Norwood, MA v. FERC , 202 F.3d 392 ( 2000 )

United States Court of Appeals
For the First Circuit
No. 99-2155
TOWN OF NORWOOD, MASSACHUSETTS,
Petitioner,
v.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
__________
NEW ENGLAND POWER COMPANY,
Intervenor.
ON PETITION FOR REVIEW OF AN ORDER OF
THE FEDERAL ENERGY REGULATORY COMMISSION
Before
Boudin, Stahl and Lipez,
Circuit Judges.
Charles F. Wheatley, Jr. with whom Wheatley & Ranquist,
Kenneth M. Barna, Alan K. Posner and Rubin & Rudman were on
brief for petitioner.
Larry D. Gasteiger with whom Douglas W. Smith, General
Counsel, and John H. Conway, Acting Solicitor, were on brief for
respondent.
Edward Berlin with whom Robert V. Zener, Swidler Berlin
Shereff Friedman, LLP and John F. Sherman, III, Associate
General Counsel, The New England Electric System Companies, were
on brief for intervenor.
June 29, 2000
BOUDIN, Circuit Judge. In this case, the Town of
Norwood, Massachusetts, seeks review of orders of the Federal
Energy Regulatory Commission ("FERC") denying Norwood's petition
for declaratory rulings. The case is a sequel to Town of
Norwood v. FERC, 202 F.3d 392 (1st Cir.), petition for cert.
filed (U.S. May 30, 2000) (No. 99-1914) ("Norwood I"), in which
this court sustained related FERC orders. See also Town of
Norwood v. New England Power Co., 202 F.3d 408 (1st Cir.),
petition for cert. filed (U.S. May 30, 2000) (No. 99-1913)
("Norwood II"). The pertinent facts, for which detailed
background can be found in Norwood I and II, are as follows.
For many years, New England Power Company was a major
integrated electric utility in New England: it generated power,
distributed it as a wholesaler to affiliates and non-affiliates
alike, and retailed power through its local affiliates such as
Massachusetts Electric Company. Norwood, which operates a
municipal electric company that distributes retail power to
residents and businesses in the town, was a long-time purchaser
of power from Boston Edison Company, but in 1983 Norwood began
to purchase power instead from New England Power.
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This opportunity to switch power suppliers was secured
after Norwood settled an antitrust case against Boston Edison
and New England Power. See Norwood II, 202 F.3d at 412. The
settlement agreement obligated New England Power to furnish, and
Norwood to accept, sufficient power to satisfy Norwood's
requirements for electricity through October 31, 1998. The
power was to be supplied pursuant to New England Power's FERC
Tariff No. 1--the same wholesale tariff under which New England
Power then supplied electricity to its own retail affiliates--
"as [it] may be amended from time to time." Id.
The requirements contract provided that its term was
from November 1, 1983, to October 31, 1998, but it also stated
that "[n]either [New England Power] nor Norwood will give notice
of termination prior to November 1, 1991 and shall not specify
a termination date prior to November 1, 1998." New England
Power's FERC Tariff No. 1, incorporated by reference in its
power contract with Norwood, said that "[o]nce initiated,
service under this tariff shall continue until terminated by
either party giving to the other at least seven years' written
notice of termination. . . ."
Thereafter, the parties twice amended the requirements
contract. First, in 1987 the contract was amended to permit
Norwood to take advantage of allocations of lower-cost power
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from the New York Power Authority. Second, in 1989 the parties
amended the contract to permit Norwood at its election to extend
the earliest date on which notice of termination could be given
from November 1, 1991, to November 1, 2001.
On July 25, 1990, Norwood sent a letter to New England
Power stating that Norwood "hereby gives notice . . . that it
extends the date" for giving notice of termination from November
1, 1991, to November 1, 2001. The letter continued: "The
effect of this is that the Power Contract between [New England
Power] and Norwood would be extended for [ten] years to
midnight, October 31, 2008 . . . ." Whether Norwood did intend
to extend the contract and whether the extension was effective
are principal issues in this case.
