AMERICAN ELECTRIC POWER COMPANY, ET AL., PETITIONERS V. KENTUCKY
PUBLIC SERVICE COMMISSION, ET AL.

   No. 86-49

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for a Writ of Certiorari to the United States Court of
Appeals for the Sixth Circuit

   Brief for the United States and the Federal Energy Regulatory
Commission as Amici Curiae

            TABLE OF CONTENTS
   Question Presented
   Statement
      A. The Federal Power Act and the filed rate
          doctrine
      B. Proceedings below in No. 86-49
      C. NOPSI, No. 86-546
   Discussion
   Conclusion

                          QUESTION PRESENTED

   Whether a federal court should abstain from adjudicating a claim,
brought by a public utility against a state public utility commission,
that the state commission is unlawfully refusing to honor terms filed
with or fixed by the Federal Energy Regulatory Commission for the
interstate sale of electric power at wholesale, in violation of the
"filed rate doctrine."

   This brief is filed in response to the Court's invitation to the
Solicitor General to file a brief expressing the views of the United
States.

                               STATEMENT

   This case presents the question whether a federal court should
abstain from hearing a claim that a state public utility commission is
violating the Federal Power Act, 16 U.S.C. 824 et seq., by preventing
a public utility from reflecting in retail electric rates certain
wholesale costs provided in agreements filed with the Federal Energy
Regulatory Commission.  Petitioners base their premption claim on the
"filed rate doctrine," under which a state commission is bound to
honor interstate wholesale rates for the sale of electric energy that
have been filed with or fixed by the Commission (see Nantahala Power &
Light Co. v. Thornburg, No. 85-568 (June 17, 1986), slip op. 8).  As
explained in a memorandum we filed with this Court on November 6,
1986, in another case pending on a petition for a writ of certiorari,
New Orleans Public Service, Inc. v. City of New Orleans, No. 86-546
(NOPSI), the legal issue raised in this case (No. 86-49) (AEP) is
similar to that raised in NOPSI.  /1/ For this reason, we concluded
that it would be appropriate while expressing our views in response to
the Court's invitation in No. 86-49 also to address which, if either,
of the two cases presents the question in an appropriate posture for
the Court's review.  Accordingly, the facts of both cases are set out
separately following a brief review of the relevant statutory
framework.

   A. The Federal Power Act And The Filed Rate Doctrine

   The Federal Power Act, 16 U.S.C. 824 et seq., gives the Federal
Energy Regulatory Commission exclusive regulatory authority over the
transmission of electric energy in interstate commerce and the sale of
such energy at wholesale in interstate commerce.  FERC is responsible
for ensuring that all rates or charges made, demanded, or received by
any public utility for or in connection with the transmission or sale
of electric energy in interstate commerce are "just and reasonable"
(16 U.S.C. 824d(a)).  Public utilities are required to file with FERC
schedules setting forth their rates and charges within its
jurisdiction (16 U.S.C. 824d(c)), and when a public utility seeks to
change a rate or charge within FERC's jurisdiction, the utility must
file with FERC a new schedule that explains the changes and their
effective dates (16 U.S.C. 824d(d)).  FERC may hold a hearing on the
lawfulness of the filed rate or charge and, pending its decision, may
suspend the filed rate or charge for up to five months.  FERC may
require the public utility to refund, with interest, the excess
amounts received should the rate go into effect and subsequently be
deemed unlawful (16 U.S.C. 824d(e)).  If FERC determines that any rate
or charge collected by any public utility is unlawful, FERC is
authorized to determine and to fix prospectively a "just and
reasonable" rate or charge (16 U.S.C. 824e).

   Under the "filed rate doctrine" established in Montana-Dakota
Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246 (1951),
a public utility "can claim no rate as a legal right that is other
than the filed rate, whether fixed or merely accepted by the
Commission (FERC) and not even a court can authorize commerce in the
commodity on other terms" (id. at 251).  One generally accepted
consequence of the filed rate doctrine, explained by this Court in
Nantahala, is that "a state utility commission setting retail prices
must allow, as reasonable operating expenses, costs incurred as a
result of paying a FERC-determined wholesale price" (slip op. 11).
This follows from the fact that "(o)nce FERC sets such a (wholesale)
rate, a State may not conclude in setting retail rates that the
FERC-approved wholesale rates are unreasonable" (id. at 13).  Finally,
the Court held in Nantahala that the filed rate doctrine "is not
limited to 'rates' per se" (ibid.), but also applies to contractual
allocations of power, filed with FERC, that similarly affect a
utility's costs:  a state utility commission "cannot substitute its
own conception of what allocation of (low cost) power would have been
* * * fair" (id. at 15).

   B. Proceedings Below in No. 86-49

   Petitioner American Electric Power Company, Inc. (AEP) is a fully
integrated public utility holding company established under Title I of
the Public Utility Holding Company Act of 1935, 15 U.S.C. 79 et seq.
AEP owns eight operating electric utility companies, which serve
consumers in seven states.  Five of the eight operating companies,
including Kentucky Electric Power Company, own major generating
facilities and are interconnected by extra-high-voltage transmission
lines, forming the AEP power pool, which allows the five member
companies to exchange and to sell power among themselves and with
outside companies.  The power exchanges and sales are wholesale
transactions that are governed by contracts and rate schedules subject
to FERC's exclusive regulatory jurisdiction under the Federal Power
Act, 16 U.S.C. 824d, 824e.

   Since 1951, the general rights and responsibilities of the member
companies of the AEP pool have been set forth in the "Interconnection
Agreement" entered into by the companies and approved by FERC.  The
Interconnection Agreement provides for central coordination and
dispatch of the generating capacity of the member companies and of
capacity available from others.  The Agreement provides for payments
by those member companies that have a "capacity deficit" (i.e., the
company's generating capacity is less than its pro rata share of
system demand for power) to those member companies that have a
"capacity surplus" (i.e., the company's generating capacity is greater
than its pro rata share of system demand for power).  The payments are
designed for "deficit" members partially to compensate "surplus"
members for the latters' excess capacity.

   1. In 1974, Kentucky Power applied to the Kentucky Public Service
Commission for a certificate of public convenience and necessity to
construct a high voltage transmission line (the "Hanging
Rock-Jefferson" line) at an estimated cost of $55 million (KPSC Br. in
Opp. App. 3a).  In 1978, Kentucky Power applied to the Kentucky
Commission for permission to purchase a 15 percent ownership interest
in a generating facility in Rockport, Indiana owned by another AEP
member company, Indiana & Michigan Electric (I&M) (id. at 1a).  After
initially approving the purchase, the Kentucky Commission reconsidered
its initial decision, reversed itself, and denied Kentucky Power's
application on August 2, 1984 (id. at 2a).  The Commission concluded
that the purchase would be imprudent because Kentucky Power could meet
its load obligations less expensively by purchasing power through the
AEP power pool, pursuant to the Interconnection Agreement (ibid.).

