Court Opinion

ID: 4182651
Source: CourtListenerOpinion
Date Created: 2017-06-30 15:02:39.944761+00
Date Added: 2024-06-11T07:46:53.412445
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 22, 2017                 Decided June 30, 2017

                        No. 15-1450

          SEMINOLE ELECTRIC COOPERATIVE, INC.,
                      PETITIONER

                             v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

            FLORIDA POWER & LIGHT COMPANY,
                      INTERVENOR

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

    Jeffrey K. Janicke argued the cause for petitioner. With
him on the briefs were William T. Miller and Kimberly B.
Frank. John M. Adragna entered an appearance.

    Ross R. Fulton, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
were Robert H. Solomon, Solicitor, and Lisa B. Luftig,
Attorney.

    John Lee Shepherd, Jr. argued the cause for intervenor.
With him on the brief were James P. Danly and Thomas
Orvald.
                               2

   Before: GARLAND, Chief Judge, and GRIFFITH and
KAVANAUGH, Circuit Judges.

    Opinion for the Court filed by Circuit Judge GRIFFITH.

     GRIFFITH, Circuit Judge: The Federal Energy Regulatory
Commission determined that Florida Power & Light Company
overcharged Seminole Electric Cooperative, Inc. for electricity
and ordered a refund. Seminole claims that it was entitled to a
larger refund and petitions for review. We deny the petition.

                                I

     Seminole transmits electricity to its electrical-cooperative
customers by purchasing transmission services from Florida
Power. For every hour of the day, Seminole tells Florida Power
the amount of electricity it expects its customers to use. When
Seminole’s customers take more electricity from the
transmission system than expected, Florida Power must make
up the difference with extra generation. By the same token,
when Seminole’s customers take less electricity than expected,
Florida Power must find ways to deal with the excess
generation. Either way, Florida Power incurs extra costs to
provide this so-called “energy imbalance service,” which are
passed along to Seminole according to a formula set forth in
Schedule 4 of the tariff that governs the rates Florida Power
may charge.

    Schedule 4, summarized in the following table and
reproduced in relevant part below, 1 divides up charges for

    1
        Under Schedule 4:
                                     3

energy imbalance service into three tiers or “deviation bands:”
a tier with a low rate that applies to deviations of up to 1.5%
(with a minimum deviation of 2 megawatts); one with a
medium rate that applies to deviations greater than 1.5% up to
7.5% (or greater than 2 megawatts up to 10 megawatts); and
one with a high rate that applies to deviations above 7.5% (or
above 10 megawatts).

                 Charges for energy imbalance shall be based on
           the deviation bands as follows: (i) deviations within
           +/- 1.5 percent (with a minimum of 2 [megawatts])
           of the scheduled transaction to be applied hourly to
           any energy imbalance that occurs as a result of the
           Transmission Customer’s scheduled transaction(s)
           will be netted on a monthly basis and settled
           financially, at the end of the month, at 100 percent
           of incremental or decremental cost; (ii) deviations
           greater than +/- 1.5 percent up to 7.5 percent (or
           greater than 2 [megawatts] up to 10 [megawatts]) of
           the scheduled transaction to be applied hourly to any
           energy imbalance that occurs as a result of the
           Transmission Customer’s scheduled transaction(s)
           will be settled financially, at the end of each month,
           at 110 percent of incremental cost or 90 percent of
           decremental cost, and (iii) deviations greater than
           +/- 7.5 percent (or 10 [megawatts]) of the scheduled
           transaction to be applied hourly to any energy
           imbalance that occurs as a result of the Transmission
           Customer’s scheduled transaction(s) will be settled
           financially, at the end of each month, at 125 percent
           of incremental cost or 75 percent of decremental
           cost.

