Papago Tribal Utility Authority v. F.E.R.C., s. 82-1338

Citation723 F.2d 950
Decision Date22 December 1983
Docket Number82-1339,Nos. 82-1338,s. 82-1338
PartiesPAPAGO TRIBAL UTILITY AUTHORITY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Arizona Public Service Company, Intervenor.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Petition for Review of an Order of the Federal Energy Regulatory commission.

Arnold D. Berkeley, Washington, D.C., with whom Richard I. Chaifetz, Washington, D.C., was on the brief, for petitioner.

Arlene Pianko Groner, Atty., F.E.R.C., Washington, D.C., with whom Charles A. Moore, General Counsel, and Jerome M. Feit, Sol., F.E.R.C., Washington, D.C., were on the brief, for respondent.

Brian J. McManus, Washington, D.C., with whom Nicholas H. Powell, Phoenix, Ariz., and Richard M. Merriman, Washington, D.C., were on brief, for intervenor. Steven M. Wheeler, Phoenix, Ariz., also entered an appearance for intervenor.

Before EDWARDS and SCALIA, Circuit Judges, and VAN DUSEN, * Senior Circuit Judge of the United States Court of Appeals for the Third Circuit.

Opinion for the Court filed by Circuit Judge SCALIA.

SCALIA, Circuit Judge.

Papago Tribal Utility Authority petitions under 16 U.S.C. Sec. 825l (b) (1982) for review of an order of the Federal Energy Regulatory Commission approving an increase in rates paid to the Arizona Public Service Company. The issues on appeal are whether the parties' contract authorized the Commission to fix "just and reasonable" rates, whether the Commission's finding under Sec. 206(a) of the Federal Power Act that prior rates were unjust and unreasonable was procedurally and substantively sound, and whether the new rates could be made effective as of a date before that explicit finding was made.

On February 26, 1976, the Arizona Public Service Company ("APS") filed with the Federal Power Commission a Notice of Rate Change affecting electricity rates to its wholesale for resale customers, including the Papago Tribal Utility Authority ("PTUA"). PTUA filed a Protest, Petition to Intervene, and Motion to Reject, alleging, inter alia, that its contract with APS did not permit unilaterally proposed rate changes under Sec. 205 of the Federal Power Act, 16 U.S.C. Sec. 824d (1982). The Federal Power Commission held to the contrary, and permitted the filed rates to take effect May 1, 1976, pending investigation into their lawfulness and subject to refund on the basis of that investigation. Arizona Public Service Co., 55 F.P.C. 1503, 1507-08 (1976) (Order Accepting in Part, Rejecting in Part, etc.); Arizona Public Service Co., 56 F.P.C. 1834, 1837-38 (1976) (Order Denying Application for Rehearing, etc.). On August 1, 1978, the Federal Regulatory Energy Commission, statutory successor to the Federal Power Commission, 1 approved the proposed rates as just and reasonable, subject to minor adjustment and to corresponding refund for the period during which the unadjusted rates had been in effect. Arizona Public Service Co., 4 FERC (CCH) p 61,101 ("Order Affirming Initial Decision").

In a previous appeal, this court disagreed with the Commission's interpretation of the contract between APS and PTUA, holding that it did not contemplate unilateral change under Sec. 205 of the Act. Papago Tribal Utility Authority v. Federal Energy Regulatory Commission, 610 F.2d 914, 930 (1979) ("Papago I"). Reconsidering the contractual language on remand, the Commission found that it authorized a Commission-initiated proceeding to set just and reasonable rates under Sec. 206 of the Act, 16 U.S.C. Sec. 824e (1982). Arizona Public Service Co., 18 FERC (CCH) p 61,066, at 61,110 (Jan. 25, 1982) ("Order on Remand"). Concluding that a new hearing would be duplicative and wasteful, the Commission made an explicit finding (for the first time) that APS's pre-existing rates were not "just and reasonable," and made the rates approved in its 1978 Order effective from August 1, 1978 so as to put the parties in the position they would have occupied had the Commission initially interpreted the contract as later required by Papago I. Id. PTUA's Application for Rehearing was denied on March 26, 1982, Arizona Public Service Co., 18 FERC (CCH) p 62,582; this petition for review followed.

