Opinion ID: 527537
Heading Depth: 2
Heading Rank: 5

Heading: The Effective Date of FERC's Order

Text: 81 The final issue concerns FERC's choice of an August 19, 1987 effective date for its orders, based on its interpretation of the parties' settlement agreement.
82 The Commission's construction of contract language is entitled to judicial deference both because Congress explicitly delegated to FERC broad powers over rate-making, including the power to analyze contracts, and because the Commission has superior technical expertise. Tarpon Transmission Co. v. FERC, 860 F.2d 439, 441-42 (D.C.Cir.1988) (citing National Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1569-70 (D.C.Cir.), cert. denied, 484 U.S. 869, 108 S.Ct. 200, 98 L.Ed.2d 151 (1987)). Nonetheless, courts continue to play a vital role in ensuring that FERC's contract interpretations are amply supported both factually and legally. Id. at 442 (quoting Vermont Dep't of Pub. Serv. v. FERC, 817 F.2d 127, 134 (D.C.Cir.1987)). The agency's determination must reflect reasoned decisionmaking that has adequate support in the record and must include an understandable agency analysis and rationale. Id. at 442 (citations omitted). 83 In this case, our remand on the sole supplier and D-2 issues narrows the scope of our review to the Commission's choice of an effective date for the elimination of Panhandle's minimum bill.
84 On December 14, 1983, Panhandle filed with FERC a Stipulation and Agreement it had reached with its customers. Article II, entitled Disposition of Issues, is most relevant to the effective date question. Part 1 of Article II governs Rates and Charges and contains five key paragraphs. Paragraph A provides that Panhandle's customers forfeit any claims to refunds retroactive to October 1, 1982 (the date the new rates proposed by Panhandle originally took effect, subject to refund): 85 With respect to Panhandle's jurisdictional sales and services for the period October 1, 1982 through September 30, 1983, the rates set forth [in Appendices A and C to the Agreement] shall be applicable. Paragraph B states: 86 With respect to ... sales and services for the period commencing October 1, 1983 until a Commission order concerning cost classification, cost allocation, and rate design (including minimum bill) in this proceeding becomes effective, ... the rates set forth in [Appendices B, C, and D] shall be applicable; and the tariff provisions then in effect shall not be modified except to the extent required in settlements of [certain listed] complaint proceedings.... 87 Paragraphs C, D, and E specify the mechanisms for determining how and when changes in Panhandle's rates and tariffs will be implemented, depending on the timing of the Commission order referred to in Paragraph B. First, Paragraph C provides that if the order becomes effective before the date a new Panhandle rate filing supersedes the rates contained in the Agreement's appendices, any modifications specified in the order will be self-executing, applying only prospectively from and after the first day of the month following such effective date. Second, Paragraph D provides that if the order becomes effective within one year following the date that a new Panhandle rate filing supersedes the Agreement's rates, the new tariffs will be revised prospectively as necessary and appropriate to reflect the rulings in the ... order. Third, Paragraph E provides that if the order is issued one year or more after the date of the superseding rate filing, 12 then within forty-five daysany party may move for consideration of whether or not the tariff sheets then in effect should be revised prospectively as necessary and appropriate to reflect [the order,] and the Commission shall consider such motion. 88 Part 4 of Article II reserved four issues for resolution in the instant proceedings--cost classification, cost allocation, rate design (including minimum bill matters), and the sole supplier issue--subject to the condition that any changes may be made effective only prospectively from and after a Commission order disposing of these issues  (emphasis added). 89 FERC approved the Agreement on March 19, 1984. 26 F.E.R.C. p 61,342, reh'g granted, 27 F.E.R.C. p 61,233 (1984).
