Court Opinion

ID: 3022715
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:27:31.247553+00
Date Added: 2024-06-11T12:05:17.754878
License: Public Domain

United States Court of Appeals
                        FOR THE EIGHTH CIRCUIT
                                ___________

                                No. 98-3000
                                ___________

Northern States Power Company,        *
a Minnesota Corporation; Northern     *
States Power Company, a Wisconsin     *
Corporation;                          *
                                      *
             Petitioners,             *
                                      *
Minnesota Department of Public        *
Service; Dairyland Power Cooperative, *
                                      *
             Intervenor on Appeal,    *
                                      *   Petition for Review of an Order
      v.                              *   of the Federal Energy Regulatory
                                      *   Commission.
Federal Energy Regulatory             *
Commission;                           *        AMENDED OPINION
                                      *
             Respondent,              *
                                      *
Wisconsin Electric Power Company;     *
Southern Minnesota Municipal Power *
Agency; Missouri River Energy         *
Services; Enron Power Marketing       *
Incorporated,                         *
                                      *
             Intervenor on Appeal,
                                    ___________

                              Submitted: March 8, 1999

                                   Filed: May 14, 1999
                                    ___________

Before FAGG, LAY, and WOLLMAN, Circuit Judges.
                           ___________

LAY, Circuit Judge.

        On April 24, 1996, the Federal Energy Regulatory Commission (“FERC”)
promulgated Order No. 8881 requiring “all public utilities that own, control or operate
facilities used for transmitting electric energy in interstate commerce to have on file
open access non-discriminatory transmission tariffs that contain minimum terms and
conditions of non-discriminatory service.” Order No. 888, 61 Fed. Reg. 21,540 (1996).
FERC’s stated goal was to encourage competition in the wholesale bulk power market
place “and to bring more efficient, lower cost power to the Nation’s electricity
consumers.” Id. Order No. 888 became final and effective on July 9, 1996.
Thereafter, Northern States Power Company (“NSP”) filed proposed revisions of its

      1
       See Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs
by Public Utilities and Transmitting Utilities, Order No. 888, [Regs. Preambles Jan.
1991-June 1996], FERC Stats. & Regs. ¶ 31,036, clarified, 76 FERC ¶ 61,009 and 76
FERC ¶ 61,347 (1996), modified, Order No. 888-A [Regs. Preambles], III FERC Stats.
& Regs. ¶ 31,048 (1997), order on rehearing, Order No. 888-B, 81 FERC ¶ 61,248
(1997), on rehearing, Order No. 888-C, 82 FERC ¶ 61,046 (1998), petitions for
review pending sub nom. Transmission Access Policy Study Group, et al. v. FERC,
Nos. 97-1715, et al. (D.C. Cir., Mar. 30, 1998) (hereinafter collectively as “Orders”).
                                          -2-
Open Access Transmission Tariff (“NSP Tariff”)2 to comply with the requirements of
FERC Orders Nos. 888, 888-A, 888-B and 888-C and to file new tariffs that were
consistent with the pro forma tariff of Order No. 888.

       FERC rejected the proposed changes to the NSP Tariff’s curtailment provisions
on the grounds that: 1) NSP had defined curtailment priorities only through general
references to unexplained procedures; 2) NSP had failed to demonstrate that the
proposed terms were consistent with, or superior to, the pro forma tariff terms required
by Order No. 888; and 3) NSP’s description of the proposed procedures was
misleading. Thereafter NSP filed this petition for review. On August 25, 1998, this
court denied NSP’s stay request and shortly thereafter denied FERC’s motion to
transfer the case to the United States Court of Appeals for the District of Columbia, or
to hold the case in abeyance pending the omnibus appeal of FERC’s Order No. 888
rule-making in the D.C. Circuit.

JURISDICTION

       Initially, FERC has moved to dismiss these proceedings for lack of jurisdiction.
It argues that the petitions for review filed by NSP constitute a collateral attack upon
Order 888. In essence, NSP challenges FERC’s regulation and possible curtailment
of bundled retail electric sales,3 arguing that such actions are outside of FERC’s

      2
       Order accepting Open Access Transmission Compliance Tariff, Accepting in
Part and Rejecting in Part Proposed Revisions, Instituting Investigation, Establishing
Hearing Procedures and Refund Effective Date, and Consolidating Dockets, 83 FERC
¶ 61,098 (April 30, 1998); Order on Requests for Clarification, 83 FERC ¶ 61,338
(June 29, 1998); Order Denying Requests for Clarification, Rehearing and Stay, 84
FERC ¶ 61,128 (July 31, 1998) (hereinafter collectively as “Curtailment Orders”).

