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Turlock Irrigation District v. Federal Energy Regulatory Commission

United States Court of Appeals, Ninth Circuit

September 6, 2018

Turlock Irrigation District; Modesto Irrigation District, Petitioners,
v.
Federal Energy Regulatory Commission, Respondent, Transmission Agency of Northern California; The M-S-R Public Power Agency; The City of Redding, California; Sacramento Municipal Utility District, Intervenors, Pacific Gas and Electric Company; California Department of Water Resources, Intervenors.

          Argued and Submitted May 14, 2018 San Francisco, California

          On Petition for Review of an Order of the Federal Energy Regulatory Commission FERC No. EL15-55-001

          Jon R. Stickman (argued) and Kenneth Holmboe, Duncan & Allen, Washington, D.C.; Sean M. Neal, Duncan Weinberg Genzer & Pembroke P.C., Sacramento, California; for Petitioners.

          Carol J. Banta (argued), Ross R. Fulton and Susan Y. Chu, Attorneys; Robert H. Solomon, Solicitor; James P. Danly, General Counsel; Federal Energy Regulatory Commission, Washington, D.C.; for Respondent.

          Alyssa Koo (argued), Pacific Gas and Electric Company, San Francisco, California, for Intervenor Pacific Gas and Electric Company.

          Lisa S. Gast and Peter J. Scanlon, Duncan Weinberg Genzer & Pembroke P.C., Washington, D.C.; Michael R. Postar, Matthew R. Rudolphi, and Tyler E. Mansholt, Duncan Weinberg Genzer & Pembroke P.C., Washington, D.C.; Harvey L. Reiter, Stinson Leonard Street LLP, Washington, D.C.; for Intervenors Transmission Agency of Northern California; The M-S-R Public Power Agency; The City of Redding, California; and Sacramento Municipal Utility District.

          Lisa G. Dowden and Katharine M. Mapes, Spiegel & McDiarmid LLP, Washington, D.C., for Intervenor California Department of Water Resources.

          Before: Sidney R. Thomas, Chief Judge, Michelle T. Friedland, Circuit Judge, and Thomas S. Zilly, [*] District Judge.

         SUMMARY [**]

         Federal Energy Regulatory Commission

         The panel granted a petition for review brought by the Turlock and Modesto Irrigation Districts, and held that the Federal Energy Regulatory Commission ("FERC")'s orders denying the Districts' complaint and denying rehearing were arbitrary and capricious.

         To supply power to their service areas, the Districts use transmission and generation facilities both within and outside of their individual electric systems. In order to import and export power into and out of their systems, the Districts use the California-Oregon Transmission Project, which was constructed by the Transmission Agency of Northern California with a group of public and private utilities, including Pacific Gas & Electric Company ("PG&E") and federal agencies.

         PG&E entered Interconnection Agreements with the Districts, providing the terms under which the interconnected utility systems owned by the respective parties coordinated their operations. The complaint alleged that PG&E breached the notice and study provisions of these agreements.

         The California Department of Water Resources entered into a State Water Contract with PG&E in 1982 to provide interconnection services of the Department's plants and facilities in PG&E's service area. The Department agreed to participate in the Remedial Action Scheme, which was an automatic protection system designed to detect abnormal or predetermined system conditions on a transmission grid and take corrective actions to maintain the reliability of the system. The State Water Contract expired on December 31, 2014, and in the Spring of 2014 the Districts raised concerns about the impact to their systems. When PG&E determined there was not a reasonable likelihood of any Adverse Impact to the service territories of the Districts, the Districts filed their complaint, which FERC denied.

         The panel held that FERC misinterpreted the definition of Adverse Impact, and thus improperly disposed of the Districts' complaints without determining whether changes to the Remedial Action Scheme may result in reductions in transmission over the California-Oregon Transmission Project. The panel further held that FERC applied the wrong standard for initiating a study when making its factual findings.

