RICHMOND POW. & L., RICHMOND, IND. v. FEDERAL POW. COM'N

• Citation: 481 F.2d 490
• Decision Date: 25 May 1973
• Docket Number: 72-2035.,No. 72-1963,72-1963
• Parties: RICHMOND POWER AND LIGHT OF the CITY OF RICHMOND, INDIANA, Petitioner. v. FEDERAL POWER COMMISSION, Respondent. Indiana & Michigan Electric Company, Intervenor. ANDERSON POWER AND LIGHT OF the CITY OF ANDERSON, INDIANA, Petitioner. v. FEDERAL POWER COMMISSION, Respondent. Indiana & Michigan Electric Company, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

481 F.2d 490 (1973)

RICHMOND POWER AND LIGHT OF the CITY OF RICHMOND, INDIANA, Petitioner. v. FEDERAL POWER COMMISSION, Respondent.

Indiana & Michigan Electric Company, Intervenor.

ANDERSON POWER AND LIGHT OF the CITY OF ANDERSON, INDIANA, Petitioner. v. FEDERAL POWER COMMISSION, Respondent.

Indiana & Michigan Electric Company, Intervenor.

Nos. 72-1963, 72-2035.

United States Court of Appeals, District of Columbia Circuit.

Argued April 26, 1973.

Decided May 25, 1973.

Rehearing Denied June 21, 1973.

Sandra J. Strebel, Washington, D. C., with whom George Spiegel, Washington, D. C., was on the brief, for petitioner in No. 72-1963.

Wallace L. Duncan, Washington, D. C., with whom Frederick D. Palmer, Washington, D. C., was on the brief, for petitioner in No. 72-2035.

Platt W. Davis, III, Atty. F.P.C., with whom Leo E. Forquer, Gen. Counsel, and George W. McHenry, Jr., Acting Sol., F.P.C., were on the brief, for respondent.

Peter J. Schlesinger, New York City, for intervenor. Edwin L. Weisl, Jr., Washington, D. C., also entered an appearance for intervenor.

Before WRIGHT and ROBB, Circuit Judges, and DAVIES,^* Senior District Judge.

J. SKELLY WRIGHT, Circuit Judge:

Petitioners in these consolidated cases, two municipal power companies, seek review of an order of the Federal Power Commission accepting for filing tariffs tendered by intervenor, a public utility which sells petitioners electric power at wholesale. Petitioners contend that the tariffs, which implemented a rate increase and changed certain conditions of service, were inconsistent with existing contracts between petitioners and intervenor and therefore should have been rejected by the Commission. We agree and reverse.

I. LEGAL SETTING

The Federal Power Act, 16 U.S.C. § 824 et seq. (1970), pertinent provisions of which are set forth in the margin,¹ requires in Section 205(c) that public utilities file all rates and contracts with the Commission for sales subject to the Commission's jurisdiction. Section 206(a) authorizes the Commission to modify any rate or contract which it determines, after a hearing, to be "unjust, unreasonable, unduly discriminatory or preferential * * *." Under Section 205(d) changes in previously filed rates must be filed with the Commission at least 30 days before they are to go into effect, and under Section 205(e) the Commission may suspend operation of the new rate for up to five months pending a determination of its reasonableness.

The Supreme Court of the United States has held that if a public utility, subsequent to entering into a contract for the sale of power, unilaterally files with the Commission under Section 205(d) a new tariff inconsistent with its contractual obligations, the newly filed tariff is a nullity and does not abrogate or supersede the contract. See United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956).

Mobile concerned provisions of the Natural Gas Act virtually identical with the provisions of the Federal Power Act summarized above. There a regulated natural gas company entered into a 10-year contract to supply natural gas at a single fixed price. Subsequently the company, without the consent of the buyer, filed new schedules with the Commission purporting to increase the rate. The Court held that the new schedule "was a nullity insofar as it purported to change the rate set by the contract" and "that the contract rate remained the only lawful rate." 350 U.S. at 347, 76 S.Ct. at 382. It reasoned that the Natural Gas Act evidenced no purpose to abrogate private rate contracts, and expressly recognized that rates to particular customers may be set by individual contracts. 350 U.S. at 338, 76 S.Ct. 373. This interpretation of the statutory scheme, according to the Court, did not impair the regulatory powers of the Commission, for the Commission could at any time enter into a proceeding to determine that the contract rate was unreasonable and could modify it if it so found. See 350 U.S. at 344-345, 76 S.Ct. 373. The Sierra case expressly adopted Mobile's reasoning and holding in a similar situation arising under the Federal Power Act.

