Opposition Brief — Ratepayers Fight Back v. Middle South Energy, Inc.

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Supreme Court, U.S.

FilLED

€ 30

No. 85-895 ” ous

In The | CLERK

Supreme Court of the United States |

October Term, 1985

ray

—

RATEPAYERS FIGHT BACK,

Petitioner,

VS.

MIDDLE SCUTH ENERGY, INC.,

ARKANSAS POWER & LIGHT COMPANY,

ARKANSAS PUBLIC SERVICE COMMISSION AND

ATTORNEY GENERAL OF ARKANSAS,

Respondents.

tf).

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

JOINT BRIEF IN OPPOSITION ON BEHALF OF

MIDDLE SOUTH ENERGY, INC. AND ARKANSAS

POWER & LIGHT COMPANY

JERRY D. JACKSON

Jim Guy TucKER

MiTcHeLL, WILLIAMS, SELIG,

Jackson & TUCKER

1000 Savers Federal Building

Little Rock, Arkansas 72201

(501) 376-3151

Counsel for ARKANSAS POWER

& LIGHT ‘OMPANY

MicHaret G. THomMPsON

JEFF BROADWATER

Frmay, Evprencr & CLarK

2000 First Commercial Building

Little Rock, Arkansas 72201

(501) 376-2011

Counsel for MIDDLE SOUTH

ENERGY, INC.

COCKLE LAW BRIEF PRINTING CO., (800) 835-7427 Ext. 333

COPY

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QUESTIONS PRESENTED

1. Does the Arkansas Public Service Commission

share concurrent jurisdiction with the Securities and Ex-

change Commission to regulate contracts pertaining to

the construction and financing of an interstate wholesale

power project and the sale of power therefrom?

2. Can the Federal Energy Regulatory Commission

preempt the jurisdiction of the Arkansas Public Service

Commission to regulate such contracts?

3. Can the Commerce Clause of the United States

Constitution prohibit state regulation of such contracts?

4. Should the courts below have refrained from hear-

ing this case under the abstention doctrine?

5. Did the courts below lack jurisdiction to hear this

case by virtue of the ‘‘well-pleaded complaint’’ rule?

TABLE OF CONTENTS

Questions Presented ........... sciasicalpblhalaiaeasndaaauiasdaaaaavenesstladaeh

Table of Contents ........... NLS RO STAB 8 I Tn

Table of Authorities oe ee ee

Statement of the Case SRUMMER AM GT RTO Te Ae tote

Summary of the Argument

Reasons for Denying the Writ sn shispastbiaiiaaabaeculene Cae

IT.

Til.

IV.

VI.

The Decision Below Does Not Conflict With

The Public Utility Holding Company Act of

) |: a nee Menem RS Fy tl is,

The Decision Below Does Not Miseonstrue

the Federal Power Act IE ig be Poe eR

The Decision Below Does Not Confliet With

Supreme Court Cases Interpreting the Com-

merece Clause ........

The Exercise of Jurisdiction by the Courts

Below Was Not Barred by the Abstention

Doctrine .

The Exercise of Jurisdiction by the Courts

Below Was Not Barred by the Well-Plead-

o Comunt Be 4

This Case Does Not Present A Justiciable

Issue Within the Jurisdiction of the Court .

Conclusion ....... vinta cabsadenaaluaatacn Naat

ill

TABLE OF AUTHORITIES

Page

CASEs:

Armco, Inc. v. Hardesty, — U.S. —, 104 S.Ct. —,

o_o 19

Bacchus Imports, Ltd. v. Dias, 468 U.S. —, 104 S.

Ct. —, 82 L.Ed.2d 200 (1984) ........ = Ee 7, 20

Braniff International, Inc. et al. v. Florida Public

Service Commission, et al., 576 F.2d 1100 (5th

Cap. 1978) .......... a a alors 22

Branti v. Finkel, 445 U.S. 507, 100 S.Ct. 1287, 63

L.Eid.2d 574 (1980) ............................. 7 es An NC oO 18

Citizens Gas Users Association v. Public Utilities

Commission of Ohio, 165 Ohio St. 536, 188 N.E.

2d 383 (1956) ................ «CSN i OE Scania 17

City of Chicago v. Illinois Commerce Commission,

13 1i.2d 607, 150 N.E.2d 776 (1958) ................... 16

Conference of Federal Savings and Loan Assocta-

tions, et al. v. Stem, 604 F.2d 1256 (9th Cir. 1979)... 22

Eastern Edison Company v. Massachusetts De-

partment of Public Utilities, 338 Mass, 292, 446

N.E.2d 684 (1983) Ree |

Edgar v. Mite Corporation, 457 U.S. 624, 102 S.Ct.

RS ES: | ne. SB Ls

Federal Power Commission v. Southern Califor-

nia Edison Company, et al., (the Colton case),

376 U.S. 205, 84 S.Ct. 644, 11 L.Bd.2d 688 (1964) 16

Great Lakes Transmission Company v. Michigan

Public Service Commission, 180 N.W.2d 59

(Mich. Ct.App. 1970) Sh. ae a 13,17

Illinois v. General Electric Company, et al., 685

F.2d 206 (7th Cir. 1962) .......................... ee ed ota

Indiana & Michigan Power Company v. State of

Michigan, 275 N.W.2d 450 (Mich. 1979) ..... 13

TABLE OF AUTHORITIES—Continued

J. Aron € Company v. Mississippi Shipping Com-

pany, Inc., 361 U.S. 115, 80 S.Ct. 212, 4 L.d.2d

ES __, SR renner TICS ae ow Aart A ee

Jersey Central Power & Light Company v. Fed-

eral Power Commission, 319 U.S. 61, 63 S.Ct.

Fg Fk | amen nomen nese

Lawrence County, et al. v. Lead-Deadwood

School District, 469 U.S. —, 83 L.Ed.2d 635, 460

i Tp ee es CI rtenenericdeccctinenes alien

Lewis v. BT Investment Managers, Inc., 447 U.S.

27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980)

Narragansett Electric Company v. Burke, 119

R.I. 559, 381 A.2d 1358 (1977), certiorari de-

nied 485 U.S. 972 .

Natural Gas Pipeline Company of America, et al.

v. Illinois Commerce Commission, 210 N.E.2d

490 (Tll. 1965) ..... ace | Lkiabaimenesaodes )

New England Power Company v. New Hampshire,

et al., 455 U.S. 331, 102 S.Ct. 1096, 71 L.Ed.2d

188 (1982)

New York v. Uplinger, — U.S. —, 104 S.Ct. —, 81

L.Ed.2d 201 (1984) nicsipiliadaiatcelsenhiahiataeasanebeuaisaaimnadatya

North Carolina v. Rice, 404 U.S. 244. 92 S.Ct. 402,

gh), RRR IRU rnc OIE RN TS

Northern Natural Gas Company v. State Corpora-

tion Commission of Kansas, 372 U.S. 84, 83

S.Ct. 646, 9 L.Ed.2d 601 (1963)

Northern States Power Company v. Hagen, 314

N.W.2d 32 (N.D. 1981) ,

Northern States Power Company v. Minnescta

Public Utilities Commission, 344 N.W.2d 37

(Minn. 1984), certiorari denied 82 L.Ed.2d 850

Page

TABLE OF AUTIORITIES—Continued

Page

Owens v. Union Pacific Railroad Company, 319

U.S. 715, 62 S.Ct. 1271, 87 L.Ed. 1683 (19438) 15

Panhandle Eastern Pipe Line Company v. Pub-

lic Utilities Commission of Ohio, 56 Ohio St.

334, 383 N.E.2d 1163 (1978) 0]

People’s Counsel of the District of Columbia ».

District of Columbia Public Service Commis-

ston, 444 A.2d 975 (D.C. App. 1982) 16

Pike ». Bruce Church, 397 U.S. 127, 90 S.Ct. 844,

25 L.Ed.2d 174 (1970) 19, 20

Poe v. Ullman, 367 U.S. 497, 81 S.Ct. 1752, 61

L.Ed.2d 989 (1961) OMA He er tO, Tce elt 22

Public Utilities Commission of Ohio v. United

Fuel Gas Corporation, 317 U.S. 456, 63 S.Ct. 369,

87 L.Ed. 396 (1943) 21

Rice v. Sioux City Memorial Park Cemetery, Inc.,

et al., 349 U.S. 70, 75 S.Ct. 614, 99 L.Ed. 897 (1955) 15

State of North Carolina, ex re! Utilities Commis-

sion v. Southern Bell Telephone and Telegraph

Company, 288 N.C. 201, 217 S.E.2d 548 (1975) ) 9

State of Utah v. Federal Energy Regulatory Com-

mission, 691 F.2d 444 (10th Cir. 1982) 17

Town of Springfield, Vermont, et al. v. McCarren,

et al., 549 F.Supp. 1134 (D. Vt. 1982) 22

United Air Lines, Inc. v. Illinois Commerce Com-

mission, 31 T11.2d 516, 207 N.B.2d 433 (1965) 9

United Air Lines, Inc. v. Nebraska State Railway

Commission, 172 Neb. 784, 112 N.W.2d 414 (1961) 9

United Gas Corporation v. Mississippi Public

Service Commission, 240 Miss. 405, 127 So.2d

tt eae Sackunaietan Reon REALM Re 17

TABLE OF AUTHORITIES—Continued

Page

United Gas Improvement Company v. Securities

and Exchange Commission, 138 F.2d 1010 (8rd

NN; EEE’ sssstscosunssanbineuiaasiaamasinds Aeeeennntabecite . 9g

United States v. Fleischman, 339 U.S. 349, 70 8.Ct.

739, 94 L.Ed. 906 (1950) ...... saietadiaeaiaadiainetineiesiaaien 15

Verrot, et al. v. Oil Transport Company, Inc., et

al., 365 U.S. 768, 81 S.Ct. 911, 6 L.Bd.2d 83 (1961) 24

Western Union Telegraph Company v. Michigan

Public Service Commission, 338 N.W.2d 731

COR Bitte, TRE) icrrsccccsencerhmetetacteeinteiceeiiitnacaaniae 9,14

STATUTES AND CONSTITUTIONAL PROVISIONS:

U.S. Const., Art. L, § 8, Cl. sasioteeiidiageealdiaiaid cements a

See, Coe Be Te ccussesneneiandnienenntnneiiaemmaniaian 22

Federal Power Act, 16 U.S.C. § 824(e), eb seq. on. 10

Natural Gas Act, 15 U.S.C, § 717, et seq... andy sae

Public Utility Holding Company Act of 1930,

15 U.S.C.

§ 7T9a(a) ace euiniaiinaiieomnea ae

§79a(b) .... ace naioliane ‘i 9

Rie .___ssnsinwisieionmsinnsaieieadionnsdananieiniiaennamee 9

el) staaeandiessndanindiaa imiaea 10, 11

STDC D wetnierenemnnmmemaniiih snllehinciisianlaabineiainidic aan

FOE ceteccterqnneeititennnnionnans an

i ee scncigieerniieliganssnaaeneniaomadia ices: ae

Vil

TABLE OF AUTHORITIES—Continued

Page

§ 79L . aaa l

§ 79M 11

§ 79u aiemelenadial ae

Securities Act of 1933,

15 U.S.C. § 77a, et seq. ~

MISCELLANEOUS:

Re Arkansas Power & Light Company, Arkansas

Public Service Commission, Docket No. 84-040-

OIL, Order No. 1 (March 12, 1984) 4

Re Arkansas Power & Light Company, Arkansas

Public Service Commission, Docket No, 84-041-

OIT, Order No. 1 (March 12, 1984) 4

Re Arkansas Power &€ Light Company, Arkansas

Public Service Commission, Docket No. 84-190-

U, Order No. 1 (August 1, 1984) 4, 23

Re Arkansas Power & Light Company, Arkansas

Publie Service Commission, Docket No, 84-190-

U, Order No. 5 (September 20, 1985) O33

Re Arkansas Power & Light Company, Arkansas

Public Service Commission, Docket No. 84-249-

U, Order No. 26 (September 9, 1985) 6

Black’s Law Dictionary, (Rev. 4th Ed. 1968) | 13

Re Middle South Energy, Inc., Federal Energy

Regulatory Commission, Case No. ERS82-616-

000, Initial Decision (February 3, 1984) 3

Re Middle South Energy, Inc., Federal Energy

Regulatory Commission, Case No. ERS82-616-

000, Opinion No. 234 (June 13, 1985) 3

Re Middle South Eneray, Inc., Securities Ex-

change Commission, Files Nos. 70-6906, 70-721

and 70-7026, Release No, 23579 (January 23, 1985) 12

Rules of the United States Supreme Court, Rule 17 .14, 15

Webster’s New Collegiate Dictionary (1981) 13

STATEMENT OF THE CASE

In order that the Court may have a proper under-

standing of the issues involved in this case, petitioner's

statement of the case must be supplemented to review

briefly the events which culminated in this litigation and

which have transpired since the Eighth Cireuit entered its

decision herein. In the late 1900's, Middle South Utilities,

Inc. (*“*MSU’’)!' determined that a need existed in its serv

ice area for additional generating capacity. To meet this

need, the decision was made to build the Grand Gulf Proj-

ect, a nuclear generating facility near Port Gibson, Mis-

sissippi. To facilitate the financing of the Grand Gulf

Project (*‘Grand Gulf’’ or the ‘‘Project’’), MSU created

a wholly-owned subsidiary, Middle South Energy, Ine.

(**MSE*’) to own and finance construction of the Project.

In 1974, shortly after its creation, MSE entered into a

contract for the sale of Grand Gulf power (the “ Availabil-

ity Agreement’’) with the operating subsidiaries of MSU,

namely Arkansas Power & Light Company (‘‘AP&L"’),

Louisiana Power & Light Company (‘*LP&L*’), Missis

sippi Power & Light Company (‘‘MP&L’’) and New Or.

leans Public Service, Inc. (“*‘NOPSI’’). Appendix to

Brief in Opposition, Part A. The Availability Agreement

was used by MSE, but not by AP&L or the other operating

companies, as collateral for a Bank Loan Agreement with

various financial institutions. MSE assigned its rights un

IThe following disclosure is made pursuant to Rule 28.1

of the Supreme Court Rules. Arkansas Power & Light Company

and Middle South Energy, Inc. are subsidiaries of MSU. Other

corporations in the MSU system include, Associated Natural Gas

Company, Arklahoma, Electric, Inc., Louisiana Power & Light

Company, Mississippi Power & Light Company, New Orleans

Public Service, Inc., Middle South Services, Inc. and Systems

Fuel, Inc.

der the Availability Agreement to its creditors, with the

consent of the operating companies. Middle South En-

ergy, Inc., et al. v. Arkansas Public Service Commission,

593 F.Supp. 363, 364-65 (E.D. Ark. 1984). The assign-

ments did not enlarge or otherwise alter the power pur-

chase obligations of the operating companies.

