515 F.2d 998 | D.C. Cir. | 1975
Petitions for review of certain orders of the Federal Power Commission
The Southwestern Power Administration,
Under Section 5 of the Flood Control Act of 1944,
Several contracts were necessary to effectuate this arrangement. Sam Rayburn entered into a contract with the SPA for the purchase of the dam site power at a stated monthly rate, with increases to be negotiated no more frequently than every five years (beginning no earlier than July 1, 1970). The contract included a provision giving Sam Rayburn an option to terminate the contract if a proposed increase should be unacceptable. Sam Rayburn also signed contracts with each of its members, municipal and cooperative, setting forth the respective duties and privileges of the organization and its members. All of these contracts referred to the provisions of the final contract necessary to the arrangement, i. e., the contract between Sam Rayburn and Gulf States.
All the parties to the Sam Rayburn-Gulf States contract now concede that the “draftsmanship evidenced by the contract leaves much to be desired.” The scheme of the contract places in separate articles the provisions for “Sale of Power and Energy by the Company
Subsection 4 of Article 3 provides that Sam Rayburn shall compensate Gulf States monthly for energy delivered to municipal members according to an attached rate schedule, “SR — 1”. It provides, in addition, that Sam Rayburn may negotiate for modification of the SR — 1 rates if the SPA lowers the cost of power at the dam site, and that Gulf States may negotiate for modification if the SPA increases dam-site cost. Further, this provision stipulates that a change in SPA charges gives one party a privilege to open negotiations for a rate change; if the parties are unable to agree on a new rate, the party with the privilege of negotiation may cancel the entire contract.
Subsection 4 of Article 4 provides that Sam Rayburn must compensate Gulf States for power delivered to its cooperative members at rates set by a second rate schedule, denominated “SR — 2”. Like its counterpart in Article 3, it contains a renegotiation clause, but renegotiation privileges with respect to SR — 2 rates need not be triggered by a change in SPA pricing. Rather, under the provisions of Article 4, Gulf States may make a written request for renegotiation any time after January 1, 1970, but not more often than once every five years; if the parties are unable to agree on a modification of SR — 2 rates after a renegotiation request from Gulf States, then Gulf States may, at its sole option, cancel the entire contract on thirty-six months’ notice. It should be noted that Sam Rayburn has no renegotiation or cancellation privileges under Subsection 4 of Article 4.
In addition to the involuted, conjoint stipulations already mentioned, Subsections 4 of both articles contain the following identical provision:
(c) If a rate increase or decrease should be made applicable to the service rendered by Gulf States to the Sam Dam Co-op hereunder by final order or by acceptance for filing by Gulf States of any regulatory body having jurisdiction thereof, such increased or decreased rates shall be applicable to such service rendered hereunder from and after the effective date of such rate change.
This language is the source of the controversy among Sam Rayburn, Gulf States, and the Federal Power Commission.
In companion cases, FPC v. Sierra Pacific Power Co.
When Gulf States attempted to file its 1973 revised rate schedule, the question then presented to the FPC was whether Gulf States had reserved the power in its contract with Sam Rayburn to effect rate changes by unilateral application to a regulatory agency. The Commission ruled that the language of Subsections 4(c) of Articles 3 and 4 of the contract, quoted above, did grant Gulf States that privilege, and accordingly it permitted the proposed increase to go into effect. Approaching this decision of the Commission with, the deference to which it is entitled,
An examination of various fea- . tures of the contract itself, as well as certain extrinsic material (consideration of which is proper because of the arguably ambiguous nature of the contract provisions),
At the outset, it is instructive to compare the language of the two Subsection 4(c) provisions with the language of the other contract provisions concerning rate changes. Article 3, Subsection 4(b), which contains the renegotiation clause for SR — 1 rates, requires that such rates “shall be reviewed and redetermined by the parties hereto” at the time of any . change in SPA rates. Article 4, Subsection 4(b), concerning the privilege of Gulf States to ask for renegotiation after 1970 at five year intervals, contains the same “shall be reviewed and redetermined” language. In contrast, the language of the 4(c) subsection of each arti- ' cle is in the subjunctive; “If a rate increase or decrease should be made applicable . . . ” It is certainly not usual for the existence of important contractual rights and obligations to be alluded to in a dependent grammatical clause, yet never set forth directly. Had the parties intended for 4(c) to provide an independent method for effecting a rate change, it appears more likely that they would have so indicated unequivocally, in language similar to that in the 4(b) provisions. Rather, the placement of the 4(c) language after the two contract provisions relating to rate changes, together with its conditional grammatical structure, indicates unmistakably that it refers to a method of implementing a rate change that has been negotiated pursuant to one of the 4(b) provisions.
