The U.S. Supreme Court is considering whether to hear a case filed by several states and citizen groups against the Federal Energy Regulatory Commission (FERC) that contends that FERC Order 697, issued in 2007 to improve market-based rate regulations, exceeds FERC’s authority under the Federal Power Act (FPA).

The states of Connecticut, Illinois, and Rhode Island; the Montana Consumer Counsel; Colorado Office of Consumer Counsel; and public interest groups Public Citizen and the Public Utility Law Project of New York have legally challenged the FERC order. They say it allows “sellers of wholesale electric power to charge ‘market rates’ for electricity and to avoid the Federal Power Act’s requirements that rates be just and reasonable and that all changes in rates be filed with FERC before they go into effect.”

The groups argue that by relying solely on the market to regulate rates, FERC violated its statutory obligation to ensure that rates are “just and reasonable,” and that the market-based rates policy—which allows sellers to file a market-based rate and does not require sellers to give 60 days advance notice of changes in market prices—violates the terms of the FPA.

The U.S. Court of Appeals for the Ninth Circuit last October upheld FERC’s order, saying that it did not violate the FPA. But the court left open the “possibility that the petitioners in this case or other parties would succeed in an as-applied challenge to FERC’s implementation of the order,” explained law firm Troutman Sanders LLP.

The states and citizen groups appealed to the U.S. Supreme Court, petitioning the high court to review the case. Last week, FERC filed its brief in the Supreme Court in opposition to the case.

The Electric Power Supply Association (EPSA)—a national trade association representing competitive power suppliers, including generators and marketers—also filed a brief with the court last week, urging the court to deny a petition for review of the Ninth Circuit’s decision.

The EPSA, joined on the brief by PPL Corp., argues that the court should deny the petition for at least three reasons: “First, no decision of this Court … conflicts with the lower court’s holding that the Commission’s market-based rate regime comports with the requirements of the Federal Power Act. Second, the court of appeals correctly held that the Commission’s market-based rate regime does not violate any statutory requirement. In fact, Congress ratified the regime when it enacted the Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594, which includes multiple provisions that would make no sense if, as petitioners contend, the Commission lacked authority to approve market-based rate tariffs.”

Finally, it contends, “denying the petition would not raise any issues of exceptional importance. In contrast, granting the relief petitioners seek could have devastating consequences for the nation’s energy markets and the consumers who rely on those markets."

EPSA said in a statement that a court decision that would find FERC’s market-based program unlawful under the FPA would “jeopardize these markets and set the stage for crisis.”

“Even if one could ignore the billions of dollars in benefits that would be lost from a retreat from a competitive, market-based regime, there is no ignoring the substantial costs that such a retreat would impose on consumers,” it says in its brief. “Moreover, thousands of market participants have built power plants, made other investments and ordered their affairs based on the pro-competitive policies that the Commission has implemented over the last two decades, which have been consistently upheld by courts, and which Congress affirmed in the 2005 legislation."

The case is Public Citizen, Inc., v. Federal Energy Regulatory Commission.

Sources: POWERnews, FERC, U.S. Supreme Court, Public Citizen, EPSA