductions for specified entities, develop an
enforcement mechanism for reducing greenhouse gas emissions to the target level, and
establish a program to track and report greenhouse gas emissions and to monitor and
enforce compliance with the greenhouse gas emissions cap” by January 1, 2008. (Ibid.)
Although this amendment did not become part of the law as finally adopted, its pendency
was no doubt on the radar screens of market participants in the energy field in California.
By April 18, 2006, approximately three weeks after the PPA was signed, the
Legislative Counsel’s Digest for the version of AB 32 then under consideration
summarized the proposed legislation as follows: “The bill would require the state board
to adopt regulations, on or before January 1, 2008, to reduce statewide greenhouse gas
emissions to 1990 emission levels by 2020 . . . .” (Legis. Counsel’s Digest, Assem. Bill
32, as amended Apr. 18, 2006.) That iteration of the bill also included a requirement that
the CARB adopt regulations to, among other things, “[d]istribute the costs and benefits of
the program, including emission allowances, in a manner that is equitable, maximizes the
total benefit to the economy, does not disproportionately burden low- and moderate-
income households, provides compliance flexibility where appropriate, and ensures that
entities that have voluntarily reduced their emissions receive appropriate consideration
for emissions reductions made prior to the implementation of this program.” (Legis.
Counsel’s Digest, Assem. Bill 32, as amended April 18, 2006, proposed amends. to
Health & Saf. Code § 42877, subd. (c)(1).) Again, though the quoted language was not
ultimately included in AB 32 as passed, it presumably constituted a red flag to
participants in energy production indicating that costs would be entailed in implementing
AB 32 if it did ultimately pass.
4
By June 2006, although the term “cap-and-trade” had not yet come into common
use, AB 32 had further evolved and began to include the concept of
“allowances”―defined as “authorization[s] to emit, during a specified year, up to one ton
of carbon dioxide equivalence”―and “[f]lexible compliance mechanisms” that would
allow GHG emitters to “bank[], borrow[], and [use other] market mechanisms that
provide compliance flexibility to entities that are required to ensure that their greenhouse
gas emissions do not exceed their emissions allowances.” 2 (Assem. Bill 32. as amended
June 22, 2006, proposed amends. to Health & Saf. Code § 42876, subds. (a) & (g).)
After further amendment in late August 2006, AB 32 was signed into law in
September 2006 as the California Global Warming Solutions Act of 2006, some six
months after the PPA was signed, and was codified as Health and Safety Code sections
38500–38599, effective January 1, 2007. (See Stats. 2006, ch. 488, § 1.) As initially
adopted, however, the legislation did not pinpoint how emissions were to be reduced or
who was to pay associated costs. Those questions were left to CARB to answer.
C. Impact of the Pending Legislation on PPA Negotiations
According to PG&E, during the PPA negotiations the negotiators on both sides
were aware of developments in the GHG legislation as it progressed through the
Legislature, and they all understood it could have significant financial and other impacts
on future energy production in California. PG&E claims that under a “change in law”
provision in the draft PPA, a clause it insisted upon in all of its power purchase
agreements at the time, both parties fully understood Panoche would be responsible for
2
The legislative analysis discussed the prospect of “trading” of allowances: “The
bill, as amended, strongly appears to lay the foundations for market mechanisms,
including potentially trading. The adoption of regulations to limit GHGs, for example, is
explicitly based on banking, borrowing, and market mechanisms. The same regulations
also include the ‘distribution of emissions allowances,’ or authorizations to emit a [sic]
GHGs.” (Sen. Com. On Environmental Quality, Analysis of Assem. Bill 32 (2005–2006
Reg. Sess.) as amended June 22, 2006, p. 8, at < http://www.leginfo.ca.gov/pub/05-
06/bill/asm/ab_0001-0050/ab_32_cfa_20060626_101302_sen_comm.html> [as of July 1,
2016][2005 Legis. Bill Hist. CA A.B. 32 (June 26, 2006)].)
5
any costs associated with the pending GHG legislation, and indeed the PPA negotiators
specifically discussed the fact that this clause covered potential GHG compliance costs,
even though the legislation had not yet progressed to the point where those costs could be
quantified.
Panoche, on the other hand, claims to have been blindsided by AB 32. Panoche
argues it was not foreseeable to energy producers until at least June 2006 that AB 32
costs could become a major concern. The “change in law” provision, it argues, was just a
“generic” clause that made no specific reference to AB 32 or GHG costs and therefore
did not apply to such costs; allocation of such costs was “never part of the parties’ deal.”
Because such costs were not quantifiable when it signed the PPA, Panoche asserts it
“would never have signed” if it had understood it would be on the hook for unknown and
unquantifiable future costs.
PG&E supports its position by pointing out that on December 16, 2004, eight days
after AB 32 was introduced in the Assembly and fifteen months before the PPA was
signed, the CPUC issued a Long Term Plan Decision in which it insisted, for the first
time, that PG&E and certain other utilities then in the process of negotiating power
purchase agreements take into account the cost of GHG emissions in evaluating bids
under the LTRFO. “To further the state’s clear goal of promoting environmentally
responsible energy generation, [the CPUC] also adopt[s] a policy that reflects and
attempts to mitigate the impact of GHG emissions in influencing global climate patterns.
As described in this decision, the IOUs are to employ a ‘GHG adder’ when evaluating
fossil and renewable generation bids. This method, which will be refined in future
proceedings, will serve to internalize the significant and under-recognized cost of GHG
emissions, help protect customers from the financial risk of future climate regulation, and
continue California’s leadership in addressing this important problem.” (Opinion
Adopting PG&E’s Long Term Procurement Plan (Dec. 16, 2004) Cal.P.U.C. Dec. No.
04-12-048 [2004 Cal.P.U.C. Lexis 598, pp. *15–*16.])
6
In response to the CPUC’s Long Term Plan Decision, PG&E updated its LTRFO
to require bidders on new electrical generating facility projects to accept liability for
changes in the law, and it specifically assessed applicants’ bids in part on their
willingness to assume financial responsibility for what PG&E deemed to be foreseeable
changes in the law. In March 2005, PG&E reissued the LTRFO, requiring that all
counterparties getting contract positions would have to take on the risk of future changes
in the law,3 specifically insisting on adherence to a “change in law” provision that cast
upon PG&E’s counterparty in each contract the obligation to assume the risk of
associated costs.4
Aside from the evidence of the negotiations surrounding the amended LTRFO,
PG&E argues that at least as of the time of the August 2005 amendments to AB 32, more
than seven months before the PPA was signed, those following the progress of AB 32
were aware that (1) GHG emissions would have to be reduced over time, (2) there would
be a regulatory “cap” on such emissions, and (3) some “enforcement mechanism” would
be used to ensure compliance. To a sophisticated participant in energy production such
as Panoche, PG&E argues, all of this clearly signaled that the passage of AB 32 would
entail a significant new cost burden of GHG emissions reduction compliance.
3
According to PG&E, its amended LTRFO led to the inclusion in the PPA of
Section 3.6 “Standards of Care,” subsection (a) “General Operations”: “Seller [Panoche]
shall comply with all applicable requirements of Law . . . relating to the Facility
[including those related to operation of the Facility and the sale of Product therefrom].
For the avoidance of doubt, Seller will be responsible for procuring and maintaining, at
its expense, all Governmental Approvals and emissions credits required for operation of
the Units throughout the Service Term in compliance with Law and to permit operation
as specified in Section 11.3(a)(v). Buyer [PG&E] shall cooperate with Seller’s efforts to
acquire all such Governmental Approvals.”
4
When another new power plant bidder objected to incorporating the changes
PG&E demanded, PG&E stopped negotiating with that bidder. Thus, it may be inferred
that PG&E would not have entered into the contract with Panoche had it understood that
Panoche would later seek regulatory “relief” from costs it had agreed to assume, at least
not if it meant shifting those costs to PG&E.
7
PG&E claims its view of what sophisticated parties would have known is more
than a matter of revisionist history. It points out the CPUC has taken that view as well,
opining in a 2012 settlement approval decision that “contracts negotiated and executed
when AB 32 was working its way through the legislature should have taken the potential
impacts of AB 32 into consideration. Even those negotiating contracts shortly before
then might also have reasonably foreseen that this issue could arise.” (Decision on
System Track I and Rules Track III of the Long-Term Procurement Plan Proceeding and
Approving Settlement (Apr. 19, 2012) Cal.P.U.C. Dec. No. 12-04-046 [2012 Cal.P.U.C.
Lexis 192, at p. *93].) And in another 2012 decision, PG&E points out, the CPUC
specifically identified the August 15, 2005 amendments as being a significant indicator
that GHG costs should be considered in negotiating power purchase agreements.
(Decision Granting Petition for Modification of Decision 04-06-011 Regarding Otay
Mesa Energy Center (Dec. 20, 2012) Cal.P.U.C. Dec. No. 12-12-002 [2012 Cal.P.U.C.
Lexis 563, at pp. *13–*14].)
D. The Regulatory Proceedings and the Cap-and-Trade Program
As noted, the Legislature largely delegated to the CARB the task of determining
how best to implement the broad goal of reducing GHG emissions. (Health & Saf. Code,
§ 38501, subds. (f)–(h).) The CARB held public hearings to assist in formulating a plan
for implementing AB 32, and in June 2008, the CARB released a draft scoping plan that
included a proposed “cap-and-trade” program for the first time. (CARB Climate Change
Draft Scoping Plan (June 2008) Executive Summary, pp. ES-1–ES-9 at
[as of July 1,
2016].)
After much consideration, on October 26, 2011, the CARB adopted final rules for
a GHG cap-and-trade program, which became effective January 1, 2012. (See
“California Cap on Greenhouse Gas Emissions and Market Based Compliance
Mechanisms,” Cal. Code Regs., tit. 17, art. 5, § 95801 et seq.) Under that program,
utilities are granted free of charge emissions permits (called “allowances”), each
8
authorizing the emission of one metric ton of GHG. (Cal. Code Regs., tit. 17, §§ 95820,
subds. (a) & (c), 95892.) The utilities must then surrender their allowances to CARB,
which in turn sells allowances to emissions generators, such as Panoche, in periodic
auctions. (Cal. Code Regs., tit. 17, § 95910.) Allowances may be bought, banked, or
sold. (Id., §§ 95910, 95920, 95922; Our Children’s Earth Foundation v. State Air
Resources Board (2015) 234 Cal. App. 4th 870, 877.) Energy producers must acquire,
through quarterly auctions, sufficient allowances to cover the amount of their GHG
emissions.
For Panoche, continued operation of its power plant requires procurement of
allowances, which will become increasingly expensive over time. The theory underlying
cap-and-trade is that, as time goes by, fewer allowances will be issued, thereby raising
the price of allowances and creating a financial incentive for energy generators to find
ways to reduce GHG emissions. Reducing public consumption is also a component of
the emissions reduction plan, so the CARB also wanted to send a “price signal” to
consumers. As the details of the program came into sharper focus, both the CARB and
the CPUC received specific input from stakeholders about who should bear the cost of
allowances (i.e., emissions generators or utilities, which could pass the cost on to the
ultimate consumers through their approved rates).
Panoche claims the CARB made a policy determination that the ultimate
consumer should bear the costs of GHG regulation on the theory that increased cost to the
consumer would lead to reduced consumption and thus to curtailed GHG emissions. The
CARB’s Final Statement of Reasons (FSOR) adopting the cap-and-trade program, dated
October 2011, does say: “A primary goal of the program is to create a price signal to
reduce greenhouse gas emissions.” (CARB, FSOR for California’s Cap-and-Trade
Program (Oct. 2011) Response to Comment I-49, p. 592, at
[as of July 1,
2016].) With respect to GHG compliance costs generally, the CPUC also expressed a
policy preference that utilities pay the costs of GHG compliance and compensate
9
generators for those costs, including through modifications to power purchase agreements
if necessary.