   In 1984, the AEP member companies, including Kentucky Power, filed
two agreements with FERC.  The first, a "Transmission Agreement,"
filed in March 1984, generally provides that AEP member companies in a
"deficit" posture regarding investment in transmission facilities must
make payments over a five-year period to those members in a "surplus"
posture until each company is bearing its share of the total
investment in transmission facilities (KPSC Br. in Opp. App. 3a).  The
second, a "Unit Power Sales Agreement," filed on August 2, 1984,
anticipated the Kentucky Commission's adverse determination that same
day of Kentucky Power's application to purchase 15 percent of the
Rockport generating facility.  Under the Unit Power Sales Agreement,
Kentucky Power agreed to purchase 15 percent of that facility's output
for up to twenty years (Pet. App. 15a).  Kentucky Power subsequently
applied to the Kentucky Commission for rate increases based on both
its absorption of the costs of the Hanging Rock-Jefferson transmission
line pursuant to the Transmission Agreement and its power purchase
pursuant to the Unit Power Sales Agreement.

   While Kentucky Power's application for a rate increase was pending
before the Kentucky Commission, FERC undertook its preliminary review
of both the Unit Power Sales Agreement and the Transmission Agreement.
 On August 21, 1984, FERC accepted the Transmission Agreement for
filing, gave the Agreement an effective date of January 22, 1985, and
postponed final approval of the agreement pending further review.
American Electric Power Service Corp., 28 F.E.R.C. Paragraph 61,228
(1984).  On October 1, 1984, FERC accepted the Unit Power Sales
Agreement for filing and allowed it to take effect after a brief
suspension period, subject to refund upon further review.  AEP
Generating Co. (AEPGCo.), 29 F.E.R.C. Paragraph 61,002.  FERC then
stated its preliminary view that the rates reflected in the Unit Power
Sales Agreement might be unjust, unreasonable, unduly discriminatory,
preferential, or otherwise unlawful.

   On December 4, 1984, the Kentucky Commission acted on Kentucky
Power's application for a rate increase and granted only a partial
increase.  The Commission concluded that Kentucky Power acted
imprudently in entering into the Unit Power Sales Agreement because
the cost of power under that Agreement substantially exceeded the cost
of purchasing power through the Interconnection Agreement.
Accordingly, the Kentucky Commission concluded, Kentucky Power's rate
increase should be based on the cost of purchasing additional power
through the Interconnection Agreement and not on the cost of
additional power under the Unite Power Sales Agreement.  Pet. App.
16a.  The Kentucky Commission also granted Kentucky Power only part of
the rate increase it had sought based on the costs of the Hanging
Rock-Jefferson transmission line under the AEP Transmission Agreement.
 The Commission determined that Kentucky customers benefited from only
a portion of the transmission line and therefore should pay only for
their fair share.  The Commission found that only 44 percent of the
investment should be included in Kentucky Power's rate base and only
44 percent of the operation and maintenance expenses should be charged
to retail customers.  KPSC Br. in Opp. App. 4a.

   2. On December 12, 1984, petitioners filed this action in federal
district court.  Petitioners' complaint alleged that the Federal Power
Act preempts the Kentucky Commission's order because the order failed
to give full effect to the Unit Power Sales Agreement and Transmission
Agreement on file with FERC.  Eight days after the complaint was filed
in federal court, petitioner Kentucky Power filed a petition in
Kentucky state court for review of the Kentucky Commission's order.
The state court complaint included the same federal preemption claim.

   On January 16, 1985, the federal district court dismissed
petitioners' complaint (Pet. App. 15a-23a).  The court held that the
Johnson Act, 28 U.S.C. 1342, did not bar this suit for injunctive
relief, but that federal court abstention was appropriate under
Younger v. Harris, 401 U.S. 37 (1971), in deference to the parallel
proceeding brought by Kentucky Power in state court, and under Burford
v. Sun Oil Co., 319 U.S. 315 (1943), because the federal action
threatened to interfere with Kentucky's "overriding interest in
regulating the retail rates charged by public utilities" (Pet. App.
21a-23a).

   On September 13, 1985, while this case was pending before the
United States Court of Appeals for the Sixth Circuit and prior to the
state court's disposition of Kentucky Power's state complaint, FERC
issued two orders regarding the two agreements at issue in this case.
On September 13, 1985, FERC asserted that it had exclusive authority
to determine the prudence of Kentucky Power's participation in the
Transmission Agreement, particularly the Agreement's provision that
equalization among the members would be phased in over a five-year
period rather than immediately.  See AEP Service Corp., 32 F.E.R.C.
Paragraph 61,363, at 61,818 (1985).  FERC also clarified an earlier
order concerning the Unit Power Sales Agreement by explaining that
FERC possessed "primary jurisdiction" to interpret agreements filed
with it, which meant, FERC explained, that once FERC had announced an
interpretation of an agreement, a state public utility commission was
bound to follow that interpretation.  AEPGCo, 32 F.E.R.C. Paragraph
61,364, at 61,821 (1985).  /2/ Kentucky Power responded to the
clarification by filing with FERC a petition for a declaratory order
as to the meaning of the Unit Power Sales Agreement and the
Interconnection Agreement.

   On March 21, 1986, the state court affirmed the Kentucky Commission
order in all respects (KPSC Br. in Opp. App. 1a-6a).  The court
specifically found that the Interconnection Agreement did not require
Kentucky Power to buy power from the Rockport Facility but rather
allowed Kentucky Power to meet its need by purchasing less costly
power from the AEP power pool (id. at 4a).  The court also ruled that
the Kentucky Commission's order was within its statutory authority,
not preempted by federal law, and adequately supported by the evidence
(id. at 5a).  Kentucky Power's appeal is currently pending before the
Commonwealth of Kentucky Court of Appeals.

   3. Three days later, the Sixth Circuit affirmed the United States
district court's dismissal of petitioner's complaint (Pet. App.
1a-12a).  In an unpublished per curiam opinion, the court held that
Burford abstention was not appropriate, but that Younger abstention
was warranted (id. at 1a-7a).  In separate concurring opinions,
however, two judges stated that abstention was appropriate under
Burford (id. at 7a-12a).

   4. On August 20, 1986, FERC issued one order granting petitioner
AEP's request for a rehearing of FERC's October 1984 order and a
second order agreeing to rule on Kentucky Power's November 1985
petition that FERC issue a declaratory order regarding Kentucky
Power's rights and responsibilities to purchase power under the
Interconnection Agreement and the Unit Power Sales Agreement.  See
AEPGCo, 36 F.E.R.C. Paragraph 61,226 (KPSC Br. in Opp. App. 21a-27a);
Kentucky Power Co., 36 F.E.R.C. Paragraph 61,227 (KPSC Br. in Opp.
App. 7a-20a).  In the first order, FERC clarified its earlier
statements regarding the authority of the Kentucky Commission to
interpret the meaning of the two agreements.  FERC stated that it
possessed exclusive authority to determine the just and reasonable
allocation of costs and rates among members of an integrated
interstate system.  FERC also concluded that although normally
justness and reasonableness may be determined by the Commission apart
from prudency in terms of availability of alternative supplies,
"where, as here, the transaction involves affiliated, jurisdictional
utilities, which are members of an integrated, interstate holding
company * * *, the relevant issues may not be so readily segregated
(and) are * * * matters most appropriately resolved by this Commission
as part of its overriding authority to evaluate and implement * * *
wholesale rate schedules" (KPSC Br. in Opp. App. 25a-26a).  In its
second order, FERC set issues concerning the meaning of the two
agreements for hearing.  /3/

   On March 12, 1987, FERC issued its decision.  AEPGCo, 38 F.E.R.C.
Paragraph 61,243.  FERC determined that Kentucky Power did not have
the option under the Interconnection Agreement to continue purchasing
power from the pool (slip op. 13-17).  According to FERC, the
Interconnection Agreement obliges each participant to bear its fair
share of the system-wide investment in capacity (id. at 11-13), and
Kentucky Power therefore is obliged to purchase a portion of the
output of the Rockport facility (id. at 13-22).  FERC also concluded
that the Kentucky Public Service Commission lacked jurisdiction to
inquire whether Kentucky Power acted prudently in purchasing power
from the Rockport facility (id. at 23-25).

