Amicus Curiae Brief — Dynegy Power Power Marketing Marketing, Inc. v. Public Public Utilities Utilities Commission Commission Commission (Nos. 06-1468, 06-1454)

(3) Q QA B N6s- 207

Nos. 06-1454, 06-1457, 06-1462, 06-D#68CE OF THE Carp i

Iu the

Supreme Court of the United States 8) ie on

SEMPRA GENERATION et al., PETITIONERS,

Vv.

PUBLIC UTILITIES COMMISSION OF THE STATE OF CA, et al.

MORGAN STANLEY CAPITAL GROUP INC., PETITIONER,

Ws

PUBLIC UTILITY Dist. NO. 1 OF SNOHOMISH COUNTY WA, e? al.

CALPINE ENERGY SERVICES, L.P., et al., PETITIONERS,

¥,

PUBLIC UTILITY DIST. NO. 1 OF SNOHOMISH COUNTY WA, et ail.

DYNEGY POWER MARKETING, INC., e¢ al., PETITIONERS,

Vv.

PUBLIC UTILITIES COMMISSION OF THE STATE OF CA, et al.,

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Ninth Circuit

BRIEF OF THE ELECTRIC POWER SUPPLY

ASSOCIATION, COLORADO INDEPENDENT

ENERGY ASSOCIATION, INDEPENDENT ENERGY

PRODUCERS ASSOCIATION, INDEPENDENT

POWER PRODUCERS OF NEW YORK, NEW

ENGLAND POWER GENERATORS ASSOCIATION,

INC., NORTHWEST & INTERMOUNTAIN POWER

PRODUCERS COALITION, AND WESTERN POWER

TRADING FORUM AS AMICI CURIAE IN SUPPORT

OF PETITIONS FOR CERTIORARI

NEIL L. LEvy KENNETH W. STARR

DaviD G. TEWKSBURY Counsel of Record

BETH A. SCHONMULLER KIRKLAND & ELLIS LLP

KIRKLAND & ELLIS LLP 777 South Figueroa Street

655 Fifteenth Street, NW Los Angeles, CA 90017

Washington, D.C. 20005 (213) 680-8400

Attorneys for Electric Power Supply Association

August 6, 2007

WILSON-EPES PRINTING CO , INC. — (202) 789-0096 — WASHINGTON, D. C. 20002

Additional counsel:

NICHOLAS MULLER

EXECUTIVE DIRECTOR

COLORADO

INDEPENDENT ENERGY

ASSOCIATION

475 17th Street, Suite 940

Denver, CO 80202

(303) 297-1970

Counsel for

Colorado Independent

Energy Association

GLENN D. HAAKE

GENERAL COUNSEL

INDEPENDENT POWER

PRODUCERS OF NEW

YORK, INC.

19 Dove Street, Suite 302

Albany, NY 12033

(518) 436-3749

Counsel for

Independent Power

Producers of New York

DAVID G. TEWKSBURY

KIRKLAND & ELLIS LLP

655 FIFTEENTH STREET, NW

WASHINGTON, D.C. 20005

(202) 879-5000

Counsel for

New England Power

Generators Association, Inc.

JAN SMUTNY-JONES

ISXECUTIVE DIRECTOR

INDEPENDENT

ENERGY PRODUCERS

ASSOCIATION

1215 K Street, Suite 900

Sacramento, CA 95814

(916) 448-9499

Counsel for

Independent Energy

Producers Association

DAvipD G. TEWKSBURY

KIRKLAND & ELLIS LLP

655 FIFTEENTH STREET, NW

WASHINGTON, D.C. 20005

(202) 879-5000

Counsel for

Northwest & Intermountain

Power Producers Coalition

DANIEL W. DOUGLASS

DOUGLASS & LIDDELL

21700 Oxnard Street

Suite 1030

Woodland Hill, CA 91367

(818) 961-3001

Counsel for Weslern

Power Trading Forum

i

QUESTION PRESENTED

Under the Federal Power Act, as interpreted by

this Court in United Gas Pipe Line Co. v. Mobile Gas

Serv. Co., 350 U.S. 332 (1956), and Federal Power

Commission v. Sierra Pacific Power Co., 350 U.S. 348

(1956), the Federal Energy Regulatory Commission

is prohibited from abrogating the terms of valid

wholesale power contracts except in extraordinary

circumstances of unequivocal public necessity. In

conflict with decisions of this Court and every other

Court of Appeals to consider the issue, the Ninth

Circuit held that the Commission may nullify a

wholesale power contract, even in the absence of

public necessity, if the contract rates were not pre-

approved by the Commission or if the contract is

later deemed to have been formed during a period of

market “dysfunction.”

The questions presented are:

1. Whether the Ninth Circuit erred in failing to

abide by this Court’s decisions precluding the

Federal Energy Regulatory Commission from

retroactively abrogating valid, bilaterally negotiated

wholesale energy contracts absent a showing that

abrogation is required in the public interest.

2. Whether the Ninth Circuit erred in effectively

determining that the Mobile-Sierra public-interest

standard applies to sellers, but not buyers, that are

seeking to escape the terms of freely negotiated

wholesale power contracts.

ii

TABLE OF CONTENTS

QUESTION PRESENTED .. ......:....c0....ccesececnccssanetens cee i

WM RPRANE APE” PUNT REMRIURE RRND on sccincsscinnnsccaeniscssessessenssosesenee iv

INTEREe 1) OF AMICT CURIA .......0ccisceasesccssssasosessssses 1

eS HOI ished li ds isth advadicondcitndysursihcoudvsyeenesabidonsons 3

REASONS FOR GRANTING THE WRIT ................... 4

A. The Decisions Below Conflict With This

Court’s Controlling Authorities And

Upend More Than Fifty Years Of Settled

ENE IEN IT Cie ea Neate on eieA aee PE 4

B. The Decisions Below Threaten The

Public’s Long-Term Interests In Reliable

Arid ASPOSGAUIO TAROT 6 oicncisccecsinscssccsecesecsseassaveesse 8

1. The Ninth Circuit Decisions Threaten

To Destabilize Contracts And Inject

Uncertainty Into The Nation’s .

