United States Court of Appeals For the First Circuit

No. 99-2155

TOWN OF NORWOOD, MASSACHUSETTS,

Petitioner,

v.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent. __________

NEW ENGLAND POWER COMPANY,

Intervenor.

ON PETITION FOR REVIEW OF AN ORDER OF

THE FEDERAL ENERGY REGULATORY COMMISSION

Before

Boudin, Stahl and Lipez,

Circuit Judges.

Charles F. Wheatley, Jr. with whom Wheatley & Ranquist, Kenneth M. Barna, Alan K. Posner and Rubin & Rudman were on brief for petitioner. Larry D. Gasteiger with whom Douglas W. Smith, General Counsel, and John H. Conway, Acting Solicitor, were on brief for respondent. Edward Berlin with whom Robert V. Zener, Swidler Berlin Shereff Friedman, LLP and John F. Sherman, III, Associate General Counsel, The New England Electric System Companies, were on brief for intervenor. June 29, 2000

BOUDIN, Circuit Judge. In this case, the Town of

Norwood, Massachusetts, seeks review of orders of the Federal

Energy Regulatory Commission ("FERC") denying Norwood's petition

for declaratory rulings. The case is a sequel to Town of

Norwood v. FERC,

(1st Cir.), petition for cert.

filed (U.S. May 30, 2000) (No. 99-1914) ("Norwood I"), in which

this court sustained related FERC orders. See also Town of

Norwood v. New England Power Co.,

(1st Cir.),

petition for cert. filed (U.S. May 30, 2000) (No. 99-1913)

("Norwood II"). The pertinent facts, for which detailed

background can be found in Norwood I and II, are as follows.

For many years, New England Power Company was a major

integrated electric utility in New England: it generated power,

distributed it as a wholesaler to affiliates and non-affiliates

alike, and retailed power through its local affiliates such as

Massachusetts Electric Company. Norwood, which operates a

municipal electric company that distributes retail power to

residents and businesses in the town, was a long-time purchaser

of power from Boston Edison Company, but in 1983 Norwood began

to purchase power instead from New England Power.

-2- This opportunity to switch power suppliers was secured

after Norwood settled an antitrust case against Boston Edison

and New England Power. See Norwood II, 202 F.3d at 412. The

settlement agreement obligated New England Power to furnish, and

Norwood to accept, sufficient power to satisfy Norwood's

requirements for electricity through October 31, 1998. The

power was to be supplied pursuant to New England Power's FERC

Tariff No. 1--the same wholesale tariff under which New England

Power then supplied electricity to its own retail affiliates--

"as [it] may be amended from time to time." Id.

The requirements contract provided that its term was

from November 1, 1983, to October 31, 1998, but it also stated

that "[n]either [New England Power] nor Norwood will give notice

of termination prior to November 1, 1991 and shall not specify

a termination date prior to November 1, 1998." New England

Power's FERC Tariff No. 1, incorporated by reference in its

power contract with Norwood, said that "[o]nce initiated,

service under this tariff shall continue until terminated by

either party giving to the other at least seven years' written

notice of termination. . . ."

Thereafter, the parties twice amended the requirements

contract. First, in 1987 the contract was amended to permit

Norwood to take advantage of allocations of lower-cost power

-3- from the New York Power Authority. Second, in 1989 the parties

amended the contract to permit Norwood at its election to extend

the earliest date on which notice of termination could be given

from November 1, 1991, to November 1, 2001.

On July 25, 1990, Norwood sent a letter to New England

Power stating that Norwood "hereby gives notice . . . that it

extends the date" for giving notice of termination from November

1, 1991, to November 1, 2001. The letter continued: "The

effect of this is that the Power Contract between [New England

Power] and Norwood would be extended for [ten] years to

midnight, October 31, 2008 . . . ." Whether Norwood did intend

to extend the contract and whether the extension was effective

are principal issues in this case.

Beginning in December 1996, New England Power made a

set of regulatory filings to restructure itself and to revise

its existing tariff for wholesale power sales. These filings,

described in detail and upheld in Norwood I, aimed to secure

FERC approval for the sale of New England Power's non-nuclear

generating facilities, the release (on payment of termination

charges) of affiliates from their long-term requirements

contracts with New England Power, and the restructuring of New

England Power's wholesale rates to facilitate customer choice

-4- and market-based pricing at both the wholesale and retail

levels. Norwood I, 202 F.3d at 396-97.

In a set of orders issued between November 1997 and

June 1998, FERC approved the sale, early termination by

affiliates on payment of termination charges, the restructuring

of wholesale rates, and a "rate freeze" on New England Power's

existing charges with wholesale contract purchasers like

Norwood. This freeze was instituted because under the existing

contracts, rates were normally adjusted to reflect increased

costs, and New England Power was now divesting itself of its

low-cost non-nuclear plants. Norwood II, 202 F.3d at 413.

