Appendix — Ratepayers Fight Back v. Middle South Energy, Inc.

B5-a95”

a

SUPREME COURT OF THE UNITED an

. VOCE RH F. SPANIOL,

OCTOBER TERM, 1985

Supreme Court, U.S

| FILED

NOV 2y 1985

NO.

RATEPAYERS FIGHT BACK

PETITIONER

V.

MIDDLE SOUTH ENERGY, INC.

ARKANSAS POWER & LIGHT CO.

ARKANSAS PUBLIC SERVICE COMMISSION

ATTORNEY GENERAL OF ARKANSAS

RES PONDENTS...

APPENDIX TO PETITION FOR

A WRIT OF CERTIORARI

November 21,

1985

JAY THOMAS YOUNGDAHL

YOUNGDAHL, YOUNGDAHL

& WRIGHT, P.A.

2101 Main Street

P. O. Box 6030

Little Rock, Arkansas

72216

(501) 376-6355

Counsel for the

Petitioner

II.

iil.

TABLE OF CONTENTS

Opinion of Court of

Appeals

Judgment and Opinion

of District Court

District Court's Order

Denying Motions To Amend

and Stay Judgment

APSC Order to Show Cause

Constitutional and

Statutory Provisions

Page

A-106

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 84-2409

No. 84-2410

No. 84-2480

Middle South Energy, Inc., and

Arkansas Power and Light

Company,

Appellees,

Vv.

Arkansas Public Service

Commission; Robert E. Johnston,

Commissioner; Patricia S. Qualls,

Commissioner; and James W. Daniei,

Commissioner; Attorney General of

‘Arkansas; and Ratepayers Fight Back,

Appellants.

Appeal from the United States

District Court for the

Eastern District of Arkansas

Submitted: April 8, 1985

Filed: August 23, 1985

Before ROSS and JOHN R. GIBSON,

Circuit Judges, and MEREDITH,*

Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

*The HONORABLE JAMES H. MEREDITH,

Senior United States District Judge for

the Eastern District of Missouri,

sitting by designation.

The issues before us involve a

judgment of the district court!

enjoining the Arkansas Public Service

Commission from continuing proceedings

to determine whether it should declare

void ab initio certain contracts entered

into by Arkansas Power and Light Company

with respect to the purchase of power

from, or payment for construction of, a

nuclear power plant located in

~,

lfhe Honorable Henry Woods,

United States District Judge for the

Eastern District of Arkansas.

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Mississippi. The Arkansas Public

Service Commission, the Attorney General

of Arkansas, and a consumer group called

Ratepayers Fight Back argue that the

district court erred in finding that the

Federal Energy Regulatory Commission has

exclusive jurisdiction over the

contracts that were the subject of the

APSC's proceedings. They further argue

that the district court lacked subject

matter jurisdiction, that the litigation

was not ripe, and that the court abused

its discretion by failing to abstain

pending the outcome of the state agency

proceedings and by granting overbroad

relief. We have carefully considered

these arguments, and because we believe

that the actions threatened by the APSC

would burden interstate commerce, we

affirm the judgment of the district

court.

The Arkansas Power and Light

Company, together with the Louisiana

Power and Light Company, the Mississippi

Power and Light Company, and New Orleans

Public Service, Inc., are wholly-owned

operating subsidiaries of Middle South

Utilities, Inc. The operating companies

provide electric service to wholesale

and retail consumers in Arkansas,

Louisiana, Mississippi, and Missouri,

with an aggregate consumer population of

approximately five million people.

Planning and operation of the electric

generation and transmission facilities

needed to meet the demands of the MSU

system are performed according to

systems agreements. "Transmission and

generation functions are so coordinated

and integrated as to permit an instan-

“

taneous transfer of electrical power to

any part of Middle South's transmission

network." Arkansas Power & Light Co. v.

Federal Power Commission, 368 F.2d 376,

378 (8th Cir. 1966). Because the need

was seen in the early 1970's to develop

additional power generating facilities,

Middle South Energy, iInc., also a

wholly-owned MSU subsidiary, was created

in 1974 to finance, construct, and

Operate a two-unit nuclear generating

plant to be located in Port Gibson,

Mississippi and known as the Grand Gulf

Nuclear Electric Station.2 The creation

of MSE was necessary because none of the

four operating subsidiaries had _ suf-

ficient resources to finance and

construct the nuclear generating plant.

This case involves contracts

2Grand Gulf Unit No. l was

scheduled to commence commercial opera-

tion on July 1, 1985, while the

construction of Grand Gulf Unit No. 2

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entered into with respect to the

financing and construction of the plant,

as well as agreements made concerning

the sale of the power to be generated.

MSE has financed the three billion

dollar cost of the first unit by selling

common stock to MSU,2 borrowing from

commercial banks, and issuing first

a

has been suspended.

3mMsuU is registered under and

subject to Securities and Exchange

Commission authority by the Public

Ucility Holding Company Act of 1935.

15 U.S.C. §§ 79 to 792-6 (1982). These

stock sales received SEC approval.

Middle South Utilities, SEC Public

Utility Holding Co. Act Rel. No. 23,579

(Jan. 23, 1985). In opposing approval

of the most recent stock sale, APSC

urged that the SEC withhold authoriza-

tion until AP&L could show compliance

with Arkansas law. The SEC rejected

this argument, but assured the APSC that

the federal securities authorization did

not "supersede requirements of state

laws as they may eventually be

established in respect to AP&L's commit-

ments in the financing of the Grand Gulf

project." Id. at 7.

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mortgage4 and pollution control bonds .>

In 1974, through a document called

the Availability Agreement, MSE obtained

from each of the MSU operating companies

their commitment to purchase power from

the Grand Gulf project. The operating

companies agreed to pay MSE, beginning

on specific dates, amounts needed for

MSE to meet its operating expenses,

whether or not the two units of the pro-

ject were then operating. Payments

would be credited to the cost of their

future power purchases from MSE. The

Availability Agreement has been essen-

4This transaction was approved

by the SEC. Middle South Energy, SEC

Public Utility Holding Co. Act Rel. No.

23,3526 (Dec. 12, 1964).

SThis transaction was approved

by the SEC. Middle South Energy, SEC

Public Utility Holding Co. Act Rel. No.

23,495 (Nov. Energy, SEC Public Utility

Holding Co. Act Rel. No. 23,495

(Nov. 23, 1984). APSC urged the SEC to

withhold approval on the ground that

AP&L had not complied with state law.

The SEC declined, but noted that the SEC

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tial to the financing of the project. 6

Pursuant to a series of ten agreements

entered into between 1977 and 1984, MSE

has assigned its rights under. the

Availability Agreement to secure indeb-

tedness in excess of $2.5 billion.’

The Availability Agreement § ini-

tially provided that the share of Grand

Gulf power taken by the operating com-

"does not resolve disputed issues of

state law and the order in this case

does not prejudice. the Arkansas

Commission, which may assert its juris-

diction under whatever procedures the

state laws permit." Id. at 2 (footnote

omitted).

6The financing aspects of the

Original Availability Agreement were

approved by the SEC. Middle South

Utilities, SEC Public Utility Holding

Co. Act Rel. No. 18,437 (June 4, 1974).

APSC did not intervene in this pro-

ceeding. Its attacks on the agreement

in collateral proceedings before the SEC

have been rejected. See supra notes 3 &

-

7A number of agreements were

executed in which the operating com-

panies agreed that in case of default by

MSE they would make payments due under

the Availability Agreement directly to

A-7

‘

panies would vary relative to their

respective needs. In June 1981, the

Availability Agreement was amended’ to

fix the allocations of power in these

percentages:9 AP&L - 17.1%; LP&L -

26.9%; MP&L - 31.3%; NOPSI - 24.7%.

On July 28, 1981, MSE and the

Operating companies entered into a

Reallocation Agreement, under which the

Operating companies agreed to purchase

power in- the following percentages:

the banks. In return, the lenders

agreed that, should some regulatory

agency prohibit the operating companies

from making payments under the

Availability Agreement, the lenders

would make unsecured advances to MSE

equal to the amounts it would have

received under the Availability

Agreement.

8The amendment was approved by

the SEC. Middle South Energy, Public

Utilities Holding Co. Act Rel. No.

22,098 (June 22, 1981).

9South Mississippi Electric

Power Association, which is not a sub-

Sidiary of MSU, owns 10% of the Grand

Gulf project. The allocation figures

pertain to the 90% share owned by MSE.

A-8

APSL - 0%; LP&L - 38.57%; MP&L ~- 31.63%;

NOPSI - 29.80%.19 In June 1982, MSE and

the operating companies entered into an

agreement, the Unit Power Sales

Agreement, which required each operating

company to purchase the shares of power

specified in the Reallocation Agreement.

AP&L signed the UPSA but, in accordance

with the terms of the Reallocation

Agreement, did not agree to purchase any

power from the project. The UPSA was

filed with the Federal Energy Regulatory

Commission for approval as a wholesale

power sales agreement.

In February 1984, a FERC admin-

istrative law judge rejected the allo-

cation in the UPSA and obligated the

operating companies to purchase power

from Unit No. l as follows: AP&L - 363%;

lOfhis agreement was approved by

the SEC. Middle South Energy, Public

Utility Holding Co. Act Rel. No. 22,280

(Nov. 18, 1981).

A-9

LP&L - 14%; MPSL - 33%; NOPSI =- 17%.

The ALJ reasoned that:

[T7he evidence of Middle

South's witnesses is

overwhelming that the Middle

South system is a_ single

integrated and coordinated

electric system operating in

Louisiana, Mississippi,

Arkansas and Missouri.

Planning, construction, and

operations are conducted for

the system as a whole. Loads

on the system are met by

centrally dispatching the most

economical mix of generators

wherever located in the

system. Middle South

Utilities, Inc. owns the stock

of the operating utilities as

well as the stock of MSS and

MSE. When difficult system

decisions have to be made,

such as deciding the alloca-

tion of Grand Gulf, it is the

Board of Directors of Middle

South utilities, Inc., that

ultimately makes the decision,

not an individual subsidiary

company or qa group of

subsidiaries.

The Grand Gulf project

was initiated in the 1970's to

meet the then projected demand

on the Middle South system by

the end of that decade and not

just the load of any Middle

South operating company or

companies. Constructing

generation to meet system load

was true of every unit

constructed on the Middle

South system.

Under these circumstances

the costs of Grand Gulf capa-

city and energy should be

shared equitably by MSU's

operating companies and their

customers.

Middle South Energy, 26 F.E.R.C.

q@ 63,044, at 65,106 (1984), aff'd., 31

F.E.R.C. {¢ 61,305 (1985). The APSC had

actively intervened in the proceedings

before FERC. It had contended that FERC

had no jurisdiction to obligate AP&sL to

take a share of Grand Gulf and that

Arkansas neither wanted or needed the

relatively high-cost power from the pro-

ject. These arguments were rejected.

