Amicus Curiae Brief — Semopora Generation Generation v. Public Public Utilities Utilities Commission Commission Commission of California (Nos. 06-1454, 06-1468)

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Nos. Qeuwoe & 06-1468 / Nos. 06-1457 &

IN THE

Supreme Court of the Writed States AVG 6 - 2007

OFFICE OF

SUPREME count Us

SEMPRA GENERATION, ET AL.,

AND

DYNEGY POWER MARKETING, INC., ET AL.,

Petitioners,

Vv.

PUBLIC UTILITIES COMMISSION OF CALIFORNIA, ET AL.,

Respondents.

MORGAN STANLEY CAPITAL GROUP, INC.,

AND

CALPINE ENERGY SERVICES, L.P., ET AL.,

‘ Petitioners,

PUBLIC UTILITY DISTRICT NO. 1

OF SNOHOMISH COUNTY, WASHINGTON, ET AL.,

Respondents.

On Petitions for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

BRIEF OF THE CANADIAN ELECTRICITY ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

DAVID C. FREDERICK

Counsel of Record

SCOTT H. ANGSTREICH

BRENDAN J. CRIMMINS

DANIEL G. BIRD

KELLOGG, HUBER, HANSEN,

TODD, EVANS & FIGEL, P.L.L.C.

1615 M Street, N.W., Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Amicus

August 6, 2007

ANN NR RT RENTS BURNERS OMEN nN SS RN RRR RL

QUESTION PRESENTED

Whether the Court should grant certiorari to review

decisions of the Ninth Circuit authorizing the Federal

Energy Regulatory Commission to abrogate valid, volun-

tarily negotiated wholesale energy contracts without proof

that abrogation is in the public interest — decisions that

will significantly harm the vital energy trade between the

United States and Canada.

TABLE OF CONTENTS

Page

PRP Riey E RAREY EMRE BID aces ccc sicccccccaccccoccssccssccosssccossenscaacs i

EE TURF IE I asi ssssesscsscsasesscccccossscsssccssscoseosens iv

INTEREST OF AMICUS CURIAE ................cccccccssseceeneeees 1

acne daneesatinacassdiaesentesisasesobansasubontiitens 2

BUBIMARET OF ARGUMENT. ..........cccccsccssossescsossesscssssoness 5

i ieiliaiiiaiiali tii csaikanicbtesadanisidsaandeneditnadeicadinss 6

I. CANADIAN ELECTRICITY AND NATU-

RAL GAS PLAY AN IMPORTANT AND

GROWING ROLE IN UNITED STATES

UPSET PMN TREAD Asnihansedshesssnaccdasinescrsationsnssecsees 6

II. THE NINTH CIRCUITS DECISIONS IN

THESE CASES DISCOURAGE CANA-

DIAN ELECTRICITY EXPORTS TO THE

ER ME TNE 5 sk saiiallshabnanancicnssabsadipesanenasasenenens 8

A. The Decisions Below Create Strong Dis-

incentives For The Exercise Of Political

Will To Support Power Exports To The

inc seaiiivieicickecscateishcallptlidags Vosnhanrninndae 9

B. The Decisions Below Create Asymmet-

rical Risk That May Discourage Power

Exports To The United States ....................... 14

C. The Decisions Below May Cause Cana-

dian Regulators To Prohibit Energy

Producers From Exporting To The

a ee asus 15

Ill. THE NINTH CIRCUITS DECISIONS

UNDERMINE THE UNITED STATES’

EEE © PRR IID ones ss ccnsiccesascnsaseascententass 17

ill

A. By Encouraging FERC To Interfere

With Energy Contracts, The Decisions

Below Threaten The United States’

Ability To Comply With NAFTA Article

B. The Decisions Below Undermine The

Purposes Of Treaty Provisions De-

signed To Ensure Reliable Energy

III ia besti catcatehnceaidccun tesnedtsiiamisenibade ehakininatiaiiiaibai 19

PUP si istsieenisnnccsinisasentsannnadiasibashsenaththiniinnabesiutlanes 20

TABLE OF AUTHORITIES

Page

CASES

United States

FPC v. Sierra Pac. Power Co., 350 U.S. 348

ei tiniahinbitinasitslibibaiinieincdienassnibicscannasiibiicss 1, 3, 13, 18, 19

United Gas Pipe Line Co. v. Mobile Gas Serv.

Corp., 360 U.S. 332 (1956) ...........ccscscccees 1, 3, 13, 18, 19

Canada

ATCO Gas & Pipelines Ltd. v. Alberta (Energy &

CPOEER. ERED Te 2 BOER. FSD cv vvvcsesscsccnesscscdscccccccoceses 15

Athabasca Chipewyan First Nation v. British

Columbia Hydro & Power Auth., [2901] 3 F.C.

ese inewicticsessiahbeckdacianielipnd shad taba bmieheasimsaciniandinntésdeuserb<natahs . 10

Chandler v. Alberta Ass’n of Architects, [2989]

ee ai a Sci ccakicca ss accotebals teatime Naad aahbacedanancncss 14

Quebec (Attorney General) v. Canada (National

Energy Board), [1994] 1 S.C.R. 159 ..............ccecceesseeees 10

Reference re Upper Churchill Water Rights

Reversion Act, [1984] 1 S.C.R. 297.........cccccccsseesseeeeees 13

TREATIES, STATUTES, AND RULES

Canada-United States Free Trade Agreement,

I AIRS Tk UII, ET RRA MMES GUUEE chon vccesscdcnsdecsccocchsssussases 5

Fe a er I I i whi akensichcecncecdceandcschocssentecenianeees 19

Fe AF MERE beitntcedieas bdtany ninsivnciodinddske'gnskanubaens 19

North American Free Trade Agreement Between

the Government of the United States of

America, the Government of Canada and the

Government of the United Mexican States,

Gome Dee. 17, 1908, SB 1.1..D0. BOD............cccccsccosecsccscsseee 5

Art. 605, 32 I.L.M. 365...............0.. siniatansdhiakiesaniannal 19

Rs Oe RRA DOW se rcccncccorensnquvesorssrecosccees 17, 18, 19

I IIE annissassnncdpessnssnccesnpundarstciosabiasntii 19

I EE PAM, GUI gin assciinnscncedecsscavenncnsissionesonniaeh 17

Federal Power Act, 16 U.S.C. §§ 791a et seq. ............ccceceeee 2

a id sina shaalensbelipsseneaeih 2

Upper Churchill Water Rights Reversion Act,

cs dsisnnsinsnatibecsdesniisannbeaninii 13

Ts sssdeciaandaseindipninbuidualibaiee ioe l

LEGISLATIVE MATERIALS

Official Report of Debates of the Legislative As-

sembly, 38th Parliament, 2d Sess. (Hansard),

Vol. 9, No. 7 (Apr. 24, 2006), available at

http://www.leg.bc.ca/hansard/38th2nd/

ESS ERIE LIE AISA SO SOE TO OEE RE REE 11

Prepared Statement of Karen A. Harbert, Assis-

tant Secretary for Policy and International

Affairs, U.S. Department of Energy, Before

the House Committee on Government Re-

form, Subcommittee on Energy and Re-

sources, and Subcommittee on National Secu-

rity, Emerging Threats, and International

Relations, “Energy as a Weapon: Implications

for US Policy” (May 16, 2006), available at

http://www.pi.energy.gov/documents/Harbert

Testimony51606FINAL. pdf ..................ccccceeeseeeeeeseceeeees 8

ADMINISTRATIVE MATERIALS

British Columbia Ministry of Energy and Mines,

Energy for Our Future: A Plan for BC (Nov.

