The People of the State of Ca v. Ferc ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
THE PEOPLE OF THE STATE OF No. 13-71276
CALIFORNIA, EX REL. KAMALA D.
HARRIS, ATTORNEY GENERAL; FERC No.
PUBLIC UTILITIES COMMISSION OF EL01-10-076
THE STATE OF CALIFORNIA;
SOUTHERN CALIFORNIA EDISON CO.,
Petitioners,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent,
CARGILL POWER MARKETS, LLC; EL
PASO MARKETING COMPANY, LLC;
EXELON GENERATION COMPANY,
LLC; IDACORP ENERGY SERVICES
COMPANY; IDAHO POWER
COMPANY; TALEN MONTANA, LLC;
TALEN ENERGY MARKETING, LLC;
PUBLIC SERVICE COMPANY OF
COLORADO; SHELL ENERGY NORTH
AMERICA (US), L.P.; TRANSCANADA
ENERGY LTD.,
Respondents-Intervenors.
2 STATE OF CALIFORNIA V. FERC
THE CITY OF SEATTLE, No. 13-71487
WASHINGTON,
Petitioner, FERC No.
EL01-10-076
PORTLAND GENERAL ELECTRIC
COMPANY; DYNEGY POWER
MARKETING; MPS MERCHANT OPINION
SERVICES, INC; MPS CANADA CORP.,
Intervenors,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent,
TALEN MONTANA, LLC; TALEN
ENERGY MARKETING, LLC;
TRANSALTA ENERGY MARKETING
(US), INC.; TRANSALTA ENERGY
MARKETING (CALIFORNIA), INC.; EL
PASO MARKETING COMPANY, LLC,
Respondents-Intervenors.
On Petition for Review of an Order of the
Federal Energy Regulatory Commission
Argued and Submitted
June 16, 2015—San Francisco, California
Filed December 17, 2015
STATE OF CALIFORNIA V. FERC 3Before: Sidney R. Thomas, Chief Judge, and M. Margaret
McKeown and Richard R. Clifton, Circuit Judges.
Opinion by Judge McKeown
SUMMARY*
Federal Energy Regulatory Commission
The panel denied a petition for review from a decision of
the Federal Energy Regulatory Commission (“FERC”) with
respect to petitioners’ claim that the Mobile-Sierra
presumption, which requires FERC to presume that the rate
set in a freely negotiated wholesale-energy contract was just
and reasonable, cannot apply to the spot sales at issue; and
dismissed evidentiary challenges for lack of jurisdiction.
The panel held that there was jurisdiction to review
FERC’s decision to employ the Mobile-Sierra presumption
in the class of contracts at issue because, pursuant to the
inquiry in Steamboaters v. FERC, 759 F.2d 1382 (9th Cir.
1985), the test for final action under the Federal Power Act
was met. The panel held that it lacked jurisdiction to consider
the individual evidentiary restrictions raised in these cases
because they were interim rulings whose consequences could
not be determined with any finality at this juncture.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 STATE OF CALIFORNIA V. FERC
The panel held that FERC reasonably applied the Mobile-
Sierra presumption to the class of contracts at issue in these
cases.
COUNSEL
Kevin J. McKeon (argued), Judith D. Cassel, Whitney E.
Snyder, Hawke McKeon & Sniscak LLP, Harrisburg,
Pennsylvania; Kamala D. Harris, Attorney General of
California, Mark Breckler, Chief Assistant Attorney General,
Martin Goyette, Senior Assistant Attorney General, San
Francisco, California; David M. Gustafson, Deputy Attorney
General, Oakland, California, for Petitioner People of the
State of California ex rel. Kamala D. Harris, Attorney
General.
Candace J. Morey, Sarah R. Thomas, Public Utilities
Commission of the State of California, San Francisco,
California; Paul B. Mohler, Law Offices of Paul B. Mohler,
PLC, Washington, D.C., for Petitioner Public Utilities
Commission of the State of California.