Approximately one month later, the

APSC issued two orders instituting for-

mal inquiries into AP&L's role in the

Grand Gulf project. Predicting that

Grand Gulf would result in “dramatic

[rate] increases" which would place an

“intolerable burden" on AP&L's customers

and have a "crippling effect" on the

Arkansas economy, Arkansas Power & Light

Co., Ark. Pub. Serv. Comm'n Docket No.

84-041-OII, at 1 (Mar. 12, 1984), the

APSC ultimately sought to “protect the

interests of the residential, business,

and industrial customers of AP&L and

preserve the viability of the economy of

the State of Arkansas." Arkansas Power

& Light Co., Ark. Pub. Serv. Comm'n

Docket No. 84-040-OII, at 2 (Mar. 12,

1984).

On August l, 1984, the APSC ordered

AP&L to appear and “show cause why all

contracts and agreements made by it with

respect to any obligations to purchase

power from or to pay for construction

and operation costs of the Grand Gulf

project should not be held to be void ab

initio as a matter of law." Arkansas

Power & Light Co., Ark. Pub. Serv.

Comm'n Docket No. 84-190-U, at 6 (Aug.

l, 1984). The APSC had already

concluded that thirty-six such

agreements constituted prima facie

violations of Arkansas law requiring

APSC approval of certain transactions by

public utilities. Id.; see Ark. Stat.

Ann. 8 73-253(a) (3) (1979 Repl.)

(utility must have APSC approval to

"sell, acquire, lease or rent any public

utility plant or property constituting

an operating unit or system"); id.

§ 73-255 (Supp. 1983) (utility must have

APSC approval to “issue stocks, bonds,

notes or other evidence of indebtedness

payable at periods of more than thirty-

Six (36) months"). After AP&L's motion

to dismiss the show cause order for lack

of jurisdiction was denied, MSE filed

suit in the district court to tem

porarily and permanently enjoin the pro-

ceedings before the APSC. AP&L

intervened as a plaintiff, while the

Arkansas Attorney General and Ratepayers

Fight Back intervened as defendants. A

hearing was held on the consolidated

issues of preliminary and permanent

relief. The district court found that

the APSC's actions were preempted by the

Federal Power Act, 16 U.S.C. §§ 824-824k

(1982), and permanently enjoined APSC

from conducting further proceedings on

the show cause order. Regarding the

need for equitable relief, the court

found:

MSE must raise an addi-

tional several billion dollars

in the next few years to pay

constrution and financing

costs. The ability to raise

these funds is dependent on

the enforceability of the

threatened agreements. If the

actions of the APSC are not

enjoined, the cost of capital

to MSE will be raised to the

point that the Project is

jeopardized, and the ability

of MSE to provide its multi-

state wholesale customers with

power will be irreparably

impaired.

Middle South Energy, Inc. v. Arkansas

Public Service Commission, No.

LR-C-84-778, slip op. at 5 (E.D. Ark.

Sept. 14, 1984).11

The APSC, the Arkansas Attorney

General, and Ratepayers filed an appeal

with this court.12 After the case was

llthe SEC noted recently that

delaying commercial operation of the

reactor would increase costs by about

$28 million per month, primarily in

finance charges. Middle South

Utilities, Public Utility Holding Coc.

Act Rel. No. 23,579 at 9 (Jan. 23,

1985).

l2arkansas Electric Energy

A-15

argued, FERC arfirmed the order of the

ALJ allocating AP&L 36% of the Grand

Gulf capacity. Middle South Energy, 31l

F.E.R.C. ¢ 61,305 (1985).

I.

As an initial matter, amicus curiae

on behalf of the apsci3 asserts that

MSE's suit does not “aris({e! under the

Constitution [or] laws *** of the United

States" as required to invoke federal

question jurisdiction under 28 U.S.C.

§ 1331 (1982) because, pursuant to the

"“well-pleaded complaint" rule, the

federal question must be raised

necessarily as an element of the plain-

Consumers and Reynolds Metals Company

filed an amicus curiae brief, as did the

Metropolitan Life Insurance Company and

other holders of MSE's first mortgage

bonds.

l3we consider this issue, though

not raised by a party, since subject

matter jurisdiction cannot be waived or

conferred by consent. Insurance Corp.

A-16

tiff's entitlement to relief and cannot

merely be a response to an anticipated

Gefense. See generally Francise Tax

Board v. Construction Laborers Vacation

Trust, 463 U.S. 1, 7-12 (1983) (citing

older cases). Specifically, amicus

curiae argues that jurisdiction is

lacking because MSE's preemption claim

is merely a defense to the state admi-

nistrative action. See id. at 15-16

(discussing Skelly Oil Co. v. Phillips

Petroleum Co., 339 U.S. 667 (1950)).

This argument ignores the recognition by

the Supreme Court that “a claim of

federal preemption does not always arise

as a defense to a coercive action."

Franchise Tax, 463 U.S. at 12 n.12; see

of Ireland v. Compacnie des Bauxites de

Guinea, 456 U.S. 694, 702 (1982); United

States ex rel. Burnette v. Driving Hawk,

587 F.2d 23, 24 (8th Cir. 1978).

A-17

Aluminum Co. of America v. Utilities

Commission, 713 F.2d 1024, 1028 (4th

Cic. is6s). eart.. gdenieag,. i864 Ss. Ct.

1326 (1984). The "not a defense to a

state action" rule is premised on the

determination that the declaratory

judgment act, 28 U.S.C. § 2201 (1982),

is merely procedural and that Congress

thereby did not enlarge the subject

matter jurisdiction of federal courts.

Skelly Oil Co. v. Phillips Petroleum

Co., 339 U.S. 667, 671-72 (1950). This

concern is not implicated when the

declaratory plaintiff has independent

grounds for federal relief such as an

injunction. Note, Federal Jurisdiction

over Declaratory Suits Challenging

State Action, 79 Colum. L. Rev. 983,

1001 (1979).14 thus, the district court

147% deny access to federal

court when, regardless of the existence

of procedures for declaratory relief, an

injunction would otherwise have been

A-18

available would contract the jurisdic-

tion of the federal courts. Note,

Supra, at 1001. Cases that appear to

have taken this route have generally

relied on the Supreme Court decision of

Public Serv. Comm'n v. Wycoff Co., 344

U.S. 237 (1952), which actually turned

on the failure of the plaintiff to

establish a ripe controversy or to iden-

tify what right it was asking the court

to declare. Id. at 244-46; see

Franchise Tax, 463 U.S. at 16 n. 14.

Furthermore, the widely quoted Wycoff

dictum suggesting that even if the

controversy had been ripe, federal sub-

ject matter jurisdiction would have been

lacking, is again couched solely in

terms of declaratory relief, the Court

having determined that the plaintiff had

abandoned its request for an injunction

because of the absence of proof of the

| threatened injury necessary to support

that form of relief. 344 U.S. at 241.

The Supreme Court itself has never

| interpreted Wycoff, as some courts of

appeals have, to hold that subject

matter jurisdiction does not exist any

| time a federal claim can be litigated as

a state defense. Illinois v. General

Baee. GCO., 663 F.2d 206, 211 (7th Cir.

1982), cert. denied, 461 U.S. 913

(1983); Braniff Int'l v. Florida Pub.

Serv. Comm'n, 576 F.2d 1100, 1104 (5th

Cir. 1978). Concerns with the timing of

adjudication need not distort analysis

of subject matter jurisdiction but

instead can be--and more appropriately

are--handled through the discretion of

courts in matters involving equitable

relief and through doctrines such as

exhaustion of administrative remedies

| and abstention. Note, supra, at 1001.

A-19

SS

had subject matter jurisdiction pursuant

to MSE's complaint, wh’ch on its face

properly raises the federal question of

whether the state proceeding should be

enjoined on preemptionl5 grounds .16 Shaw

v. Delta Air Lines, 463 U.S. 85, 96 n.14

(1983).

Appellants nevertheless argue that

jurisdiction is lacking because there

will be no "ripe" case or controversy

until the APSC reaches some deter-

Mination as to the validity of the

contracts and the effects of that deter-

15rt makes no difference to sub-

ject matter jurisdiction that we ultima-

tely choose not to decide this case on

preemption grounds. Furthermore, the

operation of the commerce clause in

limiting state authority is sufficiently

Similar to preemption that we believe

the same jurisdiction analysis applies.

l6fhere are no Eighth Circuit

decisions to the contrary. Despite the

representations of amicus curiae, three

of the cases it cites stand only for the

proposition that a preemption claim does

A-20

mination are felt by MSE. See Abbott

not raise a federal question un_er sec-

tion 1331 when, absent the availability

of the declaratory judgment procedure,

lit would have arisen only as a defense

to a state action. Neither the language

nor context of these cases extends this

interpretation of the well-pleaded

complaint rule to foreclose injunctions

sought on preemption grounds. E.g.,

First Fed. Sav. & Loan Ass'n v.

Anderson, 681 F.2d 528 (8th Cir. 1982)

(declaratory judgment only sought; no

pending state proceeding to enjoin);

Lawrence County v. South Dakota, 668

F.2d 27 (8th Cir. 1982) (same); First

Nat'l Bank v. Aberdeen Nat'l Bank, 627

F.2d 843 (8th Cir. 1980) (en banc)

(removal to federal court improper when

based on ground that preemption would be

raised as a defense to state tort

action). The one case cited by amicus

Curiae in which we did find subject

matter jurisdiction lacking despite a

request for an injunction is

distinguishable in that the panel

expressly found the preemption claim

there to be only in the nature of a

defense to the state administrative pro-

ceeding. Home Fed. Sav. & Loan Ass'n v.

Insurance Dep't, 571 F.2d 423, 427 (8th

Cir. 1978). Since MSE is seeking affir-

Mative relief from the APSC's attempts

to even inquire into certain affairs

relating to its business, we need not

decide if the characterization of the

preemption claim in Home Federal remains

viable in light of Shaw.

A-21

~

Laboratories v. Gardner, 387 U.S. 136,

148-49 (1967). This argument again

ignores the true nature of the relief

sought. MSE challenges not the state's

ultimate substantive decision but its

authority to even conduct the con-

templated proceeding. It can hardly be

doubted that a controversy sufficiently

concrete for judicial review exists when

the proceeding sought to be enjoined is

already in progress.

Il.

The district court's decision on

preemption grounds was based on the

Federal Power Act. Congress's purpose

in enacting the Act was to regulate “the

transmission of electric energy in

interstate commerce and *** the sale of

electric energy at wholesale in

interstate commerce." 16 U.S.C.

§ 824(b) (1982). To accomplish this

goal, Congress gave FERC the power to

make “just and reasonable" any public

utility “rule, regulation, practice or

contract affecting [a] rate, charge, or

Classification [that] is unjust,

unreasonable, unduly discriminatory or

preferential.” Id. § 824e(a) (emphasis

added).

The district court held that the

Availability Agreement and its amend-

ments were “agreements for the purchase

of wholesale power in interstate com-

merce or are so integrally related to

such purchases that they are subject to

the exclusive jurisdiction of the FERC."

