OPINION OF THE COURT
NRG POWER MARKETING, LLC V. MAINE PUB.UTIL. COMM'N
558 U. S. ____ (2010)
SUPREME COURT OF THE UNITED STATES
NO. 08-674
NRG POWER MARKETING, LLC, et al., PETITIONERS
v. MAINE PUBLIC UTILITIES COMMISSION et al.
on writ of certiorari to the united states court of
appeals for the district of columbia circuit
[January 13, 2010]
Justice Ginsburg delivered the
opinion of the Court.
The Federal Power Act (FPA or
Act), 41 Stat. 1063, as amended, 16 U. S. C. §791a
et
seq., authorizes the Federal Energy Regulatory Commission
(FERC or Commission) to superintend the sale of electricity in
interstate commerce and provides that all wholesale-electricity
rates must be “just and reasonable,” §824d(a). Under this Court’s
Mobile-Sierra doctrine, FERC must presume that a rate set
by “a freely negotiated wholesale-energy contract” meets the
statutory “just and reasonable” requirement.
Morgan Stanley
Capital Group Inc. v.
Public Util. Dist. No. 1 of
Snohomish Cty., 554 U. S. ___, ___ (2008) (slip op., at 1).
“The presumption may be overcome only if FERC concludes that the
contract seriously harms the public interest.”
Ibid.
This case stems from New England’s
difficulties in maintaining the reliability of its energy grid. In
2006, after several attempts by the Commission and concerned
parties to address the problems, FERC approved a comprehensive
settlement agreement (hereinafter Settlement Agreement or
Agreement). Most relevant here, the Agreement established
rate-setting mechanisms for sales of energy capacity, and provided
that the
Mobile-Sierra public interest standard would
govern rate challenges. Parties who opposed the settlement
petitioned for review in the United States Court of Appeals for the
D. C. Circuit. Among multiple objections to FERC’s order
approving the Agreement, the settlement opponents urged that the
rate challenges of nonsettling parties should not be controlled by
the restrictive
Mobile-Sierra public interest standard.
The Court of Appeals agreed, holding that “when a rate challenge is
brought by a non-contracting third party, the
Mobile-Sierra doctrine simply does not apply.”
Maine
Pub. Util. Comm’n v.
FERC, 520 F. 3d 464, 478
(2008)
(per curiam).
We reverse the D. C. Circuit’s judgment
to the extent that it rejects the application of
Mobile-Sierra to noncontracting parties. Our decision in
Morgan Stanley, announced three months after the
D. C. Circuit’s disposition, made clear that the
Mobile-Sierra public interest standard is not an exception
to the statutory just-and-reasonable standard; it is an application
of that standard in the context of rates set by contract. The
“venerable
Mobile-Sierra doctrine” rests on “the
stabilizing force of contracts.”
Morgan Stanley, 554 U.
S., at ___ (slip op., at 19); see
id., at 22 (describing
contract rates as “a key source of stability”). To retain vitality,
the doctrine must control FERC itself, and, we hold, challenges to
contract rates brought by noncontracting as well as contracting
parties.
I
In a capacity market, in contrast
to a wholesale energy market, an electricity provider purchases
from a generator an option to buy a quantity of energy, rather than
purchasing the energy itself. To maintain the reliability of the
grid, electricity providers generally purchase more capacity,
i.e., rights to acquire energy, than necessary to meet
their customers’ anticipated demand. For many years in New England,
the supply of capacity was barely sufficient to meet the region’s
demand. FERC and New England’s generators, electricity providers,
and power customers made several attempts to address this problem.
This case stems from the latest effort to design a solution.
In 2003, a group of generators
sought to enter into “reliability must-run” agreements with the New
England Independent System Operator (ISO), which operates the
region’s transmission system.[
Footnote 1] In its orders addressing those agreements,
FERC directed the ISO to develop a new market mechanism that would
set prices separately for various geographical sub-regions.
Devon Power LLC, 103 FERC ¶61,082, pp. 61,266, 61,271
(2003).
In March 2004, the ISO proposed a market
structure responsive to FERC’s directions. See
Devon Power
LLC, 107 FERC ¶61,240, p. 62,020 (2004). FERC set the
matter for hearing before an Administrative Law Judge (ALJ), who
issued a 177-page order largely accepting the ISO’s proposal.
Devon Power LLC, 111 FERC ¶63,063, p. 65,205 (2005).
Several parties filed exceptions to the ALJ’s order; on September
20, 2005, the full Commission heard arguments on the proposed
market structure, and thereafter established settlement procedures.
Devon Power LLC, 113 FERC ¶61,075, p. 61,271
(2005).
After four months of negotiations, on March 6,
2006, a settlement was reached. Of the 115 negotiating parties,
only 8 opposed the settlement.
