Court Opinion

ID: 2965604
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:42:32.855404+00
Date Added: 2024-06-11T11:43:07.373772
License: Public Domain

<head>

<title>USCA1 Opinion</title>

	<style type="text/css" media="screen, projection, print">

		<!--

		@import url(/css/dflt_styles.css);

		-->

	</style>

</head>

<body>

<p align=center>

</p><br>

<pre>                 United States Court of Appeals <br>                     For the First Circuit <br> <br> <br> <br> <br>No. 98-1764 <br> <br>         PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, ET AL., <br> <br>                      Plaintiffs, Appellees, <br> <br>                               and <br> <br>             CONNECTICUT VALLEY ELECTRIC COMPANY and <br>           CENTRAL VERMONT PUBLIC SERVICE CORPORATION, <br> <br>                               and <br> <br>                   UNITIL CORPORATION, ET AL., <br> <br>                Plaintiffs/Intervenors, Appellees, <br> <br>                                v. <br> <br>      DOUGLAS PATCH, CHAIRMAN OF THE STATE OF NEW HAMPSHIRE <br>               PUBLIC UTILITIES COMMISSION, ET AL., <br> <br>                     Defendants, Appellants. <br> <br> <br> <br>           APPEAL FROM THE UNITED STATES DISTRICT COURT <br> <br>                FOR THE DISTRICT OF NEW HAMPSHIRE <br> <br>[Hon. Ronald R. Lagueux, U.S. District Judge] <br> <br> <br> <br>                              Before <br> <br>                     Boudin, Circuit Judge, <br>                                 <br>Bownes and Reavley, Senior Circuit Judges. <br> <br> <br> <br>     Dennis Lane with whom Michael E. Tucci and Morrison & Hecker, <br>L.L.P. were on brief for defendants Douglas L. Patch, Bruce B. <br>Ellsworth and Susan S. Geiger. <br>     Sarah B. Knowlton, Steven V. Camerino and McLane, Graf, <br>Raulerson & Middleton, P.A. on brief for City of Claremont, New <br>Hampshire, Amicus Curiae. <br>     Douglas W. Smith, General Counsel, John H. Conway, Deputy <br>Solicitor, and Deborah B. Leahy on brief for Federal Energy <br>Regulatory Commission, Amicus Curiae. <br>     Philip T. McLaughlin, Attorney General, Martin P. Honigberg, <br>Senior Assistant Attorney General, Civil Bureau, James K. Brown, <br>John A. Shope and Foley, Hoag & Eliot LLP on brief for Jeanne <br>Shaheen, Governor of the State of New Hampshire, Amicus Curiae. <br>     F. Anne Ross and F. Anne Ross, P.C. on brief for Retail <br>Merchants Association of New Hampshire, New Hampshire Office of the <br>Consumer Advocate, Campaign for Ratepayers Rights, Community Action <br>Program, City of Manchester and Cabletron Systems, Inc., Amici <br>Curiae. <br>     Lee A. Freeman, Jr., and Allan B. Taylor with whom John F. <br>Kinney, James T. Malysiak, Glynna W. Freeman, Freeman, Freeman & <br>Salzman, P.C., Joseph M. Kraus, Vice President and General Counsel, <br>Central Vermont Public Service Corporation, Dom S. D'Ambruoso, <br>John T. Alexander, Ransmeier & Spellman, John B. Nolan, Allan B. <br>Taylor, Gary M. Becker, Robert W. Clark and Day, Berry & Howardwere on brief for appellees Connecticut Valley Electric Company, <br>Central Vermont Public Service Corporation, Public Service Company <br>of New Hampshire, North Atlantic Energy Corporation, Northeast <br>Utilities and Northeast Utilities Service Company. <br>     Scott J. Mueller, Paul K. Connolly, Jr., Susan L. Geiser, <br>Erica Tarpey and Leboeuf, Lamb, Greene & MacRae on brief for <br>appellees Concord Electric Company, Exeter & Hampton Electric <br>Company, Unitil Power Corp., and Unitil Corporation.     <br> <br> <br> <br> <br> <br> <br>December 3, 1998 <br> <br> <br> <br>                                 <br>                                 <br> <br>

