Opinion ID: 184604
Heading Depth: 3
Heading Rank: 1

Heading: Applicability of the Mobile-Sierra Doctrine

Text: 15 At the outset, we must determine whether the Mobile-Sierra doctrine applies in this case. See FPC v. Sierra Pacific Power Co., 350 U.S. 348, 354-55, 76 S.Ct. 368, 100 L.Ed. 388 (1956); United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 344, 76 S.Ct. 373, 100 L.Ed. 373 (1956). That doctrine holds that where parties have negotiated a natural gas shipment contract that sets firm prices or dictates a specific method for computing shipping charges and that denies either party the right to change such prices or charges unilaterally, FERC may abrogate or modify the contract only if the public interest so requires. See City of Oglesby v. FERC, 610 F.2d 897, 899-900 (D.C.Cir.1979); Appalachian Power Co. v. FPC, 529 F.2d 342, 348 (D.C.Cir.1976); see also Pennzoil Co. v. FERC, 645 F.2d 360, 373 (5th Cir.1981) (noting that the NGA did not displace but only superimposed federal regulation on private contractual arrangements). 16 Section 4 of the Service Agreement establishes a formula for determining the applicable rates chargeable for transportation services; and, in subsection 4.8, Mojave agrees that it shall not exercise [its] rights under Section 4 of the [NGA, 15 U.S.C. § 717c], to change the rates to be paid by the Shipper. The Commission nevertheless found that Mojave's service agreements were not covered by the Mobile-Sierra doctrine for two reasons: first, [b]y expressly prohibiting only unilateral rate changes proposed under NGA section 4, the contracts ... implicitly recognize the Commission's ability to take the instant section 5 action. Compliance Order, 62 FERC at 62,365, (stating that section 5 of the NGA permits FERC to set aside rates that it finds unjust or unreasonable); second, the contracts specifically provide that Mojave and the Shippers must comply with all applicable Commission regulations in the performance of the contracts. Id. (citing section 12.6 of the Service Agreement). We address each of these positions in turn. 17 [331 U.S.App.D.C. 242] In dicta in a recent opinion, see Union Pacific Fuels, Inc. v. FERC, 129 F.3d 157 (D.C.Cir.1997), we inadvertently lent support to the inference that FERC now draws from the parties' failure to state explicitly, in their service agreements, that the Commission was precluded from ordering alterations of the rate design for reasons other than that such changes were required by the public interest. In that case, we stated: 18 A contract between private parties may preserve FERC's right to impose new rates by leav[ing] unaffected the power of the Commission ... to replace not only rates that are contrary to the public interest but also rates that are unjust [or] unreasonable. 19 Id. at 161 (quoting Papago Tribal Util. Auth. v. FERC, 723 F.2d 950, 953 (D.C.Cir.1983)) (emphasis added). That quotation from Papago is misleading, and it does not represent the law. In discussing alternative contractual approaches for the revision of rates, the Papago court said: 20 [T]he parties may contractually eliminate the utility's right to make immediately effective rate changes ... but leave unaffected the power of the Commission ... to replace not only rates that are contrary to the public interest but also rates that are unjust, unreasonable, or unduly discriminatory or preferential to the detriment of the contracting purchaser. 21 Papago, 723 F.2d at 953. The court did not suggest that the parties' failure to explicitly foreclose the Commission's authority to replace rates would leave it intact. 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. Appalachian Power Co., 529 F.2d at 348. 22 With respect to FERC's second argument, section 12.6 of the Service Agreement reads: 23 In performance of this Service Agreement, Shipper and Transporter shall comply with all applicable laws, statutes, ordinances, safety codes and rules and regulations of governmental authorities having jurisdiction. 24 Although we are bound to respect FERC's reasonable interpretation of contracts that fall within its jurisdiction, see Southeastern Michigan Gas Co. v. FERC, 133 F.3d 34, 44 (D.C.Cir.1998), the Commission's interpretation of this language is unreasonable. Section 12.6 is merely a generic contract clause compelling both parties to adhere to the law. See, e.g., Huntzinger v. Hastings Mutual Ins. Co., 143 F.3d 302, 304, (7th Cir.1998) (quoting nearly identical term in land purchase contract); Bradshaw v. United States, 83 F.3d 1175, 1184 n. 2 (10th Cir.1995) (quoting nearly identical term in liquidation agreement); Yellow Taxi Co. v. NLRB, 721 F.2d 366, 379 (D.C.Cir.1983) (quoting identical term in leasing agreement). 25 Indeed, the structure of the Mojave contracts confirms the banal nature of section 12.6 and its irrelevance to rate setting. All the contract's pricing terms are consolidated in section 4, while section 12 is limited to generic contract concerns (e.g., severability and waiver of rights). Because nothing in the agreements suggests that the contracting parties intended to grant Mojave unilateral authority to modify shipment rates, we turn to whether Mojave and the shippers agree[d] to a specific rate or whether they agree[d] to a rate changeable in a specific manner. Richmond Power & Light Co. v. FPC, 481 F.2d 490, 497 (D.C.Cir.1973). If they did either, the Mobile-Sierra doctrine applies. 26 The Mojave service agreements expressly enumerate the manner in which transportation fees will be computed and set a maximum charge. See Service Agreement §§ 4.1, 4.1.1. The parties therefore agree[d] to [both] a specific [maximum] rate [and] ... to a [general] rate changeable in a specific manner. Richmond Power & Light, 481 F.2d at 497. Thus the prerequisites for invoking the Mobile-Sierra doctrine have been met. 27