Slip op. at 7. The other agreements

subject to the APSC order were found to

be “essential to the interstate whole-

sale sale of power and therefore *** not

subject to state jurisdiction." Id. We

read the district court's order as

finding preemption on the ground that

the threatened actions of the APSC would

block the acomplishment of the purpose

behind the Federal Power Act. See Hines

v. Davidowitz, 312 U.S. 52, 67 (1941).

Essentially, the APSC is trying to

secure for Arkansas the zero allocation

embodied in the UPSA. Such a result

would be contrary to the 36% allocation

recently approved by FERC in regulating

the wholesale aspects of the Grand Gulf

project. Thus, a strong argument can be

made that the APSC's powers have been

preempted by the Federal Power Act. The

appellants, on the other hand, urge that

we examine the APSC's powers in light of

other federal legislation, the Public

Utility Holding Company Act of 1935.

This law, they argue, expressly reserves

to the states some jurisdiction to regu-

late the securities dealings of utility

holding companies and their

subsidiaries. See 15 U.S.C. §§ 79f(b),

79g(g), 79u (1982); infra at 17-20;

Supra notes 3 & 5.

The district court's order did not

Qu

by appellants. We are not convince

that the district court improperly based

its decision on preemption grounds.

Nevertheless, we choose not to address

the difficult question of whether the

authority denied the states under the

Federal Power Act may be granted to them

by the Holding Company Act, because the

case can be disposed of under well-

settled commerce clause principles. See

pe S@S SSSSSSSESSESESEE

New England Power Co. v. New Hampshire,

455 U.S. 331, 334 n.10 (1983) (deferring

avor

rh

resolution of preemption issues in

of commerce grounds).

Ifill.

The commerce clause grants Congress

the power to regulate commerce among the

eee Use. CONSt., art. I, §$ 8, cl. 3.

It has long been recognized as implying

limits on the powers of the states to

erect barriers against interstate trade.

South-Central Timber Development Vv.

Wunnicke, 104 S. Ct. 2237, 2240 (1984);

see Cooley v. Board of Wardens, 53 U.S.

(12 How.) 299, 317-18 (1852). Absent

conflicting federal legislation, the

States may exercise police power over

matters of legitimate local concern even

though such regulation may affect

pee eS eS Se See SSS SRE EE =

interstate commerce. Philadelphia v.

New Jersey, 437 U.S. 617, 623-24 (1978);

Raymond Motor Transporation v. Rice, 434

U.S. 429, 440 (1978). Incidental bur-

dens on interstate commerce may be una-

voidable when a state legislates to

protect its citizens. Philadelphia v.

New Jersey, 437 U.S. at 623-24.

Nevertheless, the safeguarding of local

interests must ultimately yield to the

principle that "one state in its

dealings may not place itself in a posi-

tion of economic isolation." Baldwin v.

G.A.F. Seeling, Inc., 294 U.S. 5ll, 527

(1935).

"“(T)he regulation of utilities is

one of the most important of the func-

tions traditionally associated with the

police power of the states." Arkansas

Electric Cooperative Corp. v. Arkansas

Public Service Commission, 461 U.S. 375,

377 (1983). “Need for new power facili-

ties, their economic feasibility, and

rates and services, are areas that have

been characteristically governed by the

States." Pacific Gas & Electric Co. v.

State Energy Resources Conservation &

Development Commission, 461 U.S. 190,

205 (1983); see also Central Hudson Gas

& Electric Corp. v. Public Service

Commission, 447 U.S. 557, 569 (1980)

("The states's concern that rates be

fair and efficient represents a clear

and substantial governmental

interest."). At the same time, however,

the “production and transmission of

energy is an activity particularly

likely to affect more than one state,

and its effect on interstate commerce is

often significant enough that

uncontrolled regulation by the States

can patently interfere with broader

national interests." Arkansas Electric,

461 U.S. at 377. The dispositive issue

here is whether the APSC's desire to

protect Arkansas' interest has resulted

in an impermissible burden on interstate

commerce.

IV.

The Attorney General argues that

Since the APSC has only issued a show

Cause order, and not actually voided the

contracts in issue, there is no signifi-

cant burden on interstate commerce. The

APSC's position in the administrative

proceedings surrounding Grand Gulf,

however, leaves little doubt that APSC

intends to substantially reduce or eli-

Minate AP&L's participation in the pro-

ject. The threat of enforcement

presented by the show cause order is

sufficient to support an injunction

against further proceedings.

On March 12, 1984, the APSC issued

two orders instituting investigations.

The first, retrospective in nature,

referred to developments in FERC pro-

ceedings that “portend[{ed] catastrophi-

cally enormous rates increases" for APS&L

customers. Arkansas Power & Light Co.,

Ark. Pub. Serv. Comm'n Docket No.

84-040-OII, at 1 (Mar. 12, 1984). The

second order, prospective in nature,

was to

look forward to ascertain what

the ratepayers of AP&L, AP&L

itself, the Commission, the

Governor, and the General

Assembly may do to circumvent

or deflect the economic harm

that looms over the State from

the imminent prospect of being

mandated by a federal agency tc

pay for a power generating

plant that is possibly neither

needed or wanted by anyone in

A-30

iar

Arkansas, *** and that would,

if forced upon the State

potentially resuit in suc

immense amounts of exces

generating capacity that 1

could neither be used or sol

by AP&L.

J

(ctr Ww

, m a

a oe - %

mt Co., AEFK. Pub.

5 |

~

Arkansas Power §&

rt

Serv. Comm'n Docket No. 84-041-0II, at 2

(Mar. 12, 1984); see supra at 6.

Nearly five months later, APSC

issued the show cause order that gave

rise to this lawsuit. It listed thirty-

Six agreements relating to the Grand

was and is dependent on the[se]

agreements.” Arkansas Power & Light Co

Ark. Pub. Serv Comm'n Docket No.

84-190-U, at 5 (Aug. 1, 1984). The APSC

Stated that its approval, required by

Arkansas law, had not been given the

agreements and that some or all were

"Drima facie violations of Arkansas

law." Id. at 6. AP&L was ordered to

apoear and show cause "why all contracts

and agreements made by it with respect

to any obligations to purchase power

from or to pay for construction and

Operation costs of the Grand Gulf

Project should not be held void ab

initio as a matter of law." Id. The

APSC later denied AP&L's motion to

dismiss the show cause order for lack of

jurisdiction based On FERC's exclusive

jurisdiction over the agreements.

Arkansas Power & Light Co., Ark. Pub.

Serv. Comm'n Docket No. 84-190-U (Aug.

31, 1984).

The APSC argued vigorously before

both FERC and the SEC for a reduction or

elimination of AP&L's role in Grand

Gulf. In an SEC proceeding to authorize

the sale of common stock by MSE, the

APSC asked the Commission to consider

the "discontinuance or moth-balling" of

the Grand Gulf project. Middle South

Utilities, SEC Public Utility Holding

omen MeL. NO. 23,579 at 9 (Jan. 23,

1985). In litigation before FERC, the

APSC sought to avoid the allocation of

any Grand Gulf power to Arkansas,

claiming that the state does not need

and cannot economically use the power.

Middle South Eneray, 26 F.E.R.C.

meeeepuee (1984), aff'd, 31 F.E.R.C.

@ 61,305 (1985).17

The threat posed by the show cause

Order is sufficient to warrant the

injunction. In Pennsylvania v. West

Wargania, 262 U.S. 553 (1923), two sta-

‘

tes brought Suits to enjoin West

l7purther, after this lawsuit

was filed, the following account

appeared in the press: "“"[A]n attorney

representing the Arkansas utility com-

A-33

a ai ai caeai tecnica initia

Virginia from enforcing legislation that

would have reduced out-of-state delivery

of West Virginia natural gas. The Court

rejected the argument that the suits

were premature, finding that the gas

curtailment was "presently threatened

and likely to be productive of great

injury." Id. at 591. In proceeding to

consider the merits of the commerce

clause issue, the Court observed: "One

does not have to await the consummation

of threatened injury to obtain preven-

tive relief. If the injury is certainly

impending that is enough." Id. at 593;

see also Pacific Gas & Electric Co. v.

mission said the commission staff is

confident it can defend its order

against the Middle South suit. He added

that "if the APSC voids AP&L's part (of

Grand Gulf), the whole thing goes down

the toliet." Wall St. J., Sept. 6,

1984, at 7, col. 4-5 (Plaintiff's Ex.

10).

A-34

State Energy Resources Conservation &

Development Commission, 461 U.S. 190,

201 (1983) (decision on preemption of

state nuclear-waste disposal law should

not be delayed because postponement

"would likely work substantial hardship

on the utilities").

The mere possibility that a state's

interpretation of its law may avoid the

necessity for an injunction does not

preclude federal review. In City of

Chicago v. Atchison, Topeka & Santa Fe

Railway, 357 U.S. 77 (1958), the Court

rejected an argument in a commerce

clause case that a declaratory judgment

Should not issue because the state

courts had not been given a chance to

act. Among other things, the Court

reasoned that: "Remission to [state

court] would involve substantial delay

and expense, and the chance of a result

different from that reached below, on

the issue of applicability, would appear

to be slight." Id. at 84.

In this case, as in the West

Virginia and Pacific Gas cases, the

threatened action is likely to cause

great injury, in the form of higher

financing costs for MSE. Also, as in

City of Chicago, the chance of a state

adjudication obviating the commerce

clause issue is’ remote. Thus, we

conclude that a commerce clause viola-

tion can be found notwithstanding that

the APSC has not actually voided the

agreements. Cf. Northern Natural Gas

Co. v. State Corpvoration Commission, 372

U.S. 84, 92 (1963) ("{A]lthough colli-

sion between the state and federal regu-

lation may not be an inevitable

consequence, there lurks such imminent

possibility of collision in orders pur-

posely directed at interstate wholesale

purchasers that the orders must be

declared a nullity."); Public Service

Commission v. Wycoff Co., 344 U.S. 237,

245 (1952) (Court refused to allow suit

for declaratory relief against state

commission where no “risk of suffering

penalty, liability or prosecution was

shown"); Natural Gas Pipeline Co. v.

Slattery, 302 U.S. 300, 308-09 (1937)

(declining to find a commerce clause

violation in utilities commission merely

seeking records, the Court noted that no

action based on discovered information

was alleged and that it “will be time

enough to challenge such action of the

commission when it is taken or at least

threatened") (emphasis added) (citations

omitted).

oe4

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commer

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have on

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the

upon the states

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not

otherwise

that they would

~

cy

abili

Ti)

7

—

inten

(1982) (quoting Prudential Insurance Co.

v. Benjamin, 328 U.S. 408, 427 (1946);

United States Vv. Public Utilities

Commission, 345 U.S. 295, 319 (1953)

(Jackson, J., concurring)). Rather,

"for a state regulation to be removed

from the reach of the dormant commerce

clause, congressional intent must be

unmistakably clear." South-Central

Timber Develooment v. Wunnicke, 104 S.

Ct. 2237, 2242 (1984).

Ratepayers urge that there has been

an “explicit recognition by Congress of

the authority of a state to regulate the

securities of an electric utility

Operating within its borders." It is

true that the Public Utility Holding

Company Act of i935 (BCA), i585 U.S.C.

