Opinion ID: 511559
Heading Depth: 1
Heading Rank: 2

Heading: propriety of plant addition interest charges

Text: 5 Petitioner contends that FERC erred in granting summary judgment in favor of the municipal agencies and in rejecting the proffer of extrinsic evidence. We are not convinced. 6
7 Generally speaking, we have accorded deference to agency expertise in contract interpretation cases where the agency's interpretation has a reasonable basis in the contract terms, the [relevant] Act's policies and the Board's expertise.... NLRB v. C.K. Smith & Co., 569 F.2d 162, 167 (1st Cir.1977), cert. denied, 436 U.S. 957, 98 S.Ct. 3070, 57 L.Ed.2d 1122 (1978). Nevertheless, the traditional rule has been that agency decisions based on pure questions of law may be reviewed de novo. See Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263, 268-70, 80 S.Ct. 1122, 1125-27, 4 L.Ed.2d 1208 (1960) (meaning of contract subject to de novo review where Commission professed to dispose of the case solely upon its view of the result called for by the application of canons of contract construction employed by the courts, and did not in any wise rely on matters within its special competence). Some circuits read Texas Gas expansively. See, e.g., Mid Louisiana Gas Co. v. FERC, 780 F.2d 1238, 1243 (5th Cir.1986) (when agency's reading relies solely on the language of the ... agreement itself, rather than on any technical or factual expertise, no deference accorded). Others take a more isthmian view. See, e.g., Columbia Gas Transmission Corp. v. FPC, 530 F.2d 1056, 1059 (D.C.Cir.1976) (there is room, in review of administrative agencies, for some deference to their views even on matters of law like the meaning of contracts ... where the understanding of the documents involved is enhanced by technical knowledge of industry conditions and practices); see also National Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1570 (D.C.Cir.) (suggesting that, as a matter of routine, reviewing courts should defer to plausible agency interpretations of contracts within regulated industry), cert. denied, --- U.S. ----, 108 S.Ct. 200, 98 L.Ed.2d 151 (1987). This circuit has yet to carve its niche along this continuum. 8 In the present case, BECO suggests that we are bound to follow Texas Gas literally, while FERC urges that we ought not do so. FERC's exhortation strikes a responsive chord, as there is obvious merit in the proposition that agencies always--or almost always--exercise some measure of expertise when interpreting contracts germane to their administrative fields. Then, too, the Supreme Court's recent repudiation of the idea that courts need not exhibit any deference to an agency on pure questions of statutory law, see Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984), may well adumbrate a similar result as to pure questions of contract interpretation. Be that as it may, we leave definitive resolution of our place on the continuum for another day. Here, all roads lead to Rome. When we scrutinize these agreements in light of the relevant principles of contract law, without ceding special deference to the agency's interpretation, our reading of them vis-a-vis the PAI point comports exactly with FERC's. For that reason, we need not decide today how much, if any, deference should be accorded to an agency's resolution of a pure question of contract law under less certain circumstances. 9
10 The Contract, which purports to constitute the entire understanding between the parties superseding any and all previous understandings, Contract p D-5.6, provides that each intervenor will pay a fixed percentage of the sum of all of the costs incurred by [BECO] by virtue of: (1) the construction of, or any modifications or additions to the Unit ... and (2) the operation and maintenance of the Unit.... Id. at p C-1.0, reprinted in AppC at 1. The contractual payment equation, see id. at p C-2.0, reprinted in AppC at 1-2, includes both capacity charges and monthly energy charges. The former are defined as comprising the sum of demand charges plus investment expenses. Id. at p C-6.1, reprinted in AppC at 6. The latter, which are subject to a mathematically precise formula, see id. at p C-7.0, reprinted in AppC at 10, are not in issue in this proceeding. 