Tennessee Gas Pipeline Co. v. F.E.R.C. ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 93-4089.
TENNESSEE GAS PIPELINE CO., Petitioner,
v.
FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
March 25, 1994.
Petition for Review of an Order of the Federal Energy Regulatory
Commission.
Before JOHNSON, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.
JOHNSON, Circuit Judge:
On April 8, 1991, Tennessee Gas Pipeline Company ("Tennessee")
and Flagg Energy Development Corporation ("Flagg") entered into a
firm natural gas transportation contract. Tennessee agreed to
transport 4,140 dekatherms of natural gas each day from various
points in and offshore Louisiana to Connecticut on Flagg's behalf.
Tennessee also agreed to construct and operate the facilities
necessary to transport the natural gas. Flagg agreed to pay
Tennessee for its services.
Prior to entering into this contract, the Federal Energy
Regulatory Commission ("FERC" or "the Commission") authorized
Tennessee to charge Flagg certain rates for the transportation
services. The Commission also ruled that Tennessee could later
seek changes to those rates, as allowed by section four of the
Natural Gas Act ("NGA"). Tennessee sought to change the rates on
February 28, 1992. Flagg intervened and charged, among other
things, that its gas transportation contract prohibited the type of
1
rate changes sought by Tennessee. The Commission agreed.
Tennessee appeals. We reverse.
I. Facts and Procedural History
Tennessee entered precedent agreements with seven different
companies in the winter of 1988-89. The companies proposed to pay
Tennessee to transport natural gas to various points in the
Northeast. Flagg entered such a precedent agreement with Tennessee
on January 9, 1989. It desired for Tennessee to transport natural
gas from various points in and offshore Louisiana to New Britain,
Connecticut, and Bloomfield, Connecticut. Tennessee agreed to seek
authorization from FERC to build the facilities necessary to
transport that natural gas.
Consistent with the precedent agreements with the seven
different companies—including its agreement with Flagg—Tennessee
sought FERC approval to construct and operate new facilities which
would expand the capacity of its existing pipeline system. The new
facilities were to be located in five separate zones, which
Tennessee designated Segments U, 1, 2, 3, and 4. In its
application to FERC, Tennessee asserted that it would transport
natural gas to Flagg through Segments U, 2, and 3 and would charge
Flagg for the cost of operating those three facilities.1 Rate
1
There are two methods of charging for gas transportation:
The "incremental cost allocation" method and the "rolled in"
method. Under the incremental cost allocation method, the new
customers pay for all of the costs of the new facilities. This
method spares existing customers from having to pay for the
expansion of the transportation system, even though they may use
the expansion facilities. The rolled in method of charging for
gas transportation requires each shipper—both old and new—to pay
its share of the transportation costs based upon its
2
Schedule NET-EU set forth the rates which Tennessee proposed to
charge. However, Tennessee requested permission to change the
rates if all of the proposed facilities were not approved by
October 1, 1989.
FERC approved the construction of three of the five Segments
by May of 1990—Segments 1, 2, and 3. See Tennessee Gas Pipeline
Co., 51 FERC ¶ 61,113, 61,274, 61,275-276 and n. 22 (1990).
Because FERC had not yet given Tennessee permission to construct
the proposed facilities for Segments U or 4, it disapproved
Tennessee's request to charge Flagg for any use of Segment U in a
May 2, 1990, order ("May Order"). Id. However, the Commission
decided that Tennessee could seek to amend its NET-EU rates to
"roll in"2 the costs associated with Segments U and 4 after those
projects were approved and placed in service. The Commission
asserted that Tennessee could seek such a rate change at a later
date through a section 4 proceeding. Id. at ¶ 61,274. FERC
calculated a rate for Segment 4 in its September 13, 1990, order.
However, it again refused to compute a rate for Segment U because
the proposed facilities had still not been approved. Tennessee Gas
Pipeline Co., 52 FERC ¶ 61,257, 61,930 (1990).