§§ 79 to 792-6 (1982), expressly reser-

ves some regulatory powers to the sta-

a *f

tes. Nevertheless, the provisions that

Ratepayers rely upon show nc

congressional purpose to insulate the

APSC's activity from commerce clause

scrutiny.

The HCA generally requires

registered companies and their sub-

Sidiaries to file declarations with the

SEC that must be approved before securi-

ties may be issued or sold. ao @,8.C.

oases, 79¢. Section 79f(b) exempts

from the declaration requirement securi-

ties of a subsidiary company of a

registered holding company, “if the

issue and sale * * * are solely for the

purpose of financing the business of

such subsidiary company and have been

expressly a ‘thorized by the State

Commission of the state in which such

Subsidiary company is organized and

doing business." This narrow exemption

obviously envisions a transaction

completely different from the Grand Gulf

agreements. The documents of concern to

the APSC involve all the entities in the

Middle South system. They implicate

interstate commerce far more than the

intrastate dealings between a state com-

mission and a single subsidiary do.

Thus, we find in section 79f(b) no

express statement by Congress to exemp

the APSC's activity from the commerce

clause.

A related provision, section

79g(g), provides for state input during

the SEC's consideration of proposed

declarations:

If a State commission

or State securities commis-

sion having jurisdiction

over any of the acts

enumerated in subsection

(a) of section 79f of this

title, shall inform the

Commission * * * that

A-41

ee

State laws applicable to

the act in question have

not been complied with,

the Commission shall not

permit a declaration * * *

to become effective until

and unless the Commission

is satisfied that such

compliance has been effected.

Like section 79f(b), this section con-

tains no direction from Congress con-

cerning immunity from the commerce

clause.

These conclusions are supported by

New England Power Co. v. New Hampshire,

Sse U.8.. 334 (1982). In New England

Power, the Court considered the rela-

tionship of the commerce clause to the

Federal Power Act. A state utilities

commission had sought to restrict the

export of hydroelectric energy generated

within the state. The state claimed

that this action was not invalid under

the commerce clause because a section in

the Federal Power Act provided that the

Act “shall not * * * deprive a State or

State commission of its lawful authority

now exercised over the exportation of

hydroelectric energy which is

transmitted across a State line." Id.

§ 824(b). The Court interpreted this

section as doing nothing more than

saving from federal preemption state

authority that was otherwise lawful. It

concluded that section 824(b)

is in no sense an affirmative

grant of power to the states

to burden interstate commerce

"in a manner which would cther-

wise not be permissible." * * *

Nothing in the legislative

history or language of the

statute evinces a congressional

intent "to alter the limits of

state power otherwise imposed

by the Commerce Clause," or to

modify the earlier holdings

of this Court concerning the

limits of state authority

to restrain interstate trade.

Rather, Congress' concern was

Simply “to define the extent

of the federal legislation's

pre-emptive effect on state

law."

455 U.S. at 341 (citations omitted).

The provisions of the HCA discussed

above are facially similar to the sta-

tute at issue in New England Power.

Moreover, the Federal Power Act and the

HCA have similar legislative histories.

Compare New England Power, 455 U.S. at

341 ("The legislative history of the

(Federal Power] Act * * * indicates that

Congress intended only that its legisla-

tion ‘tak{e] no authority from State

commissions.'") (quoting 4. R. Rep. No.

1318, 74th Cong., lst Sess. 8 (1935)),

with Alabama Electric Cooperative v.

Securities & Exchange Commission, 353

F.2d 905, 907 (D.C. Cir. 1965) ("The

purpose of the Public Utility Holding

Company Act, as shown by its legislative

history, was to supplement state

regulation-- not to supplant it.").

oad

Thus, sections 79f(b) and 79g(g) do not

preclude us from finding a violation of

the commerce clause here.

oF

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ct

Ratepayers also conten

| amd

ui

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ep)

()

re

79u saves any commerce

clause transgression. This section pro-

vides:

([Nlor shall anything in this

chapter affect the jurisdict

of any other commission, boa

agency or offic a

State or politi

of any State, ov

security, Or contract, insofar

as such jurisdiction does not

conflict with any provision of

this chapter or any rule, regu-

lation, or order thereunder.

n

In Edger v. Mite Corp., 457 U.S. 624

(1982), the Supreme Court considered

whether a state tender offer statute

violated the commerce clause. The

federal securities laws contained a pro-

vision nearly identical to section 79u.

See 15 U.S.C. § 78bb(a) (1982). There

was no suggestion made that this savings

provision could authorize state viola-

tions of the commerce clause. Rather,

Justice White interpreted the statute as

leaving to the courts to decide whether

Similar state legislation may be

preempted.. 457 U.S. at 631. Although

Justice White did not speak for the

whole Court, Mite supports a conclusion

that section 79u does not insulate the

APSC's actions from examination under

the commerce clause.

VI.

We must next determine the

appropriate level of scrutiny under the

commerce clause. The Supreme Court has

recently applied two tests to state

restrictions on the flow of interstate

power. In New England Power Co. v. New

Hampshire, 455 U.S. 331 (1982), the New

Hampshire Public Utilities Commission

sought to restrict the export of

hydroelectric energy produced within the

State. The Commission's purpose was to

contain the cost savings associated with

this cheaper form of electrical genera-

tion to the citizens of New Hampshire.

This savings was to be obtained at the

expense of customers in neighboring sta-

tes that had been sharing the power pro-

duced in New Hampshire. Id. at 335-36,

CEL The Supreme Court had no trouble

concluding that this sort of

"protectionist regulation” was forbidden

by the commerce clause. Id. at 339.

Two reasons were cited for reaching this

result. First, the utilities commission

had made clear that its order was

"designed to gain an economic advantage

for New Hampshire citizens at the

expense of * * * customers in neigh-

boring states." Id. Second, the Court

found indisputable that the

""exportation ban' place({d] direct and

Substantial burdens on transactions in

interstate commerce." Id. (citing

Public Utilities Commission v. Attleboro

Steam & Electric Co., ats - Baba 83

(1927)). There was no discussion of

balancing the state's interest against

the detriment to interstate commerce.

A different analysis was used the

next year in Arkansas Electric

Cooperative Corp. v. Arkansas _ Public

Service Commission, 461 U.S. 375 (1983).

At issue was an order of the APSC

asserting jurisdiction over the whole-

sale rates charged retail distributors

by a rural~ power cooperative. The

cooperative argued that this assertion

violated the commerce clause under the

test articulated in Attleboro, which

invalidated regulations imposing a

"direct" rather than “indirect" burden

on interstate commerce. 461 U.S. at

390; see Attleboro, 273 U.S. at 90. The

Court, however, decided to apply "an

analysis grounded more solidly" in

modern commerce clause cases: "Where

[a] statute regulates evenhandedly to

effectuate .a legitimate local public

interest, and its effects on interstate

commerce are only incidental, it will be

upheld unless the burden imposed on such

commerce is clearly excessive in rela-

tion to the putative local benefits."

461 U.S. at 393-94 (quoting Pike v.

Bruce Church, 397 U.S. 137, 142 (1970)).

After applying this test, the Court

upheld the APSC's assertion of

jurisdiction.

Thus, the Court has applied a rule

of presumptive invalidity to regulations

designed to further economic protec-

tionism, and a balancing test, which if

far more deferential to the states, to

facially neutral regulations. See

Generally Baltimore Gas & Electric Co.

v. Heintz, 760 F.2d 1408, 1420-22 (4th

Cir. 1985) (discussing flux in commerce

clause jurisprudence). New England

Power and Arkansas Electric can be har-

monized under the following standard:

"(W]here simple economic protectionism

is effected by state legislation, a vir-

tual per se rule of invalidity has been

erected. In contrast, legislation that

visits its effects equally upon

interstate and local business may sur-

vive constitutional scrutiny if it is

narrowly drawn." Lewis v. BT Investment

Managers, 447 U.S. 27, 36 (1980). The

"crucial inquiry," therefore, is whether

the APSC's action “is basically a pro-

tectionist measure, or whether it can

fairly be viewed as a law directed to

legitimate local concerns, with effects

upon interstate commerce that are only

incidental." Philadeiphia v. New

Jersey, 437 U.S. 617, 624 (1978). rE a

discriminatory purpose is found, there

is no need to engage in the Bruce Church

balancing ‘approach. Bacchus Imports,

Ltd. v. Dias, 104 S. Ct. 3049, 3055

(1984).

"A finding that state legislation

constitutes ‘economic protectionism' may

be made on the basis of either discrimi-

natory purpose or discriminatory

ample evidence of both. The APSC seeks

to cancel the Grand Gulf agreements

ostensibly because they have not

approval. Its apparent concern, which

has been made abundantly plain in its

Orders and its arguments before the SEC

and FERC, however, is the economic

to be rate increases of more than $3.5

_ : > _"

billion over the next ten years .+8 Given

.

~ _ _- _-_

burden to the citizens of MiISSiSSIi1ppl

- 7 . ~ »*

and Louisiana, citizens who are

~ = ~” 4 - i ne , +n) ance

he wer e — he we 11irFectly iad LU

l8see Middle South Energy, 26

F.E.R.C. at 65,097:

Because the costs

In New England Power, New Hampshire

sought to contain within the state the

benefits of low-cost power. Arkansas,

conversely, seeks to ciose its borders

to high-cost electricity. The effect of

both actions is the same: a preference

for citizens in the regulating jurisdic-

tion gained at the expense of out-of-

state customers. Nor can it be doubted

that the APSC's action would constitute

a direct and substantial burden on

interstate commerce. The integrated

nature of MSU and MSE, particularly the

Gulf are perceived to be much higher

“han the costs of power from other sour-

ces on the MSU system, it is not

Surprising that each of these parties

Supports an allocation of power which

results in the lowest allocation to the

MUS operating company or companies in

which the party is interested, espe-

Cially during the early years of opera-

tion of Grand Gulf when the costs of

Grand Gulf are higher than in later

years.

A-53

Grand Gulf project, represents commerce

that is interstate in a most basic form.

Thus, this case is controlled by New

England Power, and the APSC must be pro-

hibited from voiding AP&L's role in the

Grand Gulf project. See also

Philadelphia v. New Jersey, 437 U.S. at

se eS SSS SSS ES

624 ("The clearest example of

[protectionist] legislation is a law

that overtly blocks the Flow of

interstate commerce at a state's

borders.").19

VII.

Finally, appellants assert that the

district court should have used its

discretion to withhold the exercise of

its powers under any of several dectri-

nes concerned with premature federal

interference with state procedings.

19fhe APSC's reliance on Indiana

& Mich. Power Co. v. Michigan, 405 Mich.

400, 275 N.W.2d 450 (1979), is

A-54

i

Under Burford v. Sun Oil Co., 319

U.S. 315 (1943), for example, a federal

court should abstain when the action

before it involves matters of state law

best left to the state alone. The very

premise of this doctrine, however, is

lacking when, as here, federal law or

Constitution makes the proceeding or

regulation at issue beyond the state's

authority. South Central Bell Telephone

Co. Vv. Louisiana Public Service

Commission, 744 F.2d 1107, 1123-24 (5th

Cir. 1984), petition for cert. filed, 53

U.S.L.W. 3449 (U.S. Nov. 30, 1984) (No.

