Amicus Curiae Brief — New Orleans Public Service, Inc. v. City of New Orleans

& C

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s se No. 86-546

NY

we IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

NEW ORLEANS PUBLIC SERVICE INC.,

Petitioner,

Vv.

THE CITY OF NEW ORLEANS, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth 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 MARLENE L. STEIN

and General Counsel LEBOEUvUF, LAMB, LEIBY & MACRAE

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

1111 19th Street, N.W. Suite 1100

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

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

Attorneys for Edison

Electric Institute

November 7, 1986 * Counsel of Record

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-546

NEW ORLEANS PUBLIC SERVICE INC.,

Petitioner,

v.

THE CITY OF NEW ORLEANS, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth 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 Edison Electric In-

stitute (“EEEI’’) respectfully moves for leave to file the

attached brief as amicus curiae.'

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

1 KEI has obtained consent to file this brief from the petitioner.

The letter granting consent has been filed with the Clerk of the

Court. The respondents have not consented to EEI’s participation.

available to customers via power supply and distribu-

tion arrangements that cross state lines, creating a na-

tionwide power system that requires uniform and pre-

dictable regulation.

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. When those costs are scrutinized by state

utility commissions with results at variance with federal

regulation, costs are then “trapped” between federal

and state or local regulation. A utility so stricken does

not suffer in isolat.on. Its own ratepayers will, in the

long run, suffer, as will its employees, its investors, its

affiliates and subsidiaries, and its generation and trans-

mission project co-owners.

All utilities have a stake in the availability of the

federal district courts for the arbitration of federal pre-

emption issues. 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. Because so many utilities are now involved in

interstate transactions, the industry can be adversely

affected by a single local regulatory body whose actions

in one state can unjustifiably threaten billions of dollars

invested in other states.

This clash between two regulators will arise in many

factual situations, some similar to and others differing

from the one that the petitioner is now presenting to the

Court. As utilities become more deeply involved in in-

terstate 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 quest’on 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 petitioner.

EEI believes that it can provide insight as to the

national 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 at-

tached brief as amicus curiae.

Respectfully submitted,

Of Counsel: CARL D. HOBELMAN *

RoBERT L. BAUM M. REAMY ANCARROW

Senior Vice President MARLENE L. STEIN

and General Counsel LEBOEvUF, LAMB, LEIBY & MACRAE

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

1111 19th Street, N.W. Suite 1100

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

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

Attorneys for Edison

Electric Institute

November 7, 1986 * Counsel of Record

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TABLE OF CONTENTS

pvt OR Bi) ae ies 8) lak - Sosa anne ne

INTEREST OF AMICUS CURIAE EDISON ELEC-

se RET OW Scrip ocicsenenisncsodmcienteeccecusbinessilaclintteabiia

SE AT Ree COW RW CRI cick sitceniinsicseinenocccetemeeens

REASONS FOR GRANTING THE WRIT ....................

i

II.

III.

IV.

THE FIFTH CIRCUIT’S DECISION IS YET

ANOTHER IN AN ALARMING TREND OF

CASES WHERE THE LOWER FEDERAL

COURTS ARE ABDICATING THEIR PROPER

PD seisccianicsecveiilaininbennsnsaieiaitdiadiamaagidiatalieel meats

THE CONFUSION BOTH AMONG AND

WITHIN CIRCUITS IN THIS AREA OF LAW

IS INCREASING AND REQUIRES RESOLU-

TRIN - scusinsobedsadasacineieshapibsanietadienslaigstdauiesauaaaiaiatiaaegets

CERTIORARI IS NECESSARY TO CORRECT

THE FIFTH CIRCUIT’S MISAPPLICATION

OF Fe so iictipninscoicmaateahapecindens

A. The Case Below Fell Clearly Within the

PE GE FOI ainicicon keine scotia besa

B. The Fifth Circuit Misconstrued and Confused

the Interplay Between Preemption Doctrine

and Abstention Doctrine ...................2.2--2...-...-

THE FIFTH CIRCUIT EMPLOYED BOTH

YOUNGER AND BURFORD ABSTENTION

IN A MANNER AT ODDS WITH THIS

COURT’S ENUNCIATION OF THOSE DOC-

IIIT sijotsAbiacssa ichiclapeiccipicscanbs cons eaeenedaliaaleepeicamaeaciaioies

A. Burford Abstention Is Inappropriate Where

the State Has Invaded the Federal Regula-

NE I ia bciicicitennic tea seaaahblaeididiieietmies

B. Younger Doctrine Is Not Intended to Assist

States in Thwarting Federal Regulation of

Wholesale Ratemaking .........

