Contract Allowed Pipeline to Change Rates Without FERC Review

iberdrola's predecessor executed an unambiguous contract, respondent without a remedy. iberdrola can always obtain relief from the f.3d 831, 839 (d.c. cir. 2006). negotiated rate. see petitioner's br. at 30�31. but even this no. 08-1195 primary steel, inc., 497 u.s. 116, 126 (1990) (noting that the br. at 43; oral arg. recording at 9:46�10:13. but a contract ferc approval of a rate change, and the history of the ferc denied ppm's request, concluding that the rate, which ferc will automatically review at the time it is filed the actual rate being charged at all times. that was all recourse rate nor bargained for similar language in the predecessor in interest, asked ferc to reject the filing on the were filed in advance of any new rate taking effect. see considered essential to preventing price discrimination"). judith a. albert, senior attorney, federal energy iberdrola. both parties were aware that ferc had instructed 7 any event, at oral argument, iberdrola effectively contradicted i. determination, 80 ferc at 61,599. thus, if the parties regulatory commission (ferc) orders requires only our time it is filed. see sea robin pipeline co. v. ferc, 795 f.2d (quoting chevron u.s.a., inc. v. natural res. def. council, v. certificate application suggested that alliance would need meaning." intervenor's br. at 22. ferc enforced the contract was higher than the negotiated rate, until late 2007 when established rule that freely negotiated rates are presumed just changed operating costs without ferc's prior approval. the section 5 challenge. iberdrola wants the section 4 review that negotiated contract between alliance and its shippers calls for 2009). 61,238, 61,240. shippers choosing negotiated rates thus can does not satisfy the nga's "specificity" requirement. this is only ambiguous if it is "reasonably susceptible of different changes, and we must decide whether that interpretation was when the contract requires it.1 reasonable in a section 4 action, whereas the shipper bears the that ferc had "specifically stated in its certificate order that see alternatives to traditional ferc � 61,149, at 61,590 (1997) [hereinafter preliminary grounds that alliance's proposed rate increase "failed to association of america, we cannot vitiate a properly executed contract, which one might lead to greater clarity regarding the basis of the rate of this case, we assume but do not decide that is so. if negotiated "remove themselves from any protection the commission recourse rates but reviews changes to negotiated rates only the written agreement both parties understood that alliance 9 regulatory commission, argued the cause for respondent. ferc read the transportation agreement to allow on petition for review of an order this petition: whether ferc must approve changes alliance annual increases averaged 2.5%. each year the recourse rate griffith, circuit judge: although set against the rate is a critical fact that has bearing upon the central issue of specified rate formula or the actual rate being charged. see not say. iberdrola argues that the lack of any mechanism to written agreement, ferc will accept the rate change without before it, allowed alliance to change the negotiated rates to necessity that would allow it to operate. in this preliminary precedent agreement, sched. c., at 3. no language in the adjust the rate as its operating costs fluctuate. no mention is contract expressly excludes such a role for ferc, we deny determined using actual operating and maintenance costs . . . before it took effect, though ppm could still challenge the rate be reflected in its rates from time to time." open season argued september 16, 2009 decided february 26, 2010 abdicated its obligations under section 4 by permitting arbitrary or capricious under the administrative procedure transportation agreement, replacing the precedent after succeeding to ppm's rights under the transportation see how iberdrola's argument casts any doubt on the question alliance sought to increase the negotiated rate by about 6%. negotiated rate customers and pipelines could provide in their had agreed that ferc would not review alliance's rate and silberman, senior circuit judge. for the district of columbia circuit canada border to the chicago area. alliance pipeline l.p., alliance's tariff and determine the prevailing rates, which iberdrola finds ambiguity outside the contract in the calculation of its operating costs to artificially increase the changes if the parties included such a provision in their constructions or interpretations." ameren servs., 330 f.3d at in the face of this plain language, iberdrola argues in its united states court of appeals courts in a breach of contract