Wholesale Energy Markets. .............0.........0.- 8

2. The Ninth Circuit Decisions Threaten

To Prevent The Commission From

Maintaining A Workable Market-

See BE IO iii... 14

C. The Decisions Below Remove’ An

Important Constraint On Arbitrary

UI I iis pina dasccanicinenpdadabiakavemauae 17

Se RSME RN sits evineasuinsicsuiskanibadeciiaadasanpassntiienntduhseabeehion 20

iii

TABLE OF AUTHORITIES

Page(s)

Cases

Arizona Corp. Comm’n v. FERC,

ee Foe te CAs CAG sO) wcisinesnconsscceaséccecdoress 18

Arkansas La. Gas Co. v. Hall,

RR Oe hank sv aes'ccssadcasnes vadsonmleane 5

Atlantic City Elec. Co. v. FERC,

MI eee BA, BR PD os asccsecscessosastwsececsencosane §

Borough of Lansdale v. FPC,

494 F.2d 1104 (D.C. Ci. 1974) .........0...0..000000 7,18

Boston Edison Co. v. FERC,

pee Be BE te | | a 18

Boston Edison Co. v. FERC,

BO Fee rk Cee Cl, FOGG) cocci ccc ccceccccccceccccescccess 7

D.C. Fed’n of Civic Assoc. v. Volpe,

Oe Pe Bae Cee iP. FOIE) vicccicccvcscasccscscssseds 19

Federal Power Comm’n v.

Sierra Pac. Power Co.,

RE AA e ID vibes seasincdecinnsanscsnisncecesndesane passim

In re Permian Basin Area Rate Cases,

acca ecards cnibadvvncndsenecect 5,18

Louisiana Pub. Serv. Comm’n v. FCC,

OE Fe ek ckicdadscadcsncccsudsassdossssvdacdsees 19

Metropolitan Edison Co. v. FERC,

GOS Fe Gok CI So, FOTO) novice chececccncsscsscsseaes 18

Natural Gas Pipeline Co. of Am. v. Harrington,

DS Pe ee te CAT, BERT oiiannnccc cave ccconcoscscscsecese 7

Northeast Pub. Util. Comm’n v. FERC,

OG eT Ta TN fo 9g |. IE ee 18

Northeast Utils. Serv. Co. v. FERC,

re ee WT CBE Ce, Fa ian siccecescccacenenssnccdssasses 5

iV

Potomac Elec. Power Co. v. FERC,

mae eer Boe Cw. Cit, 2000) oo ioic......0,002.008 5,18

Public Serv. Comm’n of N.Y. v. FPC,

eee Fee COM, MOE DOES) ....202c00ccccsnccesesscaees 17

Public Util. Dist. No. 1 of

Snohomish County v. FERC,

ee ee Oe Ceeth CFF. ZOO) ...............5ccccccccececess 3

Public Utils. Comm’n of Cal. v. FERC,

ge gS | | ae 3

Reno v. Bossier Parish Sch. Bd.,

NE NS oc recccesscsardsacssecnccsacevecncars 14

Rodriguez de Quijas v.

Shearson/Am. Express, Inc.,

ip aiecanscnassnescasecssensnsecanaeias 14

Rodriguez v. United States,

Rs I IED cinisicecsscsesnacsssnsacssesnecanescasacsees 10

Sam Rayburn Dam Elec. Coop. v. FPC,

ae we ee tae. Cir. 2975) .............0..2.0...5.000. 18

San Diego Gas & Elec. Co. v. FERC,

gs Rak 8 2S | ) 10

Texaco, Inc. v. FERC,

146 Fda 1091 (D.C. Cir. 1996)........................... 18

Transmission Access Policy Study

Group v. FERC,

ee ee eee Cae. CaP, ZOD) ..........20.....s0sceeceeace 18

United States Gas Pipe Line Co. v.

Mobile Gas Serv. Co.,

MN ME EID oon cciinsecascccssnacecccacoseccceoses passim

Verizon Comme'ns, Inc. v. FCC,

a a 5, 10

Wisconsin Pub. Power, Inc. v. FERC,

Nos. 04-1414, et al., 2007 WL 206724

See NN, MIR, PED oon sccsccnnscccacsco.cccaesees 5, 18

Agency Cases

Complaint by The People of The State of Illinois, |

Ex Rel. Illinois Attorney General Lisa Madigan,

Docket No. EL07-47-000 (Mar. 15, 2007)

: Section 206 Complaint,

FERC Docket No. EL07-50-000 (Mar. 26, 2007)

Section 206 Complaint,

FERC Docket No. ELO7-49-000 (Mar. 16, 2007)

Section 206 Complaint,

FERC Docket No. EL07-40-000 (Mar. 2, 2007)

Section 206 Complaint,

FERC Docket No. ELO7-37-000 (Feb. 22, 2007). 16

Public Utils. Comm’n of Cal. v.

Sellers of Long Term Contracts,

BO Fe FOE OE (OU) 6.0 sccccseccssesessescscesecees 13

Public Utils. Comm’n of Cal. v.

Sellers of Long Term Contracts,

Eo | ae 11

San Diego Gas & Elec. Co. v.

Sellers of Energy & Ancillary Servs.,

ee ee ae OD vineicncesccccessescsesccccsescscees 13

Standard of Review for Proposed Changes

to Market-Based Rate Contracts for

Wholesale Sales of Electric Energy by

Public Utilities, Proposed Policy Statement,

DG ee BR BD QUE) osecvnesssccccccececonnsseccescess 12

Other Authorities

502 Foster Elec. Report 10,

S&P Warns That Re-Regulating Utilities Is

Like Trying To Put Toothpaste Back In

ZOE EMCO GABE. 11, FOOT)... .ccccccesccd}esessscescsscccecnee 17

vl

Bandt, William D.,

William D. Bandt, et al., Manifesto on

the Cal. Elec. Crisis (Jan. 30, 2003),

available at http: / / www.anderson.ucla.edu

/ faculty /dick.rumelt / Docs /

Commentary / Manifesto2003.pdf.................0000000+- 9

Brockway, Walter

Comments of Walter Brockway, Conference to

Examine the State of Competition in Wholesale

Power Markets (May 8, 2007),

available at http://elibrary.ferc.gov

/Aidmws/nvcommon/NVViewer.

TE iis sssts ssc sccnstacesesivcscednasines 9

CERA Advisory Services, California Power Crisis

Aftershock: The Potential Modification of

Western Power Contracts (April 2007),

available at http://www.cera.com/aspx/cda/

client/report/reportpreview.aspx?

Se IN irccccssncisnnsstcbeniosnsansstsesicatens pass m

Dep’t of Energy, Energy Info. Admin.,

The Changing Structure of the Elec.

