
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 FOR THE FIRST CIRCUIT                                 ____________________        No. 94-1948                         NORTHEAST UTILITIES SERVICE COMPANY,                                     Petitioner,                                          v.                        FEDERAL ENERGY REGULATORY COMMISSION,                                     Respondent.                                 ____________________                          ON PETITION FOR REVIEW OF ORDER OF                       THE FEDERAL ENERGY REGULATORY COMMISSION                                 ____________________                                        Before                                Torruella, Chief Judge,                                           ___________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Selya, Circuit Judge.                                         _____________                                 ____________________            J.A. Bouknight, Jr., with whom David  B. Raskin, Edward J. Twomey,            ___________________            ________________  ________________        Newman, Bouknight  & Edgar, P.C.,  and Frederic  Lee Klein,  Assistant        ________________________________       ___________________        General Counsel,  Northeast Utilities  Service Company, were  on brief        for petitioner.            Randolph Lee Elliott,  Attorney, with whom Susan Tomasky,  General            ____________________                       _____________        Counsel,  and Jerome  M.  Feit, Solicitor,  Federal Energy  Regulatory                      ________________        Commission, were on brief for respondent.                                 ____________________                                     May 23, 1995                                 ____________________                      BOWNES, Senior  Circuit Judge.   The main  issue in                      BOWNES, Senior  Circuit Judge.                              _____________________            this case is whether the Federal Energy Regulatory Commission            (FERC)  complied  with  our  mandate  in  Northeast Utilities                                                      ___________________            Service  Co. v. FERC, 993 F.2d 937 (1st Cir. 1993) (Northeast            ____________    ____                                _________            I) and  applied the  "public interest"  test in  ordering the            _            modification of a wholesale electric power contract.                      In   Northeast  I   we   upheld   FERC's   decision                           ____________            conditionally approving  the  merger of  Northeast  Utilities            (NU) and  the Public Service Company of New Hampshire (PSNH).            Before  us  also was  the  objection  of Northeast  Utilities            Service Company (NUSCO)  to the Commission's  modification of            the rate schedules filed  by NUSCO.  The rate  schedules were            part  of a  wholesale electric  power contract  (the Seabrook            Power  Contract)  among  NU,  PSNH   and  the  State  of  New            Hampshire.  Under the contract each party waived its right to            file  a complaint  under    206(a) of  the Federal  Power Act            (FPA) concerning the specified rates.  Each party also agreed            "that in any  proceeding by  the FERC under  Section 206  the            FERC shall not change  the rate charged under  this Agreement            unless  such rate  is  found to  be  contrary to  the  public            interest."  FERC was not a party to the contract.                      Section  206(a)  of the  FPA,  16  U.S.C.    824(e)            provides:                         Whenever   the  Commission,   after  a                      hearing had  upon its own motion  or upon                      complaint,  shall  find  that  any  rate,                      charge,   or  classification,   demanded,                                         -2-                                          2                      observed,  charged,  or collected  by any                      public  utility  for any  transmission or                      sale  subject to the  jurisdiction of the                      Commission, or that any rule, regulation,                      practice,  or   contract  affecting  such                      rate,   charge,   or  classification   is                      unjust,        unreasonable,       unduly                      discriminatory   or   preferential,   the                      Commission shall determine  the just  and                      reasonable rate, charge,  classification,                      rule,  regulation, practice,  or contract                      to  be thereafter observed  and in force,                      and shall fix the same by order.                      Invoking its power under    206(a), the  Commission            examined  the  terms and  conditions  of  the Seabrook  Power            contract.    FERC  found   that  the  contract  might  unduly            discriminate  against entities  not  parties to  it and  that            there  was  no  genuine  arms-length  bargaining because  the            agreement  was negotiated  at a  time when  NU and  PSNH were            about to merge  and assume identical  interests.  It  ordered            NUSCO  to  make three  changes in  the  contract to  bring it            within the "just and  reasonable" standard of   206(a):   (1)            delete  the automatically  adjusting rate-of-return-on-equity            provision;  (2)  reduce the  current rate-of-return-on-equity            used  to derive the rate  for Seabrook power;  and (3) submit            for  Commission review  an initial  estimate of  the  cost of            decommissioning the Seabrook Power  Plant, which is an atomic            energy facility.  