posted on Monday, October 08, 2007 11:12 AM by Tracy Davis

Supreme Court to Hear Long-Term Power Contract Cases

The U.S. Supreme Court granted certiorari to review two Ninth Circuit decisions involving long-term contracts that were entered into during the 2000-2001 California energy crisis.  In a pair of decisions issued last December, Public Utility District No. 1 of Snohomish County, WA v. FERC and California Public Utilities Commission v. FERC, the Ninth Circuit held that the long-standing Mobile-Sierra doctrine and its "public interest" standard did not protect contracts from unilateral modification when they were entered in a dysfunctional market that caused prices to exceed a "zone of reasonableness."  The Ninth Circuit held that FERC should have reviewed the circumstances under which the contracts were entered, and possibly set those contracts aside if it found the prices to be unreasonable. 

Several groups of sellers sought Supreme Court review of the Snohomish and CPUC decisions to determine whether the Ninth Circuit's formulation of the Mobile-Sierra doctrine was appropriate.  Many argued the Ninth Circuit's view would upend contract certainty in electric markets, thereby inhibiting investment, if contracts could later be revised because of changes in the market, buyer's remorse, or other circumstances outside of a seller's immediate control.  Interestingly, FERC itself had asked the Supreme Court not to hear the cases, arguing that because these cases arose out of the "highly unusual context" of the 2000-2001 energy crisis they provided a "poor vehicle" for the Court to evaluate the proper application of the Mobile-Sierra doctrine to a complaint that rates were too high.

A seven-justice panel of the Supreme Court disagreed and granted certiorari in response to petitions filed by Morgan Stanley Capital Group and Calpine Corp. of the Snohomish decision.  (Chief Justice Roberts and Justice Breyer have recused themselves from the case, without explanation.)  The Court has not yet indicated whether it will grant certiorari petitions for the CPUC decision as well or will simply apply its decision in the Morgan Stanley and Calpine petitions to the CPUC case.  Briefs are due in November and December, and oral argument will likely be scheduled for sometime in the first quarter of 2008.