January 13, 2010

Supreme Court Decides NRG Power Marketing, LLC v. Maine Public Utilities Commission

On January 13, the Supreme Court decided NRG Power Marketing, LLC v. Maine Public Utilities Commission, No. 08-674.

In Morgan Stanley Capital Group Inc. v. Public Utilities District, 554 U.S. ___, 128 S. Ct. 2733 (2008), the Supreme Court held that two cases from 1958—United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, and Federal Power Comm'n v. Sierra Pacific Power Co., 350 U.S. 348—require the Federal Energy Regulatory Commission (FERC), when it reviews electricity rates pursuant to the Federal Power Act, to presume that a rate set by a freely negotiated wholesale-energy contract meets the Act's requirement that rates be "just and reasonable." This presumption may be overcome only if FERC concludes that the contact seriously harms the public interest.

Today's decision involves the application of what has become known as the "Mobile-Sierra doctrine" to a detailed multi-party contract, negotiated over several years, that was designed to increase and stabilize the supply of electricity in New England. FERC reviewed the contract and approved the rates provided therein, finding they were just and reasonable and were consistent with the public interest. A number of objectors who were not parties to the contract sought review by the U.S. Court of Appeals for the District of Columbia Circuit. The court of appeals generally affirmed FERC's approval order, but it agreed with the objectors that the Mobile-Sierra doctrine did not apply when a contract rate was challenged by someone who is not a party to the contract.

The Supreme Court reversed, holding that the doctrine applies in all challenges to contractually agreed rates, regardless of who the challenger is. It reasoned that, if FERC itself is bound by the Mobile-Sierra presumption, there is no basis for allowing challengers to escape the presumption just because they are not parties to the contract they are challenging. It rejected the argument that the presumption overlooked third-party interests, noting that it requires FERC to reject rates that "seriously harm the consuming public." Finally, the Court noted that allowing a non-party exception to the Mobile-Sierra doctrine would undermine the very purpose of the doctrine, which was intended to promote the stability of energy-supply contracts.

Justice Ginsburg delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, Breyer, Alito, and Sotomayor joined. Justice Stevens filed a dissenting opinion.

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