(November 2009) Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this...
The Mobile-Sierra Doctrine: A Return to Its Statutory Roots
The 9th Circuit’s Snohomish and PUC decisions rationalize what has been a confusing, conflicted area of law.
In “The Mobile-Sierra Doctrine, Part Deux ,” (March 2007), Stephen L. Teichler and Ilia Levitine report on two recent 9th Circuit decisions 1 that they characterize as “a dramatic shift of prevailing precedent” with respect to Mobile-Sierra jurisprudence. 2 As evidence of the “shift,” the authors highlight the court’s characterization of the “public-interest” test as a “presumption as opposed to a standard of review separate and apart from the just and reasonable standard.” But in fact, the 9th Circuit decisions simply work a needed correction to a “doctrine” that, over time, has slipped further and further from its statutory moorings.
The 9th Circuit rulings are “dramatic” only because of the extent to which courts stretched and distorted the original Mobile-Sierra rule, which one court called “refreshingly simple,” 3 so that it became, in Teichler and Levitine’s words, “incredibly nuanced and complex over time.”
The fundamental error that took the doctrine far off course was misinterpreting Sierra’s distinction between public and private interests under the just-and-reasonable standard as establishing a separate, “practically insurmountable” 4 “public-interest” standard to which contracting parties could bind not only themselves but, also, non-parties and the commission. 5 One searches the Federal Power Act (FPA) in vain to find such a standard. Snohomish reconnects the Mobile-Sierra doctrine with its statutory foundation.
As the 9th Circuit observed:
There is but one statutory standard addressing the lawfulness of wholesale electricity rates. That standard requires that all rates be “just and reasonable” … . The statute will admit of no other conclusion, and the Supreme Court case law supports it. 471 F.3d at 1074 (emphasis in original).
The FPA could not be clearer on this point. FPA 205(a) requires that “all rates and charges made, demanded, or received by any public utility … shall be just and reasonable,” and it declares that “any such rate or charge that is not just and reasonable is hereby declared to be unlawful.”
Conceiving of Mobile-Sierra as creating a separate “public-interest standard” for contract modification, which is more difficult to satisfy than the just-and-reasonable standard, leads inexorably to untenable results. To judge contract modification claims by a standard “higher” than the just-and-reasonable standard is to insulate against change contracts that fall between the two standards—contracts that are unjust and unreasonable (by definition), but (apparently) not so egregiously unjust as to contravene the public interest. There is no way to reconcile that outcome with Congress’ command that “all rates … be just and reasonable” and its declaration that “any … rate that is not just and reasonable is … unlawful.”
The 9th Circuit properly recognized that the FPA does not permit even a little unjustness to consumers in jurisdictional rates. The commission’s “primary task” under the FPA is to “guard the consumer from exploitation by non-competitive electric power companies,” 6 and “Congress’s central concern with