New England Power Company v. Federal Energy Regulatory Commission, Central Maine Power Company, Intervenor

LEVENTHAL, Circuit Judge:

This case arises out of a dispute among the New England utilities which built and own the Maine Yankee nuclear power plant over the allocation of transmission costs among them. Unable to agree on the financial arrangements, Central Maine Power Co. (Central Maine) unilaterally filed with the Federal Power Commission (FPC) a rate modification relieving itself of the obligation to make certain payments. The FPC found that the resulting rates were not unreasonable, a ruling not challenged here. The New England Power Co. (NEPCO) claims that the filing, even if reasonable, was a unilateral filing not permitted under the utilities’ Transmission Agreement, and hence impermissible under United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division, 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958). The FPC rejected NEPCO’s position. We affirm the FPC ruling as a reasonable contract interpretation, consistent with the record of the negotiations leading to the Transmission Agreement.

I. BACKGROUND

In 1966, eleven New England utilities (“sponsors”) agreed to build and operate the Maine Yankee nuclear generating plant in Wiscasset, Maine. The three Maine sponsors use about half of the power from Maine Yankee. To secure the participation of the non-Maine sponsors in the joint venture, the Maine utilities apparently agreed in principle to bear the costs of transmitting the power to the Maine-New Hampshire border to permit further transmission to the southern New England power grid. The exact terms were left to be worked out later.

The Transmission Agreement was signed by the twelve transmitting utilities on April 1, 1971. It was negotiated under the pressure of a deadline established by the SEC in the settlement of an antitrust claim by municipal utilities.1 The provisions critical for this case are in sections 4, 5, and 10, excerpted in the appendix. The municipals were allowed to purchase some of the Maine Yankee power, and to become parties to the agreement by executing a supplement. To complete the settlement, a provision for allocating transmission costs, acceptable to the municipals, had to be worked out. Section 4 of the Transmission Agreement (“Payment for Transmission *1215Services Received”) provided that the parties pay into a fund the percentage of transmission costs equal to the percentage of Maine Yankee’s power that they take, an allocation technique known as the “postage stamp” method.2 The fund is then distributed to the utilities providing the transmission services in reimbursement of the costs of transmission. In place of its obligation to provide the transmission facilities to the New Hampshire border, Central Maine agreed to pay into the fund for the power it took, even though it did not receive transmission services from any other utility, since Maine Yankee is located within its service area.3

Subsequent to the original undertaking, it turned out that Central Maine had to build two 345 kilovolt transmission lines rather than the single line originally anticipated. Central Maine sought financial support for this extra undertaking from the other utilities. At various times, most of them responded favorably to Central Maine’s position. However, at the time of completion of the Transmission Agreement, no arrangement for financial relief of Central Maine had been agreed upon.

Since the matter could not be settled in the hectic negotiations carried out to produce the purchase and transmission agreements to meet the SEC settlement deadline, Central Maine proposed that each transmitting party be allowed to file modified rates with the FPC, unilaterally, subject to acceptance by the FPC. Being on notice that Central Maine intended to use the right to file a modified rate structure as a “final last straw”4 in its efforts to obtain transmission support, petitioner New England Power Co. (NEPCO), sought to require unanimous action by the transmitting parties to file modified rates with the FPC. NEPCO failed in this. The disputed § 10 of the Transmission Agreement permits unilateral filing, restricted however by a parenthetical provision which is the focus of this case. Section 10 provides in pertinent part:

Each transmitting party reserves the right to submit for filing without the concurrence of any other party a New England power pool agreement and from time to time other rate schedules (with an annual rate determined in accordance with the method set forth in Section 4 hereof) modifying or superseding this Agreement and each party reserves the right to object to any such New England power pool agreement and other rate schedules in accordance with Federal Power Commission rules and regulations.

