Boston Edison Co. v. Federal Energy Reg. Comm'n

• Decision Date: 01 August 2000
• Docket Number: No. 00-1055,00-1055
• Citation: 233 F.3d 60
• Parties: (1st Cir. 2000) BOSTON EDISON COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. NEW ENGLAND POWER COMPANY, Intervenor. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 60

233 F.3d 60 (1st Cir. 2000)

BOSTON EDISON COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

NEW ENGLAND POWER COMPANY, Intervenor.

No. 00-1055.

United States Court of Appeals, For the First Circuit.

Heard Aug. 1, 2000.

Decided December 1, 2000.

ON PETITION FOR REVIEW OF ORDERS OF THE FEDERAL ENERGY REGULATORY COMMISSION.

Carmen L. Gentile with whom James H. McGrew, David Martin Connelly, Bruder, Gentile & Marcoux, L.L.P. and Neven Rabadjija, Associate General Counsel, Legal Department, Boston Edison Company, were on brief for petitioner.

John H. Conway, Acting Solicitor, with whom Douglas W. Smith, General Counsel, Timm L. Abendroth and Judith A. Albert were on brief for respondent.

Marvin T. Griff with whom Isaac D. Benkin and Winthrop, Stimson, Putnam & Roberts were on brief for intervenor.

Before Torruella, Chief Judge, Wallace,^* Senior Circuit Judge, and Boudin, Circuit Judge.

BOUDIN, Circuit Judge.

Before us are two petitions for review filed by Boston Edison Company concerning contracts allocating output from, and costs associated with, operation of its Pilgrim nuclear power station in Plymouth, Massachusetts. In one case, Boston Edison seeks review of Federal Energy Regulatory Commission ("FERC") orders reducing its rate of return on common equity in the Pilgrim plant and directing refunds to Montaup and Commonwealth Electric Companies. In the other, Boston Edison claims that amendments terminating its contracts with Montaup and Commonwealth upon the recent sale of the Pilgrim plant have extinguished any rights to these refunds.

1. The pertinent facts track the life cycle of the Pilgrim plant. On August 1, 1972, four months before the unit became operational, Boston Edison entered into virtually identical "entitlement" contracts with Montaup and with Commonwealth, then known as the New Bedford Gas and Edison Light Company. Each was "entitled" to 11 percent of Pilgrim's output in return for bearing 11 percent of costs and expenses, including, as part of "total financing and income tax" expenses, a return of 13.5 percent on common equity--35 percent of the original capital for the plant. Boston Edison promptly filed both contracts with FERC as Rate Schedules No. 68 (Commonwealth) and No. 69 (Montaup).

Midway in the Pilgrim's progress from birth to projected retirement, Boston Edison and Montaup amended their contract, assertedly to allay Boston Edison's concerns about its ability to recover its full actual costs and to provide for the possibility that the plant might outlive the contract's 28-year term. Effective January 1, 1985, the amendment added decommissioning pre-charges as an allocable expense and altered Boston Edison's chargeable return on common equity from 13.5 percent to the return "allowed by the [Massachusetts] Department of Public Utilities in [Boston Edison's] most recent retail rate decision."¹

The Department of Public Utilities, later renamed the Department of Telecommunications and Energy, was already responsible for approving the permissible rates of return on common equity for the 74.27 percent of Pilgrim's output that Boston Edison retailed directly; the 1985 amendment in the Montaup contract, and similar modifications in Boston Edison's other entitlement contracts, sought to make the state's decisions binding as to the remaining 25.73 percent that Boston Edison sold wholesale.² The amendment in Commonwealth's contract, made in 1989, kept its return on equity at 13.5 percent until a pending docket before the state utility commission set a new rate, or until the next retail decision if no rate was set in that docket. The Montaup and Commonwealth amendments, which also made other changes not pertinent here, were filed with FERC.

As initially filed, the amendments bound Montaup and Commonwealth to whatever rate the Massachusetts agency approved for Boston Edison's retail customers, with no upper limit. Each amendment, however, was followed by Boston Edison's filing with FERC of a "rate schedule supplement," establishing a specific ceiling on common equity rates of return. Each supplement said that if the state agency were to approve a retail rate of return above the ceiling, Boston Edison "may file" an application with FERC "pursuant to terms of Section 205 of the Federal Power Act [16 U.S.C. 824d(d)] . . . to temporarily modify said ceiling."

Absent such an application, the 1985 supplement fixed the ceiling for Montaup at 15.25 percent, and the 1989 supplement set the ceiling for Commonwealth at 13.5 percent, which was also the original and interim contractual rate for Commonwealth. According to Boston Edison, the state agency never established a retail rate higher than 12.0 percent; thus that rate applied to Montaup's contract until its termination in 1999. Similarly, because no new rate resulted from the state docket pending in 1989, Commonwealth, under its amended contract, continued to pay at the 13.5 percent rate. The use of section 205 to lift these ceilings, therefore, remained a moot issue.

