Petition for Writ of Certiorari — New Orleans Public Service, Inc. v. Council of City of New Orleans
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Supreme Court of the United States
OCTOBER TERM, 1988
NEW ORLEANS PUBLIC SERVICE INC.,
Petitioner, —
v.
THE COUNCIL OF THE CITY OF NEW ORLEANS,
JOSEPH I. GIARRUSSO, LAMBERT C. BOISSIERE, JR.,
MICHAEL EARLY, JAMES SINGLETON, DOROTHY
MAE TAYLOR, JOHNNY JACKSON, and PEGGY
WILSON,
Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
HERSCHEL L. ABBOTT, JR. Rex E. Lee*
DAviID G. RADLAUER DaviD W. CARPENTER
_EDWARD H. BERGIN JAMES A. HUTTENHOWER
R. LEwis MCHENRY SIDLEY & AUSTIN
JONES, WALKER, WAECHTER, 1722 Eye Street, N.W.
POITEVENT, CARRERE & Washington, D.C. 20006
DENEGRE (202) 429-4000
201 St. Charles Avenue
New Orleans, LA 70170
(504) 582-8000
THOMAS O. LIND
Vice President-Regulatory
Counsel
New Orleans Public
Service Inc.
317 Baronne Street
New Orleans, LA 70112
(504) 598-2218
Attorneys For Petitioners
* Counsel of Record
i
QUESTION PRESENTED
Whether, under the abstention doctrines of Burford v. Sun Oil
Co., 319 U.S. 315 (1943), or Younger v. Harris, 401 U.S. 37
(1971), a federal district court may refuse to adjudicate a federal
claim that a federal statute (in this case the Federal Power Act)
and the explicit orders of a federal agency (here FERC) have
preempted local regulatory authorities from making separate and
inconsistent determinations of the very matters FERC has decid-
ed?
il
STATEMENT REQUIRED BY RULE 238.1
Petitioner New Orleans Public Service Inc. (“NOPSI’”) is a
wholly-owned subsidiary of Middle South Utilities, Inc.
(“MSU”). MSU has no parent company, and neither MSU nor
NOPSI has any subsidiaries that are not wholly-owned by MSU
either directly or through other wholly-owned subsidiaries.
EUS Wu Uibas oc cWeisew'ec cecscccccee
Statement Required By Rule 28.1 ....................
TOU PRMD oo ccc ccc cece ccc cc cece:
EE ee eee
Neen em ce cccccccccce
Opinion Of Court Of Appeals ...................
Opinion And Order Of District Court ............
Judgment Of Court Of Appeals ..................
iv
TABLE OF AUTHORITIES
Cases:
Aluminum Co. of America v. Utilities Comm’n of
North Carolina, 713 F.2d 1024 (4th Cir. 1983),
cert. denied, 465 U.S. 1052 (1984) ...........
American Electric Power Co. v. Kentucky Public
Service Comm’n, 787 F.2d 588 (6th Cir. 1986),
requesting Solicitor General’s views, 55 U.S.L.W.
3231 (Oct. 6, 1986), cert. denied, 107 S. Ct. 1910
CG 2 6 n00n0enéecbcudeeeséesubansagunres
Appalachian Power Co. v. Public Service Comm'n
of West Virginia, 614 F. Supp. 64 (S.D. W. Va.),
aff'd, 770 F.2d 159 (4th Cir. 1985), on remand,
630 F. Supp. 656 (S.D. W. Va. 1986), aff'd, 812
F.2d 898 (4th Cir. 1987) .........- ee eee eeee
Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571
PET rer rrr. Tere
Arkansas Power & Light Co. v. Missouri Public Ser-
vice Comm’n, 829 F.2d 1444 (8th Cir. 1987)...
Baggett v. Department of Professional Regulation,
717 F.2d 521 (11th Cir. 1983)...............
Burford v. Sun Oil Co., 319 U.S. 315 (1943) .....
Champion Int’l Corp. v. Brown, 731 F.2d 1406 (9th
eo) errr
Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800 (1976) ............6058:.
Family Division Trial Lawyers v. Moultrie, 725
P.28 GBS CDC. Cir. 1906)... cc ccccccccecess
International Bhd. of Elec. Workers v. Public Ser-
vice Comm’n, 614 F.2d 206 (9th Cir. 1980)....
Kentucky West Virginia Gas Co. v. Pennsylvania
Public Utility Comm'n, 791 F.2d 1111 (3rd Cir.
DEED bv eséccvcdaencckcadpacetwaubecumens
lg
2,8
8, 12, 14
9, 12, 13
passim
12
8, 11, 13
Knudsen Corp. v. Nevada State Dairy Comm’n, 676
Pa UPN WUD wr cccscccecssvccess
Middlesex County Ethics Committee v. Garden
State Bar Ass'n, 457 U.S. 423 (1982) .........
Middle South Energy, Inc. v. Arkansas Public Ser-
vice Comm'n, 772 F.2d 404 (8th Cir. 1985), cert.
denied, 474 U.S. 1102 (1986) ...............
Mississippi Power & Light Co. v. Mississippi ex rel.
Moore, No. 86-1970, 56 U.S.L.W. 4751 (June
gg PR PORE IE le ee ep Be
Nantahala Power & Light Co. v. Thornburg, 476
EET ee
New Orleans Public Service, Inc. v. New Orleans,
782 F.2d 1236 & 798 F.2d 858 (Sth Cir. 1986),
cert. denied, 107 S. Ct. 1910 (1987) ..........
New Orleans Public Service, Inc. v. New Orleans,
ope bo 8 See
Public Utilities Comm’n of California v. United
A ere
Public Utilities Comm’n of Ohio v. United Fuel Gas
Gahg BEF We GUPONOIED ov ccc cccccccecccccs
Schneidewind v. ANR Pipeline Co., No. 86-986, 56
U.S.L.W. 4249 (Mar. 22, 1988) .............
Younger v. Harris, 401 U.S. 37 (1971) ..........
Miscellaneous:
Brief for United States and Federal Energy Regu-
latory Commission As Amici Curiae, American
Electric Power Co. v. Kentucky Public Service
Comm'n, No. 86-49 (March, 1987) ..........
H
12
12
8, 11, 13, 14
passim
8, 10, 13
2, 4,5, 8
10
passim
a, +O 82
IN THE
Supreme Court of the United States
October Term, 1988
NEW ORLEANS PUBLIC SERVICE INC.,
Petitioner,
v.
THE COUNCIL OF THE CITY OF NEW ORLEANS,
JOSEPH I. GIARRUSSO, LAMBERT C. BOISSIERE, JR.,
MICHAEL EARLY, JAMES SINGLETON, DOROTHY
MAE TAYLOR, JOHNNY JACKSON, and PEGGY
WILSON,
Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
OPINIONS BELOW
The opinion of the Court of Appeals (Appendix (“App.”’) 1A-
20A) is not yet published. The opinion of the District Court
(App. 21A-33A) is unpublished.
JURISDICTION
The opinion and judgment of the Court of Appeals were en-
tered on July 28, 1988. App. 1A-20A & 35A. This Court’s juris-
diction is invoked under 28 U.S.C. § 1254(1).
STATEMENT OF THE CASE
This case presents a question that is one of the most widely
litigated and widely controverted ‘. the federal system: whether
abstention principles prohibit a federal district court from adju-
dicating a claim that a federal statute (here the Federal Power
Act) vests exclusive jurisdiction over certain matters in a federal
2
regulatory agency (here the Federal Energy Regulatory Commis-
sion (““FERC’’)) and thereby preempts a local utility commission
from making its own determination of those matters. The rule in
the Fifth Circuit squarely conflicts with decisions of the Third,
Fourth, Eighth, Ninth, Eleventh, and District of Columbia Cir-
cuits. Only the Sixth Circuit and one decision of the Fourth Cir-
cuit are consistent with the Fifth Circuit rule on this abstention
issue. Accordingly, eight circuits are involved in the conflict. As
the Fifth Circuit stated in this case, “[o]nly [the Supreme] Court
can resolve the conflict among the federal courts about the ap-
propriateness of abstention in this situation, and it has not yet
spoken.” App. 20A.
In 1986, the Court invited the Solicitor General to state the
views of the United States on whether this abstention issue should
be reviewed.' The United States and FERC then demonstrated
that this conflict was impairing the enforcement of the Federal
Power Act, and urged the Court to resolve the conflict in the
context of an earlier phase of the very controversy that is at issue
here.? However, at that time, litigation of the underlying Federal
Power Act claim was contended (and later held) to be indepen-
dently barred by principles of ripeness. The Solicitor General’s
Memorandum noted these “procedural problems,” and the Court
declined to review the abstention issue.*
Now the underlying federal claim is indisputably ripe. The
Council of the City of New Orleans has finally denied recovery
'See American Electric Power Co. v. Kentucky Public Service Commis-
sion, 55 U.S.L.W. 3231 (Oct. 6, 1986).
2Brief for United States and Federal Energy Regulatory Commission
As Amici Curiae, American Electric Power Co. v. Kentucky Public Ser-
vice Comm'n, No. 86-49 (March, 1987), p. 16 (“We urge the Court to
grant review [of the abstention question], instead in NOPSI.”’) (herein-
after “Solicitor General’s 1987 NOPSI Mem.”’).
3$ee New Orleans Public Service, Inc. v. New Orleans, 107 S. Ct. 1910
(1987); American Electric Power Co. v. Kentucky Public Service
Comm'n, 107 S.Ct. 1910 (1987).
3
of $135 million of petitioners’ FERC-mandated costs, and the
Council has ordered rate reductions to implement this “pru-
dence” disallowance. Moreover, the City Council has continued
to claim that this prudence disallowance is permissible, notwith-
standing this Court’s unequivocal June 24, 1988 holding in
Mississippi Power & Light Co. v. Mississippi ex rel. Moore, No.
86-1970, 56 U.S.L.W. 4751 (June 24, 1988), that local regulatory
authorities have no jurisdiction to disallow any of the same
federally-mandated costs that are at issue here, on grour.:s of
prudence or otherwise.
In short, this issue will not go away, and the conflict between
the courts of appeals should be resolved now.
1, Factual Background. This case arises from the same facts
and the same FERC orders at issue in Mississippi Power & Light
Co. v. Mississippi ex rel. Moore, No. 86-1970, 56 U.S.L.W. 4751
(June 24, 1988). Here, as there, local utility regulators are at-
tempting to use their retail ratemaking authority to nullify the
FERC decisions (Opinions 234, 234A, 292 and 292A) that allo-
cated the costs of the Grand Gulf 1 nuclear plant among the retail
operating company subsidiaries of Middle South Utilities, Inc.
(“MSU”).
Petitioner New Orleans Public Service Inc. (“NOPSI’’) pro-
vides retail electric services in the City of New Orleans. Under
Louisiana law, NOPSI’s retail rates are regulated by the Council
of the City of New Orleans (“Council”).