E. “Legacy Contracts”
Once cap-and-trade was in place, both the CARB and the CPUC showed some
sensitivity to the plight of energy producers whose contracts had been negotiated before
AB 32 went into effect, since those producers could be subjected to unexpected and
unforeseeable costs associated with the cap-and-trade program. To the extent such costs
were not considered in negotiating these antecedent contracts, the costs of cap-and-trade
were likely to be “stranded” with these producers. Such contracts became known as
“legacy contracts.” The regulatory definition of that term―and whether the PPA in this
case qualifies as a legacy contract―became a matter of intense dispute between Panoche
and PG&E.
Both Panoche and PG&E participated in the CPUC and CARB proceedings to
implement the cap-and-trade regulation, advocating opposite viewpoints. While Panoche
favored imposing GHG compliance costs on the utilities and passing on the cost to
consumers, PG&E advocated making the energy producers pay for allowances if they had
contracted to do so. Panoche emphasized that its point of view best aligned with the
intent of AB 32 since putting compliance costs on utilities would send a “price signal” to
consumers and thereby reduce consumption, but PG&E’s theory was that where power
purchase contracts are negotiated with anticipated GHG costs built into the price term,
then the utility’s ratepayers had already been paying those costs and should not be
charged twice.
With respect to Panoche in particular, PG&E told the regulators that Panoche had
undertaken in the PPA to pay for costs related to AB 32 and this was a “key issue in the
parties’ negotiations.” Panoche told them the opposite: “The issue of GHG compliance
cost responsibility is not addressed in the PPA, the CPUC testimony or exhibits, nor is
there any allegation that [Panoche] would bear such potential costs in the CPUC public
record.” “Furthermore, the . . . PPA does not include a change in law provision.”
10
Panoche even went so far as to say that “PG&E stated it was too early in the legislative
process to address [GHG legislation] in the contract and withdrew the issue from
consideration.” Panoche further suggested to the CPUC it would be financially crippled
and might be forced to discontinue operations if required to foot the whole bill for
compliance with AB 32. Panoche also opined that imposing AB 32’s GHG costs on
energy generators might well be considered an unconstitutional “taking” or and
“unlawful tax.”
In April 2012, the CPUC ordered utilities such as PG&E to renegotiate within 60
days any contracts entered before AB 32’s effective date that “do not address the
allocation of AB 32 compliance costs,” so that they would “be consistent with [the
CPUC] policy,” including revisiting if necessary “questions of whether the existing
contract may have taken the passage of AB 32 into consideration.”5 (Decision on System
Track I and Rules Track III of the Long-Term Procurement Plan, supra, 2012 Cal.P.U.C.
Lexis 192, at p. *94.) Panoche claims the CPUC was concerned with the fair treatment
of independent energy producers, quoting the statement that it “appears somewhat
arbitrary and unfair for the recovery of greenhouse gas compliance costs to vary between
otherwise similarly-situated generators based on whether the applicable contract was
signed before or after the passage of AB 32.”6 (Id. at p. *93.) At the same time, the
5
PG&E informs us that it has successfully renegotiated all such contracts except
its PPA with Panoche.
6
The full quote suggests the CPUC was concerned with fairness to all participants,
not just energy producers: “As a general matter, the independent generators are correct
that it appears somewhat arbitrary and unfair for the recovery of greenhouse gas
compliance costs to vary between otherwise similarly-situated generators based on
whether the applicable contract was signed before or after the passage of AB 32. At the
same time, contracts negotiated and executed when AB 32 was working its way through
the legislature should have taken the potential impacts of AB 32 into consideration. Even
those negotiating contracts shortly before then might also have reasonably foreseen that
this issue could arise.
“In D.08-10-037, we emphasized the importance of treating all market participants
equitably and fairly, and reiterated our statement in D.08-03-018 that, ‘[I]t is not our
11
CPUC made clear it was not interested in “bailing . . . out” energy producers who had
simply made an error in business judgment during contract negotiations. (See fn. 6,
ante.)
Beginning in June 2012, Panoche and PG&E exchanged correspondence in which
both claimed they had attempted to renegotiate their dispute, each blaming the other for
failure of the negotiations. Nearing the end of the 60-day period specified in the CPUC’s
renegotiation order, PG&E requested an extension. The Executive Director of the CPUC
replied in a letter dated June 20, 2012, that the 60-day period indicated in the
renegotiation order was not intended to impose a deadline: “The [CPUC] has a strong
preference that contract disputes be addressed by the signatories to the contract given that
such parties have the most in-depth knowledge of the contract itself and their own
operations.” The letter advised PG&E that it “may and should continue to negotiate
bilaterally,” although the CPUC did not intend to allow the issue to “languish
indefinitely.” The impasse in renegotiation ultimately led to PG&E’s filing of a request
for arbitration some four or five months later.
Meanwhile, after expiration of the 60-day renegotiation period, Panoche sought
and was granted party status in the CPUC rulemaking proceeding (Administrative Law
Judge’s Ruling Confirming Party Status, Cal.P.U.C. R. 11-03-012 (July 9, 2012)
) in early July 2012 and also successfully moved to enlarge the
scope of the CPUC proceeding to consider which party should bear responsibility for
GHG compliance costs in legacy contracts. At this point the dispute between the parties
intensified because, according to PG&E, Panoche had misrepresented to the regulators
intent to treat any market participants unfairly based on their past investments or
decisions made prior to the passage of AB 32.’ (D.08-10-037 at 144–145, citing D.08-03-
018 at 18.) While we do not need to treat everyone identically, and we are not in the
business of bailing unregulated market participants out from their own past missteps, this
fundamental concept still holds true: we do not want to inadvertently create or maintain
unfair competitive impacts.” (Decision on System Track I and Rules Track III of the
Long-Term Procurement Plan, supra, 2012 Cal.P.U.C. Lexis 192, at pp. *93–*94, italics
added.)
12
the contractual provisions of the PPA. PG&E suggested Panoche cannot rightly be
considered a party to a “legacy contract” at all and is not being saddled with costs
“stranded” by the PPA. Instead, according to PG&E, Panoche negotiated and entered
into the PPA with its eyes wide open to the potential costs associated with GHG
emissions, and yet was trying to evade the bargained-for costs that it agreed to bear and,
at least at that point in the dispute, was attempting to shift those costs to PG&E and its
ratepayers.
Panoche’s version of events, not surprisingly, was sharply different. It told the
CPUC on July 3, 2012: “The PPA does not address GHG compliance cost responsibility
and does not compensate [Panoche] for the costs of obtaining GHG allowances . . . .” In
a separate filing the same date, Panoche elaborated: “The [Panoche] PPA includes no
provision that can be reasonably read to assign GHG cost responsibility to [Panoche]. . . .
PG&E’s position that [Panoche] assumed responsibility for GHG compliance costs and
priced this cost into the price of energy in the PPA is not only completely unsupported by
any provision in the PPA but also contrary to common sense. [Panoche] could not have
priced GHG compliance costs into the PPA because GHG compliance costs were
speculative and unquantifiable at the time the PPA was executed.”
In August 2012, two CPUC Administrative Law Judges (ALJs) issued proposed
criteria for determining whether parties to legacy contracts could obtain financial relief,
which came to be known as “transition assistance” to the new cap-and-trade regime. The
CPUC requested comment on the following proposed “Eligibility Guidelines”: “We
propose for comment that a contract between a generator and a utility must meet the
following criteria in order to be eligible to receive relief, should the Commission decide
relief is warranted, in this proceeding: [¶] 1. The contract must have been executed prior
to the effective date of AB 32 (January 1, 2007); [¶] 2. The contract must not have been
subsequently amended; [¶] 3. The contract does not provide for recovery of GHG costs,
either explicitly or by virtue of a payment mechanism, . . . ; and, [¶] 4. The contract does
not expire before the start of the first cap-and-trade compliance period (i.e., January 1,
13
2013).” (Administrative Law Judges’ Ruling Setting Forth Next Steps in Track 1 Phase 2
of this Proceeding, Cal.P.U.C. R. 11-03-012 (Aug. 7, 2012) .)
The purpose of the proposal was to “set boundaries on the world of contracts that may be
eligible for compensation.” Compensation was not guaranteed by the establishment of
these criteria, and no final resolution of the issue of stranded GHG costs was achieved.
But at the time PG&E initiated arbitration some two or three months later, this
pronouncement from the CPUC ALJs was the most recent regulatory iteration of the
definition of a “legacy contract.”
Later in August 2012, Panoche submitted comments on the proposed criteria.
First, Panoche urged the CPUC to adopt a bright-line rule granting transitional relief to
all independent energy producers who entered into power purchase and sale agreements
with utilities “executed prior to the . . . effective date” of AB 32, arguing this should be
the “sole necessary criterion” for such relief. Second, Panoche suggested the CPUC
“may wish to avoid establishing criteria that will require the [CPUC] to review and
interpret individual contracts.” And third, Panoche suggested the CPUC should “provide
relief for any generator providing service under a legacy PPA that does not include an
express and explicit provision imposing GHG emissions reduction program costs . . . on
the seller. Mere reference to GHG reporting, environmental attributes, or Clean Air Act
emissions reductions credits in the PPA should not be construed as addressing GHG
compliance costs nor should any implicit assumptions be the basis for denying relief to
the generator.” (Italics in original.) It appears, therefore, that Panoche was maneuvering
in the regulatory proceedings to make sure its own PPA with PG&E would fit within the
regulatory definition of a “legacy contract,” with the hope that it would then be deemed
entitled to transition assistance.
PG&E’s comments on the proposed definition of “legacy contracts,” likewise,
reflected the position it had been taking for years on who ought to bear the burden of AB
32 GHG compliance costs. PG&E opposed inclusion in the eligibility criteria of any
requirement that the contract “explicitly” or “specifically” allocate costs to the energy
14
producers. (Pacific Gas And Electric Company’s (U 39 E) Comments On Administrative
Law Judge’s Ruling On Track 1 Phase 2 Issues, p. 3 .) PG&E
also proposed that if contracts were modified to shift GHG costs to PG&E, the energy
producers should be required to accept in return certain contractual modifications “to
ensure that PG&E’s customers are compensated for accepting GHG compliance cost
responsibility for these sellers.” It further recommended the “use of contractual dispute
resolution processes to resolve disputes over” individuals contracts. (Ibid.)
Complicating the picture, in the fall of 2012 the CARB turned its attention to
legacy contracts as well, which meant that regulatory proceedings on that issue were
taking place before two different agencies. On September 20, 2012, the CARB issued a
resolution stating its intention to develop a methodology to provide transition assistance
to energy producers with a compliance obligation cost under the cap-and-trade regulation
that could not be “reasonably recovered due to a legacy contract.” (CARB Resolution
12–33 (Sept. 20, 2012), p. 3 .) Although the CARB would
ultimately take the lead in propounding regulations to deal with legacy contracts, at the
time of the arbitration the most recent attempt to establish a working definition was the
August 2012 definition by the CPUC ALJs.
F. The Arbitration
1. The initiation of the arbitration
Negotiation and mediation having failed,7 on November 8, 2012, PG&E initiated
arbitration in accordance with the dispute resolution provisions of the PPA. A panel of
7
In June 2012, PG&E, under order by the CPUC to renegotiate its contract with
Panoche, wrote to Panoche, seeking negotiation or mediation of the dispute about the
obligations Panoche had assumed under the PPA. This triggered the PPA’s dispute
resolution provision, which required negotiation and mediation as precursors to
arbitration. Panoche responded that its efforts at negotiation had been “utterly fruitless”
and expressed its unwillingness to meet further. A similar request for mediation by
PG&E was rebuffed by Panoche in September 2012, with Panoche contending the matter
was not “ripe for mediation or arbitration.”
15
three arbitrators was convened to hear the dispute: Judge W. Scott Snowden, retired;
Judge Richard M. Silver, retired; and attorney Martin Quinn.
PG&E sought a declaration that the PPA (1) “addresses GHG compliance costs”
and “assigns responsibility for those costs to Panoche,” and (2) “at the time the PPA was
signed, Panoche understood that, under the PPA, if there was a future change in law that
imposed a cost on the facility because of its GHG emissions, Panoche would be
responsible for paying that cost.” PG&E sought a definitive interpretation of the PPA in
the hope of convincing the regulators that Panoche should not be entitled to “legacy
contract” status or to transitional relief.