11 The terms demand charges and investment expenses are themselves further defined. It is clear that petitioner cannot recover the PAI as an investment expense. This is so because, as Appendix C explains, the Contract caps total interest costs, and also specifically limits the construction interest expense which can be recaptured by BECO as an investment expense. The cap is fashioned by Factor BI, see AppC at 9, which restricts BECO's interest costs to the weighted average of interest rates of all bond issues existing at the time of commercial operation of the Unit, revised as required to reflect refinancings of debt issues existing at the time of the commercial operation date. Id. The application of Factor BI leaves no doubt but that the financing formula is too inelastic to encompass petitioner's actual plant addition interest expense. The parties agree, for the purposes at hand, that the interest cost of debt existing at the commercial operation date of the unit, as subsequently refinanced, is 8.06%. 40 F.E.R.C. at p 61,013 n. 10. Conversely, [a]djustment of the interest cost to reflect issuances during construction of the plant additions results in a debt cost of 12.852%. Id. 12 Undaunted by the Factor BI barricade, petitioner resorted to the catch-all clause in the compendium of includable demand charges, see Contract p C-6.2.4, reprinted in AppC at 7, as a recoupment vehicle. Beginning in 1980, BECO billed the PAI costs which it incurred via the catch-all clause, reasoning that Factor BI applied only to the interest expense associated with the original construction of Pilgrim I and the refinancings of that indebtedness. BECO pointed to a general statement in the agreement to demonstrate that it was the parties' intent that the intervenors would pay the sum of all of the costs incurred by the utility. See Contract p C-1.0, reprinted in AppC at 1. Because of this paramount principle, and because Factor BI limited recovery of PAI qua investment expense, BECO argued that equity--and the central theme of the arrangement--demanded that it be permitted to recover the full PAI cost in some other manner, as through the catch-all clause. 13
14 FERC ruled that petitioner had no right to bill the intervenors for PAI. It stated that the debt portion of the cost of capital was specifically defined, and thus circumscribed, by Factor BI--a definition which did not permit recoupment of actual interest costs associated with plant additions. 40 F.E.R.C. at p 61,012. The Commission found that BECO's reading of the catch-all clause was overinclusive, holding that the only reasonable purpose of the ... provision is to provide a mechanism to recover costs that were not specifically defined under the agreement. Id. Because debt cost was specifically defined in the financing formula, FERC opined that petitioner's rights of recapture were limited thereby. Id. On this point, the July order concluded with a finding that BECO's calculation of interest expense [was] clearly inconsistent with the contractual provision. Id. 15 Petitioner moved for rehearing, and proffered inter alia the affidavit of a former officer, Benjamin Weiner, who had been privy to negotiation of the Contract in the 1972-74 time frame. By this means, BECO sought to introduce extrinsic evidence to illumine the parties' intent and the reach of the catch-all clause. FERC denied the motion, describing petitioner's approach as inconsistent with the integrated, unambiguous contracts between BECO and the [municipal agencies]. 40 F.E.R.C. at p 61,949. The Contract, FERC ruled, was plain and clear on its face. Id. Accordingly, there was no need to resort to extrinsic evidence or to hold an evidentiary hearing. 16
17 Petitioner alleges that the letter of the Contract unambiguously allows recovery of the PAI. Its first fallback position is that, if the language brooked any doubt, extrinsic evidence should have been received in order to illuminate the plain meaning of the Contract. Failing all else, petitioner avers that the Contract is at least ambiguous on this score--and, since a genuine issue of material fact existed as to intent, summary adjudication was improper. We see no need to treat separately with these initiatives or with BECO's related asseverations. Because the unadorned language of the Contract argues persuasively in respondent's favor, all three of petitioner's claims must be rejected. 