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Parties Involved:
Duke Energy Murray, LLC
Intervenor
Federal Energy Regulatory Commission
Respondent
Southern Company Services, Inc.
Petitioner
Tenaska Alabama Partners, L.P.
Intervenor

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 25, 2003 Decided December 30, 2003

No. 02-1373

SOUTHERN COMPANY SERVICES, INC.,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

DUKE ENERGY MURRAY, LLC AND

TENASKA ALABAMA PARTNERS, L.P.,

INTERVENORS

–————

 Petition for Review of Orders of the

Federal Energy Regulatory Commission

–————

Andrew W. Tunnell argued the cause for petitioner. With

him on the briefs were Dan H. McCrary, Jennifer M. Buettner, and Kevin A. McNamee.

Laura J. Vallance, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

the brief were Cynthia A. Marlette, General Counsel, and

Dennis Lane, Solicitor.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #02-1373 Document #793750 Filed: 12/30/2003 Page 1 of 10
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Ashley C. Parrish argued the cause for intervenors. With

him on the brief were Gretchen Schott, Larry F. Eisenstat,

M. Eric Eversole, and Neil L. Levy.

Before: GINSBURG, Chief Judge, and EDWARDS and TATEL,

Circuit Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

EDWARDS, Circuit Judge: On February 19, 2002, Southern

Company Services, Inc. (‘‘Southern’’) submitted an informational filing to the Federal Energy Regulatory Commission

(‘‘FERC’’ or ‘‘Commission’’) on behalf of a group of public

utilities. The filing notified the Commission of Southern’s

intention to seek recovery of line outage costs incurred to

allow generators operated by Tenaska Alabama Partners,

L.P. (‘‘Tenaska’’), and Duke Murray North America, LLC

(‘‘Duke’’), to interconnect with Southern’s transmission system. The claim for costs was based on Southern’s interconnection agreements with Tenaska and Duke. The Commission rejected the filing, holding that the interconnection

agreements did not specifically authorize recovery for outage

costs, and that, even if the agreements did authorize such

recovery, Southern had failed to show that the outages were

attributable to the interconnection of the generators. Southern then sought rehearing, but the request was denied by

FERC.

Southern now petitions this court for review of FERC’s

orders. We deny the petition for review solely on the ground

that the disputed interconnection agreements do not authorize recovery of outage costs.

I. BACKGROUND

Southern is the services company and agent for the Alabama Power Company (‘‘Alabama Power’’) and the Georgia

Power Company (‘‘Georgia Power’’), as well as other public

utilities. The utilities own and operate a large, high-voltage

electric transmission system serving Alabama, Georgia, Florida, and Mississippi. Tenaska and Duke each own and operate independent electric generating facilities that provide

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electric power to the nation’s transmission grid. Tenaska’s

facility is in Alabama, and Duke’s facility is in Georgia.

In order to provide electric power, generating facilities

interconnect with an electric transmission system. To

achieve this end, Tenaska entered into an interconnection

agreement with Alabama Power on January 12, 2000, and

Duke entered into an interconnection agreement with Georgia

Power on April 23, 2001. Section 5.2.1 of the Tenaska

agreement provides that

Tenaska shall be responsible for, and shall reimburse Alabama Power for, all costs and expenses

incurred by or on behalf of Alabama Power in

connection with any planning, design, construction,

installation, testing, inspection, ownership, operation

and maintenance of the Interconnection Facilities.

Interconnection Agreement By and Between Tenaska Alabama Partners, L.P. and Alabama Power Company § 5.2.1,

Appendix (‘‘App.’’) 11 (‘‘Tenaska Agreement’’). Section 5.2.1

of the Duke agreement states that,

[t]o the extent consistent with FERC policy, Generator shall be responsible for, and shall reimburse

Georgia Power for, all costs and expenses reasonably incurred by or on behalf of Georgia Power in

connection with the planning, design, construction,

installation, testing, inspection, ownership, operation

and maintenance of all or any part of the Interconnection Facilities during the Term of this Agreement.

Interconnection Agreement By and Between Duke Energy

Murray, LLC and Georgia Power Company § 5.2.1, App. 58

(‘‘Duke Agreement’’). FERC accepted these agreements for

filing as rate schedules governing the interconnection of

Tenaska’s and Duke’s generating facilities with Southern’s

transmission system. See Alabama Power Company Rate

Schedule Designations, Docket No. ER00-1608-000, App. 38;

Southern Operating Companies Rate Schedule Designations,

Docket Nos. ER01-2164-000 & ER01-2166-000, App. 98.

