By John M. White | 61 Am. U. L. Rev. 677 (2011)
Emerging from two Supreme Court opinions decided in the 1950’s, the Mobile-Sierra doctrine has evolved to stand for a principle of contract sanctity in public utility rate setting. The courts have largely come to the conclusion that the Federal Energy Regulatory Commission (the Commission) has less authority to modify rates set by contract, as compared to unilaterally-filed tariff rates, when the contract is the result of arm’s-length negotiations between sophisticated parties of equal bargaining power, unless the contract indicates otherwise. Only in “extraordinary circumstances,” the Court has found, may the Commission step in to modify any such “Mobile-Sierra contract.”
The Mobile-Sierra doctrine, as interpreted most recently in Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1, departs from both the statutory intent of the FPA and the original cases from which the doctrine derived its name. The Federal Power Act (FPA) does not contemplate imposing any barriers to Commission modification of contract rates. Similarly, the two cases from which the doctrine derived its name, United Gas Pipe Line Co. v. Mobile Gas Service Corp. and Federal Power Commission v. Sierra Pacific Power Co., sought to protect the public interest by restraining a utility’s ability to unilaterally raise prices set in a contract, but they did not seek to limit the Commission’s authority to modify contracts generally. By further limiting the Commission’s authority to modify contracts, Morgan Stanley has encroached on the Commission’s ability to fulfill its statutory obligation to protect the public interest.