Like Mississippi Power & Light Company (“MP&L”), NOPSI
is a wholly-owned subsidiary of MSU. NOPSI is one of the four
companies that “[t}hrough MSU .. . operate as an integrated
~ power pool” and that exchange power among themselves at rates
established by FERC. Mississippi Power & Light Co., 56 U.S.L.W.
at 4752, slip op. at 2. Like MP&L, NOPSI is thus subject to two
FERC-approved rate schedules that determine how the costs of
4
Grand Gulf | are allocated: the 1982 System Agreement and the
Unit Power Sales Agreement (“UPSA”’). See 56 U.S.L.W. at
4753-54, slip op. at 5-9.
As originally filed, the rate schedule allocated to NOPSI
29.80% of the costs and output of Grand Gulf 1. The City of New
Orleans (“City”) participated extensively in the massive FERC
proceedings that followed (see 56 U.S.L.W. at 4753-54, slip op.
at 5-9; App. 4A), and the City urged that NOPSI be responsible
for only 9% of Grand Gulf 1. Although FERC ordered a sub-
stantial reduction in NOPSI’s allocation, FERC rejected the
City’s position and mandated a 17% allocation of Grand Gulf |!
for NOPSI.
Thus, when Grand Gulf | began commercial operations on
July 1, 1985, NOPSI was required under the FERC order to
begin incurring Grand Gulf | costs of approximately $15.5 mil-
lion per month.
2. Prior Proceedings. On May 17, 1985, NOPSI filed an appli-
cation with the Council for the retail rate increase required to
recover its Grand Gulf | costs. This application was not granted
by the Council. Instead, the Council, on October 17, 1985, adopt-
ed a resolution initiating an investigation into the prudence of
NOPSI’s involvement in Grand Gulf 1.
When the Council failed to act upon NOPSI'’s initial applica-
tion, on August 1, 1985, NOPSI filed an action in federal district
court to enforce its right to recover these FERC-mandated costs
(“NOPSI I’’). The District Court dismissed the suit under the
Johnson Act and abstention principles. On February 22, 1986, the
Fifth Circuit issued an opinion that reversed on both grounds,
and remanded for a determination whether the “filed rate” doc-
trine required recognition of these costs. New Orleans Public Ser-
vice, Inc. v. New Orleans, 782 F.2d 1236 (Sth Cir. 1986). However,
5
on September 2, 1986, the Fifth Circuit, on its own motion, re-
versed itself, vacated the abstention discussion in its earlier opin-
ion, and held that the District Court did not abuse its discretion
in abstaining under the abstention doctrine articulated in Burford
v. Sun Oil Co., and possibly under the abstention doctrine estab-
lished in Younger v. Harris as well. Id., 798 F.2d 858 (Sth Cir.
1986).
While the case was pending on appeal, NOPSI and the Council
entered into a settlement in March, 1986. The settlement allowed
a phased-in rate increase under which NOPSI would eventually
recover all but $51 million of its Grand Gulf 1 costs, although
any recovery was subject to the outcome of the ongoing prudence
investigation. Under the settlement, NOPSI reserved its right to
pursue its claim that the Council had no jurisdiction to conduct
this prudence inquiry, and the Council, in turn, reserved its right
to order adjustments in NOPSI’s rates on the basis of that inves-
tigation.
The Council relied on this settlement agreement in opposing
NOPSI’s petition for certiorari from the September, 1986 Fifth
Circuit decision in NOPSI I. The Council argued that the agree-
ment mooted the case and also made the Federal Power Act
claims not ripe. Although the United States believed that these
facts did not detract from the appropriateness of a decision on the
abstention issue in this case, these and related facts led the Solici-
tor General to state that “NOPS/[I] is not wholly free from pro-
cedural problems.” Solicitor General’s 1987 NOPSI Mem.., p. 25.
The extent of the apparent ripeness problems was made mani-
fest in a parallel case (NOPSI II) that NOPSI brought in Novem-
ber, 1985 to enjoin the Council’s prudence inquiry. In defending
that case, the Council stated that its pending prudence inquiry
would fully recognize the FERC-mandated Grand Gulf | expenses
6
and would deal solely with whether NOPSI had achieved savings
in other areas. This representation led the Fifth Circuit to hold
that the underlying Federal Power Act claim was not ripe and to
decline to reach the abstention issues. New Orleans Public Service,
Inc. v. New Orleans, 833 F.2d 583, 588 (Sth Cir. 1987).
3. This Case. There are no ripeness or procedural problems in
this case. It is based on the actual results of the Council's pru-
dence investigation, which was completed by adoption of a rate
order on February 4, 1988. The order violates the Council’s prior
representations to the Fifth Circuit. It disallows $135 million in
previously incurred, FERC-mandated Grand Gulf 1 expenses,
and the Council’s order implements this prudence disallowance
by ordering reductions in NOPSI’s future rate increases by ap-
proximately $500,000 per month this year, and by multiples of
that amount in future years. This $135 million of “trapped costs”’
is in addition to the $51 million that NOPSI previously agreed to
absorb in the March, 1986 Settlement with the Council.
The basis for the Council’s $135 million disallowance is its
decision to set NOPSI’s rates to allow full recovery of only 9%
of Grand Gulf 1—the same percentage that New Orleans had
unsuccessfully urged in the FERC proceedings (see App. 11A }—
and to permit recovery of the remaining 8% at the hypothetical
costs of alternative coal-fired generation. The Council asserted
that NOPSI had behaved “imprudently” in monitoring the costs
of Grand Gulf 1, and in failing to sell a substantial portion of its
share of Grand Gulf | off-system in 1979-80 (five to six years
before either the rates for the power or the allocation had been
established by FERC). As the Fifth Circuit stated in this case,
this prudence disallowance appears to be squarely foreclosed by
this Court’s decision in Mississippi Power & Light Co., supra. App.
13A.
7
On February 9, 1988, NOPSI filed suit in federal district court
to enjoin this violation of its federal rights.* The District Court
dismissed the case on March 10, 1988, on grounds of abstention.
App. 21A-33A. In the interim, there has been no resolution of
any parallel state court proceedings, despite the trapping of
FERC-mandated costs and resulting financial harm that occur
each day. See App. 10A.°
On July 28, 1988, the Fifth Circuit affirmed. It held that the
Fifth Circuit’s earlier abstention decision was binding on it unless
and until this Court resolved the conflict in the courts of appeals.
App. 20A. e
REASONS FOR GRANTING THE WRIT
The question whether abstention principles deprive federal dis-
trict courts of authority to prevent state utility commissions from
interfering with the exclusive jurisdiction of FERC (or other fed-
eral agencies) has become one of the most important and fre-
quently recurring questions facing the federal judiciary. When the
question was presented to the Court four years ago, only the
Fourth Circuit had squarely addressed this issue. This Court
*On the date of its order, the Council filed an action in the Civil
District Court for the Parish of Orleans, Louisiana, seeking a
declaratory judgment that its prudence order was lawful. That action
was removed to federal district court and consolidated with the instant
case. The state action was remanded to state court, howevér, after the
federal court decided to abstain in this case.
‘Because of the uncertainty over the availability of a federal forum,
NOPSI, on March 7, 1988, filed a petition to review the Council’s order
in the Civil District Court for the Parish of Orleans, Louisiana. No
hearing has occurred on the merits. On May 5, 1988, the state court
denied NOPSI’s motion for a preliminary injunction. NOPSI has ap-
pealed the denial of that motion. The intermediate Louisiana appellate
court, however, has twice refused to expedite this interlocutory appeal,
and the matter, therefore, will not be resolved before next year.
*Aluminum Co. of America v. Utilities Comm'n of North Carolina,
713 F.2d 1024 (4th Cir. 1983), cert. denied, 465 U.S. 1052 (1984). There,
Alcoa had sought to litigate in federal district court the identical factual
and legal claims under the Federal Power Act that this Court subse-
(Footnote continued on next page)
denied certiorari, with Justices Brennan and White noting that
they would have granted the petition. Aluminum Co. of America
v. Utilities Commission of North Carolina, 465 U.S. 1052 (1984).
In the intervening years, litigation of this question has burgeoned.
Five circuits have addressed this abstention issue in cases present-
ing the same Federal Power Act (or Natural Gas Act)’ preemp-
tion claims involved here.* In addition, other circuits have ad-
dressed the abstention issue in other closely related contexts.°
(Footnote continued from preceding page)
quently decided in Nantahala Power & Light Co. v. Thornburg, 476 U.S.
953 (1986). The Fourth Circuit upheld the District Court's decision to
abstain in that case, but in a subsequent case held that a decision not to
abstain was proper. Appalachian Power Co. v. Public Service Comm'n of
West Virginia, 770 F.2d 159 (4th Cir. 1985), affg 614 F.2d 64 (S.D. W.
Va. 1985). Even in Alcoa, the Fourth Circuit acknowledged that absten-
tion would not be appropriate where, as here, preemption was clear. 713
F.2d at 1029-30.
’This Court has stated many times that the “relevant provisions of
[the Natural Gas Act and the Federal Power Act] ‘are in all material
respects substantially identical’” and that it is the Court's “established
practice” to “cit[e] interchangeably decisions interpreting the pertinent
sections of the two statutes.” Arkansas Louisiana Gas Co. v. Hall, 453
U.S. 571, 577 n.7 (1981) (citations omitted).
*Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility
Comm'n, 791 F.2d 1111 (3rd Cir. 1986) (court should not abstain from
deciding Natural Gas Act claim); Middle South Energy, Inc. v. Arkan-
sas Public Service Comm'n, 772 F.2d 404 (8th Cir. 1985) (court should
not abstain from deciding Federal Power Act claim), cert. denied, 474
U.S. 1102 (1986); Arkansas Power & Light Co. v. Missouri Public Service
Comm'n, 829 F.2d 1444 (8th Cir. 1987) (court should not abstain from
deciding Federal Power Act claim); Appalachian Power Co. v. Public
Service Comm'n of West Virginia, 770 F.2d 159 (4th Cir. 1985), affg 614
F.Supp. 64 (S.D. W. Va. 1985) (court should not abstain from deciding
Federal Power Act claim); New Orleans Public Service, Inc. v. New
Orleans, 782 F.2d 1236 & 798 F.2d 858 (Sth Cir. 1986) (upholding
abstention on Federal Power Act claim), cert. denied, 107 S. Ct. 1910
(1987); American Electric Power Co. v. Kentucky Public Service
Comm'n, 787 F.2d 588 (6th Cir. 1986) (same), cert. denied, 107 S. Ct.
1910 (1987).
*%Champion Int'l Corp. v. Brown, 731 F.2d 1406 (9th Cir. 1984) (ab-
stention inapplicable where ERISA preempts state age discrimination
(Footnote continued on next page)
9
The rule in the Fifth Circuit on this abstention question con-
flicts with decisions of five other courts of appeals as well as with
the pertinent decisions of this Court. Thus, the conflict has spread
to eight circuits, with five favoring the petitioner’s view, two op-
posed, and the Fourth Circuit divided. See p. 8 nn.8 & 9, supra.
