United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 20, 2010 Decided November 5, 2010
No. 06-1403
MAINE PUBLIC UTILITIES COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL, ET
AL.,
INTERVENORS
Consolidated with 06-1427, 07-1193
On Remand from the United States Supreme Court
John S. Wright, Assistant Attorney General, Office of the
Attorney General for the State of Connecticut, argued the cause
for petitioners. With him on the brief were Michael C.
Wertheimer, Assistant Attorney General, Jesse S. Reyes,
Assistant Attorney General, Office of the Attorney General for
the Commonwealth of Massachusetts, Vasiliki Karandrikas,
Lisa Fink, and Robert A. Weishaar Jr.
2
Donald J. Sipe and Jonathan G. Mermin were on the brief
for intervenor Industrial Energy Consumer Group in support of
petitioners.
Robert H. Solomon, Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief were Thomas R. Sheets, General Counsel, and Lona T.
Perry, Senior Attorney.
John N. Estes III argued the cause for intervenors Entergy
Nuclear Generation Company, LLC, et al. in support of
respondent. With him on the brief were John L. Shepherd Jr.,
Christopher C. O'Hara, David Talmage Musselman, Aaron
James Bullwinkel, Neil L. Levy, David G. Tewksbury, and Tim
W. Muller.
Sherry A. Quirk, Monica M. Berry, and Raymond W.
Hepper were on the brief for intervenor ISO New England Inc.
in support of respondent.
Before: ROGERS and GARLAND, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the court filed by SILBERMAN, Senior Circuit
Judge.
SILBERMAN, Senior Circuit Judge: These consolidated
petitions for review are before us once again. The Maine Public
Utilities Commission and the Attorneys General of Connecticut
and Massachusetts, representing energy customers, challenged
FERC’s approval of a settlement agreement that redesigned New
England’s electricity capacity market. Although we rejected
most of petitioners’ challenges, we granted their petition
regarding the argument that the settlement agreement’s Mobile-
Sierra provision – which requires FERC to adjudicate
3
challenges to rates resulting from an auction procedure arising
out of the settlement agreement under the Mobile-Sierra public
interest standard – deprived non-settling parties of their rights
under the Federal Power Act to challenge rates under the
statute’s presumably more searching “just and reasonable”
standard. See Me. Pub. Utils. Comm’n v. FERC, 520 F.3d 464,
477 (D.C. Cir. 2008) (per curiam). We held that the Mobile-
Sierra doctrine could not apply to rate challenges brought by
non-parties to the settlement agreement. See id. The Supreme
Court granted certiorari on this general issue and reversed. See
NRG Power Mktg., LLC v. Me. Pub. Utils. Comm’n, 130 S. Ct.
693, 696-97 (2010). It identified, however, two questions
concerning the Mobile-Sierra provision that had been raised
before, but not ruled on by, us, and remanded those issues for
our consideration. See id. at 701. Because the Commission
failed to address those issues in the challenged orders, we now
remand the orders to FERC.
I
This case has characteristics of a chameleon; it has changed
its colors – and its shape – at each stage of the proceedings. As
we have previously explained, the basic dispute relates to New
England’s electrical capacity market, in which an electricity
provider purchases an option to buy electricity from a generator
rather than purchasing the electricity directly. That market had
been beset by problems, including a supply of capacity that was
barely sufficient to meet the region’s demand, and FERC,
electricity generators, electricity purchasers, and power
customers engaged in several attempts to resolve those issues.
See Devon Power LLC, 115 FERC ¶ 61,340, at 62,315 (2006).
In response to their attempts, FERC required the New England
Independent System Operator, the entity operating the electricity
transmission system in New England, to develop a new market
mechanism that set prices separately by geographic sub-region.
4
Under this new mechanism, prices would be highest in the
regions with the most severe capacity shortages, encouraging
new entries to the market. See Devon Power LLC, 107 FERC
¶ 61,240, at 62,022 (2004). This mechanism proved extremely
controversial, and FERC apparently established settlement
procedures to allow all affected parties to develop a different
market mechanism. After four months of negotiations, a
settlement was reached, which FERC approved. See Devon
Power LLC, 115 FERC at 62,306.