84-870). There is no concern with pro-

tecting a legitimate state regulatory

misplaced, for that case did not involve

state regulation with protectionist

motives. See Michigan Gas Storage Co.

v. Michigan Pub. Serv. Comm'n, 405 Mich.

376,275 N.W.2d 457 (1979) (companion

case).

scheme, Baggett ws Department of

Professional Regulation, 717 F.2d 521,

524 (llth Cir. 1983), and the question

becomes one of basic federal supremacy,

which does not turn on local factors or

local expertise. South Central Bell,

744 F.2d at 1123.

Similarly, the rule of Younger v.

Harris, 401 U.S. 37 (1971), limiting

injunctions of pending state proceedings

embodies the principle of our federal

System that legitimate state functions

be respected. 29 This “comity,” however,

is not strained when a federal court

cuts off state proceedings that entrench

upon the federal domain. Baggett, 717

Pian. at S26. The legitimate state

interest contemplated by Younger, see

Middlesex County Ethics Committee vv.

20Because of our ultimate

conclusion, we may assume without

deciding that the Younger doctrine,

which was developed in the context of

A-56

Garden State Bar Association, 457 U.S.

423, 432 (1982), does not exist when the

State action has been preempted or

foreclosed by the Constitution.

Champion International Corp. v. Brown,

731 F.2d 1406, 1408 (9th Cir. 1984).

Abstention uhder Railroad

Commission v. Pullman Co., 312 U.S. 496

(1941), focuses on whether a decision by

a state court might clarify state law so

as to make it unnecessary to reach a

constitutional issue otherwise pre-

sented. Preemption and the commerce

clause, however, are matters of federal

law, and there is no interpretation of

state criminal proceedings, applies to

the show cause order and proceedings

contemplated by the Arkansas Public

Service Commission. See generally

Middlesex County Ethics Comm. v. Garden

State Bar Ass'n, 457 U.S. 423, 432

(1982) (discussing scope of Younger).

A-57

Arkansas law which could make it unne-

cessary for us to reach the question as

to whether the Constitution forecloses

even the mere issuance of the show cause

order entered here by the APSC. See

Hotel & Restaurant Employees Union Local

54 v. Danziger, 709 F.2d 815, 832 (3d

Cif. 1983), vacated on the merits

sub nom. Brown v. Hotel & Restaurant

Emplovees Union Local 54, 104 S. Ct.

3179 (1984).

Finally, the doctrine of exhaustion

of administrative remedies in the con-

text of state agency proceedings simply

addresses many of the same concerns

which the various types of abstention

are designed to reach. ee 4 K. Davis,

Administrative Law Treatise § 25:l, at

35@ (1983); see also West v. Bergland,

6l1l F.2d 710, 715-17 (8th Cir. 1979)

(developing factors used in determining

whether to require exhaustion), cert.

denied, 449 U.S. 821 (1980).

To the degree that irreparable harm

also must be shown, see West, 6ll F.2d

at 719-20, MSE alleges such injury in

the form of loss through exhaustion of

the very right--the right to be free of

the state administrative proceeding--it

seeks to protect. The Supreme Court

recognized such a right on similar facts

in Public Utilities Commission v. United

Fuel Gas Co., 317 U.S. 456 (1943), when

an interstate gas supplier sought to

rh

enjoin the enforcement against it of a

state agency order requiring it to prove

the reasonableness of the rates it

charged a customer utility within that

nothing to that point but assert juris-

diction, id. at 465, the Court upheld

the injunction on the ground that the

supplier suffered injury from the enfor-

cement of the order for proof itself and

that the expense of complying with such

orders was among the contingencies

against which Congress sought to guard

in creating exclusive federal jurisdic-

tion. Id. at 469; see also Public

Utilities Commission v. United States,

355 U.S. 534, 540 (1958) ("But where the

Only question is whether it is constitu-

tional to fasten the administrative pro-

cedure onto the litigant, the

administrative agency may be defied and

judicial relief sought as the only

effective way of protecting the asserted

constitutional right."); Panhandle

Eastern Pipe Line Co. v. Public Service

Commission, 332 U.S. 507, 512 (1947)

(state agency order requiring interstate

gas supplier to file certain tariffs,

rules, and regulations was not just a

threat to apply the state regulatory

plan but constituted actual application

of the plan in its initial stages);

cf. Monahan v. Nebraska, 645 F.2d 592,

597 (8th Cir. 1981) (claim that state

procedure itself conflicted with federal

act could not be effectively addressed

by exhausting state procedure).

Here the mere assertion of juris-

diction by the APSC had a negative

impact on MSE's~) ability to obtain

investors and complete its project, thus

Similarly interfering with the exclusive

federal scheme for governing interstate

power transmission and sales. And, as

in United Fuel, we observe that. MSE

raised the preemption question before

the APSC in a motion to dismiss the show

cause order for lack of jurisdiction and

only filed this suit when such motion

was denied. 317 U.S. at 470

(distinguishing Natural Gas Pipeline Co.

v. Slattery, 302 U.S. 300 (1937)). we

thus conclude that neither the failure

of MSE to pursue further state remedies

nor the abstention doctrines of Burford,

Younger, or Pullman make the district

court's resolution of this case an abuse

of discretion. Nor are we convinced

that the district court improperly

determined the need for equitable relief

or the scope of the injunction.

The judgment of the district court

is affirmed.

A true copy.

Attest:

CLERK, U. S. COURT OF

APPEALS, EIGHTH CIRCUIT.

A-62

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

WESTERN DIVISION

MIDDLE SOUTH ENERGY, INC.,

Plaintiff,

and

ARKANSAS POWER & LIGHT COMPANY,

Plaintiff-Intervenor,

Ve No. LR-C-84-778

ARKANSAS PUBLIC SERVICE COMMISSION;

ROBERT E. JOHNSON, COMMISSIONER;

PATRICIA S. QUALLS, COMMISSIONER;

and JAMES W. DANIEL, COMMISSIONER,

Defendants,

and

ATTORNEY GENERAL OF ARKANSAS,

Defendant-Intervenor,

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JUDGMENT

In accordance with the Ccurt's

Memorandum Opinion issued this date,

defendant Arkansas Public Service

Commission is permanently enjoined from

conduction further proceedings in its

docket No. 84-190-U.

This 14 day of September, 1984.

HENRY WOODS, U.S. District Judge

MEMORANDUM OPINION

The complaint was filed in the

above-styled action on August 31, 1984

seeking issuance of an injunction which

would prevent the Arkansas Public

Service Commission from conducting

further proceedings in Docket

No. 84-190-U. A hearing on requested

temporary relief was heard together with

a hearing on the ~wmerits (at the

suggestion of the Arkansas Public

Service Commission and by agreement of

the parties) on September 7, 1984.

Although all parties were given the

opportunity to present evidence, Middle

South Energy, Inc. was the only party

that called a witness. Extensive briefs

have been filed by all concerned, and

the Court is now prepared to enter its

findings of fact and conclusions of law.

FINDINGS OF FACT

l. The Middle South System con-

Sists of a parent holding company,

Middle South Utilities, Inc. ("MSU") and

various subsidiary companies wholly-

owned by MSU. MSU is a hclding company

registered under the Public Utility

Holding Company Act of 1935. MSU's sub-

sidiaries include, among others, four

operating companies, Arkansas Power &

Light Company ("“AP&L"), Louisiana Power

& Light Company ("LP&L"), Mississippi

Power & Light Company ("MP&L"), and New

Orleans Public Service, Inc. ("“NOPSI")

(collectively the “System Companies"), a

generating company, Middle South Energy,

Inc. ("MSE"), and a service company,

Middle South Services, Inc. ("MSS").

2. The System Companies pool their

power. Their systems are intercon-

nected. They coordinate their plans to

achieve economies of scale in the

construction of units to achieve

desirable levels of system reserves.

A-66

These companies buy power from each

other on a more or less regular basis.

Je In early 1974, MSE was created

to finance,’ construct and operate new

base load generating projects to provide

electric power and energy to the System

Companies. The first such project was a

nuclear-powered generating plant known

as the Grand Gulf Project (the

"Project"). In connection with its ini-

tial financing, MSE obtained from these

companies their agreement to purchase

power from the Project, provided MSE

would build it and make power from the

Project available to these companies.

Under this agreement (the

"Availability Agreement,” PX 1-A), the

System Companies agreed, in con-

Sideration of MSE's undertaking to build

A-67

the Project, to pay MSE, beginning on

specified dates, whether or not the two

units of the Project were then

operating, such amounts in addition to

funds received from any other source by

MSE, as would enable MSE to meet its

operating expenses, including interest

on debt and depreciation of its invest-

ment in the plant at a specified rate.

Any payments to be made thereunder by

the System Companies would reduce the

cost of their future power purchases.

4. The Availability Agreement ini-

tially provided that the share of power

taken by each System Company from the

Project would have varied from time to

time relative to the respective needs of

each System Company. (PX 1-A) In 1981

the Availability Agreement was amended

A-68

(PX 1-C) to fix the allocations of power

from the Project to the System Companies

in specific percentages rather than the

variable allocations contemplated by the

Original Availability Agreement. These

fixed percentages were: AP&L - 17.13,

LP&L - 26.9%, MP&L - 31.3%, and NOPSI -

24.7%. In 1980 South Mississippi

Electric Power Association, Inc. agreed

to acquire 10% of the Project. All

percentage allocations herein refer to

percentages of MSE's 90% undivided

ownership interest.

ae Later in 1981 the System

Companies entered into a Reallocation

Agreement (PX 1-E) under which the

System Companies agreed to purchase

power from the Project in the following

percentages:

A-69

Unit No. l Unit No. 2

AP&L 0 0

LP&L 38.57 26.23

MP&L 31.63 43.97

NOPSI 29.80 29.80

6. Since MSE's rights under the

Availability Agreement had been assigned

by it to various financial institutions

in connection with the financing of the

Project, MSE's creditors would not per-

mit MSE to change the specified percen-

tage allocations in the Availability

Agreement to conform with the

Reallocation Agreement.

7. The Availability Agreement has

been essential to the financing of the

Project. Pursuant to a series of ten

agreements entered into between 1977 and

1984, MSE has assigned its rights in the

Availability Agreement to secure indeb-

tedness aggregating in excess of $2.5

billion to finance the construction of

the Project.

8. In 1982, Unit No. 1 was nearing

completion. Pursuant to the require-

ments of the revised Availability

Agreement, MSE entered into an agreement

for the sale of power from the Project.

(PX 1-F) This agreement, the Unit Power

Sales Agreement ("UPSA"), required each

System Company to purchase the shares of

power specified in the Reallocation

Agreement. A&L signed the UPSA but, in

accordance with the terms of the

Reallocation Agreement, did not agree to

purchase any power from the Project.