The Arkansas Public Service Commission (the

‘A PSC” or “Commission’’) was notified of the execution

of the Availability Agreement but made no objection there-

to. The Availability Agreement, as a transaction between

public utilities registered under the Publie Utility Holding

Company Act of 1935 and not as an issuance of securities as

contended by the petitioner, was reviewed by the Securities

and Exchange Commission (the ‘‘SEC’’). The APSC did

not participate in that review. Appendix to Brief in Op-

position, Part B.

The original Availability Agreement did not specify

the exact percentages of power to be purchased from the

Project by the operating companies. In 1981, the Avail-

ability Agreement was amended to allocate specific per-

centages as follows: AP&H, 17.1% ; LP&L, 26.9% ; MP&L,

31.3%: and NOPST, 24.7%. The 1981 amendment also

provided that the sale of power from Grand Gulf could be

made pursuant to a subsequent power purchase agreement

which could provide for an allocation of power on a differ-

ent basis than that set forth in the Availability Agreement.

Later in 1981, a Reallocation Agreement was negotiated

which superseded the 1981 amendment to the Availability

Agreement and which allocated no power to AP&L, while

allocating greater shares thereof to LP&L, MP&L, and

NOPSI. Middle South Energy, Inc. v. Arkansas Public

Service Commission, supra, at p. 365. The Reallocation

Agreement was subsequently reviewed by the SEC as an

agreement between public utilities in a proceeding in which

the APSC did not participate. Appendix to Brief in Op-

position, Part B.

Although the Availability Agreement, the 1981 amend-

ment thereto and the Reallocation Agreement addressed

the sale of power from Grand Gulf, those agreements were

never submitted to the Federal Energy Regulatory Com-

mission (hereinafter ‘‘FERC’’) for its approval because,

when they were executed, the commercial operation of

Grand Gulf was a number of years away. In 1982, with

Unit No. One of the Project nearing completion, MSE filed

with the FERC a Unit Power Sales Agreement (the

‘“‘UPSA’’), a rate schedule for the sale of Grand Gulf

power. Consistent with the Reallocation Agreement, the

UPSA placed no responsibility to purchase power from

Grand Gulf on AP&L. The UPSA was assigned to FERC

Decket No. ER82-616-000. Because of the relatively high

initial costs of Grand Gulf power, parties from Arkansas,

Louisiana, Mississippi and Missouri intervened in the

FERC proceeding and sought to minimize the amounts of

power to be allocated to their respective states. Specifical-

ly, the APSC intervened in FERC Docket No. ER82-616-

000 to oppose the allocation of any Grand Gulf costs to

Arkansas. See generally, Middle South Energy, Inc., et al.

v. Arkansas Public Service Commission, et al., 772 F.2d

404, 408-9 (8th Cir. 1985).

On February 3, 1984, the presiding Administrative

Law Judge in Docket No. ERS82-616-000, the Honorable

Ernst Liebman, issued an Initial Decision modifying the

UPSA by assigning 36% of the costs of Grand Gulf power

to AP&L, and by reducing the allocations received by the

other operating companies. The various Arkansas parties,

including the APSC, appealed the Initial Decision to the

FERC. Appendix to Memorandum of APSC, Exhibit C,

p. 6.

On March 12, 1984, while appeals of the Initial Deci-

sion were pending, the APSC opened two dockets, Nos.

84-040-0iI and 84-041-0II, to ‘‘investigate’’ the Grand Gulf

Project. Appendix to Brief in Opposition, Parts C and D.

In Order No. 1 in the latter docket, after stating that the

Initial Decision could raise AP&L’s rates by $310 million

in 1985 alone, the Commission said:

This investigation, however, will look forward to

ascertain what the ratepayers of AP&L, AP&L itself,

the Commission, the Governor, and the Genera! As-

sembly 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 to pay

for a power generating plant... . Appendia to Brief

in Opposition, Part D.

Meanwhile, the APSC intervened before the SEC in

an attempt to block the approval of MSE financing which

was necessary to complete the Project. Jd., at Part B.

Subsequently, on August 1, 1984, following hearings in

APSC Docket No. 84-040-0II, the Commission issued a

show cause order commanding 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 operating costs of the

Grand Gulf Project should not be held void ab initio

as a matter of law. Docket No. 84-190-U, Order No. 1

(August 1, 1984). As quoted in Middle South Energy,

Inc., et al. v. Arkansas Public Service Commission, et

al, 593 F.Supp. 363, p. 366.

MSH, a party to certain of these contracts, filed suit

on Augsut 31, 1984, to enjoin any further action by the

APSC in its show cause proceeding. On September 14,

1984, the District Court enjoined the APSC’s efforts to

nullify the Grand Gulf contracts as an impermissible in-

fringement upon the exclusive jurisdiction of the FERC.

Id. A panel of the EKighth Cireuit Court of Appeals, on

August 23, 1985, upheld the result reached by the District

Court but, rather than deciding the qrestion of federal

preemption, held that the actions of the APSC violated

the Commerce Clause.

In November of 1984, while appeals of Judge Lieb-

man’s Initial Decision and the District Court’s judgment

were still pending, AP&L filed with the APSC an appli-

cation seeking to recover in its retail rates any Grand

Gulf costs which might ultimately be imposed upon it by

the FERC. In accordance with state law, the Commission

suspended AP&L’s application. In 1985, the APSC com-

menced hearings in the AP&L rate case, one of the issues

in which was whether AP&L could recover some or all of

its share of the costs of Grand Gulf power. See generally,

Appendix to Memorandum of APSC, Part C.

On June 13, 1985, the FERC, in Opinion No. 254, ap-

proved the allocation of Grand Gulf costs as established

in the Initial Decision, effective as of the date when Grand

Gulf began commercial operation, July 1, 1985. The APSC

had not, however, as of that date approved rates for AP&lI.

which would have allowed it to pass through its retail cus-

tomers its share of Grand Gulf costs, which amounted to

approximately $1 million a day. On August 13, 1985,

AP&I, filed suit in the District Court in Arkansas Power

& Light Company v. Arkansas Public Service Commission,

et al., U.S. Dist. Ct., E.D. Ark., Case No. LR-C-85-571,

seeking an order compelling the APSC to allow it to re-

cover its Grand Gulf costs in its retail rates. Appendix

to Memorandum of APSC, Exhibit C, p. 17.

While AP&L’s lawsuit was pending, the Kighth Cir-

cuit Court of Appeals entered its decision affirming the

District Court’s decision in the present case. Thereafter,

on September 5, 1985, AP&L, the Commission Staff, the

Attorney General of Arkansas, the Southern Cotton Gin-

ners Association, Arkansas Electric Energy Consumers

and Reynolds Metals Company, representing all the par-

ties to the AP&L rate proceeding, entered into a Stipula-

tion and Settlement Agreement pursuant to which AP&L

agreed to absorb some of its Grand Gulf costs and to defer

collection of a portion of other such costs, with rates de-

signed to collect the remaining costs to take effect immedi-

ately. As part of the Stipulation and Settlement Agree-

ment, the parties thereto agreed to terminate all pending

litigation involving the Grand Gulf controversy, except for

their appeals of FERC Opinion No. 234. Appendix to

Memerandum of APSC, Exhibit B.

On September 9, 1985, the APSC issued its Order No.

26 in Docket No. 84-249-U, which approved the Stipulation

and Settlement Agreement. Consistent with the settle-

ment, AP&L dismissed its pending federal lawsuit against

the APSC and the Commission withdrew its petition for

rehearing before the Eighth Cireuit in the case at bar. 7d.

at Exhibit C. Pursuant to the settlement, AP&L currently

has in effect retail rates, approved by the APSC, which

allow it to recover a portion of the costs it is presently in-

eurring under FERC Opinion No. 234.

SUMMARY OF THE ARGUMENT

I. THE DECISION BELOW DOES NOT CONFLICT

WITH THE PUBLIC UTILITY HOLDING COM-

PANY ACT OF 1935.

The court below correctly found that the Publie Utility

Holding Company Act of 1935 did not confer on the states

the power to unduly restrict the wholesale sale of electric

power in interstate commerce.

II. THE DECISION BELOW DOES NOT MISCON-

STRUE THE FEDERAL POWER ACT.

The Eighth Circuit did not reach the question of state

jurisdiction under the Federal Power Act and its opinion

does not raise a substantive federal question in regards

thereto. The District Court correctly found that the APSC

eould not interfere with the FERC’s jurisdiction over

wholesale sales of electric power in interstate commerce.

III. THE DECISION BELOW DOES NOT CONFLICT

WITH SUPREME COURT CASES INTERPRETING

THE COMMERCE CLAUSE.

The Court of Appeals, based upon a finding that the

actions of the APSC represented simple economic protec-

tionism, properly upheld the District Court, consistent with

Bacchus Imports, Ltd. v. Dias, 468 U.S. —, 104 S.Ct. —,

82 L.Ed.2d 200 (1984) and other decisions of this Court.

IV. THE EXERCISE OF JURISDICTION BY THE

COURTS BELOW WAS NOT BARRED BY THE

ABSTENTION DOCTRINE.

The lower courts correctly exercised jurisdiction to

enjoin ultra vires state action which infringed upon the

exclusive jurisdiction of the FERC and which unduly re-

stricted interstate commerce.

V. THE EXERCISE OF JURISDICTION BY THE

COURTS BELOW WAS NOT BARRED BY THE

WELL-PLEADED COMPLAINT RULE.

The well-pleaded complaint rule is inapplicable to the

ease at bar under Lawrence County, et al. v. Lead-Dead-

wood School District, 469 U.S. —, 83 L.Ed.2d 635, 460 n. 6,

105 S.Ct. — (1985).

VI. THE CASE DOES NOT PRESENT A JUSTICIABLE

ISSUE WITHIN THE JURISDICTION OF THE

COURT.

In light of the Stipulation and Settlement Agreement

among the parties to AP&L’s retail rate case, in which the

APSC agreed to terminate the show cause proceeding at

issue herein, this appeal is moot.

ray

REASONS FOR DENYING THE WRIT

I. THE DECISION BELOW DOES NOT CONFLICT

WITH THE PUBLIC UTILITY HOLDING COM-

PANY ACT OF 1935.

As its first ground for a writ of certiorari, the peti-

tioner postulates a conflict with the decision of the Eighth

Cireuit, which struck down the APSC’s show cause order

on Commerce Clause grounds, and the requirements of the

Publie Utility Holding Company Act of 1935 (‘*‘PUHCA’’).

According to the petitioner, the decision below is incon-

sistent with the system of concurrent state and federal reg-

ulation of public utility securities which has developed

under PUHCA.

The petitioner misconstrues the nature of concurrent

jurisdiction as defined by the recent decisions of this

Court. For example, in Edgar v. Mite Corporation, 457

U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982), the Court

held that an Illinois statute regulating corporate takeovers

was invalid as a burden on interstate commerce after finding

that the concurrent jurisdiction enjoyed by the state of

Illinois to regulate securities under the Securities Act of

1933 did not insulate the state from the restrictions placed

on it by the Commerce Clause. As the Edgar case demon-

strates, concurrent jurisdiction simply means that federal

regulation in a given area will not invariably preempt

state regulation in that area; it does not mean that the

states are free to ignore constitutional! limiations on their

power.2. There is no reason to believe that the states’

concurrent jurisdiction under PUHCA is any broader than

their jurisdiction under the Securities Act for purposes of

reviewing state action under the Commerce Clause.

Congress could, of course, grant to the states regula-

tory authority that the Commerce Clause would otherwise

deny them but, with regard to the regulation of utility

securities, this was not done. The petitioner attempts to

read into PUHCA Sections 1(b) and (c), which deery the

evils of unregulated holding companies, a broad grant of

power to the states. See, 15 U.S.C. §§ 79a (b)-(e). The

effort is unsuccessful, These sections are best seen merely

as declarations of Congressional policy, not as a delinia-

tion of regulatory authority. See, United Gas Improve-

ment Company v. Securities and Exchange Commission,

138 F.2d 1010. 1022 (3rd Cir. 1943) (interpreting 15 U.S.C.

§79a(c)). More importantly, Section 1(a) itself states the

Congressional finding that holding companies and public

utilities, because their activities extend ‘‘over many states

are not susceptible to effective control by any state.’’ 15

2The point is well illustrated by the state cases striking down

on Commerce Clause grounds state efforts to regulate security

issues by multi-state utilities and carriers, despite the obvious

presence of concurrent jurisdiction in the absence of undue

restrictions on interstate commerce. See, United Air Lines, Inc.

v. Illinois Commerce Commission, 31 II1.2d 516, 207 N.E.2d 433

(1965); United Air Lines, Inc. v. Nebraska State Railway Com-

mission, 172 Neb. 784, 112 N.W.2d 414 (1961); State of North

Carolina, ex rel Utilities Commission v. Southern Bell Telephone

and Telegraph Company, 288 N.C. 201, 217 N.E.2d 543 (1975);

Panhandle Eastern Pine Line Company v. Public Utilities Com-

mission of Ohio, 56 Ohio St. 334, 383 N.E.2d 1163 (1978); Wes-

tern Union Telegraph Company v. Michigan Public Service

Commission, 338 N.W.2d 731 (Mich.App. 1983).

U.S.C. §79a(a). In light of this language, the immedi-

ately subsequent Sections 1(b) and (c) cannot reasonably

be interpreted as evidence of a Congressional intent to

grant to the states unfettered discretion to regulate what-

ever the state authorities might claim to be a ‘‘security.’’

The petitioner also points to Section 7(g), which pro-

vides that an issuer must comply with state law before a

declaration to sell securities under PUHCA may become

effective, as another source of state authority to regulate

interstate security issues without regard to the Commerce

Clause. See, 15 U.S.C. § 79g(g). This argument incor-

rectly assumes that the agreements in question are ‘‘se-

eurities’’. See, 15 U.S.C. § 79b(a) (16). The show cause

order itself focuses on the agreements as purchase power

contracts; AP&L was ordered 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.”’

