Court Opinion

ID: 806572
Source: CourtListenerOpinion
Date Created: 2012-08-14 14:39:28+00
Date Added: 2024-06-11T18:00:20.741816
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 13, 2012           Decided August 14, 2012

                       No. 11-1043

  COUNCIL OF THE CITY OF NEW ORLEANS, LOUISIANA, AND
        LOUISIANA PUBLIC SERVICE COMMISSION,
                      PETITIONERS

                            v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

      ARKANSAS PUBLIC SERVICE COMMISSION, ET AL.,
                    INTERVENORS

              Consolidated with No. 11-1044

            On Petitions for Review of Orders of
        the Federal Energy Regulatory Commission

    Michael R. Fontham argued the cause for petitioner
Louisiana Public Service Commission. Daniel D. Barnowski
argued the cause for petitioner Council of the City of New
Orleans, Louisiana. With them on the briefs were Paul L.
Zimmering, Noel J. Darce, Clinton A. Vince, William D.
Booth, and Daniel D. Barnowski. Jennifer A. Morrissey
entered an appearance.
                               2
     Carol J. Banta, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
the brief was Robert H. Solomon, Solicitor.

     John S. Moot argued the cause for intervenors Entergy
Services, Inc., et al. in support of respondent. With him on the
brief were John Lee Shepherd Jr., Andrea Weinstein, Mary W.
Cochran, Paul Randolph Hightower, Chad James Reynolds,
Dennis Lane, and Glen L. Ortman.

    Before: SENTELLE, Chief Judge, GRIFFITH, Circuit Judge,
and RANDOLPH, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge GRIFFITH.

     GRIFFITH, Circuit Judge: The Council of the City of New
Orleans and the Louisiana Public Service Commission
petition for review of an order of the Federal Energy
Regulatory Commission allowing two companies to withdraw
from a regional energy system agreement without paying exit
fees not mentioned in the agreement. For the reasons set forth
below, we deny the petitions.

                               I

     The Entergy System Agreement (the Agreement), which
has been a feature of many cases before this Court, establishes
the operating framework for the six Entergy companies
servicing Arkansas, Louisiana, Mississippi, and Texas (the
Operating Companies). La. Pub. Serv. Comm’n v. FERC
(Louisiana IV), 522 F.3d 378, 383 (D.C. Cir. 2008). The
Agreement sets forth a rate schedule administered by FERC
and creates a centralized process for determining when and
where the Operating Companies will build new power plants.
Id. at 383-84. By the express terms of the Agreement, each
                              3
Operating Company assumes responsibility for the costs of
building and operating plants in its own area and retains the
rights to the energy those plants produce. Id. at 383-84; see
also La. Pub. Serv. Comm’n v. FERC (Louisiana I), 174 F.3d
218, 220 (D.C. Cir. 1999). Each party to the Agreement must
also make any excess capacity available “to its sister
companies as a backstop for when demand exceeds self-
generated supply.” Louisiana I, 174 F.3d at 220.

    In 1982, FERC interpreted the Agreement to require that
the cost of producing electricity be “roughly equal” among
the Operating Companies. Louisiana IV, 522 F.3d at 384. But
production costs are likely to be unequal because the
Operating Companies use different types of fuel. For
example, Entergy Arkansas relies primarily on coal, whereas
Entergy Louisiana and Entergy Gulf States rely more heavily
on natural gas. Id. at 384-85. In order to satisfy the
Agreement’s equality mandate, FERC requires the Operating
Companies with lower production costs to make payments to
those with higher expenses. Id. at 384.

     In 2000, the price of natural gas shot up, sharply
increasing the existing cost disparities among the Operating
Companies. Id. at 384-85. On December 19, 2005, FERC
ordered the Operating Companies to make payments to each
other to offset any difference in their respective annual
production costs greater than eleven percent of the System
average. La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 113
F.E.R.C. ¶ 61,282 (2005). As a result, Entergy Arkansas was
required to pay hundreds of millions of dollars annually to the
other Operating Companies. The same day as the FERC
order, Entergy Arkansas notified the other Operating
Companies that it intended to withdraw from the Agreement
eight years later, the earliest it could do so under the
Agreement’s mandatory notice provision. On November 8,
                               4
2007, Entergy Mississippi likewise informed the other
Operating Companies that it would exit the Agreement eight
years hence. 1

