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

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iS ra No. 86-546

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+ IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

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 A BRIEF

AMICUS CURIAE AND BRIEF AMICUS CURIAE

IN SUPPORT OF THE PETITION

Of Counsel: HERSCHEL L. ABBOTT, JR.

W. D. MER? VETHER, JR. Counsel of Record

Vice President and DAvID G. RADLAUER

General Counsel EDWARD H. BERGIN

Middle South Services, Inc. R. LEWIS MCHENRY

225 Baronne Street ERIc J. MAYER

New Orleans, Louisiana 70112 JONES, WALKER, WAECHTER,

Telephone: (504) 569-4214 POITEVENT, CARRERE

& DENEGRE

JOSEPH L. BLOUNT Place St. Charles

General Counsel 201 St. Charles Avenue

Systems Energy Resources, Inc. New Orleans, Louisiana 70170

808 East Pearl Street Telephone: (504) 582-8000

Jackson, Mississippi 39201

Telephone: (601) 969-2338

November 7, 1986

Attorneys for System Energy

Resources, Inc.

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

IN THE |

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-546

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 A BRIEF

AMICUS CURIAE

System Energy Resources, Inc. (“SERI’) formerly

Middle South Energy, Inc., respectfully moves this Court

for leave to file the accompanying brief in this case as

Amicus Curiae. Pursuant to Rule 36.1 of the Revised

Rules of the Supreme Court, SERI requested consent of

all parties for the filing of this brief. Although Peti-

tioner consented, Respondents have refused to do so.

SERI, the principal owner of Grand Gulf Nuclear Elec-

tric Station Unit No. 1 (“Grand Gulf 1”) and the

wholesaler of power therefrom, has a direct interest in

Opinion No. 234 of the Federal Energy Regulatory Com-

mission (“FERC”), the effect of which is at issue in the

case sub judice. The FERC-approved rates filed in ac-

cordance with Opinion No. 234 are for the purpose of

allowing SERI to recover the costs it incurred in con-

structing and operating Grand Gulf 1, as well as SERI’s

FERC-established fair rate of return. SERI therefore

has an interest in ensuring that Opinion No. 234 and the

obligations derived therefrom are respected by local regu-

lators.

Further, SERI is a plaintiff in a suit pending in the

United States District Court for the Eastern District of

Louisiana encaptioned: “Middle South Energy, Inc., et

al. v. The Council of the City of New Orleans, et al.”,

Civil Action No. 85-5273 D, in which one of the questions

involved is similar to that presented in the instant case:

the propriety of federal court abstention in the context

of exclusive federal jurisdiction and substantial federal

preemption claims.

The brief of New Orleans Public Service Inc., peti-

tioner herein, does not adequately emphasize the impor-

tance of this decision to other jurisdictions, particularly

those served by SERI. Petitioner’s brief also does not dis-

cuss the exclusive jurisdictional grant provided in 16

U.S.C. § 825p and its relation to the questions presented

for decision in the instant case. If Applicant’s argument

is approved by this Court, the decision of the court below

must be reversed.

Respectfully submitted,

Of Counsel:

W. D. MERIWETHER, JR.

Vice President and

General Counsel

Middle South Services, Inc.

225 Baronne Street

New Orleans, Louisiana 70112

Telephone: (504) 569-4214

JOSEPH L. BLOUNT

General Counsel

Systems Energy Resources, Inc.

308 East Pear! Street

Jackson, Mississippi 39201

Telephone: (601) 969-2338

November 7, 1986

HERSCHEL L. ABBOTT, JR.

Counsel of Record

DAVID G. RADLAUER

EDWARD H. BERGIN

R. LEWIS MCHENRY

Eric J. MAYER

JONES, WALKER, WAECHTER,

POITEVENT, CARRERE

& DENEGRE

Place St. Charles

201 St. Charles Avenue

New Orleans, Louisiana 70170

Telephone: (504) 582-8000

Attorneys for System Energy

Resources, Inc.