Rex S. Heinke (argued), Akin Gump Strauss Hauer & Feld
LLP, Los Angeles, California; Jerry E. Rothrock, Moyers
Martin, LLP, Tulsa, Oklahoma; Gregory C. Narver, Seattle
City Attorney’s Office, Seattle, Washington, for Petitioner
City of Seattle.
David L. Morenoff, General Counsel, Robert H. Solomon,
Solicitor, Lona T. Perry (argued), Deputy Solicitor, Susanna
Y. Chu, Attorney, Washington, D.C., for Respondent Federal
Energy Regulatory Commission.
STATE OF CALIFORNIA V. FERC 5
Lawrence G. Acker, Van Ness Feldman, LLP, Washington,
D.C.; Rex Blackburn, Brian R. Buckham, Idaho Power
Company, Boise, Idaho, for Respondents-Intervenors Idaho
Power Company and IDACORP Energy Services Co.
Floyd L. Norton, IV, Morgan, Lewis & Bockius LLP,
Washington, DC, for Respondents-Intervenors Cargill Power
Markets, LLC and Public Service Company of Colorado.
Andrea J. Chambers, Katharine E. Leesman, Ballard Spahr
LLP, Washington, D.C., for Respondent-Intervenor Exelon
Generation Company, LLC.
Joseph B. Williams, Matthew D. Spohn, Ryan C. Norfolk,
Norton Rose Fulbright US LLP, Washington, D.C., for
Respondent-Intervenor El Paso Marketing Company, LLC.
Jeffrey D. Watkiss, McDermott Will & Emery, LLP,
Washington, D.C., for Respondent-Intervenor Shell Energy
North America (US), L.P.
Damien R. Lyster, Vinson & Elkins LLP, Washington, D.C.,
for Respondents-Intervenors TansAlta Energy Marketing
(U.S.) Inc. and TransAlta Energy Marketing (California) Inc.
Kenneth L. Wiseman (argued), Mark F. Sundback, Andrews
Kurth, LLP, Washington, D.C., for Rrespondent-Intervenor
TransCanada Energy Ltd.
6 STATE OF CALIFORNIA V. FERC
OPINION
McKEOWN, Circuit Judge:
These appeals are the latest in a series of petitions that
stem from the energy crisis in California and other western
states in 2000 and 2001. The key issue we consider is the
applicability of the Mobile-Sierra doctrine, which requires
the Federal Energy Regulatory Commission (“FERC”) to
“presume that the rate set out in a freely negotiated
wholesale-energy contract meets the ‘just and reasonable’
requirement” imposed by law. Morgan Stanley Capital Grp.,
Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 530 (2008).
BACKGROUND
The circumstances of the California energy crisis are
detailed in numerous cases.1 We recount only the history that
is relevant to these petitions.
After the California legislature deregulated the electricity
market in the mid-1990s, “wholesale electricity prices
skyrocketed.” Port of Seattle v. FERC, 499 F.3d 1016, 1022
(9th Cir. 2007). Average rates soared in the California and
Pacific Northwest short-term supply markets (also known as
“spot markets”). Id. at 1022–23. The spot markets in this
case were somewhat unique in the particular way that rates
were set:
1
See, e.g., Port of Seattle v. FERC, 499 F.3d 1016, 1022–26 (9th Cir.
2007); Pub. Utils. Comm’n of State of Cal. v. FERC, 462 F.3d 1027,
1036–44 (9th Cir. 2006) (“Pub. Utils. Comm’n”); Bonneville Power
Admin. v. FERC, 422 F.3d 908, 910–14 (9th Cir. 2005); Cal. ex rel.
Lockyer v. FERC, 383 F.3d 1006, 1008–11 (9th Cir. 2004) (“Lockyer”).
