Amicus Curiae Brief — American Electric Power Co. v. Kentucky Public Service Commission

a eI

No. 86-49 SEP

exe, Supreme Court, U.S,

LED

2 1986

IN THE

JOSEPH F. SPANIOL, JR.

CLERK

Supreme Court of the United States

OCTOBER TERM, 1986

AMERICAN ELECTRIC POWER COMPANY, INC., et al.,

‘ Petitioners,

KENTUCKY PUBLIC SERVICE COMMISSION, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE

and

BRIEF OF EDISON ELECTRIC INSTITUTE AS

AMICUS CURIAE IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

Of Counsel: CARL D. HOBELMAN *

ROBERT L. BAUM M. REAMY ANCARROW

Senior Vice President and MARLENE L. STEIN

General Counsel LEBOEUF, LAMB, LEIBY & MACRAE

EDISON ELECTRIC INSTITUTE 1333 New Hampshire Ave., N.W.

1111 19th St., N.W. Suite 1100

Washington, D.C. 20036 Washington, D.C. 20036

(202) 828-7679 (202) 457-7500

Attorneys for Edison

Electric Institute

* Counsel of Record

September 1986

seeniieeorineiliinmitiiaas

WILSON - Eres Printinc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-49

AMERICAN ELECTRIC POWER COMPANY, INC., ef al.,

Petitioners,

Vv.

KENTUCKY PUBLIC SERVICE COMMISSION, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE

Pursuant to Rules 36 and 42 of the Rules of the United

States Supreme Court, the Edisor Electric Institute

(“EEI”) respectfully moves for leave to file the attached

brief as amicus curiae.

1 EEI has obtained consent to file this brief from the Petitioners

and a Respondent, the Concerned Citizens of Martin County. The

letters granting consent have been filed with the Clerk of the

Court. The other Respondents have not consented to EEI’s par-

ticipation.

SPECIAL INTEREST OF THE

EDISON ELECTRIC INSTITUTE

EEI’s members are investor-owned electric utilities that

generate, transmit and sell electricity at wholesale and

at retail throughout the nation. These services are made

available to customers via power supply and distribution

arrangements that cross state lines, creating a nationwide

power system that requires uniform and predictable reg-

ulation.

At issue in this case are matters of urgent concern

to virtually every member system of EEI, almost all of

whom participate in one or more forms of interstate

transactions, incurring costs pursuant to federally-ap-

proved rates which are then scrutinized by state utility

commissions with results often at variance with federal

regulation. All utilities have a stake in the availability

of the federal district courts for the arbitration of such

federal questions as preemption and undue burden on

interstate commerce. Every electric utility company faces

the potential conflict between federal and state regulation

of contracts and rates that is an inevitable result of our

system of dual regulation and interstate power arrange-

ments.

This clash between two regulators will arise in many

factual situations, some similar to and others differing

from the one that the Petitioners are now presenting to the

Court. As utilities become more deeply involved in inter-

state arrangements, the same question of the scope of

the Federal Energy Regulatory Commission’s plenary

jurisdiction over such transactions will arise—as will the

question of whether and if so, when, a federal district

court should abstain from deciding that question on the

merits. EEI’s members have a vital interest in this

Court’s evaluation of the interplay between federal and

state interests in public utility regulation that goes be-

yond the specific factual issue presented by the Peti-

tioners.

EEI believes that it can provide insight as to the na-

tional scope of the concerns at issue in this case. The

attached brief as amicus curiae demonstrates the signifi-

cance of these issues to all of EEI’s members.

CONCLUSION

For the foregoing reasons, and for the reasons set forth

in the attached brief, EEI respectfully requests that the

Court grant its motion for leave to file the attached brief

as amicus curiae.

Respectfully submitted,

Of Counsel: CARL D. HOBELMAN *

ROBERT L. BAUM M. REAMY ANCARROW

Senior Vice President and MARLENE L. STEIN

General Counsel LEBOEUF, LAMB, LEIBY & MACRAE

EDISON ELECTRIC INSTITUTE 1333 New Hampshire Ave., N.W.

1111 19th St., N.W. Suite 1100

Washington, D.C. 20036 Washington, D.C. 20036

(202) 828-7679 (202) 457-7500

Attorneys for Edison

Electric Institute

* Counsel of Record

September 1986

TABLE OF CONTENTS

py Be ge Sige |. ) EER S men one aa

INTEREST OF AMICUS CURIAE EDISON ELEC-

Ee IO iis spnsectie sein echntilnsnalvanctnasomraeion

SE Ae ee WN Ue TI in i sachs ccsiccncencteect

REASONS WHY THE COURT SHOULD GRANT

i Ree ae STE nT See eee ee ae

I. THE DECISION BELOW PRESENTS A PROB-

II.