TABLE OF CONTENTS

Page

pe RL GP ye gee eee ii

pe ee 8 a dE gy | 1 y fee 1

a a adit tcienictmepsiaceconsinonnsdneertninstnsscnocccsvecs 5

A. The Decision Below Violates This VCourt’s

Holding in Nantahala Power & Light Co. v.

ea RE en ee

B. Abstention Is Inappropriate ...........0.2.e- 9

C. The Decision Below Ignores Petitioner’s Allega-

tions Under 16 U.S.C. § G25p .............................. 13

CONCLUSION ......................- = IA AR AA POO 15

(i)

ii

TABLE OF AUTHORITIES

CASES: Page

Baggett v. Department of Professional Regulation,

The wae Gee Chat Cle. 10S) 9, 12,13

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

I IIR MED hes ltrcinainkinsincnigbebhainanaieciianiins 11

Burford v. Sun Oil Co., 319 U.S. 315 (1948) .......... 9

California v. Oroville-Wyandotte Irrigation Dis-

trict, 411 F.Supp. 361 (E.D.Cal. 1975), aff’d 536

F.2d 304 (9th Cir.), cert. denied, 429 U.S. 922

I sited ethernet asia ta ceed ati ll ace 14

Champion International Corp. v. Brown, 731 F.2d

I 12

Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976) .....02202.222... 9,11

Commonwealth Electric Co. v. Dept. of Public

Utilities, petition for cert. filed, 55 U.S.L.W. 3156

(U.S. July 17, 1986) (No. 86-61) ........22220000..0........ 11

Doran v. Salem Inn, Inc., 244 U.S. 922 (1975)........ 3

Empire Inc. v. Ashcroft, 524 F.Supp. 898 (W.D.

SUI IIIIIIE It “cacuissint aisha ices chendiunerbkanamnmiaticspiabdanmmasaccindivaiets 13

FPC v. Southern California Edison Co., 376 U.S.

UN IEE ciiccifcsossiisknsnsson tancnpitinibeapliatbadiaasaaaieabiablontoans 8

International Brotherhood of Electrical Workers

v. Public Service Commission, 614 F.2d 205 (9th

S| EIEN AL AUER eed Reto Recs ae aN OR So 10

Kentucky W. Va. Gas Co. v. Pennsylvania Public

Utility Commission, 791 F.2d 1111 (8d Cir.

REET RRR Re atenian etna NON ae fe ne ARES leet Bc 9,10

Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982) ........ 12

Middle South Energy, Inc. v. Arkansas Public

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

1985), cert. denied, —— U.S. ——, 106 S.Ct.

I 9,12

Montana-Dakota Utilities Co. v. Northwestern

Public Service Co., 341 U.S. 246 (1951) .............. 14, 15

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

USS. » 108 B.C. SEED CISG6) ............................ passim

New Orleans Public Service Inc. v. City of New

Orleans, 782 F.2d 1236 (5th Cir. 1986) ........ —_— 3,13

ili

TABLE OF AUTHORITIES—Continued

Page

New Orleans Publie Service Inc. v. City of New

Orleans, 798 F.2d 858 (5th Cir. 1986) ................. 4,12,14

Ohio Civil Rights Commission v. Dayton Christian

Schools, inc., —— U.S. , 106 S.Ct. 2718

CFI anes ssicienscassnine tenis tckienenceseniesttipeeiniomenngpepaoh 3

Steffel v. Thompson, 415 U.S. 452 (1974) .............-.. 3

Younger v. Harris, 401 U.S. 37 (1971) .........-....---.-.- 12, 18

Zablocki v. Redhail, 434 U.S. 374 (1978) .............--.- 11

ADMINISTRATIVE DECISIONS:

Middle South Energy, Inc., 31 FERC (CCH)

{61,305 (June 13, 1985) (“Opinion No. 234’)

appeal pending, No. 85-1611 (D.C. Cir. argued

) | RRR eat aamenerrehas Bessa ae 2,4, 11, 14, 15

CONSTITUTION ANP STATUTES:

TES Cee Se, TRS 0 ecco eccrine 13

RG UBC. Se Te Oe GO acini ccc ccee citccerscoensanentens passim

5 BRE oth SARA pe ipeamrensner munee Bee er nent OUN 5, 138, 14, 15

, ERT of.” RR eeeeeeyemenommnesrencronretrecencr 54.5 14

RESOLUTIONS OF THE COUNCIL OF THE CITY

OF NEW ORLEANS:

Resolution R-85-636 (October 17, 1985) -............... 2,3

Resolution R-86-112 (March 20, 1986) _................ 3,4

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.,

Responder’.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF OF AMICUS CURIAE

IN SUPPORT OF THE PETITION

STATEMENT OF INTEREST

System Energy Resources, Inc. (“SERI”), formerly

Middle South Energy, Inc. (“MSE”), is the owner of a

ninety percent (90%) undivided interest in the Grand

Gulf Nuclear Electric Station Unit No. 1 (“Grand Gulf

1”). Grand Gulf 1 provides electricity for customers

served by the Middle South System in the States of

Louisiana, Mississippi, Arkansas and Missouri. The Mid-

dle South System is a highly integrated, coordinated elec-

tric public utility holding company system, consisting

in part of four operating companies’ and SERI.