STATE OF CALIFORNIA V. FERC 7Unlike the California spot market, which
operated through a centralized power
exchange using a central clearing price, the
Pacific Northwest spot market operated
through bilateral contracts negotiated
independently between buyers and sellers,
without a central clearing price. Most of these
contracts were entered into under the terms of
the Western Systems Power Pool (“WSPP”)
Agreement, a standard form contract for
electricity sales.
Id. at 1023 (citation omitted). These rates became the subject
of an investigation before FERC.
Under the Federal Power Act (“FPA”), the rates charged
by a public utility must be “just and reasonable, and any such
rate or charge that is not just and reasonable is hereby
declared to be unlawful.” 16 U.S.C. § 824d(a). Section 206
of the FPA gives FERC the authority, on its own initiative or
upon filing of a complaint, to investigate whether a particular
rate is “just and reasonable.” Port of Seattle, 499 F.3d at
1023. If FERC finds a rate “unjust, unreasonable, unduly
discriminatory or preferential,” it must determine a just and
reasonable rate and order that rate to be “observed and in
force.” Id. (citing 16 U.S.C. § 824e(a)). FERC may also
order sellers to pay refunds to those entities that bought
energy at the unlawful rate. Id. (citing 16 U.S.C. § 824e(b)).
Such refunds are limited to a fifteen-month period following
the “refund effective date,” a date established by FERC that
may be no earlier than the filing of the complaint nor later
than five months after the filing. 16 U.S.C. § 824e(b). FERC
may not order any refunds for the period before the refund
effective date. Port of Seattle, 499 F.3d at 1023.
8 STATE OF CALIFORNIA V. FERC
The petitioners here challenge several FERC orders that
were issued following our remand in Port of Seattle. In Port
of Seattle we reviewed several challenges to FERC’s denial
of refunds to wholesale buyers of electricity that purchased
energy in the Pacific Northwest spot market at unusually high
prices. We explained that FERC erred by initially excluding
from the refund proceeding purchases made by the California
Energy Resources Scheduling (“CERS”) division of the
California Department of Water Resources, and that FERC
abused its discretion by denying potential relief for
transactions involving energy that was ultimately consumed
in California. Id. at 1022, 1032–34.
We also held that FERC’s failure to consider evidence of
market manipulation was arbitrary and capricious. Id. at
1034–36. It appeared that “Pacific Northwest sellers were
apparently involved in Enron’s manipulation” of western
energy markets.” Id. at 1035. As a consequence, FERC had
to “consider the possibility that the Pacific Northwest spot
market was not . . . functional and competitive.” Id. On
remand, FERC was instructed to examine the evidence of
market manipulation “in detail and account for it in any
future orders regarding the award or denial of refunds in the
Pacific Northwest proceeding.” Id. at 1035–36. If the record
was not sufficient to inform a reasoned decision, we noted
that FERC may “find it necessary to call for additional
fact-finding.” Id. at 1036.
After the remand, FERC proceeded to plan evidentiary
hearings. See Puget Sound Energy, Inc. v. All Jurisdictional
Sellers of Energy, 137 FERC ¶ 61,001 (Oct. 3, 2011). For the
first time in the history of this proceeding, FERC took the
position that it would invoke the Mobile-Sierra doctrine,
under which the rates set forth in “short-term bilateral power
STATE OF CALIFORNIA V. FERC 9
sales contracts” like these would be presumptively just and
reasonable. Id. at paras. 20–21. The presumption could only
be avoided or overcome if specific criteria were met, such as
“where it can be shown that one party to a contract engaged
in such extensive unlawful market manipulation as to alter the
playing field for contract negotiations.” Id.Adoption of the Mobile-Sierra presumption carried
implications for the scope of evidence that FERC intended to
permit in the proceeding. Electricity buyers would need to
“demonstrate that a particular seller engaged in unlawful
market activity in the spot market and that such unlawful
activity directly affected the particular contract or contracts
to which the seller was a party.” Id. at para. 21. “[G]eneral
allegations of market dysfunction” would be insufficient to
avoid or overcome the presumption. Id. FERC explained
that parties could submit evidence of several specific
violations that might entitle them to refunds: (1) violation of
the WSPP Agreement; (2) violation of the terms of a specific
bilateral contract underlying a particular purchase of
electricity; or (3) certain other violations identified in a
previous FERC case. Id. at paras. 18–19.