Power Indus. 2000: An Update (Oct. 2000),

available at http://www.eia.doe.gov

/cneaff/electricity/chg_stru_update/

I ssiiriinactiddassnsssdenal ebtnapncnsdixinasccess 15,17

Feinstein, Dianne,

U.S. Sen. Dianne Feinstein, Press Release,

Senator Feinstein Statement on FERC Ruling

By U.S. Ninth Circuit Court of Appeals

(Dec. 20, 2006),

available at http://feinstein.senate.gov

/06releases/r-ferc-stmnt1220.pdf ............0.......0. 19

FERC, Office of Markets

Oversight and Investigations, 2004

State of the Markets Report (June 2005),

available at http://www.ferc.gov/

EventCalendar/Files/20050615

093455-06-15-05-som 2004. pdf ........... ee. 12, 16

Vii

Harvey, Scott M., et al., LECG LLC,

Analysis of the Impact of Coordinated

Elec. Mkts. on Consumer Elec. Charges

(Nov. 20, 2006),

available at http://www.pjm.com/

documents/downloads/reports/

20061121-analysis-coordinated-elec-mkts.pdf... 16

ISO/RTO Council,

The Value of Independent Regional

Grid Operators (Nov. 2005),

available at http://www.caiso.com

/14c6/14c6c4291aa40. pdf... ec eeeccceeeeeeeees 16

Kelliher, Joseph T.,

Opening Remarks at the Competition in

Wholesale Power Markets Conference,

FERC Docket No. AD07-7-000 (Feb. 27, 2007),

available at http://elibrary.ferc.gov

/idmws/nvcommon/NVViewer.asp

TE EG TT iaciiddin es nacbasanansvedeandainaiasasionangt 15

Kelliher, Joseph T..,

Statement of Joseph T. Kelliher,

Open Commission Meeting of the Federal

Energy Regulatory Commission (Apr. 19, 2007),

available at http://www.ferc.gov/

news/statements-speeches/kelliher/

2007/04-19-07-kelliher-M-1.pdf ................... eee 14

Kelliher, Joseph T.,

Testimony of the Hon. Joseph T. Kelliher

before the Senate Energy and Natural

Resources Committee (May 10, 2007),

available at http://www.ferc.gov/Event

Calendar/Files/20070510122541-05-10-07.pdf... 12

Letter to FERC Chairman Patrick H. Wood III

from U.S. Sen. John Kerry, Docket Nos.

EL00-95-045, et al. (Apr. 23, 2003),

available at http://elibrary.ferc.gov/

idmws/nvcommon/NVViewer.asp?

RETIN waieitivabinnsdchaiheskscisnacenscnsdspabibacnilia 19

vill

Letter to FERC Chairman Patrick H. Wood III

from U.S. Sens. M. Cantwell, G. Smith,

H. Reid, R. Wyden, B. Boxer; and

D. Feinstein, ket Nos.

EL02-28-000, et al. (Oct. 29, 2003),

available at http://elibrary.ferc.gov

/Aidmws/nvcommon/NVViewer.asp

pS 19

National Energy Policy Dev. Group,

Nat'l Energy Policy (May 2001),

available at http://www.whitehouse.gov

/energy/National-Energy-Policy.pdf ............. 13, 15

Rigby, Peter,

Statement of Peter Rigby,

Standard & Poor’s Director,

FERC Docket Nos. EL02-60-000,

et al. (Mar. 20, 2002),

available at http://elibrary.ferc.gov/

idmws/common/opennat.asp?

LE EE 9,11

Spence, David B. & Cross, Frank,

A Public Choice Case

for the Administrative State,

EEE PII 0 sn sc snccncsncnsecsosucseesenssbedenes 19

Spitzer, Marc,

Statement of Comm’r Marc Spitzer

(June 21, 2007),

available at http://www.ferc.gov/news

/statements-speeches/spitzer/

2007/06-21-07-spitzer-E-3.pdf...............c.ccceeeeeeeees 12

The Electric Energy Market Competition Task Force,

Report to Congress on Competition in

Wholesale and Retail Markets for

Electric Energy (April 2007),

available at http://www.ferc.gov/

legal/maj-ord-reg/ fed-sta/

ene-pol-act/epact-final-rpt.pdf .................. 9,11, 16

ne

eq

-

;

ix

Wells, Jim,

Statement of Jim Wells, Meeting Energy

Demand in the 21st Century,

GAO-05-414T (Mar. 16, 2005),

available at http://www.gao.gov/

SIT seaistiineticishcecnsotindinannvesescncnscnanien 17

INTEREST OF AMICI CURIAE!

Amici and their members represent a diverse

array of participants in the Nation’s electric and

natural gas industries, and are directly affected by

the issues raised in these cases. Amici and their

members heve made _ long-term financial

commitments, ‘nvolving hundreds of billions of

dollars, in reliance on this Court’s settled authorities

protecting the integrity of privately negotiated

wholesale power contracts. Because the Ninth

Circuit decisions purport to grant the Federal

Energy Regulatory Commission _ never-before-

recognized authority to abrogate such contracts,

amici are concerned that the decisions below will

destabilize the Nation’s power markets, discourage

much-needed investment, and ultimately lead to

higher costs for consumers.

The Electric Power Supply Association

(“EPSA”). EPSA is a national trade association

representing competitive electric power suppliers,

including independent power producers, merchant

generators, and power marketers. EPSA’s mission is

to promote legislative and regulatory policies

encouraging a competitive market for electricity.

Colorado Independent Energy Association

(“CIEA”). CIEA is a trade association of competitive

1 Petitioners and respondents have consented to the filing of

this brief in letters on file in the Clerk’s office. Pursuant to S:

Ct. R. 37.6, amici state that no counsel for a party authored any

part of this brief. No person or entity other than amici, their

members, or their counsel made a monetary contribution to the

preparation or submission of this brief. The attorneys

preparing this brief direct the Court’s attention to the fact that

. a second brief as amicus curiae will be filed in these same cases

on behalf of the Natural Gas Supply Association by different

attorneys from the same law firm. Although the attorneys

working on the two briefs have shared work product and

engaged in joint efforts, the resulting briefs are independent

statements reflecting the independent views of the respective

clients on whose behalf each of the two individual briefs are

being filed.

2

independent power producers, who are an integral

part of Colorado’s energy industry, producing

electricity with clean, efficient natural gas-fired

cogeneration and renewable technologies.

Independent Energy Producers Association

(“IEP”). IEP is a California non-profit mutual

benefit corporation whose members collectively own

and operate approximately one-third of California’s

installed generating capacity. IEP seeks to reduce

dependence on imported energy sources, and to

encourage supply options that benefit society

economically, socially, and environmentally.

Independent Power Producers of New York

(“IPPNY”). IPPNY is a New York State not-for-

profit trade association of independent power

producers that is committed, among other things, to

ensuring that contractual and regulatory agreements

and commitments are fully honored.

New England Power Generators Association,

Inc. (“NEPGA”). NEPGA is the largest trade

association representing’ electric generating

companies in New England. Its mission is to

promote sound energy policies that further economic

development, jobs, and balanced environmental

policy.