See, Statement of Case. At the hearing before the Dis-

trict Court neither the Commission nor the petitioner pre-

sented any evidence that the agreements in question were

securities The District Court itself found that:

The Availability Agreement and amendments thereto

are agreements for the purchase of power in inter-

state commerce or are so integrally related to such

purchases that they are subject to the exclusive juris-

diction of the FERC. The other documents which the

3The APSC’s order never addressed the question of whether

the Grand Gulf contracts were securities under federal law,

and as to their status under state law, said only that they “may

constitute evidences of indebtedness. . . .’”. Appendix to Petition

for Certiorari, A-101.

APSC seeks to review and regulate are essential to

the interstate wholesale of power and therefore are

not subject to state jurisdiction. Middle South Ener-

gy, Inc., et al. v. Arkansas Public Service Commis-

sion, et al., 593 F.Supp. 366.

The petitioner’s argument that the subject agreements

are ‘‘securities’’ is based not on evidence in the record

but largely on the fact that they were filed with the SEC.

This argument incorrectly assumes that SEC jurisdiction

is limited to the regulation of securities. In fact, SEC

jurisdiction under PUHCA extends to a wide range of

transactions between affiliated utility companies. For

example, Section 13 of PUHCA gives the SEC authority

over “any service, sales or construction contract” between

affiliated members of a registered public utility holding

company. 15 U.S.C. § 79m. Contracts of this type are

obviously not securities, but they must be filed with and

approved by the SEC. Compare, 15 U.S.C. § 79b(a) (16)

(defining “seeurity”) with 15 U.S.C. §79(a)(19) (defin-

ing “service contract”), 15 U.S.C. § 79b(a) (20) (defining

‘‘sales contract’’?) and 15 U.S.C. § 79b(a)(21) (defining

‘‘construction contract’’). In a similar vein, Section 12 of

PUHCA vests the SEC with jurisdiction over various

financial dealings between the affiliates of a registered

publie utility holding company. 15 U.S.C. § 79L.

In arguing that Section 7(g) conferred on the APSC

jurisdiction to regulate the Grand Gulf contracts, the pe-

| titioner would lead this Court to believe that the Avail-

| ability Agreement, the amendments to it, MSE’s assign-

ments of it, and the operating companies’ consent to those

assignments, were filed with the SEC under Sections 6

and 7 of PUHCA (which regulate security issues) since

| el

only a filing under those provisions would require com-

plianece with state law under Section 7(g). 15 U.S.C.

§§ 79f-79g. In reality, the Availability Agreement was

filed with and approved by the SEC under Section 12(b),

not Sections 6 or 7.

The SEC addressed this precise issue in Re Middle

South Utilities, Inc., SEC File Nos. 70-6906, 70-7021 and

70-7026, in which the APSC intervened before the SEC

in an effort to block the sale of securities intended to help

finance completion of the Project. The APSC argued

that the transactions should not be allowed since it hav

never approved the contracts subject to its show cause

order. The APSC argued to the SEC that the indemnity

provisions of the Availability Agreement might be an

’

“evidence of indebtedness” under Arkansas law, or, in

other words, a security. The SEC expressly refused to

decide whether the indemnity provisions could be con-

sidered securities.* The SEC did, however, find that the

availability Agreement had been filed under Section 12(b),

which did not confer on the APSC the jurisdiction it was

claiming. The SEC also found that MSE’s assignments

of its rights under the Availability Agreement were not

securities. “[T]he assignment of the availability agree-

ment in connection with the bond issuances does not con-

stitute an issuance or sale by APL of a security and there-

fore does not grant the Arkansas Commission the type

of jurisdiction prerequisite to Section 79(g).’’ The SEC

made a similar finding regarding the consents by AP&L to

the assignments. In short, the SEC itself has rejected the

position now advanced by the petitioner with regard to the

‘The SEC found that the indemnity provisions were irrele-

vant to the proposed stock sale under consideration.

assignments of the Availability Agreement and the con-

sents thereto.

The first question posed by the petitioner—whether

PUHCA would permit state regulation otherwise prohib-

ited by the Commerce Clause—is best answered by Section

21, which states that nothing in the act shall “affect” the

jurisdiction of any state commission over any security or

contract, insofar as the exercise of such jurisdiction does

not conflict with the act. 15 U.S.C. §79u. Seetion 21 is

a “saving” clause intended to protect the states from pre-

emption, but not, as the petitioner argues, to authorize

otherwise unconstitutional action. The critical word in

Section 21 is “affect,” a term Congress would not likely

have used to confer additional power on the states. “Af-

fect” can mean “to act upon; influence; change; enlarge

or abridge.” Black's Law Dictionary (Rev. 4th Ed. 1968)

p. 79. “Affect” may also mean “to produce an effect upon.”

Webster’s New Collegiate Dictionary (1981) p. 19. Given

the ordinary usage of the word “affect,” Section 21 cannot

be seen as a grant of power to the states.

In summary, the conclusion reached by the Eighth

Circuit is entirely consistent with this Court’s decision in

Edgar v. Mite Corporation, supra, and the state cases cited

in footnote two hereof. No error or confliet with other

appellate decisions exists which would justify certiorari

herein.®

‘The one case cited by the petitioner as upholding state

regulation, Indiana & Michigan Power Company v. State of

Michigan, 275 N.W.2d 450 (Mich. 1979), involved intrastate trans-

actions surrounding the construction of an in-state plant and

is distinguishable. Note the result reached by the Michigan

courts in cases involving multi-state operations, Great Lakes

Transmission Company v. Michigan Public Service Commission,

(Continued on following page)

—————

Il. THE DECISION BELOW DOES NOT MISCON-

STRUE THE FEDERAL POWER ACT.

A. The Eighth Circuit Did Not Address The Is-

sue Of Federal Preemption Under The Fed-

eral Power Act.

‘The petitioner’s second ground for a writ of certiorari

—that the Eighth Cirenit wrongly interpreted the Federal

Power Act to preempt the APSC’s nullification of the

Grand Gulf contracts—-is wholly without merit, since the

court did not even decide that issue. Although the District

Court held that the APSC had been preempted, the Eighth

Cireuit upheld the trial court’s injunction on other grounds.

On the question of preemption, the Eighth Cireuit said

that:

We are not convinced that the district court improp-

erly based its decision on preemption grounds. Never-

the less, we choose not to address the difficult question

of whether the authority denied them under the Fed-

eral Power Act may be granted to them by the Hold-

ing Company Act. .. . [Emphasis added.] Middle

South Energy, Inc., et al. v. Arkansas Public Service

Commission, et al., 722 F.2d 404.

implicit in Rule 17.1 of the Supreme Court Rules,

which addresses the considerations governing review on

certiorari, is the assumption that the lower court reached a

decision on the question for which review is sought. In

view of the Court’s customary refusal to decide questions

(Continued from previous page)

180 N.W.2d 59 (Mich. Ct.App. 1970) and Western Union Tele

graph Company v. Michigan Public Service Commission, supra

Note also that the transactions involved in Indiana and Michigan

Power Company v. Michigan Public Service Commission, supra

were beyond question securities, while in the present case, it

has merely been alleged that the Grand Gulf contracts might be

securities. Most importantly, the Michigan Supreme Court did

not hold that PUHCA permitted state regulation which would

otherwise be unconstitutional.

not addressed by the Courts of Appeals, an issue not deter-

mined by the Eighth Circuit should not warrant review on

certiorari. See, United States v. Fleischman, 339 U.S. 349.

70 S.Ct. 739, 94 L.Ed. 906 (1950): Owens v. Union Pacific

Railroad Company, 319 U.S. 715, 63 S.Ct. 1271, 87 L.Ee.

1683 (1943). See also, New York v. Uplinger, — U.S. —.

104 S.Ct. —, 81 L.Ed.2d 201 (1984) (dismissing writ as

improvidently granted where constitutional issue pre-

sented was ‘‘uncertain’’), At the very least, a successful

petitioner should be required to show that if the question

for which review is sought was not decided by the ap-

peals court, a different result might have been reached had

that issue been addressed. Otherwise review becomes a

purely academic and irregular exercise, since the ‘‘Court

does not sit to satisfy a scholarly interest in such issues.”’

Rice v, Sioux City Memorial Park Cemetery, Inc., et al.

349 US. 70, 74, 75 S.Ct. 614, 99 L. Fd. 897 (1955).

In the posture of this case, the issue of federal pre.

emption cannot satisfy the test of simple relevance, much

less the requirement under Rule 17 that a ‘‘special and

important’’ federal question be presented, Not only did

the Eighth Cireuit net address the question of federal pre-

emption, resolution of that issue was not necessary to af-

firm the decision of the District Court. Only if this Court

were prepared to reverse the Fighth Cireuit’s holding that

the actions of the APSC violated the Commerce Clause,

would the question of federal preemption become relevant

to the outcome of this case. Standing alone, the issue of

preemption does not justify further review in this case.

B. The District Court Correctly Found That The

APSC’s Show Cause Order Was Preempted

By The Federal Power Act.

The petitioner concedes, but dismisses as irrelevant,

federal preemption under the Federal Power Act of state

authority over wholesale power sales in interstate com-

merce. The petitioner also apparently concedes that the

effect of the Federal Power Act was ‘‘to draw a bright

line easily ascertained, between state and federal jurisdic-

tion over’’ retail and wholesale electric rates. Federal

Power Commission v. Southern California Edison Com-

pany, et al., (the Colton ease), 376 U.S. 205, 84 S.Ct. 644,

11 L.Ed 2d 688 (1964). In seeking to overturn the decision

of the District Court, the petitioner attempts to defend the

APSC’s show cause order as an exercise of state jurisdic-

tion over securities, which is usually allowed. See, 16

U.S.C. 824(c). See also, Jersey Central Power & Light

Company v. Federal Power Commission, 319 U.S. 61, 63

S.Ct. 953, 87 L.Ed 1258 (1943). |

Despite the characterization given to the APSC’s or-

der by the petitioner, both lower courts recognized that

this case involves the allocation of the cost of whole-

sale power sold in interstate commerce, not the intrastate

regulation of securities. The Court need not, however,

address the complex issue of the precise nature of the

Grand Gulf contracts, for even when a state acts in an

area in which it generally has jurisdiction, it may not act

in a way which frustrates federal regulation.

Although no one would deny that the states retain the

jurisdiction to regulate retail rates, few would argue to-

day that such jurisdiction could be used to frustrate an

FERC order by refusing to allow a utility to recover in its

retail rates FERC-imposed wholesale expenses. See, Nar-

ragansett Electric Company v. Burke, 119 R.I. 559, 381

A.2d 1358 (1977), certiorari denied 435 U.S. 972° Like-

6See also, People’s Counsel of the District of Columbia v.

Public Service Commission, 444 A.2d 975 (D.C. App. 1982);

City of Chicago v. Illinois Commerce Commission, 13 Il.2d

(Continued on following page)

wise, state jurisdiction over generating facilities ought not

to be used to disrupt federal regulation of the wholesale

power market. State of Utah v. Federal Energy Regula-

tory Commission, 691 F.2d 444 (10th Cir. 1982). And

despite the allegations of the petitioner, state jurisdiction

over securities cannot be used to frustrate federal regula-

tion. Natural Gas Pipeline Company of America, et al. v.

Illinois Commerce Commission, 210 N.E.2d 490 (Ill. 1965) ;

Great Lakes Transmission Company v. Michigan Public

Service Commission, supra.’ As this Court made clear in

Northern Natural Gas Company v. State Corporation

Commission of Kansas, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d

601 (1963), which struck down a state order compelling the

pro rata taking of natural gas from wells, but which did

not attempt to control prices directly, state action which

even indirectly interferes with federal regulation is for-

bidden.

A finding of preemption in the case at bar hinges on

the practical effect which the APSC’s show cause order, if

(Continued from previous page)

607, 150 N.E.2d 776 (1958); Eastern Edison Company v. De-

partment of Public Utilities, 338 Mass. 292, 446 N.E.2d 684

(1983); Northern States Powe; Company v. Minnesota Public

Utilities Commission, 344 N.W.2d 374 (Minn. 1984), certiorari

denied 82 L.Ed. 2d 850; United Gas Corporation v. Mississippi

Public Service Commission, 240 Miss. 405, 127 So.2d 404 (1961);

Northern States Power Company v. Hagen, 314 N.W.2d 32 (N.D.

1981): Citizens Gas Users Association v. Public Utilities Com-

mission, 165 Ohio St. 536, 138 N.E.2d 383 (1956).

7The petitioner’s attempts to distinguish these cases on the

basis that they arose under the Natural Gas Act, which gives

the FERC jurisdiction over security issues by interstate natural

gas pipelines, while no similar provisions exist with respect to

electric utilities under the Federal Power Act. But the principle

for which these cases stand, as the previously cited decisions

show, is not unique to the Natural Gas Acct.

not enjoined, would have had on Judge Liebman’s order,

which is essentially a factual question. Both the District

Court and the Court of Appeals recognized that the Initial

Decision would have been frustrated if MSE had been de-

nied access to the capital markets so that Grand Gulf could

not have been completed and the power sales contemplated

by Judge Liebman could not have been made.’ The District

Court found that: -

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 pro-

vide its multi-state wholesale customers with power

will be irreparably impaired. Middle South Energy,

Inc., et al. v. Arkansas Public Service Commission, et

al., 593 F.Supp. 366-67.

As the Eighth Circuit said, ‘‘essentially, the APSC is

trving to secure for Arkansas the zero allocation embodied

in the UPSA. Such a result would be contrary to the 36%

allocation recently approved by the FERC in regulating

the wholesale aspects of the Grand Gulf project.’’ Middle

South Energy, Inc., et al. v. Arkansas Public Service Com-

mission, 771 F.2d 411. In short, both courts realized that

the actions of the APSC could not square with the cost al-

locations established by the FERC, a critical factual deter-

mination to which this Court should defer. See, Branti v.

Finkel, 445 U.S. 507, 100 S.Ct. 1287, 63 L.Ed.2d 574, 580,

n. 6 (1980).

8The Court of Appeals noted that counsel for the APSC

had stated that “if the APSC voids AP&L’s part (of Grand Gulf),

the whole thing goes down the toilet.” 772 F.2d 413, n.17.

The Eighth Circuit also pointed out that the SEC had calculated

that a delay of just one month in completing the Project would

cost MSE $28 million. Supra at p. 409, n. 11.