According to FERC, a market-wide remedy would be
inappropriate because the Pacific Northwest spot market
operated solely through bilateral contracts. Id. at para. 24.
These contracts distinguished the transactions from those
conducted by California’s centralized power exchange, which
operated through central clearing prices instead of negotiated
contracts.
The California Parties and Seattle requested rehearing and
challenged FERC’s invocation of the Mobile-Sierra
presumption and the scope of permissible evidence. A
10 STATE OF CALIFORNIA V. FERC
request for expedited treatment of the requests for rehearing
initially went unanswered by the agency, and the proceeding
continued. FERC set a schedule for parties to present
contract-specific refund claims as a part of settlement
procedures.
While the requests for rehearing remained pending and
settlement activity proceeded, FERC further addressed the
Mobile-Sierra presumption and the scope of the Pacific
Northwest proceeding in another order. Drawing on Morgan
Stanley, which FERC cited to support its invocation of the
Mobile-Sierra presumption, FERC clarified that refund
claimants may overcome the presumption “by presenting
evidence that a particular contract rate imposes an excessive
burden on consumers or seriously harms the public interest.”
141 FERC ¶ 61,248 at paras. 1, 12–15 (Dec. 21, 2012).
FERC acknowledged that it had spawned confusion regarding
the scope of the proceeding, but claimed that it had not
intended to modify the law as summarized in Morgan
Stanley. 141 FERC ¶ 61,248, at paras. 12–14.
FERC eventually denied the requests for rehearing and
reaffirmed its application of the Mobile-Sierra presumption.
143 FERC ¶ 61,020 at para. 13 (Apr. 5, 2013). It also
reaffirmed the limits it imposed on the scope of permissible
evidence. Id. at para. 23. These petitions for review
followed.
While these petitions were pending before us, the FERC
proceeding marched on. Phase I of the proceeding was
directed to whether the parties made a sufficient showing to
avoid or overcome the Mobile-Sierra presumption with
respect to their particular contracts and whether they were
entitled to modification of their contracted rates. If
STATE OF CALIFORNIA V. FERC 11necessary, Phase II would address refund methodology.
Following an initial decision on Phase I, 146 FERC ¶ 63,028(Mar. 28, 2014), FERC then ruled on exceptions to the
decision, 151 FERC ¶ 61,173 (May 22, 2015). FERC
affirmed some of the Administrative Law Judge’s (“ALJ”)
rulings and reversed others, ultimately remanding with
instructions to the ALJ to make additional findings. Id. at
para. 3.
ANALYSIS
I. JURISDICTION
We first address our jurisdiction over these petitions.
Seattle and the California Parties characterize their Mobile-
Sierra challenge as purely legal and ripe for immediate
review. According to FERC, the refund orders are not final
reviewable actions. We disagree with both sides in part.
Our jurisdiction is governed by Section 313(b) of the
FPA. 16 U.S.C. § 825l(b) (providing for review in the United
States Court of Appeals of “an order issued by the
Commission”). “Although section 313(b) is not limited on its
face to final orders,” we have joined other circuits in the view
that “review under section 313(b) is limited to orders of
definitive substantive impact, where judicial abstention would
result in irreparable injury to a party.” Steamboaters v.
FERC, 759 F.2d 1382, 1387 (9th Cir. 1985) (citing Papago
Tribal Util. Auth. v. FERC, 628 F.2d 235, 238 (D.C. Cir.
1980) (“Papago”)). Under Steamboaters, we ask first
“whether the order is final; second, whether, if unreviewed,
it would inflict irreparable harm on the party seeking review;
and third, whether judicial review at this stage of the process
12 STATE OF CALIFORNIA V. FERC
would invade the province reserved to the discretion of the
agency.” Id. at 1387–88.
