NRG Power Marketing, LLC v. Maine Public Utilities Commission

(Slip Opinion) OCTOBER TERM, 2009 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
NRG POWER MARKETING, LLC, ET AL. v. MAINE PUB-
LIC UTILITIES COMMISSION ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
No. 08–674. Argued November 3, 2009—Decided January 13, 2010
The Mobile-Sierra doctrine—see United Gas Pipe Line Co. v. Mobile
Gas Service Corp., 350 U. S. 332, and FPC v. Sierra Pacific Power
Co., 350 U. S. 348—requires the Federal Energy Regulatory Commis
sion (FERC) to presume that an electricity rate set by a freely negoti
ated wholesale-energy contract meets the Federal Power Act’s (FPA)
“just and reasonable” prescription, 16 U. S. C. §7824d(a); the pre
sumption may be overcome only if FERC concludes that the contract
seriously harms the public interest. Morgan Stanley Capital Group
Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U. S. ___, ___.
For many years, New England’s supply of electricity capacity was
barely sufficient to meet the region’s demand. FERC and New Eng
land’s generators, electricity providers, and power customers made
several attempts to address the problem. This case arises from the
latest effort to design a solution. Concerned parties reached a com
prehensive settlement agreement (Agreement) that, inter alia, estab
lished rate-setting mechanisms for sales of energy capacity and pro
vided that the Mobile-Sierra public interest standard would govern
rate challenges. FERC approved the Agreement, finding that it pre
sents a just and reasonable outcome that is consistent with the public
interest. Objectors to the settlement sought review in the D. C. Cir
cuit, which largely rejected their efforts to overturn FERC’s approval
order, but agreed with them that when a challenge to a contract rate
is brought by noncontracting third parties, Mobile-Sierra’s public in
terest standard does not apply.
Held: The Mobile-Sierra presumption does not depend on the identity of
the complainant who seeks FERC investigation. The presumption is
not limited to challenges to contract rates brought by contracting par
2 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Syllabus
ties. It applies, as well, to challenges initiated by noncontracting
parties. Pp. 5–11.
(a) Morgan Stanley did not reach the question presented here, but
its reasoning strongly suggests that the D. C. Circuit’s holding mis
perceives the aim, and diminishes the force, of the Mobile-Sierra doc
trine. Announced three months after the Court of Appeals’ disposi
tion in this case, Morgan Stanley reaffirmed Mobile-Sierra’s
instruction to FERC to “presume that the rate set out in a freely ne
gotiated . . . contract meets the ‘just and reasonable’ requirement”
unless “FERC concludes that the contract seriously harms the public
interest.” 554 U. S., at ___. The Morgan Stanley opinion makes it
unmistakably clear that the public interest standard is not, as the
D. C. Circuit suggested, independent of, and sometimes at odds with,
the “just and reasonable” standard. Rather, the public interest stan
dard defines “what it means for a rate to satisfy the just-and
reasonable standard in the contract context.” Id., at ___. And if
FERC itself must presume just and reasonable a contract rate result
ing from fair, arms-length negotiations, noncontracting parties may
not escape that presumption. Moreover, the Mobile-Sierra doctrine
does not neglect third-party interests; it directs FERC to reject a con
tract rate that “seriously harms the consuming public.” 554 U. S., at
___. Finally, the D. C. Circuit’s confinement of Mobile-Sierra to rate
challenges by contracting parties diminishes the doctrine’s animating
purpose: promotion of “the stability of supply arrangements which all
agree is essential to the health of the [energy] industry.” Mobile, 350
U. S., at 344. A presumption applicable to contracting parties only,
and inoperative as to everyone else—consumers, advocacy groups,
state utility commissions, elected officials acting parens patriae—
could scarcely provide the stability Mobile-Sierra aimed to secure.
Pp. 5–10.
(b) Whether the rates at issue qualify as “contract rates” for Mo
bile-Sierra purposes, and, if not, whether FERC had discretion to
treat them analogously are questions raised before, but not ruled
upon by, the D. C. Circuit. They remain open for that court’s consid
eration on remand. Pp. 10–11.
520 F. 3d 464, reversed in part and remanded.
GINSBURG, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and SCALIA, KENNEDY, THOMAS, BREYER, ALITO, and SOTOMAYOR,
JJ., joined. STEVENS, J., filed a dissenting opinion.
Cite as: 558 U. S. ____ (2010) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash­
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 08–674
_________________
NRG POWER MARKETING, LLC, ET AL., PETITIONERS
v. MAINE PUBLIC UTILITIES COMMISSION ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
[January 13, 2010]
JUSTICE GINSBURG delivered the opinion of the Court.