The reduction order (2) on the current rate            of return in equity was not appealed.                      After   summarizing   the   Mobile-Sierra   "public                                                  _____________            interest" doctrine as  explicated in Papago Tribal  Authority                                                 ________________________                                         -3-                                          3            v.  FERC, 723 F.2d 950,  953 (D.C. Cir.  1983), cert. denied,                ____                                        _____ ______            467 U.S. 1241 (1984), we quoted the holding of the Commission            that it had                      authority   under  the   public  interest                      standard to modify a contract  where:  it                                                             __                      may   be  unjust,   unreasonable,  unduly                      ________________________________                      discriminatory  or  preferential  to  the                      detriment  of  purchasers  that  are  not                      parties to  the contract; it  is not  the                                                _______________                      result  of arm's length bargaining; or it                      _________________________________________                      reflects  circumstances where  the seller                      _________________________________________                      has  exercised  market  power   over  the                      _________________________________________                      purchaser.                      __________            Northeast  I,  993 F.2d  at  961.   We  also pointed  out the            ____________            interpretation given to the holding by the Administrative Law            Judge ("ALJ"):                      The Commission  made  clear that  in  the                      particular circumstances surrounding  the                      Seabrook  contract,  it  retains  power--                      through the  "public interest" language--                      to    make   modifications    under   the                      traditional   just  and   reasonable  and                      nondiscrimination standards.            Id.            ___                      We  found  that  the  standard  enunciated  by  the            Commission and applied  by the ALJ, "conflates  the 'just and            reasonable'   and   'public   interest'  standards,   thereby            circumventing the  Mobile-Sierra doctrine."   Id.   We stated                               _____________              ___            that                      the  Commission was  bound to  follow the                      Mobile-Sierra  doctrine as  explicated by                      _____________                      Papago,   and   therefore   should   have                      ______                      evaluated  the  SPC   under  the   public                      interest  standard,  not  the   just  and                      reasonable standard.                                         -4-                                          4            Id.  We remanded the issue "for reconsideration by FERC under            ___            the public interest standard."  Id. at 962.                                            ___                      It   is  FERC's   position   that  on   remand   it            reconsidered  its previously  ordered  modifications  of  the            Seabrook Power  contract under  the public interest  standard            and  affirmed   the  orders  previously  issued   under  that            standard.                      NUSCO contends  that FERC  did not comply  with our            mandate  but instead  created  a wholly  new  version of  the            public  interest standard  which  is more  flexible and  less            stringent   than  the  judicially   adopted  public  interest            standard.                                  Standard of Review                                  Standard of Review                                  __________________                      Not   surprisingly,  the  parties   differ  on  the            standard of review to be followed.  FERC urges that we follow            the same deferential standard as we did in our prior case:                      On review, we give great deference to the                      Commission's  decision.    U.S. Dep't  of                                                 ______________                      Interior v. FERC, 952 F.2d 538, 543 (D.C.                      ________    ____                      Cir. 1992).  FERC's findings  of fact are                      reviewed under the "substantial evidence"                      standard of  review.   16  U.S.C.    825l                      ("The finding of the Commission as to the                      facts,   if   supported  by   substantial                      evidence, shall be conclusive.").                           . . . .                      "Pure" legal errors require  no deference                      to  agency expertise, and are reviewed de                                                             __                      novo.        Questions    involving    an                      ____                      interpretation  of the  FPA involve  a de                                                             __                      novo  determination  by   the  court   of                      ____                      Congressional intent; if  that intent  is                                         -5-                                          5                      ambiguous, FERC's conclusion will only be                      rejected if it  is unreasonable.  