Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-06-01202/USCOURTS-caDC-06-01202-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Southern California Edison Company
Petitioner

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 11, 2007 Decided October 2, 2007

No. 06-1202

SOUTHERN CALIFORNIA EDISON COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Ellen Amber Berman argued the cause for the petitioner.

Michael D. Mackness and Erin K. Moore were on brief.

Jeffrey S. Dennis, Attorney, Federal Energy Regulatory

Commission, argued the cause for the respondent. John S. Moot,

General Counsel, and Robert H. Solomon, Solicitor, Federal

Energy Regulatory Commission, were on brief.

Before: HENDERSON, RANDOLPH and BROWN, Circuit

Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

KAREN LECRAFT HENDERSON, Circuit Judge: This action

arises out of a contract between Southern California Edison

Company (SCE) and the City of Corona, California (Corona)

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under which SCE agreed to install interconnection facilities to

provide electrical interconnection service to Corona. Under the

parties’ Interconnection Facilities Agreement (Facilities

Agreement or Agreement), Corona paid SCE in advance the

estimated cost of installing the interconnection facilities and SCE

agreed to furnish Corona with a final trued-up invoice for the

actual installation cost within twelve months after the facilities’

in-service date. SCE failed to meet the invoice deadline and

instead filed rate revision sheets with the Federal Energy

Regulatory Commission (FERC or Commission) some twenty

months after the deadline to collect the balance of the costs from

Corona. FERC rejected SCE’s revised rates on the ground that

the twelve-month deadline was a condition precedent to SCE’s

right to recover the costs and SCE failed to satisfy the condition.

See S. Cal. Edison Co., 113 F.E.R.C. ¶ 61,018 (Oct. 11, 2005)

(rejecting rate sheets) (FERC Ord.); S. Cal. Edison Co., 115

F.E.R.C. ¶ 61,100 (Apr. 24, 2006) (denying rehearing) (Reh’g

Ord.). SCE seeks review of FERC’s orders on the ground that

the Agreement is governed by California law, under which the

twelve-month deadline is not a condition precedent, and SCE is

therefore entitled to recover the full costs, less damages (if any)

caused by the delay. Because FERC failed to apply California

law in interpreting the Facilities Agreement, as the Agreement

itself requires, we remand to the Commission to construe the

Agreement under applicable California law. 

I.

The facts are largely undisputed. On April 6, 2002, Corona

applied to SCE to obtain wholesale distribution service for a

proposed electricity distribution facility. In a letter approved by

both parties and filed with FERC on August 2, 2002 (Letter

Agreement), the parties memorialized an interim agreement both

for interconnection service, with a proposed in-service date of

December 1, 2002, and for installing the interconnection

facilities. Pursuant to the Letter Agreement, Corona paid SCE

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an initial deposit of $10,000 toward the installation costs. Letter

Agreement ¶¶ 2-3. 

On January 31, 2003, SCE filed with FERC a “Service

Agreement for Wholesale Distribution Service” and the Facilities

Agreement, which the Commission accepted for filing in a letter

order issued March 24, 2003. The Facilities Agreement, which

by its terms supersedes the Letter Agreement, Facilities

Agreement § 5.6, requires Corona to make to SCE an

“Interconnection Facilities Payment,” which is the sum of all

costs “associated with the design, engineering, procurement,

construction and installation of the Interconnection Facilities,”

id. §§ 4.14; see 4.16, 4.17, 4.19. Under the Agreement:

Corona shall make payments to SCE for the

Interconnection Facilities Payment, according to the

payment schedule shown in Exhibit C. The amount of

such Interconnection Facilities Payment is based on

SCE’s cost estimates and shall be subject to later

adjustment pursuant to Sections 13.1.8.1 and 13.1.8.2.

Id. § 13.1.2. Section 13.1.8 of the Agreement provides:

Within twelve (12) months following the Interconnection

Facilities In-Service Date . . . , SCE shall determine the

actual recorded Interconnection Facilities Cost . . . and

provide Corona with a final invoice. 

Section 13.1.8.1 then provides that, if the estimated costs are less

than the actual costs, SCE “will bill Corona for the difference

between the amounts previously paid by Corona and the actual

recorded costs, without interest, within twenty (20) calendar days

of the date of such invoice.” Section 13.1.8.2 similarly provides

that, if the amounts already paid exceed the actual installation

costs, SCE is to refund the overage. The Interconnection

Facilities Cost was initially estimated at $54,241.37, id. ex. B,

with a balance due of $44,241.37 ($54,241.37 less Corona’s

$10,000 deposit), id. ex. C. 