Panoche filed a counterclaim for declaratory relief that (1) the PPA does not
“provide for recovery of GHG costs, either explicitly or by virtue of a payment
mechanism” (based on the language of the CPUC ALJs’ August 2012 proposed eligibility
criteria); and (2) “under section 3.1(b) of the PPA, [Panoche is not] required to bear AB
32 GHG compliance costs that exceed an annual average of the greater of $100,000 per
year or $.50 per kW year.”
2. Panoche’s motion to dismiss or stay the arbitration
On January 15, 2013, Panoche filed a motion to dismiss or stay the arbitration
pending further proceedings by the CARB and the CPUC. It argued PG&E’s declaratory
relief claim was not “ripe” because of the pending regulatory proceedings. In Panoche’s
view, the real dispute between the parties was in relation to how the regulatory bodies
would allocate costs for allowances. According to Panoche’s theory, the action taken by
the CARB and the CPUC would trump any contractual provision related to allocation of
costs, and it was a waste of time and resources to arbitrate the contractual issues before
the regulatory bodies had adopted a definite policy governing legacy contracts. Without
the expected regulatory rules or criteria―rules or criteria that the CPUC and/or the
CARB anticipated would issue by the end of August 2013―Panoche contended that it
was impossible for the arbitration panel to reach a decision that would dispose of the
controversy between Panoche and PG&E over GHG costs. The sole basis Panoche gave
16
for requesting a stay or dismissal was the claim of unripeness.
PG&E argued the arbitration concerned a simple matter of contract interpretation
based on an analysis of the PPA’s terms and the course of negotiations that occurred in
2005 and 2006. According to PG&E, this was not the same broad policy issue relating to
overall GHG cost allocation that the CARB and the CPUC were considering, and the
regulatory bodies had no intention of delving into the details of individual PPAs.
Moreover, PG&E claimed, the CPUC had directed PG&E to attempt to renegotiate its
PPA with Panoche, which included the question whether “the existing contract may have
taken the passage of AB 32 into consideration.” (Decision on System Track I and Rules
Track III of the Long-Term Procurement Plan, supra, 2012 Cal.P.U.C. Lexis 192, at
p. *94.) And, of course, PG&E argued that an arbitration award settling the parties’
contractual dispute would not be simply an “advisory” opinion, but rather would be
useful to the regulators in determining public policy.
The arbitrators found the dispute was ripe for adjudication and denied Panoche’s
motion. They reasoned: “Panoche has failed to demonstrate how proceeding with this
arbitration would either replicate, interfere or conflict with, or provide an advisory
opinion to the ongoing CPUC and CARB proceedings. Indeed, by Panoche’s own
admission, these public agencies are merely deciding how to handle power purchase
agreements that were executed prior to AB 32 that lack terms and conditions specifically
designating responsibility for GHG costs. . . . They are not deciding whether any
individual contracts, such as the parties’ PPA, actually lacked such terms and
conditions―the sole and exact issue before the Panel here. [¶] Thus, because PG&E has
presented a real controversy that is appropriate for immediate judicial resolution because
it concerns an issue that will not be resolved by either of the public agencies, this
contractually-agreed-to forum is the appropriate venue for the parties to resolve their
claims.” After significant discovery was conducted, a five-day arbitration was held in
April 2013.
17
3. The arbitrators’ decision on the merits
On May 2, 2013, the panel reached its decision, ruling in favor of PG&E. As
quoted above, the PPA included Section 3.6(a), a change in law provision, under which
PG&E claimed the costs of compliance with AB 32 had been assumed by Panoche. (See
fn. 3, ante.) That provision required Panoche to “comply with all applicable
requirements of Law . . . relating to the Facility” and to “be responsible for procuring and
maintaining, at its expense, all Governmental Approvals and emissions credits required
for operation of the Units throughout the Service Term . . . .” “Law” was also defined in
the PPA to include a “statute, law, . . . [or] enactment,” including one “enacted, amended,
or issued after the Execution Date [of the PPA] and which becomes effective during the
Contract term,” and it also included “regulation[s].” Thus, the arbitrators ruled that both
AB 32 and the CARB’s cap-and-trade regulations were part of the “Law,” as defined in
the PPA, and by committing to comply with “Law” within the meaning of the PPA,
Panoche had contractually agreed to bear the costs of compliance. The arbitrators
specifically concluded that “[o]ne such ‘Law’―the cap-and-trade regulations―requires
entities such as Panoche to pay for and acquire sufficient GHG allowances to cover their
carbon emissions. Panoche, therefore, agreed to comply with this requirement of the cap-
and-trade regulations.”
Both the term “Law” and the term “Governmental Approval” as used in the PPA
were also defined to include an “authorization.” Because an “allowance” is defined by
statute as “an authorization to emit, during a specified year, up to one ton of carbon
dioxide equivalent” (Health & Saf. Code, § 38505, subd. (a)), the emission allowances
required under AB 32 and its implementing regulations constituted “Governmental
Approvals” within the meaning of the PPA, and “Panoche, therefore, contractually agreed
to procure AB 32 allowances at its expense.” Despite the fact that GHG emissions were
never mentioned by name in the PPA, the arbitrators concluded the PPA’s “change in
law” provision required Panoche to assume the costs of GHG compliance.
18
The arbitrators found support for this conclusion in the testimony of Panoche’s
lead negotiator, Keith Derman, one of Panoche’s key witnesses in the arbitration.
Derman was a partner at Energy Investors Funds (EIF), a private equity fund based in
Boston, Massachusetts, that owns the Firebaugh plant. He admitted in a deposition that
he understood when the PPA was signed that the “four corners of the contract” made
Panoche responsible for the costs “if a government law changed and imposed a cost on
Panoche relating to the facility’s carbon emissions.” His follow-up observation that
“there was no specific language in the agreement to deal with greenhouse gases” struck
the arbitrators as “unpersuasive.”
As further support for their decision, the arbitrators noted that during contract
negotiations, in response to PG&E’s proposed “change in law” amendments, Panoche
suggested that it should receive higher compensation in the event of a change in the law
that imposed higher costs of performance on Panoche, but this change was never
incorporated into later revisions. Panoche also proposed that both parties share
responsibility for compliance with all applicable requirements of law; that the PPA
should eliminate the language specifying that Panoche would have to pay for all
“Governmental Approvals”; that Panoche could not be declared in default if it was unable
to (or simply failed to) obtain necessary Governmental Approvals; that the PPA should
eliminate the requirement that Panoche obtain all needed “emissions credits”; and that the
Force Majeure clause should be modified to include Panoche’s “inability to obtain and
maintain any governmental Approvals required . . . .” The markups of the PPA also show
a note by Panoche requesting that the parties “[d]iscuss change in law issues.”
PG&E also sent a letter to Panoche explaining that Panoche’s proposed changes to
the amended PPA “would make major changes to the benefits and burdens of PG&E’s
form PPA, significantly affecting the value of your Final Offers to PG&E.” PG&E
insisted that Panoche’s offer “needs improvement in order to be further considered.”
Despite Panoche’s early resistance to the changes, negotiations continued and Panoche
19
eventually accepted PG&E’s proposed amendments to the PPA so that Section 3.6(a)
now reads as quoted in footnote 3, ante.
Documents generated by Panoche outside of the direct negotiations confirmed
Panoche’s contemporaneous understanding that it bore the risk of costs to comply with
future GHG legislation. For instance, in a memorandum in March 2006 (before the PPA
was signed), Derman advised EIF’s investment committee of the benefits and risks of the
Panoche project, noting as a risk that “there is remaining fear that [California] is
monitoring carbon emissions” and that there was “no current mitigation in place” to
address this risk. He testified in his deposition it was “true” that he understood that
“California might impose a cost on carbon emissions.” The arbitrators found Derman’s
admissions “telling” in reaching their conclusions.
EIF also issued a bond offering memorandum some two years after the PPA was
signed (but before the present dispute arose), which discussed AB 32, including that its
“regulatory program may include a trading market for greenhouse gas emissions credits”
and “the Facility [in Firebaugh] . . . likely will be required to comply with these AB 32
regulations” and “likely . . . will participate in the greenhouse gas emissions credit
market, and will be required to make certain expenditures from time to time to purchase
such credits.” The arbitrators also considered this document to be “proof of Panoche’s
understanding and consideration of the impact that AB 32 could have on the [Firebaugh]
Facility and its bottom line . . . .”
Panoche argued that it would never have accepted the cost risk associated with
GHG emissions because it would have viewed this risk as too “unknown, unlimited,
unquantifiable.” The arbitrators, however, found “overwhelming evidence” to the
contrary. The arbitrators tracked the drafting changes proposed to the PPA during
negotiations, which (as outlined above) showed that Panoche had initially resisted taking
responsibility for costs of implementing AB 32, but eventually agreed.
After weighing the evidence bearing on the parties’ contracting intent, the
arbitration panel found “clearly, Panoche was aware that it would be responsible for
20
paying the cost of any change in law that imposed a cost on the Plant because of its GHG
emission.” The arbitrators concluded Panoche’s failure to raise its price for electricity
after PG&E insisted on the “change in law” provision reflected its “own evaluation of the
risks”―which some of its witnesses considered “minimal”―rather than any
misunderstanding that it was assuming the cost of changes in the law. Though they did
not use the term “business judgment,” the arbitrators found in essence that Panoche
appreciated the risk involved in its decision not to raise the price of electricity in its bid
after being forewarned by PG&E that it would be required to cover AB 32 compliance
costs. Evidently, though, Panoche wanted to be awarded the contract with PG&E badly
enough that it took a gamble that those risks would not prove too onerous. The
arbitrators found that the contract price in the PPA took into account the costs associated
with AB 32’s impending GHG regime. And the panel concluded there is no danger that
Panoche will lose money on the contract, specifically finding that “Panoche’s projected
profit margins were of such a substantial size . . . that there was still ample room for
profit even with GHG compliance costs being considered.”
In light of their findings, the arbitrators granted PG&E’s request for declaratory
relief on both of its issues, as follows: (1) “It is hereby declared that the PPA addresses
greenhouse gas emissions . . . compliance costs and assigns responsibility for those costs
to Panoche” and (2) “It is hereby declared that at the time the PPA was signed, Panoche
understood that, under the PPA, if there was a future change in the law that imposed a
cost on the facility because of its GHG emissions, Panoche would be responsible for
paying that cost.” The arbitrators emphasized they were “not rendering an advisory
decision on an issue of great policy importance,” but rather were concerned solely with
“contract interpretation” and “what, exactly, the [p]arties understood.”
With respect to Panoche’s first counterclaim for declaratory relief, the panel was
not swayed by the fact that the PPA does not specifically mention cost recovery for AB
32 allowances or GHG emissions by name and found that fact was “not dispositive.” The
arbitrators found there was a “payment mechanism” in place under the PPA that allowed
21
Panoche to recover GHG costs in that PG&E was required under Section 4.3 of the PPA
to make “full payment” for the electrical power produced by Panoche, in accordance with
formulas set forth in the PPA. The arbitrators therefore denied Panoche’s first
counterclaim for declaratory relief. Panoche’s second counterclaim for declaratory relief
sought to establish limits on Panoche’s liability for GHG costs based on Section 3.1 of
the PPA, which covered “Resource Adequacy Requirement.” The arbitrators found that
section inapplicable to GHG costs and denied the requested relief. Finally, the arbitrators
postponed decision on attorney fees and costs under the PPA, Section 12.4(c).
Eight days after the arbitrators’ decision, PG&E advised the CPUC of the
arbitrators’ decision, apparently sending it a copy of the arbitration award. Shortly
thereafter, on June 25, 2013, Panoche petitioned the superior court for an order vacating
the award under section 1286.2, subdivision (a)(5). The award remained in effect from
its inception until vacated by the superior court in late September 2013.
G. Additional Regulatory Developments While the Arbitration Award was in
Effect
Even as the arbitration proceeded and afterwards, the regulators continued
attempting to decide how to deal with legacy contracts. On May 1, 2013, the CARB held
a workshop to discuss the issue of legacy contracts with stakeholders, at which it was
suggested that contracts involving IOUs and contracts involving other utilities should all
be dealt with by the CARB, not the CPUC, and should be subject to the same rules.
