Middle South Energy, Inc. v. Arkansas Public Service Com'n

• Decision Date: 23 August 1985
• Docket Number: Nos. 84-2409,84-2410 and 84-2480,s. 84-2409
• Citation: 772 F.2d 404
• Parties: Fed. Sec. L. Rep. P 92,265, 2 Fed.R.Serv.3d 849 MIDDLE SOUTH ENERGY, INC., and Arkansas Power and Light Company, Appellees, v. ARKANSAS PUBLIC SERVICE COMMISSION; Robert E. Johnston, Commissioner; Patricia S. Qualls, Commissioner; and James W. Daniel, Commissioner; Attorney General of Arkansas; and Ratepayers Fight Back, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 404

772 F.2d 404

Fed. Sec. L. Rep. P 92,265, 2 Fed.R.Serv.3d 849

MIDDLE SOUTH ENERGY, INC., and Arkansas Power and Light Company, Appellees, v. ARKANSAS PUBLIC SERVICE COMMISSION; Robert E. Johnston Commissioner; Patricia S. Qualls, Commissioner; and James W. Daniel, Commissioner; Attorney General of Arkansas and Ratepayers Fight Back, Appellants.

Nos. 84-2409, 84-2410 and 84-2480.

United States Court of Appeals Eighth Circuit.

Submitted April 8, 1985.

Decided Aug. 23, 1985.

Vincent Foster, Jr., Little Rock, Ark., for appellants.

Jerry D. Jackson and Michael Thompson, Little Rock, Ark., for appellees.

Mary P. Stallcup, Little Rock, Ark., for Attorney General of Ark.

Before ROSS and JOHN R. GIBSON, Circuit Judges, and MEREDITH, ^* Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

The issues before us involve a judgment of the district court ¹ enjoining the Arkansas Public Service Commission from continuing proceedings to determine whether it should declare void ab initio certain contracts entered into by Arkansas Power and Light Company with respect to the purchase of power from, or payment for construction of, a nuclear power plant located in Mississippi. The Arkansas Public Service Commission, the Attorney General of Arkansas, and a consumer group called Ratepayers Fight Back argue that the district court erred in finding that the Federal Energy Regulatory Commission has exclusive jurisdiction over the contracts that were the subject of the APSC's proceedings. They further argue that the district court lacked subject matter jurisdiction, that the litigation was not ripe, and that the court abused its discretion by failing to abstain pending the outcome of the state agency proceedings and by granting overbroad relief. We have carefully considered these arguments, and because we believe that the actions threatened by the APSC would burden interstate commerce, we affirm the judgment of the district court.

The Arkansas Power and Light Company, together with the Louisiana Power and Light Company, the Mississippi Power and Light Company, and New Orleans Public Service, Inc., are wholly-owned operating subsidiaries of Middle South Utilities, Inc. The operating companies provide electric service to wholesale and retail consumers in Arkansas, Louisiana, Mississippi, and Missouri, with an aggregate consumer population of approximately five million people. Planning and operation of the electric generation and transmission facilities needed to meet the demands of the MSU system are performed according to systems agreements. "Transmission and generation functions are so coordinated and integrated as to permit an instantaneous transfer of electrical power to any part of Middle South's transmission network." Arkansas Power & Light Co. v. Federal Power Commission, 368 F.2d 376, 378 (8th Cir.1966). Because the need was seen in the early 1970's to develop additional power generating facilities, Middle South Energy, Inc., also a wholly-owned MSU subsidiary, was created in 1974 to finance, construct, and operate a two-unit nuclear generating plant to be located in Port Gibson, Mississippi and known as the Grand Gulf Nuclear Electric Station. ² The creation of MSE was necessary because none of the four operating subsidiaries had sufficient resources to finance and construct the nuclear generating plant.

This case involves contracts entered into with respect to the financing and construction of the plant, as well as agreements made concerning the sale of the power to be generated. MSE has financed the three billion dollar cost of the first unit by selling common stock to MSU, ³ borrowing from commercial banks, and issuing first mortgage ⁴ and pollution control bonds. ⁵

In 1974, through a document called the Availability Agreement, MSE obtained from each of the MSU operating companies their commitment to purchase power from the Grand Gulf project. The operating companies agreed to pay MSE, beginning on specified dates, amounts needed for MSE to meet its operating expenses, whether or not the two units of the project were then operating. Payments would be credited to the cost of their future power purchases from MSE. The Availability Agreement has been essential to the financing of the project. ⁶ Pursuant to a series of ten agreements entered into between 1977 and 1984, MSE has assigned its rights under the Availability Agreement to secure indebtedness in excess of $2.5 billion. ⁷

The Availability Agreement initially provided that the share of Grand Gulf power taken by the operating companies would vary relative to their respective needs. In June 1981, the Availability Agreement was amended ⁸ to fix the allocations of power in these percentages: ⁹ AP & L--17.1%; LP & L--26.9%; MP & L--31.3%; NOPSI--24.7%.

