Petition for Writ of Certiorari — American Electric Power Co. v. Kentucky Public Service Commission

86-49

OF

FIL

}

IN THE i

Supreme Court, U.S.

E D

JUL 17 1986

-ANIOL, JR.

CLERK

Vee --

Supreme Court of the Anited States

OCTOBER TERM, 1986 |

AMERICAN ELECTRIC POWER COMPANY, INC., ef al.

Petitioners,

KENTUCKY PUBLIC SERVICE COMMISSION, et al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

A. Joseph Dowpb

JOHN R. BURTON

KEVIN F. Durry

AMERICAN ELECTRIC POWER

SERVICE CORPORATION

1 Riverside Plaza

Columbus, Ohio 43215

(614) 223-1060

* Counsel of Record

Rex E. Lee*

Davin W. CARPENTER

SipLey & AUSTIN

1722 Eye Street, N.W.

Washington, D.C. 20006

(202 ) 429-4000

Live_ty M. WILSON

Bruce F. CLark

Stites & HARBISON

600 West Main Street

Louisville, Kentucky 40202

(502 ) 587-3400

Pandick Midwest, Inc.. Chicago ¢

733-6000

w~

>

oo"

i

QUESTION PRESENTED

Whether the abstention doctrines of Burford v. Sun Oil

Co., 319 U.S. 315 (1943), or Younger v. Harris, 401 U.S. 37

(1971), can prevent a federal district court from adjudicating a

claim that a federal statute (like the Federal Power Act) vests

exclusive jurisdiction over certain matters in a federal agency

(like FERC) and preempts a state utility commission from

making its own separate determinations of those matters and

preferring its state’s interests to those of other states, contrary to

the federal regulatory scheme?

ii

STATEMENT REQUIRED BY RULE 28.1

Petitioners Kentucky Power Company, Appalachian Pow-

er Company, Columbus and Southern Ohio Electric Company,

Indiana & Michigan Electric Company, Ohio Power Company,

and AEP Generating Company are each subsidiaries of peti-

tioner American Electric Power Company, Inc. American

Electric Power Company, Inc. has no parent company. Ameri-

can Electric Power Company, Inc. has no other subsidiaries that

are not wholly-owned.

PARTIES BELOW

The Plaintiffs-Appellants in the Listrict Court and the

Court of Appeals were: American Eiectric Power Company,

Inc., Kentucky Power Company, Appalachian Power Com-

pany, Columbus and Southern Ohio Electric Company, Indiana

& Michigan Electric Company, Ohio Power Company, and

AEP Generating Company.

The Defendants-Appellees and the intervenors who sup-

ported them were: Kentucky Public Service Commission;

Richard D. Heman, Chairman of the Kentucky Public Service

Commission; Laura Murrell and Rush Dozier, Members of the

Kentucky Public Service Commission; David L. Armstrong,

Attorney General, Commonwealth of Kentucky; Air Products

and Chemicals, Inc.; Armco Inc.; Ashland Oil, Inc.; Huntington

Alloys, Inc.; Kentucky Electric Steel Company; Pickands Ma-

ther & Co.; John Henry Ward; Bert Diamond; Sada Crum; and

Concerned Citizens of Martin County, Inc.

TABLE OF CONTENTS

PAGE

is ssisbasinoudamniseneen i

Statement Required By Rule 28. l....................cccsccssssssssseee ii

had ss potlisipsesiegrchaleenbebiconpense ii

EES TT NC iv

iri och ca mivincnnncheosancasmessedsensieioes l

I aeeantbelopuneooonsne l

Si sceneunpensemnsaberbeasansoonssoosnes 2

Reasons For Granting The Wit ...............ccccccccssccssssssssenes 8

cael on bali tn nesadendsboninsoasonsinaksncinaht 16

Appendix

Opinion of Court of Appeals .................:cccssceesseeeeeeee la

Order of Court of Appeals Denying Rehearing........ 13a

Order of Court of Appeals Denying Motion to

ESE SNE ee Ao Te ae l4a

EN Oi BIE SUIT oncsscserncsvncnsscscsvesonsnosececseneees 15a

iV

TABLE OF AUTHORITIES

CASES:

Aluminum Co. of America v. Utilities Cemm’n of

North Carolina, 713 F.2d 1024 (4th Cir. 1983),

cert. denied, 465 U.S. 1052 (1984) oo... eee

Antalek vy. Norfolk and Western Ry. Co., No. 84-

3057 (6th Cir., Aug. 30, 1984, unpublished

IT vias cisctictitits id snvsisinnsinenansnstaplienbvcenietibiaiiatimdigasion

Appalachian Power Co. v. Public Service Comm’n

of West Virginia, 614 F. Supp. 64 (S.D.W. Va.),

aff'd, 770 F.2d 159 (4th Cir. 1985), on remand,

630 F. Supp. 656 (S.D.W. Va. 1986)...

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571

CRORE 3 sxc sscsinisecilontnsccieseniinsicsaltpianeithitdinenaiieatsiilnadeiiibiatdie

Baggett v. Department of Professional Regulation,

Bd. of Pilot Comm’rs, 717 F.2d 521 (11th Cir.

Burford v. Sun Oil Co., 319 U.S. 315 (1943)...........

Champion Int’l Corp. v. Brown, 73\ F.2d 1406

FE stn ii a traits atenieaniiptevinnincinntiainonis

Colorado River Water Conservation Dist. v. United

I TR Bis SNPS scnccticvecenencinntensncentionns

Family Division Trial Lawyers v. Moultrie, 725

Pe ee ie Gals BND ticesicentrednccnenisthnbintwentones

International Bhd. of Elec. Workers vy. Public

Service Comm’n of Nevada, 614 F.2d 206 (th

a I liters tndaliticltdl incianctlainipeidnopedibaiameciioutesaes

Kentucky West Virginia Gas Co. v. Pennsylvania

Public Utility Comm’n, 79\ F.2d Wtil (3rd Cir.

Middlesex County Ethics Committee vy. Garden

State Bar Ass’n, 457 U.S. 423 (1982) 0...

Middle South Energy, Inc. vy. Arkansas Public

Service Comm’n, 772 F.2d 404 ( 8th Cir. 1985)...

PAGE

Sas, 83

15

6, 9, 12

9,12, 14

passim

9,12

ee

9, Li-12

14

passim

11, 12

9, 12, 13-14

es eR sleet ent oni

PAGE

Nantahala Power & Light Co. v. Thornburg, 54

U.S.L.W. 4676 (June 17, 1986) ..............csccccccsseee passim

New Orleans Public Service, Inc. v. New Orleans,

FO We Se Cee le BP iscscetctetsstessctnisnnsincens 2, 13, 35

Ohio Civil Rights Comm’n v. Dayton Christian

Schools, Inc., 54 U.S.L.W. 4860 (June 27, 1986) 11

Public Utilities Comm’n of California vy. United

NN: BSE GI BOE CI OU P cikiicsrninisnisctorcinncnsccnnns 10

Public Utilities Comm’n of Ohio v. United Fuel Gas

Cs ee re I PD sskcsancsicemtavacsvasncimnereienacie 10, 14

South Central Bell Tel. Co. v. Louisiana Public

Service Comm’n, 744 F.2d 1107 (Sth Cir. 1984),

vacated on other grounds, 54 U.S.L.W. 4505

Re IE eitebisihiehvchincieliadevabiduascntaaainasenianess 9,14

Younger v. Harris, 401 U.S. 37 (1971)... cee passim

ADMINISTRATIVE DECISIONS:

AEP Generating Company, 29 FERC (CCH)

ph. SRR eRe Sergent erat 3

AEP Generating Company, 32 FERC (CCH)

pe, =) NNN PORN RON os Tm 0 ORSON 5

Kentucky Power Co., FERC Docket EL 86-10-000.. 5

STATUTES:

Federal Power Act, 16 U.S.C. §§ 791a-828c............ passim

SOI FE, Be Us BBE ennicetacicsccsnnicstrncentecsene 7,14

Natural Gas Act, 15 U.S.C. §§ 717-717w ...0 8

ae Bitctnscices cect cinder etiechinisihaanieeies |

Be Ey OO Wc iiiiinevsicasisitaintialinsatiaahiisies talents 7

ee eee

nnn

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

AMERICAN ELECTRIC POWER COMPANY, INC., e¢ ai,

Petitioners,

v.

KENTUCKY PUBLIC SERVICE COMMISSION, et ai.,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

OPINIONS BELOW

The opinion of the Court of Appeals ( Appendix (“‘App.”)

la-12a) and the order denying FERC’s and petitioners’ motion

to publish the opinion (App. 14a) are each unpublished. The

opinion of the District Court (App. |5a-23a) is unpublished.

JURISDICTION

The opinion and judgment of the Court of Appeals was

entered on March 24, 1986. App. la-12a. A timely petition for

rehearing was denied on May 6, 1986. App. 13a. This Court’s

jurisdiction is invoked under 28 U.S.C. § 1254(1).

