United States Court of Appeals

For the First Circuit

No. 04-2590

No. 05-1836

BOSTON EDISON COMPANY,

Petitioner,

v.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

__________

CONCORD MUNICIPAL LIGHT PLANT,

WELLESLEY MUNICIPAL LIGHT PLANT,

Intervenors.

ON PETITION FOR REVIEW OF ORDERS OF

THE FEDERAL ENERGY REGULATORY COMMISSION

Before

 Boudin, Chief Judge,

Stahl, Senior Circuit Judge,

and Lynch, Circuit Judge.

Carmen L. Gentile with whom Bruder, Gentile & Marcoux, L.L.P.,

and Mary E. Grover, Assistant General Counsel, Legal Department,

NSTAR Electric & Gas Corporation, were on consolidated brief for

petitioner.

Patrick Y. Lee with whom John S. Moot, General Counsel, and

Robert H. Solomon, Acting Solicitor, were on consolidated brief for

respondent.

J. Cathy Fogel with whom Robin E. Remis and Sullivan &

Worcester LLP were on consolidated brief for intervenor Concord

Municipal Light Plant.
John P. Coyle with whom Paul M. Breakman and Duncan & Allen

were on consolidated brief for intervenor Wellesley Municipal Light

Plant. 

March 20, 2006
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BOUDIN, Chief Judge. In a dispute with two of its

Massachusetts customers, Boston Edison petitions for review of a

decision of the Federal Energy Regulatory Commission ("FERC"). The

customers are the municipal power departments of the towns of

Concord and Wellesley (collectively, "the Towns"). The common

question is whether Boston Edison is permitted to impose a

particular transmission charge in delivering electrical power to

the Towns.

Boston Edison is a Massachusetts utility which owns

transmission facilities that are part of the New England power

grid. The grid is an interconnected network of transmission lines

and stations in New England, owned by various utilities, which is

the backbone network for distributing power within New England; it

is controlled by an organization of utilities and others, including

both Boston Edison and the Towns, called the New England Power Pool

("NEPOOL"), under the current version of the New England Power Pool

Agreement ("NEPOOL Agreement").

The Towns own local distribution facilities by which they

offer electricity to retail customers in their areas, using power

generated by others and transmitted to the Towns over the New

England power grid. Boston Edison provides the transmission

facilities that interconnect with the Towns' networks; for a number

of years, the Towns also purchased their power from Boston Edison,
The use rights, in each case, included the station facilities 1

shown on the two schematics attached to this decision, namely,

stations 416 and 342 for Concord and 292 and 110 for Wellesley.

Stations 292 and 416 are non-PTF, stations 342 and 110 are PTF, and

the lines between the two Concord and the two Wellesley stations

are the so-called LNS lines at issue in this case. 

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which charged negotiated "bundled" rates to encompass both the

power and its delivery to the Towns' own networks.

The bundled rates covered use of two different classes of

facilities: one set--the so-called PTF (Pool Transmission

Facilities)--are the core backbone transmission facilities in the

New England power grid as defined by the NEPOOL Agreement, which

governs their use and charges for it; the other set, including

local connections owned by Boston Edison, are called LNS (Local

Network Service). To use Boston Edison's metaphor, PTF facilities

are the electricity highway and LNS facilities are the access ramps

connecting to the local streets, i.e., the Town networks.

The transmission and sale of power at wholesale is

regulated by FERC. 16 U.S.C. § 824(a) (2000). In April 1980,

Boston Edison and the Towns reached an agreement to settle rate

disputes then pending before FERC and parallel federal law suits.

The terms included the sale by Boston Edison (for a lump sum and

annual payments) to the Towns of "use rights" in certain Boston

Edison transmission facilities used in supplying power to the

Towns; a provision that the Towns thereafter would be "deemed to 1

be [ ] 115 kV customer[s]"; and a further provision (Article IV):
Article IV continues on to note: "provided that the total of 2

the purchases under PTF transactions for each Town does not exceed

its capacity in megavolt amperes of the facilities connected to PTF

with respect to which the Town has made lump-sum payments."