   C. NOPSI, No. 86-546

   New Orleans Public Service, Inc. (NOPSI) is one of four operating
electric utility companies which are wholly-owned subsidiaries of
Middle South Utilities, Inc. (MSU), an integrated public utility
holding company established, like AEP, under the Public Utility
Holding Company Act, 15 U.S.C. 79 et seq.  The other subsidiary
operating companies, each of which sells electric power at retail to
its own local customers, are Louisiana Power & Light (LP&L),
Mississippi Power & Light (MP&L), and Arkansas Power & Light (AP&L).
A generating subsidiary, Middle South Energy (MSE), was formed to own
and finance two nuclear power plants, Grand Gulf 1 and 2, and to sell
power from those plants to the operating companies.

   1. In June 1985, FERC approved wholesale rates for the power from
Grand Fulf 1 and allocated its capacity costs and energy among the
four operating companies.  Middle South Energy, Inc., 31 F.E.R.C.
Paragraph 61,305, on reh'g, 32 F.E.R.C. Paragraph 61,425, aff'd,
Mississippi Industries v. FERC, 808 F.2d 1525 (D.C. Cir. 1987).  FERC
concluded that the operating companies should share in the system's
total investment in nuclear capacity (four units, including Grand Gulf
1) "roughly in proportion to each company's share of system demand"
(id. at 61,655-61,656).  /4/ FERC ordered the following allocation of
Grand Gulf 1 costs:  AP&L, 36 percent;  LP&L, 14 percent;  MP&L, 33
percent;  and NOPSI, 17 percent (ibid.).  /5/ MSE has accordingly
billed NOPSI for 17 percent of the costs ($15.5 million per month)
since Grand Gulf 1 went into service on July 1, 1985 (Pet. App. A2).

   The City Council of New Orleans regulates NOPSI's retail rates.  On
May 17, 1985, NOPSI applied for a retail rate increase to reflect the
Grand Gulf 1 costs that it would be required to pay under the FERC
allocation (Pet. App. A37).  On May 23, 1985, the Council established
minimum standard filing requirements for rate applications and
notified NOPSI that it must comply with these requirements (Resol.
R-85-296).  By letter dated June 6, 1985, NOPSI sought a waiver of the
new filing requirements, which the Council denied on June 27, 1985
(Resol. R-85-373).  At that time, the Council stated that it could not
give consideration to NOPSI's rate relief request absent the
information required by the new application requirements and invited
NOPSI to make a more narrow waiver request.  NOPSI made such a
request, by letter dated July 5, 1985, which the Council denied on
July 25, 1985 (Resol. M-85-326).

   On July 17, 1985, the Council acted on NOPSI's request (dated June
5, 1985) that the Council authorize the sale of securities in the
aggregate principal amount of up to $100 million (Resol. R-85-346A).
The Council authorized NOPSI to issue and sell securities in the
aggregate principal amount of up to $60 million, but it imposed
several conditions, including that (1) NOPSI must make every
reasonable effort to recover from MSE the $32 million NOPSI had
advanced to MSE for Grand Gulf 1 to the extent that the amount
reflects more than 17 percent of the costs of the plant, and (2) the
proceeds from the issuance and sale of securities may not go to pay
any obligations arising out of Grand Gulf 1.  On that same day, the
Council also announced a public hearing, to be held on July 25, 1985,
to consider whether interim rate relief for NOPSI was warranted
(Resol. R-85-423).  The Council stated that the issue of interim rate
relief needed to be addressed because "various factors, including
questions as to the legality and prudency of the (contracts relating
to Grand Gulf 1), the prudency and reasonablesness of said expenses,
and lack of information on certain relevant matters, prevent the
Council from either denying or granting the requested rate relief at
the present time" (ibid.).

   2. On August 2, 1985, NOPSI filed a complaint in federal district
court seeking declaratory and injunctive relief, and money damages.
NOPSI asked the court, inter alia, to issue preliminary and (later)
permanent injunctions enjoining the Council from denying NOPSI
recovery through the retail rates filed by NOPSI of its FERC-allocated
share of the expenses of Grand Gulf 1, which NOPSI was required to pay
on a monthly basis beginning July 1985.  On August 12, 1985, the
district court denied NOPSI's motion for a preliminary injunction
without prejudice (Pet. App. A38).  The court also directed (ibid.)
the Council to take action by September 5, 1985, on a request to be
filed by NOPSI for interim rate relief;  NOPSI filed such a request on
August 19, 1985, asking, inter alia, for an emergency increase in
electric rates of approximately $168 million per year (reflecting full
recovery of NOPSI's Grand Gulf 1 related expenses).

   The Council denied the requested rate increase on September 5, 1985
(Resol. R-85-526).  The Council instead froze NOPSI's rates, including
its fuel adjustment level, and lifted some of the restrictions imposed
by the Council in July 1985 on NOPSI's issuance of securities (id. at
4-14).  According to the Council, the rate freeze would save NOPSI
approximately $28.3 million over a 10-month period because the lower
fuel costs of Grand Gulf 1 would, absent the freeze, have required a
rate decrease (id. at 13).  Finally, the Council stated that "(i)f the
amount of permanent rate relief ultimately allowed is greater than the
amount collected through the interim rates, (NOPSI) shall be allowed
to recover those additional amounts, with interest, in the future"
(id. at 12).  The Council based its conclusion that this interim
relief would be adequate to maintain NOPSI's solvency largely on its
assumptions that NOPSI would omit dividend payments on common stock to
MSU and would be repaid the excess payments it had made to MSE with
respect to Grand Gulf 1, and that the Securities and Exchange
Commission would allow NOPSI to issue $35 million in securities (id.
at 3, 7, 9).  The Council stated that NOPSI could submit a
supplemental application for emergency relief if the SEC did not
approve the sale of securities (id. at 9).  /6/

   On September 16, 1985, the district court granted the Council's
motion to dismiss (Pet. App. A35-A50).  The court held that dismissal
was appropriate both under the Johnson Act, 28 U.S.C. 1342, and under
Burford.  The court specifically rejected NOPSI's claim that "its
insolvency is imminent due to the Council's refusal to grant
sufficient emergency interim rate relief" (Pet. App. A46).  According
to the court, "the September 5th (City Council) resolution reveals
that the Council is determined to assist NOPSI in maintaining a
positive cash position by pursuing a number of feasible alternatives"
(ibid.).  Finally, the court stated that Burford abstention was
appropriate because NOPSI's rate increase is a "matter() which
generate(s) local concern and demand(s) local administrative
expertise" and "the actions of the Council address only retail,
intrastate rates, and such actions have not directly conflicted with
FERC's order" (id. at A48-A49).  /7/

   3.  On February 14, 1986, the court of appeals reversed (Pet. App.
A1-A13).  The court first concluded that the Johnson Act did not apply
because petitioners' request for injunctive relief rested on a
"statutorily-based preemption claim" and therefore did not rest solely
on the "'repugnance of the order to the Federal Constitution,'" within
the meaning of the Johnson Act (id. at A12 (quoting 28 U.S.C. 1342)).
The court similarly concluded that Burford abstention was
inappropriate where, as in this case, "the claim is predicated on
federal preemption" (Pet. App. A13).

