Southern California Edison Co. v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 11, 2007 Decided October 2, 2007

No. 06-1202

SOUTHERN CALIFORNIA EDISON COMPANY,
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT

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

Ellen Amber Berman argued the cause for the petitioner.
Michael D. Mackness and Erin K. Moore were on brief.
Jeffrey S. Dennis, Attorney, Federal Energy Regulatory
Commission, argued the cause for the respondent. John S. Moot,
General Counsel, and Robert H. Solomon, Solicitor, Federal
Energy Regulatory Commission, were on brief.
Before: HENDERSON, RANDOLPH and BROWN, Circuit
Judges.
Opinion for the court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: This action
arises out of a contract between Southern California Edison
Company (SCE) and the City of Corona, California (Corona)
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under which SCE agreed to install interconnection facilities to
provide electrical interconnection service to Corona. Under the
parties’ Interconnection Facilities Agreement (Facilities
Agreement or Agreement), Corona paid SCE in advance the
estimated cost of installing the interconnection facilities and SCE
agreed to furnish Corona with a final trued-up invoice for the
actual installation cost within twelve months after the facilities’
in-service date. SCE failed to meet the invoice deadline and
instead filed rate revision sheets with the Federal Energy
Regulatory Commission (FERC or Commission) some twenty
months after the deadline to collect the balance of the costs from
Corona. FERC rejected SCE’s revised rates on the ground that
the twelve-month deadline was a condition precedent to SCE’s
right to recover the costs and SCE failed to satisfy the condition.
See S. Cal. Edison Co., 113 F.E.R.C. ¶ 61,018 (Oct. 11, 2005)
(rejecting rate sheets) (FERC Ord.); S. Cal. Edison Co., 115
F.E.R.C. ¶ 61,100 (Apr. 24, 2006) (denying rehearing) (Reh’g
Ord.). SCE seeks review of FERC’s orders on the ground that
the Agreement is governed by California law, under which the
twelve-month deadline is not a condition precedent, and SCE is
therefore entitled to recover the full costs, less damages (if any)
caused by the delay. Because FERC failed to apply California
law in interpreting the Facilities Agreement, as the Agreement
itself requires, we remand to the Commission to construe the
Agreement under applicable California law.
I.
The facts are largely undisputed. On April 6, 2002, Corona
applied to SCE to obtain wholesale distribution service for a
proposed electricity distribution facility. In a letter approved by
both parties and filed with FERC on August 2, 2002 (Letter
Agreement), the parties memorialized an interim agreement both
for interconnection service, with a proposed in-service date of
December 1, 2002, and for installing the interconnection
facilities. Pursuant to the Letter Agreement, Corona paid SCE
 3

an initial deposit of $10,000 toward the installation costs. Letter
Agreement ¶¶ 2-3.
On January 31, 2003, SCE filed with FERC a “Service
Agreement for Wholesale Distribution Service” and the Facilities
Agreement, which the Commission accepted for filing in a letter
order issued March 24, 2003. The Facilities Agreement, which
by its terms supersedes the Letter Agreement, Facilities
Agreement § 5.6, requires Corona to make to SCE an
“Interconnection Facilities Payment,” which is the sum of all
costs “associated with the design, engineering, procurement,
construction and installation of the Interconnection Facilities,”
id. §§ 4.14; see 4.16, 4.17, 4.19. Under the Agreement:
Corona shall make payments to SCE for the
Interconnection Facilities Payment, according to the
payment schedule shown in Exhibit C. The amount of
such Interconnection Facilities Payment is based on
SCE’s cost estimates and shall be subject to later
adjustment pursuant to Sections 13.1.8.1 and 13.1.8.2.
Id. § 13.1.2. Section 13.1.8 of the Agreement provides:
Within twelve (12) months following the Interconnection
Facilities In-Service Date . . . , SCE shall determine the
actual recorded Interconnection Facilities Cost . . . and
provide Corona with a final invoice.
Section 13.1.8.1 then provides that, if the estimated costs are less
than the actual costs, SCE “will bill Corona for the difference
between the amounts previously paid by Corona and the actual
recorded costs, without interest, within twenty (20) calendar days
of the date of such invoice.” Section 13.1.8.2 similarly provides
that, if the amounts already paid exceed the actual installation
costs, SCE is to refund the overage. The Interconnection
Facilities Cost was initially estimated at $54,241.37, id. ex. B,
with a balance due of $44,241.37 ($54,241.37 less Corona’s
$10,000 deposit), id. ex. C.
 4