action. likewise, iberdrola can 182, 183�84 (d.c. cir. 1986) (discussing the salient the resolution of this case would be even more straightforward than ferc's approval before adjusting the negotiated rate. this awarded alliance its certificate, the parties executed the iberdrola renewables, incorporated, the briefing in this case and ferc's orders below suggest that the parties' intent, and it cuts strongly against iberdrola. agreement was executed while the pipeline's application was nor the method by which they were calculated." id. ppm provision for ferc approval of changes to the negotiated "consider[ing] de novo whether the [contract] unambiguously differences between nga section 4 and section 5). second, changes. rather, the transportation agreement simply noram gas transmission co., 75 ferc � 61,091, at 61,309 preliminary determination on non-environmental issues, 80 that iberdrola, in hindsight, considers its predecessor's operating costs. as alliance appropriately notes, "the fact directed alliance to remove that language from its tariff, capriciously read a contract to allow a pipeline to change its explaining that such a provision belongs more appropriately iberdrola argues that the parties intended that ferc possibility does not entitle iberdrola to the section 4 review its by law"). by selecting a negotiated rate, iberdrola's interest calculated that the bargained-for rate would offer a its predecessor failed to include in its contract with alliance. 10 would review alliance's rate changes under section 4 at the rate, we agree with ferc. the transportation agreement intervenors agreement controls for we must give effect to the rate changes: "shippers electing recourse rates agree to pay offered. see policy statement, 74 ferc at 61,239 (stating that unambiguously expressed intent of the parties." ameren u.s.c. � 717d(a). a section 5 review differs from a section 4 533 f.3d 845, 852�53 (d.c. cir. 2008) (noting that ferc challenge how alliance calculates its operating costs, which rate. and for the first time, ppm energy, iberdrola's and reasonable. predecessor in interest bargained away such review in the predecessor rejected that option, and iberdrola raises no the contract interpretation issue, ferc has unlawfully iberdrola also argues that the ferc orders are unlawful agreement, iberdrola filed a timely petition for review in this contract bears upon our analysis. the earliest form of the provides alliance carte blanche to raise its rates at will, ambiguous, extrinsic evidence cannot be used as an aid to they see as more favorable rates. agreement. alliance and its shippers included no language in can trigger rate increases, creates ambiguity. see petitioner's iii. party now regrets having entered. pipeline, each shipper chose to negotiate the rate it would pay ferc � 61,076, at 61,241 (1996) [hereinafter policy under section 5. see id. this petition requires the court to determine whether the on changes in its operating costs: "the negotiated rates are ferc approval for any negotiated rate changes. they were, must "presume that the rate set out in a freely negotiated . . . contracts for ferc review of negotiated rate changes. for purposes always challenge a rate change it thinks unreasonable in a negotiated rate change. petitioner, iberdrola renewables, inc., selected a negotiated inc. v. ferc, 518 f.3d 43, 48 (d.c. cir. 2008). we begin by alliance was required to do. any shipper could view rehearing order, 122 ferc at 62,429. provided that "[c]hanges in [alliance's] operating costs will section 5 action. at the end of the day, iberdrola wants more supply corp. v. ferc, 811 f.2d 1563, 1572 (d.c. cir. 1987) change. but that is not the deal that was struck, and we fail to briefs that the contract is nevertheless unclear. iberdrola finds ambiguity not in what the contract says, but in what it does 5 before us: whether ferc must approve such rate changes. in that contract providing for ferc review of negotiated rate and committed that agreement to a written contract. any determination]. before alliance began service on the the rate in a section 5 challenge, which iberdrola has not sign after ferc issued alliance its certificate. preliminary contract. the question is whether ferc arbitrarily or iberdrola argues in the alternative that even if it loses on are "just and reasonable," 15 u.s.c. � 717c(a) (2006), the interpretation." consol. gas transmission corp. v. ferc, � 61,250, at 62,428 (2008) [hereinafter rehearing order]. � 717r(b). see nat'l fuel gas supply corp. v. ferc, 468 alliance to update its negotiated rates without prior approval. entitle ppm to ferc review of the proposed rate increase commission automatically reviews proposed changes to effect, the shippers can bargain away the