R. 392-93 (emphasis added).

Unable to reach agreement on relief from its transmission costs, Central Maine unilaterally filed a modification of the rate schedule on February 14, 1973, shortly after Maine Yankee began commercial operation.5 The modification amended § 4 of the *1216Transmission Agreement to require payments only from utilities receiving transmission service from others. This had the sole effect of removing Central Maine’s obligation to pay into the pooled transmission account. On April 10, 1973, the FPC accepted Central Maine’s proposed modification to be effective thirty days after its filing and instituted an investigation into the lawfulness of the modification pursuant to § 206(a) of the Federal Power Act, 16 U.S.C. § 824e(a). Hearings were held before the Presiding Administrative Law Judge (ALJ) on August 22-24, 1973. In his initial decision of September 3, 1974, the ALJ found that the proposed modification was not contractually barred and that the resulting rates were not unjust or unreasonable. Exceptions were taken to this decision by NEPCO and four other parties to the Transmission Agreement. On July 3, 1975, the FPC issued an order affirming the ALJ’s initial decision and on August 25, 1975 an order denying NEPCO’s motion for rehearing.6

NEPCO alone appeals the FPC’s decision. The appeal is solely on the basis that the unilateral filing is not permitted under the Sierra-Mobile-Memphis doctrine.7

The modification relieves Central Maine of payments of about $1.2 million annually. Central Maine maintained that the annual carrying charges for the two 345 kilovolt transmission lines is about $3.8 million, so that it has recouped less than half of its transmission costs by the modification.8 Furthermore, Central Maine testified to its intent to withdraw the modification in 1986, by which time it projects that its load will have increased to the point that “two lines would have been necessary for the use of the Central Maine system alone and that they would have been built by then regardless of Maine Yankee.” 9 The modification must be taken as just and reasonable in amount. The only question is whether it is permissible under the Sierra-Mobile-Memphis doctrine.

II. LEGALITY OF THE FILING

A. The Sierra-Mobile-Memphis Doctrine

By this time the standard governing permission to file unilateral rate changes is well settled.10 In companion cases, Mobile-Sierra,11 the Supreme Court prohibited revision of contractual rates by the FPC merely on a finding that the new rate was not unreasonable, without affecting the FPC’s power to revise rates when “necessary in the public interest.”12 Two years later, the Court rounded out this doctrine that the contract governs the normal course of affairs in United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division.13

*1217The important and indeed decisive difference between this case and Mobile is that in Mobile one party to a contract was asserting that the National Gas Act somehow gave it the right unilaterally to abrogate its contractual undertaking, whereas here petitioner seeks simply to assert, in accordance with the procedures specified by the Act, rights expressly reserved to it by contract.14

As we have summarized it;

[t]he rule of Sierra, Mobile and Memphis is refreshingly simple: The contract between the parties governs the legality of the filing. Rate filings consistent with contractual obligations are valid; rate filings inconsistent with contractual obligations are invalid.15

B. Scope of the Memphis Clause

Section 10 of the Transmission Agreement is a so-called Memphis clause, inserted so as to permit rate filings that are unilateral in the sense of not requiring the concurrence of purchasers.

The only dispute presented to us is whether the parenthetical condition on any unilaterally proposed modified rate, “with an annual rate determined in accordance with the method set forth in Section 4 hereof,” bars the filing made by Central Maine.

NEPCO and Central Maine agree that a central purpose, if not the sole purpose, of the parenthetical clause was to assure the municipal utilities, who were the beneficiaries of the SEC settlement which created the deadline for the Transmission Agreement negotiations, that there would be no abandonment of the “postage stamp” method of charging for transmission service.16 A possible, and probably the simplest, interpretation of the parenthetical is that the “method” which is to be preserved is the “postage stamp” method. NEPCO argues that the “method” refers to the entire pay-in provision of § 4, under which it is conceded that Central Maine was obligated to pay for transmission services it did not receive. Under this interpretation, Central Maine, which insisted on the § 10 Memphis clause as a “last straw” means to enable it to obtain financial relief from its transmission costs, relief that the co-ventures would not then provide, gave up, in the same section, any possibility of reducing its payments under the Transmission Agreement.17

The testimony of the NEPCO and Central Maine representatives at the negotiations fairly demonstrates that NEPCO did not win such a complete victory in the provisions of the Transmission Agreement. What emerges is that the parties almost deliberately refrained from resolving the ambiguity set out above. Given the pressure to reach an agreement for the antitrust settlement and their inability to agree on transmission support for Central Maine, the parties in effect papered over their differences. There was still hope for settling the underlying support problem. If not, the matter was left for resolution by an outside tribunal — the FPC in its treatment of any unilateral filing or a court in litiga*1218tion. After losing its attempt to prevent unilateral filings altogether and getting the parenthetical as a “consolation prize,” NEP-CO did not imagine at the time of making the Transmission Agreement that it had won an absolute veto and that the interpretation it now presents had been adopted. Mr. Allen, NEPCO’s representative at the negotiations, testified:

