Opinion ID: 457816
Heading Depth: 2
Heading Rank: 2

Heading: Interpretation of the Minimum Bill Provision

Text: 31 Once a contract or tariff is found to be ambiguous, extrinsic evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. Pennzoil, 645 F.2d at 388. The Commission considered several extrinsic factors in interpreting the ambiguous phrase unable to deliver gas, including the earlier opinions certificating the LNG terminal and the surrounding factual context. 13 Op. 202-A at 61,167. Based on this evidence FERC concluded that the minimum bill provision had to be invoked whenever the LNG companies failed to make base load deliveries within the broad parameters of historical deliveries, id. at 61,069, for more than a few days when gas deliveries would not resume at normal levels in fairly short order, Op. 202-B at 61,097-98. 14 32 The key to interpreting the minimum bill provision is an understanding of the reasons why the FPC required the provision in the tariff as a condition of the certificate of public convenience and necessity for the Cove Point terminal. In interpreting a contract or tariff, the court looks to the language of the contract and its commercial (or in this case, regulatory) context. Pennzoil, 645 F.2d at 388. FERC properly based its interpretation of unable to deliver gas on the two primary purposes underlying the minimum bill provision: certificating a base load facility and allocating costs in the event of non-delivery. 33 First, as FERC noted, the whole purpose of the LNG importation projects and the FPC's approval of them was to provide substantial, base load supplies of gas at a time when conventional gas supplies were very short. Op. 202-A at 61,167. Despite the absence of daily contract demand levels in the service agreements, see supra note 10, the regasification facility was unquestionably certificated as a base load unit. Initial Dec. at 1696; Op. 622-A at 725; see also Columbia LNG Corp., 57 F.P.C. 354, 365 (1977). The tariffs and service agreements reflect the base load nature of the Cove Point facility, providing for large annual contract quantities and for firm service not subject to interruption or curtailment. J.A. at 72, 95, 197, 211. The terminal was not, however, supplying base load quantities to the pipeline companies for much of the period following the embargo, a changed circumstance which created ambiguity when the language of the minimum bill provision was applied. FERC's interpretation of unable to deliver gas resolved this ambiguity and reflected the base load nature of the Cove Point Facility by linking invocation of the minimum bill to an end to base load deliveries, as indicated by significant decreases in deliveries for more than a minimal period of time with no resumption forseeable in fairly short order. 34 The Commission also relied on the risk allocation purpose of the minimum bill provision in interpreting the tariff. The ALJ recognized at the start that the Cove Point facility involved an additional risk because of the possibility of a supply interruption, which would be peculiarly applicable to the source of supply in the instant proceedings. Initial Dec. at 1695. The Commission required insertion of the minimum bill provision as an equitable apportionment of the risk between customers and stockholders and in order to assure the financing of the project on reasonable terms to the consumer. Op. 622-A at 730. 35 Allocating risks is not, however, the same as allocating blame. FERC's first opinion improperly focused on the prudence of the transmission companies' actions, Op. 202 at 62,008, as the Commission later realized, Op. 202-A at 61,166 (the question of prudence (of either the pipelines or their LNG affiliates) is ... immaterial in these proceedings.). Similarly unavailing are the LNG companies' arguments that the husbanding program was prudent or that it is not inherently unreasonable for them to earn a return on their investment except when they are literally unable to deliver gas. As this court noted recently, 36 At bottom [the company's] claim is that because it acted prudently, it cannot fairly be punished by non-recovery of its expenses. But the problem of risk allocation in this case is not a problem of fault.... The Natural Gas Act simply does not guarantee the shareholders of even a prudently managed utility that ratepayers can always be stuck with the bill for supply projects that turn out to be total failures....Natural Gas Pipeline Company of America v. FERC, 765 F.2d 1155, 1163-64 (D.C.Cir.1985). 37 FERC's interpretation of the minimum bill accurately reflects the allocation of risk established by the FPC in 1972. The Commission designed the conditions on the certificate to ensure that ratepayers will not have to sustain the economic burden of projects that are not economically viable.... Our objective is, and must be, to protect the ultimate consumer. Op. 622 at 1640. When the FPC subsequently modified the tariffs and added the minimum bill, it reaffirmed that the changes were designed to make the project economically viable while at the same time preserving those conditions which we find to be essential for the protection of the consumers of gas in the United States. Op. 622-A at 725. The FERC interpretation rightly protects consumers from bearing all the risks of a project that, since the Algerian cut-off, has not been serving as an economically viable base load facility. 38 The minimum bill was designed to allocate the risks of the LNG project and to protect gas consumers from paying a return on equity when the facility was not supplying base load quantities of gas. FERC's interpretation of the phrase unable to deliver gas reflects this purpose and is hereby affirmed. 15