In addition to the up-front Interconnection Facilities
Payment, the Facilities Agreement imposes on Corona an
ongoing monthly “Interconnection Facilities Charge,” which is
defined as “[t]he monthly charge to Corona to recover the
revenue requirements for the Interconnection Facilities,
calculated as the product of the Customer-Financed Monthly
Rate and the Interconnection Facilities Cost.” Id. § 4.13.
Because it is based in part on the Interconnection Facilities Cost,
the Interconnection Facilities Charge is also to be reassessed
under the Agreement and, if the actual costs exceed the estimated
costs, the Agreement provides that “SCE will bill Corona for the
difference between the amounts previously paid by Corona and
the amounts which would have been paid based on actual
recorded costs, without interest, on the next regular billing.” Id.
§ 13.1.8.3. Conversely, if the actual costs are less than the
estimated costs, the Agreement provides that “SCE will credit
Corona the difference . . . , without interest, on the next regular
billing.” Id. § 13.1.8.4
Finally, the Agreement contains two general provisions of
relevance here. The first is a choice of law provision:
Governing Law:
Except as otherwise provided by federal law, this
Agreement shall be governed by and construed in
accordance with, the laws of the state of California.
Id. § 23. The second reserves to SCE the right to apply to FERC
to revise the interconnection rates:
Nothing contained herein shall be construed as affecting
in any way: (i) the right of SCE to unilaterally make
application to the FERC for a change in rates, charges,
classification, or service, or any rule, regulation, or
contract relating thereto, under Section 205 of the
Federal Power Act and pursuant to the Rules and
Regulations promulgated by FERC thereunder; [or] (ii)
 5

the right of Corona to oppose such changes under Section
205 of the Federal Power Act . . . .
Id. § 18.2.
SCE installed the interconnection facilities as agreed, but
with an in-service date of January 4, 2003. See FERC Ord. at 3;
Corona’s “Motion to Intervene, Protest, and Motion to Reject”
(Protest Motion) at 4; SCE’s “Answer to Motion to Intervene,
Protest and Motion to Reject” (Answer to Protest Motion) at 3-4.
Although the Interconnection Facilities Costs apparently
exceeded the cost estimate in the Facilities Agreement, SCE did
not submit a final invoice or bill Corona pursuant to section
13.1.8.1.1 Answer to Protest Motion at 4. Instead, on August 17,
2005, SCE filed revised rate sheets with FERC pursuant to
section 18.2 of the Agreement. In its filing, SCE claimed total
installation costs of $72,198.50 and, accordingly, sought a
supplemental Interconnection Facilities Payment of $17,957.13
and additional Interconnection Facilities Charges totaling
$365.99 up to that time. Corona protested the revised rate sheets,
asserting FERC should reject them as “inconsistent with rate
[sic] on file with the Commission,” namely the previously filed
Facilities Agreement requiring SCE to provide Corona with an
invoice for the additional costs sought within twelve months
after the interconnection facilities’ in-service date. Protest
Motion at 4-5. SCE countered that FERC should accept the
revised rate as “just and reasonable” and that, under governing
California law, SCE’s “breach” was not material and therefore

1
According to SCE, it “finalized the true-up internally in
December 2003” and “informed Corona of the difference between the
actual costs and the estimated costs of the Interconnection Facilities
around that time.” Answer to Protest Motion at 4. According to
Corona, SCE—apparently for the first time—“indicated that there had
been cost overruns” in a letter dated May 7, 2004 but did not provide
Corona with an invoice before then or thereafter. Protest Motion at 4.
 6

Corona’s remedy was limited to the damages, if any, attributable
thereto. Answer to Protest Motion at 4-8.
In an order issued October 11, 2005, the Commission
rejected the revised rate sheets. The Commission concluded the
revised rates are “contrary to the contract” because the Facilities
Agreement requires SCE “to provide Corona with a final invoice
within twelve months of the interconnection facilities’ in-service
date,” that is, no later than January 4, 2004, and “SCE did not
submit the final invoice through [the rate sheet] filing until
August 17, 2005, 20 months after the deadline.” FERC Ord. at
3. The Commission therefore concluded that “SCE slept on its
rights and thus forfeited the additional payment under the
contract.” Id.
SCE filed a request for rehearing, asserting that FERC had
not applied California law, as the Facilities Agreement requires,
and that under California law SCE’s delay in performance was
not a material breach that excused Corona’s performance. See
SCE Req. for Reh’g at 8-10. FERC denied the reconsideration
motion in an order issued April 24, 2006 on the ground that
“[t]he contractual language . . . establishes a condition precedent
for SCE to recover true-up costs” and “SCE failed to meet that
condition precedent.” Reh’g Ord. at 4. The Commission
rejected Corona’s California law argument, stating:
With regard to SCE’s argument that the Commission
should have applied state law, we note that first the
Facilities Agreement provides that the agreement “shall
be governed by, and construed in accordance, with the
laws of the state of California, except as otherwise
provided by federal law.” SCE’s arguments focus on an
outcome based on California law. However, SCE sought
to collect these additional costs by filing its amended rate
sheets with the Commission. SCE’s request involves
interpreting a jurisdictional agreement that is on file with
the Commission and that contains rates, terms, and
 7