Il.

LEM IN FEDERAL COURT ADMINISTRA-

TION THAT WILL BE EXACERBATED IF

REE SEER OED scgesictniensiinnensansstengredhinaannnsces

THE FEDERAL INTEREST AT STAKE IN

THE CASE BELOW PRESENTS A SETTING

WHERE ABSTENTION IS NOT ONLY INAP-

PROPRIATE TO THE ISSUES, BUT EFFEC-

TIVELY PREJUDGES THE FEDERAL

CINE ol cin nst bleh leaiancrbneinubins Rte tincel> -pcbAedaeastbbiabeie:

A. Where State Action Directly Thwarts A Fed-

eral Scheme Of Regulation, The Interest At

Stake Is Federal, And Younger Abstention

i ¥ Feteiores SA ALCLE SAT OO

B. The Issues Here Are Completely Unrelated

To Those Found In A Burford Context:

Federal Adjudication Will Not Disrupt A

Complex State Regulatory Scheme Involving

State Law Applied To Local Facts .................

WHERE THE SIXTH CIRCUIT FOUND THAT

REVIEW IS NOT RESTRICTED BY THE

JOHNSON ACT, IT WAS INAPPROPRIATE

TO ABSTAIN ON MORE GENERAL EQUIT-

BE ID scsenciccainniitisntiontpesvitedabicieiipiinanenn

CRD EN SENN hip hererrscthcrticien chin eieitesstelilinnnantubbancetainesiiied eaialas

11

ii

TABLE OF AUTHORITIES

Cases Page

Alabama Public Service Commission v. Southern

Railway Co., 341 U.S. 341 (1951) -........0........... 14

Aluminum Co. of America v. Utilities Commission

of North Carolina, No. 82-376 (E.D.N.C. July

30, 1982), aff’d, 713 F.2d 1024 (4th Cir. 1983),

cert. denied, 465 U.S. 1052 (1984) ...................... 4,9,13

Appalachian Power Co. v. Public Service Commis-

sion of West Virginia, 614 F. Supp. 64 (S.D.

W.Va.), aff'd, 770 F.2d 159 (4th Cir. 1985) ....5, 10, 13

Arkansas Power & Light Co. v. Missouri Public

Service Commission, No. 86-4067 (W.D.Mo.

BE TR. ED inccctnccnnpatnigivnimiaatbiiibes 5

Baggett v. Department of Professional Regulation,

Board of Pilot Commissioners, 717 F.2d 521

AAR CRN a ie es a ee 8,12

Branti v. Finkel, 445 U.S. 507 (1980) .................... 4

Brown v. Felsen, 442 U.S. 127 (1979) ................--.. 4

Burford v. Sun Oil Co., 319 U.S. 315 (1948) -...... passim

Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976) .............-...... 7-8, 11

DelCostello v. International Brotherhood of Team-

I Ee Sic NEE 0 IEE ooitinrentinarsncenntpneninigaserneninces 4

England v. Louisiana State Board of Medical Ex-

aminers, 875 U.S. 411 (1964) ...............cccccccccessesees 7

FPC v. Tennessee Gas Transmission Co., 371 U.S.

a RESTS ASAIO NN re Ne 11

Gibson v. Berryhill, 411 U.S. 564 (1973) _............... 9

Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) _..... 9,10

Juidice v. Vail, 480 U.S. 327 (1977) ..............-..-------- 9

Kentucky West Virginia Gas Co. v. Pennsylvania

Public Utilities Commission, 791 F.2d 1111 (3d

+ eR et, A: ce Sn te BN par t+ Ae 5

Knudsen Corp. v. Nevada State Dairy Commission,

Gop 8 ee Ae; a 8

Massachusetts State Grange v. Benton, 272 U.S.

I a al at 15

Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982)...... 9, 10-11

iii

TABLE OF AUTHORITIES—Continued

Page

Middle South Energy, Inc. v. Arkansas Public

Service Commission, 772 F.2d 404 (8th Cir.

