Missouri River Energy Services v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 6, 2019 Decided March 15, 2019
No. 18-1166
M ISSOURI R IVER ENERGY S ERVICES ,
P ETITIONER
v.
FEDERAL ENERGY R EGULATORY C OMMISSION,
R ESPONDENT
BASIN E LECTRIC P OWER C OOPERATIVE, ET AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Lawrence G. Acker argued the cause for petitioner. With
him on the briefs were Philip W. Mone and Gabriel L. Tabak.
Jared B. Fish, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were James P. Danly, General Counsel, and Robert H.
Solomon, Solicitor. Carol J. Banta, Attorney, entered an
appearance.

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William D. Booth argued the cause for intervenors. With
him on the joint brief was David D’Alessandro. Jonathan P.
Trotta and Marie Denyse Zosa entered appearances.
Before: GARLAND , Chief Judge, S RINIVASAN , Circuit
Judge, and S ILBERMAN, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge S RINIVASAN.
S RINIVASAN , Circuit Judge: In 2015, Missouri River
Energy Services, a collection of municipal entities, became a
member of the Southwest Power Pool. Missouri River claimed
it should be exempt from certain charges assessed by the Pool,
and the parties submitted the dispute to the Federal Energy
Regulatory Commission. FERC sustained the charges, and
Missouri River now petitions for review of FERC’s decision.
We conclude that FERC’s determination was not arbitrary and
capricious and thus deny Missouri River’s petition for review.
I.
Missouri River Energy Services is an organization of 61
municipal utilities in the Upper Midwest. Missouri River helps
its member municipal electric systems source power. To that
end, in the 1970s, Missouri River teamed up with other energy-
related entities to construct the Laramie River Station (a power
plant) and various transmission facilities.
In 1977, those entities entered into a contract with
Nebraska Public Power District, under which Missouri River
and its partners agreed to help defray Nebraska Power’s
construction and operation costs for new transmission
facilities. In exchange, Nebraska Power agreed to allow the
entities to use the new facilities to transmit some of the power
from the Laramie River Station. For the last four decades,

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Missouri River has used that arrangement under the 1977
Contract to help move electricity generated by the Laramie
River Station part of the way from the power plant to Missouri
River’s member utilities.
In 2008, Nebraska Power asked to join the Southwest
Power Pool, a Regional Transmission Organization that
“provides transmission service to approximately 6 million
households across portions of eight states.” Okla. Gas & Elec.
Co. v. FERC, 827 F.3d 75, 77 (D.C. Cir. 2016). (A Regional
Transmission Organization oversees electricity grids on a
regional scale and coordinates transmission service to ensure
reliable and efficient transmission. See Morgan Stanley
Capital Grp. v. Pub. Utility Dist. No. 1, 554 U.S. 527, 535–37
(2008).) As part of the process of accepting Nebraska Power
into the Southwest Power Pool, the Pool filed proposed
revisions of its bylaws and Tariff. Those revisions included
adding the 1977 Contract to the Pool’s list of Grandfathered
Agreements, which meant that service under the 1977 Contract
would be exempt from certain provisions of the Tariff. In late
2008, FERC approved the proposed revisions, Nebraska Power
became a member of the Pool, and Missouri River’s
transmission service under the 1977 Contract continued
unchanged.
Four years later, the Pool decided to implement a new
Integrated Marketplace that included energy markets in which
Pool members could bid for energy services. As part of that
implementation, the Pool proposed imposing additional
charges on its members to account for energy loss due to
transmission and transmission congestion. A number of
parties, including Missouri River, protested the imposition of
those charges on transmission covered by Grandfathered
Agreements (including the 1977 Contract).

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The Pool stated that it would not impose additional charges
on Missouri River’s reservation under the 1977 Contract
because Missouri River was outside the footprint of the Pool.
Missouri River then withdrew its protest. The Pool proceeded
to settlement negotiations with the other protesting parties, and
those negotiations produced a Carve-Out Settlement that
identified specific Grandfathered Agreements that were
eligible for exemption (i.e., eligible to be carved out) from the
congestion and marginal loss charges. In particular, § 2.2 of
the Carve-Out Settlement stated that Schedule 1 of the Carve-
Out Settlement “constitutes the exclusive list of eligible
‘Carved-Out GFAs,’ meaning that only those agreements and
the megawatts associated with them identified on Schedule 1
are eligible for carve-out treatment.” J.A. 377. And Schedule
1 clarifies that, with respect to the 1977 Contract, Missouri
River’s reservation is not “eligible for carve-out.” J.A. 385.
The Pool filed that Carve-Out Settlement with FERC, and
FERC approved it.
In 2014, after the Carve-Out Settlement had been filed and
approved, a number of Missouri River’s business partners (but
not Missouri River) filed a request to join the Southwest Power
Pool. The Pool, in turn, filed proposed Tariff revisions with
FERC to allow those parties to join. Missouri River protested
the Pool’s proposal, which did not carve out Missouri River
from congestion and marginal loss charges for transmission
under the 1977 Contract. In response, FERC generally
approved the Pool’s proposed revisions but set aside the carve-
out issue for settlement procedures. In late 2015, those parties
became members of the Pool, as did Missouri River.
Although Missouri River and the Pool engaged in
extensive settlement negotiations, they were unable to reach an
agreement on the carve-out issue. Instead, they agreed to a set
of stipulated facts and requested a shortened hearing process