  BOUDIN, Circuit Judge.  The question presented on this <br>appeal is whether a state plan deregulating the electric utility <br>industry in New Hampshire was properly enjoined by the district <br>court pending trial on the merits.  The injunction was originally <br>obtained by Public Service Company of New Hampshire ("PSNH") but <br>was later extended to protect the other electric utilities in New <br>Hampshire.  A separate question, decided today in a companion <br>decision in No. 98-1629, is whether the district court erred in <br>granting specific relief to Connecticut Valley Electric Service <br>Company ("Connecticut Valley"), arguably going beyond the <br>injunction against the plan. <br>                          I.  BACKGROUND <br>     PSNH is the largest electric utility in New Hampshire and <br>supplies about 70 percent of the retail electric power in the <br>state.  During the 1970s, PSNH began construction of a nuclear <br>generating plant in Seabrook, New Hampshire.  Delays and cost <br>overruns at Seabrook were so extensive that in 1988 PSNH was forced <br>to file for bankruptcy protection in New Hampshire.  It appears <br>that a state statute, passed to prevent recovery through rates of <br>Seabrook's construction-in-progress costs, contributed to the <br>debacle. <br>     The State of New Hampshire intervened in the bankruptcy <br>proceedings and ultimately a deal was hammered out.  A major out- <br>of-state utility--Northeast Utilities--agreed to acquire all of <br>PSNH's stock and, through a corporate affiliate (North Atlantic <br>Energy Corporation), it also took over Seabrook.  The price paid, <br>for the benefit of PSNH's creditors and stockholders, was $2.3 <br>billion.  As part of the transaction, the State of New Hampshire <br>executed a rate agreement in November 1989 to permit Northeast <br>Utilities to recover its full investment. <br>     At the time, electric utilities in New Hampshire were <br>subject to traditional utility rate regulation--here, by the New <br>Hampshire Public Utility Commission (the "Commission")--through <br>which retail rates are set to permit a utility to recover its <br>prudently incurred costs, including a return on prudent investment <br>in the facilities used to provide service.  The rate agreement <br>secured by Northeast Utilities contained formulas for allocating <br>the recovery of the investment (including Seabrook) so that the <br>impact on retail rates would be spread out over time. <br>     The bankruptcy court approved the reorganization plan, <br>including the rate agreement, In Re Public Serv. Co., 114 B.R. 820, <br>843 (Bankr. D.N.H. 1990).  The New Hampshire legislature authorized <br>the Commission to review the rate agreement, N.H. Rev. Stat. Ann. <br>ch. 362-C (1995), and the Commission approved the rate agreement.  <br>In Re Northeast Utils./Public Serv. Co., 114 P.U.R.4th 385 <br>(N.H.P.U.C. 1990).  The New Hampshire Supreme Court upheld the <br>approval.  Appeal of Richards, 590 A.2d 586 (N.H. 1991). <br>     The rate agreement assured PSNH of annual 5.5 percent <br>electric rate increases for a seven year period (now completed); <br>and it provided that PSNH could buy Seabrook-generated power at <br>prices sufficient to recover Seabrook costs.  Partly for these <br>reasons, New Hampshire electric rates rose sharply.  In response, <br>the New Hampshire legislature in 1996 adopted the Electric Utility <br>Restructuring Act, N.H. Rev. Stat. Ann.  374-F:1, et seq. (Supp. <br>1997), providing for the introduction of competition into the <br>electric utility industry in New Hampshire. <br>     Under this statute, the Commission conducted hearings and <br>on February 28, 1997, it issued a restructuring plan (the "Final <br>Plan" or "Plan") and a set of implementing orders.  See Order No. <br>22,514 (adopting general statewide Final Plan and Legal Analysis); <br>see also Orders No. 22,509-22,513 (specific utilities' interim <br>stranded cost rulings).  The Plan is extremely complicated in its <br>details but a brief summary of pertinent elements will suffice for <br>the present. <br>     First, the Plan provides that in several years all New <br>Hampshire electric utilities will be required to separate <br>("unbundle") their local distribution and transmission facilities <br>from their generation facilities, divest the latter and permit use <br>of their distribution facilities to carry--for a distribution <br>charge--electricity generated by other suppliers.  In effect, <br>customers could then choose the source of their electrical power, <br>the market would set prices through competition, and the Commission <br>would merely set distribution charges (primarily based on cost) for <br>the use of the distribution networks (which remain effective <br>monopolies). <br>     Second, during a phase-in period before unbundling and <br>competition among suppliers for customers, the Commission proposed <br>to continue to set retail rates for electricity supplied to <br>customers by the existing utilities.  However, it would also force <br>prices down to market levels determined by average regional rates, <br>with a possible upward adjustment of up to eight percent over cost <br>as determined by the Commission.  This period was to last two years <br>(originally starting January 1, 1998) beginning at the <br>implementation of utilities' compliance filings, after which the <br>unbundling and competition would occur. <br>     Third, recognizing that market-based rates would likely <br>not permit the utilities to recover all of their investment in <br>existing plant, the Commission provided for recovery of so-called <br>"stranded investment" both in the interim phase (through the <br>adjustment of up to eight percent) and in the final phase (by <br>allowing an increment to the distribution charge over and above <br>actual cost).  How much of the stranded investment would ultimately <br>be recovered through these mechanisms is a matter of substantial <br>dispute and depends in some measure on decisions yet to be made by <br>the Commission. <br>     In sum, the Commission's Final Plan proposed to end the <br>existing regime in which the agency set retail rates for electric <br>power in New Hampshire based on cost.  Operating in two phases, the <br>new regime, mixing elements of competition and regulation, pressed <br>toward market rates for retail power.  The utilities' ability to <br>recover their prudent investment in distribution, transmission and <br>generation facilities was, at the very least, cast in doubt.  