## Facts

- Southwest Power Pool, Inc. (SPP) and Midwest Independent Transmission System Operator, Inc. (MISO) are adjacent regional transmission organizations operating under a Joint Operating Agreement (JOA).
- Entergy Arkansas, then outside both organizations, considered joining an RTO and preferred MISO because it expected cost savings from moving power across MISO’s system.
- To realize those savings, MISO would need to transmit power to Entergy Arkansas using non-MISO facilities, including SPP transmission lines, due to SPP’s stronger physical connections to Entergy Arkansas.
- The dispute focused on JOA § 5.2: “If the Parties have contract paths to the same entity, the combined contract path capacity will be made available for use by both Parties.”
- MISO contended that once Entergy Arkansas joined MISO, § 5.2 allowed MISO to use SPP’s contract path capacity to serve Entergy Arkansas as the “same entity.”
- SPP argued § 5.2 concerned only contract paths to a third party and could not mean a party has a contract path “to itself” or to a component of itself.
- MISO sought a declaratory order from the Federal Energy Regulatory Commission (FERC) endorsing MISO’s interpretation; FERC issued an order granting the petition and later denied rehearing.
- FERC relied primarily on purported course-of-performance evidence from a prior interchange arrangement involving MISO’s use of an SPP path to a MISO-affiliated company connected to service benefiting Entergy Arkansas.
- SPP offered trade-usage/industry definitions of “contract path” as extrinsic evidence suggesting a contract path presupposes distinct entities; FERC declined to consider this evidence, giving controlling weight to course of performance.
- SPP petitioned for review, arguing FERC’s interpretation and handling of the evidentiary record were arbitrary and capricious under the APA.

## Issues

1. Whether FERC acted arbitrarily and capriciously by adopting MISO’s interpretation of JOA § 5.2 without adequately addressing reasonable alternative interpretations of the course-of-performance evidence.
2. Whether FERC acted arbitrarily and capriciously by disregarding proffered trade-usage/industry-definition evidence relevant to the meaning of “contract path” in interpreting § 5.2.

## Decision

- The D.C. Circuit vacated FERC’s declaratory order and rehearing order and remanded for further proceedings.
- The court held FERC failed to provide a reasoned explanation for treating the prior interchange arrangement as dispositive course-of-performance evidence supporting MISO’s reading.
- The court held FERC inadequately explained why it could ignore trade-usage evidence and therefore failed to consider evidence that applicable contract-interpretation principles required it to weigh.

## Legal Principles

- Under APA arbitrary-and-capricious review, an agency must provide a reasoned explanation that engages significant arguments and confronts evidence that reasonably conflicts with its position.
- In reviewing FERC’s contract interpretations, courts apply a “Chevron-like” deference framework, but deference does not excuse conclusory reasoning or selective treatment of the record.
- Where contractual language is disputed and extrinsic evidence is offered, contract-interpretation principles may require consideration of multiple evidentiary sources (including course of performance and trade usage), with an explanation for the agency’s weighting choices.

## Conclusion

The D.C. Circuit vacated and remanded because FERC’s acceptance of MISO’s interpretation of JOA § 5.2 rested on insufficiently analyzed course-of-performance evidence and an unexplained refusal to consider relevant trade-usage evidence, leaving the orders without the reasoned decision-making required by the APA.


Sw. Power Pool, Inc. v. Fed. Energy Regul. Comm'n, 736 F.3d 994 (D.C. Cir. 2013)