1The operating companies of the Middle South System are

New Orleans Public Service Inc. (“NOPSI”), Arkansas Power &

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

(“LP&L”), and Mississippi Power & Light Company (“MP&L’’)

(collectively referred to as the “Operating Companies’’).

2

On June 13, 1985, the Federal Energy Regulatory

Commission (“FERC”) issued its “Opinion and Order

Setting Just, Reasonable, and Non-discriminatory Rates”

for Grand Gulf 1. Middle South Energy, Inc., 31 FERC

(CCH) 761,305 (June 13, 1985) (“Opinion No. 234’),

appeal pending, No. 85-1611 (D.C. Cir. argued March 24,

1986). In Opinion No. 234, the FERC determined that

the costs, capacity and energy of Grand Gulf 1 should

be allocated among the Operating Companies in order to

equalize nuclear unit investment costs throughout the

Middle South System. Pursuant to this determination,

the FERC allocated to NOPSI 17% of SERI’s share of

the costs, capacity and energy of Grand Gulf 1. This

allocation translates into an annual cost to NOPSI of

approximately $179 million (approximately $15 million

per month) which it must pay to SERI.

Because of the dollar significance of the FERC-allocated

costs, the Council of the City of New Orleans (“Coun-

cil”) has employed every means available to it to avoid

and delay granting retail rates sufficient to cover such

costs. Proceedings before the Council were initiated in

advance of the then anticipated FERC decision, when,

on May 17, 1985, NOPSI filed an application for approval

of an increase in rates to coincide with the in-service date

of Grand Gulf 1 (July 1, 1985). Notwithstanding several

months of procedural posturing, the Council failed to

grant NOPSI any rate relief whatsoever until September

5, 1985, when it permitted a “freeze” of NOPSI’s fuel

adjustment clause. The freeze only allowed NOPSI to

retain cash savings in the estimated average amount of

$2.83 million per month over a ten-month period, which

amount resulted from the expected lower fuel costs asso-

ciated with Grand Gulf 1.

As a further means of avoidance and delay, on October

17, 1985, the Council instituted an “investigation into the

3

prudence of NOPSI’s actions with regard to its Grand

Gulf 1 purchase.” Council Resolution R-85-636. The

express purpose of this alleged prudence investigation is

to determine “what portion, if any, of NOPSI’s Grand

Gulf 1 expense shall be assumed by its shareholders. . . .”

Id.

Largely as a consequence of the Fifth Circuit’s original

ruling in this case,* the Council, on March 20, 1986, for

the first time permitted NOPSI partially to recover

through retail rates some of the FERC-allocated costs.

Council Resolution R-86-112 (sometimes referred to as

the “Settlement Resolution”). In return for NOPSI’s

agreement to absorb $51 million of Grand Gulf 1 related

2 Any suggestion that the case is not ripe is refuted by this

Court’s statement in Ohio Civil Rights Commission v. Dayton

Christian Schools, Inc., U.S. ——, 106 S.Ct. 2718, 2722, n.1

(1986):

We think that any ripeness challenge to respondents’ complaint

is foreclosed by Steffel v. Thompson, 415 U.S. 452, 94 S.Ct.

1209, 39 L.Ed.2d 505 (1974), and Doran v. Salem Inn, Inc.,

422 U.S. 922, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975). Steffel

held that a reasonable threat of prosecution for conduct al-

legedly protected by the Constitution gives .'se to a sufficiently

ripe controversy. 415 U.S., at 458-460, 94 S.Ct. at 1215-1216.

If a reasonable threat of prosecution creates a ripe controversy,

we fail to see how the actual filing of the administrative action

threatening sanctions in this case does not. It is true that the

administrative body may rule completely or partically in re-

spondent’s favor; but it was equally true that the plaintiffs in

Steffel and Doran may have prevailed had they in fact been

prosecuted.

In the present case, the Council has initiated an ‘administrative

action threatening sanctions” which violates federal law. Under

this Court’s holdings in Steffel, Doran and Ohio Civil Rights, NOPSI

does not have to wait until the Council has actually taken further

action before the case is ripe for adjudication.

3 New Orleans Public Service Inc. v. City of New Orleans, 782

F.2d 1236 (5th Cir. Feb. 14, 1986).

4

costs,* the Council granted rate relief which would allow

NOPSI to recover the remainder of its Grand Gulf 1

related costs phased-in over a period of years. Signifi-

cantly, however, the Council expressly reserved its rights

to pursue its prudence inquiry and to issue orders with

respect thereto.® Most recently, the Council ordered

NOPSI to participate in hearings conducted as a con-

tinuation of the prudence investigation for the purpose

of determining how much of the FERC-allocated costs

NOPSI can “afford” to absorb if the Council finds that

NOPSI was “imprudent.” Thus, the Council interprets

the Settlement Resolution to allow it to order NOPSI

to absorb an additional portion of the FERC-allocated

costs in excess of the $51 million already extracted.’

