Opinion ID: 194766
Heading Depth: 4
Heading Rank: 2

Heading: Exceptions to categorical

Text: exclusions. (1) In accordance with 40 CFR 1508.4, the Commission and its staff will independently evaluate environmental information supplied in an application and in comments by the public. Where circumstances indicate that an action may be a major Federal action significantly affecting the quality of the human environment, the Commission:
or other additional environmental information, and -55-
assessment or an environmental impact statement. (2) Such circumstances may exist when the action may have an effect on one of the following: (i) Indian lands; (ii) Wilderness areas;

National Refuges, or National Fish Hatcheries;
species; or
are uncertain. However, the existence of one or more of the above will not automatically require the submission of an environmental report or the preparation of an environmental assessment or an environmental impact statement. 18 C.F.R. 380.4(b).20 HG&E argues that the NU-PSNH merger might alter mixes of generation in New England by constraining the locations for new plants. HG&E points to the language of 18 C.F.R. 380.4(b)(1)(ii) in support of its position that FERC was compelled, at the least, to explain why it was not obliged to perform the analysis of environmental effects required by NEPA. HG&E also cites FERC's decision in Southern California Edison Co., 49 F.E.R.C. 61,091 (1989) (holding that 380.4(b) was triggered when approved merger would result in the dumping of 20 HG&E does not challenge the validity of any of the applicable regulations cited above. -56- hundreds of tons of additional air contaminants into the most polluted air in the United States). There was no evidence in the record of identifiable environmental harms that would likely result from the NU-PSNH merger. The fact that new generating facilities might wind up in different locations than would have been the case in the absence of the merger does not approach in significance, because its significance is not quantifiable, the known effects of the merger between Southern California Edison Company and San Diego Gas & Electric Company. Thus, the factual situation presented in Southern California Edison is completely distinguishable from that of this case. The character and location of the future environmental effects of the NU-PSNH merger are so uncertain that no meaningful environmental review would have been possible, even had FERC made the effort. Here, FERC was not approving a regional development plan. It was merely approving a merger between utility companies, albeit a merger involving two of the largest utilities in New England. Energy demand may increase in New England over the following decades, and the fact of the merger may influence how those needs are met. Nevertheless, any attempt by FERC to prepare an EIS would have involved little more than spinning out multiple hypothetical development forecasts, with multiple options for the type, amount and location of future -57- generating facilities. See Kleppe v. Sierra Club, 427 U.S. 390, 401-2 (1976). Once concrete plans have been established for the construction of transmission or generating facilities, those proposals will be reviewed under NEPA or the applicable state environmental review procedures. FERC was justified in deciding that neither an environmental assessment nor an environmental impact statement was required prior to approving the NU-PSNH merger. G. HG&E's Unique Harm. HG&E also contends that because it relied on PSNH New Hampshire Corridor facilities for over one-third of its electricity supply, it would be uniquely threatened by NU in head-to-head competition for large, industrial loads. To protect itself, HG&E requested that FERC either: (1) disapprove the merger; (2) require the divestiture or restructuring of NU's retail business in Holyoke (HWP); or (3) grant HG&E grandfather rights to PSNH New Hampshire Corridor transmission. The ALJ rejected the drastic remedy of divestiture of HWP, stating that it was wholly uncalledfor by anything in this record, and holding that HG&E would be adequately protected by the conditions to the merger designed to address the anticompetitive effects on transmission dependent utilities (TDUs). 53 F.E.R.C. at 65,232. As the ALJ described, -58- [t]he Transmission Dependent Utilities (TDUs) are entirely dependent on NU or PSNH for their bulk power transmission needs. These companies (most of which involve municipal ownership) are not big enough to own or construct sufficient generation to meet their loads. As their brief states, they are physically unable to engage in any bulk power transaction without using the NU or PSNH transmission systems. Absent economic access to NU's or PSNH's transmission facilities, the TDU cannot survive as an independent entity. The TDUs compete with NU and PSNH in the wholesale bulk power market; each TDU, like NU/PSNH, seeks out attractive sources of supply. TDUs thus are in the uneasy position of having their only source of essential transmission service in the hands of their principal competitor. These small companies, uniquely vulnerable to possible anticompetitive conduct, are entitled to some measure of protective assurance regarding NU/PSNH's post merger conduct. 