The United States Court of Appeals for the District of Columbia Circuit on Dec. 3 vacated a ruling by FERC regarding a dispute between Southwest Power Pool (SPP) and the Midcontinent ISO (MISO) over the use of a contract path to Entergy Arkansas, and remanded the matter back to FERC (Docket No. 12-1158).
The issue arose from Entergy Arkansas’s 2011 request to join MISO over SPP, a decision based in part “on a considerable savings in production costs that joining MISO would yield relative to joining SPP,” according to the court’s Dec. 3 decision. However, to move energy to Entergy Arkansas from within MISO, the RTO would have to rely on transmission owned by other parties, specifically, SPP.
“Although Entergy Arkansas has transmission connections to both SPP and MISO, its connection to MISO is relatively limited compared to those to SPP and others,” the court noted. “MISO would therefore need to rely on these other, non-MISO transmission providers [and] believes that its joint operating agreement (JOA) with SPP gives it the right to rely on SPP’s transmission facilities to do so.”
SPP objected on several grounds, including that Entergy Arkansas’s move to MISO would change the nature of the “contract path” that currently exists to the Entergy (NYSE:ETR) subsidiary. When Entergy Arkansas joins MISO, a move the court noted “appears imminent,” the path would cease to be a contract path but would become a path from one part of the RTO to another, SPP argued, noting that an RTO “cannot have a ‘contract path to’ itself or to part of itself.”
MISO, on the other hand, interpreted the phrase “contract path to the same entity” contained in the JOA to include any physical or contractual interconnection and to apply regardless of whether the “entity” is a part of either RTO.
In its declaratory order resolving the interpretation of that provision of the JOA, FERC agreed with MISO’s view. However, in its 10-page decision, the court of appeals wrote that FERC’s order failed to provide a reasoned explanation for its decision.
FERC’s treatment of the issue “founders” on the requirements that it “examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made,’” the court said.
The decision criticized FERC, saying the commission “leapt to an interpretation of one item of evidence without explaining its implicit rejection of alternative interpretations, and, equally without explanation (or at least adequate explanation), it disregarded evidence that the applicable law required it to consider,” senior circuit court judge Stephan Williams wrote in the court’s decision.
In its order, FERC cited the fact that both SPP and MISO have contract paths to Entergy Arkansas and have both used such paths. The order also cited an instance in which MISO transmitted energy to MISO member company Ameren (NYSE:AEE) “through SPP and across Entergy Arkansas.”
Though the court did not see the two facts as conflicting, it noted that FERC’s “confident reading” of MISO’s interpretation led FERC to dismiss other types of evidence proffered by SPP, including an affidavit from an SPP official who stated that, at the time the JOA was being negotiated, it was understood that the section of the JOA that governs the contract paths “would apply only when the electricity was transmitted to a third party, not when it was delivered to part of the originating RTO.”
FERC also disregarded definitions of the term “contract path” used by NERC and the North American Energy Standards Board (NAESB), choosing to focus on the “performance evidence” rather than extrinsic evidence. While FERC correctly observed that contractual laws accord greater weight to performance evidence, the court’s ruling criticized FERC for giving “no weight at all to any other.”
“We are at a loss to see why FERC regarded the episode as decisive in favor of MISO,” judge Williams wrote.
The court also dismissed FERC’s assertions that SPP lacked standing to bring the matter before the court, and that SPP’s claims were unripe for the court’s consideration. The matter now goes back to FERC for reconsideration.