Full opinion text
BERZON, Circuit Judge: The energy crisis in 2000-2001 resulted in extreme power shortages and price volatility in California and other western states. This consolidated appeal raises several interrelated issues concerning a series of wholesale energy contracts for future energy supplies — known as “forward” contracts — entered into by power companies in California, Nevada, and Washington during the energy crisis. Petitioners, including retail power companies and state agencies, contended before the Federal Energy Regulatory Commission (FERC) that the contracts should be modified, but FERC concluded that they should not be. Petitioners (the “local utilities”) now allege that FERC, in so deciding, did not appropriately apply the just and reasonable standard set by section 206(a) of the Federal Power Act (FPA). They allege that FERC erred in applying the Mobile-Sierra “public interest” mode of review to contracts that were (1) not subject to meaningful initial review or approval, and (2) formed during one of the most erratic and bizarre periods of activity for the western energy market. We hold that FERC erred both in its procedural reliance on Mobile-Sierra and in the substantive standard it used in determining that the contracts at issue did not affect the public interest. FERC’s reliance on Mobile-Sierra was misplaced because its grant of market-based rate authority lacked a mechanism to provide effective, timely relief from unjust and unreasonable rates due to market dysfunction, thereby creating a gap in the FPA’s protection against excessive energy prices. Although we would remand to FERC solely because its application of Mobile-Sierra was therefore procedurally improper, we further hold that the agency’s finding that the challenged contracts do not affect the public interest was based on a substantively erroneous mode of analysis. A remand is therefore necessary to allow FERC the opportunity to review these complaints in the first instance in light of these holdings and determine whether the challenged rates meet the statutory standard. I. The Federal Power Act and Mobile-Sierra The FPA governs the actions of public utilities, defined as “any person who owns or operates facilities subject to the jurisdiction of the [Federal Energy Regulatory] Commission.” 16 U.S.C. § 824(e). The Commission’s jurisdiction covers the “transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce.” Id. § 824(a). This definition encompasses activities carried out by all of the Interve-nor-Respondent companies. The FPA requires FERC to regulate public utilities for the benefit of consumers. See Pa. Water & Power Co. v. Fed. Power Comm’n, 343 U.S. 414, 418, 72 S.Ct. 843, 96 L.Ed. 1042 (1952) (“A major purpose of the whole [Federal Power] Act is to protect power consumers against excessive prices.”); California ex rel. Lockyer v. FERC (Lockyer), 383 F.3d 1006, 1017 (9th Cir.2004) (describing “protecting consumers” as the FPA’s “primary purpose”); see also Atl. Ref. Co. v. Pub. Serv. Comm’n, 360 U.S. 378, 388, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1959) (“The [Natural Gas] Act was so framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges.”). Two FPA provisions, sections 205 and 206, 16 U.S.C. §§ 824d, 824e, govern FERC’s authority and establish its obligation to regulate rates for the interstate sale and transmission of electricity. Through these provisions, the FPA empowers FERC to regulate wholesale electricity rates but not the rates charged directly to consumers by local utilities. See 16 U.S.C. § 824(a), (b)(1). The protection the FPA accords consumers is therefore indirect: By assuring that wholesale purveyors of electric power charge fair rates to retailers, the FPA protects against the need to pass excessive rates on to consumers. At the same time, by assuring that wholesale purveyors of electric power receive a fair rate of return, the FPA assures that such sellers have the incentive to continue to produce and supply power. The First Circuit has aptly described the interaction of sections 205 and 206: In regulating electricity rates, the Federal Power Act follows (with variations) a well-developed model: the utility sets the rates in the first instance, 16 U.S.C. § 824d(a), subject to a basic statutory obligation that rates be just and reasonable and not unduly discriminatory or preferential, id. §§ 824d(a)-(b). FERC, which inherited the powers of its predecessor (the Federal Power Commission), can investigate a newly filed rate (section 205, id. § 824d(e)), or an existing rate (section 206, id. § 824e(a)), and, if the rate is inconsistent with the statutory standard, order a change in the rate to make it conform to that standard, id. §§ 824d(e), 824e(a)-(b). The procedural incidents and FERC’s ability to provide refunds vary depending on whether the proceeding is one to investigate a new rate filing or an existing rate. For example, in the former case, the burden is on the utility to show that its rate is lawful, 16 U.S.C. § 824d(e), and, in the latter, the burden is on the FERC staff or the customer to show that the rate is unlawful, id. § 824e(b). In both circumstances, however, the statutory test of lawfulness is phrased in the same terms. Boston Edison Co. v. FERC, 233 F.3d 60, 64 (1st Cir.2000) (footnote omitted). Additionally, when utilities set rates in the first instance, they may do so via privately-negotiated contracts, filed pursuant to section 205(c)-(d), 16 U.S.C. § 824d(c)-(d). Thus, the FPA, by its terms, creates a role for privately negotiated wholesale power contracts, balanced by FERC’s obligation to ensure that those contracts rates, like unilaterally filed rates, are “just and reasonable.” Two Supreme Court decisions, announced on the same day in 1956, explain the approach that federal regulators must apply in certain circumstances when reviewing challenges maintaining that contracted rates are too low to be just and reasonable. See United Gas Pipe Line Co. v. Mobile Gas Serv. Corp. (Mobile), 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956); Fed. Power Comm’n v. Sierra Pac. Power Co. (Sierra), 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956). These decisions explain how, in the context of the energy industry as it existed in 1956, FERC was to ensure that wholesale contracts were “just and reasonable.” In Mobile, a seller agreed to a long-term fixed rate contract with another business, and the agency accepted it for filing under section 205. The Court held that the seller could not unilaterally increase a contracted rate by filing a new rate under section 205(d), reasoning that the statute “evinces no purpose to abrogate private rate contracts,” Mobile, 350 U.S. at 338, 76 S.Ct. 373, and recognizing the need for “individualized arrangements” between suppliers and distributors, id. at 339, 76 S.Ct. 373. The Court emphasized that the public is served by the negotiation and enforcement of private contracts: “By preserving the integrity of contracts, [the Natural Gas Act] permits the stability of supply arrangements which all agree is essential to the health of the ... industry.” Id. at 344, 76 S.Ct. 373. At the same time, the Court made clear that while “per-mitfting] the relations between the parties to be established initially by contract,” the Natural Gas Act provided for “the protection of the public interest ... by supervision of