10

11

13

ii

TABLE OF CONTENTS—Continued

Page

V. THE FIFTH CIRCUIT’S DECISION TO AB-

STAIN CONFLICTS WITH ITS EARLIER,

CORRECT DECISION UNDER THE JOHN-

BE NTE ‘scsusnsscaecindsntpistehtouecsalcnascicibieianekslaamnias ici: 15

CONCLUSION 17

teh eee ee eee eee ee eee ee eee ee ee eee eee ee

iii

TABLE OF AUTHORITIES

Cases Page

Alabama Public Service Commission v. Southern

Ratlway Co., 841 U.S. 841 (1961) ........................ 11, 12

Aluminum Co. of America v. Utilities Commission

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

cert. denied, 465 U.S. 1052 (1984) ....................... 5

American Electric Power Co. v. Kentucky Public

Service Commission, No. 85-5121, slip op. (6th

Cir. 1986), petition for cert. filed, 55 U.S.L.W.

3032 (U.S. July 17, 1986) (No. 86-49), order

requesting Solicitor General’s views, 55 U.S.L.W.

$281 (U.S. October 6, 1966) ................................... 3,5

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), on

remand, 630 F. Supp. 656 (S.D. W.Va. 1986)... 5

Baggett v. Department of Professional Regulation,

Board of Pilot Commissioners, 717 F.2d 521

EN ei pO IIE loc ne ener ar RO 9

BT Investment Managers, Inc. v. Lewis, 559 F.2d

I Me A ND eicscnc ccnicchadetencshsiniciemntcs otis 12

Burford v. Sun Oil Co., 319 U.S. 315 (1948) ........ 6,11, 12

Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976) .......0000000000..... 11

County of Allegheny v. Frank Mashuda Co., 360

ER ET IS aR POC RE 11

Family Division Trial Lawyers v. Moultrie, 725

re ee i I ecko kbicnenicscdcdhticcricciseessten 14-15

International Brotherhood of Electrical Workers

v. Public Service Commission of Nevada, 614

ee Ie le BIND ciicsccccesvctsnbesictesmesthicendigans 9,10

Kentucky West Virginia Gas Co. v. Pennsylvania

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

(£ EE RE SaSORSEN CREE 21, DE gta Neem cenern oe od aaron 5

Knudsen Corp. v. Nevada State Dairy Commission,

GTS FBG SIS COE Civ. BOGR) on coicecscccscecscecces...ien... 9

Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982)

iv

TABLE OF AUTHORITIES—Continued

Page

Middle South Energy, Inc. v. Arkansas Public

Service Commission, 593 F. Supp. 363 (E.D. Ark.

1984), aff'd, 772 F.2d 404 (8th Cir. 1985), cert.

denied, U.S. ——, 106 S. Ct. 884 (1986) ....passim

Nantahala Power & Light Co. v. Thornburg, ——

USS. § ee! Rf | eee passim

National Tank Truck Carriers, Inc. v. Burke, 535

F. Supp. 509 (D.R.I. 1982), aff'd, 698 F.2d 559

Oe a a a 10

New Orleans Public Service Inc. v. New Orleans,

782 F.2d 1236, modified, 798 F.2d 858 (5th Cir.

1986), petition for cert. filed, 55 U.S.L.W. 3295

(U.S. October 3, 1986) (No. 86-546) ................. 5

Ohio Civil Rights Commission v. Dayton Christian

Schools, Inc., U.S. , 106 S. Ct. 2718

| REE CNe O Fev ae SRN y el SIN aca E ER 13, 14

Pacific Gas & Electric Co. v. State Energy Re-

sources Conservation and Development Commis-

ston, 489 F. Supp. 699 (E.D. Cal. 1980), rev’d on

other grounds, 659 F.2d 903 (9th Cir. 1981),

gt BERRIES Oc 10

Pacific Legal Foundation v. State Energy Resources

Conservation and Development Commission, 472

F. Supp. 191 (S.D. Cal. 1979), rev’d on other

grounds, 659 F.2d 903 (9th Cir. 1981), aff'd,

I a HE, I ioesisick ccs eeaiscirsculiibesiabiaiaunacdbenacss> 10

South Central Bell Telephone Co. v. Louisiana Pub-

lic Service Commission, 744 F.2d 1107 (5th Cir.

1984), vacated on other grounds, —— U.S. ,

es ts ee I cade thceichchasd cotcushecduscenbins 8-9

Younger v. Harris, 401 U.S. 37 (1971) «0.220000... 10, 13, 15

U.S. Constitution

U.S. Constitution, amendment X ...0000000.0000000.. cc... 9

Statutes

Atomic Energy Act, 42 U.S.C. §§ 2011-2284 (1982

Ae TA, TE Ie hated eccsinisccndasendedentient ees 10

v

TABLE OF AUTHORITIES—Continued

Page

Hazardous Materials Transportation Act, 49 U.S.C.