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At issue in this case are ‘‘outage costs’’ incurred when

Southern temporarily removes transmission lines in order to

interconnect a generator. Transmission outages result from

a number of causes, including generator interconnections,

routine maintenance, load problems, or inclement weather

conditions. In this case, the disputed outages were planned

to accommodate the interconnection of the Tenaska and Duke

generators.

Southern scheduled a line outage from October 15, 2001

through November 4, 2001 to facilitate Tenaska’s interconnection. Letter from Terry J. Coggins, Interconnection Project

Manager, Southern Company Services, Inc. to Nicholas Borman, Tenaska Alabama Partners, L.P. of 10/11/01, App. 119-

20. And Southern scheduled a line outage from January 2,

2002 through January 20, 2002, to facilitate Duke’s interconnection. Letter from John E. Lucas, Transmission Services

Manager, Southern Company Services, Inc. to Tom Littleton,

Manager, Origination, Duke Energy North America, LLC of

12/19/01, App. 122-23. In letters confirming the arrangements for the generator interconnections, Southern made it

clear that it expected to be reimbursed by Tenaska and Duke

pursuant to § 5.2.1 of their respective interconnection agreements for the costs associated with these scheduled outages.

See id.; see also Letter from Coggins to Borman of 10/11/01,

App. 119. It is also undisputed that Tenaska and Duke

agreed to interconnect their facilities to Southern’s system

during these scheduled outages. And there is nothing in the

record to indicate that the contested outages were caused by

load or weather problems, or that routine maintenance was

scheduled during the outages.

On February 19, 2002, Southern submitted an informational

filing to FERC notifying the Commission that it intended to

seek recovery from Tenaska and Duke under the terms of the

interconnection agreements for line outage costs incurred

when the generators interconnected their facilities with

Southern’s transmission system. Southern identified three

specific categories of costs associated with the interconnections: ‘‘(1) costs associated with procuring power to compensate for additional line losses caused by the outage; (2)

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refunds to transmission customers associated with conditional

firm service; and (3) redispatch costs caused by the outage.’’

Informational Filing Regarding Southern Companies’ Recovery of Transmission Line Outage Costs Under Their Interconnection Agreements with Tenaska Alabama Partners, L.P.

and Duke Energy North America, LLC at 2, App. 100

(‘‘Informational Filing’’), reported at 67 Fed. Reg. 9729

(F.E.R.C. 2002). Southern sought to recover costs in the first

two categories.

The informational filing noted that Southern did ‘‘not at

this time intend to assign any line outage costs to interconnection customers that schedule to interconnect their facilities

during times when the affected line(s) was already scheduled

to be out of service for maintenance.’’ Informational Filing at

3, App. 101. Southern’s filing included an affidavit given by

James M. Howell, Jr., its Principal Engineer in Bulk Power

Operations, detailing the methodology for determining and

assigning responsibility for the outage costs. The affidavit

explains that,

during the line outage, Southern Companies use a

standard industry state estimator modeling application to create a load flow model of the transmission

systemTTTT Southern Companies use a standard

industry power flow to capture, within each load flow

model, the flows that would have occurred if the line

had been in service for the time period of the load

flow model. The difference between the line-out

case and the line-in case represents the additional

losses attributable to the interconnection customer’s

scheduled line outage.

Affidavit of James M. Howell, Jr. at 3, App. 111.

Tenaska filed a protest to Southern’s informational filing,

and Duke filed a motion to intervene and protest. They each

argued that the interconnection agreements did not authorize

recovery of outage costs, and that such recovery was not

supported by FERC precedent. See Protest of Tenaska

Alabama Partners, L.P., App. 133-52; Motion to Intervene of

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Duke Energy North America, LLC and Protest of Duke

Energy Murray, LLC, App. 153-67.

On April 10, 2002, FERC rejected Southern’s informational

filing. FERC held that ‘‘Southern has not shown that the

Interconnection Agreements at issue here allow recovery of

these costs.’’ Southern Co. Servs. Inc., 99 F.E.R.C. ¶ 61,031,

at 61,116 (2002) (‘‘Order Rejecting Filing’’). In the alternative, the Commission held that,

[w]hile Southern may be able to determine the losses associated with a line outage, it has not demonstrated that losses occurring during the outages

were solely attributable to Duke Murray and Tenaska. Southern has not shown that the increase in

losses are not the result of other conditions, such as

load[,] weather conditions, or other outages in the

area.