The Federal Power Act (FPA or Act), 41 Stat. 1063, as
amended, 16 U. S. C. §791a et seq., authorizes the Federal
Energy Regulatory Commission (FERC or Commission) to
superintend the sale of electricity in interstate commerce
and provides that all wholesale-electricity rates must be
“just and reasonable,” §824d(a). Under this Court’s Mo
bile-Sierra doctrine, FERC must presume that a rate set
by “a freely negotiated wholesale-energy contract” meets
the statutory “just and reasonable” requirement. Morgan
Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of
Snohomish Cty., 554 U. S. ___, ___ (2008) (slip op., at 1).
“The presumption may be overcome only if FERC con­
cludes that the contract seriously harms the public inter­
est.” Ibid.
This case stems from New England’s difficulties in
maintaining the reliability of its energy grid. In 2006,
after several attempts by the Commission and concerned
parties to address the problems, FERC approved a com­
prehensive settlement agreement (hereinafter Settlement
Agreement or Agreement). Most relevant here, the
2 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Opinion of the Court
Agreement established rate-setting mechanisms for sales
of energy capacity, and provided that the Mobile-Sierra
public interest standard would govern rate challenges.
Parties who opposed the settlement petitioned for review
in the United States Court of Appeals for the D. C. Circuit.
Among multiple objections to FERC’s order approving the
Agreement, the settlement opponents urged that the rate
challenges of nonsettling parties should not be controlled
by the restrictive Mobile-Sierra public interest standard.
The Court of Appeals agreed, holding that “when a rate
challenge is brought by a non-contracting third party, the
Mobile-Sierra doctrine simply does not apply.” Maine Pub.
Util. Comm’n v. FERC, 520 F. 3d 464, 478 (2008) (per
curiam).
We reverse the D. C. Circuit’s judgment to the extent
that it rejects the application of Mobile-Sierra to noncon­
tracting parties. Our decision in Morgan Stanley, an­
nounced three months after the D. C. Circuit’s disposition,
made clear 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 con­
text of rates set by contract. The “venerable Mobile-Sierra
doctrine” rests on “the stabilizing force of contracts.”
Morgan Stanley, 554 U. S., at ___ (slip op., at 19); see id.,
at 22 (describing contract rates as “a key source of stabil­
ity”). To retain vitality, the doctrine must control FERC
itself, and, we hold, challenges to contract rates brought
by noncontracting as well as contracting parties.
I
In a capacity market, in contrast to a wholesale energy
market, an electricity provider purchases from a generator
an option to buy a quantity of energy, rather than pur­
chasing the energy itself. To maintain the reliability of
the grid, electricity providers generally purchase more
capacity, i.e., rights to acquire energy, than necessary to
Cite as: 558 U. S. ____ (2010) 3
Opinion of the Court
meet their customers’ anticipated demand. For many
years in New England, the supply of capacity was barely
sufficient to meet the region’s demand. FERC and New
England’s generators, electricity providers, and power
customers made several attempts to address this problem.
This case stems from the latest effort to design a solution.
In 2003, a group of generators sought to enter into
“reliability must-run” agreements with the New England
Independent System Operator (ISO), which operates the
region’s transmission system.1 In its orders addressing
those agreements, FERC directed the ISO to develop a
new market mechanism that would set prices separately
for various geographical sub-regions. Devon Power LLC,
103 FERC ¶61,082, pp. 61,266, 61,271 (2003).
In March 2004, the ISO proposed a market structure
responsive to FERC’s directions. See Devon Power LLC,
107 FERC ¶61,240, p. 62,020 (2004). FERC set the matter
for hearing before an Administrative Law Judge (ALJ),
who issued a 177-page order largely accepting the ISO’s
proposal. Devon Power LLC, 111 FERC ¶63,063, p. 65,205
(2005). Several parties filed exceptions to the ALJ’s order;
on September 20, 2005, the full Commission heard argu­
ments on the proposed market structure, and thereafter
established settlement procedures. Devon Power LLC, 113
FERC ¶61,075, p. 61,271 (2005).
After four months of negotiations, on March 6, 2006, a
settlement was reached. Of the 115 negotiating parties,
only 8 opposed the settlement.
The Settlement Agreement installed a “forward capacity
market” under which annual auctions would set capacity
——————
1 An ISO is an independent company that has operational control, but
not ownership, of the transmission facilities owned by member utilities.