In November 1992, anticipating the substantial costs of dismantling the Pilgrim nuclear power plant, Boston Edison filed a petition under section 205 for an increase in decommissioning expenses. Boston Edison Co., 62 F.E.R.C. 61,010, at 61,029 (Jan. 12, 1993). FERC accepted the increased charges for filing, but suspended them pending a hearing based on a preliminary judgment that they might not be just and reasonable. Id. at 61,030; see 16 U.S.C. 824d(e). At the same time, believing that the rates of return being collected on common equity might be similarly suspect, FERC began an investigation into existing rates under section 206(a) of the Act, 16 U.S.C. 824e(a).

After a five-day hearing in September 1993, a FERC administrative law judge ("ALJ") found the additional decommissioning charges just and reasonable (subject to an adjustment not here at issue), but the 12.0 and 13.5 percent returns (applicable, respectively, to Montaup and to Commonwealth) on common equity "unjust and unreasonable within the meaning of section 206." Boston Edison Co., 66 F.E.R.C. 63,013, at 65,086 (Mar. 25, 1994) ("Initial Decision"). The ALJ recommended a new return on common equity of 10.71 percent, effective from March 20, 1993. In so doing, the ALJ rejected Boston Edison's argument that, under the so-called Mobile-Sierra doctrine, the agency could modify the contractual rates only if they "adversely affect the public interest," Federal Power Comm'n v. Sierra Pacific Power Co., 350 U.S. 348, 355 (1956); accord United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 345 (1956).

On December 19, 1996, FERC released its own decision on review of the ALJ order. Boston Edison Co., 77 F.E.R.C. 61,272, at 62,172-73 (Dec. 19, 1996) (Opinion No. 411). FERC summarily affirmed the ALJ's conclusion that the just and reasonable standard pertained, and applying his recommended rate of 10.71 percent for the period from March 20, 1993, to June 20, 1994, ordered refunds for that 15-month period pursuant to 16 U.S.C. 824e(b). FERC also directed Boston Edison to file a new schedule using a rate of 11.22 percent prospectively (to reflect a rise in U.S. Treasury Bond yields since the ALJ's recommendation was made).

FERC subsequently denied Boston Edison's petition for rehearing. Boston Edison Co., 88 F.E.R.C. 61,267, at 61,841-42 (Sept. 20, 1999) (Opinion No. 411-A). The rehearing order is important, however, because in it FERC provided a new and distinct rationale for its earlier conclusion that the use of the just and reasonable standard was consistent with the Mobile-Sierra doctrine. The overall effect of FERC's two orders was to require a reduction in Boston Edison rates for Montaup and Commonwealth and refunds amounting to almost $5 million.

The events bearing on the present case include one other transaction and separate FERC proceedings. Earlier in 1999 before Opinion No. 411-A issued, FERC in separate dockets approved Boston Edison's sale of the Pilgrim plant to Entergy. Boston Edison Co. & Entergy Nuclear Generation Co., 87 F.E.R.C. 61,034 (Apr. 5, 1999) ("Order on Sale of Facilities, Rate Filings, and Petition for Declaratory Order"); Boston Edison Co. & Entergy Nuclear Generation Co., 87 F.E.R.C. 61,053 (Apr. 7, 1999) ("Order Conditionally Authorizing Sale of Jurisdictional Facilities"). In these dockets, FERC accepted agreed-to "termination amendments" to Boston Edison's entitlement contracts with Montaup and Commonwealth which stated that the contracts would be terminated upon Pilgrim's sale, to be replaced by new arrangements with Entergy. Boston Edison transferred the Pilgrim plant to Entergy on July 13, 1999.

In its compliance filing made in response to Opinion No. 411, and in a petition for rehearing of Opinion No. 411-A, Boston Edison argued that the FERC-approved termination amendments had extinguished Montaup's and Commonwealth's rights to the refunds mandated in those opinions. FERC concluded otherwise and, in a single order, rejected Boston Edison's compliance filing and request for rehearing. Boston Edison Co., 90 F.E.R.C. 61,039, at 61,188 (Jan. 14, 2000) ("Order Denying Rehearing and Rejecting Compliance Filing").

Boston Edison has now petitioned this court for review of the orders reflected in Opinions No. 411 and 411-A, and for review of the January 14, 2000, order. See 16 U.S.C. 825l(b). Its central claim is that FERC has no authority to alter the contract rates, or to order refunds based on such an alteration, unless FERC first finds that the existing contracts are contrary to the public interest under Mobile-Sierra. In the alternative, Boston Edison argues that any refund claims that Montaup and Commonwealth had under the two opinions were extinguished by the termination amendments on the sale of the Pilgrim plant. FERC and Montaup support the orders under review; Commonwealth, which is now an affiliate of Boston Edison, stands...