NRG Power Marketing, LLC v. Maine Pub. Util. Comm’n – Oral Argument – November 03, 2009

Media for NRG Power Marketing, LLC v. Maine Pub. Util. Comm’n

Audio Transcription for Opinion Announcement – January 13, 2010 in NRG Power Marketing, LLC v. Maine Pub. Util. Comm’n

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John G. Roberts, Jr.:

We’ll hear argument first today in Case 08-674, NRG Power Marketing v. Maine Public Utilities Commission.

Antonin Scalia:

That’s very imaginative.

John G. Roberts, Jr.:

Mr. Lamken.

Jeffrey A. Lamken:

Thank you, Mr. Chief Justice, and may it please the Court: This case concerns a bedrock principle of Federal — Federal energy law, the Mobile-Sierra doctrine.

The question presented and the issue decided below is whether Mobile-Sierra’s public interest standard ceases to apply whenever a contract rate is challenged by a noncontracting party.

FERC and we agree that the answer is no.

Mobile-Sierra’s presumption of–

Sonia Sotomayor:

Does it matter who is the challenger?

Are you in a different position than the other parties to this action?

You’re a third party who is being bound to a particular rate.

The others do have a different interest, or they’re in a different position with respect to their challenges, correct?

Jeffrey A. Lamken:

–Your Honor, I represent — we represent — I represent NRG, which entered into the settlement agreement and is — would like to be bound by the results of the auction contract.

And so we are happy with the agreements we enter into, and a concern that we have is that nonparties can come in and challenge the contracts under a lower standard.

Sonia Sotomayor:

So aren’t you in a different position than those other challengers?

Jeffrey A. Lamken:

We certainly are in a different position, but they–

Sonia Sotomayor:

So why doesn’t that difference do what the D.C. Circuit said?

Ruth Bader Ginsburg:

Mr. Lamken, you’re not a challenger?

Jeffrey A. Lamken:

–That’s exactly right.

Ruth Bader Ginsburg:

Yes.

I think–

Jeffrey A. Lamken:

We are not a challenger.

We are–

Ruth Bader Ginsburg:

–the question relates to the other side–

Jeffrey A. Lamken:

–Right.

Ruth Bader Ginsburg:

–not to his side–

Sonia Sotomayor:

No.

I do understand that, but that’s what I’m trying to get to.

The D.C. Circuit Court’s reasoning was very simple: You’re a contracting party; you’re bound to it.

Why should the others who didn’t agree to this term be bound by Mobile-Sierra?

That’s the essence of their holding.

Jeffrey A. Lamken:

Right.

Nobody is arguing that a noncontracting party is bound to terms that it didn’t agree to in a contract.

The question is that, when a noncontracting party comes in to challenge the terms that two consenting, willing buyer and a seller have agreed to, what is the standard that should apply for that outsider to come in and challenge the rate the two people have agreed to?

And Mobile-Sierra and Morgan Stanley all provide the answer, and that is the public interest standard.

The standard is that, under the Mobile-Sierra doctrine, the Federal Energy Regulatory Commission must presume the contract rate meets the just and reasonable requirement provided by law.

Unless–

Sonia Sotomayor:

So then does that bind all types of third parties?

Jeffrey A. Lamken:

–It certainly applies to the Federal Energy Regulatory Commission, and it would be a rather odd rule that the agency which is charged with Congress with administering the statute, has the greatest expertise, is bound by a more demanding standard, but an entity, an outsider with no such statutory mandate and no such expertise is subject to a lower standard when it comes in and asks for a contract rate to be overturned or abrogated.

In fact, the court of appeals’ ruling can’t be reconciled with Mobile-Sierra’s foundation and the need for contractual certainty.

The whole point is to provide certainty of contract so that companies can invest hundreds of millions of dollars in infrastructure projects without worrying that their contracts will be abrogated lightly after the fact.

But few could risk entering into such contracts and make those investments if any noncontracting party — if the Mobile-Sierra doctrine applied only to contracting parties, the two people who signed the contract.

But–

John G. Roberts, Jr.:

It’s a bit much to say that the importance is to preserve the stability of two parties’ contract, and, therefore, a third party who didn’t sign the contract is bound to the two parties’ contract.

Jeffrey A. Lamken:

–Well, the nonparty isn’t actually paying the rate.

The two parties are paying the rate.

The nonparty is saying: I’m adversely affected by that rate indirectly.

And we’re all regularly adversely affected by contracts we didn’t enter into.

The example we give in our brief is the theatergoers affected by the amount the theater pays for the movies and the popcorn and things like that.

But the question is what’s the standard for that outsider to abrogate a rate the two, a willing buyer and a willing seller, have entered into?

John G. Roberts, Jr.:

Well, so why don’t you — why isn’t it restricted to some type of direct, parties directly affected, as well as — I mean, you complain about the hordes of people who will be able to challenge these.

Well, it assumes that anybody can challenge it.

Jeffrey A. Lamken:

Well, it certainly applies to the parties most directly affected, which are the parties that actually entered into the contract and are paying the rates.

So it applies to the Federal Energy Regulatory Commission, which is the expert regulator, and it doesn’t make much sense to have another — another exemption for some category of not directly bound but sufficiently — sufficiently affected parties.

It would–

Samuel A. Alito, Jr.:

Is there any other area of the law in which the parties to a contract can, in effect, dictate the substantive standard of administrative review for challenges raised by nonparties?

Jeffrey A. Lamken:

–I think the answer is I don’t know if there is other areas where there’s a possibility of a Memphis clause, if that’s what you’re referring to, where the parties can actually — when they enter into a contract, they can actually lower the standard.

But the general rule is that when a party comes in and tries to abrogate a contract, they have no greater rights to challenge the contract than the parties who entered it themselves.

If they are a third-party beneficiary, it’s the same right.

And if they’re a nonparty, at least so far as we can tell, they have no right to challenge the validity of the contract, at least as a matter of contract law.

Anthony M. Kennedy:

Am I correct — and maybe this is more proper for the government than for you, or for all the parties.

Anthony M. Kennedy:

I take it no one questions the propriety, the lawfulness, of the FERC determination to convene the settlement process?

There’s no argument that this was an improper, an unlawful process?

Jeffrey A. Lamken:

No.

There is certainly no such claim before this Court, and I’m not aware of any such one.