Norwood concluded that under the new regime it would

be disadvantaged vis-à-vis New England Power's retail affiliates

whom Norwood regards as retail competitors. See Norwood II, 202

F.3d at 414. On March 4, 1998, Norwood notified New England

Power that it was switching to a new wholesale supplier,

Northeast Utilities. Two weeks later, on March 18, 1998, New

England Power filed a revised FERC Tariff No. 1 permitting

dissident wholesale customers like Norwood to terminate their

contracts early and on only thirty days' notice, conditioned on

the customers paying a contract termination charge based on an

-5- avoided cost theory.1 New England Power Co., 83 F.E.R.C. ¶

61,174, reh'g denied, 84 F.E.R.C. ¶ 61,175 (1998).

To counter New England Power's March 18, 1998, tariff

filing, Norwood not only objected to the charge before FERC, see

Norwood I, 202 F.3d at 398, but also, in an effort to shorten

the period of liability, Norwood petitioned FERC in April 1999

for a declaratory order,

(1999), that its

contract with New England Power had terminated on October 31,

1998, and that New England Power therefore had no basis for

claiming any contract termination charges after that date.

Norwood estimates that if fully allowed, the charges will exceed

$7 million per year until 2008.

FERC dismissed Norwood's petition on the merits on June

21, 1999, Town of Norwood, 87 F.E.R.C. ¶ 61,341 (1999). In a

nutshell, the Commission found that Norwood had extended the

contract through October 31, 2008, by its July 25, 1990, letter;

and it concluded that New England Power's failure to file that

letter with FERC was irrelevant. On August 20, 1999, FERC

denied without opinion Norwood's motion for rehearing, and

1The contract termination charge is computed as the revenues that New England Power would have expected to collect had the customer continued to pay at the now frozen tariff rate through the earliest date that the customer could have unilaterally terminated service under the contract, less the expected costs avoided by New England Power because it did not have to provide the power.

-6- Norwood has sought review in this court to challenge the

Commission's orders, 16 U.S.C. § 825l(b).

Norwood's arguments on appeal, which we address in a

sequence somewhat different from Norwood's brief, are in

substance five: (1) that the requirements contract with New

England Power was never extended beyond October 31, 1998; (2)

that any extension premised on the July 25, 1990, letter is

ineffective because the letter was not filed with FERC and

because reliance upon it violates the so-called filed rate

doctrine; (3) that the FERC order unilaterally altered the

contract in disregard of the Mobile-Sierra doctrine; (4) that

the failure to file the letter prevents FERC from relying on it

in construing the contract; and (5) that FERC committed

procedural error.

Assuming arguendo that the July 25, 1990, letter was

rightly considered, it is clear to us that FERC properly

construed the contract to extend Norwood's obligation to take

its requirements from New England Power until October 31, 2008.

The standard of review need not be considered because, even if

review of the contract interpretation question were de novo, our

reading would still be precisely that of the Commission. Cf.

Boston Edison Co. v. FERC,

(1st Cir. 1988).

The documents may be inartfully drafted, but taken together,

-7- they make clear that Norwood's contract interpretation argument

is hopeless.

It is arguable that even without the July 25, 1990,

letter, the proper reading of the original 1983 contract made it

self-extending absent notice of termination.2 However, there is

no reason to decide how matters would stand if there had been no

1989 amendment and letter. Norwood's July 25, 1990, letter

triggered a provision in the 1989 amendment to the original 1983

contract and when both the amendment and the letter are

considered, it is crystal clear that--subject to any other

possible legal barrier--Norwood's obligation was extended

through October 31, 2008.

The 1989 amendment explicitly replaced the article of

the 1983 agreement specifying the term of the contract with a

new article which specified that the contract continued through

midnight, October 31, 1998, except: (1) neither side could give

notice of termination prior to November 1, 1991, or specify a

termination date prior to November 1, 1998; and (2):

Norwood may elect to extend the earliest date by which either party can give notice of intent to terminate service by a total of

2The original contract said that its term was through October 31, 1998, but FERC Tariff No. 1. said that seven years' notice is required to terminate; while the contract has an overrule provision, it is not clear that the two terms are inconsistent.

-8- [twenty] years in two ten-year increments. In order to exercise this election, Norwood agrees to provide [New England Power] with written notice of each such election at least one year prior to the date that it is to be extended, viz, to November 1, 2001 initially and to November 1, 2011 ultimately.

Citing this amended article, Norwood on July 25, 1990, wrote New

England Power giving notice that it extended the date by which

either side could give notice of an intent to terminate "to

November 1, 2001. The effect of this is that the Power Contract

between [New England Power] and Norwood would be extended for

[ten] years to midnight, October 31, 2008 . . . ."

