Town of Norwood v. Fed Energy Reg. Comm'n

• Citation: 217 F.3d 24
• Decision Date: 06 April 2000
• Docket Number: No. 99-2155,99-2155
• Parties: (1st Cir. 2000) TOWN OF NORWOOD, MASSACHUSETTS, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. NEW ENGLAND POWER COMPANY, Intervenor. Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 24

217 F.3d 24 (1st Cir. 2000)

TOWN OF NORWOOD, MASSACHUSETTS, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

NEW ENGLAND POWER COMPANY, Intervenor.

No. 99-2155

United States Court of Appeals For the First Circuit

Heard April 6, 2000

Decided June 29, 2000

Rehearing and Suggestion for Rehearing En Banc Denied Aug. 25, 2000

Charles F. Wheatley, Jr. with whom Wheatley & Ranquist, Kenneth M. Barna, Alan K. Posner and Rubin & Rudman were on brief for petitioner.

Larry D. Gasteiger with whom Douglas W. Smith, General Counsel, and John H. Conway, Acting Solicitor, were on brief for respondent.

Edward Berlin with whom Robert V. Zener, Swidler Berlin Shereff Friedman, LLP and John F. Sherman, III, Associate General Counsel, The New England Electric System Companies, were on brief for intervenor.

Before: Boudin, Stahl and Lipez, Circuit Judges.

BOUDIN, Circuit Judge.

In this case, the Town of Norwood, Massachusetts, seeks review of orders of the Federal Energy Regulatory Commission ("FERC") denying Norwood's petition for declaratory rulings. The case is a sequel to Town of Norwood v. FERC, 202 F.3d 392 (1st Cir.), petition for cert. filed (U.S. May 30, 2000) (No. 99-1914) ("Norwood I"), in which this court sustained related FERC orders. See also Town of Norwood v. New England Power Co., 202 F.3d 408 (1st Cir.), petition for cert. filed (U.S. May 30, 2000) (No. 99-1913) ("Norwood II"). The pertinent facts, for which detailed background can be found in Norwood I and II, are as follows.

For many years, New England Power Company was a major integrated electric utility in New England: it generated power, distributed it as a wholesaler to affiliates and non-affiliates alike, and retailed power through its local affiliates such as Massachusetts Electric Company. Norwood, which operates a municipal electric company that distributes retail power to residents and businesses in the town, was a long-time purchaser of power from Boston Edison Company, but in 1983 Norwood began to purchase power instead from New England Power.

This opportunity to switch power suppliers was secured after Norwood settled an antitrust case against Boston Edison and New England Power. See Norwood II, 202 F.3d at 412. The settlement agreement obligated New England Power to furnish, and Norwood to accept, sufficient power to satisfy Norwood's requirements for electricity through October 31, 1998. The power was to be supplied pursuant to New England Power's FERC Tariff No. 1--the same wholesale tariff under which New England Power then supplied electricity to its own retail affiliates--"as [it] may be amended from time to time." Id.

The requirements contract provided that its term was from November 1, 1983, to October 31, 1998, but it also stated that "[n]either [New England Power] nor Norwood will give notice of termination prior to November 1, 1991 and shall not specify a termination date prior to November 1, 1998." New England Power's FERC Tariff No. 1, incorporated by reference in its power contract with Norwood, said that "[o]nce initiated, service under this tariff shall continue until terminated by either party giving to the other at least seven years' written notice of termination. . . ."

Thereafter, the parties twice amended the requirements contract. First, in 1987 the contract was amended to permit Norwood to take advantage of allocations of lower-cost power from the New York Power Authority. Second, in 1989 the parties amended the contract to permit Norwood at its election to extend the earliest date on which notice of termination could be given from November 1, 1991, to November 1, 2001.

On July 25, 1990, Norwood sent a letter to New England Power stating that Norwood "hereby gives notice . . . that it extends the date" for giving notice of termination from November 1, 1991, to November 1, 2001. The letter continued: "The effect of this is that the Power Contract between [New England Power] and Norwood would be extended for [ten] years to midnight, October 31, 2008 . . . ." Whether Norwood did intend to extend the contract and whether the extension was effective are principal issues in this case.

Beginning in December 1996, New England Power made a set of regulatory filings to restructure itself and to revise its existing tariff for wholesale power sales. These filings, described in detail and upheld in Norwood I, aimed to secure FERC approval for the sale of New England Power's non-nuclear generating facilities, the release (on payment of termination charges) of affiliates from their long-term requirements contracts with New England Power, and the restructuring of New England Power's wholesale rates to facilitate customer choice and market-based pricing at both the wholesale and retail levels. Norwood I, 202 F.3d at 396-97.

