Court Upholds FERC Market-Based Rate Authority

FERC's Order 697, which authorizes wholesale sellers to apply for market-based rate authority, does not violate the Federal Power Act, the United States Court of Appeals for the Ninth Circuit held yesterday in denying consolidated petitions from several parties including the Montana Consumer Counsel and the attorneys general of Illinois and Connecticut (No. 08-71827 et. al.).

Under Order 697, sellers who elect to participate in the market-based policy must be pre-screened by FERC, and must show that they lack (or have adequately mitigated) both horizontal (energy generation) and vertical (energy transmission) market power.

Complainants argued that market-based rates were contrary to the FPA's "just and reasonable" standard.

"[L]aw permits the approach embodied in Order 697. FERC has determined that it can ensure that rates are just and reasonable by indirectly regulating the wholesale market. Where sellers do not have market power or the ability to manipulate the market (alone or in conjunction with others), it is not unreasonable for FERC to presume that rates will be just and reasonable," the Court said.

"By screening for market power before authorizing market-based rates, and by continually monitoring sellers for evidence of market power, FERC has adopted a permissible approach to fulfilling its statutory mandate to ensure that rates are just and reasonable," the Court added.