## Facts

- The Federal Power Act requires wholesale electricity rates to be “just and reasonable,” and FERC regulates such rates.
- Under the Mobile–Sierra doctrine, a rate set in a freely negotiated wholesale-energy contract is presumed just and reasonable; FERC may alter it only if the rate seriously harms the public interest.
- FERC authorized some sellers to use market-based tariffs under which sellers and purchasers negotiate contracts without filing the individual contracts for FERC review before they take effect.
- During the 2000–2001 Western energy crisis, electricity prices increased sharply, and utilities (including Public Utility District No. 1 of Snohomish County) entered long-term contracts at historically high rates with Morgan Stanley and other sellers.
- After prices later fell, purchasing utilities sought FERC modification or abrogation of those contracts, arguing that Mobile–Sierra should not apply to market-based-tariff contracts and that buyer challenges should be judged under a less stringent standard.
- An Administrative Law Judge applied Mobile–Sierra, found no serious public-interest harm, and FERC largely affirmed.
- The Ninth Circuit remanded, holding Mobile–Sierra did not apply absent prior FERC review of the specific contracts and that buyer challenges should be evaluated under a “zone of reasonableness” approach.

## Issues

1. Whether FERC must apply the Mobile–Sierra presumption to long-term wholesale power contracts formed under market-based tariffs, even when the specific contracts were not filed with or reviewed by FERC before becoming effective.
2. Whether a purchaser challenging a contract rate may overcome Mobile–Sierra under a less stringent standard than the traditional public-interest test.
3. Whether alleged market dysfunction during the Western energy crisis is a threshold basis to deny Mobile–Sierra protection to otherwise freely negotiated contracts.

## Decision

- The Court held that FERC was required to apply the Mobile–Sierra presumption to the contracts, including those formed under market-based tariffs.
- The Court rejected the Ninth Circuit’s rule limiting Mobile–Sierra to contracts previously reviewed for reasonableness by FERC.
- The Court held the same stringent public-interest standard generally governs both buyer and seller challenges; a buyer is not entitled to a separate “zone of reasonableness” test.
- The Court rejected a general “market dysfunction” threshold inquiry as a prerequisite to applying Mobile–Sierra, while recognizing that specific formation defects (e.g., fraud, duress, market manipulation) could justify relief in particular cases.
- The Court affirmed in part, reversed in part, and remanded for further proceedings consistent with these holdings.

## Legal Principles

- A freely negotiated wholesale-energy contract rate is presumed “just and reasonable” under the Federal Power Act.
- FERC may modify or set aside a contract rate only upon a finding that the rate seriously harms the public interest.
- Mobile–Sierra protection applies to contracts entered pursuant to FERC-authorized market-based rate regimes, even if individual contracts were not pre-filed or pre-approved.
- The public-interest standard generally applies symmetrically; buyer-initiated challenges are not subject to a categorically lower threshold.
- General market volatility or crisis conditions do not, by themselves, defeat the Mobile–Sierra presumption, but contract-specific defects in bargaining or unlawful conduct may rebut it.

## Conclusion

The Court reinforced contractual stability in wholesale power markets by requiring FERC to apply the Mobile–Sierra presumption to market-based contracts and by holding that contract rates may be altered only upon a showing of serious public-interest harm, subject to case-specific proof of manipulation or other formation defects on remand.


Morgan Stanley Cap. Grp., Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527 (2008)