For these reasons, in response to this Court's request, the Unit-
ed States in 1987 urged the Court to grant certiorari to review
the NOPSI I decision and to reject the Fifth Circuit's rule. See
Solicitor General’s 1987 NOPSI Mem., pp. 20-23. The Solicitor
General made this recommendation at a time when the contro-
versy was clouded by claims of lack of ripeness and by related
“procedural problems.” J/d., p. 25. The Court at that time de-
clined the Solicitor General's invitation.
Now, however, the issue is squarely presented; there is no ripe-
ness issue, and any possible procedural problems have vanished.
See pp. +7, supra. The intervening events further confirm the
go away, but will recur, again and again. As the Fifth Circuit's
opinion in this case correctly states, only this Court can resolve
the conflict See App. 20A.
1. The rule in the Fifth Circuit is that federal district courts
have discretion to abstain from deciding claims that local utility
regulators have violated federal rights conferred by federal stat-
utes (e.g., the Federal Power Act) that preempt state regulation.
The Fifth Circuit reasons that these federal claims should be
raised in appeals from state retail rate orders in state courts. This
Court's holdings teach that the Fifth Circuit's rule must be re-
jected.
(Footnote continued from preceding page)
laws); Family Division Trial Lawyers v. Moultrie, 725 F.2d 695 (D.C.
Cir. 1984) (abstention inapplicable to constitutional challenge to local
judicial administration), Baggett v. Dept. of Professional Regulation, 7\7
F.2d $21 (11th Cir. 1983) (abstention inappropriate to claim that state
had no jursdiction to discipline federally licensed marine pilot).
10
This Court has held that a federal court may not exercise “ju-
dicial discretion to dismiss a suit merely because a State court
could entertain it” and that a federal court can abstain from
“adjudicat[ing] a controversy properly before it . . . . only in the
exceptional circumstances where the order to the parties to repair
to the State court would clearly serve an important countervailing
interest.” Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800, 813-14 (1976).
This Court’s holdings teach that state courts cannot have an
overriding interest in adjudicating whether Congress has intended
that a federal regulatory agency have exclusive jurisdiction over
certain matters and therefore has preempted contrary state ac-
tion. This Court has upheld the authority of federal courts to
enjoin state utility commission action on the same basic preemp-
tion grounds presented here, and has rejected arguments that
state remedies must be exhausted—without even addressing
whether abstention was required or permitted. See, e.g., Public
Utilities Comm'n of California v. United States, 355 U.S. 534, 540
(1958); Public Utilities Comm’n of Ohio v. United Fuel Gas Co.,
317 U.S. 456 (1943); see also Schneidewind v. ANR Pipeline Co.,
No. 86-986, 56 U.S.L.W. 4249 (Mar. 22, 1988).
These principles apply with special force in cases presenting
federal preemption claims under the Federal Power Act. The Act
establishes a federal agency (FERC) to referee disputes among
states on the allocation of low-cost and high-cost electric power
supplies. The purposes of the Act would be frustrated if individu-
al states could act based on local concerns and collaterally attack
the FERC’s allocation by adopting allocations (or rates reflecting
allocations) that prefer their interests to those sought to be pro-
tected by the FERC. See Mississippi Power & Light Co. v. Missis-
sippi ex rel. Moore, No. 86-1970, 56 U.S.L.W. 4751 (June 24,
1988); Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953
(1986). Unless federal district courts have authority to enforce the
FERC-established federal rights under the filed rate doctrine,
ll
states can thwart the federal regulatory scheme and subvert in-
terstate power supply arrangements adopted thereunder. Given
this Court’s limited resources, it is both impractical and unrealis-
tic to expect that the entire burden of reviewing state actions in
these cases can or ought to rest here.
2. The Fifth Circuit rule of abstention is based on this Court’s
holding in Burford v. Sun Oil Co., 319 U.S. 315 (1943). However,
this Court, and numerous federal courts of appeals, have held
that Burford is a narrow exception to the duty of federal courts
to adjudicate claims properly before it, and it is inapposite here.
As this Court has held, Burford abstention applies only where
“difficult questions of state law” are presented and “federal re-
view . . . would be disruptive of state efforts to establish a coher-
ent gelley with respect to a matter of substantial public concern.”
Colorado River Water Conservation District v. United States,
supra, 424 US. at 814.
Thus, numerous courts of appeals have held that Burford can-
not support abstentivi in a case such as this where no state law
issues are presented and the only issue is whether federal law
preempted the state agency from deciding the matter at all. In-
deed, the Third and Eighth Circuits have so held in cases present-
ing the very Federal Power Act (or Natural Gas Act) preemption
claims at issue here. As the Eighth Circuit has stated:
“The very premise of [the Burford] doctrine, . . . is lacking
when, as here, federal law or Constitution makes the pro-
ceeding or regulation at issue beyond the state’s authority.
There is no concern with protecting a legitimate state regu-
latory scheme, and the question becomes one of basic federal
supremacy, which does not turn on local factors or local
expertise.”
Middle South Energy, Inc. v. Arkansas Public Service Comm'n,
772 F.2d 404, 417 (8th Cir. 1985) (citations omitted), cert. denied,
474 U.S. 1102 (1986); accord, Kentucky West Virginia Gas Co. v.
12
Pennsylvania Public Utility Comm’n, 791 F.2d 1111, 1115-16 (3rd
Cir. 1986); Arkansas Power & Light Co. v. Missouri Public Service
Comm'n, 829 F.2d 1444 (8th Cir. 1987).
Other courts have reached the identical results in cases arising
under other federal statutes. Knudsen Corp. v. Nevada State Dairy
Comm'n, 676 F.2d 374 (9th Cir. 1982); Baggett v. Department of
Professional Regulation, 717 F.2d 521, 524 (11th Cir. 1983); Jn-
ternational Bhd. of Elec. Workers v. Public Service Comm’n, 614
F.2d 206, 212 n.1 (9th Cir. 1980). They, too, hold that Burford
abstention cannot be applied when there is a substantial federal
preemption challenge to a state agency’s jurisdiction. Thus, the
conflict is stark and clear.'°
3. The Fifth Circuit also has suggested that abstention under
the doctrine of Younger v. Harris, 401 U.S. 37 (1971), “seems
appropriate.”” NOPSI I, 798 F.2d at 863. Under Younger, a fed-
eral district court cannot enjoin an ongoing state judicial or quasi-
judicial enforcement proceeding that implicates important state
interests, when there is an adequate opportunity in the state pro-
ceeding to raise the federal claim. See Middlesex County Ethics
Committee v. Garden State Bar Ass’n, 457 U.S. 423 (1982).
However, Younger abstention is proper only if the state pro-
ceeding implicates “important state interests.” Middlesex County
Ethics Committee v. Garden State Bar Ass’n, supra, 457 U.S. at
432. Contrary to the Fifth Circuit holding, other courts of appeals
have held that the state interest in regulating retail rates, however
important, cannot give the state an “overriding interest” in adju-
dicating federal preemption claims that go to the “power of the
!0Indeed, the Solicitor General told this Court in 1987, after discuss-
ing various courts of appeals holdings, that these decisions “amply re-
veal a clear circuit conflict on the important issue whether abstention is
appropriate in the context of a preemption claim based on the filed rate
doctrine.” Solicitor General’s 1987 NOPSI Mem., p. 22 n.13.
13
state administrative agency to proceed at all;” “‘no deference is
due state proceedings which would entrench upon the exclusive
federal domain.” Baggett v. Department of Professional Regula-
tion, 717 F.2d 521, 524 (11th Cir. 1983).
Three courts of appeals have now held that Younger abstention
is improper in suits raising the precise Federal Power Act pre-
emption claims at issue here. They reason that the “legitimate
state interest contemplated by Younger . . . does not exist when
the state action has been preempted or foreclosed” by a federal
statute, Middle South Energy, Inc. v. Arkansas Public Service
Comm'n, 772 F.2d 404, 417 (8th Cir. 1985), and that the “notion
of ‘comity’ embodied by the Younger doctrine is ‘not strained
when a federal court cuts off state proceedings that entrench upon
the federal domain.’” Kentucky West Virginia Gas Co. v. Penn-
sylvania Public Utility Comm’n, 791 F.2d 1111, 1117 (3rd Cir.
1986) (citations omitted); accord, Appalachian Power Co. v. Pub-
lic Service Comm'n of West Virginia, 614 F.Supp. 64, 70-71 (S.D.
W. Va.), aff'd, 770 F.2d 159 (4th Cir. 1985). See also Champion
Int'l Corp. v. Brown, 731 F.2d 1406, 1409 (9th Cir. 1984).
4. The issue in this case is whether the Council can disregard
FERC’s exclusive jurisdiction over the question of the prudence,
and the allocation, of the costs of Grand Gulf 1. This question
has been conclusively decided. See Mississippi Power & Light Co.
v. Mississippi ex rel. Moore, supra; Nantahala Power & Light Co.
v. Thornburg, 476 U.S. 953 (1986). As Justice Scalia stated, Mis-
sissippi Power & Light establishes ‘“‘who has jurisdiction, FERC
or the States, to evaluate the prudence of a particular utility’s
entering pooling arrangements with affiliated companies.” Missis-
sippi Power & Light Co., supra, 56 U.S.L.W. at 4759 (Scalia, J.,
concurring), slip op. at 7. Although the point should be obvious
to any objective reader, it has been ignored by the New Orleans
City Council. NOPSI thus seeks nothing more than its estab-
14
lished rights under federal law. There is no state law issue, and
this case epitomizes the type of cases that federal district courts
were created to decide.
Neither this Court’s precedents, common sense, nor deference
to state courts requires or permits federal abstention in this case.
In any of at least five other circuits, the door of the federal court-
house would have been open to petitioner. Indeed, NOPSI’s affil-
iates were able to obtain the federal court injunction required to
prevent a different state utility commission from interfering with
recovery of FERC-mandated Grand Gulf 1 costs.'! Such an im-
portant issue as the availability of federal courts to vindicate fed-
eral rights cannot depend on the fortuity of whether the suppli-
cant and the courthouse are in Arkansas or Louisiana.
'\Middle South Energy, Inc. v. Arkansas Public Service Comm'n, 772
F.2d 404 (8th Cir. 1985), cert. denied, 474 U.S. 1102 (1986). See Arkan-
sas Power & Light Co. v. Missouri Public Service Comm’n, 829 F.2d 1444
(8th Cir. 1987).
15
CONCLUSION
For the reasons stated, the petition for writ of certiorari should
be granted.
Respectfully submitted,
HERSCHEL L. ABBOTT, JR. Rex E. Lee*
DAvID G. RADLAUER DAVID W. CARPENTER
EDWARD H. BERGIN JAMES A. HUTTENHOWER
R. LEwis MCHENRY SIDLEY & AUSTIN
JONES, WALKER, WAECHTER, 1722 Eye Street, N.W.
POITEVENT, CARRERE & Washington, D.C. 20006
DENEGRE (202) 429-4000
201 St. Charles Avenue
New Orleans, LA 70170 THOMAS O. LIND
(504) 582-8000 Vice President—
Regulatory Counsel
New Orleans Public
Service Inc.