Beginning in December 1996, New England Power made a
set of regulatory filings to restructure itself and to revise
its existing tariff for wholesale power sales. These filings,
described in detail and upheld in Norwood I, aimed to secure
FERC approval for the sale of New England Power's non-nuclear
generating facilities, the release (on payment of termination
charges) of affiliates from their long-term requirements
contracts with New England Power, and the restructuring of New
England Power's wholesale rates to facilitate customer choice
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and market-based pricing at both the wholesale and retail
levels. Norwood I, 202 F.3d at 396-97.
In a set of orders issued between November 1997 and
June 1998, FERC approved the sale, early termination by
affiliates on payment of termination charges, the restructuring
of wholesale rates, and a "rate freeze" on New England Power's
existing charges with wholesale contract purchasers like
Norwood. This freeze was instituted because under the existing
contracts, rates were normally adjusted to reflect increased
costs, and New England Power was now divesting itself of its
low-cost non-nuclear plants. Norwood II, 202 F.3d at 413.
Norwood concluded that under the new regime it would
be disadvantaged vis-à-vis New England Power's retail affiliates
whom Norwood regards as retail competitors. See Norwood II, 202
F.3d at 414. On March 4, 1998, Norwood notified New England
Power that it was switching to a new wholesale supplier,
Northeast Utilities. Two weeks later, on March 18, 1998, New
England Power filed a revised FERC Tariff No. 1 permitting
dissident wholesale customers like Norwood to terminate their
contracts early and on only thirty days' notice, conditioned on
the customers paying a contract termination charge based on an
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avoided cost theory.1 New England Power Co., 83 F.E.R.C. ¶
61,174, reh'g denied, 84 F.E.R.C. ¶ 61,175 (1998).
To counter New England Power's March 18, 1998, tariff
filing, Norwood not only objected to the charge before FERC, see
Norwood I, 202 F.3d at 398, but also, in an effort to shorten
the period of liability, Norwood petitioned FERC in April 1999
for a declaratory order, 18 C.F.R. § 385.207 (1999), that its
contract with New England Power had terminated on October 31,
1998, and that New England Power therefore had no basis for
claiming any contract termination charges after that date.
Norwood estimates that if fully allowed, the charges will exceed
$7 million per year until 2008.
FERC dismissed Norwood's petition on the merits on June
21, 1999, Town of Norwood, 87 F.E.R.C. ¶ 61,341 (1999). In a
nutshell, the Commission found that Norwood had extended the
contract through October 31, 2008, by its July 25, 1990, letter;
and it concluded that New England Power's failure to file that
letter with FERC was irrelevant. On August 20, 1999, FERC
denied without opinion Norwood's motion for rehearing, and
1The contract termination charge is computed as the revenues
that New England Power would have expected to collect had the
customer continued to pay at the now frozen tariff rate through
the earliest date that the customer could have unilaterally
terminated service under the contract, less the expected costs
avoided by New England Power because it did not have to provide
the power.
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Norwood has sought review in this court to challenge the
Commission's orders, 16 U.S.C. § 825l(b).
Norwood's arguments on appeal, which we address in a
sequence somewhat different from Norwood's brief, are in
substance five: (1) that the requirements contract with New
England Power was never extended beyond October 31, 1998; (2)
that any extension premised on the July 25, 1990, letter is
ineffective because the letter was not filed with FERC and
because reliance upon it violates the so-called filed rate
doctrine; (3) that the FERC order unilaterally altered the
contract in disregard of the Mobile-Sierra doctrine; (4) that
the failure to file the letter prevents FERC from relying on it
in construing the contract; and (5) that FERC committed
procedural error.
Assuming arguendo that the July 25, 1990, letter was
rightly considered, it is clear to us that FERC properly
construed the contract to extend Norwood's obligation to take
its requirements from New England Power until October 31, 2008.
The standard of review need not be considered because, even if
review of the contract interpretation question were de novo, our
reading would still be precisely that of the Commission. Cf.