      3
      NSP defines “bundled” electric sales to its retail customers as follows:
“‘Bundled’ service means the generation, transmission, and distribution of electricity
                                          -3-
jurisdiction. In its Curtailment Orders, both rejecting and accepting NSP’s petitions,
FERC failed to raise the issue of collateral attack. Nevertheless, FERC now asserts
that NSP’s proposed revisions were not timely and should have been made at the time
Order No. 888 was being promulgated. It urges that the belated challenges by NSP
should have been included in the rule-making proceedings pending before the United
States Court of Appeals for the District of Columbia. We disagree.

       Section 313(b) of the Federal Power Act (“FPA”), 16 U.S.C. § 825l(b), provides
that “[a]ny [aggrieved] party to a proceeding under [the FPA] . . . may obtain a review
of such order in the United States Court of Appeals for any circuit wherein . . . the
public utility to which the order relates is located or has its principle place of business.”
Id. The proceedings in this petition for review relate to the proposed tariffs filed by
NSP pursuant to Order No. 888. Involved are the differing interpretations of the Orders
as they affect the tariffs filed by NSP.

       FERC asserts, as it must, that it has no intention of regulating retail sales to NSP
customers, while also maintaining that its curtailment provisions apply only to
wholesale sales, over which it has explicit jurisdiction. FERC concedes that its
jurisdiction relates only to terms and conditions of electric transmission service
provided by public utilities engaged in interstate commerce. See Respondent’s Brief
at 34. FERC’s order requires that there be no discrimination in curtailment of electrical
power when power constraints take place between the wholesale customer, who falls
under FERC’s jurisdiction, and the native/retail consumers, who are regulated solely
by the state. See Order Denying Requests for Clarification, Rehearing and Stay, 84
FERC ¶ 61,128 (1998). NSP points out that under FERC’s interpretation, the direct
affect of FERC’s curtailment orders will cause a nonjurisdictional disruption of service

together with all other services (meter reading, billing, equipment repair, supply
curtailment) necessary to satisfy the customer’s complete electric service needs.”
Petitioner’s Brief at 2.
                                             -4-
affecting NSP’s native/retail consumers.

       We conclude that these adverse arguments defeat FERC’s jurisdictional
objections and lay bare the distinction between the rule-making proceedings pending
before the United States Court of Appeals for the District of Columbia and the present
petition for review in this case. We therefore reject FERC’s argument to dismiss for
lack of jurisdiction.

THE MERITS

       The fundamental issue to be decided on this appeal is whether FERC may,
through its tariff orders, require NSP, a public utility, to curtail electrical transmission
to wholesale (point-to-point) customers on a comparable basis with its native/retail
consumers when it experiences power constraints. FERC acknowledges that it cannot
permissibly affect state regulation of retail rates and practices. FERC argues that it has
simply required that, as to transmission curtailment, NSP may not discriminate against
a third party in favor of its own native/retail consumers. Thus, it asserts that Order No.
888 makes clear that a transmission provider must curtail electrical transmission on a
comparable and nondiscriminatory basis, including the provider’s own use of the
system. Under the tariff, public utilities will not be allowed to continue curtailment
practices that give priority to bundled, native/retail load consumers over point-to-point
users involved in interstate commerce. FERC suggests that there is no justiciable issue
here. It reasoned:

       The pro forma tariff requires comparability of curtailments when
       consistent with Good Utility Practice. The Commission would not expect
       NSP Companies to violate Good Utility Practice when implementing
       curtailments. Further, the pro forma tariff allows the Transmission
       Provider the discretion to curtail firm transmission service when an
       emergency or other unforeseen condition impairs or degrades the
       reliability of its transmission system. Absent such system reliability

                                            -5-
      concerns, however, NSP Companies must engage in a pro-rata
      curtailment.

Order on Requests for Clarification, 83 FERC ¶ 62,338 (1998).

       However, the mere fact that the provider may exercise curtailments within its
sole discretion is not the problem. The problem arises when NSP exercises its
discretion to curtail service, but may then do so only by curtailing both wholesale and
native/retail electric sales on an equal basis and not by giving preferential treatment to
its native/retail load. Thus, NSP argues, when there exists a power constraint, by
providing curtailment to its native/retail consumers on a pro rata basis with wholesale
users, NSP will be forced to provide interruptible service to its native/retail consumers.
According to NSP, a pro rata curtailment will detrimentally affect native/retail
consumers who have no other alternatives available to obtain electrical service. NSP
urges that when wholesale (point-to-point) customers are curtailed in electrical
transmission, the wholesale customer has alternative sources from which to obtain
continuous electrical supply, through either the purchase of electricity from another
provider, or via their own power generation facilities. Illustrative of this argument,
NSP points to the circumstances involving Wisconsin Electric Power Company
(“WEP”), an intervenor in this proceeding, and itself when WEP experienced
curtailment of electrical transmission by NSP in the summer of 1998. WEP had to
resort to alternative power, albeit at a higher price due to the emergency curtailment.4
Unless we totally miscomprehend the arguments involved, we feel that FERC’s
observation that no inherent conflict exists between its mandates and practical
application is viewed through an adversarial bias.

