United States Court of Appeals
For the First Circuit
No. 04-2590
No. 05-1836
BOSTON EDISON COMPANY,
Petitioner,
v.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
__________
CONCORD MUNICIPAL LIGHT PLANT,
WELLESLEY MUNICIPAL LIGHT PLANT,
Intervenors.
ON PETITION FOR REVIEW OF ORDERS OF
THE FEDERAL ENERGY REGULATORY COMMISSION
Before
Boudin, Chief Judge,
Stahl, Senior Circuit Judge,
and Lynch, Circuit Judge.
Carmen L. Gentile with whom Bruder, Gentile & Marcoux, L.L.P.,
and Mary E. Grover, Assistant General Counsel, Legal Department,
NSTAR Electric & Gas Corporation, were on consolidated brief for
petitioner.
Patrick Y. Lee with whom John S. Moot, General Counsel, and
Robert H. Solomon, Acting Solicitor, were on consolidated brief for
respondent.
J. Cathy Fogel with whom Robin E. Remis and Sullivan &
Worcester LLP were on consolidated brief for intervenor Concord
Municipal Light Plant.
John P. Coyle with whom Paul M. Breakman and Duncan & Allen
were on consolidated brief for intervenor Wellesley Municipal Light
Plant.
March 20, 2006
BOUDIN, Chief Judge. In a dispute with two of its
Massachusetts customers, Boston Edison petitions for review of a
decision of the Federal Energy Regulatory Commission ("FERC"). The
customers are the municipal power departments of the towns of
Concord and Wellesley (collectively, "the Towns"). The common
question is whether Boston Edison is permitted to impose a
particular transmission charge in delivering electrical power to
the Towns.
Boston Edison is a Massachusetts utility which owns
transmission facilities that are part of the New England power
grid. The grid is an interconnected network of transmission lines
and stations in New England, owned by various utilities, which is
the backbone network for distributing power within New England; it
is controlled by an organization of utilities and others, including
both Boston Edison and the Towns, called the New England Power Pool
("NEPOOL"), under the current version of the New England Power Pool
Agreement ("NEPOOL Agreement").
The Towns own local distribution facilities by which they
offer electricity to retail customers in their areas, using power
generated by others and transmitted to the Towns over the New
England power grid. Boston Edison provides the transmission
facilities that interconnect with the Towns' networks; for a number
of years, the Towns also purchased their power from Boston Edison,
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which charged negotiated "bundled" rates to encompass both the
power and its delivery to the Towns' own networks.
The bundled rates covered use of two different classes of
facilities: one set--the so-called PTF (Pool Transmission
Facilities)--are the core backbone transmission facilities in the
New England power grid as defined by the NEPOOL Agreement, which
governs their use and charges for it; the other set, including
local connections owned by Boston Edison, are called LNS (Local
Network Service). To use Boston Edison's metaphor, PTF facilities
are the electricity highway and LNS facilities are the access ramps
connecting to the local streets, i.e., the Town networks.
The transmission and sale of power at wholesale is
regulated by FERC. 16 U.S.C. § 824(a) (2000). In April 1980,
Boston Edison and the Towns reached an agreement to settle rate
disputes then pending before FERC and parallel federal law suits.
The terms included the sale by Boston Edison (for a lump sum and
annual payments) to the Towns of "use rights" in certain Boston
Edison transmission facilities used in supplying power to the
Towns;1 a provision that the Towns thereafter would be "deemed to
be [ ] 115 kV customer[s]"; and a further provision (Article IV):
1
The use rights, in each case, included the station facilities
shown on the two schematics attached to this decision, namely,
stations 416 and 342 for Concord and 292 and 110 for Wellesley.
Stations 292 and 416 are non-PTF, stations 342 and 110 are PTF, and
the lines between the two Concord and the two Wellesley stations
are the so-called LNS lines at issue in this case.
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Concord or Wellesley may utilize for PTF
transactions, as defined in the NEPOOL
Agreement, their shares of the capacities of
the [use rights facilities] . . . without
payment of a PTF interconnection charge . . .
.
