United States Court of Appeals
For the First Circuit
No. 07-2418
NEW ENGLAND POWER COMPANY,
Petitioner,
v.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
TOWN OF NORWOOD, MASSACHUSETTS,
Intervenor.
ON PETITION FOR REVIEW OF ORDERS OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Before
Torruella, Circuit Judge,
Cudahy,* Senior Circuit Judge,
and Lipez, Circuit Judge.
Kenneth G. Jaffe, with whom John F. Sherman, III, Ronald E.
Minsk, and Alston & Bird LLP were on brief, for petitioner.
Samuel Soopper, with whom Cynthia A. Marlette and Robert H.
Solomon were on brief, for respondent.
*
Of the Seventh Circuit, sitting by designation.
Robert A. Jablon, with whom Daniel I. Davidson, Sharon
Coleman, Spiegel & McDiarmid LLP, J. Owen Todd, Juliet A. Davison,
Heidi A. Nadel, and Todd & Weld LLP were on brief, for intervenor.
July 16, 2008
LIPEZ, Circuit Judge. New England Power Company ("NEP")
seeks review of orders of the Federal Energy Regulatory Commission
("FERC" or the "Commission").1 In the orders, FERC found the 18
percent per year late payment charge that NEP had applied to the
Town of Norwood's overdue contract termination payments to be
unjust and unreasonable. FERC ordered that NEP substitute a prime
rate-based interest rate as set forth in 18 C.F.R. § 35.19a (the
"Revised Interest Rate"). NEP does not appeal this ruling.
Instead, NEP challenges only FERC's determination that the lower
Revised Interest Rate must be applied to bills rendered before June
30, 2006, arguing that the earlier application constitutes
impermissible retroactive rate-making. Because FERC failed to
address NEP's retroactivity arguments and instead based its
decision to apply the Revised Interest Rate to the earlier bills
solely on an erroneous reading of our opinion in Town of Norwood v.
FERC, 476 F.3d 18, 29 (1st Cir.), cert. denied, 128 S. Ct. 432
(2007) ("Norwood IV"), we vacate that portion of the orders and
remand for full consideration by the Commission of the appropriate
effective date for the Revised Interest Rate.
1
Two orders fall within the scope of this petition: FERC's
Order on Remand, dated May 17, 2007, and its Remand Rehearing
Order, dated August 30, 2007, in which FERC denied NEP's request
for clarification or rehearing of the May 17th order.
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I.
The background of this protracted dispute is set forth in
detail in Town of Norwood v. FERC, 202 F.3d 392, 397-98 (1st Cir.),
cert. denied, 531 U.S. 818 (2000) ("Norwood I"), Town of Norwood v.
FERC, 202 F.3d 408, 412-14 (1st Cir.), cert. denied, 531 U.S. 818
(2000) ("Norwood II"), Town of Norwood v. FERC, 217 F.3d 24, 25-27
(1st Cir.), cert. denied, 532 U.S. 993 (2001) ("Norwood III"), and
Norwood IV, 476 F.3d at 20-24. For our purposes, only a brief
outline is required.
The case arises from the Town of Norwood's 1998 decision
to terminate its full requirements electric service contract with
NEP prior to its scheduled expiration in 2008 so that Norwood could
change power suppliers. Pursuant to a FERC-approved tariff,
Norwood was permitted to terminate the contract early upon payment
of a contract termination charge (the "CTC"). The CTC was
calculated using a formula that would enable NEP to recover the
revenues that it would have collected if a terminating customer had
continued to pay the tariff rate then in effect through the end of
the contract term. In a series of lawsuits, Norwood mounted
unsuccessful challenges to the reasonableness of the CTC formula,
as well as the values used in calculating the amount of the CTC
under the formula.
In Norwood IV, we disposed of the last of Norwood's
substantive challenges to the CTC formula, concluding that
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Norwood's remaining objections were either without merit or barred
by res judicata. We then turned to a series of arguments raised by
Norwood regarding late payment charges applicable to the monthly
bills for CTC installments. NEP had begun sending these bills to
Norwood in May 1998. In June 1998, it had begun including late
payment charges of 18 percent per year (1.5 percent per month) as
set forth in schedule I, section J of its tariff.2 We affirmed
FERC's conclusion that the section J rate was the governing
provision for the late payment charge, but concluded that FERC's
June 30, 2006 order had not adequately addressed Norwood's
contention that the 18 percent rate constituted an unreasonable
penalty. Norwood had argued that the rate was unreasonable because
it was in excess of NEP's cost of money and was inconsistent with
Connecticut Light & Power Co., 59 F.P.C. 811 (1977), in which FERC
itself had rejected a proposed 18 percent late fee on the ground
that it was "not supported by cost data." Id. at 821. We rejected
FERC's decision to distinguish Connecticut Light & Power based
2
Norwood did not make any CTC payments until July 22, 2004.