In a set of orders issued between November 1997 and June 1998, FERC approved the sale, early termination by affiliates on payment of termination charges, the restructuring of wholesale rates, and a "rate freeze" on New England Power's existing charges with wholesale contract purchasers like Norwood. This freeze was instituted because under the existing contracts, rates were normally adjusted to reflect increased costs, and New England Power was now divesting itself of its low-cost non-nuclear plants. Norwood II, 202 F.3d at 413.

Norwood concluded that under the new regime it would be disadvantaged vis-a-vis New England Power's retail affiliates whom Norwood regards as retail competitors. See Norwood II, 202 F.3d at 414. On March 4, 1998, Norwood notified New England Power that it was switching to a new wholesale supplier, Northeast Utilities. Two weeks later, on March 18, 1998, New England Power filed a revised FERC Tariff No. 1 permitting dissident wholesale customers like Norwood to terminate their contracts early and on only thirty days' notice, conditioned on the customers paying a contract termination charge based on an avoided cost theory.¹ New England Power Co., 83 F.E.R.C. ¶ 61,174, reh'g denied, 84 F.E.R.C. ¶ 61,175 (1998).

To counter New England Power's March 18, 1998, tariff filing, Norwood not only objected to the charge before FERC, seeNorwood I, 202 F.3d at 398, but also, in an effort to shorten the period of liability, Norwood petitioned FERC in April 1999 for a declaratory order, 18 C.F.R. § 385.207 (1999), that its contract with New England Power had terminated on October 31, 1998, and that New England Power therefore had no basis for claiming any contract termination charges after that date. Norwood estimates that if fully allowed, the charges will exceed $7 million per year until 2008.

FERC dismissed Norwood's petition on the merits on June 21, 1999, Town of Norwood, 87 F.E.R.C. ¶ 61,341 (1999). In a nutshell, the Commission found that Norwood had extended the contract through October 31, 2008, by its July 25, 1990, letter; and it concluded that New England Power's failure to file that letter with FERC was irrelevant. On August 20, 1999, FERC denied without opinion Norwood's motion for rehearing, and Norwood has sought review in this court to challenge the Commission's orders, 16 U.S.C. § 825l(b).

Norwood's arguments on appeal, which we address in a sequence somewhat different from Norwood's brief, are in substance five: (1) that the requirements contract with New England Power was never extended beyond October 31, 1998; (2) that any extension premised on the July 25, 1990, letter is ineffective because the letter was not filed with FERC and because reliance upon it violates the so-called filed rate doctrine; (3) that the FERC order unilaterally altered the contract in disregard of the Mobile-Sierra doctrine; (4) that the failure to file the letter prevents FERC from relying on it in construing the contract; and (5) that FERC committed procedural error.

Assuming arguendo that the July 25, 1990, letter was rightly considered, it is clear to us that FERC properly construed the contract to extend Norwood's obligation to take its requirements from New England Power until October 31, 2008. The standard of review need not be considered because, even if review of the contract interpretation question were de novo, our reading would still be precisely that of the Commission. Cf. Boston Edison Co. v. FERC, 856 F.2d 361, 363-64 (1st Cir. 1988). The documents may be inartfully drafted, but taken together, they make clear that Norwood's contract interpretation argument is hopeless.

It is arguable that even without the July 25, 1990, letter, the proper reading of the original 1983 contract made it self-extending absent notice of termination.² However, there is no reason to decide how matters would stand if there had been no 1989 amendment and letter. Norwood's July 25, 1990, letter triggered a provision in the 1989 amendment to the original 1983 contract and when both the amendment and the letter are considered, it is crystal clear that--subject to any other possible legal barrier--Norwood's obligation was extended through October 31, 2008.

The 1989 amendment explicitly replaced the article of the 1983 agreement specifying the term of the contract with a new article which specified that the contract continued through midnight, October 31, 1998, except: (1) neither side could give notice of termination prior to November 1, 1991, or specify a termination date prior to November 1, 1998; and (2):

Norwood may elect to extend the earliest date by which either party can give notice of intent to terminate service by a total of [twenty] years in two ten-year increments. In order to exercise this election, Norwood agrees to provide [New England Power] with written notice of each such election at least one year prior to the date that it is to be extended, viz, to November 1, 2001 initially and to November 1, 2011 ultimately.

Citing this amended article, Norwood on July 25, 1990, wrote New England Power giving notice that it extended the date by which either side could give...