Id. at 61,117.

Southern requested rehearing, which the Commission denied. The Commission explained:

14. The Commission rejects Southern’s argument

that interconnection agreements here provide for

recovery of the costs at issue because of the ‘‘all

costs and expenses’’ language in § 5.2.1. We do not

read that language as allowing Southern to charge

the generators for costs that Southern has not

shown to be appropriately allocated to them. Transmission outages occur in the normal course of business, not just to interconnect generation facilities

(e.g. routine maintenance, reconfiguring or adding

transmission facilities or due to weather conditions)TTTT

15. The Commission’s regulations require that all

rates and charges must be clearly and specifically

set forth in the rate scheduleTTTT

16. As we noted in the April 10 Order, identification of broad cost categories is not sufficient. InterUSCA Case #02-1373 Document #793750 Filed: 12/30/2003 Page 6 of 10
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connection agreements must specifically identify the

outage costs to be recovered.

Southern Co. Servs., Inc., 101 F.E.R.C. ¶ 61,035, at 61,143

(2002) (‘‘Order Denying Rehearing’’).

Southern now petitions this court for review of the orders

rejecting the informational filing and denying rehearing.

II. ANALYSIS

A. Standard of Review

In order to succeed in its challenge, Southern must show

that FERC’s orders – interpreting the interconnection agreements as not authorizing Southern to recover outage costs

due to the failure of the agreements to set forth those costs

clearly and specifically – are ‘‘arbitrary, capricious, an abuse

of discretion, or otherwise not in accordance with law.’’ 5

U.S.C. § 706(2)(A) (1996). If the intent of the parties is

clearly expressed in the disputed agreements, that intent

must prevail. If the contractual language is ambiguous, we

defer to the agency’s reasonable interpretation. Reed v. R.R.

Retirement Bd., 145 F.3d 373, 375 (D.C. Cir. 1998) (citing

Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S.

837 (1984); Nat’l Fuel Gas Supply Corp. v. FERC, 811 F.2d

1563, 1569 (D.C. Cir. 1987)).

When, as here, FERC has accepted agreements as rate

schedules, we defer to the Commission’s interpretation of

ambiguous contract provisions, ‘‘because ‘Congress has explicitly delegated to FERC broad powers over ratemaking, including the power to analyze relevant contracts.’ ’’ Baltimore

Gas & Elec. Co. v. FERC, 26 F.3d 1129, 1135 (D.C. Cir. 1994)

(quoting Tarpon Transmission Co. v. FERC, 860 F.2d 439,

441-42 (D.C. Cir. 1988)). We will not accept FERC’s interpretation of a contract, however, unless it is ‘‘amply supported, both legally and factually.’’ Id.

B. The Interconnection Agreements

Southern argues that the provision in the Tenaska and

Duke agreements allowing Southern to recover ‘‘all costs and

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expenses’’ in connection with ‘‘planning, design, construction,

installation’’ of the interconnection facilities unambiguously

authorizes recovery of outage costs. Petitioner’s Br. at 16.

The Commission rejected this interpretation of the agreements, because, under well-established FERC rules, all rates

and charges must be clearly and specifically set forth in the

rate schedule and the agreements here do not specifically set

forth costs related to outages. Order Denying Rehearing,

101 F.E.R.C. at 61,143. We agree.

FERC regulations provide that ‘‘[e]very public utility shall

file with the Commission and post, in conformity with the

requirements of this Part, full and complete rate schedules

TTT clearly and specifically setting forth all rates and charges

for any transmission or sale of electric energy subject to the

jurisdiction of this Commission.’’ 18 C.F.R. § 35.1(a) (2003).

In previous orders, the Commission has rejected transmission

owners’ attempts to allocate particular costs associated with

generator interconnections when the transmission owner has

failed to specify costs and detail how they will be determined.

E.g., Boston Edison Co., 94 F.E.R.C. ¶ 61,236, at 61,844

(2001); ISO New England, Inc., 91 F.E.R.C.¶ 61,311, at

62,080 (2000). Therefore, Southern was on notice that the

general contract language upon which it relies is insufficient

to support a claim for outage costs.

The problem here is a lack of specificity, not ambiguity.