The Settlement Agreement installed a “forward
capacity market” under which annual auctions would set capacity
prices; auctions would be conducted three years in advance of the
time when the capacity would be needed.
Devon Power LLC,
115 FERC ¶61,340, pp. 62,304, 62,306–62,308 (2006). Each
energy provider would be required to purchase enough capacity to
meet its share of the “installed capacity requirement,”
i.e., the minimum level of capacity needed to maintain
reliability on the grid, as determined by the ISO.
Id., at
62,307. For the three-year gap between the first auction and the
time when the capacity procured in that auction would be
provided,[
Footnote 2] the
Agreement prescribed a series of fixed, transition-period payments
to capacity-supplying generators.
Id., at
62,308–62,309.
The issue before us centers on §4.C of the
Agreement (hereinafter
Mobile-Sierra provision). Under
that provision, challenges to both transition-period payments and
auction-clearing prices would be adjudicated under “the ‘public
interest’ standard of review set forth in
United Gas Pipe Line
Co. v. Mobile Gas Service Corp.,
350 U. S. 332 (1956)[,] and
[
FPC]
v. Sierra Pacific Power Co.,
350 U. S. 348 (1956) (the
‘Mobile-Sierra’ doctrine).” App. 95.
Mobile-Sierra
applies, §4.C instructs, “whether the [price is challenged] by a
Settling Party, a non-Settling Party, or [by] the FERC acting
sU. S.onte.”
Ibid.
FERC approved the Settlement Agreement,
“finding that as a package, it presents a just and reasonable
outcome for this proceeding consistent with the public interest.”
115 FERC, at 62,304. The
Mobile-Sierra provision, FERC
explicitly determined, “appropriately balances the need for rate
stability and the interests of the diverse entities who will be
subject to the [forward capacity market’s auction system].”
Id., at 62,335.
Six of the eight objectors to the settlement
sought review in the D. C. Circuit. For the most part, the
Court of Appeals rejected the objectors’ efforts to overturn FERC’s
order approving the settlement. 520 F. 3d, at 467. But the
objectors prevailed on the
Mobile-Sierra issue: The
D. C. Circuit held that
Mobile-Sierra applies only to
contracting parties.
Id., at 478. In this Court, the
parties have switched places. Defenders of the settlement,
including the
Mobile-Sierra provision, are petitioners;
objectors to the settlement, victorious in the Court of Appeals
only on the
Mobile-Sierra issue, are respondents.
Because of the importance of the issue, and in
light of our recent decision in
Morgan Stanley, we granted
certiorari, 556 U. S. ___ (2009), to resolve this question: “[Does]
Mobile-Sierra’s public-interest standard appl[y] when a
contract rate is challenged by an entity that was not a party to
the contract[?]” Brief for Petitioners i. Satisfied that the answer
to that question is yes, we reverse the D. C. Circuit’s
judgment insofar as it rejected application of
Mobile-Sierra to noncontracting parties.
II
The FPA gives FERC authority to
regulate the “sale of electric energy at wholesale in interstate
commerce.” See 16 U. S. C. §824(b)(1). The Act allows
regulated utilities to set rates unilaterally by tariff;
alternatively, sellers and buyers may agree on rates by contract.
See §824d(c), (d). Whether set by tariff or contract, however, all
rates must be “just and reasonable.” §824d(a). Rates may be
examined by the Commission, upon complaint or on its own
initiative, when a new or altered tariff or contract is filed or
after a rate goes into effect. §§824d(e), 824e(a). Following a
hearing, the Commission may set aside any rate found “unjust,
unreasonable, unduly discriminatory or preferential,” and replace
it with a just and reasonable rate. §824e(a).
The
Mobile-Sierra
doctrine originated in twin decisions announced on the same day in
1956:
United Gas Pipe Line Co. v.
Mobile Gas Service
Corp.,
350 U. S. 332, and
FPC v.
Sierra Pacific Power Co.,
350 U. S. 348. Both concerned rates
set by contract rather than by tariff.
Mobile involved the
Natural Gas Act, which, like the FPA, requires utilities to file
all new rates with the regulatory commission. 15 U. S. C.
§717c(c). In
Mobile, we rejected a gas utility’s argument
that the file-all-new-rates requirement authorized the utility to
abrogate a lawful contract with a purchaser simply by filing a new
tariff. 350 U. S., at 336–337. Filing, we explained, was a
precondition to changing a rate, not an
authorization to do so in violation of a lawful contract.
Id., at 339–344; see
Morgan Stanley, 554 U. S.,
at ___ (slip op., at 4).
The
Sierra case involved a further
issue. Not only had the Commission erroneously concluded that a
newly filed tariff superseded a contract rate. In addition, the
Commission had suggested that, in any event, the contract rate,
which the utility sought to escape, was itself unjust and
unreasonable. The Commission thought that was so “solely because
[the contract rate] yield[ed] less than a fair return on the
[utility’s] net invested capital.” 350 U. S., at 355.