Clearly, the Council has steadfastly refused to recognize

that the costs allocated by the FERC must be treated

as an actual operating expense for ratemaking purposes.

As a result, NOPSI’s ability to make the required pay-

ments to SERI continues to be jeopardized.

*In connection with the Settlement Resolution, NOPSI agreed

to and did withdraw its pending application for any rate increase

other than for the recovery of the expenses incurred as a result of

FERC Opinion No. 234. Therefore, this matter deals solely and

entirely with the right of NOPSI to recover expenses it incurs as

a direct result of the FERC order.

5 The Council also reserved its “rights” to pursue other avenues

designed to insulate ratepayers from paying the FERC-allocated

costs of Grand Gulf 1, including (1) an alleged option to purchase

NOPSI’s “assets” without assuming NOPSI!’s Grand Gulf rights and

obligations; and (2) the abrogation of the Grand Gulf agreements.

®In the course of these proceedings, the Council has submitted

testimony of its own witnesses who advocate that NOPSI can and

should be forced to absorb at least $150 million of Grand Gulf 1

costs in addition to the $51 million discussed above. The Attorney

General of Louisiana and Citizens for Safe Energy advocated in

these proceedings that NOPSI should be forced into bankruptcy

if imprudence is found rather than allowed to recover rates suffi-

cient to pay its share of the FERC-allocated costs.

5

The failure of NOPSI to remit payments timely could

cause SERI to default under various financial agree-

ments between SERI and third parties, including loan

agreements with American and foreign financial institu-

tions. This default could lead to the acceleration of debt

totaling approximately $2.7 billion. Thus, NOPSI’s in-

ability to pay ultimately would place the continuing via-

bility of the entire Middle South System in jeopardy.

In sum, this case raises a problem of extraordinarily

serious proportions that threatens the stability of electric

supply in Louisiana, Mississippi, Arkansas and Missouri,

the jobs of thousands of people, electric service to almost

two million customers, and billions of investment dollars.

It is a problem involving a substantial federal question

that is controlled exclusively by federal law, whose ap-

plicability does not depend on any disputed facts or issues

of state law. It is therefore a case calling for the im-

mediate exercise of federal judicial authority. SERI has

an interest in ensuring that its customers, the Operating

Companies, will have a federal forum in which to enforce

their federal right to recover the costs allocated by the

FERC.

ARGUMENT: REASONS FOR GRANTING THE WRIT

A. The Decision Below Violates This Court’s Holding In

Nantahala Power & Light Co. v. Thornburg

In this case, NOPSI seeks an injunction designed to

prevent the Council from impermissibly “trapping” the

FERC-allocated costs, that is, an injunction precluding

the Council from denying NOPSI the right to recover its

wholesale power costs incurred under a FERC-approved

rate. The basis of NOPSI’s claim is federal law: the

filed-rate doctrine (most recently construed by this Court

in Nantahala Power & Light Co. v. Thornburg, US.

, 106 S.Ct. 2349 (1986)) and the Federal Power

Act, 16 U.S.C. §§ 791 et seg., particularly 16 U.S.C.

§ 825p.

6

This Court’s decision in Nantahala established that a

local regulatory body cannot thwart a FERC allocation

of costs by “trapping” or otherwise. The question pre-

sented here is whether a federal court may avoid enforc-

ing Nantahala through abstention. Because NOPSI no-

where challenges the Council’s jurisdiction to determine

whether there may be cost savings in other areas which

may offset the FERC-allocated costs, the relief sought by

NOPSI does not involve any legitimate state interest.

Nantahala establishes that the challenged actions of

the Council are preempted. In Nantahala, the FERC

fixed a just and reasonable allocation of “entitlement

power” that was jointly available to two affiliated utili-

ties (Nantahala Power & Light Co. and Tapoco, Inc.).

The North Carolina Utilities Commission (“NCUC’’),

however, ordered Nantahala to charge a retail rate

reflecting an allocation of relatively low-cost ‘entitle-

ment power” different from the FERC’s allocation.

