United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 3, 2021 Decided January 21, 2022

No. 20-1495

DUKE ENERGY PROGRESS, LLC,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY,

INTERVENOR

Consolidated with 21-1008

On Petitions for Review of Orders

of the Federal Energy Regulatory Commission

Misha Tseytlin argued the cause for petitioner. On the 

briefs were William R. Derasmo, Christopher R. Jones, and 

Miles H. Kiger.

Scott Ray Ediger, Attorney, Federal Energy Regulatory 

Commission, argued the cause for respondent. With him on the 
2

brief were Matthew R. Christiansen, General Counsel, and 

Robert H. Solomon, Solicitor. Susanna Y. Chu, Attorney, 

entered an appearance.

Gary J. Newell was on the brief for intervenor North 

Carolina Eastern Municipal Power Agency in support of 

respondent.

Before: HENDERSON, TATEL, and PILLARD, Circuit 

Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Electricity producer Duke Energy 

Progress argues that its power purchase agreement with

customer North Carolina Eastern Municipal Power Agency 

(“Power Agency”) prohibits the latter from deploying battery 

storage technology designed to reduce metered demand during 

peak load periods. The Federal Energy Regulatory 

Commission disagreed, and Duke has given us no basis for 

second-guessing the Commission’s interpretation of the power 

purchase agreement.

I.

Duke generates electricity for Power Agency, a “joint 

agency” whose “members are 32 cities and towns in eastern 

North Carolina that own and operate municipal electric 

distribution systems.” Intervenor Br. ii. Their power purchase 

agreement on file with the Commission requires Duke to

supply Power Agency with its “full requirements of energy and 

capacity (i.e. the ability to meet future demand).” Resp’t’s 

Br. 5. In turn, the agreement obligates Power Agency to pay 

Duke an Energy Charge and a Capacity Charge. The Energy 

Charge “reimburses Duke only for its fuel costs and variable 
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operations and maintenance costs associated with producing 

the energy consumed by Power Agency.” Pet’r’s Br. 49; see 

Agreement § 5.3 (“Energy Charge”). The Capacity Charge, 

designed to cover Duke’s fixed costs and provide a return on 

its infrastructure investments, is calculated by determining its

pro rata share of the demand on Duke’s system during a one 

hour “snapshot” of system usage taken during the peak hour on 

Duke’s system each month. Pet’r’s Br. 7–8; see Agreement § 

5.1 (“Capacity Charge”).

The power purchase agreement regulates activities Power 

Agency may employ to modify its electricity use, including

Demand-Side Management and Demand Response. At oral 

argument, counsel for Duke described Demand-Side 

Management as end users accepting an inducement to “sign up 

for a program where Power Agency can turn . . . off and on” 

their appliances around high-demand periods. Oral Arg. Tr. 9.

As an example, counsel referred to end users who “allow 

Power Agency to control [their] thermostat[s] or to precool 

[their] building[s]” in anticipation of a high-demand period. Id.

at 25. By contrast, and again according to Duke’s counsel, 

Demand Response involves a supplier providing end users 

information on the price of energy at a given time and those 

end users then modifying their consumption to avoid elevated

prices during periods of elevated demand. As an example, 

counsel described a phone app that tells an end user, “it’s going 

to cost you more money to run your washing machine now . . . . 

So you decide . . . not to run your washing machine now; you 

run it overnight because you’ve gotten some . . . pricing 

information . . . .” Id.

On December 23, 2019, Power Agency petitioned the 

Commission to issue an order declaring that the agreement’s

sections 9.4 and 9.5, which permit Demand-Side Management 

and Demand Response activities, respectively, authorize 
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Power Agency to modify its members’ energy use and reduce 

its Capacity Charge by charging batteries during low-demand 

periods and then drawing from those batteries during the highdemand “snapshot” hour. Power Agency proposed to time the 

discharge of its batteries by analyzing the “Combined System 

load signal”—data that enables Power Agency to predict when 

the maximum demand on Duke’s system will occur. See

Agreement § 18.1 (requiring Duke to “furnish to Power 

Agency the Combined System load signal”). Concerned that 

Power Agency would reduce its Capacity Charge to zero, Duke 

opposed the petition, arguing that the proposed battery use 

qualified as neither Demand-Side Management nor Demand 

Response under the agreement.

