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

• Citation: 911 F.2d 993
• Decision Date: 29 August 1990
• Docket Number: No. 90-3050,90-3050
• Parties: NEW ORLEANS PUBLIC SERVICE, INC., Plaintiff-Appellant, v. The COUNCIL OF the CITY OF NEW ORLEANS, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 993

911 F.2d 993

120 P.U.R.4th 624

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

No. 90-3050.

United States Court of Appeals Fifth Circuit.

Aug. 29, 1990.

Rehearing Denied Oct. 17, 1990.

Herschel L. Abbott, Jr., Jones, Walker, Waechter, Portevent, Carrere & Denegre, New Orleans, La., David W. Carpenter, Sidley & Austin, Chicago, Ill., Rex E. Lee, Brigham Young University, Provo, Utah Thomas O. Lind, New Orleans, La., for plaintiff-appellant.

Joseph Bernstein, New Orleans, La., for Alliance.

Okla Jones, II, City Atty., Michael W. Tifft, Walter J. Wilkerson, New Orleans, La., Clinton A. Vince, Bernhardt K. Wruble, Verner & Liipert, Washington, D.C., Kenneth Carter, Sidney Cates, Carter & Cates, New Orleans, La., for defendants-appellees.

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

Before WISDOM, HIGGINBOTHAM, and DUHE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

New Orleans Public Service, Inc. asks us to reverse the district court's determination that the Council's retail rate order is not "facially" preempted by federal law, specifically a wholesale rate order the Federal Energy Regulatory Commission made under the Federal Power Act. The Council's order prevented NOPSI from recovering, in its retail rate, wholesale costs FERC ordered it to incur as a result of its participation in building the Grand Gulf 1 nuclear reactor in Port Gibson, Mississippi. In the alternative, NOPSI asks us to reverse the district court's decision to stay NOPSI's remaining claims in light of pending state court proceedings. The remaining claims include an allegation that the stated reasons underlying the Council's order were a pretext for an impermissible attack on FERC's order. We affirm the district court's order, rejecting NOPSI's "facial" preemption challenge, in part because of the reading the Supreme Court gave the Council's order on a previous appeal. We further hold that the district court did not abuse its discretion in staying decision of the remaining claims, although it did not acknowledge the relevance of the Council members' motivation to NOPSI's pretext claim in making that decision. Our reading of the Court's opinion on the previous appeal compels us to conclude that the pretext claim cannot succeed in the face of a determination that the stated reasons underlying the Council's order were sufficiently supported by the evidence; and the state trial court had already determined that they were. There was thus no substantial federal issue remaining in the case, and the district court's order was not otherwise an abuse of discretion.

I.

This case has produced several judicial opinions, including three from this court. At each juncture the case was in a different posture, with different issues. This opinion is no exception. Thus, we repeat the facts for perspective.

A.

NOPSI is a producer, wholesaler, and retailer of electricity, providing its retail services to the city of New Orleans. Along with Arkansas Power and Light, Mississippi Power and Light, and Louisiana Power and Light, it is a wholly owned operating subsidiary of Middle South Utilities, Inc. ¹ MSU operates an integrated "power pool" in which NOPSI and the three other power companies transmit the electricity they produce to a central dispatch center, and each draws back the power it needs to meet customer demand.

Through the 1950's and into the 1960's, most of the MSU system's generating plants were fueled with oil or gas. In the late 1960's, MSU sought to meet projected increases in demand by adding coal-fired and nuclear energy powered generating plants. Originally, MSU planned for each of the power companies to construct one or more nuclear facilities. Mississippi Power and Light was charged with constructing two plants at Port Gibson, Mississippi, to be known as Grand Gulf 1 and 2. The Grand Gulf project quickly proved too burdensome for one company, however. MSU created another subsidiary, separate from the power companies, known as Middle South Energy, Inc. to finance, own, and operate the Grand Gulf plants. ² In 1974, MSE in turn contracted with the power companies to finance the project. The companies agreed to pay for the construction of the plants in exchange for the right to their output. The estimated construction cost at that time was $1.2 billion.

As the project progressed, consumer demand for electric power proved to be much lower than MSU and the power companies had expected. At the same time, regulatory delays, enhanced construction requirements resulting from the Three Mile Island accident, and high inflation led to spiraling costs on the Grand Gulf project. As a result, MSE suspended construction of Grand Gulf 2, although it continued to build Grand Gulf 1. The cost of completing Grand Gulf 1 alone eventually exceeded $3 billion.

