On Monday, the U.S. Supreme Court (“Supreme Court”) granted certiorari to hear a case regarding whether or not the “public interest” standard applies to certain parties that were not part of a rate settlement. Previously the U.S. Court of Appeals for the District of Columbia Circuit (“DC Circuit”) ruled that the Commission improperly applied the Mobile-Sierra doctrine and that non-signatories to a settlement agreement should be held to a lesser standard (see April 4, 2008 edition of the WER).
In the fall of 2005, the Commission ordered a total of 115 parties to negotiate a settlement of a dispute regarding electricity rates in New England’s capacity market. Eventually, all but eight parties agreed to a settlement. The settlement contained a provision stating that any party – including non-settling parties – seeking to challenge certain resulting rates would be held to the “public interest” or “Mobile-Sierra” standard. This standard is significantly more difficult to challenge than the “just and reasonable” standard that normally applies under the Federal Power Act.
In 1956, the Supreme Court created the Mobile-Sierra doctrine when it decided that if two parties agree to negotiated rates the Commission must presume that the rates are just and reasonable. However, if these rates were so low or unjust that they would adversely affect the public interest, the contract would not be upheld. While the Commission approved the settlement provision that the doctrine should apply to all of the relevant parties, the DC Circuit overruled the Commission ruling that non-signatories are to be held to the Federal Power Act’s “just and reasonable” standard instead.
NRG Power Marketing LLC (“NRG”) decided to challenge the DC Circuit’s ruling by appealing to the Supreme Court. NRG argued that the Mobile-Sierra doctrine plays a vital role in electricity markets and allowing the DC Circuit’s ruling to stand would not only destroy its integrity, but would create a volatile and unstable electricity market as a whole. Meanwhile, the respondents, including the Maine Public Utilities Commission and the attorneys general of Connecticut and Massachusetts, argued that there was no compelling reason to rule that the Mobile-Sierra doctrine applies to non-contract parties and that previous precedent holds that it should not apply to third-parties.
While the Supreme Court has decided to hear arguments in the fall, no specific date has been set. The briefs and related orders will be available on the Supreme Court’s website under case number 08-674 at: http://www.supremecourtus.gov/.