Opinion for the Court filed by Circuit Judge GRIFFITH.
Although set against the complicated regulatory framework of federal energy law, at the end of the day, this petition for review of Federal Energy Regulatory Commission (FERC) orders requires only our straightforward application of the plain terms of a written contract. The question is whether FERC arbitrarily or capriciously read a contract to allow a pipeline to change its rates without first obtaining FERC’s approval. Because the contract expressly excludes such a role for FERC, we deny the petition.
I.
Intervenor Alliance Pipeline L.P. operates an 887-mile pipeline that transports
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natural gas from the North Dakota-Canada border to the Chicago area.
Alliance Pipeline L.P., Preliminary Determination on Nonr-Environmental Issues,
That the shipper in this case, predecessor in interest to Petitioner, Iberdrola Renewables, Inc., selected a negotiated rate is a critical fact that has bearing upon the central issue of this petition: whether FERC must approve changes Alliance made to the negotiated rate. In the exercise of its duty under section 4 of the Natural Gas Act (NGA) to ensure that rates are “just and reasonable,” 15 U.S.C. § 717c(a) (2006), the Commission automatically reviews proposed changes to recourse rates but reviews changes to negotiated rates only when the contract requires it.
1
See Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines,
Of course, negotiated rate customers are not left without redress if they think the rate has become unjust over time. They can always challenge an established rate under section 5 of the NGA on the ground that the rate is “unjust, unreasonable, unduly discriminatory, or preferential.” 15 U.S.C. § 717d(a). A section 5 review differs from a section 4 review in two significant ways. First, section 5 provides for FERC review of a rate only after it has taken effect. By contrast, FERC may only review a rate under section 4 at the time it is filed.
See Sea Robin Pipeline Co. v. FERC,
This petition requires the court to determine whether the negotiated contract between Alliance and its shippers calls for FERC approval of a rate change, and the history of the contract bears upon our analysis. The earliest form of the agreement was executed while the pipeline’s application was pending for the certificate of public convenience and necessity that would allow it to operate. In this preliminary contract, called the Precedent Agreement, the parties agreed to a negotiated rate in lieu of a recourse rate. The agreement provided that “[c]hanges in [Alliance’s] operating costs will be reflected in its rates from time to time.” Open Season Precedent Agreement, sched. C., at 3. No language in the Precedent Agreement called for FERC approval of changes to the negotiated rate.
Even so, the proposed tariff Alliance filed with its Certificate Application suggested that Alliance would need FERC’s approval for any changes to the negotiated rate based on changes in its operating costs: “The Negotiated Rates are determined using actual operating and maintenance costs ...
approved by the FERC from time to time.”
Certificate Application, Pro Forma Sheet 8 (emphasis added). FERC directed Alliance to remove that language from its tariff, explaining that such a provision belongs more appropriately in the parties’ Transportation Agreement, which they would sign after FERC issued Alliance its certificate.
Preliminary Determination,
Since pipeline service began in 2000, Alliance has charged the negotiated rate, which it has periodically increased — without FERC’s prior approval — to reflect changes in its operating costs. From 2003 to 2007, these annual increases averaged 2.5%. Each year the recourse rate was higher than the negotiated rate, until late 2007 when Alliance sought to increase the negotiated rate by about 6%. For the first time, the negotiated rate exceeded the recourse rate. And for the first time, PPM Energy, Iberdrola’s predecessor in interest, asked FERC to reject the filing on the grounds that Alliance’s proposed rate increase “failed to satisfy both the rate-change requirements under the negotiated rate agreements and FERC’s basic requirements for such filings.” Petitioner’s Br. at 11-12.
FERC denied PPM’s request, concluding that the Transportation Agreement, as did the Precedent Agreement before it, allowed Alliance to change the negotiated rates to keep pace with increases in operating costs without prior review from FERC.
See Alliance Pipeline, L.P.,
After succeeding to PPM’s rights under the Transportation Agreement, Iberdrola filed a timely petition for review in this court, which we have jurisdiction to consider under 15 U.S.C. § 717r(b).
See Nat’l Fuel Gas Supply Corp. v. FERC,
II.
Iberdrola argues that the parties intended that FERC would review Alliance’s rate changes under section 4 at the time they are filed. FERC and Alliance argue that Iberdrola’s predecessor in interest bargained away such review in the Transportation Agreement when it chose a negotiated rate over the recourse rate and made no provision for FERC review. Absent such an agreement, FERC would only review the rate in a section 5 challenge, which Iberdrola has not made. In the orders on review, FERC found that the parties had agreed that FERC would not review Alliance’s rate changes, and we must decide whether that interpretation was arbitrary or capricious under the Administrative Procedure Act.