J.A. 44.
                               4

        Deviation Band              Charge for Electricity

 Between 0% and 1.5%, with a 100% of incremental cost
 minimum of 2 megawatts
 Greater than 1.5% up to 7.5%, 110% of incremental cost
 or greater than 2 megawatts
 up to 10 megawatts
 Above 7.5%, or above 10 125% of incremental cost
 megawatts

     Seminole filed a complaint with FERC alleging that
Florida Power was violating Schedule 4 in two respects. First,
Seminole claimed that Florida Power had been using the wrong
measure for four and a half years to determine which tier’s rate
applies. Specifically, Florida Power would charge Seminole at
a certain tier’s rate if Seminole’s usage crossed either the
percentage or the megawatt threshold for that tier, rather than
wait for the usage to cross both thresholds before imposing that
rate. A simple example illustrates the problem: Suppose usage
by Seminole’s customers deviated by 2.5% from what was
scheduled, but that—in absolute terms—the deviation
amounted only to 1.9 megawatts. Florida Power would charge
Seminole at the second tier’s rate, rather than the first tier’s
rate, simply because the deviation (i.e, the imbalance)
exceeded 1.5%. According to Seminole, that was
impermissible because the tariff allowed charges at the second
tier’s rate only when usage had deviated by more than 1.5% (in
relative terms) and more than 2 megawatts (in absolute terms).
FERC ultimately agreed with Seminole that Florida Power’s
practice violated the tariff and that the co-op had been
overcharged about $3.18 million—a finding that is not disputed
by any party and is not at issue in this case. However, the
remedy for that violation is.
                                    5

     FERC ordered Florida Power to refund the overcharges for
a period going back 24 months from when Seminole first
complained about them. FERC based its decision to restrict the
refund period in this way on a provision of the companies’
service agreement, reproduced below, 2 that establishes the
process for challenging bills issued pursuant to the tariff. As
FERC understood that provision, Seminole was barred from
challenging any bill that it waited longer than 24 months to
contest. Quite apart from its reading of how the time bar works,
FERC argues that it would have exercised its discretion to
restrict Seminole’s refund anyway on the ground that the co-op
should have discovered the overcharges earlier. Seminole
challenges FERC’s decision to limit the refund period.

    Seminole’s complaint to FERC alleged a second way that
Florida Power was violating the tariff: Florida Power applied
the rate of the highest applicable tier to the entirety of

     2
         The provision, known as section 12.0, reads:

                 The Customer may, in good faith, challenge the
           correctness of any bill rendered under the Tariff no
           later than twenty-four (24) months after the date the
           bill was rendered. . . . A bill rendered under the
           Tariff will be binding on the Customer twenty-four
           (24) months after the bill is rendered or adjusted,
           except to the extent of any specific challenge to the
           bill made by the Customer prior to such time.
           Customer’s challenge of any bill rendered under and
           in accordance with this Tariff is limited to [] the
           arithmetical accuracy of the bill and the use of the
           correct rate and billing determinants for the service
           provided, [as well certain other types of errors not
           relevant here].

J.A. 94.
                               6

Seminole’s imbalance, rather than apply each tier’s rate to the
portion of the imbalance that fell within each tier. To simplify
what may seem at first blush a complicated matter, imagine that
Seminole scheduled 100 megawatts of electricity to be
delivered, but ended up using 111 megawatts, meaning that its
customers used 11% more electricity than it had scheduled on
their behalf. In that scenario, Florida Power would charge the
highest tier’s rate (125% of marginal cost) on all of Seminole’s
11% deviation—a practice FERC refers to as non-
apportionment.

     Non-apportionment is not allowed under Seminole’s
reading of the tariff. According to Seminole, in this example
Florida Power must charge the first tier’s rate (100% of
marginal cost) on the first 1.5 percentage points of Seminole’s
deviation; the second tier’s rate (110% of marginal cost) on the
portion of Seminole’s deviation that is greater than 1.5% up to
7.5%; and the third tier’s rate (125% of marginal cost) only on
the very last portion of Seminole’s deviation, above 7.5% up to
11%. In Seminole’s view, charges for energy imbalance service
work like the tax code: you pay the highest rate only on that
portion of your income that falls into the highest tax bracket,
not on all of your income. FERC refers to this approach as
apportionment. As a result of Florida Power’s use of non-
apportionment rather than apportionment, Seminole paid
Florida Power about $1.27 million more than it otherwise
would have.