90 In Opinion No. 265, 38 F.E.R.C. p 61,164 (1987), the Commission failed to mention any effective date for the changes it ordered in Panhandle's rates regarding cost classification, cost allocation, and rate design (including minimum bill). In upholding CILCO's complaint seeking elimination of the sole supplier provision, the agency declared: [W]e shall require that Panhandle's tariff be modified prospectively from the effective date of this order (i.e., February 20, 1987). Id. at 61,470. In the same opinion, however, FERC directed Panhandle to file a revised tariff (and any necessary amendments to its rate schedules) within forty-five days of the date the opinion issued, but provided that if applications for rehearing were still pending at that time, Panhandle's submission shall be made thirty days from the date of the Commission's final disposition of applications for rehearing. Id. at 61,472. 91 In Opinion No. 265-A, 40 F.E.R.C. p 61,189 (1987), FERC considered a request for clarification by Michigan Consolidated Gas Company (MichCon) and a related motion by East Ohio Gas Company (East Ohio). These companies believed that the Commission's order to eliminate Panhandle's minimum bills took effect on February 20, 1987 (the date of Opinion No. 265) because, under 18 C.F.R. Sec. 385.2007(c), FERC orders are effective on the date they issue unless the Commission directs otherwise. 40 F.E.R.C. at 61,599. East Ohio advanced two other arguments in support of a February 20 effective date. Id. First, Opinion No. 265 remained in force because no stay had been sought or granted; filing an application for rehearing did not stay the order under section 19(c) of the NGA, 15 U.S.C. Sec. 717r(c). Second, Paragraph E of Article II, Part 1 of the Agreement mandated revision of tariff sheets upon issuance of any Commission order concerning ... minimum bills, not upon an order on rehearing. 92 Disputing this interpretation, Panhandle claimed that the effective date would occur when its rates were fixed within the meaning of Electrical District No. 1 v. FERC, 774 F.2d 490 (D.C.Cir.1985)--i.e., when FERC accepted Panhandle's new rate filing that the pipeline was obliged, under Opinion No. 265, 38 F.E.R.C. at 61,472, to submit within thirty days of the date that the Commission disposed of all rehearing applications. Panhandle argued that Electrical District was consistent with Paragraph E, which also provided for a motion for prospective revision of tariff sheets after issuance of an order. See 41 F.E.R.C. at 61,309. 93 FERC denied MichCon and East Ohio's motions and also rejected Panhandle's argument. Instead, it concluded: 94 Electrical District No. 1 does not apply here because the settlement [agreement] is controlling. Specifically, Article II, Part 4.A provides that any changes to Panhandle's tariffs, including minimum bill matters, be made effective prospectively from and after a Commission order disposing of [the] issues.... [W]e interpret the provision to mean from the date the rehearing order is issued. We believe our interpretation best reflects the intent of the parties. 95 Opinion No. 265-A, 40 F.E.R.C. at 61,599. Accordingly, FERC ordered that [e]limination of the minimum bills takes effect upon the date this order on rehearing issues (i.e., August 19, 1987). Id. at 61,601. 96 On November 4, 1987, the Commission reaffirmed Opinion No. 265-A. See 41 F.E.R.C. p 61,125. FERC declared that Part 4.A of Article II, which establishes the effective date as the date of a Commission order disposing of the issues, could reasonably be construed as referring to an order on rehearing because effectiveness and imposition of a remedy before final disposition would be interlocutory and would not 'dispose of' the issues if the order is subject to change. Id. at 61,309. FERC deemed Panhandle's reliance on Paragraph E misplaced because that provision did not set an effective date, and the agency accordingly rejected Panhandle's attempt to invoke Paragraph E to trigger application of Electrical District. Id. 97 Denying further rehearing, the agency rejected the argument that it had modified the date without request by any party on the grounds that it has the power to modify its orders sua sponte. 42 F.E.R.C. p 61,038, at 61,242 (1988). The Commission also summarily disposed of one petitioner's claim that FERC only had the statutory authority to prescribe as an effective date the issuance date of an order approving a utility's compliance filing (i.e., December 31, 1987). Id.
