Opinion ID: 2582159
Heading Depth: 1
Heading Rank: 2

Heading: The superior court erred in granting summary judgment to Chugach on MEA's fifth cause of action.

Text: After refusing to dismiss MEA's debt management claim outright, the superior court granted Chugach's motion for summary judgment on this issue. The court found that as a matter of law Chugach owed MEA no contractual duty under the Agreement to manage its debt in accordance with prudent utility practice. [31] Because we find as a matter of law that the Agreement did impose such a duty, we reverse. Our resolution of this issue centers on the meaning and scope of several provisions of the Agreement. Section 17 states that [e]ach party to this Agreement covenants and agrees to ... act and perform in a manner consistent with Prudent Utility Practice. Section 34( o ) later defines Prudent Utility Practice in the following way: At a particular time any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry at such time, or which in the exercise of reasonable judgment in light of facts known at such time, could have been expected to accomplish the desired results at the lowest reasonable cost consistent with good business practices, reliability, safety and reasonable expedition. Prudent Utility Practice is not required to be the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. Section 34( o ) further notes that Prudent Utility Practice ... shall apply not only to functional parts of the parties' generation, transmission, and distribution facilities, but also to appropriate structures, landscaping, painting, signs, lighting and other facilities. In granting summary judgment to Chugach, the superior court focused on the latter portion of Section 34( o ), and what it characterized as the extreme difference between the class of items mentioned and long-term debt management. The superior court also noted that, although the Agreement is over fifty pages in length, and effective for over twenty years, it does not mention long-term debt management. Accordingly, the court held that both the language of the contract and a common sense analysis of the expectations of the parties indicate that, under the Agreement, the prudent utility practice standard only applies to the maintenance and operation of Chugach's facilities and equipment. We believe that this standard also governs the utility's investment practices. The goal of contract interpretation is to give effect to the parties' reasonable expectations, [32] which we assess by examining the language of the disputed provisions, the language of other provisions, relevant extrinsic evidence, and case law interpreting similar provisions. [33] In reaching a reasonable interpretation of a contract, we attempt to give effect to all of its terms, if possible. [34] We consider disputed language within the context of the whole contract and its purposes, and the circumstances surrounding its formation. [35] While it was understandable to focus only on section 34( o ), by doing so the superior court did not consider several of the Agreement's other provisions, and their implications in light of the Agreement's overall purpose. The overarching language of section 17, stating generally that both parties agree to act and perform in a manner consistent with Prudent Utility Practice, must apply to the core aims of the Agreement, which include ensuring a fair and reasonable rate scheme. Chugach suggests that because the Agreement does not include any specific price terms, its only purpose is to assure that MEA receives adequate supplies of power. [36] But even though the Agreement does not include specific prices or rates for this power, it does set forth various substantive ratemaking principles and ratemaking procedures in section 9. The prudence standard therefore must also apply to Chugach's rate-making scheme, as this is a key component of its supply of power. A utility's pricing or rate scheme must inherently take all of the utility's costs into account. And these costs include the costs to the utility of managing its debt. [37] It thus stands to reason that if the Agreement applies the prudent utility standard to Chugach's power supply policies in general, and if these policies include ratemaking principles and procedures, then the Agreement also applies the prudent utility standard to Chugach's debt management practices. This conclusion finds support in the cases that MEA cites to support its contention that the Prudent Utility Practice Standard has a long-established and accepted usage in the utility industry ... [that] plainly includes application of the standard to a utility's financial management decisions. Chugach responds that these cases only show that the Commission, as well as similar bodies in other states, has jurisdiction to review and act to ensure that utilities exercise reasonable financial management practices. Along similar lines, the superior court dismissed these cases as simply stat[ing] that a regulatory commission can force a public utility to manage its long-term debt in accordance with Prudent Utility Practices. But we read these cases more broadly than Chugach and the lower court. In each case, the relevant utility commission sought to ensure that the utility would provide service to its customers at the fairest rate, and to further this aim, reviewed the utility's financial practices. [38] Thus the Federal Power Commission stated: It is common knowledge that when a utility is not in a good financial condition, service is inclined to suffer and proper rate adjustments are resisted. Accordingly, directly or indirectly, the consumer will be affected. [39] The Commission further stated that [a] competitive enterprise must seek in every legitimate way to cut its costs and to operate economically. [40] The Commission subsequently stated that at least since 1956, it has been clear that utility managements are under a duty to refinance their debt in order to take advantage of changing interest rates and provide the consumer with the lowest embedded debt costs. [41] There can be no doubt that MEA is a customer or consumer of Chugach's power; even Chugach admits as much. And there is no reason that the rates that Chugach charges MEA for this power should not be based on the same considerations of fairness and reasonableness that govern utility rates for retail customers. Section 9(e)(4) of the Agreement states both that, in order to give effect to the fairness principles set forth in Section 9(b), any Power Supply Costs that the Commission (or the court) allows Chugach to include in rates for Chugach's retail ratepayers should also be included in rates charged to [MEA] under this Agreement, and that, to the extent that reasonableness, prudency, and similar standards may by law be invoked and applied to deny recovery of particular costs in rates, the applicability of such standards shall not be affected by this Agreement. The precedents cited by MEA have even greater persuasion power when considered in conjunction with the entire Agreement's purpose and terms. Chugach should have reasonably expected that the prudent utility standard would apply to its debt management. Because we conclude that the Agreement impliedly required Chugach to manage its long-term debt in accordance with prudent utility practice, and because it is unclear whether Chugach in fact did so, we reverse the grant of summary judgment and remand this issue to the superior court for further findings. B. The Superior Court Properly Granted Summary Judgment to Chugach on MEA's Ninth Cause of Action.