Document ID: FERC-2006-0032-0001
Agency: ferc
Document Type: Proposed Rule
Title: Standard of Review for Modifications to Jurisdictional Agreements
Posted Date: 2006-01-04T05:00Z

[Federal Register: January 4, 2006 (Volume 71, Number 2)]
[Proposed Rules]               
[Page 303-307]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja06-29]                         

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DEPARTMENT OF ENERGY

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, DOE.

ACTION: Notice of proposed rulemaking.

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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 Commission-jurisdictional 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 February 3, 2006.

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, NE., Washington, DC 
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, NE., 
Washington, DC 20426, (202) 502-8030. Shaheda Sultan, Office of the 
General Counsel, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, (202) 502-8845.
    Richard Howe, Office of the General Counsel, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-8289.

SUPPLEMENTARY INFORMATION:

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 regulation \1\ at 
18 CFR 35.1(d).
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    \1\ We also terminate our proposed policy statement in Docket 
No. PL02-7-000.
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    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 
Mobile-Sierra doctrine.\2\ However, this regulation will not apply to 
transmission service agreements executed under an open access 
transmission tariff as provided for 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.
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    \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).
    \3\ Promoting Wholesale Competition Through Open Access Non-
discriminatory 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).
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    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

[[Page 304]]

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 
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'' 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\
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    \4\ 16 U.S.C. 824d; 15 U.S.C. 717c.
    \5\ Id.
    \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.
    \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).
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    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 ``tariff-and-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 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\
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    \12\ 358 U.S. 103 (1958) (Memphis).
    \13\ 18 CFR 154.110.
    \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.
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    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\
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    \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.
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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 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\
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    \16\ Boston Edison, 233 F.3d at 67.
    \17\ Boston Edison, 233 F.3d at 68.
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    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\ 
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'').
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    \18\ But see Union Pac. Fuels, Inc. v. FERC, 327 U.S. App. D.C. 
74, 129 F.3d 157, 161-162 (D.C. Cir. 1997).
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    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

[[Page 305]]

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 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\
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    \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).
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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 
Sec.  380.4(a)(2)(ii) of the Commission regulations, which provides a 
``categorical exclusion'' for rules that do not substantively change 
the effect of legislation.\22\
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    \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).
    \22\ 18 CFR 380.4(a)(2)(ii).
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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.
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    \23\ 5 U.S.C. 601-12.
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    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 Sec.  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 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 February 3, 2006. 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, NE., Washington, DC 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 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 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 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 Web 
site 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

18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

18 CFR Part 370

    Electric power; Natural gas; Pipelines.

    By direction of the Commission.

    Commissioner Kelly dissenting with a separate statement 
attached.
Magalie R. Salas,
Secretary.
    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 for part 35 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.

Sec.  35.1  [Amended]

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

[[Page 306]]

    3. Subchapter V, consisting of part 370, is added to read as 
follows:

Subchapter V--Standard of Review

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 
Commission-jurisdictional 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 ``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 
Commission-jurisdictional 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 Sec.  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 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.

    Editorial Note: The following statement of dissent will not 
appear in the Code of Federal Regulations.

    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.
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    \1\ NOPR at P 10.
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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.
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    \2\ 16 U.S.C. 824e(a) (2000).
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    In spite of Congress's 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'' 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.
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    \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.
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    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.
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    \4\ See Atlantic City Elec. Co. v. FERC, 295 F.3d 1, 9-10 (D.C. 
Cir. 2002).
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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

[[Page 307]]

the First Circuit in Boston Edison \5\ to eliminate uncertainty 
regarding whether the Mobile-Sierra ``public interest'' or the ``just 
and reasonable'' standard applies in 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.
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    \5\ Boston Edison Co. v. FERC, 233 F.3d 60 (1st Cir. 2000).
    \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).
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    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.
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    \7\ Boston Edison, 233 F.3d at 68.
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    The Commission erroneously relies on the initial Mobile \8\ and 
Sierra \9\ 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 
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.
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    \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).
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    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\
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    \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.
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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 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.
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    \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 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.
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    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

[FR Doc. E5-8217 Filed 1-3-06; 8:45 am]

BILLING CODE 6717-01-P