Source: https://law.justia.com/cases/federal/appellate-courts/cadc/99-1209/99-1209a-2011-03-24.html
Timestamp: 2019-04-23 13:58:16+00:00

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the brief was John H. Conway, Deputy Solicitor. Jay L. Witkin, Solicitor, and Susan J. Court, Special Counsel, en- tered appearances.
Kevin J. McIntyre and Leonard W. Belter were on the brief for intervenors FirstEnergy Corp., et al.
Rogers, Circuit Judge: Potomac Electric Power Company ("PEPCO") petitions for review of two orders of the Federal Energy Regulatory Commission ("FERC") denying its re- quest under s 206 of the Federal Power Act ("FPA"), 16 U.S.C. s 824e (1994), for unilateral modification of the rates prescribed by a long-term, fixed rate, power transmission service agreement between PEPCO and the Allegheny Power System ("APS"). Because FERC did not abuse its discretion in applying the stringent Mobile-Sierra public interest stan- dard, and because a mere rate disparity or a benefit to the purchasing utility or its customers from a rate modification does not suffice, without more, to satisfy that standard, we conclude that FERC's decision to dismiss the complaint was a reasonable exercise of its authority. Accordingly, we deny the petition.
from the Ohio Edison System to PEPCO. The dispute in the instant case involves the agreement between PEPCO and APS.
It is the intention of the parties that the rates and terms of service specified herein shall remain in effect for the entire term set forth in this Article, and shall not be subject to change pursuant to the Federal Power Act absent mutual agreement of the parties or as provided in section 3.4. Section 3.4, in turn, provided for renegotiation "[i]n the event that reasonably unforeseeable circumstances beyond the con- trol of any party to this Agreement result in a gross inequity to any party" and outlined a procedure for dispute resolution in case parties fail to reach a new agreement.
generate excessive revenues and should be accepted for filing without suspension." Id. at 62,096. FERC accepted the three contracts for filing to become effective June 1, 1987. See id. at 62,098.
In 1996, FERC issued the first in a series of orders known collectively as "Order No. 888" to address problems associat- ed with electric transmission monopolies in the bulk power markets. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, 61 Fed. Reg. 21,540 (1996), codified as revised at 18 C.F.R. Pts. 35 & 385 (1999).1 The Order required all public utilities that own, operate, or control interstate transmission facilities to file an open access non- discriminatory transmission tariff. See id. at 21,540. In its open access transmission tariff ("OATT") proceeding pursu- ant to Order No. 888, APS agreed to charge a rate of $1.49 per kW-month for its transmission service, a rate substantial- ly less than the rate PEPCO was obligated to pay under its 1987 agreement with APS.
__________ 1 For the revisions and clarifications of Order No. 888, see 76 F.E.R.C. p 61,009 (1996), 76 F.E.R.C. p 61,347 (1996), and 79 F.E.R.C. p 61,182 (1997), on reh'g, Order No. 888-A, 62 Fed. Reg. 12274 (1997), on reh'g, Order No. 888-B, 81 F.E.R.C. p 61,248 (1997), on reh'g, Order No. 888-C, 82 F.E.R.C. p 61,046 (1998), on appeal sub nom. Transmission Access Policy Study Group, et al. v. FERC, No. 97-1715 (D.C. Cir.) (submitted November 3, 1999).
erential." Id. s 824e(a). PEPCO's request for a rate de- crease, claiming that APS's rate was "excessive and unreason- able," asked FERC to exercise its authority under s 206 to modify existing contracts and reduce the contractual trans- mission rate to the OATT rate.
APS moved to dismiss the complaint, citing section 9.3 of the agreement under which the parties had agreed to elimi- nate the right of either party to initiate rate modification pursuant to FERC's s 206 authority. APS relied primarily on the "Mobile-Sierra" doctrine, named after the two Su- preme Court cases that established the "public interest" standard for FERC review of electricity rates in contracts restraining unilateral rate changes. See United Gas Pipe Line Co. v. Mobile Gas Serv., 350 U.S. 332 (1956); Federal Power Comm'n v. Sierra Pacific Power Co., 350 U.S. 348 (1956). Under the public interest standard of the Mobile- Sierra doctrine, FERC has s 206 authority to modify rates "fixed" by a Mobile-Sierra provision " '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.' " Papago Tribal Util. Auth. v. FERC, 723 F.2d 950, 953 (D.C. Cir. 1983) (alteration in original) (quoting Sierra, 350 U.S. at 355); see also Metropolitan Edison Co. v. FERC, 595 F.2d 851, 855 (D.C. Cir. 1979). In essence, APS maintained that PEPCO failed to make the required showing under the Mobile-Sierra doctrine that the public interest was adversely affected by the existing contract.
