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Volume1
MonthDecember
Year2009
TitleConsumers versus Contracts: Morgan Stanley, Maine, and the Mobile-Sierra Doctrine
Author(s)Brent Allen
Start Page315
AbstractThe Supreme Court unwittingly spawned the so-called Mobile-Sierra doctrine in 1956 with its two same-day decisions in United Gas Pipe Line Co. v. Mobile Gas Service Corp. and Federal Power Commission v. Sierra Pacific Power Co. The doctrine creates an important restriction on the Federal Energy Regulatory Commission's (FERC) ability to interfere with wholesale energy rates set forth in private contracts. It does this by triggering a heightened standard of review that applies when the Commission reviews fixed rates in private contracts; specifically, the doctrine shifts the standard from the default "just and reasonable" standard to a more rigorous "public interest" version. This special modification attempts to balance the parties' freedom of contract with the Commission's statutory obligation to ensure just and reasonable rates for consumers. For over 50 years, the doctrine has been a bedrock principle of private contract rights in the energy industry. But two recent interpretations of the doctrine by the D.C. Circuit Court of Appeals and the United States Supreme Court are likely to significantly impact its scope in the future.
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Part II of this Article provides a brief background of the Mobile-Sierra doctrine, explaining its basic tenets, its effect on the standard of review in Commission proceedings, how it comes to be triggered, and how it applies. Part III sets forth the interpretations provided by Morgan Stanley and Maine and explains the ramifications these holdings may have on non-party challenges to contract rates. Part IV analyzes the significance of the Supreme Court's characterization of the Mobile-Sierra doctrine as representing a "presumption" about the contract rate. The Article concludes by speculating about the effects of Morgan Stanley and Maine decisions on the doctrine's application going forward. It also lays out a policy argument favoring non-party exemption from the Mobile-Sierra doctrine. The addendum provides a brief discussion of the current appeal of the Maine case to the Supreme Court, the arguments of the parties therein, and an explanation of why this Article's arguments are unique.