Concord's use rights are limited to 26 MVA of service. Wellesley's

use rights are also limited, although the exact limitation is

unclear (it purchased use rights in various amounts at several

facilities), but neither Town disputes that PTF interconnection

charges apply for any power over and above these amounts.

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Concord or Wellesley may utilize for PTF

transactions, as defined in the NEPOOL

Agreement, their shares of the capacities of

the [use rights facilities] . . . without

payment of a PTF interconnection charge . . .

.

Finally, Article IV imposed limits--not in issue here--on the

quantities of power that could be acquired under the exemption.2

In effect, in exchange for specified payments, the Towns

were given: (1) lower transmission rates afforded to high voltage

(115 kV) customers (even though the town facilities were low

voltage and normally paid more), and (2) exemption ("without

payment of a PTF interconnection charge") from the payment of

otherwise applicable charges for "interconnecting" the town-owned

facilities with PTF. The scope of this exemption, as applied to

present delivery arrangements, is the nub of the present

controversy.

Pertinent to the dispute are further contracts, made in

the 1990s, and yet to be described, between Boston Edison and the

Towns. A further (and pivotal) event was the decision of the

Towns, effective June 1, 2002, to purchase their power from another
Just how this concession as to 2002-2003 is to be squared 3

with the unqualified "without payment of a PTF interconnection

charge" language is never explained; but the period between the

Towns' payment of bundled rates until June 2002 and the final

phase-out of the LNS charges in August 2003 is only a year, the

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supplier (Constellation Power Services, Inc.) in place of Boston

Edison, supplanting the bundled rates and requiring the "wheeling"

of this power to the Towns over both PTF facilities and Boston

Edison LNS facilities.

The charges for use of PTF for this wheeling service are

fixed by the NEPOOL Agreement and are not in dispute. The disputed

element is the use of Boston Edison LNS facilities for the hand-off

from PTF to the Town networks. In the FERC proceeding now before

us, the Towns urged that the language of Article IV ("without

payment of a PTF interconnection charge") exempted their purchases

from Constellation, up to specified maximum amounts of power (see

note 2, above), from LNS charges that Boston Edison sought to

impose to carry the power.

"Exemption" slightly overstates the issue. The NEPOOL

Agreement as restated in 1997 provided that for participants

"directly connected" to PTF, LNS charges would be phased down and

ultimately eliminated over a six-year period ending in February of

2003. The position of the Towns is that for transactions after the

phase-down they are contractually entitled to be treated as falling

within this exempt category (while paying the phase-down rate for

the period of 2002-2003).3
Towns are not complaining, and we do not pursue the issue.

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After a six-month proceeding ending with a lengthy

hearing, in August 2003 FERC's Administrative Law Judge ("ALJ")

issued a thoughtful decision. Boston Edison Co., 104 F.E.R.C. ¶

63,031 (2003). The decision glossed Article IV of the 1980

settlement agreement in light of intervening agreements, and the

ALJ concluded that the Towns were contractually entitled to make

their Constellation purchases without being subject to the LNS

charges that Boston Edison sought. The Commission affirmed and

denied rehearing. Boston Edison Co., 107 F.E.R.C. ¶ 61,248 (2004)

(affirming); Boston Edison Co., 108 F.E.R.C. ¶ 61,276 (2004)

(denying rehearing).

In this review proceeding, we are concerned primarily

with issues of contract interpretation. Boston Edison concedes

that under our precedents, FERC's views are "entitled to some

deference in construing contracts," at least "where the sales are

subject to FERC regulation," Boston Edison Co. v. Fed. Energy

Regulatory Comm'n, 233 F.3d 60, 66 (1st Cir. 2000). In other

words, the agency's interpretation must be reasonable, Boston

Edison Co. v. Fed. Energy Regulatory Comm'n, 856 F.2d 361, 363 (1st

Cir. 1988), but at the very least close calls tend to go its way.

See Sierra Club v. Larson, 2 F.3d 462, 468-69 (1st Cir. 1993).