This <br>is so because even where the investment was originally prudent, <br>full competition can easily make some of that investment <br>unrecoverable. <br>     On March 3, 1997, immediately after the Final Plan was <br>adopted, PSNH filed a 13-count complaint in federal district court <br>and requested a temporary restraining order against implementation <br>of the Plan.  PSNH argued that the Plan was preempted by specific <br>provisions of the Federal Power Act, 16 U.S.C.  791a to 825r, <br>under which the Federal Energy Regulatory Commission ("FERC") <br>regulates utilities; the Public Utilities Regulatory Policies Act <br>of 1978, Pub. L. No. 95-617, 92 Stat. 3117 (codified as amended in <br>scattered sections of 15 and 16 U.S.C.); and the Public Utility <br>Holding Company Act, 15 U.S.C.  79 to 79z-6.  PSNH also argued <br>that the Plan constituted an unconstitutional taking and violated <br>substantive due process, the Contracts Clause, the Commerce Clause, <br>and the First Amendment.   <br>     In support of its TRO request, PSNH submitted affidavits <br>including those of experts explaining that the adoption of the <br>Final Plan, unless enjoined, would force PSNH under established <br>accounting standards to write-off more than $400 million in <br>investment, effectively repudiating the November 1989 rate <br>agreement between New Hampshire and Northeast Utilities. In turn, <br>the write-off and the alleged repudiation would place the company <br>in default under a number of loan and credit agreements, prompting <br>creditors to accelerate the collection of over $1 billion in debt <br>and forcing PSNH into bankruptcy. <br>     On March 10, 1997, the district court held a hearing on <br>the TRO request at which both sides presented oral argument; the <br>Commission presented no counter-affidavits.  Persuaded that there <br>was a substantial threat to PSNH, the district court issued a TRO <br>against the Commission's Orders No. 22,512 (the Final Plan) and <br>22,514 (the implementing order as to PSNH) pending a hearing on <br>whether a preliminary injunction would issue.  The TRO stayed <br>Orders No. 22,512 and 22,514 only as they affected PSNH, but under <br>the state's statute, no utility is required to implement its <br>compliance filing until compliance filings representing at least 70 <br>percent of retail electric sales--effectively, those covering PSNH- <br>-are being implemented.  See R.S.A. 374-F:4(IV) (1997). <br>     On March 20, 1997, the district court held an evidentiary <br>hearing.  PSNH presented four witnesses: the chief financial <br>officer of Northeast Utilities, a vice-president of Northeast <br>Utilities, a senior partner at an independent accounting firm, and <br>an investment banker.  They testified that adoption of the Plan, <br>which abandons the traditional cost-recovery regime for regulating <br>utility rates, would under established accounting standards cause <br>write-offs, trigger loan covenant defaults, prompt accelerated debt <br>collection, and force PSNH into bankruptcy.  Commission lawyers <br>cross-examined PSNH's experts but presented no opposing witnesses. <br>     On March 21, 1997, the court renewed the TRO in somewhat <br>revised language and asked for briefing on ripeness and abstention <br>objections offered by the Commission.  On April 28, 1997, the <br>district court rejected those defenses in Public Serv. Co. v. <br>Patch, 962 F. Supp. 222 (D.N.H. 1997) ("Patch I"), and rejected a <br>Commission claim that the court lacked jurisdiction under the <br>Johnson Act, 28 U.S.C.  1342.  The court said that its March 21, <br>1997, amended TRO would remain in effect pending further order by <br>the district court. <br>     In May 1997, further proceedings in the district court <br>were stayed by agreement of the parties so that mediation could be <br>attempted; the attempt failed and the stay was ultimately dissolved <br>in September 1998.  However, the district court took no further <br>action on the injunction proceedings until early 1998 while <br>awaiting the outcome of two related proceedings, in other forums, <br>that might affect the decision whether to maintain injunctive <br>relief. <br>     One was an appeal to this court by certain ratepayer and <br>other interests whose intervention motions had been rejected by the <br>district court in June 1997.  Public Serv. Co. v. Patch, 173 F.R.D. <br>17 (D.N.H. 1997) ("Patch II").  On this appeal, these parties <br>sought to raise  abstention and related objections that could prove <br>dispositive.  In February 1998, this court sustained the district <br>court's denial of intervention and refused to reach the abstention <br>issues.  Public Serv. Co. v. Patch, 136 F.3d 197 (1st Cir. 1998) <br>("Patch III"). <br>     The other intervening event was the Commission's receipt <br>of petitions for reconsideration of its Final Plan and related <br>implementing orders.  These requests, filed in Spring 1997, raised <br>the possibility that the Commission might significantly alter the <br>Final Plan; in fact, the Commission stayed portions of the Plan and <br>implementing orders pending reevaluation (Order No. 22,548) and <br>deferred ruling on the requests until March 1998.  In this interim, <br>there is some indication that the Commission was negotiating <br>privately, at least with PSNH, in an effort to reach an <br>accommodation. <br>     During this hiatus in the PSNH litigation, a different <br>controversy developed in late 1997, primarily between the <br>Commission and another New Hampshire electric utility, Connecticut <br>Valley Electric Service Company.  The district court, having <br>allowed the other New Hampshire electric utilities to intervene in <br>PSNH's injunction action, considered in that court docket all <br>requests by other utilities for related relief.  As we will see, <br>the new controversy with Connecticut Valley became a springboard <br>for expanding injunctive relief to protect all of the utilities <br>against the Final Plan. <br>     On March 20, 1998, the Commission finally entered a new <br>order, Order No. 22,875, that modified the 1997 Final Plan and <br>resolved petitions for rehearing on company-specific implementing <br>orders.  The Commission deleted certain features of its Final Plan <br>that had made the Plan especially vulnerable to attack on grounds <br>of federal preemption.  In addition, the Commission cryptically <br>announced that it would permit PSNH to have cost recovery--of a <br>kind not clearly specified--in the course of further proceedings.  <br>Thereafter PSNH filed a further amended complaint in district court <br>renewing most of the same claims it had earlier made. <br>     On April 3, 1998, the district court held a hearing (one <br>of several described at length in our companion opinion) directed <br>primarily to relief sought by Connecticut Valley.  In the course of <br>that hearing, the district court expressed the view that its <br>earlier March 21, 1997, order obtained by PSNH had contemplated <br>that the Commission's Final Plan would not be implemented pendente <br>lite against any of the utilities.  On April 9, 1998, the court <br>entered a written amended preliminary injunction enjoining the <br>Commission pending further court proceedings from requiring any New <br>Hampshire utility to obey the Final Plan or to submit to orders <br>designed to implement that plan.   <br>     Incident to the April 1998 court proceedings, the <br>district court directed all parties to prepare for trial on the <br>request for a permanent injunction now supported by other utilities <br>as well as PSNH.  Although PSNH said that it was ready for trial <br>immediately, the Commission requested six months for discovery and <br>the district court ruled that discovery would close in October <br>1998, with a trial on the request for a permanent injunction toward <br>the end of November 1998.  That date has recently been extended <br>until February 1999 to permit more discovery. <br>     At the time of the April 1998 proceedings in the district <br>court, the Commission's new Order No. 22,875 modifying the original <br>Final Plan and implementing orders had only recently been issued, <br>but the district court had declined to address it immediately.  <br>Instead, on June 5, 1998, the district court held a further hearing <br>to consider among other things the extension of the preliminary <br>injunction to embrace the modified Final Plan order as well.  On <br>June 12, 1998, the district court issued an order enjoining the <br>implementation of Order No. 22,875. <br>     The Commission then appealed to this court.  In No. 98- <br>1764,  the Commission appeals from the June 12, 1998, order of the <br>district court enjoining the Commission from requiring any utility <br>to comply with the modified Final Plan or implementing orders; and <br>in No. 98-1629, the Commission appeals separately from the district <br>court's order of April 9, 1998, using that appeal as a vehicle to <br>address its separate dispute with Connecticut Valley.  Both orders <br>are effectively preliminary injunctions subject to immediate <br>appeal.  28 U.S.C.  1292(a) (1994).  In this decision, we are <br>concerned with review of the June 12, 1998, order. <br>     On appellate review of the grant or denial of a <br>preliminary injunction, the deferential standard of "abuse of <br>discretion" applies to judgment calls, by the district court, such <br>as those that involve the weighing of competing considerations.  <br>See K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 915 (1st <br>Cir. 1989).  Abstract issues of law are subject to review de novoand findings of basic fact to the clear error standard.  See Ocean <br>Spray Cranberries, Inc. v. PepsiCo, Inc., No. 96-1948, 1998 WL <br>777475 (1st Cir. Nov. 12, 1998) at *14 & n.1.   <br>                      II.  THRESHOLD ISSUES <br>     Each side has raised threshold objections,  the <br>Commission to the district court's consideration of the complaint <br>and PSNH to the Commission's appeal to this court.  Since the <br>latter effectively disputes our authority to consider the former as <br>well as the merits of the injunction, we address first PSNH's <br>twofold claim: that the notice of appeal is defective and that in <br>any event the June 12, 1998, preliminary injunction is not an <br>appealable order as to PSNH. <br>     The first objection turns on the fact that the <br>Commission's notice of appeal named the Commission and no one else <br>as the appellant, while the named defendants in the district court <br>were the individual commissioners and not the Commission, <br>presumably because of Eleventh Amendment concerns.  This <br>discrepancy leads PSNH to say that the appeal is not taken by <br>anyone who was a party in the district court and is therefore <br>ineffective. <br>     Needless to say, there is no actual confusion as to the <br>commissioners' intent to appeal or any suggestion of unfairness.  <br>The complaint challenged the commissioners for official acts; it <br>even referred to them by way of shorthand as "the Commission."  The <br>individual commissioners appear in the caption of the notice of <br>appeal.  Under these circumstances, we think that the appeal should <br>have been understood by everyone as that of the original <br>defendants, the individual commissioners.  Fed. R. App. P. 3(c) & <br>advisory committee notes to 1993 amendment. <br>     The other objection has slightly more substance but not <br>enough to persuade.  PSNH points out that the Commission did not <br>seek to appeal from the March 21, 1997, order which was effectively <br>an appealable preliminary injunction, having occurred after a <br>hearing and without the 10-day limit applied to TROs.  See Fed. R. <br>Civ. P. 65(b).  PSNH argues that at least as to it, the preliminary <br>injunction of June 12, 1998, did no more than maintain the relief <br>granted earlier.  PSNH then argues that, because the latter added <br>nothing to the former, the Commission is circumventing the time <br>limit on the original appeal which was 30 days.  See Fed. R. App. <br>P. 4(a)(1).   <br>     Even though the statute says that appeal may be taken <br>from the "continuat[ion]" of an injunction, 28 U.S.C.  1292(a)(1), <br>PSNH's argument might have some force in some circumstances.  SeeSierra Club v. Marsh, 907 F.2d 210, 212-14 (1st Cir. 1990).  <br>However, here the June 12, 1998, injunction extended injunctive <br>relief--to PSNH quite as much as other utilities--to include the <br>modified Final Plan-- whereas earlier orders had addressed only the <br>original Final Plan.  Thus, the new injunction was not merely an <br>echo of the old and is independently appealable and properly before <br>us.  Cf. Gon v. First State Ins. Co., 871 F.2d 863, 866 (9th Cir. <br>1989).  <br>     Opposing PSNH, the Commission and amicus interests that <br>support it have advanced three reasons why the district court <br>should not even have considered the request for preliminary <br>injunction: alleged lack of ripeness, various of the so-called <br>abstention doctrines established by the Supreme Court, and the <br>Johnson Act's express restriction on district court injunctions <br>against state rate orders under certain circumstances.  