   4. On March 20, 1986, the Council and NOPSI entered into a
settlement agreement with respect to the treatment of Grand Gulf 1
costs (Resol. R-86-112).  The agreement set out in detail the amounts
by which NOPSI could increase its rate base annually until the costs
of Grand Gulf 1 were fully recovered.  Pursuant to the agreement,
NOPSI also agreed permanently to absorb $51.2 million of the costs.
Both sides purported to reserve all their legal rights, including the
Council's right to continue to investigate prudence (see note 7,
supra) and the possibility of municipalization, /8/ and both NOPSI's
and the Council's right to continue to seek judicial review of FERC's
allocation order (id. at 11-13).

   5. On June 10, 1986, the court of appeals notified the parties that
it was reconsidering (on its own motion) its ruling on the abstention
issue and requested briefs from the parties.  On September 2, 1986,
the court of appeals reversed itself on the abstention issue (Pet.
App. A14-A24).  The court concluded that Burford abstention was
appropriate because "the regulation and adjustment of local utility
rates is of paramount local concern and a matter which demands local
administrative expertise" (id. at A19).  The court also held that
Younger abstention was appropriate because there was an on-going
administrative proceeding before the Council:  "NOPSI would have a
full and fair opportunity to litigate its federal claim" through the
state appellate process, and there were no exceptional circumstances,
such as bad faith or harassment, present that rendered abstention
improper (id. at A21-A24).  Finally, the court noted that because "the
Council at the time NOPSI sought injunctive relief from the district
court had not yet taken any definitive action on NOPSI's May 17, 1985
rate increase application," NOPSI's claims should receive "special
skepticism" (id. at A24 n.3).

                              DISCUSSION

   The petitions in AEP (No. 86-49) and NOPSI (No. 86-546) both raise
an important question concerning the application of Burford and
Younger abstention to a claim that the Federal Power Act bars a state
public utility commission from refusing to honor a utility's power
costs, under agreements filed with FERC, in setting that utility's
retail rates.  The decisions of the Sixth Circuit in AEP and the Fifth
Circuit in NOPSI, which upheld dismissals of complaints on abstention
grounds, conflict with decisions of other courts of appeals, and we
believe they are incorrect.  To provide a neutral federal
administrative forum to resolve the often conflicting interests of
different states, Congress gave FERC exclusive jurisdiction over the
terms of sale of power at wholesale in interstate commerce, including
the terms of agreements allocating particular power among members of
an interstate utility system.  A state may not exercise its
jurisdiction over retail sales to prevent a utility from recovering
power costs incurred pursuant to such a FERC-filed agreement.  See
Nantahala Power & Light v. Thornburg, No. 85-568 (June 17, 1986), slip
op. 18-19.  Where, as in AEP and NOPSI, the federal plaintiff claims
that a state public utility commission order improperly "traps" such
costs, abstention is not appropriate under either Burford v. Sun Oil
Co., 319 U.S. 315 (1943) or Younger v. Harris, 401 U.S. 37 (1971).
The independent interest of any single state in such an inherently
interstate controversy is not sufficient to justify denying the
federal plaintiff the choice of a federal judicial forum.

   We do not urge the Court to grant review in AEP to consider the
abstention question.  The peculiar circumstances of AEP, including the
existence of a final decision in a parallel state court proceeding,
diminish its attractiveness as a vehicle for this Court to address the
abstention question.  We urge the Court to grant review instead in
NOPSI, which raises the same general legal issue in a more appropriate
procedural setting, and to hold AEP for possible further consideration
in light of the decision in NOPSI.

   1. The decisions of the Sixth Circuit in AEP and of the Fifth
Circuit in NOPSI are incorrect.  Each court affirmed the district
court's dismissal of the complaint on abstention grounds.  The Sixth
Circuit apparently relied only on Younger abstention, /9/ while the
Fifth Circuit relied on both Burford and Younger abstention.  We do
not believe that either Burford or Younger abstention was proper in
either case.

   a. Burford abstention is appropriate when a federal court is
presented with "complex issues of state law, resolution of which would
be 'disruptive of state efforts to establish a coherent policy with
respect to a matter of substantial public concern.'" Zablocki v.
Redhail, 434 U.S. 374, 380 n.5 (1978) (quoting Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 814 (1976);  see
McNeese v. Board of Education, 373 U.S. 668, 673 (1963);  Kaiser Steel
Corp. v. W.S. Ranch Co., 391 U.S. 593, 593-594 (1968) (per curiam);
Alabama Public Service Comm'n v. Southern Ry., 341 U.S. 341, 347
(1951);  Hastings v. Selby Oil, 319 U.S. 348 (1943).  Thus, this Court
concluded in Burford that it would be best to "leave these problems of
(state) law to the state court" because of the great harm to state
policies that might result from federal court misinterpretation of
state law concerning the development, production, and conservation of
in-state oil and gas resources (319 U.S. at 332;  see id. at 327,
329-330, 331 & n.28, 333).

   No such state law or state policy concerns are present in either
AEP or NOPSI.  The basic issue in both cases is the scope of federal
law and federal policy.  There has been a congressional determination
that terms for the allocation of power and costs among members of a
multi-state public utility holding company should be conclusively
resolved by a neutral federal administrative forum (FERC) in
accordance with federal law.  The question whether a particular FERC
allocation must be honored by a state utility commission in a
particular context is itself a federal question.  Any disruption of
state law or policy resulting from a FERC allocation or from a
decision that a state is required to honor it would be a deliberate
result of the congressional scheme, and therefore Burford abstention
is inappropriate.  Cf. Zablocki v. Redhail, 434 U.S. at 379-380 n.5
("there is of course no doctrine requiring abstention merely because
resolution of a federal question may result in the overturning of a
state policy");  England v. Louisiana Board of Medical Examiners, 375
U.S. 411, 415-416 (1964) ("recognition of the role of state courts as
the final expositors of state law implies no disregard for the primacy
of the federal judiciary in deciding questions of federal law");
Silverman v. Barry, 727 F.2d 1121, 1123-1124 n.4 (D.C. Cir. 1984).

   b. Younger abstention is also inappropriate.  The most "vital
consideration" prompting Younger abstention is the "notion of comity,
that is * * * the belief that the National Government will fare best
if the States and their institutions are left free to perform their
separate functions in their separate ways" (401 U.S. at 44).  See Ohio
Civil Rights Comm'n v. Dayton Christian Schools, No. 85-488 (June 27,
1986), slip op. 6;  Middlesex County Ethics Comm. v. Garden State Bar
Ass'n, 457 U.S. 423, 431 (1982);  Trainor v. Hernandez, 431 U.S. 434,
441 (1977);  Juidice v. Vail, 430 U.S. 327, 334 (1977);  Huffman v.
Pursue, Ltd., 420 U.S. 592, 601 (1975).  The notion of comity loses
much of its force, however, where, as in both AEP and NOPSI, the
interests of several states are at odds because of their participation
in a multistate "common pool," in which a decision by the institutions
of any one state in favor of its citizens has or is at least likely to
have a corresponding direct adverse effect on citizens of the other
participating states.  See Mississippi Industries v. FERC, 808 F.2d at
1548-1549;  Appalachian Power Co. v. Public Service Comm'n, No.
86-2540 (4th Cir. Mar. 4, 1987), slip op. 15-17;  Middle South Energy,
Inc. v. Arkansas Public Service Comm'n, 772 F.2d 404, 416-417 (8th
Cir. 1985);  see generally, Hardin, The Tragedy of the Commons, 162
Science 1243 (1968).  /10/ Unlike the federal claims at issue in
Younger and its progeny, the claims in such inherently interstate
disputes are not readily susceptible to resolution by leaving states
"free to perform their separate functions in their separate ways."