§§ 1801-12 (1982 & Supp. III 1985) ................... 9

Johnson Act, 28 U.S.C. § 1842 (1982) ..................... 15, 16

Legislative Materials

80 Cong. Rec. 1916 (Feb. 5, 1934) o.................---------- 16

IN THE

Supreme Court of the Wuited States

OCTOBER TERM, 1986

No. 86-546

NEW ORLEANS PUBLIC SERVICE INC.,

Petitioner,

v.

THE CITY OF NEW ORLEANS, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth 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

The members of Edison Electric Institute (“EEI’’) are

investor-owned electric utility companies supplying elec-

tric service to individuals, industries and _ businesses

throughout the United States. EEI’s members serve ap-

proximately 96 percent of all customers of investor-

owned utilities and 73 percent of this country’s power

consumers.

This nation’s growing electric needs are increasingly

met by arrangements that involve utility companies op-

erating in more than one state: power pools; coordina-

2

tion, exchange and interconnection arrangements; and

transactions like that at issue here: affiliated utilities

in different states that share in the costs and output of a

generation facility. Not only does this arrangement meet

generation needs where an individual company lacks suf-

ficient resources to finance a plant on its own, but it also

permits risk-spreading and economies of scale, thus meet-

ing the nation’s electric needs by the most economic

means possible.

Because these arrangements usually involve several

states, uniform regulation of interstate transmission and

wholesale transactions is required. The passage of the

——Federal Power Act (“FPA”), with its grant of exclu-

Sive jurisdiction to the Federal Energy Regulatory Com-

mission (‘FERC’) over these areas, is the clearest evi-

dence possible of this strong federal interest in uniform

regulation. It can be expected that each state will pro-

mote the lowest retail electric rates possible for its own

residents and businesses. The conflict between state and

federal regulation that inevitably emerges from these

attempts disrupts utilities’ efforts to provide least-cost

and reliable energy to power consumers in more than one

state. This conflict poses a clear threat to the continued

development of national energy resources.

The repercussions of this conflict are vividly illustrated

by the phenomenon of “trapped costs.” As the petitioner,

New Orleans Public Service Ine. (“Public Service’)

points out, in August of 1985, it began to incur approxi-

mately $15 million in “trapped costs” each month, a

sum which exceeds a typical year’s earnings for Public

Service. Pet. at 4 n.4. This $15 million represents costs

that the FERC directed Public Service to bear at the

wholesale level as its share of the cost of Grand Gulf

Unit No. 1.'. When a state ratemaking body fails to

1 An affiliate of Public Service, System Energy Resources, Inc.,

owns 90 percent of Grand Gulf 1. See Pet at 3n.3. At issue before

the FERC were the allocations of that 90 percent share among the

3

provide the utility recognition of these costs in retail

rates, the state body achieves its parochial goal—lower

retail rates for its own ratepayers—but FERC’s actions

and goals are undermined. Only a federal arbiter pos-

sesses the requisite jurisdiction and national perspective

to assure uniform and fair oversight of these conflicts.

Federal court abstention intensifies and prolongs the

crises precipitated by “trapped costs” in denying the

strapped utility a prompt and fair resolution of the dis-

pute in the appropriate federal forum. The delay that

abstention creates can prove disastrous for a utility,

both financially and operationally, while encouraging the

state’s recalcitrance. Even though this Court has pro-

vided a clear resolution of the underlying issue of pre-

emption in Nantahala,? the crisis precipitated in this

field will continue unabated until the corollary absten-

tion question is resolved. This Term, the AEP case pre-

sented the Court with the same core question of absten-

tion in the face of a preemption claim under the FPA.

American Elec. Power Co. v. Kentucky Pub. Serv.

Comm’n, No. 85-5121, slip op. (6th Cir. 1986), petition

for cert. filed, 55 U.S.L.W. 3032 (U.S. July 17, 1986)

(No. 86-49) order requesting Solicitor General’s views,

55 U.S.L.W. 3231 (U.S. October 6, 1986) (“AEP”).

four operating subsidiaries of the Middle South system, including

Public Service. As the petitioner points out, at a later time Public

Service and the Council reached a conditional partial settlement.

That settlement provided for partial retail rate recovery of some of

the FERC-allocated costs. Under that settlement, however, the

Council reserved its “right” to reduce the level of FERC-mandated

costs recognized in Public Service’s retail rates in a prudence

inquiry. See Pet. at n.7.

2 Nantahala Power & Light Co. v. Thornburg, —— U.S. ——,

106 S. Ct. 2349 (1986) (“Nantahala’).

3EEI has also participated in both the Nantahala and AEP

proceedings as an amicus curiae.