Based upon, and specifically referring to, the May Order,
Tennessee and Flagg entered a Firm Natural Gas Transportation
Agreement ("contract") on April 8, 1991. Tennessee agreed to
proportionate use of the facility in question. Tennessee
proposed to charge Flagg under the incremental cost allocation
method.
2
See supra note 1.
3
construct the facilities needed to receive and deliver gas to
Flagg. The specific rate formula for transporting the gas was set
out in section 8.2 of the contract. However, section 8.4 of the
contract provided that "pursuant to this Article VIII," Tennessee
has the unilateral right "to file and make effective changes in the
rates, charges, and conditions applicable to service."
Consistent with its construction of section 8.4 of the
contract, Tennessee filed a limited rate case under section 4 of
the NGA to revise the rates in its NET-EU schedule. Among other
things, Tennessee sought to charge Flagg and another company,
Capitol District Energy Center Cogeneration Associates ("Capitol
District"), for their use of Segment U.3 Apparently complying with
the Commission's May Order, Tennessee proposed to roll the Segment
U charge into these companies' gas transportation charges. See 51
FERC at ¶ 61,274 (deciding that "Tennessee may seek to amend its
NET-EU rates to reflect the rolling in of all costs associated with
various Northeast projects by initiating a section 4 proceeding
after all the projects have been approved and placed in service"
(emphasis added)).
Both Flagg and Capitol District filed motions to intervene.4
3
Flagg and Capitol District are the only NET-EU customers
which use Segment U. Tennessee uses that Segment to transport
natural gas from the Gulf Coast approximately 1400 miles north to
various points in the Northeast on Flagg's and Capitol District's
behalf. Unlike the gas transported for Flagg and Capitol
District, the natural gas transported for the other NET-EU
customers is both received and delivered in the Northeast.
4
Tennessee and Capitol District have settled their disputes
in this matter.
4
Flagg proffered numerous objections to Tennessee's proposals.
Important for our purposes, Flagg contended that its contract with
Tennessee prohibited Tennessee from charging Flagg for its use of
Segment U. According to Flagg, Tennessee could only charge for the
use of Segments 2 and 3. Flagg requested FERC to review the matter
in an expedited paper hearing, and FERC granted the request,
limiting its review to deciding whether the Tennessee-Flagg
contract precluded Tennessee from charging Flagg for its Segment U
use. Tennessee Gas Pipeline Co., 58 FERC ¶ 61,343 (1992). Finding
the contract clear and unambiguous and basing its decision solely
on the plain language of the contract, the Commission concluded
that the contract did not allow Tennessee to charge Flagg for
Segment U. Tennessee Gas Pipeline Co., 60 FERC ¶ 61,261 (1992).
The Commission denied Tennessee's motion for rehearing on January
21, 1993. Tennessee appeals.
II. Discussion
A. Background
As late as the mid-1940s, just after World War II, contracts
between natural gas companies (e.g., suppliers and transporters)
and natural gas purchasers (e.g., public service commodity
companies) began to take one of two shapes with respect to rates.
The contracts either set forth a specific, unchangeable rate for
natural gas supply or they set no specific rate whatever. Compare
United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332,
76 S.Ct. 373, 100 L.Ed. 373 (1956) with United Gas Pipe Line Co. v.
Memphis Light, Gas and Water Division, 358 U.S. 103, 79 S.Ct. 194,
5
3 L.Ed.2d 153 (1958); see also Federal Power Commission v. Sierra
Pacific Power Co., 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388(1956). As energy prices escalated, natural gas companies sought
to unilaterally raise their prices by filing revised rate schedules
with the, then, Federal Power Commission ("FPC").5 Needless to
say, the natural gas purchasers were less than pleased. They
intervened in the section 4 proceedings and argued that the natural
gas companies had no authority to unilaterally change their rates.
By the mid to late 1950s these controversies made their way to
the United States Supreme Court. The first such case was United
Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76
S.Ct. 373, 100 L.Ed. 373 (1956). There, United Gas Pipe Line Co.
("United") contractually agreed to furnish natural gas to Mobile
Gas Service Co. ("Mobile") for a ten-year period at twelve cents
per thousand cubic feet (MCF). Id. at 336, 76 S.Ct. at 376-77.