III. THE DECISION BELOW DOES NOT CONFLICT

WITH SUPREME COURT CASES INTERPRETING

THE COMMERCE CLAUSE.

The petitioner has further alleged that the Eighth Cir-

cuit erred in affirming the District Court on Commerce

Clause grounds. Beyond question, however, the Commerce

Clause, standing alone, may prohibit state action which un-

duly restricts the free flow of trade among the states.

Armco, Inc. v. Hardesty, — U.S. —, 104 S.Ct. —, 81 L.Ed.

2d 540 (1984). The result below is consistent with this

rule.

The petitioner’s attack on the Eighth Cireuit’s holding

is threefold. First, the petitioner repeats its argument

that the state action at issue herein is protected by

PUCHA. Second, it is alleged that the Eighth Cirenit mis-

stated the APSC’s motives in finding that the Commission

was attempting to close the borders of Arkansas to power

from Grand Gulf. Third, it was alleged that the APSC’s

order would have only an incidental effect on interstate

commerce and should, therefore, have been permitted un-

der Pike v. Bruce Church, 397 U.S. 137, 90 S.Ct. 844, 25

L.Ed.2d 174 (1970). }

The first prong of the petitioner’s argument is a

repetition of previous allegations and has been adequately

addressed under Point I herein.? The petitioner’s second

argument that the APSC was not trying te embargo

Grand Gulf power contradicts the facts in the record, as

the foregoing discussion makes clear. The APSC’s show

°The passages quoted by the petitioner from the SEC opin-

ion rejecting the APSC’s attempt to block MSE security issues

not at issue herein do not, as the petitioner claims, support

state jurisdiction regardless of constitutional considerations.

Those passages simply refuse to decide the state law or federal

preemption claims raised by APSC and do not even consider

the limitations placed on the APSC by the Commerce Clause.

See, Petition, pp. 53-54.

cause order itself recognized that ‘‘the construction of the

Grand Gulf Project was and is dependent on the agree-

ments enumerated’’ therein. Appendix to Petition, p. A-

99. The APSC’s attempted nullification of the Grand

Gulf contracts must be seen as an effort to evade respon-

sibility for Grand Gulf costs by destroying the Project

itself.

In light of the APSC’s recognition of the importance

of the agreements it sought to void, the claim that the

show cause order would have only an “incidental’’ effect

on interstate commerce and should be upheld under Pike

v. Bruce Church, supra, must be rejected. The Project

was owned by a multi-state holding company, was de-

signed to serve customers in several states, was financed

by investors throughout the world and was not even lo-

cated within the State of Arkansas. State action threaten-

ing such a facility would obviously have more than an in-

cidental effect on interstate commerce.

The Court need not, however, reach the question of

whether the APSC’s order would have affected interstate

commerce only incidentally. The flexible test established

in Pike v. Bruce Church, supra, is inapplicable in cases

involving the type of ‘‘economic protectionism’’ displayed

by the APSC, to which a virtual per se rule of invalidity

applies. See, Bacchus Imports, Ltd. v. Dias, 468 U.S. —,

104 S.Ct. —, 82 L.Ed.2d 200 (1984); Lewis v. BT Invest-

ment Managers, Inc., 447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.

2d 702 (1980). <A finding of ‘‘economie protectionism’”’

may rest either on evidence of a discriminatory intent or

a discriminatory effect. Pacchus Imports, Ltd. v. Dias,

supra, at p. 208. <A discriminatory intent can easily be in-

ferred from the APSC’s efforts before the FERC to shift

Grand Gulf costs from Arkansas to ratepayers in Louisi-

ana and Mississippi. As recently as September 9, 1985,

when it approved the stipulation settling AP&L’s retail

rate case, the APSC said that ‘‘it is a bitter pill to swallow

to say that Arkansas must shoulder any of the burden of

Grand Gulf.’’ Appendix to Memorandum of APSC, Ex-

hibit C, p. 28. As to a discriminatory effect, the destruction

of the Project, which is the APSC’s apparent objective,

would have deprived citizens of other states of a major

power supply, solely to protect the interests of Arkansas as

perceived by the APSC. See, New England Power Company

v. New Hampshire, et al., 455 U.S. 331, 102 S.Ct. 1096, 71

..Eid.2d 188 (1982).

IV. THE EXERCISE OF JURISDICTION BY THE

COURTS BELOW WAS NOT BARRED BY THE

ABSTENTION DOCTRINE.

The petitioner has alleged that the courts below should

have abstained from exercising jurisdiction. The absten-

tion doctrine, however, is based on the need to respect law-

ful state procedures, not clearly ultra vires efforts to cir-

eumvent federal regulation. See, Public Utilities Com-

mission of Ohio v. United Fuel Gas Corporation, 317 U.S.

456, 63 S. Ct. 369, 87 L.Ed. 396 (1948) (enjoining state

Commission order attempting to set wholesale gas rates).

The mere pendency of the show cause proceeding would

have jeopardized MSE’s ability to secure financing to com-

plete the Project. Even if the APSC had ultimately de-

cided not to abrogate the Grand Gulf contracts, abstention

by the courts below would have at least delayed MSEK’s

attempts to raise capital and would have increased the

eost thereof.

V. THE EXERCISE OF JURISDICTION BY THE

COURTS BELOW WAS NOT BARRED BY THE

WELL-PLEADED COMPLAINT RULE.

Consistent with the weight of authority, the Eighth

f Circuit concluded that the possibility that the claims raised

by MSE in is complaint might also be raised as defenses

by AP&L in the APSC’s show cause proceeding did not

bar the exercise of federal jurisdiction under the ‘‘well-

pleaded complaint’? rule. See, Braniff International, Inc.

et al. v. Florida Public Service Commission, et al., 576 F.2d

1100 (5th Cir. 1978) ; [/linois v. General Electric Company,

et al., 683 F.2d 206 (7th Cir. 1982); Conference of Fed-

eral Savings and Loan Associations, et al. v. Stein, 604

F.2d 1256 (9th Cir. 1979); Town of Springfield, Vermont,

et al. v. McCarren, et al., 549 F.Supp. 1134 (D. Vt. 1982).

Moreover, earlier Eighth Circuit decisions allegedly apply-

ing the ‘‘well-pleaded complaint’’ rule in the manner now

advocated by the petitioner were expressly repudiated by

this Court in Lawrence County, et al. v. Lead-Deadwood

School District, 460 U.S. —, 105 S.Ct. —, 83 L.Ed.2d 635,

640, n.6 (1985).

VI. THE CASE DOES NOT PRESENT A JUSTICIABLE

ISSUE WITHIN THE JURISDICTION OF THE

COURT.

Under Article III of the Cotistitution, this Court’s

jurisdiction is limited to ‘‘eases and controversies.’’ ‘T'o

he justiciable within the requirements of Article III, a

ease must ‘‘present a legal and substantial controversy

which unequivocally calls for adjudication of the rights”’

asserted. Poe v. Ullman, 367 U.S. 497, 509, 81 S.Ct. 1752,

61 L.Ed.2d 989 (1961) (Brennan, J., coneurring). A case

which, by the time it reaches this Court has become moot,

cannot be considered to present a justiciable issue for pur-

poses of the exercise of Article IIT jurisdiction. See,

North Carolina v. Rice, 404 U.S. 244, 92 S.Ct. 402, 30

L.Eid.2d 413 (1971).

On September 5, 1985, after the entry of the Eighth

Cireuit’s opinion, the parties to the AP&L rate proceeding,

including AP&L, the Attorney General of Arkansas, the

Commission Staff, the Southern Cotton Ginners Associa-

tion, Arkansas Electric Energy Consumers and Reynolds

Metals Company, entered into a Stipulation and Settle-

ment Agreement. The petitioner was not a party to the

rate case and, accordingly, was not a party to the agree-

ment or the settlement negotiations. The agreement, be-

sides settling the AP&L rate case, also represented a

settlement of various collateral proceedings which the

Grand Gulf controversy had spawned. In particular, it

provided that:

All of the aforementioned parties except AP&L agree

to take such action as may be necessary to voluntarily

dismiss without prejudice, terminate or withdraw their

interventions in the following litigation concerning

AP&L to the extent they have the ability to do so.

a. MSE v. APSC, U.S. Court of Appeals for the

Eighth Cireuit Nos. 84-2409, 84-2410, 84-2480

and 84-2356... .

e. APSC Docket No. 84-190-U. Appendix to

Memorandum of APSC, Exhibit B, pp. 30-31.

On September 9, 1985, the Commission, by Order No.

26 in the AP&L rate case, approved the Stipulation and

Settlement Agreement. AP&L implemented rates pursu-

ant thereto immediately after the entry of the final order.

On September 20, 1985, the APSC entered an order termi-

nating Docket No. 84-190-U, the show cause proceeding the

District Court had enjoined. Appendix to Brief in Oppo-

sition, Part E. By letter dated September 10, 1985, coun-

sel for the APSC informed the Clerk of the Eighth Cir-

cuit that the APSC’s petition for rehearing of that court’s

decision was being withdrawn. Appendix to Brief in Op-

position, Part F.

The entry of a settlement or consent decree prior to

the determination of a case by this Court will render an

otherwise justiciable controversy moot. J'errot, et al. v.

Oil Transport Company, Inc., et al., 365 U.S. 768, 81 S.Ct.

911, 6 L.Ed.2d 83 (1961); J. Aron & Company v. Missis-

sippi Shipping Company, Inc., 361 U.S. 115, 80 S.Ct. 212,

4 L.Ed.2d 148 (1959). Although the question of mootness

is complicated in this ease by the petitioner’s efforts to

obtain review, for all practiéal purposes, the case is moot.

It must be remembered that the rights the petitioner seeks

to vindicate are not its own rights, but are the rights of

the State of Arkansas. The APSC and the Attorney Gen-

eral, the only parties below with obvious standing to

defend state perogatives, have now agreed to the termi-

nation of the show cause proceeding enjoined by the lower

eourts. The Court should accord little weight to the peti-

tion of a private party seeking to represent the ‘‘public

interest’’ against the actions of public officials which have

the legal obligation to represent that interest.

Although the memorandum filed herein by the APSC

did not oppose certiorari, the APSC set forth no grounds

which would justify review and stated that ‘‘the Commis-

sion questions its abilitv to take a position in support of

the granting of the petition,’’ in light of the Stipulation

and Settlement Agreement. Memorandum of APSC, p. 1.

In essence, the APSC’s response simply notified the Court

that. if certiorari were granted, the APSC would seek to

defend its show cause order. The only relevant sub-

stantive issue addressed by the APSC was the question of

mootness, to which it responded that it did not ‘‘believe

that all legal issues raised by the petition are moot... .’’

Memecrandum of APSC, p. 14. The issues which the APSC

helieves are not moot apparently involve actions which the

APSC might take in future proceedings if the Eighth Cir-

cuit’s decision were reversed. Questions involving the

APSC’s possible future conduct, especially in light of the

Stipulation and Settlement Agreement were not, however,

raised by the decision below and are not before this Court

with the degree of specificity or certainty that a case or

controversy would require.

ray

CONCLUSION

For the reasons stated above, certiorari should be

denied. A workable status quo has been achieved by the

principal parties to this litigation which the respondents

hope the Court will leave undisturbed. The substantive is-

sues underlying the Grand Gulf controversy can be ad-

dressed in an appeal of FERC Opinion No. 234, now under

review by the District of Columbia Court of Appeals.

Respectfully submitted,

JerRY D. JAcKsoN

Jim Guy TucKER

MircHeti, WituiaMs, SELIG,

Jackson & TUCKER

1000 Savers Federal Building

Little Rock, Arkansas 72201

(501) 376-3151

Counsel for ARKANSAS POWER

& LIGHT COMPANY

MicHasL G. THompson

JEFF BrRoADWATER

Frmay, Evprepce & CLARK

2000 First Commercial Building

Little Rock, Arkansas 72201

(501) 376-2011

Counsel for MIDDLE SOUTH

ENERGY, INC.

Cae

Part A:

Part B:

Part C:

Part D:

Part E:

Part F:

APPENDIX

TABLE OF CONTENTS

The Availability Agreement 0... App.

Re Middle South Energy, Inc.

Securities and Exchange Commission,

Files Nos. 70-6906, 70-7021 and 70-7026,

Release No, 23579 (January 23, 1985) App.

Re Arkansas Power & Light Company

Arkansas Public Service Commission,

Docket No. 84-040-011, Order No. 1

(March 12, 1984) ........ a App.

Re Arkansas Power & Light Company

Arkansas Publie Service Commission,

Docket No, 84-041-011, Order No, 1

(March 12, 1984) App.

Re Arkansas Power & Light Company

Arkansas Public Service Commission,

Docket No, 84-190-U, Order No, 5,

(September 20, 1985) App.

September 10, 1985, Letter from Ms. Caro!

S. Arnold to Mr. Robert D. St. Vrain... App.

—~

*-*

—

App. 1

PART A

AVAILABILITY AGREEMENT

BETWEEN

MIDDLE SOUTH ENERGY, INC,

AND

ARKANSAS POWER & LIGHT COMPANY,

ARKANSAS-MISSOURI POWER COMPANY,

LOUISIANA POWER & LIGHT COMPANY,

MISSISSIPPI POWER & LIGHT COMPANY, and

NEW ORLEANS PUBLIC SERVICE INC.

THIS AGREEMENT, dated as of the 2ist day of

June, 1974, between Middle South Energy, Ine. (MSEI)

and Arkansas Péw@& Light Company (AP&L), Arkan-

sas-Missouri Powe Rompany (Ark-Mo), Louisiana Power

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

Company (MP&L) and New Orleans Publie Service Ine.

