On April 4, 2017, the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) held that FERC had erred in finding that the terms of an interconnection agreement between NextEra Desert Center Blythe, LLC (“NextEra”), Southern California Edison Company (“SCE”), and the California Independent System Operator (“CAISO”) clearly and unambiguously bars NextEra from receiving Congestion Revenue Rights (“CRR”). The DC Circuit remanded the case to FERC for consideration in light of the identified ambiguity.
The interconnection agreement at issue in the case is intended to connect two NextEra utility-scale solar power plants – Genesis Solar Energy Center and McCoy Solar Energy Center – to SCE’s transmission facilities being operated by CAISO. The interconnection agreement identifies the need for permanent transmission upgrades (“Upgrades”) to reliably deliver power from NextEra’s solar plants to SCE. Based on concern that the Upgrades would not be complete in time for NextEra to deliver the energy to SCE on schedule, CAISO and SCE identified an “Interim Project” that would allow NextEra to deliver energy to SCE while the Upgrades are being completed.
In December 2014, CAISO informed NextEra that the congestion cost associated with the Interim Project would result in the release of CRRs. In response, NextEra claimed it was entitled to receive CRRs associated with the Interim Project under section 36.11 of CAISO’s Tariff, which provides for the allocation of CRRs to “Project Sponsors of Merchant Transmission Facilities.” Upon CAISO’s refusal to allocate NextEra’s requested CRRs, NextEra filed a complaint with FERC.
On June 3, 2015, FERC denied NextEra’s complaint on a finding that NextEra is ineligible for CRRs in connection with the Interim Project. Specifically, FERC found that Article 11.4 of the interconnection agreement provides that CRRs under the CAISO Tariff are only available to NextEra “in lieu of a refund of the cost of Network Upgrades.” Given that the Interim Project does not qualify as a Network Upgrade under the CAISO Tariff, FERC concluded that NextEra was not eligible for a refund, and thus not eligible for CRRs in lieu of a refund. FERC explicitly declined to address whether NextEra would otherwise be entitled to CRRs under CAISO Tariff section 36.11 on grounds that the provision is “inapposite” and “does not apply” to the Interim Project. NextEra filed a request for rehearing, which FERC rejected on the same rationale.
The DC Circuit found “a simple logical flaw” in FERC’s interpretation of the interconnection agreement. Specifically, the DC Circuit found that Article 11.4 of the interconnection agreement does not clearly and unambiguously mean that a Network Upgrade is the only way a sponsor may qualify for receipt of CRRs. The DC Circuit noted further that FERC elected not to consider NextEra’s arguments for entitlement to CRRs under section 36.11 of the CAISO Tariff. Having found that FERC’s reason for denying NextEra’s complaint was a flawed interpretation of CAISO’s Tariff and the interconnection agreement, the DC Circuit concluded that the case required a remand for further consideration.
The DC Circuit emphasized that its finding of ambiguity does not prejudge the conclusion that FERC should reach on remand. The DC Circuit opinion is available here.