Obviously representing NEPCO I had a very difficult decision to make at the time. We had a deadline to meet, it was vital to all of us that it be met, and Mr. Thurlow has indicated the pressure on all of us. I had made my request that unilateral changes in the transmission agreement be made jointly by all transmitting parties, and had been told that this was not so — was not acceptable.
Contrary to Mr. Thurlow’s recollection, it is my recollection, though not a clear one, that the parenthetical expression which limits unilateral changes to things which do not change the formula in Section 4, was the brilliant inspiration of somebody else, and as I indicate here was thought to be desirable to assure the municipal officers, who might come in, that they would not have a change in formula in determining them.
It is my recollection that I was offered a consolation prize, which I considered, that maybe this did me some good. I think it did. And I think the balance of my willingness to go forward on Section 10 as the best we could arrange it really was based on an overall consideration as I outlined in answer to Mr. Jones’ question. I think there are very difficult questions involved in parsing out Section 10, it covers a multitude of different events, including the advent of NEPOOL, the advent of NEPOOL with some purchasers joining, others not, some transmitters joining, others not. A whole range of possibilities where there might be a superseding rate schedule or modification proposed.
Ultimately I was willing to go ahead on the basis this was the best I could do for New England Power Company, in the face of a reasonably cléar intent on Central Maine to do something, because I felt as I have expressed it, that the ultimate test of whether this is consistent with the business understanding, the contract, and the ambiguous concent [sic] to unilateral filings would have to be decided if we could not decide it otherwise before an arbitration board or before the FPC.18

C. Deference to the FPC’s Interpretation

In deciding the Sierra-Mobile-Memphis issue, the FPC did not rely, as had the ALJ’s initial decision, on the existence of an ambiguity in the Transmission Agreement concerning Central Maine’s obligation to pay in under § 4. The FPC noted:

we point out that the emphasis in the initial decision upon resolution of ambiguity in Section 4 of the Agreement is misplaced for such ambiguity is immaterial to the Sierra-Mobile issue and in any event [Central Maine] fully understood its Section 4 pay-in obligation.19

The FPC considered the history of the negotiations leading up to the Transmission Agreement and concluded:

[T]he history of the Agreement . suggests that [Central Maine] viewed Section 10 as providing a means to terminate its Section 4 pay-in obligation if subsequently it could not obtain a support agreement from the other members of the Maine Yankee, in particular NEPCO, while NEPCO viewed the parenthetical clause of Section 10 as assuring [Central Maine’s] continued pay-in obligation. The record does not provide a picture of negotiations in which there was a clear consensus among the parties. [Central Maine] had been seeking some support agreement ever since it realized that two lines were necessary instead of just one. In like manner NEPCO has fought support for these lines from the beginning. Furthermore, the exigent atmosphere *1219surrounding the 1971 execution of the Agreement added to the inability to fully resolve these problems.20

Based on the “plain meaning” of the word “method” in the parenthetical clause and the crucial role of the “postage stamp” method in the antitrust settlement, the FPC interpreted the parenthetical clause as preserving the “postage stamp” method only.21 This led to the conclusion that Central Maine’s filing was permissible, subject of course to FPC review of reasonableness.

In past cases, we have identified the FPC’s hostility to the Sierra-Mobile doctrine.22 In the present case, the FPC’s handling of the contract interpretation issue is not unprincipled, or reflective of a determination to find an ambiguity where there is none. Our examination of the record confirms the finding that the parties did not reach agreement on the allowable extent of the right of unilateral filing.* As we have noted, they papered over their differences, leaving resolution of the ambiguity, in the event of failure to reach a settlement, to some future tribunal.

