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Supreme Court rules on standard for challenges to electricity contracts

[JURIST] The US Supreme Court [official website; JURIST news archive] on Wednesday ruled [opinion, PDF] 8-1 in NRG Power Marketing v. Maine Public Utilities [Cornell LII backgrounder; JURIST report] that the Mobile-Sierra doctrine applies when an entity not party to an interstate electricity contract contests the contract as not being "just and reasonable" as required by Section 206 of the Federal Power Act [text]. Under the Mobile-Sierra doctrine, the Federal Energy Regulatory Commission (FERC) [official website] must presume a wholesale rate contract is "just and reasonable," and that presumption can be overcome only by showing that the contract "seriously harms the public interest." The US Court of Appeals for the DC Circuit held [opinion, PDF] that the Mobile-Sierra doctrine does not apply when challenged by an entity not party to the contract. In reversing the appeals court, Justice Ruth Bader Ginsburg relied on the Court's 2008 decision in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County [opinion text; JURIST report]:

We reverse the D. C. Circuit's judgment to the extent that it rejects the application of Mobile-Sierra to noncontracting parties. Our decision in Morgan Stanley, announced three months after the D. C. Circuit's disposition, made clear that the Mobile-Sierra public interest standard is not an exception to the statutory just-and-reasonable standard; it is an application of that standard in the context of rates set by contract. The "venerable Mobile-Sierra doctrine" rests on "the stabilizing force of contracts." To retain vitality, the doctrine must control FERC itself, and, we hold, challenges to contract rates brought by noncontracting as well as contracting parties.

Justice John Paul Stevens filed a dissenting opinion, rejecting the Court's holding in Morgan Stanley, from which he dissented, and its extension to this case.

The dispute arose over problems with New England's energy grid. In 2006, FERC approved a settlement agreement, which established rate-setting mechanisms. A number of parties that were not involved in the contract but opposed the settlement agreement petitioned for review in the DC Circuit.

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