Chevron                                                        _______                      USA v. Natural Resources Defense Council,                      ___    _________________________________                      467 U.S.  837, 842-56,  104 S.  Ct. 2778,                      2781-83, 81  L.Ed. 2d 694  (1984); Boston                                                         ______                      Edison  Co. v.  FERC, 856  F.2d 361,  363                      ___________     ____                      (1st Cir. 1988).            Northeast I, 993 F.2d at 943-44.            ___________                      NUSCO, on  the other hand,  plumps for the  "law of            the case" doctrine, arguing that we issued a mandate that had            to be strictly construed and followed.                      In this  circuit the "law of the case" doctrine has            not  been  construed  as  an  inflexible  straitjacket   that            invariably requires  rigid compliance  with the terms  of the            mandate.   In United States  v. Connell, 6  F.3d 27,  31 (1st                          _____________     _______            Cir. 1993), we noted:                      To be  sure, neither the law  of the case                      doctrine  nor its kissing cousin, the so-                      called  "mandate  rule,"  is designed  to                      function  as  a  straitjacket.    Rather,                      these are discretion-guiding  principles,                      generally  thought  to   be  subject   to                      exceptions in the interests of justice.            So also we  said in United States v. Bell,  988 F.2d 247, 251                                _____________    ____            (1st Cir. 1993):                      After all, the so-called  "mandate rule,"                      generally  requiring conformity  with the                      commands of  a superior court  on remand,                      is  simply a specific  application of the                      law of the case doctrine and, as such, is                      a discretion-guiding rule  subject to  an                      occasional exception in the  interests of                      justice.                      In Doe v. Anrig,  728 F.2d 30, 31 (1st  Cir. 1984),                         ___    _____            Justice  Breyer, then  circuit judge,  reached back  to Judge                                         -6-                                          6            Learned Hand and  Justice Holmes  for an  explanation of  the            meaning of the law of the case doctrine:                      That  doctrine "does  not rigidly  bind a                      court to  its  former decisions,  but  is                      only  addressed  to   its  good   sense."                      Higgins  v.  California  Prune &  Apricot                      _______      ____________________________                      Grower, Inc.,  3 F.2d  896, 898 (2d  Cir.                      ____________                      1924)  (L. Hand, J.).   See  Messenger v.                                              ___  _________                      Anderson, 225  U.S. 436,  444, 32  S. Ct.                      ________                      739, 740, 56 L. Ed. 1152 (1912)  (Holmes,                      J.)  ("the phrase,  law of  the case,  as                      applied to the  effect of previous orders                      on   the  later   action  of   the  court                      rendering them in  the same case,  merely                      expresses   the    practice   of   courts                      generally  to refuse  to reopen  what has                      been   decided,  not  a  limit  to  their                      power").  (Other citations omitted.)                      Under the circumstances, we will review the actions            of  FERC under  the  usual deferential  standard, but  always            keeping in mind the  restraints imposed on FERC by  the terms            of our mandate and the "law of the case" doctrine.                                     The Case Law                                     The Case Law                                     ____________                      We think it necessary  to revisit the Mobile-Sierra                                                            _____________            doctrine,  which represents  the Supreme  Court's attempt  to            strike a  balance between private contractual  rights and the            regulatory  power  to  modify  contracts  when  necessary  to            protect the public interest.  We start with United Gas Co. v.                                                        ______________            Mobile Gas Corp., 350 U.S. 332  (1956).  The issue in  Mobile            ________________                                       ______            was, "whether under  the Natural Gas  Act .  . . a  regulated            natural gas company furnishing  gas to a distributing company            under  a long-term contract  may, without the  consent of the            distributing  company,  change  the  rate  specified  in  the                                         -7-                                          7            contract  simply  by  filing a  new  rate  schedule with  the            Federal Power Commission."  Id. at 333-34 (statutory citation                                        ___            omitted).   The facts can  be summarized as  follows.  Mobile            Gas Service  (Mobile) was  a  distributor of  natural gas  to            users (domestic  and industrial) in Mobile,  Alabama.  Mobile            obtained its gas from  United Gas Co. (United).  In  1946 the            Ideal Cement Company  (Ideal) decided to build a cement plant            in the  city  if  it  could  be assured  gas  supplied  at  a            sufficiently low  rate.  