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Ninth Circuit Court Remands to FERC West Power Contract

The question of what to do about millions of dollars in refunds from the 2000-2001 energy crisis was passed back to FERC last Thursday by the Ninth U.S. Circuit Court of Appeals with instructions to regulators to reconsider their decision in conformance with a U.S. Supreme Court decision last June regarding the long-term power contracts (see NGI, June 30).

The debate continues to center on what is known as the Mobile-Sierra doctrine, which says the sanctity of contracts should be preserved unless it can be found that they are harmful to the public interest. The Supreme Court last June upheld that doctrine which supports as "just and reasonable" a power rate freely negotiated in a wholesale energy contract unless it can't pass the public interest test because it would impair the financial ability of a public utility to continue service, excessively burden other customers or be unduly discriminatory.

However, the Federal Energy Regulatory Commission (FERC) did not do an adequate job of evaluating harm to consumers over the long term, nor in reviewing the possible role of alleged unlawful market manipulation, in its decision to uphold long-term contracts signed by utilities with power suppliers in the midst of the implosion of the California power market, the high court said. It remanded the decision to the Ninth Circuit, which had overturned the FERC order, but on slightly different grounds. The lower court reversed its own decision, remanding the case to regulators to reconsider according to the Supreme Court's stipulations.

In June, the 5-2 Supreme Court decision involved contracts signed by the Snohomish County Public Utility District (PUD) in Washington state and by Las Vegas, NV-based Nevada Power Co. (now NV Energy), which is owned by Sierra Pacific Resources (NV Energy Inc.), with marketers the Morgan Stanley Capital Group and American Electric Power Service Corp. The utilities said the long-term contracts they signed with power suppliers during a period of market dysfunction locked them into high prices, substantially above market prices they could have obtained after the market stabilized.

In passing the ball back to FERC, the Ninth Circuit said it had not decided "the question reserved by our prior opinion" on whether the Mobile-Sierra doctrine applies to the California Public Utilities Commission, "which was not a signatory to the long-term contracts at issue in this case."

Petitioners can raise the same issues at FERC or in the Ninth Circuit Court, the remand decision said. The court actions during the past two years have put a spotlight on the Mobile-Sierra public interest standard, which FERC originally used in June 2003 to uphold the sanctity of long-term power contracts.

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