2002), available at http://www.gov.be.ca/

empr/down/solutions_sept_27.pdf......................000000008 ll

British Columbia Ministry of Energy, Mines and

Petroleum Resources, The BC Energy Plan:

A Vision for Clean Energy Leadership (Feb.

2007), available at http://www.energyplan.

gov.bc.ca/PDF/BC_Energy_Plan.pdf..............0.......000. 11

British Columbia Utilities Commission

Reasons for Decision In re British Columbia

Hydro and Power Authority Call for Tenders

for Capacity on Vancouver Island and Review

of Electricity Purchase Agreement, E-1-05

(Mar. 9, 2005), available at http://209.17.158.

138:8080/library01/002/101/BCHDec2005

ET ia iicees ca rcib ada casianiaaniscuigalstiskenssaeiasesarevesesecces 14

Site C Report & Recommendations to the

Lieutenant Governor-in-Council (May 1988).............. 11

Canadian Embassy:

Canada-United States: The World’s Largest

Trading Relationship (Apr. 2004), available

at http://www.canadianembassy.org/trade/

a saiidvconiied ctencoasess 6

The Canada-U.S. trade and investment part-

nership, at http://www.dfait-maeci.gc.ca/can-

am/washington/trade_and_investment/trade_

partnership-en.asp (viewed July 10, 2007) .................. 1

vil

Manitoba Clean Environment Commission,

Report to the Minister of Conservation on

Public Meetings: Draft Environmental Impact

Statement Guidelines for the Wuskwatim

Generation and Transmission Projects (Apr.

2002), available at http://www.hydro.mb.ca/

projects/wuskwatim/cec_report.pdf ........................

Manitoba Ministry of Science, Technology, En-

ergy and Mines, at http://www.gov.mb.ca/est/

energy/power/generating. html ..................cc.ceceeeeeees

National Energy Board:

Canadian Energy Overview 2006 (May 2007),

available at http://www.neb.gc.ca/energy/

EnergyReports/cndnnrgyvrvw2006_e.pdf ..............

Electricity Exports and Imports, at https://

www.neb-one.gc.ca/Statistics/Electricity

ExportsImports/index_e.htm (viewed July 10,

BA EP vine scasscudiadccailiadtescigdnamainmarhahiiacasdabbedtiisendasexnis

Electricity Exports and Imports, Monthly

Statistics for December 2005 (Nov. 30, 2006),

available at http://www.neb.gc.ca/clf-nsi/

rnrgynfmtn/sttstc/Ictrectyxprtsndmprtssttstc/

PR NE iconic dette takin siapndiecdintancacsaess

Electricity Exports and Imports, Monthly

Statistics for December 2006 (Apr. 26, 2007),

available at http://www.neb.gc.ca/clf-nsi/

rnrgynfmtn/sttste/Ictrctyxprtsndmprtssttstc/

Fe MO i cacnsnnnbicarnngsnacccndantbicliteiseiansances

Natural Gas Exports, at https://www.neb-

one.gc.ca/Statistics/NaturalGasExports/gas

07.xls & https://www.neb-one.gc.ca/Statistics/

NaturalGasExports/gasO1.xls .............cceeeeceeeeeeeees

eeeeee

seein 9

Vill

Reasons for Decision In. re Canadian Petro-

leum Association Ltd., GH-R-1-91 (June

1992), available at http://dsp-psd.pwgsc.gc.ca/

Collection/NE22-1-1992-10E. pdf...

Reasons for Decision In re Hydro-Québec for

Exports to the Vermont Joint Owners and

New York Power Authority, EH-3-89 (Aug.

1990), available at https://www.neb-one.gc.

ca/ll-eng/livelink.exe/fetch/2000/90466/94151/

94159/94195/94253/1990-08-01_Reasons_for_

Decision_EH-3-89.pdf?nodeid=94257&

Natural Resources Canada, Statistics and Facts

on Energy, at http://www.nrcan.gc.ca/

statistics/energy/default.html (viewed July

DDG TB icidictsinasceassdhuk ule bab bahcobctaeteas i eaaipbiesicica pane:

New Policy Guidelines and Delegation Orders

from Secretary of Energy to Economic Regu-

latory Administration: and Federal Energy

Regulatory Commission Relating to the Regu-

lation of Imported Natural Gas, 49 Fed. Reg.

I sb sacra cicnh nen theganeksticag usdcnereaeRdbdelavakanss

Submission to the Commission on Environmental

Cooperation Pursuant to Article 14 of the

North American Agreement on Environmental

Cooperation (Apr. 2, 1997), available at

http://www.cec.org/files/pdf/sem/ACF756.pdf......

U.S. Dep’t of Energy, Office of Coal, Nuclear,

Electric and Alternate Fuels, Energy Info.

Admin., Electric Power Annual 2005 (Nov.

2006), . available at http://www.eia.doe.gov/

cneaf/electricity/epa/epa.pdf...............cccceeccseeeeeeees

anaes 10

OTHER MATERIALS

Nigel Bankes, Environment: Garrison Dam,

Columbia River, the IJC, NGOs, 30 Can.-U.S.

eels I IIE asirsnackinctanccndestabotadagsestnsnseicscmnesepsccoce

Shelly P. Battram & Reinier H. Lock, The

Canada/ United States Free-Trade Agreement

and Trade in Energy, 9 Energy LJ. 327

Cp crcncsccisncnctincesnssonnsievanasiovessanessesseatasnsnsscasscscoces

Alexander J. Black, Environmental Impact As-

sessment and Energy Exports, 16 Loy. L.A.

Int'l & Comp. L.d. 799 (1994).............cccecesscesereeees

Rosemary C. Blinn, Comment, The Canadian

Administrative Process for Evaluating the

Transboundary Environmental Impact of

Energy Exports, 7 Conn. J. Int'l L. 337 (1992)....

Canada: Energy Provision, EIU ViewsWire (Aug.