the individual contracts, which to that end must be filed with the Commission and made public.” Id. at 339, 76 S.Ct. 373. Sierra took up where Mobile left off, echoing the principle that a unilateral filing of a new rate cannot supersede a contract rate, even if the new rate is just and reasonable. Sierra, 350 U.S. at 352-53, 76 S.Ct. 368. The Court then extended Mobile to section 206 cases, holding that when a public utility agrees “by contract to a rate affording less than a fair return,” then the “sole concern” of the Federal Power Commission (FERC’s predecessor) in section 206(a) review is “whether the rate is so low as to adversely affect the public interest.” Id. at 355, 76 S.Ct. 368 (emphases added). As the emphasized language indicates, Sierra dealt only with whether a challenged contract rate was too low to serve the public interest. It did not deal with a contract rate alleged to be too high. In these low-rate cases, the Court declared, “the purpose of the power given the Commission by § 206(a) is the protection of the public interest, as distinguished from the private interests of the utilities,” as “a contract may not be said to be either ‘unjust ’ or ‘unreasonable ’ simply because it is unprofitable to the public utility.” Id. (emphasis added). Sierra thus did not purport to abandon the “just and reasonable” standard in the statute. Rather, it gave substance to that standard in circumstances in which the contention is that the seller of energy finds a long-term contract it entered into no longer profitable. Relying on section 201 of the FPA and reciting that “the scheme of regulation imposed by [the FPA] is necessary in the public interest,” the Court held that when a seller seeks to raise rates after a contract has gone into effect, only “public interest” factors are pertinent to the “just and reasonable” inquiry, including whether the rate “might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory.” Id. (internal quotation marks omitted). Mobile-Sierra, then, stands for the proposition that in certain circumstances, a presumption applies that private parties to a wholesale electric power contract have negotiated a “just and reasonable” contract over a designated period of time, lawful under the FPA throughout that period. That presumption can be rebutted by establishing that the contract adversely affects the public interest — that is, the interests of the consuming public that the FPA protects. As we explain in Part II of this opinion, Mobile and Sierra arose in a regulatory context in which there was an opportunity for traditional cost-based just and reasonable review before the energy contracts at issue became effective. The regulatory regime evolved, however, and FERC shifted its inquiry from the permissible cost-basis of rates to the determination of a seller’s market power. We therefore confront here, for the first time, the intersection of two doctrines — one, the Mobile-Sierra doctrine, the product of the courts; the other, market-based rate authorization, the product of recent agency policy — as they affect the application of the just and reasonable standard. No case that we have found concerns the intersection of these two doctrines. While the object of the Mobile-Sierra doctrine was an individual contract, the market-based rate authorization inquiry applies to an individual seller, with regard to any covered contract for electrical energy it enters into. The former inquiry occurred contemporaneously with a contract’s formation, while the latter inquiry transpires before each contract is formed. This dual shift distinguishes the regulatory context here from that present in Mobile and Sierra in two material respects: (1) the timing of the agency’s initial review has moved to a point before contract formation, and (2) the substance of that review no longer focuses on the terms of the contract. In other words, since Mobile and Sierra were decided, both the questions that FERC asks in its initial regulatory review of rates and when it asks them have changed. Although this regulatory evolution does not render Mobile-Sierra a dead letter, it reinforces the need to delineate carefully the prerequisites for its application in the present environment. Our principal question is therefore whether the circumstances that trigger the Mobile-Sierra presumption are present in this case. As we explain in Part IV of this opinion, we conclude from the context of Mobile-Sierra and from later cases that three prerequisites are necessary to establish the Mobile-Sierra presumption: (1) the contract by its own terms must not preclude the limited Mobile-Sierra review; (2) the regulatory scheme in which the contracts are formed must provide FERC with an opportunity for effective, timely review of the contracted rates; and (3) where, as here, FERC is relying on a market-based rate-setting system to produce just and reasonable rates, this review must permit consideration of all factors relevant to the propriety of the contract’s formation. Taken together, the satisfaction of these three conditions justifies a presumption that parties have negotiated a contract that is just and reasonable between them and therefore triggers the Mobile-Sierra public interest mode of review, adjusted to account for the circumstance in which it is the buyer rather than the seller that is challenging the existing contract. When the prerequisites have not been met, however, the Mobile-Sierra presumption cannot apply, and FERC must find another method of evaluating whether the challenged rates are just and reasonable. To explain the origins of these Mobile-Sierra prerequisites and illuminate the current role of the doctrine, we begin by considering the historical and regulatory context in which Mobile-Sierra developed and the changes in that context since those cases were decided. We then turn to the facts and proceedings underlying the current dispute and, finally, to the derivation and application of the Mobile-Sierra prerequisites and standards. II. Evolution of Power Utility Regulation A. Early Regulation of Utility Monopolies Congress passed the Federal Power Act in 1920, establishing the statutory framework described above. Ch. 285, 41 Stat. 1063 (1920). This framework emerged from a wider body of state and federal regulation that revolved around the by-then “familiar mandate” that rates in various industries be “just and reasonable.” Verizon Commc’ns Inc. v. FCC, 535 U.S. 467, 477, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002). Before Congress had passed many laws regulating national industries, state legislatures created specialized agencies “to set and regulate rates.” Id. In the electric power industry, this effort began in the first decade of the twentieth century. By 1914, forty-five states had enacted electricity regulation laws. RICHARD F. HIRSH, POWER LOSS: THE ORIGINS OF DEREGULATION AND RESTRUCTURING IN THE AMERICAN ELECTRIC UTILITY SYSTEM 19-26 (1999). The national government’s first substantial foray into rate regulation occurred in 1887, with the passage of the Interstate Commerce Act. Ch. 104, 24 Stat. 379 (1887). This statute, primarily concerned with interstate railroad rates, formed “the model for subsequent federal public-utility statutes like the Federal Power Act.” Verizon, 535 U.S. at 478, 122 S.Ct. 1646 n. 3. Under the Interstate Commerce Act, railroad carriers would first