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In addition to the up-front Interconnection Facilities

Payment, the Facilities Agreement imposes on Corona an

ongoing monthly “Interconnection Facilities Charge,” which is

defined as “[t]he monthly charge to Corona to recover the

revenue requirements for the Interconnection Facilities,

calculated as the product of the Customer-Financed Monthly

Rate and the Interconnection Facilities Cost.” Id. § 4.13.

Because it is based in part on the Interconnection Facilities Cost,

the Interconnection Facilities Charge is also to be reassessed

under the Agreement and, if the actual costs exceed the estimated

costs, the Agreement provides that “SCE will bill Corona for the

difference between the amounts previously paid by Corona and

the amounts which would have been paid based on actual

recorded costs, without interest, on the next regular billing.” Id.

§ 13.1.8.3. Conversely, if the actual costs are less than the

estimated costs, the Agreement provides that “SCE will credit

Corona the difference . . . , without interest, on the next regular

billing.” Id. § 13.1.8.4 

Finally, the Agreement contains two general provisions of

relevance here. The first is a choice of law provision: 

Governing Law: 

Except as otherwise provided by federal law, this

Agreement shall be governed by and construed in

accordance with, the laws of the state of California.

Id. § 23. The second reserves to SCE the right to apply to FERC

to revise the interconnection rates:

Nothing contained herein shall be construed as affecting

in any way: (i) the right of SCE to unilaterally make

application to the FERC for a change in rates, charges,

classification, or service, or any rule, regulation, or

contract relating thereto, under Section 205 of the

Federal Power Act and pursuant to the Rules and

Regulations promulgated by FERC thereunder; [or] (ii)

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1

According to SCE, it “finalized the true-up internally in

December 2003” and “informed Corona of the difference between the

actual costs and the estimated costs of the Interconnection Facilities

around that time.” Answer to Protest Motion at 4. According to

Corona, SCE—apparently for the first time—“indicated that there had

been cost overruns” in a letter dated May 7, 2004 but did not provide

Corona with an invoice before then or thereafter. Protest Motion at 4.

the right of Corona to oppose such changes under Section

205 of the Federal Power Act . . . .

Id. § 18.2. 

SCE installed the interconnection facilities as agreed, but

with an in-service date of January 4, 2003. See FERC Ord. at 3;

Corona’s “Motion to Intervene, Protest, and Motion to Reject”

(Protest Motion) at 4; SCE’s “Answer to Motion to Intervene,

Protest and Motion to Reject” (Answer to Protest Motion) at 3-4.

Although the Interconnection Facilities Costs apparently

exceeded the cost estimate in the Facilities Agreement, SCE did

not submit a final invoice or bill Corona pursuant to section

13.1.8.1.1

 Answer to Protest Motion at 4. Instead, on August 17,

2005, SCE filed revised rate sheets with FERC pursuant to

section 18.2 of the Agreement. In its filing, SCE claimed total

installation costs of $72,198.50 and, accordingly, sought a

supplemental Interconnection Facilities Payment of $17,957.13

and additional Interconnection Facilities Charges totaling

$365.99 up to that time. Corona protested the revised rate sheets,

asserting FERC should reject them as “inconsistent with rate

[sic] on file with the Commission,” namely the previously filed

Facilities Agreement requiring SCE to provide Corona with an

invoice for the additional costs sought within twelve months

after the interconnection facilities’ in-service date. Protest

Motion at 4-5. SCE countered that FERC should accept the

revised rate as “just and reasonable” and that, under governing

California law, SCE’s “breach” was not material and therefore

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Corona’s remedy was limited to the damages, if any, attributable

thereto. Answer to Protest Motion at 4-8. 

In an order issued October 11, 2005, the Commission

rejected the revised rate sheets. The Commission concluded the

revised rates are “contrary to the contract” because the Facilities

Agreement requires SCE “to provide Corona with a final invoice

within twelve months of the interconnection facilities’ in-service

date,” that is, no later than January 4, 2004, and “SCE did not

submit the final invoice through [the rate sheet] filing until

August 17, 2005, 20 months after the deadline.” FERC Ord. at

3. The Commission therefore concluded that “SCE slept on its

rights and thus forfeited the additional payment under the

contract.” Id.

