UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Parts 35 and 370 

(Docket No. RM05-35-000) 

Standard of Review for Modifications to Jurisdictional Agreements 

(December 27, 2005) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Federal Energy Regulatory Commission (Commission) is 

issuing a notice of proposed rulemaking to propose a general rule regarding the 

standard of review applicable to proposed modifications to Commissionjurisdictional agreements under the Federal Power Act and Natural Gas Act. The 

intent of the proposed rulemaking is to promote the sanctity of contracts, 

recognize the importance of providing certainty and stability in competitive 

electric energy markets, and provide adequate protection of energy customers. 

The Commission is inviting comments on the notice of proposed rulemaking. 

DATES: Comments are due [insert date 30 days after publication in the 

FEDERAL REGISTER] 

ADDRESSES: Comments may be filed electronically via the eFiling link on the 

Commission's web site at http://www.ferc.gov. Commenters unable to file 

comments electronically must send an original and fourteen (14) copies of their 
comments to: Federal Energy Regulatory Commission, Secretary of the 

Commission, 888 First Street, N.E., Washington, D.C., 20426. Refer to the 

Comment Procedures section of the preamble for additional information on how to 

file comments. 

FOR FURTHER INFORMATION CONTACT: 

Hadas Kozlowski 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8030 

Shaheda Sultan 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202)502-8845 

Richard Howe 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202)502-8289 

SUPPLEMENTARY INFORMATION:
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Standard of Review for Modifications to 

Jurisdictional Agreements Docket No. RM05-35-000 

NOTICE OF PROPOSED RULEMAKING 

(December 27, 2005) 

I. Introduction

1. The Commission is proposing to amend its regulations to provide a general 

rule regarding the standard of review that must be met to justify proposed 

modifications to Commission-jurisdictional agreements under the Federal Power 

Act (FPA) and the Natural Gas Act (NGA) that are not agreed to by the signatories 

(or their successors). Specifically, the Commission proposes to repeal its 

regulation1

 at 18 CFR 35.1(d), which provides: 

(d)(1) The provisions of this paragraph (d) shall apply 

to rate schedules tendered for filing on or after August 

1, 1976, which are applicable to the transmission or 

sale of firm power for resale to an all-requirements 

customer, whether tendered pursuant to Sec. 35.12 as 

 

1

 We also terminate our proposed policy statement in Docket No. PL02-7-

000. 
Docket No. RM05-35-000 - 2 -

an initial rate schedule or tendered pursuant to Sec. 

35.13 as a change in an existing rate schedule whose 

term has expired or whose term is to be extended. 

 (2) Rate schedules covered by the terms of 

paragraph (d)(1) of this section shall contain the 

following provision when it is the intent of the 

contracting parties to give the party furnishing service 

the unrestricted right to file unilateral rate changes 

under section 205 of the Federal Power Act: 

 Nothing contained herein shall be construed as 

affecting in any way the right of the party furnishing 

service under this rate schedule to unilaterally make 

application to the Federal Energy Regulatory 

Commission for a change in rates under section 205 of 

the Federal Power Act and pursuant to the 

Commission's Rules and Regulations promulgated 

thereunder. 

 (3) Rate schedules covered by the terms of 

paragraph (d)(1) of this section shall contain the 

following provision when it is the intent of the 

contracting parties to withhold from the party 

furnishing service the right to file any unilateral rate 
Docket No. RM05-35-000 - 3 -

changes under section 205 of the Federal Power Act: 

 The rates for service specified herein shall remain 

in effect for the term of ---------- or until ----------, and 

shall not be subject to change through application to 

the Federal Energy Regulatory Commission pursuant 

to the provisions of section 205 of the Federal Power 

Act absent the agreement of all parties thereto. 

 (4) Rate schedules covered by the terms of paragraph 

(d)(1) of this section, but which are not covered by 

paragraphs (d)(2) or (d)(3) of this section, are not 

required to contain either of the boilerplate provisions 

set forth in paragraph (d)(2) or (d)(3) of this section. 

