Supreme Court Confirms Application of Mobile-Sierra Doctrine to Rate Challenges by Non-Contracting Parties

On January 13, the U.S. Supreme Court determined, in an 8-1 decision, that energy rates challenged by non-contracting parties are presumed to be just and reasonable, and may only be set aside if the rates seriously harm the public interest. In NRG Power Marketing v. Maine Public Utilities Commission, the Supreme Court reversed the U.S. Court of Appeals for the District of Columbia Circuit, which held that non-contracting parties challenging rates set forth in energy contracts need not establish that the rates upset the public interest in order to invalidate the challenged rates. The Supreme Court’s decision resolves an issue of first impression by reaffirming the Court’s Mobile-Sierra doctrine and its 2008 ruling in Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1.

Under the Mobile-Sierra doctrine, the Federal Energy Regulatory Commission (FERC) must presume that a rate set by a freely negotiated contract is just and reasonable, and that rate cannot be set aside unless it harms the public interest. In 2008, the Supreme Court in Morgan Stanley explained that the Mobile-Sierra presumption that rates set forth in a contract are just and reasonable may be overcome only if FERC concludes that the contract seriously harms the public interest.

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