Beginning in late June 2013, the CPUC began expressing a willingness to cede authority
to the CARB over contracts involving IOUs, so that all parties in legacy contracts would
be treated the same; ultimately, in March 2014, the CPUC did cede authority to the
CARB. (Decision Clarifying Commission Policy on Greenhouse Gas Cost Responsibility
for Contracts Executed Prior to the Passage of Assembly Bill 32 (Mar. 13, 2014)
Cal.P.U.C. Dec. No. 14-03-003 [Cal.P.U.C. Lexis 145, at p. 1] (Decision Clarifying
CPUC Policy).)
The CARB proposed a new regulation on July 15, 2013 that would provide
transition assistance to energy producers in legacy contracts through the year 2014. The
22
essence of that regulation, as will be discussed more fully below, was that energy
producers who were party to a power purchase and sale agreement in which the “price . . .
does not provide for recovery of the costs associated with compliance with” the cap-and-
trade program would be entitled to free “direct allocation” of allowances by the CARB
through 2014. (See Cal. Code Regs., tit. 17, §§ 95802, subd. (a)(204), 95890, subd. (e),
95894.)
In recommending the new regulations, the CARB staff identified 19 contracts in
dispute statewide and said: “In all cases, [the CARB] has encouraged resolution through
contract renegotiation between the parties. In several cases, renegotiation has resolved
the legacy contract concern. [The CARB] understands the approximately 19 remaining
contracts to be in various stages of renegotiation. [The CARB] continues to encourage
private resolution.” The regulation the CARB proposed, staff believed, “maintain[ed] a
strong incentive to continue renegotiation.”
Stakeholder commentary on the proposed regulations continued through the
summer, including commentary from PG&E and Panoche. Generally speaking, Panoche
supported the new CARB regulation, while PG&E recommended changes. Among other
things, PG&E suggested that “transition assistance” be provided only to those energy
producers who signed contracts before August 15, 2005, when PG&E claimed the
prospect of GHG-related costs was already clear. PG&E also suggested that the
definition of legacy contracts should exclude contracts of energy producers against whom
an arbitrator had ruled on the contract dispute with the utility.8 PG&E also suggested that
the CARB incorporate into its definition of “legacy contracts” language designed around
its own second claim for declaratory relief: namely, that a power purchase agreement
8
After winning the arbitration with Panoche, PG&E began a fruitless attempt to
convince the CARB and the CPUC that any proposed regulation to provide relief to
energy producers under legacy contracts should exclude contracts in which an arbitration
had determined the PPA accounted for GHG cost recovery. Although Panoche construes
this as evidence that the CARB is simply not interested in whatever results arbitration
may produce, we think that reads too much into the regulators’ failure to adopt PG&E’s
suggestion.
23
would not be considered a legacy contract if, “at the time the agreement was executed,
the [energy generator] understood that if there were a future change in the law that
imposed a cost on the facility because of its greenhouse gas emissions, the [energy
generator] would be responsible for paying that cost.” These changes were not adopted
by the CARB.
On September 4, 2013, while Panoche’s petition to vacate the arbitration award
was still pending, the CARB issued an Initial Statement of Reasons (ISOR) for its
proposed regulations, including proposing to add a definition of “legacy contracts” that in
substance is identical to the definition ultimately adopted some nine months later.
(Compare CARB, Proposed Amendments to the California Cap on Greenhouse Gas
Emissions and Market-Based Compliance Mechanisms, Initial Statement of Reasons
(ISOR), Appendix E (Sept. 4, 2013) Proposed Regulation Order, § 95802, subd. (a)(195)
at < http://www.arb.ca.gov/regact/2013/capandtrade13/capandtrade13.htm> [as of July 1,
2016] with current Cal. Code Regs., tit. 17, § 95802, subd. (a)(204).)
With respect to consideration of individual contracts, the ISOR explained: “[The
CARB] is not in a position to have full knowledge of the original negotiation and how
GHG costs were discussed during these contract negotiations. In comments that [the
CARB] received, there was apparent disagreement during the various discussions among
parties as to how to consider the inclusion of such costs. It is not appropriate for [the
CARB] to interject itself into the interactions between parties in private contract
discussions where [the CARB] cannot possibly know what both sides intended when they
executed the contract.”
The ISOR did not, however, abandon the notion that the parties should continue
trying to resolve their differences independently: “While [the CARB’s] preferred
approach to resolving the situation is for the parties to renegotiate the contracts, [the
CARB] recognizes that renegotiation takes time.” In the meantime, the ISOR explained,
transitional relief for generators in legacy contracts would be provided under section
95894 of title 17 of the Code of Regulations.
24
H. The Court Order Vacating the Arbitration Award
Panoche brought its petition to vacate the arbitration awards under section 1286.2,
subdivision (a)(5), which authorizes a court to vacate an arbitration award if the “rights of
the [petitioning] party were substantially prejudiced by the refusal of the arbitrators to
postpone the hearing upon sufficient cause being shown . . . .” Under that section, if the
statutory requirements are met, the court “shall” vacate the arbitration award. PG&E
opposed the petition and requested that the court instead confirm the arbitrators’ interim
award and enter judgment accordingly pursuant to section 1287.4. Again, Panoche’s
briefing focused exclusively on the concept of ripeness, but this time it attempted to
mold its arguments to fit within the linguistic frame established by section 1286.2,
subdivision (a)(5) by arguing that the lack of ripeness constituted “sufficient cause” to
“postpone” the arbitration.
On September 20, 2013, the trial court, having been kept up-to-date on the
regulatory developments, granted Panoche’s petition. The court ruled that Panoche’s
ripeness motion before the arbitration panel could be reviewed under section 1286.2,
subdivision (a)(5) because (1) it amounted to a request to “postpone” the arbitration
within the meaning of the statute; (2) it was supported by “sufficient cause”; and (3)
Panoche was “substantially prejudiced” by the arbitrators’ refusal to grant a delay in the
proceedings while the CPUC and the CARB completed their regulatory proceedings.
PG&E filed a timely notice of appeal from the court’s order.
I. Further Regulatory Developments after the Appeal Was Filed
In response to a request by Panoche, we take judicial notice of the following
developments in the regulatory proceedings after the notice of appeal was filed. On
November 8, 2013, the CARB proposed the amendments to the cap-and-trade regulation
from the September 2013 ISOR, discussed above. Those amendments were adopted by
the CARB in April 2014, and went into effect July 1, 2014. (CARB, Amendments to
California Cap on Greenhouse Gas Emissions and Market-Based Compliance
Mechanisms, Resolution 14-4 (Apr. 25, 2014) (Resolution 14-4), at
25
[as of July 1, 2016]; history
foll. Cal. Code Regs., tit. 17, § 95894.)
Meanwhile, at the CPUC, by February 10, 2014, an ALJ had also addressed the
issue of legacy contracts in a proposed decision (Proposed CPUC Clarification Decision)
setting forth a policy statement of the CPUC with respect to legacy contracts: “It is the
policy of the [CPUC] that greenhouse gas costs and responsibility for such costs should
be clearly articulated in Legacy Contracts in order to account for greenhouse gas costs in
generation dispatch decisions. The [CPUC] reiterates this policy and orders the utilities
to continue renegotiating contracts to include provisions to ensure that generators party to
Legacy Contracts receive compensation for their greenhouse gas costs.” The proposed
decision again expressed the CPUC’s disinclination to address the issue by interpreting
individual contracts: “[The CPUC] does not find it appropriate to address issues of
greenhouse gas cost responsibility at the individual contract level.” We do not read that
statement to mean that issues concerning contractual interpretation were to be ignored.
Instead, the ALJ said, “The [CPUC] has consistently encouraged parties to resolve
disputes over GHG cost responsibility in Legacy Contracts through negotiation and
settlements or (if necessary) through the dispute resolution processes articulated in
existing contracts.” These observations were retained in the CPUC’s Decision Clarifying
CPUC Policy, supra, 2014 Cal.P.U.C. Lexis 145, at p. *1.
In the Proposed CPUC Clarification Decision, the CPUC also made the following
observation: “Most of the contracts raised in this proceeding, including the Panoche
contract, were negotiated and signed at a time when it was reasonably foreseeable that
there would be costs for GHG compliance in the future, but the extent to which such
costs were accounted for in the contracts may not be clear. To the extent that these
Legacy Contracts do not contain terms that explicitly allocate responsibility for GHG
compliance costs, it may not be clear which party, if any, bears responsibility for those
costs under the contract. It would be inappropriate to amend a contract to require utilities
and their ratepayers to pay those compliance costs a second time if they were accounted
26
for in the original contract. At the same time, the [CPUC] is not in a position to know
whether GHG costs are already embedded in existing contracts; that is a factual question
that is beyond the scope of this proceeding. To make these factual determinations,
Legacy Contracts must be examined individually, and avenues exist, such as a contract’s
explicit dispute resolution process, that are more appropriate than this proceeding for
resolving questions of the presence or absence of specific GHG cost compensation terms
and conditions in Legacy Contracts.” (Italics added.) The final decision omitted the first
sentence of the quoted paragraph at Panoche’s request. (See Decision Clarifying CPUC
Policy, supra, 2014 Cal.P.U.C. Lexis 145, at pp. *14–15, *19-20.)
At the same time, however, the CPUC decided to defer to the developing CARB
regulations on the issue of legacy contracts. Essentially, the CPUC decided that energy
producers in contracts with IOUs should be treated the same as producers under contract
with other utilities. The regulations now in force include the definition of “Legacy
Contract” adopted by the CARB: “ ‘Legacy Contract’ means a written contract or tolling
agreement, originally executed prior to September 1, 2006, governing the sale of
electricity and/or legacy contract qualified thermal output at a price, determined by either
a fixed price or price formula, that does not provide for recovery of the costs associated
with compliance with this regulation; the originally executed contract or agreement must
have remained in effect and must not have been amended since September 1, 2006 to
change or affect the terms governing the California greenhouse gas emissions
responsibility, price, or amount of electricity or legacy contract qualified thermal output
sold, or the expiration date. . . .” (Cal. Code Regs., tit. 17, § 95802, subd. (a)(204), italics
added.) Energy producers who are parties to legacy contracts are granted “direct
allocation” of allowances from the CARB, at no cost to the producers, under the new
regulations. (Id., § 95894.)
However, before receiving the first such direct allocation, and for each year in
which an energy producer seeks to renew its eligibility, it is required to make a
“[d]emonstration of [e]ligibility,” including an attestation under penalty of perjury that its
27
PPA “does not allow the covered entity to recover the cost of legacy contract emissions
from the legacy contract counterparty purchasing electricity and/or legacy contract
qualified thermal output from the unit or facility.”9 (Cal. Code Regs., tit. 17, § 95894,
subd. (a) & (a)(3)(A).) This requirement was included because it was “necessary to
prove the information declared is true and to facilitate [the CARB] legal action against
the entity requesting allowance allocation if the information submitted is false
information.” We take judicial notice that Panoche was granted transition assistance for
the years 2013, 2014 and 2015 after review of its application for the reporting period
ending September 2, 2014.
III. DISCUSSION
A. Because the PPA Restricted the Arbitrators’ Power to that of a California
Superior Court Judge, the Arbitrators Were Not Authorized to Entertain an
Unripe Dispute.
Panoche structured its arguments both in the arbitration and before the trial court
around a tenet of justiciability―ripeness―that is fundamental to judicial
9
The regulation, entitled “Allocation to Legacy Contract Generators for Transition
Assistance,” requires any legacy contract generator seeking transition assistance to
submit to the CARB by September 2 “each year,” among other things, a copy of portions
of its power purchase agreement reflecting commencement and cessation dates and the
“[t]erms governing price per unit of product.” (Cal. Code Regs., tit. 17, § 95894,
subd. (a)(2).) In addition, each such generator must submit an annual “attestation under
penalty of perjury” that: “(A) Each legacy contract does not allow the covered entity to
recover the cost of legacy contract emissions from the legacy contract counterparty
purchasing electricity and/or legacy contract qualified thermal output from the unit or
facility; [¶] (B) The legacy contract was originally executed prior to September 1, 2006,
remains in effect, and has not been amended since that date to change the terms
governing the price or amount of electricity or legacy contract qualified thermal output
sold, the GHG costs, or the expiration date; [and] [¶] (C) The operator of the legacy
contract generator with an industrial counterparty or the legacy contract generator
without an industrial counterparty made a good faith effort, but was unable to renegotiate
the legacy contract with the counterparty to address recovery of the costs of compliance
with this regulation.” (Id., subd. (a)(3).) The effort at renegotiation must have occurred
since the last annual attestation was filed. Applicants must also update their submissions
with any material changes occurring after submission. (Id., subd. (a)(5).)