2. In its place, the Commission proposes a regulation which provides that, in 

the absence of prescribed contractual language enabling the Commission to review 

proposed modification to agreements that are not agreed to by the signatories (or 

their successors) under a just and reasonable standard, the Commission will review 

such agreements under a public interest standard, in accordance with the MobileSierra doctrine.2

 However, this regulation will not apply to transmission service 

agreements executed under an open access transmission tariff as provided for 

 

2 See United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 

(1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956) (Mobile-Sierra). 
Docket No. RM05-35-000 - 4 -

under Order No. 888 3

 and agreements for the transportation of natural gas (to the 

extent that they are executed pursuant to the standard form of service agreements 

in pipeline tariffs), as these forms of service agreement already mandate the use of 

the just and reasonable standard of review. 

3. This regulation will be applied on a prospective basis, i.e., it will become 

effective for all Commission-jurisdictional contracts under the FPA or the NGA 

executed 30 days or more after the final rule is published in the Federal Register. 

II. Background

4. The FPA and the NGA require that rates, terms, and conditions of service 

must be “just and reasonable” and not unduly discriminatory or preferential.4

 The 

seller can propose rates, terms, and conditions of service and the Commission can 

approve them if it finds they meet the just and reasonable standard.5

 The 

Commission can also on its own motion or on the filing of a complaint of a third 

party investigate existing rates, terms, and conditions of jurisdictional service and 

 

3 Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities and Recovery of

Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 

FERC Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order No. 888-A, FERC 

Stats. & Regs. ¶ 31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC ¶ 

61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff'd in 

relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 

F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002). 

4 16 U.S.C. 824d; 15 U.S.C. 717c. 

5 Id.
Docket No. RM05-35-000 - 5 -

alter them prospectively, if it finds that such rates are no longer just and 

reasonable.6

 The FPA and the NGA also provide that contracts between 

individual parties can be used to set rates, terms, and conditions.7

 In such 

contracts, sellers may agree to voluntarily restrict some or all of their freedom to 

change the contract rates, terms, and conditions, and buyers may agree to restrict 

their right to request the Commission to change the rate, terms, and conditions. 

Additionally, sometimes the parties to the contract may attempt to restrict not only 

themselves but also the Commission from changing the contract provisions under 

the "just and reasonable" standard. In some cases, the seller and buyer have 

contracted for a particular rate,8

 and not expressly reserved their rights to propose 

contractual changes, the contract has been filed with the Commission, and the 

Commission has permitted the rate to become effective. In these cases, the courts 

have differed on the applicable standard of review when a seller seeks, over the 

objections of the buyer, to file a new rate (under section 205 of the FPA or section 

4 of the NGA), or the buyer or the Commission seeks (under section 206 of the 

FPA or section 5 of the NGA) to change the existing contract rate. In particular, 

courts have differed on whether the “just and reasonable” or the “public interest” 

 

6

 16 U.S.C. 824e; 15 U.S.C 717d. 

7 See, e.g., 16 U.S.C. 824d(d) and 824e(a); 15 U.S.C. 717c(d) and 717d(a). 

8

 Although this proposed rulemaking applies to rates, terms, and conditions, 

of both electric and gas contracts, most of the cases have involved rates. 
Docket No. RM05-35-000 - 6 -

standard of review should apply in that situation.9

 Although not clearly defined,10

the “public interest” standard of review has been held to be higher or stricter than 

the “just and reasonable” standard of review.11

5. In 1958, in United Gas Pipeline Co. v. Memphis Light, Gas and Water 

Division,

12 the Supreme Court held that the Mobile-Sierra public interest standard 

of review does not apply to service agreements entered into pursuant to the “tariffand-service agreement” system used by natural gas pipelines. That system is 

currently implemented through section 154.110 of the Commission’s 

regulations,13 which requires interstate pipelines to include in their tariffs pro 

forma service agreements. Since Memphis, the Commission and the industry as a 

whole have consistently interpreted pipeline forms of service agreements as 

permitting changes in pipelines’ tariff and service agreements to be made pursuant 

to the just and reasonable standard of review, rather than the public interest 

 

9 See Boston Edison Co. v. FERC, 233 F.3d 60 (1st Cir. 2000) (Boston 

Edison) (citing Mobile-Sierra). 