         On remand, the panel directed FERC to apply the broader definition of Adverse Impact that included reductions in import capability over the California-Oregon Transmission Project and the proper standard for requesting a study in determining whether PG&E breached the Interconnection Agreements.

          OPINION

          THOMAS, CHIEF JUDGE:

         In this petition for review, we consider whether the Federal Energy Regulatory Commission ("FERC") acted arbitrarily and capriciously in denying a complaint brought by the Turlock and Modesto Irrigation Districts (collectively, the "Districts"). The complaint alleged that Pacific Gas & Electric Company ("PG&E") breached agreements between the Districts and PG&E. We conclude that FERC's orders denying the complaint and denying rehearing were arbitrary and capricious, and we grant the Districts' petition.

         I

         A

         PG&E provides wholesale and retail electric service in northern and central California. PG&E owns an extensive electric transmission system within that area, which was turned over to the operational control of the California Independent System Operator ("Cal-ISO") in 1998. Cal-ISO provides transmission service over PG&E's system.

         The Districts generate, transmit, and distribute electric power within their service areas. Each District retains operational control of its own transmission system. The Districts jointly own Westley Substation and three 230 kV transmission lines, the Westley-Parker, Westley-Walnut, and Parker-Walnut lines. These lines move power from the Westley Substation to the Districts' service areas. Westley Junction is the point of interconnection between PG&E's system and each District's system. In addition, the Districts jointly own the Westley-Tracy Transmission Project, which interconnects with the Western Area Power Administration ("Western") system at Tracy Substation.

         To supply power to their service areas, the Districts use transmission and generation facilities both within and outside of their individual electric systems. In order to import and export power into and out of their systems, the Districts use the California-Oregon Transmission Project ("California-Oregon Project"). The California-Oregon Project is a 500 kV line that extends approximately 340 miles from the Captain Jack Substation in southern Oregon to the Olinda Substation in northern California and then on to its terminus near PG&E's Tesla Substation in central California. The California-Oregon Project was constructed by the Transmission Agency of Northern California ("Transmission Agency") with a group of public and private utilities, including PG&E and federal agencies. Neither of the Districts has an ownership share in the California-Oregon Project. However, each District is a member of the Transmission Agency, and their interests in the California-Oregon Project arise through their membership in the Transmission Agency. This membership gives each District the right to use a share of the California-Oregon Project's transmission capacity. The California-Oregon Project provides the District with access to power generators in Oregon and Washington. The Districts rely on power imported from Oregon and Washington to reliably run their electric systems.

         B

         PG&E has entered into an Interconnection Agreement with Modesto and another with Turlock. The Interconnection Agreements provide the terms under which the interconnected utility systems owned by the respective parties coordinate their operations. The two agreements contain nearly identical terms, and we refer to them collectively.[1]

         At issue in this case are the notice and study provisions in Section 9.11 of the Agreements. Section 9.11.1(a) requires a "Primary Party" to notify a "Coordinating Party" if the Primary Party intends to make a "Modification, New Facility Addition, or Long-Term Change to Operations" that "may reasonably result in an Adverse Impact to the System of the Coordinating Party." A "Primary Party" is a party that proposes to enact the Modification, New Facility Addition, or Long-Term Change to Operations; here, that party is PG&E. The "Coordinating Party" is the party whose System may be subject to an Adverse Impact from the change; here, those parties are the Districts.

         A "Modification" is the "removal of, or physical change to, any element of either Party's then currently existing System"; this includes changes to any "electric transmission facility." A "Long-Term Change to Operations" is an action taken by a party that "materially alters, on a long-term basis, the configuration or other operational characteristics of its System." One action that may qualify as a Long-Term Change to Operations is "materially modifying a Remedial Action Scheme."[2]

         An "Adverse Impact" is an effect on the Coordinating Party's "System" that either "materially degrades reliability" or "materially reduces" the ability of the Coordinating Party to "physically transfer power into, out of, or within" its System. A party's "System" consists of all properties and assets "which are leased to, licensed to, owned (or ...


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