In its May 17 order on ISO New England’s (ISO-NE) Order 1000 compliance filing, FERC contravened ISO-NE’s arguments that the right of first refusal (ROFR) in its transmission owners agreement (TOA) was protected by the Mobile-Sierra doctrine.
The Mobile-Sierra doctrine prevents FERC from modifying or rescinding an existing contract except in cases of “unequivocal public necessity” or “extraordinary circumstances.” FERC may override the doctrine only if it concludes a contract seriously harms the public interest.
In its proposal, ISO-NE contended that the commission’s acceptance of its TOA on rehearing in 2004 was tantamount to acceptance of a contract between the RTO and its transmission owners.
Complicit in that acceptance was agreement that the TOA provided for “the right and obligation of each participating transmission owner to own and construct new or upgraded transmission facilities listed in the regional system plan that are located within or connected to its existing electric system,” ISO-NE argued.
“As a threshold matter, the fact that a federal right of first refusal is contained in a contract does not automatically establish that the contract is entitled to a Mobile-Sierra presumption,” FERC said. “The Mobile-Sierra presumption applies to a contract only if the contract has certain characteristics that justify the presumption.”
In order for such a presumption to be present, FERC evaluated whether the TOA embodied either individualized rates, terms or conditions that apply only to sophisticated parties who negotiated them freely at arm’s length – which do qualify for the Mobile-Sierra presumption; or rates, terms or conditions that are generally applicable or that arose in circumstances that do not provide the assurance of justness and reasonableness associated with arm’s-length negotiations – which do not qualify for the presumption.
“[T]he ISO-NE TOA cannot be classified in its entirety as containing contract rates or tariff rates,” FERC said. “[W]e find that … the TOA provisions that the filing parties contend include a federal right of first refusal do not include contract rates to which Mobile-Sierra protection would apply automatically.”
FERC also said the Mobile-Sierra presumption did not apply to the TOA provisions that the filing parties contend include a federal ROFR because those provisions arose “in circumstances that do not provide the assurance of justness and reasonableness on which the Mobile-Sierra presumption rests.”
Defending its ability to determine the Mobile-Sierra doctrine’s applicability, FERC said that, consistent with its 2004 TOA orders, it had applied the Mobile-Sierra doctrine to some sections of the TOA and not others.
“The commission explained that it had ‘authority to review (and reject) [the incumbent transmission owners’] Mobile-Sierra requests under our just and reasonable standard,’” FERC said. “Indeed, rather than being entitled to a presumption of justness and reasonableness, the commission initially stated that the applicants had not ‘carried their burden in showing’ that the protection they requested was appropriate. Thus, the commission has never treated the ISO-NE TOA as if it is entitled to Mobile-Sierra protection.”
ISO-NE also maintained that in order to override the Mobile-Sierra doctrine, FERC would have to find that the TOA represented a threat to the public interest.
In response, FERC invoked Order 888, its open access reform for which the court of appeals ruled that by denying competitors access to transmission lines, utilities engaged in undue discrimination.
“Just as the open access reforms of Order No. 888 were intended ‘to remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the nation’s electricity consumers,’ the elimination of federal rights of first refusal in Order No. 1000 was intended to benefit customers by fostering competition in transmission development,” FERC said.
In addition to the precedent of Order 888, FERC pointed to other supporting cases, including Texaco Inc. v. FERC, Mojave Pipeline, United Distribution Cos. v. FERC and Permian Basin Area Rate Cases.
The ROFR requirement in Order 1000 does not apply to local transmission facilities; to the right of an incumbent to build upgrades to its own transmission facilities, regardless of whether the upgrade was selected in the regional transmission plan for cost allocation purposes; and to new transmission facilities if the regional cost allocation method results in allocation of 100% of the facility’s costs to the transmission provider in whose service territory the facility is located.