Metropolitan Edison Co. v. Federal Energy Regulatory Commission

• Citation: 595 F.2d 851,194 U.S.App.D.C. 44
• Decision Date: 08 March 1979
• Docket Number: No. 76-1866,76-1866
• Parties: METROPOLITAN EDISON COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Borough of Middletown, Pennsylvania, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 851

595 F.2d 851

194 U.S.App.D.C. 44

METROPOLITAN EDISON COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Borough of Middletown, Pennsylvania, Intervenor.

No. 76-1866.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 23, 1978.

Decided March 8, 1979.

James B. Liberman, Washington, D. C., with whom Albert R. Simonds, Jr., Washington, D. C., was on the brief, for petitioner.

M. Frazier King, Jr., Atty., Federal Energy Regulatory Commission, Washington, D. C., with whom Drexel D. Journey, Gen. Counsel, Robert W. Perdue, Deputy Gen. Counsel, Allan Abbot Tuttle, Sol., Federal Energy Regulatory Commission, Washington, D. C., were on the brief, for respondent. Philip R. Telleen, Atty., Federal Energy Regulatory Commission, Washington, D. C., also entered an appearance for respondent.

Philip P. Ardery, Louisville, Ky., was on the brief for intervenor.

Before ROBINSON, ROBB and WILKEY, Circuit Judges.

Opinion for the Court filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.

Dissenting opinion filed by Circuit Judge WILKEY.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

We address on this review an electric utility's claim of discrimination assertedly requiring upward revision of a wholesale rate otherwise shielded against unilateral alteration by the well-known Mobile-Sierra doctrine. ¹ Metropolitan Edison Company (Met-Ed) seeks reversal of an order ² of the Federal Power Commission ³ repulsing its effort under Section 206(a) of the Federal Power Act ⁴ to bypass a contract in terms obligating it to furnish power to the Borough of Middletown, Pennsylvania, at a fixed rate. We find the Commission's disposition unimpeachable and accordingly affirm.

I

In 1906, York Haven Water & Power Company, Met-Ed's corporate predecessor, contracted to supply Middletown's electrical requirements in their entirety ⁵ at a rate of one cent per kilowatt hour. ⁶ The contract's penultimate paragraph is of great significance in this litigation. It states:

Inasmuch as the Borough is practically abandoning its present electric light plant at great loss to itself and has been induced by the Company to use the electricity and electric power of the Company as a matter of economy and advantage to the Borough, it is agreed that this contract shall continue in full force indefinitely until terminated by the Borough upon six months' notice in writing to the Company. ⁷

Met-Ed first voiced dissatisfaction with the Middletown agreement in 1971 65 years after its execution. By then, rising fuel costs were about to turn the once remunerative pricing provision into a losing proposition for Met-Ed, a consequence likely to worsen with the passage of time. In 1972, Met-Ed's revenues from its Middletown service were $368,990, some $9,000 less than corresponding operating expenses. ⁸ Those revenues were as much as $294,189 less than Met-Ed would have derived had Middletown been charged the same rate as Kutztown, Pennsylvania, a Met-Ed wholesale customer akin to Middletown in type and quantity of service provided. ⁹ However, though hardly a boon to Met-Ed's growth, the shortfalls generated by the Middletown contract presently pose no threat to the company's financial health and stability. In 1972, when Met-Ed lost $9,000 on Middletown, its overall revenues exceeded total operating costs by some $33 million, ¹⁰ and in the next year total income outpaced costs by more than $36 million. ¹¹

In 1974, Met-Ed petitioned the Commission for an investigation of the Middletown arrangement with a view toward an increase of the one-cent rate. ¹² The Commission instituted the requested proceeding, ¹³ which progressed to a hearing before an administrative law judge. Met-Ed assailed the contract rate on the ground that it jeopardized the public interest by eroding Met-Ed's ability to discharge its service obligations, by imposing a disproportionate financial burden on other customers and in comparison with rates charged similarly situated customers by discriminating. ¹⁴ In an initial decision, the judge rejected Met-Ed's assessment on all three counts ¹⁵ and, concluding that the Middletown contract was insulated by the Mobile-Sierra doctrine against unilateral modification, ¹⁶ dismissed Met-Ed's petition. ¹⁷

Met-Ed filed exceptions to this ruling. The Commission, adopting the initial decision, affirmed, ¹⁸ and subsequently refused to reconsider. ¹⁹ This petition for review then ensued. Met-Ed, abandoning two of its earlier positions, presses for reversal solely on the theory that the one-cent contract rate is unduly discriminatory. ²⁰