   We do not mean to suggest that merely because the issue is federal
preemption, abstention is always inappropriate;  state tribunals are
of course generally obliged to evaluate claims that federal law has
preemptive effect.  But Congress gave FERC exclusive jurisdiction to
regulate interstate wholesale rates precisely because such matters
involve inherent conflicts between the interests of different states
and localities.  Under those circumstances, the considerations
underlying Younger abstention, particularly the notion of comity, do
not have substantial force.  Plaintiffs in such inherently interstate
disputes, such as the petitioners in AEP and NOPSI, should not be
deprived of their choice of a federal judicial forum to hear their
federal preemption claim.  Cf. Western Air Lines v. Board of
Equalization, No. 85-732 (Feb. 24, 1987), slip op. 6 ("The general
principle that * * * the meaning of words in a federal statute is a
question of federal law has especial force when the purpose of the
federal statute is to eliminate discriminatory state treatment.");
Hagans v. Lavine, 415 U.S. 528, 530 (1974) (quoting United Mine
Workers v. Gibbs, 383 U.S. 715, 729 (1966) ("'the federal courts are
particularly appropriate bodies for the application of preemption
principles'").  /11/

   2. Review of the abstention issue is warranted because the issue is
important and there is a conflict in the circuits concerning whether
abstention is required in these circumstances.

   a. To date, five courts of appeals have addressed the issue whether
abstention is warranted in the context of a federal preemption claim
based on the "filed rate doctrine." The decisions reflect widely
differing views.  The Sixth and Fifth Circuits agree that Younger
abstention is appropriate (see 86-49 Pet. App. 6a-7a;  86-546 Pet.
App. A21-A24), although apparently only the Fifth Circuit believes
that Burford abstention is generally appropriate (86-546 Pet. App.
A19;  see note 9, supra).  The third and Eighth Circuits have rejected
both Burford and Younger abstention in the context of preemption
claims similar to those raised in AEP and in NOPSI.  See Kentucky West
Virginia Gas Co. v. Pennsylvania Public Utility Comm'n, 791 F.2d 1111
(3d Cir. 1986);  Middle South Energy, Inc. v. Arkansas Public Service
Comm'n, 772 F.2d 404 (8th Cir. 1985), cert. denied, No. 85-895 (Jan.
27, 1986).  Indeed, the preemption claim in Middle South Energy, Inc.,
like the preemption claim in NOPSI, arose out of FERC's allocation of
the costs of the Grand Gulf 1 nuclear power facility;  it involved the
efforts of a state public service commission to shield the citizens of
Arkansas from absorbing AP&L's FERC-allocated share of those costs.
The Eighth Circuit in Middle South Energy, Inc., unlike the Fifth
Circuit in NOPSI, however, held that neither Burford and Younger
abstention was required because the plaintiffs were claiming that
federal law preempted the ongoing state proceeding itself (772 F.2d at
417).  /12/

   Finally, two Fourth Circuit decisions, both also involving the
abstention issue raised in the context of a preemption claim based on
the filed rate doctrine, further illustrate the scope of the current
circuit conflict.  In Aluminum Co. of America v. Utilities Comm'n, 713
F.2d 1024, 1030 (1983), cert. denied, 465 U.S. 1052 (1984), the Fourth
Circuit upheld abstention on Burford grounds after concluding that
evaluation of plaintiff's claim -- that the state commission's
establishment of retail, intrastate rates conflicted with
FERC-approved wholesale interstate rates -- would require detailed
factual inquiry.  The court of appeals suggested, however, that
abstention would not be appropriate in a case where the conflict
between state and federal law was direct and clear (ibid.).
Presumably based upon that caveat, the Fourth Circuit more recently
affirmed a district court's denial of both Younger and Burford
abstention in the context of a preemption claim more akin to that
present in NOPSI and AEP.  See Appalachian Power Co. v. Public Service
Comm'n, 614 F.Supp. 64 (S.D. W.Va.), aff'd, 770 F.2d 159 (4th Cir.
1985), on remand, 630 F.Supp. 656 (S.D. W.Va. 1986), aff'd, No.
86-2540 (Mar. 4, 1987).  In Appalachian Power, the utility had
challenged the state public service commission's refusal to authorize
the recovery of costs reflected in the same Transmission Agreement at
issue in AEP until the utility submitted the Agreement to the
commission for its study and ultimately its approval.  /13/

   b.  We also share petitioners' view that the abstention issue is
important.  The plethora of lower court decisions involving the same
abstention issue -- and sometimes even involving overlapping factual
circumstances as in NOPSI and Middle South Energy, Inc., and as in AEP
and Appalachian Power Co. -- is not mere happenstance.  During the
last several decades utilities in neighboring states have
increeasingly affiliated and entered into joint financing and power
sharing arrangements to construct the more massive power production
facilities necessary to meet predicted increases in energy demand.
Construction cost overruns, sometimes of catastrophic dimensions, and
lower than predicted energy demand, however, have severely strained
those arrangements and produced the interstate disputes reflected in
these cases.  The establishment of a fair and expeditious mechanism
for the resolution of these disputes, including a more settled
understanding of when federal court intervention should be permitted,
is plainly important and would be furthered by this Court's review.

   Resolution of the abstention issue is, moreover, especially
important to a fair resolution of these interstate disputes.  As NOPSI
illustrates, a utility's liability for wholesale costs may be
immediate and ongoing, and a delay in passing those costs through in
retail rates will often have consequences that are irreparable;  apart
from immediate cash flow problems and uncertainties that may threaten
bankruptcy, impede securities offerings, and force compromise
settlements (see page 15, supra), it is neither feasible nor lawful in
most jurisdictions (including Louisiana, see note 17, infra) to charge
"catch-up" retail rates once a retail increase is finally permitted.
Delay in the decisionmaking process therefore often permanently traps
costs borne by the utility.  Hence, federal policy may be frustrated
by lengthy state proceedings.  Because abstention may contribute to
this result by adding to the delay, the issue whether the policy
concerns underlying either Burford or Younger require abstention in
these circumstances is particularly significant.