On that date, Norwood paid $20,356,994.35. Following our decision
in Norwood IV, Norwood made an additional lump sum payment of $15,
014,428 in March 2007. In addition, Norwood made the monthly CTC
payments of $599,971 during September through February 2007 and a
single payment of $599,971 in July 2007. When the record closed at
FERC, combined payments totaled $38,371,277. Norwood avers in its
brief that, since that time, it has made additional payments such
that the total of its payments to NEP now equals $54,407,886.22.
Norwood contends that this represents payment in full of the
principal owed, plus interest computed at the 18 C.F.R. § 35.19a
rate with future payments discounted at the current 18 C.F.R. §
35.19a rate.
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solely on Norwood's failure to introduce cost evidence to show that
the provision was not cost related, noting that "NEP[] does not
seriously suggest that 18 percent represents its cost of money."
Norwood IV, 476 F.3d at 28. Accordingly, we remanded the issue to
the Commission with instructions to "squarely and adequately
resolve" the issue of the reasonableness of the 18 percent rate.
Id. at 29.
We then addressed "one other loose end as to interest,"
concerning Norwood's argument that "even if the 18 percent rate is
applicable to CTC late payments, the rate should not be applied to
payments due prior to FERC's order of February 22, 2006, since
before that point the CTC amount had not been determined."3 Id.
We rejected this argument by relying on the language of the tariff
itself, which anticipated that the amount billed may be in dispute
and provided that interest nevertheless would accrue during the
pendency of the dispute:
[S]ection J makes it quite clear that, when a
customer disputes an amount billed by a
carrier, the carrier is entitled to prescribed
interest that accrues "from . . . the
rendering of said bill" on "the amount finally
determined to be due and payable."
Id. We then concluded our discussion with a paraphrase of the
tariff language: "Norwood has challenged the amount of interest
3
The February 22, 2006 order affirmed FERC's prior rulings
rejecting Norwood's challenges to the CTC. Norwood contended that
prior to that date the amount of the CTC payment was in dispute and
so no interest should have accrued.
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prescribed; but whatever the figure FERC finds justified, the
tariff provides that Norwood owes that amount from the time the
bill was rendered." Id. In summarizing our holdings at the end of
the opinion, we restated that Norwood was responsible for "interest
payments based on at least the prime rate – the figure Norwood
itself seeks – and remand[ed] only as to whether more was properly
due." Id.
On remand, FERC concluded that the 18 percent interest
rate for late payments was unjust and unreasonable and directed NEP
to "file a report with the Commission reflecting the amount of the
CTCs owed, plus the applicable interest rate(s) and interest
amount(s), calculated pursuant to section 35.19a of the
Commission's regulations." NEP filed a motion for clarification
and an alternative request for rehearing as to the effective date
of the Revised Interest Rate. NEP argued that the Commission is
generally only empowered, under § 206 of the Federal Power Act, 16
U.S.C. § 824e, to order prospective relief when rates within a
tariff are determined to be unreasonable. NEP asserted that the
only applicable exception to this rule provides that when an
appellate court has reversed a Commission order upholding an
existing rate, the Commission may make the relief effective as of
the date of the overturned order. See Natural Gas Clearinghouse v.
FERC, 965 F.2d 1066, 1073 (D.C. Cir. 1992) (per curiam) (holding
that FERC may make a new rate effective as of the date of an
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overturned order by applying the "general principle of agency
authority to implement judicial reversals"). Relying on this case
law, NEP contended that the June 30, 2006 order from FERC, which we
partially overturned in Norwood IV, "was the first and only order"
that addressed whether the section J late payment fee was
reasonable. Thus, NEP argued that the Revised Interest Rate should
be effective as of June 30, 2006, with the 18 percent rate
applicable to bills rendered before that date. NEP contended that
any other outcome would violate the filed rate doctrine and its
corollary, the rule against retroactive ratemaking, see Consol.