FE TEEPE seibidebsnscesdcizenittepenccedagtonsnemantaberecedisoneneceses

Canadian Electricity Ass’n, The Integrated North

American Electricity Market: Energy Security:

A North American Concern (Mar. 2007), at

http://www.canelect.ca/en/Pdfs/3395_CEA_

PE SPINE BI ans seccrcncccscnssoccecascsccccosee

Jason L. Churchill, Power Politics and Questions

of Political Will: A History of Hydroelectric

Development in Labrador’s Churchill River

Basin, 1949-2002 (Mar. 2003), available at -

http://www.gov © °.ca/publicat/royalcomm/

I ioc sinicsccccsoscapscessccsccccccncccces

Gary B. Conine, Natural Gas Transactions Be-

tween the United States and Mexico: Political

and Legal Impediments to Free Trade, 27

i. padesanavoned

ithaca a |

Joseph M. Dukert, Institute for Research on Pub-

lic Policy, The Quiet Reality of North Ameri-

can Energy Interdependence (2004), available

at http://www.irpp.org/wp/archive/NA_integ/

I ic enccinsstnccisscncenensnssetnatensecsssocnacncesecs

Ralph W. Johnson, The Canada-United States

Controversy over the Columbia River, 41

es tek ls Se ier tcttncnissaceandnnninenensscene

Reinier Lock, Mexico-United States Energy Rela-

tions and NAFTA, 1 U.S.-Mex. L.J. 235

Alastair R. Lucas, Canada’s Role in the United

States’ Oil and Gas Supply Security: Oil

Sands, Arctic Gas, NAFTA, and Canadian

Kyoto Protocol Impacts, 25 Energy L.J. 403

Manitoba Hydro, at http://www.hydro.mb.ca/

projects/wuskwatim/overview.shtml ...................

Newfoundland and Labrador Hydro:

http://www.lowerchurchillproject.ca/LCWeb/

LowerChurchill.nsf/GeneralDocs/A6496EB6

D3B13269A32571FD0066CC71?0pen

Document&menucat=About&submenucat=

&linkname=Lower%20Churchill%20Project ......

http://www. lowerchurchillproject.ca/LCWeb/

NewsArchive.nsf/NewsArchive/6F 15339CAD

798B77A3257 1 FD0064C82B?Opendocument.....

Robert Page, Kyoto and Emissions Trading:

Challenges for the NAFTA Family, 28 Can.-

SAEs ns IE GO IPIIIEE siedchhicinenhiithnisecabitensiipsdaiitensasenoneess

Pamela Prodan, The Legal Framework for Hydro-

Quebec Imports, 28 Tulsa L.J. 435 (19938)...........

pence 7-8

J. Owen Saunders, GATT, NAFTA and North

American Energy Trade: A Canadian Per-

spective, 12 J. Energy Nat. Resources L. 4

EI at acieduibcreucs Nelbih iim censechaitehiclciana Masdaakbibuceticabnata 15, 17, 19, 20

INTEREST OF AMICUS CURIAE'!

Founded in 1891, the Canadian Electricity Association

(“CEA”) serves as the voice of the Canadian electricity

industry. Its members include utility companies, major

generators of electricity, and consulting firms. CEA con-

tributes to the success of its members by providing a

strong, united voice for their views on issues of regulatory

policy. CEA also seeks more coordinated, effective, and

efficient regulatory regimes in both Canada and the

United States to provide commercial certainty and to

promote investment, innovation, and economic growth.

CEA members sell electricity to wholesale purchasers in

the United States, participating in “one of the world’s

largest and most comprehensive trading relationships,

which supports millions of jobs in each country.”? The

Ninth Circuit’s decisions in these cases cause CEA’s

members great concern because they impair the enforce-

ability of power contracts entered into in the United

States. CEA urges this Court to resolve the conflict be-

tween the decisions below and the Court’s decisions in

United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350

U.S. 332 (1956) (“Mobile”), and FPC v. Sierra Pacific

Power Co., 350 U.S. 348 (1956) (“Sierra”). Reaffirming the

authority of Mobile and Sierra will restore the contractual

certainty that supports the massive Canada-United

States energy trading relationship — a relationship that is

vital to the United States’ energy security.

! Pursuant to Supreme Court Rule 37.6, counsel for amicus repre-

sents that it authored this brief and that no person or entity other than

amicus or its counsel made a monetary contribution to the preparation

or submission of the brief. Counsel for amicus represents that counsel

for all parties have consented to the filing of this brief. A number of

parties have filed letters granting blanket consent to the filing of

amicus briefs, and letters reflecting the consent of the remaining par-

ties to the filing of this brief have been filed with the Clerk.

2 Canadian Embassy, The Canada-U.S. trade and investment part-

nership, at http://www.dfait-maeci.gc.ca/can-am/washingtoi/trade_and

_investment/trade_partnership-en.asp (viewed July 10, 2007).

STATEMENT

Canada maintains a critical energy partnership with

the United States. What began with small interconnec-

tions and the development of boundary waters for hydro-

electricity has evolved into extensive cooperative ar-

rangements for managing transmission-system reliability.

Today, the two sovereigns pump supplies of oil, natural

gas, and electricity through a tightly integrated network

of power lines and pipelines that crisscross the continent

and supply vital energy to each nation’s citizens.

Not all Canadian power sellers are subject to the juris-

diction of the Federal Energy Regulatory Commission

(“FERC”). Some Canadian entities simply market elec-

tricity at the Canada-United States border and never par-

ticipate in sales to which the Federal Power Act (“FPA”)

applies. See 16 U.S.C. § 824a(f). But other Canadian en-

tities do participate in United States wholesale markets

regulated by FERC under the FPA. Those entities supply

a significant portion of the wholesale electricity consumed

in neighboring regions of the United States, and their con-

tinued participation in the Canada-United States energy

trade is critical to the United States’ energy security.

Canadian power sellers that participate in the United

States markets maintain a keen watch on developments

in American law that affect their United States transac-

tions. When new developments create regulatory uncer-

tainty in the United States, those developments discour-

age Canadian power sellers from continuing to export

electricity. Canadian power exporters have serious con-

cerns about the Ninth Circuit's decisions in these cases.

3 Public Utilities Commission of California v. FERC, 474 F.3d 587

(9th Cir. 2006) (Pet. App. 364a), simply applied the law as described in

Public Utility District No. 1 of Snohomish County v. FERC, 471 F.3d

1053 (9th Cir. 2006) (“Snohomish County”) (Pet. App. 1a), to a different

set of facis, and so this brief refers principally to Snohomish County.

References to “Pet. App.” are to the appendix to the petition in No.

06-1462.

In Snohomish County, the Ninth Circuit addressed

challenges to “wholesale energy contracts for future en-

ergy supplies — known as ‘forward’ contracts — entered

into by power companies in California, Nevada, and

Washington during” 2000 and 2001. Pet. App. 2a. Parties

executed those contracts when, due to increased demand

and insufficient supply, prices in California’s short-term

energy markets were unusually high. Jd. at 23a-24a.

Purchasers under those contracts subsequently claimed

that the contract rates were unjust and unreasonable and

asked FERC to modify them. Jd. at 26a-31la.