1985), cert. denied, 106 S.Ct. 884 (1986) ............ 5, 12

Moore v. Sims, 442 U.S. 415 (1979) -.........22222222222---- 9

Nanitahala Power & Light Co. v. Thornburg, 54

U.S.L.W. 4676 (U.S. June 17, 1986) ............0000..... passim

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

743 F.2d 12386 (6th Cir. 1966) ............................. 5

Ohio Civil Rights Commission v. Dayton Christian

Schools, Inc., 54 U.S.L.W. 4860 (U.S. June 24,

oe ic acsh eet auimualdemias 9,11

Railroad Commission of Texas v. Pullman Co., 312

I ii dailies 14, 15

Tennyson v. Gas Service Co., 506 F.2d 1135 (10th

SERRE dete Be sacs RR Ae is a RT Oo 13

Trainor v. Hernandez, 431 U.S. 484 (1977) ............ 9

Ex parte Young, 209 U.S. 128 (1908) .................... 15

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

Statutes

Act of March 3, 1875, 18 Stat. 470 .......... aoa 14

Johnson Act, 28 U.S.C. § 1842 (1982) ......0...002000..... 13

Legislative Materials

H.R. Rep. No. 1194, 73d Cong., 2d Sess. 2 (1934) .. 14

80 Cong. Rec. 1916 (Feb. 5, 1934) .....000.0...0000... 14, 15

Miscellaneous Authority

R. Stern, E. Gressman & S. Shapiro, Supreme

Court Practice, §§ 4.2-4.4 (6th ed. 1986) ............. 6

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-49

AMERICAN ELECTRIC POWER COMPANY, INC., et al.,

Petitioners,

Vv.

KENTUCKY PUBLIC SERVICE COMMISSION, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

BRIEF OF EDISON ELECTRIC INSTITUTE AS

AMICUS CURIAE IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

INTEREST OF THE AMICUS CURIAE

EDISON ELECTRIC INSTITUTE

Edison Electric Institute (“EEEI’”) is the nation’s asso-

ciation of investor-owned electric utilities. The members

of EEI supply electric service to consumers throughout

the United States, serving approximately 96 percent of all

customers of investor-owned utilities and 73 percent of

this country’s electricity users.

Electricity plays a role well beyond a convenience—it

is a necessity for everyday life. Increasingly, the ability

to provide this critical resource on a reliable and economic

basis rests upon an array of wholesale transactions among

EEI’s members, transactions that include regional power

2

pooling and coordination, purchases, sales, exchanges, in-

terconnections, and transmission arrangements. These

wholesale flows of power extend across every state border

in the continental United States, and provide enormous

benefits to power consumers.

There can be no question that the maintenance of a

reliable network of power generation, transmission, and

distribution is a task that is national in scope and con-

sequence. Because each state strives to achieve the lowest

electric rates for its residents and native industries, the

allocation of costs for multistate energy resources such

as large generating plants and transmission grids raises

issues in which a state’s interests will compete with those

of its neighbors. The cost allocations and other adjust-

ments that must be made can be accomplished only by a

neutral federal arbitrator. The rates and other conditions

governing interstate wholesale power and transmission

transactions are therefore administered exclusively by the

Federal Energy Regulatory Commission (“FERC”) pur-

suant to the Federal Power Act (“FPA” or “the Act’).

At the close of the last term, this Court emphasized the

need for federal oversight of these interstate power opera-

tions. Nantahala Power & Light Co. v. Thornburg, 54

U.S.L.W. 4676 (U.S. June 17, 1986) (“Nantahala’).

One means by which states have sought to advance the

interests of their ratepayers is by disallowing a utility’s

costs incurred under the rates and other terms of whole-

sale transactions regulated by FERC. These “trapped

costs”, as the Court described them in Nantahala, must

then be borne either by another state’s ratepayers' or by

the public utility’s shareholders. The response of other

states is predictable—a similar rejection of the cost

burden.

1 Ironically, it is the interstate character of the transactions

involved that provides a ready vehicle for a state to attempt to

shift a cost burden to another state.

As dramatically illustrated by the controversies of this

nature to date, when a utility’s costs are “trapped” by

conflicting retail and wholesale rate orders, it suffers im-

mediate financial repercussions. Its cash flow is disrupted,

and its ability to make needed purchases of fuel or power

and to finance additional capital expenditures is dimin-

ished. Such orders can quickly precipitate grave financial

crises, and interrupt the operation of wholesale power

transactions affecting utilities in several states. EEI

members that have invested in generating plant or trans-

mission facilities owned by several utilities serving retail

customers in different states may also find the financial

vitality of their co-owners, and hence of a project, af-

fected by the retail rate actions of other state commis-

sions.

The adverse effects of such financial distress are felt

not only by shareholders, but by the utility’s customers

as well, because the company’s ability to attract capital

and operate on a least-cost basis is impaired. Unless

promptly remedied, these events cannot help but dis-

courage reliance upon interstate interconnections and

pooling arrangements—transactions that increase the in-

terstate availability of economic and reliable electrical

energy at competitive prices.

EEI’s members have a vital interest in securing a

prompt and fair arbitration of conflicts that arise when

state actions upset the complex network of interstate

power operations. Delay in obtaining redress can dev-

astate a utility wedged between inconsistent state and

federal regulation. In Nantahala, the Court unanimously

ruled that a North Carolina utility commission was pre-

empted from disallowing in retail rates millions of dollars

incurred under wholesale power arrangements established

by FERC.’ This Court’s decision came, however, only

after several years of delay and great financial hardship

2EEI also participated in the Nantahala proceedings in this

Court through the filing of an amicus brief.

