## Facts

- SDG&E (buyer) and PNM (seller) executed a 13-year wholesale power contract in 1985 for 100 MW of capacity and associated energy, with service to begin May 1, 1988.
- When the contract was negotiated, PNM had surplus generating capacity and SDG&E sought additional supply and diversification; the price matched then-prevailing market prices.
- After signing, energy prices dropped sharply, and by 1988 comparable wholesale power contracts were significantly cheaper than the SDG&E–PNM rate.
- PNM did not file the rate schedule with FERC within the timing FERC deemed required by its regulations, and FERC treated the late filing as a technical default.
- FERC accepted the contract rate as just and reasonable but delayed the rate’s effective date due to the filing default.
- SDG&E petitioned for review challenging FERC’s refusal to modify or reject the above-market contract rate; PNM petitioned for review challenging the delayed effective date.

## Issues

1. Whether FERC lawfully determined that the long-term fixed-price wholesale contract rate was “just and reasonable” under the Federal Power Act despite a subsequent market price collapse.
2. Whether FERC lawfully refused to grant PNM relief from a delayed effective date imposed as a consequence of a late rate filing under FERC’s regulations.

## Decision

- The court affirmed FERC’s orders in full.
- The court upheld FERC’s acceptance of the contract rate as just and reasonable and its refusal to reprice the contract based on later market changes.
- The court upheld FERC’s decision to delay the contract’s effective date as a sanction/remedy for the late filing.

## Legal Principles

- Under the Federal Power Act, FERC may treat arms-length, freely negotiated wholesale contract rates as presumptively just and reasonable absent indicia such as market power, fraud, or similar defects.
- FERC is not required to revise long-term fixed-price contracts simply because market prices later move against one party; post-contract regret is a commercial risk allocated by the bargain.
- Courts reviewing FERC ratemaking and related determinations apply deferential arbitrary-and-capricious review, focusing on whether the agency considered relevant factors and reasonably explained its decision.
- A court generally defers to FERC’s reasonable interpretation and enforcement of its own rate-filing regulations, including effective-date adjustments to address noncompliance.

## Conclusion

The D.C. Circuit sustained FERC’s decision to enforce a long-term wholesale power contract at its negotiated rate despite later market declines and also sustained FERC’s delayed effective date remedy for the seller’s late filing, leaving each party to bear the consequences of its contractual and regulatory choices.


San Diego Gas & Elec. Co. v. FERC, 904 F.2d 727 (D.C. Cir. 1990)