4

STATEMENT OF THE CASE

EEI adopts the petitioner’s Statement of the Case.

REASONS FOR GRANTING THE WRIT

I. THE FIFTH CIRCUIT’S DECISION IS YET

ANOTHER IN AN ALARMING TREND OF CASES

WHERE THE LOWER FEDERAL COURTS ARE

ABDICATING THEIR PROPER ROLES.

EEI’s prediction to this Court in its amicus brief

in AEP (at 4-5) is already coming true—controversies

involving the same array of Nantahala issues are again

and again being deflected to this Court for resolution,

when they are more properly addressed at the federal

district court level. Together with Nantahala and AEP,

this is now the third time in two years that a “trapped

costs” case has come up to this Court following a federal

district court’s decision to abstain. This Court should

instruct the lower tribunals that they can, and should,

adjudicate Nantahala cases that are properly before

them.

The Fifth Circuit’s suggestion that abstention does

not “foreclose” review of Public Service’s preemption

claim by the Supreme Court (Pet. App. at A-20) reveals

a profound misunderstanding of the Supreme Court’s role

in addressing this federal question. Having resolved the

underlying legal question in Nantahala, this Court should

not be called upon to apply it to each new set of facts

arising under that question, as the Fifth Circuit’s logic

would entail. This is precisely the role that the district

courts are designed to play. The fact that AEP, Nanta-

hala, and now the case below, all came so recently before

this Court illustrates how abstention by a federal dis-

trict court has kept clear-cut cases of federal preemp-

tion from being decided in a consistent and prompt man-

ner, and in the most efficient forum.

5

II. THE CONFUSION BOTH AMONG AND WITHIN

CIRCUITS IN THIS AREA OF LAW IS INCREAS-

ING AND REQUIRES RESOLUTION.

The Fifth Circuit’s curious reversal of its prior de-

termination in the same case is exemplary of the con-

fusion that exists on this matter. The split among the

circuits at the time of AEP’s petition for certiorari in

July of this year has intensified. At that time, the Sixth

and Fourth Circuits*+ had condoned abstention in the

face of a preemption elaim under the FPA or its ana-

logue, the Natural Gas Act, while the Third, Fifth, and

Eighth Circuits had not. The Fourth Circuit subse-

quently affirmed a district court’s injunction of a state

ratemaking order in Appalachian Power.® The Sixth

Circuit displayed profound internal confusion as to the

particular strand of abstention doctrine that it consid-

ered applicable in its AEP decision. No single judge in

the three-judge panel in that case was able to agree with

the others as to the appropriate analysis.

Even more notable here is the fact that the split among

the circuits has resulted in contrary results for two mem-

bers of the same holding company system. Compare the

*AEP; Aluminum Co. of America v. Utilities Comm’n of N.C.,

713 F.2d 1024 (4th Cir. 1983), cert. denied, 465 U.S. 1052 (1984).

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

791 F.2d 1111 (8d Cir. 1986); New Orleans Public Service Inc. v.

New Orleans, 782 F.2d 1236, modified, 798 F.2d 858 (5th Cir. 1986),

petition for cert. filed, 55 U.S.L.W. 3295 (U.S. October 3, 1986)

(No. 86-546); Middle South Energy, Inc. v. Arkansas Pub. Serv.

Comm’n, 772 F.2d 404 (8th Cir. 1985), cert. denied, —— U.S.

106 S. Ct. 884 (1986).

?

6 Appalachian Power Co. v. Public Serv. Comm’n of W. Va., 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).

6

case below (Pet. App. at A-14- A-24) with Middle South

Energy, Inc. v. Arkansas Pub. Serv. Comm'n, 593 F.

Supp. 363 (E.D. Ark. 1984), aff'd, 772 F.2d 404 (8th

Cir. 1985), cert. denied, US. , 106 S. Ct. 884

(1986). That such conflicting results should occur for

affiliated utilities on questions arising out of the same

transaction, merely because of geographical happenstance,

signals that abstention here is thwarting the doctrine’s

intent by creating confusion, and not avoiding it. See,

e.g., Burford v. Sun Oil Co., 319 U.S. 315, 327 (1943)

(“Burford”).

III. CERTIORARI IS NECESSARY TO CORRECT THE

FIFTH CIRCUIT’S MISAPPLICATION OF NANTA-

HALA.

The Fifth Circuit’s decision to abstain from adjudicat-

ing a FPA preemption claim creates a dangerous and

anomalous precedent: under the Fifth Circuit’s reason-

ing, when a federal statute expressly reserves to the

states an area in which they have the power to regu-

late but otherwise preempts state action, a federal dis-

trict court is foreclosed from ever determining the pre-

cise scope of jurisdiction that Congress intended to leave

to the states. This precedent is even more dangerous for

the way in which this Court’s Nantahala decision is mis-

used to rationalize the result.