2

STATEMENT OF THE CASE

This case presents a question that, over the past four years,

has become one of the most widely litigated and widely

controverted in the federal system: whether abstention prin-

ciples prohibit a federal district court from adjudicating a claim

that a federal statute (like the Federal Power Act) vests

exclusive jurisdiction over certain matters in a federal regu-

latory agency (like the Federal Energy Regulatory Commission

(“FERC”)) and preempts a state utility commission from

making its own determination. The Sixth Circuit’s holding on

this abstention issue squarely conflicts with the decisions of the

Third, Fifth, Eighth, Ninth, Eleventh, and District of Columbia

Circuits. Only one decision of the Fourth Circuit is consistent

with the Sixth Circuit’s holding in this case. Accordingly, eight

circuits are involved in the conflict.

The importance of review of these questions is greatly

accentuated because, late last term, this Court held that the

Federal Power Act does preempt state regulatory commissions

from exercising jurisdiction over matters covered by FERC

wholesale rate schedules; at the same time, this Court’s decision

explicitly left a number of questions unanswered. See Nanta-

hala Power & Light Co. v. Thornburg, 54 U.S.L.W. 4676, 4681

(June 17, 1986). The conflict in the courts of appeals on the

abstention issues is thus impeding the development of substan-

tive federal law. This case demonstrates how the unresolved

conflict can subvert the central purposes of the Federal Power

Act by enhancing the ability of states to seek to prefer their

parochial interests at the expense of their neighbors.

Factual Background. This case is typica! of the many

recent cases that have presented these federal abstention issues.

A state utility commission (the Kentucky Public Service Com-

mission ) has refused to give effect to the governing FERC rate

schedules in setting retail rates. Instead, it has sought to

redetermine matters that petitioners claim to be subject to

FERC’s exclusive jurisdiction — the allocation of low-cost

~ 10 oe nt 0 SI At etic Ae Hh i

power supplies and interstate transmission costs among affil-

iated utilities serving different states — and to force an inter-

state power pool to subsidize Kentucky’s citizens. Petitioners,

in turn, sought a federal court order that would prevent this

interference with the federal regulatory scheme and protect the

financial integrity of the interstate power pool — only to be met

with a contention that a federal court may not adjudicate these

federal claims.

Petitioners are five operating electric utilities that sell

electricity to customers in seven different states (Kentucky,

Virginia, Tennessee, West Virginia, Ohio, Indiana, and Michi-

gan), their parent company (American Electric Power Com-

pany, Inc. (“AEP”) ), and an affiliate (AEP Generating Com-

pany). Kentucky Power Company is the AEP subsidiary that

serves Kentucky.

Each of these AEP operating electric utilities has its own

generating capacity. Their facilities, however, are inter-

connected by extra high voltage transmission lines to form the

“AEP Power Pool.” This pooling of power permits AEP

companies to achieve economies of scale and to coordinate the

construction and operation of generating and transmission

facilities, enhance reliability, and assure that each operating

company can supply power to its retail customers at lower unit

costs. These power supply allocation and transmission arrange-

ments are governed by contracts among the AEP member

companies, each of which has been filed with, and accepted by,

FERC as a rate schedule.

This case arose because the Kentucky Public Service

Commission refused to give effect to FERC rate schedules in

setting Kentucky Power’s retail rates, in two respects.

First, Kentucky Power is subject to a Unit Power Agree-

ment, which FERC accepted as a rate schedule and which

became effective, subject to refund, on December !0, 1984. See

AEP Generating Co., 29 FERC (CCH) 4 61,002 (1984). This

FERC rate schedule obligates Kentucky Power to purchase

4

15% of the output of a coal-fired piant (“Rockport Unit 1”)

that is jointly owned by petitioners AEP Generating Company

and Indiana & Michigan Electric Company. Kentucky Power

entered into this agreement because it had not added new

capacity to the Power Pool since 1969, and its generating

capacity has been insufficient for many years to meet the

demand of Kentucky Power’s customers and a prudent re-

serve.1 While the power from recently-constructed plants lik-

Rockport Unit | is unavoidably more expensive than the power

from preexisting AEP company facilities (which were built

when costs were lower), the Rockport Unit | power is far less

expensive than is the power from plants of other utilities that

came on line during this same period.?

The Kentucky Public Service Commission refused to rec-

ognize the costs incurred under the Unit Power Agreement in

establishing Kentucky Power’s retail revenue requirements and

retail rates. Instead, the Kentucky Commission set rates “as if”

Kentucky Power had purchased the required additional capac-

ity from the AEP Power Pool at a cost of about $240 per kw (as

opposed to the some $855 per kw capacity cost of the Rockport

Unit | power). The Kentucky Commission justified its action

1 It is essential to the successful operation of the AEP Power Pool

that each of the operating companies acquires additional generating

capacity when it becomes clear that its customer=’ demand for power

will chronically exceed that company’s own generation. In Kentucky

Power's view, Sections .5, .6 and 5.7(ii) of a second FERC rate

schedule (the AEP System Interconnection Agreement) impose this

obligation on each member company. See p. 5 n.3, infra.

2 Rockport Unit | has capacity costs of about $855 per kilowatt

(kw). The capacity costs of coal-fired generating units of other

utilities that have come on line during this period have generally

ranged from about $1,250 per kw to $1,500 per kw. The average

embedded capacity charges for power from existing AEP plants is

about $320 per kw. The average embedded capacity charges are

lower because they reflect costs of electric generation facilities con-

structed during earlier periods when construction costs were substan-

tially lower. |

— —--

5

by (1) “construing” a second FERC rate schedule that applies

to the AEP companies (the AEP System Interconnection Agree-

ment) to give Kentucky Power the option of obtaining power

from the pool and (2) finding that Kentucky Power had been

“imprudent” in acquiring new capacity from Rockport Unit |

instead of exercising its supposed “option” to continue to buy

power from the pool. The Kentucky Commission took this

action despite the fact that the Unit Power Agreement is the

“filed rate” and that, in Kentucky Power’s view, the System

Interconnection Agreement had required Kentucky Power to

enter into that Unit Power Agreement.3 See p. 4 n.1, supra. In

any event, FERC has exclusive jurisdiction to construe the

System Interconnection Agreement and to allocate low-cost and

higher-cost power supplies among the AEP companies.

The result of the Kentucky Commission’s order is that

Kentucky Power is obligated by the FERC rate schedule to

incur $23 million in costs each year that now cannot be

recouped through its retail rates. But these “trapped costs” (see

Nantahala Power & Light Co. v. Thornburg, 54 U.S.L.W. at

4681) are not the only adverse consequences of the Kentucky

order. The Kentucky Commission order is an attempt to use its

3 Indeed, after the Kentucky Commission issued its order, Ken-

tucky Power filed a petition with FERC seeking a declaratory ruling

that confirms that Kentucky Power is required to obtain this alterna-

tive power source and does not have the option of chronically draining

power away from the pool. FERC has exercised jurisdiction over this

matter, in a proceeding in which the Kentucky Commission and other

respondents are parties. Kentucky Power Co., FERC Docket EL86-

10-000. FERC has said that its decision on this issue will bind the

state commissions. AEP Generating Company, 32 FERC (CCH)

1 61,364, at 61,821 ( 1985}. A decision by FERC is expected shortly.

6

jurisdiction over retail rates to shift the relatively higher costs of

Rockport Unit | power to customers in other states, contrary to

FERC’s jurisdiction. Jd.4

Second, the Kentucky Commission also refused to give

effect to the terms of a second FERC rate schedule: the AEP

Transmission Agreement which reallocates the costs of the AEP

extra-high voltage transmission lines among the AEP pool

members based upon :heir relative demand on the system,

instead of the geographical method which had previously

applied. Under the Transmission Agreement, the transition to

the new system of cost allocation is phased in over a five-year

period. However, the Kentucky Commission refused to recog-

nize the phased-in nature of the Agreement. This Commis-

sion’s ruling will have the effect of creating an additional $24

million in “trapped costs” over the five years. A federal court

has entered an injunction requiring another state utility com-

mission to give full effect to this same AEP Transmission

Agreement in setting retail rates. See Appalachian Power Co. v.

Public Service Comm’n of West Virginia, 614 F. Supp. 64

(S.D.W. Va.) (preliminary injunction), aff'd, 770 F.2d 159

(4th Cir. 1985), on remand, 630 F. Supp. 656 (S.D.W. Va.

1986) (permanent injunction ).

Proceedings in the Lower Courts. Petitioners filed this suit

in federal district court on December 12, 1984, eight days after

the Kentucky Commission entered its order and two days after

the Unit Power Agreement became effective. Petitioners con-

tended that both the Federal Power Act and the Commerce

Clause required the Kentucky Commission to give effect to the

4 Under the Kentucky order, Kentucky Power is assumed to be

entitled to purchase power at a cost of about $240 per kw when the

average embedded cost of capacity from the AEP companies is about

$320 per kw and when member companies are adding new power to

the pool at a cost of about $855 per kw. The Kentucky Commission

pointed to no other source of power outside the AEP system available

to Kentucky Power (and indeed there is none) which would cost less

than the $855 per kw.