In response, PEPCO asserted that the public interest was adversely affected by the contractual rate because the exces- sive rates were entirely borne by its ratepayers. PEPCO also maintained that because of APS's market power, it had little bargaining power at the time it entered the agreement to influence the terms of the contract, including the Mobile- Sierra provision in section 9.3. Furthermore, PEPCO con- tended that the rate APS charged itself and others, approxi- mately half of what PEPCO was being charged for the same service, constituted undue discrimination prohibited under the Mobile-Sierra doctrine.
FERC dismissed PEPCO's complaint. See Potomac Elec. Power Co. v. Allegheny Power Sys., 85 F.E.R.C. p 61,160 (1998). Emphasizing that it "does not take contract modifica- tion lightly," FERC reasoned that the mere fact that PEPCO was subject to higher rates under its agreement with APS than it would be under APS's OATT was insufficient reason for abrogating an agreement that PEPCO had fully sup- ported at the time of filing and FERC had approved as just and reasonable. Id. at 61,632-33. FERC also rejected PEP- CO's request that it act sua sponte to reduce the rates for the benefit of PEPCO's ratepayers, reasoning that it would be inappropriate to convert PEPCO's unilateral request for ref- ormation into a FERC-initiated contract modification where the parties' agreement contained a Mobile-Sierra provision, and where PEPCO had failed to satisfy the public interest standard. See id. at 61,633.
In denying PEPCO's petition for rehearing, FERC reject- ed PEPCO's contention that FERC had erred by failing to assess whether the rates were just and reasonable, and defined the issue instead to be whether the rates, having been found to be just and reasonable when originally approved, had become contrary to the public interest. See Potomac Elec. Power Co. v. Allegheny Power Sys. 87 F.E.R.C. p 61,030, at 61,105 (1999). FERC noted that, under its prece- dent, the fact that a contract has become uneconomic to one of the parties does not necessarily make the contract contrary to the public interest under the FPA. FERC found no reason to deviate from this precedent because PEPCO failed to present any other ground for finding the agreement con- trary to the public interest. See id. Responding to PEPCO's argument that the contract was the result of uneven bargain- ing power and that FERC's failure to modify the rates rested on its faulty assumption that PEPCO had willingly entered into the agreement, FERC stated first, that PEPCO's conten- tion was inconsistent with PEPCO's representations in 1987, see id. at 61,106 n.10, and second, that FERC's decision was based not on PEPCO's initial willingness to enter the agree- ment, but on PEPCO's failure to demonstrate that revising the agreement was in the public interest. See id. at 61,106.
Finally, in response to PEPCO's request that FERC follow the approach it had adopted in Order No. 888 to allow modification where rates are shown to be no longer just and reasonable, FERC deemed the request misplaced because its Order No. 888 Mobile-Sierra finding applied only to a dis- crete set of wholesale requirements contracts, not to trans- mission contracts like the one at issue. See id. at 61,106 n.11.
On appeal, PEPCO contends that by emphasizing only the policies favoring fixed rate contracts and ignoring the FPA's concerns with fairness and anti-competitiveness, FERC failed to meet the FPA's mandate. More specifically, PEPCO first maintains that FERC's application of the Mobile-Sierra pub- lic interest standard ignored FERC's precedent calling for a "flexible" version of the test in situations where FERC is acting or is requested to act on behalf of non-party ratepay- ers that are affected by the contract. Even if FERC applied the correct "version" of the standard, PEPCO maintains second that FERC failed to fulfill its obligation under the public interest standard to ensure that the rates charged under PEPCO's agreement with APS are neither unduly discriminatory nor excessively burdensome on PEPCO's rate- payers. Nor had FERC, PEPCO continues, taken into ac- count that the agreement was the result of uneven bargaining power, even though FERC had stated this factor was relevant to a public interest analysis and had made a general finding that transmission contracts entered into before Order No. 888 often reflected the exercise of market power. In other words, PEPCO submits, FERC acted arbitrarily and capri- ciously by not applying a flexible public interest standard and, alternatively, by concluding that PEPCO had not met its burden under the stringent Mobile-Sierra public interest standard.
supported by substantial evidence. See 16 U.S.C. s 825l(b); see also Texaco, Inc. v. FERC, 148 F.3d 1091, 1095 (D.C. Cir. 1998) (citing Koch Gateway Pipeline Co. v. FERC, 136 F.3d 810, 814 (D.C. Cir. 1998)). We hold that FERC's decision to dismiss the complaint was not an unreasonable exercise of its authority.
