AEI-Brookings Joint Center

Supreme Court Amicus Brief Regarding Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Washington

Executive Summary

Economists have long recognized that certainty of contract is essential to a healthy economy. Long-term forward contracts, in particular, help reduce financial risk. Those contracts can only accomplish that goal, however, if parties know the contracts will be enforced.

From an economic and policy standpoint, long-term energy contracts should be abrogated only in truly exceptional circumstances. The mere fact that a price seems too high in retrospect does not justify abrogating contracts voluntarily agreed to by sophisticated buyers and sellers. Nor do generalized claims of "market dysfunction" at the time the contract was formed.

Questions Presented

  1. Whether the Ninth Circuit erred in holding that the Mobile-Sierra doctrine—which affirms the validity of long-term wholesale energy contract rates unless they are shown to be contrary to the public interest—is inapplicable to contracts negotiated in full compliance with FERC’s market-based ratemaking regime, unless and until FERC retrospectively concludes that such contracts were negotiated under conditions free from any influence of "market dysfunction."
  2. Whether the Ninth Circuit failed to honor Mobile- Sierra's presumption of contract validity when it modified the public interest standard so that wholesale energy contract rates challenged by buyers as too high are modified downward whenever they are outside a zone of reasonableness defined at a later date.
Interest of Amici

Amici are leading professors and scholars who teach and write on economic issues and are concerned about the economic effects that the decision below will have on contract certainty in commodities markets. Many have taught, researched, and published analyses of the economics of the electricity industry. Several have also testified in various proceedings about the nature, structure, and appropriate regulation of electricity markets. Amici have a particular interest in the role and importance of contract certainty in promoting the proper functioning of markets such as the electricity market.

A summary of the qualifications and affiliations of the amici is provided as an appendix to this brief. See App., infra, 1a-4a. Amici file this brief as individuals and not on behalf of the institutions with which they are affiliated. None of the amici is being compensated in connection with this brief.