5

Unit Power Agreement and Transmission Agreement unless

and until modified by FERC and to respect FERC’s exclusive

jurisdiction over these arrangements. Petitioners sought a

preliminary injunction that would permit the immediate recov-

ery of the $23 million in “trapped” annual Unit Power Costs

and thereby preserve the financial stability of the AEP Power

Pool and its members. In light of the urgent need for relief,

petitioners requested, and the District Court granted, expedition

on the motion for preliminary injunction, with a hearing

occurring on December 18, 1984.

Less than one month later, on January 16, 1985, the

District Court held that it had jurisdiction under 28 U.S.C.

§ 1331 and that the Johnson Act (28 U.S.C. § 1342) author-

ized this action (App. 18a-19a), but dismissed the complaint on

two related abstention grounds. First, it noted that Kentucky

Power had subsequently appealed the Kentucky Commission

order to a Kentucky state court.5 Because Kentucky Power

could raise its federal claims in that then-ongoing state appeal,

the District Court held that it was required to abstain under the

doctrine of Younger v. Harris, 401 U.S. 37 (1971). App. 19a-

20a. Second, the District Court held that abstention was

independently required by the doctrine of Burford v. Sun Oil

Co., 319 US. 315 (1943), because the federal action could

interfere with Kentucky’s “overriding interest in regulating the

retail rates charged by public utilities.” App. 21a-23a.

A divided Sixth Circuit affirmed. First, the court held, with

5 Because it had been unclear whether the District Court would

assert jurisdiction over the matter, Kentucky Power filed a petition in

the Kentucky state court for review of the Kentucky Commission

order, on December 20, 1984, eight days after the federal suit was

filed. Kentucky law requires such appeals to be filed within 20 days of

the final commission order. This state proceeding is limited to the

administrative record, and the six other AEP company petitioners are

not parties to this state appeal.

8

Judge DeMascio disagreeing (App. 10a-12a), that the doctrine

of Younger v. Harris required abstention. App. 6a-7a. Second,

while the per curiam decision stated that abstention is not

required by Burford (App. 4a-6a), two of the three judges on

the panel separately stated that Burford. too, required absten-

tion. App. 7a-10a & 10a-12a. Thus, the Sixth Circuit voted two

to one in favor of abstention on each theory.

REASONS FOR GRANTING THE WRIT

The question whether abstention principles deprive federal

district courts of authority to prevent state utility commissions

from interfering with the exclusive jurisdiction of FERC (or

other federal agencies) has become one of the most important

and frequently recurring questions facing the federal judiciary.

When the question was presented to the Court three terms ago

in Aluminum Company of America v. Utilities Comm’n of North

Carolina, 713 F.2d 1024 (4th Cir. 1983) (“Alcoa’’),® only the

Fourth Circuit had squarely addressed this issue. This Court

denied Alcoa’s petition for certiorari, with Justices Brennan and

White noting that they would have granted the petition. 465

U.S. 1052 (1984). In the intervening three years, litigation of

these questions has exploded. Four circuits have addressed

these abstention issues in cases presenting the same Federal

Power Act (or Natural Gas Act)” preemption claims raised in

6 There, Alcoa had sought to litigate in federal district court the

identical factual and legal claims under the Federal Power Act that

this Court subsequently decided in Nantahala Power & Light Co. v.

Thornburg, 54 U.S.L.W. 4676 (June 17, 1986).

7 This Court has stated many times that the “relevant provisions

of {the Natural Gas Act and the Federal Power Act] ‘are in all

material respects substantially identical’” and that it is the Court’s

“established practice” to “cit{e] interchangeably decisions inter-

preting the pertinent sections of the two statutes.” Arkansas Louisiana

Gas Co. v. Hail, 453 U.S. 571, 577 n.7 (1981) (citations omitted ).

9

this case and in Alcoa.® In addition, other circuits have since

addressed the issues in other closely related contexts.9 The Sixth

Circuit’s abstention decision conflicts with each of these inter-

vening court of appeals’ decisions, as well as with the pertinent

decisions of this Court. Ironically, the only court of appeals’

decision that agrees with the Sixth Circuit is the decision that

the Sixth Circuit’s per curiam opinion ( App. 4a-6a) purports to

disagree with: the Fourth Circuit decision in Alcoa. Thus in

three years, the conflict has spread to eight circuits, with six

favoring the petitioners’ view, and two opposed.

1. This Court’s holdings reject the Sixth Circuit’s ruling in

this case. This Court has held that a federal court may not

exercise “judicial discretion to dismiss a suit merely because a

State court could entertain it” and that a federal court can

abstain from “adjudicat[ing] a controversy properly before it

... Only in the exceptional circumstances where the order to the

Parties to repair to the State court would clearly serve an

important countervailing interest.” Colorado River Water Con-

servation District vy. United States, 424 U.S. 800, 813-14

(1976).

This Court’s holdings teach that state courts simply cannot

have an overriding interest in adjudicating the question whether

Congress has conferred exclusive jurisdiction over certain mat-

® Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility

Comm'n, 791 F.2d Ltil (3rd Cir. 1986) (Natural Gas Act); New

Orleans Public Service, Inc. v. New Orleans, 782 F.2d 1236 (5th Cir.

1986) (Federal Power Act); Middle South Energy, Inc. v. Arkansas

Public Service Comm'n, 772 F.2d 404 (8th Cir. 1985) ( Federal Power

Act); Appalachian Power Co. v. Public Service Comm'n of West

Virginia, 770 F.2d 159 (4th Cir. 1985), affirming 614 F.Supp. 64

(S.D.W. Va.) (Federal Power Act).

9 South Central Bell Tel. Co. vy. Louisiana Pub. Service Comm’n,

744 F.2d 1107, 1123 (Sth Cir. 1984), vacated on other grounds, 54

U.S.L.W. 4505 (May 27, 1986); Champion Int’l Corp. v. Brown, 731

F.2d 1406 (9th Cir. 1984); Family Division Trial Lawyers v. Moultrie,

725 F.2d 695 (D.C. Cir. 1984); Baggett v. Dept. of Professional

Regulation, 717 F.2d 521 (11th Cir. 1983).

10

ters in a federal regulatory agency and has therefore preempted

contrary state action. This Court has repeatedly upheld the

authority of federal courts to enjoin state utility commission

action on the same basic preemption grounds presented here

and rejected arguments that state remedies must be exhausted

— without even addressing whether abstention was required or

permitted. See, e.g., Public Utilities Comm'n of California v.

United States, 355 U.S. 534, 540 (1958); Public Utilities

Comm’n of Ohio v. United Fuel Gas Co., 317 U.S. 456 (1943).

These principles apply with special force in cases present-

ing federal preemption claims under the Federal Power Act.

The Act establishes a federal tribunal (FERC) to referee

disputes among states on how low-cost and high-cost electric

power supplies are allocated among them. The purposes of the

Act would be frustrated if individual states could act on their

own incentives and disrupt the interstate supply of power by

adopting allocations that prefer their interests to those of

neighboring states, contrary to FERC’s regulation. See Nanta-

hala Power & Light Co. v. Thornburg, 54 U.S.L.W. 4676 (June

17, 1986); p. 9 n.8, supra (and cases cited). Unless federal

district courts have jurisdiction to enforce the now-established

federal rights under the filed rate doctrine, states can thwart the

federal regulatory scheme and subvert interstate power supply

arrangements adopted thereunder. Supreme Court review of

final judgments of the highest courts in states cannot realisti-

cally provide effective relief — as FERC recognizes. See p. 15,

infra.

For these same reasons, the Third, Fifth, Eighth, Ninth,

Eleventh, and District of Columbia Circuits have rejected each

of the separate grounds upon which the Sixth Circuit ordered

abstention in this case.

2. Under the doctrine of Younger v. Harris, a federal

district court cannot enjoin an ongoing state judicial or quasi-

judicial enforcement proceeding that implicates important state

interests when there is an adequate opportunity in the state

proceeding to raise the federal claim. See Middlesex County

Ethics Committee v. Garden State Bar Ass’n, 457 U.S. 423

(1982). Other than the Sixth Circuit in this case and the Fourth

Circuit in Alcoa, federal courts of appeals have uniformly held

that there is no basis for Younger abstention in a case like the

present one, for two related reasons.

First, other courts of appeals have held, contrary to the

Sixth Circuit, that Younger is inapplicable where, as in this case,

the federal plaintiff is not the defendant in a state criminal

prosecution or civil enforcement proceeding and is not seeking

to enjoin a state proceeding.‘ Here, a utility is merely prose-

cuting a parallel state rate proceeding and appeal that the

utility itself initiated. As the Third Circuit recently held, “[t]o

deny [utility claimants] access to a federal forum simply

because of their pending state appeal would be at odds with a

fundamental premise of our federal judicial system: that is, ‘that

where Congress has granted concurrent jurisdiction, a plaintiff

is free to bring suit in both the state and federal forums for the

same cause of action.’” Kentucky West Virginia Gas Co. v.

Pennsylvania Public Utility Comm’n, 791 F.2d 1111, 1117 (3rd

Cir. 1986) (citation omitted). Accord, Colorado River Water

Conservation District v. United States, supra, 424 U.S. at 817.

