New Orleans Public Service, Inc. v. Council of City of New Orleans

• Decision Date: 28 July 1988
• Docket Number: No. 88-3194,88-3194
• Citation: 850 F.2d 1069
• Parties: NEW ORLEANS PUBLIC SERVICE, INC., Plaintiff-Appellant, v. THE COUNCIL OF the CITY OF NEW ORLEANS, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1069

850 F.2d 1069

NEW ORLEANS PUBLIC SERVICE, INC., Plaintiff-Appellant, v. THE COUNCIL OF the CITY OF NEW ORLEANS, et al., Defendants-Appellees.

No. 88-3194.

United States Court of Appeals, Fifth Circuit.

July 28, 1988.

Herschel L. Abbott, Jr., Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Thomas O. Lind, Vice-President, Regulatory Counsel, NOPSI, New Orleans, La., for plaintiff-appellant.

Okla Jones, II, City Atty., Council Utility Regulatory Office, Bruce E. Naccari, Beverly Zervigon, Asst. City Attys., Walter J. Wilkerson, New Orleans, La., Clinton A. Vince, Bernhardt K. Wruble, Nancy Wodka, McPherson & Hand, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RUBIN, GARZA and JONES, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

In 1986 this court decided that a federal district court had not abused its discretion in abstaining from deciding federal issues presented in suit to enjoin a state agency's proceeding to fix the retail rates that might be charged by a public utility. Bound by this decision, we hold again that the same district court did not abuse its discretion in failing to take jurisdiction over issues of federal law at a later stage of the same proceeding.

I.

This is the fourth federal court battle in a legal war that began almost a decade ago. New Orleans Public Service, Inc. (NOPSI), a subsidiary of Middle South Utilities, Inc., a public utility holding company, sells electric power to consumers in the City of New Orleans. It continues to seek a federal forum for its claims against the New Orleans City Council, which by state law fixes the utility rates charged consumers in New Orleans. It charges that the Council is violating federal law by preventing NOPSI from passing on to the consumers all of the costs of NOPSI's purchase of power generated by a nuclear reactor at rates fixed by the Federal Energy Regulatory Commission (FERC).

Middle South owns and therefore controls Louisiana Power & Light Co., Mississippi Power & Light Co., Arkansas Power & Light Co., and NOPSI, collectively known as the Middle South Companies, all of which are engaged in distributing energy, as well as System Energy Resources, Inc. (SERI), which generates energy. In the late 1960's, Middle South sought to meet projected increases in demand and to diversify the fuel base of its entire system by adding coal and nuclear generating units. Because Middle South found it impractical for each of the four operating companies to finance and construct a nuclear power facility, it formed a new subsidiary, Middle South Energy, Inc. (MSE), a corporate predecessor of SERI, to finance, own, and operate two nuclear reactors, Grand Gulf I and II. Middle South later decided for economic reasons not to build Grand Gulf II, but to proceed with the construction of Grand Gulf I, a 1250 megawatt nuclear generating plant. In 1974, NOPSI, Louisiana Power, Mississippi Power, and Arkansas Power all committed themselves to sharing the construction costs of Grand Gulf, which MSE projected to be $875 million.

After the nuclear disaster at Three Mile Island, federal regulatory authorities adopted stricter regulations for the construction of nuclear plants. As a result of this and other factors, construction of the Grand Gulf nuclear plant took longer and became drastically more expensive than originally anticipated, amounting in the end to $3.6 billion. Consequently, the wholesale cost of power produced at Grand Gulf greatly exceeds that of power produced in other system facilities. Moreover, even as Grand Gulf was under construction, it became clear that the demand for its energy would be less than originally anticipated.

In 1982, the Middle South Companies submitted two agreements to FERC, which has exclusive jurisdiction over interstate wholesale power rates. ¹ The first was a new System Agreement, which set forth the terms and conditions for coordinated operations and wholesale transactions among the four companies, including a scheme of capacity equalization payments, which were designed to ensure that each company contribute proportionately to the total costs of generating power for the system. The second was a Unit Power Sales Agreement, which provided wholesale rates for the sale of Grand Gulf capacity and energy to the operating companies. The Unit Power Sales Agreement allocated 29.8% of the Grand Gulf costs to NOPSI.