A. The Case Below Fell Clearly Within the Ambit of

Nantahala.

The merits of the federal question presented in the

case below are unquestionably controlled by Nantahala.

In that case, this Court clearly articulated the boundary

where state retail ratemaking leaves off, and federal

oversight begins:

FERC clearly has exclusive jurisdiction over the

rates to be charged [a utility’s] interstate wholesale

customers. See 16 U.S.C. § 824(b); New England

Power Co. v. New Hampshire, 455 U.S. 331, 340

7

. . - (1982). Once FERC sets such a rate, a State

may not conclude in setting retail rates that the

FERC-approved wholesale rates are unreasonable.

A state must rather give effect to Congress’s desire

to give FERC plenary authority over interstate

wholesale rates, and to ensure that the States do not

interfere with this authority.

106 S. Ct. at 2357.

If anything, the preemption issue in the case below is

even more readily apparent than in Nantahala, where

the manner in which FERC had set the “rate” and cost

allocation was more complicated. Nantahala, 106 S. Ct.

at 2352-53. Here, it is crystal clear: in Opinion No. 234,

FERC unambiguously modified the cost, capacity and

energy allocations in the filed unit power sales agree-

ment for Grand Gulf Unit No. 1 and directly ordered

Public Service to pay 17 percent of the costs for Grand

Gulf Unit No. 1.7 Once FERC set that cost allocation,

Public Service had no choice but to pay it, or risk violat-

ing FERC’s order.

Given the large sums involved, Public Service could not

afford to absorb those costs, even for a brief period, and

it promptly filed with the Council for recognition of

those costs in its retail rates. As a matter of federal

law, the Council was required to recognize the costs as

legitimate operating expenses in Public Service’s rates;

the failure to do so would render them “trapped costs.”

The Council, however, refused to grant Public Service

rate relief reflecting the FERC-approved operating ex-

pense,* in direct contravention of the FPA.°®

7 The Council had actively participated in the FERC proceeding.

There it unsuccessfully argued that Public Service should be allo-

cated a lower level of costs. See Pet. at 3.

8 As noted above, the Council and Public Service have reached

a conditional partial settlement relative to this dispute, but the full,

timely recognition of the FERC-mandated expenses has not been

forthcoming from the Council. See note 1, supra.

® See Nantahala, 106 S. Ct. at 2357, quoted supra at pp. 6-7.

ieee

8

B. The Fifth Circuit Misconstrued and Confused the

Interplay Between Preemption Doctrine and Ab-

stention Doctrine.

The Fifth Circuit did not ignore the Nantahala deci-

sion, but certainly gave it an unusual twist. Conceding

that abstention in the face of a preemption claim is

“problematical,” Pet. App. at A-15, the Fifth Circuit

nevertheless relied on Nantahala for the proposition that

“local control over retail rate making is not preempted

by federal law.” Pet. App. at A-16. The court then

reasoned: “The structure of the Federal Power Act,

preserving as it does state jurisdiction over retail rates,

suggests that these local institutions should normally

proceed unfettered by federal interference.” Pet. App.

at A-17. |

As a rationale for abstention, this reasoning begs the

question: while it is true, as Nantahala noted, that states

retain local control over retail rates, the very question at

issue here is whether that is what the Council is properly

controlling. Where local institutions like the Council

wield their control over retail ratemaking in a fashion

that interferes with FERC’s exclusive jurisdiction over

interstate wholesale rates, they are engaging in whole-

sale, not retail, ratemaking and in the regulation of in-

terstate commerce. In these cases, it is the federal do-

main that is improperly subjected to state interference.

The “bright line” between federal and state rate regula-

lation that this Court affirmed and strengthened by its

decision in Nantahala * thus counsels against abstention,

not for it. The precedent set in the opinion below would

turn both Nantahala and the FPA on their heads.

Indeed, the Fifth Circuit has departed from its own

prior position on this point. In South Central Bell Tele-

phone Co. v. Louisiana Public Service Commission, 744

10 106 S. Ct. at 2356-57, quoting FPC v. Southern Cal. Edison Co.,

876 U.S. 205, 215-16 (1964).

9

F.2d 1107, 1128 (5th Cir. 1984), vacated on other

grounds, —— U.S. , 106 S. Ct. 2884 (1986) (“South

Central”), the Fifth Circuit affirmed a decision not to

abstain where “the claim presented . . . is predicated

upon a naked exercise of the federal preemption power.”

In its first decision below, the Fifth Circuit cited this

precedent with approval. Pet. App. at A-13.

