ISDA®
INTERNATIONAL
SWAPS AND DERIVATIVES ASSOCIATION, INC
NEWS RELEASE
For Immediate Release Wednesday, November 28, 2007
For More Information, Please Contact:
Scott
Marra, ISDA New York, 212-901-6013, smarra@isda.org
ISDA and FIEG Submit Joint Amicus Brief to U.S.
Supreme Court to Support Reversal of Ninth Circuit’s Decision in Snohomish County Lawsuit
NEW
YORK, Wednesday, November 28, 2007 – The International
Swaps and Derivatives Association, Inc. (ISDA) and the Financial Institutions
Energy Group (FIEG) today submitted a joint amicus brief to the U.S. Supreme
Court to reverse a pair of decisions by the United States Court of Appeals for
the Ninth Circuit issued in December 2006. The decisions were handed down in Public
Utility District No. 1 of Snohomish County, WA v. the Federal Energy Regulatory Commission (FERC) and
The filing is in response to a decision by the Ninth Circuit that buyers could avoid their contractual obligations and obtain rate reductions if their contract was viewed as being negotiated in a “dysfunctional” market. The Ninth Circuit also held that the Mobile-Sierra doctrine cannot be invoked unless the FERC had an initial opportunity to review the contract rates agreed between the parties and the market conditions under which the contract was negotiated.
ISDA and FIEG argue in their joint amicus brief that the Ninth Circuit’s decision undermined the Mobile-Sierra doctrine, in which the Supreme Court held in 1956 that long-term contracts for wholesale electric power would be enforceable, even if changes in the marketplace rendered the contract unprofitable to one of the parties.
“As ISDA and FIEG play extremely
important roles in the wholesale power markets, both Associations want to
ensure that the markets operate efficiently,” said Robert Pickel, Executive
Director and Chief Executive Officer, ISDA. “Consumers will be harmed if a market dysfunction standard can
be used to reduce the predictability that the Mobile-Sierra doctrine has
afforded for 51 years.”
The brief, which was filed by Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, further contends that the Ninth Circuit’s decision creates the risk that buyers will be able to escape their contractual commitments. It would discourage the use of long-term contracts that provide important benefits, such as facilitating investment, mitigating financial risks and reducing market volatility, and also would discourage sellers from increasing the supply of power when prices increase.
In essence, ISDA and FIEG believe that the Ninth Circuit’s standards would undermine sellers’ ability to control or predict whether a contract will be enforceable because that contract could be set aside for reasons entirely unrelated to the behavior of the contracting parties. The Ninth Circuit’s decision appears to require hindsight to determine whether a contract was negotiated in a “dysfunctional” market, rather than relying on the information that was available when the contract was negotiated. In addition, the Ninth Circuit’s decision is asymmetric in the sense that it allows buyers to “renegotiate” contracts, but not sellers.
About ISDA
ISDA, which represents participants in the
privately negotiated derivatives industry, is among the world’s largest global
financial trade associations as measured by number of member firms. ISDA was
chartered in 1985, and today has approximately 825 member institutions from 56
countries on six continents. These members include most of the world’s major
institutions that deal in privately negotiated derivatives, as well as many of
the businesses, governmental entities and other end users that rely on
over-the-counter derivatives to manage efficiently the financial market risks
inherent in their core economic activities.
Information about ISDA and its activities is available on the
Association's web site: www.isda.org.
About FIEG
FIEG is a group of investment and commercial banks and other financial institutions, all of which play a vital role in the electric utility industry. The businesses of FIEG members (and their affiliates) as they relate to the energy sector are very diverse. They are directly involved in the purchase and sale of electric energy, capacity, and ancillary services, and many are power marketers with market-based rate authority.
®ISDA is a registered trademark of the International Swaps & Derivatives Association, Inc.