The sweeping regulatory reform implemented in Michigan over the past year is often couched as a response to the economic crisis. Decoupling rates from utility profits, the reasoning goes, will...
Bench Report: Top Ten Legal Decisions of 2010
2010 Law & Lawyers Report
1. Private Bargaining vs. Public Interest
High Court expands Mobile-Sierra Doctrine, putting “stability” and “certainty” ahead of ratepayer rights.
In a decision issued in January, in the case of NRG Power Marketing LLC v. Maine PUC, the U.S. Supreme Court ruled in essence that ordinary ratepayers, represented by state attorneys general and regulatory advocates, can’t avail themselves of the “just and reasonable” principle to overturn a utility rate contract they didn’t agree to, but which instead was put together by numerous other utilities, stakeholders, and energy trading wheeler-dealers—thus showing just how far today’s policymaking has strayed from the power-to-the-people ethic embodied in the original, depression-era Federal Power Act.
The case involved New England’s Forward Capacity Market, born of a settlement agreement OK’d by FERC in 2006 as an alternative to the highly contentious LICAP construct first proposed by ISO New England. Of 115 negotiating parties, eight refused to go along. But the Supreme Court ruled in effect that the Mobile-Sierra doctrine barred any challenge from the eight dissenters.
That’s the rule, created in 1956, that says that when opposing parties agree on a rate contract, it stamps the rate as “just and reasonable,” so neither can escape its own improvident bargain at a later date—not unless FERC finds the rate so contrary to the public interest (worse than “unjust”) that it could put the buyer or seller out of business, thus harming the public.
When the FERC order first came up on appeal, in 2008, the D.C. Circuit had sent it back. “It goes without saying,” the court wrote, “that a contract cannot bind a nonparty.”
But the high court differed, voting eight-to-one that non-contracting parties must honor the contract rate (the settlement, in this case) in the interests of stability and certainty.
Yet the story might not end here. In remanding the appeal back to the D.C. Circuit, the high court said it passed no judgment on whether the FCM settlement should even qualify as a contract rate. In fact, the FERC order didn’t so much approve a rate as it did a market structure; the actual rate—the price of wholesale capacity—is set by bidding through a descending clock auction. Whether FERC should treat the capacity market settlement as analogous to a rate contract, said the high court, is a question that remains open. (U.S. No. 08-674, decided Jan. 13, 2010, published at 130 Sup.Ct. 693.)
2. Negawatts = Megawatts?
FERC’s bid to pay full price for demand response splits the power industry and the commission itself.
For a number of years now, the FERC—and especially the current chairman, Jon Wellinghoff—has sought to boost the role of demand response (DR) in wholesale power markets, both to aid energy efficiency and to bring power prices down. In 2007 Wellinghoff chided colleagues for “mischaracterizing” market-based payments to DR providers as “subsidies.” And at a conference the following year he argued that quick-ramping DR could help integrate intermittent wind resources in the Midwest.
But Wellinghoff literally