(NOPST), Witnesseth That:

Whereas, AP&L, Ark-Mo, LP&L, MP&L and NOPSI

(collectively, System operating companies and, singly, Sys-

tem operating company), all outstanding shares of whose

common stock are wholly owned by Middle South Utilities,

Ine., operate electric generating, transmission and distri-

bution facilities in the states of Arkansas, Louisiana, Mis-

sissippi and Missouri and comprise the Middle South Sys-

tem; and

Whereas, the System operating companies are par-

ties to an agreement dated April 16, 1973 (as presently

constituted and e » ended in the future, System Agree-

ment), which pre. .es the contractual basis for the con-

tinued planning, construction and operation of certain fa-

App. 2

cilities owned by the System operating companies to

achieve the purposes set forth therein; and

Whereas, other entities may become parties to the

System Agreement; and

Whereas, MSEI has been organized as a subsidiary

of Middle South Utilities, Inc. to finance and own certain

generating units for the benefit of the Middle South Sys-

tem, including the Grand Guif Nuclear Electric Station

project (Project), a two unit nuclear-fueled electric gen-

erating plant having an expected aggregate capacity of

2,500,000 KW and to be located near Port Gibson, Missis-

sippi; and

Whereas, MSEF is, subject to the terms hereof, will-

ing to undertake the construction and operation of the

Project, to become a party to the System Agreement and

to make available to the Parties, as hereinafter defined, all

of the power (and the energy associated therewith) avail-

able at any MSEI Generating Unit, including the Project,

under the terms hereof and of the System Agreement; and

Whereas, the Parties, as hereinafter defined, are, sub-

ject to the terms hereof, willing to purchase power (and

the energy associated therewith) available or to be avail-

able at any MSEI Generating Unit, including the Project,

under the terms hereof and of the System Agreement;

Now, therefore, in consideration of the terms and con-

ditions hereinafter set forth, the parties hereto agree with

each other as follows:

1. For the purposes of this Agreement, the following

definitions shall apply:

App. 3

(a) Party or Parties shall mean any entity or

entities (other than MSET) now or hereafter a party

or parties to this Agreement.

(b) MSEI Generating Unit shall be that por-

tion of any electric generator, together with its prime

mover and all auxiliary and appurtenant devices and

equipment designed to be operated as a vnit for the

production of electric power and energy and all asso-

ciated equipment and facilities, which is owned by

MSEI and which MSEI and the Parties have desig-

nated as being subject to this Agreement.

associated therewith, including test power produced

during construction or thereafter.

2. MSEI and the Parties hereby designate Unit No. 1

and Unit No, 2 of the Project as being subject to this

Agreement and MSEI Generating Units hereunder, and

MSEI hereby undertakes to use its best efforts to con-

struct the Project.

3. On or before the date on which Unit No. 1 of the

Project is placed in commercial operation, MSEI and the

Parties will join in executing such document or documents

as may be necessary for MSEI to become a party to the

System Agreement. MSEI and the Parties will also join

in executing at an appropriate time such document or

documents as may be necessary for others who become par-

ties to the System Agreement to join in and become par-

ties to this Agreement. MSET shall, subject to the pro-

visions of the then applicable requirements of Section 6

of this Agreement and the then applicable provisions of

the System Agreement (or any agreement substituted

therefor), make available, or cause to be made available,

to the Parties all Power available from time to time at

any MSEI Generating Unit.

alanis

App. 4

4. The Parties shall, subject to the provisions of the

then applicable requirements of Section 7 of this Agree-

ment and the then applicable requirements of the System

Agreement (or any agreement substituted therefor) be

entitled to receive all Power available from time to time at

any MSEI Generating Unit; provided, that (i) should any

Party terminate its participation in the System Agree-

ment, then it is agreed that MSEI, such Party and the

- other Parties shall enter into a separate agreement where-

by such Party shall continue to be entitled to receive Power,

and obligated to take Power, available at any MSKEI Gen-

erating Unit which has been designated as being subject

to this Agreement at the time such Party shall exercise its

right to terminate such participation, in such amounts and

for such consideration caleulated from time to time as if

such Party had remained a party to the System Agree-

ment, and (ii) should the System Agreement be cancelled

or terminated then it is agreed that MSEI and all such

Parties shall enter into a separate agreement whereby

such Parties shall continue to be entitled to receive Power,

and obligated to take Power, available at any MSEI Gen-

erating Unit which has been designated as being subject

to this Agreement at the time of a cancellation or ter-

mination of the System Agreement, in such amounts and

for such consideration calculated from time to time as if

the System Agreement had remained in effect and MSEI

and such Parties were parties thereto. Notwithstanding

such withdrawa! from, or cancellation or termination of,

the System Agreement, each Party shall remain bound by

the terms of this Agreement with respect to any MSEI

Generating Unit which has been designated as being sub-

ject to this Agreement at the time of such withdrawal,

App. 5

cancellation or termination. In consideration of MSEI’s

commitment to undertake construction of the Project and

its other obligations hereunder and of the right of the Par-

ties to receive Power available at any MSEI Generating

Unit under the terms of the System Agreement (or any

separate agreement referred to above), the Parties agree

to pay to MSEI, commencing of the date on which a par-

ticular MSEI Generating Unit is deemed to be in opera-

tion for the purpose of this Agreement, such amounts from

time to time as, when added to amounts received by MSHI

from any other source, including, but not limited to,

amounts (if any) received by MSEI with respect to such

MSEI generating unit under the terms of the system agree-

ment, shall be at least equal to MSEI’s total operating ex-

penses and interest charges with respect to such MSEI

Generating Unit, including (without limitation), for the

purposes of this Agreement, (i) all expenses, deductions,

charges and other items properly chargeable to the ap-

plicable Income Accounts 400 to 435, inclusive, of the Uni-

form System of Accounts prescribed by the Federal Power

Commission for Class A and Class B Publie Utilities and

licensees, as in effect on April 1, 1973, (Uniform System

of Accounts) or, if such MSEI Generating Unit is not in

service for any reason, all expenses, deductions, charges

and other items which would be chargeable to the above Ac-

counts if such MSEI Generating Unit were in service; it be-

ing agreed that when a particular generating unit is desig-

nated as being subject to this Agreement by MSEI and

the Parties, then, solely for the purposes of determining

MSEI’s total operating expenses under this Section 4,

such MSEI Generating Unit shall be deemed to be in oper-

ation on the date, and the accrual of depreciation as an

App. 6

operating expense with respect to the MSEI Generating

Unit shall be deemed to commence on the date at the rate

and in the manner and continue for the duration, as is

specified in the document so designating such generating

unit as a MSEI Generating Unit subject to this Agree-

ment, whether or not such MSEI Generating Unit is actu-

ally in operation on such date, and (ii) such expenses as

might be incurred in connection with permanent shut-down

of any MSEI Generating Unit which is nuclear-fueled and,

in the event of any such shut-down, for perpetual mainten-

ance and surveillance of any such facility in accordance

with and as required by, all applicable regulations estab-

lished by any governmental authority having jurisdiction.

Payments to be made pursuant to this Section 4 shall be

made monthly and shall be apportioned among the Parties

whose Company Capability is less than its Capability Re-

sponsibility, as such terms are defined in the System Agree-

ment and as determined in accordance with Section 10 of

the System Agreement, in the ratio of each such Party’s de-

ficiency to the sum of the deficiencies of all such deficient

Parties: provided, however, that if in any month no Party

has such a deficiency then the payments for such month

shall be apportioned among the Parties in accordance with

the ratio of their then respective Capability Responsibili-

ties, as such term is defined in the System Agreement. For

the purpose of this Agreement, the Capability of all MSEI

Generating Units shall be included in the System Capa-

bility, as such terms are defined in the System Agreement.

In the event the System Agreement is not then in effect,

or has been amended or interpreted so that at least one or

more of the Parties is not obligated to make the entire pay-

App. 7

ment herein provided, then the Parties agree to make pay-

ments hereunder in accordance with the ratio of their

then respective “Capability Responsibilities”, as such term

is defined in Appendix A attached hereto and made a part

hereof and not as defined in the System Agreement. Pay-

ments made by any Party to MSEI pursuant to this See-

tion 4 shall be applied as a credit to such Party’s liability

for payments to MSEI under the System Agreement.

5. For the purpose of determining MSEI’s expenses

and the Parties’ obligations under Section 4 of this Agree-

ment, it is hereby agreed that both Unit No. 1 and Unit

No. 2 of the Project shall be deemed to be in operation on

the earlier of December 31, 1982 (whether or not such

Units, or either of them, are then completed or in opera-

tion) or the date on which either of such Units is first

place in commercial operation as determined under the

System Agreement (or any agreement substitute there-

for), and the accrual of depreciation and amortization with

respect to the Project shall be deemed to commence on the

earlier of such dates; that such accrual of depreciation

and amortization shall be at the rate of 3.65% per annum

of the aggregate amount properly chargeable (prior to the

deduction therefrom of any depreciation or amortization)

at the time with respect to the Project to Balance Sheet

Aecounts 101, 102, 103, 104, 105, 106, 107 (the aforemen-

tioned accounts being exclusive of land and land rights),

118, 120 (.1 through .5), 121, 123, 123.1, 124, 151, 152, 158,

154, 155, 156, 157, 163, 182, 183, 184, 185, 186, 187 and 15s

of the Uniform System of Accounts and such other ac-

counts as are properly subject to depreciation or amortiza-

tion at the time pursuant to such Uniform System of Ac-

App. 8

counts; and that such accrual shall continue during each

of the first 27+ years after the date of commencement of

such accrual hereunder whether or not such Units, or either

of them, shall ever commence operation and/or remain in

operation; provided, however, that if Unit No, 1 is placed

in commercial operation prior to December 31, 1982 and

Unit No. 2 is not completed and ready for service at such

time, then until December 31, 1982 or the date Unit No, 2

is placed in commercial operation, whichever date occurs

earlier, expenditures included in Account 107 which are

identified exclusively with the construction of Unit No. 2

may be excluded from the caleulation of the aggregate

amount subject to the accrual of depreciation and amor-

tization pursuant to this paragraph.

6. The performance of the obligations of MSEI here-

under shall be subject to the receipt and continued effee-

tiveness of all authorizations of governmental regulatory

authorities at the time necessary to permit MSEI to per-

form its duties and obligations hereunder including the

receipt and continued effectiveness of all authorizations

by governmental regulatory authorities at the time neces-

sary to permit MSEI to finance, to construct or cause to

be constructed, to operate or cause to be operated, and/or

to make available to the Parties the Power available at

any MSEI Generating Unit. MSEI shall use its best ef-

forts to secure and maintain all such authorizations by

governmental regulatory authorities.

7. The performance by each Party of its obligations

hereunder shall be subject to the receipt and continued

effectiveness of all authorizations of governmental regu-

latory authorities necessary at the time to permit it to

perform its duties and obligations hereunder, including

App. 9

the receipt and continued effectiveness of all authoriza-

tions by governmental regulatory authorities necessary at

the time to permit it to pay to MSEI, in consideration for

the right to receive its share of the Power available at any

MSEI Generating Unit, the amounts provided for in See-

tion 4 of this Agreement. Each Party shall use its best

efforts to secure and maintain all such authorizations by

governmental regulatory authorities. Each Party shall,

to the extent permitted by law, be obligated to perform its

duties and obligations hereunder, subject to the then ap-

plicable provisions of this Section 7, (a) whether or not

MSEI shal! have received all authorizations of govern-

mental regulatory authorities necessary to permit MSEI

to perform its duties and obligations hereunder or under

the System Agreement, (b) whether or not such authori-

zations, or any such authorization, shall at any time in

question be in effect, (¢) whether or not the System Agree-

ment shall, from time to time, be amended, modified or

supplemented or shall be canceiled or terminated or such

Party shall have withdrawn therefrom and (d) so long as

MSEI and such Party shall continue to be subsidiary com-

panies of Middle South Utilities, Inc. (as said term is de-

fined in Section 2(a)(8) of the Publie Utility Holding

Company Act of 1935) or a successor thereto, whether or

not, at any time in question, MSEI shall have performed

its duties and obligations under this Agreement or the

System Agreement. In the event that MSEI or any Party

shall cease to be such a subsidiary company, then and there-

after such Party shall not be relieved of its obligation to

make payments pursuant to Section 4 of this Agreement

by reason of the failure of MSEI to perform its duties

and obligations hereunder or under the System Agreement

App. 10

occasioned by act of God, fire, flood, explosion, strike, civil

or military authority, insurrection, riot, act of the elements,

failure of equipment, or for any other cause beyond the

control of MSEL.

8. To the extent they may legally do so, each Party

and MSEI hereby irrevocably waive any defense based

on the adequacy of a remedy at law which may be asserted

as a bar to the remedy of specific performance in any ac-

tion brought against it for specific performance of this

Agreement by any other party to this Agreement, or by a

truste@\ under any mortgage or other debt instrument

which any such party to this Agreement may, subject to

requisite regulatory authority, enter into, or by any re-

ceiver or trustee appointed for any such party under the

bankruptey or involvency laws of any jurisdiction to which

any such party may be subject; provided, however, that

nothing herein contained shall be deemed to constitute a

representation or warranty by any party to this Agree-

ment that their respective obligations under this Agree-

ment are, as a matter of law, subject to the equitable rem-

edy of specific performance.

9. No Party shall be entitled to set off against any

payment required to be made by such Party under this

Agreement (i) any amounts owed by MSET to such Party

or (ii) the amount of any claim by such Party against

MSEI. The foregoing, however, shall not affect in any

other way the rights and remedies of any Party with re-

spect to any such amounts owed to such Party by MSEI

or any such claim by such party against MSEI,

10. The invalidity or unenforceability of any pro-

vision of this Agreement shall not affect the remaining

provisions hereof.

App. 11

ll. This Agreement shall become effective forthwith.

This Agreement may be amended, modified or terminated

only with the consent of MSEI and of the Parties then

having responsibility for two-thirds or more of the amounts

to be paid under Section 4 hereof, and upon the receipt

and continued effectiveness of all authorizations of gov-

ernmental regulatory authorities at the tim tieeéssary.

12. This Agreement shall be binding upon the Par-

ties and MSEI and their respective successors and assigns,

but no assignment hereof, or of any right to any funds due

or to become due under this Agreement, shall in any event

relieve any Party or MSEI of any of their respective obli-

gations hereunder, or, in the case of the Parties, reduce

to any extent their entitlement to receive Power available

from time to time at any MSEI Generating Unit.

13. The agreements herein set forth have been made

for the benefit of the Parties, MSEI and their respective

successors and assigns, and no other person shall acquire

or have any right under or by virtue of this Agreement.

In Witness Whereof, the parties hereto have caused

this Agreement to be duly executed by their respective

officers thereunto duly authorized as of the day and year

first above written.

Arkansas Power & Light Company

Witness: By Reeves E. Ritchie

, President

James A. Brignac

Arkansas-Missouri Power

Company

By F. G. Smith

Cheryl B. Young President

Witness:

App. 12

Witness: Louisiana Power & Light Company

Stephanie T. By E. A. Rodrigue

Tzamonte President

Mississippi Power & Light

Company

Witness: By D.C. Lutken

J. B, Ballinger President

New Orleans Public Service Inc.