98 All parties agree on two points. First, the settlement agreement was designed to ensure an effective date for prospective changes in Panhandle's rates resulting from a Commission order concerning the reserved issues. Second, this date falls sometime in 1987. The dispute centers on which of the three FERC orders provides the effective date. 99 On appeal, the Commission defends its choice of August 19 (the date of Opinion No. 265-A denying rehearing). Various petitioners reject this date, but suggest two different substitutes--February 20 (the date of Opinion No. 265) or December 31 (the date FERC accepted Panhandle's compliance filing). The latter claim, raised by Quantum Chemical Corporation, challenges the Commission's very authority to impose an August effective date--not merely its contractual interpretation--and must therefore be considered first. 100
101 Section 5(a) of the NGA provides that whenever, after a hearing, the Commission finds that a rate is unjust and unreasonable, it shall fix ... by order the rate determined to be just and reasonable. 15 U.S.C. Sec. 717d(a). Construing a Federal Power Act section that contained language virtually identical to that in section 5(a), we held in Electrical District, 774 F.2d at 492-95, that FERC fixes a new rate on the date it approves a gas company's compliance filing that specifies its exact rates--not on the date of an earlier Commission opinion describing the legal and accounting principles to be used in calculating the new rates. 102 Quantum maintains that FERC imposed prospective changes in Panhandle's rate structure after a section 5 ratemaking proceeding (rather than simply approving the pipeline's proposed rates), and thus Electrical District dictates an effective date of December 31, when the Commission accepted Panhandle's new rates filed in compliance with FERC's decision. In Quantum's view, the Commission lacked the statutory authority to prescribe an earlier date. 103 FERC distinguishes Electrical District on the ground that the parties in that case had not executed a settlement agreement that would determine when the agency's orders would take effect. According to the Commission, such an agreement, not Electrical District, controls the effective date issue, as held in Public Service Co. v. FERC, 851 F.2d 1548, 1556-57 (5th Cir.1988). See Opinion No. 265-A, 40 F.E.R.C. at 61,599. 104 Quantum responds that Public Service does not apply for two reasons. First, it contrasts the contract in Public Service--which referred specifically to the date of a FERC order requiring changes in ratemaking methods and principles (i.e., the initial decision), see 851 F.2d at 1556-57--with the Agreement here, which focuses on the Commission order disposing of [the] issues (i.e., the date FERC fixed Panhandle's rates by accepting the compliance filing per section 5). This argument, however, rests on the unfounded assumption that the parties intended the disposing of language to refer to a Commission order approving a compliance filing. 105 Second, Quantum asserts that a settlement document must clearly express the parties' intent to waive their section 5 rights by establishing an exact effective date for ratemaking changes. As the Agreement does not identify which Commission order disposing of [the reserved] issues will provide the effective date, Quantum concludes that the date of FERC's order accepting Panhandle's compliance filing must be used. 106 Quantum, however, provides inadequate support for its theory. The Agreement addressed the effective date precisely because the parties wished to avoid the necessity of an independent Commission decision on this issue, which would have been unpredictable given certain legal uncertainties that existed in the early 1980's. In particular, Panhandle sought assurance that any rate changes resulting from a FERC order would be prospective rather than retroactive, as would ordinarily be the case if the agency found a rate unreasonable. The Commission approved this settlement. Under these circumstances, a reviewing court's role is to determine whether FERC's choice of an August 19 effective date rests on a reasonable construction of the contract, not to discard the Agreement altogether by imposing a December 31 date. 107
108 Article II, Part 4 of the Agreement provides that any changes in Panhandle's rates resulting from a Commission decision on the four reserved issues (including minimum bills) may be made effective only prospectively from and after a Commission order disposing of these issues. FERC reiterates its position that this language may reasonably be construed as referring to a final decision disposing of such questions on the merits (i.e., the August 19 order on rehearing). Cf. Public Service, 851 F.2d at 1557 (FERC reasonably concluded that parties intended effective date of Commission order to refer to final disposition of issues settled on rehearing, absent clear language to contrary) (citing with approval Panhandle Eastern Pipe Line Co., 41 F.E.R.C. p 61,018 (1987)). 