Seven years into the agreement, United, without Mobile's consent,
filed a new rate schedule with the FPC, raising the rates to
fourteen and one-half cents per MCF. Mobile opposed the increase,
arguing that it was contrary to the terms of its contract with
United. United, however, contended that the NGA authorized natural
gas companies to change their rate agreements unilaterally.
The Supreme Court disagreed. Id. at 337, 76 S.Ct. at 377.
The Court found that the NGA evinced no intention to abrogate the
rates set forth in private natural gas contracts. The Court found
5
Section 4 of the NGA sets forth the procedures for changing
rate schedules.
6
that the Act, instead, "expressly recognizes that rates to
particular customers may be set by individual contracts." Id. at
338, 76 S.Ct. at 378. The primary focus, according to the Mobile
Court, is the natural gas contract, not the Natural Gas Act:
[E]xcept as specifically limited by the Act, the rate-making
powers of natural gas companies [are] to be no different from
those they would possess in the absence of the Act: to
establish ex parte, and change at will, the rates offered to
prospective customers; or to fix by contract, and change only
by mutual agreement, the rate agreed upon with a particular
customer.
Mobile Gas Service Corp., 350 U.S. at 343, 76 S.Ct. at 380. The
Court determined that preserving the integrity of natural gas
contracts aided the stability of supply arrangements, contributed
to the health of the natural gas industry, and therefore promoted
the purposes of the NGA. Id. at 344, 76 S.Ct. at 380-81. It
therefore ruled that the Natural Gas Act did not empower natural
gas companies to unilaterally change their contracts. Id. at 337,
76 S.Ct. at 377.
The Supreme Court again emphasized the importance of
contractual provisions in United Gas Pipe Line Co. v. Memphis
Light, Gas and Water Division, 358 U.S. 103, 105, 79 S.Ct. 194,
195-96, 3 L.Ed.2d 153 (1958). Unlike the contract in Mobile, which
set forth a specific gas rate, the contract in Memphis required
Memphis Light, Gas and Water Division ("Memphis") to pay United in
accordance with United's rate schedule "or any effective
superseding rate schedules[ ] on file with the" FPC. Memphis
Light, Gas and Water Division, 358 U.S. at 105, 79 S.Ct. at 196.
In effect, Memphis bound itself to paying the "going" rate for the
7
gas. Id. at 110, 79 S.Ct. at 198. In accordance with the United-
Memphis contract, United sought to raise the gas supply rates it
charged by filing revised rate schedules with the FPC. Memphis
protested. Viewing Mobile as a sword—prohibiting natural gas
companies from ever seeking unilateral rate revisions—Memphis
contended that United's efforts ran afoul of the Supreme Court's
decision in Mobile. Id. at 108, 79 S.Ct. at 197.
The Supreme Court read its Mobile decision otherwise. Again
focussing on the language in the contract, the Memphis Court ruled
that a natural gas company is precluded from seeking unilateral
changes in its rates only if its contract expressly precludes such
changes. Id. at 113, 79 S.Ct. at 200. According to the Memphis
Court, a gas company, "like the seller of an unregulated commodity,
has the right in the first instance to change its rates as it will,
unless it has undertaken by contract not to do so." Id. (Emphasis
added). As made clear in Mobile and Memphis, courts deciding
whether a natural gas company may unilaterally change its rates
must focus on the words of the natural gas contract.
B. Standard of Review
In light of Mobile and Memphis, we now turn to the firm
natural gas agreement at issue in the case sub judice. Flagg asks
the Court to defer to FERC's construction of that agreement. This,
we cannot do. It is well-settled in the Fifth Circuit that this
Court will review the construction of natural gas contracts freely.
