State of California v. FERC

The Federal Energy Regulatory Commission may apply the Mobile-Sierra presumption of justness and reasonableness in the context of short-term spot sale contracts whenever a contracted rate is involved.

This case arose out of the California legislature’s de-regulation of the electricity market, causing wholesale electricity prices to skyrocket.The average rates in the California and Pacific Northwest short-term supply markets (spot markets) soared. Under the Federal Power Act (FPA), the rates charged by a public utility must be “just and reasonable.” Section 206 of the FPA gives the Federal Energy Regulatory Commission (FERC) the authority to investigate whether a particular rate is “just and reasonable.” If the FERC finds the rate is “unjust, unreasonable, unduly discriminatory or preferential,” it must determine a just and reasonable rate and order that rate be used. The FERC may order refunds be paid to those who were overcharged. The petitioners challenged FERC orders that were issued following the Ninth Circuit’s decision in Port of Seattle v. FERC, where the panel reviewed denials of refunds to wholesale buyers of electricity who purchased in spot markets at high prices. The FERC held that the Mobile-Sierra presumption, requiring the FERC to presume that the rate set in a freely negotiated wholesale-energy contract is just and reasonable, does not apply to spot sales. On appeal, the Ninth Circuit determined they had jurisdiction to review FERC’s decision to employ the Mobile-Sierra presumption in the class of contract at issues, because the test for final action under the Federal Power Act was met. The panel held that the issues presented in this case presented a legal question capable of resolution by the court in way that would not invade the agency’s discretion. The panel further held that the FERC reasonably applied the Mobile-Sierra presumption to the class of contracts at issue in this case. The panel denied review of the FERC decision. DENIED in Part, DISMISSED in Part.