Finally, Article IV imposed limits--not in issue here--on the
quantities of power that could be acquired under the exemption.2
In effect, in exchange for specified payments, the Towns
were given: (1) lower transmission rates afforded to high voltage
(115 kV) customers (even though the town facilities were low
voltage and normally paid more), and (2) exemption ("without
payment of a PTF interconnection charge") from the payment of
otherwise applicable charges for "interconnecting" the town-owned
facilities with PTF. The scope of this exemption, as applied to
present delivery arrangements, is the nub of the present
controversy.
Pertinent to the dispute are further contracts, made in
the 1990s, and yet to be described, between Boston Edison and the
Towns. A further (and pivotal) event was the decision of the
Towns, effective June 1, 2002, to purchase their power from another
2
Article IV continues on to note: "provided that the total of
the purchases under PTF transactions for each Town does not exceed
its capacity in megavolt amperes of the facilities connected to PTF
with respect to which the Town has made lump-sum payments."
Concord's use rights are limited to 26 MVA of service. Wellesley's
use rights are also limited, although the exact limitation is
unclear (it purchased use rights in various amounts at several
facilities), but neither Town disputes that PTF interconnection
charges apply for any power over and above these amounts.
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supplier (Constellation Power Services, Inc.) in place of Boston
Edison, supplanting the bundled rates and requiring the "wheeling"
of this power to the Towns over both PTF facilities and Boston
Edison LNS facilities.
The charges for use of PTF for this wheeling service are
fixed by the NEPOOL Agreement and are not in dispute. The disputed
element is the use of Boston Edison LNS facilities for the hand-off
from PTF to the Town networks. In the FERC proceeding now before
us, the Towns urged that the language of Article IV ("without
payment of a PTF interconnection charge") exempted their purchases
from Constellation, up to specified maximum amounts of power (see
note 2, above), from LNS charges that Boston Edison sought to
impose to carry the power.
"Exemption" slightly overstates the issue. The NEPOOL
Agreement as restated in 1997 provided that for participants
"directly connected" to PTF, LNS charges would be phased down and
ultimately eliminated over a six-year period ending in February of
2003. The position of the Towns is that for transactions after the
phase-down they are contractually entitled to be treated as falling
within this exempt category (while paying the phase-down rate for
the period of 2002-2003).3
3
Just how this concession as to 2002-2003 is to be squared
with the unqualified "without payment of a PTF interconnection
charge" language is never explained; but the period between the
Towns' payment of bundled rates until June 2002 and the final
phase-out of the LNS charges in August 2003 is only a year, the
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After a six-month proceeding ending with a lengthy
hearing, in August 2003 FERC's Administrative Law Judge ("ALJ")
issued a thoughtful decision. Boston Edison Co., 104 F.E.R.C. ¶
63,031 (2003). The decision glossed Article IV of the 1980
settlement agreement in light of intervening agreements, and the
ALJ concluded that the Towns were contractually entitled to make
their Constellation purchases without being subject to the LNS
charges that Boston Edison sought. The Commission affirmed and
denied rehearing. Boston Edison Co., 107 F.E.R.C. ¶ 61,248 (2004)
(affirming); Boston Edison Co., 108 F.E.R.C. ¶ 61,276 (2004)
(denying rehearing).
In this review proceeding, we are concerned primarily
with issues of contract interpretation. Boston Edison concedes
that under our precedents, FERC's views are "entitled to some
deference in construing contracts," at least "where the sales are
subject to FERC regulation," Boston Edison Co. v. Fed. Energy
Regulatory Comm'n, 233 F.3d 60, 66 (1st Cir. 2000). In other
words, the agency's interpretation must be reasonable, Boston
Edison Co. v. Fed. Energy Regulatory Comm'n, 856 F.2d 361, 363 (1st
Cir. 1988), but at the very least close calls tend to go its way.
See Sierra Club v. Larson, 2 F.3d 462, 468-69 (1st Cir. 1993).
The dispute, both in front of FERC and in this court,
begins with the 1980 agreement and, although its meaning is
Towns are not complaining, and we do not pursue the issue.