Similarly, the District of Columbia Circuit reasons that

there can be no Younger abstention when, as here, the state has

not “brought the federal plaintiffs before its own courts to

protect important policy and resource interests” and when, as

here, the federal plaintiff has not sought to “divert or circum-

vent state court adjudication.” Family Division Trial Lawyers v.

10 This Court’s recent decision in Ohio Civil Rights Commission v.

Dayton Christian Schools, Inc., 54 U.S.L.W. 4860 (June 27, 1986),

makes it explicit that Younger abstention was possible there only

because it involved a suit to enjoin a state enforcement proceeding

and because (in contrast to the present case) Congress had not

conferred exclusive jurisdiction on a federal agency over the matters

at issue in the state proceeding.

12

Moultrie, 725 F.2d 695, 702 (D.C. Cir. 1984). These consid-

erations have special force here, because federal claims were

raised in the state proceeding only because of uncertainty over

the availability of the federal forum. Compare p. 7 n.5, supra,

with Kentucky West Virginia Gas Co., supra, 791 F.2d at 1117.

Second, Younger abstention is proper only if the state

proceeding implicates “important state interests.” Middlesex

County Ethics Committee v. Garden State Bar Ass’n, supra, 457

U.S. at 432. Contrary to the Sixth Circuit holding, other courts

of appeals hold that this state interest in regulating retail rates,

however important, cannot give the state an “overriding inter-

est” in adjudicating federal preemption claims that go to “the

power of the state administrative agency to proceed at all;” “no

deference is due state proceedings which would entrench upon

the exclusive federal domain.” Baggett v. Department of Profes-

sional Regulation, 717 F.2d 521, 524 (11th Cir. 1983).

Thus, three courts of appeals have now held that Younger

abstention is improper in suits raising the precise Federal Power

Act and Commerce Clause preemption claims at issue here.

They reason that the “legitimate state interest contemplated by

Younger ... does not exist when the state action has been

preempted or foreclosed” by a federal statute, Middle South

Energy, Inc. vy. Arkansas Public Service Comm’n, 772 F.2d 404,

417 (8th Cir. 1985), and that the “notion of ‘comity’ embodied

by the Younger doctrine is ‘not strained when a federal court

cuts off state proceedings that entrench upon the federal

domain.’” Kentucky West Virginia Gas Co. v. Pennsylvania

Public Utility Comm’n, 791 F.2d 1111, 1117 (3rd Cir. 1986)

(citations omitted); accord, Appalachian Power Co. v. Public

Service Comm’n of West Virginia, 614 F. Supp. 64, 70-71 (S.D.

W. Va.)., aff'd, 770 F.2d 159 (4th Cir. 1985). See also

Champion Int’l Corp. v. Brown, 731 F.2d 1406, 1409 (9th Cir.

1984).

13

3. The abstention doctrine of Burford v. Sun Oil Co., 319

U.S. 315 (1943), is an even narrower exception to the duty of

federal courts to adjudicate claims properly before it. It applies

only where “difficult questions of state law” are presented and

“federal review ... would be disruptive of state efforts to

establish a coherent policy with respect to a matter of substan-

tial public concern.” Colorado River Water Conservation Dis-

trict v. United States, supra, 424 U.S. at 814. Numerous courts

of appeals have disagreed with the majority of the Sixth Circuit

panel in this case and with the Fourth Circuit in Alcoa. They

hold that Burford cannot permit abstention in a case like this

one where no state law issues are presented and the only issue is

whether federai law preempted the state agency from deciding

a matter at all. The Third, Fifth, and Eighth Circuits have so

held in cases presenting the very Federal Power Act (or

Natural Gas Act) preemption claims at issue here.

These courts of appeals reason that when “Congress has

created a statutory scheme . . . which arguably preempts the

local regulation complained of,” the federal preemption claim

is “in no way dependent on local factors or loca! expertise for

their resolution” and there is no basis for Burford abstention.

New Orleans Public Service, Inc. v. New Orleans, 782 F.2d

1236, 1243 (Sth Cir. 1986)( citations omitted );11 accord, Ken-

tucky West Virginia Gas Co. v. Pennsylvania Public Utility

Comm'n, 791 F.2d LL11, 1115-16 (3rd Cir. 1986); Middle

1On June 10, 1986, four months after its decision in New

Orleans Public Service, Inc. was announced, the Fifth Circuit, sua

sponte, requested counsel in that case to submit letter briefs on the

question whether its abstention ruling in that case should be vacated.

This development further underscores the uncertainty in this area and

the need for review by this Court.

14

South Energy, Inc. v. Arkansas Public Service Comm'n, 772

F.2d 404, 413 (8th Cir. 1985).12

Other courts have reached the identical results in cases

arising under other federal statutes. Baggett v. Department of

Professional Regulation, 717 F.2d 521, 524 (11th Cir. 1983);

South Central Bell Telephone Co. v. Louisiana Pub. Serv.

Comm’n, 744 F.2d 1107, 1123 (5th Cir. 1984), vacated on other

grounds, 54 U.S.L.W. 4505 ( May 27, 1986); International Bhd.

of Elec. Workers v. Public Service Comm’n, 614 F.2d 206, 212

n.1 (9th Cir. 1980). They, too, hold that Burford abstention

cannot be applied when there is a substantial federal preemp-

tion challenge to a state agency’s jurisdiction.

The ultimate issue in this case is how the less expensive

embedded costs and the more expensive Rockport Unit | costs

are to be allocated among the affected companies and states.

The Federal Power Act entitles petitioners to have that decision

made by FERC rather than by one of the interested states and

requires state commissions to give effect to filed rates. Nania-

hala Power & Light Co. v. Thornburg, supra, 54 U.S.L.W. 4676.

Thus, the petitioners seek nothing more than their established

rights under federal law. There is no state law issue. Neither

this Court’s precedents, common sense, nor deference to state

courts where state law is involved, requires federal abstention in

such a case. In any of at least six other circuits, the door of the

federal courthouse would have been open to these petitioners.

Such an important issue as the accessibility of federal courts to

vindicate federal rights cannot depend on the fortuity of

whether the supplicant and the courthouse are in Kentucky or

Pennsylvania.

12 The Sixth Circuit’s ruling is also inconsistent with the Johnson

Act, 28 U.S.C. § 1342. Under the Sixth Circuit’s holding, a federal

court could never grant equitable relief in a federal challenge to a

state order affecting rates. Yet the Johnson Act expressly authorizes

such orders when the federal claim is based on Commerce Clause or

federal preemption grounds. Public Utilities Comm'n of Ohio v.

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

15

4. The decision of these federal abstention issues by this

Court at this time is a matter of the utmost importance. Indeed,

FERC itself has recognized that federal court jurisdiction over

challenges to state utility commission action under the filed rate

doctrine is essential to the full implementation of the Federal

Power Act. FERC participated in the court of appeals proceed-

ings and successfully argued in favor of this position in both

Kentucky West Virginia Gas Co. v. Pennsylvania Public Utilities

Commission, 791 F.2d 1111 (3rd Cir. 1986), and New Orleans

Public Service, Inc. v. New Orleans, 782 F.2d 1236 (5th Cir.

1986). For these reasons, after the Sixth Circuit issued its

decision in this case, FERC wrote the Sixth Circuit a letter,

noted that this decision presented a possibly certworthy issue,

and requested that the Sixth Circuit publish its opinion. How-

ever, the Sixth Circuit has refused to do so. App. |4a.

The Sixth Circuit’s response to FERC represents a further

reason for review. It subverts the rule of law for a court of

appeals to fail to publish decisions in a major case of first

impression in that circuit, especially when it conflicts with the

decisions of other courts of appeals and when a federal agency

has requested that the opinion be published because it is

considering participation in the case at the Supreme Court

stage. This case thus affords the Court a rare opportunity to

indicate the appropriate publication policies of federal courts of

appeals. In all events, a court of appeals cannot be permitted to

avoid Supreme Court review by hiding conflict-creating deci-

sions in unpublished opinions. '3

13 This is not the first time that the Sixth Circuit has declined to

publish an opinion where the issue was one of first impression and

important. See Antalek v. Norfolk and Western Ry. Co., No. 84-3057

(6th Cir., Aug. 30, 1984, unpublished opinion). On May 5, 1986, this

Court granted certiorari in Atchison, Topeka and Santa Fe Ry. Co. v.

Buell, No. 85-1140, to review the identical issue involved in Antalek.

16

CONCLUSION

For the reasons stated, the petition for a writ of certiorari

should be granted.

