Opinion ID: 3163661
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: We first address our jurisdiction over these petitions. Seattle and the California Parties characterize their MobileSierra challenge as purely legal and ripe for immediate review. According to FERC, the refund orders are not final reviewable actions. We disagree with both sides in part. Our jurisdiction is governed by Section 313(b) of the FPA. 16 U.S.C. § 825l(b) (providing for review in the United States Court of Appeals of “an order issued by the Commission”). “Although section 313(b) is not limited on its face to final orders,” we have joined other circuits in the view that “review under section 313(b) is limited to orders of definitive substantive impact, where judicial abstention would result in irreparable injury to a party.” Steamboaters v. FERC, 759 F.2d 1382, 1387 (9th Cir. 1985) (citing Papago Tribal Util. Auth. v. FERC, 628 F.2d 235, 238 (D.C. Cir. 1980) (“Papago”)). Under Steamboaters, we ask first “whether the order is final; second, whether, if unreviewed, it would inflict irreparable harm on the party seeking review; and third, whether judicial review at this stage of the process 12 STATE OF CALIFORNIA V. FERC would invade the province reserved to the discretion of the agency.” Id. at 1387–88. Before proceeding with the Steamboaters inquiry, we underscore that the petitions raise two types of issues. The petitioners’ threshold question is whether FERC properly invoked the Mobile-Sierra presumption. This challenge does not implicate the scope of admissible evidence; the objection is to the use of the Mobile-Sierra doctrine to shape the proceeding at all. We think of this issue as a facial applicability question: Did FERC appropriately invoke the Mobile-Sierra presumption under these circumstances?2 Petitioners also challenge the restrictions that FERC imposed on the evidentiary proceeding. They want to be allowed to introduce evidence of, among other things, reporting violations, violations of obligations under the Uniform Commercial Code and state contract law, and violations by sellers that were not parties to the challenged contracts. We think of this issue as a question of the scope of the evidentiary proceeding. With regard to the facial applicability issue, the criteria of Steamboaters are satisfied. FERC’s decision to adopt the presumption in the context of short-term spot market 2 We note that the question of whether Mobile-Sierra applies at all admits of both a facial applicability analysis and a contract-specific, asapplied analysis that is more appropriate in individual proceedings before the agency. This distinction becomes relevant when we turn to the legal question of whether FERC’s interpretation of the “just and reasonable” standard is permissible. FERC’s application of the Mobile-Sierra doctrine to a class of contracts may be reasonable even if it becomes unreasonable when individual parties to a proceeding produce evidence that undermines the presumption. STATE OF CALIFORNIA V. FERC 13 contracts has been definitively resolved, and we therefore have jurisdiction to review this final agency decision. In order after order, FERC has not budged from its position. FERC’s response that the decision is not final, because the parties can overcome the presumption, begs the question. Unless the presumption applies, there is no legal hurdle to overcome. The petitioners challenge only the facial applicability of the Mobile-Sierra presumption in a particular class of cases, not how FERC will apply it in the specific proceedings before it.3 As to the facial applicability question, FERC has made a final decision that plainly “affects the legal positioning of the parties.” City of Fremont v. FERC, 336 F.3d 910, 914 (9th Cir. 2003). The practical consequence of not accepting review at this stage is that, if FERC is wrong about the applicability of the Mobile-Sierra doctrine, the remaining proceedings will be predicated on a faulty legal ground. As in City of Fremont, the Mobile-Sierra presumption “will be treated as a benchmark” and petitioners face “the uphill task” to overcome it in their individual proceedings. Id. at 914. These proceedings, which have multiplied and taken years to arrive at this stage, are no ordinary proceedings. To refrain from reviewing FERC’s facial applicability determination and introduce a risk, however slight, that FERC would change its invocation of Mobile-Sierra, would be to ignore the greater risks to the parties in these ongoing proceedings. We take to heart that “[t]he reviewability of an order must . . . be 3 To the extent that they challenge individualized determinations under the Mobile-Sierra doctrine, those determinations have not yet been made and there would be no final agency action to review. 