propose rate schedules, termed “tariffs.” Then, interested parties could comment to the agency, which would accept the tariff so long as it was “just and reasonable.” Id. at 478, 122 S.Ct. 1646. The states and Congress applied this structure to the electric power industry on the basis of two widely-shared assumptions: First, policymakers assumed that public utilities were “natural monopolies” because, among other reasons, it would be inefficient for competing utilities to string parallel power lines. Timothy P. Duane, Regulation’s Rationale: Learning from the California Energy Crisis, 19 YALE J. ON REG. 471, 476-77 (2002). Also, utilities could benefit from economies of scale, making a monopoly more efficient than a competitive market. See HIRSH, supra, at 17-18. Second, these monopolies, like any monopoly, would be tempted to abuse their market power. Moreover, because electricity cannot be stored, it needed to be produced at the same time consumers demanded it. Shortages anywhere on an interconnected electricity grid could threaten the entire system. The factors unique to the electric power industry made it particularly susceptible to abuse of market power: A local utility could withhold power, demand higher rates, and credibly threaten to disrupt a regional or national market. Regulation would keep local utilities in check. Duane, supra, at 477-78. Early state and federal agencies created two categories of regulated rates: “retail rates charged directly to the public and wholesale rates charged among businesses involved in providing” the regulated good or service. Verizon, 535 U.S. at 478, 122 S.Ct. 1646. Under the FPA, the federal government regulates only interstate wholesale electric power sales and interstate electric power transmission, leaving to the states the regulation of rates charged to consumers. See 16 U.S.C. § 824(a), (b)(1). State and local governments, therefore, generally focused on rates “as between businesses and the public,” while the federal government regulated rates “as between businesses.” Verizon, 535 U.S. at 479, 122 S.Ct. 1646. As a result of these differences in their regulatory focus, important differences in methodology developed between federal and state energy rate regulation. Knowing that state regulators focused on rates charged directly to the public and following Congress’s “acknowledgement] that contracts between commercial buyers and sellers could be used in rate-setting,” id. (citing section 205(d) and Mobile, 350 U.S. at 338-39, 76 S.Ct. 373), the Federal Power Commission (FPC) and, later, FERC— both bound by Mobile-Sierra — became less inclined to step in and alter filed rates charged among businesses in the energy industry. Even if those agencies wanted to change contract rates, courts, applying Mobile-Sierra, would generally assume that those rates were just and reasonable and would probably not harm the public interest. The underlying assumption was that “[i]n wholesale markets, the party charging the rate and the party charged were often sophisticated businesses enjoying presumptively equal bargaining power, who could be expected to negotiate a ‘just and reasonable’ rate as between the two of them.” Id. The equal market power of those businesses and the role of state regulation of rates charged to consumers allowed the federal government to set a relatively high bar for proving that a wholesale contract was unjust or unreasonable based on impact on the public. Federal agencies, including the FPC and its successor agency FERC, thus saw their “principal regulatory responsibility” as preventing discrimination “by favorable contract rates between allied businesses” as compared to other businesses. Id. At the same time, Sierra’s admonition that federal regulators should reform contracts if that was “necessary in the public interest,” Sierra, 350 U.S. at 355, 76 S.Ct. 368 (internal quotation mark omitted), confirmed a continuing federal responsibility to review the impact of wholesale contracts on the public, even though the federal government did not directly regulate rates charged to consumers. In contrast to federal regulators, state regulators “focused more on the demand for ‘just and reasonable’ rates to the public than on the perils of rate discrimination.” Verizon, 535 U.S. at 480, 122 S.Ct. 1646. In California, for instance, the Public Utilities Commission ensured that rates charged by the state’s three primary utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — were just and reasonable to the consuming public. See C AL. CONST, art. XII, § 6; Duane, supra, at 480. Within this two-tiered regulatory structure, case law developed an evolving definition of the “just and reasonable” standard. See Verizon, 535 U.S. at 481-89, 122 S.Ct. 1646. After decades-long debates not relevant here, courts and regulators settled on a system that attempted to match rates to the cost to the utility of providing the service, including “the cost of prudently invested capital used to provide the service.” Id. at 485, 122 S.Ct. 1646. This “prudent-investor rule” was designed to provide incentives for utilities to invest in necessary capacity-building by allowing them to charge rates that would provide a fair rate of return on those investments while at the same time “pro-tectfing] ratepayers from supporting excessive capacity, or abandoned, destroyed, or phantom assets.” Id. at 486, 122 S.Ct. 1646. These competing elements of cost of service regulation were intended to “mimic natural incentives in competitive markets.” Id.; see also Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1510 (D.C.Cir.1984). As a result, cost of service regulation would, in theory, lead to the same rates that would exist in a properly functioning unregulated market. B. Federal and State Regulatory Reform Our description thus far covers the regulatory landscape through the mid-1990s. Beginning then, the electric power industry saw “complementary initiatives by the FERC and state agencies” to shift from a cost-based rate regulation regime to a market-based regime. Carmen L. Gentile, The Mobile-Sierra Rule: Its Illustrious Past and Uncertain Future, 21 ENERGY L.J. 353, 373 (2000). This move toward energy regulation reform was premised on a new set of widely-shared assumptions: First, cost-based regulation did not effectively check public utilities’ market power. See Verizon, 535 U.S. at 486, 122 S.Ct. 1646 (“[T]he prudent-investment rule in practice often [was] no match for the capacity of utilities having all the relevant information to manipulate the rate base.... ”); Promoting Wholesale Competition Through Open Access Non-Diserimi-natory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, FERC Order 888-A, 62 Fed.Reg. 12,274, 12,275 (Mar. 14, 1997) (“[A]bsent open access, undue discrimination will continue .... ”); HIRSH, supra, at 33-54 (describing how “[u]tility [m]anagers [g]ain[ed] [d]ominance” within the earlier regulatory scheme). Also, local utilities would often deny competitors access to their transmission networks, protecting their monopoly status within a geographic area. See Atl. City Elec. Co. v. FERC, 295 F.3d 1, 4 (D.C.Cir.2002). Second, with technological changes, public power utilities no longer needed to be monopolies. Technological innovations now permitted transmission of power over longer distances, allowing consumers to obtain power from beyond the geographic range