ISOs “provide open access to the regional transmission system to all
electricity generators at rates established in a single, unbundled, grid­
wide tariff . . . .” Midwest ISO Transmission Owners v. FERC, 373
F. 3d 1361, 1364 (CADC 2004) (internal quotation marks omitted).
4 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Opinion of the Court
prices; auctions would be conducted three years in ad­
vance of the time when the capacity would be needed.
Devon Power LLC, 115 FERC ¶61,340, pp. 62,304, 62,306–
62,308 (2006). Each energy provider would be required to
purchase enough capacity to meet its share of the “in­
stalled capacity requirement,” i.e., the minimum level of
capacity needed to maintain reliability on the grid, as
determined by the ISO. Id., at 62,307. For the three-year
gap between the first auction and the time when the ca­
pacity procured in that auction would be provided,2 the
Agreement prescribed a series of fixed, transition-period
payments to capacity-supplying generators. Id., at
62,308–62,309.
The issue before us centers on §4.C of the Agreement
(hereinafter Mobile-Sierra provision). Under that provi­
sion, challenges to both transition-period payments and
auction-clearing prices would be adjudicated under “the
‘public interest’ standard of review set forth in United Gas
Pipe Line Co. v. Mobile Gas Service Corp., 350 U. S. 332(1956)[,] and [FPC] v. Sierra Pacific Power Co., 350 U. S.
348 (1956) (the ‘Mobile-Sierra’ doctrine).” App. 95. Mo
bile-Sierra applies, §4.C instructs, “whether the [price is
challenged] by a Settling Party, a non-Settling Party, or
[by] the FERC acting sua sponte.” Ibid.
FERC approved the Settlement Agreement, “finding
that as a package, it presents a just and reasonable out­
come for this proceeding consistent with the public inter­
est.” 115 FERC, at 62,304. The Mobile-Sierra provision,
FERC explicitly determined, “appropriately balances the
need for rate stability and the interests of the diverse
entities who will be subject to the [forward capacity mar­
ket’s auction system].” Id., at 62,335.
Six of the eight objectors to the settlement sought re­
view in the D. C. Circuit. For the most part, the Court of
——————
2 The transition period runs from December 1, 2006 to June 1, 2010.
Cite as: 558 U. S. ____ (2010) 5
Opinion of the Court
Appeals rejected the objectors’ efforts to overturn FERC’s
order approving the settlement. 520 F. 3d, at 467. But
the objectors prevailed on the Mobile-Sierra issue: The
D. C. Circuit held that Mobile-Sierra applies only to con­
tracting parties. Id., at 478. In this Court, the parties
have switched places. Defenders of the settlement, includ­
ing the Mobile-Sierra provision, are petitioners; objectors
to the settlement, victorious in the Court of Appeals only
on the Mobile-Sierra issue, are respondents.
Because of the importance of the issue, and in light of
our recent decision in Morgan Stanley, we granted certio­
rari, 556 U. S. ___ (2009), to resolve this question: “[Does]
Mobile-Sierra’s public-interest standard appl[y] when a
contract rate is challenged by an entity that was not a
party to the contract[?]” Brief for Petitioners i. Satisfied
that the answer to that question is yes, we reverse the
D. C. Circuit’s judgment insofar as it rejected application
of Mobile-Sierra to noncontracting parties.
II
The FPA gives FERC authority to regulate the “sale of
electric energy at wholesale in interstate commerce.” See
16 U. S. C. §824(b)(1). The Act allows regulated utilities
to set rates unilaterally by tariff; alternatively, sellers and
buyers may agree on rates by contract. See §824d(c), (d).
Whether set by tariff or contract, however, all rates must
be “just and reasonable.” §824d(a). Rates may be exam­
ined by the Commission, upon complaint or on its own
initiative, when a new or altered tariff or contract is filed
or after a rate goes into effect. §§824d(e), 824e(a). Follow­
ing a hearing, the Commission may set aside any rate
found “unjust, unreasonable, unduly discriminatory or
preferential,” and replace it with a just and reasonable
rate. §824e(a).
The Mobile-Sierra doctrine originated in twin decisions
announced on the same day in 1956: United Gas Pipe Line
6 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Opinion of the Court
Co. v. Mobile Gas Service Corp., 350 U. S. 332, and FPC v.
Sierra Pacific Power Co., 350 U. S. 348. Both concerned
rates set by contract rather than by tariff. Mobile involved
the Natural Gas Act, which, like the FPA, requires utili­
ties to file all new rates with the regulatory commission.