14 STATE OF CALIFORNIA V. FERC determined by reference to its practical function and consequences.” Papago, 628 F.2d at 239. Finally, the issue presents a legal question capable of resolution by this court in a way that does not invade the agency’s province. Deciding this pure legal issue in no way interferes with FERC’s discretion to accept evidence in rebuttal in the remaining proceedings. See Cal. Dep’t of Water Res. v. FERC, 361 F.3d 517, 520 (9th Cir. 2004); Papago, 628 F.2d at 238. “[I]mmediate review of the Commission’s determination will not disrupt the continuing proceeding, nor will it raise the danger of multiple appellate proceedings concerning identical issues.” Papago, 628 F.2d at 245. We thus conclude that the test for final action under the FPA is met and that we have jurisdiction to review FERC’s decision to employ the Mobile-Sierra presumption in the class of contracts at issue here. When it comes to the scope of the evidentiary proceeding, however, the challenged orders are preliminary and lack “definitive substantive impact.” Steamboaters, 759 F.2d at 1387; see also FPC v. Metro. Edison Co., 304 U.S. 375, 383–84 (1938) (noting that “affording opportunity for constant delays. . .for the purpose of reviewing mere procedural requirements or interlocutory directions” would “do violence” to the FPA); Cities of Anaheim v. FERC, 723 F.2d 656, 660 (9th Cir. 1984) (stating that “procedural orders” are not reviewable). The orders do not have the requisite “definitive character dealing with the merits of a proceeding before the Commission” to support review under Section 313(b) of the FPA. ASARCO, Inc. v. FERC, 777 F.2d STATE OF CALIFORNIA V. FERC 15 764, 771 (D.C. Cir. 1985) (quoting Metropolitan Edison Co., 304 U.S. at 384) (emphasis added). For instance, FERC has already shifted course on the “shape” of the proceeding in a way that suggests some elements of its orders may not be sufficiently final for review. In October 2011, FERC articulated what evidence it would permit. 137 FERC ¶ 61,001 (Oct. 3, 2011). More than a year later, in December 2012, FERC refined its statement of the scope of the proceeding, acknowledging that confusion had resulted from the prior order. 141 FERC ¶ 61,248 (Dec. 21, 2012). Significantly, it appears that despite arguments raised by the petitioners, at least some evidence of bad faith may have been admitted in the Phase I proceeding. While some harm might flow from proceeding under a flawed evidentiary framework, see City of Fremont, 336 F.3d at 914, the same risk stems from any order setting boundaries for a hearing. It is not enough to overcome the lack of finality of these orders on the scope of the evidentiary proceedings. The final order that results from the remand hearing will be reviewable and, indeed, will admit of more effective review of the evidentiary decisions since the court will be able to review all of the evidence taken together. The individual evidentiary restrictions challenged here are classic interim rulings whose consequence cannot be determined with any finality at this juncture. Judicial review of the evidentiary issues thus “properly follows the conclusion of the proceeding.” Papago, 628 F.2d at 240; see also Cities of Anaheim, 723 F.2d at 661. In contrast, an interim or midstream determination on the scope of the evidentiary proceeding would invite the “disruptive consequences of judicial interference” and “bring[] the courts 16 STATE OF CALIFORNIA V. FERC into the adjudication of the lawfulness of rates in advance of administrative consideration.” Papago, 628 F.2d at 242 (quoting S. Ry. Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 460 (1979)); see also Delmarva Power & Light Co. v. FERC, 671 F.2d 587, 595 (D.C. Cir. 1982) (warning against intruding on FERC’s province where “the facts bearing on the interpretation of [filings and orders] are unclear and disputed, and these facts will bear heavily on determining whether the statute was violated”). “Under the rule in Steamboaters, the fact that one part of an agency order remains pending before the agency does not deprive this court of jurisdiction to review a discrete issue that has been definitively resolved by the agency.” Cal. Dep’t of Water Res., 361 F.3d at 520. We therefore exercise jurisdiction only as to the issue of whether FERC erred by invoking the Mobile-Sierra doctrine and hold that we lack jurisdiction to review FERC’s evidentiary orders.