317 Baronne Street
New Orleans, LA 70112
(504) 595-2218
Attorneys For Petitioner
Dated: August 26, 1988
*Counsel of Record
1A
COURT OF APPEALS OPINION
[JULY 28, 1988]
2A
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
NO. 88-3194
NEW ORLEANS PUBLIC SERVICE, INC.,
Plaintiff-Appellant,
versus
THE COUNCIL OF THE CITY OF NEW ORLEANS,
ET AL,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Louisiana
(July 28, 1988)
Before RUBIN, GARZA and JONES, Circuit Judges.
RUBIN, Circuit Judge:
In 1986 this court decided that a federal district court had not
abused its discretion in abstaining from deciding federal issues
presented in suit to enjoin a state agency’s proceeding to fix the
retail rates that might be charged by a public utility. Bound by
this decision, we hold again that the same distict court did not
abuse its discretion in failing to take jurisdiction over issues of
federal law at a later stage of the same proceeding.
This is the fourth federal court battle in a legal war that began
almost a decade ago. New Orleans Public Service, Inc. (NOPSI),
a subsidiary of Middle South Utilities, Inc., a public utility
3A
holding company, sells electric power to consumers in the City
of New Orleans. It continues to seek a federal forum for its claims
against the New Orleans City Council, which by state law fixes
the utility rates charged consumers in New Orleans. It charges
that the Council is violating federal law by preventing NOPSI
from passing on to the consumers all of the costs of NOPSI’S
purchase of power generated by a nuclear reactor at rates fixed
by the Federal Energy Regulatory Commission (FERC).
Middle South owns and therefore controls Louisiana Power &
Light Co., Mississippi Power & Light Co., Arkansas Power &
Light Co., and NOPSI, collectively known as the Middle South
Companies, all of which are engaged in distributing energy, as
well as System Energy Resources, Inc. (SERI), which generates
energy. In the late 1960’s, Middle South sought to meet projected
increases in demand and to diversify the fuel base of its entire
system by adding coal and nuclear generating units. Because Mid-
dle South found it impractical for each of the four operating
companies to finance and construct a nuclear power facility, it
formed a new subsidiary, Middle South Energy, Inc. (MSE), a
corporate predecessor of SERI, to finance, own, and operate two
nuclear reactors, Grand Gulf I and II. Middle South later decided
for economic reasons not to build Grand Gulf II, but to proceed
with the construction of Grand Gulf I, a 1250 megawatt nuclear
generating plant. In 1974, NOPSI, Louisiana Power, Mississippi
Power, and Arkansas Power all committed themselves to sharing
the construction cost of Grand Gulf, which MSE projected to be
$875 million.
After the nuclear disaster at Three Mile Island, federal regula-
tory authorities adopted stricter regulations for the construction
of nuclear plants. As a result of this and other factors, construc-
tion of the Grand Gulf nuclear plant took longer and became
drastically more expensive than originally anticipated, amounting
in the end to $3.6 billion. Consequently, the wholesale cost of
power produced at Grand Gulf greatly exceeds that of power
4A
produced in other system facilities. Moreover, even as Grand
Gulf was under construction, it became clear that the demand for
its energy would be less than originally anticipated.
In 1982, the Middle South Companies submitted to FERC,
which has exclusive jurisdiction over interstate wholesale power
rates,' two agreements. The first was a new System Agreement,
which set forth the terms and conditions for coordinated opera-
tioms and wholesale transactions among the four companies, in-
cluding a scheme of capacity equalization payments, which were
designed to ensure that each company contribute proportionately
to the total costs of generating power for the system. The second
was a Unit Power Sales Agreement, which provided wholesale
rates for the sale of Grand Gulf capacity and energy to the oper-
ating companies. The Unit Power Sales Agreement allocated
29.8% of the Grand Gulf costs to NOPSI.
FERC assigned each agreement to a different administrative
law judge, charging them with the task of determining whether
the agreements were “just and reasonable” within the meaning of
the Federal Power Act.? Each ALJ held extensive hearings, in
which numerous parties representing consumer interests and the
various state regulatory agencies participated. At these hearings,
the New Orleans City Council appeared to protest the proposed
rates and the allocations made pursuant to the Sales Agreement.
The City Council and other utility regulatory bodies argued that
FERC should reduce the allocations of the high-cost and hence
relatively unattractive nuclear power to their constituents.
Three years later, in 1985, FERC issued an order modifying
the Sales Agreement to provide for the allocation of power and
costs from Grand Gulf as follows: 17 percent to NOPSI, 14 per-
cent to Louisiana Power, 33 percent to Mississippi Power, and 36
116 U.S.C. § 824(b) (1982); Nantahala Power & Light Co. v.
476 U.S. 953, —, 106 S.Ct. 2349, 2352 (1986); see also 16
U.S.C. §§ 824d, 824e (1982).
216 U.S.C. § 824a) (1982).
SA
percent to Arkansas Power.’ As the Supreme Court noted in Mis-
sissippi Power & Light Co. v. Mississippi ex rel Moore,‘
The state regulatory agencies appealed the FERC allocations, and
the United States Court of Appeals for the District of Columbia
Circuit reversed the FERC decision.* On remand, however,
FERC reaffirmed its original 1985 allocations.’
NOPSI appealed to the New Orleans City Council in 1985 for
a retail rate increase to cover the increase in wholesale costs that
the FERC order would require it to pay. The Council responded
with a resolution initiating an investigation into “all aspects of
NOPSI's prudence regarding its decisions to enter into its ar-
rangements to purchase a portion of Grand Gulf | for the purpose
of determining what portion, if any, of NOPSI'’s Grand Gulf |
‘Opinion and Order Setting Just Reasonable and Non- Discriminatory
Rates, 31 Fed. Energy Reg. Comm'n Rep. (CCH) © 61,305 (June 13,
1985) (Opinion No. 234).
: US. _,_ _SCt._, No. 86-1970 (June 24, 1988).
‘Id. at : S.Ct. at (quoting Middle South Energy, Inc.,
26 Fed. Energy Reg. Comm'n Rep. (CCH) at $4 65,112-65,113 (1984)).
*Mississippi Indus. v. FERC, 822 F.2d 1104 (D.C. Cir.), cert. denied,
108 S.Ct. 501 (1987).
"System Energy Resources, Inc., 41 Fed. Energy Reg. Comm'n Rep.
(CCH) € 61,238 (Nov. 30, 1987) (Opinion No. 292).
6A
expense shall be assumed by its shareholders, rather than passed
through to its retail ratepayers” (the Prudence Resolution). The
Council also refused to approve the rate increase pending the
outcome of this investigation.
While the Council was conducting its prudence inquiry, the
Supreme Court decided Nantahala Power & Light Co. v.
Thornburg,’ a case that came to the Court on appeal from a state
supreme court decision. In Nantahala, the Court held that FERC
has exclusive jurisdiction over interstate wholesale power rates,
and once it has allocated wholesale power, a state regulatory body
may not refuse to recognize that allocation. This is a necessary
consequence of the filed rate doctrine, which prescribes that in-
terstate power rates filed with or fixed by FERC must be given
binding effect by state utility commissions determining intrastate
rules.
After the City Council had refused to approve its requested
rate increase, NOPSI sought a federal court injunction requiring
the Council to pass through, immediately and fully, the increased
costs of Grand Gulf to ratepayers and to prevent the Council
from conducting its prudence inquiry. The district court dis-
missed the suit, holding that it lacked subject matter jurisdiction
and that, even if it had jurisdiction, it should abstain. While an
appeal to this court was pending, in March, 1986, the City Coun-
cil and NOPSI reached a partial settlement of NOPSI’s applica-
tion for a rate increase. NOPSI agreed to absorb $51.2 million of
the costs of Grand Gulf. The Council allowed NOPSI to make a
phased interim rate increase, to which NOPSI agreed, in order to
moderate the effects of “rate shock” on New Orleans ratepayers.
Both parties agreed, however, that this settlement did not affect
the Council's continuation of its prudence inquiry.
*476 U.S. 953, 106 S.Ct. 2349 (1986).
TA
In NOPSI I, this Court initially reversed both district court
rulings,’ but on rehearing affirmed the district court’s decision to
abstain, in order to avoid interfering with a comprehensive state
regulatory scheme.'° The district court relied upon this opinion,
which we will discuss again in detail, in its decision to abstain
from hearing the present case.
In April, 1987, the City Council completed its hearings and
began deliberations. NOPSI again sought an injunction from the
federal district court, arguing that the Council was unreasonably
delaying a decision and that its inquiry encroached on areas of
exclusive FERC jurisdiction. Later amending its complaint,
NOPSI sought only an injunction against any action by the Coun-
cil that would force NOPSI’s shareholders to absorb part of the
costs of Grand Gulf that FERC had allocated to NOPSI. NOPSI
contended that the announced purpose of the Council’s prudence
inquiry intruded upon an area within FERC’s exclusive jurisdic-
tion. When the district court decided both that the case was not
ripe for decision and that, even if it was, it should abstain, NOPSI
appealed to this court.
In NOPSI II,"' this court once again noted thai the Federal
Power Act gives FERC exclusive authority to regulate the whole-
sale sale of power in interstate commerce while allowing the states
to retain their traditional police power to regulate intrastate retail
sales. The NOPSI II opinion recognized that the Prudence Reso-
lution and the subsequent Council hearing could “certainly be
interpreted as directed toward areas now off-limits to state regu-
lators.””!2
*New Orleans Pub. Serv., Inc. v. City of New Orleans, 782 F.2d 1236
(Sth Cir.), modified, 798 F.2d 858 (Sth Cir. 1986), cert. denied, _ US.
, 107 S.Ct. 1910 (1987).
~ YONew Orleans Pub. Serv. Inc. v. City of New Orleans, 798 F.2d 858
(Sth Cir. 1986), cert. denied, US. , 107 S.Ct. 1910 (1987).
''New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans,
833 F.2d 583 (Sth Cir. 1987).
Jd. at 586.
8A
The opinion, however, further recognized that the Council’s
inquiry presented “only a possibility of harm to NOPSI. If such
harm occurs, the validity of the New Orleans City Council’s ac-
tion will depend on facts not yet in existence.”'? NOPSI would
suffer no irreparable harm pending completion of the prudence
inquiry. Therefore the injunction issue was not yet ripe, and the
Court found it unnecessary to address the district court’s alter-
native decision to abstain.
After completing the lengthy prudence inquiry, the Council
adopted a rate order on February 4, 1988. The order disallows
$135 million of NOPSI’s deferred Grand Gulf costs and requires
NOPSI to write this sum off its rate base. It also reduces NOPSI’s
rate increases, planned to begin on April 9, to reflect this
disallowance. The Council based its actions on these conclusions:
(1) NOPSI’s oversight and review of its Grand Gulf obli-
gation was uncritical and severely deficient. NOPSI’s man-
agement remained ignorant of important information and
significant events that affected NOPSI’s Grand Gulf com-
mitment at the same time that it was attempting to portray
Grand Gulf as a great benefit to ratepayers.