The <br>district court addressed these objections at length in Patch I, 962 <br>F. Supp. at 230-44.  Presented as objections to an appealable <br>preliminary injunction, these objections are now properly before <br>us.  Compare Patch III, 136 F.3d at 210. <br>     We begin with the ripeness question, which essentially <br>asks whether a case is premature.  Two aspects of prematurity <br>especially concern the courts:  one is whether the threat of injury <br>is sufficiently immediate, and the other is whether the issues <br>raised can properly be decided in the abstract or would benefit <br>from facts not yet known (e.g., where validity of the statute might <br>depend upon the circumstances in which it is applied).  SeeChemerinsky, Federal Jurisdiction  2.4 at 98, 101-109 (1989). <br>     In its famous Abbott trilogy, see Abbott Labs. v. <br>Gardner, 387 U.S. 136 (1967); Toilet Goods Ass'n v. Gardner, 387 <br>U.S. 158 (1967); Gardner v. Toilet Goods Ass'n, 387 U.S. 167 <br>(1967), the Supreme Court said that ripeness depends upon the <br>"fitness" of the issues for immediate review and the "hardship" to <br>the litigant in postponing judicial intervention.  See Abbott <br>Labs., 387 U.S. at 149.  Fitness and hardship involve matters of <br>degree, but there is no need to plumb the subject, since lack of <br>ripeness is the least plausible of the objections to the injunction <br>in this case. <br>     With regard to fitness for review, the Commission's Final <br>Plan adopted a specific and detailed structure for utility <br>deregulation and ratemaking in New Hampshire.  By the time of the <br>modified preliminary injunction issued on June 12, 1998, the <br>Commission had also disposed of requests for reconsideration.  <br>Further, the Commission issued a set of implementing orders, <br>effectively one to each utility.  These orders requested steps to <br>be taken, including the establishment of market-proxy retail rates, <br>the filing of information to calculate local distribution rates for <br>the next phase, and ultimately the institution of local <br>distribution tariffs to permit wheeling and the corporate <br>separation of distribution from generation. <br>     As for the other consideration under Abbott, hardship if <br>review is deferred, the affidavits submitted by PSNH assert (with <br>considerable supporting detail) that the adoption of the Final Plan <br>and implementing order would, unless enjoined, lead almost <br>immediately to a change in PSNH's status under accounting rules, <br>place the company in default as to various lines of credit, and <br>push it rapidly down the slope to near-term bankruptcy.  Of course, <br>the adequacy of this showing can be disputed, but the Commission <br>has thus far made little effort to do so. <br>     The amici brief of Retail Merchants Association of New <br>Hampshire, et al., is the strongest proponent of the ripeness <br>objection.  It argues that review is premature because the New <br>Hampshire Supreme Court is considering rulings requested by the <br>Commission relating primarily to the Contracts Clause argument, <br>and because the Commission has not yet made a final determination <br>as to the precise amounts that PSNH may recover as stranded costs, <br>a matter  that is still the subject of ongoing proceedings.  <br>     The pending state court proceeding does not render the <br>present case unripe.  Even if we focus only on the Contracts Clause <br>claim--most of PSNH's claims concern other matters--the state <br>court's view of the agreement would not necessarily resolve the <br>federal constitutional issue, cf. Rhode Island Laborers' Dist. <br>Council v. Rhode Island, 145 F.3d 42, 43 (1st Cir. 1998), even if <br>that view were adverse to PSNH.  And while a ruling adverse to the <br>Commission might lead to modification of the existing plan, the <br>fact remains that the existing plan threatens imminent harm, <br>assuming the truth of PSNH's affidavits is accepted. <br>     The more difficult question is whether ongoing Commission <br>proceedings may refine the Commission's stranded cost formulas in <br>ways that diminish the impact of its Final Plan and implementing <br>orders on PSNH.  In our view, the Commission's new but cryptic <br>suggestion of some kind of cost recovery for PSNH (already noted) <br>is too slim a basis for postponing review.  The modified Final Plan <br>itself is claimed by PSNH to inflict irreparable harm and, if the <br>new suggestion has altered matters, the Commission can raise the <br>issue in the district court in connection with the permanent <br>injunction. <br>     The second threshold objection is that the district court <br>should have refused the injunction on abstention grounds.  <br>Abstention is not one doctrine but several, and the strand that <br>most invites attention derives from Burford v. Sun Oil Co., 319 <br>U.S. 315 (1943).  The fundamental concern in Burford is to prevent <br>federal courts from bypassing a state administrative scheme and <br>resolving issues of state law and policy that are committed in the <br>first instance to expert administrative resolution.  See New <br>Orleans Pub. Serv., Inc. v. New Orleans, 491 U.S. 350, 361-64 <br>(1989); Bath Mem. Hosp. v. Maine Health Care Fin. Comm'n, 853 F.2d <br>1007, 1014-15 (1st Cir. 1988) (Breyer, J.). <br>     But Burford abstention does not bar federal court <br>injunctions against state administrative orders where there are <br>predominating federal issues that do not require resolution of <br>doubtful questions of local law and policy.  See New Orleans Pub. <br>Serv., 491 U.S. at 362; Bath, 853 F.2d at 1013.  In such cases, <br>Burford abstention is not required merely because the federal <br>action may impair or even entirely enjoin the operation of the <br>state scheme.  See Zablocki v. Redhail, 434 U.S. 374, 379 n.5 <br>(1978); see also New Orleans Pub. Serv., 491 U.S. at 361-64; Bath, <br>853 F.2d at 1014-15. <br>     Thus focused, the Burford doctrine has no application to <br>most of the claims advanced by PSNH.  It does not require looking <br>beyond "the four corners" of the Final Plan, New Orleans Pub. <br>Serv., 491 U.S. at 363, to confirm that the Final Plan is intended <br>to shift from cost-based regulation to market-driven rates for <br>electricity.  To the extent that such a shift in regime is itself <br>claimed to violate the Contracts Clause, or interfere with FERC's <br>preemptive authority or contravene orders of the Seabrook <br>bankruptcy court, Burford abstention is not even arguable.  <br>     The amici, but not the Commission, rely on a second (and <br>older) abstention doctrine associated with Railroad Commission of <br>Texas v. Pullman Company, 312 U.S. 496 (1941).  Under Pullman,  <br>abstention may be warranted where state court resolution of an <br>issue of state law might avoid a federal constitutional issue.  <br>Pullman, 312 U.S. at 500-01.  Pullman abstention calls for deferral <br>of a case rather than dismissal and may be a matter of discretion.  <br>See Chemerinsky,  12.2.1, at 595, 603. <br>     Here, it is true that proceedings in the New Hampshire <br>Supreme Court (see note 7 above) could conceivably increase PSNH's <br>cost recovery and affect its Contracts Clause and confiscation <br>claims.  But the timing, outcome and consequences of the state- <br>court proceedings are uncertain, and PSNH is faced with an existing <br>modified Final Plan that will, if PSNH's affidavits are believed, <br>drive it shortly into bankruptcy (absent the injunction).  This is <br>not the kind of case for which the Pullman doctrine is designed.  <br>See United Servs. Auto. Ass'n v. Muir, 792 F.2d 356, 362-63 (3d <br>Cir. 1986). <br>     The last threshold barrier, relied on by the Commission <br>and both amici, is the Johnson Act, 28 U.S.C.  1342 (1994), <br>providing that if each of four conditions is met, the district <br>court "shall not enjoin" the operation of, or compliance with, "any <br>order effecting rates chargeable by a public utility and made by a <br>State administrative agency . . . ."  The Johnson Act operates only <br>where each of the following conditions is met: <br>          (1) Jurisdiction is based solely on <br>     diversity of citizenship or repugnance of the <br>     order to the Federal Constitution; and, <br> <br>          (2) The order does not interfere with <br>     interstate commerce; and,  <br> <br>          (3) The order has been made after <br>     reasonable notice and hearing; and, <br> <br>          (4) A plain, speedy and efficient <br>     remedy may be had in the courts of such State.  <br>     Id. <br> <br>     The modified Final Plan and the implementing orders are <br>orders affecting rates within the meaning of the Johnson Act, <br>compare Tennyson v. Gas Serv. Co., 506 F.2d 1135, 1140 (10th Cir. <br>1974), with Public Util. Comm'n v. United States, 355 U.S. 534, 540 <br>(1958); and the utilities do not directly deny that the third and <br>fourth conditions are met.  Instead, they argue that jurisdiction <br>in this case is not based "solely on diversity of citizenship or <br>repugnance of the order to the Federal Constitution" and that the <br>orders "interfere with interstate commerce."   <br>     The Johnson Act was prompted by concerns akin to those <br>that later  gave rise to Burford abstention, see Alabama Pub. Serv. <br>Comm'n v. Southern R. Co., 341 U.S. 341, 357-58 (1951) <br>(Frankfurter, J., concurring), but the Johnson Act has a narrower <br>reach and that reach is more rigidly defined.  The statute does not <br>apply to claims based upon a congressional statute or federal <br>administrative rulings, even though these commands are ultimately <br>backed up by the Supremacy Clause (and are therefore arguably <br>"constitutional" claims).  The case law on this point is so clear <br>cut that no further discussion of the point is required. <br>     Several of PSNH's more important claims are based on <br>federal statutes, federal administrative rulings or both and are <br>therefore not barred by the Johnson Act.  PSNH's claims based <br>directly on the Constitution are less secure.  The literal language <br>of the Johnson Act leaves some room to argue that the <br>constitutional claims would also support relief simply because <br>jurisdiction over the case would not have been based "solely" on <br>diversity or constitutional grounds.  But the statute's evident <br>purpose is to bar injunctions based on constitutional violations <br>regardless of other claims in the complaint. <br>     If the district court finds that a permanent injunction <br>is supported only by constitutional claims, it may have to decide <br>this arguable conflict between language and purpose.  While we are <br>doubtful that the statute permits relief based on constitutional <br>claims, even though other claims may support jurisdiction, the <br>issue has not been adequately briefed, and we will not decide it.  <br>Of course, even a constitutional claim alone would permit relief if <br>the state action "interfere[s] with interstate commerce."  28 <br>U.S.C.  1342(2); see also Public Util Comm'n v. United Fuel Gas <br>Co., 317 U.S. 456, 469-70 (1943); Tri-State Generation & <br>Transmission Ass'n, Inc. v. Public Serv. Comm'n, 412 F.2d 115, 118- <br>19 (10th Cir. 1969). <br>                         III.  THE MERITS <br>     Once past the threshold issues, we reach the familiar <br>four-part test for preliminary injunctions and the question whether <br>preliminary injunction in this case is justified.  The usual <br>requirements are (1) that the moving party show a likelihood of <br>success on the merits, (2) that irreparable injury be demonstrated <br>in the absence of an injunction; and (3) and (4) that injunctive <br>relief be found to be consistent with the equities and the public <br>interest.  See Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 <br>F.3d 12, 15 (1st Cir. 1996). <br>     In the ordinary case where a preliminary injunction is <br>granted, the district court usually sets forth its reasons for <br>believing that a likelihood of success has been shown on one or <br>more claims, and opposing party tries to show on appeal why this <br>assessment is flawed or mistaken.  In this case, the district <br>court's assessment of the merits was foreshortened and the <br>Commission's brief on appeal does not seriously address the merits <br>of PSNH's claims.  This is a formidable handicap to an intelligent <br>discussion of the merits. <br>     The reasons why there is no full-scale appraisal of the <br>merits by the district court are severalfold.  The original TRO <br>request was accompanied by a reasonably extensive memorandum by <br>PSNH laying out its theories for asserting that the Final Plan and <br>implementing orders were unlawful, and by extensive affidavits <br>attempting to show irreparable injury of the most severe kind was <br>imminent.  In opposing the TRO, the Commission concentrated <br>primarily on disputing claims of irreparable injury and at later <br>stages, it pressed the abstention and other threshold claims <br>already discussed.  