4

for the utility in that case, prompted by a federal district

court’s decision * to abstain from hearing an earlier chal-

lenge to the state commission’s rate order.

Now, the Sixth Circuit has also held in the American

Electric Power (“AEP”) case below that federal district

courts should abstain from reviewing cases where state

orders are challenged as violating the federal scheme of

oversight. The case before the Court here thus presents

the companion to Nantahala. Nantahala established the

principle—this case raises the question of how that prin-

ciple is to be honored.

STATEMENT OF THE CASE

EEI adopts the Petitioners’ Statement of the Case.

REASONS WHY THE COURT

SHOULD GRANT THE WRIT

I. THE DECISION BELOW PRESENTS A PROBLEM

IN FEDERAL COURT ADMINISTRATION THAT

WILL BE EXACERBATED IF LEFT UNRESOLVED.

No issue is as quintessentially suited to instruction

from this Court as the question of how the federal ju-

diciary should deploy its jurisdiction.t If district courts

abstain under the circumstances presented to the Sixth

Circuit, the burgeoning array of cases raising the same

3 Aluminum Co. of America v. Utilities Comm'n of N.C., No. 82-

876 (E.D.N.C. July 30, 1982), aff'd, 713 F.2d 1024 (4th Cir.

1983), cert. denied, 465 U.S. 1052 (1984) (“Alcoa”).

4 The opinion of the Sixth Circuit is unpublished, despite motions

by the Petitioners and FERC to have it published. This should not,

however, deter the Court from granting certiorari. Rule 24 of the

local rules of the Sixth Circuit permits the citation of unpublished

decisions in that Circuit. Hence, the case can have precedential

value. See 6th Cir. R. 24(b). Moreover, this Court has on a number

of occasions granted certiorari for unpublished decisions. See, ¢.g.,

DelCostello v. International Bhd. of Teamsters, 462 U.S. 151 (1983) ;

Branti v. Finkel, 445 U.S. 507, 509 (1980); and Brown v. Felsen,

442 U.S. 127, 130 (1979).

5

issues will merely be deflected to this Court time after

time for decision.

In contrast to the Sixth Circuit, the Third, Fifth and

Eighth Circuits have all very recently addressed cases

factually similar to the AEP case, but have found ab-

stention to be inappropriate. The Sixth Circuit’s invoca-

tion of abstention has been joined only by the Fourth

Circuit in Alcoa (supra n.3), although the Sixth Circuit

expressly declined to follow the Fourth Circuit’s reason-

ing in Alcoa. It should be noted that subsequent to Alcoa,

in Appalachian Power Co. v. Public Service Commission

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

770 F.2d 159 (4th Cir. 1985) (“Appalachian Power’),

the Fourth Circuit, in an unpublished decision, affirmed

a district court injunction of a state rate commission

order on grounds of preemption, without expressly ad-

dressing the question of whether the district court should

have invoked abstention theory. Notably, Appalachian

Power involved the same transmission equalization agree-

ment as that involved in the Sixth Circuit. In short, five

circuits have addressed virtually the same problem; one

squarely favors abstention, one has favored abstention

when the issue was before it, and three do not.*

5 Kentucky W.Va. Gas Co. v. Pennsylvania Pub. Util. Comm'n,

791 F.2d 1111 (3d Cir. 1986) (decided under the Natural Gas

Act) ; New Orleans Pub. Serv., Inc. v. New Orleans, 782 F.2d 1236

(5th Cir. 1986) (“NOPSI”); and Middle South Energy, Inc. v.

Arkansas Pub. Serv. Comm’n, 772 F.2d 404 (8th Cir. 1985), cert.

denied, 106 S.Ct. 884 (1986) (“Middle South”). On June 10,

1986, however, the Fifth Circuit requested the parties to submit

further briefing on the question of whether the district court in

NOPSI should have abstained. The FERC has stated its concern

about the threat posed to the integrity of the federal scheme of

regulation that abstention creates, Loth in a brief on appeal of the

district court’s abstention in NOPSI, and in response to the Fifth

Circuit’s June 10 request for further briefing on the matter.

*In addition, the U.S. District Court for the Western District

of Missouri, in Arkansas Power & Light Co. v. Missouri Public

Service Commission, No. 86-4067 (W.D.Mo. March 10, 1986),

ruled against abstention, citing the NOPSI case.