Mobile  agreed to supply  Ideal with            gas  for ten years at 12 cents per MCF (thousand cubic feet).            Before entering into the contract with Ideal, Mobile obtained            from United a ten-year  contract to supply gas to  Mobile for            resale to Ideal at the rate of 10.7 cents per MCF.  This  was            a  substantially  lower  rate  than other  gas  furnished  by            United.   This  contract  was filed  with  the Federal  Power            Commission  and with its approval,  became a part of United's            filed  schedule of  rates and  contracts.   In June  of 1953,            United,  without  the  consent  of  Mobile,  filed  new  rate            schedules with the Commission purporting to increase the rate            on gas  to be sold by Mobile to  Ideal to 14.5 cents per MCF.            Id. at 335-36.            ___                      The  Court held  that the Natural  Gas Act  did not            give natural  gas companies  the right  to change  their rate            contracts  unilaterally.  Id. at  337.  The  Court noted that                                      ___            the  Act  "evinces  no   purpose  to  abrogate  private  rate                                         -8-                                          8            contracts as such."   Id. at  338.  It  pointed out that  the                                  ___            public  interest  was protected  by  the  supervision of  the            individual rate contracts filed with  the Commission.  Id. at                                                                   ___            339.  The Court explained its rationale as follows:                         Our  conclusion  that the  Natural Gas                      Act   does   not   empower  natural   gas                      companies  unilaterally  to change  their                      contracts fully promotes the  purposes of                      the Act.  By  preserving the integrity of                      contracts,  it  permits the  stability of                      supply  arrangements  which all  agree is                      essential  to the  health of  the natural                      gas industry.   Conversion by  consumers,                      particularly industrial users, to the use                      of  natural  gas  may frequently  require                      substantial    investments   which    the                      consumer  would  be  unwilling   to  make                      without  long-term  commitments from  the                      distributor,  and   the  distributor  can                      hardly  make  such  commitments   if  its                      supply    contracts   are    subject   to                      unilateral  change  by  the  natural  gas                      company   whenever   its   interests   so                      dictate.     The  history  of  the  Ideal                      contract furnishes a  case in point.   On                      the  other hand,  denying to  natural gas                                        _______________________                      companies   the  power   unilaterally  to                      _________________________________________                      change their contracts  in no way impairs                      _________________________________________                      the regulatory powers of  the Commission,                      _________________________________________                      for the contracts remain fully subject to                      _________________________________________                      the paramount power  of the Commission to                      _________________________________________                      modify them when necessary in  the public                      _________________________________________                      interest.    The   Act  thus  affords   a                      ________                      reasonable   accommodation  between   the                      conflicting    interests   of    contract                      stability  on the  one  hand  and  public                      regulation on the other.            Id. at 344 (emphasis added).            ___                      We make two observations.  First, the obvious, that            the facts of  Mobile are  quite different from  those in  the                          ______            case at bar.   The issue here  is not whether one party  to a                                         -9-                                          9            rate  contract  filed  with FERC  can  effect  a rate  change            unilaterally,  but  the  standard  to  be  used  by  FERC  in            examining electric power contracts filed with it.  Our second            observation is  that nowhere in the Supreme  Court opinion is            the term "public interest" defined.   Indeed, the Court seems            to assume that the Commission decides what circumstances give            rise to the public interest.                      We next examine the  other leg of the Mobile-Sierra                                                            _____________            doctrine,  FPC v.  Sierra  Pacific Power  Co.,  350 U.S.  348                       ___     __________________________            (1956), which  came down on  the same day  as Mobile and  was                                                          ______            also  written by Justice Harlan.   