Opinion ID: 511559
Heading Depth: 2
Heading Rank: 4

Heading: Propriety of Remedial Order.

Text: 50 Petitioner objects on several grounds to FERC's action in refusing to honor the claims limitation clause. It argues that the Commission impermissibly altered the contractual relationship between the parties, that the limitation was part of the filed rate and therefore insulated from retroactive change, that the clause was protected by the Mobile-Sierra doctrine, and that, in any event, the limitation should be enforced as a matter of state law. Predictably, FERC and the intervenors demur. 11 They contend that FERC possesses broad statutory authority to correct rate-related infractions and to order refunds of illegally-collected revenues. They prefer to characterize FERC's remedial order as an affirmation of the filed rate rather than as an evasion of it. They claim that Mobile-Sierra does not apply because petitioner's interpretation of it would adversely affect the public's stake in just and reasonable ratemaking. Lastly, they disparage the attempt to embroil state law in determining what remedial powers have been ceded by federal statutes to a federal agency. 51 Before plunging into this maelstrom of conflicting contentions, we note that the remedial order, technically, did not strike Paragraph C-8.3. Nevertheless, the burden of FERC's decision was effectively to override that clause. We, therefore, elevate substance over form, and tackle head-on the question of whether FERC's initial acceptance of the contract for filing placed Paragraph C-8.3 within the sheltered lee of the filed rate and Mobile-Sierra doctrines. Our reading of the Federal Power Act, the applicable regulations, and the caselaw leads us to conclude that it did. We elaborate. 52 First, despite the intervenors' imprecation to the contrary, it is plain that Paragraph C-8.3 is part and parcel of the rate schedule for purposes of the filed rate doctrine. See 18 C.F.R. Sec. 35.2(b) (defining rate schedule); see also 16 U.S.C. Sec. 824d(c) (rate schedules must be filed with all contracts which in any manner affect or relate to them). We believe that where, as here, a contract term provides that an overcharge--that is, a charge in excess of a just and reasonable rate--is actionable only within a specific period of time, that term clearly affect[s] or relate[s] to the rate, 16 U.S.C. Sec. 824d(c); 18 C.F.R. Sec. 35.2(b), so that the contract term is to be treated as an integral part of the rate schedule and the filed rate. 53 Once we accept the premise that the claims limitation clause is a part of the filed rate, FERC's reasoning is undone. The framework of the Act simply defin[es] and implement[s] the powers of the Commission to review rates set initially by ... companies. Mobile, 350 U.S. at 343, 76 S.Ct. at 380. The parties set such rates by filing rate schedules. See 16 U.S.C. Sec. 824d(c); 18 C.F.R. Sec. 35.1(a). Thereafter, the rate cannot be altered unless the utility requests a modification, 16 U.S.C. Sec. 824d(d), or FERC sets a new rate after finding that the one on file is unjust or unreasonable. 16 U.S.C. Sec. 824e(a). As a sister circuit aptly stated: So long as the filed rate is not changed in the manner provided by the Act it is to be treated as though it were a statute, binding upon the seller and the purchaser alike. Northwestern Public Serv. Co. v. Montana-Dakota Utilities Co., 181 F.2d 19, 22 (8th Cir.1950), aff'd, 341 U.S. 246, 71 S.Ct. 692, 95 L.Ed. 912 (1951). 54 Viewing Paragraph C-8.3 in this way dovetails nicely with the Mobile-Sierra doctrine as well. The claims limitation clause seems, by any reckoning, an integral part of the bargain struck by the contracting parties. More to the point, it represents precisely the sort of contractual commitment which is completely consistent with the filed rate and thus protected under Mobile-Sierra. The linchpin of Mobile is the idea that the law, by maintaining the integrity of contracts, permits the stability of supply arrangements which all agree is essential to the health of the ... industry. 350 U.S. at 344, 76 S.Ct. at 380. A reasonable claims limitation clause--and no one asserts that Paragraph C-8.3 is unconscionable, overweening, or otherwise unreasonable--clearly enhances economic equilibrium by bringing certainty to the parties' dealings after the passage of an adequate period of time. Just as statutes of limitations and of repose help to keep the litigious world outside the ratemaking environment on an even keel, a balanced incontestability provision promotes stability within that environment. Both the utility and its wholesale customer know where they stand. The former need not worry about refund liability after the limitation period has expired; the latter is on fair notice that it must examine submitted charges in an expeditious fashion or forever hold its peace. From the regulatory perspective, preserving the ability of the supplier to count its chickens once customer claims have been afforded a realistic chance to hatch seems to us to serve the public interest. 55 We remark, too, that such a rule brings a certain symmetry to the ratemaking process. Sierra held that, under the Act, a utility may agree to an unprofitable deal, and if it does, it is [not] entitled to be relieved of its improvident bargain. 350 U.S. at 355, 76 S.Ct. at 372. See also FPC v. Tennessee Gas Transmission Co., 371 U.S. 145, 153, 83 S.Ct. 211, 215-16, 9 L.Ed.2d 199 (1962) (company must shoulder the hazards of setting its initial rate). The flip side of this proposition--that purchasers can make bargains which in hindsight prove improvident--seems logically inferable. It appears consistent with Sierra, therefore, to permit parties to insert a reasonable claims limitation clause into a rate contract, even though the utility may profit to an undeserved extent if the buyer fails seasonably to protest an overcharge. In our view, the policies enunciated by Congress are in no way demeaned by requiring primary energy distributors and their wholesale customers alike to exercise reasonable self-interested vigilance and to act promptly to protect their respective positions. 