15 U. S. C. §717c(c). In Mobile, we rejected a gas utility’s
argument that the file-all-new-rates requirement author­
ized the utility to abrogate a lawful contract with a pur­
chaser simply by filing a new tariff. 350 U. S., at 336–337.
Filing, we explained, was a precondition to changing a
rate, not an authorization to do so in violation of a lawful
contract. Id., at 339–344; see Morgan Stanley, 554 U. S.,
at ___ (slip op., at 4).
The Sierra case involved a further issue. Not only had
the Commission erroneously concluded that a newly filed
tariff superseded a contract rate. In addition, the Com­
mission had suggested that, in any event, the contract
rate, which the utility sought to escape, was itself unjust
and unreasonable. The Commission thought that was so
“solely because [the contract rate] yield[ed] less than a fair
return on the [utility’s] net invested capital.” 350 U. S., at
355.
The Commission’s suggestion prompted this Court to
home in on “the question of how the Commission may
evaluate whether a contract rate is just and reasonable.”
Morgan Stanley, 554 U. S., at ___ (slip op., at 4). The
Sierra Court answered the question this way:
“[T]he Commission’s conclusion appears on its face to
be based on an erroneous standard. . . . [W]hile it may
be that the Commission may not normally impose
upon a public utility a rate which would produce less
than a fair return, it does not follow that the public
utility may not itself agree by contract to a rate af­
fording less than a fair return or that, if it does so, it
is entitled to be relieved of its improvident bar­
Cite as: 558 U. S. ____ (2010) 7
Opinion of the Court
gain. . . . In such circumstances the sole concern of the
Commission would seem to be whether the rate is so
low as to adversely affect the public interest—as where
it might impair the financial ability of the public util­
ity to continue its service, cast upon other consumers
an excessive burden, or be unduly discriminatory.”
350 U. S., at 354–355 (some emphasis added).
In a later case, we similarly explained: “The regulatory
system created by the [FPA] is premised on contractual
agreements voluntarily devised by the regulated compa­
nies; it contemplates abrogation of these agreements only
in circumstances of unequivocal public necessity.” Per
mian Basin Area Rate Cases, 390 U. S. 747, 822 (1968).3
Two Terms ago, in Morgan Stanley, 554 U. S. ___, the
Court reaffirmed and clarified the Mobile-Sierra doctrine.
That case presented two questions: First, does the Mobile-
Sierra presumption (that contract rates freely negotiated
between sophisticated parties meet the just and reason­
able standard imposed by 16 U. S. C. §824d(a)) “apply only
when FERC has had an initial opportunity to review a
contract rate without the presumption?” 554 U. S., at ___
(slip op., at 1). “Second, does the presumption [generally]
impose as high a bar to challenges by purchasers of whole­
sale electricity as it does to challenges by sellers?” Id., at
——————
3 Consistent with the lead role of contracts recognized in Mobile-
Sierra, we held in United Gas Pipe Line Co. v. Memphis Light, Gas and
Water Div., 358 U. S. 103, 110–113 (1958), that parties may contract
out of the Mobile-Sierra presumption. They could do so, we ruled, by
specifying in their contracts that a new rate filed with the Commission
would supersede the contract rate. Courts of Appeals have approved an
option midway between Mobile-Sierra and Memphis Light: A contract
that does not allow the seller to supersede the contract rate by filing a
new rate may nonetheless permit the Commission to set aside the
contract rate if it results in an unfair rate of return, without a further
showing that it adversely affects the public interest. See, e.g., Papago
Tribal Util. Auth. v. FERC, 723 F. 2d 950, 953 (CADC 1983); Louisiana
Power & Light Co. v. FERC, 587 F. 2d 671, 675–676 (CA5 1979).
8 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Opinion of the Court
___ (slip op., at 1–2); see id., at 19–20. Answering no to
the first question and yes to the second, the Court empha­
sized the essential role of contracts as a key factor foster­
ing stability in the electricity market, to the longrun bene­
fit of consumers. Id., at ___, ___ (slip op., at 19, 22); see,
e.g., Market-Based Rates ¶6, 72 Fed. Reg. 39906 (2007)
(noting chilling effect on investments caused by “uncer­
tainties regarding rate stability and contract sanctity”);
Nevada Power Co. v. Duke Energy Trading & Marketing,
L. L. C., 99 FERC ¶61,047, pp. 61,184, 61,190 (2002)
(“Competitive power markets simply cannot attract the
capital needed to build adequate generating infrastructure
without regulatory certainty, including certainty that the
Commission will not modify market-based contracts
unless there are extraordinary circumstances.”).