Our recent decisions in this area reflect a deference to the FPC, albeit a limited one, in Sierra-Mobile-Memphis contract interpretation matters. In this case, we find that the FPC’s “decision is ‘amply supported both factually and legally.’ ”23

*1220D. Arbitration Claim

Alternatively, NEPCO argues that Central Maine’s filing is prohibited for its failure to comply with § 5 of the Transmission Agreement, “Payment for Transmission Services Rendered.” The first paragraph of § 5 prescribes how the pooled transmission account created by the pay-in provisions of § 4 is to be divided among the utilities providing transmission services. The second paragraph provides:

If a substantial change in conditions occurs the foregoing method of determining the division of transmission payments and the method of determining such payments shall be subject to review and re-determination at the request of any transmitting party. If the transmitting parties are unable to agree as to what constitutes an equitable redetermination the matter shall be subject to arbitration as hereinafter provided.

NEPCO maintains that “the method of determining such payments” refers to the pay-in formula of § 4, and that hence Central Maine was required to show a “substantial change in circumstances” and comply with the arbitration provision before modifying its pay-in obligations under § 4.

The Transmission Agreement relates to two kinds of payments: the payments-in of § 4 and the payments-out of § 5. The FPC rejected NEPCO’s contention that “the method of determining such payments” in § 5 refers to the § 4 formula for determining payments in. Rather, the Commission determined that this phrase refers to administrative details associated with payments out.24 The Commission’s reading is reasonable and we accept it.

E. Structure of Unilateral Filing

In one aspect, the FPC’s disposition of the arbitration claim, which we have just approved, does not fully face up to the complexities of this case. In effect, the FPC says that the arbitration clause only applies to controversies under the Agreement over receipts for transmission services rendered (§ 5) whereas here the issue concerns the meaning of § 4, relating to payments for transmission services received.

A conundrum of sorts arises from the circumstance that this controversy is lodged within the jurisdiction of the FPC as a change in rates for payments received for services rendered. We refer to the structure of the Act25 and the structure of the FPC’s implementing regulations.26 These sections, following the general pattern of public utility law and practice, provide that a utility transmitting and selling energy shall file its rates, subject to FPC inquiry, *1221and increase its rates only by filing amendments to its schedules with opportunity for the FPC to determine the validity of the increased rates it proposes to receive for its sale or transmission service. Here Central Maine’s filing turns on the proper interpretation of its contract obligation to make payments. Generally under public utility law and practice the inquiry concerns receipts of a transmitting utility and not payments by the utility.

However, none of the parties has raised a jurisdictional question. It is desirable that the pricing obligations between buyers and sellers of electric energy and transmission service should be definite. The matter might be recast in terms of FPC authority to issue a declaratory judgment at the instance of a buyer as to the price he is obligated to pay. In any event, under this agreement Central Maine is receiving a price for its service in transmitting energy to the Massachusetts border which is calculated by determining the amount it is entitled to receive under § 5 of the agreement and deducting, as an offset, the amount it is required to pay under § 4. When an agreement is structured as this one is, Central Maine can in effect increase the rate it receives for that transmitting service by reducing the offset it has to pay under § 4. We are satisfied that it was appropriate for the FPC to determine the controversy. And since we are satisfied with the determination it has made, the FPC’s orders are

Affirmed.

. See Municipal Electric Association of Massachusetts v. SEC, 134 U.S.App.D.C. 145, 413 F.2d 1052 (1969).

. This name derives from the fact that all users pay the average unit transmission cost, regardless of the distance the user is from the source.

. There is an apparent ambiguity in the obligation under the Transmission Agreement, at least in looking at the heading of the pay-in section, § 4, entitled “Payment for Transmission Services Received.” Arguably Central Maine is not covered by the section because it does not receive any transmission service. However, headings are not controlling over the text. Central Maine concedes that under the Agreement as signed, it was required to pay the postage stamp transmission costs on the power it used. Record at 180 [hereinafter cited as R._].

. “The method that would be taken to remedy through Section 10 was never discussed. It was only that the provisions of Section 10 would be used as a final last straw, if necessary.” Testimony of Elwin W. Thurlow, President of Central Maine at hearings before Presiding Administrative Law Judge (ALJ) Freibourg on Aug. 23, 1973, R. 182-83.

