Northeast Utilities Service Co. v. F.E.R.C.

• Decision Date: 03 April 1995
• Docket Number: No. 94-1948,94-1948
• Citation: 55 F.3d 686
• Parties: Util. L. Rep. P 14,041 NORTHEAST UTILITIES SERVICE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 686

55 F.3d 686

Util. L. Rep. P 14,041

NORTHEAST UTILITIES SERVICE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

No. 94-1948.

United States Court of Appeals, First Circuit.

Heard April 3, 1995.

Decided May 23, 1995.

J.A. Bouknight, Jr., with whom David B. Raskin, Edward J. Twomey, Newman, Bouknight & Edgar, P.C., Washington, DC, and Frederic Lee Klein, Asst. Gen. Counsel Northeast Utilities Service Co., Hartford, CT, were on brief for petitioner.

Randolph Lee Elliott, Attorney, with whom Susan Tomasky, Gen. Counsel, and Jerome M. Feit, Sol., F.E.R.C., Washington, DC, were on brief for respondent.

Before TORRUELLA, Chief Judge, BOWNES, Senior Circuit Judge, and SELYA, Circuit Judge.

BOWNES, Senior Circuit Judge.

The main issue in this case is whether the Federal Energy Regulatory Commission (FERC) complied with our mandate in Northeast Utilities Service Co. v. FERC, 993 F.2d 937 (1st Cir.1993) (Northeast I ) and applied the "public interest" test in ordering the modification of a wholesale electric power contract.

In Northeast I we upheld FERC's decision conditionally approving the merger of Northeast Utilities (NU) and the Public Service Company of New Hampshire (PSNH). Before us also was the objection of Northeast Utilities Service Company (NUSCO) to the Commission's modification of the rate schedules filed by NUSCO. The rate schedules were part of a wholesale electric power contract (the Seabrook Power Contract) among NU, PSNH and the State of New Hampshire. Under the contract each party waived its right to file a complaint under Sec. 206(a) of the Federal Power Act (FPA) concerning the specified rates. Each party also agreed "that in any proceeding by the FERC under Section 206 the FERC shall not change the rate charged under this Agreement unless such rate is found to be contrary to the public interest." FERC was not a party to the contract.

Section 206(a) of the FPA, 16 U.S.C. Sec. 824e provides:

Whenever the Commission, after a hearing had upon its own motion or upon complaint, shall find that any rate, charge, or classification, demanded, observed, charged, or collected by any public utility for any transmission or sale subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order.

Invoking its power under Sec. 206(a), the Commission examined the terms and conditions of the Seabrook Power contract. FERC found that the contract might unduly discriminate against entities not parties to it and that there was no genuine arms-length bargaining because the agreement was negotiated at a time when NU and PSNH were about to merge and assume identical interests. It ordered NUSCO to make three changes in the contract to bring it within the "just and reasonable" standard of Sec. 206(a): (1) delete the automatically adjusting rate-of-return-on-equity provision; (2) reduce the current rate-of-return-on-equity used to derive the rate for Seabrook power; and (3) submit for Commission review an initial estimate of the cost of decommissioning the Seabrook Power Plant, which is an atomic energy facility. The reduction order (2) on the current rate of return on equity was not appealed.

After summarizing the Mobile-Sierra "public interest" doctrine as explicated in Papago Tribal Authority v. FERC, 723 F.2d 950, 953 (D.C.Cir.1983), cert. denied, 467 U.S. 1241, 104 S.Ct. 3511, 82 L.Ed.2d 820 (1984), we quoted the holding of the Commission that it had

authority under the public interest standard to modify a contract where: it may be unjust, unreasonable, unduly discriminatory or preferential to the detriment of purchasers that are not parties to the contract; it is not the result of arm's length bargaining; or it reflects circumstances where the seller has exercised market power over the purchaser.

Northeast I, 993 F.2d at 961. We also pointed out the interpretation given to the holding by the Administrative Law Judge ("ALJ"):

The Commission made clear that in the particular circumstances surrounding the Seabrook contract, it retains power-- through the "public interest" language--to make modifications under the traditional just and reasonable and nondiscrimination standards.

Id.

We found that the standard enunciated by the Commission and applied by the ALJ, "conflates the 'just and reasonable' and 'public interest' standards, thereby circumventing the Mobile- Sierra doctrine." Id. We stated that

the Commission was bound to follow the Mobile- Sierra doctrine as explicated by Papago, and therefore should have evaluated the SPC under the public interest standard, not the just and reasonable standard.