   3. Whether this Court should grant review in AEP, in NOPSI, in
both, or in neither, is a more difficult question.  Both AEP and NOPSI
present the abstention issue that we believe warrants this Court's
review, but in both cases (particularly AEP) the issue is blemished by
procedural problems.  On balance, we are persuaded that the Court
should grant review in NOPSI, which better presents the issue.  The
petition in AEP should not be denied, but should be held pending
disposition of NOPSI.  Similar problems are likely to encumber future
candidates for this Court's review in this area and the abstention
issue is sufficiently concrete in NOPSI, and too important, to let
slip this opportunity for review.

   a. AEP is not an attractive candidate for review for two principal
reasons.  First, the preemption issue was not sharply delineated
either when the petitioners brought the case in the first instance or
when the lower courts ruled on abstention.  FERC only more recently
clarified its views concerning the proper role of the Kentucky
Commission in reviewing the Interconnection Agreement and the Unit
Power Sales Agreement and FERC only recently interpreted for itself
the relevant provisions of the two Agreements.  See AEPGCo, 38
F.E.R.C. Paragraph 61,243 (1987);  Kentucky Power Co., 37 F.E.R.C.
Paragraph 63,015 (1986);  Kentucky Power Co., 36 F.E.R.C. Paragraph
61,227 (1986);  (KPSC Br. in Opp. App. 7a-20a);  AEPGCo, 36 F.E.R.C.
Paragraph 61,226 (1986) (KPSC Br. in Opp. App. 21a-27a);  pages 7-9,
supra.  The conflict between the Kentucky Commission's order and
FERC's authority therefore was not clear when the lower courts decided
to abstain, which, at the very least, diminishes the conflict the case
presents with those court of appeals decisions that reject abstention
in the face of a direct, facial conflict between state regulatory
action and federal law.  /14/

   In addition, the Court's opportunity to reach the abstention issue
in AEP is threatened because Kentucky Power also initiated a parallel
state judicial proceeding that has since resulted in a judgment (see
KPSC Br. in Opp. App. 1a-6a).  As a result, the abstention issue is
now further obscured in AEP by respondents' claim that res judicata
now precludes federal court reconsideration of the preemption claims.
Whatever the merits of respondents' reliance on res judicata, it is a
"difficult" issue to avoid (see Huffman v. Pursue, Ltd., 420 U.S. at
607-608 & n.19), /15/ and we are reluctant to recommend that this
Court grant review when we cannot be confident that the Court will
have the opportunity to address the important issue whether abstention
is required.  /16/

   b. Although NOPSI is not wholly free from procedural problems, we
believe the Court should grant review in NOPSI because the abstention
issue is sufficiently concrete and the circumstances of the case
illustrate particularly well the competing policy concerns present in
these abstention cases.

   No parallel state court proceeding obscures the abstention issue in
NOPSI and the underlying federal preemption claim is clear.  In NOPSI,
unlike AEP, the utility's request for rate relief derived from a final
FERC decision:  FERC had issued its final allocation determination
with respect to a fair allocation of the costs of Grand Gulf 1.  See
Middle South Energy, Inc., 31 F.E.R.C. Paragraph 61,305, on reh'g, 32
F.E.R.C. Paragraph 61,425 (1985), aff'd, Mississippi Industries Inc.
v. FERC, 808 F.2d 1525 (D.C. Cir. 1987).  NOPSI's claim under federal
law therefore was clear from the outset:  the New Orleans City Council
was obliged to respect FERC's determination of NOPSI's share of the
costs of Grand Gulf 1, and to authorize retail rates that would
prevent "trapping of (those) costs" (Nantahala Power & Light Co. v.
Thornburg, slip op. 17).  See Narragansett Electric Co. v. Burke, 119
R.I. 559, 381 A.2d 1358 (1977), cert. denied, 435 U.S. 972 (1978).

   The record in NOPSI suggests that the City Council nonetheless
resisted its obligation to treat FERC-allocated expenses as reasonable
operating costs and instead launched an inquiry into the "legality and
prudency" of the Grand Gulf 1 contracts that it had no authority to
conduct.  Instead of allowing NOPSI an immediate pass-through of its
costs, it provided NOPSI with "interim relief" which, at best, kept
NOPSI solvent from a cash standpoint and, at worst, threatened NOPSI
with bankruptcy.  The Council invited NOPSI to remain solvent by
issuing securities but also undermined that option by preventing NOPSI
from immediately recovering substantial costs (see pages 12-13 & note
6, supra).  The City Council's decision effectively denied NOPSI full
recovery of its share of the Grand Gulf 1 costs -- approximately $15.5
million per month -- for at least 10 months, pending the Council's
investigation, contrary to Nantahala's prohibition on the "trapping"
of FERC approved costs.  /17/

   The district court abstained in the face of NOPSI's preemption
challenge to the City Council's actions, including its denial of full
recovery at least during a 10 month investigation.  In our view, on
the facts alleged, the Council's action clearly conflicted with the
filed rate doctrine and, hence, for the reasons previously discussed
(see pages 17-19, supra), Burford or Younger abstention was improper.
As reflected in the Council's original explanation for denying
pass-through in July 1985 (see Resol. R-85-423 (July 17, 1985)) and
again in August 1985 (see Resol. R-85-466 (Aug. 8, 1985), and in its
subsequent formal announcement of a lengthy prudence investigation in
October 1985 (see Resol. R-85-636 (Oct. 17, 1985)), the Council's
stated purpose was to investigate whether NOPSI acted prudently in
incurring its allocated share of the Grand Gulf 1 expenses.  But that
was a matter within FERC's exclusive jurisdiction, /18/ and, indeed,
the City Council had participated in the determination both before
FERC and in the District of Columbia Circuit on review of the FERC
decision.  For this reason, the City Council could not legitimately
deny NOPSI's request for recovery of its FERC allocated costs while
the Council undertook a 10 month prudence investigation.  Cf. Public
Utilities Comm'n v. United Fuel Gas Co., 317 U.S. 456, 468 (1943)).

   Respondents now claim (86-546 Br. in Opp. 10-13) for the first time
in this Court that a partial settlement entered into by the parties in
March 1986, almost six months before the decision of the court of
appeals, renders the case moot.  We disagree.  NOPSI's complaint
challenged the City Council's authority to deny pass-through of
NOPSI's Grand Gulf 1 costs, which necessarily included a challenge to
the Council's authority to deny recovery on prudence grounds, and
under the partial settlement the Council expressly reserved the right
to decrease NOPSI's recovery based on the results of the Council's
prudence investigation.  That prudence investigation is still underway
and therefore the issue of its lawfulness under federal law, including
whether the Council may further decrease NOPSI's recovery on prudence
grounds, /19/ is very much a live controversy.  Hence, the abstention
issue presented in NOPSI is not moot.  /20/

                              CONCLUSION

   The petition for a writ of certiorari in NOPSI, No. 86-546, should
be granted and the petition in AEP, No. 86-49, should be held pending
this Court's decision in NOPSI.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   LOUIS R. COHEN

      Deputy Solicitor General

   RICHARD J. LAZARUS

      Assistant to the Solicitor General

   CATHERINE C. COOK

      General Counsel

   JEROME M. FEIT

      Solicitor

   JOHN N. ESTES III

      Attorney Federal Energy Regulatory Commission

   MARCH 1987

   /1/ That memorandum was served upon all parties in both cases.

   /2/ In its October 1984 order, FERC had stated that there was "no
overlap or conflict" between the KPSC's "jurisdiction to consider the
appropriateness of KEPCO's acquisition of new facilities (or) power
supply alternatives that might be available to KEPCO," and FERC's
"independent responsibility to evaluate the reasonableness of the
proposed wholesale agreements" (29 F.E.R.C. at 61,003).  In November
1984, FERC clarified its October order by stressing that FERC could
consider the prudence of KEPCO entering into the Unit Power Sales
Agreement in the context of a proceeding concerning KEPCO's wholesale
rates, but would not do so in this proceeding, which was confined to
the narrow issue of the justness and reasonableness of this particular
agreement.  AEPGCo, 29 F.E.R.C. Paragraph 61,246, at 61,501.

