Bargaining for Power: Resolving Open Questions from NRG Power Marketing, LLC v. Maine Public Utilities Commission

Abstract

The Federal Power Act ("FPA") requires rates for wholesale electric power sales and transmission to be “just and reasonable.” Under the Mobile-Sierra doctrine, when a challenge is brought to a rate that is set forth in a freely negotiated wholesale electric energy contract (as opposed to a rate set unilaterally by the seller) under the Federal Energy Regulatory Commission’s (“FERC”) jurisdiction, FERC must presume that the rate satisfies the FPA’s just and reasonable requirement. 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). In the Supreme Court’s most recent case addressing the Mobile-Sierra presumption, NRG Power Marketing, LLC v. Maine Pub. Utils. Comm’n (“NRG”), 558 U.S. 165, 130 S.Ct. 693 (2010), the Court remanded the question of whether certain prices that would be administratively-determined through an auction mechanism were rates to which the Mobile-Sierra presumption would apply in future challenges. The use of the auction mechanism was the result of a settlement agreement among 107 of 115 participants to a highly contentious FERC proceeding. On remand, FERC determined that the rates produced by the auction were set unilaterally and that the Mobile-Sierra presumption would not automatically apply.

This article argues that FERC was wrong, and also points out that the Supreme Court’s language in NRG was not helpful to FERC in answering the remanded question. Because the auction mechanism was the result of a freely negotiated settlement agreement, the Mobile-Sierra presumption should apply if the auction rates paid by any of the 107 settling parties are challenged in the future; however if the rates paid by any of the eight non-settling participants are challenged, the presumption would not apply. The effects of FERC’s decision are potentially far-reaching because of the number of rate disputes that are resolved through settlement.

Keywords: electricity, Mobile-Sierra, contract rates, regulation, reasonableness of charges