The Commission’s suggestion prompted this
Court to home in on “the question of how the Commission may
evaluate whether a contract rate is just and reasonable.”
Morgan Stanley, 554 U. S., at ___ (slip op., at 4). The
Sierra Court answered the question this way:
“[T]he Commission’s conclusion appears on its face
to be based on an erroneous standard… . [W]hile it may be that
the Commission may not normally
impose upon a public
utility a rate which would produce less than a fair return, it does
not follow that the public utility may not itself agree by contract
to a rate affording less than a fair return or that, if it does so,
it is entitled to be relieved of its improvident bargain… . In
such circumstances
the sole concern of the Commission would
seem to be whether the rate is so low as to adversely affect the
public interest—as where it might impair the financial ability
of the public utility to continue its service, cast upon other
consumers an excessive burden, or be unduly discriminatory.” 350 U.
S., at 354–355 (some emphasis added).
In a later case, we similarly explained: “The
regulatory system created by the [FPA] is premised on contractual
agreements voluntarily devised by the regulated companies; it
contemplates abrogation of these agreements only in circumstances
of unequivocal public necessity.”
Permian Basin Area Rate
Cases,
390 U.
S. 747, 822 (1968).[
Footnote
3]
Two Terms ago, in
Morgan Stanley, 554
U. S. ___, the Court reaffirmed and clarified the
Mobile-Sierra doctrine. That case presented two questions:
First, does the
Mobile-Sierra presumption (that contract
rates freely negotiated between sophisticated parties meet the just
and reasonable standard imposed by 16 U. S. C. §824d(a))
“apply only when FERC has had an initial opportunity to review a
contract rate without the presumption?” 554 U. S., at ___ (slip
op., at 1). “Second, does the presumption [generally] impose as
high a bar to challenges by purchasers of wholesale electricity as
it does to challenges by sellers?”
Id., at ___ (slip op.,
at 1–2); see
id., at 19–20. Answering no to the first
question and yes to the second, the Court emphasized the essential
role of contracts as a key factor fostering stability in the
electricity market, to the longrun benefit of consumers.
Id., at ___, ___ (slip op., at 19, 22); see,
e.g., Market-Based Rates ¶6, 72 Fed. Reg. 39906 (2007)
(noting chilling effect on investments caused by “uncertainties
regarding rate stability and contract sanctity”);
Nevada Power
Co. v.
Duke Energy Trading & Marketing,
L. L. C., 99 FERC ¶61,047, pp. 61,184, 61,190
(2002) (“Competitive power markets simply cannot attract the
capital needed to build adequate generating infrastructure without
regulatory certainty, including certainty that the Commission will
not modify market-based contracts unless there are
extraordinary circumstances.”).
Morgan Stanley did not reach the
question presented here: Does
Mobile-Sierra’s public
interest standard apply to challenges to contract rates brought by
noncontracting parties? But
Morgan Stanley’s reasoning
strongly suggests that the D. C. Circuit’s negative answer
misperceives the aim, and diminishes the force, of the
Mobile-Sierra doctrine.
In unmistakably plain language,
Morgan
Stanley restated
Mobile-Sierra’s instruction to the
Commission: FERC “must presume that the rate set out in a freely
negotiated wholesale-energy contract meets the ‘just and
reasonable’ requirement imposed by law. The presumption may be
overcome only if FERC concludes that the contract seriously harms
the public interest.” 554 U. S., at ___ (slip op., at 1). As our
instruction to FERC in
Morgan Stanley conveys, the public
interest standard is not, as the D. C. Circuit presented it, a
standard independent of, and sometimes at odds with, the “just and
reasonable” standard, see 520 F. 3d, at 478; rather, the
public interest standard defines “what it means for a rate to
satisfy the just-and-reasonable standard in the contract context.”
Morgan Stanley, 554 U. S., at ___ (slip op., at 17). And
if FERC itself must presume just and reasonable a contract rate
resulting from fair, arms-length negotiations, how can it be
maintained that noncontracting parties nevertheless may escape that
presumption? [
Footnote
4]
Moreover, the
Mobile-Sierra doctrine
does not overlook third-party interests; it is framed with a view
to their protection. The doctrine directs the Commission to reject
a contract rate that “seriously harms the consuming public.”
Morgan Stanley, 554 U. S., at ___ (slip op., at 17); see
Verizon Communications Inc. v.
FCC,
535 U. S. 467, 479
(2002) (When a buyer and a seller agree upon a rate, “the principal
regulatory responsibility [i]s not to relieve a contracting party
of an unreasonable rate, … but to protect against potential
discrimination by favorable contract rates between allied
businesses to the detriment of
other wholesale customers.”
(Emphasis added.)).