There appear, however, to be two possible explanations favoring Sam Rayburn’s contention and refuting that of Gulf States. First, the affidavit of the former Administrator of the SPA suggests that Gulf States was willing to abandon its Memphis contracts with the four municipalities to enter into a Sierra-type agreement with Sam Rayburn because it would thereby eliminate the possibility that the cooperative and the government would make arrangements for the delivery of electric power without Gulf States’ participation. This is a convincing explanation, since it cannot be denied that government-supplied power was perceived as a threat by many Southwestern utilities in the past.
Any such contract with a member municipal shall be reinstated in full force and effect in the event this contract is terminated, or in the event service to such Member Municipal is otherwise discontinued under this contract, prior to the earliest date such Member Municipal could have terminated its contract with Gulf States for electric service at the time of such suspension. (Italics added.)27
As stated, the Gulf States-municipality contracts are not contained in the record before us, but it appears almost certain, from the quoted language, that they were cancellable by the municipalities at intervals. If the intervals were reasonably short, there is great force to Sam Rayburn’s argument that Gulf States would have had little to lose by exchang
Finally, the affidavit of the former Administrator of the SPA, which stands uncontroverted in the record, states his understanding of the Sam Rayburn-Gulf States contract at all times: neither party could unilaterally change the existing rates by filing a new rate schedule. The affidavit of the President of Sam Rayburn, who participated in the contract negotiations, deposes that, “At no time was it ever suggested that either party would have the right to unilaterally change the rate of compensation Instead, we intended to have a change in compensation every five years by mutual agreement.”
These affidavits were never considered by the FPC,
THE GULF STATES — MID-SOUTH CONTRACT
The petitioner, Mid-South, entered into a contract with Gulf States in 1950 for the delivery of electric power. The original contract provided that Gulf States’ maximum monthly commitment to Mid-South was 200 kilowatts, but granted Mid-South the right to request an increase of up to 300 kilowatts monthly, subject to Gulf States’ privilege of designating the delivery points for the addi
At the time Gulf States filed its 1973 request for a rate increase, Mid-South protested to the FPC, on the ground that its contract with Gulf States was of the Sierra variety and did not permit unilateral rate changes to be accomplished merely by regulatory approval. The FPC ruled that the contract between Mid-South and Gulf States, as well as several other contracts, was indeed of the fixed-rate or Sierra type. Referring to these contracts, the FPC’s order of June 14, 1973, states: “With regard to deliveries in excess of the maximum contractual commitments of Gulf States under these fixed-rate contracts, we shall accept the new rates applied for herein as an initial filing . . . .” Mid-South did not apply for rehearing or reconsideration with respect to the June 14 order, assertedly because its officials and attorneys believed that the extended course of dealing between Mid-South and Gulf States had effected an abrogation of Gulf States’ initial “maximum contractual commitment” and substituted, instead, a commitment for Gulf States to supply Mid-South’s total requirements. Thus, Mid-South expected that the order would not affect the rates for any power supplied to it by Gulf States. This expectation was short-lived.
On August 7, 1973, the FPC entered an order denying the applications for rehearing of certain other customers of Gulf States, a copy of which was directed to Mid-South. That order contained the following language:
“. . . Whether or not Gulf States has in fact been supplying amounts of electric energy in excess of the maximum contract demand in the Company’s FPC Rate Schedule does not in any way alter the fact that only the Company’s contract as filed with this Commission, along with any properly filed and accepted amendments, can be regarded as embodying the presently effective contractual rates, terms, and conditions We do not believe . . . that the Commission must be bound by practices carried on by the parties outside the contractual terms as presently filed with the Commission, where such practices are entirely without Commission knowledge or approval where amounts of energy are proposed to be sold outside the contract demand parameters, the rates proposed for such sales may be viewed as an initial rate . . . .”