El Paso Natural Gas Co. v. Federal Energy Regulatory Commission,
881 F.2d 161, 164 (5th Cir.1989); Pennzoil Co. v. Federal Energy
8
Regulatory Commission, 789 F.2d 1128, 1135-36 (5th Cir.1986). This
Court will not defer to FERC's construction of such contracts
unless FERC relied on its factual or technical expertise in
reaching its conclusions. Mid Louisiana Gas Co. v. Federal Energy
Regulatory Commission, 780 F.2d 1238, 1243 (5th Cir.1986); see
also El Paso Natural Gas, 881 F.2d at 164 (stating that "where the
understanding of the problem is enhanced by the agency's expert
understanding of the industry, this Court may defer to the views of
the agency although those views are not conclusive" (emphasis
added; internal quotations omitted)). In the case sub judice, the
Commission relied solely on the words of the contract. This Court
will therefore review the construction of the gas transportation
agreement de novo.
C. Interpreting the Contract
In interpreting a natural gas contract, courts should apply
the normal rules of contract interpretation. Mid Louisiana Gas,
780 F.2d at 1242-43. In section 16.4 of their contract, Flagg and
Tennessee agreed that the Texas rules of contract interpretation
would control in any contract disputes. A cardinal rule of
contract interpretation in Texas requires courts to review the
entire contract in order to determine its meaning; courts should
not consider any single provision in isolation. Eagle Life
Insurance Co. v. G.I.C. Insurance Co., 697 S.W.2d 648, 650
(Tex.App.—San Antonio 1985, writ ref'd n.r.e.). To the contrary,
the goal of contract interpretation is to determine the parties'
intentions by harmonizing and giving effect to each provision
9
within the contract such that none is rendered meaningless.
Railroad Co. v. Androscoggin Mills, 89 U.S. (22 Wall.) 594, 22
L.Ed. 724 (1874); Woods v. Sims, 154 Tex. 59, 273 S.W.2d 617, 620-
21 (1954); Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513,
243 S.W.2d 154, 158 (1951); Eagle Life Insurance Co., 697 S.W.2d
at 650; see also Duracon, Inc. v. Price, 817 S.W.2d 147, 149
(Tex.App.—El Paso 1991, writ denied) (stating that courts are to
presume that the parties intended every clause to have some
effect). Not only must courts give meaning to each provision,
courts must also give meaning, effect, and purpose to every word in
the contract, if at all possible. TM Productions, Inc. v. Nichols,
542 S.W.2d 704, 708 (Tex.App.—Dallas 1976, writ ref'd n.r.e.).
The starting place for construing a contract is its language.
Mid Louisiana, 780 F.2d at 1243. The provisions in dispute here
are located in Article VIII, which is entitled "Rates For Service."
The most important of those provisions for our purposes are
sections 8.2 and 8.4. Those sections are the second and fourth
paragraphs in Article VIII. They provide the following:
8.2 Transportation Rates—Beginning on the Commencement Date,
the compensation to be paid by Shipper to Transporter for the
transportation service provided for herein shall be payable
monthly in accordance with Article X hereof and shall be equal
to the sum of the following: (a) the product of (1) the sum
of the "D-1" charges for Segments 2 and 3 under Transporter's
NET-EU Rate Schedule and (2) the Transportation Quantity, (b)
the product of (1) the sum of the "D-2" charges for Segments
2 and 3 under Transporter's NET-EU Rate Schedule and (2) the
"D-2 Billing Determinant" for the applicable billing period as
set forth in Exhibit B hereto, (c) the product of (1) the sum
of the "Commodity" charges for Segments 2 and 3 under
Transporter's NET-EU Rate Schedule and any applicable
surcharges as included in Transporter's effective FERC Gas
Tariff and (2) the quantity of gas delivered by Transporter to
Shipper during the applicable billing period.
10
References herein to Transporter's NET-EU Rate Schedule shall
include any successor or substitute rate schedules....
8.4 Rate Changes—Shipper agrees that Transporter shall have
the unilateral right pursuant to this Article VIII to file and
make effective changes in the rates, charges, and conditions
applicable to service pursuant to the Rate Schedule under
which this service is rendered and/or any provisions of the
General Terms and Conditions of Transporter's FERC Gas Tariff
Volume No. 1 as such Tariff may be revised or replaced from
time to time. Without prejudice to Shipper's right to contest
such charges, Shipper agrees to pay the effective rate for
service rendered pursuant to this Agreement, subject to FERC
review and adjustment. (Emphasis added).
