U.S. Supreme Court Extends Mobile-Sierra Doctrine, Protects Negotiated Rates from Challenges By Third Parties

Decision Promotes Stability Of Wholesale Power Contracts – But Might Lead To Renewed Challenges To FERC's Policy of Allowing Market-Based Rates

On January 13, 2010, the United States Supreme Court limited the discretion of the Federal Energy Regulatory Commission (FERC) to set rates for wholesale sales of electricity. In NRG Power Marketing, LLC v. Maine Pub. Util. Comm'n, No. 08-674 (U.S. Jan. 13, 2010), the Court held that FERC must presume that the rate in a freely-negotiated contract is valid, even when the rate is challenged by a third party that is not signatory to the contract. Under this presumption, FERC may not change a negotiated rate based on a mere finding that the rate falls outside of a "zone of reasonableness." Rather, FERC may change a negotiated rate only in extraordinary circumstances, if application of the rate would seriously harm the public.

The Court's decision insulates contracting parties from a degree of regulatory risk while creating a significant hurdle for third parties that challenge a negotiated rate. The decision might lead to renewed challenges to FERC's policy of allowing market-based rates and to heightened scrutiny by the states of utilities' purchasing decisions.

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