Alarmed to discover that the FPC intended its June 14 language respecting “maximum contractual commitments” to refer only to those commitments evidenced by a paper contract on file with the FPC, Mid-South immediately filed an application for rehearing, dated August 20, 1973. Its application explained that this document had not been filed immediately after the June 14 order because it was not until the August 7 clarification of that order that Mid-South believed- itself to have been affected by the June ruling.
Section 313(a) of the Federal Power Act
It is not at all clear, in the first place, that Mid-South was “aggrieved” by the order of June 14, rather than the order of August 7, within the meaning of the Act. There appears to be little reason to disbelieve Mid-South’s claim that it did not read the June 14 order as a ruling that it would be required to pay Gulf States’ new proposed rate for all energy deliveries exceeding 300 kilowatts per month. It is a familiar principle of the law that parties may evidence a modification of the original terms of a contract by their subsequent conduct,
This court is not without authority to consider the equities of Mid-South’s situation. In a similar case involving the National Labor Relations Board, the Supreme Court said:
*290 The jurisdiction to review the orders of the Labor Relations Board is vested in a court with equity powers, and while the court must act within the bounds of the statute and without intruding upon the administrative province, it may adjust its relief to the exigencies of the case in accordance with the equitable principles governing judicial action. The purpose of the judicial review is consonant with that of the administrative proceeding itself,— to secure a just result with a minimum of technical requirements.37
The Commission must summarily reject rate filings inconsistent with outstanding fixed-rate contracts whether or not the contracts have been filed with the Commission.38
Although Lansdale concerned an existing contract that had been reduced to writing and had been tendered to the FPC for filing, there is not a scrap of language in the opinion suggesting, as the FPC argues, that the decision is limited to attempted abrogations of written contracts that have been tendered to and rejected by the FPC. To the contrary, Lansdale contained a great deal of very expansive language concerning the FPC’s duty to respect contractual obligations of whatever nature. We summarized the position of the FPC therein as follows:
It is contended that the Sierra-Mobile doctrine applies only to contracts previously accepted as lawful by the Commission.39
Our disposition of that contention was wholly unambiguous: “We have concluded that [this] argument misstates the law”.
In Lansdale, we further discussed the statutory duty of utilities to reduce their contractual obligations to writing and submit them to the FPC for filing.
Breach of the filing obligation gains the company nothing, for rates established in a fixed-rate contract become effective for regulatory purposes even if the company bound by the contract neglects to file it42
Lansdale is thus dispositive of several aspects of Mid-South’s petition for review. If the conduct of Gulf States and Mid-South did effect a modification of the rights and obligations of the parties as originally set forth in the 1950 agreement, Gulf States was under a duty to notify the FPC of the pertinent modifications. It may be that this obligation was met by the filing of “Form 1
In addition to the arguments rejected in Lansdale, the FPC advances the additional contention that it is not possible for parties to electric supply contracts who are subject to the FPC’s regulatory authority to modify their contractual arrangements by subsequent conduct. This is an unacceptable position. Contract law has long recognized that parties to a contract may vary its terms by a subsequent course of conduct.
It is well established that parties to a contract can, by mutual agreement, modify or rescind a contract and adopt in its stead a new agreement. An agreement to change the terms of a contract may be shown by the conduct of the parties, as well as by evidence of an explicit agreement to modify.45
Numerous other cases from various jurisdictions have set forth the same rule.
Accordingly, we hold that FPC was under a duty, at the time of Gulf States’ attempt to increase its rates with respect to Mid-South, to ascertain whether or not the proposed increase conflicted with any existing contractual arrangement between Gulf States and Mid-South. Such an inquiry would necessarily include an evaluation of Mid-South’s claim that their mutual course of dealing served to effect a modification of the terms of the written contract on file with the FPC. In remanding this case to the FPC, we leave to it the initial determination of whether such a modification did in fact occur.
Reversed and remanded with instructions.
. Hereinafter “FPC”.
. Hereinafter “Sam Rayburn”.
. Hereinafter “Mid-South”.
. 16 U.S.C. § 825J (b) (1970). .
. Hereinafter “Gulf States”.