FERC determined that the Mobile-Sierra doctrine ap-

plied to the contracts. That doctrine limits FERC’s power

to abrogate and modify the rates in wholesale power con-

tracts. Under Mobile-Sierra, FERC cannot alter the

terms of such contracts unless it finds that the “public in-

terest” requires that one of the parties be let out of the

deal. Here, FERC held that the contracts at issue were

not contrary to the public interest. In particular, FERC

observed that, although the contracts may have become

“uneconomic over time” for the purchasers, “the chal-

lenged transactions were the result of [the buyers’] volun-

tary choices.” Jd. at 33a-34a (internal quotation marks

omitted); see Order on Initial Decision, Pet. App. 246a; see

also Order on Rehearing, Pet. App. 314a.

The purchasers sought review of FERC’s orders in the

Ninth Circuit. That court granted the petitions and re-

manded, concluding that FERC committed two significant

errors. First, the Ninth Circuit held that FERC erred in

applying the Mobile-Sierra doctrine to the forward con-

tracts because FERC “lacked a mechanism to provide ef-

fective, timely relief from unjust and unreasonable rates

due to market dysfunction.” Pet. App. 3a. According to

the Ninth Circuit, a forward contract should not be pro-

tected by Mobile-Sierra’s deferential “public interest”

standard of review unless FERC has provided “an oppor-

tunity for initial review of whether [the] rate is just and

reasonable,” id. at 39a (emphasis added), and an opportu-

msg

nity to reassess the contract’s propriety after the fact, in

light of subsequent market developments, id. at 57a-60a.

Second, the Ninth Circuit concluded that, in applying

the public-interest standard, FERC used “a substantively

erroneous mode of analysis.” Jd. at 4a. Giving short

shrift to FERC’s finding that abrogation of these contracts

would destabilize the energy market to the long-term det-

riment of all consumers, the court held that FERC’s

public-interest inquiry “must give predominant weight” to

the short-term impact “on the rates paid by the consum-

ing public who use the energy covered by [each] contract.”

Id. at 61a (emphasis added).

As a result of the Ninth Circuit’s ruling, FERC is now

obligated to inspect the reasonableness of the terms of

forward contracts voluntarily negotiated and entered into

by sophisticated parties before and after the parties form

their agreement. And, even then, FERC must modify con-

tracts after the fact if necessary to mitigate a short-term

“impact ... on the rates paid by the consuming public.”

Id. This expansion of FERC’s responsibilities endangers

the important energy partnership between Canada and

the United States.

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SUMMARY OF ARGUMENT

This Court should review the Ninth Circuit’s decisions

in these cases because they threaten the flourishing

Canada-United States energy trade, the health of which is

vital to the United States’ energy security.

Canada is the United States’ most important energy

partner, exporting millions of megawatt hours of electric-

ity to this country every year. Generating excess electric-

ity for export requires a substantial commitment of na-

tional resources. Canadians will be loathe to make those

long-term commitments to United States entities operat-

ing in a regime in which FERC has authority to violate

the sanctity of contracts to serve the perceived short-term

interests of United States consumers. Such a regime con-

flicts with settled Canadian law and may discourage

FERC’s Canadian counterpart, the National Energy

Board (“NEB”), from continuing to support current levels

of electricity exports to the United States.

The decisions below also create tensions with the

United States’ obligations under the North American Free

Trade Agreement (“NAFTA”) and the Canada-United

States Free Trade Agreement (“FTA”). Those treaties re-

quire the United States to ensure that FERC avoids dis-

rupting energy contracts and that energy flows to Canada

reliably. The decisions below, however, enhance FERC’s

authority to disrupt electricity contracts, which in turn

threatens the reliability of steady energy flow between

Canada and the United States.

ARGUMENT

I. CANADIAN ELECTRICITY AND NATURAL GAS

PLAY AN IMPORTANT AND GROWING ROLE

IN UNITED STATES ENERGY MARKETS

Canada today is the largest supplier of energy to the

United States, “accounting for 94% of natural gas imports,

nearly 100% of electricity imports, and more crude and

refined oil products-than any other foreign supplier.”

Integrated Market* at 7. Canada exports more than $41

billion worth of energy annually to the United States —

nearly three times as much energy as the United States

receives from Saudi Arabia. And Canada has been a net

exporter of electricity for more than a decade, sending far

more electricity to the United States than it receives. Id.

at 5.6 In the 10-year period from 1997 to 2006, Canada

exported nearly 400 million megawatt hours of electricity

to the United States, worth nearly $25 billion Canadian.’

In the same period, Canada, which is the world’s third-

largest producer of natural gas,° exported nearly 30,000

4 CEA, The Integrated orth American Electricity Market: Energy

Security: A North American Concern (Mar. 2007) (“Integrated Market”),

at http://www.canelect.ca/en/Pdfs/3395_CEA_NA_paper_EN_Final.pdf.

5 See, e.g., Canadian Embassy, Canada-United States: The World’s

Largest Trading Relationship 6 (Apr. 2004), available at http://www.

canadianembassy.org/trade/wltr%202004.pdf; NEB, Canadian Energy

Quverview 2006, at 3 (May 2007), available at http://www.neb.gc.ca/

energy/Energy Reports/cndnnrgyvrvw2006_e.pdf; Natural Resources

Canada, Statistics and Facts on Energy, at http://www.nrcan.ge.ca/

statistics/energy/default.html (viewed July 10, 2007).

* For example, “in 2005, the U.S. imported 44.5 million megawatt

hours from Canada and exported 19.8 million megawatt hours to Can-

ada.” Integrated Market at 7.

7 See NEB, Electricity Exports and Imports, at https://www.

neb-one.gc.ca/Statistics/Electricity ExportsI mports/index_e.htm (viewed

July 10, 2007) (reporting data for 1997 to present).

8 See Canada: Energy Provision, ETU ViewsWire (Aug. 18, 2004).

billion cubic feet of natural gas to the United States,

worth more than $200 billion Canadian.

The energy trade betwee. the United States and Can-

ada provides numerous benefits to each nation. It “allows

for efficient use of resources particularly where seasonal

peak demands are complementary.” Jd. at 7. During the

summer, Americans buy Canadian electricity to run their

air conditioners; in the winter, Canadians purchase

American electricity to power their heaters. Cross-border

trade also provides an additional source of power “during

times of emergency outages or periods of high electricity

demand.” Id. In addition, the energy trade, “allows for

the sale of inexpensive surplus power” and “enhances the

reliability of each country’s transmission system.” Jd. As

competitive electricity markets mature, “the importance

of cross-border trade will only increase.” Id. at 5.

The steady flow of energy between the United States

and Canada is made possible by the extensive trans-

mission system connecting the two nations’ electricity

markets. That system is “among the most integrated

and reliable in the world and combines a diversity of

fuel sources, extensive transmission interconnects and

two-way trading that benefits both countries.” Id. at 1.!°

9 See NEB, Natural Gas Exports, at https://www.neb-one.gc.ca/

Statistics/NaturalGasExports/gas07.xls & https://www.neb-one.gc.ca/

Statistics/NaturalGasExports/gas0l.xls; see also Alastair R. Lucas,

Canada’s Role in the United States’ Oil and Gas Supply Security: Oil

Sands, Arctic Gas, NAFTA, and Canadian Kyoto Protocol Impacts, 25

Energy L.J. 403, 408 (2004) (“Approximately 3.8 [trillion cubic feet]

annually, or 63% of total Canadian production [of natural gas], is ex-

ported to the United States. ‘Canada accounts for about 94 percent of

United States imports’ and has a 15% share of the United States mar-

ket.”) (footnote omitted).

