988 F.3d 841
6th Cir.2021Background
- Louisville Gas & Electric Co. and Kentucky Utilities Co. ("Louisville Gas") withdrew from MISO and, as a condition of withdrawal, filed a tariff Schedule promising to "shield" certain wholesale customers from pancaked transmission charges.
- Owensboro (a municipal utility and intervenor) purchased a five-year MISO transmission reservation beginning Feb. 1, 2018, and used MISO transmission for three short delivery events in 2018.
- Owensboro sought credit from Louisville Gas under the Schedule for the MISO reservation charges; Louisville Gas refused and Owensboro filed a complaint with FERC seeking enforcement of the tariff.
- FERC found the Schedule required Louisville Gas to credit Owensboro for all MISO reservation charges beginning Feb. 1, 2018, and denied rehearing; Louisville Gas petitioned for review in this court.
- The Sixth Circuit held FERC’s order arbitrary and capricious for failing to interpret the operative contract text, relying instead on agency expectations and prior orders, vacated the order, and remanded for contract-based analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Owensboro’s MISO transmission reservations constituted eligible "MMD Transaction[s]" (the "when" question) | Louisville Gas: Reservations do not necessarily equal an eligible transaction covering the whole reservation period; frequency and boundaries of "transactions" matter | FERC: Reservations and demonstrations of need qualified; no minimum usage required and reservations triggered reimbursement | Court: FERC must interpret the contract text and, if ambiguous, use proper extrinsic evidence; agency failed to explain ambiguity or how "transaction" applies and must redo analysis on remand |
| Whether the tariff requires credit equal to the MISO reservation charges (the "how much" question) | Louisville Gas: The contract compensates charges "incurred to deliver such purchased electricity," which may not equal reservation charges incurred apart from actual deliveries | FERC: Ordered credit equal to MISO reservation charges without distinguishing metrics | Court: FERC cannot equate the two metrics without explanation; must determine factual amount(s) using appropriate contract interpretation and evidence on remand |
| Whether FERC permissibly relied on its own policy expectations and prior orders rather than plain contract text | Louisville Gas: Contract interpretation must focus on parties' intent and text, not agency expectations; extrinsic evidence only to resolve genuine ambiguity | FERC: The Schedule was meant to implement prior FERC orders and agency expectations guide interpretation | Court: Rejected FERC’s untethered reliance on agency expectations; FERC improperly used prior orders to create rather than resolve ambiguity and failed to provide reasoned explanation |
Key Cases Cited
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agencies must engage in reasoned decisionmaking and avoid arbitrary and capricious action)
- CNH Indus. N.V. v. Reese, 138 S. Ct. 761 (2018) (contract ambiguous only if reasonably susceptible to at least two conflicting meanings)
- MISO Transmission Owners v. FERC, 860 F.3d 837 (6th Cir. 2017) (de novo review of filed tariffs and deference only for agency factual/technical findings)
- New York v. FERC, 535 U.S. 1 (2002) (FERC authority over interstate wholesale electricity)
- FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760 (2016) (FERC’s obligation to ensure just and reasonable wholesale rates)
- Cincinnati Gas & Elec. Co. v. FERC, 724 F.2d 550 (6th Cir. 1984) (standard of judicial review for FERC interpretations of tariffs)