28
decisionmaking. But does the concept of ripeness apply in an arbitral setting to the same
extent that it applies in court? After briefing in this appeal was completed, Division Four
of the Second District Court of Appeal answered that question in the negative in Bunker
Hill Park Ltd. v. U.S. Bank National Assn. (2014) 231 Cal. App. 4th 1315 (Bunker Hill).
Absent an agreement by the parties to import the doctrine of ripeness into their arbitration
contract, the panel explained in Bunker Hill, a dispute that might not be justiciable in
court for lack of ripeness is nonetheless arbitrable if it otherwise falls within the scope of
the governing arbitration clause. (Id. at pp. 1325–1330.)
Bunker Hill reasoned: “Arbitration is foremost a creature of contract. [Citation.]
‘Arbitration’s consensual nature allows the parties to structure their arbitration
agreements as they see fit. They may limit the issues to be arbitrated, specify the rules
and procedures under which they will arbitrate, designate who will serve as their
arbitrator(s), and limit with whom they will arbitrate. ’ [Citation.] Contracting parties
also are free to negotiate and restrict the powers of an arbitrator and the universe of issues
that he or she may resolve; ‘ “[t]he powers of an arbitrator derive from, and are limited
by, the agreement to arbitrate.” ’ [Citation.] ‘As for the requirement that there exist a
controversy, it is sufficient the parties contractually have agreed to resort to a third party
to resolve a particular issue.’ [Citation.] ‘The limited function reserved to the courts in
ruling on an application for arbitration is not whether the claim has merit, but whether on
its face the claim is covered by the contract.’ [Citation.] Thus, we look to the terms of
the parties’ contract to ascertain whether they agreed to arbitrate a particular
disagreement or to restrict the arbitrator to resolving certain issues.” (Bunker Hill, supra,
231 Cal.App.4th at p. 1326.) Based on the foregoing considerations, the Court of Appeal
in Bunker Hill ordered the superior court to compel the arbitration to proceed. (Id. at p.
1330.)
Bunker Hill recognized that parties may contractually limit arbitrators’ roles to the
adjudication of justiciable controversies, and the present dispute is one in which they
have done just that. The clause in question, part of the arbitration provision (Section
29
12.4(c)), does not actually mention ripeness or justiciability, but simply provides: “The
Parties are aware of the decision in Advanced Micro Devices, Inc. v. Intel Corp., 9
Cal. 4th 362 (1994), and, except as modified by this Agreement, intend to limit the power
of the arbitrator to that of a Superior Court judge enforcing California Law.”
In Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal. 4th 362 (Advanced
Micro Devices), the Supreme Court upheld an arbitrator’s award that arguably exceeded
the powers a superior court judge could have exercised in fashioning a remedy for breach
of contract. (Id. at pp. 367, 390–391.) Specifically, the arbitrator fashioned a remedy for
Intel’s breach of implied covenants of good faith and fair dealing that gave Advanced
Micro Devices (AMD) a permanent, nonexclusive, royalty-free license to Intel’s 8086
generation of microprocessors. (Id. at pp. 385–386.) AMD petitioned to have the
superior court confirm the award (§§ 1286, 1287.4), and Intel petitioned for it to correct
the award (§ 1286.6) by striking two paragraphs, arguing that the remedy granted by the
arbitrator exceeded the contractual remedies for breach. (Advanced Micro Devices,
supra, at p. 371.) The trial court confirmed the arbitrators’ award, but the Court of
Appeal reversed, granting Intel the relief it requested. The Supreme Court later reversed
the Court of Appeal’s decision.
The Supreme Court held “our statutes (§§ 1286.2, [former] subd. (d), 1286.6,
subd. (b)) do not distinguish between the arbitrators’ power to decide an issue and their
authority to choose an appropriate remedy; in either instance the test is whether the
arbitrators have ‘exceeded their powers.’ Because determination of appropriate relief
also constitutes decision on an issue, these two aspects of the arbitrators’ authority are not
always neatly separable.” (Advanced Micro Devices, supra, 9 Cal.4th at p. 373.)
“Arbitrators, unless specifically restricted by the agreement to following legal rules, ‘
“may base their decision upon broad principles of justice and equity . . . .” [Citations.]
As early as 1852, this court recognized that, “The arbitrators are not bound to award on
principles of dry law, but may decide on principles of equity and good conscience, and
make their award ex aequo et bono [according to what is just and good].” [Citation.]’
30
(Moncharsh [v. Heily & Blase (1992) 3 Cal. 4th 1, 10–11].) Were courts to reevaluate
independently the merits of a particular remedy, the parties’ contractual expectation of a
decision according to the arbitrators’ best judgment would be defeated.” (Advanced
Micro Devices, supra, at pp. 374–375.)
PG&E argues Section 12.4(c) of the PPA does not incorporate the concept of
ripeness into the arbitration because Advanced Micro Devices dealt only with the
remedial powers of an arbitrator, whereas the ripeness limitation on adjudication has
nothing to do with available remedies. Because of the reference to Advanced Micro
Devices in the preamble to Section 12.4(c), PG&E would have us interpret this language
to mean “the remedial power . . . of a Superior Court judge.” Even if the decisionmaking
power of courts and arbitrators could be neatly compartmentalized into “remedial” power
and other kinds of power—an idea the Supreme Court rejected in Advanced Micro
Devices—the plain language of Section 12.4(c) undercuts PG&E’s argument. We will not
insert additional language into the PPA that the parties themselves did not include. We
instead conclude that part of “California law” which the arbitrators were empowered to
enforce only to the same extent as a superior court judge was the rule limiting courts to
the resolution of “ripe” controversies. This case therefore comes within the exception
envisioned in Bunker Hill.
B. The Appeal Is Not Moot.
Before addressing the ripeness issue, we turn to another threshold issue, this one at
the other end of the justiciability spectrum—mootness. On June 19, 2014,
contemporaneously with filing its respondent’s brief, Panoche filed a motion to dismiss
the appeal as moot based on after-occurring developments in the regulatory proceedings,
as described above.10 Panoche argued that “[o]n April 25, 2014, the CARB passed its
10
Panoche’s motion to dismiss was initially denied, and the accompanying request
for judicial notice was granted. Those orders were vacated, however, on the court’s own
motion, and the court ordered the motion and request for judicial notice to be decided
with the appeal. For reasons stated in text, we now deny Panoche’s motion to dismiss the
appeal and grant its request for judicial notice. (Evid. Code, §§ 452, 459.) Panoche’s
31
final cap-and-trade amendments, awarding Panoche and other similarly-situated parties
‘transitional relief’ to cover their GHG costs for the first five years of the CARB’s cap-
and-trade program (i.e., until AB 32’s expiration), with the opportunity to obtain
additional relief in the future.” Ironically, by arguing mootness, Panoche in effect claims
its disagreement with PG&E is both unripe and overripe. Panoche never explains when
exactly, if ever, the controversy was ripe. It has consistently claimed and continues to
claim the contract dispute had not yet “congealed” into a justiciable controversy as of the
time of the arbitration, yet also claims that by June 19, 2014—before this appeal was
fully briefed—events in the regulatory arena had so far overtaken these proceedings as to
render the appeal moot. For the reasons that follow, we cannot accept this logic.
“[W]hen, pending an appeal from the judgment of a lower court, and without any
fault of the defendant, an event occurs which renders it impossible for this court, if it
should decide the case in favor of plaintiff, to grant him any effectual relief whatever, the
court will not proceed to a formal judgment, but will dismiss the appeal.” (Paul v. Milk
Depots, Inc. (1964) 62 Cal. 2d 129, 132, quoting Consolidated Vultee Aircraft Corp. v.
United Auto. Etc. Workers (1946) 27 Cal. 2d 859, 863.) Witkin, with characteristic
clarity, distinguishes the two concepts thusly: Unripe cases are “[t]hose in which parties
seek a judicial declaration on a question of law, though no actual dispute or controversy
ever existed between them requiring the declaration for its determination.” (3 Witkin,
Cal. Procedure (5th ed. 2008) Actions, § 21, p. 85.) Moot cases, in contrast, are “[t]hose
in which an actual controversy did exist but, by the passage of time or a change in
circumstances, ceased to exist.” (Id. at p. 86.)
Thus, “ ‘ripeness is not a static state’[citation], and a case that presents a true
controversy at its inception becomes moot ‘ “if before decision it has, through act of the
parties or other cause, occurring after the commencement of the action, lost that essential
character” ’ ” (Wilson & Wilson v. City Council of Redwood City (2011) 191
supplemental request for judicial notice filed November 26, 2014 is also granted.
PG&E’s request for judicial notice filed January 4, 2016 is denied.
32
Cal. App. 4th 1559, 1573 (Wilson & Wilson).) “The pivotal question in determining if a
case is moot is . . . whether the court can grant the plaintiff any effectual relief.
[Citations.] If events have made such relief impracticable, the controversy has become
‘overripe’ and is therefore moot.” (Id. at p. 1574.) An appeal is not moot, however,
where “a material question remains for the court’s consideration,” so long as the appellate
decision can grant a party to the appeal effectual relief. (Vargas v. Balz (2014) 223
Cal. App. 4th 1544, 1550–1551.) Thus, “an appeal will be decided . . . where part but not
all of the controversy has been rendered moot.” (Mercury Interactive Corp. v. Klein
(2007) 158 Cal. App. 4th 60, 78.)
The unresolved question of costs and attorney fees, by itself, is enough to defeat
Panoche’s mootness argument. The PPA includes a fee-shifting provision that allows
recovery of arbitration costs and reasonable attorney fees to the “prevailing party.” The
arbitrators’ decision in May 2013 left the question of fees open, but PG&E was
determined to be the prevailing party. After the arbitration, PG&E submitted a petition
for fees and costs, claiming approximately $1.5 million in fees and nearly $228,000 in
costs. After the arbitration award was vacated, Panoche filed a claim in the arbitration
for approximately $1.7 million in attorney fees and $383,000 in costs. The arbitrators
have postponed ruling on the fees issue pending the outcome of this appeal. Since the
arbitrators’ decision may drive the “prevailing party” determination in the arbitration, this
appeal is not moot for that reason alone. (Center for Biological Diversity v. County of
San Bernardino (2010) 185 Cal. App. 4th 866, 881; Carson Citizens for Reform v.
Kawagoe (2009) 178 Cal. App. 4th 357, 365; Bolsa Chica Land Trust v. Superior Court
(1999) 71 Cal. App. 4th 493, 510, fn. 3; Mapstead v. Anchundo (1998) 63 Cal. App. 4th
246, 278–279 [no rationale supports the theory that “a party who should have lost on the
merits at trial becomes the ‘successful party’ when the issues become moot on appeal”];
Save Our Residential Environment v. City of West Hollywood (1992) 9 Cal. App. 4th 1745,
1750–1751.)
33
While Panoche may ultimately be correct in its assessment of the course of public
policy going forward, we note that it overstates what the future holds for GHG regulation
in California. Panoche contends that AB 32 “expir[es]” in 2017, but that does not appear
to be the case. The current GHG reduction targets under AB 32 extend until 2020
(Health & Saf. Code, § 38550), and the Legislature has expressed the intent that GHG
emissions limits “shall remain in effect unless otherwise amended or repealed,” with the
expectation that such limits will “continue in existence and be used to maintain and
continue reductions in emissions of greenhouse gases beyond 2020.” (Health & Saf.
Code, § 38551, subds. (a) & (b).) Thus, one of the foundations of Panoche’s mootness
argument crumbles. In addition, the PPA will remain in effect until sometime in 2029.