FERC assigned each agreement to a different administrative law judge, charging them with the task of determining whether the agreements were "just and reasonable" within the meaning of the Federal Power Act. ² Each ALJ held extensive hearings, in which numerous parties representing consumer interests and the various state regulatory agencies participated. At these hearings, the New Orleans City Council appeared in order to protest the proposed rates and the allocations made pursuant to the Sales Agreement. The City Council and other utility regulatory bodies argued that FERC should reduce the allocations of the high-cost and hence relatively unattractive nuclear power to their constituents.

Three years later, in 1985, FERC issued an order modifying the Sales Agreement to provide for the allocation of power and costs from Grand Gulf as follows: 17 percent to NOPSI, 14 percent to Louisiana Power, 33 percent to Mississippi Power, and 36 percent to Arkansas Power. ³ As the Supreme Court noted in Mississippi Power & Light Co. v. Mississippi ex rel. Moore, ⁴

[FERC] did not expressly discuss the "prudence" of constructing Grand Gulf and bringing it on line, [but it] implicitly accepted the uncontroverted testimony of the [Middle South] executives who explained why they believed the decisions to construct and to complete Grand Gulf I were sound, and approved the finding that "continuing construction of Grand Gulf Unit No. 1 was prudent because Middle South's executives believed Grand Gulf would enable the Middle South system to diversify its base load fuel mix and, it was projected, at the same time, produce power for a total cost (capacity and energy) which would be less than existing alternatives on the system." ⁵

The state regulatory agencies appealed the FERC allocations, and the United States Court of Appeals for the District of Columbia Circuit reversed the FERC decision. ⁶ On remand, however, FERC reaffirmed its original 1985 allocations. ⁷

NOPSI appealed to the New Orleans City Council in 1985 for a retail rate increase to cover the increase in wholesale costs that the FERC order would require it to pay. The Council responded with a resolution initiating an investigation into "all aspects of NOPSI's prudence regarding its decisions to enter into its arrangements to purchase a portion of Grand Gulf 1 for the purpose of determining what portion, if any, of NOPSI's Grand Gulf 1 expense shall be assumed by its shareholders, rather than passed through to its retail ratepayers" (the Prudence Resolution). The Council also refused to approve the rate increase pending the outcome of this investigation.

While the Council was conducting its prudence inquiry, the Supreme Court decided Nantahala Power & Light Co. v. Thornburg, ⁸ a case that came to the Court on appeal from a state supreme court decision. In Nantahala, the Court held that FERC has exclusive jurisdiction over interstate wholesale power rates, and once it has allocated wholesale power, a state regulatory body may not refuse to recognize that allocation. This is a necessary consequence of the filed rate doctrine, which prescribes that interstate power rates filed with or fixed by FERC must be given binding effect by state utility commissions determining intrastate rules.

After the City Council had refused to approve its requested rate increase, NOPSI sought a federal court injunction requiring the Council to pass through, immediately and fully, the increased costs of Grand Gulf to ratepayers and to prevent the Council from conducting its prudence inquiry. The district court dismissed the suit, holding that it lacked subject matter jurisdiction and that, even if it had jurisdiction, it should abstain. While an appeal to this court was pending, in March, 1986, the City Council and NOPSI reached a partial settlement of NOPSI's application for a rate increase. NOPSI agreed to absorb $51.2 million of the costs of Grand Gulf. The Council allowed NOPSI to make a phased interim rate increase, to which NOPSI agreed, in order to moderate the effects of "rate shock" on New Orleans ratepayers. Both parties agreed, however, that this settlement did not affect the Council's continuation of its prudence inquiry.

In NOPSI I, this Court initially reversed both district court rulings, ⁹ but on rehearing affirmed the district court's decision to abstain, in order to avoid interfering with a comprehensive state regulatory scheme. ¹⁰ The district court relied upon this opinion, which we will discuss again in detail, in its decision to abstain from hearing the present case.

In April, 1987, the City Council completed its hearings and began deliberations. NOPSI again sought an injunction from the federal district court, arguing that the Council was unreasonably delaying a decision and that its inquiry encroached on areas of exclusive FERC jurisdiction. Later amending its complaint, NOPSI sought only an injunction against any action by the Council that would force NOPSI's shareholders to absorb part of the costs of Grand Gulf that FERC had allocated to NOPSI. NOPSI contended that the announced purpose of the Council's prudence inquiry intruded upon an area within FERC's exclusive jurisdiction. When the district court decided both that the case was not ripe for decision and that, even if it was, it should abstain, NOPSI appealed to this court.

In NOPSI II, ¹¹ this court once again noted that the Federal Power Act gives FERC exclusive authority to regulate the wholesale sale...