A. Joseph Dowb

JOHN R. BURTON

KEVIN F. Durry

AMERICAN ELECTRIC POWER

Service CORPORATION

| Riverside Plaza

Columbus, Ohio 43215

(614) 223-1000

Dated: July 15, 1986

* Counsel of Record

Respectfully submitted,

Rex E. Lee*

Davin W. CARPENTER

SIDLEY & AUSTIN

1722 Eye Street, N.W.

Washington, D.C. 20006

(202 ) 429-4000

LiveLy M. WILSON

Bruce F. CLark

Stites & HARBISON

600 West Main Street

Louisville, Kentucky 40202

(502 ) 587-3400

la

No. 85-5129

United States Court of Appeals

FOR THE SIXTH CIRCUIT

AMERICAN ELECTRIC POWER COMPANY, |

INC.; KENTUCKY POWER COMPANY;

APPALACHIAN POWER COMPANY; COLUM-

BUS AND SOUTHERN OHIO ELECTRIC COM-

PANY; INDIANA AND MICHIGAN ELECTRIC

COMPANY; OHIO POWER COMPANY AND

AEP GENERATING COMPANY, ’

Plaintiffs- Appellants,

KENTUCKY PUBLIC SERVICE COMMISSION; ON APPEAL FROM THE

RICHARD D. HEMAN, CHAIRMAN OF THE UNITED STATES DIS-

KY PUBLIC SERVICE COMMISSION; LAURA > TRICT COURT FOR THE

MURRELL, MEMBER OF THE KY PUBLIC fanaa OF

COMMISSION; AND RUSH DOZIER, MEM-

BER OF THE KY PUBLIC SERVICE COMMIS-

SION,

Defendants-Appellees,

AIR PRODUCTS AND CHEMICALS, INC.,

ARMCO, INC., ET AL, ATTORNEY GENERAL

OF KENTUCKY, CONSUMER PROTECTION

DIVISION, CONCERNED CITIZENS OF MAR-

TIN COUNTY, INC. JOHN HENRY WARD,

BERT DIAMOND AND SALLY CRUM,

Intervenors- Appellees. |

BEFORE: JONES and CONTIE, Circuit Judges; and

DEMASCIO, District Judge.*

Per Curiam. This case raises the question whether it is

proper for a federal court to dismiss on abstention grounds a

challenge to a state public utility commission rate order brought

* Honorable Robert E. DeMascio, United States District

Judge for the Eastern District of Michigan, sitting by designa-

tion.

2a

by a utility alleging federal law claims, when the utility has

simultaneously brought an attack on the same order raising the

same claims in state court. The court below elected to dismiss

citing both the Younger and Buford [sic] abstention doctrines.

See Younger v. Harris, 401 U.S. 37 (1971), and Burford v. Sun

Oil, 319 U.S. 315 (1943). We hold that Burford abstention is

inappropriate in this circumstance but that Younger abstention

is permissible and, accordingly, affirm.

The primary controversy raised in the complaint involves

the source from which an electric company will be permitted to

purchase wholesale electricity and pass along the cost of that

purchase to its customers through retail rates.’ Plaintiffs-

appellants are American Electric Power Company, Inc.

(“AEP”), a multi-state holding company of electric power

utilities, and its subsidiaries. Kentucky Power Company

(“KPC”), one of AEP’s subsidiaries, provides electricity to

retail customers in Kentucky. KPC is party to an Inter-

connection Agreement among AEP affiliates. This agreement

creates a pool of electricity and permits an Agreement member

to draw from this pool when its own power needs exceed

capacity. KPC had, for some time, been drawing heavily from

this pool. According to KPC, it was therefore obliged by the

Interconnection Agreement to find a new source of wholesale

electricity. Consequently, in 1984, KPC entered into a second

agreement (the “Unit Power Agreement [sic] ) with two AEP

subsidiaries under which KPC was permitted to purchase 15%

1 AEP raised an addition [sic] claim in its complaint which

involves reimbursements from AEP subsidiaries to KPC for the cost of

construction and maintenance of a [sic] extra-high voltage line. The

substance of this claim is unclear from the record and, regardless, its

discussion would add nothing to the resolution of the issues on appeal.

3a

of the output from a new generating plant being built in

Rockport, Indiana.

Since the Unit Power Agreement was interstate in nature it

was submitted to the Federal Energy Regulatory Commission

(FERC) which accepted it as a rate schedule. FERC is

empowered by the Federal Power Act, 16 U.S.C. § 791 et. seq.

(1982), to determine the justness and reasonableness of inter-

State power transmission rates between utilities. The Unit

Power Agreement was also submitted to the Kentucky Public

Service Commission, the body which reviews Kentucky in-

trastate electric rates. The Kentucky Commission construed the

Interconnection Agreement as permitting KPC to obtain all of

its power needs from the pool without resort to the Unit Power

Agreement. Since power under the new agreement would cost

KPC more than three times that from the pool, the Kentucky

Commission ruled that the purchases from the Unit Power

Agreement would be imprudent and refused to approve the

retail rate increase needed to pass on the higher costs.

In reviewing the fairness of intrastate retail rates, a state

commission is bound to accept a FERC determination of the

reasonableness of wholesale source rates. Narragansett Electric

Co. v. Burke, 381 A.2d 1358 (R.1. 1977), cert. denied, 435 U.S.

972 (1978). AEP and KCP argue that by not approving the

higher retail rates the Kentucky Commission has illegally

displaced or ignored the FERC approved Unit Power Agree-

ment in violation of the Federal Power Act and the Supremacy

Clause. Further, they claim that the Kentucky Commission was

not permitted to construe the Interconnection Agreement be-

cause the regulation of interstate transmission is preempted by

the Federal Power Act and the agreement, therefore, is subject

to the sole jurisdiction of FERC. These are the claims that AEP

and KPC had raised in federal court. Shortly after filing this

complaint, KPC brought an action in Kentucky state court in

which it appealed the Kentucky Commission’s order and raised

the same issues presented here. That action is still pending.

4a

When the federal court below elected to abstain in favor of the

state action and dismissed the case, the plaintiffs appealed.

Abstention from the exercise of legitimate federal jurisdic-

tion should be the exception, not the rule. Colorado River

Water Conservation District v. United States, 424 U.S. 800, 813

(1976); Ada-Cascade Watch Co. v. Cascade Resource Recovery,

Inc., 720 F.2d 897, 901 (6th Cir. 1983). “Abdication of the

obligation to decide cases can be justified under this doctrine

only in the exceptional circumstances where the order to the

parties to repair to the State court would clearly serve an

important countervailing interesi.” Colorado River, 424 US. at

813 (quoting County of Allegheny v. Frank Mashuda Ce., 360

U.S. 185, 188-189 (1959)). It is upon this background that we

consider whether abstention was proper in this case. Our

review of the trial court’s decision to abstain is de novo.

Traughber v. Beauchane, 760 F.2d 673, 676 (6th Cir. 1985).

A.

AEP argues that the court’s reliance on Burford abstention

in dismissing this case was inappropriate. We agree. Absten-

tion was called for in Burford v. Sun Oil, 319 U.S. 315 (1943),

because the federal court had been asked to review the

reasonableness of a Texas Railroad Commission order, a

question of state law which implicated the state’s ability to

develop a comprehensive policy regarding the placement of oil

wells. Jd. at 320-22; Colorado River, 424 U.S. at 814-15. The

need for consistent and informed decisions in this area was

evidenced by the state’s assignment of the review of these

decisions to one state court. Burford, 315 U.S. at 325. Under

these circumstances, review of the state law question by the

federal court risked upsetting the delicate balance among oil

Sa

producers that the state was attempting to establish in the

harvesting of its oil deposits. See id. at 327.

Similarly, in Ada-Cascade, this court employed Burford

abstention when it had been asked to determine “whether [a

proposed waste] facility had obtained all the necessary state

and local permits” to continue construction, an issue which

required the interpretation of state acts and rules established as

part of a complex system of environmental regulation. 720

F.2d at 901, 905.

By contrast, the court here is not asked to review the

validity under state law of the Kentucky Commission order.

Nor is the court asked to decide local issues. Rather, AEP

claims that the Commission is prohibited from making the

order as a matter of federal law. Although we recognize the

presence here of a regulatory scheme with consolidated state

review, a decision on the grounds raised here will not present

the same risk of disruption that was present in Burford.

ee

The court below relied primarily upon the Fourth Circuit

decision in Aluminum Co. of America v. Utilities Commission of

North Carolina, 713 F.2d 1024 (4th Cir. 1983), where that

court of appeals applied Burford to abstain from deciding

Alcoa’s claim that a commission order interfered with a pre-

emptive federal regulatory scheme and burdened interstate

commerce. Jd. at 1025. Despite the similarity to this case, we

decline to follow the Alcoa decision. The court there failed to

recognize that Burford operates only to prevent federal determi-

nation of state law. Rather, the court abstained because the

claim attacked a state order and the determination of the

federal issues raised would cause “needless obstruction of

North Carolina’s domestic policy.” Jd. at 1029. This is an

overly broad application of the doctrine. The Supreme Court

has refused to employ Burford in a similar context noting that

“there is, of course, no doctrine requiring abstention merely

because resolution of a federal question may result in the

6a

overturning of state policy.” Zablocki v. Redhail, 434 U.S. 374,

379-80 n.5 (1978).

We hold that Burford abstention was improperly applied

to this action where no questions of state law that implicate a

complex state policy scheme are present.

The doctrine developed in Younger v. Harris, 401 U.S. 37

(1971), and its progeny espouses “a strong federal policy

against federal-court interference with pending state judicial

proceedings absent extraordinary circumstances.” Middlesex

County Ethics Committee v. Garden State Bar Ass’n, 457 US.