conditions of service by a public utility. Accordingly, it
was appropriate for the Commission to review SCE’s
filing to collect the additional costs and the Facilities
Agreement based on Commission precedent.
Id. at 4-5 (emphasis by FERC) (footnote omitted).
SCE petitioned for review of FERC’s orders on June 15,
2006.
II.
A.
Before addressing the merits of SCE’s petition, we consider
FERC’s challenge to SCE’s standing under Article III of the
United States Constitution. See Steel Co. v. Citizens for Better
Env’t, 523 U.S. 83, 94-102 (1998). FERC contends SCE lacks
standing because SEC’s claimed injury—its inability to collect
the trued-up costs—is “not fairly traceable to the challenged
Commission Orders” but is attributable instead to SCE’s own
consent to the Facilities Agreement’s twelve-month deadline to
invoice additional costs and its failure to provide an invoice
within the twelve-month period; therefore, FERC asserts, SCE’s
injury is “entirely self-inflicted.” Resp’t’s Br. at 9. In support,
FERC relies on our decision in Brotherhood of Locomotive
Engineers & Trainmen v. Surface Transportation Board, 457
F.3d 24 (D.C. Cir. 2006). FERC’s reliance is misplaced.
In Brotherhood of Locomotive Engineers, the petitioner
union argued that certain railroad track about to be acquired by
a new operator was “switching” track and was therefore
governed by 49 U.S.C. § 10906 (which removes acquisition of
switching track from Surface Transportation Board jurisdiction)
rather than by 49 U.S.C. § 10901 (which governs acquisition of
a railroad line generally and under which the Surface
Transportation Board had exercised jurisdiction and exempted
the subject track from certification). The reason the nature of the
 8

track mattered to the union was that it had negotiated away its
right to bargain with respect to any transaction “authorized under
§ 10901,” 457 F.3d at 26, and therefore if the track were found
to come under section 10901 rather than under section 10906, the
transferring operator would not be required to bargain with the
union before consummating the transfer to the new operator. We
concluded that the union lacked standing because its injury was
“entirely self inflicted,” explaining that “had the Union not
traded away its right to bargain over the effects of exempted
transactions, it would have no interest” in which statute applied.
Id. at 28. FERC contends that SCE likewise lacks standing
because its inability to recover the true-up costs is attributable to
its agreement to a twelve-month time limit; but this case differs
from Brotherhood in one crucial respect.
In Brotherhood, there was no dispute that the union through
its collective bargaining agreement voluntarily relinquished its
right to bargain in any section 10901 transaction or that its
relinquishment of the right caused its injury (the inability to
bargain).2 Here, by contrast, it is sharply contested whether SCE

2
Similarly, in two other cases FERC cites, Resp’t’s Br. at 12 n.5,
it was undisputed that the parties found to lack standing committed
voluntary acts that caused the alleged injuries. See Pennsylvania v.
New Jersey, 426 U.S. 660, 664 (1976) (plaintiff states lacked standing
to challenge other states’ income tax on nonresident employees
because their injury—decreased tax income—was “self-inflicted” by
their own decision to credit taxpayers for taxes paid to other states);
Petro-Chem Processing, Inc. v. EPA, 866 F.2d 433, 438 (D.C. Cir.
1989) (trade organization lacked standing to challenge agency
decision allowing members’ competitors to use less expensive
methods of hazardous waste disposal because claimed
injury—exposure to increased clean-up liability caused by bowing to
competitive pressure to use cheaper, laxer method—was “so
completely due to the [complainant’s] own fault as to break the causal
chain” (quotation omitted)).
 9