The effect of the NCUC order was to overstate in

local retail rates the actual amount of “entitlement

power” received by Nantahala and, as a result, to under-

state Nantahala’s total actual expense for the purchase

of wholesale power. The retail under-recovery was due

to the relatively high cost of Nantahala’s supplemental

“purchase power” supply. In striking down the NCUC’s

hypothetical allocation of “entitlement power” for retail

ratemaking purposes, this Court stated that the “NCUC

cannot substitute its own conception of what allocation of

entitlement power would have been .. . fair.”” —— U.S.

at , 106 S.Ct. at 2358. Thus, this Court held that

the NCUC’s order both interfered with, and was pre-

empted by, the Federal Power Act. U.S. at ,

106 S.Ct. at 2351. The Court found impermissible the

forced under-recovery, or “trapping”, by the NCUC of

Nantahala’s wholesale power costs. ——— U.S. at ——,

106 S.Ct. at 2359, 2360.

The Court squarely addressed the situation of a “mid-

dleman” who must pay a FERC-filed wholesale rate and

7

then seek retail rate recovery from the retail consumers

who are ultimately supplied the FERC-allocated power:

In that situation, for a state ratemaking agency to

disregard a F2RC-filed rate would clearly be incon-

sistent with the exclusive federal regulatory scheme

over interstate wholesale power prices. The FERC-

approved rate at which the middleman purchased

power would rot be fully recognized as a cost in the

retail market, thereby forcing the middleman to sell

power at less ‘han its reasonable cost as determined

by the federal agency.

U.S. at . 106 S.Ct. at 2358. This Court fur-

ther stated:

When FERC sets a rate between a seller of power

and a wholesaler-as-buyer, a State may not exercise

its undoubted jurisdiction over retail sales to prevent

the wholesaler-as-seller from recovering the costs of

paying the FERC-approved rate. ... Such a “trap-

ping” oj costs is prohibited.

— US. at , 106 S.Ct. at 2359 (citations omitted,

emphasis added) .’

This is precisely the situation in which NOPSI finds

itself. On the one hand, the FERC has ordered NOPSI

to pay SERI for Grand Gulf 1 power on the basis of a

17% cost allocation. On the other hand, the Council con-

tinues to assert that it can disallow, for purposes of retail

rate-making, a portion of the expense which NOPSI incurs

as a result of the FERC allocation. As a result, a portion

of the wholesale costs that NOPSI is required by the

FERC to pay may be impermissibly “trapped” by the

7In reaching this result, this Court embraced the Narragansett

line of cases and held that the underlying rationale of Narragansett

is the prevention of local authorities from trapping FERC-allocated

costs. The Court rejected the view that Narragansett permitted a

state authority discretion to determine whether FERC-ordered costs

were reasonably incurred where, as in Nantahala and here, the

FERC has in fact made a just and reasonable allocation of the

power under the Federal Power Act.

8

Council. Nantahala clearly establishes that the ability of

the Council to “trap” those wholesale costs is preempted

by the Federal Power Act.

In Nantahala, this Court assumed, without deciding,

that local retail authorities could find in certain circum-

stances that the quantity of a given wholesale power

purchase may be excessive. —— U.S. at , 106 S.Ct.

at 2360. However, this Court made clear that such an

opportunity for local action does not exist where the

FERC allocates the quantity in question. U.S. at

_ 106 S.Ct. at 2360. In the present case, as in

Nantahala, the FERC allocated the quantity of wholesale

power. For the Council to assert, as the NCUC asserted

in Nantahala, that the utility “had purchased an unrea-

sonably large quantity of high cost power... conflicts

with FERC’s orders in the same manner as would a

refusal to recognize a FERC-approved price as a reason-

able cost for purposes of retail ratemaking.” ——— U.S.

at ——, 106 S.Ct. at 2360.

As explained in Nantahala, the interplay between the

federal scheme of wholesale electric power regulation and

local policy is decidedly weighted in favor of “the pre-

emptive force of FERC’s decision.” U.S. at ;

106 S.Ct. at 2358. The strength of the FERC’s “pre-

emptive force” is so great that:

[Olur decisions have squarely rejected the view...

that the scope of FPC jurisdiction over interstate

sales of gas or electricity at wholesale is to be de-

termined by a case-by-case analysis of the impact

of state regulation upon the national interest.

Rather, Congress meant to draw a bright line easily

ascertained, between state and federal jurisdiction,

making unnecessary such case-by-case analysis. This

was done in the Power Act by making FPC jurisdic-

tion plenary. ...

U.S. at , 106 S.Ct. at 2856-57 (quoting FPC

v. Southern California Edison Co., 376 U.S. 205, 215-

216 (1964) ).

9

B. Abstention Is Inappropriate

The Fifth Circuit’s reliance on Burford v. Sun Oil Co.,

319 U.S. 315 (1943), is misplaced as the present case is

significantly different from the situation involved in Bur-

ford. In Burford, federal jurisdiction was based upon

diversity of citizenship and an alleged denial of due pro-

cess of law. No claim of federal preemption was made.