But what came out of the process were agreements with respect to rates, and the settled rule is that such agreements cannot be abrogated unless the public interest would be severely harmed.

And–

Anthony M. Kennedy:

Can I–

Ruth Bader Ginsburg:

–Of course, there is.

What’s — what’s really lurking behind this case is whether this is a contract rate, and there FERC disagrees with you, I take it.

You were talking about that the rate that emerges from a contract between two people — nobody else is party to it, but you say the rate stands; FERC cannot abrogate the rate; nobody can ask FERC to abrogate that bilateral contract rate.

But here we’re not talking about a bilateral contract, where how many people were involved in the settlement?

Well over a hundred.

Jeffrey A. Lamken:

–Scores, yes.

And–

Ruth Bader Ginsburg:

So that’s quite a different picture than the bilateral contracts that were at issue in Sierra and Mobile.

Jeffrey A. Lamken:

–Certainly FERC agrees with us that at least some of the rates before this Court are contract rates.

Antonin Scalia:

Did the lower court reach that question?

Jeffrey A. Lamken:

No, the lower court didn’t address the question.

Antonin Scalia:

Did we grant cert on that question?

Jeffrey A. Lamken:

You did not, and this Court regularly declines to address matters that were merely assumed or presumed by the court below and instead answers the question that was actually answered by the court below, which in this case is an important and recurring question.

Based on the decision below, FERC has actually gone back and rewritten more than 50 contracts to create an exemption for noncontracting parties, including contracts that are clearly bilateral contracts, Your Honor.

John G. Roberts, Jr.:

I’m sorry?

What do you mean, an exemption for noncontracting parties?

Jeffrey A. Lamken:

Simply to say that the Mobile-Sierra doctrine can’t apply when the challenge is brought by a noncontracting party, but rather what FERC wrote into the contracts effectively was the highest standard permitted by law will be applied to them.

And nobody sitting at these tables can tell this Court what that standard would be, which is precisely why this is an important issue.

John G. Roberts, Jr.:

You don’t agree that FERC has the authority to exempt noncontracting parties from the binding effect of the contract rates, do you?

Jeffrey A. Lamken:

No, we don’t, which is precisely one of the — we don’t believe that the court had authority to announce that rule.

We actually believe the court erred in announcing that rule.

It–

Stephen G. Breyer:

It isn’t in the case.

Jeffrey A. Lamken:

–Yes.

Whether or not these are contracted–

Stephen G. Breyer:

This is a case in which, as I think most cases where they approve contracts, what they’re finding is that the contract rate in this circumstance, or here the settlement rate in this circumstance, is a just and reasonable rate, because.

All right?

So what are we supposed to do?

I mean, are you going to say he’s wrong, the lower court’s wrong, because they got the whole thing mixed up.

I mean — could we say that?

Jeffrey A. Lamken:

–Yes.

The lower court got everything wrong, it got the whole thing mixed up; send it back.

[Laughter]

Very simple and very straightforward.

Stephen G. Breyer:

But then if we were to do that–

Antonin Scalia:

He took the words right out of your mouth.

[Laughter]

Jeffrey A. Lamken:

Thank you, Justice Breyer.

Stephen G. Breyer:

–But you would — would you agree with my assumptions there?

Jeffrey A. Lamken:

Yes.

Stephen G. Breyer:

That what this case is about — and it’s a fortiori from the ordinary contract case — is that sometimes an agency, because of particular economic circumstances, concludes that a particular rate-setting system is a just and reasonable system, and once that’s in place, then as part of that system is the rule you can only challenge it when it violates the public interest, for example.

Now, you can go and attack the whole business on the ground the whole business is an abuse of discretion or it departs from the statute.

But if the whole business is okay, that’s the end of it.

Jeffrey A. Lamken:

Right.

I–

Stephen G. Breyer:

Now, have I just said the correct law in your view or not?

Jeffrey A. Lamken:

–We would not — that, Justice Breyer, in fact would be our back-up position.

Stephen G. Breyer:

Sorry?

Jeffrey A. Lamken:

That would be our back-up position.

Our position is once you have–

Stephen G. Breyer:

But I’m not interested in if you have a back-up or not.

I’m interested in, is it correct or not?

Jeffrey A. Lamken:

–Yes, we would agree with it, that that is a correct statement of law.

Jeffrey A. Lamken:

But our primary position and the primary error in the court below was it said even when you have a contract rate, nonparty — there is an exemption based on the identity of the challenging party.

And that simply cannot be reconciled with–

Sonia Sotomayor:

But you just said to Justice Scalia that the court below didn’t find that this was a contract rate.

Jeffrey A. Lamken:

–That’s right.

It merely assumed it.

And this Court–

Sonia Sotomayor:

It assumed it, so you’re asking us to assume the same thing and announce–

Jeffrey A. Lamken:

–Well–

Sonia Sotomayor:

–an advisory opinion that if these are contract rates, they’re bound by Mobile-Sierra; and if they’re not, what are we supposed to do?

Jeffrey A. Lamken:

–Well, the answer is that this Court regularly, regularly, addresses the question presented and the issue answered below without delving into underlying assumptions.

Antonin Scalia:

You could call them all advisory opinions if you want.

Jeffrey A. Lamken:

That’s right.

Antonin Scalia:

Whenever there is another issue in the case–

Jeffrey A. Lamken:

Right, and one example–

Antonin Scalia:

–for which we remand, you could say, oh, we’re just giving an advisory opinion on the issue that–

Jeffrey A. Lamken:

–That’s precisely right.

A good example would be Jama v. Immigration and Customs Enforcement, where the question was whether the Attorney General could deport an alien to a foreign country without making sure the country would accept him.

And the Court said: We’re not going to address whether the person is an alien; we won’t address whether Somalia is a country; we’re not going to even address whether this person is removable — that’s all for the court on remand; we’re only going to address whether or not there has to be a prior determination that the country will accept him.

The same rule would apply–

John Paul Stevens:

Could you give me an example of a — of a challenge to a rate that’s set under this whole program that would succeed under the just and reasonable standard and fail under the public interest standard, or vice versa?

Jeffrey A. Lamken:

–Are you asking me can I conceive of such a rate that would fail and succeed under one?

John Paul Stevens:

Yes.

Jeffrey A. Lamken:

I think that — one of the — one of the interesting things about the just and reasonable standard, the ordinary just and reasonable standard, is you can actually look at the interests of the contracting parties to a degree that you cannot under the public interest standard.