of their local utility. See Transmission Access Policy Study Group v. FERC, 225 F.3d 667, 681 (D.C.Cir.2000) (per cu-riam) (upholding FERC’s 1996 reform orders), aff'd sub nom. New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). Third, the newly feasible market competition could drive down wholesale prices and measure the cost of service, including the cost of long-term investments, more accurately than did the previous regulatory regime. Competition, this thesis posits, “at least over the long pull,” will lead to prices that “approximate [marginal] cost,” including a return on capital sufficient to ensure that companies have financial incentives to provide power. Interstate Natural Gas Ass’n of Am. v. FERC (INGAA), 285 F.3d 18, 31 (D.C.Cir.2002). Based on these assumptions, FERC decided in 1996 to fundamentally reform its regulation of the nation’s interstate wholesale electricity markets. FERC’s orders implementing this electrical power reform, Orders 888 and 889, required each utility that operates transmission lines to allow any other utility in the interstate energy market to use its transmission lines on the same terms applicable to the operating utility itself. Transmission Access, 225 F.3d at 681-82; Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, FERC Order No. 888, 61 Fed.Reg. 21,540, 21,541 (May 10, 1996). Taking advantage of the newly available “open access,” utilities would, in theory, have both the market incentives and the legal right to compete with each other. This competition would provide retail consumers with the opportunity to purchase power from a wide variety of producers at relatively lower rates. Transmission Access, 225 F.3d at 683. A factory in Albany, California, for example, could, in theory, purchase power from a power plant in Albany, New York, no longer limited in its options to whatever the local utility would sell. Local energy utilities, could, rather than producing their own power to sell to the public, choose between various competing producers and then transfer the expected savings from this competition to the public. FERC estimated that, as a result of such competition, consumers would benefit from annual savings of $3.8 billion to $5.4 billion. Order 888-A, 62 Fed.Reg. at 12,276. A crucial element of FERC’s 1996 “open access” reforms was the connection between “open access” and an “open access” utility’s authority to charge whatever rates the market would bear. “[Approximately a decade ago, companies began to file market-based tariffs that did not specify the precise rate to be charged,” and instead indicated that they would charge market-based rates. Lockyer, 383 F.3d at 1012. FERC would approve those tariffs if the public utility proved that it lacked, or had adequately mitigated, any ability to significantly affect market prices. La. Energy & Power Auth. v. FERC, 141 F.3d 364, 365 & n. 1 (D.C.Cir.1998); see also Sw. Pub. Serv. Co., 72 F.E.R.C. ¶ 61,208, at ¶ 61,966 (1995) (summarizing criteria for approving market-based rate tariffs). Such grants of market-based rate authorization were open-ended. See, e.g., So. Co. Servs., Inc., 87 F.E.R.C. ¶ 61,214, at ¶ 61,847 n. 3. FERC’s 1990s reforms specified open access as one criteria necessary to demonstrate the lack, or adequate mitigation, of market power. When a public utility implemented an “open access” policy, it demonstrated that it lacked market power regarding “sales from its existing [power generation] capacity” and was thus entitled to market-based rate authority — that is, the ability to charge whatever rates the market would bear — when it sold power over open access transmission grids. See Order No. 888, 61 Fed.Reg. at 21,553; see Lockyer, 383 F.3d at 1013 (describing FERC’s test for granting market-based rate authority as “consisting] of a finding that the applicant lacks market power (or has taken sufficient steps to mitigate market power)”); cf. EDWARD KAHN, ELECTRIC UTILITY PLANNING AND REGULATION 319 (1991) (describing the lack of open access as allowing “market power[to] interfere with market efficiency”). FERC thus based its 1996 reform — and, as this case makes clear, much of its subsequent regulation — on the belief that “open access” would create market forces helping to ensure that no utility could exercise market power when selling wholesale power. See Order No. 888, 61 Fed. Reg. at 21,554 (“[I]ncreased competition resulting from open access transmission may reduce or even eliminate generation-related market power in the short-run market ....”); id. at 21,555 (“[T]he Commission expects this Rule to facilitate the development of competitive bulk power markets....”). FERC tempered this expectation by promising to “continue our case-by-case approach” to granting market-based rate authority. Id. FERC’s “case-by-case approach” includes ensuring that sellers seeking market-based rate authority lack, or have sufficiently mitigated, market power and that FERC has a sufficient “means of monitoring the market in which [the seller’s] sales will take place.” Entergy Servs., Inc., 58 F.E.R.C. ¶ 61,234, ¶ 61,753-54 (1992); see also Lockyer, 383 F.3d at 1016 (requiring a market-based regime to include “implied enforcement mechanisms sufficient to provide substitute remedies for the obtaining of refunds”); Transwestern Pipeline Co., 43 F.E.R.C. ¶ 61,240, at ¶ 61,650 (1988) (requiring a finding that “competition in the relevant markets will operate as a meaningful constraint on the exercise of market power”). Following the Entergy approach, FERC also promised to “modify our market rate criteria if and when appropriate,” but specified that any such modification would “not upset transactions entered into pursuant to existing market-based rate authority.” Order 888, 61 Fed.Reg. at 21,555. Like FERC, California challenged the monopoly power of electric power utilities. California’s efforts to foster competition between utility monopolies had begun after the energy crises of the 1970s. See Duane, supra, at 482-87. Federal law then allowed a “qualifying small power production facility” to compete in wholesale power markets. See Public Utility Regulatory Policies Act of 1978, Pub.L. No. 95-617, §§ 201, 210, 92 Stat. 3117, 3134-35, 3144-47 (codified at 16 U.S.C. §§ 796(17)(C), 824a-3). California pursued these new options particularly aggressively so that, by 1991, California received a third of its energy from producers other than the monopolies held by local utilities. HIRSH, supra, at 93. Those producers demonstrated that a utility could efficiently produce power without taking advantage of economies of scale that supposedly made electricity monopolies “natural.” Through these reforms and market changes, the monopoly status of local utilities and the methodology of state regulation of monopoly utilities was eroding. California A.B. 1890, passed in 1996, sought to accelerate this breakup of local utility monopolies by requiring them to divest a substantial amount of their electricity generation facilities. Act of Sept. 23, 1996, eh. 854, 1996 Cal. Legis. Serv. 854 (West). Local utilities also were required to sell power generated by remaining facilities to the California Power Exchange Corporation (CalPX), which was to serve as an auction market for wholesale electricity sales. Lockyer, 383 F.3d at 1008-09. C. Shifting Authority to FERC When combined with federal preemption law, one crucial result of these energy market regulatory reforms has been “a massive shift in regulatory jurisdiction from the states to the FERC.” Gentile, supra, at 373. As noted, a “bright line” exists between state and federal jurisdiction, with wholesale power sales — the type of sales at issue in the challenged contracts in this ease — falling on the federal side of the line. Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 966, 106 S.Ct. 2349, 90 L.Ed.2d 943 (1986) (quoting Fed. Power Comm’n v. S. Cal. Edison Co., 376 U.S. 205, 215, 84 S.Ct. 644, 11 L.Ed.2d 638 (1964)). FERC’s jurisdiction to determine the reasonableness of wholesale rates is exclusive. Miss. Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 371, 108 S.Ct. 2428, 101 L.Ed.2d 322 (1988). Prior to 1996, vertically-integrated state monopolies would charge public consumers rates regulated by state entities and would purchase power from interstate utilities at rates regulated by FERC. The 1996 FERC reforms opened up local monopolies to competition among suppliers in the wholesale power market, resulting in a sharp increase in wholesale power sales — subject to FERC’s exclusive jurisdiction — as utilities shopped among suppliers. See Gentile, supra, at 373; Pub. Util. Dist. No. 1 v. Idacorp Inc. (Grays Harbor), 379 F.3d 641 (9th Cir.2004). Additionally, state regulatory reform laws, like California’s A,B. 1890, resulted in a less active role for state regulators and a more active one for FERC, as the breakup of vertically integrated utilities created the need for many more wholesale transactions. In California, for example, regulators “ceded most of their authority for regulating generator or trader behavior to FERC through A.B. 1890.” Duane, supra> at 507. The upshot of these federal and state innovations in electricity regulation is that state regulators, despite their continued authority over rates charged directly to consumers, have much less actual authority over those rates than they did when Mobile and Sierra were decided. Local utilities now obtain power largely through wholesale contracts subject to FERC’s exclusive regulation, rather than through self-generated and self-transmitted power. As a result, state regulators ordinarily must set retail rates with the wholesale rates as an established cost factor. FERC recognized this dynamic when issuing its reform orders, noting that customers will obtain more power delivered via “unbundled” wholesale transactions — in which the generation and transmission are separately traded rather than provided by an integrated local utility monopoly — making “[t]he exercise of our jurisdiction over rates, terms and conditions of unbundled retail transmission ... more important.” Order 888-A, 62 Fed.Reg. at 12,279. Accordingly, while the state and federal regulatory reforms of the 1990s did not end regulation of the electric energy industry, they did begin a new regulatory era. Although state regulators formerly took an extremely active role so as to ensure the just and reasonable retail power rates, FERC has exclusive jurisdiction over the wholesale rates that now drive the electric power market and, as a practical matter, largely determine the rates ultimately charged to the public. These changes profoundly affect this case and require us to ensure that FERC’s application of the Mobile-Sierra doctrine reflects both the historical and regulatory purpose of the doctrine and contemporary regulatory reality. With the history of electric rate regulation thus in mind, we now turn to the facts of the particular contracts at issue and then consider whether FERC applied the correct legal standard to review of these challenged contracts. III. Factual and Procedural Background A. The Western Energy Crisis of 2000-2001 This is not the first case, and it will not be the last, that requires this court to address the western energy crisis of 2000-2001, the basic facts of which are outlined elsewhere. See Pac. Gas & Elec. Co. v. FERC, 464 F.3d 861, 863-66 (9th Cir.2006); Pub. Utils. Comm’n of Cal. v. FERC, 462 F.3d 1027, 1035-46 (9th Cir.2006); Bonneville Power Admin. v. FERC, 422 F.3d 908, 911-14 (9th Cir.2005); Lockyer, 383 F.3d at 1008-11; California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 835-36 (9th Cir.2004), cert. denied, 544 U.S. 974, 125 S.Ct. 1836, 161 L.Ed.2d 724 (2005); S. Cal. Edison Co. v. Lynch, 307 F.3d 794, 800-01 (9th Cir.2002); Duke Energy Trading & Mktg., L.L.C. v. Davis, 267 F.3d 1042, 1045-46 (9th Cir.2001); Cal. Power Exch. Corp. v. FERC (CalPX), 245 F.3d 1110, 1114-19 (9th Cir.2001); see also Duane, supra, at 511-24; Michael A. Yuffee, California’s Electricity Crisis: How Best To Respond to the “Perfect Storm,” 22 Energy L.J. 65, 65-84 (2001). Accordingly, we summarize here only those facts most relevant to this case. As noted, in 1996, the California legislature deregulated the power industry in California through passage of A.B. 1890. The bill froze residential and small commercial consumer retail rates and required that the three largest California investor-owned utilities divest most of their electricity generation facilities. See CalPX, 245 F.3d at 1114-15. Additionally, the bill created the CalPX, which operated a single-day auction for day-ahead and day-of trading in wholesale electricity, known as the “spot market.” Id. at 1114. In the summer of 1999, CalPX also opened up a “forward market” to facilitate long-term wholesale electricity contracts. Id. The California Public Utilities Commission, however, allowed the investor-owned utilities to purchase only a limited amount of electricity from the CalPX forward markets. The great bulk of their load still had to be purchased from the CalPX spot markets. Id. at 1115. In the summer of 2000, there was a dramatic spike in the price of wholesale electricity in the spot markets. Id. For example, “[t]he CalPX’s constrained day-ahead price peaked at $l,099/MWh [megawatts/hour] on June 28, 2000 — an astounding 15-fold increase over the pre-restruc-turing average cost of $74/MWh.” Id. at 1115 n. 2. On November 1, 2000, FERC issued an order explaining that, in its view, this dramatic increase was primarily the result of three factors: First, “competitive market forces played a major role in the run-up of prices through significantly increased power production costs combined with increased demand due to unusually high temperatures and a scarcity of available generation resources throughout the West and California in particular.” San Diego Gas & Elec. Co., 93 F.E.R.C. ¶ 61,121, at ¶ 61,354, 2000 WL 1637060 (2000). Second, “[m]any of the market dysfunctions in California and the exposure of California consumers to high prices can be traced directly to an over reliance on spot markets.” Id. ¶ 61,359. The rules requiring investor-owned utilities to purchase primarily through the spot markets precluded any significant reliance on forward markets. “And other retail suppliers who would have been free to implement appropriate risk management strategies could not be induced to participate in California’s market because the low retail rate, frozen at 10 percent below historical levels, thwarted competitive opportunities for new participants to enter the market.” Id. Third, FERC suggested that there was the opportunity for abuse of the markets through the exercise of market power, but could not point to specific instances. Id. ¶ 61,376. FERC’s