Southern is right that the disputed ‘‘all costs’’ language can

be unambiguous in scope. Nonetheless, in light of the Commission’s specificity requirement, ‘‘all’’ does not include outage costs when, as here, outage costs are not specified. In

other words, parties who are subject to FERC’s regulatory

authority are bound to know that their contracts must be

drafted with an eye toward and in conformity with applicable

Commission regulations.

It is noteworthy that a number of provisions in the Tenaska

and Duke agreements satisfy the specificity rule. For example, § 4.1 of each of the agreements provides that ‘‘[a]ll

wiring, apparatus, and other equipment necessary to receive

or deliver electric energy on [generator’s] side of the InterUSCA Case #02-1373 Document #793750 Filed: 12/30/2003 Page 8 of 10
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connection Point shall be supplied, maintained, and operated

by and at the expense of [generator].’’ See Tenaska Agreement § 4.1, App. 10; Duke Agreement § 4.1, App. 57. In the

Duke agreement, Appendix B describes Georgia Power’s

interconnection facilities and Duke’s interconnection equipment, and assigns the estimated costs of certain equipment

and modifications to the Generator. See Duke Agreement

Appendix B, App. 88. Another appendix to that agreement

assigns to Duke the estimated construction costs of interconnection facilities. See Duke Agreement Appendix D, App. 91.

In contrast, outage costs are not mentioned in connection

with the ‘‘all costs’’ language cited by Southern. Nor are

they mentioned elsewhere in the interconnection agreements.

Furthermore, the Commission’s interpretation of the ‘‘all

costs’’ language as referring only to charges that are specifically set forth in the agreement does not render that language superfluous. Contracts must be read as a whole, with

meaning given to every provision. KiSKA Constr. Corp. v.

Washington Metro. Area Transit Auth., 321 F.3d 1151, 1163

(D.C. Cir. 2003), cert. denied, 124 S. Ct. 226 (2003). In light of

the entire agreement, the language ‘‘all costs and expenses’’

in connection with ‘‘any planning, design, construction, installation’’ can reasonably be interpreted to refer to the specifically mentioned costs of building and maintaining the interconnection facility, not to the costs of interconnecting the

generator’s facility to Southern’s transmission system.

On the record before us, we must reject Southern’s argument that the agreements unambiguously authorize recovery

for outage costs. Because FERC’s rules require that all

charges be set forth clearly and specifically, we hold that the

Commission reasonably interpreted the ‘‘all costs’’ language

as lacking the specificity required to authorize recovery of

outage costs.

C. Sole Attribution of Costs

Because we accept the Commission’s determination that

the interconnection agreements do not authorize recovery of

outage costs, we need not decide whether FERC’s alternative

rationale for rejecting Southern’s filing – i.e., that Southern

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failed to show that the disputed costs were attributable to

Tenaska and Duke – survives scrutiny. We note, however,

that the standard applied by the Commission in reaching this

alternative holding is highly dubious.

The undisputed evidence in this case shows that Southern

took lines out of service to facilitate Tenaska’s and Duke’s

interconnections. The Commission, however, simply ignored

this unrefuted evidence and suggested that Southern’s claim

should fail because Southern could not show ‘‘with certainty’’

that there might not have been outages even absent the

generator interconnections:

Southern has not shown that the increase in losses

are not the result of other conditions, such as load[,]

weather conditions, or other outages in the area. As

pointed out by [Duke], Southern cannot establish

with certainty that the claimed outage costs are

solely attributable to Duke Murray. The same argument can be made for Tenaska.

Order Rejecting Filing, 99 F.E.R.C. at 61,117. This standard

makes no sense. Indeed, it appears to pose an insurmountable obstacle even for transmission owners who negotiate

contracts that satisfy FERC’s specificity rule.

As noted above, the record here conclusively shows that

no conditions, save for the generator interconnections,

caused the disputed outages. Indeed, the outages were purposely scheduled to accommodate Tenaska and Duke. At

oral argument, counsel for FERC could cite to nothing to

contradict this evidence. The record also indicates that, by

undisputed affidavit, Southern reasonably explained a methodology for allocating costs. Given this record, the result in

this case might have been different if the Tenaska and Duke

agreements had specified ‘‘outage costs’’ as recoverable by

Southern. We need not speculate further on this question,

however, because FERC reasonably determined that the

agreements do not satisfy the specificity requirement.

III. CONCLUSION

For the foregoing reasons, the petition for review is denied.

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