The dispute, both in front of FERC and in this court,

begins with the 1980 agreement and, although its meaning is
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illuminated by subsequent agreements, the result is largely

controlled by whatever reading is given to the original agreement.

Recall that the 1980 agreement says that the Towns may use, for

power obtained through PTF, "their shares of the capacities of the

[use-rights facilities] . . . without payment of a PTF

interconnection charge." What, then, is the "PTF interconnection

charge" from which the Towns are exempted (up to the quantity

limits elsewhere specified)?

Boston Edison argues that this language must refer only

to charges covering the costs of the facilities in which the Towns

purchased use rights. These facilities include Boston Edison

station facilities and associated lines; but they do not include

longer distance, non-PTF 115 kV lines also owned by Boston Edison

that connect their nearby use-rights stations to other use-rights

stations that are part of the main PTF grid. See note 1, above.

So, says Boston Edison, it is entitled to charge the Towns for the

use of the 115 kV lines under LNS tariffs.

The main language-based counter to this reading is the

fact that earlier provisions of the 1980 agreement already gave the

Towns the right to use the use-rights facilities without payment of

further charges for those facilities and also freed them from

higher charges associated with connection of low-voltage lines.

So, the ALJ reasoned, the Article IV interconnection charges

exemption would be redundant unless it meant--as the Towns urge--
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that they were to be treated as if they were connected to PTF

facilities--i.e., exempt from LNS charges.

To a utilities lawyer, for whom it is gospel that

customers pay costs associated with facilities that they use, 1

Kahn, The Economics of Regulation: Principles and Institutions 63

(1970), Boston Edison's reading would be attractive: the use rights

in one set of facilities would not automatically carry over to

allow what Boston Edison likes to call "free" use of other

facilities. But the 1980 settlement was a compromise of many

issues and resolved some in ways that may not be strictly costbased, such as discontinuance of the higher charges for connection

to low-voltage Town lines.

Boston Edison also relies on another provision of the

1980 agreement--Article VII--which addressed "transmission rates."

Although at the time of the agreement the Towns apparently intended

to continue purchasing considerable electricity from Boston Edison

at rates that bundled power and transmission, Article VII addressed

the contingency that the Towns might want to purchase power

elsewhere to be wheeled by Boston Edison. Because the parties were

unable to agree on such rates, Article VII provided that Boston

Edison would file its proposed rates and the Towns could contest

them under the statute.

From Article VII, Boston Edison infers that Article IV

could not have been intended as a constraint on its transmission
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rates. While Articles IV and VII can certainly take meaning from

one another, see Smart v. Gillette Co. Long-Term Disability Plan,

70 F.3d 173, 179 (1st Cir. 1995), Boston Edison's inference is a

non sequitur. That Boston Edison transmission rates as a whole

might be subject to filing and protest did not prevent Boston

Edison from binding itself as to one element, namely, waiving any

charge for LNS lines as to power purchases up to a maximum limit on

the quantity of power thus exempted.

Finally, Boston Edison emphasizes that the 1997 Restated

NEPOOL Agreement phases out LNS charges for customers "directly

connected" to PTF; by contrast, says Boston Edison, the Towns in

this case are (with the irrelevant exception of station 148)

directly connected only to non-PTF stations. But the thrust of the

Towns' counter is that Article IV was designed to treat them as if

they were directly connected to PTF.

Recognizing that both sides had arguments based on the

wording of the 1980 agreement, the ALJ thought that the Towns'

reading was reinforced by subsequent agreements between Boston

Edison and the Towns: a 1993 agreement between Boston Edison and

Concord, and agreements in 1992 and 1998 between Boston Edison and

Wellesley. Assuredly, the subsequent understandings of the parties

to a contract, like their actual practice following a contract, can

cast light on their intentions as to the earlier agreement on which
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subsequent agreements build. See Reed & Reed, Inc. v. Weeks

Marine, Inc., 431 F.3d 384, 388 (1st Cir. 2005). 

