U.S. Court of Appeals Issues Opinion on Remand from United States Supreme Court in Maine Public Utilities Commission et al. v. FERC

On November 5, 2010, the U.S. Court of Appeals for the District of Columbia Circuit issued its opinion on remand from the United States Supreme Court in Maine Public Utilities Commission et al. v. FERC (No. 06-1403) ("MPUC"). In MPUC, the Supreme Court reversed the D.C. Circuit's ruling below that the Mobile-Sierra doctrine does not apply to challenges by non-contracting third parties and remanded the case to the D.C. Circuit for further proceedings. NRG Power Mktg., LLC v. Me. Pub. Utils. Comm'n, 130 S. Ct. 693 (2010). Noting that the Federal Energy Regulatory Commission ("FERC" or "Commission") failed to address the remanded issues in the challenged FERC orders, the D.C. Circuit in its November 5 Order remanded the orders to FERC.

This case stems from challenges to a comprehensive settlement agreement approved by FERC concerning the structure of an auction-based market for electric capacity in New England. The settlement agreement provided that challenges to the auction rates — whether brought by a settling party, a nonsettling party, or the Commission — would be adjudicated under the highly-deferential Mobile-Sierra "public interest" standard rather than the usual "just and reasonable" standard of the Federal Power Act. The Maine Public Utilities Commission and the attorneys general of Connecticut and Massachusetts, representing energy customers, challenged the settlement on the basis that it applied Mobile-Sierra's public interest standard to entities challenging the contractual rate who were not parties to the contract at issue.

In its decision below, the U.S. Court of Appeals for the D.C. Circuit held that when a rate challenge is brought by a non-contracting third party, the Mobile-Sierra doctrine does not apply. Shortly after the D.C. Circuit's ruling, the Supreme Court examined the Mobile-Sierra doctrine in Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1, 128 S. Ct. 2733 (2008) ("Morgan Stanley"). In that case, the Supreme Court held that rather than representing a wholly different standard, the Mobile-Sierra "public interest standard" refers to the differing application of the just and reasonable standard to contract rates.

The Supreme Court in MPUC granted certiorari on the Mobile-Sierra issue and reversed. The Supreme Court remanded two questions concerning the Mobile-Sierra provision that had been raised before, but not ruled on by the D.C. Circuit: whether the rates at issue qualify as "contract rates," and, if not, whether FERC had discretion to treat them analogously. In its Opinion on remand, the D.C. Circuit pointed out that the Commission failed to address those issues in the challenged FERC orders, and thus remanded the orders to FERC.

Noting that the MPUC case "has characteristics of a chameleon," changing its colors and shape "at each stage of the proceedings," the D.C. Circuit stated that following the issuance of Morgan Stanley, the Supreme Court shifted the focus of the case from the settlement agreement to the nature of the auction rates resulting from the settlement agreement (i.e., whether Mobile-Sierra applied only to contract rates). The D.C. Circuit pointed out that FERC's counsel "now concedes" that the auction rates are not contract rates, but rather closely resemble a conventional "cost based tariff rate." The D.C. Circuit found that FERC never articulated in its orders a rationale for its discretion to approve a Mobile-Sierra clause outside the contract context, or an explanation for exercising that discretion in the MPUC case. Thus, the D.C. Circuit directed that FERC on remand must explain why, if the auction rates are not contract rates, they are entitled to Mobile-Sierra treatment.

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