Morgan Stanley did not reach the question presented
here: Does Mobile-Sierra’s public interest standard apply
to challenges to contract rates brought by noncontracting
parties? But Morgan Stanley’s reasoning strongly sug­
gests that the D. C. Circuit’s negative answer misperceives
the aim, and diminishes the force, of the Mobile-Sierra
doctrine.
In unmistakably plain language, Morgan Stanley re­
stated Mobile-Sierra’s instruction to the Commission:
FERC “must presume that the rate set out in a freely
negotiated wholesale-energy contract meets the ‘just and
reasonable’ requirement imposed by law. The presump­
tion may be overcome only if FERC concludes that the
contract seriously harms the public interest.” 554 U. S., at
___ (slip op., at 1). As our instruction to FERC in Morgan
Stanley conveys, the public interest standard is not, as the
D. C. Circuit presented it, a standard independent of, and
sometimes at odds with, the “just and reasonable” stan­
dard, see 520 F. 3d, at 478; rather, the public interest
standard defines “what it means for a rate to satisfy the
just-and-reasonable standard in the contract context.”
Cite as: 558 U. S. ____ (2010) 9
Opinion of the Court
Morgan Stanley, 554 U. S., at ___ (slip op., at 17). And if
FERC itself must presume just and reasonable a contract
rate resulting from fair, arms-length negotiations, how can
it be maintained that noncontracting parties nevertheless
may escape that presumption? 4
Moreover, the Mobile-Sierra doctrine does not overlook
third-party interests; it is framed with a view to their
protection. The doctrine directs the Commission to reject
a contract rate that “seriously harms the consuming pub­
lic.” Morgan Stanley, 554 U. S., at ___ (slip op., at 17); see
Verizon Communications Inc. v. FCC, 535 U. S. 467, 479
(2002) (When a buyer and a seller agree upon a rate, “the
principal regulatory responsibility [i]s not to relieve a
contracting party of an unreasonable rate, . . . but to pro­
tect against potential discrimination by favorable contract
rates between allied businesses to the detriment of other
wholesale customers.” (Emphasis added.)).
Finally, as earlier indicated, see supra, at 7–8, the D. C.
Circuit’s confinement of Mobile-Sierra to rate challenges
by contracting parties diminishes the animating purpose
of the doctrine: promotion of “the stability of supply ar­
rangements which all agree is essential to the health of
the [energy] industry.” Mobile, 350 U. S., at 344. That
dominant concern was expressed by FERC in the order on
review: “Stability is particularly important in this case,
——————
4 The D. C. Circuit emphasized a point no doubt true, but hardly dis­
positive: Contracts bind parties, not nonparties. Maine Pub. Util.
Comm’n v. FERC, 520 F. 3d 464, 478 (2008) (per curiam). Mobile-
Sierra holds sway, however, because well-informed wholesale-market
participants of approximately equal bargaining power generally can be
expected to negotiate just-and-reasonable rates, see Morgan Stanley
Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554
U. S. ___, ___ (2008) (slip op., at 17), and because “contract stability
ultimately benefits consumers,” id., at ___ (slip op., at 22). These
reasons for the presumption explain why FERC, surely not legally
bound by a contract rate, must apply the presumption and, correspond­
ingly, why third parties are similarly controlled by it.
10 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
Opinion of the Court
which was initiated in part because of the unstable nature
of [installed capacity] revenues and the effect that has on
generating units, particularly those . . . critical to main­
taining reliability.” 115 FERC, at 62,335. A presumption
applicable to contracting parties only, and inoperative as
to everyone else—consumers, advocacy groups, state
utility commissions, elected officials acting parens pa
triae—could scarcely provide the stability Mobile-Sierra
aimed to secure.5
We therefore hold that the Mobile-Sierra presumption
does not depend on the identity of the complainant who
seeks FERC investigation. The presumption is not limited
to challenges to contract rates brought by contracting
parties. It applies, as well, to challenges initiated by third
parties.