SCE filed a request for rehearing, asserting that FERC had

not applied California law, as the Facilities Agreement requires,

and that under California law SCE’s delay in performance was

not a material breach that excused Corona’s performance. See

SCE Req. for Reh’g at 8-10. FERC denied the reconsideration

motion in an order issued April 24, 2006 on the ground that

“[t]he contractual language . . . establishes a condition precedent

for SCE to recover true-up costs” and “SCE failed to meet that

condition precedent.” Reh’g Ord. at 4. The Commission

rejected Corona’s California law argument, stating:

With regard to SCE’s argument that the Commission

should have applied state law, we note that first the

Facilities Agreement provides that the agreement “shall

be governed by, and construed in accordance, with the

laws of the state of California, except as otherwise

provided by federal law.” SCE’s arguments focus on an

outcome based on California law. However, SCE sought

to collect these additional costs by filing its amended rate

sheets with the Commission. SCE’s request involves

interpreting a jurisdictional agreement that is on file with

the Commission and that contains rates, terms, and

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conditions of service by a public utility. Accordingly, it

was appropriate for the Commission to review SCE’s

filing to collect the additional costs and the Facilities

Agreement based on Commission precedent.

Id. at 4-5 (emphasis by FERC) (footnote omitted). 

SCE petitioned for review of FERC’s orders on June 15,

2006.

II.

A.

Before addressing the merits of SCE’s petition, we consider

FERC’s challenge to SCE’s standing under Article III of the

United States Constitution. See Steel Co. v. Citizens for Better

Env’t, 523 U.S. 83, 94-102 (1998). FERC contends SCE lacks

standing because SEC’s claimed injury—its inability to collect

the trued-up costs—is “not fairly traceable to the challenged

Commission Orders” but is attributable instead to SCE’s own

consent to the Facilities Agreement’s twelve-month deadline to

invoice additional costs and its failure to provide an invoice

within the twelve-month period; therefore, FERC asserts, SCE’s

injury is “entirely self-inflicted.” Resp’t’s Br. at 9. In support,

FERC relies on our decision in Brotherhood of Locomotive

Engineers & Trainmen v. Surface Transportation Board, 457

F.3d 24 (D.C. Cir. 2006). FERC’s reliance is misplaced.

In Brotherhood of Locomotive Engineers, the petitioner

union argued that certain railroad track about to be acquired by

a new operator was “switching” track and was therefore

governed by 49 U.S.C. § 10906 (which removes acquisition of

switching track from Surface Transportation Board jurisdiction)

rather than by 49 U.S.C. § 10901 (which governs acquisition of

a railroad line generally and under which the Surface

Transportation Board had exercised jurisdiction and exempted

the subject track from certification). The reason the nature of the

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2

Similarly, in two other cases FERC cites, Resp’t’s Br. at 12 n.5,

it was undisputed that the parties found to lack standing committed

voluntary acts that caused the alleged injuries. See Pennsylvania v.

New Jersey, 426 U.S. 660, 664 (1976) (plaintiff states lacked standing

to challenge other states’ income tax on nonresident employees

because their injury—decreased tax income—was “self-inflicted” by

their own decision to credit taxpayers for taxes paid to other states);

Petro-Chem Processing, Inc. v. EPA, 866 F.2d 433, 438 (D.C. Cir.

1989) (trade organization lacked standing to challenge agency

decision allowing members’ competitors to use less expensive

methods of hazardous waste disposal because claimed

injury—exposure to increased clean-up liability caused by bowing to

competitive pressure to use cheaper, laxer method—was “so

completely due to the [complainant’s] own fault as to break the causal

chain” (quotation omitted)). 

track mattered to the union was that it had negotiated away its

right to bargain with respect to any transaction “authorized under

§ 10901,” 457 F.3d at 26, and therefore if the track were found

to come under section 10901 rather than under section 10906, the

transferring operator would not be required to bargain with the

union before consummating the transfer to the new operator. We

concluded that the union lacked standing because its injury was

“entirely self inflicted,” explaining that “had the Union not

traded away its right to bargain over the effects of exempted

transactions, it would have no interest” in which statute applied.

Id. at 28. FERC contends that SCE likewise lacks standing

because its inability to recover the true-up costs is attributable to

its agreement to a twelve-month time limit; but this case differs

from Brotherhood in one crucial respect. 

In Brotherhood, there was no dispute that the union through

its collective bargaining agreement voluntarily relinquished its

right to bargain in any section 10901 transaction or that its

relinquishment of the right caused its injury (the inability to

bargain).2

 Here, by contrast, it is sharply contested whether SCE

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in fact forfeited its right to recover the costs if it did not provide

an invoice within the twelve-month period. Whether the

Agreement makes recovery contingent on timely invoicing is

precisely the issue of contract construction and law that FERC

decided in its orders and that the parties argue here. Thus,

FERC’s argument “is nothing more than an effort to bootstrap

standing analysis to issues that are controverted on the merits.”

