Petition for a Writ of Certiorari - Snohomish. - ISDA

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18ments will be profitable. See Mobile, 350 U.S. at 344 (discussingimportance of long-term commitment to buyers’ investmentdecisions). They are also an important tool that is used bymarket participants to hedge against the risk of unfavorableprice movements.Long-term contracts also tend to mitigate market price volatilityand, in some situations, the risk of market manipulation.There is no small irony that buyers’ excessive reliance on spotmarketpurchases was one of the causes of the market dysfunctionin this case, and that replacing spot-market purchases withpurchases under long-term contracts was an important solutionto that market dysfunction. 06-1457 Pet. App. 24a-25a. TheNinth Circuit’s permissive standard for excusing purchasersfrom their long-term commitments will undermine sellers’incentives to offer long-term contracts, which will again pushbuyers towards an excessive reliance on short-term purchases.Second, the Ninth Circuit’s decisions will discourage theproduction of more electric power when it is most needed torespond to shortages. The elementary laws of supply and demandteach that shortages lead to higher prices, and severeshortages lead to much higher prices. Sensible policy – policythat serves consumers’ best interests – would seek to encouragesuppliers to sell more electric power when prices spike upwards,in order to alleviate the shortage and reduce prices. The NinthCircuit’s decisions do just the opposite. Under those decisions,the contractual commitments that sellers can least rely on arethe commitments that buyers make when market prices havespiked upwards. When market prices are exceptionally high, thelikelihood that prices will later decline – leading buyers to seekprice reductions through the regulatory process – is at its greatest,and a market characterized by unusually high prices is mostlikely to be described, retrospectively, as “dysfunctional.” Whenconsumers would benefit the most from sellers’ agreements toprovide more power – when market prices have spiked upwards– the Ninth Circuit’s decisions create the greatest disincentivefor sellers to enter into such agreements.
19The Ninth Circuit’s standard makes no sense even if marketmanipulation caused the spike in prices. If market manipulationhas created an artificial shortage, the most effective remedy willbe to encourage other market participants to alleviate that shortageby increasing the level of market supply. That response will7minimize the harm caused by the manipulation and reduce thewrongdoers’ illicit gains, thereby reducing the temptation to engagein market manipulation. The surest means of preventingthat desirable response will be to deny benefits (by refusing toenforce their contracts) to those who contract to sell moreelectricity during periods of market turmoil.Third, the Ninth Circuit’s decisions will lead to enormouslitigation costs. When the Mobile-Sierra doctrine is properlyapplied, litigation over long-term supply contracts is rare andrelatively cheap. The principal issue to be decided is whetherthe disputed contract is valid. That issue frequently can be decidedmerely by examining the contract or, in unusual cases, thebehavior of those who were involved in negotiating the contract,to determine if they acted deceptively or in bad faith. The NinthCircuit’s decisions will expand both the circumstances in whichbuyers will be motivated to initiate litigation to escape theircontractual commitments, and the scope and likely cost of that7See Charles Augustine, Joseph Cavicci & Joseph Kalt, Competitionand Regulation, Part III, Tensions Evolve Between Competition andRegulation, ELECTRIC LIGHT AND POWER (Jan. 2006), available at http://uaelp.pennnet.com/Articles/Article_Display.cfm?Section=ARTCL&ARTICLE_ID=247218&VERSION_NUM=2&p=34 (“[A]s our antitrustprinciples recognize, if a dominant seller, A, unlawfully exercises marketpower, its prices can properly be judged to be unjust and/or unreasonable.At the same time, however, these principles recognize that A’sexercise of market power will generally pull up the prices of otherwisefaultless sellers B, C, D . . . Z, and will induce expansions in thosesellers’ supplies. In market-driven price regimes, this is desirable: Theresponses of B, C, D . . . Z dampen the impact of A’s conduct and holdoverall price levels lower than they would be if these other sellers did notrespond. B, C, D . . . Z’s prices may be ‘high’ but B, C, D . . . Z’sresponses help consumers.”).
Page 4: iiiTABLE OF AUTHORITIES—continued
Page 7 and 8: 3function that will impose enormous
Page 9 and 10: 52purchase electricity in the Unite
Page 13: 9promoted the Act’s purposes, as
Page 17 and 18: 13that affected the contracts. See,
Page 19 and 20: 15The Ninth Circuit’s new rules d
Page 21: 17the Ninth Circuit’s standards;
Page 25: 21Respectfully submitted.ROY T. ENG

Petition for a Writ of Certiorari - Snohomish. - ISDA

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