## Facts

- PEPCO, an electric utility, entered an 18.5-year arrangement in 1987 involving power supply from the Ohio Edison System and transmission services through the Allegheny Power System (APS).
- To deliver power to PEPCO, APS purchased the relevant power and resold it to PEPCO; the dispute concerned the APS–PEPCO transmission service agreement.
- The transmission agreement set fixed rates with scheduled increases: $1.70 per kW-month initially, increasing to $2.255 per kW-month in 1994 and $2.815 per kW-month in 1999, plus a $1.00 per MWh “adder.”
- The agreement was filed with FERC, and PEPCO originally supported the filing and represented that the rates were cost-justified.
- After FERC’s open-access transmission reforms and the adoption of an OATT by APS, APS’s tariffed transmission rates were substantially lower than PEPCO’s contract rate.
- PEPCO filed a complaint under FPA § 206 seeking unilateral reduction of the contract rate to a level comparable to the OATT, asserting the contract rate had become unjust, unreasonable, and unduly discriminatory.
- FERC dismissed the complaint in two orders, applying the Mobile-Sierra public-interest standard and finding PEPCO had not met it.
- PEPCO petitioned the D.C. Circuit for review.

## Issues

1. Whether FERC permissibly applied the Mobile-Sierra public-interest standard to PEPCO’s FPA § 206 effort to unilaterally reduce rates set in a long-term fixed-rate transmission contract.
2. Whether FERC reasonably concluded that a rate disparity between the contract rate and the utility’s OATT rate, without evidence of broader harm, fails the Mobile-Sierra public-interest standard.
3. Whether FERC’s open-access transmission regime required re-pricing existing contracts absent a Mobile-Sierra showing.

## Decision

- The D.C. Circuit denied the petition for review and upheld FERC’s dismissal of PEPCO’s § 206 complaint.
- The court held FERC did not abuse its discretion by treating the agreement as a Mobile-Sierra contract subject to the public-interest standard.
- The court agreed that a rate disparity or buyer/consumer benefit from modification, standing alone, does not satisfy the public-interest standard.
- The court upheld FERC’s finding that PEPCO failed to show the contract rate seriously harmed the public interest, including any showing of excessive consumer burden, threat to PEPCO’s financial integrity, or cognizable public-interest discrimination.
- The court agreed that FERC’s open-access policy did not, by itself, reopen or override existing fixed-rate contracts.

## Legal Principles

- Under the Mobile-Sierra doctrine, FERC may alter a freely negotiated fixed-rate wholesale contract only upon a showing that the existing rate seriously harms the public interest.
- FPA § 206 review of an existing contract rate is constrained by Mobile-Sierra when the parties fixed the rate by contract; ordinary “just and reasonable” review does not apply in the same manner.
- A mere disparity between a contract rate and later tariff rates, without evidence of broader public-interest harm, is insufficient to justify unilateral contract modification.
- Regulatory policy changes establishing open-access tariff regimes do not automatically convert or reset preexisting contractual rates; contract stability remains the default absent a sufficient public-interest showing.

## Conclusion

The court sustained FERC’s refusal to reduce PEPCO’s fixed contract transmission rate because the Mobile-Sierra public-interest standard governed and PEPCO showed only that the contract rate exceeded the OATT rate, not that the contract seriously harmed the public interest.


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