      4
        Wisconsin Electric Power Company argues in its intervenor brief that NSP
should be required to furnish electrical transmission on a comparable basis with its
native/retail customers so as to obviate Wisconsin Electric Power Company from
having to black out its own retail customers. If such an argument assumes that NSP
must black out its retail customers so that Wisconsin Electric Power Company’s
customers may have continuous service, we deem such argument unrealistic.
                                           -6-
        The more fundamental issue involved here, aside from the practicalities of the
situation, is whether FERC has the jurisdiction to affect the curtailment practices of
NSP when dealing with NSP’s native/retail consumers. FERC argues that it does not,
in any way, attempt to affect state regulation of retail rates and practices. At the same
time, FERC points out that its jurisdiction over interstate sales is not made in a vacuum.
As in Conway Corp. v. FPC, 510 F.2d 1264 (1975), aff’d sub nom., FPC v. Conway
Corp., 426 U.S. 271 (1976), it argues the jurisdiction of the FPC is not “insulated from
nonjurisdictional factors.” Id. at 1272. In Conway, an electric utility was engaged in
jurisdictional (wholesale) and nonjurisdictional (retail) sales. A portion of the utility’s
wholesale customers competed against it by reselling electricity purchased from the
utility to other retail consumers. The wholesale customers alleged that the wholesale
price was inflated in order to prevent them from competing for retail business. The
Supreme Court held that the Federal Power Act authorized FERC to examine the entire
factual context surrounding the wholesale rates, including facts related to the
nonjurisdictional retail transactions. See Conway, 426 U.S. at 280.

        FERC relies upon the language of the United States Court of Appeals for the
District of Columbia in Conway that FERC may take into consideration
nonjurisdictional concerns “when germane to the meaningful execution of a
jurisdictional function.” Conway, 510 F.2d at 1272. We have no disagreement with
these abstractions. However, one of the problems in the Conway case is the distinction
pointed to by Judge Douglas Ginsburg in Altamont Gas Transmission Company v.
FERC, 92 F.3d 1239 (1996). In Altamont, as the result of perceived discrimination
against interstate gas shipments, FERC authorized a utility to begin building a new
facility, but lowered the utility’s allowed rate of return until the utility could
demonstrate that it’s rates and policies no longer discriminated against interstate
shippers. In taking note of the Supreme Court’s delineation in Conway, Judge
Ginsburg posited that jurisdictional implications of a nonjurisdictional transaction are
germane only “[i]f the undue preference or discrimination is . . . traceable to the level
of the jurisdictional rate.” Id. at 1247 (citing Conway, 426 U.S. at 277). We have the

                                            -7-
same difficulty here, at least by analogy, that the alleged discrimination is traceable to
the nonjurisdictional sale of bundled service provided by NSP to the native/retail
consumer rather than to the service provided to interstate customers.5

       As NSP points out, it is given monopolistic control by the five states in which
it operates. NSP is a vertically integrated electrical utility and provides electrical
service throughout Minnesota, Michigan, North Dakota, South Dakota, and Wisconsin
to an estimated two million retail customers. NSP argues that the exclusive grant given
by these states to sell to native/retail consumers is on a quid pro quo basis; to wit, that
NSP’s native/retail consumers may depend on bundled sales without curtailment of
service. In Order No. 888, FERC recognizes its own jurisdictional limits and states
“[w]e reiterate that we are not requiring the transmission provider to unbundle
transmission service to its retail/native load nor are we requiring that bundled retail
service be taken under the terms of the Final Rule pro forma tariff.” Id. at 21,604. This
apparent concession is statutorily driven. Under 16 U.S.C. § 824(a), Congress has
expressly provided that “Federal regulation . . . extend[s] only to those matters which
are not subject to regulation by the States.” Id. Section 824(b)(1) provides:

      The provisions of this subchapter shall apply to the transmission of
      electric energy in interstate commerce and to the sale of electric energy
      at wholesale in interstate commerce, but except as provided in paragraph
      (2) shall not apply to any other sale of electric energy or deprive a State
      or State commission of its lawful authority now exercised over the
      exportation of hydroelectric energy which is transmitted across a State
      line. The Commission shall have jurisdiction over all facilities for such
      transmission or sale of electric energy, but shall not have jurisdiction,
      except as specifically provided in this subchapter and subchapter III of

      5
        We think it can also be questioned whether the bundled electric sales, as defined
n.3 supra, is in the same class of service provided in the sale of electrical power to
point-to-point customers. We find the difference in the products sold in itself justifies
preferential treatment to native consumers beyond the reach of Tariff Order No. 888.
                                            -8-
      this chapter, over facilities used for the generation of electric energy or
      over facilities used in local distribution or only for the transmission of
      electric energy in intrastate commerce, or over facilities for the
      transmission of electric energy consumed wholly by the transmitter.