19 See Joseph M. Dukert, Institute for Research on Public Policy,

The Quiet Reality of North American Energy Interdependence 1 (2004)

(“North America has spawned the largest integrated energy market

the world has ever seen. Trilateral cooperation among its three sover-

eign nations is especially evident in respect to natural gas and electric-

ity, whose availability and price are continually affected by the trans-

border pipelines and power lines that have multiplied in the past dec-

Each country’s competitive wholesale markets depend on

interconnection with the other country. See id. at 5. And

“[ijncreased integration of the U.S./Canadian marketplace

will help to reduce the current uncertainty regarding en-

ergy supply in North American energy markets, thereby

providing increased energy security.” Id. at 8.

The United States Department of Energy (“DOE”) has

recognized Canada as this country’s “most important en-

ergy partner in the world” and a “strategic ally” with

which the United States has “a- strong, stable relation-

ship.”!! In particular, the DOE has acknowledged Can-

ada’s role as “the United States’ major partner” in “inter-

national electricity trade.”!* Those statements give voice

to what is unmistakable from the evidence: the United

States depends heavily on Canadian energy imports.

Il. THE NINTH CIRCUIT’S DECISIONS IN THESE

CASES DISCOURAGE CANADIAN ELECTRIC-

ITY EXPORTS TO THE UNITED STATES

Petitioners convincingly demonstrate that the Ninth

Circuit’s decisions introduce a significant level of uncer-

tainty into United States electricity markets that will dis-

courage United States investors from contributing capital

to construct generation facilities to meet growing United

ade.”), available at http://www.irpp.org/wp/archive/NA_integ/wp2004-

O9h.pdf; Integrated Market at 7-8 (“The electric transmission systems

in Canada and the U.S. are interconnected at key points along the

Canada/U.S. border. Natural gas and oil pipelines also do not stop at

the border, but instead provide a vast network for the movement of

natural gas in the North American market.”).

'l Prepared Statement of Karen A. Harbert, Assistant Secretary for

Policy and International Affairs, U.S. Department of Energy, Before

the House Committee on Government Reform, Subcommittee on

Energy and Resources, and Subcommittee on National Security,

Emerging Threats, and International Relations, “Energy as a Weapon:

Implications for US Policy” at 4 (May 16, 2006), available at http://

www.pi.energy.gov/documents/HarbertTestimony51606FINAL. pdf.

'2 U.S. Dep't of Energy, Office of Coal, Nuclear, Electric and Alter-

nate Fuéls, Energy Info. Admin., Electric Power Annual 2005, at 6

(Nov. 2006), available at http://www.eia.doe.gov/cneaf/electricity/epa/

epa.pdf.

States demand for energy. Those same disincentives also

apply to Canadian decision-makers, which will similarly

be wary of developing resources to serve an unreliable

United States market.

A. The Decisions Below Create Strong Disincen-

tives For The Exercise Of Political Will To

Support Power Exports To The United States

Canada is blessed with extensive electric generating re-

sources, many of which produce hydroelectricity. Several

provinces, including Quebec, Ontario, Newfoundland,

Manitoba, and British Columbia, have several thousand

megawatts of .undeveloped hydroelectricity. Because

hydroelectric generation involves the long-term commit-

ment of substantial public and natural resources, deci-

sions regarding whether to generate excess electricity for

export and where to export that electricity entail public

debate, often in a politically charged atmosphere.

Hydro Quebec, British Columbia Hydro and Power Au-

thority (“BC Hydro”), and Manitoba Hydro are the three

leading generators of Canadian electricity that is exported

to the United States, together generating nearly 70 per-

cent of the electricity that is exported to the United

States.'? Consequently, the robust trade in electricity be-

tween Canada.and the United States depends on the abil-

ity of those companies and others like them to justify ex-

pending the funds used to generate electricity that will

ultimately be exported to the United States. However,

the Ninth Circuit’s decisions introduce a significant level

of uncertainty into United States electricity markets, pro-

viding further ammunition for opponents of energy ex-

ports to the United States anc contributing to a political

13 See NEB, Electricity Exports and Imports, Monthly Statistics for

December 2006, Tables 2A, 3A (Apr. 26, 2007), available at http://www.

neb.gc.ca/clf-nsi/rnrgynfmtn/sttste/lctrctyxprtsndmprtssttstc/2006/elx

0612_e.pdf; NEB, Electricity Exports and Imports, Monthly Statistics

for December 2005, Tables 2A, 3A (Nov. 30, 2006), available at http://

www.neb.ge.ca/clf-nsi/rnrgynfmtn/sttstc/Ictretyxprtsndmprtssttstc/

2005/elx0512_e.pdf. This figure includes exports by Powerex Corp., a

wholly owned subsidiary of BC Hydro.

Rte

climate that may render the required generation activities

infeasible for Canadian exporters of hydroelectricity.

The construction of major hydroelectric systems can

have significant consequences for the local environment,

indigenous groups, and socio-economic conditions. A sub-

stantial body of public opinion has debated whether it is

appropriate to incur those costs merely to facilitate sales

to another country.'* And, aside from the question

whether to build additional generation for export, the

public also has questioned the wisdom of committing vol-

umes of electricity produced by existing facilities to ex-

port. Critics claim that such exports will require the de-

velopment of expensive new generation facilities; ad-

versely affect the Canadian environment and indigenous

peoples; and, most recently, impede Canada’s efforts to

meet its Kyoto and other international environmental ob-

ligations.'® In light of such criticisms, Canadians must be

persuaded that significant, dependable benefits will offset

the substantial costs — both private and public — that may

14 See NEB, Reasons for Decision In re Hydro-Québec for Exports to

the Vermont Joint-Owners and New York Power Authority, EH-3-89, at

17 (Aug. 1990); Pamela Prodan, The Legal Framework for Hydro-

Quebec Imports, 28 Tulsa L.J. 435, 436 (1993); Rosemary C. Blinn,

Comment, The Canadian Administrative Process for Evaluating the

Transboundary Environmental Impact of Energy Exports, 7 Conn. J.

Int'l L. 337, 338-39 (1992); Alexander J. Black, Environmental Impact

Assessment and Energy Exports, 16 Loy. L.A. Int'l & Comp. L.J. 799,

848-49 (1994); Ralph W. Johnson. The Canada-United States Contro-

versy over the Columbia River, 41 Wash. L. Rev. 676, 744 (1966); Shelly

P. Battram & Reinier H. Lock, The Canada/United States Free-Trade

Agreement and Trade in Energy, 9 Energy L.J. 327, 334-36 (1988).