. Central Maine’s President testified that all the Maine Yankee sponsors except NEPCO had indicated that “they would go along with some form of reasonable support arrangements. . . . ” R. 38E-38F. NEPCO and four other sponsors moved the FPC to reject Central Maine’s proposed modification. Only NEPCO pursues this appeal of the FPC’s acceptance of the modification. Significantly, Public Service Co. of New Hampshire, which loses the most by the modification, intervened on March 8, 1973, in favor of Central Maine’s filing, stating:

Petitioner has informed Central Maine that Petitioner believes Central Maine is entitled *1216to compensation for transmitting Maine Yankee power and that the requested modification would, in Petitioner’s opinion, be a reasonable means of providing Central Maine with such compensation.

R. 831.

. These orders, R. 1043 and R. 1063, respectively, were in Dockets No. E-7824 (the uncontested filing of the Transmission Agreement on Nov. 13, 1972) and No. E-8038 (Central Maine’s unilateral filing of Feb. 14, 1973).

. See section II A, infra.

. [Central Maine] concludes that the modification is just and reasonable both because the revenues it receives are similar to those received by the other companies under the Agreement and also because these revenues only cover 47% [sic] of the carrying charges of the two 345 Kv lines.6

6 Annual carrying charges are allegedly $3,835,000 while [Central Maine] receives under the modified rates $1,175,000.

FPC Order Affirming Initial Decision, supra note 6, at 8-9, R. 1050-51.

. ALJ Initial Decision at 8, R. 928.

. See Appalachian Power Co. v. FPC, 174 U.S.App.D.C. 100, 102-04, 529 F.2d 342, 344-46 (1976), cert. denied, 429 U.S. 816, 97 S.Ct. 58, 50 L.Ed.2d 76 (1976).

. United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 343, 76 S.Ct. 373, 100 L.Ed. 373 (1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353, 76 S.Ct. 368, 100 L.Ed. 388 (1956).

. Federal Power Act § 201(a), 16 U.S.C. § 824a(a).

. 358 U.S. 103, 109-13, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958).

. Id. at 112, 79 S.Ct. at 199.

. Richmond Power & Light v. FPC, 156 U.S.App.D.C. 315, 318, 481 F.2d 490, 493, cert. denied 414 U.S. 1068, 94 S.Ct. 578, 38 L.Ed.2d 472 (1973).

. See note 2, supra. Donald G. Allen, NEP-CO’s vice president and negotiator of the Transmission Agreement testified:

A principal purpose for this clause was to assure the “accepting offerees” under the settlement offer that the postage stamp approach would be preserved and that they could count on a uniform transmission charge from Maine Uankee [sic] Power which was insensitive to distance.

R. 231.

. NEPCO was asked at argument what changes Central Maine could unilaterally file under its interpretation of the Memphis clause. NEPCO replied that modification of § 5 governing the pay-out of the pooled transmission account (see section D, infra) e. g., “we want twice as much,” would be permitted. Obviously, NEPCO has to suggest some interpretation whereby the permissive effect of § 10 is not wiped out by the parenthetical clause. However, since decreasing the pay-in is functionally equivalent, so far as mathematics is concerned, to increasing the pay-out, we do not perceive that it has done so.

. Testimony on Aug. 23, 1973, R. 271-72 (emphasis added).

. FPC Order Affirming Initial Decision, supra note 6, at 6, R. 1048. See note 3, supra.

. Id. at 7, R. 1049.

. Id.

. The FPC’s distaste for the Mobile-Sierra doctrine is well known, and it has been in the past necessary for this court to remind the FPC that it is not free to ignore the doctrine. Here, as in past cases, the FPC has “attempted what may charitably be termed an ‘end run’ ” around the doctrine by straining to transform a contract that is unmistakably of the Sierra variety into a Memphis -type agreement.

Sam Rayburn Dam Electric Cooperative v. FPC, 169 U.S.App.D.C. 281, 288, 515 F.2d 998, 1005 (1975) cert. denied, 426 U.S. 907, 96 S.Ct. 2229, 48 L.Ed.2d 832 (1976) (citations omitted).

