Court Opinion

ID: 6719254
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:51:49.880221+00
Date Added: 2024-06-11T16:01:33.033079
License: Public Domain

Justice MARTIN
dissenting.
In reversing our Court of Appeals and holding that federal law does not preempt the North Carolina Utilities Commission (NCUC) order at issue under the Federal Power Act (FPA), the majority has, *530in pursuit of an admittedly worthy objective, obscured the boundaries of clear and unambiguous federal preemption doctrine. At least six times in its opinion, the majority invokes the laudable goal of ensuring a stable supply of electricity for retail customers. NCUC may legitimately pursue this goal by seeking federal review of proposed interstate electricity contracts perceived to be “unjust, unreasonable, unduly discriminatory or preferential,” 16 U.S.C. § 824e(a) (2000). NCUC may not, however, permissibly vest itself with jurisdiction to conduct pre-execution review of wholesale interstate electricity contracts. For better or worse, federal law preempts concurrent state regulation of interstate wholesale electricity contracts.
The Federal Energy Regulatory Commission (FERC) is the agency empowered with exclusive authority to pass on the propriety of wholesale electricity contracts. FERC has the authority to determine if wholesale rates and the contracts affecting them are “just and reasonable”. 16 U.S.C. §§ 824d(a), 824e(a); see also Utah v. FERC, 691 F.2d 444, 448 (10th Cir. 1982) (“[FERC] can modify any rate, charge or classification or any rule, regulation, practice or contract affecting such rate if [FERC] finds it to be unjust, unreasonable, unduly discriminatory or preferential.”). In the event that NCUC believes a contract is “unjust, unreasonable, unduly discriminatory or preferential,” federal law empowers NCUC to seek FERC review. 16 U.S.C. § 824e(a). But NCUC cannot vest itself, consistent with federal preemption doctrine, with jurisdiction to conduct pre-execution review of wholesale interstate electricity contracts.
. It is well settled that federal preemption doctrine arises from the Supremacy Clause of the United States Constitution, which states that the Constitution and Laws of the United States “shall be the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. The basic premise of preemption doctrine is that federal law supersedes state laws that “interfere with, or are contrary to” federal law. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 211, 6 L. Ed. 23, 73 (1824). Congress can preempt state law by express terms. Jones v. Rath Packing Co., 430 U.S. 519, 525, 51 L. Ed. 2d 604, 614 (1977). Congress can also preempt state law by enacting a scheme of federal regulation so pervasive in a given field that there is no room for concurrent state regulation. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 91 L. Ed. 1447, 1459 (1947). When Congress has not completely displaced state regulation in a given field, federal law invalidates any conflicting state law. Hillsborough Cty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 85 L. Ed. 2d 714, 721 (1985). Conflict can arise when compliance with *531both state and federal law is a “physical impossibility.” Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 10 L. Ed. 2d 248, 257 (1963). Conflict can also arise when state law either conflicts with or presents “an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52, 66-67, 85 L. Ed. 581, 586-87 (1941); see also Owens v. Pepsi Cola Bottling Co., 330 N.C. 666, 675, 412 S.E.2d 636, 641 (1992).
I acknowledge that when a case concerns the validity of state regulation.in a field traditionally occupied by the states, there is a presumption against federal preemption. Hillsborough Cty., 471 U.S. at 715-16, 85 L. Ed. 2d at 722-23. Moreover, it is undisputed that states do possess authority to regulate many aspects of electricity, such as retail sales. See Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 970, 90 L. Ed. 2d 943, 956 (1986) (noting that states have “undoubted jurisdiction over retail sales”). The instant case, however, presents a conflict between the NCUC order in question and federal electricity law.