Witness: By William MecCollam, Jr.

Barbara Plaisance President

Middle South Energy, Ine.

Witness: By F. W. Lewis

J. E. Ammon President

APPENDIX A

Definition of ‘*Capability Responsibility”’

As Used in Availability Agreement

‘**Capability Responsibility’’ shall mean: with respect

to any “Conypany’’, the System Capability’’ multiplied by

the ‘‘Responsibility Ratio’’ for that Company.

‘‘Company”’ shall mean one of the sliddle South Util-

ities, Inc.’s System operating companies, as defined in

the Availability Agreement; ‘‘System Capability’’ shall

mean the arithmetical sum in megawatts of the individual

‘“Company Capabilities’? shall be the net output in mega-

watts that can be produced by all of a Company’s gener-

ating units, each unit of which consists of an electric gen-

erator, together with its prime mover and all auxiliary

and appurtenant devices and equipment designed to be

operated as a unit for the production of electric power

and energy, under the conditions specified by the admin-

istrative organization then having the authority to so

specify, under either the System Agreement or any similar

and succeeding agreement to which such Company is a

App. 18

party, or the input in megawatts available under contract

to such Company from a supplying source; provided, how-

ever, that each Company shall be deemed to have at least

one Kilowatt of Capability, whether or not it has any

such Capability; ‘‘Responsibility Ratio’’ shall mean the

ratio obtained by dividing a “Company Load Responsibil

ity’? by the ‘System Load Responsibility’’; ‘*Company

shall mean (a) the average of the

four highest clock-hour demands in megawatts of a Com-

Load Responsibility

pany’s system, each on a different Cay, occurring during

the twelve month period ending with the current month,

but not levs than 90% of the average of the four highest

such demands occurring during the twenty-four (24) month

period ending with the current month, where each such

demand shall represent the simultaneous hourly input

from all sources into the system of a company, less the

sum of the simultaneous hourly outputs to the system of

other interconnected utilities (Company demands shall in

clude firm power supplied to other systems for its own

account), (b) less the power supplied to others as sales

for the joint account of all Companies, (c) less the con-

tractual amount of firm purchases with reserves available

during the month from other systems for its own account;

provided, however, that each Company shall be deemed

to have a Load Responsibility of at least one kilowatt,

whether or not such Company has any such Load Respons-

ibility; ‘‘System Load Responsibility’’ shall be the arith-

metical sum in megawatts of the individual Company Load

Responsibilities.

App. 14

PART B

UNITED STATES OF AMERICA

before the

SECURITIES AND EXCHANGE COMMISSION

PUBLIC UTILITY HOLDING COMPANY ACT of 1935

Release No. 23579 / January 23, 1985

In the Matter of

MIDDLE SOUTH UTILITIES, INC.

MIDDLE SOUTH ENERGY, 1s .

New Orleans, Louisiana

File Nos, 70-6906, 70-7021 and 70-7026

MEMORANDUM OPINION AND ORDER AUTHORIZ-

ING COMMON STOCK SALE AND ACQUISITION

AND DENYING REQUEST FOR HEARING

AND

SUPPLEMENTAL MEMORANDUM IN CONNECTION

WITH BOND FINANCINGS

Middle South Utilities, Inc. (*“*MSU’’), a registered hold-

ing company, proposes to purchase and Middle South

Energy, Inc., (‘‘MSE”’) its subsidiary, proposes to issue

and sell, at $1,000 per share, up to 160,000 common shares

($160 million) on or before July 31, 1985, all pursuant to

Sections 7, 10 and other applicable provisions of the Pub-

lie Utility Holding Act of 1935 (‘‘Act’?). MSU is MSE’s

sole stockholder, owning on September 30, 1984, $789.35

million, in common stock, all issued for cash in $1,000

shares. The proposed transactions would increase MSU’s

investment to $963.6 million. Due notice was published

1 ‘That includes $14.25 million balance of a prior authoriza-

tion. Middle South Utilities, Inc., et al, HCAR No. 23259

(March 23, 1984).

— © ee ee - -

App. 15

(HCAR No, 23413, September 6, 1984). The Arkansas Pub-

lie Service Commission, (** Arkansas Commission’’) has in-

tervened and requested a hearing. MSU and MSK filed a

response, and the Arkansas Commission filed a reply.

1. Organization and Capital Structure

MSE, an Arkansas corporation, was organized in 1974 to

own and finance the Grand Gulf nuclear generating project,

at Port Gibson, Mississippi.2 The plant is designed to be

connected to the integrated electric transmission network

of the Middle South system. which interconnects four elec-

trie utility subsidiaries of MSU, serving western Missis-

sippi, Louisiana and Arkansas.’ MPL had transferred to

MSE the Grand Gulf project, but MPL is constructing the

plant as MSE’s agent, and is expected to operate the

facility in the same capacity. South Mississippi Electric

Power Association, a non affiliate, owns 10% of the proj-

ect.

The Nuclear Regulatory Commission (‘*NRC’’) approved

the Grand Gulf operating license for Unit 1 on July 31,

1984, which was issued the following month. MSE has

2 Middle South Utilities, inc., et al, HCAR No. 18437 (june

4, 1974).

3 Mississippi Power & Light Company (“MPL”), Louisiana

Power & Light Company (“LPL”), New Orieans Public Serv-

ice, Inc. (“NOPSI"), Arkansas Power & Light Company

(“APL”). Arkansas Missouri Power Company, another sub-

sidiary utility company, was consolidated with AP&L, Middle

South Utilities, Inc., et al, HCAR No. 21873 (December 31,

1980)

* NRC reissued the license November 1, 1984. A petition

for review was filed October 1, 1984 in the United States

Court of als, District of Columbia Circuit, by Jackson-

ians United tor Livable Energy Policies and is pending.

App. 16

obtained extensions of dates required by its loan agree-

ments for commercial operation of Unit 1 and deferrals of

principal payments and related obligations. -It currently

expects to begin commercial operations in the first quarter

of 1985.

On September 30, 1984, MSE had invested $3.7 billion in

the project, of which $1.4 billion was allowance for funds

used during construction (‘‘AFUDC’’), that is, tax ad-

justed interest expense and an allowance for return on

equity during the construction period. Unit 1, a 1250 MW

generating plant, represents a cost of $2.9 billion, and

Unit 2, considered 34% complete, $.08 billion. Continued

aeerual of AFUDC and other capitalized expenses are ex-

pected to increase the cost of Unit 1 to about $3.1 billion

by March 1985.

MSE has borrowed about $2.5 billion, of which $2.1 billion

is construction financing under two bank loan agreements.

We have authorized it to issue up to $250 million in pollu-

tion control financing and $400 million in first mortgage

bonds. Our opinion on the bonds described more fully

MSE’s September 30, 1984 balance sheet and indebted-

ness... The refunding therein referred to includes about

$100 million of accrued interest on outstanding debt.6. MSE™

5 Middle South Energy Inc., et al., HCAR No. 23495 (Novem-

ber 23, 1984) and HCAR No. 23526 (December 12, 1984).

For the terms of the sale see: HCAR Nos. 23545 (Decem-

ber 26, 1984) and 23546 (December 26, 1984), supplemented

by HCAR No. 23555 (December 28, 1984).

S Its interest expense for the 12 months ended September

30, 1984 was $331 million and $84 million had accrued

on that date. Most of its debt provides for semi-annual in-

terest payments, principally in January and February and

July and August.

App. 17

will have io revenues until Unit 1 is in service. MSE

sharply curtailed construction on Unit 2 in 1979 and has,

since 1983, devoted its resources to the completion of Unit

1.7. The Mississippi Public Service Commission, which

issued the certificate of public convenience and necessity

for the project, has issued an order to show cause as to

the continued construction and need for Unit 2.8

2. MSE Financing and Related or Supporting Agreements

The financing of MSE is supported by two agreements,

dated June 21, 1974, one of which is the capital funds agree-

ment between MSE and MSU. It obligates MSU to pur-

chase MSE common stock as needed to maintain a coin-

mon equity of at least 35% and provide such amounts as

shall be required, in addition to MSE’s other sources of

funds, for construction, pre-operating expenses and inter-

est on the project, to permit continuance of its operation,

and to pay maturing MSE debt. The present proposal is

the latest in a series of common stock sales to MSU pre-

viously authorized by orders und«r Section 6(a) and 7 of

the Act.°

This Commission’s order, issued on June 4, 1974, author-

ized the capital funds agreement and other transactions,

including an availability agreement between MSE and the

, Interest payments, of course, are applicable to both units

and MSE must protect and maintain its property.

° Mississippi Public Service Commission, Docket No. U-4387.

id Middle South Utilities, et al. HCAR Nos. 23259 (March 23,

1984); 23117 (November 29, 1982); 22555 Yune 29, 1982);

22161 (August 14, 1981); 21754 (October 21, 1980); 21429

(February 12, 1980); 20327 (December 20, 1977); 20209

(October 12, 1977); 19836 (December 30, 1976).

App. 18

associate electric utility companies.'’© MSE agreed to com-

plete the Grand Gulf units, and to make available to the

other subsidiary utilities the power generated by Grand

Gulf. For all of which, these participating utilities agreed,

severally and not jointly, to indemnify MSE, commencing

not later than December 31, 1982, against loss by paying

such amounts as, when added to other MSE revenues,

would meet MSE’s operating expenses, including depreci-

ation at 8.65%, and interest. The original availability

agreement provided that availability obligations would be

allocated monthly among the operating companies in pro-

portion to reserves or deficiencies as defined in the system

agreement.

The operating subsidiaries in the Middle South system

have been an integrated system since 1930." As an in-

tegrated system, the operating companies have been par-

ties to a series of system agreements governing intercom-

pany sales of electric energy. as well as the planning, con-

struction and operation of generation and transmission

facilities. These agreements are regulated by the Federal

Energy Regulatory Commission (‘‘FERC’’) under the

Federal Power Act. The availability agreement contem-

plated that MSE would become a party to the system agree-

ment when it commenced selling electric energy, but pro-

vided for alternatives. The parties, in 1982, formalized

that understanding by signing a unit power sales contract

with MSE, and also amended the system agreement, both

10 Middle South Utilities, inc., et al. HCAR No. 18437 (June

4, 1974).

"Electric Power & Light Corp. et al., 29 SEC 52, 63 (1949).

App. 19

of which were filed with FERC and are related to the

pending proceedings.

Both the capital funds agreement and the availability

agreement have been assigned by MSE to secure bank

loans, mortgage bonds and pollution control financing. In

each case the operating utility companies executed con-

sents to the assignments.

Our order of June 22, 1981, authorized additional financing

for Grand Gulf and amendments to the availability agree-

ment." As then amended, the availaiblity agreement pre-

vided for the intended allocation of MSE’s share of the

power and energy from Grand Gulf and the indemnity ob-

ligations in stated percentages: APL—17.1%, LPL—

26.9%, MPL—31.3%, NOPSI—24.7%.

It later appeared, on the basis of new forecasts, that APL

would not need Grand Gulf energy, and on November 18,

1981, we approved further amendments to the availability

agreement which relieved APL of its obligations for power

and energy from both units as well as the indemnity obli-

gations, as follows:

Amendment 1 Amendment 2

(Both Units) Unit 1 Unit 2

APL 17.1 —0— —O—

LPL 26.9 38.57 26.23

MPL 31.3 31.63 43.97

NOPSI 24.7 29.80 29.80

As the banks and other lenders did not join in this amend-

ment, APL remains obligated under the availability agree-

12 Middle South Energy, Inc., et al., HCAR No. 22098 (June

22, 1981).

App. 20

ment, but LPL, MPL and NOPSI have agreed to indemnify

APL for its obligations in proportion of their allocated

capability and energy of Grand Gulf units.”

In the amendment to the availability agreement of June,

1981, the date for commencement of the indemnity pay-

ments was deferred. The operating utility companies—

LPL, MPL, and NOPSI—agreed instead to commence on

January 2, 1984, to make advance payments for power at

the rate of $12.5 million per month, or $150 million per

year. These payments will continue until commercial op-

erations of Unit 1 or December 31, 1985, whichever occurs

sooner. Thereafter, if Unit 1 is not in operation, deficien-

cies in revenues, as defined, will be governed by the amend-

ed availability agreement, under which APL has been ef-

fectively excluded.

On June 10, 1982, MS#, MPL, LPL and NOPSIT, but

not APL, entered into a unit power sales agreement. MSH

agreed to sell all of the eapacity and energy available to

it from Grand Gulf to the three operating utilities in ac-

cordance with the percentages specified in the availability

agreement as last amended in November 1981. Charges

for this unit energy are to be computed monthly on the

basis of MSE’s total cost of service. The agreement was

filed with FERC and hearings were held before an Admin-

istrative Law Judge.

The initial decision upheld the original proposal in many

respects. It recommended that MSE be granted a 16.04%

13 Middle South Energy, Inc., et al., HCAR No. 22280 (Novem-

ber 18, 1981).

14 Middle South Energy, Inc., Docket No. ER-82-616-000. The

initial decision was rendered on February 3, 1984, 26 FERC

166,044.

App. 21

rate of return on common equity rather than 18% pro-

posed by MSE and that its method of proposed deprecia-

tion be approved. There was sharp disagreement on the

proposed allocation of capacity and energy. APL and the

Arkansas Commission, among others, urged approval of

the allocations as initially filed. The initial decision ac-

cepted a proposal of the Louisiana Publie Service Com-

mission to allocate energy from unit one of Grand Gulf as

follows: APL—36%, LPL—14%, MPL—33%, NOPSI—

17%. It found that the failure to allocate any portion of

Grand Gulf power and costs to APL grants an undue

preference to APL and unduly discriminates against the

other operating companies and their customers in the

Middle South system, contrary to Section 206 of the Fed-

eral Power Act. APL and the Arkansas Commission have

filed exceptions and appealed to the full Commission, and

the case is still pending.

)

3. Dascussion of Issues

The issue and sale of common stock by MSE is subject to

Section 7, subsection (g) of which requires compliance

1S The jurisdiction of this Commission with respect to the

availability agreement existed under Section 12(b) of the

Act as to the indemnity obligations of the four operating

companies to MSE and as to the indemnity that three of the

companies gave to APL. The contracts for the sale of elec-

tric energy among the subsidiaries of MSE are subject to

the exclusive jurisdiction of FERC. Generally a contract

for sale of goods and services to an associate company is

governed by Section 13(b) of the Act, but Section 2(a)(20),

which defines ‘Sales contract,” expressly excludes sale of

“electric energy or natural or manufactured gas.”