18 By mutual consent, Massachusetts law governs state law questions of interpretation and performance. See Contract p D-5.2. In Massachusetts, it is well settled that construction of an unambiguous contract is a question of law. See, e.g., Sparks v. Microwave Assoc., Inc., 359 Mass. 597, 270 N.E.2d 909, 911 (1971); Thomas v. Christensen, 12 Mass.App.Ct. 169, 422 N.E.2d 472, 476 (1981); Edwin R. Sage Co. v. Foley, 12 Mass.App.Ct. 20, 421 N.E.2d 460, 464-65 (1981). So long as the words of an agreement are plain and free from ambiguity, they must be construed in their ordinary and usual sense. In the search for plain meaning, a court should consider every phrase and clause ... [in light of] all the other phraseology contained in the instrument, which must be considered as a workable and harmonious means for carrying out and effectuating the intent of the parties. J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 494 N.E.2d 374, 378 (1986). In short,  '[t]he interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances' of the transaction. Thomas, 422 N.E.2d at 476 (quoting Restatement (Second) of Contracts Sec. 212(1) and Comment b (1981)). It is only when the written agreement, as applied to the subject matter, is in some material respect uncertain or equivocal in meaning that all the circumstances of the parties leading to its execution may be shown for the purpose of elucidating, but not of contradicting or changing its terms. Robert Industries, Inc. v. Spence, 362 Mass. 751, 291 N.E.2d 407, 409 (1973). See also Cullinet Software, Inc. v. McCormack & Dodge Corp., 400 Mass. 775, 511 N.E.2d 1101, 1102 (1987); Antonellis v. Northgate Constr. Corp., 362 Mass. 847, 291 N.E.2d 626, 628 (1973); Keating v. Stadium Management Corp., 24 Mass.App.Ct. 246, 508 N.E.2d 121, 123-24 (1987). 19 In the first instance, it is for the court--or in this case, the agency--to determine if a written document is or is not ambiguous. RCI Northeast Services Division v. Boston Edison Co., 822 F.2d 199, 202 (1st Cir.1987) (construing Massachusetts law). As common sense suggests and Massachusetts law requires, we read the papers as an integrated whole. As to charges and payments, the Contract does not purport to operate exclusively on a cost-driven basis. Appendix C is the touchstone. To be sure, it functions in many respects as a cost-of-service tariff. Rather than specifying a rate, it elucidates a formula for calculating a rate. The formula uses cost variables, or categories of costs, to measure most components. See, e.g., Contract p C-6.2.1, reprinted in AppC at 6 (discussing operating and maintenance costs). As the utility's costs in each of these categories fluctuate, its charges varyproportionately, without the need for a rate change filing. 20 The Contract, however, does not comprise a full cost-of-service tariff; it has a fixed-rate component which, as FERC correctly concluded, is reflected in Paragraph C-6.3.2. In essence, this provision expressly delineates the several components of return on capital and establishes a stable rate of return on capital--a paradigm which contrasts notably with other aspects of the formula. For our purposes, the significance of this taxonomy is readily evident. The payment equation, see Contract p C-2.0, reprinted in AppC at 1-2, is the master plan for figuring the municipal agencies' monthly bills. Factor BI, an integral part of the financing formula, defines the interest portion of the debt cost recoverable by the utility. See id. at p C-6.3.2, reprinted in AppC at 8-9. Through explicit contractual definition, plant additions are considered as part of BECO's gross investment. See id. at p C-4.1.2, reprinted in AppC at 4. The financing formula then requires gross investment to be narrowed to net investment, but the calculation, if performed in pursuance of the Contract's admonitions, id. at paragraphs C-5.0--C-5.1.2, reprinted in AppC at 5-6, leaves plant additions fully included within the net investment rubric. Total financing expenses referable to net investment--and we think the use of the quoted word to be of some salience--are then to be computed by application of the [financing] formula.... Id. at p C-6.3.2, reprinted in AppC at 8. Yet that computation does not permit recovery of petitioner's actual PAI expense. The limitation built into Factor BI, restricting recovery of interest to interest on original plant construction and any refinancing thereof, convinces us, as it did the FERC, that BECO cannot recover plant addition interest costs under the Contract. 21 Petitioner's reliance on the catch-all clause for a contrary result is, we think, mislaid. That clause, Contract p C-6.2.4, reprinted in AppC at 7, comprises a mechanism for calculation of demand charges. 