The origins of federal preemption of wholesale electricity sales can be traced to Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 71 L. Ed. 549 (1927). The plaintiff in Attleboro was a Rhode Island utility, which sold power to a Massachusetts utility. Id. at 84-85, 71 L. Ed. at 551. After reviewing the contract between the two utilities and finding the contract rate unreasonably low, the Public Utilities Commission of Rhode Island issued an order increasing the rate to be charged for the interstate electricity service at issue. Id. at 85-86, 71 L. Ed. at 551-52. The United States Supreme Court noted that nothing would prevent Massachusetts from taking retaliatory action and reducing the rate. Id. at 90, 71 L. Ed. at 554. Stating that “the paramount interest in the interstate business carried on between the two companies is not local to either State, but is essentially national in character,” the United States Supreme Court held that only Congress could regulate the rate for interstate sales of electricity. Id. This case created the “Attleboro gap” in utilities regulation, i.e., states could not regulate interstate wholesale sales yet Congress had not stepped in with wholesale regulation of its own. Congress eventually filled this gap with the FPA, which regulated wholesale electricity sales in interstate commerce. 16 U.S.C. § 824. See generally New York v. FERC, 535 U.S. 1, 5-7, 152 L. Ed. 2d 47, 55-56 (2002) (tracing the history of the FPA).
*532The FPA states that federal regulation is necessary for “that part of such business which consists of the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce.” 16 U.S.C. § 824(a). Federal regulation is to extend “only to those matters which are not subject to regulation by the States.” Id. The FPA defines a wholesale sale as “a sale of electric energy to any person for resale.” 16 U.S.C. § 824(d).
In discussing the relationship between Attleboro and the FPA, the United States Supreme Court has stated that “[Attleboro] left no power in the states to regulate licensees’ sales for resale in interstate commerce, while the [FPA] established federal jurisdiction over such sales.” United States v. Pub. Utils. Comm’n, 345 U.S. 295, 311, 97 L. Ed. 1020, 1035 (1953). Since then, United States Supreme Court decisions have made clear that FERC has plenary authority over wholesale sales of electric power. See Miss. Power & Light Co. v. Miss, ex rel. Moore, 487 U.S. 354, 374, 101 L. Ed. 2d 322, 340 (1988) (“Congress has drawn a bright line between state and federal authority in the setting of wholesale rates and in the regulation of agreements that affect wholesale rates.”); Nantahala, 476 U.S. at 966, 90 L. Ed. 2d at 954 (“A State must rather give effect to Congress’ desire to give FERC plenary authority over interstate wholesale rates, and to ensure that the States do not interfere with this authority.”); FPC v. S. Cal. Edison Co., 376 U.S. 205, 216, 11 L. Ed. 2d 638, 646 (1964) (stating that Congress gave FERC’s predecessor, the Federal Power Commission, exclusive jurisdiction over wholesale sales in interstate commerce).
At issue in the present case is an order entered by the NCUC on 10 July 2002 in Docket No. E-100, Sub 85A, which states:
The Commission concludes that it has jurisdiction and authority under State law to review, before they are signed, proposed wholesale contracts by a regulated North Carolina public utility granting native load priority to be supplied from the same plant as retail ratepayers and to take appropriate action if necessary to secure and protect reliable service to retail customers in North Carolina.
(emphasis added). The NCUC order does not delineate what such a pre-contract “review” could entail. A fair reading of NCUC’s “appropriate action” language reserves to NCUC the right to modify any part of a contract, including the rate, or to prevent the utility from executing it. This expansive view of NCUC’s purported authority was *533confirmed at oral argument when, upon questioning by this Court, the proponents of pre-contract review stated that they believe NCUC could in fact prevent a utility from granting native load priority in a wholesale contract.
This order conflicts with federal law. The United States Supreme Court has interpreted the FPA to provide FERC with exclusive, plenary jurisdiction over wholesale contracts. 16 U.S.C. § 824(a); Miss. Power & Light Co., 487 U.S. at 374, 101 L. Ed. 2d at 340. The NCUC order in the instant case purports to give NCUC authority to regulate such contracts through pre-execution review. Thus, NCUC’s attempt to regulate contracts in the face of federal jurisdiction over the same subject matter clearly presents “an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” and is, consequently, preempted. Hines, 312 U.S. at 67, 85 L. Ed. at 587.