Pub. Citizen v. FTC, 869 F.2d 1541, 1549 (D.C. Cir. 1989). Yet,

“in reviewing the standing question, the court must be careful not

to decide the questions on the merits for or against the

[petitioner], and must therefore assume that on the merits the

[petitioner] would be successful in [its] claims.” City of

Waukesha v. EPA, 320 F.3d 228, 235 (D.C. Cir. 2003) (citing

Warth v. Seldin, 422 U.S. 490, 502 (1975); Am. Fed’n of Gov’t

Employees v. Pierce, 697 F.2d 303, 305 (D.C. Cir. 1982)).

Assuming here that SCE will prevail, we must therefore assume

for the purpose of standing that, as it argues, it did not relinquish

its right to recover actual costs by agreeing to the twelve-month

deadline. Accordingly, we reject FERC’s standing argument.

B.

On the merits, SCE contends that FERC erred in failing to

apply California contract law as required under the Facilities

Agreement and that, under California law, the twelve-month

invoice deadline is not a condition precedent to recovering the

balance of the actual installation costs. In reviewing FERC’s

interpretation of a FERC-approved contract such as the Facilities

Agreement, the court “employ[s] a variation of the now familiar

‘two-step’ first performed by the United States Supreme Court

in Chevron U.S.A., Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837 (1984).” Ameren Servs. Co. v. FERC, 330

F.3d 494, 498 (D.C. Cir. 2003) (citing Cajun Elec. Power Coop.

v. FERC, 924 F.2d 1132, 1135-36 (D.C. Cir. 1991); Appalachian

Power Co. v. FERC, 101 F.3d 1432, 1435 (D.C. Cir. 1996)).

“Applying Chevron in this context, we first consider de novo

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whether the [Facilities Agreement] unambiguously addresses the

matter at issue. If so, the language of the agreement controls for

we ‘must give effect to the unambiguously expressed intent of’

the parties.” Id. (quoting Chevron, 467 U.S. at 843) (internal

citation omitted). We conclude that the choice of law provision

in the Facilities Agreement unambiguously requires that the

Commission apply California law and that the Commission

therefore erred in failing to so do.

As already noted, the Agreement’s choice of law provision

states: “Except as otherwise provided by federal law, this

Agreement shall be governed by and construed in accordance

with, the laws of the state of California.” Facilities Agreement

§ 23. Notwithstanding this language plainly mandates that the

Agreement be construed under California law unless federal law

is in conflict, FERC concluded it was “appropriate for the

Commission to review SCE’s filing to collect the additional costs

and the Facilities Agreement based on Commission precedent”

because “SCE sought to collect these additional costs by filing

its amended rate sheets with the Commission” and “SCE’s

request involves interpreting a jurisdictional agreement that is on

file with the Commission and that contains rates, terms, and

conditions of service by a public utility.” Reh’g Ord. at 5

(emphasis added). Thus, FERC appears to have selected federal

law over California law simply because the Agreement was filed

with the Commission, without identifying any difference

between federal and California law to justify such selection

under the first clause of the choice of law provision. In this the

Commission erred. The Commission may not ignore the plain

language of a contract but instead must “give effect to the

unambiguously expressed intent of the parties.” Ameren Servs.,

330 F.3d at 498 (quotation omitted). Nor is the Commission’s

obligation to apply state law altered because the Agreement has

been filed as part of a rate case. See Pennzoil Co. v. FERC, 789

F.2d 1128, 1142 (5th Cir. 1986) (“ ‘[T]he appropriate contract

law to apply is the law that would govern the parties’ dealings

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were there no regulation at all of the contract’s subject matter.’ ”

(quoting Pennzoil Co. v. FERC, 645 F.2d 360, 383-84, 387 (5th

Cir.1981), cert. denied, 454 U.S. 1142 (1982))); cf. Sam Rayburn

Dam Elec. Coop. v. Fed. Power Comm’n, 515 F.2d 998, 1009

(D.C. Cir. 1975) (noting Federal Power Commission “suggested

no reason that the recognized law governing contracts should be

ignored merely because the subject matter of a contract falls

under the jurisdiction of the FPC”). In fact, that FERC accepted

the Facilities Agreement as filed, with the choice of law

provision intact, only strengthens the case for enforcing the

provision. Finally, accepting FERC’s choice of law argument

would permit FERC to disregard a choice of law provision in any

FERC-approved contract. Accordingly, we reject this argument.

Because the Commission did not give effect to the

unambiguously expressed intent of the parties that California law

govern construction of the Interconnection Facilities Agreement,

we grant SCE’s petition for review and remand to the

Commission to enforce the Agreement’s choice of law provision

and to determine whether the twelve-month deadline to provide

an invoice to Corona is a condition precedent under California

law. 

So ordered.

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