DOCTRINE The Mobile-Sierra doctrine takes its name from two cases that dealt with the authority of FERC’s predecessor, the Federal Power Commission, to determine whether rates set bilaterally by contract (as opposed to those set unilaterally by tariff) are just and reasonable. See United Gas Pipe Line Co. v. Mobile Gas Serv. Corp. (“Mobile”), 350 U.S. 332 (1956); Fed. Power Comm’n v. Sierra Pac. Power Co. (“Sierra”), 350 U.S. 348 (1956). Where it applies, the doctrine requires FERC to presume that a contracted-for rate is “just and reasonable” under the FPA. STATE OF CALIFORNIA V. FERC 17 In 2008, after we decided Port of Seattle, the Supreme Court issued Morgan Stanley, its first Mobile-Sierra decision in decades. 554 U.S. 527. While Mobile and Sierra arose from suits brought by regulated sellers claiming that rates were too low, Morgan Stanley involved buyers’ challenges to high contract rates. The Court explained that “[t]here is only one statutory standard for assessing wholesale electricity rates, whether set by contract or tariff—the just-andreasonable standard.” Id. at 545. Addressing the contract context, the Court set forth the baseline rule that FERC must “presume that the rate set out in a freely negotiated wholesale-energy contract meets the ‘just and reasonable’ requirement imposed by law.” Id. at 530. In invoking the presumption here, FERC cited this rule from Morgan Stanley. 137 FERC ¶ 61,001, para. 20. The Supreme Court emphasized that the Mobile-Sierra presumption is justified by the particular role that contracts play in the administrative scheme. “The regulatory system created by the [FPA] is premised on contractual agreements voluntarily devised by the regulated companies; it contemplates abrogation of these agreements only in circumstances of unequivocal public necessity.” Morgan Stanley, 554 U.S. at 534 (quoting In re Permian Basin Area Rate Cases, 390 U.S. 747, 822 (1968)). Where the presumption applies, the inquiry into whether the rate is lawful focuses on whether the contract rate “seriously harm[s] the public interest.” Id. at 548.4 4 The Court has since explained that “the Mobile-Sierra public interest standard is not an exception to the statutory just-and-reasonable standard; it is an application of that standard in the context of rates set by contract.” NRG Power Mktg., LLC v. Maine Pub. Utils. Comm’n, 558 U.S. 165, 168 (2010); see also Morgan Stanley, 554 U.S. at 546 (explaining the doctrine 18 STATE OF CALIFORNIA V. FERC The petitioners argue that Morgan Stanley does not support FERC’s decision to invoke the Mobile-Sierra presumption with respect to contracts of the nature at issue here. The circumstances here, according to petitioners, render the presumption illogical because the contracts were not freely negotiated long-term contracts with lawful prices. Instead, the transactions were short-term spot sales with a high degree of pressure on buyers. Petitioners’ argument is essentially that the FPA’s “just and reasonable” standard should not be interpreted as impliedly incorporating the Mobile-Sierra doctrine, as it was in Morgan Stanley. Id. at 545–46. Although it is true that the statutory language does not clearly spell out the application of the “just and reasonable” standard, under Chevron, we defer to FERC’s reasonable determination that Mobile-Sierra extends to the context of short-term spot sales. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). The mere short-term nature of these spot sale contracts does not render FERC’s application of the Mobile-Sierra doctrine unreasonable. Although long-term contracts may play a special role in stabilizing the energy market (a role spotlighted by the “turmoil in the spot market” in the 20002001 energy crisis, Morgan Stanley, 554 U.S. at 539–40, 547–48), the Supreme Court has drawn the rule so that the presumption may be invoked with regard to any contractedfor rate. Id. at 551; see also NRG Power Mktg., LLC, 558 U.S. at 168 (“The ‘venerable Mobile-Sierra doctrine’ rests on ‘the stabilizing force of contracts.’”) (quoting provides “a definition of what it means for a rate to satisfy the just-and-reasonable standard in the contract context—a definition that applies regardless of when the