6

In considering whether to grant certiorari, this Court

has traditionally accorded weight to the existence of a

split among the circuits in cases involving the same ques-

tion of law.?. The split, here, however, points up an

even more urgent reason for review. The many occasions

on which federal district courts are facing these cases

reveal a burgeoning trend in state utility commissions.

At the very time that utilities are moving toward a

greater reliance upon multistate transactions, states like

Kentucky in the case below and like North Carolina in

the Nuntahala case are encroaching on the federal ad-

ministration of interstate wholesale power and transmis-

sion arrangements.

In Nantahala, this Court resolved the substantive law

on the question—and in so doing, indicated that the ques-

tion is one reserved to the federal domain. Yet without

effective arbitration of these matters before the federal

district courts, utilities will have no route other than that

forced upon the utility in Nantahala when the district

court abstained; that is, to face years of crushing delay

while the matter is pursued through the state court sys-

tem, and, at the end of that struggle, to seek redress

through a direct appeal to this Court.

Now that the Supreme Court has spoken, these ques-

tions are far better suited to district court adjudication.

The controversies will inevitably call upon the decision-

maker to probe how costs may be “trapped”, and whether

the state has crossed over the line that separates proper

local ratemaking from federal oversight of the interstate

power grid. The facts will vary from case to case, some

involving regional pooling agreements and multistate cost

allocations; others, unit power sales among multistate af-

filiates; still others, the proper level of costs to be included

in the rate charged by one utility to another in a bilateral

wholesale arrangement. The practical result of abstention

7 See R. Stern, E. Gressman & S. Shapiro, Supreme Court Prac-

tice, §§ 4.3-4.4 (6th ed. 1986), and discussion therein.

7

is to force resort to the Supreme Court for repeated res-

olution of these detailed matters that are far more readily

and efficiently resolved by federal district courts.’ To

allow the Sixth Circuit’s decision to stand will encourage

further isolation of the federal district courts from key

national power issues and unnecessarily burden this

Court’s docket.

II. THE FEDERAL INTEREST AT STAKE IN THE

CASE BELOW PRESENTS A SETTING WHERE

ABSTENTION IS NOT ONLY INAPPROPRIATE TO

THE ISSUES, BUT EFFECTIVELY PREJUDGES

THE FEDERAL CLAIM.

Firm guidance from this Court is needed, as high-

lighted not only by the split of authority among the cir-

cuits, but also among the three judges who rendered the

decision below. See Pet. at 7-8. The opinion of the court

was accompanied by two separate concurrences. The

Sixth Circuit’s per curiam decision stated that Younger

abstention applied, but not Burford abstention. Younger

v. Harris, 401 U.S. 37 (1971); Burford v. Sun Oil Co.,

319 U.S. 315 (1943). Two members of the three-judge

panel disagreed, however, maintaining that Burford ab-

stention did apply. Pet. App. at 7a, 10a. One Judge

stated that Younger did not apply. Pet. App. at 10a.

Thus, of the three, no single judge was able to agree

with the others as to the appropriate analysis of absten-

tion principles.

The Sixth Circuit’s broad application of the abstention

doctrine is at complete odds with this Court’s guidance

that federal district courts possess a “virtually unflagging

obligation . . . to exercise the jurisdiction given them”

and that abstention is to occur only in exceptional cir-

® This Court has noted that appellate review is an “inadequate

substitute” for an adjudication by a federal district court. See

England v. Louisiana State Bd. of Medical Examiners, 375 U.S.

411, 416 (1964) (Pullman abstention).

8

cumstances. Colorado River Water Conservation Dist. v.

United States, 424 U.S. 800, 818, 817 (1976) (“Colorado

River’). By its ruling, however, the Sixth Circuit allows

the exception to swallow the rule.

At their core, both Younger and Burford abstention are

premised on comity in the face of state interests and pro-

ceedings. Where the question before the court is preemp-

tion or a Commerce Clause challenge, however, the deci-

sion to abstain is in effect a decision on the merits of the

substantive question, because the court has already deter-

mined that state interests outweigh federal concerns. See,

e.g., Knudsen Corp. v. Nevada State Dairy Comm’n, 676

F.2d 374, 377 (9th Cir. 1982) (citing International Bhd.

of Electrical Workers v. Pub. Serv. Comm’n of Nev., 614

F.2d 206, 212 n.1 (9th Cir. 1980)) (preemption).

Thus, when the divided Sixth Circuit panel ruled that

abstention—either Younger or Burford—was appropriate,

it necessarily ruled that the purported state interests out-

weighed any federal considerations.° That decision ef-

fectively decided the federal question in a fashion directly

contrary to Nantahala, but concealed review of the issue

under the guise of a doctrine rooted in equitable discre-

tion.