The UPSA was filed with the FERC in June

of 1982, for approval as a wholesale

power sales agreement in Docket No.

ER82-616-000. The defendants ("“APSC")

have intervened in and are actively par-

ticipating in the FERC proceeding

relating to the UPSA.

9. In February of 1984, the FERC

Administrative Law Judge ("ALJ")

approved, after extensive briefing and

Oral argument, the cost-of-service rate

formula with respect to Unit No. 1 as

proposed in the UPSA in most material

respects. (PX 2) A decision with

respect to Unit No. 2 was deferred

pending completion of the unit. [In his

decision, the ALJ did not accept the

Original allocation contained in the

UPSA and has determined a different

allocation under which the System

Companies would be obligated to purchase

A-72

power from Unit No. 1 in the following

proportions:

AP&L - 36%

LP&L - 14%

MPSL - 33%

NOPSI - 17%

10. On August 1, 1984, the APSC

issued its Order to aopear and show

cause in Docket No. 84-190-U (“August

Order") which directed AP&SL to appear

and:

to show cause why all contracts

and agreements made by it with

respect to any obligations to

purchase power from or to pay

for construction and operation

costs of the Grand Gulf Project

should not be held to be void

| ab initio as a matter of law.

(PX 9)

Ai MSE has heavy financing needs

at the present time, and over the next

few years, to complete Unit No. l, to

refinance maturing long and short term

indebtedness and to resume full

construction of Unit No. 2. To complete

Unit No. 1 MSE must raise approximately

$200 million in capital. Debt maturi-

ties and sinking fund obligations over

the next five years are as follows:

1985, $196.2 million; 1986, $1,/738.2

million; 1987, $146.2 million; 1988,

$196.2 million; and 1989, $162 million:

and MSE's share of Unit No. 2 is pre-

sently projected to cost in excess of

$3.4 billion ($779 million of which has

been invested by MSE in that Unit as of

July 31, 1984). (Px 1)

ae

!

[

CONCLUSIONS OF LAW

iw In 1935 Congress passed the

Federal Power Act, 16 U.S.C. §§ 824

et seq., vesting FERC (then the FPC)

with jurisdiction which extends to:

-..the transmission of electric

energy in interstate commerce

and to the sale of electric

energy at wholesale in inter-

state commerce. § 201(b)(1)

In enacting the Federal Power Act,

Congress intended to vest exclusive

jurisdiction in the FERC (formerly FPC)

to regulate interstate wholesale utility

rates. FPC v. Southern California

Edison Co., 376 U.S. 205 (1964).

a« In the Federal Power Act,

Congress defined electric power

transmitted in interstate commerce as

power which is “transmitted from a State

and consumed at any point’ outside

A-75

thereof," [§ 824(c)] and wholesale sale

as a sale "to any person for reslae"

(§ 824(d)]. All matters other than the

transmission and wholesale sale of

electricity in interstate commerce are

left to state regulation [§ 824(a) and

(b)].

: This Circuit has recognized

that it is often difficult to draw the

distinction between interstate and

intrastate power sales. In an

integrated system of power production,

such as MSU's, this distinction is par-

ticularly difficult. Arkansas Power §&

Light Company Vv. Federal Power

Commission, 368. F.2d 376 (8th Cir.

1966). In this case the subject

agreements are inextricably bound to the

wholesale sale of power in interstate

A-76

commerce, and this court cannot accept

the fine line of distinction which

defendants seek to draw. The Court of

Appeals recently reached a_- similar

conclusion in State of Minnesota, et al

v. Federal Regulatory Commission, et al,

No. 83-1745 (May 15, 1984), and this

decision compels the conclusion I reach

today. See also, Southwestern Bell

Telephone Company v. Arkansas _ Public

Service Commission, et al, No. 84-1488

(8th Cir. June 7, 1984).

4. The Availability Agreement anc

amendments thereto are agreements for

the purchase of wholesale power in

interstate commerce or are so integrally

related to such purchases that they are

subject to the exclusive jurisdiction of

the FERC. The other documents which the

A-77

APSC seek to review and regulate are

essential to the interstate wholesale

Sale of power and therefore are not sub-

ject to state jurisdiction.

- MSE must raise an additional

several billion dollars in the next few

years to pay construction and financing

costs. The ability to raise these funds

is dependent on the enforceability of

the threatened agreements. If the

actions of the APSC are not enjoined,

the cost of capital to MSE will be

raised to the point that the Project is

jeopardized, and the ability of MSE to

provide its multi-state wholesale custo-

mers with power will be irreparably

impaired. Moreover, such actions make

future cooperation among the other sta-

tes for the benefit of the entire Middle

South System a virtual impossibility.

A-78

6. Plaintiff and

Plaintiff-Intervenor are entitled to a

permanent injunction prohibiting the

Arkansas Public Service Commission from

continuing its proceedings in aApsc

Docket No. 84 -190-U.

This 14 day of September, 1984.

HENRY WOODS, U.S. District Judge

A-79

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

WESTERN DIVISION

MIDDLE SOUTH ENERGY, INC.,

Plaintifé,

and

ARKANSAS POWER & LIGHT COMPANY,

Plaintiff-Intervenor,

Vs No. LR-C-84-778

ARKANSAS PUBLIC SERVICE COMMISSION;

ROBERT E. JOHNSON, COMMISSIONER;

PATRICIA S. QUALLS, COMMISSIONER;

and JAMES W. DANIEL, COMMISSIONER,

Defendants,

and

ATTORNEY GENERAL OF ARKANSAS,

Defendant-Intervenor,

and

RATEPAYERS FIGHT BACK,

Defendant-Intervenor.

A-80

ORDER

Defendant Arkansas Pubiic Service

Commission seeks amendment of the

Court's September 14, 1984 judgment and

deletion of paragraph 4 from the

Conclusions of Law supporting such

judgment. In support of its position,

the Arkansas Public Service Commission

submits the affidavit of Dr. Keith Berr

and Mr. Stephen Berkowitz (although

Mr. Berkowitz did not actually sign the

affidavit). Plaintiff and

Plaintiff-Intervenor have moved to

Strike this affidavit since (1) one of

the affiants is not a Signatory,

(2) Rule 59 of the Fed.R.Civ.P. does not

provide for the submission of affida-

vits, and (3) they would be denied their

right to cross-examine these affiants

that could have been called at _ the

hearing of this matter. While the Court

is inclined to agree with the arguments

offered in support of the motion to

strike, a review of the challenged affi-

davit reflects that it basically resta-

tes the position of the Arkansas Public

Service Commission throughout these pro-

ceedings and inclusion of this affidavit

in the record should not prejudice

Plaintiff and Plaintiff-Intervenor.

The Court has reviewed its Findings

of Fact and Conclusions of Law in light

of the affidavit of Dr. Keith Berry and

Mr. Stephen Berkowitz filed in support

of defendant's motion and declines to

alter or amend the judgment or paragraph

4 of the Conclusions of Law. The record

in this case to date, as specifically

A-82

found by this court in its Findings of

Fact, supports the Conclusion reached in

paragraph 4, which the Arkansas Public

Service Commission has challenged, and

therefore the motion to amend judgment

is denied.

Also pending before the Court is

the Arkansas Public Service Commission's

motion to stay enforcement of the

injunction pending appeal. In this

motion the Arkansas Public Service

Commission merely restates many of the

arguments it made in resisting the entry

of an injunction. The maintenance of

the status quo, which the Arkansas

Public Service Commission suggests would

be attained by entry of a stay, would

have the effect of circumventing the

injunction which this court has entered.

2-83

The testimony at the hearing of this

Matter demonstrated that the plaintiff

faced a very real threat of irreparable

harm in its financing efforts of the

nuclear project at issue if the Arkansas

Public Service Commission continued with

proceedings in its Docket No. 84-190-U.

Plaintiff prevailed before this court in

attaining the entry of an injunction,

and in light of the recent cases cited

in this court's September 14, 1984

Order, the plaintiff will likely prevail

On an appeal of this matter. Although

there is substantial public appeal for

the position taken by the Arkansas

Public Service Commission, the con-

Siderations of the public interest do

not tip the equities in favor of a stay

of this court's injunction. To the

A-84

contrary, a stay of the injunction (as

with no entry of an injunction) would

have the likely effect of escalating the

cost of the Grand Gulf project through

increases in the financing of the pro-

ject to the ultimate detriment of the

consuming public.

The Court therefore finds that the

equities do not favor the entry of a

stay of its September 14, 1984 injunc-

tion, and the Arkansas Public Service

Commission's motion seeking the same is

denied.

This ll day of October, 1984.

HENRY WOODS, U.S. District Judge

A-85

ARKANSAS

PUBLIC SERVICE COMMISSION

IN THE MATTER OF AN)

ORDER FOR ARKANSAS )

POWER & LIGHT )

COMPANY TO APPEAR )

AND SHOW CAUSE WHY ) DOCKET NO.

CERTAIN AGREEMENTS ) 84-190-U

SHOULD NOT BE HELD ) ORDER NO.

TO BE VOID AB )

INITIO )

ORDER TO APPEAR AND SHOW CAUSE

By Ark. Stat. Ann. § 73-202 (Repl.

1979), this Commission is given the duty

to supervise and regulate every public

utility (as defined in Act 324 of 1935)

and to do everything necessary or expe-

dient in the exercise of that duty.

Pursuant to Rule 10 of the Commission's

Rules of Practice and Procedure and in

the course of its duty to supervise and

A-86

regulate the public utilities of this

State, the Commission issues this Order

to Appear and Show Cause to Arkansas

Power & Light Company (APS&L).

It has come to the attention of the

Commission that Arkansas Power & Light

Company (AP&L) has, over the course of

the past several years, entered into or

has been otherwise involved in a series

of agreements purporting to establish

rights, obligations, and/or duties for

AP&L with respect to a portion of the

investment and operating costs of the

Grand Gulf Nuclear Generating Units I

and II (the Grand Gulf Project) located

near port Gibson, Mississippi. In addi-

tion, purported rights, duties, and

responsibilities of AP&L with respect to

Grand Gulf have arguably been unlawfully

A-87

impacted by certain agreements among

other parties, including: Middle South

Utilities, Inc. (MSU); Middle South

Energy, Inc. (MSEI); Arkansas-Missouri

Power Company (Ark-Mo); Louisiana Power

& Light Company (LP&L); Mississippi

Power & Light Company (MP&L); and New

Orleans Public Service, Inc. (NOPSI);

and various financial institutions.

Ae Those agreements include, but

are not necessarily iimited to the

following contracts, each of which is

incorporated by express reference as if

set out fully herein word by word.

A. The Availability Agreement

of June 21, 1974 between MSEI, APS&L,

Ark-Mo, LP&L, MP&L, and NOPSI wherein

AP&L agreed to purchase power from the

Grand Gulf Units and to make certain

A-£&8

payments to MSEI pursuant thereto

(according to the capability equaliza-

tion formula under the 1973 System

Agreement), whether or not the units

ever become operational or produce power

at any time.