10 See Northeast Utilities Service Co., 55 F.3d 686, 690 (1st Cir. 1995) 

(describing the Mobile-Sierra standard of review: "[N]owhere in the Supreme 

Court opinion is the term 'public interest' defined. Indeed, the Court seems to 

assume that the Commission decides what circumstances give rise to the public 

interest").

11 See Papago Tribal Utility Authority v. FERC, 723 F.2d 950, 954 (D.C. 

Cir. 1983). 

12 358 U.S. 103 (1958) (Memphis). 

13 18 CFR 154.110. 
Docket No. RM05-35-000 - 7 -

standard of review. This is true whether the change is initiated by the pipeline 

under section 4 of the NGA or by a shipper or the Commission under section 5.14 

6. In the electric industry, Order No. 888 adopted a “tariff and service 

agreement” contracting system for open access electric transmission service very 

similar to the system used by interstate pipelines for their open access 

transportation service. Thus, as is the case with natural gas pipeline service 

agreements, when an electric transmission provider negotiates a service agreement 

with a customer, the issue of what standard of review the Commission will apply 

when acting on proposed tariff or contract modifications is generally not a matter 

for negotiation between the parties. The just and reasonable standard of review 

must apply, since it is provided for in the OATT and in the mandatory form of 

service agreement in the Transmission Provider’s tariff.15 

III. Discussion

7. A great deal of time and expense is incurred, and much uncertainty is 

engendered, when the parties involved in contract disputes and the Commission 

 

14 There are two primary situations where the form of service agreement set 

forth in the pipeline’s tariff does not apply. First, when a project is being 

certificated, the pipeline generally negotiates precedent agreements with the 

shippers (and there is no form of service agreement for precedent agreements). 

The second situation is the negotiation of rate case settlements. 

15 However, also similar to the situation with natural gas pipelines, 

transmission providers may enter into rate case settlements with their customers 

that are not covered by the form of service agreement, and such settlement 

agreements may contain provisions limiting the parties’ section 205 and 206 rights 

in particular ways. 
Docket No. RM05-35-000 - 8 -

attempt to resolve the issues of whether the parties intended to invoke a public 

interest standard of review, and whether this standard binds only one party, both 

parties, third parties, and/or the Commission. 

8. Moreover, courts have been divided as to whether to apply the public 

interest or the just and reasonable standard in the face of contractual silence. As 

the (First Circuit) court said in Boston Edison, “cases even within the D.C. Circuit 

. . . do not form a completely consistent pattern.” 16 The Boston Edison court 

also stated that these issues would remain in a state of confusion until the 

Commission “squarely confronted the underlying issues,” and if the Commission 

“wanted to eliminate much of the existing uncertainly regarding the parties' intent, 

it might prescribe prospectively the terms that parties would have to use to invoke 

Mobile-Sierra protection.”17

9. Upon review of the case law, we conclude that the weight of precedent 

supports the conclusion that the public interest standard applies in the case of 

contractual silence. See, e.g., Texaco Inc. v. FERC, 148 F.3d 1091, 1096 (D.C. 

Cir. 1998) (“absent contractual language ‘susceptible to the construction that the 

rate may be altered while the contract[] subsists,’ the Mobile-Sierra doctrine 

applies,” quoting Appalachian Power Co., 529 F.2d 342, 348 (D.C. Cir. 1976)).18 

 

16 Boston Edison, 233 F.3d at 67. 

17 Boston Edison, 233 F.3d at 68. 

18 But see Union Pac. Fuels, Inc. v. FERC, 327 U.S. App. D.C. 74, 129 F.3d 
Docket No. RM05-35-000 - 9 -

Moreover, we note that, in the initial cases, the Supreme Court interpreted silence 

as requiring the public interest standard of review. See Sierra, 350 U.S. at 355 

(“while 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”). 