The point of the public interest standard is it has to adversely affect the interests of the public.

The whole point–

John Paul Stevens:

I’m not sure that answers my question.

Could there be — could there be a rate that would violate one standard and not the other?

Jeffrey A. Lamken:

–Well, they are both the just and reasonable standard.

And the one could violate one application–

Antonin Scalia:

–Yes or no?

Jeffrey A. Lamken:

–Yes.

Antonin Scalia:

Okay.

Jeffrey A. Lamken:

If I may reserve the remainder of the time for rebuttal.

John G. Roberts, Jr.:

Thank you, counsel.

Mr. Miller.

Eric D. Miller:

Mr. Chief Justice, and may it please the Court: The court of appeals erred in holding that the Mobile-Sierra public interest standard is inapplicable when contract rates are challenged by a noncontracting third party.

That error provides a sufficient basis for reversing the judgment below, and although there are other issues in the case, those issues were not addressed by the court of appeals, and this Court should remand and allow them to be resolved by the court of appeals rather than addressing them itself in the first instance.

Anthony M. Kennedy:

Were the — are the Respondents correct and was the court of appeals correct in calling this a presumption?

Eric D. Miller:

This Court in Morgan Stanley described–

Anthony M. Kennedy:

In — in calling the rate that was agreed upon a presumption of a reasonable rate?

Eric D. Miller:

–Well, the — the Court in Morgan Stanley held that Mobile-Sierra rests in part on the idea that when wholesale businesses negotiate a contract for the sale of power, that that can be presumed to be just and reasonable.

Anthony M. Kennedy:

So you don’t quarrel with that word–

Eric D. Miller:

No.

We quarrel–

Anthony M. Kennedy:

–or would you quarrel with that characterization?

Eric D. Miller:

–That’s the way that this Court has described the standard.

Now, of course, in this case the Commission looked at the mechanism created, the forward capacity auction, and it looked at the transition rates, and it didn’t simply presume them to be just and reasonable.

It — based on its examination of them — determined that the rates set out in the settlement and the rates that would be established under the mechanism created by the settlement would be just and reasonable.

Antonin Scalia:

Just and reasonable, or would comply with the public interest standard?

Eric D. Miller:

The–

Antonin Scalia:

I mean, what’s the use of having Mobile-Sierra if — if they’re going to reexamine the thing under the usual standard anyway?

Eric D. Miller:

–Well, the settlement — no one is suggesting that the settlement agreement itself is a Mobile-Sierra contract.

The settlement was a resolution of a disputed proceeding before the Commission.

It’s sort of analogous to a consent decree.

The Commission had to approve that before it became effective.

By its own terms, the settlement agreement wouldn’t become effective as binding between the parties unless the Commission approved it.

John G. Roberts, Jr.:

Your — your opening statement about what this Court should do is a change from your statement of what we should do in your briefs.

In your — you just said the Court should remand for further considerations other issues.

In your brief, you say the judgment of the court of appeals should be reversed insofar as it granted the petitions for review.

You’ve changed your position on what we should do.

Eric D. Miller:

Well, we — we do think that you should reverse the holding of the court of appeals.

To the extent that you think that there are other issues that are presented other than the question presented as stated by the petition.

John G. Roberts, Jr.:

But that’s a change.

Before you didn’t think there were other issues that affected the determination or might.

You said we should grant — reverse the determination insofar as it granted the petitions for review.

If we say that the petitions for review should have been denied, then we don’t send it back.

Eric D. Miller:

Should have been granted.

Yes.

Right.

That’s right.

It — I mean, our view is that the appropriate disposition is a remand to the court of appeals to allow it to decide whether these other issues are properly before it, and the answer to that may be — be no, but the court of appeals should have an opportunity to consider that in the first instance.

The reason that, in our view, the court of appeals was wrong in holding that there’s a third-party exception to Mobile-Sierra is that, as I said a moment ago, the Court in Morgan Stanley recognized that Mobile-Sierra rests on a presumption that the rate negotiated between sophisticated wholesale businesses it can be presumed to be just and reasonable.

That’s a feature of the rate.

There is no reason why the same rate for the same power could be just and reasonable when it’s challenged by one person, but not when it’s challenged by somebody else.

Second, the purpose of the public interest test under Mobile-Sierra is to allow contract modification only when it’s necessary to protect third parties; that is, members of the public.

So it doesn’t make sense to say that that test is inapplicable whenever you have a challenge that’s presented by one of those third parties or a member of the public.

Sonia Sotomayor:

Is there — what would happen in a situation in which there’s a tariff price instead of a contract price?

In those situations, the buyer could come in, presumably, and say: It’s not a fair and just price vis-à-vis me; I didn’t agree to it; it’s not.

In a normal situation with a contract price, third parties, many not — not the main — main parties, like the Maine Public Utilities Commission, could come in and say what?

It’s not fair to the public in general?

Eric D. Miller:

In the contract setting?

Sonia Sotomayor:

Yes.

Eric D. Miller:

Yes, third parties could come in, and if they — they would have to satisfy the public interest test.

They would have to show that there are — the Court has described it variously as extraordinary circumstances, severe impact on the public interest.

Sonia Sotomayor:

Could they come in and show that between the contracting parties the price is unfair?

Is that what this is about, that they would try to come in and somehow define the public interest as being informed by the unfairness to the individual parties?

Eric D. Miller:

I think that sort of argument would be foreclosed by Sierra.

Sonia Sotomayor:

Well, but that’s the question before us.

Eric D. Miller:

Well, you have–

Sonia Sotomayor:

The D.C. Circuit said they shouldn’t be bound by that determination, and you’re arguing that they should be because–

Eric D. Miller:

–What — what the Court said in Sierra is that mere unfairness, one of the — the fact that one of the contracting parties got a bad bargain is not a reason to set aside the contract, except for the Court did reserve the extraordinary circumstance where it’s going to put the supplier out of business, which would adversely affect the public interest if they can no longer deliver power at that rate.

John Paul Stevens:

May I–

Sonia Sotomayor:

–So it goes back to my original question with your adversary, which is: Is there a difference among the objectors here, between those who are objecting to the terms between the two contracting parties as outsiders, as members of the public, and those who are objecting because this settlement agreement does something different?

