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Supreme Court Stands Consumer Utility Protection Law on Its Head; Congress Must Act

Jan. 14, 2010

Supreme Court Stands Consumer Utility Protection Law on Its Head; Congress Must Act

Statement of Lynn Hargis, Energy Attorney, Public Citizen

The U.S. Supreme Court on Wednesday took a worrisome step toward deregulating wholesale electric contract rates and eliminating important consumer protections under the Federal Power Act. The Power Act was enacted to eliminate a regulatory gap and allow a federal body, the Federal Energy Regulatory Commission (FERC), to regulate electric rates for resale in interstate commerce because states cannot do so. But the court now has significantly limited FERC’s authority to review the reasonableness of energy rates set by contract. By doing so, it has hamstrung FERC and left consumers at the mercy of the whims of companies that are focused solely on their bottom lines.

Unfortunately, as Justice John Paul Stevens writes in his dissent, the court’s opinion in NRG Power Marketing, LLC, et al. v. Maine Public Utilities Commission “is the third chapter in a story about how a reasonable principle, extended beyond its foundation, becomes bad law.”

The second chapter was the court’s 2008 opinion in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County. There, the court held for the first time in the law’s 73-year history that the Power Act requires regulators to presume that contracts offered by regulated utility sellers and accepted by wholesale buyers are “just and reasonable.”

The first chapter featured two 1956 Supreme Court opinions holding that a public utility that contracted to sell energy and power for resale could not charge a different rate than that stated in the contract just because the contract had proved to be unprofitable. The court said that the seller must show harm to the public interest, not just the seller’s private interest.

This week, the court stood this concept on its head when it found that FERC cannot modify excessive contract rates absent a showing ― by it, or a non-contracting party such as a state utility commission or retail consumer ― not just of harm but of “serious” harm to consumers. That is, the court held that FERC cannot change rates set by regulated sellers if a buyer, who by law can pass FERC-allowed costs on to retail customers, agrees to them, absent a showing of serious harm. This result not only renders meaningless effective contract rate regulation under the Power Act, but also contradicts 70-plus years of FERC regulatory history, as Public Citizen pointed out in its amicus brief. As a result, consumers will face an almost insurmountable battle if they want to challenge rates.

Congress has never deregulated wholesale electric contract rates. In Morgan Stanley and NRG Power Marketing, however, the Supreme Court took significant steps toward deregulation.  Congress has been silent on this issue too long. It should act swiftly to reaffirm that the primary purpose of the Federal Power Act is to protect utility consumers from excessive electric rates, whether appearing in a contract or a tariff.