Other circuits have honored this same reasoning. In

International Brotherhood of Electrical Workers v. Public

Service Commission of Nevada, 614 F.2d 206, 212 n.1

(9th Cir. 1980) (“TBEW’’), the Ninth Circuit explained:

A preemption claim alleges in essence that Con-

gress has determined that particular matters are of

national concern and should be administered by na-

tional, rather than local, institutions. If a pre-

emption claim is well-founded, therefore, Burford

abstention cannot be appropriate."

In reversing its first decision below, the Fifth Circuit

failed to address its own conflicting precedent in South

Central, but denounced the reasoning of the IBEW case

as “unnecessary dictum.” The court feebly attempted to

distinguish JBEW on the grounds that the case did not

involve the FPA, a statute that expressly reserves to the

states some local authority. Pet. App. at A-20- A-21.

The FPA is not unique, however, in reserving an area

of regulation to the states.'* For example, the Hazardous

Materials Transportation Act, 49 U.S.C. §§ 1801-12

{1982 & Supp. III 1985) (“HMTA’’), regulates inter-

state transportation of hazardous materials. As with

the FPA, the HMTA allows certain authority to remain

with the states. Section 1811, 49 U.S.C. § 1811 (1982).

11 Accord, Knudsen Corp. v. Nevada State Dairy Comm’n, 676

F.2d 373, 377 (9th Cir. 1982); Baggett v. Department of Profes-

sional Regulation, Bd. of Pilot Comm’rs, 717 F.2d 521, 524 (11th

Cir. 1983).

12 Even in the absence of express statutory reservation, the Con-

stitution reserves some authority to the states. U.S. Const. amend.

X.

10

This fact, however, has not prevented a federal district

court from adjudicating a preemption challenge to state

regulation of hazardous materials transportation. See,

e.g., Nationa! Tank Truck Carriers, Inc. v. Burke, 535

F. Supp. 509 (D.R.I. 1982), aff'd, 698 F.2d 559 (1st Cir.

1983). See also, Pacific Gas & Elec. Co. v. State Energy

Resources Conservation and Dev. Comm’n, 489 F. Supp.

699 (E.D. Cal. 1980), rev’d on other grounds, 659 F.2d

903 (9th Cir. 1981), aff'd, 461 U.S. 190 (1983) ; Pacific

Legal Found. v. State Energy Resources Conservation

and Dev. Comm’n, 472 F. Supp. 191 (S.D. Cal. 1979),

rev'd on other grounds, 659 F.2d 903 (9th Cir. 1981),

aff'd, 461 U.S. 190 (1983) (decided under Atomic

Energy Act, 42 U.S.C. §§ 2011-2284 (1982 & Supp. III

1985) ). Conspicuous by its absence from these cases is

any discussion of the possible applicability of abstention

doctrine.

To abstain under either Burford or Younger™ is to

decide that the state interests at issue outweigh what-

ever federal interests exist. In essence, then, the Fifth

Circuit’s decision to abstain prejudged the preemption

question, and in so doing, eviscerated the Nantahala

doctrine before it was even heard on the merits. See,

e.g., IBEW, 614 F.2d at 212 n.1 (“[A] court cannot

abstain under Burford in a preemption casé without im-

plicitly ruling on the merits of the action.”). Certiorari

is necessary to correct this misuse of a principle so re-

cently established by this Court.

IV. THE FIFTH CIRCUIT EMPLOYED BOTH

YOUNGER AND BURFORD ABSTENTION IN A

MANNER AT ODDS WITH THIS COURT’S ENUN-

CIATION OF THOSE DOCTRINES.

Both the Younger and Burford strands of abstention

are driven by a desire to avoid needless federal inter-

ference with legitimate state-created interests and pro-

ceedings. This core policy must be reconciled, however,

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

11

with the “virtually unflagging obligation of the federal

courts to exercise the jurisdiction given them.” Colorado

River Water Conservation Dist. v. United States, 424

U.S. 800, 817 (1976) (citations omitted) (“Colorado

River’). Abstention doctrine should not apply to remove

from federal district courts cases properly before them

that deserve, by virtue of their overwhelmingly federal

nature, federal district court adjudication. Abstention

is only appropriate where the matter can with certainty

be satisfactorily and fully resolved in the state forum,

and only in those “exceptional circumstances where the

order to the parties to repair to the state court would

clearly serve an important countervailing interest.”

County of Allegheny v. Frank Mashuda Co., 360 U‘S.

»185, 188-89 (1959), cited in Colorado River, 424 U.S. at

813. Because the case below presents an archetypical

federal question—preemption—no such countervailing in-

terest exists, and there is no assurance of adequate re-

dress within the state system.