The first of these subsequent agreements, the 1992

agreement with Wellesley, provided that Boston Edison would furnish

Wellesley with all of its electricity requirements and contained

language defining the delivery point as Boston Edison's

"interconnections" with the town "under which [Wellesley] will be

deemed to be a 115 kV customer at NEPOOL PTF ('Pool Transmission

Facilities') including, but not limited, as set forth in Appendix

B, page 2 of the 1980 Settlement Agreement." Appendix B of the

1980 agreement describes the location, equipment, and capacities of

the facilities in which Wellesley purchased use rights.

The ALJ took the "deemed to" language as reaffirming that

Wellesley would be treated for rate purposes as if its facilities

connected directly to PTF–in which event it would pay the PTF

charges under the NEPOOL agreement but not additional Boston Edison

LNS charges for the lines running from the shared use facilities to

PTF. Boston Edison Co., 104 F.E.R.C. ¶ 65,088. This is not an

inevitable reading, but it is at least a reasonable one. 

Slightly more cryptic language in the 1998 agreement

carried this concept forward. This agreement was made as Boston

Edison unbundled transmission from generation charges and, as to

the former, provided that "[Wellesley] shall be able to utilize for

PTF transactions and interconnection as defined in the NEPOOL
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Agreement its share of the capacity of the facilities set forth in

Appendix B."

Boston Edison admits that "the 1992 [agreement] defined

the Wellesley 'delivery point' (i.e., the place at which

electricity is delivered) as located on the PTF," but Boston Edison

argues that because the 1992 agreement was terminated as of May 31,

2002, this definition is irrelevant to the current appeal. Yet the

1992 language still casts light on the intent of the 1980

agreement, which is in force, and, as it happens, the 1998

agreement contains similar language and is still in force today.

Boston Edison also argues that a provision of the 1998

agreement contains a clause freeing it to set transmission rates

unilaterally, subject (as usual) to suspension and investigation by

FERC. The clause dovetailed with an amendment to the 1992

agreement that terminated, as of 2002, the 1992 agreement fixing

bundled rates, and the clause itself was to become effective "upon

the termination of the 1992 agreement." But, as with Article VII

discussed above, the entitlement to file rates does not mean that

the rates are necessarily free of limitations imposed by existing

agreements--here, the language quoted above pertaining to "PTF

transactions and interconnection."

The situation with Concord is more complicated. In 1993,

it signed an agreement with Boston Edison for the construction of

new interconnection facilities, some to be owned by each party, to
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replace the facilities in which Concord had bought use rights in

1980 (expanded by another agreement in 1985). Boston Edison also

bought back the 1980 (and 1985) use rights in the original

facilities. Boston Edison points to the buy-back as abrogating any

rights premised on Concord's original purchase of use rights in

1980, even if the 1980 agreement were read in Concord's favor.

There is nothing wrong in arguing in the alternative, but the buyback argument is not persuasive.

It is true that the new agreement provided that Concord's

original use rights "cease[d]," but far from undercutting Concord's

claim to an exemption from the LNS rates, the new agreement has

language that carries forward existing rights and, even worse for

Boston Edison, reinforces (by its specification of the rights)

Concord's claim that the original 1980 agreement created a right of

the breadth claimed by the Towns. Specifically, Article 9.2 of the

new agreement provided (the emphasis is ours):

The Interconnection Facilities are intended to

replace 13.8 kV facilities that connect the

[Concord] system to the Edison transmission

system and to the New England transmission

grid. In the event [Concord] is no longer

receiving Full Requirements Service from

Edison as defined in the 1993 Power Agreement,

[Concord] may purchase from Pool-Planned

Units, in which case under current NEPOOL

rules [Concord] would pay [high- and lowvoltage] PTF charges billed by NEPOOL. Since

the facilities between Station 342 and Station

416 are not considered PTF facilities by

NEPOOL, the wheeling of these purchases from

Station 342 through Station 416 could be

subject to a radial transmission charge when
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these purchases exceed 26 MVA, the level of

transmission use rights purchased in the 1980

Settlement Agreement. For purchases up to 26

MVA, for [Concord], Station 416 will be

treated as a PTF Facility for [Concord's]

obtaining electric power.