Before proceeding with the Steamboaters inquiry, we
underscore that the petitions raise two types of issues. The
petitioners’ threshold question is whether FERC properly
invoked the Mobile-Sierra presumption. This challenge does
not implicate the scope of admissible evidence; the objection
is to the use of the Mobile-Sierra doctrine to shape the
proceeding at all. We think of this issue as a facial
applicability question: Did FERC appropriately invoke the
Mobile-Sierra presumption under these circumstances?2
Petitioners also challenge the restrictions that FERC imposed
on the evidentiary proceeding. They want to be allowed to
introduce evidence of, among other things, reporting
violations, violations of obligations under the Uniform
Commercial Code and state contract law, and violations by
sellers that were not parties to the challenged contracts. We
think of this issue as a question of the scope of the evidentiary
proceeding.
With regard to the facial applicability issue, the criteria of
Steamboaters are satisfied. FERC’s decision to adopt the
presumption in the context of short-term spot market
2
We note that the question of whether Mobile-Sierra applies at all
admits of both a facial applicability analysis and a contract-specific, as-
applied analysis that is more appropriate in individual proceedings before
the agency. This distinction becomes relevant when we turn to the legal
question of whether FERC’s interpretation of the “just and reasonable”
standard is permissible. FERC’s application of the Mobile-Sierra doctrine
to a class of contracts may be reasonable even if it becomes unreasonable
when individual parties to a proceeding produce evidence that undermines
the presumption.
STATE OF CALIFORNIA V. FERC 13contracts has been definitively resolved, and we therefore
have jurisdiction to review this final agency decision.
In order after order, FERC has not budged from its
position. FERC’s response that the decision is not final,
because the parties can overcome the presumption, begs the
question. Unless the presumption applies, there is no legal
hurdle to overcome. The petitioners challenge only the facial
applicability of the Mobile-Sierra presumption in a particular
class of cases, not how FERC will apply it in the specific
proceedings before it.3 As to the facial applicability question,
FERC has made a final decision that plainly “affects the legal
positioning of the parties.” City of Fremont v. FERC,
336 F.3d 910, 914 (9th Cir. 2003).
The practical consequence of not accepting review at this
stage is that, if FERC is wrong about the applicability of the
Mobile-Sierra doctrine, the remaining proceedings will be
predicated on a faulty legal ground. As in City of Fremont,
the Mobile-Sierra presumption “will be treated as a
benchmark” and petitioners face “the uphill task” to
overcome it in their individual proceedings. Id. at 914.
These proceedings, which have multiplied and taken years to
arrive at this stage, are no ordinary proceedings. To refrain
from reviewing FERC’s facial applicability determination and
introduce a risk, however slight, that FERC would change its
invocation of Mobile-Sierra, would be to ignore the greater
risks to the parties in these ongoing proceedings. We take to
heart that “[t]he reviewability of an order must . . . be
3
To the extent that they challenge individualized determinations under
the Mobile-Sierra doctrine, those determinations have not yet been made
and there would be no final agency action to review.
14 STATE OF CALIFORNIA V. FERC
determined by reference to its practical function and
consequences.” Papago, 628 F.2d at 239.
Finally, the issue presents a legal question capable of
resolution by this court in a way that does not invade the
agency’s province. Deciding this pure legal issue in no way
interferes with FERC’s discretion to accept evidence in
rebuttal in the remaining proceedings. See Cal. Dep’t of
Water Res. v. FERC, 361 F.3d 517, 520 (9th Cir. 2004);
Papago, 628 F.2d at 238. “[I]mmediate review of the
Commission’s determination will not disrupt the continuing
proceeding, nor will it raise the danger of multiple appellate
proceedings concerning identical issues.” Papago, 628 F.2d
at 245.