1. FERC'S Construction
Reviewing section 8.2, the Commission correctly determined
that that section requires Flagg to compensate Tennessee according
to a set formula which includes variables for Demand ("D-1" and "D-
2") and Commodity charges for Segments 2 and 3. The Commission
also determined that section 8.4 "arguably does give[ ] Tennessee
the right to unilaterally file changes to two parts of its tariff:
the rates, charges, and conditions for the service ... and the
tariff's general terms and conditions." 60 FERC at ¶ 61,865.
However, the Commission determined that the emphasized portion of
section 8.4—"pursuant to this Article VIII"—limited Tennessee's
right to file revised rates. According to the Commission, any
changes under section 8.4 must be consistent with section 8.2.
Since section 8.2 allows Demand and Commodity charges solely for
Segments 2 and 3—not for Segment U—the Commission concluded that
adding charges for Segment U is inconsistent with section 8.2. The
Commission therefore ruled that the "pursuant to" phrase prohibited
Tennessee from unilaterally adding a Segment U charge for the NET-
EU service. Id. In essence, the Commission decided that section
11
8.4 allows for changes in Segments 2 and 3 charges only.
Here, on appeal, FERC adds that the definition of "pursuant
to" supports the Commission's conclusion. FERC asserts that
"pursuant to" is a restrictive phrase which means "in conformance
to or agreement with" or "according to." FERC quotes BLACK'S LAW
DICTIONARY as providing that "when [the words "pursuant to' are] used
in a statute ... [they constitute a] restrictive term." FERC's
Brief at 22-23 (quoting BLACK'S LAW DICTIONARY 1236 (6th ed. 1990)).
We disagree with both the Commission's construction of the
contract and FERC's interpretation of the "pursuant to" language.
In our view, the construction proffered by FERC effectively deletes
section 8.4 from the contract. Section 8.2—even absent the
language in section 8.4—authorizes Tennessee to unilaterally change
the costs associated with Segments 2 and 3. Section 8.2 sets forth
a formula for charging for the use of Segments 2 and 3. That
formula includes four variables—D-1 charges, D-2 charges, Commodity
charges, and a D-2 Billing Determinant. The dollar amount for each
variable is set out, not in the contract, but in the NET-EU Rate
Schedule. Hence, a unilateral change in the NET-EU Rate Schedule,
which is expressly permitted by section 8.2,6 changes the dollar
6
The second paragraph in section 8.2 states that references
to the NET-EU Rate Schedule "shall include any successor or
substitute rate schedules." That language is strikingly similar
to the provision which was at issue in Memphis. There, the
contract provided that "[a]ll gas delivered hereunder shall be
paid for by Buyer under Seller's Rate Schedule ... or any
effective superseding rate schedules." 358 U.S. at 105, 79 S.Ct.
at 196 (emphasis in the original). The Supreme Court ruled that
that language authorized the Seller to unilaterally change the
rates. Id. at 110, 79 S.Ct. at 198-99.
12
amount of each variable. A change in the variable amounts
necessarily changes the charges for Segments 2 and 3. Hence, under
the Commission's construction, section 8.4 is mere surplusage. The
Commission's construction gives section 8.4 no independent meaning
of its own. Section 8.4 simply mimics section 8.2; it adds
nothing to the contract.