Boston Edison Co. v. FERC, 856 F.2d 361, 363-64 (1st Cir. 1988).
The documents may be inartfully drafted, but taken together,
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they make clear that Norwood's contract interpretation argument
is hopeless.
It is arguable that even without the July 25, 1990,
letter, the proper reading of the original 1983 contract made it
self-extending absent notice of termination.2 However, there is
no reason to decide how matters would stand if there had been no
1989 amendment and letter. Norwood's July 25, 1990, letter
triggered a provision in the 1989 amendment to the original 1983
contract and when both the amendment and the letter are
considered, it is crystal clear that--subject to any other
possible legal barrier--Norwood's obligation was extended
through October 31, 2008.
The 1989 amendment explicitly replaced the article of
the 1983 agreement specifying the term of the contract with a
new article which specified that the contract continued through
midnight, October 31, 1998, except: (1) neither side could give
notice of termination prior to November 1, 1991, or specify a
termination date prior to November 1, 1998; and (2):
Norwood may elect to extend the earliest
date by which either party can give notice
of intent to terminate service by a total of
2The original contract said that its term was through
October 31, 1998, but FERC Tariff No. 1. said that seven years'
notice is required to terminate; while the contract has an
overrule provision, it is not clear that the two terms are
inconsistent.
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[twenty] years in two ten-year increments.
In order to exercise this election, Norwood
agrees to provide [New England Power] with
written notice of each such election at
least one year prior to the date that it is
to be extended, viz, to November 1, 2001
initially and to November 1, 2011
ultimately.
Citing this amended article, Norwood on July 25, 1990, wrote New
England Power giving notice that it extended the date by which
either side could give notice of an intent to terminate "to
November 1, 2001. The effect of this is that the Power Contract
between [New England Power] and Norwood would be extended for
[ten] years to midnight, October 31, 2008 . . . ."
Norwood argues that the letter was an offer that New
England Power failed to accept; but the 1989 amendment, which
Norwood explicitly invokes in the 1990 letter, gives Norwood a
unilateral election to extend by written notice, which is just
what the 1990 letter comprises. Norwood also says that the 1990
letter merely extends the earliest date on which the notice of
termination can be given and does not extend the agreement
itself; but this is just word play in the context of this
contract.
Norwood makes a further contract interpretation
argument based on the 1987 amendment which was designed to allow
Norwood to reduce its obligation to purchase from New England
Power to the extent that Norwood could obtain a lower-cost
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allocation from the New York Power Authority. Norwood's
explanation as to how this 1987 amendment supports its position
is not persuasive enough to merit detailed response. The short
answer is that the 1987 amendment, which had a quite limited
focus, was followed by a 1989 amendment providing Norwood an
election to extend the obligations through 2008; and this
provision for an election, which Norwood exercised, controls any
prior terms, whether adopted in 1983 or in 1987.
Norwood's second multi-part argument is that the July
25, 1990, letter was ineffective to extend the contract until
2008 because the letter was never filed with FERC. The
governing provision of the Federal Power Act provides that
utilities subject to its terms, which includes New England Power
with respect to wholesale power sales, must file with FERC:
schedules showing all rates and charges for
any transmission or sale subject to the
jurisdiction of the Commission, and the
classifications, practices, and regulations
affecting such rates and charges, together
with all contracts which in any manner
affect or relate to such rates, charges,
classifications, and services.
16 U.S.C. § 824d(c) (1994) (emphasis added). The statute also
requires that any change in a rate or contract must be reflected
in a filing with the Commission which, absent a waiver, must be
made in advance of the effective date and on sixty days' notice.
Id. § 824d(d).
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Although the statute does not say so explicitly, it
might be read as saying that an unfiled contract is ineffective;
and in any event, FERC regulations say that a public utility may
not (to shorten the language to pertinent terms) "collect . . .
any rate" or "impose any . . . contract" for FERC-regulated
service "which is different from that provided in a rate
schedule required to be on file with this Commission unless
otherwise specifically provided by order of the Commission for
good cause shown." 18 C.F.R. § 35.1(e) (1999). "Rate schedule"
is defined to include both a statement of rates and charges for
electric service and "all classifications, practices, rules,
regulations or contracts which in any manner affect or relate to
the aforementioned service, rates, and charges." Id. § 35.2.