Finally, as earlier indicated, see
supra, at 7–8, the D. C. Circuit’s confinement of
Mobile-Sierra to rate challenges by contracting parties
diminishes the animating purpose of the doctrine: promotion of “the
stability of supply arrangements which all agree is essential to
the health of the [energy] industry.”
Mobile, 350 U. S.,
at 344. That dominant concern was expressed by FERC in the order on
review: “Stability is particularly important in this case, which
was initiated in part because of the unstable nature of [installed
capacity] revenues and the effect that has on generating units,
particularly those … critical to maintaining reliability.” 115
FERC, at 62,335. A presumption applicable to contracting parties
only, and inoperative as to everyone else—consumers, advocacy
groups, state utility commissions, elected officials acting
parens patriae—could scarcely provide the stability
Mobile-Sierra aimed to secure.[
Footnote 5]
We therefore hold that the
Mobile-Sierra presumption does not depend on the identity
of the complainant who seeks FERC investigation. The presumption is
not limited to challenges to contract rates brought by contracting
parties. It applies, as well, to challenges initiated by third
parties.
III
The objectors to the settlement
appearing before us maintain that the rates at issue in this
case—the auction rates and the transition payments—are
prescriptions of general applicability rather than “contractually
negotiated rates,” hence
Mobile-Sierra is inapplicable.
See Brief for Respondents 15–17, and n. 1 (internal quotation
marks omitted). FERC agrees that the rates covered by the
settlement “are not themselves contract rates to which the
Commission was
required to apply
Mobile-Sierra.”
Brief for FERC 15. But, FERC urges, “the Commission had discretion
to do so,”
id., at 28; furthermore, “[t]he court of
appeals’ error in creating a third-party exception to the
Mobile-Sierra presumption is a sufficient basis for
reversing its judgment,”
id., at 22. Whether the rates at
issue qualify as “contract rates,” and, if not, whether FERC had
discretion to treat them analogously are questions raised before,
but not ruled upon by, the Court of Appeals. They remain open for
that court’s consideration on remand. See Tr. of Oral Arg. 16.
* * *
For the reasons stated, the judgment of the Court
of Appeals for the D. C. Circuit is reversed to the extent
that it rejects the application of
Mobile-Sierra to
noncontracting parties, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.
Footnote 1
An ISO is an independent company that has
operational control, but not ownership, of the transmission
facilities owned by member utilities. ISOs “provide open access to
the regional transmission system to all electricity generators at
rates established in a single, unbundled, grid-wide tariff
… .”
Midwest ISO Transmission Owners v.
FERC, 373 F. 3d 1361, 1364 (CADC 2004) (internal
quotation marks omitted).
Footnote 2
The transition period runs from December 1,
2006 to June 1, 2010.
Footnote 3
Consistent with the lead role of contracts
recognized in
Mobile-Sierra, we held in
United Gas
Pipe Line Co. v.
Memphis Light, Gas and Water Div.,
358 U. S. 103,
110–113 (1958), that parties may contract out of the
Mobile-Sierra presumption. They could do so, we ruled, by
specifying in their contracts that a new rate filed with the
Commission would supersede the contract rate. Courts of Appeals
have approved an option midway between
Mobile-Sierra and
Memphis Light: A contract that does not allow the seller
to supersede the contract rate by filing a new rate may nonetheless
permit the Commission to set aside the contract rate if it results
in an unfair rate of return, without a further showing that it
adversely affects the public interest. See,
e.g.,
Papago Tribal Util. Auth. v.
FERC, 723 F. 2d
950, 953 (CADC 1983);
Louisiana Power & Light Co. v.
FERC, 587 F. 2d 671, 675–676 (CA5 1979).
Footnote 4
The D. C. Circuit emphasized a point no
doubt true, but hardly dispositive: Contracts bind parties, not
nonparties.
Maine Pub. Util. Comm’n v.
FERC, 520
F. 3d 464, 478 (2008)
(per curiam).
Mobile-Sierra holds sway, however, because well-informed
wholesale-market participants of approximately equal bargaining
power generally can be expected to negotiate just-and-reasonable
rates, see
Morgan Stanley Capital Group Inc. v.
Public
Util. Dist. No. 1 of Snohomish Cty., 554 U. S. ___, ___ (2008)
(slip op., at 17), and because “contract stability ultimately
benefits consumers,”
id., at ___ (slip op., at 22). These
reasons for the presumption explain why FERC, surely not legally
bound by a contract rate, must apply the presumption and,
correspondingly, why third parties are similarly controlled by
it.
Footnote 5
The FPA authorizes “
[a]ny person,
electric utility, State, municipality, or State commission” to
complain. 16 U. S. C. §825e (emphasis added). FERC regulations
similarly permit “
[a]ny person [to] file a complaint
seeking Commission action.” 18 CFR §385.206(a) (2009) (emphasis
added).
Comments
Be the first to comment
Leave a Comment