53 F.E.R.C. at 65,232-33. The ALJ held that [a]ll rates, terms and conditions of NU/PSNH transmission service to the TDUs in effect on this date shall . . . be maintained after the merger, unless and until changes are either agreed upon by the merged company and the TDUs, or authorized by the Commission. 53 F.E.R.C. at 65,233. In short, while finding that TDUs were uniquely vulnerable to anticompetitive conduct by NU-PSNH, the ALJ found that HG&E had not shown that it was entitled to protections beyond those given to TDUs generally. The Commission agreed, 56 F.E.R.C. at 62,049, but bolstered the protection for TDUs ordered by the -59- ALJ by imposing the additional condition that NU establish a special tariff for TDUs. Id. at 62,050. HG&E points to no evidence in the record to indicate that it faced anticompetitive consequences of the merger sufficiently different in character or magnitude to warrant greater protections than those given to other TDUs. We therefore affirm the Commission's actions to protect TDUs, which were adequately explained and supported in the record. H. Modifications to the Filed Rate Schedules. The Commission analyzed the Seabrook Power Contract and Capacity Interchange Agreements filed by NUSCO under the just and reasonable standard of 206 of the FPA,21 and ordered the following modifications to the rate schedules: (1) deletion of the automatically adjusting rate of return on equity provision in the Seabrook Power Contract; (2) reduction of the rate of return on equity in the Seabrook Power Contract from 13.75 percent to 12.53 percent;22 (3) 21 Section 206(a) of the FPA, 16 U.S.C. 824(e)(a) provides: Whenever the Commission, after hearing had upon its own motion or upon complaint, shall find that any rate . . . collected by any public utility . . . is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate . . . to be thereafter observed and in force, and shall fix the same by order. 22 NUSCO did not appeal this modification. -60- North Atlantic's decommissioning expenses under the Seabrook Power Contract and any subsequent changes thereto were made subject to review by the Commission; (4) reduction in the rate of return on equity specified in the two Capacity Interchange Agreements from 14.50 percent to 13.17 percent for the period from July 27, 1990 through August 8, 1991, and thereafter to 12.93 percent; and (5) the Seabrook Power Contract could be modified by the Commission in the future under the just and reasonable standard of 206 of the FPA, rather than the public interest standard agreed to by the parties. 56 F.E.R.C. at 61,993; 58 F.E.R.C. at 61,185. Each of the three parties to the Seabrook Power Contract (SPC), NU, PSNH and the State of New Hampshire, waived its right to file a complaint under 206 regarding the rates contained in the agreement. Section 12 of the SPC also provided that: [E]ach [party] further agrees that in any proceeding by the FERC under Section 206 the FERC shall not change the rate charged under this Agreement unless such rate is found to be contrary to the public interest. NU argues that the Commission violated the Mobile-Sierra doctrine23 when it modified the SPC in disregard of the intent of the parties. 23 This doctrine is based on the companion cases of United Gas Pipe Line Co. v. Mobile Gas Service Co., 350 U.S. 332 (1956) and FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956). -61- Under the Mobile-Sierra doctrine, the Commission must respect certain private contract rights in the exercise of its regulatory powers. Parties to a contract may: (1) waive their rights to file a complaint challenging that contract, and (2) restrict the power of the Commission to impose rate changes under 206 to cases in which it finds the rates contrary to the public interest a more difficult standard for the Commission to meet than the statutory unjust and unreasonable standard of 206. See Papago Tribal Utility Authority v. FERC, 723 F.2d 950, 953 (D.C. Cir. 1983), cert. denied, 467 U.S. 1241 (1984). In Papago, the court held that, regardless of the parties' intent, the Commission retained, in any event, the indefeasible right . . . under 206 to replace rates that are contrary to the public interest, as where [the existing rate structure] might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory. Papago, 723 F.2d at 953, (quoting Sierra, 350 U.S. at 355). The court went on to note that unduly discriminatory in this context apparently means unduly discriminatory or preferential to the detriment of purchasers who are not parties to the contract. Papago, 723 F.2d at 953 n.4. In this case, seemingly for the first time, the Commission held that it also had the -62- authority under the public interest standard to modify a contract where: it may be unjust, unreasonable, unduly discriminatory or preferential to the detriment of purchasers that are not parties to the contract; it is not the result of arm's length bargaining; or it reflects circumstances where the seller has exercised market power over the purchaser. 