Cajun Electric Power Cooperative, Inc. v. Federal Energy Regulatory Commission

Citations: 288 U.S. App. D.C. 175; 924 F.2d 1132; 1991 U.S. App. LEXIS 1693Docket: No. 90-1035

Court: Court of Appeals for the D.C. Circuit; February 7, 1991; Federal Appellate Court

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Cajun Electric Power Cooperative, Inc. contests the Federal Energy Regulatory Commission’s (FERC) interpretation of a contract with Gulf States Utilities Company, which was filed as a rate schedule with FERC. Cajun sought FERC's enforcement of the contract under Sections 205 and 306 of the Federal Power Act, but FERC, asserting the contract clearly supported Gulf States' interpretation, denied Cajun's request for a hearing and granted summary judgment to Gulf States. The court believes the contract is ambiguous, necessitating a remand for further proceedings.

Cajun is a rural electric cooperative that generates and transmits power to thirteen member cooperatives, who in turn supply power to retail customers, including large industrial users. Gulf States is an investor-owned utility with transmission and distribution facilities. Their contentious relationship dates back to the early 1960s, marked by extensive litigation that culminated in a truce approved by the Federal Power Commission in 1975. One outcome of this truce required Gulf States to provide transmission services for Cajun-generated power to Cajun's members and their customers, based on Cajun's inability to independently finance the necessary infrastructure due to prolonged disputes.

The obligations of Gulf States under this agreement are detailed in various transmission service schedules, specifically a provision in Service Schedule CSTS, which limits transmission services to Cajun's members and their designated customers located within the rural cooperative's integrated system. Following this agreement, the parties negotiated an amendment in 1980, which was prompted by Gulf States' urgent need for funding to continue construction of its River Bend nuclear power plant, resulting in Cajun providing Gulf States with $588 million.

Cajun obtained loans guaranteed by the Rural Electrification Administration (REA), which required approval of financing and interconnection contracts prior to Cajun's execution. In return for its investment, Cajun gained an ownership stake in the Gulf States distribution system and additional usage rights. The current dispute centers on these rights, specifically a clause in Service Schedule CSTS that allows Cajun to establish interconnection at mutually agreed points if Gulf States fails to agree on delivery points or capacity increases. This appears to conflict with another provision in Section 5.1, suggesting Cajun could insist on interconnection without Gulf States' consent.

Cajun's member cooperatives sought to supply power to new industrial customers but were unable to do so due to Gulf States' refusal to provide necessary transmission services. Consequently, Cajun filed a complaint with the Federal Energy Regulatory Commission (FERC) based on Section 5.1, which was dismissed by FERC, stating that while Cajun could build interconnection facilities, the locations must be mutually agreed upon according to Section 5.1. FERC's ruling maintained Gulf States' authority to restrict Cajun from servicing additional customers not directly connected to Cajun's members.

Cajun attempted to present evidence regarding the intent behind Section 3.3(d) and the additional rights obtained in exchange for financing, including testimony from an REA officer. However, FERC did not allow this evidence, asserting that the contract was unambiguous and that any extrinsic evidence indicated Cajun sought more than what the contract specified. During rehearing, FERC reiterated that the contract's plain language was clear. The court is now considering whether to defer to FERC's interpretation of the contract, referencing the National Fuel Gas Supply Corp. v. FERC case, where FERC's interpretations were granted deference.

Chevron deference was applied to reject the idea that the interpretation of a settlement agreement should be reviewed de novo since it involves agency oversight. The settlement, which required approval from the Federal Energy Regulatory Commission (FERC), should be treated as having public interest implications rather than merely a private contract. Therefore, when an agency interprets ambiguities in such agreements, it should be guided by the public interest, similar to its interpretations of its own orders, regulations, or statutes. The application of Chevron involves a two-step process: first, determining if the statute or agreement is ambiguous without deference to the agency; second, if ambiguity is found, the agency's interpretation is assessed under a deferential "reasonable" standard. If an agency incorrectly asserts that a provision is unambiguous, the decision must be remanded for reevaluation. 

Regarding specific contract provisions, Section 5.1 limits Cajun to designated delivery points, while the later amendment in Section 3.3(d) suggests a broader scope, allowing Cajun to connect to Gulf States' transmission system if mutual agreement on additional delivery points is not reached, although this clause is somewhat unclear.

The contract appears to have undergone a significant relaxation of the original limitations regarding the 'integrated part of the system,' as indicated by a clause allowing Gulf States to contest interconnection in regulatory proceedings. This suggests a litigating safety valve that would be unnecessary if the original limitations were upheld. Ambiguity arises from the lack of cross-references between the provisions. The Commission's interpretation of Section 3.3(d) is considered strained, positing that Cajun's new right was merely to build an interconnection if Gulf States agreed to a new point but refused to construct the necessary facilities. This interpretation raises questions about Gulf States' rationale for agreeing to such a point without constructing it, especially since Cajun would bear the full construction costs. The Commission's summary judgment favoring Gulf States is viewed as potentially highhanded and driven by regulatory policy, rather than a clear reading of the contract. The case is remanded for further proceedings, allowing Cajun to present evidence of the parties' intent during negotiations, which the Commission previously overlooked. The ambiguity in the contract necessitates a deeper inquiry into the negotiation background. If it is determined that the parties did not address the dispute's core issue, the Commission may then reasonably interpret the ambiguity. Under Louisiana law, electric utilities can serve new customers if their connection point is more than 300 feet from existing utility lines, promoting competition among utilities. However, the owner of the transmission lines can hinder this competition by refusing to transmit power to rival retailers.

The contract in question was initially signed in 1978, amended in 1980, and re-entered into in 1987, with all versions filed and approved by the Commission. The precise meaning of "the integrated part of the system" remains disputed but is not addressed due to the case's disposition. The contract mandates Commission approval for its implementation, as outlined in 16 U.S.C. 824d. Cajun interprets the "mutually agreeable" clause as concerning only the technical feasibility of constructing interconnection facilities, asserting that Gulf States’ opposition does not infringe upon other contractual provisions, such as the no-discrimination clause. If the Federal Energy Regulatory Commission (FERC) were correct regarding the rights conferred by the 1980 amendment, it would imply that Cajun could not utilize the interconnection points listed in Exhibit A, as Gulf States could have blocked construction. This scenario is deemed illogical. The document expresses concern over FERC's interpretation that allows it to rule against Cajun based on a summary judgment motion, emphasizing that a party should not be precluded from demonstrating factual disputes under a different theory. Additionally, the Commission's assertion that considering extrinsic evidence would not alter its decision is criticized, as it relies on an assumption of absolute clarity in the contract language, which is rejected.