The Electric Power Supply Association (EPSA), which represents power suppliers, has filed a “friend of the court” brief with the U.S. Supreme Court asking it to reverse a lower court’s decision that it says, if left standing, could threaten the integrity of privately negotiated energy contracts.
The EPSA was joined by 11 other power and natural gas trade groups in the amici curiae brief, which urges the high court to overturn a December 2006 ruling by the Ninth Circuit (Public Utility District No. 1 of Snohomish County vs. FERC) concerning the standard of review for market-based wholesale energy contracts.
The power supply group contends the Ninth Circuit incorrectly ruled that the Federal Energy Regulatory Commission could abrogate a wholesale power contract in the absence of public necessity. Moreover, by allowing parties to invalidate contracts whenever market conditions meet some indefinable standard of “dysfunction,” the Ninth Circuit complicated the negotiation of long-term contracts at precisely the time when they may be needed the most, the EPSA said.
If not reversed, the EPSA argued that the decision threatens to expose consumers to the very type of high and volatile prices and frequent supply shortages that the Federal Power Act and Natural Gas Act were designed to prevent.
In 2001, Snohomish County, WA, and other West Coast buyers tried to abrogate their forward power contracts on the basis that dysfunctional market conditions had resulted in contract terms that were unjust and unreasonable. FERC, however, later held that the contracts were subject to the higher “Mobile-Sierra” standard, which requires parties seeking to terminate their contracts to show that the contracts adversely affect the public interest. The Commission ruled that Snohomish and others had failed to meet this standard.
The Ninth Circuit found that FERC erred both in its procedural reliance on “Mobile-Sierra” and in the substantive standard it used to determine that the contracts at issue did not adversely affect the public interest.
“The Ninth Circuit unnecessarily took sides in the dispute before it,” the EPSA said. “While the Federal Power Act respects the integrity of contracts, the Ninth Circuit fashioned a new, more relaxed standard allowing contracts to be rescinded or reformulated. In particular, the Ninth Circuit purported to grant the Commission new authority to modify any privately negotiated arrangement the Commission has not previously pre-approved, as well as any contract that might later be deemed to have been formed during what the Ninth Circuit loosely termed a period of market ‘dysfunction,'” the power supplier group said.
Joining the EPSA in its brief were the Colorado Independent Energy Association, the Electric Power Generation Association, the Independent Energy Producers Association, the Independent Petroleum Association of America, the Independent Power Producers of New York, the Interstate Natural Gas Association of America, the Natural Gas Supply Association, the New England Power Generators Association Inc., the Northeast Energy and Commerce Association, the Northwest and Intermountain Power Producers Coalition and the Western Power Trading Forum.
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