10. Thus, rather than prescribe specific terms for invoking Mobile-Sierra, as 

suggested by Boston Edison, the Commission believes that, in keeping with 

precedent, recognizing the importance of providing certainty and stability in 

energy markets, and to promote the sanctity of contracts, it is preferable to 

interpret contractual silence on this issue as the intent to invoke a Mobile-Sierra

standard of review. Stated differently, parties seeking to reserve the contractual 

right to seek modification under a just and reasonable standard of review must do 

so clearly and explicitly. Accordingly, we propose to prescribe terms parties must 

use to evidence an intent to have the Commission review modifications to 

jurisdictional agreements that are not agreed to by the signatories (or their 

successors) under the just and reasonable standard. In the absence of such 

prescribed language, we propose to review modifications to jurisdictional 

agreements that are not agreed to by all signatories (or their successors) under the 

public interest standard. New agreements and modifications to jurisdictional 

 

157, 161-162 (D.C. Cir. 1997). 
Docket No. RM05-35-000 - 10 -

agreements that are agreed to by all signatories (or their successors), however, will 

continue to be reviewed under the just and reasonable standard. As we have 

explained with regard to the former,19 we are not bound to employ a public 

interest standard of review when we undertake our initial review of an 

agreement.20

IV. Information Collection Statement

11. The Commission is not imposing an information collection requirement 

upon the public. Therefore, this proposed rule is not subject to review by the 

Office of Management and Budget. 

V. Environmental Analysis

12. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant 

adverse effect on the human environment.21 The Commission concludes that 

neither an Environmental Assessment nor an Environmental Impact Statement is 

required for this NOPR pursuant to section 380.4(a)(2)(ii) of the Commission 

 

19 See, e.g., ITC Holdings Corp., 102 FERC ¶ 61,182 at P 77, reh’g denied, 

104 FERC ¶ 61,033 (2003); Florida Power & Light Co., 67 FERC ¶ 61,141 at 

61,398-99 (1994); Southern Company Services, Inc., 67 FERC ¶ 61,080 (1994). 

20 See also Northeast Utilities Service Co., 993 F.2d 937 at 961 (1st Cir. 

1993). 

21 Regulations Implementing the National Environmental Policy Act, Order 

No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations 

Preambles 1986-1990 ¶ 30,783 (1987). 
Docket No. RM05-35-000 - 11 -

regulations, which provides a “categorical exclusion” for rules that do not 

substantively change the effect of legislation.22 

VI. Regulatory Flexibility Act Certification

13. The Regulatory Flexibility Act of 1980 (RFA)23 requires that a rulemaking 

contain either a description and analysis of the effect that the proposed rule will 

have on small entities or a certification that the rule will not have a significant 

economic impact on a substantial number of small entities. However, the RFA 

does not define “significant” or “substantial” instead leaving it up to an agency to 

determine the impact of its regulations on small entities. 

14. In drafting this rule, the Commission has followed the provisions of both 

the RFA and the Paperwork Reduction Act to consider the potential impact of 

regulations on small business and other small entities. The cost of compliance 

with the rule proposed herein, if finalized, will be minimal. Accordingly, pursuant 

to § 605(b) of the RFA, the Commission hereby certifies the rule proposed herein, 

if finalized, will not have a “significant economic impact on a substantial number 

of small entities.” 

VII. Comment Procedures

15. The Commission invites interested persons to submit comments on the 

 

22 18 CFR 380.4(a)(2)(ii). 

23 5 U.S.C. 601-12. 
Docket No. RM05-35-000 - 12 -

matters and issues proposed in this notice to be adopted, including any related 

matters or alternative proposals that commenters may wish to discuss. Comments 

are due [insert date 30 days from publication in the FEDERAL REGISTER]. 