Having awaited with some anticipation and curiosity the reasons for the dissenting vote, it is fair to record a sense of letdown and bafflement that the dissenting opinion stresses the sentence to which this footnote is appended. Clearly, the parties did not reach agreement on the allowable extent of changes in filings. But they did reach agreement that the rates were not frozen, and that there was latitude to change. They did reach agreement that unanimity was not necessary. The contract does expressly provide for the unilateral filing of a rate modification, so it satisfies the Memphis part of the Mobile-Sierra-Memphis doctrine.

This is not a case where a party gave consent to any change that the other unilaterally imposed. Even in ordinary contract law, where there is no tribunal other than a court to resolve differences, there is enough “give” in doctrines of interpretation to permit the court to construe the “reasonable” intention of the parties. But we need not ponder such matters, for here the parties contracted in the context of an agency with expertise, the Federal Power Commission, with jurisdiction and equipment to monitor any complaints that the changes made were not reasonable. And so, in giving up the requirement of its consent, NEPCO was not surrendering to the mercies of Central Maine, it was retaining the power to complain to the FPC. In making such a complaint, NEP-CO could not be confronted with the response that it had already agreed that the particular change was reasonable. Thus, NEPCO retained the ability to continue its fight if it resented the particular change. But the FPC’s ruling that the particular change is reasonable was not appealed to this court. What NEPCO contends on appeal is that there could be no change without its consent. This is another way of saying that the contract rates were frozen, for even a rigid contract can be changed if everyone consents. NEPCO’s response was frozen, or at least obdurate, but the contract was not congealed.

. Although the application of the Mobile-Sierra-Memphis principles to a given contract is' primarily a matter of law, where the decision involves the interpretation of the parties’ intent as revealed in the language of a contract, it is proper to defer to the Commission’s expertise if its decision is “amply supported both factually and legally.”

Gulf States Utilities Co. v. FPC, 171 U.S.App.D.C. 57, 64, 518 F.2d 450, 457 (1975). Appalachian Power Co. v. FPC, 174 U.S.App.D.C. 100, 109. 529 F.2d 342, 351, cert. denied, 429 U.S. 816, 97 S.Ct. 58, 50 L.Ed.2d 76 (1976). See also Columbia Gas Transmission Corp. v. FPC, 174 U.S.App.D.C. 204, 207, 530 F.2d 1056, 1059 (1976); Indiana & Michigan Electric Co. v. FPC, 174 U.S.App.D.C. 208, 210, 530 F.2d 1060, 1062 (1976); North Atlantic Westbound Freight Assn. v. FMC, 130 U.S.App.D.C. 122, 124, 397 F.2d 683, 685 (1968); Western Union Telegraph Co. v. FCC, 541 F.2d 346, 351 (3d Cir. 1976), cert. denied, 429 U.S. 1092, 97 S.Ct. 1104, 51 L.Ed.2d 538 (1977).

. “Finally, the arbitration provision in Section 5 is not controlling here. The arbitration clause refers to both ‘the foregoing method of determining the division of transmission payments’ and ‘the method of determining such payments.’ Although an argument can be made for reading this latter ‘method’ to refer to the Section 4 method of payment for transmission services received, its context in the Agreement suggests a contrary interpretation. Section 5 is entitled ‘Payment for Transmission Services Rendered’, as contrasted to Section 4, which is ‘Payment for Transmission Services Received’. ‘Payment’ therefore has two meanings: payment into the transmission fund by those receiving wheeling service versus payment from the fund as compensation for providing wheeling services. ‘Method of determining such payments’ refers to the administrative details set out in Section 5 for actual payment of wheeling revenues, apart from the ‘method of determining the division of transmission payments.’ ”

FPC Order Denying Rehearing, supra note 6, at 4, R. 1066.

. All rates and charges made, demanded, or received by any public utility .

Federal Power Act § 205(a), 16 U.S.C. § 824d(a).

Whenever the Commission, after a hearing had upon its own motion or upon complaint, shall find that any rate, charge, or classification, demanded, observed, charged, or collected by any public utility .

Federal Power Act § 206(a), 16 U.S.C. § 824e(a).

. Every public utility shall file with the Commission . . . full and complete rate schedules, as defined in § 35(b), clearly and specifically setting forth all rates and charges for any transmission or sale of electric energy. • • •

18 C.F.R. § 35.1(a) (1976).