THE RATE-CHANGE STANDARD UNDER THE APS/PTUA CONTRACT

The Federal Power Act provides two routes for changing electricity rates: The seller may initiate rate changes under Sec. 205 of the Act, by filing a new schedule, which is subject to Commission review for justness and reasonableness, but which takes effect immediately (after the sixty-day notice period required by subsection (d)), subject to Commission suspension of no more than five months pending investigation; 2 and the Commission itself may initiate rate changes (usually, of course, upon application of one of the parties to the contract) under Sec. 206, but only upon finding that the existing rates are unjust, unreasonable, unduly discriminatory or preferential. 3

These provisions permit essentially three contractual arrangements for rate revision. First, the parties may agree that new rates can be unilaterally and immediately imposed by the utility, subject, under Sec. 205, to Commission suspension for no longer than five months, and to ultimate Commission disallowance if they are not just and reasonable. Second, by broad waiver, the parties may eliminate both the utility's right to make immediately effective rate changes under Sec. 205 and the Commission's power to impose changes under Sec. 206, except the indefeasible right of the Commission under Sec. 206 to replace rates that are contrary to the public interest, "as where [the existing rate structure] might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory." 4 FPC v. Sierra Pacific Power Co., 350 U.S. 348, 355, 76 S.Ct. 368, 372, 100 L.Ed. 388 (1956). Third, the parties may contractually eliminate the utility's right to make immediately effective rate changes under Sec. 205 but leave unaffected the power of the Commission under Sec. 206 to replace not only rates that are contrary to the public interest but also rates that are unjust, unreasonable, or unduly discriminatory or preferential to the detriment of the contracting purchaser. See Public Service Co. of New Mexico v. FERC, 628 F.2d 1267, 1270 (10th Cir.1980), cert. denied, 451 U.S. 907, 101 S.Ct. 1974, 68 L.Ed.2d 295 (1981); Louisiana Power & Light Co. v. FERC, 587 F.2d 671, 676 (5th Cir.1979). The first issue in the present case is whether the Commission was correct in concluding that the APS/PTUA contract adopted the last of these three regimes. In approaching that question, we accord appropriate deference, though not of course conclusive validity, to the judgment of the expert agency that deals with such contracts regularly. Kansas Cities v. FERC, No. 81-2248, 723 F.2d 82 at 87 (D.C.Cir.1983).

The portion of the APS/PTUA contract that governs rates is Section 3. It sets forth a base monthly rate and a base monthly minimum, the former consisting of local facilities charge, demand charge, and energy charge, each subject to monthly adjustment. It also permits adjustments for reductions in maximum demand attributable to cancellation of PTUA contracts with third parties. Subsection 6, the last subsection of section 3, provides:

The rates hereinabove set out in this Section 3 ... are to remain in effect for the initial one (1) year of the term of this contract and thereafter unless and until changed by the Federal Power Commission or other lawful regulatory authority, with either party hereto to be free unilaterally to take appropriate action before the Federal Power Commission or other lawful regulatory authority in connection with changes which may be desired by such party.

In Papago I, we held that the contract did not permit unilaterally effected rate increases under Sec. 205. In its Order on Remand, the Commission held that the contract permitted changes under Sec. 206 on the basis of a just-and-reasonable standard.

PTUA makes essentially three objections to the Commission's conclusion. First, that the language of the contract excludes just-and-reasonable changes; second, that apart from the language, the reasoning of Papago I requires such a conclusion; and third, that the issue deserved an evidentiary hearing. We find none of these objections well taken.

PTUA contends that the contractual language merely recognized the possibility of future rate change and that such recognition does not constitute an agreement to apply a just-and-reasonable standard in Sec. 206 proceedings. We disagree. The contract draws a clear distinction between "the initial one (1) year," during which the originally specified rates "are to remain in effect," and subsequent years, during which those rates are to subsist "unless and until changed by the Federal Power Commission or other lawful regulatory authority." The limitation envisioned during the initial year cannot abridge the right of the parties to bring to the attention of the Commission during that period rates not in the public interest. The Commission's obligation to insure that rates do not violate that prescription is imposed for the direct benefit of the public at large rather than (like the prescription of just and reasonable rates) for the direct benefit of the seller and purchaser; and it therefore cannot be waived or eliminated by agreement of the latter. Even agreement not to bring a rate contrary to the public interest to the Commission's attention would be akin to a contract to suppress evidence, and therefore void. See RESTATEMENT OF CONTRACTS Sec. 554 (1932); 14 WILLISTON ON CONTRACTS Sec. 1716 at 881 (3d ed. 1972); 6A CORBIN ON CONTRACTS Sec. 1430 at 380 (1962). Thus, applying the principle that a contractual provision should, if possible, be interpreted in such a fashion as...

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