The plaintiff in Burford simply sought a review of the

reasonableness under Texas state law of a Texas com-

mission’s permit to drill oil wells. This Court ruled that

federal review of the reasonableness of the order would

have an impermissibly disruptive effect on pervasive

State policy for the management of local oil fields. The

Court stated:

The state provides a unified method for the forma-

tion of policy and determination of cases by the

Commission and by the state courts. The judicial

review of the Commission’s decisions in the state

courts is expeditious and adequate. Conflicts in the

interpretation of state law, dangerous to the suc-

cess of state policies, are almost certain to result

from the intervention of the lower federal courts

. Under such circumstances, a sound respect for

the independence of state action requires the federal

equity court to stay its hand.

319 U.S. at 333-34. In Colorado River Water Conserva-

tion District v. United States, 424 U.S. 800, 815 n.21

(1976), this Court noted that the presence of a federal

basis for jurisdiction “may raise the level of justification

needed for abstention.”

Precedent is well-established that Burford abstention is

inappropriate where a federal plaintiff asserts a preemp-

tion claim. Kentucky West Virginia Gas Co. Pennsyl-

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

1986); Middle South Energy, Inc. v. Arkansas Public

Service Commission, 772 F.2d 404, 417 (8th Cir. 1985),

cert. denied, 106 S.Ct. 884 (1986); Baggett v. Depart-

10

ment of Professional Regulation, 717 F.2d 521, 524 (11th

Cir. 1983); International Brotherhood of Electrical

Workers v. Public Service Commission, 614 F.2d 205,

212 n.1 (9th Cir. 1980).

As stated in Kentucky West Virginia Gas Co. v. Penn-

sylvania Public Utility Commission, 791 F.2d at 1116:

The rationale underlying these decisions is simple

and straightforward: “[t]he purpose of Burford

abstention is to avoid federal intrusion into matters

of local concern and which are within the special

competence of local courts,” whereas “supremacy

clause claims are ‘essentially one[s] of federal pol-

icy,’ so that ‘the federal courts are particularly ap-

propriate bodies for the application of preemption

principles.’ ” In short, then, where “Congress

has created a statutory scheme ... which arguably

preempts the local regulation complained of, a fun-

damental element of Burford abstention is thrown

into doubt, for we must question whether the case

indeed involves an essentially local issue.” (Cita-

tions omitted, emphasis added).

To argue that abstention is proper where the preemp-

tion claim involves state or local action which interferes

with the enforcement of a comprehensive scheme of ex-

clusive federal regulation perverts the very premise of

abstention—avoiding needless federal intervention into

important matters within a state’s jurisdiction to regu-

late. In this case, NOPSI does not challenge the Council’s

jurisdiction to determine whether there may be cost sav-

ings in other areas which may offset the FERC-allocated

costs. Therefore, this case does not present a federal

intervention into matters over which the Council has

jurisdiction.

Abstention deprives litigants such as NOPSI of a

federal forum in which to enforce federal rights. Indeed,

if the decision of the court below is upheld, it will pre-

clude any federal court challenge to state authority based

en

11

on federal preemption resulting from claims arising out

of the provisions of the Federal Power Act, other than by

appeal or petition to this Court.’

In sum, the implementation, enforcement and effect of

FERC Opinion No. 234, and the duty imposed thereby

on respondents to recognize the FERC-allocated costs as

a legitimate operating expense in accordance with the

filled-rate doctrine, relate solely to federal supremacy.

This Court recently reaffirmed this in Nantahala. As

such, this matter is proper for federal court adjudication.°

SIf the lower court’s decision is allowed to stand, it can be

expected that an ever-increasing number of cases will be brought

directly from the state courts to this Court, which will become the

sole federal forum for the vindication of a public utility’s federal

rights. The rising costs of electrical power and the cost overruns

in the nuclear power industry have spawned considerable litigation.

“Trapping” issues were considered in Nantahala and are presented

again for review by this Court in Commonwealth Electric Co. v.

Dept. of Public Utilities, petition for cert. filed, 55 U.S.L.W. 3156

(U.S. July 17, 1986) (No. 86-61).

® Even should this Court find that a per se prohibition against

Burford abstention is not warranted, in the context of federal

preemption claims under the Federal Power Act, the lower court’s

reliance on Burford under the facts of this case was improper.

“Abstention from the exercise of federal jurisdiction is the excep-

tion, not the rule.” Colorado River Water Conservation District v.