(2) NOPSI made no effort to reduce its risk exposure in
the wake of the Three Mile Island Nuclear incident in 1979-
80, which demonstrated the risks of operating a nuclear re-
actor. Instead, it committed itself to take a share of the plant
that FERC later found to be excessive.
(3) NOPSI imprudently failed to reduce the risk of its
Grand Gulf commitment by selling a portion of its share of
the power off-system, that is, to some other user. It made no
attempt to ascertain whether off-system sales could be ac-
complished, despite its having made representations to the
Council in 1980 that it would sell the power elsewhere if the
Council desired.
"1d. at 588 (emphasis added).
9A
The Council also determined that NOPSI’s management was
imprudent in committing NOPSI in 1974 to an indeterminate
responsibility to pay for Grand Gulf, but it took no action based
on this finding. Instead, it concentrated its inquiry and based the
disallowance of the rate increase on actions NOPSI’s manage-
ment failed to take at the retail level to reduce the exposure of
New Orleans ratepayers to the excessive risks and costs of the
Grand Gulf project.
The Council also asserts that, in reaching its decision, it deter-
mined that disallowance of the full amount warranted by
NOPSI’s imprudence would cause NOPSI to become insolvent.
It therefore disallowed only that portion of the excess costs—
minus an additional ten percent “‘buffer”—attributable to impru-
dent management that the Council determined the utility could
stand financially.
NOPSI therefore resorted once again to federal court, seeking
injunctive and declaratory relief from the Rate Order. It contends
that the Order is inconsistent with and preempted by federal law,
that the federal courts are vested with exclusive jurisdiction by
the Federal Power Act, 16 U.S.C. § 825p, and that, if the Rate
Order is allowed to stand, it will suffer irreparable harm. It con-
tends that the Council had assured it in the settlement agreement
that it would be allowed to recover the $135 million in deferred
costs through future rate increases. The elimination of this asset
has drastically reduced its common equity and eliminated its re-
tained earnings. It has been unable to sell rate recovery bonds as
it had planned to do in March, 1988, will be unable to sell addi-
tional rate recovery bonds for several years, and is threatened
with possible calls for redemption of $115 million in outstanding
rate recovery bonds. NOPSI states that it also needs funds to
continue to pay its FERC-mandated bill for Grand Gulf and
other operating expenses. It will be unable to pay dividends on
either preferred or common stock for at least several years, and
its ability to continue as a viable entity is drastically impaired.
10A
The district court, following this court’s decision in NOPSI J,
found that the Johnson Act'* did not deprive it of jurisdiction
over the suit; it did not have exclusive jurisdiction of the suit
under the Federal Power Act; and it should abstain from exercis-
ing its jurisdiction, deferring to the state proceedings. Relying on
the Supreme Court decision in Burford v. Sun Oil Co.,'5 the court
distinguished Nantahala, stating that Nantahala did not involve
a prudence issue. The utility regulatory body in Nantahala had
simply refused to recognize the FERC allocation without any
consideration of managerial prudence or other cost savings avail-
able. In this case, on the other hand, the Council had explicity
recognized the FERC-allocated costs, but had determined that,
given those costs, NOPSI’s management should have reduced
their impact by selling some of its Grand Gulf power “off sys-
tem,”’ as its President had earlier said it could do.
The district court based its decision to abstain on the concept
stated in NOPSI J, that “the regulation and adjustment of local
utility rates is of paramount local concern and a matter which
demands local administrative expertise.”'® The fact that the
Council had completed its prudence inquiry did not end the need
for state administrative involvement. The Council’s Rate Order
is subject to review in Louisiana state court. (In fact, NOPSI has
sought an injunction in state court; it understandably could not
forego that avenue for relief if this suit failed. The state trial court
has denied the injunction and NOPSI has appealed to the state
intermediate appellate court, seeking expedited consideration.
The state trial court record was not scheduled to be filed with the
State appellate court until July 15, 1988, however, and that ap-
pellate court has therefore deemed the motion for expedited ap-
peal premature.)
428 U.S.C. § 1342 (1982).
15319 U.S. 315, 63 S.Ct. 1098 (1943).
16798 F.2d at 862.
11A
The federal district court also observed, however, that it was
not ready to assume that many, if any, purchasers could be found
today to buy the power allocated to NOPSI. It continued:
Indeed, this court is somewhat mystified by the Council’s
logic in arriving at the $135 million disallowance in the Rate
Order. In the Rate Order, the Council simply concluded that
since [NOPSI’s President] said so, savings were actually pos-
sible. Then, the Council seemingly pulled from thin air a
figure of 8% for the prudence disallowance. However, the
Council, and in this case, everyone else knows that the 8%
figure was not pulled from thin air but represents the differ-
ence between FERC’s 17% allocation and what NOPSI con-
sistently claims as its relative share in the MSU system, i.e.
9%. Thus, the disallowed costs bear no apparent relationship
to the savings NOPSI is said to have foregone. Must not the
savings posited as the reason for the disallowance be at least
possible in an actual economic market? Furthermore, must
not the ultimate disallowance bear some rational relationship
to the possible savings which support that disallowance?
These questions must be resolved on another day in another
court.
The district court did not reach the other factual issues. We
must assume that the court thought it should abstain even if
NOPSI were able to prove, as it alleges, with some apparent
evidentiary support, that what was not clear when NOPS/ | was
decided is now clear: the Rate Order results in “trapping” FERC
allocated costs in violation of federal law; important facts have
therefore changed since the decision in NOPSI I; the Rate Order
itself demonstrates that the disallowance of rate increases was
based on factors that the state could not legally consider; and
consequently the Order “is beyond the Council's retail
ratemaking authority and violates federal law.”
If the jurisdiction of federal courts over this dispute is made
exclusive by the Federal Power Act, the district court should
not have abstained. The Act grants federal courts exclusive
12A
jurisdiction over all suits brought to enforce any “duty created
by . . . any rule, regulation, or order” promulgated under the
Act.'? NOPSI’s thesis is that the Act creates a duty on the part of
the Council to recognize for retail ratemaking purposes NOPSI’s
FERC allocation, net of cost savings in other areas, and that the
duty must be enforced by and can be enforced only in federal
court.
In Nantahala, the Supreme Court expressly held that the filed
rate doctrine requires local utility regulators to “allow, as reason-
able operating expenses, costs incurred as a result of paying a
FERC-determined wholesale price.” '* The Court further stated,
“{o}jnce FERC sets such a rate, a State may not conclude in
setting retail rates that the FERC-approved wholesale rates are
unreasonable.”’'? Correspondingly, in NOPSI II this court stated:
[Ojnce the FERC has allocated wholesale power, a state
regulatory body may not refuse to recognize that allocation.
The state may not, for example, find the allocation unreason-
able and “trap” any extra costs by refusing to allow the
utility to pass those costs on to consumers.”°
After oral argument had been heard in this case, the Supreme
Court rendered its opinion in Mississippi Power & Light Com-
pany v. Mississippi ex rel Moore, a case which, like Nantahala,
came to the Court by direct appeal.?' In Mississippi Power, the
Court held that the FERC proceedings preempted a prudence
"16 U.S.C. § 825p (1982) provides in pertinent part:
The District Courts of the United States . . . shall have exclusive
jurisdiction of violations of this chapter or the rules, regulations,
and orders thereunder, and of all suits in equity and actions at law
brought to enforce any liability or duty created by, or to enjoin any
violation of this chapter or any rule, regulation, or order thereun-
der.
476 U.S. at ___., 106 S.Ct. at 2356.
fd. at ___., 106 S.Ct. at 2357.
20833 F.2d at 586 (citations omitted).
1 6UUS. W_, —_ §.Ct. __, No. 86-1970 (June 24, 1988.)
13A
inquiry by a state regulatory commission. The Mississippi Power
prudence inquiry differed somewhat from the City Council's in-
quiry: it was directed to the prudence of entering into the Sales
Agreement and the Grand Gulf project, while the Council’s order
is directed at NOPSI’s asserted imprudence in failing to resell the
power it had agreed to, and is now bound by the FERC order to,
buy. Nonetheless, the language of the opinion seems to foreclose
the latter kind of prudence inquiry as well. Thus, for example, the
Court stated:
States may not alter FERC-ordered allocations of power by
substituting their own determinations of what would be just
and fair. FERC-mandated allocations of power are binding
on the States, and States must treat those allocations as fair
and reasonable when determining retail rates. . . .
States may not bar regulated utilities from passing through
to retail consumers FERC-mandated wholesale rates. “The
filed rate doctrine ensures that sellers of wholesale power
governed by FERC can recover the costs incurred by their
payment of just and reasonable FERC-set rates. When
FERC sets a rate between a seller of power and a wholesaler-
as-buyer, a State may not exercise its undoubted jurisdiction
over retail sales to prevent the wholesaler-as-seller from
recovering the costs of paying the FERC-approved
.. Such a ‘trapping’ of costs is prohibited.””?_—
... Thus we conclude that the Supremacy Clause compels
the [state regulatory commission] to permit MP&L to recov-
er as a reasonable operating expense costs incurred as the
result of paying a FERC-determined wholesale rate for a
FERC-mandated allocation of power.
. [I]t might well be unreasonable for a utility to pur-
chase unnecessary quantities of high cost power, even at
FERC-approved rates, if it had the legal right to refuse to
buy that power. But if the integrity of FERC regulation is to
be preserved, it obviously cannot be unreasonable for MP&L
_ | ees at (quoting Nantahala Power &
Light Co. v. Thornburg, 476 U.S. at 970, 106 S.Ct. at 2359).
14A
to procure the particular quantity of high-priced Grand Gulf
power that FERC has ordered it to pay for. Just as
Nantahala had no legal right to obtain any more low cost
TVA power than the amount allocated by FERC, it is equal-
ly clear that MP&L may not pay for less Grand Gulf power
than the amount allocated by FERC.
... Thus FERC’s order svecificially bars a state regulatory
agency from evaluating the prudence of Grand Gulf “in light
of local conditions.”
In NOPSI I, this cou:t held that it does not follow from
Nantahala that the duty imposed on a state regulatory body to
recognize FERC allocetions and rates must be enforced by a
federal court. While the Federal Power Act did grant FERC
exclusive authority to regulate interstate transmission and sale at
wholesale of electric energy, it reserved to the states regulatory
jurisdiction over generation facilities and the intrastate transmis-
sion of electric energy.** This dichotomy of supervision made it
foreseeable to Congress that what has happened in Louisiana
might indeed come to pass: conflicts might arise over a state's
attempt to regulate matters reserved to the FERC. The filed rate
doctrine was developed to ensure the supremacy of FERC’s or-
ders in state as well as federal proceedings.” It does not establish
federal exclusivity.
NOPSI I therefore rejected the claim that federal jurisdiction
is exclusive:
The existence of [a] “bright line” [between federal and state
jurisdiction] colors the way we view a preemption claim in-
volving the Federal Power Act. NOPSI has attempted to
depict the situation before us as one in which the Council is
stepping into the realm of wholesale rate making, a field
[SS i; =
— *16 U.S.C. §§ 824(b) (1982); see also NOPSI I, 798 F.2d at 860.