A. Burford Abstention Is Inappropriate Where the

State Has Invaded the Federal Regulatory Domain.

The Fifth Circuit relied on Burford and Alabama Pub-

lic Service Commission v. Southern Railway Co., 341

U.S. 341 (1951) (“Alabama”) to justify abstention in

the face of a preemption claim under the FPA. The

strand of abstention doctrine in Burford and its progeny,

however, is misplaced where there exist both a federal

and state scheme of regulation of the same subject mat-

ter, and a sharp division between the two.

Burford abstention is designed to protect a state’s

legitimate interests in creating and administering a co-

herent state-wide regulatory scheme. Burford, 319 U.S.

at 332-34. Its applicability presupposes local facts, state

law or policy questions, and an expert state body skilled

at construing the state-specific facts at issue. Jd. More

fundamentally, it presupposes a situation in which the

12

state is the exclusive regulator. These underlying pre-

requisites for Burford abstention are lacking here.

In Burford, the federal attack on the validity of a

state order granting permission to drill oil wells was

based on diversity of citizenship and a due process claim.

Burford, 319 U.S. at 317. No federal statutory scheme

governed the issue before the court, and no preemption

claim existed. Jd. at 319. Similarly, in Alabama, a rail-

road company challenged an order of the state railroad

commission based on diversity and a confiscation claim.

Alabama, 341 U.S. at 342-43. The Court specifically

stated that the Interstate Commerce Commission lacked

jurisdiction over the subject matter at hand. Jd. at 346

n.7.

Under those circumstances, abstention to prevent fed-

eral interference with the state’s exclusive regulatory

scheme may have been appropriate. But where Con-

gress has created a federal regulatory scheme, wita a

earefully-drawn “bright line” between state and federal

interests, abstention undermines Congress’ preemptive in-

tent. The Fifth Circuit’s abstention decision effectively

frustrates the application of the superior interests of the

FERC enunciated by this Court in Nantahala.**

14Tronically, the Fifth Circuit also relied on language in BT

Investment Managers, Inc. v. Lewis, 559 F.2d 950, 955 (5th Cir.

1977) (“Lewis”) for the proposition that abstention is proper when

the federal interest “touches some overriding state interest.” Pet.

App. at A-19. Whatever value these words may carry as dictum is

doubtful, inasmuch as the holding in Lewis was against abstention.

The court rejected Burford abstention because the appellants had

attacked but one section of a large and fairly complex state regula-

tory scheme. Invalidation of that one aspect would scarcely dis-

rupt the state’s system of regulation. Lewis, 559 F.2d at 955. As

in Lewis, requiring the Council in a single rate proceeding to recog-

nize FERC-approved costs for one portion of one utility’s cost of

service is hardly an attack on the Council’s authority to set just

and reasonable retail rates.

13

B. Younger Doctrine Is Not Intended to Assist States

in Thwarting Federal Regulation of Wholesale

Ratemaking.

Younger abstention doctrine emerged from the context

of a federal action to enjoin a state’s prosecution of

state criminal violations. Younger, 401 U.S. at 40. It

is premised on “a proper respect for state functions.”

Id, at 44,

Subsequent decisions have extended Younger somewhat

to civil proceedings where important state interests are

involved and to administrative proceedings “judicial in

nature” in which important state interests are vindi-

cated, so long as the federal plaintiff is afforded a full

and fair opportunity in the state proceeding to litigate

his constitutional claim. See Middlesex County Ethics

Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 432-34

(1982) ; Ohio Civil Rights Comm’n v. Dayton Christian

Schools, Inc. —— U.S. ——, 106 S. Ct. 2718, 2723

(1986) (“Ohio Commission’).

There are no state interests at issue in the case below,

however, sufficient to bring it within Younger’s scope.

The only question is whether the Council must recognize

a FERC-approved cost allocation in setting retail rates.

That question is answered by federal law.

The Fifth Circuit nevertheless reasoned:

The interest of the Council of New Orleans in setting

retail rates is clearly important here: indeed, juris-

diction over retail rates is preserved to the states by

the terms of the Federal Power Act.

Pet. App. at A-23-A-24. That the FPA reserves to the

states the power to set retail rates is irrelevant. Retail

ratemaking is not the type of state interest protected by

Younger, as even a cursory reading of this Court’s

14

seminal Younger doctrine cases reveals.° See Ohio Com-

mission, 106 S. Ct. at 2723 and cases cited therein, all

of which involve the state’s interest in exercising its

enforcement powers to protect its citizens’ health, safety

and morals.”

Even if retail ratemaking were considered to be within

the Younger category of interests, the critical fact here

is that the state has forayed beyond the “retail” bound-

ary, and engaged in regulation of wholesale rates in

interstate commerce. No state has a legitimate, much

less an important, local interest in the purposeful dis-

obedience of federal law and policy.