The importance attributed to filings is reinforced by the so-
called filed rate doctrine.
The filed rate doctrine, discussed at greater length
in Norwood II, 202 F.3d at 416, 418-22, is actually a set of
rules that have evolved over time but revolve around the notion
that under statutes like the Federal Power Act, utility filings
with the regulatory agency prevail over unfiled contracts or
other claims seeking different rates or terms than those
reflected in the filings with the agency. See, e.g., AT&T v.
Central Office Tel., Inc., 524 U.S. 214, 221-24 (1998); Montana-
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Dakota Utils. v. Northwestern Pub. Serv. Co., 341 U.S. 246, 251-
52 (1951). Norwood's theory is that the unfiled July 25, 1990,
letter was ineffective because not filed (as required by statute
and regulations) and because giving the unfiled letter effect
would violate the filed rate doctrine.
In both variations, Norwood's argument depends on the
proposition that the July 25, 1990, letter was a contract
required to be filed. The gist of the Commission's holding is
that the contract was what was set forth in the 1983 contract
and the 1989 amendment, both of which were filed with the
Commission; the letter merely exercised an election already
spelled out in those filings. The Commission also gave other
alternative reasons for relying on the 1990 letter, which we
will defer for the present.
The reference in the statute and regulations to the
filing of "contracts" which affect rates and services is
ambiguous. On the one hand, the July 25, 1990, letter is not
itself a contract in common usage; it is the exercise of a
unilateral election by one party under an already existing
contract. On the other hand, the election had the effect of
extending the contract term by multiple years, albeit within the
framework of the existing contract. If the Commission wanted to
characterize such notices as "contracts," it would be a
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linguistic stretch but arguably within the Commission's
authority to construe its organic statute and regulations.
However, the Commission has construed the statute and
regulations not to encompass a notice of election already
provided for by a duly filed contract. This interpretation is
subject to substantial deference under the Chevron doctrine.3
Further, in the Towns of Concord and Wellesley v. FERC, 844 F.2d
891 (1st Cir. 1988), this court upheld a decision of FERC giving
effect to an unfiled letter terminating a provision in a filed
agreement where the agreement itself contemplated such a
termination letter. The analogy offered was to automatic rate
adjustment clauses which, "[o]nce the rate schedule is approved,
[permit] rate adjustments [to] be made in accordance with the
internally-prescribed automatic adjustment clause without
further notice to action by the Commission." Id. at 896 (citing
16 U.S.C. § 824d(f)); see also Transwestern Pipeline v. FERC,
897 F.2d 570, 578 (D.C. Cir.), cert. denied, 498 U.S. 952(1990).
Norwood counters by citing Arkansas Louisiana Gas Co.
v. Hall, 453 U.S. 571 (1981) ("Arkla"), but we think that case
3Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837, 842-45 (1984); see also Mississippi Power &
Light Co. v. Mississippi, 487 U.S. 354, 380-82 (1988) (Scalia,
J., concurring); City of Cleveland v. FERC, 773 F.2d 1368, 1376
(D.C. Cir. 1985).
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is distinguishable. There, the Supreme Court held that a filed
tariff rate for the purchase of natural gas prevailed over
Arkla's promise, made in a filed agreement, to pay a higher rate
if Arkla paid more to other producers (the "favored nations"
clause). But the Supreme Court stressed that it was unclear
whether FERC would have accepted the higher rate resulting from
the favored nations clause--by contrast to our case; and FERC
said in Arkla that its acceptance of the contract did not
constitute pre-approval of any rate generated by the favored
nations clause. See Arkla, 453 U.S. at 578-82 & n.11.
Needless to say, without the filing of the July 25,
1990, letter, no outsider could visit the Commission's files and
determine whether the election to extend had been exercised.