The Sierra — Mobile problem came before the Supreme Court again in United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division, 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958). There a regulated gas pipeline company had entered into long-term sale agreements. These agreements, unlike the ones in Sierra and Mobile, did not provide for a single fixed rate, but provided that "all gas delivered hereunder shall be paid for by Buyer under Seller's Rate Schedule * * * or any effective superseding rate schedules, on file with the Federal Power Commission." 358 U.S. at 105, 79 S.Ct. at 196. (Emphasis by the Court.) The seller filed a new rate schedule purporting to increase rates over the last previously filed schedule. The Court held that the newly filed rate was the effective rate, and distinguished the case from Mobile. Interpreting the contract between the parties, the Commission had concluded that the seller "bound itself to furnish gas to these customers during the life of the agreements not at a single fixed rate, as in Mobile, but at what in effect amounted to its current `going' rate." 358 U.S. at 110, 79 S.Ct. 194. (Emphasis in original.) The Supreme Court, after scrutinizing the record, concluded that there was ample support for the Commission's interpretation of the contract, both factually and legally. See 358 U.S. at 114, 79 S.Ct. 194. The Court therefore held that, rather than seeking unilaterally to abrogate its contractual undertaking, the seller in Memphis sought "simply to assert, in accordance with the procedures specified by the Act, rights expressly reserved to it by contract." 358 U.S. at 112, 79 S.Ct. at 199. It was therefore concluded that the seller could, consistent with its contractual undertaking, unilaterally increase its rate by filing a new tariff with the Commission.

The rule of Sierra, Mobile and Memphis is refreshingly simple: The contract between the parties governs the legality of the filing. Rate filings consistent with contractual obligations are valid; rate filings inconsistent with contractual obligations are invalid.² The two cases before us concern application of this rule to two slightly different contractual undertakings. Although the Commission dealt with both cases in the same order, we will consider them separately because of these differences.

II. RICHMOND POWER AND LIGHT OF THE CITY OF RICHMOND, INDIANA

Richmond Power and Light (hereinafter Richmond) is a municipally owned electric power company selling electricity to various retail customers. It generates part of the electric energy it sells and purchases the remainder of its requirements from intervenor Indiana & Michigan Electric Company (hereinafter I & M) pursuant to a 10-year contract dated November 15, 1965.³ I & M is a public utility subject to the jurisdiction of the Federal Power Commission, see Indiana & Michigan Electric Co., 33 FPC 739 (1965), affirmed, 7 Cir., 365 F.2d 180, cert. denied, 385 U.S. 972, 87 S.Ct. 509, 17 L.Ed.2d 435 (1966), and its sales to Richmond are subject to the Commission's jurisdiction. I & M also has retail customers of its own in certain parts of Indiana, including many industrial users, and its sales to these customers are not subject to regulation under the Federal Power Act as the Act applies only "to the sale of electric energy at wholesale in interstate commerce * * *."⁴ Instead, I & M's sales to its retail customers are subject to the jurisdiction of the Indiana Public Service Commission.

Since the Federal Power Commission had jurisdiction over I & M's sale of electricity to Richmond, the contract between I & M and Richmond was filed with the Commission under Section 205(c) of the Act, and was designated Rate Schedule FPC No. 58. As is common practice,⁵ the contract between I & M and Richmond does not itself contain a price term, but rather refers to a rate tariff of general applicability. In this case the contract provides that electric energy will be provided "at the rate and under the provisions of Company's I & M's Tariff I.P. as regularly filed with the Public Service Commission of Indiana, said tariff being selected by the Customer Richmond, as long as said tariff is in effect * * *." The Tariff IP referred to in the contract is an industrial tariff that I & M negotiated for many of its municipal power company wholesale buyers as well as for many of its larger industrial retail customers. Tariff IP was on file with the Public Service Commission of Indiana when this contract was negotiated. Pursuant to the terms of the Richmond — I & M contract, the same Tariff IP as was then on file with the Public Service Commission of Indiana was attached to the contract when it was filed with the Federal Power Commission and became a supplement thereto. As a result, I & M's industrial retail customers, whose rates were governed directly by the Tariff IP on file with the Indiana Public Service Commission, and Richmond, whose rates were governed by the contract on file with the Federal Power Commission which expressly incorporated the Tariff IP on file with the Public Service Commission of Indiana, all received electric power subject to the same rate formula.

It is conceded that, consistent with the Richmond — I & M contract, I & M had the right to seek rate increases in the Tariff IP on file with the Indiana Commission. The contract language "Tariff I.P. as regularly filed with the Public Service Commission of Indiana" obviously recognizes this possibility. Indeed, the contract expressly provides "and in the event said tariff is replaced by a new or revised tariff incorporating higher or lower rates than those stipulated in the aforementioned tariff, the Company will continue to furnish service...