Entergy Louisiana, Inc. v. Louisiana Public Service Commission

Decision Date02 June 2003
Docket NumberNo. 02-299.,02-299.
Citation___ U.S. ___
PartiesENTERGY LOUISIANA, INC., PETITIONER v. LOUISIANA PUBLIC SERVICE COMMISSION ET AL.
CourtU.S. Supreme Court

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 ratemaking 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), 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 whether the generating facilities are on or off, however, because in the mid-1980's the operating committee initiated the Extended Reserve Shutdown (ERS) program. Responding to systemwide overcapacity, ERS allowed some generating units to be identified as not immediately necessary for capacity needs and effectively mothballed. However, these units could be activated if demand increased, meaning that the capacity they represented was not forever placed out of reach of the operating companies. As a result, ERS units were considered "available" for purposes of calculating MSS-1 cost equalization payments. Counting ERS units as available has generally had the effect of making ELI, already a short company, even more short, thus increasing its cost equalization payments.

In December 1993, FERC initiated a proceeding under §206 of the FPA, 16 U. S. C. §824e, to decide whether the system agreement permitted ERS units to be treated as available. Respondent Louisiana Public Service Commission (LPSC), which regulates ELI's retail rates in Louisiana, participated in the FERC proceeding and argued that customers of ELI were entitled to a refund as a result of MSS-1 overpayments made by ELI after the alleged misclassification of ERS units as available. FERC agreed that Entergy had violated the system agreement in its classification of ERS units as available, but determined that a refund was not supported by the equities because the resultant cost allocations, while violative of the tariff, were not unjust, unreasonable, or unduly discriminatory. Entergy Servs., Inc., 80 FERC ¶61,197, pp. 61,786-61,788 (1997) (Order No. 415). FERC also approved, over the objection of the LPSC, an amendment to the system agreement that allows 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.3 The Court of Appeals for the District of Columbia Circuit denied the LPSC's petition for review of FERC Order No. 415. Louisiana Public Service Comm'n v. FERC, 174 F. 3d 218 (1999). With respect to the amendment, the Court of Appeals found that "FERC understandably concluded that [it] set out the parameters of the operating committee's discretion, and that discriminatory implementation of the amendment could be remedied in a proceeding under FPA §206." Id., at 231.

ELI made its annual retail rate filing with the LPSC in May 1997. One of the contested issues was "whether payments under the System Agreement for the cost of generating units in Extended Reserve Shutdown should be included or excluded from ELI's revenue requirement." App. to Pet. for Cert. 25a. Given FERC's determination that the inclusion of ERS units as available prior to August 5, 1997 (the date FERC Order No. 415 issued), was just and reasonable, the LPSC confined its review to MSS-1 payments made after August 5, 1997. Its own staff argued before the LPSC that after August 5, 1997, ELI and the operating committee violated amended §10.02(a) of the operating agreement by continuing to count ERS units as available. The LPSC concluded, however, that it was "pre-empted from determining whether the terms of a FERC tariff have been met, for the issue of violation of or compliance with a FERC tariff is peculiarly within FERC's purview." Id., at 64a.

Nevertheless, the LPSC held that it was not pre-empted from disallowing MSS-1-related costs as imprudent subsequent to August 5, 1997:

"[T]hough FERC has exclusive jurisdiction over the issue of whether the System Agreement has been violated, there currently exists no FERC order that has found that the Operating Committee's decision is in compliance with the System Agreement. In the absence of such FERC determination, this Commission can scrutinize the prudence of the Operating Committee's decision without violating the [S]upremacy [C]lause insofar as that decision affects retail rates." Id., at 65a.

The LPSC concluded that the operating committee's treatment of ERS units after August 5, 1997, was imprudent and that ELI's MSS-1 payments would not be considered when setting ELI's retail rates in Louisiana. In other words, though ELI made the MSS-1 payments to its "long" corporate siblings, it would not be allowed to recoup those costs in its retail rates.4

ELI petitioned for review of the LPSC's decision in State District Court. That petition was denied, and ELI appealed to the Supreme Court of Louisiana, which upheld the LPSC's decision. 2001-1725 (La. 4/3/02); 815 So. 2d 27. The Supreme Court of Louisiana held that the LPSC's order was not barred by federal pre-emption because the LPSC was not "attempting to regulate interstate wholesale rates" or "challeng[ing] the validity of the FERC's declination to order refunds of amounts paid in violation of the System Agreement prior to the amendment." Id., at 38. Further, the court reasoned, "FERC never ruled on the issue of whether ELI's decision to continue to include the ERS units [after August 5, 1997 was] a prudent one" or made "it mandatory for the [operating committee] to include the ERS units in its MSS-1 calculations." Ibid.

We granted ELI's petition for writ of certiorari to address whether the Court's decisions in Nantahala and MP&L lead to federal pre-emption of the LPSC's order. 537 U. S. ___ (2003). We hold that Nantahala and MP&L "res[t] on a foundation that is broad enough," MP&L, 487 U. S., at 369, to require pre-emption of the order in this case.

II
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, 476 U. S., at 962. When the filed rate doctrine applies to state regulators, it does so as a matter of federal pre-emption through the Supremacy Clause. Arkansas Louisiana Gas Co. v. Hall, 453 U. S. 571, 581-582 (1981).

In Nantahala and MP&L the Court applied the filed rate doctrine to hold that FERC-mandated cost allocations could not be second-guessed by state regulators. Nantahala involved two corporate siblings, Nantahala Power & Light Company and Tapoco, Inc., the former of which served retail customers in North Carolina. Both Nantahala and Tapoco provided power to the Tennessee Valley Authority (TVA), which in turn sold power back to them pursuant to an agreement between all three parties. But the power was not purchased at a uniform price....

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