Northwest & Intermountain Power

Producers’ Coalition (“NIPPC”). NIPPC

represents developers, owners, and operators of non-

utility power plants in the Northwest and

Intermountain region. The electricity generated at

these plants is delivered under long-term contracts

to utilities or sold in the spot market.

Western Power Trading Forum (“WPTF”).

WPTF is a California non-profit, .mutual benefit

corporation whose members actively participate in

California’s restructured electricity markets and are

dedicated to enhancing competition. WPTF’s broad-

based membership includes energy service providers,

scheduling coordinators, generators, energy

consultants, and public utilities.

3

INTRODUCTION

For more than fifty years, the Federal Power Act

has protected the integrity of contracts. Buyers and

sellers of wholesale power have negotiated long-term,

fixed-rate contracts with the guarantee that the

Federal Energy Regulatory Commission, the Federal

Power Commission’s successor, has no authority to

abrogate those contracts except in extraordinary

circumstances “when necessary in the _ public

interest.” United States Gas Pipe Line Co. v. Mobile

Gas Serv. Co., 350 U.S. 332, 344 (1956).

The decisions below upend the balance struck by

Congress and long recognized by this Court and

various Courts of Appeals. In an _ abrupt,

unwarranted break from precedent, the Ninth

Circuit reinterpreted the Federal Power Act,

granting the Commission new authority to abrogate

valid contracts if the Commission has _ not

pre-approved the contract rates or if the contracts

are later deemed to have been formed during a

period of market “dysfunction.” Public Util. Dist. No.

1 of Snohomish County v. FERC, 471 F.3d 1053,

1061, 1086 (9th Cir. 2006); Public Utils. Comm’n of

Cal. v. FERC, 474 F.3d 587, 594-96 (9th Cir. 2006).

Even more _ troubling, the Ninth Circuit

fundamentally altered the even-handed public-

interest standard applied in earlier cases, effectively

holding that henceforth only buyers, but not sellers,

are entitled to protection from Commission-imposed

contract abrogation.

Amici file this brief to emphasize the practical

importance of the questions presented. Most

importantly, it is essential that the Court appreciate

the grave, potentially disastrous effects the Ninth

Circuit decisions are likely to have on consumers and

the Nation’s energy markets. If permitted to stand,

the decisions below threaten to destabilize the

regulatory framework on which thousands of

wholesale power contracts are premised and to

impose billions of dollars of unnecessary costs on

consumers.

4

REASONS FOR GRANTING THE WRIT

This Court should grant certiorari because the

decisions below contravene its own prior decisions

and conflict with the decisions of every other Court of

Appeals to have considered the issue. (See Section A,

below.) If they are left uncorrected, the Ninth

Circuit decisions threaten to unsettle contract

stability, to inhibit much-needed investment in

energy infrastructure, and to undermine the

Commission’s efforts to promote competition and

maintain a workable, market-based rate system.

Most troubling of all, they may well set the stage for

future crises in the Nation’s bulk power markets.

(See Section B, below.) Finally, in greatly expanding

and simultaneously blurring the circumstances in

which the Commission may abrogate private

contracts, the Ninth Circuit decisions have removed

an important constraint on arbitrary agency

decision-making. (See Section C, below.)

A. The Decisions Below Conflict With This

Court’s Controlling Authorities And

Upend More Than Fifty Years Of Settled

Precedent.

Over a half-century ago, this Court held in two

unanimous decisions that the Federal Power Act

preserves the integrity of private contracts. See

Mobile, 350 U.S. at 347; Federal Power Comm’n v.

Sierra Pac. Power Co., 350 U.S. 348 (1956). These

decisions, referred to collectively as Mobil» Sierra,

have since become towering landmarks in the

regulatory jurisprudence governing domestic energy

markets. The decisions recognize that because the

Federal Power Act creates a regulatory system based

on privately negotiated agreements, the

Commission’s authority to interfere with private

contracts is limited. When sophisticated parties

negotiate a wholesale energy contract, the agreed-on

rates are presumptively “just and reasonable” and

the contract may not be abrogated except in

“extraordinary circumstances” of “unequivocal public

5

necessity.” In re Permian Basin Area Rate Cases,

390 U.S. 747, 822 (1968); see also Arkansas La. Gas

Co. v. Hall, 453 U.S. 571, 582 (1981).

The continuing vitality of Mobile-Sierra has been

confirmed by this Court and assumed by lower courts

in a long line of cases. See, e.g., Verizon Commc’ns,

Inc. v. FCC, 535 U.S. 467, 479 (2002); Wisconsin Pub.

Power, Inc. v. FERC, Nos. 04-1414, et al., 2007 WL

206724 (D.C. Cir. July 20, 2007); Atlantic City Elec.

Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002); Northeast

Utils. Serv. Co. v. FERC, 993 F.2d 937, 960 (1st Cir.

1993). These cases have reaffirmed that, absent

duress or bad faith at the time the contracts are

negotiated, parties must “live with their bargains as

time passes and various projections about the future

are proved correct or incorrect.” Potomac Elec. Power

Co. v. FERC, 210 F.3d 403, 410 (D.C. Cir. 2000).

Faithfully applying this well-established

understanding of Mobdile-Sierra, the Commission

rejected an attempt by California and other buyers of

wholesale electricity to escape contracts they had

negotiated at arm’s-length. The Commission found

that, although “other alternatives were available,”

the buyers freely chose “to enter into the contracts”

and knowingly accepted the market risks. Sempra

Pet. App. 96a. And the Commission determined that

the buyers’ “dissatisfaction” with their “bargains”

could not justify abrogating the contracts under the

public-interest standard. Jd. (no factor “on this

record demonstrates that the contracts are contrary

to the public interest”).

The Commission’s application of the _ public-

interest standard was in no wise unreasonable.

California and the. other buyers enjoyed significant

bargaining advantages and freely chose to enter the

long-term contracts, which at the time they

trumpeted as “fair, negotiated, hard-fought deals.”

Sempra Pet. 9. Although the buyers knew the

Commission was taking steps to address the

market’s structural problems, they chose to execute

the agreements, because the negotiated contract

6

rates were well below the then-existing prices for

energy on the spot market. Because the buyers had

significant bargaining power, some suppliers even

agreed to sell power initially “at a substantial loss in

hopes of recovering those losses over the life of the

contracts.” Sempra Pet. 8. Perhaps most

significantly, the Commission determined that,

although the buyers loudly complained when spot

prices later dropped, they could not “demonstrate

that the contracts were priced above long-run

competitive prices” or otherwise show that the

contract rates exceeded just and reasonable levels.

Id. at 10.

Reversing the Commission, the Ninth Circuit

brushed aside the agency’s expert determinations

and recast Mobile-Sierra as a narrow “mode of

review that applies only in “certain limited

circumstances.” Sempra Pet. App. 300a-30la.

