Document ID: ./input/supremecourt_opinions/opinions/boundvolumes/558bv.pdf
Page Number: 334

Cite as: 558 U. S. 165 (2010) 

173 

Opinion of the Court 

to  be  whether  the  rate  is  so  low  as  to  adversely  affect 
the public interest—as where it might impair the ﬁnan­
cial  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 em­
phasis added). 

In a later case, we similarly explained: “The regulatory sys­
tem  created  by the  [FPA]  is  premised on  contractual  agree­
ments  voluntarily  devised  by  the  regulated  companies;  it 
contemplates abrogation of these agreements only in circum­
stances  of  unequivocal  public  necessity.”  Permian  Basin 
Area Rate Cases, 390 U. S. 747, 822 (1968).3 

Two  Terms  ago,  in  Morgan  Stanley,  554  U. S.  527,  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 be­
tween  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 531.  “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  531;  see  id.,  at  548.  An­

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  ad­
versely  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).