Metro. Edison Co. v. Pa. Pub. Util. Comm'n

• Decision Date: 16 September 2014
• Docket Number: No. 13–4288.,13–4288.
• Parties: METROPOLITAN EDISON COMPANY; Pennsylvania Electric Company, Appellants v. PENNSYLVANIA PUBLIC UTILITY COMMISSION; Robert F. Powelson; John F. Coleman, Jr.; Pamela A. Witmer; *Gladys M. Brown; James H. Cawley, In their Official Capacities as Commissioners of The Pennsylvania Public Utility Commission; Office of Small Business Advocate; Met–Ed Industrial Users Group; Penelec Industrial Customer Alliance. * (Pursuant to Fed. R.App. P. 43(c)(2)).
• Court: U.S. Court of Appeals — Third Circuit

767 F.3d 335

METROPOLITAN EDISON COMPANY; Pennsylvania Electric Company, Appellants

v.PENNSYLVANIA PUBLIC UTILITY COMMISSION; Robert F. Powelson; John F. Coleman, Jr.; Pamela A. Witmer; *Gladys M. Brown; James H. Cawley, In their Official Capacities as Commissioners of The Pennsylvania Public Utility Commission; Office of Small Business Advocate; Met–Ed Industrial Users Group; Penelec Industrial Customer Alliance.

* (Pursuant to Fed. R.App. P. 43(c)(2)).

No. 13–4288.

United States Court of Appeals, Third Circuit.

Argued April 8, 2014.

Filed: Sept. 16, 2014.

Bradley A. Bingaman, Morgan E. Parke, Akron, OH, John N. Estes, III, Karis A. Gong, Christopher R. Howland, John L. Shepherd, Jr. [argued], Skadden, Arps, Slate, Meagher & Flom, Washington, DC, Glen R. Stuart, Morgan, Lewis & Bockius, Philadelphia, PA, Counsel for Appellants.

James P. Melia, Robert F. Young, Bohdan R. Pankiw, Aspassia V. Staevska [argued], Kenneth R. Stark, Pennsylvania Public Utility Commission, Harrisburg, PA, Counsel for Appellees Pennsylvania Public Utility Commission, Robert F. Powelson, John F. Coleman, Jr., Pamela A. Witmer, Gladys M. Brown, James H. Cawley.

Kimberly M. Colonna, Vasiliki Karandrikas, Charis Mincavage, McNees, Wallace & Nurick, Harrisburg, PA, Counsel for Intervenors–Appellees.

Before: AMBRO, JORDAN and ROTH, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This case requires us to decide the preclusive effect of a state utility agency's ruling, which has been affirmed by Pennsylvania's Commonwealth Court and denied review by the Pennsylvania Supreme Court and the United States Supreme Court. Although the Appellants, electric utility companies Metropolitan Edison Co. (“Met–Ed”) and Pennsylvania Electric Co. (“Penelec”) (collectively, the “Companies”), also, in effect, invite us to review the agency's ruling on the merits, we need not and do not take that step.

The Companies' end-game appears to be to recoup from their customers more than $250 million in costs associated with “line losses”—i.e., energy that is lost when electricity travels over power lines—and interest related to those costs. For reasons we will explain, the Companies' line loss costs had increased pursuant to a mandate by the Federal Energy Regulatory Commission (“FERC”), and the Companies' ability to recover those costs depended on whether line-loss costs were classified as a cost of electricity generation or as a cost of electricity transmission on their customers' utility bills. In a prior proceeding, the Pennsylvania Public Utility Commission (“PUC”) rejected the Companies' proposal to classify line-loss costs as a cost of transmission, thereby preventing the Companies from passing those costs through to their customers. The Companies then pressed their arguments and lost in the Pennsylvania state courts and were denied review by the United States Supreme Court.

The Companies now seek declaratory judgment and injunctive relief in federal court against the PUC and its Commissioners in their official capacities, which would effectively set aside the result of the earlier state proceeding. The United States District Court for the Eastern District of Pennsylvania held that the Companies' unsuccessful pursuit of relief in the state proceeding precluded their effort to claim relief in federal court. In short, none of the Companies' claims survived application of the doctrine of issue preclusion. We agree and will affirm the District Court's order of dismissal.

I. BACKGROUND ¹

To understand the issues raised in this appeal, it is helpful to first look at the legislative and administrative framework of electricity regulation and how that framework affects the parties before us.

A. The Federal Power Act and the Filed Rate Doctrine

In 1935, Congress enacted the Federal Power Act (“FPA”), 16 U.S.C. § 791a et seq., which authorized “federal regulation of the expanding business of transmitting and selling electric power in interstate commerce.” New York v. FERC, 535 U.S. 1, 6, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) (internal quotation marks and citation omitted). As it stands today, the FPA grants FERC jurisdiction over “the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce,” 16 U.S.C. § 824(a), and requires “[a]ll rates and charges ... subject to the jurisdiction of the Commission” to be “just and reasonable,” id. § 824d(a).² The scope of that authority, broad though it is, is meant “to extend only to those matters which are not subject to regulation by the States.” Id. § 824(a).