The key feature of the settlement agreement is the Forward
Capacity Market, which entails annual auctions that set the rates
for electricity “capacity” (the option of buying a quantum of
power). In these auctions, which are held three years in advance
of when capacity is needed, electricity providers buy capacity at
a standard rate, and must purchase enough capacity to maintain
the reliability of the electricity grid. See id. As noted, the
settlement agreement provided that challenges to the resulting
auction rates – whether brought by a settling party, a non-
settling party, or the Commission – would be “adjudicated under
the highly-deferential Mobile-Sierra ‘public interest’ standard
rather than the usual ‘just and reasonable’ standard” of the
Federal Power Act. Me. Pub. Utils. Comm’n, 520 F.3d at 469.
It should be noted that, at the outset of this litigation, it was
common ground among all parties that the normal statutory “just
and reasonable” standard was a different standard than the
“public interest” standard. This belief no doubt was shaped by
the eponymous cases of the Mobile-Sierra doctrine, in which the
Supreme Court addressed the Commission’s authority to modify
rates set by contract. In United Gas Pipe Line Co. v. Mobile
Gas Service Corp., 350 U.S. 332 (1956), the Court held that
under the Natural Gas Act, a utility could not abrogate a lawful
contract with a purchaser merely by filing a new rate. 350 U.S.
at 336-37. And in Federal Power Commission v. Sierra Pacific
5
Power Co., 350 U.S. 348 (1956), it applied Mobile to the
Federal Power Act, and confronted the question of how the
Commission evaluates when a contract rate is just and
reasonable. 350 U.S. at 352-53. The Court held that a utility
that had entered into a contract setting rates could not
subsequently seek a greater return by asserting the contract rate
was inadequate to meet the just and reasonable standard. See id.
at 354-55. It could only escape that rate if the utility could show
the “public interest” was jeopardized – which apparently meant
the utility faced something close to insolvency, the rate created
an excessive burden for consumers, or the rate was unduly
discriminatory. See id. We subsequently extended that hurdle
symmetrically to challenges brought by purchasers, in addition
to challenges brought by sellers. See Potomac Elec. Power Co.
v. FERC, 210 F.3d 404-05 (D.C. Cir. 2000).
It appeared to us that application of the Mobile-Sierra
doctrine was a form of estoppel, i.e., a contracting party was not
at liberty – short of extraordinary circumstances – to avoid its
negotiated contract rate. And therefore we framed the Mobile-
Sierra issue in our previous opinion as whether “the
Commission [may] approve a settlement agreement that applies
the highly-deferential ‘public interest’ standard to rate
challenges brought by non-contracting third parties.” Me. Pub.
Utils. Comm’n, 520 F.3d at 477. FERC’s orders had been
somewhat ambiguous as to why the Commission decided it
could impose the Mobile-Sierra standard on non-settling parties.
But we found no need to parse FERC’s various explanations,
because we concluded that the Commission could not approve
the settlement agreement’s Mobile-Sierra clause that bound non-
settling parties.
Then, before the Supreme Court, the ground shifted. Three
months after we issued our original opinion in this case, the
Supreme Court decided Morgan Stanley Capital Group Inc. v.
6
Public Utility District No. 1 of Snohomish County, 128 S. Ct.
2733 (2008), which held that the Mobile-Sierra public interest
standard was only an application of the just and reasonable
standard to contract, not a different standard. 128 S. Ct. at 2740.
In light of that decision, the Court took certiorari in this case to
answer a single question: whether “Mobile-Sierra’s
public-interest standard appl[ies] when a contract rate is
challenged by an entity that was not a party to the contract.”
NRG Power Mktg., LLC, 130 S. Ct. at 698 (internal quotation
marks omitted). The Court, therefore, shifted the focus of the
case from the settlement agreement to the nature of the auction
rates resulting from the settlement agreement.
Following the Supreme Court’s lead, the parties presented
arguments about whether Mobile-Sierra applied only to contract
rates. Maine Public Utilities Commission and its allies,
respondents before the Supreme Court, squarely contended for
the first time (undoubtedly in light of Morgan Stanley) that the
auction rates were not contract rates (a point that they had not
specifically made before, except by adopting an argument in an
intervenor’s brief). Petitioners before the Supreme Court, who
had been intervenors defending the settlement agreement before
us, now argued (again surely influenced by Morgan Stanley) that
the rates were contract rates. And FERC, for its part, took a
third position: the rates were not contract rates, yet it
nevertheless had authority to approve the Mobile-Sierra clause
as a matter of its discretion.
