Legal Definitions - Mobile–Sierra doctrine

The Mobile–Sierra doctrine is a fundamental legal principle that guides the Federal Energy Regulatory Commission (FERC) when it reviews requests for changes to rates charged by regulated utilities, particularly those operating under long-term contracts. This doctrine emphasizes the importance of upholding voluntarily negotiated contracts between utilities and their customers.

Under the Mobile–Sierra doctrine, FERC generally cannot approve a utility's request to increase its rates if there is an existing contract specifying a different rate. However, there are two critical exceptions:

• Contractual Authorization: FERC may approve a rate increase if the existing contract itself contains provisions that explicitly allow for such adjustments under certain conditions (e.g., inflation clauses, changes in operational costs, or scheduled renegotiations).
• Public Interest Exception: FERC may also approve a rate increase, even if the contract does not explicitly allow for it, if the existing contractual rate is so unreasonably low that it threatens the utility's financial viability. In such a rare circumstance, the utility must demonstrate that the current rate prevents it from maintaining reliable service, thereby posing a serious risk to the public interest (e.g., threatening the continued supply of essential services like natural gas or electricity).

Here are some examples illustrating the application of the Mobile–Sierra doctrine:

• Example 1: Natural Gas Pipeline Transportation

  Imagine "Summit Gas Transport," a company operating a major interstate natural gas pipeline, has a 15-year contract with "Metro Energy Distributors," a local utility, to transport gas at a fixed rate. Ten years into the agreement, Summit Gas Transport faces significantly increased maintenance costs due to aging infrastructure and wants to raise its transportation rates.

  • If the contract between Summit Gas Transport and Metro Energy Distributors includes a clause allowing for rate adjustments based on unforeseen cost increases or inflation, then FERC could approve a rate increase, as it's authorized by the contract.
  • However, if the contract does not allow for such an increase, FERC would generally deny Summit Gas Transport's request. The only way FERC might approve it is if Summit Gas Transport could prove that the current fixed rate is so low that it threatens the company's financial viability to the point where it can no longer safely operate and maintain the pipeline. This would jeopardize the reliable supply of natural gas to Metro Energy Distributors' customers, thus adversely affecting the public interest.

• Example 2: Renewable Energy Supply

  "Green Power Corp." operates a large solar farm and has a 20-year power purchase agreement (PPA) with a regional utility, "Community Electric," to supply electricity at a predetermined price. Five years into the agreement, Green Power Corp. argues that unexpected increases in panel maintenance and operational costs make the current rate unsustainable for their business.

  • If the PPA between Green Power Corp. and Community Electric contains provisions for rate adjustments under specific conditions (e.g., changes in regulatory costs or significant unforeseen operational expenses), then FERC could allow a rate increase consistent with those contractual terms.
  • But if the PPA is a strict fixed-rate contract, FERC would typically uphold the original agreement. An exception would only be made if Green Power Corp. could demonstrate that the current rate is so severely inadequate that it threatens the company's ability to operate its solar farms, potentially leading to a shutdown and a loss of essential power supply for Community Electric's customers. This would be considered an adverse impact on the public interest, justifying a potential intervention by FERC.