contract is reviewed”). STATE OF CALIFORNIA V. FERC 19 Morgan Stanley, 554 U.S. at 548). The fact that some contracts adopted the form of the WSPP Agreement (a FERC-jurisdictional standardized form agreement) does not change our analysis, as the sales were still made pursuant to contracts. After the presumption is invoked, the parties may avoid or rebut it based on an evidentiary showing,5 but FERC’s baseline assumption that the presumption applies to the contracts at issue is not unreasonable in light of Morgan Stanley. The petitioners’ numerous other arguments are also unconvincing. We see no reason why having notice of a § 206 proceeding when the contracts were formed would render it irrational to apply the presumption. The petitioners also overstate Lockyer, which stopped short of establishing that sellers who fail to meet reporting requirements have automatically charged unlawful prices so as to defeat the presumption. 383 F.3d at 1008. 5 It is important to remember that just because the presumption has been invoked at the beginning of a given proceeding does not mean it ultimately will apply to that case in the end. “FERC has ample authority to set aside a contract where there is unfair dealing at the contract formation stage—for instance, if it finds traditional grounds for the abrogation of the contract such as fraud or duress. In addition, if the ‘dysfunctional’ market conditions under which the contract was formed were caused by illegal action of one of the parties, FERC should not apply the Mobile-Sierra presumption.” Morgan Stanley, 554 U.S. at 547 (citation omitted). FERC cited these possibilities in its December 2012 order. 141 FERC ¶ 61,248, at para. 7. Where the presumption is rebutted in this way, a party challenging a rate no longer has to show that the “contract rates at issue impose an excessive burden or seriously harm the public interest” in order to prove that a rate is unlawful. See id. at para. 14. 20 STATE OF CALIFORNIA V. FERC The WSPP Agreement does not contain a “Memphis” clause6 that permits parties to amend their contracts unilaterally by complaint. The WSPP Agreement establishes standardized terms for power transactions to which individual terms (such as price, volume, and duration) are appended in separate confirmation agreements. The sections identified by petitioners do not permit unilateral amendments to confirmation agreements or the associated contractual rates. Finally, the factual and evidentiary issues raised by the petitioners are more appropriately considered in the context of eventual challenges to the scope of the evidentiary proceedings. For example, the California Parties argue that CERS was bullied into making purchases via these bilateral contracts when sellers refused to sell in the usual channels. Seattle claims that FERC disregarded this court’s instruction in Port of Seattle to take into account evidence of market manipulation. These arguments relate to downstream proceedings, such as whether the presumption can be overcome and whether FERC’s eventual decision is based on a proper record. These types of factual and evidentiary matters do not speak to whether FERC properly invoked Mobile-Sierra as a baseline, even if the evidence surrounding these contested circumstances ultimately warrants avoidance or rebuttal of the presumption. “[T]he mere fact that the market is imperfect, or even chaotic, is no reason to undermine the stabilizing force of contracts.” See Morgan 6 The name of the clause comes from United Gas Pipe Line Co. v. Memphis Light, Gas & Water Div., 358 U.S. 103, 110–13 (1958), in which the Supreme Court held that parties may “contract out of the MobileSierra presumption by specifying in their contracts that a new rate filed with the Commission would supersede the contract rate.” Morgan Stanley, 554 U.S. at 534. STATE OF CALIFORNIA V. FERC 21 Stanley, 554 U.S. at 547–48. We thus decline to extend our analysis to these disguised efforts to rebut the presumption as applied to these individual parties before FERC has had an opportunity to conclude the proceedings. We need only decide whether FERC reasonably applied Mobile-Sierra to the class of contracts at issue here, and we hold that FERC’s interpretation is reasonable. We deny the petition with respect to petitioners’ claim that the Mobile-Sierra presumption cannot apply to the spot sales at issue in this case and dismiss the evidentiary challenges for lack of jurisdiction. DENIED IN PART; DISMISSED IN PART.