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illuminated by subsequent agreements, the result is largely
controlled by whatever reading is given to the original agreement.
Recall that the 1980 agreement says that the Towns may use, for
power obtained through PTF, "their shares of the capacities of the
[use-rights facilities] . . . without payment of a PTF
interconnection charge." What, then, is the "PTF interconnection
charge" from which the Towns are exempted (up to the quantity
limits elsewhere specified)?
Boston Edison argues that this language must refer only
to charges covering the costs of the facilities in which the Towns
purchased use rights. These facilities include Boston Edison
station facilities and associated lines; but they do not include
longer distance, non-PTF 115 kV lines also owned by Boston Edison
that connect their nearby use-rights stations to other use-rights
stations that are part of the main PTF grid. See note 1, above.
So, says Boston Edison, it is entitled to charge the Towns for the
use of the 115 kV lines under LNS tariffs.
The main language-based counter to this reading is the
fact that earlier provisions of the 1980 agreement already gave the
Towns the right to use the use-rights facilities without payment of
further charges for those facilities and also freed them from
higher charges associated with connection of low-voltage lines.
So, the ALJ reasoned, the Article IV interconnection charges
exemption would be redundant unless it meant--as the Towns urge--
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that they were to be treated as if they were connected to PTF
facilities--i.e., exempt from LNS charges.
To a utilities lawyer, for whom it is gospel that
customers pay costs associated with facilities that they use, 1
Kahn, The Economics of Regulation: Principles and Institutions 63
(1970), Boston Edison's reading would be attractive: the use rights
in one set of facilities would not automatically carry over to
allow what Boston Edison likes to call "free" use of other
facilities. But the 1980 settlement was a compromise of many
issues and resolved some in ways that may not be strictly cost-
based, such as discontinuance of the higher charges for connection
to low-voltage Town lines.
Boston Edison also relies on another provision of the
1980 agreement--Article VII--which addressed "transmission rates."
Although at the time of the agreement the Towns apparently intended
to continue purchasing considerable electricity from Boston Edison
at rates that bundled power and transmission, Article VII addressed
the contingency that the Towns might want to purchase power
elsewhere to be wheeled by Boston Edison. Because the parties were
unable to agree on such rates, Article VII provided that Boston
Edison would file its proposed rates and the Towns could contest
them under the statute.
From Article VII, Boston Edison infers that Article IV
could not have been intended as a constraint on its transmission
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rates. While Articles IV and VII can certainly take meaning from
one another, see Smart v. Gillette Co. Long-Term Disability Plan,
70 F.3d 173, 179 (1st Cir. 1995), Boston Edison's inference is a
non sequitur. That Boston Edison transmission rates as a whole
might be subject to filing and protest did not prevent Boston
Edison from binding itself as to one element, namely, waiving any
charge for LNS lines as to power purchases up to a maximum limit on
the quantity of power thus exempted.
Finally, Boston Edison emphasizes that the 1997 Restated
NEPOOL Agreement phases out LNS charges for customers "directly
connected" to PTF; by contrast, says Boston Edison, the Towns in
this case are (with the irrelevant exception of station 148)
directly connected only to non-PTF stations. But the thrust of the
Towns' counter is that Article IV was designed to treat them as if
they were directly connected to PTF.
Recognizing that both sides had arguments based on the
wording of the 1980 agreement, the ALJ thought that the Towns'
reading was reinforced by subsequent agreements between Boston
Edison and the Towns: a 1993 agreement between Boston Edison and
Concord, and agreements in 1992 and 1998 between Boston Edison and
Wellesley. Assuredly, the subsequent understandings of the parties
to a contract, like their actual practice following a contract, can
cast light on their intentions as to the earlier agreement on which
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subsequent agreements build. See Reed & Reed, Inc. v. Weeks
Marine, Inc., 431 F.3d 384, 388 (1st Cir. 2005).
