On September 4, 2015, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) remanded a pair of FERC decisions that partially approved two settlement agreements between Idaho Power, its holding company IDACORP (together, “IDACORP”), and the Cities of Tacoma and Seattle, respectively. These settlement agreements arose out of one of the many FERC proceedings stemming from the California Energy Crisis. When FERC partially rejected the settlement agreements, IDACORP petitioned the Ninth Circuit for review, arguing that FERC failed to follow its own precedent and regulations in partially rejecting the agreements. The Ninth Circuit agreed, remanded the proceeding to FERC, and mandated that it issue a decision within sixty days.

The first of the two settlement agreements was between IDACORP and the City of Tacoma. It included a provision releasing all claims between IDACORP and all other parties to the proceeding. However, when the agreement was filed with FERC, several parties challenged this provision on the grounds that it would interfere with potential claims of other parties who might later assert a claim against IDACORP. The FERC Administrative Law Judge overseeing the settlement proceedings certified the settlement agreement to the Commission as uncontested, despite the objections of at least three parties to the proceeding. The Commission then approved portions of the agreement, but rejected the provision providing for a release of all claims. IDACORP sought rehearing on this issue, and after FERC upheld its decision, sought review before the Ninth Circuit. The second settlement agreement at issue contained a similar release provision, but the provision was modified by IDACORP and the City of Seattle to address the issues raised by FERC in its disapproval of the City of Tacoma agreement. Again, however, FERC rejected such a release of claims provision and again, IDACORP sought review in the Ninth Circuit.

The Ninth Circuit began by recognizing that its review of FERC’s interpretation of its own regulations is normally quite deferential; however, the Ninth Circuit emphasized that an agency may not depart from its usual rules of decision to reach a different, unexplained result without providing an adequate explanation. In particular, the Ninth Circuit highlighted that FERC’s own precedent imposes procedural requirements on the agency when a settlement agreement is contested. However, the Ninth Circuit determined that FERC ignored these requirements, apparently without any reasoned explanation, when it partially rejected the settlement agreements. The Ninth Circuit also expressed confusion about why the FERC ALJ characterized the City of Tacoma settlement agreement as uncontested when no less than three parties filed objections to the agreement.

As a result, the Ninth Circuit remanded the City of Tacoma settlement agreement to FERC with a requirement to follow its own precedent for approving or rejecting a contested settlement agreement. Similarly, the Ninth Circuit determined that, because the City of Seattle settlement agreement contained a similar provision and was interdependent on the City of Tacoma agreement, both agreements must be remanded to FERC.

A copy of the Ninth Circuit’s order can be found here.