Id.

        NSP argues that to comply with FERC’s interpretation of Order No. 888, as
requiring comparable and equal service to point-to-point customers, along with its
native/retail consumers, would violate state regulatory laws. For example, in the state
of Minnesota NSP may not shed its retail load absent an emergency or when electric
supply is limited or unavailable. See Northern States Power Company, MINNESOTA
ELECTRIC RATE BOOK, GENERAL RULES AND REGULATIONS, Section 6, Curtailment
or Interruption of Service, § 6.2 (Add. 41); MINN. STAT. § 216B.37-.42. The state
tariffs in the other states provide similar limitations.6 Thus, NSP argues that if it is
required to provide comparable transmission to both its retail and wholesale customers
on a pro rata basis, that its native/retail consumers will face power outages contrary
to the obligation set out in the state tariffs, in turn causing conflict with the long-held
position that once a tariff has been approved, it has the force of law and is binding upon
the parties. See Montana-Dakota Utilities Co. v. Northwestern Public Service Co.,
341 U.S. 246, 251-52 (1951). NSP urges that state authority over its bundled service
is jeopardized if FERC requires, under the guise of nondiscrimination, pro rata
curtailment of the power supply to NSP’s native/retail consumers.

       As indicated, when the circumstances require curtailment in the transmission of
electricity, most wholesale customers may use alternative supplies from other utilities
or generate power themselves, and can avoid power outages through such practice.
The native/retail consumer, however, is unable to turn to alternative sources of supply.

      6
       See MICH. COMP. LAWS § 460; N.D. CENT. CODE § 49; S.D. CODIFIED LAWS
§ 49; WISC. STAT. § 196.
                                            -9-
For these reasons, NSP urges that Good Utility Practice requires that wholesale
transactions be curtailed before a utility is forced to shed its native/retail load. Thus,
we find that NSP, through FERC’s interpretation, is placed between the proverbial rock
and hard place, and will in effect be in violation of either a state tariff or Order No.
888.

       FERC responds simply that it does not operate in a vacuum and that it is not
exercising any of its regulatory powers directly, but that through the enforcement of a
federal tariff, there could be a lawful, indirect effect upon NSP’s services to its
native/retail consumers. NSP urges that this allows FERC to do indirectly what it is
prohibited from doing directly, intercede in a matter reserved by Congress to the states.
See Altamont, 92 F.3d at 1248. FERC’s ultimate answer to all of this is that where
there is a clash between its tariffs and the state law, the federal tariff must prevail under
the Supremacy Clause. We cannot agree.

        Before reviewing constitutional concerns relating to the Supremacy Clause, it is
fundamental that this court must first satisfy itself that FERC has Congressional
approval to regulate NSP in the manner now attempted. Congress has drawn a “bright
line” between state and federal regulation. Here, there is no conflict between the state
and federal regulatory schemes. In fact, FERC concedes that it has no jurisdiction
whatsoever over the state’s regulation of NSP’s bundled retail sales activities. See
Order No. 888-A, 62 Fed. Reg. 12,274, 12,299 (1997). Additionally, any reliance
upon Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986), for the
proposition that a state must defer to FERC’s decision making for fear of running afoul
of the Commerce Clause is also misplaced. In Nantahala, the Court applied the “fixed
rate doctrine” under which interstate power rates filed with or fixed by FERC had to
be given binding effect by state utility commissions in determining intrastate rates. This
is not an issue here. In Nantahala, the Court was dealing with hydroelectric power and
facilities which obtained its power supply from the Tennessee Valley Authority, as well
as navigable waters and dams placed thereon. In the present case, we have nothing

                                            -10-
comparable to the generation of electrical power that was involved in Nantahala. Cf.
FPC v. Louisiana Power & Light Co., 406 U.S. 621 (1972). We think it obvious that
the indirect effect of Order No. 888, as interpreted by the Commission, is an attempt
to regulate curtailment of electrical power to NSP’s native/retail consumers. Despite
FERC’s denial as to nonjurisdictional regulation, we find it has transgressed its
Congressional authority which limits its jurisdiction to interstate transactions. As such,
its attempt to regulate the curtailment of electrical transmission on native/retail
consumers is unlawful, as it falls outside of the FPA’s specific grant of authority to
FERC.

       This cause is remanded to FERC to allow amendment to its curtailment orders,
as now interpreted under Order No. 888, so as to not encroach upon the authority of
the regulatory commissions of the states.

      IT IS SO ORDERED.
      A true copy.

             Attest:

                 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                           -11-