“See Nantahala, 476 U.S. at ___. 106 S.Ct. at 2355.
ISA
under the exclusive jurisdiction of FERC. NOPSI focuses on
the disruption of a federal scheme. Yet federal court inter-
vention here may constitute a disruption of a state regulatory
scheme, for retail rate making is clearly a field left to the
rates need not necessarily be increased to reflect the corre-
sponding increase in wholesale rates set by FERC. Instead,
local councils are permitted the autonomy preserved to them
by the Federal Power Act and can consider cost savings in
other areas relevant to the setting of retail rates.?°
Thus NOPSI I holds that while state regulators are bound by
FERC decisions and the filed rates doctrine, the doctrine may be
invoked in state proceedings and the existence of a filed rate issue
does not dictate federal court jurisdiction. As the opinion in
NOPSI I acknowledges,”’ two other circuits have reached the
same conclusion, deciding to abstain,”* while three other courts
have refused to do so.”
Ill.
The Supreme Court has held that, in three different situations,
a federal court with jurisdiction over a matter that also lies within
the jurisdiction of a state court or agency should abstain from
exercising its jurisdiction.° When a case involves unsettled
2»NOPSI I, 798 F.2d at 860-61 (emphasis in original).
"Jd. at 862 n.1.
See Aluminum Co. of America v. Utilities Comm'n, 713 F.2d 1024
(4th Cir. 1983), cert. denied, 465 U.S. 1052, 104 S.Ct. 1326 (1984);
American Elec. Power Co. v. Kentucky Pub. Serv. Comm'n, 787 F.2d
588 (6th Cir. 1986); but see Appalachian Power Co. v. Public Serv.
Comm'n of West Virginia, 770 F.2d 159 (4th Cir. 1985), aff'g without
opinion 614 F. Supp. 64 (S.D. W.Va. 1985).
See Kentucky West Virginia Gas Co. v. Pennsylvania Pub. Util.
Comm'n, 791 F.2d 1111 (3d Cir. 1986); Middle South Energy, Inc. v.
Arkansas Pub. Serv. Comm'n, 772 F.2d 404 (8th Cir. 1985), cert. de-
nied, US. , 106 S.Ct. 884 (1986), International Bhd. of Elec.
Workers, Local Union No. 1245 v. Pub. Serv. Comm'n, 614 F.2d 206,
212 n.1 (9th Cir. 1980).
Colorado River Water Conservation Dist. v. United States, 424 U.S.
800, 813-17, 96 S.Ct. 1236, 1244-46 (1976).
16A
questions of state law, the resolution of which may make it un-
necessary to decide a federal constitutional question, the federal
court should abstain pending resolution of the state-law questions
by a state court,’!' a doctrine known as Pullman abstention after
the Supreme Court case that first invoked it. A federal court
should also abstain from deciding a case to avoid needless conflict
with a state’s administration of its own affairs, a rule applied in
Burford v. Sun Oil Co.** In Younger v. Harris,» the Supreme
Court ruled that a federal court should abstain from deciding
actions brought in an equitable setting when considerations of
comity and federalism, relating both to a state’s interest in con-
ducting a pending state court proceeding and to the state’s ability
to consider federal constitutional claims in that setting, so dictate.
In Colorado River Water Conservation District v. United
States,* the Supreme Court approved dismissal of a federal court
suit on the basis of “considerations of ‘[w]ise judicial administra-
tion, giving regard to conservation of judicial resources and com-
prehensive disposition of litigation,’”** although abstention
‘Railroad Comm'n v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85
L.Ed. 971 (1941); see also Colorado River, 424 U.S. at 814, 96 S.Ct. at
1244; see generally 17 C. Wright, A. Miller & E. Cooper, Federal Prac-
tice & Procedure §§ 4241-42 (1978 & Supp. 1987).
“Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424
(1943), see also Colorado River, 424 U.S. at 814-15, 96 S.Ct. at 1244-45;
County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 189, 79 S.Ct.
1060, 1063, 3 L.Ed.2d 1163 (1959); see generally Wright, Miller &
Cooper, supra note 31, at §§ 4241, 4244.
"See Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669
(1971); see also Ohio Bureau of Employment Servs. v. Hodory, 431 U.S.
471, 477, 97 S.Ct. 1898, 1902-03, 52 L.Ed.2d 513 (1977); Colorado
River, 424 U.S. at 816, 96 S.Ct. at 1245-46; see generally Wright, Miller
& Cooper, supra note 31, at §§ 4241, 4251-55.
4424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).
Jd. at 817, 96 S.Ct. at 1246 (quoting Kerotest Mfg. Co. v. C-O-Two
Fire Equip. Co., 342 U.S. 180, 183, 72 S.Ct. 219, 221, 96 L.Ed. 200,
203 (1952)).
17A
would not have been appropriate under previously recognized
abstention doctrines. In Colorado River, the Court observed that
“the circumstances permitting the dismissal of a federal suit due
to the presence of a concurrent state proceeding for reasons of
wise judicial administration are considerably more limited than
the circumstances appropriate for abstention.” **
In Evanston Insurance Co. v. Jimco, Inc.,*’ on which NOPSI
relies, we considered the application of the Colorado River rule
because judicial proceedings were pending in both state and fed-
eral court and only considerations of judicial administration were
involved. In NOPSI I, however, the district court based its deci-
sion to abstain primarily on the Burford rule, seeking to avoid
intrusion into the state administration of a complex state regula-
tory system. The Evanston Insurance decision is therefore not
applicable here.
Turning to the appropriateness of Burford abstention in this
case, we do not write on a clean slate. While the district court's
decision to abstain is reviewable, we are not to decide whether we
would write the same opinion if we were sitting as a trial court,
but whether the district court abused its discretion in reaching its
decision, a question whose answer requires at least some defer-
ence to the district court’s views. In addition, we are bound by
the text and the implicit philosophy of NOPS/ I. In NOPSI I this
court affirmed the district court’s decision to abstain because ex-
ercising federal jurisdiction would interfere with the state regula-
tory system:
[T}he regulation and adjustment of local utility rates is of
paramount local concern and a matter which demands local
administrative expertise. The regulatory system is complex.
In addition, the Louisiana state courts are fully able to ad-
dress NOPSI’s complaints about Council actions: appeals
from Council orders are to be filed with the Civil District
Jd. at 818, 96 S.Ct. at 1246.
*” No. 87-3605 (Sth Cir. May 17, 1988).
Power Act may never constitute an abuse of discretion, absten-
tion should perhaps more often obtain in cases presenting a ques-
tion of preemption under the Federal Power Act than would be
sO in cases presenting other types of federal preemption claims.”’*®
The NOPSI I opinion also stated, “[MJoreover, on these facts,
abstention seems appropriate under the doctrine of Younger v.
Harris.” Younger would justify abstention because the Council
proceedings constituted an ongoing state judicial proceeding, in-
volving important state interests, and in that proceeding NOPSI
had an adequate opportunity to litigate its federal claims. The
opinion noted, in connection with the appropriateness of Younger
abstention, the absence of “bad faith, harrassment, or other ex-
ceptional circumstances.”*' NOPS/ J thus recognized a second
basis for its affirmance of the district court’s decision to abstain.
The court in NOPSI J did not partially reverse the district
court’s decision to abstain by requiring it to decide whether the
Council should be enjoined to allow NOPSI to pass on all of the
costs allocated by FERC while affirming that decision only inso-
far as it abstained from interfering with the City Council's retail
ratemaking functions. It decided instead to abstain totally. When
a federal court decides to abstain, it does not decide to keep
federal hands off only so long as the state agency behaves as the
#789 F.2d at 862.
Id. at 861.
“Id. at 863.
*\Id. at 864; see Middlesex County Ethics Comm. v. Garden State Bar
Ass'n, 457 U.S. 423, 435, 102 S.Ct. 2515, 2523 (1982).
19A
court thinks proper. Instead, it decides not to interfere at all,
leaving to the state agency, the state courts, and, ultimately, the
United States Supreme Court, the interpretation of both state and
federal law and the ultimate protection of the federal constitution.
While more facts are now known, NOPSI foresaw the issues
these facts have raised. The first NOPS/ opinion outlined the
issues NOPSI raised at that time:*
NOPSI first raised a statutorily-based preemption claim.
NOPSI alleged that the Council, in setting NOPSI’s retail
rates, had refused to recognize the expenses NOPSI was re-
ired to pay by FERC order: the Council's rate freeze as-
ili
55
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State integrated electric system would be seriously under-
Council has been completed and the Supreme Court has decided
Mississippi Power & Light, a case in which abstention was not an
“782 F.2d at 1238.
“798 F.2d at 864 n.3.
20A
issue. The Council proceeding, followe4 by the opportunity for
ane enten Gan . a ine judicial tine “
In NOPSI II, NOPSI sought an injunction to prevent the
Council from trapping the FERC-allocated Grand Gulf costs.
argued that the court should wait to see what action the Council
took. Until then, the issue was not ready for court action. Now
the Council has acted. It retreats to a second line of defense: the
issue is ripe but the court should abstain. The Council’s argu-
ments in the successive cases appear to involve a certain amount
of adroitness, but the opinion in NOPSI I nonetheless requires us
to uphold the district court’s decision to abstain.
IV.
The decision to abstain from intervening at an earlier stage and
not to restrict the Council's action to purely retail ratemaking
concerns, as may have been permitted by Nantahala, allowed the
Council to proceed with a hearing at least ostensibly addressed
to retail ratemaking. Abstention necessarily forces the state
courts to consider the application of the Supreme Court decisions
dened by a massive docket, with a case that may involve only the
application of principles it has now clearly articulated. Only that
Court can resolve the conflict among the federal courts about the
appropnateness of abstention in this situation, and it has not yet
spoken. This court has. In so doing, this circuit has made a rule
for this case. NOPSI must seek relief elsewhere.
For these reasons, the judgment is affirmed.
“See Ohio Civil Rights Comm'n v. Dayton Christian Schools, Inc..
—. US. __, — . 106 S.Ct. 2718, 2723 (1986), Middlesex County
Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. at 432-34, 102 S.Ct.
at 2521-22.
21A
DISTRICT COURT OPINION AND ORDER
[MARCH 10, 1988]
22A
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
NEW ORLEANS PUBLIC SERVICE,
INC.,
CIVIL ACTION
VERSUS | NO. 88-559
SECTION “D” (2)
THE COUNCIL OF THE CITY OF
NEW ORLEANS, ET AL.
OPINION AND ORDER
For the third time in as many years these parties are before this
court embroiled in a dispute over the Defendants’, the Council of
the City of New Orleans (“The Council’), regulatory actions
concerning New Orleans Public Service, Inc. (“NOPSI’’) and
Grand Gulf I, a nuclear power plant located near Port Gibson,
Mississippi. NOPSI, a subsidiary of Middle South Utilities, Inc.
(“MSU”), provides electric service to most of the City of New
Orleans. NOPSI also engages in the production, wholesale inter-
state purchase, wholesale interstate sale and retail sale of electric
power. With the exception of a brief period, the Council has
exercised local regulatory jurisdiction over NOPSI since 1922.