423, 431 (1982). Abstention under Younger can be appropri-

ate in civil cases where the state is a party as well as criminal

cases when an ongoing state judicial proceeding implicates

important state interests and provides an adequate opportunity

to raise constitutional challenges. Jd. at 432. When this is the

case, the federal court should, absent bad faith, harassment or a

patently invalid state statute, defer to certain state proceedings

to consider the federal claims in the first instance. See Colorado

River, 424 U.S. at 816.

There is little question here that the regulation of consumer

electric rates is an important state interest or that KPC could

raise its constitutional chailenges to the Commission order in its

state action. However, applying Younger here would be

unusual in that the federal plaintiff is also, procedurally, a

plaintiff in the pending state action. The typical Younger case

involves a defendant to state initiated proceedings who prefers

to raise his federal claims as a plaintiff in federal court than as a

defense to the state court action. Crawley v. Hamilton County

Commissioners, 744 F.2d 28, 30 (6th Cir. 1984). In Crawley

state prisoners brought actions to challenge the conditions of

their confinement in both state and federal court. This court

Ta

refused to apply Younger abstention precisely because the

federal plaintiffs were also the state plaintiffs. Jd.

Formal denominations of plaintiff and defendant should

not be applied mechanically, however. In Blue Cross & Blue

Shield of Michigan v. Baerwaldt, 726 F.2d 296, 299 (6th Cir.

1984), this court abstained under Younger where an insurance

company raised constitutional challenges to a rate order both

by bringing an action in federal court and by seeking review of

the order in state court. The posture in Blue Cross was

significantly different than that in Crawley. The state proceed-

ings in Crawley began with a state court complaint filed by the

federal plaintiff. In Blue Cross, and in this case, the proceedings

began at the regulatory level and the subsequent court action

was no more than an appeal of a state order entered against the

party who appeals. See Blue Cross, 726 F.2d at 299. The

process here was begun by the state in asserting its power to

regulate intrastate commerce. When the regulatory activities of

the state proceed to a state judicial forum, the principles of

comity and federalism that underly the Younger doctrine come

into play and the federal courts should abstain from interfering.

AEP does not deny that they will have an adequate

opportunity to raise their federal claims in the pending state

action, nor do they claim that the Kentucky Commission’s

orders are the result of bad faith or harassment. See Middlesex

County, 457 U.S. at 437. Consequently we hold that the district

court properly dismissed the complaint. The judgment of the

court below is AFFIRMED.

CONTIE, Circuit Judge, concurring. I concur in the result

and in the reasoning of the Court except for the holding that the

district court improperly relied on Burford abstention in dis-

missing this case. I would hold that Burford abstention applies.

In Burford v. Sun Oil Co., 319 U.S. 315 (1943), the

Supreme Court held that a district court should have abstained

when presented with a suit seeking review of the reasonableness

8a

under Texas state law of a state commission’s permit to drill oil

wells. Abstention was appropriate because “review of reason-

ableness by the federal courts ... where the State had estab-

lished its own elaborate review system for dealing with the

geological complexities of oil and gas fields, would have had an

impermissibly disruptive effect on state policy for the manage-

ment of those fields.” Colorado River Water Conservation

District v. United States, 424 U.S. 800, 815 (1976). Accord-

ingly, even though review of a state law question was at issue in

Burford, the Court focused on the disruption of a state policy in

applying abstention.

This Court addressed and applied Burford abstention in

Ada-Cascade Watch Co. v. Cascade Resource Recovery, 720

F.2d 897 (6th Cir. 1983), where we found that the Supreme

Court had established two factors which justify Burford absten-

tion. “First, the presence of a complex state regulatory scheme

which would be disrupted by federal court review; and, second-

ly, the existence of a state-created forum with specialized

competence in the particular area.” Jd. at 903.

The district court below found that the considerations

highlighted in Ada-Cascade existed in the present case. The

court initially observed that the first factor was satisfied since

Kentucky “has an overriding interest in regulating the retail

rates charged by public utilities.” The court explained that the

fixing of intrastate electricity rates by the Kentucky Commission

undoubtedly involved fundamental state policy considerations.

Also, the court noted that the rates are set by the Kentucky

Commission “in accordance with statutory procedures enacted

for their formulation and execution.” The court further found

that the second consideration was present since the orders of

the Kentucky Commission are appealed to a “designated state-

created forum with special expertise in the public utility regu-

lation field.” Exclusive judicial review is provided in the

9a

Franklin County Circuit Court by K.R.S. 278.410(1).1 Finding

the factors listed in Ada-Cascade to be present, the district court

held that abstention under Burford was required.

The district court’s holding is consistent with the Fourth

Circuit decision in Aluminum Company of America v. Utilities

Commission of North Carolina, 713 F.2d 1024 (4th Cir. 1983),

a case which was relied upon by the district court. The appeal

in Alcoa involved an action which had been brought in federal

court by a utility company and its parent, seeking to enjoin the

enforcement of a rate order issued by the state utilities commis-

sion which allegedly interfered with the FERC’s regulatory

scheme. State court proceedings involving, among other issues,

the same federal claims raised in the federal action were

pending at the time of appeal. The Fourth Circuit held:

We believe that the present case involves the quintessential

Burford setting of a complex state regulatory scheme

concerning important facts of state policies for which

impartial and fair administrative determinations subject to

expeditious and adequate judicial review are afforded.

The usual rule of comity must govern; the district court

properly exercised its discretionary power to withhold

1 The statute provides in pertinent part:

Any party to a commission proceeding or any utility

affected by an order of the Commission may, within twenty

(20) days after being served with the order, or within

twenty (20) days after its application for rehearing has

been denied by failure of the Commission to act, or within

twenty (20) days after being served with the final order on

rehearing, when a rehearing has been granted, bring an

action against the Commission in the Franklin Circuit

Court to vacate or set aside the order or determination on

the ground that it is unlawful or unreasonable. Notice of

the institution of such action shall be given to all parties of

record before the Commission.

K.R.S. 278.410(1) (1981).

10a

relief so as to avoid needless obstruction of [the state’s]

domestic policy.

Id. at 1029.

The present case is factually indistinguishable from Alcoa.

I would accordingly follow that court’s analysis in this case and

find that the present appeal “involves the quintessential Burford

setting.” Also, the conditions stated in Ada-Cascade are met in

this case. First, there is a complex state regulatory scheme

involving important state policies and second, Kentucky has

provided a specialized forum to review challenges such as the

one presented on appeal. Based on this court’s prior discussion

of Burford abstention and the holding of the Alcoa case, I

would affirm the district court’s application of Burford absten-

tion.

DeMASCIO, District Judge, concurring. While I agree

that the district court properly dismissed plaintiff's complaint, I

reach that conclusion for the opposite reasons suggested in the

per curiam opinion. I am convinced that the proper basis for

abstention is Burford v. Sun Oil Co., 319 U.S. 315 (1943), and

not Younger v. Harris, 401 U.S. 37 (1971).

In Crawley v. Hamilton County Commissioner, 744 F.2d 28

(6th Cir. 1984), this court circumscribed the application of the

Younger doctrine. There, the district court dismissed, on

Younger grounds, a § 1983 action brought by a group of jail

inmates challengicg the conditicas of their confinement. The

plaintiffs were conte mporaneously pursuing a state court action

on the same grounds. The circuit court reversed, holding the

Younger doctrine inapplicable in this procedura! context:

Younger and its progeny all have a procedural posture

which is very different from our case. In the typical

Younger case, the federal plaintiff is a defendant in

ongoing or threatened state court proceedings seeking to

enjoin continuation of those state proceedings. Moreover,

the basis for the federal relief claimed is generally avail-

lla

able to the would-be federal plaintiff as a defense in the

State proceedings. In our case, the federal plaintiffs are

also plaintiffs in the state court action. In addition, the

plaintiffs are not attempting to use federal courts to shield

them from state court enforcement efforts. Accordingly,

there is no basis for Younger abstention in this case.

Id. at 30 (citations omitted ).

Noting that the Kentucky Power Company appealed the

Kentucky Public Service Commission’s December 4, 1984 order

in state court, the lower court held that the Younger doctrine,

made applicable to civil actions by virtue of Middlesex County

Ethics Committee v. Garden State Bar Ass’n., 457 U.S. 423

(1982), made federal abstention proper. I disagree. The

procedural posture of this case does not fit the Younger mold.

Appellants are not attempting to enjoin state court proceedings

against them, but rather they are state court plaintiffs. Further,

appellants are not defensively asserting federal claims in the

state court action. Therefore, the district court should not have

abstained on the basis of the Younger doctrine and the per

curiam opinion improperly affirms on that basis.

But, under the Burford doctrine, abstention is appropriate

where federal review of a state law question would be dis-

ruptive of state efforts to establish a coherent policy with respect

to a matter of substantial public concern. See Ada-Cascade

Watch Co. v. Cascade Resource Recovery, 720 F.2d 897, 903

(6th Cir. 1983).