III
The objectors to the settlement appearing before us
maintain that the rates at issue in this case—the auction
rates and the transition payments—are prescriptions of
general applicability rather than “contractually negotiated
rates,” hence Mobile-Sierra is inapplicable. See Brief for
Respondents 15–17, and n. 1 (internal quotation marks
omitted). FERC agrees that the rates covered by the
settlement “are not themselves contract rates to which the
Commission was required to apply Mobile-Sierra.” Brief
for FERC 15. But, FERC urges, “the Commission had
discretion to do so,” id., at 28; furthermore, “[t]he court of
appeals’ error in creating a third-party exception to the
Mobile-Sierra presumption is a sufficient basis for revers­
ing its judgment,” id., at 22. Whether the rates at issue
——————
5 The FPA authorizes “[a]ny person, electric utility, State, municipal­
ity, or State commission” to complain. 16 U. S. C. §825e (emphasis
added). FERC regulations similarly permit “[a]ny person [to] file a
complaint seeking Commission action.” 18 CFR §385.206(a) (2009)
(emphasis added).
Cite as: 558 U. S. ____ (2010) 11
Opinion of the Court
qualify as “contract rates,” and, if not, whether FERC had
discretion to treat them analogously are questions raised
before, but not ruled upon by, the Court of Appeals. They
remain open for that court’s consideration on remand. See
Tr. of Oral Arg. 16.
* * *
For the reasons stated, the judgment of the Court of Ap­
peals for the D. C. Circuit is reversed to the extent that it
rejects the application of Mobile-Sierra to noncontracting
parties, and the case is remanded for further proceedings
consistent with this opinion.
It is so ordered.
Cite as: 558 U. S. ____ (2010) 1
STEVENS, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 08–674
_________________
NRG POWER MARKETING, LLC, ET AL., PETITIONERS
v. MAINE PUBLIC UTILITIES COMMISSION ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
[January 13, 2010]
JUSTICE STEVENS, dissenting.
The opinion that the Court announces today is the third
chapter in a story about how a reasonable principle, ex
tended beyond its foundation, becomes bad law.
In the first chapter the Court wisely and correctly held
that a seller who is a party to a long-term contract to
provide energy to a wholesaler could not unilaterally
repudiate its contract obligations in response to changes in
market conditions by simply filing a new rate schedule
with the regulatory commission. Only if the rate was so
low that the seller might be unable to stay in business,
thereby impairing the public interest, could the seller be
excused from performing its contract. That is what the
Court held in United Gas Pipe Line Co. v. Mobile Gas
Service Corp., 350 U. S. 332 (1956), and FPC v. Sierra
Pacific Power Co., 350 U. S. 348 (1956).
In the second chapter the Court unwisely and incor
rectly held that the same rule should apply to a buyer who
had been forced by unprecedented market conditions to
enter into a long-term contract to buy energy at abnor
mally high prices. The Court held the Federal Energy
Regulatory Commission (FERC) could not set aside such a
contract as unjust and unreasonable, even though it sad
dled consumers with a duty to pay prices that would be
considered unjust and unreasonable under normal market
2 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
STEVENS, J., dissenting
conditions, unless the purchaser could also prove that “the
contract seriously harms the public interest.” Morgan
Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of
Snohomish Cty., 554 U. S. ___, ___ (2008) (slip op., at 1).
The Court held in Morgan Stanley that Mobile-Sierra
established a presumption: FERC “must presume that the
rate set out in a freely negotiated wholesale-energy con
tract meets the ‘just and reasonable’ requirement imposed
by law.” 554 U. S., at ___ (slip op., at 1). And that pre
sumption, according to the Court, is a simple application
of the just-and-reasonable standard to contract rates, not
a different standard of review. Id., at ___ (slip op., at 6)
(rejecting the “obviously indefensible proposition that a
standard different from the statutory just-and-reasonable
standard applies to contract rates”). But applying the
presumption nonetheless sets a higher bar for a rate chal
lenge.1 FERC may abrogate the rate only if the public
interest is seriously harmed. Id., at ___ (slip op., at 22)
(“[U]nder the Mobile-Sierra presumption, setting aside a
contract rate requires a finding of ‘unequivocal public
necessity,’ ” Permian Basin Area Rate Cases, 390 U. S. 747,
822 (1968), “or ‘extraordinary circumstances,’ Arkansas
Louisiana Gas Co. v. Hall, 453 U. S. 571, 582 (1981)”).
As I explained in my dissent in Morgan Stanley, the
imposition of this additional burden on purchasers chal
lenging rates was not authorized by the governing statute.
Under the Federal Power Act (FPA), all wholesale electric
ity rates must be “just and reasonable.” 16 U. S. C.
§824d(a). “[N]othing in the statute mandates differing
application of the statutory standard to rates set by con
——————
1 Whether the Court explains the Mobile-Sierra doctrine as a pre
sumption or as a different standard of review, “[t]here is no significant
difference between requiring a heightened showing to overcome an
otherwise conclusive presumption and imposing a heightened standard
of review.” Morgan Stanley, 554 U. S., at ___ (slip op., at 3) (STEVENS,
J., dissenting).