'5 See Submission to the Commission on Environmental Cooperation

Pursuant to Article 14 of the North American Agreement on Environ-

mental Covuperation (Apr. 2, 1997), available at http://www.cec.org/

files/pdf/sem/ACF756.pdf; Robert Page. Kyoto and Emissions Trading:

Challenges for the NAFTA Family, 28 Can.-U.S. L.J. 55, 63-64 (2002);

Nigel Bankes, Environment: Garrison Dam, Columbia River, the LJC,

NGOs, 30 Can.-U.S. L.J. 117, 118, 126-27 (2004); Quebec (Attorney

General) v. Canada (National Energy Board), [1994] 1 S.C.R. 159;

Athabasca Chipewyan First Nation v. British Columbia Hydro & Power

Auth., [2001] 3 F.C. 412, 94 4-7.

be incurred to create and to operate hydroelectric generat-

ing facilities.

Several significant hydroelectric generation projects are

under active consideration throughout Canada, and the

stability of the United States export market will be an

important factor in deliberations on those projects, in par-

ticular the debate over if and when the projects are

needed. For example, in British Columbia, the official

Energy Plan of the Province identifies the potential for

development at “Site C” on the Peace River. BC Hydro

previously sought approval of that project in the early

1980s, but a great deal of political controversy arose and

the Provincial Cabinet denied approval because there was

no demonstrated need in British Columbia for the addi-

tional generation capacity. See British Columbia Utilities

Commission, Site C Report & Recommendations to the

Lieutenant Governor-in-Council, .at 10-11, 269-83 (May

1983); see also Johnson, 41 Wash. L. Rev. at 744. Today,

the Province’s Energy Plan makes clear that “Site “C” will

be developed only if the Provincial Cabinet approves,'®

after first consulting with the Province of Alberta and

representatives of indigenous peoples. Thus, the decision

today is likely to be the subject of even more political dis-

cussion and debate than it was in the 1980s.!7

In Manitoba, Manitoba Hydro is currently building the

Wuskwatim generation facility to meet the future needs of

Manitoba citizens.'® It will complete construction of that

'6 See British Columbia Ministry of Energy and Mines, Energy for

Our Future: A Plan for BC at 30 (Nov. 2002), available at http://www.

gov.be.ca/empr/down/solutions_sept_27.pdf; British Columbia Ministry

of Energy, Mines and Petroleum Resources, The BC Energy Plan: A

Vision for Clean Energy Leadership at 23 (Feb. 2007), available at

http://www.energyplan.gov.bc.ca/PDF/BC_Energy_Plan.pdf.

'T See, e.g., Official Report of Debates of the Legislative Assembly,

38th Parliament, 2d Sess. (Hansard), Vol. 9, No. 7, at 3931, 3935-36

(Apr. 24, 2006), available at http://www.leg.be.ca/hansard/38th2nd/

H66424p.htm.

18 See _http://www.gov.mb.ca/est/energy/power/generating. html;

http://www.hydro.mb.ca/projects/wusk watim/overview.shtml.

facility ahead of domestic need, which will produce sur-

plus energy until demand in Manitoba increases to con-

sume the new supply. The development of the Wusk-

watim project has faced criticism in Manitoba on several

fronts, including questions about whether Manitoba needs

the facility at all.'"* Along with Wuskwatim, there are

several other potential hydroelectric developments within

Manitoba totaling several thousand megawatts, and

doubts concerning the reliability of the United States ex-

port markets could make other Canadian provinces more

appealing for trade than the United States.

Similarly, Newfoundland currently is considering the

development of an additional 2,800 megawatts of power

below Churchill Falls in Labrador, with construction po-

tentially commencing in 2009.2° The province has ex-

pressed an interest in marketing the power directly to

United States markets either by acquiring transmission

rights through Quebec or via an undersea cable.2! The

most significant generating project undertaken previously

in that region was built in reliance on a 65-year contract

between Hydro Quebec and Churchill Falls (Labrador)

Corporation for the sale of power generated at Churchill

Falls.22 Newfoundland passed legislation voiding the con-

19 See, e.g., Manitoba Clean Environment Commission, Report to the

Minister of Conservation on Public Meetings: Draft Environmental

Impact Statement Guidelines for the Wuskwatim Generation and

Transmission Projects at 5-12 (Apr. 2002), available at http://www.

hydro.mb.ca/projects/wuskwatim/cec_report.pdf.

20 See http://www.lowerchurchillproject.ca/LCWeb/LowerChurchill.nsf/

GeneralDocs/A6496EB6D3B 13269A3257 1 FDO066CC71?OpenDocument

&menucat=About&submenucat=&linkname=Lower%20Churchill%20

Project.

2! See http://www.lowerchurchillproject.ca/LCWeb/NewsArchive.nsf/

NewsArchive/6F 15339CAD798B77A3257 1 FD0064C82B?Open

document.

22 See Jason L. Churchill, Power Politics and Questions of Political

Will: A History of Hydroelectric Development in Labrador’s Churchill

River Basin, 1949-2002, at 7 (Mar. 2003), available at http://www.gov.

nf.ca/publicat/royalcomm/research/Churchill. pdf.

tract because, in hindsight, it determined that the con-

tract was overly detrimental to the seller.2* That legisla-

tion, however, was struck down as ultra vires by the Su-

preme Court of Canada. See Reference re Upper Churchill

Water Rights Reversion Act, [1984] 1 S.C.R. 297. In light

of that history, it seems unlikely that Newfoundland, hav-

ing been thwarted in its efforts to indulge seller’s remorse

im connection with the original project, would now dedi-

cate the output from any new development to a market

that would indulge buyer’s remorse.

The Ninth Circuit’s decisions in these cases may cause

citizens and political leaders to fear that the expected

benefits of sales of power from potential new generation

projects in Canada will not materialize. Given the vola-

tile nature of wholesale electricity prices, there is always

a potential for buyer’s remorse associated with long-term

contracts. And the Ninth Circuit’s revisions to the

Mobile-Sierra doctrine invite all of those remorseful buy-

ers to challenge their contracts before FERC.2* The Ninth

Circuit’s decisions thus undermine confidence in the sanc-

tity of contracts — confidence that Canadian exporters of

hydroelectricity require to develop incremental hydro-

electric generating capacity necessary to meet future

United States energy needs. Confidence in the sanctity of

long-term contracts is particularly important for hydro-

electric investment decisions because hydroelectric gen-

eration has very high initial capital costs, but low operat-

ing costs and a long asset life.25

23 See Upper Churchill Water Rights Reversion Act, S. Nfld. 1980,

ch. 40.

24 Moreover, the additional risk for Canadian sellers to United

States markets introduced by Snohomish County is not confined to

owners of major hydroelectric facilities. Owners of conventional ther-

mal generation facilities in Canada will also face risks.on_ sales into

United States markets not present in connection with sales into com-

parable Canadian markets.