12 56 FERC is, of course, empowered to order a contract term amended prospectively if that term is found to produce unjust or unreasonable results, e.g., Piqua, 610 F.2d at 954, or to use its rulemaking power to effect prospective changes. E.g., East Tennessee Natural Gas Co., 631 F.2d at 798-800. FERC also may apply its reasoned analysis of an issue to guide its disposition of individual cases ... [a]nd ... may articulate its general policy in a particular proceeding ... rather than in a rulemaking. Kansas Gas & Electric Co. v. FERC, 758 F.2d 713, 719 (D.C.Cir.1985) (citations omitted). Accord Cities of Anaheim, Riverside, Etc. v. FERC, 723 F.2d 656, 659 (9th Cir.1984). Yet it remains crystal clear that, in exercising such powers, agencies may not impose undue hardship by suddenly changing direction, to the detriment of those who have relied on past policy. Id. Prior to the present proceeding, FERC had never hinted that reasonable claims limitations clauses would not be enforced--or even that they would be looked at askance. At the bottom line, therefore, petitioner was entitled to rely upon the enforceability of Paragraph C-8.3 as part of its filed rate contract. Although the Commission had the power to annul the operation of the claims limitation clause in futuro, it would be demonstrably unfair to subject BECO, after the fact, to a sudden, unforeseeable shift in the prevailing regulatory winds. The refund order for the 1980-82 period accomplished exactly that impermissible result. 57 It is not without significance that neither FERC nor the intervenors can point to any precedent squarely permitting the Commission retroactively to override a reasonable claims limitation clause. Their flagship case, Kansas Gas and Electric Co., 27 F.E.R.C. p 61,335 at 61,647 (June 1, 1984), reh'g denied in relevant part, 28 F.E.R.C. p 61,112 at 61,195 (July 25, 1984) (KGE), steams well wide of the mark. There, the parties had agreed to be bound by the results of arbitration--but once the revised rate was determined (whether by arbitration or by negotiation), it had to be filed with the Commission as a changed rate. It was, therefore, subject to plenary review as a voluntary rate-change filing. 28 F.E.R.C. at 61,195. Unlike the open-ended rate-change mechanism in KGE, the exact operation and net result of the claims limitation clause in this case were clear from the start. Moreover, in KGE, FERC had a duty to independently determine that the new rate filing--though the product of arbitration--complied with the Federal Power Act. Id. Thus, the arbitration award--which countervailed the statutory just and reasonable standard--lay directly athwart the Commission's duty. In the instant case, however, the only independent statutory duty left open to FERC--considering whether the initial rate, including Paragraph C-8.3, was unjust or unreasonable, and if so, altering it prospectively--in no way ran at cross purposes with enforcement of the claims limitation clause. Lastly, there was no element of detrimental reliance in KGE; the arbitral award had never been put into effect. That, of course, is at a far remove from this case, where all parties functioned for many years under Paragraph C-8.3, took its sanctity for granted, and assumed that the books were closed on their accounts after the incontestability period had elapsed. 13 58 In our judgment, enforcement of the clause will not undermine FERC's power to enforce filed rates and deter overcharges. FERC remains free to declare contractual claims limitations unjust or unreasonable in the future. But that is a policy choice; there is, in the nature of things, nothing inherently unconscionable about such clauses. To the extent that they encourage customers to police filed rates, they assist the Commission. Concerns which are diligent in this task can be expected to challenge billings in a timely manner and secure full redress. Nor does it seem inequitable to hold less vigilant purchasers to forfeit. Finally, to the extent that clauses such as this offer some prospect of repose to primary suppliers, they likely serve to lessen the need for speculative reserves and, in the end, to hold down costs. Certainly, they tend to promote economic stability. 59 In this instance, the next step follows easily. FERC's independent duty to enforce filed rates was, we think, enhanced, not contravened, by the claims limitation clause. The physiology of the clause--its purpose, operation, and effect as part of the rate schedule--was demonstrably clear upon filing. Inasmuch as FERC had already accepted the rate and the Contract for filing, the clause in no way involved a usurpation of the Commission's jurisdiction or an abridgement of its independent statutory responsibility. If, upon complaint or its own initiative, FERC were to determine the clause to be unreasonable or unjust--a determination it has yet to make--it might then exercise its independent statutory authority to alter the contract prospectively. But for the Commission to undo the clause after the fact, under the guise of enforcement, was to indulge in retroactive ratemaking of a rather rank variety. Because the claim that FERC was merely ordering the rebate of illegally-collected revenues ignores the incontrovertible fact that the claims limitation clause was part of the filed rate, it can be dismissed as little more than ingenious wordplay. The scope of regulatory authority does not turn on such quiddities. 60 Placed into proper perspective, then, treating the claims limitation clause as binding on FERC does not in any way undercut the purposes of the Act, as expressed in the Mobile-Sierra doctrine. To the contrary, such a ruling preserves the integrity of the Contract, strengthens the established ban against reparations in the initial rate milieu, and abets the public interest. Most importantly, it treats the Commission's remedial powers as finite, and gives proper weight to the solemnity of the parties' voluntary agreements, consistent with the limitative intent of Congress and the teachings of the Court.