Opinion ID: 701297
Heading Depth: 2
Heading Rank: 1

Heading: The Commission's Interpretation of Section 14.8

Text: 21 The threshold issue that we must address is the Commission's interpretation of the language at issue in this case. The Commission ruled that Section 14.8 clearly states that in calculating the FRP the 'total annual volumes' should be included. There is no language excluding volumes transported pursuant to sales or storage services. Northwest Pipeline Corp., 65 FERC p 61,046, at 61,430 (1993). Northwest argues that this reading is erroneous because the terms of Section 14.8 apply only to Volume No. 1-A of the tariff. Thus, according to Northwest, the words 'total annual volumes' can mean only the total annual volumes of the transportation customers who are served pursuant to Volume No. 1-A. Appellant's Br. at 20. 22 We review the Commission's order pursuant to 15 U.S.C. Sec. 717r(b), which provides that the Commission's factual findings, if supported by substantial evidence, are conclusive. Moreover, under the Administrative Procedure Act, we may set aside agency action only if it is determined to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. 5 U.S.C. Sec. 706(2)(A); Woods Petroleum Corp. v. Department of Interior, 47 F.3d 1032, 1037 (10th Cir.), petition for cert. filed, 63 U.S.L.W. 3834 (U.S. May 10, 1995) (No. 94-1858). The substantial evidence test has been equated to the arbitrary and capricious standard of review. Colorado Interstate Gas Co. v. F.E.R.C., 904 F.2d 1456, 1459 (10th Cir.1990), cert. denied, 499 U.S. 936, 111 S.Ct. 1387, 113 L.Ed.2d 444 (1991); East Tenn. Natural Gas Co. v. F.E.R.C., 863 F.2d 932, 937 (D.C.Cir.1988). An agency decision may be arbitrary and capricious if it fails to consider important relevant factors or if there is no  'rational connection between the facts found and the choice made.'  Woods Petroleum, 47 F.3d at 1037 (quoting Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 442, 42 L.Ed.2d 447 (1974)). In reviewing the agency's decision, a court is not free to substitute its own judgment for that of the agency, but must instead uphold the agency decision if there is a rational basis for that decision. Mount Evans Co. v. Madigan, 14 F.3d 1444, 1453 (10th Cir.1994); see also Thomas Brooks Chartered v. Burnett, 920 F.2d 634, 644 (10th Cir.1990). 23 At the heart of the dispute in this case is the proper interpretation of the phrase total annual volumes contained in the FRP provision of Section 14.8 of Northwest's tariff Volume No. 1-A. Northwest claims one meaning--total applies to Volume 1-A volumes only; the Commission claims another--total applies to all volumes transported through the entire transmission system. Northwest argues that the Commission's interpretation of Section 14.8 is entitled to no deference because FERC's language interpretation did not require any special expertise; and, in fact, its interpretation had no reasonable basis in fact and resulted in an error of law. Appellant's Br. at 18. We disagree. 24 In Williams Natural Gas Co. v. F.E.R.C., 3 F.3d 1544 (D.C.Cir.1993), the District of Columbia Circuit held that, under the principles pronounced in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Commission's interpretation of contractual language is entitled to deference. Williams, 3 F.3d at 1549. Relying on its prior holding in National Fuel Gas Supply Co. v. F.E.R.C., 811 F.2d 1563 (D.C.Cir.), cert. denied, 484 U.S. 869, 108 S.Ct. 200, 98 L.Ed.2d 151 (1987), the court reasoned that Congress had explicitly delegated to FERC  'a broad range of adjudicative powers over natural gas rates,' and that Chevron's emphasis on deference to an agency's 'special competence' when there has been such a delegation 'implicitly modified earlier cases that adhered to the traditional rule of withholding deference on questions of contract interpretation.'  Williams, 3 F.3d at 1549 (quoting National Fuel, 811 F.2d at 1569-70) (internal citations omitted). Deference, of course, does not mean abdication of careful judicial review. A reviewing court will not accept FERC's interpretation of a contract unless it is 'amply supported, both factually and legally.'  