Relying on Morgan Stanley, the Supreme Court concluded
that the Mobile-Sierra doctrine “is not limited to challenges to
contract rates brought by contracting parties. It applies, as well,
to challenges initiated by third parties.” NRG Power Mktg.,
LLC, 130 S. Ct. at 701. And therefore it implicitly, but
necessarily, rejected our conclusion that FERC could not
approve a Mobile-Sierra clause in a settlement agreement that
7
bound non-settling parties. That is, if non-contracting parties
are bound to challenge contract rates under Mobile-Sierra, it
must be that FERC can approve a settlement agreement
requiring adjudication of any rates resulting from that settlement
agreement under Mobile-Sierra if the resultant rates are contract
rates. But the Supreme Court’s holding did not resolve this
case, because as the parties’ positions before it made clear, there
was still an open question about whether the auction rates
resulting from the settlement agreement were the type of rates
to which Mobile-Sierra applied. The Court declined to consider
this issue, reasoning that it had been “raised before, but not ruled
upon by, the Court of Appeals.” Id. The Supreme Court
therefore asked us to consider that issue in the first instance. See
id. The parties now present on remand the same arguments
deployed in the Supreme Court.1
* * *
It is necessary to describe this jurisprudential Kabuki dance
to deal both with a jurisdictional issue, as well as with the
merits. The intervenors defending the settlement agreement
(although not FERC) contend that we lack jurisdiction to
consider petitioners’ argument that the auction rates are not
1
One of the most contentious issues in this case was the status
of the “transition payments” paid to electricity generators to cover the
three-year gap between the first auction and the time when the
capacity purchased in that auction is provided. See Me. Pub. Utils.
Comm’n, 520 F.3d at 469. The settlement agreement obligated FERC
to adjudicate challenges to these payments under Mobile-Sierra as
well. Although petitioners argue that applying Mobile-Sierra to the
transition payments violates their rights under the Federal Power Act,
because the last payments were made on June 1, 2010, petitioners can
no longer challenge them, mooting this argument. See L.A. County v.
Davis, 440 U.S. 625, 631 (1979). Petitioners appeared to concede as
much at oral argument. See Oral Arg. Recording at 22:16-20.
8
contract rates to which Mobile-Sierra can apply because
petitioners did not make that precise argument before FERC –
only intervenors opposing the settlement did. And our cases are
quite clear that generally we do not have jurisdiction under the
Federal Power Act to consider an argument not raised by a
petitioner before FERC; an intervenor cannot fill the
jurisdictional gap. See, e.g., Platte River Whooping Crane
Critical Habitat Maint. Trust v. FERC, 876 F.2d 109, 113 (D.C.
Cir. 1989); see also 16 U.S.C. § 825l(b).
It would be rather anomalous at this point for us to hold that
we lacked jurisdiction to consider the issues the Supreme Court
has explicitly remanded to us. Moreover, given the shifts in the
parties’ positions – including FERC’s – as well as the
unanticipated change in the Supreme Court’s Mobile-Sierra
jurisprudence, it might be thought overly technical to bar
petitioners’ argument. But it is unnecessary to consider these
factors. Intervenors, in asserting that petitioners did not raise
the precise argument that the auction rates are not contract rates
before FERC, are slicing the salami too thinly. After all,
petitioners did argue before FERC that the Mobile-Sierra
provision in the settlement agreement “deprives non-settling
parties of their rights under Section 206 of the Federal Power
Act,” an argument that applies whether or not the auction rates
are regarded as contract rates.2 Interestingly, FERC, when
presented with intervenors’ more precise formulation that the
2
For this reason, intervenors’ alternative argument that
petitioners waived their non-contract rate argument in their opening
brief is without merit. In that brief, as before FERC, petitioners
asserted that the settlement agreement deprives them of their statutory
rights. See Petitioners’ Opening Brief at 51-54. We cannot imagine
an argument would be specific enough to satisfy section 825l(b), yet
not satisfy our prudential requirement that a party raise an argument
in its opening brief.