In Sierra,  the Court, for                                                  ______            the reasons  given in Mobile,  held that the filing  of a new                                  ______            rate  by an  electric  power  utility  (Pacific Power  Gas  &            Electric  Company)  and  the  finding of  the  Federal  Power            Commission that  such new rate  was not  unlawful, could  not            change  Pacific Gas' contract  rate for supplying electricity            to Sierra Pacific Power Co.  Id. at 352-53.                                         ___                      The  Court addressed a second question, not present            in  Mobile,  which  directly involved  the  "public interest"                ______            doctrine.   In  its decision  finding that  the new  rate was            lawful, the  Commission held that  the old contract  rate was            unreasonable  solely  "because it  yields  less  than a  fair            return on  the net invested  capital."  Id.  at 354-55.   The                                                    ___            Court held:                      But,  while it may be that the Commission                      may  not normally  impose  upon a  public                                         ______                                         -10-                                          10                      utility a rate  which would produce  less                      than a  fair return,  it does not  follow                      that  the public  utility may  not itself                      agree  by  contract to  a  rate affording                      less than  a fair  return or that,  if it                      does so, it is entitled to be relieved of                      its improvident bargain.  In such circum-                                                _______________                      stances   the   sole   concern   of   the                      _________________________________________                      Commission  would seem to  be whether the                      _________________________________________                      rate is so low as to adversely affect the                      _________________________________________                      public  interest  --  as where  it  might                      _________________________________________                      impair  the  financial  ability   of  the                      _________________________________________                      public utility to  continue its  service,                      _________________________________________                      cast  upon  other consumers  an excessive                      _________________________________________                      burden,  or   be  unduly  discriminatory.                      _________________________________________                      That the purpose of  the power given  the                      Commission by    206(a) is the protection                      of the public interest,  as distinguished                      from   the   private  interests   of  the                      utilities, is evidenced by the recital in                         201  of the  Act  that  the scheme  of                      regulation imposed "is  necessary in  the                      public interest."  When   206 (a) is read                      in the light of this purpose, it is clear                      that  a contract  may not  be said  to be                      either "unjust"  or "unreasonable" simply                      because it is unprofitable to  the public                      utility.            Id. at 355 (citation omitted) (emphasis added).            ___                      The  holding of  Sierra  is  clear; what  justifies                                       ______            protective action  in the  public interest by  the Commission            when it  is considering whether a contract rate is too low is            __________________________________________________________            where  the rate  might  impair the  financial ability  of the            utility to continue to supply electricity, force  electricity            consumers  to   bear  an  excessive  burden,   or  be  unduly            discriminatory.   This definition of what is necessary in the            public interest was formulated  in the context of  a low-rate                                                                 ________            case.   It  was  not and  could  not be  an  across-the-board            definition of  what constitutes the public  interest in other                                         -11-                                          11            types  of cases.  One of  the orders at issue  in the case at            bar  is the  submission  by  NUSCO to  FERC  of the  cost  of            decommissioning the  Seabrook Power  Plant.  The  other order            had to do with changing the rate of return-in-equity formula.            Neither were low-rateissues inthe context ofMobile andSierra.                                                        ______    ______                      The  next case  directly implicated  in our  remand            order  is Papago Tribal Authority v. FERC, 723 F.2d 950 (D.C.                      _______________________    ____            Cir. 1983), cert.  denied, 467  U.S. 1241 (1984).   This  was                        _____  ______            also  a  low-rate  case.   The  facts  may  be summarized  as            follows.   The  Commission approved  an increase  in electric            rates paid to the Arizona Public Service Company.  The Papago            Tribal Utility Authority objected  on the ground, inter alia,                                                              _____ ____            that its  contract with  Arizona did not  permit unilaterally            proposed rate changes under    205 of the Federal  Power Act,            16  U.S.C.    824(d).   Id.  at  951-52.   