The first of these subsequent agreements, the 1992
agreement with Wellesley, provided that Boston Edison would furnish
Wellesley with all of its electricity requirements and contained
language defining the delivery point as Boston Edison's
"interconnections" with the town "under which [Wellesley] will be
deemed to be a 115 kV customer at NEPOOL PTF ('Pool Transmission
Facilities') including, but not limited, as set forth in Appendix
B, page 2 of the 1980 Settlement Agreement." Appendix B of the
1980 agreement describes the location, equipment, and capacities of
the facilities in which Wellesley purchased use rights.
The ALJ took the "deemed to" language as reaffirming that
Wellesley would be treated for rate purposes as if its facilities
connected directly to PTF–in which event it would pay the PTF
charges under the NEPOOL agreement but not additional Boston Edison
LNS charges for the lines running from the shared use facilities to
PTF. Boston Edison Co., 104 F.E.R.C. ¶ 65,088. This is not an
inevitable reading, but it is at least a reasonable one.
Slightly more cryptic language in the 1998 agreement
carried this concept forward. This agreement was made as Boston
Edison unbundled transmission from generation charges and, as to
the former, provided that "[Wellesley] shall be able to utilize for
PTF transactions and interconnection as defined in the NEPOOL
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Agreement its share of the capacity of the facilities set forth in
Appendix B."
Boston Edison admits that "the 1992 [agreement] defined
the Wellesley 'delivery point' (i.e., the place at which
electricity is delivered) as located on the PTF," but Boston Edison
argues that because the 1992 agreement was terminated as of May 31,
2002, this definition is irrelevant to the current appeal. Yet the
1992 language still casts light on the intent of the 1980
agreement, which is in force, and, as it happens, the 1998
agreement contains similar language and is still in force today.
Boston Edison also argues that a provision of the 1998
agreement contains a clause freeing it to set transmission rates
unilaterally, subject (as usual) to suspension and investigation by
FERC. The clause dovetailed with an amendment to the 1992
agreement that terminated, as of 2002, the 1992 agreement fixing
bundled rates, and the clause itself was to become effective "upon
the termination of the 1992 agreement." But, as with Article VII
discussed above, the entitlement to file rates does not mean that
the rates are necessarily free of limitations imposed by existing
agreements--here, the language quoted above pertaining to "PTF
transactions and interconnection."
The situation with Concord is more complicated. In 1993,
it signed an agreement with Boston Edison for the construction of
new interconnection facilities, some to be owned by each party, to
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replace the facilities in which Concord had bought use rights in
1980 (expanded by another agreement in 1985). Boston Edison also
bought back the 1980 (and 1985) use rights in the original
facilities. Boston Edison points to the buy-back as abrogating any
rights premised on Concord's original purchase of use rights in
1980, even if the 1980 agreement were read in Concord's favor.
There is nothing wrong in arguing in the alternative, but the buy-
back argument is not persuasive.
It is true that the new agreement provided that Concord's
original use rights "cease[d]," but far from undercutting Concord's
claim to an exemption from the LNS rates, the new agreement has
language that carries forward existing rights and, even worse for
Boston Edison, reinforces (by its specification of the rights)
Concord's claim that the original 1980 agreement created a right of
the breadth claimed by the Towns. Specifically, Article 9.2 of the
new agreement provided (the emphasis is ours):
The Interconnection Facilities are intended to
replace 13.8 kV facilities that connect the
[Concord] system to the Edison transmission
system and to the New England transmission
grid. In the event [Concord] is no longer
receiving Full Requirements Service from
Edison as defined in the 1993 Power Agreement,
[Concord] may purchase from Pool-Planned
Units, in which case under current NEPOOL
rules [Concord] would pay [high- and low-
voltage] PTF charges billed by NEPOOL. Since
the facilities between Station 342 and Station
416 are not considered PTF facilities by
NEPOOL, the wheeling of these purchases from
Station 342 through Station 416 could be
subject to a radial transmission charge when
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these purchases exceed 26 MVA, the level of
transmission use rights purchased in the 1980
Settlement Agreement. For purchases up to 26
MVA, for [Concord], Station 416 will be
treated as a PTF Facility for [Concord's]
obtaining electric power.
