Morgan Stanley Capital Group v. Public Utility Dist. 1 & Calpine Energy Services v. Public Utility Dist. 1 (consolidated)
Public Utility District 1 and other western utility companies sued several wholesale power sellers seeking to modify the terms of certain contracts. During the 2000-2001 western energy crisis, the utility companies entered into contracts to purchase electricity from wholesale power companies. After the energy market stabilized, the utility companies asked the Federal Energy Regulatory Commission (FERC) to modify their contracts because the contracts contained unfair terms. The utilities claimed that the contracts contained unreasonable rates for the supply of energy, because the contracts were made during a time of “market dysfunction.” The Federal Power Act (FPA) empowers FERC to ensure that rates contained in wholesale energy contracts are “just and reasonable.” However, two Supreme Court Cases, United Gas Pipe Line Co. v. Mobile Gas Service Corp. and Federal Power Commission v. Sierra Pacific Power Co. established that energy contracts are presumptively “just and reasonable” unless one party to the contract can prove that the contract adversely affects the public interest (the Mobile-Sierra standard). FERC determined that the contracts did not adversely affect the public interest and therefore decided to not modify the contracts.
The utilities appealed to the Ninth Circuit Court of Appeals, alleging that the Mobile-Sierra standard did not apply to these contracts, and that FERC erred in not applying the FPA’s more lenient “just and reasonable” standard. The Ninth Circuit agreed, stating that the Mobile-Sierra standard only applies if two preconditions are met. First, FERC must have had the opportunity to conduct an initial review of the rates contained in the contract when it was first formed. Second, Mobile-Sierra only applies if the contract was formed free from the influence of abnormal market factors, such as the 2000-2001 energy crisis. In addition, the court held that FERC improperly applied Mobile-Sierra’s public interest test because the Mobile and Sierra cases involved wholesale energy sellers concerned about rates that were too low, while these contracts involved utility buyers concerned about rates that were too high and would be passed on to individual customers. The Ninth Circuit sent the case back to FERC to reconsider whether the Mobile-Sierra standard applied, and if it did not, to review the contracts to see whether they were “just and reasonable.”
Questions Presented
Morgan Stanley Capital Group v. Public Utility Dist. 1:
Whether the Ninth Circuit erred by failing to abide by this Court’s decisions in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), and Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956), which preclude the Federal Energy Regulatory Commission from retroactively undoing valid, bilaterally negotiated, arms-length wholesale energy contracts that have, at most, minimal impact on retail rates.
American Electric Power Service Corporation v. Public Utility Dist. 1:
1. Whether the Ninth Circuit misapplied this Court’s holdings in Mobile and Sierra and created conflicts with the D.C. and First Circuits when it reversed FERC’s decision to uphold valid wholesale energy contracts absent any showing that the public interest required their abrogation.
2. Whether the Ninth Circuit misapplied the Mobile-Sierra doctrine by determining that the Mobile-Sierra public interest criteria apply only to sellers, but not to buyers, under wholesale power contracts, in direct conflict with Mobile, Sierra, and the decisions of other circuits.