At  issue was  the                                    ___            interpretation of the contract between Arizona and Papago and            the authority of the  Commission to modify it.   The contract            provided in pertinent part:                         The  rates hereinabove set out in this                      Section  3 . . . are  to remain in effect                      for the initial one  (1) year of the term                      of  this  contract and  thereafter unless                      and  until changed  by the  Federal Power                      Commission  or  other  lawful  regulatory                      authority, with either party hereto to be                      free  unilaterally  to  take  appropriate                      action    before   the    Federal   Power                      Commission  or  other  lawful  regulatory                      authority  in   connection  with  changes                      which may be desired by such party.                                         -12-                                          12            Id.  at 953.  Papago, like the  case before us, was an appeal            ___           ______            after a  remand.  In the first appeal the court held that the            contract did not permit unilaterally effected rate  increases            under   205 of the Act.  The Federal Power Commission held in            its Order on Remand  that after its first year,  the contract                _______________            permitted changes  under   206 of  the Act on the  basis of a            just  and   reasonable  standard.    The   court  agreed  and            interpreted  the  contract  as  follows:    "the  restriction            envisioned during the first  year of the contract must  allow            rate  changes required by the public interest.  The scheme to            be  in effect 'thereafter'  -- obviously intended  to be less            restrictive --  must therefore  permit changes that  are just            and reasonable."  Papago, 723 F.2d at 954.                              ______                      During the  course of its opinion  the court quoted            the "public interest" standard from Sierra, 350 U.S.  at 355.                                                ______            Papago, 723 F.2d at  953.  The court  then went on to say  in            ______            dictum:                         [S]pecific   acknowledgment   of   the                      possibility  of  future  rate  change  is                      virtually meaningless unless it envisions                      a  just-and-reasonable   standard.    The                      public  interest standard  is practically                      insurmountable; the  Commission itself is                      unaware of any case granting relief under                      it.   Future rate changes would  be a dim                      prospect,  hardly worthy  of recognition,                      if the parties did  not intend the  just-                      and-reasonable standard to govern.            Id. at 954 (citation omitted).            ___                                         -13-                                          13                      Papago has unfortunately  been identified with  the                      ______            notion  that  the "public  interest"  standard  of review  is            "practically insurmountable," regardless of the circumstances            of the case.  This is the misreading that NUSCO  presses upon            us as the law of the case.  We do not think that Papago, read                                                             ______            in  context, means  that  the "public  interest" standard  is            practically  insurmountable in  all  circumstances.   It  all            depends  on whose ox is gored and  how the public interest is            affected.                      It should  be noted that neither  Mobile nor Sierra                                                        ______     ______            stated or  intimated that the "public  interest" doctrine was            "practically  insurmountable."   This  was a  gloss that  the            court in Papago  put on it.  In Northeast I  we said that the                     ______                 ___________            "public interest" standard was "a more difficult standard for            the  Commission  to  meet  than  the  statutory  'unjust  and            unreasonable'  standard," 993 F.2d at  960.  We, however, did            not characterize the public interest standard as "practically            insurmountable."1                                            ____________________            1.  Contrary to NUSCO's  suggestion at oral argument,  Boston                                                                   ______            Edison  v.  FERC,  856  F.2d  361  (1st  Cir.  1988)  is  not            ______      ____            controlling here.  In Boston Edison, we relied in part on the                                  _____________            Mobile-Sierra doctrine to enforce  a claims limitation clause            _____________            of a  rate contract  against customers  who failed  to timely            protest  an overcharge.   We  found nothing  "unconscionable,            overweening,  or  otherwise unreasonable"  about  the clause,            even with respect to the parties to the contract.  Id. at 372                                                               ___            (noting  that the  clause "enhances  economic  equilibrium by            bringing certainty to the parties' dealings . .  . .").  FERC            and  the customers did not, and clearly could not, argue that            the  claims  limitation clause  was  contrary  to the  public            interest.  