   /3/ On October 22, 1986, FERC approved a settlement of all issues
relating to the Unit Power Sales Agreement, except for jurisdictional
issues.  AEPGCo, 37 F.E.R.C. Paragraph 61,044.

   /4/ FERC's ruling rested on two factual findings.  First, FERC
found that "the Middle South companies constitute a highly coordinated
integrated electric system," which historically had "roughly
equalized" generating costs among the four operating companies (31
F.E.R.C. at 61,645, 61,654).  Second, FERC found that Grand Gulf 1 was
part of a reasonable system plan to diversify the fuel base by
developing nuclear power to meet anticipated growth in demand (id. at
61,651-61,653, 61,656).

   /5/ The fixed costs associated with Grand Gulf 1 are substantially
higher per kilowatt than the costs of other power generated by the MSU
system (with the exception of one other new nuclear unit).  In
Mississippi Industries, the District of Columbia Circuit considered
and rejected contentions by entities representing each of the four
service areas that FERC had allocated too large a share to its
utility.  In addition, the right of each of the four utilities to pass
through its share of the FERC allocated costs to its retail ratepayers
has been challenged in state proceedings.  In addition to the two
proceedings giving rise to No. 86-546 (NOPSI), see Mississippi v.
Mississippi Public Service Comm'n, No. 56,762 (Miss. Sup. Ct. Feb. 25,
1987) (MP&L) (86-546 Pet. Second Supp. Br. App. 1a-27a);  Middle South
Energy, Inc. v. Arkansas Public Service Comm'n, 772 F.2d 404 (8th Cir.
1985), cert. denied, No. 85-895 (Jan. 27, 1986) (AP&L);  Louisiana
Power & Light Co. v. Louisiana Public Service Comm'n, No. 292,026
(19th Jud. Dist., Parish of East Baton Rouge, La., Oct. 9, 1985)
(LP&L).

   /6/ On August 5, 1985, the Securities and Exchange Commission had
reduced by more than one half the value of a securities issue proposed
by NOPSI on the ground that:

      NOPSI's financial resources continue to be severely limited and
      its liquidity and financial condition impaired.  * * * There can
      be no assurance that retail rate relief (for Grand Gulf 1) will
      be granted on an adequate basis.  The timing of rate relief is
      becoming increasingly important since (Grand Gulf 1) went into
      commercial operation on July 1, 1985.  In addition, NOPSI's
      deteriorating financial position has led to the downgrading of
      its first mortgage bonds and preferred stock by a national
      securities rating agency to a speculative grade.

   New Orleans Public Service Inc.; Middle South Utilities Inc.;
Proposal To Issue and Sell First Mortgage Bonds and Preferred Stock;
Exception from Competitive Bidding, 50 Fed. Reg. 32669 (1985).

   /7/ On October 10, 1985, the City Council granted NOPSI's request
for reconsideration of the Council's interim relief order in a few
limited respects and denied the request in all other respects (Resol.
R-85-635).  In support of its denial, the Council mentioned that its
own prudence review and its challenge to FERC's determination (in the
United States Court of Appeals for the District of Columbia Circuit)
might decrease NOPSI's recovery (id. at 3).  On October 11th, NOPSI
filed its completed rate relief application forms consistent with the
Council's new filing requirements.  On October 17th, the Council
announced that it would conduct a prudence investigation into NOPSI
expenditures on Grand Gulf 1 and requested that NOPSI answer a lengthy
series of questions posed by the Council concerning prudence (Resol.
R-85-636).  In describing the investigation, the Council stated that
it would consider NOPSI's assessment of its need for Grand Gulf 1's
capacity, its consideration of generation alternatives, its failure to
diversify its fuel sources, and the extent to which its decisions were
controlled by outside interests.  The Council also maintained that it
"(would) not seek to invalidate any of the agreements surrounding
Grand Gulf 1 or to order NOPSI to pay MSE a rate other than that
approved by the FERC" (id. at 4).  On November 11, 1985, NOPSI filed a
second lawsuit in federal district court in which it sought to enjoin
the City Council's prudence investigation.  NOPSI subsequently amended
the complaint to seek an injunction or a declaratory judgment only to
the extent that the Council takes any action to require NOPSI or its
shareholders to absorb all or a portion of the cost of Grand Gulf 1
allocated to NOPSI by FERC.  On December 18, 1986, the district court
dismissed the complaint.  Middle South Energy v. The Council of New
Orleans, No. 85-5273 (E.D. La. Dec. 18, 1986) (Pet. Supp. Br. App.
B1-B9).  The court ruled, first, that NOPSI's claims were not ripe
because "it is not clear whether the Council intends to proceed in a
manner contrary to (this Court's decision in) Nantahala" (Pet. Supp.
Br. App. B6).  The court stressed that "there is little or no hardship
to NOPSI in postponing review" (ibid.).  The court next ruled, in the
alternative, that both Younger and Burford abstention were appropriate
(id. at B6-B8).

   /8/ The Council had also been considering a municipal takeover of
NOPSI as a means of avoiding Grand Gulf 1 costs.  See NOPSI v. City of
New Orleans, 800 F.2d 488 (5th Cir. 1986).

   /9/ Although the court's per curiam opinion held that Younger
abstention was required and Burford abstention was not required (86-49
Pet. App. 1a-6a), two judges of the three-judge panel stated in
separate concurring opinions that Burford abstention was required (id.
at 7a-12a).

   /10/ The common pool may consist of shared benefits, such as the
low-cost power available to the utilities under the Interconnection
Agreement in AEP, or of shared burdens, such as the investment costs
associated with the "catastrophically uneconomical" Grand Gulf 1
nuclear power plant in NOPSI (Mississippi Industries v. FERC, 808 F.2d
at 1528 (86-546 Pet. Supp. Br. 7)).

   /11/ Younger abstention is also inappropriate in NOPSI because the
ongoing proceedings before the City Council are not (at least not
entirely) "'judicial in nature' from the outset." Ohio Civil Rights
Comm'n v. Dayton Christian Schools, slip op. 7 (emphasis added)
(quoting Middlesex County Ethics Comm. v. Garden State Bar Ass'n, 457
U.S. at 433-434);  see Hawaii Housing Authority v. Midkiff, 467 U.S.
229, 237-239 (1984).  The City Council is a popularly elected
legislative body.  When setting rates, its proceedings are not
judicial;  they are "essentially a legislative function." Colorado
Interstate Gas Co. v. FPC, 324 U.S. 581, 589 (1945);  see also Permian
Basin Area Rate Cases, 390 U.S. 747, 776 (1968).  Moreover, the
Council is also, inter alia, evaluating possible condemnation of
NOPSI.  See note 8, supra.  It may not be appropriate to presume that
in this multistate dispute, the Council can provide the unbiased state
decisionmaking forum upon which Younger absention is predicated.  Cf.
Gibson v. Berryhill, 411 U.S. 564, 577 (1973).

