Opinion ID: 185758
Heading Depth: 2
Heading Rank: 3

Heading: Generic Modification of Contracts

Text: 29 Finally we turn to PSE&G's challenge to FERC's order requiring the generic reformation of pre-existing wholesale power contracts to reflect transmission pricing under the new ISO regime. PSE&G contends that the Commission failed to make the particularized findings required under the Mobile-Sierra doctrine. FERC concedes that it did make a generic finding that existing bilateral and power sale agreements of PJM members had to be modified, but that such a generic finding was entirely appropriate because the PJM restructuring plan transferr[ed] the obligation to provide open access transmission services from the individual [utility owners] to the ISO. PJM Restructuring Order, 81 F.E.R.C. at 62,281. FERC submits that a decision to proceed generically across a group of contracts that were universally affected in the same way by the restructuring plan was reasonable. Yet petitioner PSE&G had a Mobile-Sierra contract that was negotiated at arms length with Old Dominion and designed to provide both parties with long-term price certainty and FERC made no findings that modifications to this contract were required by the public interest. Because the Commission has not made the required findings under the Mobile-Sierra doctrine, FERC's order is contrary to law and must be vacated. 30 Prior to the formation of the PJM ISO, transmission service was (and in most parts of the country, still is) sold on a utility-by-utility basis. If a power sale required transmission service over the lines of more than one utility to travel on a path from the power plant to the buyer, transmission service would be purchased separately from each intervening utility. Under the Commission's ISO guidelines set forth in Order No. 888, the transmission lines of all of the utilities that join an ISO are to be pooled together and sold for a single rate, even when a transaction uses the transmission lines of more than one utility. In Order No. 888 and its progeny, FERC indicated that the new transmission pricing rules were to apply prospectively only. Pre-existing contracts would be left unchanged unless the parties voluntarily agreed to an amendment or the customer proved, on a case-by-case basis, that the facts presented by an individual contract justified a change. See Order No. 888, 61 Fed. Reg. at 21,557-58. Yet, in the PJM Restructuring Order the Commission ordered that all pre-existing contracts be modified without making any of the required findings under the Mobile-Sierra doctrine. 31 Under the Mobile-Sierra doctrine FERC may abrogate or modify freely negotiated private contracts that set firm rates or establish a specific methodology for setting the rates for service, and deny either party the right to unilaterally change those rates, only if required by the public interest. Texaco Inc. v. FERC, 148 F.3d 1091, 1095 (D.C.Cir.1998). As we have held, the purpose of the Mobile-Sierra doctrine is to preserve the benefits of the parties' bargain as reflected in the contract, assuming that there was no reason to question what transpired at the contract formation stage. See Town of Norwood v. FERC, 587 F.2d 1306, 1312 (D.C.Cir.1978). The public interest standard of the Mobile-Sierra doctrine is much more restrictive than the just and reasonable standard of section 205 of the Act. See Potomac Elec. Power Co. v. FERC, 210 F.3d 403, 407 (D.C.Cir.2000); Texaco, 148 F.3d at 1097. Yet, in requiring modifications to the PSE&G-Old Dominion 1992 agreement, FERC failed to undertake, let alone satisfy, the requirements of the Mobile-Sierra doctrine. At no time did FERC make a particularized finding that the public interest required the modification of the PSE&G-Old Dominion contract. 32 FERC claims to have engaged in a fact-specific inquiry in a section 206 complaint brought by Old Dominion. See Old Dominion Elec. Coop. v. Public Serv. Elec. & Gas Co., 84 F.E.R.C. ¶ 61,155, 1998 WL 765464 (1998). However, in that proceeding, the Commission did not engage in any analysis; instead, dismissing Old Dominion's complaint, the Commission stated that we are not persuaded that this docket is the proper place to address the issue of multiple [transmission] charges. Rather, the docket in which this matter should be (and, in fact, already has been) addressed is the PJM [ Restructuring Order ] proceeding. Id. at 61,844. Nor is any case-specific justification to be found in the PJM Restructuring Order. Instead, FERC simply relied on its general policy to be applied in ISOs that the charging of multiple, utility-specific transmission rates in a transaction that requires use of more than one utility owner's lines should be eliminated. See PJM Restructuring Order, 81 F.E.R.C. at 62,281. This is insufficient to satisfy the requirements of the Mobile-Sierra doctrine. [M]ore is required to justify regulatory intervention in a private contract than a simple reference to the policies served by a particular rule. Texaco, 148 F.3d at 1097. While FERC may be becoming hostile to Mobile-Sierra  and the particularized findings that doctrine requires, Boston Edison Co. v. FERC, 233 F.3d 60, 68 (1st Cir.2000), the Commission would do well to heed its own admonition and not take contract modification lightly. Potomac Elec. Power Co. v. Allegheny Power Sys., 85 F.E.R.C. ¶ 61,160, at 61,632-33, 1998 WL 758082 (1998), aff'd, Potomac Elec. Power Co. v. FERC, 210 F.3d 403 (D.C.Cir.2000). 33 Despite FERC's bald assertion that the transmission rate under the PSE&G-Old Dominion 1992 agreement was unreasonable or discriminatory, this case involves little more than a party to a contract seeking to avail itself of a lower rate than it was entitled to under the terms of its original agreement. This Court has consistently held, however, that a rate differential attributable to the operation of the Mobile-Sierra doctrine, is not, by itself, enough to demonstrate that the public interest demands a modification to or an abrogation of an existing contract. See, e.g., Potomac Elec., 210 F.3d at 409; Cities of Bethany v. FERC, 727 F.2d 1131, 1139-41 (D.C.Cir.1984). As FERC's decision to require the generic reformation of pre-existing wholesale power contracts to reflect transmission pricing under the new ISO regime was based on little else, it fails to comply with the Mobile-Sierra doctrine, and is hereby vacated.