We thus conclude that the test for final action under the
FPA is met and that we have jurisdiction to review FERC’s
decision to employ the Mobile-Sierra presumption in the
class of contracts at issue here.
When it comes to the scope of the evidentiary proceeding,
however, the challenged orders are preliminary and lack
“definitive substantive impact.” Steamboaters, 759 F.2d at
1387; see also FPC v. Metro. Edison Co., 304 U.S. 375,
383–84 (1938) (noting that “affording opportunity for
constant delays. . .for the purpose of reviewing mere
procedural requirements or interlocutory directions” would
“do violence” to the FPA); Cities of Anaheim v. FERC,
723 F.2d 656, 660 (9th Cir. 1984) (stating that “procedural
orders” are not reviewable). The orders do not have the
requisite “definitive character dealing with the merits of a
proceeding before the Commission” to support review under
Section 313(b) of the FPA. ASARCO, Inc. v. FERC, 777 F.2d
STATE OF CALIFORNIA V. FERC 15764, 771 (D.C. Cir. 1985) (quoting Metropolitan Edison Co.,
304 U.S. at 384) (emphasis added).
For instance, FERC has already shifted course on the
“shape” of the proceeding in a way that suggests some
elements of its orders may not be sufficiently final for review.
In October 2011, FERC articulated what evidence it would
permit. 137 FERC ¶ 61,001 (Oct. 3, 2011). More than a year
later, in December 2012, FERC refined its statement of the
scope of the proceeding, acknowledging that confusion had
resulted from the prior order. 141 FERC ¶ 61,248 (Dec. 21,
2012). Significantly, it appears that despite arguments raised
by the petitioners, at least some evidence of bad faith may
have been admitted in the Phase I proceeding.
While some harm might flow from proceeding under a
flawed evidentiary framework, see City of Fremont, 336 F.3d
at 914, the same risk stems from any order setting boundaries
for a hearing. It is not enough to overcome the lack of
finality of these orders on the scope of the evidentiary
proceedings. The final order that results from the remand
hearing will be reviewable and, indeed, will admit of more
effective review of the evidentiary decisions since the court
will be able to review all of the evidence taken together. The
individual evidentiary restrictions challenged here are classic
interim rulings whose consequence cannot be determined
with any finality at this juncture.
Judicial review of the evidentiary issues thus “properly
follows the conclusion of the proceeding.” Papago, 628 F.2d
at 240; see also Cities of Anaheim, 723 F.2d at 661. In
contrast, an interim or midstream determination on the scope
of the evidentiary proceeding would invite the “disruptive
consequences of judicial interference” and “bring[] the courts
16 STATE OF CALIFORNIA V. FERC
into the adjudication of the lawfulness of rates in advance of
administrative consideration.” Papago, 628 F.2d at 242(quoting S. Ry. Co. v. Seaboard Allied Milling Corp.,
442 U.S. 444, 460 (1979)); see also Delmarva Power & Light
Co. v. FERC, 671 F.2d 587, 595 (D.C. Cir. 1982) (warning
against intruding on FERC’s province where “the facts
bearing on the interpretation of [filings and orders] are
unclear and disputed, and these facts will bear heavily on
determining whether the statute was violated”).
“Under the rule in Steamboaters, the fact that one part of
an agency order remains pending before the agency does not
deprive this court of jurisdiction to review a discrete issue
that has been definitively resolved by the agency.” Cal.
Dep’t of Water Res., 361 F.3d at 520. We therefore exercise
jurisdiction only as to the issue of whether FERC erred by
invoking the Mobile-Sierra doctrine and hold that we lack
jurisdiction to review FERC’s evidentiary orders.
II. FACIAL APPLICABILITY OF THE MOBILE-SIERRA
DOCTRINE
The Mobile-Sierra doctrine takes its name from two cases
that dealt with the authority of FERC’s predecessor, the
Federal Power Commission, to determine whether rates set
bilaterally by contract (as opposed to those set unilaterally by
tariff) are just and reasonable. See United Gas Pipe Line Co.
v. Mobile Gas Serv. Corp. (“Mobile”), 350 U.S. 332 (1956);
Fed. Power Comm’n v. Sierra Pac. Power Co. (“Sierra”),
350 U.S. 348 (1956). Where it applies, the doctrine requires
FERC to presume that a contracted-for rate is “just and
reasonable” under the FPA.