Possibly, it hoped to postpone a preliminary <br>ruling on the merits while making modifications in the Final Plan <br>that might strengthen the Commission's hand. <br>     Whatever the cause of this tactic, it led the district <br>court to eschew any formal or detailed discussion of PSNH's <br>likelihood of success on the merits akin to the court's thorough <br>discussion of the threshold issues such as abstention.  Still, this <br>is not a case where the district court ignored likelihood of <br>success:  a review of the transcript shows that the district court <br>did consider likelihood of success, that it was especially <br>impressed with PSNH's Contracts Clause claim and that it thought <br>that certain of the FERC preemption claims were substantial. <br>     On appeal, the Commission now does seek to dispute PSNH's <br>likelihood of success assertions; the Commission argues first and <br>most elaborately that "plaintiffs are unlikely to prevail on the <br>merits."  This court might be justified in passing by the argument <br>on the ground that it was not adequately developed below, see MCI <br>Telecomm. Corp. v. Matrix Communications Corp., 135 F.3d 27, 32 <br>(1st Cir.), cert. denied, 118 S. Ct. 2370 (1998), but we address it <br>for several reasons:  some of the substance was presented to the <br>district court, the argument is essentially legal rather than <br>factual so lack of district court development is not a handicap, <br>and the impact of the injunction on a regulatory regime affecting <br>the public interest weighs heavily with us. <br>     Yet the Commission's main "merits" argument is almost <br>entirely beside the point.  The Commission lays out and supports <br>with citations the proposition that states have substantial <br>latitude in determining rate methodologies, that cost-of-service <br>rate making is not infallible, that unreasonably high rates may be <br>restrained, that constitutional considerations normally take <br>account of multiple interests, and that the Final Plan embodies a <br>regime that is generally reasonable and capable of adjusting to <br>individual circumstances.  Most of what the Commission says is <br>plausible in the abstract. <br>     The manifest difficulty is that these arguments respond <br>to none of the specific claims made by PSNH.  There is no adequate <br>discussion of the PSNH Contracts Clause claim or the related <br>argument that New Hampshire agreed in the bankruptcy proceeding to <br>allow full recovery of the Seabrook investment.  The Commission <br>meets PSNH's claims that the Final Plan invades FERC jurisdiction <br>or conflicts with FERC orders only by responding (in another <br>section of its brief) that the modifications produced by its order <br>on reconsideration have "mooted" the issue; however, the argument <br>made in this section addresses only one of PSNH's several FERC- <br>preemption arguments. <br>     The Retail Merchants' amicus brief makes a somewhat more <br>detailed argument under a heading concerning "likelihood of <br>success."  But this is actually a claim that PSNH's takings <br>argument is premature, as the Commission may or will allow some of <br>the disputed costs to be recovered; we have already addressed this <br>concern in connection with the ripeness issue.  The amicus brief <br>submitted by New Hampshire's Governor also discusses the merits, <br>but the only detailed argument is limited to claims that there is <br>no conflict between the Commission's modified Final Plan and FERC <br>orders or authority.  The FERC claims are only some of the many  <br>claims put forth by PSNH. <br>     Nevertheless, we have considered whether at least one or <br>more of the claims put forth by PSNH provides fair grounds for <br>further litigation--this lesser standard being defensible in light <br>of the rather powerful showing of irreparable injury made by PSNH.  <br>See Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., <br>559 F.2d 841, 844-45 (D.C. Cir. 1977).  This standard is met by <br>PSNH's argument that New Hampshire effectively promised in the rate <br>agreement incident to the bankruptcy reorganization that PSNH or <br>one of its affiliates would be allowed to recover through PSNH <br>retail rates a specific investment of $2.3 billion; that the switch <br>to a market-based rate regime effectively nullifies this promise; <br>and that the promise is enforceable under Contracts Clause <br>jurisprudence. <br>     The state's involvement in the rate agreement, already <br>described, certainly makes a Contracts Clause claim plausible, even <br>if closer examination might defeat the claim or provide the state <br>a loophole.  See McGrath v. Rhode Island Retirement Bd., 88 F.3d <br>12, 16 (1st Cir. 1996).  Of course, the Johnson Act may well <br>preclude an injunction based solely on constitutional grounds, as <br>we discussed above.  But PSNH makes a similar argument that <br>disregard of the bankruptcy agreement conflicts with the bankruptcy <br>court's disposition of the Seabrook reorganization; if this version <br>has merit, the Johnson Act would not be a bar. <br>     In any case, claims based on FERC preemption are not <br>subject to the Johnson Act, and several such arguments pressed by <br>PSNH appear to be substantial.  One concern may have been resolved <br>by the modification order (eliminating obligatory filing of FERC <br>transmission tariffs with the Commission), and another argument <br>(whether the state has authority to order wheeling over local <br>distribution lines) might not--even if sound--affect the initial <br>decision to force retail rates toward market levels without actual <br>competition. <br>     However, PSNH's most far-reaching argument under the <br>Federal Power Act appears to be that the rate reductions <br>contemplated by the Commission would prevent full recovery by PSNH <br>of the cost of power that it is required to buy from Seabrook by <br>long-term contract made in connection with the bankruptcy <br>reorganization.  Under established doctrine, discussed at greater <br>length in our companion opinion, state agencies have limited <br>ability to disallow the cost of electricity supplied at rates <br>contained in tariffs filed with FERC.  In shorthand, the rate in <br>a tariff filed with FERC is the binding rate unless and until FERC <br>alters it. <br>     It is true that a state agency may be able to disallow <br>the cost of power purchases to the extent that they are imprudent, <br>unless those purchases are required by a federal mandate.  SeeMississippi Power & Light, 487 U.S. at 373-74; Nantahala, 476 U.S. <br>at 965.  