Given these long-range legislative objectives and the long-term contract in dispute, we
expect the question of GHG emissions and the cost of reducing those emissions to
continue to be an issue subject to regulation in California―and subject to dispute
between the parties―for the foreseeable future, not a matter that has been settled
definitively by the regulations now in effect. Moreover, although the CARB has arrived
at a final definition of “legacy contracts,” Panoche suggests that this definition resolves
all issues related to this appeal, but that is plainly not the case. The new regulation is not
a self-executing grant of free allowances in perpetuity. It merely allows Panoche to
receive such allowances if it attests under oath, annually, that the PPA “does not allow
[Panoche] to recover the cost of legacy contract emissions from [PG&E].” (Cal. Code
Regs., tit. 17, § 95894, subd. (a)(3)(A).)
Given the parties’ disagreement over whether the PPA allows Panoche to
“recover” the costs of GHG compliance, we think it undeniable that the “demonstration
of eligibility” requirement contained in the new regulation draws into question the
contents and meaning of the PPA, including the arbitrators’ resolution of that dispute.
Although we are of the view that the arbitration decision has clear, ongoing relevance to
Panoche’s eligibility for “legacy contract” treatment going forward, we hasten to add that
it in no way binds the hands of the regulators. The CARB may decide for policy reasons
34
that Panoche should get free allowances in spite of the arbitrators’ decision. We have
nothing to say about that. The regulators have broad policy-making power and they
might decide, for example, that the general policy of sending a “price signal” to the
public is a paramount consideration. Clearly, the arbitrators believed the risk of exposure
to AB 32 compliance costs was known to and taken into account by Panoche when it
entered the PPA in March 2006. While they made a thoughtful, considered, and in many
ways compelling determination on that issue, they repeatedly emphasized that their focus
was limited to contract interpretation.11 As we explain further below, the arbitrators were
tasked with deciding an issue that, while relevant to ongoing regulatory proceedings, was
fundamentally retrospective in nature, while the “legacy contract” issue pending in the
regulatory arena was not only prospective in nature, but was suffused with policy
considerations that the arbitrators were not capable of addressing.
C. The Contractual Dispute Between PG&E and Panoche Was Ripe When the
Arbitration Commenced, and Panoche Failed to Show Sufficient Cause to
Postpone the Arbitration Under Section 1286.2, Subdivision (a)(5).
1. Limited judicial review of arbitration awards and the standard of review on
appeal.
“ ‘The merits of the controversy between the parties [to a private arbitration
11
Panoche argues vehemently that the panel got it wrong, since “when the PPA
was signed in March 2006—months before AB 32 was passed and years before CARB
proposed any cap-and-trade program—the parties could not have specifically addressed
GHG allowances under any regulatory cap-and-trade scheme because no such regulations
existed at the time.” The point is not without force, but assessing as a factual matter what
the parties discussed and understood in the negotiation of the PPA was a matter
exclusively for the arbitrators. And in any event, to the extent Panoche complains that
the full weight of the cost burden it undertook could never have been foreseen until the
legislative and regulatory process that created cap-and-trade in California had run its
course, a more fitting contract defense may have been commercial frustration, which it
has never argued. (See Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga
(2009) 175 Cal. App. 4th 1306, 1336 [“where performance remains possible, but the
reason the parties entered the agreement has been frustrated by a supervening
circumstance that was not anticipated, such that the value of performance by the party
standing on the contract is substantially destroyed, the doctrine of commercial frustration
applies to excuse performance”].)
35
agreement] are not subject to judicial review.’ [Citations.] More specifically, courts will
not review the validity of the arbitrator’s reasoning. [Citations.] Further, a court may not
review the sufficiency of the evidence supporting an arbitrator’s award. [Citations.] [¶]
Thus, it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be
reviewed for errors of fact or law.” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at
p. 11; see also, e.g., Richey v. AutoNation, Inc. (2015) 60 Cal. 4th 909, 916; SWAB
Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal. App. 4th 1181, 1195 (SWAB
Financial); Jones v. Humanscale Corp. (2005) 130 Cal. App. 4th 401, 407–408.) Section
1286.2, subdivision (a), which sets forth grounds for vacating an arbitration award, is an
exception to the general rule. (SWAB Financial, supra, at p. 1196.) We are concerned in
this appeal with subdivision (a)(5), which has been called “a safety valve in private
arbitration that permits a court to intercede when an arbitrator has prevented a party from
fairly presenting its case.” (Hall v. Superior Court (1993) 18 Cal. App. 4th 427, 439
(Hall) [discussing § 1286.2, former subd. (e), which is now subd. (a)(5)]; accord, Epic
Medical Management, LLC v. Paquette (2015) 244 Cal. App. 4th 504, 518; Schlessinger v.
Rosenfeld, Meyer & Susman (1995) 40 Cal. App. 4th 1096, 1111.)
The parties agree that the court’s order vacating the arbitration award is subject to
de novo review on appeal. “We review the trial court’s ruling de novo, but defer to the
factual and legal findings made by the arbitrator. (California Faculty Assn. v. Superior
Court (1998) 63 Cal. App. 4th 935, 943–945; Oaktree Capital Management, L.P. v.
Bernard (2010) 182 Cal. App. 4th 60, 68–69.) ‘[W]e do not review the arbitrator’s
findings . . . , but take them as correct.’ (Roehl v. Ritchie (2007) 147 Cal. App. 4th 338,
347.)” (Cotchett, Pitre & McCarthy v. Universal Paragon Corp. (2010) 187 Cal. App. 4th
1405, 1416.) To the extent the superior court judge made factual findings that are not
inconsistent with the arbitrators’ findings, we review them for substantial evidence.
(SWAB Financial, supra, 150 Cal.App.4th at pp. 1196, 1198.) Ripeness, too, is generally
a legal issue subject to de novo review. (Bunker Hill, supra, 231 Cal.App.4th at p. 1324;
Environmental Defense Project of Sierra County v. County of Sierra (2008) 158
36
Cal. App. 4th 877, 885.) We therefore employ our independent judgment in deciding this
issue.
2. The question of contract interpretation was ripe for arbitration.
“ ‘The ripeness requirement, a branch of the doctrine of justiciability, prevents
courts from issuing purely advisory opinions. [Citation.] It is rooted in the fundamental
concept that the proper role of the judiciary does not extend to the resolution of abstract
differences of legal opinion. It is in part designed to regulate the workload of courts by
preventing judicial consideration of lawsuits that seek only to obtain general guidance,
rather than to resolve specific legal disputes. However, the ripeness doctrine is primarily
bottomed on the recognition that judicial decisionmaking is best conducted in the context
of an actual set of facts so that the issues will be framed with sufficient definiteness to
enable the court to make a decree finally disposing of the controversy. On the other
hand, the requirement should not prevent courts from resolving concrete disputes if the
consequence of a deferred decision will be lingering uncertainty in the law, especially
when there is widespread public interest in the answer to a particular legal question.
[Citations.]’ . . . As the Court of Appeal observed in California Water & Telephone Co.
v. County of Los Angeles (1967) 253 Cal. App. 2d 16, 22, ‘[a] controversy is “ripe” when it
has reached . . . the point that the facts have sufficiently congealed to permit an intelligent
and useful decision to be made.’ ” (Vandermost v. Bowen (2012) 53 Cal. 4th 421, 452,
italics omitted, quoting Pacific Legal Foundation v. California Coastal Com. (1982) 33
Cal. 3d 158, 170.)
When applied in the context of concurrent judicial and administrative proceedings,
the ripeness doctrine can serve the salutary purpose of “ ‘ “prevent[ing] the courts,
through avoidance of premature adjudication, from entangling themselves in abstract
disagreements over administrative policies, and also to protect the agencies from judicial
interference until an administrative decision has been formalized and its effects felt in a
concrete way by the challenging parties.” ’ ” (Davis v. Southern California Edison Co.
(2015) 236 Cal. App. 4th 619, 645, fn. 19, quoting Pacific Legal Foundation v. California
37
Coastal Com., supra, 33 Cal.3d at p. 171.) Whether in that context or others, however,
an issue is ripe for resolution if it “arises from a genuine present clash of interests and the
operative facts are sufficiently definite to permit a particularistic determination rather
than a broad pronouncement rooted in abstractions.” (Safai v. Safai (2008) 164
Cal. App. 4th 233, 244.) Analytically, the test for ripeness is two-fold: we must
(1) determine whether the issue is “ ‘appropriate for immediate judicial [or arbitral]
resolution,’ ” and then (2) analyze “ ‘the hardship that may result from withholding court
[or the arbitrators’] consideration.’ ” (Wilson & Wilson, supra, 191 Cal.App.4th at
p. 1582.)
We are satisfied that, on the first step, PG&E’s contract dispute with Panoche was
“appropriate for immediate [arbitral] resolution.” PG&E argues, and we agree, that the
question of transitional relief for legacy contract power generators involves two distinct
issues―contract interpretation and policy making. That the contract issues and the
regulatory issues were “intertwined,” as the superior court suggested, does not lead
inexorably to the conclusion that a proceeding to interpret the PPA would be in conflict
with the progress of the regulatory proceedings, would be dependent on the outcome of
the regulatory proceedings, or would be in some other way premature. Nor do we agree
that addressing the contractual issues prior to the regulators’ resolution of the policy
questions caused the arbitrators or the courts to “step outside the courtroom into the
vortex of political activity.” (Hobson v. Hansen (D.D.C. 1967) 265 F. Supp. 902, 923.)
On the contrary, we conclude the arbitrators and the regulators were operating in largely
distinct spheres and addressing largely different questions. Accordingly, the pendency of
regulatory proceedings did not, in and of itself, render the contractual issues unripe for
arbitration.
Panoche’s lack-of-ripeness argument rests on the premise that contract
interpretation was pointless because the regulators had decided they would not look at the
provisions of individual contracts to establish statewide policy. Ergo, Panoche suggests,
the arbitration should have been dismissed. Alternatively, Panoche argues, the arbitration
38
at least should have been postponed until after the regulators made a final determination
about the definition of “legacy contract.” We are not persuaded. In our view, by
referring to contractual provisions in their various pronouncements, proposed rules, and
final rules concerning “legacy contracts,” the CPUC and the CARB embedded into the
test for eligibility a need to consider the PPA’s terms. Given the CPUC’s and the
CARB’s refusal to try to resolve conflicts between individual parties as to the terms of
their contracts, the agencies’ continuing expressed preference for the parties to resolve
their contractual disputes independently, and the persistent dispute between PG&E and
Panoche over whether AB 32 compliance costs were addressed in the PPA, PG&E was
justified in viewing arbitration as a practical necessity to resolve that contract
interpretation dispute.
The regulatory proceedings, on the other hand, have led to and will continue to
involve public policy determinations about how to fairly allocate the cost burden of AB
32 more broadly. The interpretation of the PPA as reflected in the arbitrators’ reasoned
decision was certainly relevant to the public policy issues before the CPUC and the
CARB; indeed, the pendency of those regulatory issues was the very reason PG&E
initiated the arbitration. Panoche, understandably, wished to remain free in the regulatory
arena to place its own “spin” on the PPA, but by agreeing to a private dispute resolution
procedure, Panoche ran the risk that PG&E would call its bluff, obtain a binding ruling
from an arbitration panel on disputed issues of contract interpretation, and use that ruling
to try to block Panoche from continuing to promote what PG&E believed was an
inaccurate view of the PPA before the agencies. The risk ran the other way as well, of
course, and had the arbitrators adopted Panoche’s perspective, the shoe would have been
on the other foot. Because these are two very sophisticated parties, fully capable of
assessing how the arbitration clause might be used—and rejecting it upfront, if it was a
poor fit for the highly regulated environment involved here—we are loathe to prevent
enforcement of the clause because the party invoking it, PG&E, may have found it useful
as a means to gain perceived tactical advantage before the regulators. We would be
39
surprised if there was not some such motivation at work, but in the end PG&E’s
motivation is irrelevant. Arbitration was a tool at the disposal of both parties, and we see
nothing wrong with the way PG&E chose to use it here.