PEPCO concedes, implicitly in its briefs and explicitly at oral argument, that the public interest standard set out in Mobile and Sierra, and not the just and reasonable standard, controls PEPCO's s 206 request. The court has observed that the Mobile-Sierra public interest standard is much more restrictive than the FPA's "just and reasonable" standard, see, e.g., Union Pacific Fuels, Inc. v. FERC, 129 F.3d 157, 161 (D.C. Cir. 1997); San Diego Gas & Elec. Co. v. FERC, 904 F.2d 727, 730 (D.C. Cir. 1990), even characterizing the burden under the public interest standard as "practically insurmountable," Papago, 723 F.2d at 954, and "almost insur- mountable." Kansas Cities v. FERC, 723 F.2d 82, 87-88 (D.C. Cir. 1983); see also Tennessee Gas Pipeline Co., 60 F.E.R.C. p 61,318, at 62,104 (1992); Central Maine Power Co., 54 F.E.R.C. p 61,206, at 61,613-14 (1991). PEPCO chal- lenges such a restrictive characterization of the standard, and contends that FERC was bound by its own precedent to adopt an approach "less restrictive" than the Papago court's phrase "practically insurmountable" suggests.
[I]f the Commission is to comply with both the Mobile- Sierra imperative to respect contractual arrangements, on the one hand, and our statutory mandate to protect the public interest and ensure that rates are just and reasonable and not unduly discriminatory or preferential, on the other, the "public interest" standard of review under the Mobile-Sierra doctrine cannot be "practically insurmountable" in all cases. Id. (footnote omitted) (quoting Papago, 723 F.2d at 954). In other words, FERC took the position that the court's charac- terization of the standard in Papago did not "preclude[ ] the Commission from concluding in other circumstances that the interests of third parties sufficiently outweigh the contracting parties' interests in contract stability to justify the Commis- sion's ordering contract modifications." Id. at 62,086. FERC distinguished Papago on the basis that "Papago expressly addressed rate changes, not the scope of the Commission's authority upon its initial review of a newly-filed contract," id., and declared that in situations where it is reviewing a fixed- rate agreement "for the first time, without having had any previous opportunity to determine whether its terms are lawful," a more relaxed public interest standard is warranted. Id. at 62,087. The First Circuit affirmed. See Northeast Utils. Serv. Co. v. FERC, 55 F.3d 686, 692 (1st Cir. 1995).
FERC, in two subsequent cases that PEPCO also relies on, reaffirmed its position in Northeast Utilities. In Southern Company Services, Inc., 67 F.E.R.C. p 61,080 (1994), FERC reiterated that "the public interest standard of review does not bind the Commission to a practically insurmountable burden in all cases in which the Commission might act to change rates." Id. at 61,227. More specifically, FERC stat- ed that the cases do not "impose a practically insurmountable burden when the Commission proceeds sua sponte or at the request of non-parties to change rates, terms and conditions in order to protect non-parties to a contract." Id. (citing Northeast Utils., 66 F.E.R.C. at 62,081-88). Similarly, in Florida Power & Light Co., 67 F.E.R.C. p 61,141 (1994), FERC stated, "when we are acting sua sponte or at the request of non-parties to change rates, terms and conditions in order to protect non-parties, we are not bound to a standard of review that is practically insurmountable." Id. at 61,399.
__________ 2 This court has not had occasion to address, and need not do so here, whether FERC has authority to apply a Mobile-Sierra stan- dard that is more flexible than the "practically insurmountable" standard whenever it reviews a "newly-filed or previously unre- viewed agreement," Northeast Utils, 66 F.E.R.C. at 62,087, or "proceeds sua sponte or at the request of non-parties to change rates ... in order to protect non-parties to a contract." Southern Co., 67 F.E.R.C. at 61,227; see also Florida Power, 67 F.E.R.C. at 61,399.
a unilateral rate change. The concerns that FERC raised in Northeast Utilities with regard to applying the "practically insurmountable" public interest standard when reviewing a contract for the first time thus do not apply here.
from a rate modification, renders its request wholly inade- quate. Therefore, FERC's summary dismissal of PEPCO's public interest argument was within its authority.