Invading the province of both this Court and the

Commission, the Ninth Circuit fashioned a brand

new test for determining when Mobile-Sierra’s

public-interest standard protects the integrity of

contracts. See id. at 324a-327a. The Ninth Circuit

ruled that henceforth, if a party seeks to escape its

contractual obligations, Mobile-Sierra will not apply

unless (1) the Commission had an opportunity to pre-

approve the contract rates; and (2)the contract

negotiations occurred in a market free from

“dysfunction” and the influence of other “improper

factors.” Id. at 319a-320a.

Even as it narrowed its field of application, the

Ninth Circuit reinvented Mobile-Sierra, creating a

new asymmetrical standard in favor of buyers who

become dissatisfied with their long-term agreements.

In the Ninth Circuit’s view, the public-interest

standard differs depending on whether it is a seller

or a buyer that is challenging a contract: When a

seller negotiates an improvident bargain (a so-called

“low rate” case), the Commission may not modify the

parties’ agreement unless the agreement imposes an

“excessive burden” on consumers; in contrast, when a

7

buyer negotiates an improvident bargain (a so-called

“high rate” case), the Commission must abrogate the

parties’ agreement whenever “consumers’ electricity

bills have been affected” and the challenged rates fall

outside a “zone of reasonableness.” Sempra Pet.

App. 326a (rates fall outside a “zone of

reasonableness” if they exceed marginal costs and

are not “part of a general trend toward rates that do

reflect cost”).

Because the Ninth Circuit’s newly-fashioned test

contravenes this Court’s prior decisions, certiorari is

warranted. See Sempra Pet. 3; Morgan Stanley Pet.

3; Dynegy Pet. 3-4; Calpine Pet. 2. Certiorari is also

warranted because the Ninth Circuit has opened an

irreconcilable conflict between its decisions below

and decisions from other Courts of Appeals,

including those of the First, Fifth, and D.C. Circuits.

These other courts have held that Commission

approval of contract rates is not a prerequisite to

applying Mobile-Sierra. See, e.g., Boston Edison Co.

v. FERC, 856 F.2d 361, 371 (1st Cir. 1988); Borough

of Lansdale v. FPC, 494 F.2d 1104, 1114 (D.C. Cir.

1974); Natural Gas Pipeline Co. of Am. ov.

Harrington, 246 F.2d 915, 919 (5th Cir. 1957); see

also Dynegy Pet. 11 (noting that the Commission’s

orders in Mobile and Sierra accepted, but did not

approve, the contracts at issue). These courts have

rejected attempts by parties to escape their

contractual obligations on grounds of market

dysfunction. See Dynegy Pet. 19-23. And they have

refused to interpret Mobile-Sierra as establishing an

asymmetrical standard that disadvantages sellers

and focuses on buyers’ short-term interests to the

exclusion of long-term contractual stability. See id.

at 23-26; see also Sempra Pet. 25-26.

In short, the Ninth Circuit has ignored settled

principles of stare decisis, transforming the Mobdile-

Sierra public-interest standard beyond _ all

recognition and_- granting the Commission

unprecedented authority to abrogate contracts that

might have short-term effects on retail rates. This

8

Court should grant review to correct the Ninth

Circuit’s improper exercise of judicial policymaking.

B. The Decisions Below Threaten The

Public’s Long-Term Interests In Reliable

And Affordable Energy.

Apart from correcting the Ninth Circuit’s

improper departure from precedent, this Court’s

review is needed to prevent lasting damage to the

Nation’s wholesale energy markets. By making

buyer’s (but not seller’s) remorse a basis for escaping

long-term contracts, the Ninth Circuit’s newly-

fashioned, asymmetrical rules wil] discourage much-

needed investment and undermine the Commission’s

market-based system, ultimately setting the stage

for higher energy costs and less reliable energy

supplies.

1. The Ninth Circuit Decisions Threaten

To Destabilize Contracts And Inject

Uncertainty Into The Nation’s

Wholesale Energy Markets.

Power markets are highly volatile and hard to

predict. As commentators have noted, because power

markets are susceptible to periods of inelastic

demand and supply, the industry often faces large,

sudden shifts in price. See CERA Advisory Services,

California Power Crisis Aftershock: The Potential

Modification of Western Power Contracts at 5 (April

2007) (“Aftershock”). These price dynamics mean

that cash flows from spot markets are cyclical,

unpredictable, and often insufficient to cover the full

costs of power plant investments. At the same time,

the capital requirements of the electric generation

sector are enormous. In the next 15 years, the power

sector must grow by an estimated 35 percent 1 keep

pace with projected demand. See id. at 14. This

expansion will require at least “$400 billion in

investment in new and existing power plants.” Jd. at

15-16.

In this market environment, fixed-price, long-

term contracts are an essential tool for encouraging

9

investment in infrastructure. In particular, given

the large upfront costs and long payout periods

characteristic of power plant investments, long-term

contracts are an important mechanism through

which buyers and sellers manage risk. Long-term

contracts “smooth out future cash flows for investors,

reducing the cost of investments by reducing the

price risk exposure and in doing so, creating savings

for buyers too.” Aftershock, at 6; see also Statement

of Peter Rigby, Standard & Poor’s Director, at 7-8,

FERC Docket Nos. EL02-60-000, et al. (Mar. 20,

2002) (“Rigby Statement”) (stable contracts

“introduce a greater degree of stability and

predictability to cash flows”). As a representative of

one of the Nation’s largest consumers of electric

power recently explained, long-term contracts

provide security to both buyers and sellers: the

“seller gets the security of a long-term revenue

stream with which to finance the capital costs of base

load generation,” while the “buyer receives the

security of locking in those capital costs for the term

of the contract.” Comments of Walter Brockway,

Conference to Examine the State of Competition in

Wholesale Power Markets (May 8, 2007). Sanctity of

contract thus “remains vitally important” to

attracting the “capital needed to build adequate

generating infrastructure.” Sempra Pet. App. 242a.

It is hard to overstate the importance of

regulatory certainty and contractual integrity to the

efficient working of the electric power industry. See

The Electric Energy Market Competition Task Force,

Report to Congress on Competition in Wholesale and

Retail Markets for Electric Energy, at 74, 76-77 (April

2007) (“Competition Report”); see also William D.

Bandt, et al., Manifesto on the Cal. Elec. Crisis (Jan.