Edison Co. v. FERC, 347 F.3d 964, 969 (D.C. Cir. 2003), and would
exceed the scope of FERC's authority.
FERC denied NEP's motion for clarification and request
for rehearing without addressing any of these arguments regarding
retroactivity. Instead, FERC concluded that "the Court of Appeals
has already decided the issue of the Revised Interest Rate's
effective date." In support of this conclusion, the Commission
cited the sentence from Norwood IV in which we concluded that
"whatever the figure FERC finds justified, the tariff provides that
Norwood owes that amount from the time the bill was rendered." 476
F.3d at 29. FERC interpreted this language as a conclusive
determination by this court that the lower Revised Interest Rate
must be applied to all bills since 1998.
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II.
On appeal, FERC and Norwood defend the retroactive
application of the Revised Interest Rate on the theory that its
effective date was governed by the law of the case doctrine, which
"'posits that when a court decides upon a rule of law, that
decision should continue to govern the same issues in subsequent
stages in the same case.'" NLRB v. Goodless Bros. Elec. Co., 285
F.3d 102, 107 (1st Cir. 2002) (quoting Arizona v. California, 460
U.S. 605, 618 (1983)). This doctrine means that "[a]n appellate
court's mandate controls all issues that 'were actually considered
and decided by the appellate court, or as were necessarily inferred
from the disposition on appeal.'" Id. (quoting Cohen v. Brown
Univ., 101 F.3d 155, 188 (1st Cir. 1996)) (internal quotation marks
omitted). However, "it is equally clear that issues that were not
decided by the appellate court and that are thus outside the scope
of the mandate are not affected by the mandate." de Jesus-Mangual
v. Rodriguez, 383 F.3d 1, 6 (1st Cir. 2004); see also Biggins v.
Hazen Paper, 111 F.3d 205, 209 (1st Cir. 1997) ("[M]andates require
respect for what the higher court decided, not for what it did not
decide.").
In Norwood IV, the question of whether it would be within
FERC's power to order a lower prime rate-based interest rate to be
applied to all bills from 1998 forward was not briefed by the
parties nor discussed in the panel opinion. As the voluminous
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briefs of the parties in this current appeal illustrate, the proper
scope of FERC's authority to retroactively adjust the unreasonable
interest rate on Norwood's late payments requires a careful
examination of the statutory language in the Federal Power Act and
the case law interpreting it, as well as careful consideration of
the applicability of that law to the facts in this case. That
examination was never undertaken by this court in Norwood IV, nor
would we have purported to decide such a complex question in a
single sentence and without the benefit of briefing and argument
from the parties.
Instead, we decided only the much narrower question that
was properly before us: namely, whether Norwood owed any interest
at all for the period preceding February 2006. That question could
be answered simply by referencing the terms of the tariff itself
and that is what we did. The sentence cited by FERC as deciding
the effective date of the Revised Interest Rate is merely a
paraphrase of the language of the tariff itself. Our remand "as to
whether more [than the prime rate] is properly due" returned to
FERC the consideration of what level of interest – somewhere
between the prime rate and the 18 percent rate in the tariff – was
properly due as to each monthly bill rendered by NEP.4 Subsumed
within this consideration was the question of whether the 18
4
Our remand also did not require FERC to conclude that the
same amount of interest would apply to each of the monthly bills.
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percent rate was unreasonable – as well as the question of what
FERC could and should do about it if the higher rate was found to
be unreasonable, a question that was never before us in Norwood
IV.5
Indeed, our remand order did not presume that FERC would
find the section J rate to be unreasonable. Instead, we left open
the possibility that FERC "could sustain the 18 percent figure
against attack." Norwood IV, 476 F.3d at 29. The proper effective
date for the lower interest rate thus was not ripe for our review
at that time and necessarily fell outside of the scope of our
mandate in Norwood IV.6 Therefore, the law of the case doctrine
does not remotely support FERC's decision on the effective date of
the Revised Interest Rate.
5
The dissent insists that the language of our remand left no
room for FERC to consider NEP's retroactivity arguments. We
disagree. Within the consideration of what was "properly due,"
FERC was not only permitted, but indeed required, to consider both
the reasonableness of the tariff rate and the scope of its powers
to retroactively apply a lower rate if it found the tariff rate to
be unreasonable. Both of these considerations would be part and
parcel of FERC's determination of what amount of interest was
"properly due."