It binds them personally to a buying price, and so why shouldn’t there be a different approach to those individuals?

Eric D. Miller:

I think there are two responses to that, Your Honor.

The first is that the reasoning of the court of appeals draws no distinction between those two–

Sonia Sotomayor:

I agree.

Eric D. Miller:

–Okay.

Sonia Sotomayor:

And so the question is: Should there be a distinction?

Eric D. Miller:

Yes.

And I think certainly the Commission appreciates the idea that there’s something wrong about — or there’s something unfair about A and B getting together and deciding on the rate that C is going to pay.

And to the extent that you’re concerned about that situation, the answer to that is that when A and B set the rate that C has to pay, C is not paying a contract rate in the Mobile-Sierra sense, because C is not — C is paying a rate it has not agreed to.

Sonia Sotomayor:

And that’s what the Third Circuit — I’m sorry, that’s what the court below didn’t–

Eric D. Miller:

The court did not use that mode of analysis.

The court below said that we were talking about contract rates and their being challenged by nonparties to the contract, and the court thought that in that context the Mobile-Sierra public interest standard doesn’t apply, and that–

Antonin Scalia:

You’re saying, in effect, that Mobile-Sierra does not apply to an agreement between A and B that not only sets the rate between the two, but also fixes the rate that one of them will charge to C?

The last feature is not a Mobile-Sierra — is not eligible for Mobile-Sierra treatment.

Eric D. Miller:

–That’s right, because C’s rate in that scenario is not a rate that it has agreed to.

It’s being set unilaterally by people other than it, and so it’s in our view more appropriately characterized as a tariff rate that is not subject to the–

Antonin Scalia:

Right.

But that’s — but that’s not what the D.C. Circuit said.

Eric D. Miller:

–No, that is–

Antonin Scalia:

The D.C. Circuit said that the entire — there is no application of Mobile-Sierra at all.

Eric D. Miller:

–That’s right.

And the D.C. Circuit made that quite clear, particularly on page 20a of the petition appendix in its opinion, where it described the question before it, yes.

John Paul Stevens:

–But it is your view, is it not, that the rates that result from the auction are not contract rates within the meaning of Mobile-Sierra?

Eric D. Miller:

That — that is our view, that that’s — it’s not the basis for the court of appeals’ decision.

Ruth Bader Ginsburg:

The court of appeals never got to what FERC thinks is the heart of the case, whether this is a contract rate, whether — you say it is not — and whether FERC has the authority nonetheless to apply the public interest standard.

But none of those have been addressed by the D.C. Circuit.

Eric D. Miller:

That’s — that’s exactly right, Your Honor.

Eric D. Miller:

The court didn’t reach–

John G. Roberts, Jr.:

And just to follow up, you think we should not address either of those–

Eric D. Miller:

–No–

John G. Roberts, Jr.:

–whether it’s a contract or whether you have authority to make an exception to the Mobile-Sierra doctrine?

Eric D. Miller:

–No, we think the Court should answer only the question that was ruled upon below and leave those other issues to the extent that they have been properly–

Stephen G. Breyer:

How can we?

I mean, that’s a — why not answer a case — a question about employment discrimination law?

Where — where in this FERC thing does this say that these are contracts of a kind that Mobile-Sierra was about?

I mean, I don’t even know if Mobile-Sierra — whether you could — a third party could attack such a contract under public — under a just and reasonable standard, unless I knew first what the Commission thought about it in this context, because then the Commission’s question would be: Is that a reasonable view?

So what am I supposed to do here?

Eric D. Miller:

–Well, I think we agree with Petitioners that it is quite common for this Court to decide a case, taking the case on the same assumption that the court of appeals did, and answer the questions that are raised–

Stephen G. Breyer:

We would have to take it on the assumption — wait, I don’t want — you have 5 minutes left that you’re reserving?

Eric D. Miller:

–I’m not–

John G. Roberts, Jr.:

You don’t get to reserve time.

Eric D. Miller:

–Right.

Right.

[Laughter]

Stephen G. Breyer:

What’s the assumption?

The assumption is the court of appeals thinks that the contract between — among the generating — the generators, that that is a Mobile-Sierra contract.

So we’re supposed to say, if that were a Mobile-Sierra contract, which it isn’t, then we should decide whether a third party could attack it, about which the Commission has said nothing.

Is that right?

Eric D. Miller:

No, Your Honor, because we do agree that at least some of the rates that are covered by the public interest review clause in the settlement–

Stephen G. Breyer:

The transition rates?

Eric D. Miller:

–The transition rates as between the settling parties.

Stephen G. Breyer:

But the reasonableness depends upon the other.

The validity depends upon the other.

It’s all part of a package.

Eric D. Miller:

Well, their validity doesn’t — their validity depends upon the mechanism that’s created by the settlement, which the Commission reviewed under the ordinary just and reasonable standard.

It doesn’t depend on the clearing prices of the auctions, which are the — I mean, what the–

Stephen G. Breyer:

That’s all true, but I would want to know what the Commission thought about that one, too.

Eric D. Miller:

–What — what the Commission thought is that the — the Commission looked at the auction mechanism and determined that it was likely to produce just and reasonable results.

And the Commission emphasized that at any point anybody can come in and challenge the auction rules and say that they’re not just and reasonable, and the Commission will review that entirely unencumbered by this provision of the settlement.

And, in addition, within 45 days after each auction, anybody can come in and challenge those results.

And only after that 45-day period does the public interest review clause become effective.

The — the last point I would like to make about the court of appeals’ analysis is that this Court made clear in Morgan Stanley that Mobile-Sierra applies to the Commission when it is acting sua sponte, and there is no reason why FERC’s power should depend on whether somebody has filed a complaint.

If FERC is bound, public interest standard, under Mobile-Sierra when there is a Mobile-Sierra contract, it makes very little sense to say that it ceases to be bound by that as long as anybody in the world other than the contracting party comes in and files the complaint to initiate the FERC investigation.

Antonin Scalia:

Well, we — we don’t know that that’s the other side’s position.

I was going to ask him that.

Their position is that the third party can — can attack the — the agreement without being encumbered by Mobile-Sierra, but I don’t know that they’ve said that once a third party does mount such an attack the Commission is suddenly also unencumbered by Mobile-Sierra.

Eric D. Miller:

Well, the–

Antonin Scalia:

I have assumed that their position is the Commission remains bound by Mobile-Sierra, but these third parties can — can demand a court — that a court apply a different standard.