30, 2003) (the “key to the success of an electricity

market is the ability of consumers and suppliers to

enter into bilatera) long-term contracts”). As this

Court has recognized, energy facilities “may

frequently require substantial investments” that

would not be made absent “long-term commitments”

10

that, once entered, cannot be changed except in

extraordinary circumstances. Mobile, 350 U.S. at

344. The “certainty and stability” that “stems from

contract performance and enforcement” is “essential

to an orderly bulk power market.” San Diego Gas &

Elec. Co. v. FERC, 904 F.2d 727, 730 (D.C. Cir.

1990). If the Commission may abrogate contracts

whenever short term retail rates may be affected,

“business would be transacted without legally

enforceable assurances and ... the market, the

industry|,) and ultimately the consumer will suffer.”

The Ninth Circuit did not address’ these

important features of the industry. It instead took a

simplistic view that subordinates “the stability of

contract considerations that underlie the Mobile-

Sierra doctrine” to advantaging buyers and

insulating consumers from what the lower court

described as “unjustifiably high rates.” Sempra Pet.

App. 325a-326a. The Ninth Circuit decisions, which

are driven by an overweening concern for rates paid

by consumers in the shorter term, cannot be

reconciled with Congress’s considered judgment that,

over the longer term, consumers are better off,

enjoying lower costs and more reliable energy, when

the Commission respects the integrity of private

contracts. See Verizon, 535 U.S. at 479; see also

Rodriguez v. United States, 480 U.S. 522, 525 (1987)

(“it frustrates rather than effectuates legislative

intent simplistically to assume that whatever

furthers the statute’s primary objective must be the

law”).

Today, more than ever, long-term contracts are

vital to promoting capital investment in the energy

industry, which depends on billions of dollars to

maintain and expand the infrastructure essential to

providing consumers with clean, reliable, and

inexpensive energy. As the Commission has noted,

the “[p]reservation of contracts has, if anything,

become even more critical since the [Mobile-Sierra]

policy was first adopted.” Public Utils. Comm’n of

11

Cal. v. Sellers of Long Term Contracts, 99 FERC

q 61,087 at 61,383 (2002). Under the traditional,

cost-based regulatory system, “utility investment

decisions were based in part on the promise of a

regulated revenue stream with little associated risk

to the utility.” Report to Congress, at 78. Although

“money from capital markets was generally available

when utilities needed to fund new infrastructure,”

id., ratepayers shouldered most of the risks of over-

or under-building. The same cannot be said of

today’s competitive regulatory regime where markets

are efficient and highly competitive. In this

competitive regime, “[plotential entrants to

generation markets must be able to convince capital

markets that generation is a viable profitable

undertaking” and, hence, the “availability of long-

term contracts ... is critical to the ability of non-

utility generators to secure capital for new

investment.” Jd. at 4. As highlighted by recent

bankruptcies of several large merchant power

developers, by write-downs of over $30 billion in

generating assets, and by lender takeovers of

numerous power plants, “building merchant power

plants—constructed without contracts for power

output or fuel inputs—has proven to be very risky.”

Aftershock, at 16. Projects without long-term

centracts have rarely obtained investment-grade

ratings. See, e.g., Rigby Statement, at 6-7.

If the decisions below are left uncorrected,

investors will need to discount the value of long-term

contracts to account ffor the heightened,

unquantifiable risk that the Commission may later

modify contracts when buyers complain that rates

are too high. Sophisticated investors “will not

participate in a market in which disgruntled buyers

are allowed to break their contracts, at least not

without charging a significant risk premium—a cost

that will ultimately be borne by consumers.”

Standard of Review for Proposed Changes to Market-

Based Rate Contracts for Wholesale Sales of Elec.

Energy by Pub. Utils., Proposed Policy Statement,

12

100 FERC 9 61,145 at 61,545 (2002) (Brownell and

Breathitt, Comm’rs, concurring). As_ the

Commission’s Chairman recently testified, if “our

energy infrastructure is inadequate, consumers are

exposed to higher prices and greater price volatility.”

Testimony of the Hon. Joseph T. Kelliher before the

Senate Energy and Natural Res. Comm., at 2 (May

10, 2007). Notwithstanding the Ninth Circuit’s

purported concerns for consumer welfare, its

decisions threaten to harm consumers’ by

destabilizing competitive markets and adding

potentially “billions of dollars per year to the costs of

the power business.” Aftershock, at i.

The Ninth Circuit's short-sighted judicial

policymaking also may hinder conservation efforts.

Although vital to investment in all types of

generation, reliable contracts may well be most

essential to ongoing efforts to promote renewable

energy sources. Numerous _ state-approved

competitive contract solicitations require utilities to

enter long-term contracts obligating them to

purchase energy from plants that rely on alternative,

renewable energy sources. See Aftershock, at 19.

Similarly, investment opportunities in conservation

and energy-efficient technologies are likely to rely on

long-term contracts. See id; see also Statement of

Comm’r Marc Spitzer (June 21, 2007) (“it is difficult

to encourage entities to build much _ needed

infrastructure, including fostering renewable

resources, if those parties are unable ‘o enter into

enforceable long-term contracts”); FERC, Office of

Markets Oversight and Investigations, 2004 State of

the Markets Report, at 232 (June 2005) (“2004

Markets Report”) (describing difficulties faced by

wind developers in markets where long-term

contracts are unavailable). Investors will be loath to

risk capital on such projects if the underlying

contracts are subject to abrogation by _ the

Commission and market solutions are replaced by

court-imposed command-and-control regulation. In

fact, under the Ninth Circuit’s new asymmetrical

13

rules, contracts to buy power generated from

renewable sources are especially susceptible to

oe because “technological advances are

likely to dramatically reduce” the cost of such power,

which could well “push the previous, existin

renewable power as well as conservation an

efficiency contracts” out of the court-created “zone of

reasonableness.” Aftershock, at 19.

Finally, if the Ninth Circuit decisions are not

corrected, its new, asymmetrical rules will likely

exacerbate future crises that might occur during

periods of volatile energy prices. Sensible regulatory

policies encourage market participants to hedge

against market fluctuations by negotiating fixed-

price, long-term contracts. Such contracts are

especially important when spot market prices are

volatile and unpredictable. By undermining

regulatory certainty and contract stability, however,

the Ninth Circuit decisions discourage market

participants from negotiating long-term contracts.

In fact, by requiring the Commission to invalidate

contracts whenever market conditions meet some

undefinable standard of “dysfunction,” the Ninth

Circuit has greatly complicated the negotiation of

long-term contracts in precisely those circumstances

in which they may be needed most. See id. at 20.

The Court should bear in mind that the

Commission and others identified an “over reliance”

on spot markets as a major cause of the California

energy crisis in 2000-2001. San Diego Gas & Elec.