STATE OF CALIFORNIA V. FERC 17In 2008, after we decided Port of Seattle, the Supreme
Court issued Morgan Stanley, its first Mobile-Sierra decision
in decades. 554 U.S. 527. While Mobile and Sierra arose
from suits brought by regulated sellers claiming that rates
were too low, Morgan Stanley involved buyers’ challenges to
high contract rates. The Court explained that “[t]here is only
one statutory standard for assessing wholesale electricity
rates, whether set by contract or tariff—the just-and-
reasonable standard.” Id. at 545. Addressing the contract
context, the Court set forth the baseline rule that FERC must
“presume that the rate set out in a freely negotiated
wholesale-energy contract meets the ‘just and reasonable’
requirement imposed by law.” Id. at 530. In invoking the
presumption here, FERC cited this rule from Morgan Stanley.
137 FERC ¶ 61,001, para. 20.
The Supreme Court emphasized that the Mobile-Sierra
presumption is justified by the particular role that contracts
play in the administrative scheme. “The regulatory system
created by the [FPA] is premised on contractual agreements
voluntarily devised by the regulated companies; it
contemplates abrogation of these agreements only in
circumstances of unequivocal public necessity.” Morgan
Stanley, 554 U.S. at 534 (quoting In re Permian Basin Area
Rate Cases, 390 U.S. 747, 822 (1968)). Where the
presumption applies, the inquiry into whether the rate is
lawful focuses on whether the contract rate “seriously harm[s]
the public interest.” Id. at 548.4
4
The Court has since explained 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.”
NRG Power Mktg., LLC v. Maine Pub. Utils. Comm’n, 558 U.S. 165, 168
(2010); see also Morgan Stanley, 554 U.S. at 546 (explaining the doctrine
18 STATE OF CALIFORNIA V. FERC
The petitioners argue that Morgan Stanley does not
support FERC’s decision to invoke the Mobile-Sierra
presumption with respect to contracts of the nature at issue
here. The circumstances here, according to petitioners,
render the presumption illogical because the contracts were
not freely negotiated long-term contracts with lawful prices.
Instead, the transactions were short-term spot sales with a
high degree of pressure on buyers. Petitioners’ argument is
essentially that the FPA’s “just and reasonable” standard
should not be interpreted as impliedly incorporating the
Mobile-Sierra doctrine, as it was in Morgan Stanley. Id. at
545–46. Although it is true that the statutory language does
not clearly spell out the application of the “just and
reasonable” standard, under Chevron, we defer to FERC’s
reasonable determination that Mobile-Sierra extends to the
context of short-term spot sales. Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 843
(1984).
The mere short-term nature of these spot sale contracts
does not render FERC’s application of the Mobile-Sierra
doctrine unreasonable. Although long-term contracts may
play a special role in stabilizing the energy market (a role
spotlighted by the “turmoil in the spot market” in the 2000-
2001 energy crisis, Morgan Stanley, 554 U.S. at 539–40,
547–48), the Supreme Court has drawn the rule so that the
presumption may be invoked with regard to any contracted-
for rate. Id. at 551; see also NRG Power Mktg., LLC,
558 U.S. at 168 (“The ‘venerable Mobile-Sierra doctrine’
rests on ‘the stabilizing force of contracts.’”) (quoting
provides “a definition of what it means for a rate to satisfy the
just-and-reasonable standard in the contract context—a definition that
applies regardless of when the contract is reviewed”).