Eric D. Miller:

–I had not understood that to be their position, but I think it would be very strange–

Antonin Scalia:

We can–

Eric D. Miller:

–if the Commission had one Standard, and on review of the Commission order, the court were to apply a standard different from what–

Antonin Scalia:

–I’m not sure that’s any stranger than saying the Commission has one standard until somebody else challenges it, whereupon the Commission has a different standard.

You don’t think that’s strange?

Eric D. Miller:

–I — I think we would agree that they’re both quite strange.

Antonin Scalia:

Yes.

[Laughter]

Eric D. Miller:

If there are no further questions–

John G. Roberts, Jr.:

Thank you, Mr. Miller.

Eric D. Miller:

–Thank you.

John G. Roberts, Jr.:

General Blumenthal.

Richard Blumenthal:

Thank you, Mr. Chief Justice.

Mr. Chief Justice, and may it please the Court: There is one central truth here on which we and the government agree.

These are not contract rates at issue here.

They are tariff rates.

That is a central truth that unites the government and the Respondents, because these rates out of the auction process will be rates of general applicability, applying not only to those contractors, the parties who agreed to the contract, but they will be binding on NSTAR, which sells 25 percent of the power in the New England market; they will be binding on the other five Respondents, including Maine and Massachusetts as well as Connecticut.

Sonia Sotomayor:

Well, they can self-supply, can’t they?

Richard Blumenthal:

Even if they had that option, Justice Sotomayor, it would not change a tariff into a contract.

Richard Blumenthal:

Just because there is the option of self-supply doesn’t mean that parties who are disputing the contract, disagreeing with it, not to mention not contracting, should be bound to it as though it were a contract.

The option of–

Antonin Scalia:

They’re not bound to it.

They — they are saying that — claiming — that their rates are too high because the contract was too high, so — and therefore, their rates are unreasonable.

And what Mobile-Sierra says — it certainly says it as between the two contracting parties — that if it’s at arm-length between sophisticated seller and buyer of — of the power, they are bound by it, and the — and the issue is here is whether somebody downstream who says that since this contract is so exorbitant, the rates are too high, whether that person is likewise bound by Mobile-Sierra.

Isn’t that right?

Richard Blumenthal:

–Justice Scalia, with all due respect, that situation is not here.

Ruth Bader Ginsburg:

But that’s what the court of appeals decided.

Their simple question was Mobile-Sierra binds the contracting parties, and it doesn’t — the rate doesn’t stick for anybody else.

That’s all they decided.

And the question that you’re asking certainly is looming over this whole case, but it isn’t presented to us because it wasn’t even dealt with in any way, shape, or manner by the D.C. Circuit.

Richard Blumenthal:

Absolutely correct, Justice Ginsburg.

The D.C. Circuit’s reasoning here was based on facts that were, in fact, not present here.

We agreed then, we argued to the FERC, we argued to the court of appeals, we argued in opposition to certiorari, that what’s involved here are tariff rates.

And the D.C. Circuit’s ruling in our view was correct, and its reasoning was correct insofar as Mobile-Sierra binds contracting parties, as Justice Scalia has just articulated and Morgan Stanley reiterated.

It involves parties trying to escape an improvident bargain.

What we have here is an auction system that sets rules of general applicability.

Ruth Bader Ginsburg:

But I thought one large difference — I thought Justice Scalia suggested that the rate negotiated by — in that bilateral agreement, that that rate would not be subject to just and reasonable attack by anyone, that the public interest standard attaches to that rate and FERC can’t abrogate it.

It’s a rate that’s set, it’s binding on FERC, and FERC presumably, because it has no authority to abrogate it, could not entertain any complaint that would ask to have it abrogated.

Richard Blumenthal:

Section 4.C of the settlement agreement that FERC approved under the just and reasonable standard says to the world: We can make an exception for ourselves under the just and reasonable — under the Memphis rule.

We can make an exception to the public interest standard.

The government says it can make an exception for itself.

The only ones powerless to invoke–

Ruth Bader Ginsburg:

I didn’t — I didn’t follow.

I didn’t think there was — was there a Memphis clause in this settlement?

Richard Blumenthal:

–There is.

There is in section 4.C in effect a modified Memphis clause which says that the parties can come together and agree to a different standard, Justice Ginsburg.

So, in a sense, the irony here, if the Court were to reverse and apply Morgan Stanley — I’m sorry, Mobile-Sierra and Morgan Stanley — would be that the only ones powerless to invoke the just and reasonable standard to review the auction rates would be the Respondents–

Stephen G. Breyer:

Why?

Richard Blumenthal:

–who never agreed to this supposed contract.

Stephen G. Breyer:

Why are you powerless?

Richard Blumenthal:

I’m sorry.

Stephen G. Breyer:

Why don’t you to go to the Commission and say: Commission, there is always special circumstances.

You may think that in this kind of situation, which is a special situation, that the public interest standard, whether it’s in a contract or whether it’s in a tariff or wherever you want to put it, is the right standard for review.

You may think that.

But you don’t think it for yourselves, you don’t think it for somebody else, and here’s some reasons why you don’t think it for us.

And if they agree with your reasons, they’ll say: Fine, go ahead.

And if they don’t, they don’t.

Why aren’t you exactly as powerful or powerless as anybody else?

Richard Blumenthal:

Justice Breyer, there is an immense difference, as you and the Court is well aware because it has been articulated in opinions, between the public interest standard and the ordinary just and reasonable standard, and the government would like that discretion to say in effect–

Stephen G. Breyer:

My point is if you don’t like that as applied to your situation, you have a remedy.

That’s what the public — that’s why they’re there, agencies.

They are there to listen to you and give you a remedy, and the remedy is, if you convince them you shouldn’t be subject to that, they’ll say fine; and otherwise not.

Why are you coming to us who know nothing about natural gas and asking us to do it?

Richard Blumenthal:

–We’re not here by choice, Your Honor.

[Laughter]

Stephen G. Breyer:

It’s electricity.

Richard Blumenthal:

If you tell me at this point to go home, I’m happy to do it.

[Laughter]

We’re here because we believe that the section 4.C establishes a standard that is contrary to the statute, the just and reasonable standard.

Stephen G. Breyer:

Then you’re going to say you mean they never can do it, but it’s well settled.