Co. v. Sellers of Energy & Ancillary Servs., 93 FERC

49 61,121 at 61,359 (2000); see also National Energy

Policy Dev. Group, Nat'l Energy Policy, at 5-12 (May

2001) (“forcing utilities to purchase all their power

through volatile spot markets, imposing a single-

price auction system, and barring bilateral contracts

all contributed to the problems that California now

faces”); Public Utils. Comm’n of Cal. v. Sellers of

Long Term Contracts, 103 FERC 7 61,354 at 62,416

(2003) (quoting the Governor of California stating

that the contracts challenged in this case “should

14

stabilize the market and drive the price of electricity

down”). As the Commission’s Chairman explained,

one “of the lessons of the California and Western

power crisis was that relying exclusively on short-

term markets presents major risks to both utilities

and consumers.” Statement of Joseph T. Kelliher,

Open Commission Meeting of the Federal Energy

Regulatory Commission (Apr. 19, 2007). This is only

one of the many lessons that the Ninth Circuit

decisions disregard.

2. The Ninth Circuit Decisions Threaten

To Prevent The Commission From

Maintaining A Workable Market-

Based Rate System.

Over and above their impact on contract stability,

the decisions below threaten to deprive consumers of

the long-term benefits of competition that Congress

and the Commission have introduced into the

Nation’s wholesale power markets.

Although the Ninth Circuit asserted that the shift

to market-based rates requires rewriting this Court’s

Mobile-Sierra decisions, Congress has taken a

different approach. Congress has amended the

Federal Power Act on numerous occasions, including

revising it in 2005, but has consistently declined to

change the public-interest standard or to expand the

Commission’s authority to abrogate private

contracts. See, e.g., Reno v. Bossier Parish Sch. Bd.,

520 U.S. 471, 483-84 (1997) (it is significant when

Congress has failed to modify a statute in the face of

a longstanding judicial interpretation); Rodriguez de

Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477,

496 (1989) (Stevens, J., dissenting) (it tips the

“balance between judicial and legislative authority”

to depart from earlier decisions giving “a statutory

provision concrete meaning, which Congress elects

not to amend during the ensuing 3 1/2 decades”). In

fact, Congress has moved steadily in the opposite

direction, recognizing that competitive energy

markets offer substantial long-term benefits to

consumers, including lower retail rates. As the

15

Commission’s Chairman recently observed, the

Energy Policy of Act of 2005 represents the “third

major federal law enacted in the last 25 years to.

embrace wholesale competition.” Joseph Kellifer,

Opening Remarks at the Competition in Wholesale

Power Markets Conference, FERC Docket No. ADO7-

7-000 (Feb. 27, 2007). Whether “competition is the

correct national policy” is not an open question. /d.;

see also National Energy Policy, at 5-12

(recommending that President Bush encourage the

Commission “to use its existing statutory authority

to promote competition”); Dep’t of Energy, Energy

Info. Admin., The Changing Structure of the Elec.

Power Indus. 2000: An Update, at 63 (Oct. 2000)

(“Changing Structure”) (describing President

Clinton’s 1998 and 1999 Comprehensive Electricity

Competition Plans as “built on the premise that a

competitive electric energy market will lower prices,

encourage innovation, and allow customers a choice

in electric energy suppliers”).

Following Congress’s lead, the Commission, like

other federal and _ state policymakers, has

implemented initiatives designed to _ correct

inefficiencies inherent in the command-and-control

model of regulation favored by the Ninth Circuit.

These pro-competitive initiatives have yielded

significant benefits to consumers. Studies suggest

that consumers have saved an estimated $34 billion

in electricity costs between 1989 and 1996 as a result

of Commission policies favoring market-based rates.

See Aftershock, at 24. Most importantly, the

Commission’s balanced, market-based regime has

facilitated investment in energy infrastructure and

broader participation in energy markets. As of April

1, 2006, the Commission had granted market-based

rate authority to approximately 1,170 diverse

entities, including 390 independent power

marketers, 100 power marketers affiliated with

traditional utilities, 180 independent power

producers, 400 power producers affiliated with

traditional utilities, and 30 financial institutions.

16

See Competition Report, at 35. The emergence of this

new and more flexible power industry, including

power marketers and financial institutions, has

“improved the industry’s ability to address credit —

issues, increased the ability of companies to buy and

sell energy, and increased market liquidity.” 2004

Markets Report, at 64. The Commission’s balanced,

pro-competitive policies have also facilitated the

development of organized, bid-based markets, which

have “created significant savings for electricity

buyers.” ISO/RTO Council, The Value of

Independent Reg’l Grid Operators at 25 (Nov. 2005);

see also Competition Report, at 31. A recent study

estimates a net savings to consumers of $1.2 million

per day in portions of the East and Midwest where

bid-based markets have been established. See Scott

M. Harvey, et al., LECG LLC, Analysis of the Impact

of Coordinated Elec. Mkts. on Consumer Elec.

Charges, at 1 (Nov. 20, 2006).

The Ninth Circuit decisions threaten to undo

these accomplishments. Its new, asymmetrical rules

will make it difficult for the Commission to manage a

workable, market-based rate regime. Even if it seeks

to cabin the Ninth Circuit decisions as limited to

their facts, the Commission cannot unilaterally

repair the damage because uncertainty will continue

to loom over the industry as reviewing courts wrestle

with the inter-circuit split and disappointed litigants

maneuver for Ninth Circuit review. In fact, the new

authority granted to the Commission by the Ninth

Circuit has already spawned challenges to billions of

dollars of power contracts. See, e.g., Compl. by The

People of The State of Ill., Ex Rel. Ill. Attorney

General Lisa Madigan, Docket No. ELO7-47-000

(Mar. 15, 2007); Section 206 Compl., FERC Docket

No. EL07-50-000 (Mar. 26, 2007); Section 206

Compl., FERC Docket No. ELO7-49-000 (Mar. 16,

2007); Section 206 Compl., FERC Docket No. ELO7-

40-000 (Mar. 2, 2007); Section 206 Compl., FERC

Docket No. ELO7-37-000 (Feb. 22, 2007).

17

More significantly, the regulatory uncertainty

created by the Ninth Circuit’s asymmetrical rules

may well drive contracting parties back toward the

relative certainty afforded by cost-based rates. See

Statement of Jim Wells, Director National Resources

and Environment, Meeting Energy Demand in the

21st Century, GAO-05-414T, at 7-8 (Mar. 16, 2005)

(“[elnergy suppliers require clear signals regarding

national policies and confidence that those policies

will be sustained over time”). Such a move

threatens, among other things, the viability of

competitive, bid-based markets, which depend on the

certainty provided by a prior grant of general

Commission authorization to transact at market-

based rates. See Changing Structure, at 63. Even if

one could ignore the potentially billions of dollars in

benefits that would be lost by a retreat from

competition, there is no ignoring the substantial

costs such a retreat would impose on consumers.

