FERC Rules in Favor of Avangrid in California Energy Crisis Litigation

Rhea-AI Summary

Avangrid, Inc. (NYSE: AGR) announced that the Federal Energy Regulatory Commission (FERC) issued a decision in favor of Avangrid Renewables, LLC in the litigation related to the California energy crisis of 2000-2001.

Insights

Energy Sector Legal Expert

An essential aspect of this case is the application of the Mobile-Sierra doctrine, which is a legal standard applied by FERC to determine whether the rates in a power purchase agreement are just and reasonable. The doctrine presumes that the terms agreed upon by informed and willing parties in a contract are fair, placing a high burden on any party challenging the contract to prove otherwise.

The recent FERC decision in favor of Avangrid Renewables, confirming the justness and reasonableness of its contract, removes significant legal and financial uncertainty for the company. This resolution is likely to bolster investor confidence in Avangrid's governance and contract negotiation practices. However, the potential for rehearing or appeal by the opposing parties could introduce further legal proceedings, which may continue to affect the company's financial planning and public perception.

Financial Analyst

From a financial perspective, the FERC ruling effectively eliminates a substantial contingent liability for Avangrid Renewables, specifically the $371 million that was previously determined as due by the Presiding Judge. This decision should positively impact the company's balance sheet and could lead to a reassessment of its creditworthiness and risk profile.

For stakeholders, the short-term implications include potential stock price appreciation as the market reacts to the reduction of financial risk. In the long-term, the outcome reaffirms Avangrid's ability to uphold its contractual agreements, which could favor future contract negotiations and partnerships. Nevertheless, stakeholders should remain aware of the possibility of an appeal, which could delay the final resolution and impact the company's financials.

Industry Analyst

FERC's ruling might have broader implications for the energy sector, particularly regarding the enforcement of long-term power purchase agreements. It could serve as a precedent, reinforcing the stability and enforceability of such contracts under the Mobile-Sierra doctrine. This outcome may encourage more robust investment in renewable energy projects by providing a clearer regulatory framework and reducing the perceived risks associated with long-term agreements.

However, it is also important to consider the market dynamics at the time of the California energy crisis and how they differ from today's energy markets. The ruling should not be viewed in isolation but rather in the context of evolving market regulations and energy policies that aim to balance investor protection with consumer interests.

ORANGE, Conn.--(BUSINESS WIRE)-- Today Avangrid, Inc. (NYSE: AGR) announced that the Federal Energy Regulatory Commission (FERC) issued a decision in favor of Avangrid Renewables, LLC (Renewables), an indirect, wholly-owned subsidiary of Avangrid, in the litigation related to the California energy crisis of 2000-2001.

The case was originally brought in 2002 by two California agencies with respect to a long-term power purchase agreement entered into by Iberdrola Renewables, LLC (now, Renewables), as seller, and the California Department of Water Resources, or CDWR, as purchaser, alleging that the terms and conditions of the power purchase agreement were unjust and unreasonable. The California agencies requested that FERC either abrogate the Renewables contract as unjust and unreasonable or reform the contracts to provide for just and reasonable rates, reduce their duration, and strike certain nonprice terms and conditions from the contracts. The California Agencies further alleged that Renewables exercised market power that forced CDWR to pay unjust and unreasonable prices and agree to onerous, unjust and unreasonable nonprice terms.

Following FERC action, appeals to the Ninth Circuit and the U.S. Supreme Court and remand, FERC ordered a trial-type, evidentiary hearing to supplement the existing record. Specifically, FERC reopened the record to allow parties to present evidence on, among other things: (1) whether Renewables was a proper party to the proceedings; and (2) whether the Mobile-Sierra presumption, holding that rates set through an arm’s-length bilateral contract between sophisticated parties are presumed to be just and reasonable, was avoided or overcome with respect to Renewables’ contract. On April 12, 2016, the Presiding Administrative Law Judge (Presiding Judge) issued an initial decision finding that: (1) Renewables is properly a party to these proceedings; and (2) the Renewables contract is not protected by the Mobile-Sierra presumption of justness and reasonableness. In so finding, the Presiding Judge determined that Renewables was liable for $371 million, including interest to May 2015.

