Panoche Energy Center, LLC v. Pacific Gas & Electric Co.

The California Court of Appeal reinstated an arbitration panel’s determination that a producer of electricity in California had assumed the cost of implementing the Global Warming Solutions Act of 2006 (AB 32). The producer entered into a power purchase and sale agreement (PPA) with a utility in 2006, prior to AB 32’s enactment. The arbitration panel found that the PPA’s contract price took into account AB 32’s potential costs after the producer had been forewarned that it would have to cover compliance costs. A California Superior Court had vacated the arbitration award, finding that the producer had been “substantially prejudiced” by the arbitrators’ refusal to delay the arbitration while the California Public Utilities Commission and the California Air Resources Board considered regulations that addressed, among many other things, how the AB 32 program would deal with “legacy contracts” such as the PPA. In reversing the Superior Court, the Court of Appeal rejected the producer’s argument that final regulations providing relief to the producer and similarly situated parties rendered the utility’s appeal moot. The appellate court also said that the contractual dispute had been ripe when arbitration commenced despite the pending regulatory proceedings. The appellate court said that the producer therefore had not shown sufficient cause for postponement of the arbitration.