Purchases may be made by [Concord] from units
other than Pool-Planned Units or from any
other source, in which case those purchases
shall be wheeled by Edison under its FERC-
approved Firm Transmission or Non-Firm
Transmission tariffs or successor transmission
arrangements for its system, so long as such
arrangements have received the required
regulatory approvals.
The ALJ read the emphasized language as reflecting a
Boston Edison concession that, notwithstanding the existence of LNS
lines running from the grid toward Concord, the later
interconnection point at which Concord planned to acquire power
from Boston Edison would be treated as if it were a PTF point,
thereby exempting it (up to 26 MVA) from separate LNS charges. The
juxtaposition of the "could be" language with the "will be treated"
language seemingly ties the 1980 exemption directly to the 115 kV
lines.
Boston Edison concedes in its brief that "Article 9.2 .
. . exempts Concord from 115 kV non-PTF charges for the first 26
MVA of [pool-planned unit] purchases," a concession hardly helpful
to its reading of the 1980 agreement. However, it responds that
the second paragraph of Article 9.2 quoted above governs non-pool
planned unit purchases, that Constellation units fall into this
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category, and that no exemption from LNS charges is provided for
such purchases.
We agree that the language is unclear, but the ALJ read
it Concord's way. Explaining the 1993 agreement's more elaborate
discussion of pool-planned units, he said that in 1993 they were
the only purchases Concord might take from the grid in place of
Boston Edison power. He also underscored the lack of any
explanation from Boston Edison as to why pool-planned units would
be specially exempted. Boston Edison says on appeal that it is not
required to "show motivation" to support plain language, but we
think the language less plain than it does.
In particular, most of the underscored language quoted
above was apparently added at Concord's insistence late in the day,
and its placement may not be so significant. It is also possible
to read the exempting language as stating a general principle
applicable to unbundled purchases, regardless of whether they are
from pool-planned units, and to explain the separate second
paragraph as concerned primarily with confirming Boston Edison's
obligation to wheel power from sources other than pool-planned
units within the grid.
In the end, Boston Edison's best argument may be one not
rooted in the language of any agreement. It says that the Towns
were charged for the cost of the LNS lines when they received
bundled service because that cost was built into the bundled rates.
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Why, says Boston Edison, would it agree not to charge customers for
such facilities (in accordance, we note, with usual utility
practice, see Kahn, supra) after unbundling merely because those
customers bought use rights in other facilities connected to PTF by
the LNS lines?
The Towns say that the bundled rates were negotiated
rather than cost-based rates and did not have a separate element
for LNS; but this is something less than a claim that the LNS costs
were not in fact covered by the bundled rates. A better answer
might be that, in the compromises effected by the 1980 agreement,
there is nothing that prevented Boston Edison from conceding
something unusual as part of an overall settlement. This is
apparently what the Commission found to have happened.
Granting due deference to the Commission, we see no basis
for overturning its reading of the 1980 settlement in favor of the
Towns. On the contrary, that contract (and those that followed) is
couched in language that is cryptic, technical and dependent on
unexplained physical and institutional arrangements within the
power industry. The obscurity of the materials, and the need for
expertise, are reasons why deference is accorded to the views of
the expert agency. Sierra Club, 2 F.3d at 469.
Petitioners who trouble to unravel the technicalities and
educate judges can go far to level the playing field. Here,
granting that the original 1980 reference to "interconnection
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charges" was obscure, Boston Edison has done little to dispel the
adverse inferences contained in language in the 1992 Wellesley
agreement and the 1993 Concord agreement that we have quoted and
analyzed above. By contrast, the ALJ's balanced and lucid
treatment inspires a measure of confidence in his result.
The ALJ was himself concerned that the Towns might be
escaping any responsibility for LNS costs actually borne by Boston
Edison and, even more important, costs that might burden other
customers of Boston Edison. He said that the Commission had power,
not invoked here by Boston Edison, to override contracts where they
produced unjust results. See 16 U.S.C. § 824e(a). There is no
point in adding our own conjectures, but the present decision may
not be the last chapter in this story.
The petition for review is denied.
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