The prerequisites for the application of Burford are: (a)

the presence of a complex state regulatory scheme that would

be disrupted by federal court review and (b) the existence of a

state-created forum with specialized competence in the particu-

lar area. In Alcoa v. Utilities Comm’n of N. Carolina, 713 F.2d

1024 (4th Cir. 1983), the Fourth Circuit, faced with similar

facts, concluded that Burford abstention was appropriate. The

court held that the state commission’s ratemaking “involved

important and basic consideration of state policy and was

l2a

accomplished in accordance with the uniform statutory proce-

dures for the formation of that policy.” Jd. at 1029.

In holding the Burford abstention appropriate, the district

court stated:

The Commonwealth of Kentucky clearly has an overriding

interest in regulating the retail rates charged by public

utilities. The Kentucky Public Service Commission orders

outline the retail, intrastate rates to be charged to Ken-

tucky electric power consumers. The setting of these rates

undoubtedly involve fundamental state policy consid-

erations and are accomplished in accordance with statutory

procedures enacted for their formulation and execution.

These orders are being appealed by Kentucky Power

Company to a designated state-created forum with special

expertise in the public utility regulation field; to wit, the

Frankling [sic] County Circuit Court. Kentucky Power

Company has raised both state and federal legal issues in

that forum. These federal issues are the same ones the

American Electric Power Co. offiliates wish this court to

consider.

I agree that abstention on Burford grounds is appropriate

in this case. The State of Kentucky certainly has a legitimate

interest in the regulation of the retail rates of its public utilities.

In order to effectively protect that interest the state regulatory

commission has the power to scrutinize expenditures and costs

that have been imprudently incurred by a utility when other less

expensive means are available for the same purpose. More-

over, an extensive state appeliate system exists whereby utilities

can seek review of the commission’s orders. Not only does such

a system exist, but appellants are taking advantage of that

system while, at the same time, pursuing this action.

The district court’s ruling should be affirmed because

abstention based on Burford was proper.

l3a

No. 85-5129

United States Court of Appeals

FOR THE SIXTH CIRCUIT

AMERICAN ELECTRIC POWER CO. INC. }

ET AL.

Plaintiffs- Appellants,

. > ORDER

KENTUCKY PUBLIC SERVICE COMMISSION,

BEFORE: JONES and CONTIE, Circuit Judges,

and DeMASCIO® United States District Judge

The Court having received a petition for rehearing en

banc, and the petition having been circulated not only to the

Original panel members but also to all other active judges of

this Court, and no judge of this Court having requested a vote

on the suggestion for rcinearing en banc, the petition for hearing

has been referred to the original hearing panel.

The panel has further reviewed the petition for rehearing

and concludes that the issues raised in the petition were fully

considered upon the original submission and decision of the

case. Accordingly, the petition is denied.

ENTERED By Orper OF THE COURT

HN A

John P. Hehman, Clerk

* Hon. Robert E. DeMascio sitting by designation from

the Eastern District of Michigan

l4a

No. 85-5129

United States Court of Appeals

FOR THE SIXTH CIRCUIT

AMERICAN ELECTRIC POWER COMPANY, ‘

ET AL.

Plaintiffs- Appellants,

vs.

KENTUCKY PUBLIC SERVICE, ET AL. > ORDER

Defendants- Appellees

AIR PRODUCTS AND CHEMICAL, INC.,

ARMCO, INC., ET AL.,

Intervenors-Appellees _

Upon consideration of the motions of J. M. Feit, Solicitor

and the appellant to publish the Court’s decision of March 24,

1986,

It is ORDERED that the motions be and they are hereby

denied.

ENTERED By Orper Or THE Court

John P. Hehman, Clerk

LEONARD GREEN

Leonard Green, Chief Deputy

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKY

AT FRANKFORT

CIVIL ACTION NO. 84-83

AMERICAN ELECTRIC POWER

COMPANY, INC., ET AL PLAINTIFFS

VS. ORDER

KENTUCKY PUBLIC SERVICE

COMMISSION, ET AL DEFENDANTS

This matter is before the court on plaintiffs’ motion for

preliminary injunction and defendants’ motion to dismiss for

lack of subject matter jurisdiction and abstention.

FACTS

In order to meet electric power demand in Eastern Ken-

tucky, plaintiff Kentucky Power Company entered into a Unit

Power Agreement with its parent holding company, plaintiff

American Electric Power Company, on August |, 1984, where-

by the parent would obtain fifty (50%) percent ownership

interest in a newly-built electric power generating plant and the

subsidiary would purchase, for up to 20 years, the power

associated with fifteen (15%) percent of the plant. The

agreement was filed with the Federal Energy Regulatory

Commission as a conditional rate schedule on August 2, 1984.

This action was undoubtedly taken in anticipation of defendant

Kentucky Public Service Commission’s refusal to approve

Kentucky Power’s previously filed application for a Certificate

of Public Convenience and Necessity authorizing it to acquire

outright 15% ownership interest in this new power generating

facility. This denial was ultimately entered on August 2, 1984.

The Unit Power Agreement was thereafter accepted by the

Federal Energy Regulatory Commission as a rate schedule on

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October |, 1984, effective as of the commercial operation date

of the new generating plant.

While the Certificate of Public Convenience and Necessity

case was before the Kentucky Public Service Commission, the

Kentucky Power Company filed an application for a rate

increase with the Commission which sought to recoup the costs

resulting from the proposed purchase of the 15% ownership

interest. Following the Commission’s denial of authorization of

that interest, the Kentucky Power Company amended its

application to include, as a valid operating expense, the cost of

purchased electric power under the Unit Power Agreement

from American Electric Power Company or its affiliates. Public

hearings were held on October 8-11, 1984. On December 4,

1984, the Kentucky Public Service Commission issued an order

which denied that part of the rate request which represented the

difference between the lower costs for electric power contained

in an existing Interconnection Agreement, which had been

previously entered into between all American Electric Power

affiliates, and the relatively higher power costs within the Unit

Power Agreement. It is the operation of the Kentucky Public

Service Commission’s rate order, which denies to the Kentucky

Power Company the full retail rate increase request, which is

sought to be enjoined by the company and all of the plaintiff

American Electric Power Company affiliates.

The American Electric Power Company affiliates have

additionally entered into a Transmission Agreement effective

April |, 1984 for the sharing of all costs associated with their

high voltage transmission facilities. This agreement constitutes

a clear change of cost allocation procedure within the affiliated

group and it is to be phased in over a five year period. On

March 29, 1984, this Agreement was filed with the Federal

Energy Regulatory Commission as a rate schedule and on

August 22, 1984, the filing was accepted by that agency

pending further hearings.

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Kentucky Power Company is the owner of an extra high

voltage transmission line that is currently under construction

and which runs across Northern Kentucky. Pursuant to its

order dated September 20, 1983, the Kentucky Public Service

Commission conducted an invesugation of this line. Hearings

were held on January 10-12 and February 16, 1984. On August

3, 1984, that state agency issued an order which limited

Kentucky Power Company’s investment in the line, for rate-

making purposes, to approximately $54 million and that all

investment in excess of that amount wiil not be recovered from

Kentucky ratepayers. The agency further ordered a five year

phase-in period of this amount into the rate base. The

Kentucky Power Company and the American Electric Power

Company affiliates seek to likewise enjoin the operation of this

rate order of the Kentucky Public Service Commission in light

of the federally approved Transmission Agreement.

The Kentucky Power Company has filed suit in Franklin

County Circuit Court on December 21, 1984, seeking reversal

of the Kentucky Public Service Commission’s orders with

respect to the Unit Power Agreement and the Transmission

Agreement. None of the American Electric Power Company

affiliates have intervened in that action to date. The same

federal legal theories which are being advanced before the state

court by Kentucky Power Company to obtain revisal [sic] of

the state agency’s orders are likewise before this court by the

affiliated group.

ISSUES

1. Pursuant to the Johnson Act, 28 U.S.C. § 1342, does this

court have subject matter jurisdiction to adjudicate this con-

troversy?

2. May this court validly utilize the Younger and/or

Burford abstention doctrines to dismiss this litigation?

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ANALYSIS

i. SUBJECT MATTER JURISDICTION.

Defendants contend that the Johnson Act, 28 U.S.C.

§ 1342, prevents this court from exercising subject matter

jurisdiction over this controversy. The Johnson Act provides

that:

“The district courts shall not enjoin, suspend or restrain the

operation of, or compliance with, any order affecting rates

chargeable by a public utility and made by a State

administrative agency or a rate-making body of a State

political subdivision, where:

(1) Jurisdiction is based solely on diversity of citizen-

ship or repugnance of the order to the Federal

Constitution; and,

(2) The order does not interfere with interstate com-

merce; and,

(3) The order has been made after reasonable notice

and hearing; and,

(4) A plain, speedy and efficient remedy may be had

in the courts of such State.”

28 U.S.C. § 1342. This statute’s purpose is “to prevent public

utilities from going to federal district court to challenge state

administrative orders or avoid state administrative and judicial

proceedings.” California v. Grace Bretheren Church, 457 US.

