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Braintree Electric Light Department, et al v. Federal Energy Regulatory Commission

February 7, 2012

BRAINTREE ELECTRIC LIGHT DEPARTMENT, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT ISO NEW ENGLAND INC., ET AL.,
INTERVENORS



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

The opinion of the court was delivered by: Garland, Circuit Judge:

Argued September 12, 2011

Before: TATEL, GARLAND, and BROWN, Circuit Judges. Opinion for the Court filed by Circuit Judge GARLAND.

Braintree Electric Light Department and other municipally owned utilities in southeastern Massachusetts petition for review of four orders of the Federal Energy Regulatory Commission (FERC). The orders denied the petitioners' claim that they were being unjustly charged in order to ensure system reliability on Cape Cod. The dispute was first addressed in a FERC-approved settlement agreement that reserved certain litigation rights to the petitioners. Because the Commission reasonably resolved the claims that were reserved, and reasonably construed the settlement agreement to foreclose the petitioners' additional claims, we affirm the Commission's orders and deny the petitions for review.

I

Two oil-powered generators, known as the Canal Units, have provided electricity to Cape Cod since the 1970s.

Braintree Elec. Light Dep't v. ISO New England Inc., 124 FERC ¶ 61,061, 61,360 & n.3 (2008) [hereinafter Complaint Order]. In 2006, the rising price of oil made the Canal Units more expensive to run, and they became largely uneconomic. The Independent System Operator for New England ("ISO New England" or "ISO-NE"), however, determined that running the generators remained necessary to avoid blackouts on Cape Cod in the event that more than one transmission line providing power to the Cape were damaged in quick succession (a "second contingency").*fn1 The ISO therefore designated the Canal Units as a "Local Second Contingency Protection Resource" (LSCPR). Under the ISO New England tariff, an effect of this designation was to spread the cost of running the Canal Units among all participants in the Southeastern Massachusetts (SEMA) Reliability Region, in proportion to their load obligations. ISO-NE Tariff § III.6.4.4 (Resp't Br. A-12). The petitioners are load-serving entities that are within the region but do not serve Cape Cod.

ISO New England's designation of the Canal Units as LSCPRs prompted the petitioners, other utilities, ISO New England, and the transmission owners in the region to take part in a FERC-supervised mediation. After almost a year of negotiations, FERC approved the resulting Settlement Agreement in 2007. See J.A. 205-55. Under the settlement, the transmission owners agreed to reimburse the petitioners for some of the Canal Units' 2006 charges. Settlement Agreement § 3.1. Section 4.1 of the agreement provided that the costs of operating the Canal Units after 2006 would be allocated on the same basis that costs for an LSCPR are allocated under the ISO New England tariff -- "[s]ubject to" the petitioners' reserved litigation rights under Section 7 (and to provisions in certain other sections). Also subject to the petitioners' reserved litigation rights, the parties were barred from attempting to reclassify the Canal Units under the tariff and thereby from changing the method of cost allocation. Id. § 4.1; see also id. §§ 8(c), 10.1.

Section 7 defined the reserved litigation rights of the petitioners, preserving future claims of two sorts. First, Section 7.1 permitted the petitioners to seek relief from SEMA [reliability] Charges for LSCPR through litigation . . . over whether consistent with [applicable reliability criteria] such charges could be or should be reduced through implementation of [a Special Protection System] or Post-First Contingency Switching arrangement.

In other words, the petitioners were permitted to litigate whether, consistent with maintaining system reliability, one of two identified alternatives to the Canal Units -- a specified type of protection system or switching arrangement -- could or should be implemented. Section 7.2 set forth the second reservation, which stated:

The Parties, other than the Municipals [i.e. the petitioners], agree not to seek a change . . . in the ISO- NE definition of the SEMA Reliability Region . . . ; provided that the Municipals may seek such a change to become effective no earlier than January 1, 2008.

That is, the petitioners were permitted to petition for a change in the definition of the SEMA reliability region to take effect on or after January 1, 2008.

If successfully pursued, either reserved litigation right would permit the petitioners to reduce their share of Canal Unit charges. If the petitioners could show that one of the identified alternatives could or should be implemented without degrading reliability, they would be entitled to financial relief. Likewise, if the SEMA reliability region were divided in a way that left the petitioners outside the subregion to which the costs of the Canal Units were allocated, they would be insulated from sharing those costs under ISO New England's tariff.

The petitioners filed a complaint with the Commission on March 28, 2008. They contended (1) "that ISO-NE should implement Post First Contingency Switching or a Special Protection System" as an alternative that would reduce LSCPR charges; and (2) that "costs that are incurred to protect Cape Cod should not be allocated to the entire SEMA region but that the region should be divided into two sub-regions, Upper and Lower SEMA, and the costs should be allocated only to Lower SEMA." 124 FERC at 61,360, 61,361. In its Complaint Order, FERC denied the first request because it "would inappropriately degrade reliability." Id. at 61,364. As to the second, it found that "whether or not the cost allocations resulting from the boundaries of the current SEMA region are just and reasonable raises issues of material fact" and, accordingly, it scheduled a hearing on the issue. Id. FERC held the hearing in abeyance, however, until ISO New England could consider the division of the SEMA region through its stakeholder process. Id. FERC ordered ISO New England to address "cost allocation ...


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