B. The Bank Loan Agreement of

June 21, 1974, wherein certain banks

severally agreed to make loans to MSEI

in an aggregate amount up to

$308,500,000 in order to finance the

design and construction of the Grand

Gulf Project.

C. The Capital Funds

Agreement of June 21, 1974, between MSU

and MSEI which provides that MSU will

purchase from MSEI 40,000 shares of the

common stock of MSEI and that MSEI will

complete construction of the Grand Gulf

Project and provide power to the

Operating companies pursuant to the

Availability Agreement of June 21, 1974,

and the Systems Agreement of April 16,

A973.

D. The First Amendment of

Bank Loan Agreement of December 29,

1975, wherein the aggregate amount of

loans available to MSEI under the Bank

Loan Agreement was increased to

$353,500,000.

E. The Second Amendment of

Bank Loan Agreement of August 5, 1976,

wherein the aggregate amount of loans

available to MSEI under the Bank Loan

Agreement was increased to $465,000,000.

F. Mortgage and Deed of Trust

dated as of June 15, 1977, (Original

Indenture) between MSEI, United States

A-90

Trust Company of New York, and Malcolm

J. Hood, Trustee.

G. First Supplemental

Indenture dated as of June 15, 1977.

H. The First Amendment to the

Availability Agreement of June 30, 1977,

wherein commencement of commercial

operation of Unit No. 2 of the Grand

Gulf Project was deferred to a date not

later than December 31, 1986.

I. The Amended and Restated

Bank Loan Agreement of June 30, 1977,

under which certain banks made loans to

MSEI in the aggregate principal amount

of $565,000,000.

J. The First Assignment of

Availability Agreement, Consent and

Agreement dated June 30, 1977, wherein

MSEI assigned to the agent of certain

A-91

banks, for the benefit of said banks, as

collateral security for the above loans,

various rights 6f MSEI under the

Availability Agreement.

K. The first Supplementary

Capital Funds Agreement and Assignment

of June 30, 1977, wherein MSU and MSEI

supplemented their undertakings under

the original Capital Funds Agreement.

L. The Second Supplementary

Capital Funds Agreement and Assignment

of June 30, 1977.

M. The Third Supplementary

Capital Funds Agreement and Assignment

of January 1, 1980.

N. Second Supplemental

Indenture dated as of January 1, 1980.

O. The First Amendment to

Amended and Restated Bank Loan Agreement

A-92

dated as of March 20, 1980, which

increased to $800,000,000 the amount of

the loans to be made by said banks to

MSEI.

P. The Fourth Assignment of

Availability Agreement, Consent - and

Agreement dated March 20, 1980, wherein

MSEI's same rights, benefits, terms and

conditions under the original

Availability Agreement were further

assigned as collateral security for the

loans made uncer the Amended = and

Restated Agreement as amended by the

First Bank Loan Amendment.

Q. The Fourth Supplementary

Capital Funds Agreement and Assignment

of March 20, 1980, wherein MSU and MSEI

further supplemented their undertakings

under the Capital Funds Agreement for

A-93

the U. S. Bank Agent and the banks under

the Amended and Restated Agreement as

amended by the First Bank Loan

Amendment.

R. The Second Amendment to

the Availability Agreement dated

June 15, 1981, which allocates 17.1% of

the Grand Gulf Project to AP&L and obli-

gates AP&L to make payments to MSEI

based on this allocation.

Ss. The Second Amended and

Restated Bank Loan Agreement of June 15,

98D, which provided for the making of

revolving credit loans by the banks to

MSEI from time to time in an aggregate

amount not in excess of $1,311,000,000

at any one time outstanding.

T. The Fifth Assignment cf

Availability Agreement, Consent and

A-94

Agreement dated June 15, 1981, wherein

MSEI assigned to the agent of certain

banks, for the benefits of said banks,

in order to create a security interest

for loans made under the Second Amended

and Restated Agreement in favor of the

agent on behalf of the banks, all of

MSEI's rights to receive all monies paid

or to be paid to the MSEI pursuant to

Section 4 of the Availability Agreement.

U. The Fifth Supplementary

Capital Funds Agreement and Assignment

of June 15, 1981, wherein MSU and MSEI

further supplemented their undertakings

under the Capital Funds Agreement for

the U. S. Bank Agent and the banks under

the Second Amended and Restated

Agreement.

A-95

V. The Power Purchase Advance

Payments Agreement of June 15, 1981,

between MSEI and AP&L, LP&L, MP&L, and

NOPSI which provides that if Grand Gulf

I has not been completed by December 3l,

1983, the MSU cperating companies must

begin payments, in accordance with a

fixed percentage rate, to MSEI- on

January 2, 1984, for power to be deli-

vered from Grand Gulf I.

W. Third Supplemental

Indenture dated as of June 15, 1981.

X. The Loan Agreement of

February 5, 1982, in which the aggregate

amount of loans available to MSEI from

certain foreign banks is $315,000,000 at

any one time until the “Term Date:

which shall be the earlier of (1) Decem-

ber 31, 1983, or (2) the date on which

the first until (sic) of the project is

placed in commercial operation.

Y. First Amendment of the

Second Amended and Restated Bank Loan

Agreement of February 5, 1982.

3. The Sixth Supplementary

Capital Funds Agreement and Assignment

of February 5, 1982.

AA. The Sixth Assignment of

Availability Agreement, Consent and

Agreement of February 5, 1982, which

provides for the assignment by MSEI of

MSEI's rights under the Availability

Agreement to the agent of the banks.

BB. First Amendment of Foreign

Bank Loan Agreement dated February 18,

1983.

Co. Second Amendment of the

Second Amended and Restated Bank Loan

Agreement of June 30, 1983.

A-97

DD. Second Amendment of

Foreign Bank Loan Agreement dated

December 30, 1983.

EE. Third Amendment of Second

Amended and Restated Bank Loan Agreement

dated December 30, 1983.

FF. Fourth Supplemental

Indenture dated as of June l, 1984.

GG. Third Amendment of Foreign

Bank tees Agreement dated June 28, 1984.

HH. Fourth Amendment of Second

Amended and Restated Bank Loan Agreement

dated June 28, 1984.

EZ . Third Amendment of the

Availability Agreement dated June 28,

1984.

JJ. First Amendment of the

Power Purchase Advance Payment Agreement

dated June 28, 1984.

98

py

!

a. The construction of the Grand

Gulf Project was and is dependent on

the agreements enumerated above. Those

agreements obligate MSEI to repay the

bank loans that finance the construction

of the generating plants. Additionally,

those agreements obligate AP&L, LP&L,

MP&L and NOPSI to pay MSEI for the

construction and finance costs of the

Grand Gulf Project. Under the

agreements and various amendments

thereto and assignments thereof, if MSEI

defaults on its obligations, the banks

possess all the rights of MSEI to

receive payment directly from the four

Operating subsidiaries of MSU, including

AP&L.

a. Pursuant to Ark. Stat. Ann.

§ 73-253 (Repl. 1979), a public utility

may not “sell, acquire, lease or rent

any public utility plant or property

constituting an operating unit or

system" without the consent and approval

of the APSC. Further, any such transac-

tion made without APSC approval shall be

void.

4. AP&L has never sought nor

received the consent and approval of the

APSC for the agreements purporting to

obligate it to lease a fixed share of

the Grand Gulf Project. When it entered

into such agreements, AP&L may, there-

fore, have violated the provisions of

Ark. Stat. Ann. § 73-253 (Repl. 1979).

- Pursuant to Ark. Stat. Ann.

§ 73-255 (1983 Cum. Supp. to Repl.

1979), a public utility may not

"...issue stock, bonds, notes or other

A-100

evidence of indebtedness payable at

periods or more than thirty-six (36)

months ..." without authorization from

the APSC.

6. The agreements entered into by

AP&L obligating it to assume a fixed

share of the indebtedness of MSEI or the

costs of the Grand Gulf Project may

constitute evidence of indebtedness

under Ark. Stat. Ann. § 73-255, which

provides further that any such indebted-

ness issued without APSC authorization

shall be void.

7. APSL has never sought nor

received the authorization of the APSC

to assume any share of the indebtedness

of MSEI for the costs of the Grand Gulf

Project; when it entered into such

contractual agreements, therefore, AP&L

A-101

may have violated the provisions of Ark.

Stat. Ann. § 73-255 and § 73-238.

8. After reviewing the above-noted

documents and after hearing testimony in

APSC Docket No. 84-040-O0ll, this

Commission concludes that the obliga-

tions purportedly imposed upon AP&L by

some or all of the above agreements

constitute prima facie violations cf

Ark. Stat. Ann. §§ 73-238, 253, and 255

(Repl. 1979). On its face and as a

whole, the entry of AP&L and other par-

ties into the agreements noted above

indicate an intent to violate the

Arkansas statutes designed to provide

protection to the ratepayers of a public

utility from that utility's intemperate

decisions and unlawful actions.

A-102

IT IS, THEREFORE, ORDERED THAT:

Arkansas Power & Light Company

is directed to appear before this

Commission at a hearing scheduled for

Friday, August 31, 1984, at 9:00 A.M.,

in the Hearing Room of the Commission,

First Floor, 1000 Center, Little Rock,

Arkansas, to show cause why all

contracts and agreements made by it with

respect to any obligations to purchase

power from or to pay for construction

and operation costs of the Grand Gulf

Project should not be held to be void

ab initio as a matter of law.

Pursuant to Ark. Stat. Ann. §73-237

(Repl. 1979), the burden of proof in

this proceeding shall be upon AP&L, as

the party seeking to avoid compliance

with the provisions of Act 234 of 1935

A-103

and amendments thereto. If AP&L fails

to meet its burden of proof in this pro-

ceeding, the Commission will take such

actions as are necessary and permissible

under Ark. Stat. Ann. § 73-238 (Repl.

1979) to ensure that AP&L is released

from any obligations or duties imposed

by contracts found to be void and that

its ratepayers are shielded from any

liability on account of its unlawful

contractual arrangements.

BY ORDER OF THE COMMISSION

This lst day of August, 1984.

Dr. Robert E. Jonnston,

Chairman

James W. Daniel, Commissioner

Patricia S. Qualls,

Commissioner

oe . 8. Caust., arck.—i; -3-—&

>

=

Powers of congress. [ l1.] The

congress shall have power

: To regulate commerce with

foreign nations, and among the

several states, and with the Indian

tribes.

Bx Federal Power Act, 16 U.S.C.

§§ 824(a) & (b), 824c(£), 824d(a), and

825q.

§ 824(a) It is declared that the

business of transmitting and

selling electric energy for ulti-

mate distribution to the public is

affected with a public interest,

and that Federal regulation of mat-

ters relating to generation to the

extent provided in this subchapter

and subchapter III of this chapter

and of that part of such business

which consists of the transmission

of electric energy in interstate

commerce and the sale of such

energy at wholesale in interstate

commerce is necessary in the public

interest, such Federal regulation,

however, to extend only to those

Matters which are not subject to

regulation by the States.