     On February 2, 2009, Entergy Services, Inc., the parent
corporation that owns all six Operating Companies, submitted
formal notices to FERC on behalf of Entergy Arkansas and
Entergy Mississippi, stating that they would exit the
Agreement. See 18 C.F.R. § 35.15 (“When a rate schedule,
tariff or service agreement or part thereof required to be on
file with the Commission is proposed to be cancelled or is to
terminate by its own terms and no new rate schedule, tariff or
service agreement or part thereof is to be filed in its place, a
filing must be made [with the Commission].”). The notices
provided that the two withdrawing Companies would each
operate independently while the other four Operating
Companies would remain in the System. Entergy Arkansas
and Entergy Mississippi would still be able to buy and sell
power from the remaining Operating Companies, but without
the preferential treatment the Agreement affords.

     On November 19, 2009, FERC accepted the notices and
issued orders concluding that the Agreement required no
further conditions on the withdrawals other than the already-
proffered eight-year notice to the other Operating Companies.
Order Accepting Notices of Cancellation, Entergy Servs., Inc.,
129 F.E.R.C. ¶ 61,143 (Nov. 19, 2009). The Council of the
City of New Orleans and the Louisiana Public Service
Commission petition for review of FERC’s order. We take
jurisdiction under 16 U.S.C. § 825l(b).

    1
       While the parties were clear about Entergy Arkansas’s
reasons for withdrawal, they did not explain why Entergy
Mississippi would be leaving the System.
                               5
                               II

     We review FERC orders under the Administrative
Procedure Act, which requires that we determine whether the
challenged action was arbitrary and capricious. Louisiana IV,
522 F.3d at 391. Because the gist of the petitioners’ argument
is directed at FERC’s reading of the Agreement, we resort to
the learning of Chevron, U.S.A., Inc. v. Natural Resources
Defense Council, 467 U.S. 837 (1984), to see if the agency’s
interpretation of the contract was reasonable. Entergy Servs.,
Inc. v. FERC, 568 F.3d 978, 981-82 (D.C. Cir. 2009) (“We
review claims that the Commission acted arbitrarily and
capriciously in interpreting contracts within its jurisdiction by
employing the familiar principles of Chevron.”). Under that
standard, “We evaluate de novo the Commission’s
determination that a contract is ambiguous, but we give
Chevron-like deference to its reasonable interpretation of
ambiguous contract language.” Id. at 982. The petitioners
argue that FERC misinterpreted the Agreement and failed to
impose two conditions on Entergy Arkansas and Entergy
Mississippi that are required when a Company withdraws
from the System. As the petitioners read the Agreement, a
Company may not leave the System without compensating the
remaining Companies for the assets it takes. And even after
leaving, the withdrawing Company must continue making
“rough equalization” payments to its former partners. FERC
found no such conditions in the Agreement, and we hold that
its view is reasonable.

    The Agreement provides that “any Company may
terminate its participation in this Agreement by ninety-six
(96) months written notice to the other Companies hereto.”
System Agreement § 1.01. FERC held that the Agreement’s
text places no explicit conditions on the withdrawing
Companies save this requirement of notice. The petitioners
                               6
concede that the text of the Agreement “says nothing about
the rights and obligations of withdrawing Companies
regarding System assets,” but argue that the Agreement’s
purpose requires that withdrawing Companies leave behind
the “assets built for the System,” Pet’rs’ Br. 55, 58, or pay for
the assets they take with them, id. at 55. This argument from
purpose presumes that the System as a whole has claims to
individual assets built by each Operating Company. But the
text of the Agreement provides that “[e]ach Company shall
normally own . . . such generating capability and other
facilities as are necessary to supply all of the requirements of
its own customers.” System Agreement § 4.01 (emphasis
added). Individualized ownership, as opposed to System
ownership, also squares with the Agreement’s mandate that
each Operating Company “is responsible for the costs of the
generation plants in its jurisdiction.” Louisiana IV, 522 F.3d
at 384. While the Agreement establishes a centralized process
for determining when and where to build new plants, FERC
reasonably concluded that the Agreement’s purpose is central
planning, not central ownership, and that there is nothing
about that purpose that compels payments prior to
withdrawal.

