On January 13, 2010, the United States Supreme Court issued its
decision in NRG Power Marketing, LLC v. Maine Public Utilities
Commission, 558 U.S. ____ (2010). The case addresses whether
the public interest standard, as established under the
Mobile-Sierra doctrine, applies when a contract rate is challenged
by an entity that was not a party to the contract. The Supreme
Court concluded that the Mobile-Sierra doctrine does apply to
challenges from third parties, and reversed the decision of the
D.C. Circuit Court of Appeals.
The issue arose in connection with the development of the electric
capacity market in New England. A lengthy and highly contested case
led to an eventual settlement, under which the parties agreed to
conduct annual auctions to set the market price, which would take
effect three years later. In the meantime, the parties to the
settlement agreed to employ a transitional pricing structure.
Further, the settlement contained a provision requiring that any
challenges to the transition payments and the subsequent
auction-clearing prices were to be subject to
Mobile-Sierra's "public interest" standard,
regardless of whether the challenge is brought by a settling party,
a non-settling party, or by the Federal Energy Regulatory
Commission (FERC). All but eight of the 115 parties joined in the
settlement.
The Supreme Court first announced the Mobile-Sierra doctrine in
1956 in United States Gas Pipe Line Co. v. Mobile Gas Service
Corp., 350 U.S. 332 (1956) and FPC v. Sierra Pacific Power
Co., 350 U.S. 348 (1956). In those cases, the Supreme Court
established that, notwithstanding the just and reasonable standard
established by the Federal Power Act, parties to a bilateral
contract cannot seek to change its terms unless the public interest
so requires. In its January 13 decision, the Court explained that
the goal of the doctrine, as reaffirmed in Morgan Stanley
Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish
Cty., 554 U.S. ____ (2008), is to provide stability in the
marketplace. To avoid undermining that goal, when the parties to a
contract agree that the Mobile-Sierra doctrine applies, FERC and
any non-contracting parties must also live by the public interest
standard.
The critical question that the Court failed to address is what it
means to have a "contract" versus a "tariff"
– the Mobile-Sierra doctrine does not apply to tariffs.
Specifically, the Court declined to rule upon whether the rates at
issue in NRG Power Marketing qualify as contract rates
and, if not, whether FERC had the discretion to treat them
analogously. The Court based its decision on the fact that these
questions were not addressed by the D.C. Circuit below.
Justice Stevens, the lone dissenting Justice, took the position
that the Mobile-Sierra doctrine is evolving in scope to a point
where it is no longer appropriate under the Federal Power Act
(FPA). Under the FPA, customers have the right to challenge rates
under a "just and reasonable" standard. While the
contracting parties are properly held to a higher standard that
they negotiated for themselves, in Justice Stevens's view, the
Court improperly extends that higher standard to parties that did
not agree to it.
The Supreme Court's decision significantly impairs the ability
of interested entities to exercise their rights under the FPA to
challenge contractual terms that may be unjust and unreasonable by
subjecting those entities to a more onerous standard. Many
contested cases at FERC are resolved via settlement. Whether a
settlement applies to a contract or a tariff, the Supreme
Court's decision suggests that the Mobile-Sierra doctrine
applies if the settling parties so state in the settlement.
Consequently, parties with an interest in a matter before FERC
should give more consideration to intervening and participating or
risk the ability to protect their interests on those issues in the
future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.