A. Where State Action Directly Thwarts A Federal

Scheme Of Regulation, The Interest At Stake Is

Federal, And Younger Abstention Is Inapposite.

The Sixth Circuit’s decision to apply Younger absten-

tion policy is a unique application of the doctrine to a

9In Baggett v. Department of Professional Regulation, Board of

Pilot Commissioners, 717 F.2d 521, 524 (11th Cir. 1983) (“Bag-

gett”), the Eleventh Circuit noted that when Congress asserts

its exclusive jurisdiction, it has “decreed” that no deference is due

state proceedings that interfere with the federal domain. The court

implicitly acknowledged that abstention would fail to give federal

interests their due weight.

9

preemption challenge of a state utility commission deci-

sion. Not even the Fourth Circuit in Alcoa went so far.’

In fact, this case presents the opposite of Younger. Here,

the state order directly interferes with the federal execu-

tion of FERC’s statutory obligations.

The most recent discussion by this Court of Younger

was in Ohio Civil Rights Commission v. Dayton Christian

Schools, Inc., 54 U.S.L.W. 4860 (U.S. June 24, 1986)

(“Ohio Commission”). There, the Court noted that

Younger counsels against federal court interference when

particular kinds of state proceedings have commenced.

Ohio Commission, 54 U.S.L.W. at 4862. Although the

Younger doctrine sprang from recognition of comity and

federalism in the face of state criminal proceedings, the

Court noted that it had extended Younger to those civil

proceedings in which “important state interests are in-

volved . . . [and] to state administrative proceedings in

which important state interests are vindicated, so long

as ... the federal plaintiff would have a full and fair

opportunity to litigate his constitutional claim.” Jd.

See also Middlesex, 457 U.S. at 482.

Each of the cases invoked by the Court represented

enforcement or disciplinary proceedings that implicated

the state’s most basic police powers in protecting by the

means of sanctions the morals, health or safety of its

citizens. Huffman involved a proceeding to close an ob-

scene theater as a public nuisance; at issue in Trainor

was civil attachment as the remedy for fraudulent con-

cealment of assets in obtaining state public assistance.

10 In a footnote, the Fourth Circuit adverted favorably to Younger,

but declined to apply it directly. Alcoa, 713 F.2d at 1029 n.2.

11 Citing Middlesex County Ethics Comm. v. Garden State Bar

Ass’n, 457 U.S. 423 (1982) (“Middlesex”); Moore v. Sims, 442

U.S. 415 (1979) (“Moore”); Juidice v. Vail, 480 U.S. 327

(1977) (“Juidice”); Trainor v. Hernandez, 431 U.S. 434 (1977)

(“Trainor”) ; Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) (“Huff-

man”); and Gibson v. Berryhill, 411 U.S. 564 (1973) (“Gibson”).

10

Juidice challenged the state’s right to imprison individuals

for contempt of court, and Moore addressed state proce-

dures regarding the removal from the home of allegedly

abused children. Gibson and Middlesex challenged dis-

ciplinary proceedings to revoke state-granted professional

licenses.

In invoking Younger, the Sixth Circuit broadly asserted

that “[t]here is little question here that the regulation of

consumer electric rates is an important state interest.”

Pet. App. at 6a. States presumably have a strong interest

in every activity they undertake. Not all state interests,

however, come within the reach of Younger. The state

in its role as the regulator of a utility’s retail rates is

not functioning in the same role as when it enforces its

criminal laws, imposes sanctions for wrongful conduct, or

disciplines the professionals it licenses. The state qua

state is not injured, nor are its legitimate interests in the

exercise of its police power ignored, by requiring it to

give proper effect to FERC-approved rate orders, as

Nantahala mandates.”

In Middlesex, the Court also stated that there must be

an adequate opportunity in the state tribunal to raise the

12 Justice Stewart anticipated this distinction in his concurrence

in Younger, where he noted:

Courts of equity have traditionally shown greater reluctance

to intervene in criminal prosecutions than in civil cases... .

The offense to state interests is likely to be less in a civil pro-

ceeding. A State’s decision to classify conduct as criminal

provides some indication of the importance it has ascribed

to prompt and unencumbered enforcement of its law. By con-

trast, the State might not even be a party in a proceeding

under a civil statute.

Younger, 401 U.S. at 55 n.2 (Stewart, J., concurring) (citations

omitted). Accord, Huffman, 420 U.S. at 604-05. See also Appa-

lachian Power, 614 F. Supp. at 70: Younger abstention is not

appropriate with regard to a preemption claim, because it does

not involve a state interest that relates to the health, safety and

morals of the state’s citizens.

11

constitutional challenge. Middlesex, 457 U.S. at 482.