Baltimore Gas & Elec. Co. v. F.E.R.C., 26 F.3d 1129, 1135 (D.C.Cir.1994) (quoting Tarpon Transmission Co. v. F.E.R.C., 860 F.2d 439, 442 (D.C.Cir.1988)). Nevertheless, so long as the agency's interpretation is reasonable, the District of Columbia Circuit has held, a reviewing court must defer to that interpretation. Long Island Lighting Co. v. F.E.R.C., 20 F.3d 494, 497 (D.C.Cir.1994). 25 In this case, we adopt the reasoning of the District of Columbia Circuit as applied in Williams and the cases which have followed. Obviously, the Commission has vast experience in the interpretation of the language contained in natural gas tariffs--it reviews thousands of such filings annually. 11 The principles underlying Chevron--that a reviewing court should defer to agency expertise on questions within the scope of the agency's Congressionally delegated powers--clearly dictate that we defer to the Commission's interpretation of such language. See Natural Gas Clearinghouse v. F.E.R.C., 965 F.2d 1066, 1070 (D.C.Cir.1992). 26 Applying these principles to the present case, we believe the Commission's interpretation of the language at issue is entitled to our deference. As a general matter, the Commission applies the same canons of contract construction as would a reviewing court: 27 In construing what a tariff means, certain general principles apply. One looks first to the four corners of the entire tariff, considers the entire instrument as a whole, giving effect as far as possible to every word, clause and sentence, and attributes to the words the meaning which is generally used, understood, and accepted. 28 Columbia Gas Transmission Corp., 27 FERC p 61,089, at 61,166 (1984). In the present case, the Commission clearly has interpreted the language of Section 14.8 in accordance with these fundamental canons. 29 First, the Commission quite correctly notes that to give effect to Northwest's interpretation would require us to read the word total, used three times in Section 14.8, as having two different meanings. In one case, total would refer to the total volume of system gas used for the entire transmission system; in the other case, total would be restricted to the total volume of gas transported under Volume No. 1-A of the tariff. The Commission's reading, on the other hand, ascribes to the word its ordinary meaning, and applies that meaning consistently throughout the provision in question. See Omnibank Parker Road, N.A. v. Employers Ins., 961 F.2d 1521, 1523 (10th Cir.1992). 30 Second, the Commission's reading gives effect and meaning to each provision of Section 14.8. See Tennessee Gas Pipeline Co. v. F.E.R.C., 17 F.3d 98, 104 (5th Cir.1994). Section 14.8 provides that [i]n addition to the payments for transportation, Shipper shall reimburse Transporter for Shipper's pro rata share of fuel, including lost and unaccounted for gas, required for transportation. Under the Commission's reading, each unbundled customer does in fact pay its pro rata share of the system fuel, but no more. Under Northwest's proposed reading, however, each unbundled customer would pay more than its pro rata share of the system fuel costs because each would also be paying for some percentage of the system fuel expended on transporting volumes of gas for the bundled customers. Thus, Northwest's reading of Section 14.8 leads to a disfavored construction of the contract, rendering the term pro rata mere surplusage. See, e.g., United States Fidelity & Guar. Co. v. Morrison Grain Co., 999 F.2d 489, 493 (10th Cir.1993) (applying Kansas law); Hartford Accident & Indem. Co. v. United States Fidelity & Guar. Co., 962 F.2d 1484, 1489-90 (10th Cir.) (applying Utah law), cert. denied, --- U.S. ----, 113 S.Ct. 411, 121 L.Ed.2d 335 (1992). 31 Finally, we agree with the Commission that Northwest's reading of Section 14.8 renders superfluous the clause including volumes transported for Shipper which is antecedent to total annual volumes. The Commission's interpretation, on the other hand, gives meaning to this clause. 32 We note that the Commission's interpretation of Section 14.8 is not the only possible construction, nor necessarily even one that a court may have adopted had the issue arisen in the first instance in a judicial proceeding. See Salt Lake City v. Western Area Power Admin., 926 F.2d 974, 978 (10th Cir.1991). It is, however, a rationally based, reasonable construction, and is, therefore, entitled to our deference.