Arkansas Power & Light Co. v. Missouri Public Service Com'n

Citation829 F.2d 1444
Decision Date30 September 1987
Docket Number86-2255 and 86-2284,Nos. 86-2254,s. 86-2254
PartiesARKANSAS POWER & LIGHT COMPANY, Appellee, v. MISSOURI PUBLIC SERVICE COMMISSION, William Steinmeier, Charlotte Musgrave, Allen G. Mueller, Connie B. Hendren, James Fischer, Office of Public Counsel, St. Joe Mineral Corporation, Ozark Lead Company, Cominco American Corporation, and GAF Corporation, Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

William C. Harrelson, Jefferson City, Mo., for appellants.

Michael G. Thompson, Little Rock, Ark., for appellee.

Before ARNOLD and WOLLMAN, Circuit Judges, and BOGUE, * Senior District Judge.

ARNOLD, Circuit Judge.

The question presented is whether a federally ordered wholesale electric rate must be immediately passed on to a utility's retail customers, despite state laws providing for a period of suspension before retail rates may become effective. The parties agree that costs represented by federally imposed wholesale rates must eventually be recognized by state retail-rate-making authorities. Their disagreement comes only on the question whether the federally ordered costs must, as a matter of federal law, be passed on at once, as opposed to being considered as one element in a rate case handled in accordance with ordinary state-law procedures. The District Court ordered state authorities to authorize an immediate pass-through of the federally ordered costs. We hold that the District Court had jurisdiction and properly chose to exercise it. But on the merits, we reverse. State rate-making authorities are free to take account of federally ordered costs in accordance with procedures customarily used for ordinary rate cases. We emphasize that our holding relates only to interim procedures, routinely applied by state authorities to all rate proceedings. We desire to leave no implication that permanent retail-rate decisions may disregard, in whole or in part, costs lawfully imposed by federal authority.

I.

Arkansas Power & Light Company (AP & L) is an electric utility serving customers in parts of Arkansas, Missouri, Louisiana, and Tennessee. This case directly concerns only its Missouri business, about 4% of AP & L's sales. AP & L is a wholly owned subsidiary of Middle South Utilities, Inc. (MSU), which also owns three other operating subsidiaries, Louisiana Power & Light Company (LP & L), Mississippi Power & Light Company (MP & L), and New Orleans Public Service Company, Inc. (NOPSI). MSU and its four electric-utility subsidiaries are parties to an agreement under which another MSU subsidiary, Middle South Energy, Inc. (MSE), built and now operates a nuclear generating plant at Port Gibson, Mississippi, known as Grand Gulf Unit 1. Grand Gulf 1 is the largest nuclear reactor ever licensed for commercial operation in this country. III Appellants' Appendix (App.) 536. MSE owns 90% of this plant. 1

AP & L, LP & L, MP & L, NOPSI, and MSU signed an agreement, called the Unit Power Sales Agreement (UPSA) specifying the respective responsibilities of the four operating companies to pay for the generating capacity of Grand Gulf 1. Under the UPSA, LP & L, MP & L, and NOPSI were all assigned percentages of this cost, but it was agreed that AP & L, which had older and more economical nuclear power plants of its own, would not have to pay for any of Grand Gulf 1. The Federal Energy Regulatory Commission (FERC) found the UPSA unjustly discriminatory and substituted a cost-allocation scheme of its own in place of the parties' contract. Middle South Energy, Inc., 31 FERC p 61,305, modified on rehearing, 32 FERC p 61,425 (1986). 2 Under the FERC order, AP & L must pay 36% of MSE's 90% share of Grand Gulf 1's costs, as well as 36% of the other nuclear-capacity costs of the Middle South system.

This case concerns the retail-rate consequences in Missouri of the FERC order. Grand Gulf 1 began operating on July 1, 1985, and at that time, because of the FERC order, AP & L had to begin (and did begin) paying on the order of 33 million dollars a month to MSE. At the time, AP & L estimated that about one million dollars a month of this payment was properly allocable to Missouri. The company promptly applied to the Missouri Public Service Commission (MPSC) for a retail rate increase of $17,178,000, about 12 million dollars of which reflected its share of Grand Gulf. (Under Section 201 of the Federal Power Act, 16 U.S.C. Sec. 824 (1982), FERC regulates the rates of wholesale sales in interstate commerce, while state authorities are left free to regulate retail rates.) Missouri law provides that rates filed by electric utilities with MPSC will go into effect unless suspended by the Commission. The Commission may suspend rates for up to ten months. Mo.Rev.Stat. Sec. 393.150 (1978). If it does not rule on the rate request before the end of the suspension period (a time known as the "operation-of-law date"), the rates go into effect as filed.

