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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.

Fortnightly Magazine - May 2007

exploitation is … reflected in the statute’s emphasis on just and reasonable prices.” 7 520 F.2d at 438 . The FPA, like the companion Natural Gas Act, “was … framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges.” 8

Teichler and Levitine criticize the 9th Circuit for “conflat[ing]” the just-and-reasonable standard with the “previously distinct (and more stringent) ‘public interest’ review under Mobile-Sierra.” Yet any permitted divergence between the two “standards” would sever the critical link between the  Mobile-Sierra doctrine and the language of the FPA. The only way to resolve this tension is to construe the so-called “public-interest” test as a means of measuring whether the contract at issue is unjust and unreasonable as to ultimate consumers, as opposed to the contracting parties themselves, who have bound themselves to the terms of the agreement.

Understanding Mobile-Sierra in this way also answers the newly controversial question of whether contracting parties can bind non-parties and the commission to a “public-interest” standard more resistant to contract modification than the just and reasonable standard. Until recently, the answer was an unequivocal “no.” Contracting parties could waive their own rights to seek contract modifications but could not impair the commission’s ability to modify contracts sua sponte or on complaint by a non-party. 9 As the Supreme Court explained in Mobile, the court’s decision in that case (and the resulting doctrine) “ in no way impairs” the commission’s regulatory power. 350 U.S. at 344 (emphasis added). Phrased differently, contracting parties have no right to waive the statutory rights of non-signatories.

Nonetheless, this point is now unsettled. In some recent cases, the Federal Energy Regulatory Commission (FERC) has accepted contract provisions purporting to bind non-parties and the commission to a “public interest” standard for contract modification. 10 In others, FERC has rejected such provisions. 11 And, in two recent cases, an administrative law judge recommended that FERC condition its acceptance of otherwise-uncontested settlements upon the elimination of provisions purporting to bind non-parties to a “public interest” test for future challenges to the underlying reliability must-run (RMR) contracts. 12

The PSEG Certification remains pending before FERC. The commission recently rejected the Bridgeport settlement provision purporting to bind the commission and non-parties to a public-interest standard, 13 but did so on grounds that, while arguably narrower than the judge’s reasoning, still are potentially broad. FERC rested its decision on the purpose of the RMR agreement at issue, which “is not simply to allow one party to buy electricity or capacity from another for resale but to ensure the reliable operation of the regional transmission grid for the benefit of users of the grid” and which results in costs that are borne by all market participants in the area. 14 Commissioner Suedeen Kelly, concurring with the majority, stated that “the same reasoning applies” in assessing the standard of review “in other types of agreements that impact non-party market participants and the operation of the market.” 15

Although the 9th Circuit’s Snohomish and PUC opinions did not reach the question whether contracting