The "premise" for the Commission's ruling is not that PEPCO willingly agreed to the Agreement's rates and terms. Rather, the "premise" for the Commission's rul- ing is that contract modification is not to be taken lightly and that, in this case, PEPCO has failed to demonstrate that a revision to the Agreement is in the public interest. PEPCO, 87 F.E.R.C. at 61,106 (footnote omitted). Moreover, PEPCO can hardly escape the consequences of the fact that its statements to FERC in 1987 show that it fully supported the fixed-rate agreement, see id. at 61,106 n.10, and that it has not alleged bad faith negotiation on the part of the parties to the agreement. Nothing in the record on appeal demon- strates that the contract was the result of APS's market power; to the contrary, PEPCO has admitted that it had other supply options when it entered the agreement with APS in 1987. See Monongahela Power Co., 39 F.E.R.C. at 62,092. While the existence of other options does not necessarily mean an absence of market power, PEPCO's assertion to FERC in 1987 that the transmission agreement was cost- justified and represented cost savings over other supply options supports such a conclusion. Therefore, absent any claim, much less evidence, of unfairness or bad faith in the original negotiations, it is reasonable for FERC to require parties "to live with their bargains as time passes and various projections about the future are proved correct or incorrect." Norwood, 587 F.2d at 1312-13.
were "entered into during an era in which transmission providers exerted monopoly control over access to their transmission facilities," and that, as a result, "[m]any of these contracts were the result of uneven bargaining power." Order No. 888-A, FERC Stats. & Regs. p 31,048, at 30,193 (1997). Accordingly, FERC concluded that it was in the public interest to permit those requirements customers to seek modification of their contracts under the just and rea- sonable standard, even if the contract contained a Mobile- Sierra provision. See id. at 30,189. However, as PEPCO concedes, Order No. 888-A's exception to application of the Mobile-Sierra standard plainly applies only to requirements contracts. Moreover, as PEPCO again concedes, for non- requirements contracts, such as the APS agreement, FERC declined to extend its generic Mobile-Sierra findings to all long-term block purchases of electricity. See id. at 30,195. FERC distinguished these contracts from requirements con- tracts based on its conclusion that, in "the majority of cir- cumstances, such long-term supply contracts are voluntary arrangements in which neither party had market power." Id. FERC noted, "[p]arties can avail themselves of the section 205 and 206 procedure already available if they want to seek modification of such contracts." Id. That is what PEPCO did here by requesting FERC to employ its s 206 authority, and FERC denied PEPCO's petition under the Mobile-Sierra doctrine. Therefore, FERC has precisely fol- lowed the procedure it outlined in Order No. 888-A.
As for the seller's market power, reliance on this factor threat- ens to erode the Mobile-Sierra doctrine so substantially that a fuller explanation from the Commission is required before proceeding down this route. After all, some measure of mar- ket power could be present in a large number of contracts. A case-by-case inquiry into the presence and extent of market power would inject a new and potentially time-consuming ele- ment into the Mobile-Sierra analysis, and it is not entirely clear in any event why the Commission should protect a buyer who voluntarily enters into an agreement with a dominant seller. Northeast Utils. Serv. Co. v. FERC, 993 F.2d 937, 961 (1st Cir. 1993).
F.E.R.C. at 61,106 n. 11, and the relevance of uneven bargain- ing power to the Mobile-Sierra analysis remains unclear, PEPCO has failed to demonstrate that it was subject to APS's monopoly power at the time it entered into the 1987 agreement. Having presented no evidentiary detail that might have compelled FERC to consider whether, by analo- gy, it should extend its Order No. 888-A public interest findings on a case-by-case basis to non-requirements con- tracts possibly involving relevantly similar factual circum- stances, PEPCO fails to show that FERC's summary dismiss- al was unreasonable.
Ultimately, PEPCO's case suffers from a failure of proof. PEPCO's counsel explained at oral argument that PEPCO did not seek a hearing before FERC on its s 206 complaint because PEPCO considered its allegations regarding the im- pact of the 1987 agreement on its ratepayers to be unrebut- ted. The court strains, in light of precedent, to imagine how PEPCO could conclude that it did not have a burden to offer evidence on this and other relevant factual issues, such as whether and the extent to which the agreement rates ad- versely impact PEPCO's ratepayers and whether APS had market power at the time the 1987 agreements were signed. PEPCO's position would undoubtedly have been strengthened had there been evidence in the record to support the asser- tions in its briefs regarding the asserted impact on ratepayers and APS's market power, although we express no opinion on the outcome under those circumstances.
rates in the previously approved agreement that PEPCO fully supported and claimed was justified were not contrary to the public interest. Accordingly, we deny the petition.

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