On November 3, 2009, the United State Supreme Court (“Supreme Court”) heard oral arguments on whether the Mobile-Sierra doctrine applies to third-party challenges to contracts. At the hearing, NRG Power Marketing LLC (“NRG”) petitioned the Supreme Court to overturn the United States Court of Appeals for the District of Columbia (“DC Circuit”) in NRG Power Marketing LLC v. Maine Public Utilities Commission (see April 4, 2008 issue of the WER).
In 2005 the Federal Energy Regulatory Commission (“FERC” or the “Commission”) ordered settlement negotiations for 115 parties regarding a forward-capacity market in New England. (see September 23, 2005 issue of the WER). Since only eight parties did not agree to the settlement, FERC decided to approve the settlement on June 16, 2006 (see June 23, 2006 issue of the WER). The new forward capacity market allowed annual forward capacity auctions (“FCA”). The resulting rates and transition payments from the FCA would then be prorated across New England utilities. Additionally, the settlement stated that any challenges to the settlement, including FCA rates, would have to face the stringent “public interest” standard of review – the Mobile-Sierra standard – regardless of who brought the challenge.
The Maine Public Utilities Commission (“Maine PUC”), along with the attorneys general for Connecticut and Massachusetts, appealed to the DC Circuit. The DC Circuit agreed with the Maine PUC and held that non-parties to an agreement must be held to the Federal Power Act’s requirement that rates for the wholesale sale of electricity meet a “just and reasonable” standard.
In its appeal to the Supreme Court, NRG made several arguments. First, it argued that FERC’s authority over contracts should not be altered, specifically when a non-party challenges a rate to a contract. Second, NRG argued that public interest review only restricts FERC’s authority to modify a contract rate, not a third-party’s ability to challenge that contract. Third NRG stated that the DC Circuit misunderstood the Mobile-Sierra doctrine to mean a non-party is bound by a contract because that non-party is indirectly affected by the contract. Finally, NRG argued that FCA rates are not contract rates between two parties.
While FERC supported NRG’s petition, it simply asked the Supreme Court to affirm its authority to govern challenges to rates using the Mobile-Sierra doctrine. Both FERC and NRG expressed concern that too lenient a standard for allowing challenges to a contract could lead to market instability. Meanwhile, the Maine PUC argued that the FCA rates are not standard contract rates, and that non-parties are bound by them. Connecticut Attorney General Richard Blumenthal countered that it is unfair to bind third-parties to an agreement that they did not sign, and he believes the DC Circuit was correct in its ruling.
Interestingly, all parties agreed that the DC Circuit’s decision in 2008 did not establish whether the settlement agreement in question constitutes a tariff rate or a rate established between two parties through a contract. Therefore, it is uncertain as to how broadly the Supreme Court will rule in this matter.
The proceedings and orders to the case, listed as case number 08-674 can be found on the Supreme Court’s website at: http://origin.www.supremecourtus.gov/docket/08-674.htm.