Norwood argues that the letter was an offer that New

England Power failed to accept; but the 1989 amendment, which

Norwood explicitly invokes in the 1990 letter, gives Norwood a

unilateral election to extend by written notice, which is just

what the 1990 letter comprises. Norwood also says that the 1990

letter merely extends the earliest date on which the notice of

termination can be given and does not extend the agreement

itself; but this is just word play in the context of this

contract.

Norwood makes a further contract interpretation

argument based on the 1987 amendment which was designed to allow

Norwood to reduce its obligation to purchase from New England

Power to the extent that Norwood could obtain a lower-cost

-9- allocation from the New York Power Authority. Norwood's

explanation as to how this 1987 amendment supports its position

is not persuasive enough to merit detailed response. The short

answer is that the 1987 amendment, which had a quite limited

focus, was followed by a 1989 amendment providing Norwood an

election to extend the obligations through 2008; and this

provision for an election, which Norwood exercised, controls any

prior terms, whether adopted in 1983 or in 1987.

Norwood's second multi-part argument is that the July

25, 1990, letter was ineffective to extend the contract until

2008 because the letter was never filed with FERC. The

governing provision of the Federal Power Act provides that

utilities subject to its terms, which includes New England Power

with respect to wholesale power sales, must file with FERC:

schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission, and the classifications, practices, and regulations affecting such rates and charges, together with all contracts which in any manner affect or relate to such rates, charges, classifications, and services.

16 U.S.C. § 824d(c) (1994) (emphasis added). The statute also

requires that any change in a rate or contract must be reflected

in a filing with the Commission which, absent a waiver, must be

made in advance of the effective date and on sixty days' notice.

Id. § 824d(d).

-10- Although the statute does not say so explicitly, it

might be read as saying that an unfiled contract is ineffective;

and in any event, FERC regulations say that a public utility may

not (to shorten the language to pertinent terms) "collect . . .

any rate" or "impose any . . . contract" for FERC-regulated

service "which is different from that provided in a rate

schedule required to be on file with this Commission unless

otherwise specifically provided by order of the Commission for

good cause shown."

(e) (1999). "Rate schedule"

is defined to include both a statement of rates and charges for

electric service and "all classifications, practices, rules,

regulations or contracts which in any manner affect or relate to

the aforementioned service, rates, and charges."

§ 35.2.

The importance attributed to filings is reinforced by the so-

called filed rate doctrine.

The filed rate doctrine, discussed at greater length

in Norwood II, 202 F.3d at 416, 418-22, is actually a set of

rules that have evolved over time but revolve around the notion

that under statutes like the Federal Power Act, utility filings

with the regulatory agency prevail over unfiled contracts or

other claims seeking different rates or terms than those

reflected in the filings with the agency. See, e.g., AT&T v.

Central Office Tel., Inc.,

(1998); Montana-

-11- Dakota Utils. v. Northwestern Pub. Serv. Co.,

, 251-

52 (1951). Norwood's theory is that the unfiled July 25, 1990,

letter was ineffective because not filed (as required by statute

and regulations) and because giving the unfiled letter effect

would violate the filed rate doctrine.

In both variations, Norwood's argument depends on the

proposition that the July 25, 1990, letter was a contract

required to be filed. The gist of the Commission's holding is

that the contract was what was set forth in the 1983 contract

and the 1989 amendment, both of which were filed with the

Commission; the letter merely exercised an election already

spelled out in those filings. The Commission also gave other

alternative reasons for relying on the 1990 letter, which we

will defer for the present.

The reference in the statute and regulations to the

filing of "contracts" which affect rates and services is

ambiguous. On the one hand, the July 25, 1990, letter is not

itself a contract in common usage; it is the exercise of a

unilateral election by one party under an already existing

contract. On the other hand, the election had the effect of

extending the contract term by multiple years, albeit within the

framework of the existing contract. If the Commission wanted to

characterize such notices as "contracts," it would be a

-12- linguistic stretch but arguably within the Commission's

authority to construe its organic statute and regulations.

However, the Commission has construed the statute and

regulations not to encompass a notice of election already

provided for by a duly filed contract. This interpretation is

subject to substantial deference under the Chevron doctrine.3

Further, in the Towns of Concord and Wellesley v. FERC,

(1st Cir. 1988), this court upheld a decision of FERC giving

effect to an unfiled letter terminating a provision in a filed

agreement where the agreement itself contemplated such a

termination letter. The analogy offered was to automatic rate

adjustment clauses which, "[o]nce the rate schedule is approved,

[permit] rate adjustments [to] be made in accordance with the

internally-prescribed automatic adjustment clause without

further notice to action by the Commission."

at 896 (citing

16 U.S.C. § 824d(f)); see also Transwestern Pipeline v. FERC,

, 578 (D.C. Cir.), cert. denied,

(1990).