9
auction rates were not contract rates, said “[w]e also reject
[intervenors’] contention that market rules and tariffs are not
contracts to which Mobile-Sierra can apply,” yet ambiguously
also said that “tariffs have been held to be analogous to
contracts.” Devon Power LLC, 117 FERC ¶ 61,133, at 61,727
(2006). The Commission apparently did not see intervenors’
contention that the auction rates were not contract rates as
separate from petitioners’ general challenge to the Mobile-Sierra
clause because it never actually resolved the former question,
which likely explains why FERC did not join the jurisdictional
objection.
II
As we noted, the Supreme Court granted certiorari to
determine whether the Mobile-Sierra public interest standard
applied to a challenge to contract rates brought by a non-
contracting party. And that issue was affected decisively by
Morgan Stanley, which the Supreme Court decided after we
issued our previous opinion in this case. A freely-negotiated
contract rate, the Court held in Morgan Stanley, was
presumptive evidence that the rate was just and reasonable
because it reflected market forces. See Morgan Stanley, 128 S.
Ct. at 2739-40, 2746-47. Based on that reasoning, the Supreme
Court concluded in this case that Mobile-Sierra could apply to
a rate challenge brought by a non-contracting party. See NRG
Power Mktg., 130 S. Ct. at 701.
We admit to being somewhat uncertain about the
implications of the Supreme Court’s opinion in our case because
although it states, following Morgan Stanley, that the public
interest standard is merely an application of the just and
reasonable standard, see id. at 700, its accurate description of
Sierra makes clear that there an examination of the disputed rate
under the just and reasonable standard would have led the
10
Commission to overturn the rate, where adjudication under the
public interest standard would not have, see id. at 699. It
therefore appears that if the Mobile-Sierra doctrine is only an
application of the just and reasonable standard – not a separate
standard – it is true only at some theoretical level. Be that as it
may, since the Supreme Court invigorated the Mobile-Sierra
doctrine, and remanded for a determination whether the auction
rates were protected against attack, either because they are
freely-negotiated contract rates or because FERC has discretion
to apply Mobile-Sierra to non-contract rates, it is obvious that
the Court is of the view that the Mobile-Sierra public interest
standard confers an advantage on a party claiming it applies.
Doctrinal difficulties aside, we turn to the questions the
Supreme Court put to us: “[w]hether the rates at issue qualify as
‘contract rates,’ and, if not, whether FERC had discretion to
treat them analogously.” Id. at 701. FERC’s counsel now
concedes flatly that the auction rates are not contract rates, but
rather closely resemble a conventional “cost based tariff rate”
because during the Forward Capacity Market auction, a capacity
buyer is simply assessed a standard market rate. Unlike a
typical auction, then, the buyers do not agree to pay a seller a
specific price set by a voluntary bid, so therefore no voluntary
agreements develop. Nevertheless, FERC’s counsel argues that
under the logic of Morgan Stanley, the Commission always has
discretion to approve a clause that provides protection against an
attack on these rates as unjust or unreasonable by imbuing them
with the more difficult to challenge “public interest” cloak.3
Exercising that discretion is appropriate here, FERC’s counsel
believes, because the auction rates “share with freely negotiated
contracts certain market based features that tend to assure just
and reasonable rates.” Respondent’s Supplemental Brief at 13.
3
FERC’s brief rather confusingly refers to the public interest
standard as a stricter standard.
11
We cannot decide whether FERC’s counsel’s current
position is reasonable under the APA because it is certainly
obvious – whatever else is confusing about this case – that
FERC never articulated in its orders a rationale for its discretion
to approve a Mobile-Sierra clause outside the contract context,
or an explanation for exercising that discretion here. See Fed.
Power Comm’n v. Texaco Inc., 417 U.S. 380, 397 (1974) (“[W]e
cannot ‘accept counsel’s post hoc rationalizations for agency
action . . . .’” (quoting Burlington Truck Lines, Inc. v. United
States, 371 U.S. 156, 168-69 (1962))). However FERC justifies
its decision to approve the Mobile-Sierra clause, FERC must
explain why, if the auction rates are not contract rates, they are
entitled to Mobile-Sierra treatment. Just how do the auction
rates reflect market conditions similar to freely-negotiated
contract rates? Or does FERC base its asserted discretion on
some other ground?
For the foregoing reasons, FERC’s orders approving the
settlement agreement’s Mobile-Sierra provision are remanded
for further proceedings.
So ordered.