Purchases may be made by [Concord] from units

other than Pool-Planned Units or from any

other source, in which case those purchases

shall be wheeled by Edison under its FERCapproved Firm Transmission or Non-Firm

Transmission tariffs or successor transmission

arrangements for its system, so long as such

arrangements have received the required

regulatory approvals.

The ALJ read the emphasized language as reflecting a

Boston Edison concession that, notwithstanding the existence of LNS

lines running from the grid toward Concord, the later

interconnection point at which Concord planned to acquire power

from Boston Edison would be treated as if it were a PTF point,

thereby exempting it (up to 26 MVA) from separate LNS charges. The

juxtaposition of the "could be" language with the "will be treated"

language seemingly ties the 1980 exemption directly to the 115 kV

lines.

Boston Edison concedes in its brief that "Article 9.2 .

. . exempts Concord from 115 kV non-PTF charges for the first 26

MVA of [pool-planned unit] purchases," a concession hardly helpful

to its reading of the 1980 agreement. However, it responds that

the second paragraph of Article 9.2 quoted above governs non-pool

planned unit purchases, that Constellation units fall into this
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category, and that no exemption from LNS charges is provided for

such purchases.

We agree that the language is unclear, but the ALJ read

it Concord's way. Explaining the 1993 agreement's more elaborate

discussion of pool-planned units, he said that in 1993 they were

the only purchases Concord might take from the grid in place of

Boston Edison power. He also underscored the lack of any

explanation from Boston Edison as to why pool-planned units would

be specially exempted. Boston Edison says on appeal that it is not

required to "show motivation" to support plain language, but we

think the language less plain than it does.

In particular, most of the underscored language quoted

above was apparently added at Concord's insistence late in the day,

and its placement may not be so significant. It is also possible

to read the exempting language as stating a general principle

applicable to unbundled purchases, regardless of whether they are

from pool-planned units, and to explain the separate second

paragraph as concerned primarily with confirming Boston Edison's

obligation to wheel power from sources other than pool-planned

units within the grid. 

In the end, Boston Edison's best argument may be one not

rooted in the language of any agreement. It says that the Towns

were charged for the cost of the LNS lines when they received

bundled service because that cost was built into the bundled rates.
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Why, says Boston Edison, would it agree not to charge customers for

such facilities (in accordance, we note, with usual utility

practice, see Kahn, supra) after unbundling merely because those

customers bought use rights in other facilities connected to PTF by

the LNS lines?

The Towns say that the bundled rates were negotiated

rather than cost-based rates and did not have a separate element

for LNS; but this is something less than a claim that the LNS costs

were not in fact covered by the bundled rates. A better answer

might be that, in the compromises effected by the 1980 agreement,

there is nothing that prevented Boston Edison from conceding

something unusual as part of an overall settlement. This is

apparently what the Commission found to have happened.

Granting due deference to the Commission, we see no basis

for overturning its reading of the 1980 settlement in favor of the

Towns. On the contrary, that contract (and those that followed) is

couched in language that is cryptic, technical and dependent on

unexplained physical and institutional arrangements within the

power industry. The obscurity of the materials, and the need for

expertise, are reasons why deference is accorded to the views of

the expert agency. Sierra Club, 2 F.3d at 469.

Petitioners who trouble to unravel the technicalities and

educate judges can go far to level the playing field. Here,

granting that the original 1980 reference to "interconnection
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charges" was obscure, Boston Edison has done little to dispel the

adverse inferences contained in language in the 1992 Wellesley

agreement and the 1993 Concord agreement that we have quoted and

analyzed above. By contrast, the ALJ's balanced and lucid

treatment inspires a measure of confidence in his result.

The ALJ was himself concerned that the Towns might be

escaping any responsibility for LNS costs actually borne by Boston

Edison and, even more important, costs that might burden other

customers of Boston Edison. He said that the Commission had power,

not invoked here by Boston Edison, to override contracts where they

produced unjust results. See 16 U.S.C. § 824e(a). There is no

point in adding our own conjectures, but the present decision may

not be the last chapter in this story.

The petition for review is denied.
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