Norwood counters by citing Arkansas Louisiana Gas Co.

v. Hall,

(1981) ("Arkla"), but we think that case

3Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,

(1984); see also Mississippi Power & Light Co. v. Mississippi,

(1988) (Scalia, J., concurring); City of Cleveland v. FERC,

(D.C. Cir. 1985).

-13- is distinguishable. There, the Supreme Court held that a filed

tariff rate for the purchase of natural gas prevailed over

Arkla's promise, made in a filed agreement, to pay a higher rate

if Arkla paid more to other producers (the "favored nations"

clause). But the Supreme Court stressed that it was unclear

whether FERC would have accepted the higher rate resulting from

the favored nations clause--by contrast to our case; and FERC

said in Arkla that its acceptance of the contract did not

constitute pre-approval of any rate generated by the favored

nations clause. See Arkla,

-82 & n.11.

Needless to say, without the filing of the July 25,

1990, letter, no outsider could visit the Commission's files and

determine whether the election to extend had been exercised.

This provides whatever policy argument there might be for a

broad interpretation of "contracts" in the statute. But even in

the halcyon days of strict public utility regulation, now

receding at FERC as elsewhere, see Norwood I, 202 F.3d at 396,

there were gaps in what could be gleaned from Commission

filings. And this is the kind of grey area--the determination

of just what the Commission needs to have filed beyond formal

contracts themselves--in which great weight must be given to the

Commission's judgment. City of Cleveland v. FERC,

(D.C. Cir. 1985).

-14- We thus conclude that the Commission did not act

contrary to the Federal Power Act or its own regulations in

giving effect to the unfiled July 25, 1990, letter as an

election to extend the term of the contract. By the same token

it is unnecessary to elaborate on the filed rate doctrine

because giving effect to the notice does not circumvent any

filing requirement or contradict any extant filing. This is

enough to resolve the claims made by Norwood and makes it

unnecessary for us to consider what we regard as more doubtful

alternative reasons given by the Commission for its order.

Third, because we accept the Commission's

interpretation of the July 25, 1990, letter as representing

Norwood's election to extend its contract to 2008, the Mobile-

Sierra doctrine invoked by Norwood does not apply. That

doctrine prohibits a regulated utility from unilaterally

changing the fixed terms of a utilities contract absent a

finding by FERC that the existing term adversely affects the

public interest. FPC v. Sierra Pacific Power co.,

(1956); United Gas Pipe Line v. Mobile Gas Serv. Corp.,

(1956). FERC's reasonable construction of

a contract in favor of a public utility is not a unilateral

change in the contract.

-15- In its fourth argument for reversal, Norwood argues

that, if New England Power was not required to file the July 25,

1990, letter, then FERC lacked the authority to interpret it.

This might be so if the letter's subject matter were outside

FERC's jurisdiction--for example, if it addressed only

intrastate power sales. Cf. Pennzoil v. FERC,

(5th Cir. 1981), cert. denied,

(1982). However,

there is no doubt that the letter in this case related to a

filed contract for the wholesale supply of electric power within

FERC's jurisdiction.

FERC sometimes declines to address contract issues even

for sales unquestionably within its jurisdiction, see, e.g.,

Southern Cal. Edison Co., 85 F.E.R.C. ¶ 61,023 (1998), but

Norwood makes no claim that FERC is forbidden from interpreting

contracts filed with FERC or otherwise relevant to FERC tariffs.

Here, the duration of the contract directly affects Norwood's

liability under the March 1998 tariff imposing a termination

charge; and Norwood itself sought the declaration from FERC as

to whether the contract continued past October 1998. The letter

was properly considered as a document pertinent to determining

the duration of the contract. Cf. Southern Union Co. v. FERC,

(D.C. Cir. 1988), cert. denied,

(1990).

-16- Finally, Norwood offers a procedural objection to the

Commission's proceedings. After FERC issued its notice of the

filing of Norwood's petition for a declaratory ruling, FERC

granted New England Power leave to intervene out of time, and it

accepted New England Power's answer to Norwood's petition.

Norwood now complains because FERC then denied Norwood's motion

for leave to file a reply, citing a FERC procedural rule

prohibiting answers to answers.

(a)(2)

(1999).

Perhaps in some situations it might be improper for an

agency effectively to deny the petitioner the right to respond

to assertions raised for the first time in an answering

document, although refusal to allow a formal "reply" is not

automatically the same as precluding evidence or argument. The

short answer in this case is that nothing in Norwood's proffered

reply, which is included in the appendix filed with this court,

alters the result: in general, the reply sets forth arguments

that were effectively addressed by FERC in its orders or could

not affect the outcome in light of dispositive rulings by FERC.

The petition for review is denied.

-17-