This post was written by our colleague Tami Boeck for the Ahead of Schedule construction law blog.

The Idaho Supreme Court recently determined in Idaho Power Company v. New Energy Two, LLC, No. 40882-2013 (Idaho June 17, 2014), that the Idaho Public Utilities Commission has jurisdiction to interpret or enforce contracts when given the authority by the parties. In May 2010, IPC and the defendants entered into two energy contracts that were to be completed by a date certain. In advance of the operational dates, the defendants notified IPC of events they claimed were force majeure. Markedly, the defendants’ claim was that the decision-making process of the PUC itself, or the alleged lack thereof, was the force majeure event causing lenders to be “unwilling to lend in Idaho pending the outcome” of the PUC proceedings. IPC filed petitions with the PUC seeking a ruling that there was no force majeure event(s), and that IPC could terminate the contracts. The defendants filed a motion to dismiss that was denied, and the Idaho Supreme Court heard the issue on a permissive appeal.

After giving a nod to prior decisions discussing the “general rule” regarding the primacy of court jurisdiction, the Idaho Supreme Court re-emphasized that “‘[f]reedom of contract is a fundamental concept underlying the law of contracts and is an essential element of the free enterprise system.’  Rawlings v. Layne & Bowler Pump Co., 93 Idaho 496, 499, 465 P.2d 107, 110 (1970). The parties to a contract can agree to the manner in which they will resolve disputes regarding the interpretation of their contract. Although they cannot require a third party to resolve their dispute, they can agree to permit a third party to do so.”

Here, the court found that the parties’ contracts, which had been subject to approval by the PUC at inception, were likewise subject to the parties’ willingness to have the PUC interpret the contracts: “section 19.1 [has] a provision stating, ‘All disputes related to or arising under this Agreement, including, but not limited to, the interpretation of the terms and conditions of this Agreement, will be submitted to the Commission for resolution.’”

The court also reflected on the prior commentary of the PUC, which it noted the defendants ignored as they had with the telling language of section 19.1. Observing a United States Supreme Court decision addressing general PUC authority and two prior Idaho Supreme Court decisions evaluating the statutory authority of the PUC, the Idaho Supreme Court held that when an act provides a commission with authority to approve or disapprove the contract, such an “Act necessarily granted the Commission the authority to interpret and enforce the provisions of the contract that it had approved [citation omitted]” and therefore “‘to determine whether a regulated utility has an obligation under PURPA to purchase power from an applicant’ [italics in original; citation omitted].” In sum, this was the very issue at stake between the parties before the PUC.

Takeaways: a) know your contract terms and what body is authorized to resolve the disputes; b) although we don’t have the definition of “force majeure” here, it is not common for financial difficulties in obtaining lenders to be among the listed grounds – know what “outs” are available at project inception; and c) don’t ignore your contract or court precedent in your briefing.