Entergy La., Inc. v. Louisiana Pub. Serv. Comm'n

• Decision Date: 02 June 2003
• Docket Number: No. 02-299.,02-299.
• Citation: 539 U.S. 39
• Parties: ENTERGY LOUISIANA, INC. <I>v.</I> LOUISIANA PUBLIC SERVICE COMMISSION ET AL.
• Court: U.S. Supreme Court

539 U.S. 39

ENTERGY LOUISIANA, INC.v.

LOUISIANA PUBLIC SERVICE COMMISSION ET AL.

No. 02-299.

Supreme Court of United States.

Argued April 28, 2003.

Decided June 2, 2003.

The Federal Energy Regulatory Commission (FERC), which regulates the sale of electricity at wholesale in interstate commerce, must ensure that wholesale rates are "just and reasonable," 16 U. S. C. § 824d(a). Under the filed rate doctrine, FERC-approved cost allocations between affiliated energy companies may not be subjected to reevaluation in state ratemaking proceedings. Nantahala Power & Light Co. v. Thornburg, 476 U. S. 953; Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U. S. 354 (MP&L). Petitioner Entergy Louisiana, Inc. (ELI), one of five public utilities owned by Entergy Corporation (Entergy), shares capacity with its corporate siblings in other States, which allows each company to access additional capacity when demand exceeds the supply generated by that company alone. The resulting costs are allocated among the companies; and that allocation is critical to the setting of retail rates by state regulators, such as respondent Louisiana Public Service Commission (LPSC). Entergy allocates costs through a tariff approved by FERC called the system agreement. Service Schedule MSS-1, which is included in the system agreement, provides a formula under which those companies that use more capacity than they contribute make payments to companies that contribute more than their fair share of capacity. ELI has typically made, rather than received, MSS-1 payments. In the 1980's, the operating committee initiated the Extended Reserve Shutdown (ERS) program, which responded to systemwide overcapacity by allowing some generating units not immediately necessary for capacity needs to be effectively mothballed. Because ERS units could be reactivated if needed, they were considered available for purposes of calculating MSS-1 payments. On August 5, 1997, FERC found that Entergy had violated the system agreement in classifying ERS units as available, but determined that a refund was not due to ELI customers as a result of MSS-1 overpayments by ELI to other operating companies. FERC also approved an amendment to the system agreement allowing an ERS unit to be treated as available under MSS-1 if the operating committee determines it intends to return the unit to service at a future date. In 1997, ELI made its annual retail rate filing with the LPSC. One of the contested issues in this proceeding was whether the cost of ERS units should be considered in setting ELI's retail rates. Confining its review to MSS-1 payments made after August 5, 1997, the LPSC concluded that it was not pre-empted from disallowing MSS-1 related costs as imprudent subsequent to that date. Thus, ELI was not permitted to charge retail rates that reflected the cost of its MSS-1 payments. The State District Court denied ELI's petition for review, and the State Supreme Court upheld the LPSC's decision.

Held: Nantahala and MP&L rest on a foundation that is broad enough to require pre-emption of the LPSC's order. Pp. 47-51.

(a) The filed rate doctrine requires "that interstate power rates filed with FERC or fixed by FERC must be given binding effect by state utility commissions determining intrastate rates," Nantahala, supra, at 962. In Nantahala and MP&L, this Court applied the doctrine to hold that FERC-mandated cost allocations could not be second-guessed by state regulators. The state order in Nantahala, which involved two corporate siblings, allocated more of Nantahala's purchases to low-cost power than the proportion approved by FERC. By requiring Nantahala to calculate its rates as if it needed to procure less high-cost power than under FERC's order, the state order "trapped" a portion of the costs incurred by Nantahala in procuring its power. This ran counter to the rationale for FERC approval of cost allocations because, when costs under a FERC tariff are categorically excluded from consideration in retail rates, the regulated entity cannot fully recover its costs of purchasing at the FERC-approved rate. In MP&L, the Court concluded that, contrary to the Mississippi Supreme Court's ruling, the pre-emptive effect of FERC jurisdiction does not turn on whether a particular matter was actually determined in FERC proceedings. Pp. 47-49.