This provides whatever policy argument there might be for a
broad interpretation of "contracts" in the statute. But even in
the halcyon days of strict public utility regulation, now
receding at FERC as elsewhere, see Norwood I, 202 F.3d at 396,
there were gaps in what could be gleaned from Commission
filings. And this is the kind of grey area--the determination
of just what the Commission needs to have filed beyond formal
contracts themselves--in which great weight must be given to the
Commission's judgment. City of Cleveland v. FERC, 773 F.2d
1368, 1376 (D.C. Cir. 1985).
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We thus conclude that the Commission did not act
contrary to the Federal Power Act or its own regulations in
giving effect to the unfiled July 25, 1990, letter as an
election to extend the term of the contract. By the same token
it is unnecessary to elaborate on the filed rate doctrine
because giving effect to the notice does not circumvent any
filing requirement or contradict any extant filing. This is
enough to resolve the claims made by Norwood and makes it
unnecessary for us to consider what we regard as more doubtful
alternative reasons given by the Commission for its order.
Third, because we accept the Commission's
interpretation of the July 25, 1990, letter as representing
Norwood's election to extend its contract to 2008, the Mobile-
Sierra doctrine invoked by Norwood does not apply. That
doctrine prohibits a regulated utility from unilaterally
changing the fixed terms of a utilities contract absent a
finding by FERC that the existing term adversely affects the
public interest. FPC v. Sierra Pacific Power co., 350 U.S. 348,
353-55 (1956); United Gas Pipe Line v. Mobile Gas Serv. Corp.,
350 U.S. 332, 343-45 (1956). FERC's reasonable construction of
a contract in favor of a public utility is not a unilateral
change in the contract.
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In its fourth argument for reversal, Norwood argues
that, if New England Power was not required to file the July 25,
1990, letter, then FERC lacked the authority to interpret it.
This might be so if the letter's subject matter were outside
FERC's jurisdiction--for example, if it addressed only
intrastate power sales. Cf. Pennzoil v. FERC, 645 F.2d 360, 382
(5th Cir. 1981), cert. denied, 454 U.S. 1142 (1982). However,
there is no doubt that the letter in this case related to a
filed contract for the wholesale supply of electric power within
FERC's jurisdiction.
FERC sometimes declines to address contract issues even
for sales unquestionably within its jurisdiction, see, e.g.,
Southern Cal. Edison Co., 85 F.E.R.C. ¶ 61,023 (1998), but
Norwood makes no claim that FERC is forbidden from interpreting
contracts filed with FERC or otherwise relevant to FERC tariffs.
Here, the duration of the contract directly affects Norwood's
liability under the March 1998 tariff imposing a termination
charge; and Norwood itself sought the declaration from FERC as
to whether the contract continued past October 1998. The letter
was properly considered as a document pertinent to determining
the duration of the contract. Cf. Southern Union Co. v. FERC,
857 F.2d 812, 815-16 (D.C. Cir. 1988), cert. denied, 493 U.S.
1072 (1990).
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Finally, Norwood offers a procedural objection to the
Commission's proceedings. After FERC issued its notice of the
filing of Norwood's petition for a declaratory ruling, FERC
granted New England Power leave to intervene out of time, and it
accepted New England Power's answer to Norwood's petition.
Norwood now complains because FERC then denied Norwood's motion
for leave to file a reply, citing a FERC procedural rule
prohibiting answers to answers. 18 C.F.R. § 385.213(a)(2)
(1999).
Perhaps in some situations it might be improper for an
agency effectively to deny the petitioner the right to respond
to assertions raised for the first time in an answering
document, although refusal to allow a formal "reply" is not
automatically the same as precluding evidence or argument. The
short answer in this case is that nothing in Norwood's proffered
reply, which is included in the appendix filed with this court,
alters the result: in general, the reply sets forth arguments
that were effectively addressed by FERC in its orders or could
not affect the outcome in light of dispositive rulings by FERC.
The petition for review is denied.
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