It’s well settled that they sometimes can say — I mean, my point is this: I just found the quote I was looking for.

So I was thinking natural gas.

It applies to electricity capacity, too.

Justice Jackson:

“The wealth of Midas and the wit of man cannot produce or reproduce a natural gas field. “

That applies to electricity capacity.

We can’t reproduce it.

You can’t.

The Commission devises a system for trying to get it done, and if they do it reasonably, they win.

Richard Blumenthal:

But the — the Commission should not be accorded discretion to adopt a standard that contravenes the statute.

We’re dealing here–

Stephen G. Breyer:

The standard — the statute is “just and reasonable”.

That calls up a whole mechanism from the 1930s.

I thought that it is long — we’re long past that point, that — that whatever Brandeis thought it was, which they did in the thirties and forties, that it has also been interpreted to include the power to the Commission to deviate from that, because they find, for example, contract rates under certain circumstances to be just and reasonable, even though you don’t use cost-of-service ratemaking.

Richard Blumenthal:

–What we’re dealing with in this case is the question of whether the government and the Commission should have virtually unbridled discretion to adopt a standard that has been called “practically insurmountable”, as recently as Morgan Stanley.

It was–

Antonin Scalia:

But that — that’s because of section 4.C, you say?

Richard Blumenthal:

–Section 4.C of the agreement–

Antonin Scalia:

Right.

Which — which gives the Commission a good deal of flexibility, which you say you — your clients don’t have or your State doesn’t have.

But that isn’t the basis on which this case was decided below.

It was decided on the very simple basis that the Mobile-Sierra doctrine simply does not apply to challenges by third parties.

It had nothing to do with the details of 4.C and the — the excessive discretion given — given to the Commission but not to you.

It was a very simple proposition on which we granted cert, whether Mobile-Sierra’s public interest standard applies when a contract rate is challenged by an entity that was not a party to the contract.

That’s the question.

And what’s your answer to that?

Richard Blumenthal:

–Our answer is–

Antonin Scalia:

Do you support the opinion of the — of the court below?

Richard Blumenthal:

–We do support it, Justice Scalia, and the reason we do is that Mobile-Sierra is about contracts.

And–

Antonin Scalia:

It isn’t about contracts.

It’s about reasonable rates.

I thought what it was, was a determination by the Commission, approved by — by this Court, that when two giants of the industry, very knowledgeable, deal at arm’s-length and come up with — with a contract, that is presumptively reasonable, and unless it contravenes the public interest, that rate will — will be upheld.

Now, you say it should be upheld only between the two contracting parties.

What good does that do?

Richard Blumenthal:

–It — it can be held — upheld only between the two contracting parties if they’re the ones who have agreed to it.

Under Mobile-Sierra, there is a presumption of free negotiation and consent.

Anthony M. Kennedy:

But the rationale is the commonsense notion that it’s a presumptively reasonable rate, and if that’s true, how is that altered by the identity of the party that attacks it?

Richard Blumenthal:

Because, Your Honor, the question also is what the standard should be if it’s presumptively reasonable; and it is taken as such, because it is freely negotiated, because there is consent to it.

Richard Blumenthal:

Because one of them is seeking to escape it, and use the Commission to escape it, then Mobile-Sierra says it should be presumed just and reasonable, and only when the public interest is seriously harmed–

Anthony M. Kennedy:

Well, why is — why is it not presumptively a commonsense notion when some different party attacks it?

It — it’s still a determination that this rate, as a commonsense matter, is presumptively reasonable.

Richard Blumenthal:

–As to this case, again, there are no rates yet.

We’re talking about an auction mechanism that will not even involve a contract, and the government says so as well, that — we and the government agree that it will not involve a contract.

So how can–

Anthony M. Kennedy:

Yes.

That’s different than Mobile-Sierra, although Mobile-Sierra did invoke market forces of another kind — of another kind.

Richard Blumenthal:

–Well, you know, I feel, with all due respect, that we are talking in alternate universes here, the government and the Petitioners and we; and the reason is, as the Court has quite aptly identified, the court of appeals used a rationale that simply is not wholly fitting to the facts here.

Ruth Bader Ginsburg:

Why shouldn’t we tell them that, and then they can pick it up from there?

Richard Blumenthal:

Well–

Ruth Bader Ginsburg:

Because what they did say could be — have heavy consequences.

We know that that has already happened.

FERC has revised a number of contracts to conform to the D.C. Circuit’s idea that it’s the parties to the — to the contract, not the rate that’s sheltered by Mobile-Sierra.

That’s a very consequential decision, and so we would tell the D.C. Circuit, if we agreed with FERC and the Petitioners on that: D.C. Circuit, you’ve got that wrong.

Now, there may be other matters, other issues like the ones that you would like us to decide as a matter of first view, but as Justice Scalia has pointed out more than once, we have a question.

It is the very question that the D.C. Circuit decided.

Why should we go beyond that?

Richard Blumenthal:

–Because addressing that question, Justice Ginsburg, as Justice Breyer said, is not the question that the Commission addressed.

It isn’t the question in terms of the factual situation here that is really at issue.

We’re dealing here with tariff rates that are set through the auction mechanism.

If the Court–

Antonin Scalia:

Yes, but we don’t like to decide these questions, you know, initially.

We — we like to have some lower court do the dirty work, and we can correct them.

[Laughter]

It’s — it’s a lot easier that way, and we’re more likely to reach a correct result, rather than — than wading in with, you know, — from scratch.

That’s our usual practice.

Richard Blumenthal:

–And the government’s position on certiorari was that there should be a remand without reversal for reconsideration in light of Morgan Stanley.

John G. Roberts, Jr.:

You’re in a very tough position because of the way this has progressed.

I think you can make a strong argument that you shouldn’t be bound by these contract rates if FERC doesn’t have a lot of discretion to let you go.

John G. Roberts, Jr.:

If FERC has a lot of discretion to let you go, your argument that you shouldn’t be bound is a lot weaker.

And the way the case has been presented, we’re pushing on only one — one side of that.

Richard Blumenthal:

And I recognize that fact, Mr. Chief Justice, that the Court is presented with a dilemma here because it’s dealing with tariff rates when the question presented talks about contract rates.

Stephen G. Breyer:

So is the answer then maybe where Justice Ginsburg and Justice Scalia were going, that — because where I’m coming from, why I have been asking this, is I actually think the answer to the question so far on the question presented is “sometimes”.

