Entergy Louisiana, Inc. v. Louisiana Public Service Commission
Encyclopedia
Entergy Louisiana, Inc. v. Louisiana Public Service Commission, 539 U.S. 39 (2003), is a Supreme Court of the United States
case holding that a federal administrative agency approved public utility
tariff
preempted
a state public utilities commission
rate order under the filed rate doctrine.
, a multistate holding company
, allocated the costs of its electric generating capacity, including capacity held in extended reserve shutdown, among its five public utilities that it owned pursuant to a tariff schedule MSS-1 approved by the Federal Energy Regulatory Commission
(FERC). The tariff delegated discretion to Entergy to determine the specific cost allocations. The resulting costs, which changed monthly, were then assigned under the Entergy System Operating Agreement to each of the five public utilities under an automatic adjustment clause in the tariff, so FERC review and approval of a specific cost allocation was not required.
In May 1997 Entergy Louisiana, Inc., one of the five public utilities, filed its annual retail electric rate case
with the Louisiana Public Service Commission
(PSC). The PSC issued an order disallowing the costs associated with the electric generating units in extended shutdown reserve from being recovered in rates. The PSC concluded that since FERC had never determined that the allocation of costs as determined by Entergy was consistent with the Entergy System Operating Agreement, it could make this prudency decision without violating the Supremacy Clause
of the United States Constitution
. As a result of this decision, Entergy Louisiana was required to pay the allocated costs of the extended shutdown reserve generation but could not recover these costs in its retail electric rates.
Entergy Louisiana appealed the PSC order to the Supreme Court of Louisiana. The state court upheld the PSC order as not being barred by federal preemption because the PSC was not attempting to regulate interstate wholesale electric rates. The court also noted that FERC never ruled on the issue of whether Entergy Louisiana's decision to include the extended shutdown reserve generating units was a prudent one or whether to include these costs in rates was mandatory.
to determine whether its filed rate doctrine holdings in Nantahala Power and Light Co. v. Thornburg, 476 U.S. 953 (1986), and Mississippi Power and Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988), would lead to federal preemption of the Louisiana PSC order. The filed rate doctrine is an American administrative law
rule that a court should not permit a collateral attack on a tariffed rate of a public utility that was determined by an agency, and that any litigation regarding the validity of that rate must be conducted before that agency. With the Supremacy Clause, any tariffed rate approved by a federal agency must be given effect by a state public utility commission that regulates a public utility and sets intrastate rates.
Nantahala held that cost allocations related to a FERC approved power agreement must be followed by state agencies in setting public utility rates. In Mississippi Power, FERC had allocated the costs of the Grand Gulf Nuclear Generating Station
among various public utility companies. The Supreme Court of Mississippi
ruled that the state PSC could consider the prudence of the Grand Gulf costs allocated to a public utility since FERC had never ruled on the prudency of these costs. The U.S. Supreme Court disagreed, stating that FERC orders must be given preemptive effect regardless of whether a particular matter had been litigated and decided by FERC.
Applying the Nantahala and Mississippi Power holdings to the Louisiana case, the Court noted that the PSC order impermissibly had the effect of trapping generation costs with the public utility by excluding them from recovery in rates. Although the Entergy System Operating Agreement differed from the tariffs in the Nantahala and Mississippi Power cases in that it left the classification of reserve generating units to an operating committee, this delegated discretion did not allow the PSC room for a finding of imprudence where a FERC mandated cost allocation would not. As Congress had permitted the use of automatic adjustment clauses in the Federal Power Act
, the Court decided the MSS-1 schedule constituted such a clause. The Court then determined that there was no reason to create an exception to the filed rate doctrine for tariffs using this type of clause.
The U.S. Supreme Court also stated that the Louisiana Supreme Court ruling regarding the ability of the PSC to conduct prudency reviews was the same erroneous reasoning advanced by the Mississippi Supreme Court in the Mississippi Power case. The Court explained that it did not matter whether FERC had specifically ruled on the reserve generating units, but only whether the FERC approved tariff dictated how and by whom that classification should be made. For these reasons, the decision of the state court was reversed.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
case holding that a federal administrative agency approved public utility
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
tariff
Tariff (disambiguation)
A tariff is a tax on imported or exported goods.A tariff may also refer to:* Tariff, a schedule of prices for the sale or rental of a product or service* Tariff , in British criminal law, a minimum prison sentence...
preempted
Federal preemption
Federal preemption refers to the invalidation of US state law when it conflicts with Federal law.-Constitutional basis:According to the Supremacy Clause of the United States Constitution,...
a state public utilities commission
Public Utilities Commission
A Utilities commission, Utility Regulatory Commission , Public Utilities Commission or Public Service Commission is a governing body that regulates the rates and services of a public utility...
rate order under the filed rate doctrine.
Background
EntergyEntergy
Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. It is headquartered in the Central Business District of New Orleans, Louisiana.-History:...
, a multistate holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
, allocated the costs of its electric generating capacity, including capacity held in extended reserve shutdown, among its five public utilities that it owned pursuant to a tariff schedule MSS-1 approved by the Federal Energy Regulatory Commission
Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...