25 Some hydroelectric facilities have been in service for more than

100 years. For example, the Decew Falls | hydro plant, part of the Ni-

agara Falls complex and now owned by Ontario Power Generation. has

B. The Decisions Below Create Asymmetrical

Risk That May Discourage Power Exports To

The United States

In addition to the adverse political consequences that

the Ninth Circuit’s decisions in these cases will have for

Canadian hydroelectricity exporters, the decisions more

generally will discourage all Canadian power sellers from

exporting surplus energy to the United States. That is

because a Canadian utility's sales to the United States

will face greater regulatory uncertainty than equivalent

sales in Canada. Unlike the aggressive regulatory role

that the Ninth Circuit envisions for FERC, Canadian

regulators rarely seek to invalidate competitive wholesale

power contracts negotiated at arms-length between so-

phisticated market participants.”°

In addition, by distinguishing between the need and ex-

tent of regulatory interference with the sanctity of con-

tract in cases where rates are seen to be “too low” as op-

posed to “too high,”2’ the decisions below signal to Cana-

dian sellers that regulatory intervention by FERC is

much more likely to be to their detriment than in their

favor. That is, by making the consumer interest pre-

eminent, the Ninth Circuit has introduced an asymmetry

to the risks associated with bilateral contracts that does

not exist in Canada (and had not previously existed in the

United States). In Canada, the law is settled that the role

of energy regulators is “to protect both the customer and

been in service since August 25, 1898, and is listed by the Institute of

Electrical and Electronics Engineers Milestones as a key historical

achievement in electrical and electronic engineering.

26 See, e.g., Chandler v. Alberta Ass’n of Architects, {1989] 2 S.C.R.

848; BCUC, Reasons for Decision In re British Columbia Hydro and

Power Authority Call for Tenders for Capacity on Vancouver Island and

Review of Electricity Purchase Agreement, E-1-05, at 13 (Mar. 9, 2005),

available at http://209.17.158.138:8080/ibrary01/002/101/BCHDec2005

0309.pdf?.

*7 See Pet. App. 63a (holding that it is easier to modify contracts

with prices that are “too high” than to modify contracts with prices

that are “too low”).

the investor,” and not to prefer one over the other. ATCO

Gas & Pipelines Ltd. v. Alberta (Energy & Utils. Bd.),

[2006] 1 S.C.R. 140, 4 64.

In sum, the decisions below force Canadian exporters to

assume two significant, additional risks if they wish to

sell to United States purchasers. First, they must accept

that dissatisfied buyers can provoke after-the-fact regu-

latory interference with bilateral negotiated agreements.

Second, they can anticipate that, when regulatory inter-

ference does occur, it will be undertaken with preference

for the short-term interests of the buyer over the long-

term interests of the entire economy. Those risks can be

expected to dampen Canadians’ enthusiasm for increasing

generation capacity for export and, once having built that

capacity, to reduce their desire to sell energy into United

States markets.

C. The Decisions Below May Cause Canadian

Regulators To Prohibit Energy Producers

From Exporting To The United States

These cases are not the first time that United States

regulators have taken action that threatens the stability

of bilateral contracts with Canadian suppliers in response

to buyer’s remorse of United States purchasers. In 1988,

a Canadian power seller, Alberta & Southern (“A&S’”),

applied to the NEB for an extension of its gas-export

license to allow it to export natural gas for use by a

United States entity, Pacific Gas & Electric (“PG&E”).

See J. Owen Saunders, GATT, NAFTA and North Ameri-

can Energy Trade: A Canadian Perspective, 12 J. Energy

Nat. Resources L. 4, 19 (1994). The NEB was reluctant to

issue the extension because of concerns about “the reli-

ability of the California market.” Jd. But the California

Public Utilities Commission (“CPUC”) promised that Calli-

fornia’s natural gas market was “reliab[le}” and “stabf[le}.”

Id. Influenced by those assurances, the NEB granted the

necessary extension. Id. at 19-21.

Subsequently, prices in short-term natural-gas markets

fell significantly, becoming much lower than the prices

agreed to under the long-term contract between A&S and

PG&E. Behaving much like it has in recent years, the

CPUC “demanded that the long-term contracts entered

into by PG&E be re-negotiated to provide California con-

sumers with greater flexibility.” Id. at 20. The Canadian

Petroleum Association complained to the NEB. The NEB

strongly objected to the CPUC’s actions, opining that they

“fundamentally change[d] the basis upon which [the NEB]

was persuaded to issue” A&S the license extension. NEB,

Reasons for Decision Jn re Canadian Petroleum Associa-

tion Ltd., GH-R-1-91, et 28 (June 1992), available at

http://dsp-psd. pwgsc.gce.ca/Collection/NE22-1-1992-10E.pdf.

In those circumstances, the NEB determined that it could

not “stand idly by when the regulatory actions of others

adversely affect the basis upon which it was persuaded to

issue a license.” Id. at 46. While the NEB acknowledged

that its policy was to encourage a free market, nationally

and internationally, it warned that its “commitment to a

freely-functioning gas market does not imply or entail

that it automatically take regulatory actions parallel to

and supportive of regulatory actions in other jurisdictions,

if such actions would have the effect of overturning, at

short notice and without an adequate transitional period,

negotiated contractual arrangements on which this Board

placed reliance in its decisions.” Jd. The NEB’s state-

ments raised the prospect that it might deny future ex-

port permits rather than allow Canadian power to be sold

into a regulatory environment that does not respect con-

tractual certainty.

The Ninth Circuit’s decisions in these cases again raise

the unfortunate specter of a regulatory contest between

Canadian and United States regulators in which the first

casualty will be the economic benefits that free markets

can bring to generators and consumers alike.

a ae Fe ee

Ill. THE NINTH CIRCUITS DECISIONS UNDER-

MINE THE UNITED STATES’ TREATY OBLI-

GATIONS

A. By Encouraging FERC To Interfere With

Energy Contracts, The Decisions Below

Threaten The United States’ Ability To Com-

ply With NAFTA Article 606

NAFTA requires member countries’ regulators to re-

spect the sanctity of energy contracts. Article 606(2) pro-

vides, in pertinent part, that “[eJach Party shall seek to

ensure that in the application of any energy regulatory

measure, energy regulatory bodies within its territory

avoid disruption of contractual relationships to the maxi-

mum extent practicable.” 32 I.L.M. 289, 365 (1992).

FERC is an “energy regulatory bod[y]” under Article

606(2) and therefore must “avoid disruption of contractual

relationships to the maximum extent practicable.” Id.

Article 606 comports with the United States’ and Can-

ada’s longstanding recognition of the importance of con-

tractual certainty to maintaining a sufficicat supply of

energy. Before NAFTA, “United States trade policy

strongly support[ed] contract sanctity as an important

factor in international commercial transactions.” New

Gas Importation Policy Guidelines,”® 49 Fed. Reg. at 6684.