in fact forfeited its right to recover the costs if it did not provide
an invoice within the twelve-month period. Whether the
Agreement makes recovery contingent on timely invoicing is
precisely the issue of contract construction and law that FERC
decided in its orders and that the parties argue here. Thus,
FERC’s argument “is nothing more than an effort to bootstrap
standing analysis to issues that are controverted on the merits.”
Pub. Citizen v. FTC, 869 F.2d 1541, 1549 (D.C. Cir. 1989). Yet,
“in reviewing the standing question, the court must be careful not
to decide the questions on the merits for or against the
[petitioner], and must therefore assume that on the merits the
[petitioner] would be successful in [its] claims.” City of
Waukesha v. EPA, 320 F.3d 228, 235 (D.C. Cir. 2003) (citing
Warth v. Seldin, 422 U.S. 490, 502 (1975); Am. Fed’n of Gov’t
Employees v. Pierce, 697 F.2d 303, 305 (D.C. Cir. 1982)).
Assuming here that SCE will prevail, we must therefore assume
for the purpose of standing that, as it argues, it did not relinquish
its right to recover actual costs by agreeing to the twelve-month
deadline. Accordingly, we reject FERC’s standing argument.
B.
On the merits, SCE contends that FERC erred in failing to
apply California contract law as required under the Facilities
Agreement and that, under California law, the twelve-month
invoice deadline is not a condition precedent to recovering the
balance of the actual installation costs. In reviewing FERC’s
interpretation of a FERC-approved contract such as the Facilities
Agreement, the court “employ[s] a variation of the now familiar
‘two-step’ first performed by the United States Supreme Court
in Chevron U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984).” Ameren Servs. Co. v. FERC, 330
F.3d 494, 498 (D.C. Cir. 2003) (citing Cajun Elec. Power Coop.
v. FERC, 924 F.2d 1132, 1135-36 (D.C. Cir. 1991); Appalachian
Power Co. v. FERC, 101 F.3d 1432, 1435 (D.C. Cir. 1996)).
“Applying Chevron in this context, we first consider de novo
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whether the [Facilities Agreement] unambiguously addresses the
matter at issue. If so, the language of the agreement controls for
we ‘must give effect to the unambiguously expressed intent of’
the parties.” Id. (quoting Chevron, 467 U.S. at 843) (internal
citation omitted). We conclude that the choice of law provision
in the Facilities Agreement unambiguously requires that the
Commission apply California law and that the Commission
therefore erred in failing to so do.
As already noted, the Agreement’s choice of law provision
states: “Except as otherwise provided by federal law, this
Agreement shall be governed by and construed in accordance
with, the laws of the state of California.” Facilities Agreement
§ 23. Notwithstanding this language plainly mandates that the
Agreement be construed under California law unless federal law
is in conflict, FERC concluded it was “appropriate for the
Commission to review SCE’s filing to collect the additional costs
and the Facilities Agreement based on Commission precedent”
because “SCE sought to collect these additional costs by filing
its amended rate sheets with the Commission” and “SCE’s
request involves interpreting a jurisdictional agreement that is on
file with the Commission and that contains rates, terms, and
conditions of service by a public utility.” Reh’g Ord. at 5
(emphasis added). Thus, FERC appears to have selected federal
law over California law simply because the Agreement was filed
with the Commission, without identifying any difference
between federal and California law to justify such selection
under the first clause of the choice of law provision. In this the
Commission erred. The Commission may not ignore the plain
language of a contract but instead must “give effect to the
unambiguously expressed intent of the parties.” Ameren Servs.,
330 F.3d at 498 (quotation omitted). Nor is the Commission’s
obligation to apply state law altered because the Agreement has
been filed as part of a rate case. See Pennzoil Co. v. FERC, 789
F.2d 1128, 1142 (5th Cir. 1986) (“ ‘[T]he appropriate contract
law to apply is the law that would govern the parties’ dealings
 11

were there no regulation at all of the contract’s subject matter.’ ”
(quoting Pennzoil Co. v. FERC, 645 F.2d 360, 383-84, 387 (5th
Cir.1981), cert. denied, 454 U.S. 1142 (1982))); cf. Sam Rayburn
Dam Elec. Coop. v. Fed. Power Comm’n, 515 F.2d 998, 1009
(D.C. Cir. 1975) (noting Federal Power Commission “suggested
no reason that the recognized law governing contracts should be
ignored merely because the subject matter of a contract falls
under the jurisdiction of the FPC”). In fact, that FERC accepted
the Facilities Agreement as filed, with the choice of law
provision intact, only strengthens the case for enforcing the
provision. Finally, accepting FERC’s choice of law argument
would permit FERC to disregard a choice of law provision in any
FERC-approved contract. Accordingly, we reject this argument.
Because the Commission did not give effect to the
unambiguously expressed intent of the parties that California law
govern construction of the Interconnection Facilities Agreement,
we grant SCE’s petition for review and remand to the
Commission to enforce the Agreement’s choice of law provision
and to determine whether the twelve-month deadline to provide
an invoice to Corona is a condition precedent under California
law.
So ordered.