Pursuant to an “Opinion and Order Setting Just Reasonable
and Non-Discriminatory Rates,” 31 F.E.R.C. (CCH) para. 61,
305 (June 13, 1985) (“Opinion No. 234’), the Federal Energy
Regulatory Commission (“FERC”’), allocated the costs of Grand
Gulf I among four MSU subsidiaries: Arkansas Power & Light
Co.; Louisiana Power & Light Co.; Mississippi Power & Light
Co.; and NOPSI. NOPSI’s share of Grand Gulf I costs under
Opinion No. 234 is 17%. In July 1985, NOPSI began paying its
17% of the costs, approximately $13 million a month, to System
ie hes
23A
Energy Resources, Inc. (“SERI’’) (formerly Middle South Ener-
gy, Inc. (“MSE”’)), another MSU subsidiary and principal owner
of Grand Gulf I.
NOPSI’s third trip to this court, like its second,' arises out of
the Council's investigation of NOPSI’s prudence with respect to
investment, oversight, and participation in the Grand Gulf I
project. After the FERC issued Opinion No. 234, NOPSI
initiated a retail rate making proceeding before the Council by
requesting permission to increase its electric rates to recover
expenses associated with Grand Gulf I. After several hearings
and extensive federal court litigation (i.e, NOPSI J), on March
20, 1986 the Council adopted Resolution No. R-86-112, which
accepted, subject to certain modifications, a settlement proposal
advanced by NOPSI with respect to its application for permanent
rate relief. The settlement required that NOPSI’s shareholders
absorb approximately $51.2 million of Grand Gulf I costs and
"provided that remaining costs would be phased into retail electric
rates over a period of approximately twelve years, with annual
rate increases limited to approximately 6%. The settlement
expressly reserved to the Council the right to conduct an
investigation of NOPSI’s prudence with respect to Grand Gulf I.
On October 17, 1985, the Council adopted Resolution No.
R-85-636 by which it initiated its inquiry into the prudence of
NOPSI's involvement in Grand Gulf I. The prudence inquiry
proceeded in three phases. The first, dealing primarily with
'See, New Orleans Public Service, Inc. v. City of New Orleans, No.
85-5273 (E.D. La. December 19, 1986), aff'd, 833 F.2d 583 (Sth Cir.
1987) (“NOPSI II"). In NOPSI II, NOPSI sought an order preventing
the Council from impermissibly “trapping” FERC allocated Grand
Gulf I costs as a result of the Council’s prudence inquiry. This court
dismissed the suit in NOPS/ I] on grounds of ripeness and abstention.
For a history of NOPSI’s first trip to this court see the Fifth Circuit
Opinion in New Orleans Public Service, Inc. v. City of New Orleans, 782
F.2d 1236, withdrawn in part, 798 F.2d 858 (Sth Cir. 1986), cert. denied,
107 S. Ct. 1910 (U.S. 1987) (“NOPSI I”).
24A
substantive questions bearing on prudence, involved evidentiary
hearings in April 1986. In May 1986, the Council set dates for
additional discovery, testimony and hearings on the second phase
which involved the economic impact of possible remedies if im-
prudence were ultimately found. Hearings on this second phase
were held in October 1986. The passage of the Tax Reform Act
of 1986 during the hearings required a material reconsideration
of economic issues and a third and final hearing was held for that
purpose in February 1987.
On February 4, 1988, by Resolution No. R-88-14, the Council
formally concluded its prudence investigation by adopting its
“Determinations and Order Regarding the Prudence of the Man-
agement of New Orleans Public Service, Inc. with respect to
Grand Gulf I” (“the Rate Order”). The Rate Order requires a
one-time disallowance and write-off by NOPSI of a sum equal to
$135 million in NOPSi’s deferred Grand Gulf I expenses and a
reduction in planned rate increases commencing April 9, 1988 to
reflect the $135 million disallowance. The Rate Order does not
ostensibly question NOPSI’s FERC-allocated Grand Gulf I costs
and it expressly provides that the disallowance is not based on the
determination that NOPSI was imprudent in committing to an
indeterminate responsibility to pay for Grand Gulf I. Rate Order
at 9-10. Rather, the Council determined that as a result of
NOPSI’s deficient and uncritical oversight of the Grand Gulf |
project and its failure to realistically assess its heightened risk
exposure in the wake of the Three-Mile Island incident, NOPSI
imprudently failed to reduce the risk of its Grand Gulf commit-
ment in 1979 and 1980 by selling a portion of its share of the
nuclea™ power off-system and further did not even attempt to
ascertain whether off-system sales could be accomplished not-
withstanding its President’s assurances to the Council that such
sales were possible. Rate Order at 9-13.
In this suit, NOPSI seeks preliminary and permanent injunc-
tive and declaratory relief from the Council’s Rate Order. NOPSI
alleges that the Rate Order is inconsistent with and preempted
25A
by federal law, that this court is vested with exclusive jurisdiction
by virtue of the Federal Power Act, 16 U.S.C. § 825p, and that if
the Rate Order is allowed to stand NOPSI will suffer irreparable
harm. The Council has moved to dismiss the Complaint on alter-
native grounds that the court is without jurisdiction to issue an
injunction pursuant to the Johnson Act, 28 U.S.C. § 1342, that
the court should abstain from exercising jurisdiction, and that the
Complaint fails to state a claim upon which relief can be granted.
Both NOPSI’s Motion for a Preliminary Injunction and the
Council’s Motion to Dismiss are now before the court.
At the outset, it is important to note that as the Council has
made a “factual attack” upon this court’s subject matter jurisdic-
tion, the court is “free to weigh the evidence and satisfy itself as
to the existence of its power to hear the case.” Evans v. Tubbe,
657 F.2d 661, 663 (Sth Cir. 1981). Moreover, it is encumbent
upon NOPSI to prove that jurisdiction does in fact exist.
Menchaca v. Chrylser Credit Corp., 613 F.2d 507, 511 (Sth Cir.),
cert. denied, 449 U.S. 953, 101 S. Ct. 358, 66 L. Ed. 2d 217 (1980).
Having considered the Complaint, the Rate Order, the deposi-
tions and affidavits filed herein, the memoranda and attachments
of counsel and the applicable law, and for reasons which follow,
the court is of the opinion that: 1) The Johnson Act does not
preclude jurisdiction in this case; 2) This court does not have
exclusive jurisdiction under the Federal Power Act; and, 3) This
court should abstain from exercising jurisdiction over the claims
presented by NOPSI.
In NOPSI I? this court held that the Johnson Act? precluded
the court from enjoining the Council’s exercise of regulatory
?New Orleans Public Service, Inc. v. The City of New Orleans, Civil
Action No. 85-3398 (E.D. La. Sept. 16, 1985) (NOPSI I Slip Op.).
‘The Johnson Act, 28 U.S.C. § 1342, provides:
The district courts shall not enjoin, suspend or restrain the operation
of, or compliance with, any order affecting rates chargeable by a public
(Footnote continued on next page.)
26A
jurisdiction over NOPSI. Were this court not bound by subse-
quent Fifth Circuit precedent in NOPSI 1,* this court would
again, for essentially the same reasons, find that the four Johnson
Act elements are present in this case. However, this court is not
free to ignore the Fifth Circuit's pronouncement in NOPSI I.
Accordingly, this court is constrained to hold that the Johnson
Act does not preclude jurisdiction to enter the injunctive relief
NOPSI seeks.
Though NOPSI I supports the existence of subject matter
jurisdiction in this case, the parties before the court and the issues
presented are virtually identical to those in NOPSI I and NOPS/
II, and this court is still convinced that abstention is the proper
course under these circumstances. As this court explained in
NOPSI I, abstention embodies the well-established principle that
under the rule of comity in cases dealing with state laws, rules or
policy decisions, equitable considerations will require a federal
court to stay its hand. NOPSI I, Slip Op. at 13; General Invest-
ment Service Corp. v. Wichita Water Co., 236 F.2d 464, 468 (10th
Cir. 1956). Abstention is particularly appropriate where the exer-
cise of federal court jurisdiction would disrupt a state’s adminis-
trative process or interfere with a state’s ability to formulate poli-
cies in complex matters of local concern. Burford v. Sun Oil Co.,
319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 2d 1424 (1943). “Burford”
(Footnote continued from previous page.)
utility and made by a State administrative agency or a rate-making body
of a State political subdivision, where:
(1) Jurisdiction is based solely on diversity of citizenship or re-
pugnance of the order to the Federal Constitution; and,
(2) The order does not interfere with interstate commerce; and,
(3) The order has been made after reasonable notice and hearing;
and,
(4) A plain, speedy and efficient remedy may be had in the courts
of such State.
*See Note | supra.
27A
abstention is appropriate where a state’s regulatory scheme
touches complex matters of paramount local concern which re-
quire administrative expertise and the state’s regulatory scheme
id niieie® conte to efiied oon of anal
with federal law can be effectively addressed. NOPS/ I, 798 F.2d
858, 861-62.
As both this court and the Fifth Circuit have previously held,
“the regulation and adjustment of local utility rates is of para-
mount local concern and a matter which demands local adminis-
trative expertise.” Jd. at 862. The fact that the Council has com-
pleted its prudence inquiry does not end the need for state ad-
ministrative involvement. One of the driving concerns of Burford
abstention is for the state’s ability to formulate local administra-
tive policy consistent with federal law without undue interference
from federal courts. Exercise of jurisdiction at this stage would
cy. Finally, the Council’s Rate Order is subject to review in
Louisiana state court.’ Indeed, the Council and other parties
which had intervened in the prudence inquiry have filed suit in
the Civil District Court for the Parish of Orleans in connection
with the Council's Rate Order. NOPSI has likewise filed an ap-
peal in Civil District Court to preserve its rights pending our
decision in this case.’ Though NOPSI’s desire to litigate issues of
federal law in a federal forum is understandable, this court is
confident that Louisiana’s state courts are more than competent
to handle any federal questions presented. Unlike NOPSI, this
‘NOPSI I, 798 F.2d at 862.
*Both of these suits were removed by NOPSI to this court. Motions
to Remand are currently pending in these cases. Lambert Boissiere, Jr..
et al. v. James M. Cain, et al. Civil Action No. 88-581; Alliance for
Affordable Energy, Inc., et al. v. The Council of the City of New Orleans,
et al, Civil Action No. 88-816.
’New Orleans Public Service, Inc. v. The Council of the City of New
Orleans, et al, No. 88-4511 (Civil District Court for the Parish of
Orleans, March 7, 1988).
28A
court does not believe that the Louisiana courts will dispose of
federal issues “from a biased perspective.’ The Louisiana courts
are bound to enforce federal law and this court can only assume
that they will do so. Therfore, this court is convinced that
Burford abstention is appropriate in this case.*
NOPSI argues that the FERC Opinion and Supreme Court
precedent impose a duty on the Council to recognize and “pass
through” FERC-allocated costs except where those costs are off-
set by cost savings in other areas unrelated to the FERC-allocated
costs. This duty, NOPSI contends, is a duty created by a FERC
opinion, and as such, is the subject of exclusive federal jurisdic-
tion under the Federal Power Act, 16 U.S.C. § 825p. Thus, the
argument goes, abstention is not appropriate since NOPSI cannot
litigate in state court an issue reserved exclusively to federal
court.