While there may in some instances be a state forum for

appeal of a rate order, such avenues are wholly inade-

quate, given the immediate and devastating repercussions

of the state action in question. See p. 3, supra. Relief

denied for years, while the state judicial system grinds

slowly to a conclusion, does not afford “the federal plain-

tiff .. . a full and fair opportunity to litigate his consti-

tutional claim.” Ohio Commission, 54 U.S.L.W. at 4862.

Moreover, because ratemaking is a function essentially

prospective in nature, sums lost in the interim are often

unrecoverable. In any event, the possibility of collection

of these “trapped” funds at some future time is an inade-

quate substitute for justice when millions of dollars are

at stake. The long delays also serve to shift the ultimate

rate burden of the wholesale costs disproportionately to

future ratepayers. Cf. FPC v. Tennessee Gas Transmis-

sion Co., 371 U.S. 145, 155 (1962).

In short, awaiting protracted litigation through state

courts with the hope of an eventual appeal and reversal

in this Court cannot stem the severe injury that inter-

venes. In such circumstances, Younger abstention is

inappropriate.

B. The Issues Here Are Completely Unrelated To

Those Found In A Burford Context: Federal Ad-

judication Will Not Disrupt A Complex State Reg-

ulatory Scheme Involving State Law Applied To

Local Facts.

If the Younger doctrine protects the state’s interest in

exercising its police-related powers without undue federal

interference, then Burford abstention is designed to pro-

tect a state’s expert administration of local law as applied

to local issues, so that the state may develop unimpeded

a coherent state-wide regulatory policy. Burford, 319

U.S. at 332-34; see also Colorado River, 424 U.S. at 814-

12

15. In Burford, the Court carefully noted the overwhelm-

ing state interest at issue, 319 U.S. at 320, and the exper-

tise of the state court system at interpreting specialized

state law. Id. at 325-26. There, federal review of state

law was creating disruption and confusion in a highly

technical state program. id. at 327. When instead the

issue presented is a state rate order that directly affects

interstate wholesale power and transmission arrange-

ments, the question presented is whether the state has

jurisdiction to act at all. Cf. Baggett, 717 F.2d at 524.

In the presence of such claims, a federal district court is

the only forum that can properly and efficiently resolve

the dispute.

As with Younger, these circumstances present the very

opposite of those where abstention would be in order.

Here, the state tribunal has endeavored to interpret a

federal wholesale rate schedule (the AEP system power

pool agreement) ,™* an interpretation that is exclusively

within FERC’s authority.* Here, it is the federal judi-

ciary that is expert at construing both the federal law

and wholesale rate schedules and ensuring a uniform re-

sult. Here, the overwhelming interest is that of the fed-

eral government, in its attempt to create and enforce a

coherent economic policy for interstate power regulation.

Here, delay at the state level disrupts the economic justi-

fication for power flows across state borders. See pp.

1-2, supra. In such circumstances, Burford abstention

is not appropriate. See, e.g., Middle South, 772 F.2d at

417.

13 See Pet. at 4-5.

14The Federal Energy Regulatory Commission has expressly

stated in AEP Generating Co., Docket No. ER84-579-005, slip op.

at 4-5 (August 20, 1986), that it alone must determine the appro-

priate interpretation of the parties’ rights and obligations under the

AEP system agreement, as part of its task in determining just

and reasonable cost allocations and rates among the AEP members.

13

lil. WHERE THE SIXTH CIRCUIT FOUND THAT RE-

VIEW IS NOT RESTRICTED BY THE JOHNSON

ACT, IT WAS INAPPROPRIATE TO ABSTAIN ON

MORE GENERAL EQUITABLE GROUNDS.

In the case below, the Sixth Circuit correctly held that

the Johnson Act did not bar district court review, because

the action was based on preemption grounds.** See Pet.

App. at 19a, and cases cited therein. Having so deter-

mined, it was inappropriate for the court to establish a

secondary bar to review.

The Johnson Act, 28 U.S.C. § 1842(1) (1982), statu-

torily embodies the rule of abstention that might other-

wise apply, and defines the boundaries of any state in-

terest in regulating local utility rates that is to be shielded

from federal court interference. The statute is couched

in terms of enumerated conditions that bar the federal

district courts from directly interfering in challenges to

state rate orders where those conditions are met. See

Tennyson v. Gas Serv. Co., 506 F.2d 1135 (10th Cir.

1974). The challenge must have a jurisdictional basis

“solely” in diversity of citizenship or “repugnance of the

order to the Federal Constitution”, may not raise a Com-

merce Clause claim, and there must be a fair hearing

below. As pointed out by the Petitioners, the Sixth Cir-

cuit’s application of abstention principles is so broad

that it would effectively bar any district court from grant-

ing equitable relief in a challenge to state orders affect-

ing rates, not matter how great the clash with a federal

statute or burden on interstate commerce. Pet. at 14

n.12. The Johnson Act, however, clearly intends that the

federal district courts retain their pivotal function in

arbitrating such disputes.