393, 409-10 n.22 (1982). See generally, 1A, Pt.2 Moore’s

Federal Practice J 0.206 (2d ed. 1983 & 1984 Cum.Supp.). In

order for the Johnson Act to deprive federal courts of subject

matter jurisdiction, all four of its conditions must be satisfied.

South Central Bell Telephone Co. v. Public Service Commission

of Kentucky, 420 F.Supp. 376, 377 (E.D. Ky. 1976).

Plaintiffs contend that the Kentucky Public Service Com-

mission has usurped powers, granted by Congress in the

Federal Powers [sic] Act, 16 U.S.C. § 791, et seq., to the

Federal Energy Regulatory Commission, with respect to inter-

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state electric rates and transmission. The Act allegedly pre-

empts the field and the state agency may not conduct its affairs

in regulating interstate retail electric rates in a manner inconsist-

ent with the Act. Thus, the preemption asserted herein is a

statutory claim based on the Federal Power Act and does not

rest solely on the Supremacy Clause of the U.S. Constitution,

Article VI, cl.2.

The court holds that section (1) of the Johnson Act is not

satisfied and therefore that Act does not operate to preclude an

exercise of subject matter jurisdiction by this court over this

controversy. Courts which have addressed the issue of whether

a public utility’s preemption claim is a constitutional challenge

under 28 U.S.C. §1342( 1) have held that, although a challenge

to a rate order based on preemption may be regarded as

constitutional for some purposes, it provides no basis for

involving the Johnson Act to deprive the federal jurisdiction

where a state agency’s order is challenged as violative [sic] a

specific federal statute. Aluminum Company of America v.

Utilities Commission of the State of North Carolina, 713 F.2d

1024, 1027-28 (4th Cir. 1983); International Brotherhood of

Electrical Workers v. Public Service Commission of Nevada, 614

F.2d 206, 209-211 ( 9th Cir. 1980); New England Telephone and

Telegraph Co. v. Public Utilities Comm. of Maine, 565 F.Supp.

949, 952-53 (D. Maine 1983); Beckenstein v. Hartford Electric

Light Co., 479 F.Supp. 417, 420 n.1 (D. Conn. 1979). Since

section (1) of §1342 has not been satisfied, the Johnson Act

cannot be utilized to strip this court of jurisdiction over this

matter. This court has jurisdiction under 28 U.S.C. $1331.

Il. YOUNGER ABSTENTION.

As noted above, Kentucky Power Company has appealed

the Kentucky Public Service Commission’s final orders in the

underlying rate cases to the Franklin County Circuit Court

pursuant to KRS 278.410. The existence of this ongoing state

proceeding strongly suggests that this court abstain under the

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doctrine of Younger v. Harris, 401 U.S. 37 (1971), as made

applicable to civil actions in Middlesex County Ethics Com-

mittee v. Garden State Bar Ass’n., 457 U.S. 423 (1982).

“The question in this case is threefold: first, (does the

prescribed state forum to which plaintiffs are relegated )

constitute an ongoing state judicial proceeding; second, do

the proceedings implicate important state interests; and

third, is there an adequate opportunity in the state proceed-

ings to raise constitutional challenges.”

Middlesex County Ethics Committee v. Garden State Bar Ass’n.,

457 U.S. 423, 431-32 (1982). Accord: Blue Cross and Blue

Shield of Michigan v. Baerwaldt, 726 F.2d 296, 299 (6th Cir.

1984); Ada-Cascade Watch Co. v. Cascade Resource Recovery,

720 F.2d 897, 902 (6th Cir. 1983).

Clearly there is an ongoing state judicial proceeding in the

state courts with respect to this matter pursuant to KRS

278.410. Furthermore, the regulation of intrastate retail electric

utility rates clearly involves important state interests. Alumi-

num Company of America, 713 F.2d at 1029. See Blue Cross

and Blue Shield, 726 F.2d at 299 (“The regulation of insurance

companies clearly involves important state interests.”). Lastly,

Kentucky statutes provide ample opportunity for Kentucky

courts to review the state commission’s retail ratemaking order

and to adjudicate both constitutional and non-constitutional

objections thereto. KRS 278.410 and 278.450. Plaintiffs have

not satisfactorily demonstrated “bad faith, harassment or some

other extraordinary circumstance that would make abstention

inappropriate.” Blue Cross and Blue Shield, 726 F.2d at 300,

quoting Middlesex, 457 U.S. at 437. Therefore, this court shall!

abstain from considering constitutional challenges to the final

retail rate orders approved by the Kentucky Public Service

Commission and shall dismiss this action. Id.

Any interested entities, who are not parties to the state

appeal, could in all likelihood intervene in the state proceed-

ings. Ky. C.R. 24.

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Ill. BURFORD ABSTENTION.

In addition to Younger abstention, Burford-type abstention

also requires that this action be dismissed. In the decision of

Burford v. Sun Oil Co., 319 U.S. 315 (1943), the United States

Supreme Court

“upheld abstention where the ‘exercise of federal review of

the [state law] question in a case and in similar cases

would be disruptive of state efforts to establish a coherent

policy with respect to a matter of substantial public

concern.” Colorado River Water Conservation District [ v.

United States, 424 U.S. 800, 814 (1976)]....

The Burford abstention, however, is not appropriate

‘merely because resolution of a federal question may result

in the overturning of a state policy.” Zablocki v. Redhail,

434 US. 374, 380 n.5, 98 S.Ct. 673, 678 n.5, 54 L.Ed.2d

618 (1978); Colorado River Conservation District, 424

U.S. at 815-16, 96 S.Ct. at 1245-46. The State must exhibit

an overriding interest in the subject matter. BT Investment

Managers, Inc.[v. Lewis, 559 F.2d 950, 955 (Sth Cir.

1977)]. Additionally, the state must centralize review in a

forum with special competence. See Nasser v. City of

Homewood, 671 F.2d 432, 440 (11th Cir. 1982). The key

question is whether an erroneous federal court decision

could impair the state’s efforts to implement its policy.

Turf Paradise, Inc. v. Arizona Downs, 670 F.2d 813, 820

(9th Cir.), cert. denied, 456 U.S. U.S. 1011, 102 S.Ct.

2308, 73 L.Ed.2d 1308 (1982); BT Investment Managers,

Inc., 559 F.2d at 955.”

Ada Cascade, 720 F.2d at-903-4. These conditions exist here.

The Commonwealth of Kentucky clearly has an overriding

interest in regulating the retail rates charged by public utilities.

The Kentucky Public Service Commission orders outline the

retail, intrastate rates to be charged to Kentucky electric power

consumers. The setting of these rates undoubtedly involve

fundamental state policy considerations and are accomplished

in accordance with statutory procedures enacted for their

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formulation and execution. Aluminum Co. of America, 713

F.2d at 1029. See KRS Chapter 278. These orders are being

appealed by Kentucky Power Company to a designated state-

created forum with special expertise in the public utility regu-

lation field; to wit, the Franklin County Circuit Court. KRS

278.410( 1). Kentucky Power Company has raised both state

and federal legal issues in that forum. Those federal issues are

the same ones the American Electric Power Co. affiliates wish

this court to consider.

“_..(T)he present case involves the quintessential Buryord

setting of a complex state regulatory scheme concerning

important matters of state policy for which impartial and

fair administrative determinations subject to expeditious

and adequate judicial review are afforded. The usual rule

of comity must govern; the district court properly exercised

its discretionary power to withhold relief so as to avoid

needless obstruction of (Kentucky’s) domestic policy.”

Aluminum Company of America, 713 F.2d at 1029. But cf,

International Brotherhood of Electrical Workers, 614 F.2d at

211-12.

The ‘act that a preemption claim is raised by plaintiffs does

not per se require this court to decline to abstain. Aluminum

Company of America, 713 F.2d at 1029. There is no clear

conflict with the Federal Power Act, i6 U.S.C. § 791, et seq., by

the commission’s orders challenged herein. The Kentucky

Public Service Commission orders

“ .. (set) only retail, intrastate rates, an important matter

traditionally within the sole discretion of the states, and do

not directly conflict with FERC’s wholesale and interstate

rate setting powers. Evaluation of the preemption claim

would involve detailed factfinding concerning the indirect

effects of the ( public service commission) order(s) on the

rates established by FERC, and the contracts filed with

FERC. Where, as here, circumstances are otherwise

appropriate for Burford abstention, the federal court need

not engage in such factfinding as a prerequisite to absten-

tion.”

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Id at 1030.

The court considers the decision of the U.S. Court of

Appeals for the Sixth Circuit in Ada Cascade and Blue Cross,

supra, to require abstention in this case.

Therefore, the court being advised,

IT IS ORDERED as follows:

1. That plaintiffs’ motion for preliminary injunction

be, and it is, hereby DENIED;

2. That defendants’ motion to dismiss be, and it is,

hereby GRANTED on the basis of both Younger and

Burford abstention doctrines; and

3. That the complaint herein be, and is it [sic],

hereby DISMISSED, with prejudice, at the cost of the

plaintiff.

This 16th day of January, 1985.

/s/ WILLIAM O. BERTELSMAN

{ William O. Bertelsman] JUDGE