     Seminole lost on this issue before FERC, initially and then
again on reconsideration. In FERC’s reading, the tariff requires
neither apportionment nor non-apportionment, but leaves to the
transmission provider the discretion which to use, given the
different electricity needs around the country. FERC denied
                                7

Seminole’s complaint on the question. Florida Power has
intervened to defend FERC’s orders.

                                II

     We have jurisdiction to hear Seminole’s challenges under
section 313(b) of the Federal Power Act, which allows
aggrieved parties to petition for review of FERC orders in our
court. See 16 U.S.C. § 825l(b). We review those “orders under
the Administrative Procedure Act’s ‘arbitrary and capricious’
standard.” Entergy Servs., Inc. v. FERC, 568 F.3d 978, 981
(D.C. Cir. 2009) (quoting 5 U.S.C. § 706(2)(A)). “To satisfy
this standard, [FERC] must ‘demonstrate that it has made a
reasoned decision based upon substantial evidence in the
record, and the path of its reasoning must be clear.’” Id.
(quoting Sithe/Independence Power Partners v. FERC, 165
F.3d 944, 948 (D.C. Cir. 1999)).

     We review claims that FERC acted arbitrarily and
capriciously in interpreting contracts or tariffs “within its
jurisdiction by employing the familiar principles of Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc.” Id. at
981-82. Thus, if the contract or tariff is unambiguous, we give
effect to “the clear intent of the parties to the agreement.” Koch
Gateway Pipeline Co. v. FERC, 136 F.3d 810, 814 (D.C. Cir.
1998). If it is ambiguous, however, “we defer to the
Commission’s construction of the provision at issue so long as
that construction is reasonable.” Id. at 814-15.
                                8

                               III

                                A

     We first address Seminole’s claim that FERC improperly
interpreted the service agreement to limit Florida Power’s
refund liability. Seminole contends that the 24-month time-bar
provision applies only to claims that Florida Power made
arithmetical or clerical errors in its bills, not to claims that
Florida Power violated its tariff by charging Seminole a rate
higher than it was allowed to charge. We disagree. FERC
correctly concluded that the service agreement requires
Seminole to make any challenge to a bill within 24 months of
receiving that bill.

     The plain text of Section 12.0 of the service agreement is
the biggest obstacle to Seminole’s preferred reading. On its
face, the section limits all challenges to the 24-month period
after a bill is issued: “bill[s] rendered under the Tariff will be
binding on the Customer twenty-four (24) months after the bill
is rendered or adjusted, except to the extent of any specific
challenge to the bill made by the Customer prior to such time.”
J.A. 94. FERC understands section 12.0 to mean just what it
says, see J.A. 303 (“We read this [sentence] to mean that a bill
is binding unless it is challenged within a 24 month period after
the bill was made available or adjusted.”), and to work
something like a statute of limitations on claims of overbilling
like Seminole’s. In other words, a customer that does not
challenge a bill within two years is stuck.

     Seminole claims that this seemingly unequivocal text does
not bar it from challenging overcharges going further back than
24 months. First, Seminole draws our attention to the word
“correctness” in the very first sentence of Section 12.0: “The
                                9

Customer may, in good faith, challenge the correctness of any
bill rendered under the Tariff no later than twenty-four (24)
months after the date the bill was rendered.” J.A. 94. As
Seminole sees it, a challenge to a bill’s correctness takes on its
arithmetical or clerical accuracy and is meaningfully different
from a claim that a bill fails to charge the rate on file. Seminole
relies on a prior decision by FERC that interpreted the word
“accuracy” as it figured in another time-bar provision. In
California ex rel. Brown v. Powerex Corp., FERC found that a
provision limiting a customer’s “right to dispute the accuracy
of any bill” to two years did not apply to alleged tariff
violations, because disputes over tariff violations were not
“dispute[s] regarding the clerical accuracy of bills.” 135 FERC
¶ 61,178 at PP 92-93 (2011). Seminole argues that the same
reasoning should apply here, because “[a]ccuracy and
correctness are synonyms.” Seminole Opening Br. 45.

