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

Heading: facial applicability of the mobile-sierra

Text: 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.