The DOE explained that “[g]overnmental action that, in

effect, unilaterally renegotiates gas import contracts to

the short-term advantage of the U.S. could jeopardize gas

import supplies when the demand for imported gas in-

creases in the future.” Jd. Canada’s policies were “very

much in line” with the United States’ policies (at least as

they existed before the Ninth Circuit’s decisions in these

cases). Saunders, 12 J. Energy Nat. Resources L. at 18.

The United States has not uniformly respected the

sanctity of energy contracts, however. In fact, NAFTA

28 New Policy Guidelines and Delegation Orders from Secretary of

Energy to Economic Regulatory Administration and Federal Energy

Regulatory Commission Relating to the Regulation of Imported Natu-

ral Gas, 49 Fed. Reg. 6684 (1984) (“New Gas Importation Policy’).

Article 606 was drafted in response to the contractual dis-

pute between A&S and PG&E discussed above — a dispute

much like the ones underlying these cases. Although

A&S and PG&E ultimately reached a compromise in that

case, see id. at 20, Canada sought to obtain protection

against a recurrence of such issues by insisting on the

promulgation of NAFTA Article 606, see id. at 22.

The drafters of NAFTA recognized that “[o]ne of the

most difficult problems in attempting to create competi-

tive markets in a regulated industry in which long-term

contracts may be central is the potential for regulatory

interference (sometimes viewed as a necessity on public

policy grounds) with those contracts when their pricing

provisions get out of sync with market conditions.” Re-

inier Lock, Mexico-United States Energy Relations and

NAFTA, 1 U.S.-Mex. L.J. 235, 248 (1993). Article 606 was

intended to prevent the “endemic problem where economic

regulators are given a great deal of latitude to act in the

‘public interest’ with regard to the commercial sector, as

they typically are in the United States.” Id.

By disregarding the sanctity of contracts firmly rooted

in United States and Canadian law and policy (and re-

flected in this Court’s Mobile-Sierra doctrine), the deci-

sions below threaten to place the United States out of step

with its Article 606 obligations. The Ninth Circuit im-

posed two related duties on FERC that have that undesir-

able effect: (1) FERC must “implement[] and use[] an ef-

fective oversight mechanism” that “ensure[s] that [con-

tract] rates [are] within the statutory ‘just and reasonable’

range,” Pet. App. 48a, 51a; and (2) when a purchaser chal-

lenges a contract rate as being unjust and unreasonable,

FERC must “revisit[{] the market circumstances in which

the agreements were entered to determine whether those

circumstances were sufficiently functional that they were

likely to yield long-term contracts within the ‘just and rea-

sonable’ range,” id. at 54a. By requiring FERC to micro-

manage rates set by contract and to “revisit[}” them after

the fact, the Ninth Circuit is requiring FERC to “disrupt[]

... contractual relationships,” which NAFTA Article 606

prohibits. Furthermore, the Ninth Circuit departed from

the Mobile-Sierra doctrine, which in the past greatly

reduced the opportunities for conflicts with Article 606

because courts closely policed FERC’s authority to alter

long-term contracts under a public-interest standard akin

to the one followed in Canada. The Ninth Circuit’s deci-

sions consequently pose substantial threats to the Umited

States’ ability to comply with Article 606.

B. The Decisions Below Undermine The Pur-

poses Of Treaty Provisions Designed To En-

sure Reliable Energy Trade

The Ninth Circuit’s decisions in these cases also un-

dermine the purposes of multiple treaty provisions de-

signed to promote the reliability of the transnational en-

ergy trade between the United States and Canada. Those

provisions are Articles 605 and 60. of NAFTA, as well as

Articles 904 and 907 of the FTA, which preceded NAFTA.

All of those provisions are designed to limit the ability of

the United States and Canada to “adopt or maintain a

restriction” on the export of energy, thereby ensuring a

steady flow of energy between the nations.?9

The United States sought those provisions to ensure a

reliable supply of energy from the north. See Saunders,

12 J. Energy Nat. Resources L. at 8.39 Canada had a com-

29 NAFTA Article 605 allows a “Party” to “adopt or maintain a re-

striction” on “the export of an energy or basic petrochemical good to the

territory of another Party” only in certain limited circumstances. 32

[.L.M. at 365. It “reproduces almost exactly[] provisions of the [FTA]”

and “amounts to a North American energy resource supply guarantee.”

Lucas, 25 Energy L.J. at 421-22; see Lock, 1 U.S.-Mex. L.J. at 245

(same); FTA art. 904, 27 I.L.M. 281, 344 (1988). NAFTA Article 607,

32 I.L.M. at 365, which similarly reproduces its FTA counterpart, see

FTA art. 907, 27 I.L.M. at 344, “limits use of the national security ex-

emption found elsewhere in [NAFTA], to justify restrictions on energy

imports and exports.” Lucas, 25 Energy L.J. at 421-22; see Lock, 1

U.S.-Mex. L.J. at 245 (same).

30 See also New Gas Importation Policy, 49 Fed. Reg. at 6688 (“The

security of gas supply and its transportation to the U.S. border remain

important components of the public interest, especially those under

EE eS,

plementary interest in protecting “an unimpeded source of

energy demand” from the south. See id.*! The NAFTA

and FTA energy provisions “reflect[] an accommodation of

both those interests.” Jd. They serve the purpose of

“eliminating any fear that a producing country could re-

duce exports on which the consuming country was de-

pendent in a discriminatory manner or for political pur-

pose.”32, And the treaties have had the salutary “effect of

overcoming much of the [United States’] concern over the

security of the supply” from Canada. Conine, 27 Tex. Int’l

L.J. at 681.

The decisions below undermine the energy provisions of

NAFTA and the FTA by reducing the reliability of energy

supply. By extending to energy buyers an open invitation

to challenge energy contracts, the Ninth Circuit’s deci- —

sions discourage Canadian sellers from entering into for-

ward contracts subject to FERC’s regulation. FERC’s

regulatory interference with forward contracts will im-

pede energy trade by upsetting parties’ settled contractual

expectations, which is exactly what the energy provisions

of the FTA and NAFTA sought to prevent.**

CONCLUSION

The petitions for a writ of certiorari should be granted.

long-term arrangements. An import will be considered secure if it does

not lead to undue dependence on unreliable sources of supply.”).

31 See also Battram & Lock, 9 Energy L.J. at 336 (“Canadian con-

cerns relate primarily to fears that U.S. economic protectionism . .

will interfere with long-term market stability.”).

32 Gary B. Conine, Natural Gas Transactions Between the United

States and Mexico: Pol:tical and Legal Impediments to Free Trade, 27

Tex. Int’] L.J. 577, 681 (1992).

33 Cf, Conine, 27 Tex. Int'l L.J. at 685 (“As long as either trading

partner must make case-by-case determinations on gas transactions

under policies that second-guess results dictated by market mecha-

nisms, trade will be impeded.”).

Respectfully submitted,

DAVID C. FREDERICK

Cou.:sel of Record

ScoTT H. ANGSTREICH.