A-106

§ 824(b). The provisions of this

subchapter shall apply to the

transmission of electric energy in

interstate commerce and to the sale

of electric energy at wholesale in

interstate commerce, but shall nct

apply to any other sale of electric

energy or deprive a State or State

commission of its lawful authority

now exercised over the exportation

of hydroelectric energy which is

transmitted across a State line.

The Commission shall have jurisdic-

tion over all facilities for such

transmission or sale of electric

energy, but shall not have juris-

diction, except as specifically

provided in this subchapter and

subchapter III of this chapter,

over facilities used for the

generation of electric energy or

over facilities used in local

distribution or only for the

transmission of electric energy in

intrastate commerce, or over faci-

lities for the transmission of

electric energy consumed wholly by

the transmitter.

§ 824c(f). The provisions of this

section shall not extend to a

public utility organized and

operating in a State under the laws

of which its security issues are

regulated by a State commission.

§ 824d(a). Rates and charges;

schedules; suspension of new rates.

(a) All rates and charges made,

demanded, or received by any public

A-107

:

utility for or in connection with

the transmission or sale of

electric energy subject to the

jurisdiction of the Commission, and

all rules and regulations affecting

or pertaining to such rates or

charges shall be just and reaso-

nable, and any such rate or charge

that is not just and reasonalbe is

hereby declared to be unlawful.

§ 825q. Conflict of jurisdiction.

If, with respect to the issue,

sale, or guaranty of a security, or

assumption of obligation or liabi-

lity in respect of a security, the

method of keeping accounts, the

filing of reports, or the acquisi~

tion or disposition of any

security, capital assets, facili-

ties, or any other subject matter,

any person is subject both to a

requirement of sections 79 to 792-6

of Title 15 or of a rule, regula-

tion, or order thereunder and to a

requirement of this chapter or of a

rule, regulation, or order

thereunder, the requirement of sec-

tions 79 to 792-6 of Title 15 shall

apply to such person, and such per-

son shall not be subject to the

requirement of this chapter, or of

any rule, regulation, or order

thereunder, with respect to the

same subject matter, unless the

Securities and Exchange Commission

has exempted such person from such

requirement of sections 79 to 792-6

of Title 15, in which case the

A-108

requirements of this chapter shall

apply to such person.

30 Public Utility Holding Company

iS 0G.8.€. $8 Watb)(1), Wate),

79b(a) (16), 79d(a) and (b), 79gla), (b)

(g), and 79u.

§ 79a. Necessity for control of

holding companies.

(b) Upon the basis of facts

disclosed by the reports of the

Federal Trade Commission made pur-

Suant to S.Res. 83 (Seventieth

Congress, first session), the

reports of the Committee on

Interstate and Foreign Commerce,

House of Representatives, made pur-

Suant to H.Res. 59 (Seventy-second

Congress, first session) and

H.J.Res. 572 (Seventy-second

Congress, second session) and

otherwise disclosed and ascer-

tained, it is declared that the

national public interest, the

interest of investors in the

securities of holding companies and

their subsidiary companies and

affiliates, and the interest of

consumers of electric energy and

natural and manufactured gas, are

Or may be adversely affected --

A-109

(1) - when such investors cannot

obtain the information necessary to

appraise the financial position or

earning power oof the issuers,

because of the absence of uniform

standard accounts; when such

securities are issued without the

approval or consent of the States

having jurisdiction over subsidiary

public-utility companies; ...

(c) When abuses of the character

above enumerated become persistent

and wide-spread the holding company

becomes an agency which unless

regulated, is injurious to

investors, consumers, and the

general public; and it is declared

to be the policy of this chapter,

in accordance with which policy all

the provisions of this chapter

shall be interpreted, to meet the

problems and eliminate the evils as

enumerated in this section, con-

nected with public-utility holding

companies which are engaged in

interstate commerce or in activi-

ties which directly affect or bur-

den interstate commerce; and for

the purpose of effectuating such

policy to compel the simplification

of public-utility holding-company

systems and the elimination

therefrom of properties detrimental

to the proper functioning of such

systems, and to provide as soon as

practicable for the elimination of

public-utility holding companies

except as otherwise expressly pro-

vided in this chapter.

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§ 79b(a)(16). “Security" means any

note, draft, stock, treasury stock,

bond, debenture, certificate of

interest or participation in any

profit-sharing agreement or in any

oil, gas, other mineral royalty or

lease, any collateral-trust cer-

tificate, preorganization cer-

tificate or subscription,

transferable share, investment

contract, voting-trust certificate,

certificate of deposit for a

security, receiver's or trustee's

certificate, or, in sjeneral, any

instrument commonly known as a

"security"; or any certificate of

interest or participation in, tem-

porary or interim certificate for,

receipt for, guaranty of, assump-

tion of liability on, or warrant or

right to subscribe to or purchase,

any of the foregoing.

§ 79£f£(a). Except in accordance

with a declaration effective under

section 79g of this title and with

the order under such section per-

mitting such declaration to become

effective, it shall be unlawful for

any registered holding company or

subsidiary company thereof, by use

of the mails or any means or

instrumentality of interstate com-

merce, or otherwise, directly or

indirectiy (1) to issue or sell any

security of such company; or (2) to

exercise any privilege or right to

alter the priorities, preferences,

voting power, or other rights of

A-111l

the holders of an outstanding

security of such company.

(b)... The Commission by rules and

regulations or order, subject to

such terms and conditions as it

deems appropriate in the public

interest or for the protection of

investors or consumers, shall

exempt from the provisions of sub-

section (a) of this section the

issue or sale of any security by

any subsidiary company of a

registered holding company, if the

issue and sale of such security are

solely for the purpose of financing

the business of such subsidiary

company and have been expressly

authorized by the State commission

of the State in which such sub-

sidiary company is organized and

doing business.

§ 79¢. Declarations by registered

companies in respect to security

transactions.

(a) A registered holding company

or subsidiary company thereof may

file a declaration with the

Commission, regarding any of the

acts enumerated in subsection (a)

of section 79f of this title, in

such form as the Commission may by

rules and regulations prescribe as

necessary or appropriate in the

public interest or for protection

of investors or consumers. Such

declaration shall include

(b) A declaration filed under this

section shall become effective

within such reasonable period of

time after the filing thereof as

the commission shall fix by rules

and regulations or -order, unless

the commission prior to the expira-

tion of such period shall have

issued an order to the declarant to

show cause why such declaration

sould become effective. Within a

reasonable time after an oppor-

tunity for hearing upon an order to

show cause under this subsection,

unless the declarant shall withdraw

its declaration, the Commission

shall enter an order either per-

mitting such declaration to become

effective as filed or amended, or

refusing to permit such declaration

to become effective. Amendments to

a declaration may be made upon such

terms and conditions as the

Commission may prescribe.

(g) If a State commission or State

securities commission, having

jurisdiction over any of the acts

enumerated in subsection (a) of

section 79f of this title, shall

inform the Commission, upon request

by the Commission for an opinion or

otherwise, that State laws appli-

cable to the act in question have

not been complied with, the

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Commission shall not permit a

declaration regarding the act in

question to become effective until

and unless the Commission is

satisfied that such compliance has

been effected.

§ 79u. Effect on other laws.

Nothing in this chapter. shall

affect (1) the jurisdiction of the

Commission under the Securities Act

of 1933, as amended, oor the

Securities Exchange Act of 1934

over any person, security, or

contract, or (2) the rights, obli-

gations, duties, or liabilities of

any person under such Acts; nor

shall anything in this chapter

affect the jurisdiction of any

other commission, board, agency, or

officer of the United States or of

any State or political subdivision

of any State, over any person,

security, or contract, insofar as

such jurisdiction does not conflict

with any provision of this chapter

Or any rule, regulation, or order

thereunder.

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4. Arkansas Statutes Annotated

§§ 73-238, 73-254, and 73-255.

73-238. Contracts in violation of

act void - Cancelation and recoup~

ment. - Any contract made in

violation of this Act, or any

lawful order of the Department

[Commission], shall be void and

subject to cancelation and recoup-

ment by action in any court of com-

petent jurisdiction. Where a

contract is made contrary to the

provisions of this Act, or any

lawful order of the Department

[Commission], the Department

[Commission] may, after notice and

hearing, order the public utility

to take steps within ten [10] days

to recover the funds, or assets

thus illegally loaned or trans-~

ferred, by action in a court of

competent jurisdiction, or to take

such other proceedings as may be

effective to release the public

utility from any such contract.

73-254. Issuance of stocks and

bonds and creation of liens under

supervision of commission. - The

power of public utilities to issue

stocks, stock certificates, bonds,

notes and other evidences of indeb-

tedness, in case of public utili-

ties incorporated under the laws of

this state, and to create liens on

property in this state, in case of

public utilities incorporated under

the laws of any state or foreign

A-115

country, is a special privilege,

the right of supervision, regula-

tion, restriction and control of

which is, and shall continue to be

vested in the state, and such power

shall be exercised as provided by

law and under such rules and regu-

lations as the Department

[Commission] may prescribe.

73-255. Stock or evidence of

indebtedness issued under authority

of commission - Amount of issue and

application of proceeds fixed -

Exception - Limitation on amount of

issue - Accounting for proceeds.

- A public utility may, when

authorized by order of the

Commission, and not otherwise,

issue stock, bonds, notes or other

evidence of indebtedness payable at

periods of more than thirty-six

(36] months after the date thereof

when necessary for the acquisition

of property, the construction,

extension or improvement of its

facilities or the improvement of

its service, or for the discharge

of lawful refunding of its obliga-

tions, or reimbursement of moneys

actually expended from the income

from any source, or for any of such

purposes. The order of the

Commission shall fix the amount of

any such issue and the purposes to

which it or its proceeds are to be

applied. No such public utility

shall, without the consent of the

Commission, apply any such issue or

its proceeds to any purpose not

A-116

specified in the order. Such

public utility may issue notes for

proper corporate purposes and not

in violation of any provision of

this Act, or of any other act,

payable at periods of not more than

thirty-six (36) months, without the

consent of the Commission; but no

such note, in whole or in part,

shall be refunded by any issue of

stock or bonds or by any evidence

of indebtedness, with maturity date

later than thirty-six (36) months

from date of issue, without the

consent of the Commission.

The Commission shall have no

power to authorize the issuance of

stocks, notes, bonds or other evi-

dences of indebtedness of = any

public utility in aggregate amount

at any time exceeding the fair

value of the properties of the

issuer and the reasonable cost of

the issuance and sale of = such

issues. The Commission shall have

‘power to require every public uti-

lity, other than municipalities, to

account for the disposition of the

proceeds of all sales of stocks,

bonds, notes or other evidences of

indebtedness, in such form and

detail as it may deem advisable,

and to establish such rules and

regulations as it may deem

necessary to insure the disposition

of such proceeds for the purpose

specified in its order.

No provision of this Act, and no

deed or act done or performed under

Or in conaection therewith shall be

A-117

construed to obligate the State of

Arkansas to pay or guarantee, in

any manner whatsoever, any stock,

bond, mote or other evidence of

indebtedness, authorized, issued or

executed under the provisions of

this Act.

All securities issued without

the approval of the Commission

shall be void.