News & Developments
The Supreme Court to Hear Oral Argument on February 19, 2008, in Reconsideration of Mobile-Sierra in the Context of “High Rate” Challenges to Market-Based Contracts Entered During the Western Energy Crisis
On December 19, 2006, the Ninth Circuit issued two decisions arising from the Western Energy Crisis of 2000-2001 that consider when and how the Mobile-Sierra public interest doctrine applies to today’s market-based regulatory regime. In Public Utility District No. 1 of Snohomish County Washington v. FERC, and Public Utilities Commission of the State of California v. FERC, the Ninth Circuit reversed FERC and determined that the Mobile-Sierra public interest standard of review should apply only when: “(1) the contract by its own terms must not preclude the limited Mobile-Sierra review; (2) the regulatory scheme in which the contracts are formed must provide FERC with an opportunity for effective, timely review of the contracted rates; and (3)where . . . FERC is relying on a market-based rate-setting system to produce just and reasonable rates, this review must permit consideration of all factors relevant to the propriety of the contract’s formation.” At issue in these companion cases were challenges by the buyers to several high-priced long-term power purchase agreements entered during the height of the western energy crisis in 2000-2001.
The Federal Power Act requires FERC to ensure that all rates, terms and conditions for the sale of power are “just and reasonable.” In 1956, the Supreme Court in companion cases announced what has become known as the Mobile-Sierra doctrine. This doctrine limited attempts to modify private bilateral power contracts unless such modifications are required by the “public interest.” For decades under FERC’s traditional regulatory model, this standard has been regarded by some courts as “practically insurmountable.” The Supreme Court will now consider whether that is also true in the market-based rate context.
On September 24, 2007, the United States Supreme Court granted certiorari in the companion cases of Morgan Stanley Capital Group Inc., v. Public Utility District No. of Snohomish County and Calpine Energy Services, L.P. v. Public Utility District No. of Snohomish County. Oral argument has been set for February 19, 2008.
Bush Signs into Law the Energy Independence and Security Act of 2007
Building upon the Energy Policy Act of 2005, President Bush signed into law on December 19, 2007, the Energy Independence and Security Act of 2007 (“Act”). The official title refers to the Act’s purpose of moving the United States toward greater energy independence and security, increasing the production of clean renewable fuels, protecting consumers, increasing the efficiency of products, buildings, and vehicles, promoting research on and deploying greenhouse gas capture and storage options, and improving the energy performance of the Federal Government. The Act is comprehensive in scope, implementing these goals through government, business, academia and the international community in four ways: (1) through organizational changes, such as establishing an Office of Climate Change and Environment within the Department of Transportation (Sec. 1101) and adding the Secretary of Energy to the National Security Council (Sec. 932); (2) by creating incentives for energy conservation measures and research and development of alternative fuels and high-efficiency consumer products, an example of which is the directive to the Secretary of Energy to establish a grant program encouraging reduction in fossil fuel emissions (Sec. 542); (3) in directly mandating higher energy efficiency and alternative energy-source standards, such as delineating energy efficiency standards for light bulbs (Sec. 321); and (4) by requiring studies and data gathering on a variety of issues, such as the impact on the security and operating capability of the Nation’s electricity infrastructure of deploying Smart Grid systems (Sec. 1309). The Act’s “if you build it, they will come” approach functions to establish standards for alternative fuels not yet widely commercially available and also emphasizes increased efficiency and energy conservation.
– Submitted by Meghan E. Bishop (Cox Smith Matthews Incorporated)
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Confidential Market Data Scrap Heats up in Texas
Wholesale electric transaction data that ERCOT market participants consider competitively sensitive has been subpoenaed by TXU in an enforcement proceeding brought against TXU Corporation and its power generation affiliates by the Texas Public Utility Commission. Based on findings by the ERCOT Independent Market Monitor regarding TXU’s alleged economic withholding of production in 2005 that raised prices in the balancing energy market by 11.4% and from which TXU profited, the PUC Staff seeks administrative penalties against the TXU companies of $171 million. Although no interventions were allowed in the case, TXU’s subpoenas to nonparties seek information including the nonparty participants’ balancing energy bids and strategies. The administrative law judge authorized the subpoenas on grounds that such information would be used against the TXU companies as support for the enforcement action and to calculate the penalty, and that the information should be produced to allow TXU to prepare its defense. The ALJ’s order has been appealed to the Commission by Reliant Energy Power Supply LLC and by Texas’ three largest municipal electric utilities—CPS Energy of San Antonio, Austin Energy, and the City of Garland, all of whom are active in the wholesale competitive electric market. These parties contend that the information sought is not being used against TXU and could not be determinative of the TXU companies’ actions in the market as a pivotal supplier; and that they will be competitively harmed by release of the data and will not be protected under the terms of protective orders. The Commission is scheduled to hear the appeal November 1, but the issue is likely to wind up in state district court.
– Submitted by W. Roger Wilson (Cox Smith Matthews Incorporated)
