Arizona Public Service Company v. Ferc ( 2019 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
JUN 14 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
ARIZONA PUBLIC SERVICE No. 17-73244
COMPANY,
FERC No. ER16-1342-001
Petitioner,
v. MEMORANDUM*
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent.
On Petition for Review of an Order of the
Federal Energy Regulatory Commission
Argued and Submitted May 15, 2019
San Francisco, California
Before: WALLACE, IKUTA, and CHRISTEN, Circuit Judges.
Petitioner Arizona Public Service Company (APS) challenges two orders of
respondent Federal Energy Regulatory Commission (FERC or “Commission”)
with respect to the termination of the fifty-year-old Edison-Arizona Transmission
Agreement (“Transmission Agreement”) between APS and Southern California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Edison Company (“Edison”).1 We have jurisdiction pursuant to 16 U.S.C.
§ 825l(b). We deny the petition in part and grant the petition in part, and remand
to FERC for further proceedings.
1. Reimbursement Payment. On April 1, 2016, APS submitted a notice
of cancellation of the Transmission Agreement, effective July 6, 2016. APS also
sought FERC authorization to pay Edison a $12,688,457 negotiated reimbursement
payment pursuant to section 25.4 of the Transmission Agreement, which APS
would then recover from its ratepayers through its transmission formula rates. On
July 1, 2016, FERC accepted APS’s notice of cancellation, but rejected APS’s
proposal to recover the reimbursement payment from its ratepayers. FERC
concluded that the reimbursement payment calculation constituted “a rate change
under section 205 of the FPA . . . . requir[ing] cost support and Commission
review.” Specifically, FERC explained that APS’s “$12,688,457 final payment to
SoCal Edison . . . supplants two components of the filed rate: the monthly charge
to SoCal Edison and the negotiation process set forth in section 25.4.”
Our review of a FERC decision is limited to whether the decision was
arbitrary, capricious, an abuse of discretion, unsupported by substantial
evidence, or not in accordance with the law. As long as the record
reflects that the decision was based on a consideration of relevant factors
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As the parties are familiar with the facts, we do not recount them here.
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and there was no clear error of judgment the decision was not arbitrary
or capricious.
Cal. Dep’t of Water Res. v. FERC, 341 F.3d 906, 910 (9th Cir. 2003) (internal
citations omitted) (internal quotation marks omitted); see also 5 U.S.C.
§ 706(2)(A). FERC’s conclusion that the reimbursement payment altered the filed
rate in the Transmission Agreement was not arbitrary or capricious. Although
FERC accepted the Transmission Agreement in 1967, that acceptance did not
constitute approval of the yet-to-be-negotiated reimbursement payment because it
was not possible for FERC to say whether the future payment would be “just and
reasonable” without a proposed formula with sufficient specificity.
Rate changes require cost support and FERC review under section 205 of the
Federal Power Act to ensure that the rate is “just and reasonable.” 16 U.S.C.
§ 824d(a); see Mont. Consumer Counsel v. FERC, 659 F.3d 910, 914 (9th Cir.
2011). Courts afford “great deference to the Commission in its rate decisions[,]”
such as when determining whether a rate is “just and reasonable[.]” Morgan
Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 532 (2008).
FERC’s order concluded that APS failed to satisfy its burden to provide cost
support for its proposed rate. FERC took issue with APS’s “beneficial use”
calculation because: (1) it rested on a service life estimate that APS failed to
provide or support; (2) “under the Commission’s straight-line, remaining life
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depreciation method, utilities may implement changes in the estimated service life
prospectively only, over the remaining life of the assets”; and (3) it did not reflect
the under-recovery of any expenses, contrary to APS’s assertions. APS disputes
this rationale, but FERC’s conclusions were reasonable, particularly given the
limited information APS provided as to how it arrived at its “beneficial use”
amount. FERC’s conclusion that APS failed to provide adequate cost support for
its proposed reimbursement payment has not been shown to be arbitrary or
capricious.
2. Expiration Agreement. FERC determined that the 2015 Agreement
Concerning the Expiration of the Edison-Arizona Transmission Agreement (the
“Expiration Agreement”) was subject to FERC’s jurisdiction because it revised the
Transmission Agreement by setting a new termination date. FERC thus ruled that
APS should have filed the Expiration Agreement with FERC pursuant to section
205(c) of the FPA, and FERC referred the matter to its Office of Enforcement for
further examination. The Transmission Agreement does not specify any
termination date; rather it defines its “term” as lasting “during the term of the New
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Lease, and any and all renewals or extensions thereof.”2 APS asserts that the
Transmission Agreement expired on its own terms on July 6, 2016 because the
relevant lease is the 1966 Four Corners Project Lease with Navajo Nation, which
became effective on July 6, 1966 for a period of 50 years. FERC contends that the
Amendment and Supplement No. 3 to the 1996 Lease (“Supplement No. 3”)
qualifies as an “extension” of the lease under the Transmission Agreement’s
“term” definition because Supplement No. 3 states that “[t]he 1960 Lease and the
1966 Lease . . . are extended to July 6, 2041[.]” But Edison was not a party to
Supplement No. 3, and APS argues that the parties intended for Supplement No. 3
to be a separate lease, not a renewal or extension of the New Lease, for purposes of
determining the Transmission Agreement’s expiration date.
The Commission has interpreted FERC’s Rule 217 to mean that summary
disposition is only appropriate where “there are no material facts in dispute or
because the facts presented by the proponent have been accepted in reaching the
decision.” Pac. Gas & Elec. Co. v. FERC, 746 F.2d 1383, 1386 (9th Cir. 1984);
see 18 C.F.R. § 385.217(b). In reviewing FERC’s decision that summary
2
The New Lease is defined as: “The provisions of the Supplemental
Lease from the Navajo Tribe of Indians as lessors, which are applicable to the Four
Corners Project, and under which the Participants, as lessees, shall acquire
leasehold rights to construct, reconstruct, use, operate, maintain, relocate and
remove the Four Corners Project.”
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disposition is proper, “this court must be satisfied that FERC properly addressed all
the relevant factors in dispute and that a formal hearing was unnecessary for the
Commission to reach its conclusion.” Pac. Gas & Elec. Co, 746 F.2d at 1386. The
record before us is missing key documents, including the 1960 Lease and 1966
Lease. Moreover, there is a material issue of fact as to whether the parties intended
Supplement No. 3 to extend the Transmission Agreement’s expiration date to July
6, 2041. FERC erred by not fully developing the record on these issues before
making its determination that the Expiration Agreement changed the termination
date. We vacate FERC’s determination that the Expiration Agreement was
required to be filed with FERC under section 205 of the FPA, and remand for
additional proceedings.
Petition DENIED in part, GRANTED in part, and REMANDED.
The parties shall bear their own costs on appeal.
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