On December 20, 2023, FERC issued an Order on Initial Decision that reversed in part, and affirmed in part, the Presiding Judge’s Initial Decision. Specifically, FERC found that, while Renewables is a proper party to the proceedings, the Mobile-Sierra presumption attaches to its contract, and the Mobile-Sierra presumption is not overcome or avoided with regard to it. Consequently, FERC found that the contract is just and reasonable and refunds for Renewables’ contract are not warranted.

“We’re very pleased that FERC agreed with us that we entered into the bilateral power purchase contracts appropriately and complied with all applicable legal standards and requirements,” said Pedro Azagra, Avangrid CEO. “We’ve consistently argued that the power purchase contracts were negotiated between sophisticated parties and did not impose an excessive burden on customers.”

“This announcement is the culmination of a 20-year dispute, and it is satisfying that FERC ruled in our favor that these contracts that supplied power when California was in crisis were just and reasonable” said R. Scott Mahoney, Senior Vice President, General Counsel and Corporate Security. “I’m very grateful to our team that has worked long and hard for this result.”

“FERC’s decision highlights our commitment to providing fairly-priced, reliable energy, particularly when our partners have needed it most.” said Puneet Verma, Vice President, Government Affairs. “As similar issues are considered across the country, I expect this ruling provides increased certainty and sets the standard for the energy sector.”

Avangrid cannot predict whether the other parties to the action will seek a rehearing or appeal.

About Avangrid: Avangrid, Inc. (NYSE: AGR) aspires to be the leading sustainable energy company in the United States. Headquartered in Orange, CT with approximately $41 billion in assets and operations in 24 U.S. states, Avangrid has two primary lines of business: networks and renewables. Through its networks business, Avangrid owns and operates eight electric and natural gas utilities, serving more than 3.3 million customers in New York and New England. Through its renewables business, Avangrid owns and operates a portfolio of renewable energy generation facilities across the United States. Avangrid employs more than 7,500 people and has been recognized by JUST Capital in 2021, 2022 and 2023 as one of the JUST 100 companies – a ranking of America’s best corporate citizens. In 2023, Avangrid ranked first within the utility sector for its commitment to the environment. The company supports the U.N.’s Sustainable Development Goals and was named among the World’s Most Ethical Companies in 2023 for the fifth consecutive year by the Ethisphere Institute. Avangrid is a member of the group of companies controlled by Iberdrola, S.A. For more information, visit www.avangrid.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231221602821/en/

Media:

Leo Rosales

Leo.Rosales@avangrid.com

518-419-2401

Source: AVANGRID, Inc.

FAQ

What is the company name and ticker symbol of the organization mentioned in the press release?

The company mentioned in the press release is Avangrid, Inc. and its ticker symbol is AGR.

What was the decision made by the Federal Energy Regulatory Commission (FERC) in favor of Avangrid Renewables, LLC?

FERC issued a decision in favor of Avangrid Renewables, LLC in the litigation related to the California energy crisis of 2000-2001.

What were the allegations made by the California agencies with respect to the power purchase agreement?

The California agencies alleged that the terms and conditions of the power purchase agreement were unjust and unreasonable, and that Renewables exercised market power that forced CDWR to pay unjust and unreasonable prices and agree to onerous nonprice terms.

What was the initial decision issued by the Presiding Administrative Law Judge (Presiding Judge) regarding Renewables' contract?

The initial decision found that Renewables is properly a party to the proceedings and that the Renewables contract is not protected by the Mobile-Sierra presumption of justness and reasonableness, determining that Renewables was liable for $371 million, including interest to May 2015.

What was the final decision issued by FERC regarding Renewables' contract?

FERC found that the Mobile-Sierra presumption attaches to its contract, and the Mobile-Sierra presumption is not overcome or avoided with regard to it, concluding that the contract is just and reasonable and refunds for Renewables’ contract are not warranted.