Sometimes you can’t; sometimes you can.

And it depends on a lot of things — situations, circumstances, arguments to commissions, what they held, et cetera.

So maybe that’s the thing to do, you answer the question, say “sometimes”.

Sometimes they can use one; sometimes it’s the other.

Indeed, in this very case, they’ve argued that it’s — that it’s not even within the mainstream of Mobile-Sierra.

And maybe that’s so, maybe not.

Send it back, say it depends on circumstances, time, et cetera.

And then they can argue all these things out that we’ve just been hearing.

What about that?

Richard Blumenthal:

And, Justice Breyer, the “sometimes” is absolutely right from our standpoint.

John G. Roberts, Jr.:

Well, but if we ruled that–

Richard Blumenthal:

There may be–

John G. Roberts, Jr.:

–If we decided it on that basis, we would be giving FERC a victory on the question of its authority to depart from Mobile-Sierra, even though that wasn’t presented in this case.

Richard Blumenthal:

–No.

In our view, Mr. Chief Justice, noncontracting parties under Mobile-Sierra cannot be bound–

John G. Roberts, Jr.:

Oh, I know–

Richard Blumenthal:

–by tariff rates.

John G. Roberts, Jr.:

–but Justice Breyer was hypothesizing that sometimes they can be, and sometimes they can’t be.

And you accepted his proposition.

And what I’m saying is that’s a very significant question.

FERC wants to argue it here, but it’s not before us.

Richard Blumenthal:

The Mr. Chief Justice, is that the “sometimes” would include contract rates.

In other words, where there are strictly contract rates — whereas, here, we have tariff rates — FERC would not have that discretion.

It cannot have discretion to apply the public interest standard to tariff rates any more than it could apply the ordinary just and reasonable standard to contract rates which–

Antonin Scalia:

Has anybody before–

Richard Blumenthal:

–Mobile-Sierra fits.

Antonin Scalia:

–even suggested that Mobile-Sierra is a “sometimes” thing?

Do — did any of our opinions say that it’s a “sometimes” thing, except in one respect, and that is the doctrine does not apply when — when, downstream, the rates — or even between the parties, the rates would violate the public interest?

That’s a “sometimes”.

It won’t apply then, but have we ever suggested that, you know, today it may; tomorrow it — it won’t?

Or have we ever suggested what standards might determine the “sometimes” question?

Richard Blumenthal:

Mobile–

Antonin Scalia:

Have we ever suggested how you can — you can have a “sometimes” doctrine which will produce the stability in the industry that Mobile-Sierra was intended to produce?

I mean, that was the whole purpose of Mobile-Sierra.

People had to be able to predict whether they can take natural gas out of the ground, how much they can make on it, and once they enter into an arm’s-length contract, they should be able to rely on it.

That was the whole purpose.

And, now, you want to us say, well, sometimes it will work, and sometimes it won’t.

And we’re not going to say when; we’re going to leave it to the D.C. Circuit to invent some “sometimes”.

That doesn’t make any sense, does it?

Richard Blumenthal:

–Again, I may have been unclear, and I apologize if I was, in response to Justice Breyer and the Chief Justice’s question, but the point is that the “sometimes” would not apply to the situation that we have here, where there are rates of general applicability and tariffs.

Sonia Sotomayor:

Can I — can I go — stop you there, just so that we’re all on the same page?

If this were, hypothetically, a contract rate — some of the transition fees appear to be.

The parties to that agreement are saying, we’re going to pay, in transition fees, X amount.

Assuming, for the sake of argument, that the transition fees are contract rates, are you disputing the circuit court’s analysis that the Mobile-Sierra doctrine applies to those contract rates and binds third parties who are challenging that particular rate between those two parties?

Richard Blumenthal:

Justice Sotomayor, we are not challenging that a contract should bind those two parties or those hundred-plus parties that agree to the contract.

Sonia Sotomayor:

Well, that — you can’t because that’s the doctrine.

Okay.

Under what circumstances could a third party challenge that rate as not fair and reasonable, as opposed to being contrary to the public interest?

Richard Blumenthal:

Well, the public interest standard, as articulated in Morgan Stanley, would require showing an extraordinarily high burden of proof.

Sonia Sotomayor:

You haven’t answered my question.

Under what circumstances — I’ve given you the absolute minimum example.

Richard Blumenthal:

If–

Sonia Sotomayor:

There’s a rate set between two parties, what third parties — under what circumstances could a third party come in and say — on some standard different than contrary to the public interest, how could they prove other that that rate’s not fair and reasonable?

Richard Blumenthal:

–If that party were directly affected–

Sonia Sotomayor:

What does the word “directly affected” mean to you?

Richard Blumenthal:

–It would mean having to pay rates that flow inevitably–

Sonia Sotomayor:

No.

Now, you’re trying to confuse the issue.

Yes, that’s the auction question and whether that auction is a contract price subject to the Mobile-Sierra doctrine at all.

That’s a different issue.

I’ve given you the simple hypothetical.

Could all of those other respondents — except NSTAR — come in and say that it’s not fair and reasonable to me because, at the end, I’m going to pay more; I’m going to do something — it’s going to affect me in some indirect way.

Are you taking the position that there’s something else that FERC must do when those third parties come into — into that simple situation?

Richard Blumenthal:

–Our position, Justice Sotomayor — and it’s a hypothetical here because, again — and I apologize for belaboring the point, but what we have here are rates of general applicability.

Sonia Sotomayor:

You want to keep going back to the facts, and I’m dealing with a hypothetical.

Richard Blumenthal:

And the hypothetical, I would say, is answerable that the just and reasonable standard, as it was applied in Bridgeport Energy and Milford Power and tens of other cases–

Sonia Sotomayor:

So you are taking the extreme — you are accepting that — what the lower court said?

Under every circumstance, if it involves a contract price, fair and reasonable being something other than contrary to the public interest?

Richard Blumenthal:

–Fair and reasonable is a standard different from the public interest standard.

That’s a matter of law.

Sonia Sotomayor:

So your adversary’s arguments that what you’re really saying is you can never have finality to a contract agreement between parties because any third party can come in and raise–

stand in the shoes of the contracting parties and argue the rate’s not fair and reasonable?

Antonin Scalia:

But FERC can’t — can FERC — can FERC challenge, too?