See id. at 372 n.12 ("we leave for another day the                       ___ ___                                         -14-                                          14                      Our   opinion  also  recognized  that  "[t]he  most            attractive  case for  affording additional  protection [under            the  public interest  standard],  despite the  presence of  a            contract, is  where the  protection is intended  to safeguard            the  interests of third  parties . .  . ."   Northeast I, 993                                                         ___________            F.2d at  961.  As  we explained,  the Mobile-Sierra  doctrine                                                  _____________            allows  FERC to modify the  terms of a  private contract when            third   parties   are   threatened   by   possible   "undu[e]            discrimination"  or the imposition  of an "excessive burden."            Id.   We  invited  FERC to  demonstrate  such a  threat  upon            ___            remand.   See id.  at 961-62 (assuming  without deciding that                      ___ ___            FERC's  premise  facts  were   correct,  but  remanding   for            evaluation  of   the  contract  under  the   public  interest            standard.)                      Although our opinion questioned the significance of            the  seller's  market  power  and  the  lack  of  arms-length            bargaining,  id. at 961,  it left  open the  possibility that                         ___            these  factors may  so  affect third  parties  as to  warrant            intervention even  under the  public interest standard.   See                                                                      ___            id.   ("there would seem  to be little  justification for the            ___            Commission stepping in on behalf of the disfavored subsidiary            absent some threat to the public interest") (emphasis added).            _________________________________________            For all  of these  reasons, we  reject NUSCO's  argument that                                            ____________________            contours of any . . . exception" to claims limitation clauses            based upon "public necessity").                                         -15-                                          15            under the law of the case the public interest standard should            be   considered   "practically    insurmountable"   in    all            circumstances.                                 The Order on Remand                                 The Order on Remand                                 ___________________                      We turn to FERC's explanation of how it applied the            "public interest" doctrine on remand.                         We  conclude that if the Commission is                      to  comply  with  both the  Mobile-Sierra                                                  _____________                      imperative to respect private contractual                      arrangements,  on the  one hand,  and our                      statutory mandate to  protect the  public                      interest  and ensure that  rates are just                      and    reasonable    and    not    unduly                      discriminatory  or  preferential, on  the                      other, the "public interest"  standard of                      review  under the  Mobile-Sierra doctrine                                         _____________                      cannot be "practically insurmountable" in                      all  cases.    In  the  "classic" Mobile-                                                        _______                      Sierra situation, for  example -- when  a                      ______                      seller  utility   unilaterally  seeks  an                      increase   from  a   fixed-rate  contract                      already  on file  with the  Commission --                      the  public interest  (as opposed  to the                      private interest of the party seeking the                      rate increase) only  rarely is served  by                      making  the  requested  change (that  is,                      granting the requested  increase), and  a                      strict standard is appropriate.  In other                      situations, however -- when, for example,                      as here, the Commission is presented with                      an  agreement  for  the  first  time  and                      concludes  that certain  modifications to                      material rate provisions are necessary to                      protect the interests  of non-parties  --                      the public  interest is served  by making                      the  modifications,  and a  more flexible                      standard is therefore appropriate.  Based                      upon  that  understanding  of the  public                      interest  standard  of  review under  the                      Mobile-Sierra  doctrine,  we confirm  our                      _____________                      previously  ordered modifications  to the                      Seabrook Power Contract.              66 F.E.R.C.   61,332 at 62,076 (1994) (footnotes omitted).                                         -16-                                          16                      In its order on  remand, FERC has responded  to our            concerns by explaining how the disputed contractual terms may            harm third parties  to the contract.  It no  longer relies so            heavily upon the possibility that the contract may favor  one            party over  another.  