On July 1, 2016, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied a petition to review FERC’s determination that the “Mobile-Sierra” presumption does not preserve “right of first refusal” provisions that are otherwise required to be removed from tariffs and agreements following Order No. 1000.
In this context, a right of first refusal is a provision that allows utilities to construct new transmission facilities in their service territories, even if a third party first proposes to undertake such construction. In Order No. 1000, which was issued in 2011, FERC determined that those rights were anti-competitive in nature and required utilities to remove such provisions from their tariffs and agreements. The D.C. Circuit upheld this mandate; however, until now, neither FERC nor the D.C. Circuit had addressed whether rights of first refusal could nonetheless be preserved through the Supreme Court’s Mobile-Sierra precedent. Under the Mobile-Sierra line of cases, FERC presumes a contract rate is just and reasonable, unless it is “contrary to the public interest.”
In its compliance filings before FERC, the utility-petitioner, Oklahoma Gas and Electric Company, argued that the right of first refusal in its SPP membership agreement could be preserved under the Mobile-Sierra line of cases. FERC disagreed, and argued that the Mobile-Sierra presumption applies only to “individualized rates, terms and conditions negotiated freely at arm’s length,” as opposed to general tariff provisions that are not a product of such negotiations.
In its decision, the D.C. Circuit reviewed the Supreme Court’s Mobile-Sierra precedent and recognized that, in no instance has the presumption been applied to non-rate terms and conditions. The court declined to make such a determination, but rather, assumed for the sake of argument that Mobile-Sierra could be extended to non-rate-based practices. Even when making such an assumption, however, the court reasoned that the case law supported FERC’s determination that the doctrine is inapplicable to right of first refusal measures that are both anti-competitive in nature and not the product of arms-length bargaining. Therefore, the D.C. Circuit upheld FERC’s decision that those provisions do not warrant Mobile-Sierra protection, while also declining to address the question of whether the presumption can be applied outside the context of rates.
The full court opinion can be found here.