protection of such a mechanism would be of benefit to this shipper and see petitioner's br. at 26�32. but this argument ignores the could only change the rate if ferc first approved the new it would not review the level of alliance's negotiated rates thus, shippers seeking to involve ferc in the review of their [ferc's] reasonable interpretation" of the agreement. adjusting its rates, and ferc correctly declined to do so. 11 they can always challenge an established rate under section 5 sophisticated parties will bargain for rates that are just and reviewing the adjustment for reasonableness. see id. at burden to show an established rate is not in a section 5 case. predecessor intentionally avoided section 4 review to obtain contract. their knowledge of how ferc would read the of the nga on the ground that the rate is "unjust, made to the negotiated rate. in the exercise of its duty under 1 contrast, ferc may only review a rate under section 4 at the agreement, which acknowledged ferc's role in approving 12 unreasonable, unduly discriminatory, or preferential." 15 operating costs. see alliance pipeline, l.p., 122 ferc rate agreements and ferc's basic requirements for such 6 or capriciously by rejecting iberdrola's protest of alliance's contract is the most probative piece of extrinsic evidence of that the shipper in this case, predecessor in interest to pipeline that transports natural gas from the north dakota- made. in the orders on review, ferc found that the parties alliance to alter its negotiated rates to keep pace with be reflected in its rates from time to time." transportation contract, called the precedent agreement, the parties agreed and a shipper"); cf. dominion transmission, inc. v. ferc, shippers can observe prevailing rates so that they might detect leaving the shipper exposed to alliance's reported changes in review in two significant ways. first, section 5 provides for [the transportation agreement] to find ambiguity?" iberdrola the pipeline bears the burden to show the proposed rate is review from ferc. see alliance pipeline, l.p., 121 ferc unlawful price discrimination. cf. maislin indus., u.s., inc. v. her on the brief were joan dreskin, dan regan, timm finally, iberdrola contends that ferc's interpretation of the federal energy regulatory commission ferc "would dispense with cost-of-service regulation for an alliance pipeline l.p. and interstate natural gas requirement that alliance offer the recourse rate gave (1996). the specificity requirement exists to ensure that other adjusts the negotiated rate consistently with the terms of the federal energy regulatory commission, greater rate flexibility and (at the time) lower rates. ferc's may give customers under recourse rates." colo. gulf negotiated rate now exceeds the recourse rate does not entitle straightforward application of the plain terms of a written increased--without ferc's prior approval--to reflect precedent agreement called for ferc approval of changes to ferc's approval for any changes to the negotiated rate based service and a ferc-determined profit margin. complicated regulatory framework of federal energy law, at contract's plain language settles this matter. even if we were ferc review of a rate only after it has taken effect. by to a negotiated rate in lieu of a recourse rate. the agreement mark k. lewis argued the cause and filed the briefs for rates have three options: ex ante, they can (1) elect a recourse 3 agreed to a negotiated rate. than the ferc scrutiny of alliance's new rate available in a � 61,309, at 62,681 (2007). the commission reminded ppm the end of the day, this petition for review of federal energy redress if they think the rate has become unjust over time. contract ambiguous, "we give chevron-like deference to presumed to be reasonable when a recourse rate is also rates without first obtaining ferc's approval. because the phrasing of the recourse rate provision in the precedent virginia a. seitz argued the cause for intervenors. with transportation agreement when it chose a negotiated rate time they are filed. ferc and alliance argue that iberdrola's 499 (internal quotation marks omitted). we do not doubt that application, which indicated that alliance would seek responded, "yes." see oral arg. recording at 6:23�:30. of course, negotiated rate customers are not left without with her on the brief were cynthia a. marlette, general more. id. at 62,431. the transportation agreement did not individual shipper when mutually agreed upon by the pipeline satisfy both the rate-change requirements under the negotiated "duty to file rates with the commission . . . [has] always been filed, or (2) negotiate for ferc approval of rate changes in for the foregoing reasons, the petition for review is ferc will not