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before FERC on the issue of whether Missouri River is entitled
to carve-out treatment for its transmission reservation under the
1977 Contract. Following that hearing process, FERC sided
with the Pool.
First, FERC determined that the terms of the Southwest
Power Pool Tariff did not entitle Missouri River to carve-out
treatment. FERC reasoned that the Tariff is ambiguous about
which agreements are eligible for carve-out treatment and then
looked to extrinsic evidence to resolve that ambiguity in the
Pool’s favor with regard to Missouri River’s reservation under
the 1977 Contract. Second, FERC determined that the
exclusion of Missouri River from carve-out eligibility was
permissible, rejecting Missouri River’s arguments that the
exclusion constituted undue discrimination, that the exclusion
impermissibly modified or abrogated the 1977 Contract, and
that the Pool should be equitably estopped from denying
Missouri River carve-out treatment.
After FERC denied Missouri River’s motion for rehearing,
Missouri River filed the present petition for review.
II.
We review FERC’s orders under “the arbitrary and
capricious standard of the Administrative Procedure Act.”
Alcoa Inc. v. FERC, 564 F.3d 1342, 1347 (D.C. Cir. 2009); see
5 U.S.C. § 706(2). That means “[w]e affirm the Commission’s
orders so long as FERC examined the relevant data and
articulated a rational connection between the facts found and
the choice made.” Alcoa, 564 F.3d at 1347 (internal quotation
marks and alterations omitted).

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Missouri River challenges FERC’s determination that it is
ineligible for carve-out treatment on five grounds. We find
none of Missouri River’s arguments persuasive.
First, Missouri River argues that Southwest Power Pool’s
Tariff unambiguously establishes that Missouri River’s
transmission reservation under the 1977 Contract is eligible for
carve-out treatment. The relevant language of the Tariff, in
§ 2.16 (entitled “Grandfathered Agreement [GFA] Carve
Out”), provides that Pool members “that are a party to GFA(s)
eligible for GFA Carve Out” may elect from among various
options, including carve-out treatment. J.A. 415. According
to Missouri River, because the Tariff’s list of Grandfathered
Agreements includes the 1977 Contract, the carve-out
provision unambiguously provides Missouri River a right to
elect carve-out treatment. That is incorrect.
Of course, the 1977 Contract is a GFA. But § 2.16 of the
Tariff provides that only GFAs “eligible for GFA Carve Out”
may receive carve-out treatment, which implies that some
GFAs are eligible for such treatment and others are not. And
neither § 2.16 nor any other provision of the Tariff explains
what makes a GFA carve-out eligible. For that reason, FERC
understandably found the Tariff ambiguous with respect to the
eligibility of Missouri River’s transmission reservation for
carve-out treatment. We thus reject Missouri River’s argument
that the Tariff unambiguously confers carve-out eligibility on
its transmission reservation under the 1977 Contract.
Second, Missouri River argues that, even if the Tariff is
ambiguous, FERC erred by relying on extrinsic evidence—in
the form of § 2.2 and Schedule 1 of the Carve-Out Settlement—
to resolve the ambiguity. In Missouri River’s view, FERC
instead should have resolved the ambiguity by reference to the
doctrine of contra proferentem, under which ambiguities are

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resolved against the drafter. Missouri River contends that
FERC has previously adhered to a policy favoring use of contra
proferentem to resolve ambiguities and it therefore must
explain its decision to depart from that policy and to rely
instead on extrinsic evidence.
Missouri River’s argument fails at the threshold: FERC
has not adhered to a policy of resolving ambiguities with the
contra proferentem canon rather than with extrinsic evidence.
Although Missouri River identifies a number of cases in which
FERC has relied on the contra proferentem canon, see Missouri
River Br. 34–35 (collecting cases), in none of those cases did
the agency turn to contra proferentem in the face of available
extrinsic evidence.
By contrast, FERC has repeatedly relied on extrinsic
evidence to resolve ambiguities even in the face of arguments
from a party to use the contra proferentem canon. See, e.g.,
Cent. N.Y. Oil & Gas Co., 152 FERC ¶ 61,097, at pp. 20–37
(2015) (using extrinsic evidence to help resolve an ambiguity
in a service agreement even though one party urged FERC to
apply the contra proferentem canon); Miss. River Transmission
Corp., 96 FERC ¶ 61,185, at p. 61,189 (2001) (rejecting a
party’s assertion that a tariff ambiguity should, as a matter of
law, be resolved against the drafter and instead scheduling an
evidentiary hearing to allow the parties to introduce extrinsic
evidence of intent); cf. KN Energy, Inc., 59 FERC ¶ 61,332, at
p. 62,219 (1992) (applying contra proferentem but only
because the objecting party had “offer[ed] no evidence, nor
describe[d] any surrounding circumstances, that would
indicate” the intent behind the relevant ambiguous provision).
Because FERC has had no policy of favoring contra
proferentem over extrinsic evidence as a means of resolving
ambiguities, we reject Missouri River’s argument that FERC

