In a clear rebuke to FERC, the U.S. Court of Appeals for the District of Columbia Circuit on Friday ruled the Commission went too far in an order that restricted certain rights of electric utilities involved in an independent system operator (ISO), and violated the Mobile Sierra doctrine in unilaterally requiring reformation of pre-existing wholesale power contracts.

In ruling on a FERC order on rules for the PJM Interconnection, the court said that FERC’s requirement of generic reformation of pre-existing wholesale power contracts, without making a particularized finding that the public interest requires modification of a specific agreement, was a violation of the Mobile Sierra doctrine.

Public Service Electric and Gas (PSE&G) had challenged a Commission move to require the modification of any existing bundled wholesale power sales agreements that were inconsistent with restructured PJM transmission rate agreements.

One agreement affected by these requirements is PSE&G’s bundled wholesale agreement with the Old Dominion Electric Cooperative. The agreement, reached in 1992, provided both parties with long-term capacity price stability by placing strict limitations on the utility’s and Old Dominion’s rights to seek changes to the capacity rates. PSE&G challenged FERC’s decision and sought rehearing, but the Commission maintained its position.

The court underscored the point that under the Mobile Sierra doctrine, FERC must clear a public interest bar before requiring the modification of a freely negotiated, private contract. “Yet, in requiring modifications to the PSE&G-Old Dominion 1992 agreement, FERC failed to undertake, let alone satisfy, the requirements of the Mobile Sierra doctrine,” the court said. “At no time did FERC make a particularized finding that the public interest required the modification of the PSE&G-Old Dominion contract.”

The court also struck down FERC’s decision revoking the rights of transmission asset owners to file rate changes when they entered into ISO-related agreements and the Commission’s requirement that owners exiting ISOs must first get FERC approval.

The dispute wound up in the court’s lap after nine utility members of PJM Interconnection petitioned the court for review of two final orders issued by FERC. The utilities challenged FERC’s direction that the owners of transmission assets entering into an agreement for an ISO give up the right to file changes in tariff rates, terms and conditions under section 205 of the Federal Power Act (FPA). They also challenged the requirement that owners of transmission assets modify their ISO agreements to forbid any owner from withdrawing without prior FERC approval pursuant to section 203 of the FPA.

The nine utilities that petitioned the court were: Atlantic City Electric Co., Baltimore Gas & Electric Co., Delmarva Power & Light Co., Jersey Central Power & Light Co., Metropolitan Edison, Pennsylvania Electric Co., PPL Electric Utilities Corp., Potomac Electric Power Co. and PSE&G.

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