See, e.g., S&P Warns That Re-Regulating Utilities Is

Like Trying To Put Toothpaste Back In The Tube,

502 Foster Elec. Report 10 (Apr. 11, 2007).

C. The Decisions Below Remove An

Important Constraint On _ Arbitrary

Agency Action.

By rewriting Mobile-Sierra, the Ninth Circuit has

not only substituted its views for those of the expert

Commission, it also has (somewhat paradoxically)

eliminated an important constraint on arbitrary

agency decisionmaking. For decades, Mobile-Sierra

framed the boundaries of permissible Commission

action, ensuring that the public interest is

adequately protected, while imposing carefully

prescribed limits on the Commission’s authority to

abrogate privately negotiated agreements. See, e.g.,

Public Serv. Comm’n of N.Y. v. FPC, 543 F.2d 757,

797 (D.C. Cir. 1974). Until the decisions below,

courts deferred to the Commission’s special expertise

in deciding when abrogating a contract may be

required in the public interest, see Sempra Pet. 26-

18

28, but dic not allow the Commission to exceed the

scope of its authority.

The system has worked well. When the

Commission has determined that contracts

contravene the public interest, its decisions have

been upheld. See, e.g. Arizona Corp. Comm'n v.

FERC, 397 F.3d 952 (D.C. Cir. 2005); Transmission

Access Policy Study Group v. FERC, 225 F.3d 667,

709-12 (D.C. Cir. 2000); Texaco, Inc. v. FERC, 148

F.3d 1091, 1096-97 (D.C. Cir. 1998); Northeast Pub.

Util. Comm’n v. FERC, 55 F.3d 686 (1st Cir. 1995).

Similarly, until now, courts have, without exception,

affirmed Commission orders withholding relief

where it found that contract modification was not in

the public interest. See e.g., Permian, 390 U.S. at

820-22; Wisconsin Pub. Power, slip op. at 57-61;

Potomac Elec. Power Co. v. FERC, 210 F.3d 403 (D.C.

Cir. 2000); Metropolitan Edison Co. v. FERC, 595

F.2d 851 (D.C. Cir. 1979). It is indisputable that the

Commission retains “plenary authority to limit or to

proscribe contractual arrangements that contravene

the relevant public interests.”» Permian, 390 U.S. at

784. But there is an important difference between

protecting the public and abrogating contracts for

the benefit of particular constituents. When the

Commission has lost sight of the public interest,

courts have not hesitated to “remind” the

Commission that “it is not free to ignore” this Court’s

decisions in Mobile-Sierra. Sam Rayburn Dam Elec.

Coop. v. FPC, 515 F.2d 998, 1005 (D.C. Cir. 1975).

The Commission’s reluctance, in the face of the

Ninth Circuit decisions, to defend the Mobile-Sierra

doctrine is therefore not entirely unexpected. ‘The

Commission has a longstanding, well-documented

record of ambivalence toward Mobile-Sierra. See,

e.g., Boston Edison Co. v. FERC, 233 F.3d 60, 68 (1st

Cir. 2000) (the Commission is “becoming hostile to

Mobile-Sierra”); Rayburn, 515 F.2d at 1005 (the

Commission’s “distaste for the Mobile-Sierra doctrine

is well known”); Lansdale, 494 F.2d at 1110 (the

Commission “very much dislikes the Sierra Mobile

19

doctrine”). This ambivalence is presumably the

product, at least in part, of the agency’s institutional

interest in being liberated from the statutory

constraints that Mobile-Sierra recognizes. See, e.g.,

David B. Spence & Frank Cross, A Public Choice

Case for the Administrative State, 89 Geo. L.J. 97,

113 (2000) (“when an agency must make decisions

about the reach of its own jurisdiction, self-interest

propels the agency toward ever more expansive

interpretations of the law”); cf. Louisiana Pub. Serv.

Comm'n v. FCC, 476 U.S. 355, 374-75 (1986) (an

“agency may not ... expand its power in the face of a

congressional limitation on its jurisdiction”).

Finally, the Court should recognize that the

Ninth Circuit decisions remove an important barrier

protecting the Commission from improper political

pressures. Cf. D.C. Fed’n of Civic Assoc. v. Volpe,

459 F.2d 1231, 1245-46 (D.C. Cir. 1972) (agency

decisions based on political pressures are invalid). In

these proceedings, for example, the Commission has

faced an unprecedented degree of purely political

pressure to ignore this Court’s precedents and

interfere with the arm’s-length agreements

negotiated by the sophisticated contracting parties

involved. See, e.g., Ltr. to FERC Chairman Patrick

H. Wood III from U.S. Sens. M. Cantwell, G. Smith,

H. Reid, R. Wyden, B. Boxer, and D. Feinstein,

Docket Nos. ELO2-28-000, et al. (Oct. 29, 2003)

(“writing in support of requests for rehearing by the

complainants”); Ltr. to FERC Chairman Patrick H.

Wood III from U.S. Sen. John Kerry, Docket Nos.

ELO0-95-045, et al. (Apr. 23, 2003) (urging the

Commission to “support the State’s efforts to

renegotiate the long-term energy contracts”); see also

U.S. Sen. Dianne Feinstein, Press Release, Senator

Feinstein Statement on FERC Ruling By U.S. Ninth

Circuit Court of Appeals (Dec. 20, 2006). The even-

handed, market-based system that has generated

significant benefits to consumers will undoubtedly

suffer if the Commission is empowered to look

bevond the public interest and put a regulatory

20

thumb on buyers’ side of the scale whenever buyers

become dissatisfied with the contract rates they have

freely negotiated.

* * *

The Federal Power Act establishes a regulatory

system founded on private contracts. That system,

as recognized in the Mobile-Sierra line of cases,

operates for the benefit of both the public and the

Commission. The Ninth Circuit decisions unwisely

depart from binding precedent, create an uneven

standard in favor of buyers, and threaten to upend

the stability of long-term contracts on which this

Nation’s energy markets depend. The lower court’s

disruptive, short-sighted decisions should not be

allowed to stand.

CONCLUSION

For the foregoing reasons, the Court should grant

the writ of certiorari.

Respectfully submitted,

NEIL L. LEVY KENNETH W. STARR

DAVID G. TEWKSBURY Counsel of Record

BETH A. SCHONMULLER KIRKLAND & ELLIS LLP

KIRKLAND & ELLIS LLP 777 South Figueroa Street

655 Fifteenth Street, NW Los Angeles, CA 90017

Washington, DC 20005 (213) 680-8400

(202) 879-5000

Attorneys for the Electric Power Supply Association .

August 6, 2007