The Commission granted Power Agency’s petition, 

finding that the agreement “permits [Power Agency] to use 

battery storage technology as either Demand-Side 

Management or Demand Response.” North Carolina Eastern 

Municipal Power Agency, 172 F.E.R.C. ¶ 61,249, at 62,738

(2020) (“Order Granting Petition”). The Commission denied 

rehearing, Duke petitioned for review, and Power Agency

intervened. 

II.

“We review claims that FERC acted arbitrarily and 

capriciously in interpreting contracts . . . within its jurisdiction 

by employing the familiar principles of Chevron U.S.A. Inc. v. 

Natural Resources Defense Council, Inc. Thus, if the contract 

. . . is unambiguous, we give effect to the clear intent of the 

parties to the agreement. If it is ambiguous, however, we defer 

to the Commission’s construction of the provision at issue so 

long as that construction is reasonable.” Seminole Electric

Cooperative, Inc. v. FERC, 861 F.3d 230, 234 (D.C. Cir. 2017) 

(internal quotation marks and citations omitted). Moreover, we 
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owe “great weight to the judgment of the expert agency that 

deals with agreements of this sort on a daily basis,” because it 

“profits from familiarity with the field of enterprise to which 

the contract pertains.” Kansas Cities v. FERC, 723 F.2d 82, 87 

(D.C. Cir. 1983).

We begin—and end—with Demand Response, which is 

permitted by section 9.5 of the agreement. Entitled “Demand 

Response,” that provision states:

Nothing in this Agreement is intended to preclude 

Power Agency and/or its Members from instituting or 

promoting activities designed, in whole or in part, to 

manage or reduce the Members’ demands and/or load 

through the use or communication of pricing 

information to Power Agency’s or its Members’ 

customers, such as the use of real-time pricing 

rates . . . .

Agreement § 9.5. The Commission concluded that Power 

Agency’s proposal qualifies as Demand Response because it 

plans to use “real-time price information” to manage its 

members’ loads by drawing electricity from batteries “during 

periods . . . when prices would be high due to high demand on 

[Duke’s] system.” Order Granting Petition, 172 F.E.R.C. 

¶ 61,249, at 62,739 (“[Power Agency] explicitly proposes that 

the management or reduction of a [Power Agency] member’s 

load through the use of battery storage technology would be 

facilitated both by the underlying pricing structure of the 

[agreement] and by the communication of real-time price 

information, as contemplated by [agreement] section 9.5.”). In 

this context, the real-time price information is the so-called 

Combined System load signal that “[f]or many years[ Power 

Agency] has used” to “forecast when the peak-load periods that 

matter for pricing purposes are likely to occur.” Petition for 
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Declaratory Order at 10 (Dec. 23, 2019) (first quote); Order 

Granting Petition, 172 F.E.R.C. ¶ 61,249, at 62,733 n.24 

(second quote). The Commission defends this ruling as a 

“reasonable interpretation” of the relevant agreement

provisions. Resp’t’s Br. 14. We agree.

Section 9.5 is a model of ambiguity. It does not define 

Demand Response, it never mentions batteries, and interpreting 

the provision required the Commission to infer the meaning of 

two of its terms, “demands” and “load,” by reference to another 

provision of the agreement. Its key language—permitting 

Power Agency to “manage or reduce the Members’ demands 

and/or load through the use or communication of pricing 

information to Power Agency’s or its Members’ customers”—

is especially obscure. Obviously, “communication of pricing 

information” must be “to Power Agency’s or its Members’ 

customers.” But what about the “use . . . of pricing 

information”? Must that also involve customers? That question 

is critical because although Power Agency proposes to use 

pricing information, it does not propose to involve customers. 

