On February 15, 2013, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion upholding the authority of the Federal Energy Regulatory Commission (“FERC”) to grant protections similar to those offered by the Mobile-Sierra doctrine to non-contract rates on a discretionary basis. See New England Power Generators Assoc. v. FERC, No. 11-1422 (D.C. Cir. Feb. 15, 2013) (“NEPGA”).
Recognizing the role of contracts in the regulatory regime established by the Federal Power Act and the Natural Gas Act, the Mobile-Sierra doctrine presumes that rates fixed by contract for FERC-jurisdictional services are “just and reasonable” and thus lawful under the Acts. In a 2010 decision relating to a settlement involving New England’s forward capacity market (“FCM”), the U.S. Supreme Court confirmed that this presumption applies equally to challenges to contract rates brought by non-contracting parties and also suggested that FERC may have the discretion, in certain circumstances, to treat non-contract rates analogously to contract rates for Mobile-Sierra purposes. See NRG Power Marketing, LLC v. Maine Public Utilities Commission, 130 S. Ct. 693 (2010).
On remand, FERC found the rates resulting from FCM auctions were not contract rates, but nonetheless determined that it was appropriate to treat such rates analogously to contract rates. In the NEPGA decision affirming FERC, the D.C. Circuit observed that FERC’s order “appears to have satisfied no one.” On the one hand, one petitioner, the New England Power Generators Association (“NEPGA”), “likes the result but not the reasoning: it argues the auction results, as contract rates, must receive the Mobile-Sierra presumption.” On the other hand, another set of petitioners, the Maine Public Utilities Commission and the Attorneys General of Massachusetts and Connecticut (together, the “State Petitioners”), “support much of FERC’s reasoning but not the result: they contend that because the auction results are not contract rates, FERC cannot presume them just and reasonable.”
The D.C. Circuit sided with FERC. It dismissed NEPGA’s petition for review, finding NEPGA was not injured by FERC’s order and, therefore, lacked standing to seek review. The Court also denied the State Petitioners’ petition, finding that their argument “boils down to a single misconception: because the existence of a contract rate mandates application of the Mobile-Sierra presumption, the absence of a contract rate precludes it.” The Court held that FERC has considerable discretion in determining what constitutes a just and reasonable rate under the FPA, and that “[a]pplication of public interest review is simply one method by which FERC may assure itself a rate is just and reasonable. . . .” Accordingly, “[w]hether the auction results are contract rates or not, FERC’s determination that the logic of Mobile-Sierra still applied ‘is a reasonable choice within a gap left open by Congress’ and so within the purview of the agency’s discretion under . . . the FPA.”