The Federal Energy Regulatory Commission has maintained a 'soft' price cap for wholesale electricity sales in the western United States for over two decades. This cap limits the price sellers can offer in certain markets and requires them to justify and potentially refund sales that exceed the cap. Following an extreme heat wave in August 2020, electricity prices spiked, and several sellers transacted at prices above the $1,000 per megawatt-hour soft cap. FERC required these sellers to justify their above-cap sales and ordered partial refunds for those who failed to do so. The sellers argued that FERC erred by not applying the Mobile-Sierra presumption, which generally protects freely negotiated contract rates from modification unless they seriously harm the public interest. FERC argued that the soft cap framework was part of the sellers' filed tariffs and did not constitute a contract modification requiring the presumption. Consumer groups, including the California Public Utilities Commission, challenged the calculation methods used for the refunds, arguing they would lead to higher future prices.
The court focused on the Mobile-Sierra doctrine, which presumes that rates set through arms-length, bilateral negotiation are just and reasonable. This presumption can only be overcome if the Commission finds that the rate 'seriously harms the public interest.' The court rejected FERC's argument that the soft cap framework automatically displaced this presumption. The court reasoned that the soft cap order did not explicitly state that the Mobile-Sierra doctrine would not apply to above-cap sales. Instead, the court viewed the soft cap as a mechanism to flag contracts that might warrant a public interest analysis, not as a blanket waiver of that analysis. Because the Commission ordered refunds without first determining whether the specific contract rates seriously harmed the public interest, the court found the Commission acted in error. The court noted that the soft cap and the justification requirement function in tandem with the Mobile-Sierra doctrine, rather than replacing it.
FERC must now conduct a Mobile-Sierra public interest analysis before ordering refunds for any electricity sales that exceed the soft price cap. The court vacated the existing refund orders and remanded the case for further proceedings consistent with this opinion. Because the refund orders were vacated, the court dismissed the consumer groups' challenges to the refund calculation methodology as moot. The Commission will need to change its refund analysis for above-cap sales going forward, and any future decision on the validity of the soft cap framework itself would be purely advisory until the Commission undertakes the required analysis.