STATE OF CALIFORNIA V. FERC 19Morgan Stanley, 554 U.S. at 548). The fact that some
contracts adopted the form of the WSPP Agreement (a
FERC-jurisdictional standardized form agreement) does not
change our analysis, as the sales were still made pursuant to
contracts. After the presumption is invoked, the parties may
avoid or rebut it based on an evidentiary showing,5 but
FERC’s baseline assumption that the presumption applies to
the contracts at issue is not unreasonable in light of Morgan
Stanley.
The petitioners’ numerous other arguments are also
unconvincing. We see no reason why having notice of a
§ 206 proceeding when the contracts were formed would
render it irrational to apply the presumption. The petitioners
also overstate Lockyer, which stopped short of establishing
that sellers who fail to meet reporting requirements have
automatically charged unlawful prices so as to defeat the
presumption. 383 F.3d at 1008.
5
It is important to remember that just because the presumption has been
invoked at the beginning of a given proceeding does not mean it ultimately
will apply to that case in the end. “FERC has ample authority to set aside
a contract where there is unfair dealing at the contract formation
stage—for instance, if it finds traditional grounds for the abrogation of the
contract such as fraud or duress. In addition, if the ‘dysfunctional’ market
conditions under which the contract was formed were caused by illegal
action of one of the parties, FERC should not apply the Mobile-Sierra
presumption.” Morgan Stanley, 554 U.S. at 547 (citation omitted). FERC
cited these possibilities in its December 2012 order. 141 FERC ¶ 61,248,
at para. 7. Where the presumption is rebutted in this way, a party
challenging a rate no longer has to show that the “contract rates at issue
impose an excessive burden or seriously harm the public interest” in order
to prove that a rate is unlawful. See id. at para. 14.
20 STATE OF CALIFORNIA V. FERC
The WSPP Agreement does not contain a “Memphis”
clause6 that permits parties to amend their contracts
unilaterally by complaint. The WSPP Agreement establishes
standardized terms for power transactions to which individual
terms (such as price, volume, and duration) are appended in
separate confirmation agreements. The sections identified by
petitioners do not permit unilateral amendments to
confirmation agreements or the associated contractual rates.
Finally, the factual and evidentiary issues raised by the
petitioners are more appropriately considered in the context
of eventual challenges to the scope of the evidentiary
proceedings. For example, the California Parties argue that
CERS was bullied into making purchases via these bilateral
contracts when sellers refused to sell in the usual channels.
Seattle claims that FERC disregarded this court’s instruction
in Port of Seattle to take into account evidence of market
manipulation. These arguments relate to downstream
proceedings, such as whether the presumption can be
overcome and whether FERC’s eventual decision is based on
a proper record. These types of factual and evidentiary
matters do not speak to whether FERC properly invoked
Mobile-Sierra as a baseline, even if the evidence surrounding
these contested circumstances ultimately warrants avoidance
or rebuttal of the presumption. “[T]he mere fact that the
market is imperfect, or even chaotic, is no reason to
undermine the stabilizing force of contracts.” See Morgan
6
The name of the clause comes from United Gas Pipe Line Co. v.
Memphis Light, Gas & Water Div., 358 U.S. 103, 110–13 (1958), in which
the Supreme Court held that parties may “contract out of the Mobile-
Sierra presumption by specifying in their contracts that a new rate filed
with the Commission would supersede the contract rate.” Morgan
Stanley, 554 U.S. at 534.
STATE OF CALIFORNIA V. FERC 21Stanley, 554 U.S. at 547–48. We thus decline to extend our
analysis to these disguised efforts to rebut the presumption as
applied to these individual parties before FERC has had an
opportunity to conclude the proceedings. We need only
decide whether FERC reasonably applied Mobile-Sierra to
the class of contracts at issue here, and we hold that FERC’s
interpretation is reasonable.
We deny the petition with respect to petitioners’ claim
that the Mobile-Sierra presumption cannot apply to the spot
sales at issue in this case and dismiss the evidentiary
challenges for lack of jurisdiction.
DENIED IN PART; DISMISSED IN PART.