109 MichCon assails FERC for focusing exclusively on the general statement in Part 4 while ignoring the specific provisions of Part 1, which describe the implementation of rate changes resulting from a Commission order concerning Panhandle's cost classification, cost allocation and rate design. Paragraphs C through E explain the different consequences that would flow depending on whether FERC's order concerning these reserved issues became effective before or within one year of the date Panhandle filed a rate that superseded the rate contained in the Agreement, or whether such order was issued over a year thereafter. 110 As Panhandle filed superseding rates in August 1985, more than one year before the issuance of FERC's 1987 order on the reserved matters, Paragraph E applies: 111 Within 45 days following issuance of such Commission order, any party may move for consideration of whether or not the tariff sheets ... should be revised prospectively as necessary ... and the Commission shall consider such motion. 112 Pursuant to Paragraph E, three days after Opinion No. 265 was published East Ohio moved to revise Panhandle's tariff by eliminating the minimum bill provisions. FERC resolved this petition, as well as MichCon's request for clarification filed March 23, through the issuance, on August 19, 1987, of Opinion No. 265-A. 113 On appeal, these two companies reiterate their argument that, under the terms of the Agreement, once the Commission published its decision concerning the reserved issues, it took effect immediately, and not at the time the Commission chose to issue an order on rehearing. 114 We find that Paragraph E does not require FERC's orders to be effective upon issuance; but rather, it directs the agency to consider motions to revise tariff sheets--a task the Commission discharged within a reasonable time period. Indeed, Part 1 (which contains p E) was designed not to establish an effective date, but to focus on the different scenarios that would result from the timing of FERC's issuance of an order on the reserved issues, whatever its effective date. 115 Thus, the contract's overall structure indicates that the Commission correctly concentrated on Part 4, which was intended to set the effective date. This conclusion is reinforced by contrasting the language of Part 1, describing a FERC order concerning  the cost and rate design issues (which could refer to any agency order on the merits) with Part 4's reference to an order disposing of  the issues (which suggests finality). Even if we assume that the parties employed the words concerning and disposing interchangeably, as some petitioners assert, the agency could place emphasis on either term. As the controlling Part 4 uses disposing, the Commission reasonably focused on this term and construed it sensibly. 116 Petitioners' second textual argument is that if the parties had intended to make decisions effective upon the date of a rehearing order, they would have done so explicitly, as they did elsewhere in the Agreement. See, e.g., Article VI, p 2 (the Commission order ... no longer subject to rehearing); Article XI, p 1 (same). Although the cited provisions indicate the parties' awareness of rehearing orders, these phrases refer to an anticipated FERC order approving the Agreement itself, not to the effective date of rate changes resulting from the Commission's decision on the reserved issues. 117
118 The foregoing analysis indicates that FERC's determination concerning the effective date for elimination of the minimum bill provisions must be upheld. Opinion No. 265 did not identify this date. In Opinion No. 265-A, however, the Commission made clear that this elimination would take effect upon the date this order on rehearing issues (i.e., August 19). 40 F.E.R.C. at 61,601. In its November 4 order, FERC reaffirmed its ruling in Opinion No. 265-A, id. at 61,599, that an order disposing of [the] issues meant an order on rehearing because effectiveness and imposition of a remedy before final disposition would be interlocutory and would not 'dispose of' the issues. 41 F.E.R.C. at 61,309. 119 MichCon and East Ohio challenge this conclusion based on their textual analysis of the contract (discussed above at 38-39, 43-44), and reiterate the arguments they advanced below. For example, these companies assert that 18 C.F.R. Sec. 385.2007(c)(1) made the Commission's order in Opinion No. 265 final and fully effective on the date of issuance (i.e., February 20) because FERC did not direct otherwise; thus, it was not interlocutory pending rehearing. They further contend that filing requests for rehearing did not stay the order under the NGA, 15 U.S.C. Sec. 717r(c). They also emphasize that as minimum bills are anticompetitive, unjust, and unreasonable, the Commission should eliminate them at the earliest possible time to avoid saddling customers with demonstrably unfair costs. 120 While MichCon and East Ohio's last point has some force as a policy matter, the Agreement alone determines the effective date of FERC's orders. Although these companies have raised plausible arguments in favor of a February effective date, they have failed to show that the Commission's interpretation of the contract was unreasonable and unsupported, and we must defer to the agency's construction. Tarpon, 860 F.2d at 441-42. As FERC's opinions adequately addressed these petitioners' other contentions based on alleged violations of statutory and regulatory provisions, we affirm its decision on the effective date issue.