United States: US Supreme Court Applies Mobile-Sierra To Non-Contracting Parties

In NRG Power Marketing, LLC, et al., v. Maine Public Utilities Commission et al,¹ the Supreme Court (the Court) held that the Mobile-Sierra doctrine applies not just to the parties to a contract but to non-contracting parties as well.

The Federal Power Act (FPA) requires that rates, whether set unilaterally by tariff or pursuant to a contract, be "just and reasonable." The FPA gives the Federal Energy Regulatory Commission (FERC) the power to set aside any rate that fails to meet the "just and reasonable" standard. The Mobile-Sierra doctrine requires FERC to presume that an electricity rate set by a freely negotiated wholesale energy contract meets the FPA's "just and reasonable" standard. This presumption may only be overcome if FERC concludes that the contract seriously harms the public interest.

The immediate case involved multiple challenges to the FERC-approved capacity market in the New England ISO in which capacity rates would be set annually via auction. The relevant challenges concerned the application of the Mobile-Sierra doctrine to all challenges to prices set in the market, irrespective of the challenger's status as a party or non-party to the contract in which the price was set.

The D.C. Circuit Court of Appeals held that challenges to prices set in negotiated contracts were not governed by the Mobile-Sierra doctrine if the challenges were brought by entities that were not parties to the contract setting the challenged price.

In disagreeing with the lower court's reasoning the Court explained that the Mobile-Sierra public interest standard is not an independent doctrine standing as an exception to the FPA's "just and reasonable" standard, but rather is an application of what the FPA "just and reasonable" standard means in the context of rates set by contract. Following its holding in Morgan Stanley v. Snohomish,² the Court concluded that the Mobile-Sierra doctrine applies to challenges initiated by both contracting and non-contracting parties. Deciding otherwise, the Court noted, would diminish the doctrine's underlying purpose of promoting the stability of supply arrangements and thereby promoting the overall health of the energy industry.

Footnotes

1. 558 U.S. ___ (2010).

2. Morgan Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U.S. ___ (2008). Please see the ealert on this topic by Craig Enochs and Kevin Page available at http://images.jw.com/ealert/energy/2008/0701.html for a summary of this decision.

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