On June 1, 2017, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied petitions for review and upheld FERC’s interpretation of a transmission agreement (the “Operation Agreement”) between the Transmission Agency of Northern California (“TANC”) and Pacific Gas and Electric Company (“PG&E”).
The Operation Agreement coordinates the operation of three transmission lines, collectively referred to as the “California-Oregon Intertie,” that deliver electricity from the Pacific Northwest to Central California. TANC owns and manages one of these lines, while PG&E owns the largest portion of the other two. Among other things, the Operation Agreement specified certain “remedial action schemes,” which are actions that TANC and PG&E can each take to ensure reliability during unplanned outages. Under one of these remedial actions schemes, PG&E pledged to, pursuant to a separate interruptible transmission agreement with the California Department of Water Resources (“DWR”), interrupt operation of DWR’s facilities during unplanned outages. When the separate interruptible transmission agreement with DWR was set to expire by its own terms at the end of 2014, PG&E informed TANC that it did not intend to replace or mitigate the loss of the DWR remedial action. In response, TANC filed a complaint with FERC, contending that PG&E had anticipatorily breached the Operation Agreement. FERC denied the complaint, as well as TANC’s subsequent petition for rehearing, concluding that the Operation Agreement unambiguously allowed PG&E to let the DWR remedial action scheme expire without replacement or mitigation.
In its June 1, 2017 order, the D.C. Circuit identified the “pivotal provision” of the Operation Agreement as the statement that “PG&E shall not be required to replace any Remedial Action or element thereof provided under its Comprehensive Agreement with [DWR] upon cancellation or termination of that agreement.” The D.C. Circuit noted that FERC had concluded that this provision “unambiguously eliminates any duty PG&E might have to replace or mitigate the loss of the DWR remedial action,” and that TANC, in contrast, had argued that other provisions of the Operation Agreement requiring each party to avoid imposing “undue burdens” or making modifications with “adverse impacts” on other parties, must be read to apply to the expiration of the DWR remedial action. The D.C. Circuit stated that, with both sides maintaining that the contract is clear on its face, “our only task is to determine de novo which has the better reading,” and that FERC’s reading was better. The D.C. Circuit also noted that TANC had failed to argue, in the alternative, that if the D.C. Circuit found the Operation Agreement ambiguous, it should remand for further proceedings, and that “[a]ccordingly, any such argument is forfeited.”
A copy of the D.C. Circuit’s June 1, 2017 order can be found here.