DC Circuit Joins 7th Circuit in Holding Mobile-Sierra Contract Protection Inapplicable to Transmission Owner Rights of First Refusal
Several months ago, the 7th Circuit Court of Appeals upheld the Federal Energy Regulatory Commission's (FERC) order overriding contracts between the Midcontinent Independent System Operator (MISO) and incumbent utilities giving the latter rights of first refusal (ROFR) to build new regional transmission facilities. The Mobile-Sierra doctrine protecting the terms of private contracts, it said, was intended to protect contract rights in cases involving contracts between buyers and sellers, not contracts "in which the parties are seeking to protect themselves from competition from third parties." MISO Transmission Owners, et al. v. FERC, 819 F.3d 329 (7th Cir. 2016). *
The DC Circuit's July 1, 2016 decision in Oklahoma Gas and Electric Co. v. FERC, No. 14-1281 reached a similar conclusion, holding that the rights of first refusal for incumbent transmission owners found in the Southwest Power Pool Membership Agreement were not protected under the Mobile-Sierra doctrine. Like the petitioners in MISO Transmission Owners, the incumbent utility transmission owners in Oklahoma Gas and Electric maintained that the rights of first refusal given them under the membership agreement were a quid pro quo for their consent to turn control of their transmission assets over to the independent Southwest Power Pool. Any "valid, freely negotiated contract," they argued, "automatically is subject to" Mobile-Sierra protection. But the Court found this argument unavailing. The doctrine, it said, "does not extend to anti-competitive measures that were not arrived at through arms-length bargaining…Just as unfair dealing, fraud, or duress will remove a provision from the ambit of Mobile-Sierra, so also will terms arrived at by horizontal competitors with a common interest to exclude any future competition."
On the separate question of whether the Mobile-Sierra doctrine applies only in the "context of rates and procedures for setting rates," the court declined to rule on the issue. Both parties, it said, had assumed "that Mobile-Sierra is generally available to all contractual provisions that have some effect on rates" and "the law requires denial of the petition in any case."