News
October-December 2005
News Release: December 15, 2005 | ![]() |
Docket Number: RM05-35 |
Commission promotes contract sanctity with proposed rules
on Standard of Review
The Federal Energy Regulatory Commission today proposed changes
to its rules that will help reduce the time and expense involved
in resolving disputes concerning modifications to jurisdictional
wholesale power and gas sales contracts filed under the Federal
Power Act and Natural Gas Act.
Under the Federal Power Act and Natural Gas Act, contracts between
individual parties can be used to set rates, terms and conditions
of service. In such contracts, parties may agree to voluntarily
restrict some or all of their freedom to change the contract terms,
rates, and conditions. In some cases a seller and buyer may have
contracted for a particular rate and not expressly reserved the
right to propose any changes. In such cases, the courts have differed
on the applicable standard of review, when a seller, or buyer,
seeks to file a new rate or change the existing contract.
Today's proposed rule reflects the need to clarify the standard
of review governing proposed modifications to jurisdictional agreements
in the event the parties do not expressly reserve their right
to make changes. The courts have asked the Commission to squarely
confront the underlying issues and eliminate the confusion and
regulatory uncertainty around these issues by clarifying the default
standard of review that will govern when the parties fail to expressly
adopt a standard in their contracts.
"This proposal will help promote the sanctity of contracts, provide
greater stability in competitive energy markets and provide adequate
protection for energy customers," stated Commission Chairman Joseph
T. Kelliher. "The proposed rules provide regulatory certainty,
while preserving the Commission's ability to review and modify
agreements to protect customers under the public interest standard,"
Chairman Kelliher added.
Upon review of the case law, the Commission concluded that the
weight of precedent supports the conclusion that the public interest
standard applies in the case of contractual silence. That standard
is consistent with the Supreme Court decisions in Mobile and Sierra.
Under the proposed rules, parties to a contract remain free to
adopt the just and reasonable standard for review of modifications
to jurisdictional agreements.
The proposed rule would specify boilerplate language the parties
must include in a jurisdictional agreement, if they wish subsequent
modifications to be reviewed under a just and reasonable standard.
In the absence of the prescribed boilerplate language, the Commission
is proposing to review such modifications under a stricter public
interest standard. The proposed rule would not apply to service
agreements entered into pursuant to a form of service agreement
included in the tariff of an interstate natural gas pipeline or
electric transmission provider.
The Commission adopted the proposal with Commissioner Suedeen
Kelly dissenting in a separate statement. The proposed rule would
be applied prospectively, and would take effect for all jurisdictional
contracts under the Federal Power Act and Natural Gas Act executed
30 days or more after the final rule is published in the Federal
Register. Comments on the proposed rule, Standard of Review
for Modifications to Jurisdictional Agreements, are due within
30 days after the proposed rule is published in the Federal Register
(www.gpoaccess.gov).
R-05-86
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