Opinion ID: 3040019
Heading Depth: 3
Heading Rank: 1

Heading: Contractual Waiver of Section 206 Rights

Text: Having established the prerequisites to Mobile-Sierra review under the current regulatory regime, we address first whether the contracts at issue permit Mobile-Sierra review. 19590 PUBLIC UTILITY DISTRICT v. FERC In this case, FERC determined that there was no express reservation of unilateral modification. As FERC noted, “[f]or all but one of the contracts identified by the complainants, Section 6.1 of the umbrella [Power Pool] Agreement appears to be the only specific contractual provision which may affect parties’ rights to make changes to contracts entered into under the [Power Pool] agreement.” April 11 Order, 99 F.E.R.C. at ¶ 61,190.21 The relevant portion of section 6.1 states: Nothing contained herein shall be construed as affecting in any way the right of the Parties to jointly make application to FERC for a change in the rates and charges, classification, service, terms, or conditions affecting [Power Pool] transactions under Section 205 of the Federal Power Act and pursuant to FERC rules and regulations promulgated thereunder. Id. ¶ 61,190 n.10. Applying the interpretive doctrine of expressio unius est exclusio alterius,22 FERC viewed the reservation of joint section 205 rights as confirming the parties’ intention otherwise to abide by the contractual terms for the time period covered. Order on Initial Decision, 103 F.E.R.C. at ¶ 62,388. 21 FERC found that Section 39B of the Snohomish-Morgan Stanley Confirmation Agreement expressly restricts the parties’ rights to amend under both FPA sections 205 and 206. April 11 Order, 99 F.E.R.C. at ¶ 61,190 & n.11. FERC noted, however, that even if Snohomish could overcome the restriction in Section 39B, it would still be restricted by Section 6.1 of the Power Pool agreement. Order on Initial Decision, 103 F.E.R.C. at ¶ 62,389. Because we hold the Power Pool agreement, both standing alone and taking Section 6.1 into account, is consistent with Mobile-Sierra review, we have no need to consider Section 39B of the SnohomishMorgan Stanley Confirmation Agreement. 22 The Latin phrase means the “express[ion] or inclu[sion of] one thing implies the exclusion of the other.” BLACK’S LAW DICTIONARY 620 (8th ed. 1999). PUBLIC UTILITY DISTRICT v. FERC 19591 [5] “FERC is entitled to some deference in construing contracts where the sales are subject to FERC regulation.” Boston Edison, 233 F.3d at 66 (citing Memphis, 358 U.S. at 114); see also City of Seattle v. FERC, 923 F.2d 713, 716 (9th Cir. 1991) (granting FERC deference in the interpretation of contracts). With or without that deference, we agree with FERC that these contracts do not preclude Mobile-Sierra review, but we do not rely on the expressio unius precept in so concluding. Instead, like the D.C. Circuit in Texaco II, 148 F.3d at 1096, we hold that private long-term contracts can be generally governed by Mobile-Sierra if such review is otherwise appropriate, unless there is a specific indication in the contract that section 205 or 206 rights have been reserved. Texaco II considered a boilerplate clause that said that the contract “shall comply with all applicable laws, statutes, ordinances, safety codes and rules and regulations of governmental authorities having jurisdiction.” Id. The D.C. Circuit held that such a general clause does not reserve compliance with section 206 standards. In so deciding, the D.C. Circuit stated, in essence, a default rule, explaining: “The law is quite clear: absent contractual language ‘susceptible to the construction that the rate may be altered while the contract[ ] subsist[s],’ the Mobile-Sierra doctrine applies.” Id. (alterations in original) (quoting Appalachian Power Co. v. Fed. Power Comm’n, 529 F.2d 342, 348 (D.C. Cir. 1976)). After Texaco II, the prevailing rule of contract interpretation with regard to the preservation of limited Mobile-Sierra review, according to the First Circuit, is that general statements that the law will “otherwise be binding” do not “negate the ordinary, default rule that Mobile-Sierra govern[s] FERC-proposed changes.” Boston Edison, 233 F.3d at 67 (citing Texaco II, 148 F.3d at 1096). The trio of authorities cited by the local utilities, all from the D.C. Circuit and all pre-Texaco II, are not inconsistent with this interpretive principle. See Union Pac. Fuels, Inc. v. FERC, 129 F.3d 157 (D.C. Cir. 1997); Papago Tribal Util. 19592 PUBLIC UTILITY DISTRICT v. FERC Auth. v. FERC, 723 F.2d 950 (D.C. Cir. 1983); Kansas Cities v. FERC, 723 F.2d 82 (D.C. Cir. 1983). In two of these cases, the court inferred an intent to permit full FERC review from a provision restricting review in narrow circumstances. See Papago, 723 F.2d at 954; Kansas Cities, 723 F.2d at 86-90. To infer from a narrow restriction on unilateral changes an intent otherwise to allow such changes, as Kansas Cities and Papago permitted, is quite different from inferring from a narrow authorization of joint authority to make changes an intent to allow unilateral changes, as the local utilities here insist FERC was required to do. By contrast with Papago, Kansas Cities, and this case, the disputed contracts in Union Pacific Fuels did include a Memphis clause. See Union Pac. Fuels, 129 F.3d at 161. The contracts, however, also included a clause restricting the ability of the parties to seek a change to the “modified fixed variable rate design.” Id. (internal quotation mark omitted). In these unusual circumstances, the D.C. Circuit upheld FERC’s order requiring a provider to file proposed changes to its rate structure under section 5 of the Natural Gas Act despite that narrow restriction and noted: Nothing in the contracts expressly exempted the private agreement from rate changes initiated by FERC under NGA § 5. . . . While Petitioners protest that boilerplate language acknowledging rate changes by FERC should not render [the] Mobile-Sierra doctrine inapplicable, . . . they do not explain why they could not have adopted language that would simply and clearly have invoked Mobile-Sierra. Id. at 161-62. Texaco II, issued by the same court a year later, explained that this language in Union Pacific Fuels does not have application beyond the situation there presented, in which the contract contains a clause that does, generally, negate the default Mobile-Sierra rule. See Texaco II, 148 F.3d at 1096 (noting that in Union Pacific Fuels, the court “inadPUBLIC UTILITY DISTRICT v. FERC 19593 vertently lent support to the inference” that absent express language invoking Mobile-Sierra, FERC ordinarily is free to review rates without regard to the Mobile-Sierra presumption (emphasis added)). [6] We agree with the D.C. and First Circuits that the Mobile-Sierra presumptions are, in essence, self-executing. Adoption of a Memphis clause permitting a party to an energy contract to modify its terms unilaterally demonstrates that the parties were not seeking to establish the stability of energy contracts the Mobile-Sierra doctrine seeks to foster. Absent such a clause, the Mobile-Sierra balance between preserving the stability of private contracts and protecting the public interest in just and reasonable rates prevails. Preserving joint modification does not negate the default application of the Mobile-Sierra presumption when that presumption is otherwise appropriate, as the Mobile-Sierra presumption applies to unilateral, not joint, rate changes. Indeed, parties to energy contracts, like parties to any other contract, are free, by agreement, to vary the terms of the contract mid-term, with or without a prior pact allowing them to do so. When parties to an energy contract do so vary an agreement, sections 205 and 206 apply according to their express terms. [7] We therefore uphold FERC’s interpretation of section 6.1 of the Power Pool agreement as reasonable.