Because FERC’s a — sort of a third party.

Richard Blumenthal:

Well, FERC is — is bound by the same law that applies to third parties, which is–

Antonin Scalia:

Okay.

So — so Mobile-Sierra doesn’t apply to FERC, even?

Richard Blumenthal:

–Mobile-Sierra applies–

Antonin Scalia:

Who does it apply to?

I mean, it’s just — just the two parties?

Richard Blumenthal:

–Mobile-Sierra effectively says those two parties are bound by the contract, and FERC is bound by it — that’s Morgan Stanley — no matter when the issue is raised.

Antonin Scalia:

Okay.

Richard Blumenthal:

And a noncontracting party, if it is a rate that applies generally, can challenge it.

Antonin Scalia:

Can a noncontracting party go to FERC and challenge it before FERC, whereupon FERC is no longer bound by Mobile-Sierra?

Or is FERC suddenly unchained when a third party brings a proceeding before FERC?

It’s a strange situation.

Richard Blumenthal:

FERC is bound by the just and reasonable standard.

That’s what the law says.

This law is a public — is a consumer protection statute that says, upon complaint or upon FERC’s own motion, it may apply that just and reasonable standard.

Now, the public interest standard looks for serious harm to the public.

Antonin Scalia:

No, no.

The public interest standard is a just and reasonable standard.

What — what it amounts to is saying, when — when you have a contract rate that’s been negotiated between sophisticated parties, that rate is presumptively just and reasonable, and the only way you can show that it is not just and reasonable is to show that the public interest is harmed.

It’s — it’s not something different from the just and reasonable standard, or it would be contrary to — to the statute because the statute requires that the rates be just and reasonable, right?

Richard Blumenthal:

It — it is part — they are one standard, as Morgan Stanley very clearly says, and the question of what noncontracting parties can challenge a statute depends on who the noncontracting party is, the nature of the contract, what interest is affected, and I would presume some of those factors might affect FERC’s judgment.

Stephen G. Breyer:

So are you aware of any law or any statement by any judge, ever, that exempts the — the FERC from the basic requirement that its rules, regulations, and everything else not be arbitrary, capricious, abuse of discretion?

Richard Blumenthal:

The answer to that question is no.

Stephen G. Breyer:

No.

Okay.

Thank you.

[Laughter]

And so, as long as that’s so, I guess you could mount a challenge on the ground that to apply the contract regime system to circumstance X, Y, and Z, without permitting your challenge that you want, is, in fact, a violation of the APA, at the least.

Okay?

Now, that’s why I say “sometimes”.

Could you imagine such a situation, which I think is what Justice Sotomayor was getting at, or do you want it all the time?

If you want it all the time, I’m not — you’re not getting sympathy from me.

If want to say there could be such a time, maybe.

I think I could think of five.

All right?

So — so where are we?

Richard Blumenthal:

Where we are is, if Your Honor please, if the Court were to modify or clarify the public interest standard to make it more accommodating to the kinds of challenges we’ve been discussing, that could be one outcome here.

Ruth Bader Ginsburg:

That’s a third standard between just and reasonable and public interest?

You want us to add another tier?

Richard Blumenthal:

Well, simply to clarify that it involves not necessarily an insurmountable barrier.

John G. Roberts, Jr.:

It’s also a third question that’s not presented, right?

Richard Blumenthal:

It is again a question not presented, and none of us so far on this side of the table has mentioned the Chenery doctrine, but perhaps that also should be considered, that the agency made a decision on a different basis than it is now advocating before the Court.

Ruth Bader Ginsburg:

But you are defending the D.C. Circuit’s decision?

I mean, you are up here saying that was the right judgment, Sierra-Mobile — Mobile-Sierra has to do with the two contracting parties.

It doesn’t, as the counterargument goes, shelter the rate from any attack by anyone, including FERC.

It’s put in terms of FERC cannot abrogate that rate.

But your — you are defending the position that it’s just as between the contracting parties; it’s not the rate itself that is sheltered by Mobile-Sierra, because that’s what the D.C. Circuit decided?

Richard Blumenthal:

And — yes, Justice Ginsburg, we’re defending the D.C. Circuit’s ruling and decision.

The question presented, in a sense, takes a different view of the factual situation that the government and we agree prevails here, and we are suggesting that perhaps for the D.C. Circuit to have said in its opinion Mobile-Sierra does not apply to noncontracting parties when there are contracts that produce tariff rates.

Ruth Bader Ginsburg:

It didn’t say that.

Richard Blumenthal:

And one modifier would have spared this Court and ourselves the difficulties that we now have, but it is that modifier that would, in effect, surmount the very difficult and thorny issues that the Court has well identified here.

Thank you.

John G. Roberts, Jr.:

Thank you, counsel.

Mr. Lamken, you have 3 minutes.

Jeffrey A. Lamken:

Thank you, Your Honor.

Anthony M. Kennedy:

Does anything in your argument turn on the fact that the Respondents were parties to the settlement process?

Jeffrey A. Lamken:

No, Your Honor.

The fact that they were parties to the settlement process simply shows that they’ve met the sort of broad administrative law standing requirements.

It does not show they were an actual purchaser under the agreements here.

And I think that is actually part of the nub of what was bothering the D.C. Circuit.

The D.C. Circuit may have been bothered that there might be actual purchasers here, people who directly themselves purchase under the rate who haven’t agreed to it.

But that concern is wholly subsumed within the notion of whether or not the rate that entity is paying is a contract rate.

But which rates here are contract rates or not contract rates is an issue the D.C. Circuit didn’t actually get to.

It’s not clear it was properly preserved before the D.C. Circuit, because the claim that some of the rates are not contract rates was raised only by intervenors.

So while we adhere to our view that these are contract rates, this Court need not get to it.

It need only address the issue the court addressed below, which is whether there is a broad-based, third-party exception to Mobile-Sierra.

And the answer is no.

Mobile-Sierra can’t be energy law’s equivalent of the Maginot Line, that it protects against direct assaults from the contracting parties themselves but provides no protection, not whatsoever, if it’s flanked by noncontracting parties to the–

Antonin Scalia:

I like that.

[Laughter]

Jeffrey A. Lamken:

–I hope you use it.

Thank you, Your Honor.

John G. Roberts, Jr.:

Thank you, counsel.

The case is submitted.