Southwest Power Pool, Inc. v. Federal Energy Regulatory Commission

Southwest Power Pool (SPP) (plaintiff) was a regional-transmission organization adjacent to another regional-transmission organization named the Midwest Independent Transmission System (MISO). In 2011 a company named Entergy Arkansas was poised to join either SPP or MISO, and Entergy Arkansas indicated a preference for MISO due to potential cost savings. However, to reap the benefit of those savings, Entergy Arkansas would need MISO to be able to move its energy generated elsewhere within MISO to Entergy Arkansas. This, in turn, would require MISO to utilize non-MISO transmission providers, including SPP, because SPP’s connections to Entergy Arkansas were more extensive than MISO’s. In MISO’s view, its joint operating agreement with SPP allowed MISO to do so, even after Entergy Arkansas would become part of MISO. MISO relied on § 5.2 of its joint operating agreement with SPP, which provided that “[i]f the Parties have contract paths to the same entity, the combined contract path capacity will be made available for use by both Parties.” MISO thus interpreted § 5.2’s reference to a “contract path[ ] to the same entity” as encompassing situations in which the same entity is part of either MISO or SPP itself. SPP, in contrast, argued that § 5.2 could not be interpreted as meaning that a party can have a contract path to itself or part of itself. After unsuccessful negotiations, MISO petitioned the Federal Energy Regulatory Commission (FERC) (defendant) for a declaratory ruling upholding its interpretation of the joint operating agreement. FERC agreed with MISO, adopting MISO’s interpretation. In doing so, FERC relied heavily on what it described as evidence of the prior course of performance between the parties. Specifically, FERC pointed to a prior interchange agreement between SPP and MISO pursuant to which MISO was permitted to use SPP’s path to a MISO-affiliated company to allow the affiliated company to service a third party, coincidentally Entergy Arkansas. In FERC’s view, this arrangement was completely consistent with MISO’s interpretation of the joint operating agreement. In SPP’s view, the arrangement was merely SPP’s providing of a service between MISO and a third party. FERC ignored extrinsic evidence offered by SPP in the form of industry-standard definitions of contract path, concluding that FERC was not required to consider this evidence because it was entitled to provide greater weight to the course-of-performance evidence. SPP petitioned the United States Court of Appeals for the District of Columbia Circuit for review of FERC’s order under the Administrative Procedure Act.