For  example, the Commission  found the            automatic   rate-of-return-on-equity   adjustment   provision            unacceptable because  third parties  may ultimately  bear the                                  _____________            burden of  a  rate component  that  does not  reflect  actual            capital market conditions.  Likewise, the "blank check" given            owners of  the power  plant to determine  the decommissioning            costs for themselves under New Hampshire law is impermissible            because it may be cashed at the expense of non-parties to the            contract.  See 66 F.E.R.C.    61,332 at 62,090-91.   This new                       ___            emphasis on harm to third parties suggests that FERC has done            more  on  remand than  simply  substitute  the words  "public            interest" for the forbidden phrase "just and reasonable."                      We end by noting the decision in Mississippi Indus.                                                       __________________            v. FERC, 808 F.2d 1525 (D.C. Cir.), cert. denied 484 U.S. 985               ____                             _____ ______            (1987),  a post-Papago case similar to the case at bar, which                            ______            shows  that even the court that authored Papago does not take                                                     ______            an unduly  restrictive view of the  public interest standard.            FERC  had  ordered that  the  four  electric power  companies            comprising the  Middle South Utilities System  share the cost            of the system's investment in nuclear energy in proportion to            their relative demand for energy generated by the system as a                                         -17-                                          17            whole.  FERC reallocated responsibility  for investment costs            "associated with the catastrophically uneconomical Grand Gulf            I nuclear  plant."   Id. at  1528.  The  court turned  back a                                 ___            jurisdictional  challenge based,  inter alia, on  the Mobile-                                              __________          _______            Sierra doctrine.  It held,            ______                      that, in the  instant case, this doctrine                      does not bar the exercise of FERC's power                      under section 206 of  the FPA to reform a                      practice  or  contract  affecting a  rate                      charged by a public utility for wholesale                      service in interstate commerce.            Id.  at 1551.   The court's  discussion of  the sweep  of the            ___            Mobile-Sierra doctrine is instructive.            _____________                         Finally,  even  if the  contracts fall                      within  the  scope  of the  Mobile-Sierra                                                  _____________                      decisions,   the    Supreme   Court   has                      emphasized that the relevant agency, here                      FERC, may always  reform a contract found                      to  be  "unlawful"  or  "contrary  to the                      public  interest," i.e.,  that "contracts                                         ____                      remain  fully  subject  to the  paramount                      power  of the  Commission to  modify them                      when necessary in  the public  interest."                      The  Court  stated  in  Sierra  that  the                                              ______                      Commission "has undoubted  power under                         206(a)  to prescribe a change in contract                      rates whenever it  determines such  rates                      to  be  unlawful"  and   indicated  three                      circumstances under  which the Commission                      might conclude that a rate or  a contract                      term  affecting  a  rate  could  be found                      contrary  to  the  public   interest  and                      therefore subject to revision:  "where it                      might impair the financial ability of the                      public utility to  continue its  service,                      cast upon consumers an  excessive burden,                      or be unduly discriminatory."   Here FERC                      expressly  adopted  the  findings of  ALJ                      Liebman   who   found   the    level   of                      discrimination    in    the    [contract]                      "profound"  and agreed that its impact on                      customers  in  Louisiana and  Mississippi                                         -18-                                          18                      would be "dramatic[]."   The Commission's                      specific  determination  of  unlawfulness                      provides    the    "unequivocal    public                      necessity"   for   reformation   of   the                      [contract] under section 206 of the FPA.            Id. at 1553 (footnotes omitted).            ___                      We conclude  that under  the circumstances of  this            case FERC,  on remand,  gave thoughtful consideration  to the            public   interest   in  reviewing   its   previously  ordered            modification of the Seabrook  Power contract.  We, therefore,            deny NUSCO's petition for review and affirm FERC's order.  We            go  no  further.    Specifically,  we  are  not  in  any  way            suggesting the parameters of  or limitations on the authority            of FERC to change the contract in future rate proceedings.                                         -19-                                          19