     Even if the Agreement does not compel withdrawing
Companies to pay exit fees, the petitioners argue that an
earlier FERC order interpreting the Agreement does. In 2007,
FERC stated:

    [I]n light of the history and nature of the existing
    members’ planning and operation of their facilities under
    the System Agreement, it is possible that it may
    ultimately be appropriate to require transition measures
    or other conditions to ensure just and reasonable
    wholesale rates and services for affected Operating
                               7
    Company members going forward from the effective date
    of Entergy Arkansas’ withdrawal.

La. Pub. Serv. Comm’n v. Entergy Corp., 119 F.E.R.C.
¶ 61,224, 62,315 (2007) (emphasis added). The petitioners
point to FERC’s reference to “transition measures or other
conditions” as a call for the type of exit fees they argue are
required here. But the petitioners overlook the language we
have emphasized. The fact that FERC put the Operating
Companies on notice that it might impose additional
conditions on withdrawal does not mean it must do so now.
Certainly an agency may leave open the possibility of future
action without binding itself to choose a particular path before
it determines the circumstances are right to do so. See Citizens
Against Burlington, Inc. v. Busey, 938 F.2d 190, 196 (D.C.
Cir. 1991) (“Once an agency has considered the relevant
factors, it must define goals for its action that fall somewhere
within the range of reasonable choices. We review that
choice, like all agency decisions to which we owe deference,
on the grounds that the agency itself has advanced.”). In this
case, FERC reasonably concluded that ninety-six months
provided sufficient time for the Operating Companies to plan
for withdrawal. Order Accepting Notices of Cancellation, 129
F.E.R.C. at 61,603 (“To the extent the remaining Operating
Companies are concerned with their own mix of capacity, we
note that the 96 month notice period should provide all of the
Operating Companies time to adjust their long-term plans and
to acquire any needed capacity.”).

     Putting aside the issue of exit fees, the petitioners argue
that a 2001 FERC order requires a withdrawing Company to
continue to make rough equalization payments even after
exiting the Agreement. See Pet’rs’ Br. 40-41 (citing La. Pub.
Serv. Comm’n v. Entergy Corp., 95 F.E.R.C. ¶ 61,266
(2001)). But that order concerned the very different question
                               8
of what conditions are required of an Operating Company that
leaves the System within the ninety-six month notice period,
not what a Company must do when it withdraws after that
period, as happened here. The 2001 order had no reason to
consider the circumstances in which the Operating Companies
have time to plan for a withdrawal because proper notice has
been given as provided for in the Agreement. See Entergy
Servs., Inc., 134 F.E.R.C. ¶ 61,075, 61,359 n.28 (2009) (“[The
2001 order] is not relevant . . . because . . . [there] Entergy
Arkansas       was    seeking     to     exit     the   System
Agreement . . . before the 96-month notice period had run.”).

     Finally, the petitioners abandon the Agreement altogether
and claim that “rough equalization” payments must continue
after withdrawal because of “Entergy’s history of single-
System planning.” Pet’rs’ Br. 38. Withdrawal, they contend,
will have “disparate consequences” on the remaining
Operating Companies, which will then need to charge higher
rates to their customers. Id. at 39. Because the requirement for
rough equalization is “based on these imbalances, not on
contract language,” the petitioners argue that the payments
must continue, potentially forever. Id. Not so. The
requirement of rough equalization is rooted in the Agreement.
La. Pub. Serv. Comm’n v. FERC (Louisiana V), 551 F.3d
1042, 1043 (D.C. Cir. 2008) (“We have long viewed the
System Agreement as requiring that affiliates share the costs
of power generation in roughly equal proportion.”). Because
rough equalization is tied to the Agreement, it was reasonable
for FERC to conclude that once a Company leaves the
Agreement, it need not continue to make the payments.

    Our decision today reaches only the obligation of
withdrawing Companies under the Agreement. As FERC
noted, it must still review the post-withdrawal arrangements
to ensure that they are just, reasonable, and not unduly
                              9
discriminatory. Order Accepting Notices of Cancellation, 129
F.E.R.C. at 61,604 (“Entergy will have to file under [the
Federal Power Act] to reflect the arrangements to be in place
after the withdrawal of Entergy Arkansas and Entergy
Mississippi from the System Agreement.”). But as far as the
Agreement is concerned, FERC’s interpretation was
reasonable.

                              III

    For the foregoing reasons, the petitions for review are

                                                       Denied.