16 ~~ Section 7(g) provides that if a State commission having

jurisdiction over the securities of the issuing companies

(Continued on following page)

App. 22

quires approval under Section 10, and subsection (f) there-

of also requires compliance with applicable state laws.!’

Neither the sale nor the acquisition in this ease is subject

to approval by the Arkansas Commission. MSU is a hold-

ing company, and all of the property of MSE is in Missis-

sippi. Neither is subject to the public utility laws of Ar-

kansas,'§

Since the Arkansas Commission has no jurisdiction over

MSH’s sale and issuance of its common stock, Section 7(g)

of the Act does not operate to prohibit this Commission

from allowing the declaration to become effective. Thus,

this Commission may proceed to consider whether the pro-

posed common stock sale is necessary or appropriate in

the public interest or for the protection of investors or

consumers.

The Arkansas Commission’s objection is related to the

availability agreement of 1974 and as amended in 1981. It

claims that the indemnity obligation of APL under that

agreement is or may be an ‘‘evidence of indebtedness’’ un-

(Continued from previous page)

informs this Commission that state laws have not been

complied with in respect to the issuance of the securities,

this Commission “shall not permit a declaration . . . to

become effective until and unless the Commission is satis-

fied that such compliance has been effected.”

17 Section 10(f) provides that the Commission shall not ap-

prove an acquisition unless it appears to the Commission

“that such State laws as may apply in respect to such ac-

quisition have been complied with. . .”

18 ~The Arkansas Attorney General admits that the Arkansas

Commission has no jurisdiction over MSE’s stock issuances.

See Brief of the State of Arkansas in Support of its Motion

to Dismiss, at 14.

a ee

App. 23

der Arkansas law, which requires approval of the Arkansas

Commission, and that without its approve’ APL’s obliga-

tion is void." The Arkansas Commission did not intervene

in the 1974 and 1981 proceedings.

The short and simple answer is that the indemnity obliga-

tions in the availability agreement do not extend to the

common stock which MSU now owns or proposes to buy

from MSE. Moreover, the assignment of the availability

agreement in connection with the bond issuances does not

constitute an issuance or sale by APL of a security and

therefore does not grant the Arkansas Commission the

type of jurisdiction prerequisite to Section 7(g).

Our approval of the availability agreement, and the amend-

ments in 1981, did not mean that Arkansas state law was

preempted. Section 21 declares that nothing in the Act

shall affect the jurisdiction of any other commission over

‘*

‘‘any persun, security, or contract so long as such

jurisdiction is not in conflict with the Act, or rule or or-

der thereunder. The authorization of the availability

agreement in 1974 and the amendments in 1981 deter-

mined only that Federal requirements under the Act have

been met.

That, it seems, was understood by the Arkansas Commis-

sion. On August 1, 1984, the Arkansas Commission issued

an order to show cause, returnable August 31, why APL’s

obligations ‘‘should not be held to be void ab tmifio as a

19 The Arkansas statute provides that a public utility may not

“ issue stock, bonds, notes or other evidence of indebt-

edness payable at periods of more than thirty-six (36)

months . . . ” without authorization of the Arkansas Com-

mission. Ark. Stat. Ann. § 73-255 (1983 Cumm. Supp.).

App. 24

matter of law.’ Its order referred to all contractual ob-

ligations affecting APL, including the availability agree-

ment previously described.

MSE and APL filed suit for permanent injunction against

the Arkansas Commission, and after a hearing upon ex-

tensive briefs the federal district court, on September 14,

1984, issued its Memorandum Opinion and Judgment per-

manently enjoining the Arkansas Commission from fur-

ther proceeding under its order to show cause”! The fed-

eral court held that the Arkansas Commissien had no au-

thority to inquire into the agreements with MSE because

they relate to the sale and purchase of wholesale power

within the exclusive jurisdiction of FERC.

The Arkansas Commission states that until the injunction

of the federal court is dissolved, it lacks an alternative

forum, except under the Act, in which to assert its interest.

The Arkansas Commission may appeal and reinstate its

own proceeding that is now enjoined, and, we are informed,

it has appealed. The Arkansas Commission is assured

under Section 21 that neither the order in this case au-

thorizing the sale and purchase of the MSE common stock,

nor the authorizations of the bond financings supersede

requirements of state laws as they may eventually be es-

tablished in respect to APL’s commitments in the finane-

ing of the Grand Gulf project.

20 In the Matter of an Order for Arkansas Power & Light Com-

pany, etc., Docket No. 84-190-U, Order No. 1, page 6.

21 Middle South Energy, Inc., and Arkansas Power & Light Co.

v. Arkansas Public Service Commission, et al., No. LR-C-

84-778 (E.D. Ark. 1984).

App. 25

The Arkansas Commission now claims that the obliga-

tions of APL under the availability agreement are subject

to Section 7(g¢). It assumes that the assignment of APL’s

indemnity involves an issuance or sale of a ‘‘security”’

under Section 6(a) of the Act.”

The contractual arrangement to which the Arkansas Com-

mission objects was entered into in 1974 and amended in

1981. In each of those instances this Commission reviewed

the agreement under the Act. The Arkansas Commission

had the opportunity to seek to intervene in all proceed-

ings but did not. At this time that contractual agreement

is not before this Commission. Instead the Commission

is reviewing transactions in connection with which MSE

has assigned its rights under the availability agreement.

These two contractual arrangements, though related, must

be distinguished. There are first the indemnity commit-

ments to MSE under the availability agreement by the

four operating utilities. The other is the assignment by

MSE of the availability agreement as a security interest

for its debts. The indemnity commitments obligate the

operating utilities for MSE’s revenue deficiencies to cov-

ex its expenses, depreciation and interest, and the assign-

ment transfers the right to receive the indemnity pay-

ments for which the operating utilities are already obli-

gated. As to MSE’s issuance of the two types of bonds,

the assignment does not alter the character of APL’s ob-

22 We do not decide whether or not the APL's indemnity

constitutes a “security” in this case. As discussed below,

even if the indemnification constitutes a security for pur-

poses of Sections 6 and 7, there has been no issuance or

sale in these transactions, only an assignment by MSE of

its rights as indemnitees.

App. 26

ligation nor the indemnity undertaking that LPL, MPL

and NOPSI have given to APL. The assignment creates

no new obligation for APL, and the consent by APL to

MSE’s assignment does not involve the issuance or sale

of a security by APL.

If APL’s indemnity constitutes a security for purposes

of the Holding Company Act, the issuance of the security

occurred upon the execution of the availability agreement.

At that time the extent of APL’s potential liability was

uncertain. However, it is clear that the parties fully ree-

ognized that MSE would borrow construction and operat-

ing funds in the future. The transactions discussed here

are only the realization of the parties’ expectations.

Since the Arkansas Commission’s jurisdiction extends only

to APL and APL did not issue securities in connection

with the sale of the pollution control and first mortgage

bonds, the Arkansas Commission could not invoke 7(g)

to prohibit the Commission from considering those declar-

ations.

Finally, it is not expected that this Commission decide in

each case what is required to comply with state laws un-

der Section 7(g) in case of financings. An authorization

that does not prejudice the State commission's authority

under state law, as we said in connection with MSE’s

first mortgage bonds, ‘‘is sufficient assurance of compli-

ance with any applicable state law.’*

23 «Middle South Energy, Inc., HCAR No. 23526 (December 12,

1984); Middle South Utilities, Inc., et al., HCAR No. 23495

(November 23, 1984).

at OE ts eee ere te

MSE denies that authorization by the Arkansas Commis-

sion is required and the Federal court has enjoined the

Arkansas Commission from holding hearings under its

order to show cause. In effect, the Arkansas Commission

requests a stay of all financing authorizations by us until

the issues regarding state law are resolved.

The probable outcome of the litigation over the applicabil-

ity of Arkansas law and the constitutional issue that has

developed is uncertain. But the effect upon MSU, MSE

and its associate companies that are committed to Grand

Gulf is not a matter of surmise.

Unit No. 1 is completed and is expected to be in service

early in 1985. About $3 billion has been spent on its con-

struction. MSU has supplied about $790 million in equity.

MSE debt obligations have to be met, and the proposed

mortgage and equity financings are necessary to reduce

outstanding debt to maintain or renew lines of credit with

the banks. APL has to date provided no capital funds,

and the three other operating utilities have agreed to in-

demnify APL for any liabilities under the availability

agreement. APL and the Arkansas Commission have ap-

pealed to FERC to reinstate the initial unit power sales

agreement, under which APL would not be obligated to

purchase any power from Grand Gulf. It is even prob-

able that if it succeeds at FERC, and in view of the in-

demnity to APL by the three other operating companies,

the Arkansas Commission would not pursue the issues

regarding the applicability of Arkansas law.

The Arkansas Commission raises or suggests a broad

range of other questions that are inconsequential, irrele-

vant or beyond our authority under the Act. Construction

App. 28

of a nuclear power plant involves several agencies. MSE,

as a Mississippi utility, holds a certificate of convenience

and necessity from the Mississippi Commission. It has

been granted an operating permit by NRC. It will sell its

energy at wholesale, so that its rates are subject to FERC

under the Federal Power Act. Our authority is limited

to the financing and refunding aspects of the project.

The Arkansas Commission suggests that a hearing it re-

quests we should consider discontinuance or moth-balling

of the project. It overlooks, as has been decided several

times, that we have no authority to review the construc-

tion of generating facilities of the holding-company sys

tem or which facilities should be built, abandoned or de-

ferred.“ We note also that to pospone construction or to

leave the facilities idle would not relieve MSE of its obliga

tions on borrowed funds, or MSU under the capital funds

agreement, or the operating utilities of their obligations

under the availability agreement. Any delay in commercial

operation would increase costs by about $28 million per

month primarily as a result of finance charges,

The Arkansas Commission suggests, as an alternative,

that Grand Gulf be financed as a facility under direct

ownership of the operating companies. That is a form of

ownership permitted under the .\ct, as are other variants,

including the present arrangement. The choice is essen-

4 = sd The ~ Southern Company, HCAR No. 21766 (October 29

1980), aff'd, without opinion, sub nom. Herring v. SEC,

672 F.2d 894 (D.C. Cir. 1981); Georgia Power Company,

HCAR No. 21737 (October 1, 1980), aff'd, sub nom. Her-

ring v. SEC, 673 F.2d 1191 (11th Cir. 1982); Alabama Power

Company, HCAR No. 21711 (September 10, 1980); The

Southern Company, et al., HCAR No. 21665 (July 24, 1980);

Georgia Power Company, HCAR No. 23330 (June 15, 1984)

App. 29

tially management's. Grand Gulf, originally a project of

MPL, was transferred to MSE in 1974, and has been fi

nanced on that basis. Ownership and organization cannot

be altered withont refunding some $2.5 billion of outstand

ing debt. Any change in existing ownership and debt re

funding will require our approval and that of several othe

agencies, including State commissions. Now is har ly the

time to consider such far reaching proposals MSU and

the other companies that want to complete Grand Gult

are content with the decision made ten vears ago, and it

has not been without advantage to the participating util

ities. The entire risk of 35° capital investment is upon

MSU. The operating utilities have not been required to

provide any capital and, because of the indemnity arrange

ments, APL has provided no funds either as capital o1

for debt service

Finally, the Arkansas Commission suggests that a hearing

unde Section i(d) is needed to explore the proposed Con

mon stock and debt financings in terms of MSE’s earning

power.” Obviously, a company organized to construct a

generating plant has no revenues or income. The financing

of construction necessarily depends on committing the

eredit of the sponsoring oO} supporting utilities Stock

subscriptions, guarantees and unconditional long-term con

tracts assuring payment of full cost regardless of energy

output have provided the necessary credit for a project

company that has no income of its own during constru

Section 7(d)(2) provides that we not authorize a proposed

financing that is not reasonably adapted to the earn ne

power of the issuer

App. 30

tion.” In this case, MSE’s financial support is based on

the capital funds agreement with MSU, the availability

agreement, advances for purchase power and the unit pow-

er sales contract now before FERC.

In our prior orders in connection with the first mortgage

bonds and pollution control bonds (HCAR Nos. 23526

(December 12, 1984) and 23495 (November 23, 1984)), we

stated that a supplemental opinion will address in detail

all the Arkansas Commission’s objections. The forego- |

ing discussion is to be considered the supplemental opin- |

ion for each of these financing orders.

On December 21, 1984, the State of Arkansas, through its

Attorney General, filed its appearance in this proceeding,

a motion to dismiss and supporting brief. It is urged that

the indemnity obligation of APL is an evidence of in-

debtedness which requires approval of the Arkansas Com-

mission; and that, as no such approval has been obtained,

the application-declaration in respect of the common stock

financing (File No. 70-6906) be dismissed in light of See-

tion 7(g) of the Act. A separate motion is made on es-

sentially the same grounds to reconsider and not to per-

26 The Potoinac Edison Company, HCAR No. 17054 (March

17, 1971); Indiana and Michigan Power Co., HCAR No.

17247 (August 23, 1971); Maine Yankee Atomic Power Co.,

43 SEC 764, 766-767 (1968); Vermont Yankee Nuclear

Power Corp., 43 SEC 693, 695-696 (1968); Connecticut

Yankee Atomic Power Co., 41 SEC 715-716 (1963); Yankee

Atomic Electric Corp., et al., 36 SEC 552, 558-559 (1955);

Electric Energy Inc. et al., 32 SEC 495, 496-498 (1951); Vir-

ginia Public Service Generating Co., 6 SEC 419, 423-424

(1939); Dresser Power Corp. et al., 6 SEC 38, 41-42 (1939)

in which a contract to lease or purchase the property on

completion was used instead of a contract to purchase its

output.

mit

App. 31

the sale of first mortgage bonds of MSE (File No.

70-7021), which we authorize by order of December 12,

1984 (HCAR No. 23526). A similar motion for reeonsid-

eration and hearing was filed on the same day by the

Arkansas Commission. All these motions present no new

issues.

There are no genuine or relevant issues of fact, and a

hearing is not needed and will be denied.2’ The issue and

sale of MSE stock to MSU meets all the standards of the

Act.

