Panoche Energy Center, LLC v. Pacific Gas & Electric Co.
1 Cal. App. 5th 68
| Cal. Ct. App. | 2016Background
- PG&E and Panoche entered a 20-year tolling power purchase agreement (PPA) in March 2006; PG&E later sought arbitration to determine whether the PPA allocated AB 32 (GHG cap-and-trade) compliance costs to Panoche.
- AB 32 passed after the PPA; CARB and CPUC subsequently developed cap-and-trade rules and procedures for "legacy contracts" executed before AB 32’s effective date, leaving open how individual PPAs should be treated.
- PG&E invoked the PPA’s arbitration clause in 2012 seeking declarations that (1) the PPA assigns GHG compliance costs to Panoche and (2) Panoche understood that at signing; Panoche counterclaimed and moved to dismiss or stay arbitration as unripe pending regulatory proceedings.
- A three-arbitrator panel denied Panoche’s ripeness/stay motion, held Panoche contractually assumed GHG allowance costs (via a change-in-law/Governmental Approvals clause and Section 4.3 payment mechanism), and reserved fees rulings.
- Panoche petitioned to vacate the award under Code Civ. Proc. §1286.2(a)(5) arguing the arbitrators erred by refusing to postpone the hearing; the superior court granted the petition and vacated the award. PG&E appealed.
- The Court of Appeal reversed, holding the dispute was ripe for arbitration, the PPA limited arbitrators to the powers of a superior court judge (including ripeness limits), Panoche failed to show "sufficient cause" to postpone, and the trial court should have confirmed the award under §1287.4. The appeal was not moot.
Issues
| Issue | Panoche's Argument | PG&E's Argument | Held |
|---|---|---|---|
| Whether arbitrators should have stayed or dismissed arbitration because the dispute was unripe while CARB/CPUC proceedings were pending | Arbitration was premature; regulators would issue determinative rules on "legacy contracts," so arbitration would be advisory and wasteful | The dispute was a retrospective contract-interpretation matter ripe for immediate resolution and useful to regulators; agencies did not intend to decide individual contracts | The court held the contractual dispute was ripe for arbitration; regulatory proceedings did not preclude arbitrability and Panoche failed to show sufficient cause to postpone |
| Whether PPA’s Section 12.4(c) limited arbitrators to the powers of a California superior court judge (including ripeness constraints) | The clause required arbitrators to observe judicial limits; thus ripeness doctrine applied to bar arbitration of unripe disputes | PG&E argued the clause pertained to remedial power only and did not import ripeness limits | Court construed the clause to import judicial limitations (including ripeness); but concluded here the dispute nevertheless was ripe and arbitrable |
| Whether the appeal was moot after CARB adopted transition/legacy-contract regulations granting Panoche allocations | Panoche contended later CARB rules rendered the controversy and appeal moot | PG&E said unresolved issues remain (e.g., prevailing-party fees) and the arbitrators’ contract interpretation still affects CARB eligibility/attestations | Court held the appeal was not moot: material relief (fees, enduring contractual interpretation) remained and CARB rules did not eliminate all live controversy |
| Whether trial court erred in vacating the arbitration award under §1286.2(a)(5) for refusal to postpone | Panoche argued arbitrators abused discretion and Panoche’s rights were substantially prejudiced by denial of postponement | PG&E argued §1286.2(a)(5) requires demonstration of procedural prejudice and Panoche failed to show that denial prevented it from fairly presenting evidence | Court reversed: Panoche failed to show "sufficient cause" or procedural prejudice; arbitration award should have been confirmed under §1287.4 |
Key Cases Cited
- Bunker Hill Park Ltd. v. U.S. Bank Nat’l Ass’n, 231 Cal.App.4th 1315 (Cal. Ct. App.) (arbitration may proceed despite ripeness concerns unless parties limited arbitrators to judicial standards)
- Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362 (Cal. 1994) (arbitral powers derive from the contract; courts should not substitute their judgment for arbitrators on remedies absent power limits)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (generally limited judicial review of arbitral merits; arbitration is a party-driven substitute for court adjudication)
- Hall v. Superior Court, 18 Cal.App.4th 427 (Cal. Ct. App.) (§1286.2 safety valve: courts may vacate awards when arbitrators prevent a party from fairly presenting its case)
- Steinberg v. Chiang, 223 Cal.App.4th 338 (Cal. Ct. App.) (disputes that can recur and affect ongoing relationships may be ripe even amid intervening events)
- Vandermost v. Bowen, 53 Cal.4th 421 (Cal. 2012) (ripeness requires facts to have "congealed" so a useful decision can be made)
- Paul v. Milk Depots, Inc., 62 Cal.2d 129 (Cal. 1964) (mootness doctrine: appeal dismissed where later events make effective relief impossible)