Washington (Platts)--31Jan2013/151 pm EST/1851 GMT

JP Morgan Ventures Energy Corp says the US Federal Energy Regulatory Commission's order suspending its market-based rate authority for six months cannot apply to any contracts it signs before the suspension begins April 1.

Those contracts are protected under the so-called "Mobile-Sierra" doctrine, JP Morgan said in a Wednesday filing to FERC.

The commission in November decided to suspend JP Morgan's authority to trade at market-based rates in jurisdictional wholesale markets for six months over allegations the company submitted false information to FERC regarding a California Independent System Operator investigation of JP Morgan's trading activities.

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As a result, JP Morgan would need to make sales at cost-based rates during the suspension period.

But the suspension order "did not specify whether the MBR suspension was intended to apply to contracts entered into by JPMVEC prior" when the suspension period begins, JP Morgan said.

It noted that it has asked FERC to clarify the issue but the commission has yet to rule on the request. JP Morgan "explained that, under the Mobile-Sierra doctrine, the commission had not and could not make the necessary public interest findings required to suspend JPMVEC's ability to charge the rates set forth in its existing contracts."

JP Morgan therefore "intends to continue performing under those contracts and under the existing terms and conditions," it said.

JP Morgan also said that it will interpret FERC's order as suspending its market-based rate authority in all commission-jurisdictional markets, which would not include markets in Texas.

When it comes to new sales in bilateral markets during the suspension, JP Morgan said the tariff for bilateral sales "caps the rate for these sales at 110% of the applicable [locational marginal price] or 110% of the index price.

"This cap is consistent with cost-based principles and also is one of the cost-based methods discussed by the commission in Order 697 as potentially available for use when an entity loses its MBR authority," JP Morgan said.

FERC declined to comment on JP Morgan's filing because the company's rehearing request is pending before the commission, commission spokesman Craig Cano said Thursday.

FERC reviews complaints about existing rates under Federal Power Act Section 206 and can change them if it finds the rates are unjust, unreasonable, unduly discriminatory or preferential. But the courts have held under Mobile-Sierra that electricity rates established in freely negotiated contracts cannot be changed without clearing a much higher bar: showing the contract rates significantly harm the public interest.

That means that a contract rate protected by Mobile-Sierra cannot be changed or repealed unless FERC finds the rate will drive one of the contracting parties to file for bankruptcy, the rate is too onerous for buyers to bear or there is undue discrimination between entities in one set of contracts compared to another set of contracts.

--Esther Whieldon, esther_whieldon@platts.com
--Edited by Richard Rubin, richard_rubin@platts.com


--Edited by Jeff Barber, jeff_barber@platts.com

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