6
The dissent states that "[t]o the extent that NEP believes it
unfair that it is bound by FERC's adherence to a reasonable
construction of the court's mandate, its objections come to late."
Dissent at 14. However, we hold that FERC's construction of our
mandate was unreasonable. Accordingly, NEP was under no obligation
to anticipate this construction and seek rehearing.
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III.
"[A]n administrative order 'must stand or fall on the
grounds articulated by the agency' in that order." NorAm Gas
Transmission Co. v. FERC, 148 F.3d 1158, 1165 (D.C. Cir. 1998)
(quoting Algonquin Gas Transmission Co. v. FERC, 948 F.2d 1305,
1312 n.12 (D.C. Cir. 1991)). In this case, FERC's only articulated
ground for the 1998 effective date of the Revised Interest Rate is
its misreading of the scope of our holding in Norwood IV.
Nonetheless, in its brief on appeal, NEP urges us to go
farther and address the merits of the retroactivity issue itself.
NEP argues that FERC exceeded the limits of its statutory authority
by applying the Revised Interest Rate retroactively and, therefore,
requests that we remand with instructions directing FERC to apply
the Revised Interest Rate only to the late payment charges billed
after June 30, 2006 while applying the 18 percent rate to the
earlier bills.
We decline this request. Although NEP presented
arguments against retroactive application of the lower rate to
FERC, FERC did not address those arguments or provide an adequate
response to them because the Commission incorrectly concluded that
the arguments were foreclosed by Norwood IV. See NorAm Gas
Transmission, 148 F.3d at 1165 ("'[I]t most emphatically remains
the duty of this court to ensure that an agency engage the
arguments raised before it . . . .'" (quoting K N Energy, Inc. v.
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FERC, 968 F.2d 1295, 1303 (D.C. Cir. 1992))). The proper course of
action then is to remand so that the agency may "bring to bear on
the facts the proper administrative and statutory considerations,
a function which belongs exclusively to the Commission in the first
instance." SEC v. Chenery Corp., 332 U.S. 194, 200 (1947). As we
observed in a prior case, "[A]nswers [to questions not adequately
addressed in FERC's orders] can be imagined, but it is FERC that
must formulate and adopt them in the first instance."7 Cent. Me.
Power Co. v. FERC, 252 F.3d 34, 48 (1st Cir. 2001). We therefore
vacate the portion of the orders concerning the effective date of
the Revised Interest Rate and remand to the Commission for full
consideration of the retroactivity issues raised by NEP.
So ordered. Each party shall bear its own costs.
– DISSENTING OPINION FOLLOWS –
7
The dissent states that NEP's retroactivity argument "has
nothing to do with the primary policy rationale for the
retroactivity ban." Dissent at 16 n.1. We properly leave it to
FERC to make this determination in the first instance. If NEP's
arguments are easily dispatched, we trust that FERC will do so.
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CUDAHY, Circuit Judge, dissenting. The majority has
called for another remand in this stale case to give the Commission
an additional opportunity to restate the conclusion it has already
emphatically declared in its ruling on New England Power’s (NEP’s)
petition for clarification and rehearing. The result reached by
the Commission here is entirely fair, assessing Norwood as a remedy
for non-payment of a contract termination charge an interest
payment related to the cost of money and denying NEP a windfall of
18 percent interest unrelated to that cost. See Connecticut Light
& Power, 59 F.P.C. 811, 821 (1977).
The majority has rejected the Commission’s invocation of
the law of the case doctrine as the basis of its holding that the
prime rate of interest should be assessed from the time of
rendition of the bill and not from some later date. But the
majority has ignored the fact that the Commission has specifically
invoked the terms of the mandate of Town of Norwood v. FERC, 476
F.3d 18 (1st Cir.), cert. denied, 128 S. Ct. 432 (2007) (Norwood
IV). The “mandate rule” “generally requir[es] conformity with the
commands of a superior court on remand, [and] is simply a specific
application of the law of the case doctrine.” United States v.
Bell, 988 F.2d 247, 251 (1st Cir. 1993). It is the mandate of the
First Circuit in Norwood IV which is decisive here.