Comments must refer to Docket No. RM05-35-000, and must include the 

commenter's name, the organization represented, if applicable, and the 

commenter’s address. Comments may be filed either in electronic or paper 

format. 

16. Comments may be filed electronically via the eFiling link on the 

Commission's web site at http://www.ferc.gov. The Commission accepts most 

standard word processing formats and commenters may attach additional files with 

supporting information in certain other file formats. Commenters filing 

electronically do not need to make a paper filing. Commenters that are not able to 

file comments electronically must send an original and fourteen (14) copies of 

their comments to: Federal Energy Regulatory Commission, Secretary of the 

Commission, 888 First Street N.E., Washington, D.C., 20426. 

17. All comments will be placed in the Commission's public files and may be 

viewed, printed, or downloaded remotely as described in the Document 

Availability section below. Commenters on this proposal are not required to serve 

copies of their comments on other commenters. 

VIII. Document Availability

18. In addition to publishing the full text of this document in the Federal 

Register, the Commission provides all interested persons an opportunity to view 
Docket No. RM05-35-000 - 13 -

and/or print the contents of this document via the Internet through FERC's Home 

Page (http://www.ferc.gov) and in FERC's Public Reference Room during normal 

business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., 

Room 2A, Washington, D.C., 20426. 

19. From the Commission’s Home Page on the Internet, this information is 

available in the Commission’s document management system, eLibrary. The full 

text of this document is available on eLibrary in PDF and Microsoft Word format 

for viewing, printing, and/or downloading. To access this document in eLibrary, 

type the docket number excluding the last three digits of this document in the 

docket number field. 

20. User assistance is available for eLibrary and the FERC's website during 

normal business hours. For assistance, please contact FERC Online Support at 1-

866-208-3676 (toll free) or 202-502-6652 (e-mail at 

FERCOnlineSupport@FERC.gov), or the Public Reference Room at 202-502-

8371, TTY 202-502-8659 (e-mail at public.referenceroom@ferc.gov). 

List of subjects in 18 CFR Part 370

Electric power; Natural gas; Pipelines. 

By direction of the Commission. Commissioner Kelly dissenting with a separate 

 statement attached. 

( S E A L ) 

 

 

 Magalie R. Salas, 

 Secretary. 
Docket No. RM05-35-000 - 14 -

In consideration of the foregoing, the Commission proposes to amend 

Chapter I, Title 18, Code of Federal Regulations, as follows: 

PART 35 – FILING OF RATE SCHEDULES AND TARIFFS 

1. The authority citation continues to read as follows: 

Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 

7101-7252. 

2. In § 35.1, paragraph (d) is removed, and paragraphs (e), (f), and (g) are 

redesignated as paragraphs (d), (e), and (f). 

3. Part 370 is added to read as follows: 

PART 370 -- STANDARD OF REVIEW FOR MODIFICATIONS TO 

JURISDICTIONAL AGREEMENTS 

Authority: 15 U.S.C. 717-717w, 3301-3432; 16 U.S.C. 791a-825r, 2601-2645; 31 

U.S.C. 9701; 42 U.S.C. 7101-7252. 

Sec. 

370.1 Applicability. 

(a)(1) The provisions of this paragraph shall apply to all Commissionjurisdictional agreements under the Federal Power Act executed on or after 

________, except for transmission service agreements under an open access 

transmission tariff as provided for under Order No. 888. If contracting parties 

intend to permit the Commission, either on its own motion or upon complaint 

under section 206 of the Federal Power Act, to modify a previously-executed 

agreement under the “just and reasonable” standard of review, rather than the 
Docket No. RM05-35-000 - 15 -

“public interest” standard of review, the agreement shall contain the following 

language: 

The standard of review the Commission shall apply 

when acting on proposed modifications to this 

agreement, either on the Commission’s own motion or 

on behalf of a signatory or a non-signatory, shall be the 

“just and reasonable” standard of review rather than 

the “public interest” standard of review. 