. The Commission’s order of June 14, 1973, set forth for the first time its conclusion that the contract between Sam Rayburn and Gulf States permitted the proposed rate increase. Its order of August 7, 1973, denying Sam Rayburn’s application for rehearing reaffirmed its earlier decision.
. Hereinafter “SPA”.
. 16 U.S.C. § 825s (1970); see 16 U.S.C. § 825S-1 (1970).
. The municipalities are Vinton, Louisiana; Jasper, Texas; Liberty, Texas; and Livingston, Texas. The cooperatives are Sam Houston Electric Cooperative and Jasper-Newton Electric Cooperative. The original contracts between Sam Rayburn and the SPA and Sam Rayburn and Gulf States apparently contemplated that a third cooperative, the Southwest Louisiana Electric Membership Corporation, would become a member of Sam Rayburn, but, insofar as the record reflects, that expectation was not realized.
. 16 U.S.C. § 825s (1970).
. The contract used this abbreviation for Gulf States.
. The contract used this abbreviation for Sam Rayburn.
. 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956).
. 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956).
. The Commission is empowered, under § 206(a) of Title II of the Federal Power Act, to prescribe a change in existing contract rates whenever it determines that existing rates are unjust or unreasonable. There is no contention in this case that the rates fixed by the existing contract between Sam Rayburn and Gulf States are either. The Commission may also reject a newly filed contract if after a hearing it finds that the contract is not in the public interest, pursuant to § 205(e).
. 16 U.S.C. § 791a et seq. (1970).
. 15 U.S.C. § 717 et seq. (1970).
. 156 U.S.App.D.C. 315, 481 F.2d 490, cert. denied, Indiana & Michigan Electric Co. v. Anderson Power and Light of City of Anderson, Indiana, 414 U.S. 1068, 94 S.Ct. 578, 38 L.Ed.2d 473 (1973).
. 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958).
. Id. at 114, 79 S.Ct. at 200. Contracts reserving such a right to the seller are thus known as Memphis or Memphis-type contracts; contracts lacking such a provision are described as Sierra or Sierra-type agreements.
. See 358 U.S. at 114, 79 S.Ct. 194; North Atlantic Westbound Freight Ass’n v. Federal Maritime Comm’n, 130 U.S.App.D.C. 122, 397 F.2d 683 (1968); but see Public Service Comm’n v. FPC, 141 U.S.App.D.C. 174, 177, 436 F.2d 904, 907 (1970).
. C. McCormick, Evidence § 219 (1954); 13 Tex.Jur.2d Contracts § 397 (1960); Lone Star Gas Co. v. X-Ray Gas Co., 139 Tex. 546, 164 S.W.2d 504 (1942). The Sam Rayburn-Gulf States contract contains a provision stipulating that the contract is to be interpreted and enforced according to Texas law.
.Similar language appears again in the contract in Article 7, Section 1: “This Contract shall not become effective unless and until the rates, compensation, and terms and conditions, provided in both this contract and in the SPA-Sam Dam Co-op Contract are confirmed and approved by such state or federal regulatory bodies having jurisdiction and required by law to accept, confirm, and/or approve such rates, compensation, and terms and conditions.
. See “Order Suspending Proposed Rate Increase, Setting Matter for Hearing, and Instituting an Investigation Under Section 206” (FPC Docket No. E-8121, June 14, 1973) at 4 n. 4.
. Gulf States so contended in its brief, and Sam Rayburn conceded the point in its reply brief.
. See Kansas City Power & Light Co. v. McKay, 115 F.Supp. 402 (D.D.C.1953), in which certain private utility companies attacked the formation of the SPA as a conspiracy to undercut their market positions in the Southwest.
. The suspension clause relative to the member cooperatives, whose contracts with Gulf States clearly provided for optional cancella
. The Commission clearly could have considered the affidavit as evidence under its own rules. ' 18 C.F.R. § 1.26 (1974).