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improperly changed course by relying on extrinsic evidence in
this case.
We note, moreover, the strength of the extrinsic evidence
on which FERC relied. Section 2.2 of the Carve-Out
Settlement, filed on the same day as the Tariff revision at issue,
states that Schedule 1 of the Carve-Out Settlement “constitutes
the exclusive list of eligible ‘Carved-Out GFAs,’ meaning that
only those agreements and the megawatts associated with them
identified on Schedule 1 are eligible for carve-out treatment.”
J.A. 377 (emphasis added). FERC reasonably concluded that
the concurrently filed Carve-Out Settlement, which identified
“eligible ‘Carved-Out GFAs,’” gives meaning to which GFAs
are “eligible for GFA Carve Out” under § 2.16 of the Tariff.
J.A. 415. And because Missouri River’s reservation under the
1977 Contract is not identified on that “exclusive list,” it is,
under the Carve-Out Settlement, not “eligible for carve-out.”
J.A. 385.
Third, Missouri River argues that excluding its
transmission reservation from carve-out eligibility amounts to
undue discrimination in violation of the Federal Power Act.
Under the Act, no public utility may “make or grant any undue
preference or advantage to any person or subject any person to
undue prejudice or disadvantage” nor may a public utility
“maintain any unreasonable difference in rates, charges,
service, facilities, or in any other respect, either as between
localities or as between classes of service.” 16 U.S.C.
§ 824d(b). A mere difference in the treatment of two entities
does not violate that provision; instead, undue discrimination
occurs only if the entities are “similarly situated,” State Corp.
Comm’n v. FERC, 876 F.3d 332, 335 (D.C. Cir. 2017) (internal
quotation marks omitted), such that “there is no reason for the
difference,” Transmission Access Policy Study Grp. v. FERC,
225 F.3d 667, 721 (D.C. Cir. 2000) (per curiam). FERC has

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“wide discretion . . . to determine what constitute[s]” undue
discrimination. Id.
Here, Missouri River’s claim of undue discrimination rests
on the Pool’s grant of carve-out treatment to a transmission
reservation owned by Lincoln Electric System pursuant to the
same 1977 Contract. FERC acknowledged that excluding
Missouri River’s transmission reservation from carve-out
resulted in a disparity in treatment between Missouri River and
Lincoln Electric. FERC, though, concluded that there was no
undue discrimination because Missouri River and Lincoln
Electric are not similarly situated with respect to the Pool’s
congestion and marginal loss charges. Specifically, FERC
explained that Lincoln Electric was a member of the Pool when
the Pool changed its Tariff to impose those charges (and was
therefore “subject to a forced transition” to a Tariff with the
charges), whereas Missouri River joined the Pool after the
Tariff was changed to incorporate those charges. Sw. Power
Pool, Inc., 160 FERC ¶ 61,115, at pp. 61–63 (2017), J.A. 645–
46. In light of that difference, FERC determined, it was
permissible to treat the two entities differently. Id.
The distinction between pre-existing and new members is
well-supported in FERC precedent. In one case, the Midwest
Independent System Operator (MISO) sought to revise its
Tariff to eliminate the possibility of carve-out treatment for
certain Grandfathered Agreements held by prospective
members and also to remove five of Dairyland’s Grandfathered
Agreements from eligibility for carve-out treatment. See
Dairyland Power Coop. v. MISO, 131 FERC ¶ 61,163, at pp.
7–9 (2010). FERC approved in part and rejected in part those
changes.
On the one hand, FERC allowed MISO to eliminate the
availability of carve-out treatment for some agreements held by