     Synonyms they may be in some contexts, but Seminole has
given us no reason to think that they mean the same thing here.
Nor has Seminole pointed us to any precedent interpreting
“correctness” so narrowly, as to mean only arithmetical or
clerical accuracy. Moreover, Seminole’s assumption that
synonyms in common parlance must be interchangeable in this
context would prove the undoing of its argument. Elsewhere,
FERC has been required to apply a contract provision that
places time limits on claims challenging the “propriety” of bills
to claims of tariff violations. See Boston Edison Co. v. FERC,
856 F.2d 361, 371 (1st Cir. 1988). “Correctness” is considered
a synonym of “propriety.” See Propriety, OXFORD
ENGLISH DICTIONARY,             http://en.oxforddictionaries.com/
definition/us/propriety (last visited June 23, 2017) (listing
“correctness” as a synonym of “propriety,” behind “decorum,”
“respectability,” and “decency”); see also Propriety,
MERRIAM-WEBSTER             ONLINE,        https://www.merriam-
                                 10

webster.com/dictionary/propriety (defining propriety, in
certain contexts, as “the state or quality of being correct and
proper”) (last visited June 23, 2017). According to the force of
Seminole’s own logic, then, FERC must always treat the word
“correctness” as including tariff violations, not just clerical
errors. Of course, that inference would be unsound, which
proves our point: context matters. The fact that FERC once
limited challenges to “accuracy” of bills to purported clerical
and arithmetical errors tells us nothing about how the agency
must interpret “correctness” in Section 12.0. Especially given
the broad and unqualified scope of Section 12.0, see J.A. 94
(“A bill rendered under the Tariff will be binding on the
Customer twenty-four (24) months after the bill is rendered . .
. .”) (emphasis added), FERC sensibly read “correctness”
broadly in this context to “encompass[] not just computational
errors in bills that correctly use the filed rate, but also bills that
are based on a rate other than the filed rate.” J.A. 229.

     Seminole’s next argument is even less persuasive.
Seminole claims that Section 12.0 applies only to challenges to
bills that are “‘rendered under and in accordance with’ the
[Florida Power] tariff,” and that a bill is not rendered “in
accordance with” a tariff it violates. Seminole Opening Br. 48
(quoting J.A. 94). But Section 12.0 does not state that it applies
only to bills rendered “in accordance with” the tariff. Rather, it
starts by allowing Seminole to “challenge the correctness of
any bill rendered under the Tariff”—that is, any bill issued for
services the tariff covers. J.A. 94 (emphasis added). Next it
states that “bill[s] rendered under the Tariff will be binding on
the Customer” unless they are challenged within 24 months.
J.A. 94. Only then does the agreement provide that a
“[c]ustomer’s challenge of any bill rendered under and in
accordance with th[e] Tariff is limited to . . . the arithmetical
accuracy of the bill and the use of the correct rate and billing
                                11

determinants for the service provided” and to a few other types
of challenges not relevant here. J.A. 94 (emphasis added). In
other words, Section 12.0 unequivocally provides that any bill
issued under the tariff may be challenged and makes all bills
issued under the tariff binding if not challenged within 24
months. It just so happens that Section 12.0 separately provides
that a certain subset of bills—those rendered “in accordance
with th[e] Tariff”—are subject only to certain types of
challenges. J.A. 94. Thus, the phrase “in accordance with” in
no way cabins what kinds of challenges Section 12.0 applies to
in the first place. 3