Id. We remanded the issue "for reconsideration by FERC under the public interest standard." Id. at 962.

It is FERC's position that on remand it reconsidered its previously ordered modifications of the Seabrook Power contract under the public interest standard and affirmed the orders previously issued under that standard.

NUSCO contends that FERC did not comply with our mandate but instead created a wholly new version of the public interest standard which is more flexible and less stringent than the judicially adopted public interest standard.

Standard of Review

Not surprisingly, the parties differ on the standard of review to be followed. FERC urges that we follow the same deferential standard as we did in our prior case:

On review, we give great deference to the Commission's decision. U.S. Dep't of Interior v. FERC, 952 F.2d 538, 543 (D.C.Cir.1992). FERC's findings of fact are reviewed under the "substantial evidence" standard of review. 16 U.S.C. Sec. 825l ("The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive.").

...

"Pure" legal errors require no deference to agency expertise, and are reviewed de novo. Questions involving an interpretation of the FPA involve a de novo determination by the court of Congressional intent; if that intent is ambiguous, FERC's conclusion will only be rejected if it is unreasonable. Chevron USA v. Natural Resources Defense Council, 467 U.S. 837, 842-56, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984); Boston Edison Co. v. FERC, 856 F.2d 361, 363 (1st Cir.1988).

Northeast I, 993 F.2d at 943-44.

NUSCO, on the other hand, plumps for the "law of the case" doctrine, arguing that we issued a mandate that had to be strictly construed and followed.

In this circuit the "law of the case" doctrine has not been construed as an inflexible straitjacket that invariably requires rigid compliance with the terms of the mandate. In United States v. Connell, 6 F.3d 27, 31 (1st Cir.1993), we noted:

To be sure, neither the law of the case doctrine nor its kissing cousin, the so-called "mandate rule," is designed to function as a straitjacket. Rather, these are discretion-guiding principles, generally thought to be subject to exceptions in the interests of justice.

So also we said in United States v. Bell, 988 F.2d 247, 251 (1st Cir.1993):

After all, the so-called "mandate rule," generally requiring conformity with the commands of a superior court on remand, is simply a specific application of the law of the case doctrine and, as such, is a discretion-guiding rule subject to an occasional exception in the interests of justice.

In Doe v. Anrig, 728 F.2d 30, 31 (1st Cir.1984), Justice Breyer, then circuit judge, reached back to Judge Learned Hand and Justice Holmes for an explanation of the meaning of the law of the case doctrine:

That doctrine "does not rigidly bind a court to its former decisions, but is only addressed to its good sense." Higgins v. California Prune & Apricot Grower, Inc., 3 F.2d 896, 898 (2d Cir.1924) (L. Hand, J.). See Messenger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 740, 56 L.Ed. 1152 (1912) (Holmes, J.) ("the phrase, law of the case, as applied to the effect of previous orders on the later action of the court rendering them in the same case, merely expresses the practice of courts generally to refuse to reopen what has been decided, not a limit to their power"). (Other citations omitted.)

Under the circumstances, we will review the actions of FERC under the usual deferential standard, but always keeping in mind the restraints imposed on FERC by the terms of our mandate and the "law of the case" doctrine.

The Case Law

We think it necessary to revisit the Mobile- Sierra doctrine, which represents the Supreme Court's attempt to strike a balance between private contractual rights and the regulatory power to modify contracts when necessary to protect the public interest. We start with United Gas Pipe Line Co. v. Mobile Gas Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956). The issue in Mobile was, "whether under the Natural Gas Act ... a regulated natural gas company furnishing gas to a distributing company under a long-term contract may, without the consent of the distributing company, change the rate specified in the contract simply by filing a new rate schedule with the Federal Power Commission." Id. at 333-34, 76 S.Ct. at 375 (statutory citation omitted). The facts can be summarized as follows. Mobile Gas Service (Mobile) was a distributor of natural gas to users (domestic and industrial) in Mobile, Alabama. Mobile obtained its gas from United Gas Co. (United). In 1946 the Ideal Cement Company (Ideal) decided to build a cement plant in the city if it could be assured gas supplied at a sufficiently low rate. Mobile agreed to supply Ideal with gas for ten years at 12 cents per MCF (thousand cubic feet). Before entering into the contract with Ideal, Mobile obtained from United a ten-year contract to supply gas to Mobile for resale to Ideal...