staff later issued a report concluding that the spot market was dysfunctional, partially due to market manipulation by sellers; that conclusion is assumed by all parties here. See STAFF OF THE FEDERAL ENERGY REGULATORY COMMISSION, FINAL REPORT ON PRICE MANIPULATION IN WESTERN MARKETS:FACT-FINDING INVESTIGATION OF POTENTIAL MANIPULATION OF ELECTRIC AND NATURAL GAS PRICES [“Staff Report”] (2003), available at www.ferc.gov/ legaVmaj-ord-reg/land-docs/PART-I-3-26-03.pdf. California is part of a single integrated electricity market in the West. Its energy problems therefore created a “dysfunctional marketplace both in California and the remainder of the West.” See San Diego Gas & Elec. Co. (June 19 Order), 95 F.E.R.C. ¶ 61,418, at ¶ 62,556, 2001 WL 1910052 (June 19, 2001). For example, in the Pacific Northwest, prices have historically averaged approximately $24/MWh. During this period, short term prices spiked to unprecedented levels, peaking at $3,300/ MWh in early December of 2000, and during the summer and fall of 2000 averaged between $200/MWh and $500/ MWh. Markets were also marked by unprecedented levels of price volatility. In response to this volatility, between August 2000 and December 19, 2001, FERC issued nearly 75 orders providing for spot market mitigation measures, see, e.g., id., most aimed at reducing the size of the spot market. San Diego Gas & Elec. Co., 97 F.E.R.C. ¶ 61,275, at¶ 62,171 (Dec. 19, d2001). The order issued on December 15, 2000, is of particular relevance to the issues here. See San Diego Gas & Elec. Co. (December 15 Order), 93 F.E.R.C. ¶ 61,294, 2000 WL 1840337 (Dec. 15, 2000). That order strongly urged investor-owned utilities to move to long-term contracts of two years or more. Id. ¶ 61,993. “To address concerns about potentially unjust and unreasonable rates in the long-term markets,” FERC agreed to “monitor prices in those markets” and established a “benchmark” rate of $74/MWh to “use as a reference point in addressing any complaints regarding the pricing of long-term contracts negotiated over the next year.” Id. ¶ 61,994-95. In response to the contention that such a shift would only transform the forward market into another strong sellers’ market resembling the then-dysfunctional spot market, FERC declared that it would “be vigilant in monitoring the possible exercise of market power” in the forward market. Id. ¶ 61,994. FERC’s monitoring, the agency promised, would “also provide customers protection by providing early review of as-bid prices that may not be just and reasonable and prompt rate relief for prices that are mitigated.” Id. ¶ 61,997. B. Contracts at Issue Here This consolidated appeal involves three separate sets of contracts, all of which were made pursuant to the Western Systems Power Pool Agreement (Power Pool Agreement), an umbrella agreement that established standardized terms for wholesale energy transactions. All the utilities involved in this case are signatories to that agreement. 1. Snohomish In response to the extreme spike of spot market prices (reaching as high as $3,300/ MWh) during December 2000, Snohomish, a public utility for Snohomish County in Washington, determined that it was no longer viable to rely on the spot markets. On December 22, 2000, Snohomish issued a request for proposals to 17 power suppliers, seeking bids for one-to-three year contracts, providing a total of approximately 75-100 megawatts of electricity for 2001. Snohomish received five bids, but two were unresponsive to Snohomish’s needs. Of the three responsive bids, no supplier would offer more than 25 MW, so Snoho-mish accepted all three bids and negotiated contracts with each supplier. That year, Snohomish’s Board of Commissioners had previously approved an unprecedented thirty-five percent increase in retail rates, allowing for an average contract price of $125/ MWh. Unfortunately, none of the three offers would allow Snohomish to meet this price, and Snohomish chose not to ask its ratepayers for another double-digit rate increase in the same year. Consequently, Snohomish asked Morgan Stanley — an electrical energy commodities dealer' — what term would be necessary to secure a $100/MWh price for its contract; Morgan Stanley demanded a ten-year term. The parties ultimately agreed to a nine-year term at $105/MWh. Additionally, Morgan Stanley required Snohomish to accept credit terms articulated in a contractual provision termed the “Collateral Annex.” Snohomish claims that it suffered losses between January 2001 and March 2002 in excess of $25.7 million and that those losses will escalate over the term of the contract as market rates remain close to traditional levels. FERC specifically found that the Morgan Stanley contracts accounted for an eight percent increase for retail ratepayers over 2001 rates, and other contracts accounted for a fifty-one percent increase. Nev. Power Co. (November 10 Order), 105 F.E.R.C. ¶ 61,185, at ¶ 61,986, 2003 WL 22628184 (Nov. 10, 2003). Snohomish here challenges the term of the contract and the imposition of the Collateral Annex. 2. Southern Cal Water Southern Cal Water owns and operates an electric utility distribution system that serves approximately 21,600 customers in San Bernadino County, California. Southern Cal Water purchases, subject to regulation by the California Public Utilities Commission, an average electric load of about 16.3 MW. The A.B. 1890 requirements that investor-owned utilities purchase in the spot market did not apply to Southern Cal Water, which owned no transmission lines and generated no electricity. To avoid relying entirely on the spot markets, which it viewed as significantly risky, Southern Cal Water executed a one-year contract with Illinova in April 1999, providing for purchase of 12 MW of uninterruptible around-the-clock energy at a price of $28/MWh. One year later, Southern Cal Water renewed the contract with Dynegy (Illinova’s successor), to run from May 1, 2000, to May 1, 2001, for the same load, at the increased price of $35.50/MWh. California enacted A.B. 1 on February 1, 2001, allowing the California Department of Water Resources to purchase energy for the then-collapsing large investor-owned utilities and power suppliers. See Act of Feb. 1, 2001, 2001 Cal. Legis. Serv. 1st Ex.Sess. 4 (West). At that point, Dynegy informed Southern Cal Water that it was not interested in renewing its contract with Southern Cal Water, because it could sell its entire generation output to the State of California. With the present contract expiring at the end of April 2001, Southern Cal Water engaged in a hurried bidding process. On March 7, 2001, Southern Cal Water issued a request for proposals for 15 MW of power to six power companies operating in California and requested bids by March 14, 2001. The company requested bids of one to seven years, without specifying a preferred or maximum price. The three bids submitted ranged from $194.50/MWh for a one-year contract to $84/ MWh for a seven-year contract. After receiving firm offers at higher prices, Southern Cal Water accepted Mirant’s offer of $95/MWh for five years, as the offer that best balanced price against contract length. In light of this increase in Southern Cal Water’s wholesale electricity costs, the California Public Utilities Commission allowed the company to recover a portion of the costs of the contract, resulting in a weighted average retail rate of $77/MWh. Southern Cal Water maintains that its ratepayers have seen an overall thirty-eight percent increase in their electric bills. FERC found that there was no rate increase for Southern Cal Water’s ratepayers who are permanent residents, and that the other group of Southern Cal Water ratepayers, those with second homes in certain areas, paid an average monthly electric bill of only $35.13. Order on Rehearing, 105 F.E.R.C. at ¶ 61,986. 