                                 B

     We turn to Seminole’s claim that Schedule 4 of the tariff
required Florida Power to calculate Seminole’s charges using
apportionment. Recall that Schedule 4 of the tariff divides up
energy imbalance charges into three tiers. According to
Seminole, charges for exceeding or undershooting its
scheduled electricity usage must be apportioned among the
tiers, yet Florida Power charged the highest applicable tier’s
rate on the entire amount of Seminole’s excess usage. To
support its position that Schedule 4 requires apportionment,
Seminole points us to the U.S. tax code as an example of how
such a system works. As Seminole sees it, just as you pay the
highest tax bracket’s rate only on the portion of your income
falling into that bracket, Seminole should pay the highest tier’s
rate only on the portion of its deviation falling into that tier. If
a taxpayer isn’t expected to pay the highest applicable rate on
all of her income, why should Seminole pay the highest

    3
       Because we conclude that FERC properly interpreted the
service agreement, we have no occasion to address FERC’s
alternative ground for imposing a 24-month refund-limitation period.
                               12

applicable rate on its entire deviation? The intuitive force of
that argument, however, is undermined by the actual text of the
tax code, which differs materially from the text of the tariff. An
examination of the two shows that the plain text of Schedule 4
does not require apportionment.

 If taxable income is:              The tax is:

 Not over $22,100                   15% of taxable income.
 Over $22,100 but not over $3,315, plus 28% of               the
 $53,500                    excess over $22,100.
 Over $53,500 but not over $12,107, plus 31% of              the
 $115,000                   excess over $53,500.
 Over $115,000 but not over $31,172, plus 36% of             the
 $250,000                   excess over $115,000.
 Over $250,000              $79,772, plus 39.6% of           the
                            excess over $250,000.

See 26 U.S.C. § 1(c).

      As is evident from the table above, the tax code is explicit
that each bracket’s rate applies only to the portion of a
taxpayer’s income falling into that bracket. For instance, it
specifies that if a person’s taxable income falls into the second
tier (between $22,100 and $53,500), she pays 15% on the first
$22,100 of her income and 28% on all of her income above that
amount.

     Not so with Schedule 4 of the tariff. Schedule 4 simply
states that “deviations within +/- 1.5 percent . . . will be . . .
settled financially . . . at 100 percent of [marginal] cost,” that
“deviations greater than +/- 1.5 percent up to 7.5 percent . . .
                                  13

will be settled financially. . . at 110 percent of [marginal] cost,”
and that “deviations greater than +/- 7.5 percent . . . will be
settled financially . . . at 125 percent of [marginal] cost.” J.A.
44. The text at least allows for (even if it does not compel) the
approach that Florida Power took: if electricity usage has
deviated more than X% from scheduled usage, apply to the
entire amount of the deviation the rate that corresponds to a
deviation of X%. 4

     Even so, Seminole argues, FERC should have determined
that apportionment was required because the context in which
the tariff was developed unmistakably supports that reading.
All parties agree that interpretation of Schedule 4 of the tariff
must be made in light of FERC Order No. 890. In that order,
FERC set guidelines for how transmission providers should
charge customers for energy imbalance service, see generally
Preventing Undue Discrimination and Preference in
Transmission Service, 72 Fed. Reg. 12,265 (Mar. 15, 2007)
(Final Rule), by issuing a “pro forma” model tariff through
notice and comment.

     FERC explained that the purpose of its model language
was to increase consistency among transmission providers in
how they charged for energy imbalance service and to ensure
that the level of charges “provide[d] appropriate incentives to
keep schedules accurate without being excessive.” Id. at

     4
        The dictionary definition of “deviation” also allows the
approach Florida Power took. Merriam-Webster defines a
“deviation” as “an act or instance of deviating,” which suggests that
a deviation is a single event or unit. Deviation, MERRIAM-WEBSTER
ONLINE,       https://www.merriam-webster.com/dictionary/deviation
(last visited June 23, 2017) (emphasis added). Thus, instances of
deviating that exceed 7.5% could be billed at 125% of incremental
cost, for the entire instance (i.e., the total amount of the deviation).
                                14