Implicit in the Act’s construction, legislative history,

and application is the notion that its failure as a bar to

16 The same result is obtained where a Commerce Clause ground

is raised. See, e.g., Alcoa, 713 F.2d at 1028; Appalachian Power,

614 F. Supp. at 70.

14

federal adjudication compels a decision not to abstain

under any other doctrine. Enacted in 1934 (and earlier

codified at 28 U.S.C. § 41(1)), the Johnson Act was de-

signed to limit the broad grant of federal court jurisdic-

tion over constitutional claims which Congress had con-

ferred in 1875. Act of March 3, 1875, 18 Stat. 470. In

the wake of the 1875 Act, Congress passed the three-judge

panel provision in the Mann-Elkins Act, the Johnson Act

governing rate orders, and finally, the Tax Injunction

Act, to “hedge and limit” that broad scope of jurisdiction

about which “[e]xperience [had given] rise to dissatis-

faction.” Alabama Pub. Serv. Comm’n v. Southern Ry.

Co., 341 U.S. 341, 357-58 (1951) (Frankfurter, J., con-

curring).

The Johnson Act was aimed at curbing utilities’ efforts

to obtain a second, de novo rate hearing in federal district

court solely by alleging that the state order effected an

unconstitutional confiscation under the Fourteenth Amend-

ment. See, e.g., 80 Cong. Rec. 1916, 1918-19 (Feb. 5,

1934); H.R. Rep. No. 1194, 73d Cong., 2d Sess. 2-3

(1934). Congress believed that the invocation of such

broad “constitutional” grounds allowed the federal dis-

trict courts to inject themselves directly into the state

ratemaking function on questions such as property valu-

ation, that were strictly local in character. 80 Cong. Rec.

at 1916.7*

The Act emerged as a legislative effort to restore the

balance between state and federal jurisdiction in the

midst of an ongoing well-recognized practice of absten-

tion ** by the courts which was designed to accomplish

16 The floor discussion of the bill noted that federal district

courts often conducted full hearings before a master, including

“a valuation of the [utility] property,” and the introduction of

expert witnesses, ignoring entirely the hearings held on the same

subjects before the state tribunal. 80 Cong. Rec. at 1916.

17 Although the line of “abstention” cases did not receive this

name until Railroad Commission of Texas v. Pullman Co., 312

15

the same goal. As such, the statute codified a policy or

judicial restraint as it applied to rate order cases, speci-

fying some classes of cases, but excluding others. One of

the Act’s original sponsors emphasized in floor debate

that access to the federal district courts would be re-

stricted “in [the] class of cases” specified in the Act. 80

Cong. Rec. at 1918 (remarks of Sen. Norris). By impli-

cation, the other state rate order cases, i.e., those involv-

ing preemption and burden on commerce, were con-

sciously excluded from the Act’s abstention policy.

As this Court noted in Pullman, the judge-made doc-

trine of abstention is “a contribution of the courts in

furthering the harmonious relation between state and

federal authority without the need of rigorous congres-

sional restriction of those powers.” Pullman, 312 U.S. at

501. In the Johnson Act, however, Congress already im-

posed a “rigorous congressional restriction” on such pow-

ers, and in the area of state public utility rate orders,

enumerated the instances where the state interest in-

volved would require the federal court to stay its hand.

No judicially-created supplement is necessary or war-

ranted.

U.S. 496 (1941) (“Pullman”), the seed for its fast-growing practice

was planted as early as 1908, in Ex parte Young, 209 U.S. 123, 166

(1908). By 1919, the federal court practice of abstaining was

recognized. See Pullman, 312 U.S. at 501 (citing Cavanaugh v.

Looney, 248 U.S. 453, 456 (1919)). By 1926, this practice was de-

scribed as a “rule.” Massachusetts State Grange v. Benton, 272

U.S. 525, 529 (1926).

16

CONCLUSION

For the foregoing reasons the writ of certiorari should

be granted.

Respectfully submitted,

Of Counsel: CARL D. HOBELMAN *

ROBERT L. BAUM M. REAMY ANCARROW

Senior Vice President and MARLENE L. STEIN

General Counsel LEBoeEvur, LAMB, LEIBY & MACRAE

EDISON ELECTRIC INSTITUTE 1333 New Hampshire Ave., N.W.

111) 19th St., N.W. Suite 1100

Washington, D.C. 20036 Washington, D.C. 20036

(202) 828-7679 (202) 457-7500

Attorneys for Edison

Electric Institute

* Counsel of Record

September 1986

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