It is no mystery how the parties’ contract interpretation dispute was pertinent to
the regulatory proceedings at the time this dispute was arbitrated. The parties have long
disagreed, and disagreed sharply, on who ultimately should bear the costs of AB 32
compliance. At the time PG&E demanded arbitration, the parties were engaged in
vigorous lobbying campaigns centering on this issue, each offering diametrically
opposing views to the regulators about whether, in fact, the PPA addressed AB 32
compliance costs. Panoche argues that, to resolve the dispute, it was necessary for the
arbitrators to wait for the regulatory process to run its course, because that process was
bound to provide “guidance,” and perhaps would be outcome-determinative. As the
arbitrators noted, however, the meaning of the contract was something to be determined
retrospectively, looking at the historical facts, and applying well-known principles of
contract law. Nothing pending before the regulators was going to change that
decisionmaking frame. Granted, if, going forward, the regulators wish to override the
PPA for policy reasons, they were and are empowered to do so, but that is a separate
regulatory issue which the arbitrators eschewed any interest in addressing. The CPUC
and the CARB, for their part, drew the same line of demarcation from the opposite
perspective, commenting repeatedly on the impracticality of attempting their own
examination and interpretation of individual power purchase and sale contracts.
But while it is clear the CPUC and the CARB wished to avoid deciding contract-
specific issues, they never affirmatively indicated a disinterest in, refusal to consider, or
rejection of the relevancy of such contracts to the question of an individual energy
generator’s eligibility for transition assistance. That is understandable because the issue
of whether a particular contract allocated GHG compliance costs in a particular way was
so plainly relevant for regulatory purposes when PG&E demanded arbitration, and is still
relevant today. The CPUC ALJ’s proposed definition of “legacy contracts” in August
40
2012—the proposed definition upon which Panoche framed its counterclaim—focused on
whether the contract at issue “explicitly” provided for allocation of GHG compliance
costs or had a “mechanism” of doing so. And under the CARB’s “legacy contract”
definition, as finally adopted, any entity claiming to be a party to a legacy contract must
prove its eligibility by attesting that the PPA “does not allow the covered entity to
recover the cost of legacy contract emissions from the legacy contract counterparty . . . .”
(Cal. Code Regs., tit. 17, § 95894, subd. (a)(3)(A).) Thus, the definition adopted by the
CARB, and the transitional relief offered, both to some degree turn on the content of the
PPA: specifically, whether it “provide[d or did not provide] for recovery of the costs
associated with compliance with [the cap-and-trade] regulation” (Cal. Code Regs., tit. 17,
§ 95802, subd. (a)(204)) and whether it “allow[ed or did not allow] the covered entity to
recover the cost of legacy contract emissions from the legacy contract counterparty
purchasing electricity . . . from the unit or facility” (id., § 95894, subd. (a)(3)(A)).
We therefore agree with the arbitrators that their opinion was not merely advisory.
It settled a real and ongoing dispute between the parties that had reached a point at which
the dispute was threatening to have a significant financial impact on one party or the
other. The fact that the panel’s resolution of that bilateral dispute might ultimately be
disregarded by the regulators did not transform the arbitrators’ decision into a merely
“advisory” opinion, particularly given the potential for recurrence of the dispute in the
future. We think this case is comparable to Steinberg v. Chiang (2014) 223 Cal. App. 4th
338, in which a dispute between the state Controller and the state Legislature developed
regarding the Controller’s authority to withhold legislators’ paychecks for the alleged
failure of the Legislature to enact a balanced budget by the constitutional deadline. (Id. at
pp. 341–342; Cal. Const., art. IV, § 12(c)(3), (g) & (h).) One week after their paychecks
were suspended, the legislators passed a new balanced budget and their pay was
reinstated. (Id. at p. 342.) Though the Controller claimed there was no live controversy
and the plaintiffs were requesting an advisory opinion, a panel of the Third District Court
of Appeal deemed the issue ripe for resolution because “the parties have an ongoing
41
relationship in which this existing dispute . . . can arise again in the future.” (Id. at
p. 341.) Likewise in our case, though the parties may be in a temporary state of uneasy
détente due to the regulators’ largesse, in this contentious area of energy regulation the
dispute between PG&E and Panoche relating to the correct interpretation of their PPA
could flare up at any time in the future, depending on further regulatory action or even in
its absence.
Even to the extent there may have been some duplication of effort or some
expense in conducting the arbitration, which Panoche characterizes as “wasted” if the
regulators were to end up ignoring the arbitrators’ reasoned decision, that risk is
overridden when the second prong of the ripeness inquiry is considered, namely “ ‘the
hardship that may result from withholding [the arbitrators’] consideration’ ” (Wilson &
Wilson, supra, 191 Cal.App.4th at p. 1582; accord, Pacific Legal Foundation v. Cal.
Coastal Com., supra, 33 Cal.3d at p. 171), which must be an “imminent and significant
hardship inherent in further delay” (Stonehouse Homes LLC v. City of Sierra Madre
(2008) 167 Cal. App. 4th 531, 542; Farm Sanctuary, Inc. v. Dept. of Food & Agric. (1998)
63 Cal. App. 4th 495, 502). PG&E has made a sufficient showing of hardship.
Panoche had been advocating in regulatory proceedings that PG&E should bear
the cost of GHG allowances itself because it could pass the cost along to its customers,
thereby sending a “price signal” to reduce consumption. The CPUC and the CARB both
thought the best general policy was to have the utilities pay. But that is precisely what
PG&E claims it had bargained to avoid before this general policy had been articulated,
and the CPUC agreed that putting the cost burden on PG&E in such a case would
effectively make PG&E’s ratepayers pay twice, while Panoche would be let off the hook
altogether. Given the potential financial impact on PG&E and its customers, together
with PG&E’s desire to influence the regulators before it was too late for them to choose a
different path where Panoche was concerned, we perceive a plain and imminent hardship
to PG&E if the arbitration had been postponed. The fact that the CARB, as an interim
solution, after the arbitration, elected to grant Panoche direct allocation of free
42
allowances through a transition period without cost to PG&E, does not alter the fact that
PG&E faced a looming potential liability for Panoche’s allowances at the time it initiated
the proceeding.
Panoche insists that the CARB and the CPUC have no use for any consideration of
the terms of individual contracts when making policy for the whole state. We do not
agree. We are not suggesting the regulators will necessarily be guided by the terms of
individual contracts, nor does confirmation of the arbitration award in any way imply
they should. But every indication so far from the regulators is that they are expecting and
awaiting a definitive resolution of the parties’ contractual dispute, which the regulators
have instructed the parties to pursue outside of the regulatory proceedings. The weight to
be given the arbitration award by the regulators―indeed, whether they will consider it at
all―is entirely up to them, but for purposes of evaluating whether the dispute presented
to the arbitration panel was sufficiently concrete for decision and whether its resolution
was capable of putting to rest uncertainty around the meaning of the contract, the
controversy was ripe.
Finally, we must note, to the extent any matter in dispute in the arbitration was
unripe, it would appear to be Panoche’s first counterclaim, which asked for an
interpretation of the contract in accordance with the interim CPUC definition of legacy
contracts, rather than awaiting the CARB’s final definition. (Cf. Pac. Gas & Elec. Co. v.
Lynch (C.D.Cal. May 2, 2001) 2001 U.S. Dist. LEXIS 5500, *47–*51 [challenge to “non-
final interim order of a state agency” held to be unripe].) By its framing of that
counterclaim Panoche attempted to link inextricably the contract issues with the
regulatory proceedings, arguing that the former could not be decided until after the latter
were completed. As we have now explained, there is no necessity that the regulators
decide the policy issue before the contract issues may be determined, and to the extent
there is a natural sequence, it would seem better to decide the contract issues sooner
rather than later. Panoche could not render the entire arbitration “unripe” by interjecting
a premature counterclaim. PG&E’s distinct contract interpretation claims were certainly
43
ripe and subject to immediate arbitration. We conclude that, under both the first and
second prongs of the ripeness analysis, the dispute between PG&E and Panoche was ripe
at the time of the arbitration.
3. Panoche Failed To Show Sufficient Cause for a Postponement Because it
Did Not Show that Denying a Stay of the Arbitration Prevented it from
Fairly Presenting its Case or Otherwise Put it at a Procedural
Disadvantage in Defending Against PG&E’s Claim for Declaratory Relief.
Despite our resolution of the ripeness issue, Panoche argues that “sufficient cause”
may have existed for a postponement, even if PG&E’s claims technically were ripe.
Although we agree that the nomenclature of the statute governs the appeal, we note that
Panoche’s present stance seems at odds with the position it took in its motion for
dismissal or stay of the arbitration, which was devoted exclusively to the question of
ripeness, and the position it consistently took in the trial court and before this court that
“sufficient cause” was established for a postponement precisely because the issues were
unripe for arbitration.
Turning to the statute, preliminarily we note that Panoche asked for dismissal or a
“stay” of the arbitration,12 not a brief postponement. The Supreme Court recently had
occasion to distinguish a stay of proceedings from a continuance. Whereas a “stay”
“refers to those postponements that freeze a proceeding for an indefinite period, until the
occurrence of an event that is usually extrinsic to the litigation and beyond the plaintiff's
control,” a “continuance” is more likely to postpone a trial to a “date certain” which is
“not tied to any matter outside the parties’ control.” 13 (Gaines v. Fidelity National Title
12
When Panoche made its ripeness motion in January 2013, it predicted that the
regulatory proceedings would result in a final resolution of the legacy contract issue by
August 2013. Instead, governing regulations were not adopted by the CARB until April
2014. (CARB Resolution 14-4, supra.)
13
Because it sought a stay, rather than a brief time-limited postponement,
Panoche’s argument is similar to a claim that a court should abstain from hearing a case
due to the pendency of related legislative proceedings. In that context, it is not enough
that regulatory action might at some point in the future resolve the issue subject to
litigation. For the doctrine of judicial abstention to apply, it must be clear that (1) the
44
Ins. Co. (2016) 62 Cal. 4th 1081, 1092–1094.) Given this distinction, it is certainly
arguable that a request for a “stay” is not tantamount to a request “to postpone” the
arbitration.
But moving beyond that issue, we also decline Panoche’s invitation to formulate a
shorthand standard expressly adapted to determining “sufficient cause” for postponing an
arbitration in the case of concurrent arbitration and regulation. Panoche cites Naing
Intern. Enterprises v. Ellsworth Associates (D.D.C. 1997) 961 F. Supp. 1, 3–4 (Naing) for
the proposition that “[a] party presents ‘sufficient cause’ necessary to postpone an
arbitration by establishing that a government agency is considering information ‘pertinent
and material to [the party’s] claims and defenses during arbitration.”14 We think adopting
this as an across-the-board standard in cases involving pending regulation adds an
unnecessary gloss to the “sufficient cause” standard, too thoroughly ties arbitrators’
hands in ruling on continuance motions, and lends itself too easily to manipulation of the
timing of arbitration for purposes other than obtaining a fair hearing. We need not reach
across the country to find case law or borrow language from a federal statute to find a
useful measure of “sufficient cause.” We have already cited Hall and similar cases
calling section 1286.2 “a safety valve in private arbitration that permits a court to
intercede when an arbitrator has prevented a party from fairly presenting its case.” (Hall,
issue being litigated in the judicial forum would enmesh the court in complex issues of
regulatory policy that are better addressed in a regulatory forum, and (2) the Legislature
is seeking to address the exact issues being litigated in the judicial forum or has provided
an alternative means of resolving them, rather than simply having announced an intention
to act in the area or undertaken investigatory activities that indicate a mere possibility of
the issues in litigation being addressed sometime in the future. (See Klein v. Chevron
U.S.A., Inc. (2012) 202 Cal. App. 4th 1342, 1367–1373.)
14
Alternatively, Panoche suggests that the phrase “sufficient cause” should be
equated with “good cause” for continuance of a trial, citing Roitz v. Coldwell Banker
Residential Brokerage Co. (1998) 62 Cal. App. 4th 716, 724 (Roitz) and Moore v. Griffith
(1942) 51 Cal. App. 2d 386, 389 (Moore). But good cause for continuance of trial also
focuses on threats to procedural fairness as the touchstone for granting such a motion.