The language of this Circuit in its Judgment and Mandate
in Norwood IV stated very clearly:
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[A]s to the interest, we also affirm the order
insofar as it requires interest payments based on
at least the prime rate—the figure Norwood itself
seeks—and remand only as to whether more is
properly due.
Id. at 29 (emphasis added).
This mandate leaves no room for the Commission to shorten
the period of assessment of reduced interest payments. The First
Circuit here also ruled that “whatever the [interest] figure FERC
finds justified, the tariff provides that Norwood owes that amount
from the time the bill was rendered.” Id. It is very difficult
for me to understand how FERC could have assessed interest at some
time other than when the bill was rendered in the face of this
mandate from the First Circuit.
Further, the justifications for the law of the case
doctrine and the related “mandate rule,” namely “stability in the
decisionmaking process, predictability of results, proper working
relationships between trial and appellate courts, and judicial
economy,” United States v. Connell, 6 F.3d 27, 30 (1st Cir. 1993)
(quoting United States v. Rivera-Martinez, 931 F.2d 148, 151 (1st
Cir.), cert. denied, 502 U.S. 862, 112 S. Ct. 184, 116 L. Ed. 2d
145 (1991)), are borne out by the instant case. To the extent NEP
believes it unfair that it is bound by FERC’s adherence to a
reasonable construction of the court’s mandate, its objections come
too late. If it objected to the language of the court’s mandate,
NEP was free to seek rehearing or rehearing en banc or Supreme
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Court review. NEP has waived the timing concession it now seeks to
recover. See Sithe New England Holdings, LLC v. FERC, 308 F.3d 71,
75 (1st Cir. 2002) (if FERC had any doubt as to the meaning of the
court’s remand order, “it could easily have sought clarification”).
FERC dutifully followed Norwood IV’s mandate. NEP, having failed to
object to the scope of Norwood IV’s mandate, seeks to add yet
another chapter to a dispute that has dragged on for ten years and
has spawned what is now a total of five decisions from this court.
The majority suggests that in order to justify the
Commission’s adherence to the inescapable words of the court’s
mandate, at some point in the court proceedings the issue of the
filed rate doctrine or retroactivity must have been raised and
expressly and specifically decided by the First Circuit. If this
were a matter of issue preclusion (collateral estoppel), it might
have been necessary for retroactivity to have been specifically
addressed. However, the question here is the mandate of the court,
which establishes the limits of Commission action on remand, not
issue preclusion. And for this purpose, one must only address the
words and meaning of the mandate and be guided by them. The thesis
of the majority seems to be that the mandate of the First Circuit
may be broadened to include matters that the court did not address
and the authority of the Commission on remand correspondingly
enlarged. While a lower court or agency can consider “any issue
not expressly or impliedly disposed of on appeal,” Biggins v.
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Hazen Paper Co., 111 F.3d 205, 209 (1st Cir. 1997) (internal
quotation marks and citation omitted), FERC acted reasonably in
taking the court at its word that on remand, it should consider
only the reasonableness of the interest rate to be applied to late
payments.8
There is no Chenery issue here since the Commission
relied on the court’s mandate in Norwood IV, which was entirely
proper—in fact inescapable. Hence, NEP’s effort to raise a
technical issue of retroactivity by attempting to evade the mandate
of Norwood IV must fail and the Commission’s fair resolution of the
remedy for premature contract termination must stand.
Therefore, I respectfully dissent.
8
It was not unreasonable, as NEP suggests, for FERC to
interpret the Norwood IV mandate as it did merely because Norwood
IV did not discuss the issues of retroactivity and the application
of the filed rate doctrine. In any event, “every time that FERC or
any comparable agency decides that an existing rate is unjust and
orders refunds to buyers for a past period, it is engaging in
permissible ‘retroactive ratemaking’ in a vernacular sense.”
Sithe, 308 F.3d at 78. NEP’s argument here has nothing to do with
the primary policy rationale for the retroactivity ban. “What is
primarily restricted by the [Federal Power Act] . . . is for the
agency to surprise buyers, who paid the tariffed rate for a
service, by telling them that they must now pay an increased price
for past services.” Id. In the words of Sithe: “There are indeed
limits on ‘retroactive ratemaking’; but this is a slogan even more
abused than petitioners’ claims of entitlement to a just and
reasonable . . . rate. (It is further confused by invocations of
a companion notion—the so-called ‘filed rate doctrine,’ a phrase
that covers more than one precept.)” Id. at 77.
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