United States, 424 U.S. 800, 813 (1976). Furthermore, a federal

court should not dismiss a syit merely because a state court may

entertain it (Jd. at 814 (citations omitted) ), or because resolution

of the federal issue may upset state policy. Zablocki v. Redhail,

434 U.S. 374, 379 n.5 (1978).

Under Burford, abstention may be proper 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 con-

cern.” Colorado River, 424 U.S. at 814. A court invoking Burford

abstention “essentially defers to a state’s overriding interest in the

matters swb judice and, concomitantly, to the superior competence

of the state’s courts to adjudicate such matters.” BT Investment

Managers, Inc. v. Lewis, 559 F.2d 950, 955 (5th Cir. 1977) (em-

phasis added). Neither of these principles is applicable. The

12

The opinion below also holds that abstention is proper

under the doctrine of Younger v. Harris, 401 U.S. 37

(1971). The Fifth Circuit’s decision in this matter

places it in conflict with decisions of the Eighth, Ninth

and Eleventh Circuits. In Middle South Energy v. Ar-

kansas Public Service Commission, 772 F.2d 404, 417

(817 Cir. 1985), cert. denied, U.S. ——, 106 S.Ct.

884 (1986), the Eighth Circuit refused to apply Younger

abstention in another case involving Grand Gulf 1 in

which federal preemption claims were presented:

Similarly, the rule of Younger v. Harris, 401 US.

37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), limiting

injunctions of pending state proceedings embodies

the principle of our federal system that legitimate

state functions be respected. This “comity,” how-

ever, is not strained when a federal court cuts off

state proceedings that entrench upon the federal

domain. Baggett, 717 F.2d at 524. The legitimate

state interest contemplated by Younger, see Middle-

sex County Ethics Committee v. Garden State Bar

Association, 457 U.S. 423, 482, 102 S.Ct. 2515, 2521,

74 L.Ed.2d 116 (1982), does not exist when the

state action has been preempted or foreclosed by the

Constitution. Champion International Corp. v.

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

note omitted).

In Champion International Corp. v. Brown, 731 F.2d 1406

(9th Cir. 1984), the Ninth Circuit reversed and re-

manded a case because it found that the district court

had abused its discretion in abstaining under Younger

where a claim of federal preemption was presented. Sim-

ilarly, in Baggett v. Dept. of Professional Regulation,

717 F.2d 521 (11th Cir. 1983), the Eleventh Circuit

rejected the application of Younger abstention where a

Council has no right to attempt to establish “a coherent policy”

which is contrary to federal law. Further, neither the Council, nor

Louisiana courts, has a “superior competence” to determine the

federal law issues presented by NOPSI.

13

preemption claim is readily apparent and involves a state

agency acting beyond its lawful limits of authority. In

such cases, the court noted “abstention can serve no

principle of comity or of ‘our federalism.’” Jd. at 524

(citing Empire Inc. v. Ashcroft, 524 F.Supp. 898 (W.D.

Mo. 1981) ).

Younger typically applies when a party who asserted

a constitutional defense in a state-initiated enforcement

proceeding before a state court or agency also seeks to

have a federal court enjoin the state proceeding on the

same basis. The doctrine of “our federalism” is premised

on the principle that, in light of the Fourteenth Amend-

ment, constitutional guarantees are just as applicable to

states, and state courts are therefore competent to inter-

pret and enforce them. Younger should not be applied to

federal proceedings in which a party has sought enforce-

ment of rights arising from an order of a federal regu-

latory agency on the basis of federal preemption.

C. The Decision Below Ignores Petitioner’s Allegations

Under 16 U.S.C. § 825p.

Parts I and II of the Fifth Circuit’s initial decision

discuss the applicability of 16 U.S.C. § 825p,'’ “a provi-

sion [of the Federal Power Act] which serves to rein-

force the general jurisdiction provisions governing fed-

eral district courts.” New Orleans Public Service Inc. v.

City of New Orleans, 782 F.2d 1236, 1239 (5th Cir.

1986) (Citation omitted). The court’s initial decision

failed to determine the applicability of this provision:

“We need not and do not decide, however, whether the

10 Section 825p provides in relevant part:

The District Courts of the United States, and the United States

Courts of any Territory or other place subject to the jurisdiction

of the United States shall have exclusive jurisdiction of violations

of this chapter or the rules, regulations, and orders thereunder, and

of all suits in equity and actions at law brought to enforce any

liability or duty created by, or to enjoin any violation of, this

chapter or any rule, regulation, or order thereunder.

14

federal court had jurisdiction of this matter under

§ 825p, for federal jurisdiction over NOPSI’s statutorily-

based preemption claim can be sustained under a differ-

ent jurisdictional grant: 28 U.S.C. § 1331.” Jd. at 1240.