(See § 595.4; Cal. Rules of Court, rule 3.1332.)
45
supra, 18 Cal.App.4th at p. 439, italics added.) In other words, a party seeking a
continuance of arbitration may later have the arbitration award vacated only if the court
finds the denial of the continuance imposed upon the moving party a procedural
disadvantage in the arbitration due to its scheduling.15 Identifying an abstract “pertinent
and material” relationship between regulatory action and issues subject to arbitration is
not enough.
The trial court, too, relied heavily on Naing, calling it “largely indistinguishable.”
We disagree. In that case, Naing International Enterprises, Inc. (Naing), one of two
companies that had signed a merger agreement, represented in the contract that it was
eligible for participation in the Small Business Administration’s (SBA’s) Section 8(a)
Program (15 U.S.C. § 637(a)), which allows preferences in government contracting for
disadvantaged minority-owned firms, and made related representations tending to assure
such eligibility would continue. (Id. at p. 2.) The other company (EAI) refused to go
through with the merger after questions developed as to whether Naing’s representations
concerning eligibility were true. (Ibid.) The parties submitted the dispute to arbitration
for alleged breach of contract. (Ibid.)
At the time arbitration was initiated, the SBA was investigating the very same
issue—Naing’s eligibility for Section 8(a) participation—and the issue apparently hinged
on whether the merged entity could assume contracts then held by EAI and still retain
eligibility. (Naing, supra, 961 F.Supp. at pp. 2, 4.) Less than two months before the
arbitration hearing began, the SBA’s Inspector General issued a report recommending
that Naing be terminated from the Section 8(a) Program. (Ibid.) The report set a
deadline less than a month after the arbitration was scheduled to begin for the SBA to act
15
Indeed, in the majority of cases decided under section 1286.2, parties have
invoked the “sufficient cause” language of the statute to ensure personal presence during
the arbitration (Humes v. MarGil Ventures, Inc. (1985) 174 Cal. App. 3d 486, 496–498), to
secure additional evidence (Roitz, supra, 62 Cal.App.4th at pp. 720, 722–725;
Communications Workers v. General Telephone Co. (1981) 127 Cal. App. 3d 82, 86–87;
Shammas v. National Telefilm Associates (1970) 11 Cal. App. 3d 1050, 1055–1056), or to
be represented by counsel (Moore, supra, 51 Cal.App.2d at p. 388).
46
on the recommendation. (Id. at p. 4.) Shortly before the start of arbitration, a party
aligned with EAI moved to postpone the hearing until the SBA acted, but the request was
denied. (Ibid.) Naing prevailed in the arbitration, and EAI sought to vacate the award
under the Federal Arbitration Act, 9 U.S.C. § 10(a)(3), on grounds similar to those
asserted by Panoche here.16 (Id. at pp. 2–3.)
The federal district court granted the motion to vacate the award because “[t]here
is little doubt that a final action by the SBA as a result of its investigation into [Naing’s]
eligibility would have been pertinent and material to EAI[’s] . . . claims and defenses
during arbitration. The SBA, as the agency responsible for the 8(a) Program, is
responsible for determining eligibility for participation in the program and to investigate
matters related to participation therein. Its determination as to [Naing’s] eligibility and
the accuracy of the information [Naing] submitted to it would have been compelling
evidence as to the respondents’ principal claims and defenses.” (Naing, supra, 961
F.Supp. at p. 3.) We note, in addition, that Naing never mentioned the word “ripeness,”
but rather focused its analysis on evidence that could have been admitted if a continuance
had been granted, resulting in the deprivation of one party’s right to a full and fair
hearing. (Id. at pp. 3–6.)
Naing presents a factual scenario that in significant respects is quite different from
ours. As noted, in Naing, the issue under regulatory consideration―Naing’s eligibility
16
The statutory standard under the Federal Arbitration Act applied in Naing, to be
sure, differs in at least one significant respect from section 1286.2, subdivision (a)(5), the
provision of the California Arbitration Act invoked in this case by Panoche. The federal
statute requires “misconduct” by the arbitrator “in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy” before an arbitration award will be vacated. (9 U.S.C. § 10(a)(3).) A
statutory precursor to current section 1286.2, subdivision (a)(5) was former section 1288,
subdivision (c): “Where the arbitrators were guilty of misconduct, in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence,
pertinent and material to the controversy.” (Former section 1288, enacted 1872, amended
by Stats. 1927, ch. 225, § 9, repealed by Stats. 1961, ch. 461, § 1.) The “misconduct”
element of the test for improper refusal to postpone an arbitral hearing no longer appears
in section 1286.2, subdivision (a)(5).
47
for the Section 8(a) Program―was identical to the issue EAI was raising as its defense in
the breach of contract arbitration as its explanation for refusing to go through with the
merger. (Naing, supra, 961 F.Supp. at pp. 3–4.) If the SBA were to determine that
Naing was not eligible, as appeared likely, that certainly would have a direct bearing on
whether Naing misrepresented its eligibility status and prospects, as EAI alleged. The
district court in Naing noted that the arbitrators themselves knew the SBA investigation
was pending during the arbitration (ibid.) and had “acknowledged the relevancy of any
SBA investigation to the arbitration” (id. at p. 3). In other words, the crux of the parties’
dispute in arbitration turned on the outcome of the regulatory proceedings. The same is
not true here.
Thus, we do not read Naing as having the far-reaching significance that Panoche
ascribes to it. First, we do not agree that Naing sets forth a new and distinct “pertinent
and material” standard for determining “sufficient cause” for a postponement of
arbitration in light of pending regulatory action. The “pertinent and material” language is
derived from a different clause of the federal statute, which relates to the arbitrators’
refusal to hear evidence “pertinent and material to the controversy.” (9 U.S.C.
§ 10(a)(3).) Moreover, the regulatory proceedings in Naing were not just “pertinent and
material” to the broadly-stated issues being arbitrated; the proceedings were “pertinent
and material” to specific “claims and defenses” asserted in the arbitration, and were in
fact likely to produce “ ‘pertinent and material evidence’ ” for use in the arbitration.
(Naing, supra, 961 F.Supp. at p. 3.) As we read Naing, it was the impact on the
procedural fairness of the arbitration that the court found controlling: “[I]f the failure of
an arbitrator to grant a postponement or adjournment results in the foreclosure of the
presentation of ‘pertinent and material evidence,’ it is an abuse of discretion.” (Ibid.,
italics added.)
Hence, the rule we apply is consistent with Naing. A procedural disadvantage―or
that a party was “prevented . . . from fairly presenting its case” (Hall, supra, 18
Cal.App.4th at p. 439)―was a factor certainly at play in Naing, where EAI had a
48
potential defense to the breach of contract claim based on Naing’s failure to retain
Section 8(a) status. (Naing, supra, 961 F.Supp. at p. 3.) In our case, though Panoche
refers to its “defenses” to PG&E’s contract-related claims being dependent upon the
regulators’ decisions, in fact Panoche’s entitlement or lack of entitlement to transition
assistance would not constitute a “defense” to PG&E’s declaratory relief claims. Nor has
there been a regulatory determination that Panoche is entitled to transition relief “for at
least the first five years of [the] CARB’s cap-and-trade program,” as it has represented;
rather, Panoche is simply entitled to apply for such relief on an annual basis, with its
ultimate eligibility to be determined on an individual year-to-year basis depending on a
sworn factual showing. To the extent there is any required order in which the resolution
of issues should proceed, we view the resolution of the contractual issues as a
prerequisite to application of the entitlement criteria, and thus it was perfectly appropriate
for the arbitrators to address the contract questions before the regulators’ decisions were
finalized.
Though Naing bears some similarity to our case in that both involve construction
of a contract by an arbitration panel while related regulatory proceedings are ongoing, the
similarity ends there. The SBA’s ruling would have a direct and substantial bearing on
whether Naing had breached the agreement (and whether EAI was or was not required to
go through with the merger regardless of the breach)―which were the issues in dispute.
EAI was able to point to specific evidence likely to come out of the regulatory
proceedings–namely, a determination whether Naing was eligible for section 8(a))–that
would have materially strengthened its defense in the arbitration. Panoche has never
identified any specific anticipated decision by the regulators that would influence the
retrospective contract interpretation issues before the arbitrators. Although it complains
of its inability to furnish the arbitrators with the final regulations, as we have discussed,
that “evidence” is unlikely to have influenced their interpretation of the PPA. Moreover,
in our case, no breach of the PPA was alleged. The only relief sought was a declaration
of Panoche’s obligations under the PPA at the time it was signed. PG&E’s request for
49
declaratory relief on a matter of contract interpretation was not dependent on any issues
pending before the CARB or the CPUC. From PG&E’s perspective, the purpose of the
arbitration was to inform the regulators’ ongoing consideration of the policy issue, and
thus there was some urgency in having a resolution before the regulators made any final
decisions.
Panoche identifies no procedural disadvantage it suffered in going forward with
the arbitration as scheduled. Because Panoche failed to meet the “sufficient cause” prong
under subdivision (a)(5), we need not decide whether its “rights” were “substantially
prejudiced” by the arbitrators’ ruling on the ripeness motion under the second prong of
the statute.17 (§ 1286.2, subd. (a)(5).)
D. The Arbitrators’ Award Must Be Confirmed Under Section 1287.4.
Section 1286 makes clear, “If a petition or response under this chapter is duly
served and filed, the court shall confirm the award as made . . . unless in accordance with
this chapter it corrects the award and confirms it as corrected, vacates the award or
dismisses the proceeding.” That is, once a petition to vacate or correct is made, the court
has only four options: dismiss the petition; vacate; correct the award and confirm; or
confirm the award. Thus, in Law Offices of David S. Karton v. Segreto (2009) 176
Cal. App. 4th 1, where the defendant petitioned to correct an initial arbitration award, and
the trial court did not correct or vacate the award or dismiss the petition, the Court of
Appeal ordered it to confirm the award. (Id. at pp. 8, 11; see also, Louise Gardens of
Encino Homeowners’ Assn, Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal. App. 4th 648,
17
Suffice it to say, the “rights” referred to in the statute would appear to be the
procedural rights available in the arbitration, and the “prejudice” referred to would also
appear to be prejudice in the arbitration as a result of the refusal to postpone it. It is
equally clear that “prejudice” under the statute must be attributable to the scheduling of
the arbitration, not its mere pendency. Many of Panoche’s claims of prejudice were
claims of financial impacts extrinsic to the arbitration and unrelated to its timing, such as
the downgrading of Panoche’s credit rating by Standard & Poor’s, the cost of conducting
the arbitration, attorney’s fees, and the like. We seriously question whether this is the
type of “prejudice” to which the statute refers.
50
659 [“[I]f a timely petition to vacate had been filed, its denial would have directly and
necessarily led to entry of a confirmation order . . . ,” italics omitted].) Because
Panoche’s petition to vacate should have been denied, the arbitration award should have
been confirmed and judgment entered in accordance with section 1287.4.
IV. DISPOSITION
The judgment is reversed. Panoche’s motion to dismiss the appeal as moot is
denied. Panoche’s requests for judicial notice filed June 19, 2014 and November 26,
2014 are granted. PG&E’s request for judicial notice filed January 4, 2016 is denied.
The superior court’s order vacating the arbitration award is reversed, as is the denial of
PG&E’s request to confirm the arbitration award. The superior court is ordered to
confirm the arbitration award under section 1287.4, as requested by PG&E. PG&E shall
recover its costs on appeal.
51
_________________________
Streeter, J.
We concur:
_________________________
Ruvolo, P.J.
_________________________
Reardon, J.
A140000/Panoche Energy Center, LLC v. Pacific Gas & Electric Co.
52
Panoche Energy Center, LLC v. Pacific Gas & Electric Co. (A140000)
Trial Court: City & County of San Francisco Superior Court
Trial Judge: Hon. Ernest H. Goldsmith
Counsel:
Cooley, Martin S. Schenker, Jeffrey M. Gutkin, Lori R. Mason for Appellant.
Manatt, Phelps & Phillips, David L. Huard, Andrew A. Bassak, Benjamin G. Shatz,
Kevin P. Dwight for Respondent.
53