2 Structurally, the Contract leaves no reasonable doubt but that the catch-all clause is strictly limited to demand charges and does not extend to investment expenses. There is absolutely nothing to suggest that capital costs, like interest on new construction, whether or not residuous, can be included within the computation of demand charges; and the Contract's recital of provisions specifically geared to the recoupment of investment expenses, see supra, militates forcefully against such an open-ended reading of the payment equation. The structure of a contract, like the wording, sets out its meaning. See, e.g., United States Fire Ins. Co. v. Producciones Padosa, Inc., 835 F.2d 950, 954-55 (1st Cir.1987). In this case, structure and language coincide. Both tell us, in no uncertain terms, that BECO had no license to charge PAI to the intervenors. In our view, Paragraph C-6.2.4 was not a proper conduit for such costs. 22 Nor does it profit petitioner to point to Contract p C-1.0, reprinted in AppC at 1. Reading the Contract, as FERC did, to bar recapture of PAI in no way thwarts the parties' manifested wishes. Paragraph C-1.0 is merely a general statement of intention. It is true that the parties clearly meant that BECO recover all costs as defined in the Contract. There is nothing in the language of the introductory paragraph, however, which exhibits any collective desire to contravene the plain wording of the payment equation and the financing formula, or to treat PAI differently than other items of investment expense. As we parse the document, its structure and precise phraseology must logically prevail over the more general statement of intention. See Spartans Indus., Inc. v. John Pilling Shoe Co., 385 F.2d 495, 499 (1st Cir.1967) (a construction which comports with the Agreement as a whole is to be preferred even if it be thought that certain language, viewed only by itself, more readily suggests something else); Erhard v. F.W. Woolworth Co., 374 Mass. 352, 372 N.E.2d 1277, 1279 (1978) ([w]hen a provision with a well established meaning is contained in a contract, that clause, rather than any supposed intentions of the parties gleaned from analysis of other provisions, determines the[ir] obligations); cf. Dickson v. Riverside Iron Works, Inc., 6 Mass.App.Ct. 53, 372 N.E.2d 1302, 1304 (1978) (recognizing doctrine of ejusdem generis). 23 The argument that the Commission erred by not adverting specifically to Massachusetts caselaw is equally unavailing. In relying upon Lucie v. Kleen-Leen, Inc., 499 F.2d 220, 221 (7th Cir.1974) (per curiam), the Commission seems to have applied an equivalent standard. Lucie stands for the proposition that extrinsic evidence is inadmissible, under the parol evidence rule, when it is introduced to add to, detract from, or vary the terms of a written contract. Id. The Massachusetts courts hold the same. See, e.g., Robert Industries, 291 N.E.2d at 409; Computer Systems v. Western Reserve Life Assur. Co., 19 Mass.App.Ct. 430, 475 N.E.2d 745, 749 n. 5 (1985); Thomas, 422 N.E.2d at 477; Sage Co., 421 N.E.2d at 464-65. 3 24 We sum up briefly. To permit the introduction of evidence dehors the Contract, there would have to be more than one plausible definition of the disputed language. RCI Northeast, 822 F.2d at 202; Edmonds v. United States, 642 F.2d 877, 881 (1st Cir.1981) (applying Massachusetts law). In the instant case, that threshold has not been crossed. FERC's reading of the document, we think, is a harmonious interpretation derived from within the four corners of the Contract itself. It comports with the parties' discernible intentions as mirrored by the text. It brooks no ambiguity when applied to the subject under discussion. In short, it is the only plausible definition of Appendix C as written. 25 In these well-lit circumstances, we believe that FERC acted correctly in granting summary relief. Though the parties, as an original proposition, could have provided for reimbursement of PAI expenses, they did not. The language they opted to employ was not susceptible to that end. Reviewing a Contract carefully crafted between sophisticated business entities, the Commission had no choice but to give effect to its plain meaning. See Paterson-Leitch Co. v. Massachusetts Municipal Wholesale Electric Co., 840 F.2d 985, 991 (1st Cir.1988) (when the wording of a contract is unambiguous, the terms will be enforced); Edmonds, 642 F.2d at 881 (similar); Washington Metropolitan Area Transit Authority v. Mergentime Corp. 626 F.2d 959, 961 (D.C.Cir.1980) (court must, in the first instance, determine[ ] the intention of the parties from the language used by the parties to express their agreement). It follows inexorably, therefore, that FERC's rulings (1) finding that the plain and unambiguous language of the Contract foreclosed recovery of PAI, and (2) excluding extrinsic evidence on the point were, as a matter of law, unimpugnable. 4