50 F.E.R.C. at 61,839 (emphasis added). The ALJ interpreted that holding as follows: The Commission made clear that in the particular circumstances surrounding the Seabrook contract, it retains power through the public interest language to make modifications under the traditional just and reasonable and nondiscrimination standards. 53 F.E.R.C. at 65,235. The standard established by the Commission, and subsequently applied by the ALJ, conflates the just and reasonable and public interest standards, thereby circumventing the Mobile-Sierra doctrine. The distinction between the just and reasonable and public interest standards loses its meaning entirely if the Commission may modify a contract under the public interest standard where it finds the contract may be unjust [or] unreasonable. The parties' express intent was to avoid review of rate schedules under the just and reasonable standard. Mobile-Sierra protects their right to do so, leaving the Commission with the power to modify rates only when required by the public interest. -63- The Commission found that the SPC might unduly discriminate against entities not parties to the contract, and that there was no genuine arm's-length bargaining because NU and PSNH negotiated the agreement at a time when they knew they were about to merge and have identical interests. The Commission held that, in this context, it could carefully scrutinize the rates, terms and conditions of the contract to determine if they were just. Id. The Commission's explanation for employing a just and reasonable standard seems to us inadequate. To the extent the Commission is relying on NU's prospective ownership of PSNH, it is unclear why the Commission should be concerned about protecting PSNH from a perceived disadvantageous arrangement imposed by its prospective owner since any disadvantage visited on the prospective subsidiary will be borne by its owner. If NU chooses to allocate risks among its operating subsidiaries and one of its subsidiaries is disfavored in this calculation, there would seem to be little justification for the Commission stepping in on behalf of the disfavored subsidiary absent some threat to the public interest. As for the seller's market power, reliance on this factor threatens to erode the Mobile-Sierra doctrine so substantially that a fuller explanation from the Commission is required before proceeding down this route. After all, -64- some measure of market power could be present in a large number of contracts. A case-by-case inquiry into the presence and extent of market power would inject a new and potentially time-consuming element into the Mobile-Sierra analysis, and it is not entirely clear in any event why the Commission should protect a buyer who voluntarily enters into an agreement with a dominant seller. The most attractive case for affording additional protection, despite the presence of a contract, is where the protection is intended to safeguard the interests of third parties, notably the buyer's customers. The Mobile-Sierra doctrine itself allows for intervention by FERC where it is shown that the interests of third parties are threatened. Mobile, 350 U.S. at 344-45; Sierra, 350 U.S. at 355. However, the standard to be applied, as formulated by the Supreme Court, is the protection of outside parties from undu[e] discriminat[ion] or imposition of an excessive burden. Sierra, 350 U.S. at 355. If there is some reason for departing from this public interest standard as framed by the Supreme Court, the Commission has not supplied it. We assume, without deciding, that: (1) FERC is correct in its assertion that the State of New Hampshire did not adequately represent the interests of non-parties to the contract, and that, therefore, the SPC may have unduly discriminated against those non-parties; and (2) the alleged -65- lack of arms'-length bargaining among NU, PSNH and the State of New Hampshire gave the Commission the right to evaluate the SPC. We hold, however, that the Commission was bound to follow the Mobile-Sierra doctrine as explicated by Papago, and therefore should have evaluated the SPC under the public interest standard, not the just and reasonable standard. We therefore remand this issue for reconsideration by FERC under the public interest standard.24