Moreover, the delay that abstention entails negates

any “full and fair opportunity” to litigate a preemption

claim in the state courts. See id. at 2723. The result

of abstention here is the “opportunity” for Public Serv-

ice to lose, permanently, up to $15 million every month,

while a clear federal question involving neither state law

nor state policy is ignored by a recalcitrant local body

dissatisfied by FERC’s rulings.*”

15 Even if retail ratemaking were, arguendo, protected under

Younger, the simple recognition of the FERC-allocated costs would

not interfere with ratemaking functions not controlled by federal

law.

16 As the petitioner points out, ratemaking is not the “judicial”

category of proceeding that one encounters in the Younger line of

enforcement cases. Pet. at 14 & n.16. This Court’s most recent

case applying Younger doctrine expressly noted that where a pro-

ceeding is not “judicial in nature’, abstention may not be appro-

priate. Ohio Commission, 106 S. Ct. at 2723 n.2, citing Hawaii

Housing Authority v. Midkiff, 467 U.S. 229, 237-39 (1984).

17The U.S. Court of Appeals for the D.C. Circuit recently

explained:

[T]he need or wisdom of extending Yownger to all constitu-

tional claims that might be adjudicated in state as well as fed-

eral courts, however, is . .. problematical. This extension

15

There are, in addition, exceptions to Younger that the

Fifth Circuit should have recognized and applied. For

example, Younger abstention is not appropriate when the

action in question poses a threat of “irreparable injury.”

The Fifth Circuit’s suggestion that review might be had

eventually in the Supreme Court ignores the great finan-

cial distress that Public Service suffers while its pre-

emption claim slowly “wind[s] its way up through the

state courts.” Pet. App. at A-20. The Fifth Circuit’s

cavalier belief that these long, expensive delays are ac-

ceptable is shockingly insensitive to the realities facing

Public Service and the utility industry in general.

The Court in Younger also pointed out that abstention

is inappropriate where a state statute is patently invalid

on its face. See Younger, 401 U.S. at 53-54. The state

action complained of by the petitioner here patently

violates the Supremacy Clause. Given this Court’s hold-

ing in Nantahala, the clear-cut nature of FERC’s order,

and the flat refusal of the Council to honor it, the Coun-

cil’s action is not protected against federal intervention

by Younger. The Fifth Circuit halted its analysis, how-

ever, before it even reached this question.

V. THE FIFTH CIRCUIT’S DECISION TO ABSTAIN

CONFLICTS WITH ITS EARLIER, CORRECT DE-

CISION UNDER THE JOHNSON ACT.

In its earlier decision, the Fifth Circuit properly held

that the Johnson Act, 28 U.S.C. § 1342 (1982), did not

bar federal district court review, because Public Service

presented a preemption claim. Pet. App. at A-12. This

was a proper ruling and consistent with the court’s prior

decision that abstention was not appropriate.

would make federal courts cindercllas to their sister state

courts in adjudicating federal constitutional rights, their

native area of competence and jurisdiction.

Family Div. Trial Lawyers v. Moultrie, 725 F.2d 695, 702 (D.C.

Cir. 1984).

16

The Johnson Act cannot be understood as anything but

a codification of judge-made abstention doctrine in util-

ity rate cases. Its legislative history indicates that it was

designed to prevent undue federal court interference with

those aspects of state ratemaking that are purely local.

See 80 Cong. Rec. 1916, 1916-18 (Feb. 5, 1934). Because

federal district courts had been engaging in de novo rate

hearings on appeal of state rate orders, they frequently

substituted their own judgments for those of the local

administrative bodies that already had held hearings on

these local issues. Jd. at 1916. The Johnson Act was

designed to restrict this sort of direct federal interfer-

ence in local ratemaking. The Act specifically exempts,

however, federal cases presenting preemption claims.

The implication of this specification is that, because of

the overwhelmingly federal nature of a preemption claim,

the case is in fact best suited for adjudication in a fed-

eral district court.

Hence, there is an evident lack of logic in the Fifth

Circuit’s belief that abstention is particularly appropri-

ate when the claim is preemption under the FPA. Its

assertion cannot be reconciled with the Johnson Act’s

purpose and operation. The conflicting nature of these

rulings indicates how far amiss the Fifth Circuit’s ab-

stention decision has gone.

17

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 MARLENE I.. STEIN

and General Counsel LEBOEUF, LAMB, LEIBY & MACRAE

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

1111 19th Street, N.W. Suite 1100

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

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

Attorneys for Edison

Electric Institute

November 7, 1986 * Counsel of Record