The so-called “filed rate doctrine” is an application of the FPA's statutory grant of authority to FERC. See Borough of Ellwood City v. FERC, 583 F.2d 642, 648 (3d Cir.1978) (calling the filed rate doctrine “not so much a judicially created ‘doctrine’ as an application of explicit statutory language”). It may be understood for our purposes as the rule that “interstate power rates filed with FERC or fixed by FERC must be given binding effect by state utility commissions determining intrastate rates.” Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 962, 106 S.Ct. 2349, 90 L.Ed.2d 943 (1986). The filed rate doctrine thus “concern[s] the pre-emptive impact of federal jurisdiction ... on state regulation.” Miss. Power & Light Co. v. Mississippi, 487 U.S. 354, 371, 108 S.Ct. 2428, 101 L.Ed.2d 322 (1988). The doctrine of federal pre-emption, in turn, is rooted in the Supremacy Clause of the Constitution, which provides that federal law “shall be the supreme Law of the Land[,] ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2 ; see also Nantahala, 476 U.S. at 963, 106 S.Ct. 2349 (stating that the application of the filed rate doctrine to state tribunals is “a matter of enforcing the Supremacy Clause”).

B. The Market for Electricity

Before the passage of the FPA, electricity was usually sold by vertically integrated electric utilities that controlled their own generators, transmission lines, and local distribution networks.³ New York, 535 U.S. at 5, 122 S.Ct. 1012 ; see also ARIPPA v. Pa. Pub. Util. Comm'n, 792 A.2d 636, 642 (Pa.Commw.Ct.2002) (noting that, historically, electric utilities in Pennsylvania were vertically integrated). Services were typically “bundled” together, “meaning consumers paid a single price for generation, transmission, and distribution.” Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1363 (D.C.Cir.2004) ; see also 66 Pa. Cons.Stat. Ann. § 2802(13) (stating that the same was the case in Pennsylvania). “Although there were some interconnections among utilities, most operated as separate, local monopolies subject to state or local regulation.” New York, 535 U.S. at 5, 122 S.Ct. 1012.

Advances in technology since the enactment of the FPA have resulted in “[t]ransmission grids [that] are now largely interconnected, which means that ‘any electricity that enters the grid immediately becomes a part of a vast pool of energy that is constantly moving in interstate commerce.’ ” N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d 74, 81 (3d Cir.2014) (quoting New York, 535 U.S. at 7, 122 S.Ct. 1012 ). “[T]he development of a national, interconnected grid has made it possible for a generator in one state to serve customers in another, thus opening the door to potential competition that did not previously exist.” Id. Nevertheless, electric utilities maintained ownership of transmission lines, and, thus, “the ability to stifle competition from new generators by ‘refus[ing] to deliver energy produced by competitors or [by] deliver[ing] competitors' power on terms and conditions less favorable than those they appl[ied] to their own transmissions.’ ” Id. (alterations in original) (quoting New York, 535 U.S. at 8–9, 122 S.Ct. 1012 ). As a result, for many years, monopolistic tendencies still restrained competition in the market for electricity.

In 1996, FERC issued Order No. 888, a landmark ruling aimed at encouraging competition and lowering electricity rates. See Promoting Wholesale Competition Through Open Access Non–Discriminatory Transmission Services by Public Utilities, 61 Fed.Reg. 21,540, 21,541 (May 10, 1996) [hereinafter Order No. 888], aff'd in relevant part, Transmission Access Policy Study Grp. v. FERC, 225 F.3d 667 (D.C.Cir.2000), aff'd sub nom. New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). Significantly for this case, that Order requires the “unbundling” of wholesale generation and wholesale transmission services. Id. at 21,558, 21,571, 21,577–78. Each electric utility must apply the same rate for wholesale transmission services to itself and others so as to provide open access to transmission services. Id. at 21,541. Although FERC noted that unbundling retail services would also be helpful to encouraging competition, Order No. 888 only required the unbundling of wholesale transmission from wholesale generation. Id. at 21, 577.

That same year, Pennsylvania enacted the Electricity Generation Customer Choice and Competition Act (the “Electric Competition Act”), 66 Pa. Cons.Stat. Ann. § 2801 et seq., which deregulated the business of electricity generation within the Commonwealth. The Electric Competition Act was designed to promote competition in the electricity market and lower retail rates for electric energy. See 66 Pa. Cons.Stat. Ann. § 2802(4), (7) (noting the relatively high rates for electricity in Pennsylvania and the importance of transitioning to “greater competition in the electricity generation market”); see also ARIPPA, 792 A.2d at 642 (stating the rationale behind the Electric Competition Act). The Act “requires electric utilities to unbundle their rates and services and to provide open access over their transmission and distribution systems to allow competitive suppliers to generate and sell electricity directly to consumers in this Commonwealth.” 66 Pa. Cons.Stat. Ann. § 2802(14). Under the law,...