(2) If the agreement does not contain the aforementioned language, the 

Commission shall review proposed modifications to a previously-executed 

agreement that are not agreed to by the signatories (or their successors) under the 

“public interest” standard of review rather than the “just and reasonable” standard 

of review. 

(b)(1) The provisions of this paragraph shall apply to all Commissionjurisdictional agreements under the Natural Gas Act executed on or after 

________, except for transportation agreements executed pursuant to the pro 

forma form of service agreement contained in the interstate pipeline’s tariff 

pursuant to § 154.110 of this chapter. If contracting parties intend to permit the 

Commission, either on its own motion or upon complaint under section 5 of the 

Natural Gas Act, to modify a previously-executed agreement under the “just and 

reasonable” standard of review, rather than the “public interest” standard of 

review, the agreement shall contain the following language: The standard of 
Docket No. RM05-35-000 - 16 -

review the Commission shall apply when acting on proposed modifications to this 

agreement, either on the Commission’s own motion or on behalf of a signatory or 

a non-signatory, shall be the “just and reasonable” standard of review rather than 

the “public interest” standard of review.(2) If the agreement does not contain the 

aforementioned language, the Commission shall review proposed modifications to 

a previously-executed agreement that are not agreed to by the signatories (or their 

successors) under the “public interest” standard of review rather than the “just and 

reasonable” standard of review. 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

 

Standard of Review for Modifications to Docket No. RM05-35-000 

 Jurisdictional Agreements 

(Issued December 27, 2005) 

KELLY, Commissioner, dissenting: 

In this NOPR, the Commission proposes to bind itself to the “public 

interest” standard of review, pursuant to the Mobile-Sierra doctrine, when acting 

under FPA section 206 or NGA section 5, unless parties include language 

allowing the Commission to apply the “just and reasonable” standard specified by 

the statutes. This proposal is an abdication of the statutory authority and 

obligations entrusted to the Commission by Congress and is contrary to the will of 

Congress. In addition, this proposed regulation is not compelled by court or 

Commission precedent and it will not achieve the stated goal of “providing 

certainty and stability in energy markets.”1

 On the contrary, in order to foster 

certainty and stability, the Commission should apply the same “just and 

reasonable” standard of review to these jurisdictional agreements that the 

Commission proposes to retain with respect to electric transmission and gas 

transportation service agreements. Therefore, I dissent from this NOPR. 

I. Abdication of the Commission’s Statutory Authority 

The Federal Power Act and the Natural Gas Act clearly direct the 

Commission to follow the “just and reasonable” standard when acting under FPA 

section 206 or NGA section 5. Section 206(a) of the FPA provides that, whenever 

the Commission may find an “unjust, unreasonable, unduly discriminatory or 

preferential” rate or contract, it “shall fix the same by order.”2

 Section 5 of the 

Natural Gas Act grants the Commission similar authority in the gas field. These 

provisions are essential to carrying out the Commission’s obligations and must not 

be effectively read out of the statutes as the Commission proposes to do here. 

In spite of Congress’ clear directive that the Commission use a “just and 

reasonable” standard of review, the Commission proposes in this NOPR to eschew 

such a review and instead follow a stricter Mobile-Sierra “public interest” 

 

1

 NOPR at P 10. 

2

 16 U.S.C. § 824e(a) (2000). 
Docket No. RM05-35-000 - - 3 - - 

standard unless contracting parties specify that they intend to permit the 

Commission to act under the “just and reasonable” standard.3

 Thus, with this 

NOPR, the Commission proposes to abdicate its statutory obligation to review 

rates, terms and conditions under the just and reasonable standards of the FPA and 

NGA. 