The power companies considered various methods to allocate the cost of Grand Gulf in light of these developments. In 1982, MSU filed a Unit Power Sales Agreement with the Federal Energy Regulatory Commission, which set out the shares of Grand Gulf 1 output each company was required to purchase in order to pay the construction costs. Arkansas Power and Light, which had finished its own nuclear plants, was not obligated to purchase any Grand Gulf power. Louisiana Power and Light, which had not finished its plant, was obligated to purchase 38.57%. Mississippi Power and Light was obligated to purchase 31.63%, and NOPSI 29.8%. MSU also filed a new System Agreement with FERC, which set forth the terms and conditions for coordinated operations and wholesale transactions among the four companies, but did not deal with the Grand Gulf costs.

FERC assigned the agreements to two separate Administrative Law Judges for the statutorily required task of determining whether they were just and reasonable. Both judges held that the failure to distribute the Grand Gulf costs among all the members rendered the agreements unduly discriminatory; ALJ Head further held that these costs should be allocated in proportion to each company's relative system demand. Middle South Services, Inc., 30 F.E.R.C. p 63,030, pp. 65,170-65,173 (1985) (System Agreement); Middle South Energy, Inc., 26 F.E.R.C. p 63,044, pp. 65,105-65,108 (1984) (Unit Power Sales Agreement) (ALJ Head). FERC consolidated the proceedings for review, and determined that an adjustment of the shares allocated in the Unit Power Sales Agreement was all that was necessary to render both agreements just and reasonable. FERC reduced NOPSI's share from 29.8% to 17%. The decrease did not satisfy the New Orleans City Council, however, which had argued for a 9% share for NOPSI. ³ The D.C. Circuit ordered FERC to reconsider the allocations. Mississippi Industries v. FERC, 808 F.2d 1525, modified on rehearing 822 F.2d 1104 (D.C.Cir.), cert. denied, 484 U.S. 985, 108 S.Ct. 500, 98 L.Ed.2d 499 (1987). FERC did so, and reaffirmed them; the D.C. Circuit affirmed that decision. City of New Orleans v. FERC, 875 F.2d 903 (D.C.Cir.1989), cert. denied sub nom. Mississippi v. FERC, --- U.S. ----, 110 S.Ct. 1805, 108 L.Ed.2d 936 (1990).

Although its order did not expressly discuss the prudence of the project, FERC implicitly accepted the uncontroverted testimony of MSU executives, who explained why they believed the decision to construct and complete Grand Gulf 1 was sound. It also approved one of the ALJ's findings to that effect. See Mississippi Power and Light v. Mississippi ex rel. Moore, 487 U.S. 354, 362, 108 S.Ct. 2428, 2434, 101 L.Ed.2d 322 (1988).

B.

The Council is the local ratemaking body with final authority over NOPSI's retail rates. See 16 U.S.C. Sec. 824(b); La.Rev.Stat.Ann. Secs. 33:4405, 33:4495 (West 1988); see also the New Orleans Home Rule Charter Sec. 4-1604. NOPSI applied to the Council for a retail rate increase to cover the increase in its wholesale rates resulting from the FERC allocation. The increase NOPSI sought would have resulted in an immediate 60% increase in retail rates. The Council denied an immediate rate adjustment, explaining that a public hearing was necessary to determine the "legality" and prudence of NOPSI's decision to enter the Grand Gulf contracts.

NOPSI responded by filing an action in the district court, requesting injunctive and declaratory relief, on the theory that FERC's order required the Council to allow NOPSI to pass all of the allocated costs to its retail customers. The district court dismissed the case, holding that under the Johnson Act, 28 U.S.C. Sec. 1342, it lacked jurisdiction to proceed, and noted that if it had had jurisdiction, it would have abstained pursuant to Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). We reversed, but then affirmed on panel reconsideration because we decided abstention was proper under both Burford and Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). NOPSI v. The City of New Orleans, 782 F.2d 1236, modified on panel rehearing, 798 F.2d 858 (5th Cir.1986) (NOPSI I ).

On October 10, 1985, while NOPSI I was pending before us, the Council began its investigation. In a resolution, the Council said it would examine all aspects of NOPSI's participation in the Grand Gulf projects, including Grand Gulf's impact on other power supply opportunities, and NOPSI's efforts to minimize its total cost exposure for the Grand Gulf project. The resolution specifically provided that, in determining the appropriate retail rate increase, the Council would not seek to invalidate any of the agreements surrounding Grand Gulf 1 or to order NOPSI to pay MSE a wholesale rate other than that approved by FERC.

In November 1985, with NOPSI I still pending before us, NOPSI filed NOPSI II in the district court, seeking to enjoin the Council from preventing the pass-through. The district court dismissed on ripeness grounds, and in the...