FERC's restrictive definition of "pursuant to" likewise
eviscerates section 8.4 from the contract.7 In FERC's view, the
first sentence in section 8.4 allows Tennessee to change the rates
and charges as long as those changes are "in agreement with"
section 8.2. This argument, when taken to its logical conclusion
is nonsensical, for absent section 8.4, the rate formula outlined
in section 8.2 can never change. Yet, under FERC's construction,
absent a change in section 8.2, Tennessee cannot exercise its right
to change section 8.2. In other words, section 8.2 has to first
change before it can be changed. If it does not change on its own,
it cannot be changed under the authority of section 8.4. This
construction not only make no sense, but it also negates section
8.4: It, in effect, requires the rate formula to remain constant,
since section 8.2 clearly cannot change on its own. Thus, the
section 8.4 language which provides Tennessee with the right to
make unilateral changes in the transportation rates is, again,
rendered meaningless and ineffective. Such a construction clearly
7
We also note that the restrictive definition proffered by
FERC is inapplicable in this case. BLACK'S LAW DICTIONARY makes
clear that the "pursuant to" phrase is restrictive "when used in
a statute." BLACK'S LAW DICTIONARY 1237 (6th ed. 1990) (emphasis
added). A contract—not a statute—is at issue here.
13
violates the elementary rules of contract interpretation which
require courts to give meaning to each term, phrase, and provision
of a contract. See Androscoggin Mills, 89 U.S. (22 Wall.) 594, 22
L.Ed. 724 (1874) (requiring courts to give effect to all of a
contract's provisions); TM Productions, Inc., 542 S.W.2d at 708
(stating that courts must give effect and purpose to each word in
a contract).
Our construction of the contract does not violate these
contract interpretation rules. This Court's review of the contract
reveals a more coherent interpretation, one which gives meaning and
effect to both section 8.2 and section 8.4. Another interpretation
of the "pursuant to" phrase aids in our task. WEBSTER'S NEW COLLEGIATE
DICTIONARY and BLACK'S LAW DICTIONARY first define "pursuant to" as
meaning "in carrying out" or "in the course of carrying out."
WEBSTER'S NEW COLLEGIATE DICTIONARY 930 (1979); BLACK'S LAW DICTIONARY 1237
(6th ed. 1990). Using this definition, the pertinent sentence in
section 8.4 provides Tennessee with the unilateral right, in
carrying out Article VIII, to file and make effective changes in
the transportation rates. Because Article VIII establishes
Tennessee's authority to charge Flagg for the gas transportation,
Tennessee "carries out" the terms of Article VIII by charging
Flagg. Hence, section 8.4 simply provides Tennessee with the right
to change transportation rates when carrying out its charging
authority.
Our construction of section 8.4 is consistent with other
provisions in the contract—section 16.1, in particular. Section
14
16.1 prohibits the modification of any of the terms of the contract
absent written consent by both parties. By using the "pursuant to
this Article VIII" language in section 8.4, the parties completely
removed Article VIII from the ambit of section 16.1. The parties
provided that contrary to the modification prohibition in section
16.1, unilateral changes in Article VIII are permissible.
2. Flagg's View
Flagg offers a second interpretation of the contract. It
contends that the terms "rates" and "charges" are used synonymously
in section 8.4 and are distinct from the terms "cost allocation"8
and "compensation," terms which refer to the amount Flagg owes to
Tennessee for the gas transportation. Using this reading of the
contract, Flagg reaches FERC's conclusion: while Tennessee may
revise the "charges" for Segments 2 and 3, Tennessee may not change
the overall gas transportation rates by, for example, including
charges for Segment U.
Besides completely negating the effect of section 8.4, as
discussed in part II(C)(1) of this opinion, Flagg's construction
improperly renders the word "rates" superfluous. Fort Worth Lloyds
Insurance Co. v. Willham, 406 S.W.2d 76, 79
(Tex.Ct.Civ.App.—Amarillo 1966) (stating that "courts are without
authority to needlessly reject any words or terms used in contracts
by the parties or delete any clause therein as surplusage, unless
such action is judicially mandatory"). A careful reading of the
contract reveals that the words "rates" and "charges" are used
8
The term "cost allocation" is not used in the contract.
15
distinctly. Section 8.2 associates the word "charges" with
specific costs connected with three of the four NET-EU variables.
That section provides for "D-1 charges," "D-2 charges," and
"Commodity charges." (Emphasis added; internal quotation marks
omitted).
