FERC Asks Supreme Court to Limit Maine's Challenge to Wholesale Utility Rates in NRG Power Marketing Case

FERC is again trying to reduce the possibility of meaningful review of wholesale electric rates in another Supreme Court case, NRG Power Marketing v. Maine Public Utilities, Docket No. 08-674. The case arose when Maine did not join in a settlement agreement to adopt new rules for a capacity market in the New England ISO. The new market rules will be very expensive for Maine, which basically contends it had developed sufficient capacity in the state and shouldn't pay existing power plant owners more in order to encourage others, indirectly, to build somewhere else in other states.

FERC said the settlement agreement of a number of parties to adopt new capacity market rules -- which are filed with FERC as a "rate" by the New England ISO -- is a contract under the Mobile Sierra doctrine, enjoying a "presumption" of reasonableness, so when third party challengers object, as the Maine PUC did, they must face an insuperable burden of showing harm to the public interest to overturn them.

FERC's position reversed the normal burden of proof, which is on the utility -- even in cases where the majority of parties agree to settle -- to establish on the record that a rate or rate change is lawful. See Stefan H. Krieger, Problems for Captive Ratepayers in Nonunanimous Settlements of Public Utility Rate Cases, 12 Yale Journal on Regulation, No. 2,

The Court of Appeals rejected FERC's effort in its opinion, finding that "the Commission has unlawfully deprived non-settling parties of their rights under the Federal Power Act.

Supporters of the settlement sought and obtained Supreme Court review.

Public Citizen filed an amicus brief pointing out how FERC's effort to thwart third party challenges to utility rates, if endorsed by the Supreme Court, filed under an agreement of settling parties could limit states, state regulatory commissions and consumer advocates in challenging rates terms and conditions of wholesale electric service as unreasonable and unlawful.

the positions taken by FERC and the petitioners in this case are, if anything, even more damaging to the protection of the public than FERC’s embrace of “market-based rates.” The expansion of the Mobile-Sierra doctrine that FERC and petitioners advocate would effectively nullify the consumer protection goals of the FPA by imposing a virtually insurmountable obstacle to challenging wholesale electricity contracts that result in unjust and unreasonable rates paid by consumers. * * * *
There is no basis for the further leap that contracting parties can also be expected to protect the interests of the public. Indeed, there is every reason to believe that they will not, because wholesale purchasers who resell power to consumers are typically entitled to pass on their costs directly to consumers, and thus have reduced incentives to minimize costs. Thus, where members of the public or their representatives are asserting their own rights under the FPA to have FERC determine the lawfulness of rates that directly affect their interests, neither Mobile-Sierra nor Morgan Stanley supports the imposition of any heightened burden on them.

Briefs of the parties and amicus briefs in NRG Power Marketing v. Maine are available at the ABA's Supreme Court webpage. The case is scheduled for oral argument November 3, 2009.

FERC has been trying to implement a system of "market-based rates charged with no possibility of effective review, by administratively eliminating the public rate filing and rate regulation system established in 1935 by the Federal Power Act (FPA). Last year, FERC pushed in its filed briefs in the Morgan Stanley case for Supreme Court legitimization of its efforts to deregulate wholesale electric power. Public Citizen and PULP filed briefs opposing that effort to achieve judicial ratification of its dubious doctrines.

In a decision by Justice Scalia, the Supreme Court clarified in Morgan Stanley the applicable standard of review under the "Mobile-Sierra" doctrine when parties to a bilateral contract for the sale of power subsequently try to modify the contracts they signed.

Fortunately, the Court did not accept FERC's invitation to bless its market rate mess. Indeed, the Court pointed out twice in the Morgan Stanley opinion that it was not addressing legality of the "market-based rate" regime, and made a pointed reference to FERC's somewhat "metaphysical" doctrine that statutory requirements can be waived or satisfied if the agency simply determines that a seller cannot exercise market power. See Supreme Court Leaves Fundamental Questions About FERC Market Rate Scheme Unanswered, PULP Network, July 26, 2008.

The sitting FERC commissioners are electricity deregulation and market rate enthusiasts initially appointed by former President Bush, two of whom (Kelly and Wellinghoff) were renominated by President Obama when their terms ended. See Wellinghoff Designated Chairman of FERC by President Obama, PULP Network, March 25, 2009; FERC Commissioner Kelly Quitting: Who Will Take Her Place?, PULP Network Sept. 25, 2009.

Update
11.03.2009 - The transcript of oral argument is here.