U.S. Supreme Court Weakens Utility Consumer Protection Statute

AARP's Brief

The settling parties argued 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, countered 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 entitled to pass on their costs directly to consumers, they cannot 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 noted 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 FPA 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, the brief noted 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 cannot 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 detailed cases in which courts found that wholesale purchasers in fact were unlikely to be representing the interests of their customers.

Finally, AARP's brief noted 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.