In light of the Fifth Circuit’s revised holding, resolu-

tion of this question is essential. If jurisdiction is proper

pursuant to 16 U.S.C. § 825p, which grants federal courts

exclusive jurisdiction over actions brought to “enforce

any liability or duty created by . . . any rule, regulation

or order” promulgated pursuant to the Federal Power

Act, federal court abstention is obviously improper. And,

as the Fifth Circuit noted:

at least one Circuit has held that § 825p does not

require an undisputed violation of a clear FERC

opinion before jurisdiction may be assumed by the

district court. Rather, parties may heatedly dispute

the effect and interpretation to be given a FERC

opinion and still obtain federal jurisdiction under

§ 825p. State of California v. Oroville-Wyandotte

Irrigation District, 411 F.Supp. 361 (E.D. Ca.

1975), aff'd 536 F.2d 304 (9th Cir.), cert. denied,

429 U.S. 922 (1976) (finding jurisdiction under

16 U.S.C. § 825p even where there was a conflict

in the way different agencies interpreted the effect

of decisions by the FPC [precursor to FERC] and

the California Public Utilities Commission, and con-

cluding ultimately that the two decisions did not

conflict).

782 F.2d at 1240 n.4 (emphasis supplied). Additionally,

in light of this Court’s decision in Nantahala, the district

court’s conclusion that FERC Opinion No, 234 imposed

no duty on respondents, as local regulators, to recognize

the FERC-allocated costs associated with Grand Gulf 1

as a legitimate operating expense of NOPSI must be

rejected.

In Nantahala, this Court held that the filed-rate doc-

trine of Montana-Dakota Utilities Co. v. Northwestern

15

Public Service Co., 341 U.S. 246, 251-52 (1951), requires

local utility regulators to allow, “as reasonable operating

expenses, costs incurred as a result of paying a FERC-

determined wholesale price.” Nantahala, —— U.S. at

—, 106 S.Ct. at 2356. “Once FERC sets such a rate,

a State may not conclude in setting retail rates that the

FERC-approved wholesale rates are unreasonable.” U.S.

at ——, 106 S.Ct. at 2357."' Further, where, in addition

to setting rates, the FERC makes an allocation of costs,

local regulators cannot ignore that allocation by arguing

that the utility should have obtained less expensive elec-

tricity than was allocated by the FERC. U.S. at

, 106 S.Ct. at 2360. Respondents have refused to

acknowledge that NOPSI’s FERC-allocated costs must

be recognized as a legitimate operating expense. As

NOPSI’s claims are premised on the duty imposed on

respondents resulting from the effect of FERC Opinion

No. 234, exclusive federal jurisdiction exists pursuant to

16 U.S.C. § 825p, thereby prohibiting the exercise of

federal court abstention.

CONCLUSION

The abstention doctrines are particularly inappropriate

where a plaintiff has presented a substantial federal pre-

emption claim and no legitimate state interest is involved. —

Abstention should not be permitted to become a vehicle

by which federal courts can abdicate their responsibility

to enforce this Court’s holding in Nantahala. Because

Opinion No. 234 through the filed rate doctrine imposes

a duty upon respondents to recognize the FERC-allocated

costs, exclusive jurisdiction exists pursuant to 16 U.S.C.

§ 825p. For these reasons, abstention is improper. Ac-

11 While Nantahala also holds that an increase in FERC-approved

wholesale rates need not lead to an increase in retail rates, “such

a divergence between wholesale and retail rates would occur only

if costs other than those resulting from the purchase of FERC-

regulated power or gas were to decrease.” Nantahala, U.S. at

——, 106 S.Ct. at 2349 (emphasis by the Court).

cordingly, SERI respectfully submits that certiorari

should be granted to review the decision of the United

States Court of Appeals for the Fifth Circuit.

Of Counsel:

W. D. MERIWETHER, JR.

Vice President and

Genera! Counsel

Middle South Services, Inc.

225 Baronne Street

New Orleans, Louisiana 70112

Telephone: (504) 569-4214

JOSEPH L. BLOUNT

General Counsel

Systems Energy Resources, Inc.

308 East Pear! Street

Jackson, Mississippi 39201

Telephone: (601) 969-2338

November 7, 1986

Respectfully submitted,

HERSCHEL L. ABBOTT, JR.

Counsel of Record

DAVID G. RADLAUER

EDWARD H. BERGIN

R. LEWIs MCHENRY

Eric J. MAYER

JONES, WALKER, WAECHTER,

POITEVENT, CARRERE

& DENEGRE

Place St. Charles

201 St. Charles Avenue

New Orleans, Louisiana 70170

Telephone: (504) 582-8000

Attorneys for System Energy

Resources, Inc.