Opinion ID: 187200
Heading Depth: 2
Heading Rank: 3

Heading: Mobile-Sierra Doctrine

Text: Under the Mobile-Sierra doctrine [12] FERC may abrogate or modify freely negotiated private contracts that set firm rates or establish a specific methodology for setting the rates for service ... only if required by the public interest. Atl. City Elec. Co. v. FERC, 295 F.3d 1, 14 (D.C.Cir.2002) (citing Texaco Inc. v. FERC, 148 F.3d 1091, 1095 (D.C.Cir.1998)) (footnote added). The doctrine requires FERC to presume that the rate set out in a freely negotiated ... contract meets the `just and reasonable' requirement imposed by law. The presumption may be overcome only if FERC concludes that the contract seriously harms the public interest. Morgan Stanley Capital Group Inc. v. Pub. Util. Dist. No. 1 of Snohomish County, ___ U.S. ___, 128 S.Ct. 2733, 2736, ___ L.Ed.2d ___ (2008). Generally, this requires a finding that the existing rate `might impair the financial ability of [a] public utility to continue its service,' or that the rate would `cast upon other consumers an excessive burden, or be unduly discriminatory,' [or that there are] other `circumstances of unequivocal public necessity.'  Wis. Pub. Power, 493 F.3d at 271 (quoting Fed. Power Comm'n v. Sierra Pac. Power Co., 350 U.S. 348, 355, 76 S.Ct. 368, 100 L.Ed. 388 (1956); Permian Basin Area Rate Cases, 390 U.S. 747, 822, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968)). In its Rehearing Order, FERC concluded that the Mobile-Sierra doctrine was inapplicable for three reasons. First, FERC explained that the Conditions Order has not modified the terms of the 2005 Settlement by directing [Dominion] to add more information items to the annual Fuel Reports. Reh'g Order ¶ 14 (emphasis added). FERC explained that [n]one of the 16 enumerated informational filing requirements ... is modified or eliminated. The Commission has merely directed that ... the information to be submitted to the Commission each June 30 be supplemented to include additional information the Commission finds would be helpful. Id. (emphasis added); see also id. ¶ 15 (The December 21, 2005 Order does not modify that settled list of information [i.e., the Fuel Report]; it will still be filed. Rather, the Commission's order simply adds to it.). [13] We find this argument cannot withstand Chevron review under step one. During the intensive settlement negotiations, Notification of Settlement Filing, No. RP00-632-003, at 1, the parties precisely defined the information to be contained in Dominion's annual Fuel Reports. See, e.g., 2001 Settlement § 11.4 (D[ominion] shall be required to make an informational filing ... as described in ... Section 16.5 attached on Appendix B.); see also supra note 3. We find no ambiguity in this language and therefore decline to defer to FERC's suggestion that it can add[] to or supplement a contractual obligation without at the same time modifying it. See, e.g., Oxford English Dictionary 952 (2d ed.1989) (modify means, in part, make partial or minor changes in; to change (an object) in respect to some of its qualities; to cause to vary without radical transformation); Webster's Third New Int'l Dictionary 1452 (1993) (modify means make minor changes in form or structure of: alter without transforming). Second, FERC suggests that the Conditions Order does not implicate Mobile-Sierra because it is consistent with the purpose and intent of the Settlements. Reh'g Order ¶ 15. There are two variations on this theme. First, FERC argues that so long as it does not change `the terms of primary service for which the parties have bargained ... [its order] does not modify [the] contracts, even if it affects them.' FERC Br. 25 (quoting Am. Gas Ass'n v. FERC, 428 F.3d 255, 263 (D.C.Cir. 2005) (emphases added)). [14] According to FERC, [t]he [primary] bargain struck by the settling parties relates to the rates. ... Requiring additional information to be submitted does not, in and of itself, change those settled rates. Reh'g Order ¶ 15; see also FERC Br. 27. FERC claims that its reasonabl[e] interpretation of the Settlements is entitled to deference under Chevron. FERC Br. 20, 23. We disagree. Even granting that the primary purpose of the 2005 Settlement was to establish Dominion's transportation and storage service rates, the 2005 Settlement made clear that the information contained in the Fuel Report was also an integral part thereof. Indeed, the 2005 Settlement specifies that it is an integrated package and that [n]one of the terms of the Settlement [is] agreed to without each of the others. 