 Parties can bargain away by contract their statutory rights to Commission 

review of future rate changes under the “just and reasonable” standard. However, 

the NOPR goes far beyond this well-established principle. First, under this 

NOPR, the Commission presumes that the parties intended the Mobile-Sierra

“public interest” standard to apply even when the contract is silent as to the 

parties’ intent. Second, the Commission would apply this imputed Mobile-Sierra

“public interest” standard in FPA section 206 or NGA section 5 proceedings 

initiated by the Commission acting on its own motion, or on behalf of a party or a 

third party. When a jurisdictional contract is unclear as to what the parties 

intended, I believe the default standard should be that which is contained in the 

governing statute. I also do not believe that the Commission should bind itself to a 

Mobile-Sierra public interest standard of review, which some courts have 

described as “practically insurmountable,” where the Commission is acting on its 

own motion or on behalf of third parties. As the D.C. Circuit recently held in 

Atlantic City, a case in which the court struck down Commission action denying 

jurisdictional utilities their FPA section 205 filing rights, the Commission may not 

take away rights expressly granted by statute. 4

 With its action today, the 

Commission proposes to do just that. 

II. Court and Commission Precedent Do Not Require This Proposed 

Action 

The NOPR states that the Commission acts today, in part, at the suggestion 

of the First Circuit in Boston Edison5

 to eliminate uncertainty regarding whether 

the Mobile-Sierra “public interest” or the “just and reasonable” standard applies in 

 

3

 The Ninth Circuit Court of Appeals is currently reviewing Commission 

orders involving standard of review issues within the context of complaints 

seeking modification of long-term contracts executed during the Western energy 

crisis in 2000-2001. See Public Utility District No. 1 of Snohomish County, 

Washington, et al. v. FERC , 9th Cir. Nos. 03-72511, et al. and Public Utilities 

Commission of the State of California, et al. v. FERC, 9th Cir. Nos. 03-74207, et 

al. 

4 See Atlantic City Elec. Co. v. FERC, 295 F.3d 1, 9-10 (D.C. Cir. 2002). 

5 Boston Edison Co. v. FERC, 233 F.3d 60 (1st Cir. 2000). 
Docket No. RM05-35-000 - - 4 - - 

the face of contractual silence.6

 Specifically, the court in Boston Edison suggested 

that the Commission prescribe prospectively the terms that parties would have to 

use to invoke the “public interest” standard. That is not what the Commission has 

done here. Instead of telling contracting parties what language they can use to 

invoke the “public interest” standard, the Commission provides that the parties 

need take no action, nor use any language, to invoke that standard. Under the 

NOPR, the “public interest” standard will be available at all times, in all 

circumstances, when the contract is silent. Thus, a “public interest” standard 

becomes the default standard, and the Commission prescribes terms that parties 

must include in their contract to keep their statutory right to a “just and 

reasonable” standard. This turns the statute on its head. 

In addition, the NOPR does not explain that the Boston Edison court went 

on to opine that “FERC has reasonably broad powers to regulate the substantive 

terms of filings that it accepts and allows to become effective,” which may 

“include the power to require prospectively, by regulation that all contracts set 

their rates subject to FERC’s just and reasonable standard.”7

 That is the action 

that the Commission should be proposing today. 

The Commission erroneously relies on the initial Mobile8

 and Sierra9

cases as support for its proposal to default to the Mobile-Sierra “public interest” 

standard in FPA section 206 or NGA section 5 proceedings. The NOPR states that 

these cases stand for the proposition that the Supreme Court interpreted 

contractual silence as requiring the “public interest” standard of review. The 

implication is that the Court requires a “public interest” standard of review in FPA 

section 206 and NGA section 5 proceedings initiated by a buyer or the 

 

6

 The Boston Edison court noted that even cases within the D.C. Circuit “do 

not form a completely consistent pattern.” Id. at 67, citing Texaco Inc. v. FERC, 

148 F.3d 1091, 1096 (D.C. Cir. 1998) and Union Pacific Fuels, Inc. v. FERC, 129 

F.3d 157, 161-62 (D.C. Cir. 1997) (where the D.C. Circuit, faced with contracts in 

which parties did not expressly state what standard of review would apply to rate 

changes initiated by the Commission held in the former case that the Commission 

could only modify the contract under a “public interest” standard but, in the latter 

case, that the Commission could apply a “just and reasonable” standard). 