In this case, MPSC did suspend AP & L's requested rate increase. It set May 4, 1986, as the operation-of-law date, stating it needed "sufficient time to study the effect of the proposed tariffs and to determine if they are just, reasonable and in the interest of the public." In re Arkansas Power & Light Co., No. ER-85-265 (Mo.P.S.C. July 3, 1985), III App. 551. Missouri law provides for interim rate relief in the event of a financial emergency, and AP & L did apply for this relief, but it was denied on January 14, 1986. In re Arkansas Power & Light Co., No. ER-86-52. The Commission found that AP & L had not met the usual state-law standards of financial hardship (and AP & L does not now contest this finding).

About 20 days later, and while the permanent rate case was still pending, AP & L filed this suit in the District Court. It claimed that MPSC's failure to allow it to begin collecting Grand Gulf 1 costs immediately from its Missouri retail customers conflicted with the Federal Power Act (FPA). That Act gives FERC the sole power to fix wholesale rates and decide the reasonableness of contracts affecting wholesale rates. Such rates, when fixed by FERC, of course become a cost to the operating company which has bought energy at wholesale in interstate commerce and wishes to sell it at retail in intrastate commerce. If a state commission, in setting retail rates, declines to acknowledge this cost, refuses to allow it to be passed through to retail customers, then, according to the theory of AP & L's complaint, it is violating the FPA, because it is denying effect to a FERC order fixing the cost of power purchased in interstate commerce. MPSC did not contest the general validity of this theory. It agreed that it could not change the federally ordered rates, that they had to be passed on to retail customers, that it was "stuck with" the rates and charges set by FERC, III App. 637 (oral argument before the District Court), subject, of course, to its right, as a party before FERC, to seek direct judicial review of that agency's order. MPSC maintained, however, that federal law did not mandate the time at which, or the manner in which, FERC-ordered costs had to be passed through. The statutory suspension procedure, an ordinary incident of rate-making under state law, was not preempted, it said. So long as the FERC-set rates were ultimately passed through, states remained free to treat this rate case like any other.

The District Court held for AP & L. It found the Johnson Act, 28 U.S.C. Sec. 1342 (1982), which we discuss later, no bar to its jurisdiction, and it also rejected MPSC's argument that as a matter of discretion it should abstain from exercising its jurisdiction. On the merits, it granted injunctive relief, ordering MPSC, "pending resolution of the Arkansas Power & Light permanent rate case, ... [to] authorize the implementation of an interim tariff designed to facilitate collection of the FERC-ordered Grand Gulf costs which Arkansas Power and Light is currently incurring." Arkansas Power & Light Co. v. Missouri Pub. Serv. Comm'n, No. 86-4067-CV-C-5 (W.D.Mo., memorandum and order filed March 10, 1986), slip op. 9. MPSC obeyed the order, and AP & L promptly began collecting Grand Gulf costs from its Missouri retail customers, subject, however, to refund if MPSC's permanent rate order should (because of offsetting items unrelated to Grand Gulf) authorize a smaller increase, or if the District Court's injunction should be reversed or modified on appeal.

Meanwhile, MPSC proceeded with the permanent rate case (which the District Court's injunction did not affect). On April 24, 1986, after the court-ordered interim rates had been in effect for about six weeks, it issued its Report and Order in the permanent rate case, IV App. 733, with an effective date of May 4, 1986, the operation-of-law date fixed at the time of the suspension order. MPSC allowed AP & L to pass through all of its Grand Gulf 1 costs, although the amount of those costs properly allocable to Missouri, it found, was only $9,033,000 per year, not the $12,000,000 AP & L had initially claimed. (AP & L had earlier reduced this claim to $10,598,000, and now does not seem to contest MPSC's further reduction to $9,033,000.) Because of savings on other items, however, permanent rate relief was limited to $5,887,767 a year, IV App. 792, a figure further adjusted on rehearing to $6,002,021, id. at 800. MPSC ordered a refund "in the amount by which the interim rates exceed the aggregate revenues authorized" in its permanent order. Id. at 795. AP & L has made the refund as ordered, but, as explained below, it still retains a portion of the money collected from retail customers under the court-ordered interim rate relief. AP & L filed a petition for review of MPSC's permanent rate order in the Circuit Court of Cole County, Missouri, but we are advised that this proceeding does not involve any Grand Gulf-related issues (all of which, after all, had been...

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