(b) Applying Nantahala and MP&L here, the LPSC order impermissibly "traps" costs that have been allocated in a FERC tariff. That the operating committee has discretion to classify ERS units, while Nantahala and MP&L involved specific mandates, does not provide room for the LPSC's imprudence finding. The Federal Power Act specifically allows for the use of automatic adjustment clauses, and MSS-1 constitutes such a clause. The Louisiana Supreme Court's other basis for upholding the LPSC's order—that FERC had not specifically approved the MSS-1 cost allocation after August 5—revives precisely the same erroneous reasoning advanced by the Mississippi Supreme Court in MP&L. It matters not whether FERC has spoken to the precise classification of ERS units, but only whether the FERC tariff dictates how and by whom the classification should be made. Because the amended system agreement clearly does so, the LPSC's second-guessing of the classification here is pre-empted. Finally, respondents advance the contention that including ERS units in MSS-1 calculations violated the amended agreement despite the LPSC's own prior holding that it does not have jurisdiction to determine whether the agreement was violated and the State Supreme Court's acceptance of that concession. The question here is whether the LPSC order is pre-empted under Nantahala and MP&L that order does not rest on a finding that the system agreement was violated. Consequently, this Court has no occasion to address the question of the exclusivity of FERC's jurisdiction to determine whether and when a filed rate has been violated. Pp. 49-51.

815 So. 2d 27, reversed.

THOMAS, J., delivered the opinion for a unanimous Court.

CERTIORARI TO THE SUPREME COURT OF LOUISIANA.

David W. Carpenter argued the cause for petitioner. With him on the briefs were Virginia A. Seitz, J. Wayne Anderson, and Kathryn Ann Washington.

Austin C. Schlick argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Olson, Deputy Solicitor General Kneedler, Cynthia A. Marlette, and Dennis Lane.

Michael R. Fontham argued the cause for respondents. With him on the brief were Paul L. Zimmering, Noel J. Darce, Dana M. Shelton, and Jason M. Bilbe.^*

JUSTICE THOMAS delivered the opinion of the Court.

The Federal Energy Regulatory Commission (FERC) regulates the sale of electricity at wholesale in interstate commerce. 16 U. S. C. § 824(b). In this capacity, FERC must ensure that wholesale rates are "just and reasonable," § 824d(a). In Nantahala Power & Light Co. v. Thornburg, 476 U. S. 953 (1986), and Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U. S. 354 (1988) (MP&L), the Court concluded that, under the filed rate doctrine, FERC-approved cost allocations between affiliated energy companies may not be subjected to reevaluation in state rate-making proceedings. We consider today whether a FERC tariff that delegates discretion to the regulated entity to determine the precise cost allocation similarly pre-empts an order that adjudges those costs imprudent.

I

Petitioner Entergy Louisiana, Inc. (ELI), is one of five public utilities owned by Entergy Corporation (Entergy), a multistate holding company. ELI operates in the State of Louisiana and shares capacity with its corporate siblings operating in Arkansas, Mississippi, and Texas (collectively, the operating companies). This sharing arrangement allows each operating company to access additional capacity when demand exceeds the supply generated by that company alone. But keeping excess capacity available for use by all is a benefit shared by the operating companies, and the costs associated with this benefit must be allocated among them. State regulators establish the rates each operating company may charge in its retail sales, allowing each company to recover its costs and a reasonable rate of return. Thus, the cost allocation between operating companies is critical to the setting of retail rates.

Entergy allocates costs through the system agreement, a tariff approved by FERC under § 205 of the Federal Power Act (FPA), 41 Stat. 1063, 16 U. S. C. § 824d. The system agreement is administered by the Entergy operating committee, which includes one representative from each operating company and one from Entergy Services, a subsidiary of Entergy that provides administrative services to the system. Service Schedule MSS-1, which is included as § 10 of the system agreement, allows for cost equalization of shared capacity through a formula that dictates that those operating companies contributing less than their fair share, i. e., using more capacity than they contribute, make payments to the others that contribute more than their fair share of capacity.¹ Those making such payments are known as "short" companies, and those accepting the payments are known as "long" companies. Each operating company's capability is determined monthly, and payments are made on a monthly basis— a long company receives a payment equal to its average cost of generating units multiplied by the number of megawatts the company is long. Because the variables that determine the MSS-1 cost allocation can change monthly, Service Schedule MSS-1 is an automatic adjustment clause under § 205(f) of the FPA, 16 U. S. C. § 824d(f),² which exempts it from the FPA's ordinary requirements for tariff changes.

In order to determine whether an operating company is long or short in a given month, one must know how much capacity that operating company is making available to its siblings. The question is not as easy as asking...