Cite as: 558 U. S. ____ (2010) 3
STEVENS, J., dissenting
tract.” Morgan Stanley, 554 U. S., at ___ (slip op., at 3)
(STEVENS, J., dissenting) (internal quotation marks omit
ted; emphasis deleted). And the Mobile-Sierra line of
cases did not “mandate a ‘serious harm’ standard of re
view,” much less “require any assumption that high rates
and low rates impose symmetric burdens on the public
interest.” Morgan Stanley, 554 U. S., at ___ (slip op., at 7)
(STEVENS, J., dissenting). Instead, “the statement in
Permian Basin about ‘unequivocal public necessity,’ 390
U. S., at 822, speaks to the difficulty of establishing injury
to the public interest in the context of a low-rate chal
lenge,” i.e., one brought by sellers of electricity. Id., at ___
(slip op., at 8). It does not establish a new standard that
applies as well to a “high-rate challenge” brought by pur
chasers. Ibid.But even accepting Morgan Stanley as the law, the
Court unwisely goes further today. In this third chapter of
the Mobile-Sierra story, the Court applies a rule—one
designed initially to protect the enforceability of freely
negotiated contracts against parties who seek a release
from their obligations—to impose a special burden on
third parties exercising their statutory right to object to
unjust and unreasonable rates. This application of the
rule represents a quantum leap from the modest origin set
forth in the first chapter of this tale. As the Court of
Appeals correctly concluded in the opinion that the Court
sets aside today: “This case is clearly outside the scope of
the Mobile-Sierra doctrine.” Maine Pub. Util. Comm’n v.
FERC, 520 F. 3d 464, 477 (CADC 2008) (per curiam).
As the D. C. Circuit noted,2 “[c]ourts have rarely men
——————
2 Because the D. C. Circuit’s opinion was written before this Court’s
decision in Morgan Stanley, that court’s purported error in describing
the Mobile-Sierra doctrine as an “exception” to the just-and-reasonable
standard, 520 F. 3d, at 477, is understandable. As that court recog
nized, and the majority does not change today, the Mobile-Sierra
standard in fact “makes it harder for [respondents] to successfully
4 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
STEVENS, J., dissenting
tioned the Mobile-Sierra doctrine without reiterating that
it is premised on the existence of a voluntary contract
between the parties.” Ibid. But, the Court asks, “[I]f
FERC itself must presume just and reasonable a contract
rate resulting from fair, arms-length negotiations, how can
it be maintained that noncontracting parties nevertheless
may escape that presumption?” Ante, at 9. This Court’s
understanding of Sierra provides an answer. “Sierra was
grounded in the commonsense notion that ‘[i]n wholesale
markets, the party charging the rate and the party
charged [are] often sophisticated businesses enjoying
presumptively equal bargaining power, who could be
expected to negotiate a “just and reasonable” rate as be
tween the two of them.’ ” Morgan Stanley, 554 U. S., at ___
(slip op., at 17) (quoting Verizon Communications Inc. v.
FCC, 535 U. S. 467, 479 (2002); emphasis added). This
“commonsense notion” supports the rule requiring FERC
to apply a presumption against letting a party out of its
own contract, as the D. C. Circuit recognized. 520 F. 3d,
at 478 (“The Mobile-Sierra doctrine applies a more defer
ential standard of review to preserve the terms of the
bargain as between the contracting parties”). It does not,
however, support a rule requiring FERC to apply a pre
sumption against abrogating any rate set by contract,
even when, as in this case, a noncontracting party may be
required in practice to pay a rate it did not agree to.
The Court further reasons that “confinement of Mobile-
Sierra to rate challenges by contracting parties diminishes
the animating purpose of the doctrine,” which is ensuring
the stability of contract-based supply arrangements. Ante,
at 9. Maybe so, but applying Mobile-Sierra to rate chal
lenges by noncontracting parties loses sight of the animat
ing purpose of the FPA, which is “the protection of the
public interest.” Sierra, 350 U. S., at 355. That interest is
——————
challenge rates.” 520 F. 3d, at 478.