. See Borough of Lansdale v. FPC, 161 U.S.App.D.C. 185, 191, 494 F.2d 1104, 1110 (1974) (“[t]he FPC very much dislikes the Sierra— Mobile doctrine,”); City of Richmond v. FPC, 156 U.S.App.D.C. 315, 322, 481 F.2d 490, 497 (1973). (“. . . the Commission simply does not understand, or more likely is not willing to abide by, the fundamental principle of the Sierra — Mobile—Memphis decisions.”); Philadelphia Electric Co. (FPC Docket No. E-7795, January 4, 1973) at 4 (“We now add as a guideline for this and future proceedings that inasmuch as we consider fixed rate contracts in general to be riot in the public interest it is our intent to strictly construe such existing contracts so as to permit no enlargement of rights or obligations thereunder absent a clear showing of necessity to meet the public interest.”); Carolina Power & Light Co., 47 F.P.C. 1, 4 (1972) (“. . . in our judgment the Mobile-Sierra rule is inconsistent with sound regulatory policy. That rule has the effect of limiting our authority under Section 206(a) of the Federal Power Act.”)
. City of Richmond v. FPC, 156 U.S.App.D.C. 315, 481 F.2d 490, cert. denied, Indiana & Michigan Electric Co. v. Anderson Power and Light of City of Anderson, Indiana, 414 U.S. 1068, 94 S.Ct. 578, 38 L.Ed.2d 473 (1973).
. Id. at 320, 481 F.2d at 495.
. 16 U.S.C. § 8251(a) (1970).
. This requirement is also codified in the Commission’s Rules of Practice, Rule 1.34(a), 18 C.F.R. § 1.34(a) (1974).
. See notes 43-47 infra and accompanying text.
. We do not consider that simply because another party, the Southwest Louisiana Electric Membership Corporation, was sufficiently alarmed by the language of the June 14 order to file its application for rehearing on the grounds now urged by Mid-South, we must rule that Mid-South is held to a standard of equal zealousness. The test is not whether the most tireless of advocates might have foreseen the possibility that the Commission would take the position that it did, but whether Mid-South was unreasonable in assuming that it would not.
. This characterization is found in Gulf States’ brief.
. Ford Motor Co. v. NLRB, 305 U.S. 364, 373, 59 S.Ct. 301, 307, 83 L.Ed. 221 (1939). See also Natural Gas Pipeline Co. v. FPC, 128 F.2d 481, 484 (7th Cir. 1942) (“We think it well settled that in respect to review of orders of
. 161 U.S.App.D.C. 185, 195, 494 F.2d 1104, 1114 (1974).
. 161 U.S.App.D.C. at 187, 494 F.2d at 1106.
. 161 U.S.App.D.C. at 188, 494 F.2d at 1107.
. 161 U.S.App.D.C. at 194, 494 F.2d at 1113.
. Id.
. See, e. g., 3A Corbin, Contracts § 524 at 297 (1960) (“A promisor, even though his promise has been put into clear written words, can always add to it, modify it, or wholly replace it by a subsequent tacit agreement, one in which his own promises are found wholly by inference from conduct other than words.”); 17 Am.Jur., Contracts § 466.
. 188 F.2d 906, 13 Alaska 323 (9th Cir. 1951).
. Id. at 909.
. See cases cited at 17A C.J.S. Contracts § 375 nn. 97.15-98.
. 13 Tex.Jur., Contracts, § 271 (1960); Wood Motor Co. v. Nebel, 150 Tex. 86, 238 S.W.2d 181 (1951); Stowers v. Harper, 376 S.W.2d 34 (Tex.Civ.App. — Tyler 1964, writ ref. n. r. e.).
. Even assuming that it finds that Mid-South and Gulf States did modify their contract by subsequent conduct, the FPC, of course, retains its authority to reject the proposed modification of a utility’s contractual obligations if it finds, pursuant to § 205(e), that the proposed change is not in the public interest. 161 U.S.App.D.C. at 195, n. 43, 494 F.2d at 1114 n. 43. Certain procedural difficulties might arise from the attempted use of § 205(e) authority to review modifications that do not come to the attention Of the FPC until long after they have become effective as between the parties. It may be, however, as noted in the text, that the filing of annual reports reflecting the ever-increasing amounts of energy being sold to Mid-South by Gulf States did constitute adequate notice to the FPC of a change in their contractual arrangement. In that case, the question would arise whether the FPC may scrutinize any modifications pursuant to § 205(e) many months after the modifications