(FERC). The tariff delegated discretion to Entergy to determine the specific cost allocations. The resulting costs, which changed monthly, were then assigned under the Entergy System Operating Agreement to each of the five public utilities under an automatic adjustment clause in the tariff, so FERC review and approval of a specific cost allocation was not required.
In May 1997 Entergy Louisiana, Inc., one of the five public utilities, filed its annual retail electric rate case
Rate case
A rate case is the formal process which industries that have the legal designation of public utility are mandated to go through in order to set the rate at which they are allowed to charge consumers for their service...
with the Louisiana Public Service Commission
Louisiana Public Service Commission
Louisiana Public Service Commission is an independent regulatory agency which manages public utilities and motor carriers in Louisiana. The commission has five elected members chosen in single-member districts for staggered six-year terms...
(PSC). The PSC issued an order disallowing the costs associated with the electric generating units in extended shutdown reserve from being recovered in rates. The PSC concluded that since FERC had never determined that the allocation of costs as determined by Entergy was consistent with the Entergy System Operating Agreement, it could make this prudency decision without violating the Supremacy Clause
Supremacy Clause
Article VI, Clause 2 of the United States Constitution, known as the Supremacy Clause, establishes the U.S. Constitution, U.S. Treaties, and Federal Statutes as "the supreme law of the land." The text decrees these to be the highest form of law in the U.S...
of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
. As a result of this decision, Entergy Louisiana was required to pay the allocated costs of the extended shutdown reserve generation but could not recover these costs in its retail electric rates.
Entergy Louisiana appealed the PSC order to the Supreme Court of Louisiana. The state court upheld the PSC order as not being barred by federal preemption because the PSC was not attempting to regulate interstate wholesale electric rates. The court also noted that FERC never ruled on the issue of whether Entergy Louisiana's decision to include the extended shutdown reserve generating units was a prudent one or whether to include these costs in rates was mandatory.
Court's decision
The U.S. Supreme Court stated that it granted certiorariCertiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
to determine whether its filed rate doctrine holdings in Nantahala Power and Light Co. v. Thornburg, 476 U.S. 953 (1986), and Mississippi Power and Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988), would lead to federal preemption of the Louisiana PSC order. The filed rate doctrine is an American administrative law
Administrative law
Administrative law is the body of law that governs the activities of administrative agencies of government. Government agency action can include rulemaking, adjudication, or the enforcement of a specific regulatory agenda. Administrative law is considered a branch of public law...
rule that a court should not permit a collateral attack on a tariffed rate of a public utility that was determined by an agency, and that any litigation regarding the validity of that rate must be conducted before that agency. With the Supremacy Clause, any tariffed rate approved by a federal agency must be given effect by a state public utility commission that regulates a public utility and sets intrastate rates.
Nantahala held that cost allocations related to a FERC approved power agreement must be followed by state agencies in setting public utility rates. In Mississippi Power, FERC had allocated the costs of the Grand Gulf Nuclear Generating Station
Grand Gulf Nuclear Generating Station
Grand Gulf nuclear power station is a General Electric boiling water reactor. It lies on a site near Port Gibson, Mississippi. The site is wooded and contains two lakes. The plant has a 520-foot cooling tower....
among various public utility companies. The Supreme Court of Mississippi
Supreme Court of Mississippi
The Supreme Court of Mississippi is the highest court in the state of Mississippi. It was created in the first constitution of the state following its admission as a State of the Union in 1817. Initially it was known as the "High Court of Errors and Appeals." The Court is an appellate court, as...
ruled that the state PSC could consider the prudence of the Grand Gulf costs allocated to a public utility since FERC had never ruled on the prudency of these costs. The U.S. Supreme Court disagreed, stating that FERC orders must be given preemptive effect regardless of whether a particular matter had been litigated and decided by FERC.
Applying the Nantahala and Mississippi Power holdings to the Louisiana case, the Court noted that the PSC order impermissibly had the effect of trapping generation costs with the public utility by excluding them from recovery in rates. Although the Entergy System Operating Agreement differed from the tariffs in the Nantahala and Mississippi Power cases in that it left the classification of reserve generating units to an operating committee, this delegated discretion did not allow the PSC room for a finding of imprudence where a FERC mandated cost allocation would not. As Congress had permitted the use of automatic adjustment clauses in the Federal Power Act
Federal Power Act
The Federal Power Act is a law appearing in Chapter 12 of Title 16 of the United States Code, entitled "Federal Regulation and Development of Power". Enacted as the Federal Water Power Act on June 10, 1920, and amended many times since, its original purpose was to more effectively coordinate the...
, the Court decided the MSS-1 schedule constituted such a clause. The Court then determined that there was no reason to create an exception to the filed rate doctrine for tariffs using this type of clause.
The U.S. Supreme Court also stated that the Louisiana Supreme Court ruling regarding the ability of the PSC to conduct prudency reviews was the same erroneous reasoning advanced by the Mississippi Supreme Court in the Mississippi Power case. The Court explained that it did not matter whether FERC had specifically ruled on the reserve generating units, but only whether the FERC approved tariff dictated how and by whom that classification should be made. For these reasons, the decision of the state court was reversed.