3. Nevada Power Companies: Nevada Power and Sierra Pacific The challenge brought by Nevada Power and Sierra Pacific seeks to modify over two hundred forward market contracts with various energy sellers for supply of 25-100 MW blocks of power. These contracts range in price from $33/MWh to $290/MWh, and were entered into in 2000-2001 with ten energy companies. FERC found that these contracts were standard products arranged through independent third-party brokers, and concluded that Nevada Power and Sierra Pacific were price-takers, meaning that those utilities took the price the market yielded rather than bargaining or demanding a certain price. Nev. Power Co. (June 26 Order), 103 F.E.R.C. ¶ 61,353, at ¶ 62,398, 2003 WL 21485862 (June 26, 2003). According to FERC, the Nevada companies did not pursue purchase of a diverse mix of products and therefore failed to hedge the risk that spot market prices might fall. Id. FERC also found that the Nevada companies pursued an aggressive procurement strategy, purchasing more power than necessary to serve the expected load of their local customers. Id. FERC suggests that the Nevada companies were trying to buy as much power as they could before sellers discovered their precarious financial situation. Id. FERC found that if these contracts are not modified, the resulting increase to ratepayers would be no more than five percent. Id. ¶ 62,397. The Nevada companies recognize that the retail rates have decreased since they agreed to the challenged contracts, but they maintain that Nevada customers will still pay significantly more than they would pay if the contracts were modified to reflect just and reasonable rates. Order on Rehearing, 105 F.E.R.C. at ¶ 61,986. Nevada Power and Sierra Pacific therefore seek to modify their contracts with the energy sellers. Nev. Power Co. (April 11 Order), 99 F.E.R.C. ¶ 61,047, at ¶ 61,185, 2002 WL 32126219 (Apr. 11, 2002). Nevada Power is seeking relief for contracts that had not yet gone to delivery at the refund effective dates set by FERC (between late January and April of 2002, depending on docket number). Id. ¶¶ 61,185, 61,192. C. Agency Proceedings The agency actions challenged here arise from a series of orders issued by FERC with regard to the complaints filed by the local utilities. 1. Order Setting the Local Utilities’ Complaints for Hearing (April 11 Order) On April 11, 2002, pursuant to section 206 of the FPA, FERC set a hearing concerning the contracts “entered into during the time period from November 1, 2000 through June 20, 2001, and that have not yet concluded,” because FERC has “no authority to order refunds for contracts or transactions that conclude prior to the refund effective date.” Id. ¶ 61,191 (footnote omitted). FERC also set refund effective dates for each of the complaints. Id. ¶ 61,-192. FERC explained in its April 2002 order that it did not have enough information yet to address the Mobile-Sierra issues definitively. The agency clarified that “[fjor all but one of the contracts identified by the .complainants, Section 6.1 of the umbrella [Power Pool] agreement appears to be the only specific contractual provision which may affect parties’ rights to make changes to contracts.” Id. § 61,190. The remaining contract, between PUD and Morgan Stanley, has a separate provision addressing both FPA sections 205 and 206. Id. ¶ 61,190 & n. 11. FERC also noted a key dispute between the parties: whether the “spot markets had an adverse effect on the long-term, bilateral markets in California, Nevada and Washington.” Id. ¶ 61,191. The hearing, designed to illuminate these questions, was to address “whether the 'dysfunctional California spot markets adversely affected the long-term bilateral markets, and, if so, whether modification of any individual contract at issue is warranted.” Id. (footnote omitted). FERC specifically excluded “issues concerning the Commission’s policies on granting market-based rate authority or on regulation of sellers with such authority.” Id. 2. Initial Decision of the Administrative Law Judge (Initial Decision) On December 19, 2002, after an extensive hearing, Administrative Law Judge Carmen Cintron issued a lengthy initial decision on the complaints. Nev. Poiver Co., 101 F.E.R.C. ¶ 63,031, 2002 WL 31889939 (Dec. 19, 2002). She ultimately concluded that (1) the Mobile-Sierra “public interest” standard is the applicable standard of review, id. ¶ 65,277, and (2) the complainants failed to demonstrate that the spot market sufficiently adversely affected the forward market to merit revision of the contracts under the Mobile-Sierra doctrine, id. ¶ 65,295. 3. Order on Initial Decision On June 26, 2003, FERC issued a lengthy opinion in which it affirmed the Initial Decision. Order on Initial Decision, 103 F.E.R.C. at ¶ 62,400. FERC’s primary findings included: (1) Section 6.1 of the Power Pool agreement’s express reservation of joint modification under section 205 of the FPA impliedly waived the right to seek unilateral modification, id. ¶ 62,388; (2) this waiver meant that review was limited to the Mobile-Sierra “public interest” standard, id. ¶¶ 62,388-89; (3) applying the three factors articulated in Sie'tra and considering “the totality of the circumstances,” complainants failed to meet the “public interest” standard because “[t]he fact that a contract becomes uneconomic over time does not render it contrary to the public interest,” id. ¶ 62,384; and (4) the totality of the circumstances evidence analyzed by the ALJ further demonstrated that “the challenged transactions were the result of [the local utilities’] voluntary choices,” and there was “no evidence of unfairness, bad faith, or duress in the original negotiations,” id. ¶¶ 62,399-62,400. Because modification was therefore not warranted, FERC denied the complaints. Id. ¶ 62,400. Although FERC acknowledged that it had set the ALJ hearing in large part to decide “whether the dysfunctional California ISO and PX spot markets adversely affected Western long-term bilateral markets,” Id. ¶ 62,385, FERC concluded that evidence showing the spot market’s effect on the forward market — including that reviewed in the Staff Report — “would be relevant to contract modification only where there is a ‘just and reasonable’ standard of review.” Id. ¶ 62,397. FERC further explained, applying the Mobile-Sierra public interest standard, that “to justify contract modification it is not enough to show that forward prices became unjust and unreasonable due to the impact of spot market dysfunctions; it must be shown that the rates, terms, and conditions are contrary to the public interest,” a showing the local utilities failed to make. Id. Commissioner Massey issued a vigorous dissent, disagreeing with all of the Commission’s major findings and analysis. He explained that “[o]ur primary calling under the Federal Power Act is to ensure that prices are just and reasonable 24 hours a day, seven days a week.” Id. ¶ 62,403 (Massey, Comm’r, dissenting). Furthermore, even under a “public interest” standard, which he maintained was not applicable to these contracts, Commissioner Massey determined there was simply no persuasive public interest rationale for protecting and sanctifying contracts negotiated in this unprecedented and extraordinary environment. ... It would simply defy logic to conclude that the high prices in these contracts were not adversely influenced by market conditions that included the exercise of market power and widespread market manipulation. Id. ¶ 62,408. 