Court Opinion

ID: 6105521
Source: CourtListenerOpinion
Date Created: 2022-01-21 16:02:02.977746+00
Date Added: 2024-06-11T08:53:49.397823
License: Public Domain

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
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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 high-
demand “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
                               8
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.