|November 17, 2009|
Supreme Court Holds Oral Argument on Mobile-Sierra Doctrine
On November 3, 2009, the Supreme Court heard oral argument in NRG Power Marketing, LLC v. Maine Public Utilities Commission (No. 08-674) ("NRG") regarding whether Mobile-Sierra's public-interest standard applies when the entity challenging a contractual rate is not a party to the contract at issue. Under the Mobile-Sierra doctrine, the Federal Energy Regulatory Commission ("FERC") must presume that the electricity rate set in a freely negotiated wholesale-energy contract meets the "just and reasonable" requirement of the Federal Power Act, and the presumption may be overcome only if FERC concludes that the contract seriously harms the public interest. Many have viewed this standard as "practically insurmountable."
NRG will be the Supreme Court's second recent decision concerning the Mobile-Sierra doctrine. After the court of appeals issued the decision below here, the Supreme Court decided Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1, 128 S. Ct. 2733 (2008) ("Morgan Stanley"), in which the 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. In the 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.
The agreement at issue in the NRG case is a comprehensive settlement concerning the structure of the market for electric capacity in New England. At the oral argument, the parties disputed whether the agreement is akin to the contracts at the heart of Mobile-Sierra, or whether it constitutes a tariff of general applicability, and whether the applicability of Mobile-Sierra should turn on this distinction. The merits of this debate were not explored in depth, and because the D.C. Circuit did not resolve this issue below, the question whether the Court should entertain that issue here without the benefit of a lower court ruling on the matter was raised at the oral argument.
However, the central focus of the inquiries from the bench was to identify the precise question before the Court. The justices probed whether there should be a distinction drawn between differently situated third parties challenging a contract, and whether third parties should be entitled to challenge a contract at all. If the purpose of the public interest test under Mobile-Sierra was to allow contract modification only when necessary to protect third parties or members of the public, is it reasonable to exempt Mobile-Sierra application when presented with a challenge by one of those third parties or a member of the public? Was the original intent of Mobile-Sierra to apply the doctrine always (i.e., should it shelter a contract from attack by anyone, including FERC), or was it intended to apply "sometimes?" If it applied sometimes, the justices questioned under what circumstances third parties should be allowed to apply a standard other than the public interest standard.
For example, should there be a distinction between third parties challenging a contract between two parties who struck an improvident bargain, and third parties challenging a contract because it binds those parties to rates the third party did not agree to? Chief Justice Roberts questioned whether the importance of preserving the stability of two parties' contract at the expense of binding against their will third parties who did not sign the contract is sound. The discussions also explored the implications of holding FERC, the agency which Congress charged with administering the applicable statutes and that has the greatest expertise, to the more stringent Mobile-Sierra standard while allowing certain third parties to challenge a contract subject to the just and reasonable standard. Moreover, may a non-contracting party challenge a contract before FERC, whereupon FERC would no longer be bound by Mobile-Sierra?
The Supreme Court's forthcoming decision will be its first decision concerning the Mobile-Sierra doctrine following Morgan Stanley.
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