II

The relevant legal terrain is largely charted by the Supreme Court's decision in FPC v. Sierra Pacific Power Co. ²¹ The Court there held that a public electric utility subject to regulation under the Federal Power Act cannot unilaterally abrogate a contractually-fixed rate simply by filing a new rate under Section 205(d) and securing Commission approval thereof under Section 205(e). ²² Rather, the Court explained, the Commission may change the agreed-upon rate only if it finds under Section 206(a) that it is "unjust, unreasonable, unduly discriminatory or preferential." ²³ And since, as the Court declared, "the purpose of the power given the Commission by § 206(a) is the protection of the public interest, as distinguished from the private interests of the utilities," ²⁴ that power is exercisable only when "the (contract) rate is so low as to adversely affect the public interest as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory." ²⁵

The service agreement in suit makes clear beyond peradventure the parties' bargain on duration of the one-cent rate established for power supplied to Middletown. It specifies unequivocally that "this contract shall continue in full force indefinitely until terminated by the Borough upon six months' notice in writing to the Company." ²⁶ This provision, we conclude, is intercepted by the Mobile-Sierra doctrine, ²⁷ and thus can be revised only in conformity with Sierra criteria. ²⁸ Indeed, Met-Ed does not argue to the contrary; ²⁹ instead, it grounds its attack on the Middletown compact exclusively on discrimination, ³⁰ the third Sierra -mentioned foe of the public interest. ³¹ Initially, Met-Ed argues that the Commission adopted an unduly restricted view of its authority under Section 206(a) to modify a fixed-rate contract as discriminatory. ³² Met-Ed then disputes the Commission's treatment of the rate differential among Met-Ed's customers occasioned by the Middletown agreement. ³³ Neither contention persuades us.

III

On the first matter, Met-Ed argues that each of Sierra's three illustrations of adverse consequences warranting disregard of a contractually-fixed rate possesses independent force, but that the Commission considered the third undue discrimination to be merely repetitive of the second excess burden on other customers. ³⁴ To be sure, the Commission did point to the lack of financial harm to anyone but Met-Ed in finding the Middletown contract rate not unduly discriminatory. ³⁵ That reference, however, is perfectly understandable and acceptable on this record, where nothing beyond disparate rates among Met-Ed's customers has been shown. We recognize that to a degree Met-Ed is correct: A rate arrangement may be unduly discriminatory even though consumers not paying the contract rate would not gain a rate decrease were the contract altered by the Commission. In Town of Norwood v. FERC, ³⁶ we ruled that Sierra -type discrimination may emerge at the stage of contract formation, as when a utility negotiates a "sweetheart" contract with a favored customer; ³⁷ Sierra, we held, does not permit "a utility to use a fixed-rate contract as a device to render unassailable an otherwise prohibited undue preference." ³⁸

Yet, Met-Ed's position remains incurably infirm because the possibility of discrimination of this sort was not ignored by the Commission. On the contrary, the Commission emphasized the substantial and unusual consideration for the one-cent contract rate given Middletown. ³⁹ As the Middletown contract overtly acknowledges, "the Borough . . . practically abandon(ed) its (then-) present electric light plant at great loss to itself and (was) induced by the Company ⁴⁰ to use the electricity and electric power of the Company as a matter of economy and advantage to the Borough. . . ." ⁴¹ A difference in rate treatment is not unduly discriminatory when the difference is amply justified, ⁴² and we cannot label as error the Commission's considered judgment that Middletown relinquished enough to immunize its special long-term one-cent rate from any suspicion of favoritism.

Moreover, the Commission found that Met-Ed had profited from the Middletown contract for many years. ⁴³ From 1937 ⁴⁴ through 1971, the Middletown rate was higher than the average rate paid by all of the rest of Met-Ed's customers; ⁴⁵ not until 1972 did the average rate exceed Middletown's. ⁴⁶ It is true that for nine selected years between 1937 and 1973, the average rate to Kutztown one of the two resale customers comparable to Middletown in type of service was 1.29 cents, 0.29 cents higher than the rate to Middletown. ⁴⁷ On the other hand, Hershey Electric Company, the other such customer, had since 1969 been charged an average rate of 0.92 cents, .08 cents less than the Middletown contract rate. ⁴⁸ It is no great wonder, then, that the Commission accepted the administrative law judge's finding "that the Borough of Middletown, if anyone, had been discriminated against by the rate for the last 65 years." ⁴⁹ And, we again note, there is nothing in the record to indicate that either Kutztown or Hershey yielded anything comparable in value to Middletown's power-plant surrender for the rates they were able to obtain.

These circumstances are hardly hallmarks...