2005 Settlement § 7.1. FERC's second variation on the theme, its intent of the parties argument, fares no better. FERC argues that [t]he purpose and intent in requiring information to be filed [i.e., the 16 items] ... was to provide a minimum set of information to be used to determine whether section 5 action adjusting the settled fuel retention percentages would be appropriate. ... The purpose clearly was not to blind the Commission to additional information if such information were deemed important to fulfill the Commission's oversight responsibilities under the NGA. Reh'g Order ¶ 15 (emphasis added). In effect, FERC argues that its understanding of the purpose of the Settlements takes precedence over their respective provisions. Not so. See Ameren Servs Co., 330 F.3d at 498. Both Settlements unambiguously define Dominion's reporting obligations. See supra note 3; 2005 Settlement § 4.3 (incorporating 2001 Settlement's reporting requirement). The plain language of the Settlementswhich provides for a 16-item Fuel Reportcannot be overridden by a purported purpose and intent that would significantly alter that language. Finally, FERC argues that the Mobile-Sierra doctrine is inapplicable because the 2005 Settlement provides that it `shall not ... preclude the Commission from initiating an NGA section 5 proceeding on its own volition. ' Reh'g Order ¶ 17 (quoting 2005 Settlement § 4.6) (emphasis added). As we noted earlier, section 5, in relevant part, authorizes FERC to establish just and reasonable rules and regulations relating to the rates and charges collected by any natural-gas company in connection with any transportation or sale of natural gas. 15 U.S.C. § 717d(a). Because the 2005 Settlement expressly allows for a section 5 proceeding on FERC's initiation, FERC argues, it need ensure only that the additional disclosure requirements are just and reasonable, see id., which, as previously noted, is less demanding than Mobile-Sierra. See discussion supra page 13. [15] This argument too is without merit. Under section 5, FERC initiates a proceeding either [1] upon its own motion or [2] upon complaint of any ... gas distributing company.  15 U.S.C. § 717d(a) (emphases added). But section 4.6 of the 2005 Settlement refers only to FERC's authority to bring a section 5 action only on its own volition. 2005 Settlement § 4.6 (emphasis added). As FERC acknowledges, the Conditions Order issued at the behest of KeySpan. See Conditions Order ¶ 11 (Although Dominion has complied with the specific informational requirements of the [Settlement Agreements], granting KeySpan's request for more detailed information in Dominion's Fuel Reports would enhance the transparency of Dominion's transactions, and assure all parties and the Commission that there is no cost-shifting or subsidization on Dominion's system. (emphasis added)). FERC argues that it did not run afoul of the on its own volition clause because it acted upon Dominion's customers' comments, distinguishable from [their] complaints.  FERC Br. 31 (emphases added). [16] In other words, FERC apparently interprets section 4.6 as allowing the settling parties to petition FERC for modification of the 2005 Settlementwithout triggering the Mobile-Sierra presumptionso long as they proceed informally. [17] The parties agree that there is at least some ambiguity in the meaning of the on its own volition clause, see Dominion Br. 33-34 (Whatever th[e] provision might mean, it is not applicable to the Commission's Orders in this case. Indeed, this clause equally could be read to confirm the Commission retains the right to modify the settlement agreement when the public interest so requires, in accord with the Mobile-Sierra doctrine.); FERC Br. 32-33 (arguing for ambiguity). We turn, therefore, to step two of the Chevron analysis to determine whether FERC's interpretation of the clause to allow regulation in response to customer comments, but not complaints, is a reasonable interpretation. See Ameren Servs., 330 F.3d at 498-99. We think not. FERC's interpretation of section 4.6 would effectively void other provisions of the 2005 Settlement that prohibit the settling parties from initiat[ing] or support[ing] modification of the 2005 Settlement through a section 5 action. See, e.g., 2005 Settlement §§ 4.2(a) ([N]o Settling Party shall initiate or support a proceeding under NGA Section 5 that would cause a change in [Dominion's] generally applicable transportation or storage rates. ...), 4.5 (parties prohibited from initiating a proceeding under Section 5 of the NGA ... [to seek] a result inconsistent with any other provisions established ... by this Settlement). In addition, FERC has previously declared that, in interpreting a settlement, no word in a contract (or settlement) is to be treated as surplusage or redundant if any reasonable meaning, consistent with the other parts, can be given to it. Pac. Gas. Transmission Co., 73 F.E.R.C. ¶ 61,276, at 61,760 (1995); accord Grynberg v. FERC, 71 F.3d 413, 416 (D.C.Cir.1995).