7 Boston Edison, 233 F.3d at 68 

8 United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 

(1956). 

9 FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956). 
Docket No. RM05-35-000 - - 5 - - 

Commission. That is not the case. Mobile and Sierra involved what standard of 

review should apply when regulated sellers with contracts already on file with the 

Commission attempted to unilaterally raise the contractual rate by filing for a new 

rate under section 205 and section 4 and showing that the new rate was just and 

reasonable. These cases did not involve what standard of review should apply 

when a buyer or the Commission challenges the rate on file as unjust and 

unreasonable under FPA section 206 or NGA section 5. Here, the Commission 

proposes to bind itself to the stricter Mobile-Sierra “public interest” standard of 

review when acting under section 206 or section 5 where parties are silent as to the 

applicable standard of review. Mobile and Sierra do not support this proposed 

action. 

The proposed regulation also departs abruptly from the Commission’s 

precedent on what standard of review applies when the Commission acts sua 

sponte or on behalf of non-parties.10 Yet the NOPR relies on this same precedent 

to support its assertion that the Commission is not bound to employ a “public 

interest” standard of review when the Commission undertakes an initial review of 

an agreement.11 

III. Certainty and Stability in Energy Markets 

I disagree with the NOPR’s assertion that the proposed regulation will 

provide certainty and stability in energy markets. Adopting a Mobile-Sierra

“public interest” standard as the new default standard of review in section 206 and 

section 5 proceedings with respect to these jurisdictional agreements will inject 

uncertainty and instability into the industries. As the NOPR recognizes, the 

“public interest” standard of review is not clearly defined. Courts have variably 

described this standard as “practically insurmountable”12 and as not being 

“considered ‘practically insurmountable’ in all circumstances.”13 The First Circuit 

 

10 See ITC Holdings Corp., 102 FERC ¶ 61,182 (2003); Southern Company 

Services, 67 FERC ¶ 61,080 (1994); and Florida Power & Light Co., 67 FERC ¶ 

61,141 (1994). 

11 See NOPR at P 10 & n. 19. 

12 Papago Tribal Util. Auth. v. FERC, 723 F.2d 950, 954 (D.C. Cir. 1983), 

cert. denied, 467 U.S. 1241 (1984). 

13 Northeast Utils. Serv. Co., 55 F.3d 686, 692 (1st Cir. 1995). See also

Potomac Electric Power Co. v. FERC, 210 F.3d 403, 408 (D.C. Cir. 2000) (court 

concurring with the First Circuit’s finding that when acting sua sponte or at the 
Docket No. RM05-35-000 - - 6 - - 

has opined that “[i]t all depends on whose ox is gored and how the public interest 

is affected.”14 Adoption of a new, default “public interest” standard of review 

opens the door to uncertainty and extensive future litigation to resolve its meaning. 

To achieve the goal of certainty and stability in energy markets, the 

Commission should act to preserve the application of the statutory “just and 

reasonable” standard of review as the default when the parties’ intent is 

unspecified or unclear. The “just and reasonable” standard has been used 

extensively over the last 70 years to review rates, terms and conditions in both the 

electricity and gas industries. It is well-known and well-defined. It has guided 

contracting in these industries for the life of them. It has provided a clear 

benchmark against which to draft a contract and craft performance of that contract. 

There is no evidence that this standard has been a problem for contracting parties, 

or for the industries themselves. There is no evidence that this standard has been a 

hindrance to contract sanctity. In fact, this NOPR acknowledges as much by 

proposing to continue to apply the “just and reasonable” standard to electric 

transmission and gas transportation service agreements. Certainty and stability in 

the electric and gas industries will only be fostered by consistent regulation. 

Accordingly, for the reasons discussed above, I respectfully dissent. 

___________________________ 

Suedeen G. Kelly 

 

request of a third party to change rates, the Commission is not bound to a standard 

of review that is “practically insurmountable”). 

14 55 F.3d at 691.