The word "rates" is used more globally. That word is used
just four times in the contract. Section 8.4 is entitled "Rate
Changes," and it provides Tennessee with the "unilateral right ...
to file and make effective changes in the rates." Article VIII is
entitled "Rates For Service," and section 8.2 is entitled
"Transportation Rates." The word "rates," as used in these latter
two locations, alludes, not to the Demand and Commodity
variables—as does the word "charges." Using the ordinary meaning
of the word and construing "rates" in the context of the entire
contract, we find that that word means the overall price for the
gas transportation.9 The word "rates" found in section 8.4
necessarily has the same definition as does the word "rates" found
in the title to Article VIII and in section 8.2. See Gonzalez v.
Mission American Insurance Co., 795 S.W.2d 734, 736 (Tex.1990)
(deciding that in general, a word which is used in one sense in one
part of a contract is presumed to retain that same meaning
throughout the contract, absent indications to the contrary);
9
Indeed, WEBSTER'S NEW COLLEGIATE DICTIONARY defines "rate" as "a
charge, payment, or price fixed according to a ratio." WEBSTER'S
NEW COLLEGIATE DICTIONARY 950 (1979). Flagg is therefore correct in
arguing that the term "rates" is not synonymous with the term
"compensation." Although the amount of compensation equals the
transportation rates, "compensation" refers to the amount Flagg
owes Tennessee, not the price of the transportation services.
16
Johnson v. Dick, 281 S.W.2d 171, 175 (Tex.Ct.Civ.App.—San Antonio
1955) (same); Green Avenue Apartments, Inc. v. Chambers, 239
S.W.2d 675, 685 (Tex.Civ.App.—Beaumont 1951) (same). Thus, in
authorizing Tennessee to change the "rates," section 8.4 gave
Tennessee the authority to completely revise the prices for its gas
transportation services. Tennessee's right to make such revisions
is limited only by procedural and other requirements in the Natural
Gas Act. Memphis, 358 U.S. at 110, 79 S.Ct. at 198-99.
Flagg contends that such an interpretation fails to consider
the technical manner in which the term "rates" is used and renders
section 8.2 nugatory. Neither argument is persuasive. First, the
contract does not indicate that the word "rates" is used in any
technical sense. In fact, FERC, itself, used the term "rates" as
meaning the total costs for the gas transportation throughout the
course of this controversy. See, e.g., 60 FERC at ¶ 61,863
(stating that "Tennessee filed a general rate case ... seeking to
increase the rates for most of its services"); Tennessee Gas
Pipeline Co., 59 FERC ¶ 61,175 (1992) (stating that "the Commission
rejected Tennessee Gas Pipeline Company's ... proposal to increase
its rates for transportation services under Rate Schedule NET-EU
"); Tennessee Gas Pipeline Co., 58 FERC ¶ 61,343 (1992) (asserting
that Tennessee "filed a limited rate case proposing to increase
Rate Schedule NET-EU rates"); Tennessee Gas Pipeline Co., 58 FERC
¶ 61,160 (1992) (stating that Tennessee "filed a tariff sheet
reflecting increased rates for transportation service rendered
under its Rate Schedule NET-EU") (emphasis added).
17
Second, this Court's construction of section 8.4 does not make
section 8.2 meaningless. This Court's construction of the contract
simply makes the authority of section 8.2 temporary. The clear
intent of the parties, as revealed in the contract, was that the
specific rate guidelines set forth in section 8.2 would be viable
only until Tennessee chose to revise the transportation rates in a
manner consistent with the NGA.
In this case, Tennessee has filed revisions to its NET-EU Rate
Schedule to include charges for Segment U. This Court does not
determine whether those revisions are consistent with the NGA, nor
has it been asked to do so. However, a clear reading of the gas
transportation contract at issue here reveals that the Flagg-
Tennessee agreement unambiguously authorizes Tennessee to file such
unilateral changes. Any other reading would impermissibly negate
portions of the contract.10
III. Conclusion
For the aforementioned reasons, this Court REVERSES the
decision of the Federal Energy Regulatory Commission.
10
Tennessee has presented numerous other arguments and
counter-arguments in support of its position. In light of our
construction of the contract here, we need not address those
arguments.
18