Cite as: 558 U. S. ____ (2010) 5
STEVENS, J., dissenting
“the interest of consumers in paying ‘ “the lowest possible
reasonable rate consistent with the maintenance of ade
quate service in the public interest.” ’ ” Morgan Stanley,
554 U. S., at ___ (slip op., at 7) (STEVENS, J., dissenting)
(quoting Permian Basin, 390 U. S., at 793). I do not doubt
that stable energy markets are important to the public
interest, but “under the FPA, Congress has charged
FERC, not the courts, with balancing the short-term and
long-term interests of consumers” under the just-and
reasonable standard of review. Morgan Stanley, 554 U. S.,
at ___ (slip op., at 9) (STEVENS, J., dissenting). The Court
today imposes additional limits upon FERC’s ability to
protect that interest. If a third-party wholesale buyer can
show a rate harms the public interest (perhaps because it
is too high to be just and reasonable under normal review),
but cannot show it seriously harms the public, FERC may
do nothing about it.3
The Court assures respondents that the “public interest
standard” does not “overlook third-party interests” and is
“framed with a view to their protection.” Ante, at 8, 9.
Perhaps in practice the Mobile-Sierra doctrine will protect
third parties’ interests, and the public interest, just as
well as the so-called “ordinary” just-and-reasonable stan
dard. But respondents are rightly skeptical. The Mobile-
Sierra doctrine, as interpreted by the Court in Morgan
Stanley, must pose a higher bar to respondents’ rate chal
lenge—that is, it requires them to show greater harm to
——————
3 FERC agrees with petitioners that the public interest standard
“govern[s] all challenges to the rates set by contract, regardless of the
identity of the challenger.” Reply Brief for FERC 4. But “not even
FERC has the authority to endorse [this] rule.” Morgan Stanley, 554
U. S., at ___ (slip op., at 9) (STEVENS, J., dissenting). “The FPA does not
indulge, much less require, a ‘practically insurmountable’ presumption,
see Papago Tribal Util. Auth. v. FERC, 723 F. 2d 950, 954 (CADC 1983)
(opinion for the court by Scalia, J.), that all rates set by contract com
port with the public interest and are therefore just and reasonable.”
Id., at ___ (slip op., at 9–10).
6 NRG POWER MARKETING, LLC v. MAINE PUB.
UTIL. COMM’N
STEVENS, J., dissenting
the public.4 Otherwise, it would hardly serve to protect
contract stability better than the plain vanilla just-and
reasonable standard and the Court’s decision in Morgan
Stanley would have little effect. Furthermore, the Court
today reiterates that the doctrine poses a high bar. See
ante, at 7–8.
It was sensible to require a contracting party to show
something more than its own desire to get out of what
proved to be a bad bargain before FERC could abrogate
the parties’ bargain. It is not sensible, nor authorized by
the statute, for the Court to change the de facto standard
of review whenever a rate is set by private contract, based
solely on the Court’s view that contract stability should be
——————
4 In my view, “whether a rate is ‘just and reasonable’ is measured
against the public interest, not the private interests of regulated
[parties].” Id., at ___ (slip op., at 7). But I note the Court’s assertion
that the Mobile-Sierra doctrine protects “third-party interests,” ante, at
9, is a new twist on the “public interest standard” as traditionally
understood. As the Court recognized in Morgan Stanley, one conse
quence of applying Mobile-Sierra is that “ ‘the sole concern of the
Commission’ ” is the public interest, and FERC cannot consider, for
example, whether a rate guarantees a sufficient rate of return to a
regulated entity. 554 U. S., at ___ (slip op., at 4) (quoting FPC v. Sierra
Pacific Power Co., 350 U. S. 348, 355 (1956)); see also Morgan Stanley,
554 U. S., at ___ (slip op., at 17, n. 3). In addition to requiring that
FERC find some greater degree of harm to the public than would be
required under the ordinary just-and-reasonable standard, therefore,
the Mobile-Sierra doctrine leaves little room for respondents—at least
one of which did not negotiate the rate but must nonetheless purchase
electricity at that price in the forward capacity market unless it self
supplies its capacity—to assert their private interest in making a rate
challenge. The Court suggests that FERC could set aside a rate under
the public interest standard if the contract established favorable rates
between allied businesses to the detriment of other wholesale custom
ers, ante, at 9, but has not spelled out whether a challenger would still
have to show that circumstance harmed the public interest. It remains
unclear whether a noncontracting party that must purchase or sell
electricity at a rate it did not negotiate could argue that a rate fails the
“public interest standard” because the rate is detrimental to that
entity’s private interest.
Cite as: 558 U. S. ____ (2010) 7
STEVENS, J., dissenting
preserved unless there is extraordinary harm to the public
interest.
For these reasons, I respectfully dissent.