   /12/ In Kentucky West Virginia Gas Co. v. Pennsylvania Public
Utility Comm'n, supra, the Third Circuit considered a public utility's
claim that the federal Natural Gas Act, 15 U.S.C. 717 et seq. and the
Natural Gas Policy Act of 1978, 15 U.S.C. 3301 et seq., preempted the
state public service commission's authority to refuse the utility's
request to pass through increased costs reflected in interstate
tariffs filed with and approved by FERC.  The court declined Burford
abstention on the ground that the preemption claim did not present an
essentially local issue (791 F.2d at 1116), and rejected Younger
abstention largely because the ongoing state proceeding implicated
important federal interests as well as state interests (id. at
1116-1117).

   /13/ Although respondents in AEP do not deny the existence of a
conflict in the circuits, respondents in NOPSI argue (86-546 Br. in
Opp. 22-24) that the differing court of appeals decisions simply
reflect the different circumstances of each case and the
appropriateness of case-by-case review.  We share respondents' view
that there is, of course, no per se rule against abstention in a
federal preemption case.  See, e.g., Lake Carriers' Ass'n v.
MacMullan, 406 U.S. 498, 511-512 (1972).  We also agree that the
propriety of abstention depends on the nature of the particular
preemption claim at issue.  In our view, however, the various court of
appeals decisions amply reveal a clear circuit conflict on the
important issue whether abstention is appropriate in the context of a
preemption claim based on the filed rate doctrine.  In addition,
petitioners cannot avoid the conflict by claiming that those cases "in
which the court refused to abstain * * * involved a direct, facial
conflict" (86-546 Br. in Opp. 23 n.29) because both AEP and NOPSI
include such facial challenges (see pages 24, 25-27 & note 14, infra),
yet the Sixth and Fifth Circuits directed abstention.

   /14/ Petitioners in AEP may suggest that, apart from their
preemption claim in connection with the Unit Power Sales Agreement,
the Transmission Agreement filed with FERC also gave them rights
(unobscured by the problems discussed in the text) that were violated
by the Kentucky Commission's order.  However, even if shifting the
focus to the Transmission Agreement, which was barely discussed by the
court of appeals (see 86-49 Pet. App. 2a n.1), provides a firmer
preemption argument, it does not avoid our other principal concern
with AEP -- the effect of the parallel state proceeding -- and, hence,
does not affect our judgment that this Court should simply hold AEP
pending review of NOPSI.

   /15/ Whether petitioners may rely on Kentucky Power's apparent
effort to reserve the federal issues from state court consideration
pursuant to this Court's decision in England v. Louisiana State Bd. of
Medical Examiners, 375 U.S. 411 (1964) is not clear.  This Court
established the England procedure in the context of Pullman
abstention, in which, unlike either Burford or Younger abstention, the
federal lawsuit is stayed and is not dismissed.  See id. at 415 n.5;
17 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure
Section 4245, at 490-491 (2d ed. 1978).

   /16/ The initiation of the parallel state judicial proceeding by
Kentucky Power, while understandable, also injects comity
considerations into AEP not present in NOPSI (see Moses H. Cone
Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983);
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800
(1976)).

   /17/ While the Council formally stated that "(i)f the amount of
permanent rate relief ultimately allowed is greater than amount
collected through the interim rates, (NOPSI) shall be allowed to
recover those additional amounts, with interest, in the future"
(Resol. R-85-526, at 12 (Sept. 5, 1985)), that promise would appear to
be an empty one because the City Council appears not to have authority
to make that guarantee.  The Louisiana Supreme Court in 1979 rejected
a utility's effort to recover for past expenses on the ground that
such retroactive cost recovery was unlawful in Louisiana because it
had not been expressly authorized by statute or by the state
constitution.  See Louisiana Power & Light Co. v. Louisiana Public
Service Comm'n, 377 So. 2d 1023, 1027-1029 (La. 1979).  The Council
also denied NOPSI's request for assurances that the costs would be
recovered in future rates;  NOPSI apparently needed those assurances
to avoid treating the cost deferrals as "losses" under generally
accepted accounting principles.  See Resol. R-85-635 (Oct. 10, 1985).
One stated ground for the Council's negative determination was the
possibility that the Council might later conclude that recovery was
inappropriate because the costs had been imprudently incurred (id. at
3).

   /18/ FERC specifically found that all decisions regarding the
planning and construction of Grand Gulf 1 were made by the Middle
South System as a whole and that the individual operating companies,
such as NOPSI, had no "autonomy" in the planning and construction
process (31 F.E.R.C. at 61,649-61,651).  FERC's finding precludes any
investigation by the City Council into the prudency of NOPSI's
participation.  The Council's sole remedy was to seek review of FERC's
decision before the United States Court of Appeals for the District of
Columbia Circuit, which recently upheld FERC's decision in a case to
which the City of New Orleans was a party.  See Mississippi Industries
v. FERC, 808 F.2d 1525, (D.C. Cir. 1987).

   /19/ Under the partial settlement NIPSI has already agreed to
absorb $51.2 million of the costs of Grand Gulf 1 (see Resol. R-86-112
(Mar. 20, 1986)).  Thus, to a certain extent, the City Council has
already achieved the "trapping of costs" prohibited by this Court's
decision in Nantahala.

   /20/ That the prudence investigation was formally initiated after
the complaint was filed and is the subject of a second complaint filed
by NOPSI, recently dismissed by the district court on ripeness and on
both Younger and Burford abstention grounds (see Middle South Energy
v. The Council of New Orleans, No. 85-5273 (E.D. La. Dec. 18, 1986)
(Pet. Supp. Br. App. B1-B9);  see note 7, supra), does not support a
different result.  The Council's denial of an immediate rate increase,
and announcement of its intention to examine the prudence of the Grand
Gulf 1 costs, preceded the first injunction complaint, which is the
subject of the present petition.  Moreover, it is plainly permissible
for the Court to consider events occurring subsequent to the filing of
the original complaint and the district court's decision in
determining whether the original complaint still presents a live
controversy and in determining the current contours of that
controversy.  See Middlesex County Ethics Comm. v. Garden State Bar
Ass'n, 457 U.S. at 437;  id. at 438-439 (Marshall, J., dissenting);
see also Huffman v. Pursue, Ltd., 420 U.S. at 612;  Public Utilities
Comm'n v. United Fuel Gas Co., 317 U.S. at 466.  We see no reason to
suppose that a different rule should obtain merely because the
subsequent event also happens to be relevant to a later-filed and
somewhat overlapping complaint.

   Respondents further claim (86-546 Br. in Opp. 13 n.13) that the
Court should simply deny the writ of certiorari on mootness grounds.
Although, as discussed in the text, we do not believe that NOPSI is
moot, a denial of certiorari would not be appropriate even if the case
were moot.  Instead, if the Court concludes that NOPSI is moot, the
Court should grant certiorari and remand the case to the Fifth Circuit
with instructions to vacate the judgment on mootness grounds.  See
Burke v. Barnes, No. 85-781 (Jan. 14, 1987);  United States v.
Munsingwear, Inc., 340 U.S. 36 (1950).  Respondents' reliance (86-546
Br. in Opp. 13 n.13), on Velsicol Chemical Corp. v. United States, 435
U.S. 942 (1978) for support of their contrary view is misplaced
because in this case, unlike Velsicol, review would be justified in
the absence of mootness and therefore a denial of certiorari would not
be appropriate.