review freely negotiated rates, which are requested rehearing, arguing that despite what was put into customers are entitled to what they bargained for and no iberdrola's argument fails because alliance has, in its tariff, more profitable arrangement than the recourse rate. that the over the recourse rate and made no provision for ferc (internal quotation marks and citation omitted). if we find the [alliance's] operating costs will be reflected in its rates from argument that persuades us to part company from the well- it is because neither party disputes that alliance and the shippers contract meets the `just and reasonable' requirement imposed reasonable. see id. at 61,241�42. so long as the pipeline cost-of-service ratemaking for natural gas pipelines, 74 to consider this extrinsic evidence, it is of no help to such rates, subject to changes determined by the ferc from their contract; ex post, they can (3) pursue a section 5 action the petition. intervenor alliance pipeline l.p. operates an 887-mile contract states, "changes in [alliance's] operating costs will 8 denying rehearing, ferc explained that negotiated rate inc., 467 u.s. 837, 842 (1984)). such is the case here. the 4 shipper could have chosen a different option, a non-negotiable rate changes in their contract. see id. otherwise, prior transmission co., 78 ferc � 61,263, at 62,124 (1997). in negotiated rate agreement. because the parties made no does not require that alliance obtain ferc's approval before court, which we have jurisdiction to consider under 15 u.s.c. time to time." open season precedent agreement, sched. c., iberdrola to ferc review of alliance's rate changes. its briefs and conceded that the contract is unambiguous. the after the negotiated rate has taken effect. fact that the premise of the negotiated rate regime is that statement]. this approach reflects ferc's assumption that at 3 (emphasis added). of course, iberdrola neither chose the time to time." transportation agreement, app. b. approval from ferc would not be forthcoming. after ferc entergy servs., inc. v. ferc, 568 f.3d 978, 982 (d.c. cir. because they permit a rate change pursuant to a contract that opinion for the court filed by circuit judge griffith. alliance to remove that language from its tariff and to include wished, they could provide for ferc review of negotiated 771 f.2d 1536, 1544 (d.c. cir. 1985). "[i]f the intent of the argument fails as a matter of law. "if a contract is not predecessor bargained away. nonetheless, iberdrola is not review. absent such an agreement, ferc would only review pending for the certificate of public convenience and keep pace with increases in operating costs without prior parties on the particular issue is clearly expressed in the changes in its operating costs. from 2003 to 2007, these repeated the language previously agreed to: "changes in bargain unwise is no reason to disregard the contract's clear by electing a negotiated rate, iberdrola's predecessor in the negotiated rate. made of a role for ferc. this contrasts sharply with the suggesting that alliance may have manipulated the petitioner addresses the matter at issue. if so, the language of the previously discussed language from alliance's certificate in the parties' transportation agreement, which they would agree to avoid ferc's review under section 4 and thereby servs. co. v. ferc, 330 f.3d 494, 498 (d.c. cir. 2003) act. see 5 u.s.c. � 706(2)(a); old dominion elec. co-op., for the first time, the negotiated rate exceeded the recourse court asked iberdrola's counsel, "so you have to go outside counsel, and robert h. solomon, solicitor. transportation agreement, as did the precedent agreement even so, the proposed tariff alliance filed with its therefore, on notice that ferc would only review rate ii. rate customers like iberdrola cannot contract for section 4 review, petitioner. document, `that is the end of the matter.'" nat'l fuel gas ferc's prior approval of rate changes in exchange for what filings." petitioner's br. at 11�12. "recourse rate," based only on the pipeline's cost of providing as written. the commission, therefore, did not act arbitrarily rule mandates that a pipeline's tariff include either a clearly before: sentelle, chief judge, griffith, circuit judge, application, pro forma sheet 8 (emphasis added). ferc denied. abendroth, and william a. williams. it in the transportation agreement if the parties wanted charged the negotiated rate, which it has periodically approved by the ferc from time to time." certificate 2 iberdrola the choice of a ferc-reviewed rate. iberdrola's agreement, app. b. this language indicates that alliance will since pipeline service began in 2000, alliance has section 4 of the natural gas act (nga) to ensure that rates