That, in Duke’s view, is fatal because Demand Response “must 

occur only through the use of pricing information 

communicated, not to Power Agency or its Members, but to 

their respective end-use customers.” Pet’r’s Reply Br. 15. In 

effect, Duke deletes the words “use or” from section 9.5, as if 

it permits only “activities designed . . . to manage or reduce the 

Members’ demands and/or load through the . . . 

communication of pricing information to Power Agency’s or 

its Members’ customers.” For its part, the Commission

understood section 9.5 to mean that Demand Response 

activities merely need to be “capable of managing or reducing 

demands and/or loads through the use or communication of 

pricing information.” Order Granting Petition, 172 F.E.R.C. 

¶ 61,249, at 62,739. In effect, the Commission adds the words 

“of pricing information” to section 9.5, as if it permits 
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“activities designed . . . to manage or reduce the Members’ 

demands and/or load through the use [of pricing information] 

or communication of pricing information to Power Agency’s 

or its Members’ customers.”

We thus have before us two competing interpretations of 

section 9.5. Given that we must “defer to the Commission’s 

construction of the provision at issue so long as that 

construction is reasonable,” it is not enough for Duke to offer 

its own reasonable interpretation of the provision. Seminole

Electric, 861 F.3d at 234 (internal quotation marks omitted).

Instead, Duke must demonstrate that the Commission’s 

interpretation is unreasonable. It has failed to do so.

Duke next argues that Power Agency’s proposal cannot 

qualify as Demand Response because, although it would 

reduce metered demand for Duke electricity during the 

snapshot, it would not actually reduce energy consumption. But 

that criticism finds no support in section 9.5, which says 

nothing of “consumption.” Contrast that with another

provision, section 9.3, which expressly dictates that the 

agreement is not intended to preclude activities designed to 

“reduce energy consumption.” Agreement § 9.3. The drafters 

of the agreement thus knew how to refer to a reduction in 

energy consumption, but chose not to do so in section 9.5. 

Moreover, if Demand Response required an actual reduction in 

consumption, then Duke’s own washing machine example 

would not qualify since it delays but does not altogether deter 

the washing machine’s use.

Next, Duke argues that the Commission’s interpretation 

“ignores the [agreement’s] overall structure and purpose” by 

allowing Power Agency to draw electricity from batteries in 

violation of the agreement’s “single clear premise—that Power 

Agency takes its full power supply needs from Duke—with a 
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few explicit and discrete exceptions.” Pet’r’s Br. 35–36. We 

disagree. As the Commission points out, under the proposal, 

“Duke will continue to supply (and [Power Agency] will 

continue to pay for) the energy needed to charge any batteries.”

Resp’t’s Br. 32.

Finally, Duke claims that the use of batteries would make 

the agreement “confiscatory because it would permit Power 

Agency to reduce its apparent demand to zero during the 

system peak, eliminating Power Agency’s responsibility to pay 

for its pro rata share of Duke’s fixed costs.” Pet’r’s Br. 47. As 

the Commission points out, however, section 16 of the 

agreement establishes a “process to propose changes to the 

rates, terms, and conditions of [the agreement], should Duke 

have ‘concerns regarding whether the Contract remains 

appropriately compensatory.’” Resp’t’s Br. 36 (quoting North 

Carolina Eastern Municipal Power Agency, 173 F.E.R.C. 

¶ 61,235, at 62,456 (2020)). Accordingly, should Power 

Agency deploy its batteries in a way that renders the agreement

“confiscatory,” Duke can return to the Commission for relief.

III.

Having considered Duke’s remaining arguments and 

found them either without merit or waived, we deny the 

petitions for review.

So ordered.