On July 28, 1981, MSE and the operating companies entered into a Reallocation Agreement, under which the operating companies agreed to purchase power in the following percentages: AP & L--0%; LP & L--38.57%; MP & L--31.63%; NOPSI--29.80%. ¹⁰ In June 1982, MSE and the operating companies entered into an agreement, the Unit Power Sales Agreement, which required each operating company to purchase the shares of power specified in the Reallocation Agreement. AP & L signed the UPSA but, in accordance with the terms of the Reallocation Agreement, did not agree to purchase any power from the project. The UPSA was filed with the Federal Energy Regulatory Commission for approval as a wholesale power sales agreement.

In February 1984, a FERC administrative law judge rejected the allocation in the UPSA and obligated the operating companies to purchase power from Unit No. 1 as follows: AP & L--36%; LP & L--14%; MP & L--33%; NOPSI--17%. The ALJ reasoned that:

[T]he evidence of Middle South's witnesses is overwhelming that the Middle South system is a single integrated and coordinated electric system operating in Louisiana, Mississippi, Arkansas and Missouri. Planning, construction, and operations are conducted for the system as a whole. Loads on the system are met by centrally dispatching the most economical mix of generators wherever located in the system. Middle South Utilities, Inc. owns the stock of the operating utilities as well as the stock of MSS and MSE. When difficult system decisions have to be made, such as deciding the allocation of Grand Gulf, it is the Board of Directors of Middle South Utilities, Inc., that ultimately makes the decision, not an individual subsidiary company or a group of subsidiaries.

The Grand Gulf project was initiated in the 1970's to meet the then projected demand on the Middle South system by the end of that decade and not just the load of any Middle South operating company or companies. Constructing generation to meet system load was true of every unit constructed on the Middle South system.

Under these circumstances the costs of Grand Gulf capacity and energy should be shared equitably by MSU's operating companies and their customers.

Middle South Energy, 26 F.E.R.C. p 63,044, at 65,106 (1984), aff'd, 31 F.E.R.C. p 61,305 (1985). The APSC had actively intervened in the proceedings before FERC. It had contended that FERC had no jurisdiction to obligate AP & L to take a share of Grand Gulf and that Arkansas neither wanted or needed the relatively high-cost power from the project. These arguments were rejected.

Approximately one month later, the APSC issued two orders instituting formal inquiries into AP & L's role in the Grand Gulf project. Predicting that Grand Gulf would result in "dramatic [rate] increases" which would place an "intolerable burden" on AP & L's customers and have a "crippling effect" on the Arkansas economy, Arkansas Power & Light Co., Ark.Pub.Serv.Comm'n Docket No. 84-041-0II, at 1 (Mar. 12, 1984), the APSC ultimately sought to "protect the interests of the residential, business, and industrial customers of AP & L and preserve the viability of the economy of the State of Arkansas." Arkansas Power & Light Co., Ark.Pub.Serv.Comm'n Docket No. 84-040-0II, at 2 (Mar. 12, 1984).

On August 1, 1984, the APSC ordered AP & L to appear and "show cause why all contracts and agreements made by it with respect to any obligations to purchase power from or to pay for construction and operation costs of the Grand Gulf Project should not be held to be void ab initio as a matter of law." Arkansas Power & Light Co., Ark.Pub.Serv.Comm'n Docket No. 84-190-U, at 6 (Aug. 1, 1984). The APSC had already concluded that thirty-six such agreements constituted prima facie violations of Arkansas law requiring APSC approval of certain transactions by public utilities. Id.; see Ark.Stat.Ann. Sec. 73-253(a)(3) (1979 Repl.) (utility must have APSC approval to "sell, acquire, lease or rent any public utility plant or property constituting an operating unit or system"); id. Sec. 73-255 (Supp.1983) (utility must have APSC approval to "issue stocks, bonds, notes or other evidence of indebtedness payable at periods of more than thirty-six (36) months"). After AP & L's motion to dismiss the show cause order for lack of jurisdiction was denied, MSE filed suit in the district court to temporarily and permanently enjoin the proceedings before the APSC. AP & L intervened as a plaintiff, while the Arkansas Attorney General and Ratepayers Fight Back intervened as defendants. A hearing was held on the consolidated issues of preliminary and permanent relief. The district court found that the APSC's actions were preempted by the Federal Power Act, 16 U.S.C. Secs. 824-824k (1982), and permanently enjoined APSC from conducting further proceedings on the show cause order. Regarding the need for equitable relief, the court found:

MSE must raise an additional several billion dollars in the next few years to pay construction and financing costs. The ability to raise these funds is dependent on the enforceability of the threatened agreements. If the actions of the APSC are not enjoined, the cost of...