But even if FERC's approval of the PSNH-Seabrook contract <br>does not create such a mandate--a point neither side has <br>discussed--the Commission does not claim that the contract entered <br>into as part of the state-endorsed reorganization was imprudent.  <br>And, unlike the Connecticut Valley contract discussed in the <br>companion case, the PSNH-Seabrook contract is not said to contain <br>a clause permitting termination on short notice. <br>     We thus conclude that PSNH has a sufficient claim on the <br>merits to permit a preliminary injunction. As to the remaining <br>three conditions, they can all be discussed together, because the <br>starting point for each is PSNH's claim that without the injunction <br>it would be driven rapidly into bankruptcy.  This is not only an <br>extreme form of irreparable injury but, if the threat is a real <br>one, would give PSNH a powerful equitable argument.  As for the <br>public interest, lower rates are always an attraction, but New <br>Hampshire itself has avowed that a second PSNH bankruptcy would not <br>be in the public interest. <br>     The question whether PSNH made a showing of threatened <br>bankruptcy is easy to answer in the affirmative.  It presented <br>extensive affidavits and then live witnesses, whereas the state did <br>no more than to seek to cross-examine.  Nothing in the examination <br>persuades us that the district court committed clear error in <br>finding the threat to be real.  Neither the Commission nor the <br>amici in their appeals briefs seek to discuss in detail PSNH's <br>evidence of irreparable injury. <br>     The Commission and amici say that the Commission's orders <br>leave some room for further adjustments that would increase the <br>ability of PSNH to recover more of its investment.  Yet PSNH's <br>witnesses said that bankruptcy would flow simply from the <br>Commission's decision to impose on it a rate regime designed to <br>lead to market-based rates.  And far from providing assurance that <br>the Northeast Utilities' investment will be recovered, the briefs <br>of the Commission contain disquieting references to the recovery of <br>prudent investment. <br>     We thus conclude on the present record, the district <br>court was entitled to issue a preliminary injunction in favor of <br>PSNH.  None of the pillars on which this conclusion rests is immune <br>to reexamination in connection with a permanent injunction or, at <br>any other time, if there are new developments to warrant a further <br>look.  And what has been said so far about the merits and <br>irreparable injury pertains to the injunction so far as it <br>restrains the Commission from applying the Final Plan and <br>implementing orders to PSNH. <br>     The district court's extension of the injunction to <br>protect all other New Hampshire electric utilities is more <br>troublesome.  Although the other utilities have joined in attacks <br>on the Final Plan similar to those made by PSNH, it is not clear <br>that they can assert the Contracts Clause or bankruptcy <br>reorganization arguments that made PSNH's case so appealing to the <br>district court.  Nor is it evident that utilities are <br>constitutionally insulated against losses that result merely from <br>a change in rate regulation that introduces competition. <br>     Curiously, the Commission itself has not sought to <br>distinguish the claims of the other utilities from those of PSNH by <br>arguing that even if the injunction was properly granted in favor <br>of PSNH, it is inadequately supported as to the other utilities.  <br>Possibly, this is because under the 70 percent requirement already <br>mentioned, the modified Final Plan cannot be fully implemented as <br>to any utility until it is applied to PSNH.  Nor does it appear <br>that the Commission pressed the district court for separate rulings <br>on likelihood of success and irreparable injury as to the other <br>utilities. <br>     Nevertheless, if after the hearing on the permanent <br>injunction the district court proposes to maintain an injunction to <br>protect all New Hampshire utilities against the application of the <br>modified Final Plan, then the court must explain how its <br>determinations support such an injunction as to the carriers otherthan PSNH.  We do not say this is impossible--it may depend in part <br>on elucidation as to the other utilities of some of the FERC issues <br>that are particulary difficult to unravel.  But we think it has to <br>be done if a permanent injunction extends beyond PSNH itself. <br>                      IV.  COLLATERAL ISSUES <br>     The Commission argues for the first time on appeal that <br>the injunction should be vacated because the district court failed <br>explicitly to consider whether the plaintiffs should be required to <br>post a security bond when receiving injunctive relief.  The <br>Commission did not raise this issue in the district court and has <br>therefore waived it.  See MCI Telecomm., 135 F.3d at 32; Aoude v. <br>Mobil Oil Corp., 862 F.2d 890, 896 (1st Cir. 1988).  Furthermore, <br>even if we were to reach this issue, the Commission has neglected <br>to explain what such a bond would cover and how it is justified.  <br>     The Commission also makes a generalized argument that the <br>injunction itself is vague or overbroad in enjoining the Commission <br>from "requiring plaintiffs to take any action under those <br>[specified], orders [establishing the modified Final Plan], <br>including the filing of compliance plans," except for voluntary <br>filings.  The Commission claims that it is unsure what is and is <br>not permissible, and it implies that this uncertainty inhibits its <br>ability to carry out its ordinary rate-regulation responsibilities <br>vis--vis the utilities--responsibilities that certainly continue <br>at the present time. <br>     Unlike in the cases cited by the Commission, see, e.g., <br>Payne v. Travenol Labs., Inc., 565 F.2d 895, 898 (5th Cir.), cert. <br>denied, 439 U.S. 835 (1978), the injunction is not so sweeping and <br>vague as to violate the "command of specificity" set down in Fed. <br>R. Civ. P. 65(d), see Payne, 565 F.2d at 897; instead, it <br>identifies as the subject of the injunction the Final Plan and the <br>implementing orders that accompany it.  The Commission can ask the <br>district court for clarification if it thinks that some action it <br>is proposing to take might wrongly be viewed as trespassing on the <br>injunction.  The Commission is hardly going to be held in contempt <br>for an innocent misstep. <br>     Affirmed.</pre>

</body>

</html>