The Supreme Court ruled that in order to set aside the terms of a long term contract, FERC had to first presume that the contract was just and reasonable, and then only disturb it if the public interest is seriously harmed. The Court ruled that the presumption of just and reasonableness of rates applied to not only parties to the contract, but also to everyone else, including state governmental agencies, consumer groups or other third parties who never agreed to the contract.
Justice Stevens, in a stinging dissent, wrote that the Court was the latest chapter in a story "about how a reasonable principle, extended beyond its foundation, becomes bad law." Reading the language and the history of the FPA, he wrote that the Court's ruling would seriously impede FERC's statutorily-mandated ability to set aside a contract as unjust and unreasonable "even though it saddled consumers with a duty to pay prices that would be considered unjust and unreasonable under normal market conditions." In other words, as Justice Stevens wrote, "If a third party wholesale buyer can show a rate harms the public interest … but cannot show it seriously harms the public, FERC may do nothing about it."
Justice Stevens' dissent suggested that the fix to this injustice may lie with congressional action.
What's at Stake
The case is important because of its potential impact on the cost of utilities to consumers, who ultimately are the ones paying for wholesale electric contracts. Many people on fixed incomes cannot afford to pay rapidly increasing utility costs, and nationwide electricity discounts for the poor are being reduced or eliminated because of 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.
FERC was created so that utility rates could be examined by the Commission, and following a hearing, the Commission could set aside any rate found "unjust, unreasonable, unduly discriminatory or preferential," and replace it with a just and reasonable rate. In NRG the Court held for the first time in the law's 73-year history that the FPA requires regulators to presume that contracts offered by regulated utility sellers and accepted by wholesale buyers are "just and reasonable" even when noncontracting parties such as consumers, advocacy groups or state regulators affected by the contracts object to the contracts. The Court's decision in NRG now requires that consumer groups or state regulators not just show that they are harmed by excessive electrical rates but rather they must show extraordinary harm, a test extremely difficult to pass.
It is now up to Congress to determine whether the additional burdens placed on consumers and state agencies who challenge unjust utility rates will stand.