Montana Consumer Counsel v. Federal Energy Regulatory Commission

On October 13, 2011, the U.S. Court of Appeals for the Ninth Circuit held that the market-based rate policy embodied in FERC Order No. 697 and FERC Order No. 697-A does not exceed FERC's authority as conferred by the FPA. Under Order 697, which became effective in September 2007, sellers who apply for market-based rates must be pre-screened by FERC and show that they lack (or have adequately mitigated) both horizontal and vertical market power. FERC bases its market power determination primarily on the seller's share of capacity in the relevant markets, and also considers whether the seller can limit competition through its control of transmission, erect barriers to entry, or engage in abuse of affiliate relationships. A seller who obtains market-based rate authority must file an updated market-power analysis every three years to confirm that it continues to lack market power. In April 2008, FERC issued Order 697-A, rejecting assertions that it did not have authority to implement the market-based rates program and that the program violated the FPA.

The petitioners in Montana Consumer Counsel v. FERC contended that FERC violated its statutory obligation to ensure that rates are just and reasonable by relying solely on the market to regulate prices. They also argued that FERC's market-based rates policy, which allows sellers to file a market-based rate tariff and does not require sellers to give 60-days advance notice of changes in actual market prices (as distinct from changes in the tariff)...