IT IS ORDERED, accordingly, that the proposal of

MSE to sell common stock and the acquisition there-

of by MSU are granted, effective forthwith, subject

to Rule 24 under the Act; and

IT IS FURTHER ORDERED that the request for

a hearing be, and it hereby is, denied, and

IT IS FURTHER ORDERED that the motion of the

State of Arkansas, by its Attorney General, to dis-

miss the proposal to sell the MisK common stock to

to MSU be, and it hereby is, denied; and

IT IS FURTHER ORDERED that the motions to

reconsider our prior authorization of MSEH’s first

See Herring v. SEC, 673 F.2d 1191, 1192-93 (11th Cir. 1982);

The Southern Company, HCAR No. 21766, 21 SEC Docket

380 (October 29, 1980); aff'd without opinion, Herring

v. SEC, 672 F.2d 894 (D.C. Cir. 1981); Assoc. of Mass. Con-

sumers, Inc. v. SEC, 516 F.2d 711, 714-16 (D.C. Cir. 1975);

Bell Telephone Company of Pennsylvania v. FCC, 503 F.2d

1250, 1267-68 (3rd Cir. 1974); See also Gulf States Utilities

Company v. FPC, 411 U.S. 747, 754-55 (1973); City of

Lafayette La. v. SEC, 454 F.2d 941, 954-56 (D.C. Cir. 1971).

App. 32

mortgage bond financing be, and they hereby are,

denied.’’

By the Commission.

/s/ John Wheeler

Secretary

App. 33

PART C

BEFORE THE

ARKANSAS PUBLIC SERVICE COMMISSION

DOCKET NO. 84-040-0IT

ORDER NO. 1

IN THE MATTER OF AN INVESTIGATION INTO

THE OPERATION OF ARKANSAS POWER & LIGHT

COMPANY AS A SUBSIDIARY OF MIDDLE SOUTH

UTILITIES, INC.

ORDER INSTITUTING INVESTIGATION

As the result of recent developments in two proceed-

ings now pending before the Federal Energy Regulatory

Commission (FERC)* which portend catastrophically

enormous rate increases for all classes of customers of

Arkansas Power & Light Company (AP&L), the Arkansas

Public Service Commission has determined that it should

conduct an investigation into the facts, law, and circum-

stances underlying the relationships between AP&L, its

affiliates, and its parent holding company, Middle South

Utilities, Inc. Such an investigation is necessary in order

to gauge the effect such intercorporate relationships have

had or may have upon the rates charged AP&L’s cus-

tomers and upon the authority and ability of the State of

Arkansas, and this Commission in particular, to set retail

electric rates for AP&L.

More specifically, the purpose of the investigation

hereby instituted is to make findings of fact concerning:

(1) The events leading up to the construction of the

Grand Gulf Nuclear Project in the State of Mississippi.

*Middle South Energy, Inc., FERC Docket No. ER82-616-000,

hereafter referred to as the Grand Gulf case, and Middle South

Services, Inc., FERC Docket No. ER82-483-000, hereafter re-

ferred to as the System Agreement case.

App. 34

(2) The various agreements and contracts signed

by AP&L and other Middle South subsidiaries affecting

the planning, construction and financing of, and the obli-

gations of certain companies to pay for, the Grand Gulf

plant.

(3) The overall System Agreement signed by the

Middle South operating companies in 1973 and all pred-

ecessor and successor agreements among the parties to the

Middle South power pool.

(4) The representations made to this Commission

and other regulatory bodies at various times and in cer-

tain proceedings by AP&L and Middle South Utilities,

Ine. (including its subsidiaries), concerning the afore-

mentioned events, relationships, agreements, and contracts.

In conducting this investigation, the Commission wish-

es to enlist the assistance and cooperation of all interested

persons having knowledge of facts, events, and circum-

stances pertinent to the inquiry. Thus, while the general

nature of the investigation shall be as stated above, the

Commission invites preliminary comments from the public

concerning the particular questions which should be ad-

dressed in the investigation. All preliminary comments

should be received by the Commission no later than Mon-

day, April 2, 1984. Such preliminary comments may be

submitted informally, in writing, in the form of statements

or letters to the Secretary of the Commission.

After reviewing the preliminary comments, the Com-

mission will issue an Order more specifically focusing the

investigation, posing questions, and requesting informa.

tion. At that time a schedule for the filing of testimony

App. 35

and/or responses by AP&L and other interested persons

will be established. A hearing in this docket shall be held

at 9:00 A.M. on Tuesday, May 5, 1984, in the Commission

Hearing Room on the First Floor of the new Public Ser-

vice Commission Building, 10th & Center Streets, Little

Rock, Arkansas.

As should be apparent, this investigation is intended

to be retrospective in nature. It should be distinguished

from the companion Order Instituting Investigation 84-

041-Oll, also issued this “ate, which is designed to ex-

amine prospectively the aiternatives and remedies that

may be available to the Commission and the State of

Arkansas in grappling with the various possible outcomes

of the Grand Gulf and System Agreement cases as they

proceed through FERC and the federal courts. As the

product of both investigations, the Commission expects

to issue a report and declaration of the facts which will

be provided to the Governor, the General Assembly, and

the public as a foundation for the discussion of possible

remedial state legislation 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.

Therefore, pursuant to the powers vested in this Com-

mission under Ark. Stat. Ann. §§ 73-202 and 73-218 (Repl.

1979),

IT IS ORDERED THAT:

1. This Commission hereby initiates investigation

into the operation of Arkansas Power & Light Company

as a subsidiary of Middle South Utilities, Inc.

App. 36

2. All interested persons shall submit Preliminary

Comments suggesting particular questions or avenues of

inquiry on or before Monday, April 2, 1984.. Such Pre-

liminary Comments may be in the form of statements or

letters to the Commission and should reference Docket 84-

041-Oll. They may be mailed to the Secretary of the

Commission at P.O. Box C-400, Little Rock, AR 72203.

3. A hearing in this Docket shal! be held at 9:00 A.

M., on Tuesday, May 8, 1984, in the Commission Hearing

Room, First Floor of the new Public Service Conimission

Building, 10th & Center Streets, Little Reek, Arkansas.

BY ORDER OF THE COMMISSION

This 12th day of March, 1984.

/s/ Robert E. Johnston,

Dr. Robert E. Johnston, Chair-

man

/s/ James W. Daniel

James W. Daniel, Commissioner

/s/ Patricia S. Qualls

Patricia S. Qualls, Commission-

/s/ Amy Brooks

Secretary to the Commission

I hereby certify that the foregoing order issued by

the Arkansas Public Service Commission has been served

on all parties of record this date, by U.S. Mail with post-

age prepaid, being the address of each party as indicated

in the official docket file.

/8/ Amy Brooks date 3-12-84

Secretary of the Commission

App. 37

PART D

ARKANSAS PUBLIC SERVICE COMMISSION

DOCKET No. 84-041-0I1

ORDER NO. 1

IN THE MATTER OF AN INVESTIGATION INTO THE

EFFECT ON RETAIL RATES CHARGED BY ARKAN-

SAS POWER & LIGHT COMPANY OF FEDERAL EN-

ERGY REGULATORY COMMISSION DECISIONS IN-

VOLVING MIDDLE SOUTH UTILITIES AND THE AL-

TERNNATIVES AND REMEDIES AVAILABLE TO

THE ARKANSAS PUBLIC SERVICE COMMISSION

AND THE STATE OF ARKANSAS IN MITIGATION

OF SUCH EFFECTS

ORDER INSTITUTING INVESTIGATION

On February 3, 1984, an administrative law judge of

the Federal Energy Regulatory Commission (FERC) is-

sued an initial Decision Concerning Sales of Power From

the Grand Gulf Nuclear Generating Plant in FERC Docket

No. ER82-616-000 (hereinafter referred to as ‘‘the Grand

Gulf case’’). The effect of this decision, should it be af-

firmed by the full FERC and the courts, would be to in-

crease rates to Arkansas Power & Light Company (AP&L)

customers by approximately $310 million in 1985 and by

similar (but, perhaps, declining) amounts in subsequent

years. The Grand Gulf case and a second case, also filed

by a subsidiary of Middle South Utilities, Inc., and styled

Middle South Services, Inc., in FERC Docket No. ER82-

483-000 (known as ‘‘the System Agreement case’’), to-

gether present the stark specter of rate increases to AP&L

customers of $3.5 billion or more during the next ten years.

App. 38

Ineresses of such magnitude would translate into rate hikes

in the range of 40° on an annual basis for all classes of

AP&L customers. .

The intolerable burden such dramatic increases would

place on the customers of AP&L and the crippling effect

they would have on the economy of Arkansas necessitate

that the Arkansas Public Service Commission conduct a

searching inquiry into the alternatives and remedies that

may be available to the Commission, AP&L, and the State

of Arkansas acting through the Governor and the Genera!

Assembly in addressing this stunning prospect. There-

fore, the Commission has determined to initiate an investi-

gation into all possible options that may be within reach,

lawful, and effective in protecting the interest of the resi-

dential, business, and industrial ratepayers of AP&L and

preserving the competitiveness and viability of the State’s

economy.

The procedure to be followed in this OIT Docket will

mirror that in 64-040-0II which is a retrospective inquiry

into the events which have led up to the dilemma with

which the Commission and the State of Arkansas are now

faced as the result of the recent developments in the two

FERC eases. This investigation, however, will look for-

ward to ascertain what the ratepayers of AP&L, AP&L it-

self, the Commission, the Governor, and the General As-

sembly 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 to pay for a power

generating plant that is possibly neither needed or wanted

by anyone in Arkansas, for which a certificate of need ap-

pears never to have been sought by AP&L nor granted by

App. 39

this Commission, and that would, if forced upon the State,

potentially result in such immense amounts of excess gen-

erating capacity that it could neither be used nor sold by

AP&L.

As « first step in conducting this investigation, the

Commission hereby issues an invitation to all interested

persons, including AP&L and its customers of all classes,

to submit preliminary comments concerning the specific

options and remedies which should be examined by the

Commission in this inquiry. All such preliminary com-

ments should be received by the Commission no later than

Monday, April! 2, 1984. These comments may be submit-

ted informally, in writing, in the form of statements or let-

ters to the Secretary of the Commission.

After conducting a review of the preliminary com-

ments, the Commission will issue an Order more specifi-

eally focusing the investigation, posing questions, and re-

questing information. At that time a schedule for the

filing of testimony and/or responses by AP&L and other

interested persons will be established and a date for the

commencement of hearings, which will be held from time

to time as we deem necessary, will be set.

At the conclusion of this investigation, the Commis-

sion expects to issue a report and declaration of the facts

concerning the alternatives evaluated which will be pro-

vided to the Governor, the General Assembly, and the pub-

lic. Such findings of fact are intended to be aids to the

consideration of legal and legislative action that may be-

come necessary in the future to deal with the problems

presented by the FERC cases.

App. 40

Th preparing preliminary comments, the Commission

urges all interested persons to address matters outside of

the subject of the legal procee lings and appeals of the

FERC decisions, since all Arkansas parties to those cases

are already diligently pursuing this alternative.

THEREFORE, pursuant to the powers vested in this

Commission under Ark, Stat. Ann, §§73-202 and 73-218

(Repl. 1979),

'T IS ORDERED THAT:

1. This Commission hereby initiates an investigation

into the effect on retail rates charged by Arkansas Power

& Light Company of Federal Energy Regulatory Commis-

sion decisions involving Middle South Utilities, Ine., and

the alternatives and remedies available to the Arkansas

Public Service Commission and the State of Arkansas in

mitigation of such effects.

2. All interested persons shall submit Preliminary

Comments suggesting particular questions or avenues of

inquiry in this docket on or before Monday, April 2, 1984.

Such Preliminary Comments may be in the form of state-

ments or letters to the Commission and should reference

Docket 84-040-0IT, They should be mailed to the Secre-

tary of the Commission at P.O. Box C-400, Little Rock,

AR 722083.

By ORDER OF THE COMMISSION

This 12th day of March, 1984,

/s/ Robert E. Johnston, Chairman

/s/ James W. Daniel, Commissioner

/s/ Patricia S. Qualls, Commissioner

/s/ Amy Brooks

Secretary to the Commission

(Stamp)

App. 41

PART E

ROSE LAW FIRM

A Professional Association

ATTORNEYS

120 East Fourth Street

Little Rock, Arkansas 72201

Telephone (501) 375-9131

Telecopier (501) 375-1309

U, M, ROSE

1834-1913

September 10, 1985

Mr. Robert D. St. Vrain, Clerk

8th Circuit Court of Appeals

511 U.S. Court and Customs House

St. Louis, Missouri 63101

Re: Middle South Energy, Inc., et al. v. Arkansas Public

Service Commission, et al., Nos. 84-2356-EA, 84-249,

84-2410 and 84-2480.

Dear Mr. St. Vrain:

On September 6, 1985, we filed on behalf of Appellants

a Petition for Rehearing by Panel and Suggestion for Re-

hearing En Bane.

By agreement with Appellees, we request that our Peti-

tion be withdrawn from consideration. Thank you for your

attention in this matter.

Yours very truly,

/s/ Carol S. Arnold

esa :jm

App. 42

ec: Mr. Michael Thompson

Mr, Jerry D. Jackson

Mr. Steve L. Riggs

M Te Robert Wood

Mr. Jay T. Youngdah!

Mir. Louis H. Willenken

Mr. N. M. Norton, .Jr.

App. 43

PART F

ARKANSAS PUBLIC SERVICE COMMISSION

DOCKET NO, 84-190-U

ORDER NO. 5

IN THE MATTER OF AN ORDER FOR ARKANSAS

POWER & LIGHT COMPANY TO APPEAR AND

SHOW CAUSE WHY CERTAIN AGREEMENTS

SHOULD NOT BE HELD TO BE VOID AB INITIO

ORDER

Pursuant to the ‘‘Stipulation and Settlement Agree-

ment’? filed in Docket No, 84-249-U on September 5, 1985,

and the Commission’s Order No. 26 entered in said docket

on September 9, 1985, the Secretary of the Commission is

hereby directed to close the above-sty!ed docket effective

as of the date of this order.

BY ORDER OF THE COMMISSION

This 20th day of September, 1985.

s/ Dr. Robert EF. Johnston,

Chairman

‘s/ James W. Daniel, Commissioner

s/ Patricia S. Qualls, Commissioner

s/ Vertina Burris acting

Melinda Mills

Secretary of the Commission

(Stamp)

| aielnaeneneiaeennentil

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