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prospective members because a “prospective transmission
owner,” unlike an existing member, “can analyze the costs of
converting its GFAs to tariff service prior to integration, and
weigh those costs against the benefits of [MISO] membership.”
Dairyland Power Coop. v. MISO, 129 FERC ¶ 61,221, at pp.
39–41 (2009). On the other hand, FERC rejected MISO’s
proposal to remove Dairyland’s GFAs from the list of carve-
out eligible agreements. Id. at pp. 42–44. FERC thereby drew
exactly the distinction that it drew here, allowing different
treatment of (i) prospective members seeking new carve-out
treatment and (ii) members seeking to preserve pre-existing
carve-out eligibility. In light of that precedent, Missouri River
has not met its burden of showing that FERC acted arbitrarily
and capriciously in determining that Missouri River and
Lincoln Electric are not similarly situated. We therefore reject
Missouri River’s undue discrimination claim.
Fourth, Missouri River argues that imposing congestion
and marginal loss charges on its transmission reservation
improperly modifies the 1977 Contract. In rejecting that
argument, FERC determined that “the assessment of
congestion and marginal loss charges associated with GFA
treatment do not represent a modification of the 1977 Contract
because these charges are associated with new services
available to [Missouri River] as a result of joining SPP,
including access to the Integrated Marketplace and the ability
to hedge congestion costs.” Sw. Power Pool, 160 FERC
¶ 61,115, at p. 81, J.A. 653–54. Because FERC’s “analysis
hinges on interpretation of utility contracts, our review of that
analysis is deferential.” Wis. Pub. Power, Inc. v. FERC, 493
F.3d 239, 271 (D.C. Cir. 2007) (per curiam). Missouri River
provides us with no reason to reject FERC’s conclusion.
Missouri River notes that FERC once previously found,
and we agreed, that excluding a Grandfathered Agreement

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from carve-out eligibility constituted a modification of that
agreement. See Missouri River Br. 19–20 (citing MISO, 121
FERC ¶ 61,166 (2007); and Wis. Pub. Power, 493 F.3d 239).
In that case, however, FERC determined that subjecting the
parties to the new Tariff “would impose significant changes in
the manner in which transmission service is provided for”
because there was a “direct collision between GFA scheduling
practices and the MISO Tariff’s scheduling requirements.”
Wis. Pub. Power, 493 F.3d at 272–73 (internal quotation marks
omitted). Here, by contrast, FERC found no such “direct
collision” between the 1977 Contract and the Pool’s Tariff
because the marginal loss and congestion charges related to
additional services provided by Southwest Power Pool, such as
“access to the Integrated Marketplace and the ability to hedge
congestion costs,” which were not provided for by (and the
costs of which thus were not covered by the rates set in) the
1977 Contract. Sw. Power Pool, 160 FERC ¶ 61,115, at p. 81,
J.A. 653–54; cf. E. Ky. Power Coop., Inc. v. FERC, 489 F.3d
1299, 1306–08 (D.C. Cir. 2007) (affirming FERC’s
determination that MISO may impose certain costs to account
for various services and benefits that were not provided under
the Grandfathered Agreements but that are provided by MISO).
We see no reason to reject FERC’s conclusion that the
congestion and marginal loss charges at issue here pay for new
services not provided for in the 1977 Contract.
Fifth, Missouri River argues that Southwest Power Pool
should be equitably estopped from denying it carve-out
treatment. Missouri River relies on the Pool’s representation
in 2013 that, “because [Missouri River’s] reservation is not
associated with an SPP Settlement Location or SPP
transmission service, and is not tagged by SPP, it will not be
subject to the rules and tariff requirements of SPP’s proposed
Integrated Marketplace” and “will not be assessed congestion
costs or marginal losses.” J.A. 819. Missouri River’s

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equitable-estoppel argument is forfeited because Missouri
River has failed to fully develop it. See SEC v. Banner Fund
Int’l, 211 F.3d 602, 613–14 (D.C. Cir. 2000). The argument is
unpersuasive in any event.
The “traditional elements of” equitable estoppel include
“false representation, a purpose to invite action by the party to
whom the representation was made, ignorance of the true facts
by that party, and reliance, as well as a showing of an injustice
and lack of undue damage to the public interest.” ATC Petrol.,
Inc. v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir. 1988) (internal
quotation marks and alterations omitted). Here, FERC
concluded that if Missouri River relied on Southwest Power
Pool’s 2013 statement “to mean that [its] reservation under the
1977 Contract would be eligible for carve out treatment after
[it] joined SPP, such reliance was unreasonable.” Sw. Power
Pool, 160 FERC ¶ 61,115, at p. 75, J.A. 651. That is because
the language used by the Pool—that Missouri River would not
be subject to the charges “because” it was not within the Pool’s
footprint—cannot reasonably be interpreted to mean that, if
Missouri River were to come within SPP’s footprint in the
future, then the Pool would not impose charges at that time.
And that is exactly what happened. The Pool did not seek to
impose congestion and marginal loss charges on the 1977
reservation until Missouri River subsequently came within the
Pool’s footprint. We thus reject Missouri River’s argument, to
the extent it is not forfeited, that the Pool should be equitably
estopped from imposing congestion and marginal loss charges
against Missouri River.
* * * * *
For the foregoing reasons, we deny the petition for review.
It is so ordered.

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