# 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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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1636%3A06

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2007

## Text

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.

li

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

iv

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

v

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

vi

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&

Oe

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

ix

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

xi

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).

2

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.

3

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

4

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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3)

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.

6

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).

7

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-

8

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.

9

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

10

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.

11

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.

12

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.

13

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

14

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”).

15

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

16

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

17

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’).

18

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

19

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,

20

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.
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

Re ee eT

Counsel for Amicus Canadian Electricity Association
August 6, 2007

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1636%3A06. Public record. Not legal advice.
