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Utility Consumers Seek Right to Challenge Rates
The U.S. Supreme Court today will hear arguments in a case regarding the right to challenge wholesale electricity contracts. AARP's brief argues that as people are squeezed by limited incomes and dwindling utilities-assistance programs, regulatory agencies must diligently exercise their authority to protect consumers' interests.
Supreme Court Considers Right of Utility Consumers
AARP and Public Citizen filed a brief in the U.S. Supreme Court seeking to preserve the consumers' right to challenge wholesale electricity contracts that result in unjust and unreasonable rates paid by consumers.
The dispute
In 2008, the U.S. Supreme Court ruled that when parties to an electricity rate dispute have entered into a contractual agreement, the Federal Energy Regulatory Commission (FERC) is limited in its ability to modify the terms of the contract.
At issue now is FERC's authority to review electrical rates when a challenge is brought by non-contracting third parties - in other words, people who would be affected by a contract's terms but have not agreed to it.
The case concerns New England's capacity market for electricity which has had a number of problems in recent years. In a "capacity" market, as opposed to a wholesale electricity market, the entity purchasing electricity for consumers compensates the seller for the option of buying a specified quantity of electrical power regardless if they ultimately buy that quantity. Under this system, the purchasers of electrical power generally purchase more electrical capacity than is necessary to meet their customers' demand for electricity.
This case involved negotiations involving 115 parties across New England. All but eight of the parties reached a settlement purporting to set rates for all market participants whether or not they agreed to the settlement. Eight litigants, including Maine Public Utilities Commission and the Attorneys General of Connecticut and Massachusetts objected on the grounds that the agreement effectively forced states to acquire a specific level of capacity whether or not they wanted or needed it. They also challenged the methodology by which the price point was determined.
FERC approved the settlement even as to the states objecting to the settlement. That decision was rejected by the D.C. Circuit Court of Appeals which ruled that the objecting states and other parties were entitled to a review by FERC under the "just and reasonable" guidelines of the Federal Power Act.
NRG Power Marketing LLC v. Maine Pub. Utilities Comm'n is now before the U.S. Supreme Court.
AARP's brief
The settling parties argue that FERC and the courts must scrupulously adhere to the terms of the contract, and they also argue that a freely-negotiated contract by definition reflects an agreement between two parties with adverse interests and therefore a contract must presumptively be considered fair.
AARP's brief, filed by AARP Foundation Litigation attorneys, argues that while that contract theory might make sense generally, in this case it does not apply. Because wholesale purchasers who resell power to consumers are typically entitled to pass on their costs directly to consumers, they can not be trusted to automatically protect the interests of the public in establishing rates. Thus it is all the more important that third-party challenges to rate-setting contracts be allowed and that they not be inhibited by artificially created barriers and presumptions.
The brief notes that the Federal Power Act (FPA) provisions regarding rate setting and its purposes in protecting consumers are both clear. Even after a rate or contract goes into effect, the law provides that FERC at all times retains authority, upon its own initiative or upon a complaint filed by anyone, to find that the rate or contract is unjust, unreasonable, unduly discriminatory or preferential.
Moreover, AARP notes that "both common sense and long experience demonstrate that in transactions for the purchase and sale of wholesale electricity, companies that purchase power for resale to consumers can not be expected to negotiate rates that are just and reasonable to consumers, precisely because retail sellers of power have an almost unlimited ability to pass on rates to consumers." The brief details cases where courts found that wholesale purchasers in fact were unlikely to be representing the interests of their customers.
The brief finally notes that the reason the FPA was enacted and FERC was established was a response to market failures that left consumers and state regulators helpless against utility companies.
The case is important because of its potential impact on the cost of utilities to all consumers who ultimately are the ones paying for wholesale electric contracts. Many people on fixed incomes can not afford to pay rapidly increasing utility costs and nationwide electricity discounts for the poor are being reduced or eliminated due to state budget problems. The double whammy of escalating prices and inadequate funding for energy assistance leaves consumers in a vulnerable situation that demands action by the federal regulators tasked with protecting the public interest.
To learn more about how AARP Connecticut is working to lower electricity rates for all state residents, contact AARP Connecticut at 1-866-295-7279 or send us an email at ctaarp@aarp.org.