Central to NOPSI's argument is the Supreme Court opinion in
Nantahalla Power & Light Co. v. Thornburg, US. __, 106S.
Ct. 2349, 90 L. Ed. 2d 943 (1986). In Nantahalla the FERC had
allocated the available sources of low-cost power between two
utilities located in different states. This necessarily meant that the
utility receiving the lower allocation of low-cost power,
Nantahalla Power and Light Co. (“NP&L”), would have to pur-
chase greater amounts of higher-cost power in order to meet retail
demand and therefore would incur a higher average cost per unit
of power at the wholesale level. The North Carolina Utilities
Commission (“NCUC”) simply substituted its own allocation of
low-cost power in place of the FERC’s for purposes of setting
retail rates. Thus, under the NCUC’s Order, NP&L was forced
to calculate its retail rates as if it received more of the low-cost
power than actually allocated by the FERC.
~ "This court also finds that Younger abstention is applicable in these
circumstances. See VOPSI 1. 798 F.2d 858, 863-64. The appellate re-
view of the Council’s Order constitutes an ongoing judicial proceeding
implicating important state interests, and in that proceeding NOPSI w1!!
have an adequate opportunity to raise its federal claims. /d. at 864
:
:
29A
The Supreme Court held that on the facts presented, the filed
rate doctrine, a principle rooted in the Supremacy Clause, re-
quired the NCUC to pass through in retail rates the wholesale
costs based on the FERC’s allocation of low-cost power. The
court noted that while the NCUC was required to treat FERC-
allocated costs as a “reasonably incurred operating expense foi
the purposes of setting an appropriate retail rate,’ the FERC
allocation need not be passed through entirely where, as an inci-
dent of traditional ratemaking authority, the local regulator
found cost savings in other areas to offset the FERC-allocated
wholesale costs. The Court went on to conclude:
But in this case, there is no finding or indication that
[NP&L’s] costs of obtaining purchased power have de-
creased, or that other costs of operation have declined dra-
matically. There-is only NCUC’s assertion that [NP&L]
should have obtained more of the low-cost FERC regulated
power than [NP&L] is in fact entitled to claim under
FERC’s order. Such a rationale runs directly counter to
FERC’s order ....
Nantahalla, 106 S. Ct. at 2358.
NOPSI reads Naniahalla expansively to require that except for
offsets of cost savings actually experienced in areas completely
unrelated to FERC-allocated costs, the Council must pass
through all FERC-allocated wholesale costs in setting the retail
rate NOPSI may charge its customers. This court does not read
Nantahalla so expansively. The holding in Nantahalla must be
read in the context of the court's analysis of underlying cases and
in light of the facts presented to the Court.
After a careful reading, this court does not believe that the
Nantahalla Court intended to set out an exhaustive catalog of
permissible retail deviations from FERC allocated wholesale
costs. Rather, the Court simply responded to the North Carolina
*Nantahalla, 106 S. Ct. at 2357 (quoting State ex rel Utilities Com-
mission, 313 N.C. 614, 692, 332 S.E.2d 397, 443 (1985)).
30A
Supreme Court’s “oversimplification” of the Narragansett'° line
of cases and concluded that the facts present in NP&L were
distinguishable from those in the Narragansett line. Nantahalla’s
admonition that costs incurred by complying with FERC ordered
energy allocations are to be passed to the consumer cannot be
considered in splendid isolation. Nantahalla did not in any man-
ner involve a prudency issue. In Nantahalla the NCUC simply
refused to recognize the FERC’s allocation without any consid-
eration of managerial prudence or other cost savings available. In
this case, the Council has explicitly recognized the FERC allo-
cated costs, but it has determined that given those costs, NOPSI's
management should have reduced the impact of those costs by
selling some of its Grand Gulf power “off system” as James Cain,
NOPSI’s President, said NOPSI could do. Thus, the Council is
not asserting that NOPSI should have obtained less Grand Gulf,
FERC-regulated power than ordered by the FERC. In essence,
the Council faults NOPSI not for buying a ‘pig in a poke’ but for
failing to find a sucker to buy it when the faux-pas became ap-
parent.'' Though nuclear power may have seemed a wise option
‘Narragansett Electric Co. v. Burke, 119 R.1. 559, 381 A.2d 1358
(1977), cert. denied, 435 U.S. 972, 98 S. Ct. 1614, 56 L. Ed. 2d 63 (1978).
Public Service Co. of Colorado v. Public Utilities Commission, 644 P 2d
933 (Colo. 1982). In both cases the courts held that the regulatory
authority need not automatically pass through in retail rates an increase
“savings” in other areas which might offset the increased
= * hn 119 RI. at 568, 381 A.2d at 1363; Pudlic
Service Co., 644 P.2d at 941.
\'P.T. Barnum once said of suckers: “There's one born every min-
ute.” This court, however, is not ready to assume there are many, if any,
such suckers purchasing electricity in the wholesale market today. In-
deed, this court is somewhat mystified by the Counc. s logic in arriving
a2 des £9138 ealiien Geationenes io Ge Dee Cte. ee coin
the Council simply concluded that since James Cain said so, savings
were actually possible. Then, iy ey go
a figure of 8% for the prudence disallowance. However, the
Council, and in this case, everyone else knows that the 8% figure wos
(Footnote continued on next page.)
31A
when MSU and NOPSI first committed to Grand Gulf in the
1970's, recent events have proven it otherwise. So, while
Nantahalla does foreclose the Council's review of the 17% man-
datory allocation of FERC, it does not foreclose an inquiry into
the prudency of NOPSI’s acts or omissions in the face of the
anticipated and unwelcome FERC allocation. These are the in-
quiries which the Council’s Rate Order ostensibly addresses.
But even if this court accepted NOPSI’s reading of Nantahalla,
that opinion does not create a duty under the Federal Power Act,
16 U.S.C. § 825p. NOPSI's argument cannot be squared with the
structure of the Federal Power Act (“FPA”), the Fifth Circuit's
revised opinion in NOPSI J, or the language of Nantahalla itself.
As this court and others have explained, the FPA delegated to
the FERC exclusive authority to regulate interstate transmission
and sale at wholesale of electric energy while reserving to the
States regulatory jurisdiction over generation facilities and the
intrastate transmission of electric energy. NOPS/ J, 798 F.2d at
860. That conflicts might arise over a state’s attempt to regulate
matters reserved to the FERC was foreseeable. Courts therefore
developed the filed rate doctrine to ensure the supremacy of the
FERC’s orders in state as well as federal proceedings. To hold
that Nantahalla, which is based explicitly on the filed rate doc-
trine and preemption, creates a duty enforceable under § 825p
flies in the face of numerous state court decisions, including
Nantahalla, in which state courts have addressed federal issues
of preemption. Were NOPSI’s position correct state courts which
routinely address preemption issues in utility rate cases would be
(Footnote continued from previous page.)
not pulled from thin air but represents the difference between FERC’s
17% allocation and what NOPSI consistently claims as its relative share
in the MSU system, i.e. 9%. Thus, the disallowed costs bear no apparent
relationship to the savings NOPSI is said to have foregone. Must not
the “savings” posited as the reason for the disallowance be at least
32A
without jurisdiction. Such a position is untenable. In NOPS/ /,
the Fifth Circuit implicitly rejected this proposition. This court
does so explicitly. The issues reserved to the federal courts by 16
U.S.C. § 825p are those directly related to the FPA, the FERC’s
orders thereunder, and the obligations imposed by those orders. '’
This case simply presents no such issue.
NOPSI further argues that abstention is not appropriate since
the Council's Rate Order is entirely preempted as a matter of
federal law. This argument fails on two points: As discussed
above, Nantahalla does not support preemption of the Council's
Rate Order. But even if Vantahalla could be read to support
preemption here, it does not preclude abstention where there is
no direct facial conflict with the FERC Order or where the gov-
ernment has not preempted the entire field. Aluminum Company
of America v. Utilities Commission of North Carolina, 713 F.2d
1024 (4th Cir. 1983), cert. denied, 465 U.S. 1052 (1984)(“Alcoa”’).
abstention, this court need not examine the indirect effects of the
Rate Order on the FERC allocation as a prerequisite to absten-
tion. Id.
The Rate Order, on its face, sets only retail rates; it does not
attempt to order that NOPSI pay SERI any amount different
from that ordered by the FERC. Thus, there is no facial conflict
with FERC Opinion No. 234. Furthermore, the division of feder-
al and state authority in the Federal Power Act makes it clear
that the government has not entirely preempted state regulation
of retail sales of electricity. Since the circumstances are otherwise
appropriate for Burfu. ” abstention, this court need not and will
'*For example, the Federal Power Act imposes duties upon utilities,
among ‘thers, to apply to the FERC for approval before disposition of
certain property, § 825b; to refrain from undue preferences and
unreasonable differences in rates, § and to keep certain records,
§ 825. Similarly, FERC Opinion 234 imposes on NOPSI the duty to pay
SERI a certain percentage of the costs of Grand Gulf |. Any suit to
enforce these duties would be subject to exclusive federal jurisdiction.
33A
not look further. Despite NOPSI's persistent invocation of federal
jurisdiction in NOPSI I, NOPSI II and here, in what is sure to
become NOPS/ III, the court remains convinced that abstention
is the proper course under these circumstances. Like the path
followed in Nantahaila, NOPSI's plea for relief should be liti-
gated first in the state court forum. Either party may then seek
United States Supreme Court review of the final determination by
the Louisiana state courts. Accordingly;
IT IS ORDERED that the Council's Motion to Dismiss be and
is hereby GRANTED and NOPSI's Complaint for Preliminary
and Permanent Injunctive and Declaratory Relief is hereby DIS-
MISSED without prejudice.
New Orleans, Louisiana, this 10th day of March, 1988.
UNITED STATES DISTRICT
JUDGE
COURT OF APPEALS JUDGMENT
[JULY 28, 1988)
35A
Gnited States Court of Appeals
FOR THE FIFTH CIRCUIT
No. 88-3194
D.C. Docket No. CA-88-559-D
NEW ORLEANS PUBLIC SERVICE, INC.,
Plaintiff-Appellant,
—wersus
THE COUNCIL OF THE CITY OF
NEW ORLEANS, ET AL.,
Defendants-Appellees.
Appeal from the United States District Court for the Eastern
District of Louisiana
Before RUBIN, GARZA, and JONES, Circuit Judges.
JUDGMENT
This cause came on to be heard on the record on appeal and
was argued by counsel.
ON CONSIDERATION WHEREOF, It is now here ordered
and adjudged by this Court that the judgment of the District
Court in this cause is affirmed.
IT IS FURTHER ORDERED that plaintiff-appellant pay to
defendants-appellees the costs on appeal, to be taxed by the Clerk
of this Court.
July 28, 1988
ISSUED AS MANDATE: August 19, 1988
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.