See
5 U.S.C. § 706(2)(A);
Old Dominion Elec. Co-op., Inc. v. FERC,
FERC read the Transportation Agreement to allow Alliance to alter its negotiated rates to keep pace with changed operating costs without FERC’s prior approval. The contract states, “Changes in [Alliance’s] operating costs will be reflected in its rates from time to time.” Transportation Agreement, App. B. This language indicates that Alliance will adjust the rate as its operating costs fluctuate. No mention is made of a role for FERC. This contrasts sharply with the phrasing of the recourse rate provision in the Precedent Agreement, which acknowledged FERC’s role in approving rate changes: “Shippers electing recourse rates agree to pay such rates, subject to changes determined by the FERC from time to time.” Open Season Precedent Agreement, sched. C., at 3 (emphasis added). Of course, Iberdrola neither chose the recourse rate nor bargained for similar language in the negotiated rate agreement. Because the parties made no provision for FERC approval of changes to the negotiated rate, we agree with FERC. The Transportation Agreement does not require that Alliance obtain FERC’s approval before adjusting its rates, and FERC correctly declined to do so.
In the face of this plain language, Iberdrola argues in its briefs that the contract is nevertheless unclear. Iberdrola finds ambiguity not in what the contract says, but in what it does not say. Iberdrola argues that the lack of any mechanism to challenge how Alliance calculates its oper
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ating costs, which can trigger rate increases, creates ambiguity.
See
Petitioner’s Br. at 43; Oral Arg. Recording at 9:46-10:13. But a contract is only ambiguous if it is “reasonably susceptible of different constructions or interpretations.”
Ameren Servs.,
Iberdrola finds ambiguity outside the contract in the previously discussed language from Alliance’s Certificate Application, which indicated that Alliance would seek FERC’s approval before adjusting the negotiated rate. This argument fails as a matter of law. “If a contract is not ambiguous, extrinsic evidence cannot be used as an aid to interpretation.”
Consol. Gas Transmission Corp. v. FERC,
Iberdrola argues in the alternative that even if it loses on the contract interpretation issue, FERC has unlawfully abdicated its obligations under section 4 by permitting Alliance to update its negotiated rates without prior approval.
See
Petitioner’s Br. at 26-32. But this argument ignores the fact that the premise of the negotiated rate regime is that FERC will not review freely negotiated rates, which are presumed to be reasonable when a recourse rate is also offered.
See Policy Statement,
Iberdrola also argues that the FERC orders are unlawful because they permit a rate change pursuant to a contract that does not satisfy the NGA’s “specificity” requirement. This rule mandates that a pipeline’s tariff include either a clearly specified rate formula or the actual rate being charged.
See NorAm Gas Transmission Co.,
Finally, Iberdrola contends that FERC’s interpretation provides Alliance carte blanche to raise its rates at will, suggesting that Alliance may have manipulated the calculation of its operating costs to artificially increase the negotiated rate. See Petitioner’s Br. at 30-31. But even this possibility does not entitle Iberdrola to the section 4 review its predecessor bargained away. Nonetheless, Iberdrola is not without a remedy. Iberdrola can always obtain relief from the courts in a breach of contract action. Likewise, Iberdrola can always challenge a rate change it thinks unreasonable in a section 5 action. At the end of the day, Iberdrola wants more than the FERC scrutiny of Alliance’s new rate available in a section 5 challenge. Iberdrola wants the section 4 review that its predecessor failed to include in its contract with Alliance. We cannot vitiate a properly executed contract, which one party now regrets having entered.
By electing a negotiated rate, Iberdrola’s predecessor in interest calculated that the bargained-for rate would offer a more profitable arrangement than the recourse rate. That the negotiated rate now exceeds the recourse rate does not entitle Iberdrola to FERC review of Alliance’s rate changes. Iberdrola’s predecessor executed an unambiguous contract, leaving the shipper exposed to Alliance’s reported changes in operating costs. As Alliance appropriately notes, “The fact that Iberdrola, in hindsight, considers its predecessor’s bargain unwise is no reason to disregard the contract’s clear meaning.” Intervenor’s Br. at 22. FERC enforced the contract as written. The Commission, therefore, did not act arbitrarily or capriciously by rejecting Iberdrola’s protest of Alliance’s negotiated rate change.
III.
For the foregoing reasons, the petition for review is
Denied.
Notes
. The briefing in this case and FERC's orders below suggest that negotiated rate customers and pipelines could provide in their contracts for FERC review of negotiated rate changes. For purposes of this case, we assume but do not decide that is so. If negotiated rate cuslomers like Iberdrola cannot contract for section 4 review, the resolution of this case would be even more straightforward than it is because neither party disputes that Alliance and the shippers agreed to a negotiated rate.