12,356. In looking for an example of a tariff that provided the
right kind of incentives, FERC zeroed in on the approach taken
by the Bonneville Power Administration, a federally owned
transmission provider. Observing that Bonneville had “adopted
an energy imbalance pricing approach based on a three-tiered
deviation band that appears workable,” FERC asked for
comment on the merits of that approach. Id. at 12,345. As
FERC found, many commenters “generally support[ed] a tiered
approach to imbalance penalties that progressively increases
the penalties for imbalances, as implemented by Bonneville.”
Id. Persuaded by these comments, FERC wrote that it was
adopting “pro forma . . . imbalance provisions similar to those
implemented by Bonneville.” Id. at 12,349 (second emphasis
added). Although transmission providers were free to submit
tariffs of their own making that departed from the model tariff,
Florida Power simply adopted FERC’s language as its own.

     Seminole points out that Bonneville, in practice, charges
its transmission customers using apportionment. Because
FERC stated that it was adopting pricing provisions “similar to
those implemented by Bonneville” and did not affirmatively
state that providers could use non-apportionment, Seminole
contends that FERC must have meant for all providers to use
apportionment. This argument overlooks a crucial difference
between Bonneville’s tariff and the FERC model: Bonneville’s
tariff states that the second tier’s rate “applies to the portion of
the deviation . . . greater than +/- 1.5% of the scheduled amount
of energy . . . up to and including +/- 7.5%” and that the third
tier’s rate “applies to the portion of the deviation . . . greater
than +/- 7.5% of the scheduled amount of energy . . . .” J.A.
140-41 (emphases added). So Bonneville’s tariff, unlike
FERC’s model, explicitly requires apportionment. FERC’s
choice to leave out language that unambiguously requires
apportionment implies strongly that the model tariff does not
                               15

so require. Indeed, this omission is strong evidence that FERC
specifically crafted its model tariff to allow for non-
apportionment. Seminole has no response to this point, except
to fall back on its primary argument—which we have already
rejected—that the tariff’s plain text requires apportionment.

     Seminole’s other arguments about apportionment are
misplaced. For example, Seminole maintains that FERC’s goal
of increased consistency compels apportionment, but we fail to
see why. After all, FERC has achieved increased consistency
simply by adopting a three-tiered energy-imbalance pricing
structure that progressively increases the cost of imbalance
service as the deviation from scheduled electricity usage
increases.

     Seminole also argues that apportionment must be required
under the tariff because FERC has found that other tariffs that
explicitly require apportionment are “consistent” with FERC’s
model tariff. For instance, as Seminole points out, FERC
accepted the proposed tariff of the Louisville Gas and Electric
Company (LG&E), which used the apportionment language
from Bonneville, as “consistent with” the model tariff. Order
on Proposed Variations from the Pro Forma Open Access
Transmission Tariff, 120 FERC ¶ 61,227 at P 27 (2007).
Seminole contends that if FERC found LG&E’s tariff to be
“consistent with” FERC’s model, and LG&E’s tariff explicitly
calls for apportionment, then FERC should agree that the
model tariff necessarily calls for apportionment too. But the
LG&E example makes clear only that, in FERC’s view,
apportionment is acceptable under the model tariff, not that
non-apportionment is unacceptable.

     FERC may well have caused some confusion by remaining
silent on the issue of apportionment yet expressly stating that it
                              16

was adopting a model tariff “similar to” Bonneville’s. But the
fact that the text of the tariff does not itself compel
apportionment, combined with FERC’s exclusion of
apportionment language from its model tariff, at a minimum
creates ambiguity about whether non-apportionment is allowed
under the model tariff. In the face of that ambiguity, FERC has
reasonably concluded that the tariff allows transmission
providers to use non-apportionment. We must defer to that
reasonable interpretation.

                              IV

     For the reasons stated above, we deny the petition for
review.

                                                   So ordered.