On July 9, 2024, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated orders issued by the FERC that required six wholesale power sellers (the “Sellers”) to issue refunds to customers for power sales made above FERC’s “soft” price cap during the 2020 heatwave in California. The court held that FERC “should have conducted [a] Mobile-Sierra analysis prior to ordering refunds,” and therefore remanded the orders so that FERC could “change its refund analysis for above-cap sales going forward.”
In August 2020, the West Coast experienced a historic heatwave that affected wholesale electricity supply and demand, leading to increased prices in the market for short-term electricity supply in the Western Electricity Coordinating Council (“WECC”). FERC initially adopted a “soft” price cap in the WECC after the 2002 Western energy crisis, which meant that any sale above $1,000 per MWh was required to be justified in a filing at FERC that explained why the above-cap sale was just and reasonable. Before the heatwave, FERC had declined to give guidance regarding what it would consider sufficient justification for sales above the soft price cap (see April 1, 2022 edition of the WER). After the 2020 heatwave, however, FERC staff posted limited guidance for sellers that would be required to justify their transactions over the soft price cap. In response, wholesale power sellers (“Sellers”) filed justification filings and argued, among other things, that the above-cap sales were protected under the Mobile-Sierra doctrine that holds that contract rates formed through an arm’s-length, bilateral negotiation are presumed to be just and reasonable unless FERC finds that the rate “seriously harms the public interest” or determines the conditions underlying the presumption do not apply (see October 27, 2022 issue of the WER). Upon review of the justification filings, FERC determined that the Sellers had not sufficiently justified their above-cap sales and ordered partial refunds. The Commission determined that its justification-and-refund inquiry into above-cap sales did not implicate the Mobile-Sierra doctrine and did not conduct a Mobile-Sierra analysis.
After unsuccessfully requesting rehearing of FERC’s refund orders, various parties, including Sellers, the California Public Utilities Commission and Southern California Edison Company (the “Consumers”) challenged FERC’s orders in court. The Sellers argued, among other things, that FERC erred in determining that the Mobile-Sierra doctrine did not apply to the above-cap sales and that it should have conducted a Mobile-Sierra analysis before ordering refunds. The Consumers argued that FERC erred in the way it calculated the refunds, which would lead to higher electricity prices in the future.
The D.C. Circuit agreed with the Sellers that FERC should have conducted the Mobile-Sierra analysis before ordering refunds. As a result, the D.C. Circuit granted the Sellers’ petitions for review, vacated the refund orders, and remanded the cases to FERC for further proceedings wherein FERC must first apply the Mobile-Sierra doctrine to its analysis of the above-cap sales to decide whether the sales would “seriously harm the public interest” or make a finding that the Mobile-Sierra framework does not apply.
Because the court indicated that FERC would need to “change its refund analysis for above-cap sales going forward,” the court did not reach the merits of the Consumers’ question regarding how refunds are to be calculated and dismissed that issue as moot.
The D.C. Circuit’s decision is available here.