4. Order on Requests for Rehearing and Clarification Complainants applied for rehearing. On November 10, 2003, FERC reaffirmed its previous holdings. Order on Rehearing, 105 F.E.R.C. at ¶ 61,980. FERC, however, revised its previous factual findings to recognize that the customers of Snohomish and Southern Cal Water did experience a retail rate increase. FERC concluded, however, that these increases either were not significant or were not pertinent, because the local utilities did not prove the cause of the increases. Id. ¶¶ 61,986-87. FERC also rejected petitioners’ claims that two of the Commissioners violated procedural requirements and the Sunshine Act by engaging in ex parte communications. Id. ¶¶ 61,991-94. The local utilities then filed this petition for review of FERC’s decision. We review FERC’s orders to ensure that they are not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). We review de novo the question whether FERC complied with and understood its statutory mandate. City of Fremont v. FERC, 336 F.3d 910, 914 (9th Cir.2003); Am. Rivers v. FERC, 201 F.3d 1186, 1194 (9th Cir.1999). We “defer to the Commission’s interpretations of the statutory provisions it administers, but we remain ‘the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.’ ” Am. Rivers, 201 F.3d at 1194 (quoting Natural Res. Def. Council v. U.S. Dep’t of the Interior, 113 F.3d 1121, 1124 (9th Cir.1999)). FERC’s factual findings are conclusive so long as they are “supported by substantial evidence.” 16 U.S.C. § 825i (b). IY. Prerequisites To Applying Mobile-Sierra As explained above, there is but one statutory standard addressing the lawfulness of wholesale electricity rates. That standard requires that all rates be “just and reasonable.” While there is language in some cases suggesting otherwise, we are convinced that Mobile-Sierra establishes one means of review under the just and reasonable standard, applicable in certain limited circumstances. The statute will admit of no other conclusion, and the Supreme Court case law supports it. Sierra framed its analysis as a determination as to whether the Federal Power Commission met its “condition precedent” to a section 206 remedy, a “finding that the existing rate is ‘unjust, unreasonable, unduly discriminatory or preferential.’ ” 350 U.S. at 353, 76 S.Ct. 368. It then faulted the Commission’s finding that the established rate was invalid not because it applied the usual section 206(a) “unreasonable” standard, but because “the Commission holds that the contract rate is unreasonable solely because it yields less than a fair return on the net invested capital.” Id. at 354-55, 76 S.Ct. 368. As the Sierra Court explained, [Wjhile it may be that the Commission may not normally impose upon a public utility a rate which would produce less than a fair return, it does not follow that the public utility may not itself agree by contract to a rate affording less than a fair return or that, if it does so, it is entitled to be relieved of its improvident bargain.... [T]he purpose of the power given the Commission by § 206(a) is the protection of the public interest, as distinguished from the private interests of the utilities.... When § 206(a) is read in the light of this purpose, it is clear that a contract may not be said to be either ‘unjust’ or ‘unreasonable’ simply because it is unprofitable to the public utility. Id. at 355, 76 S.Ct. 368. Sierra, then, simply held that considerations as to what is “unjust” or “unreasonable” differ in the context of an established bilateral contract, not that the statutory standards no longer govern. The Supreme Court confirmed this understanding in Verizon, explaining that “[i]n wholesale markets, the party charging the rate and the party charged were often sophisticated businesses enjoying presumptively equal bargaining power, who could be expected to negotiate a ‘just and reasonable’ rate as between the two of them.” 535 U.S. at 479, 122 S.Ct. 1646. Beginning with that understanding of Mobile-Sierra, we turn to the limited circumstances in which its presumption applies. Although no case has outlined these conditions succinctly, we derive three prerequisites from the context of Mobile-Sierra and from later cases employing the doctrine. A. Contractual Waiver As an initial matter, the contested contract by its own terms must not preclude the limited Mobile-Sierra mode of review. See Texaco Inc. v. FERC (Texaco II), 148 F.3d 1091, 1096 (D.C.Cir.1998); Ne. Utils. Serv. Co. v. FERC (Ne.Utils.I), 993 F.2d 937, 960 (1st Cir.1993). Mobile-Sierra presumes that private parties have negotiated an agreement that they view as just and reasonable over the time period covered. If, by the very terms of their agreement, the parties indicate otherwise, FERC cannot assume the mutual satisfaction of the parties. For example, parties can include in a contract an express reservation of a right to make changes unilaterally, known as a “Memphis clause.” See United Gas Pipe Line Co. v. Memphis Light, Gas & Water Div., 358 U.S. 103, 105, 112, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958). Such a clause will preclude application of the Mobile-Sierra presumption. The rationale for enforcing such clauses is that if the contract does not settle rates as between the parties for the term of the agreement or call for limited, Mobile-Sierra review, then application of Mobile-Sierra does not stabilize or protect the sanctity of contract. See id. at 112, 79 S.Ct. 194 (noting that the “decisive difference” between Memphis and Mobile was that “in Mobile one party to a contract was asserting that the Natural Gas Act somehow gave it the right unilaterally to abrogate its contractual undertaking, whereas here petitioner seeks simply to assert, in accordance with the procedures specified by the Act, rights expressly reserved to it by contract”) (emphasis added). In other words, Mobile-Sierra serves to protect contracts from unilateral change, but that purpose is not served when the parties expressly have permitted such change. B. Regulatory Context Even if it is established that the parties contracted with the intent that Mobile-Sierra apply, a further barrier remains: The regulatory context in which the contracts were initially formed must provide a sound basis to believe that the resulting rates are just and reasonable. Absent such assurances, FERC’s reliance on the presumption would amount to a complete abdication of its statutory responsibility under the FPA. As the following sub-sections explain, two related conditions operate to ensure that a foundation for the presumption exists: (1) timely and procedurally effective review of rates — which in the contemporary regulatory regime can be limited to review of a utility’s market-based rate authority in the first instance, and (2) meaningful substantive st