Preemption is mandated in the instant case because of the potential for conflict between the NCUC order and FERC’s jurisdiction over wholesale contracts. This conflict could lead to a chaotic situation quite similar to that which led to enactment of the FPA itself. For example, multiple North Carolina utilities under NCUC’s jurisdiction are also regulated by the Public Service Commission of South Carolina. If states are not preempted from performing a pre-execution review, South Carolina could perform its own review and impose conditions regarding certain contracts that might conflict with potential North Carolina orders. Like Rhode Island and Massachusetts in Attleboro, North Carolina and South Carolina could attempt to impose conflicting orders concerning the same subject matter. See Attleboro, 273 U.S. at 90, 71 L. Ed. at 554. This scenario presents the type of conflict contemplated by the United States Supreme Court in Attleboro that led to the FPA and federal preemption. Id.
Preemption is also mandated by United States Supreme Court decisions regarding FERC jurisdiction. The United States Supreme Court has made clear that the preemptive consequences of FERC. jurisdiction over wholesale contracts extend to more than merely rate regulation and include the type of review contemplated by NCUC. In Nantahala, the United States Supreme Court held that NCUC could not circumvent FERC by using retail ratemaking power, stating, “When FERC sets a rate between a seller of power and a wholesaler-as-buyer, a State may not exercise its undoubted jurisdiction over retail sales to prevent the wholesaler-as-seller from recovering the costs of paying the FERC-approved rate.” Nantahala, 476 *534U.S. at 970, 90 L. Ed. 2d at 956. In the instant case, NCUC is attempting to bypass FERC wholesale jurisdiction by using traditional regulatory authority. FERC’s wholesale rate jurisdiction, however, goes beyond the actual rate itself, and NCUC may not use its traditional authority to undermine that jurisdiction. Accordingly, FERC provides the exclusive forum for disputes over wholesale contracts.
Similarly, in Mississippi Power & Light Co., a state regulator attempted to remedy a perceived failing in a FERC-approved transaction. Mississippi Power & Light Co. involved a FERC decision to allow a utility to recover a high cost of power in a wholesale agreement. 487 U.S. at 363, 101 L. Ed. 2d at 333. The Mississippi Supreme Court concluded that in order to approve a pass-through of the FERC-approved costs to consumers, the state regulatory agency needed to conduct a prudence review of the wholesale transaction. Id. at 367, 101 L. Ed. 2d at 335. The United States Supreme Court reversed, declaring that: “States may not regulate in areas where FERC has properly exercised its jurisdiction to determine just and reasonable wholesale rates or to insure that agreements affecting wholesale rates are reasonable.” Id. at 374, 101 L. Ed. 2d at 340. Mississippi Power & Light Co. reinforces the principle that FERC’s wholesale jurisdiction is plenary, i.e., states may not regulate utilities so as to contravene or undermine FERC with respect to wholesale contracts.
To support its legal departure from the moorings of clearly established federal preemption doctrine, the majority references the FPA’s saving clause, which states that “such Federal regulation . . . extend[s] only to those matters which are not subject to regulation by the States.” 16 U.S.C. § 824(a). This provision, however, does not prevent federal preemption of the instant NCUC order for three reasons. First, as the majority notes, the United States Supreme Court has definitively stated that the FPA’s saving clause is a mere “policy declaration” that “cannot nullify a clear and specific grant of jurisdiction.” Conn. Light & Power Co. v. FPC, 324 U.S. 515, 527, 89 L. Ed. 1150, 1158-59 (1945). And the FPA specifically grants FERC jurisdiction over wholesale electricity sales. 16 U.S.C. § 824(a).
Second, the FPA’s saving clause still serves a vital purpose, as states are able to exercise significant regulatory power over utilities despite being preempted from regulating wholesale contracts. For example, as the majority notes, if NCUC finds a utility’s service to be “inadequate, insufficient or unreasonably discriminatory,” it can *535“enter and serve an order directing that such additions, extensions, repairs, improvements, or additional services or changes ... be made . . . within a reasonable time prescribed.” N.C.G.S. § 62-42(a) (2003). NCUC can also require certificates of public convenience and necessity before allowing the construction of generating facilities, N.C.G.S. § 62-110.1(a), and it can take into account the utility’s arrangements for the interchange and purchase of power when acting on a petition for construction. N.C.G.S. § 62-110.1(d). But the FPA’s saving clause does not permit states to regulate in areas preempted by Congress.
Finally, the FPA’s saving clause applies only to areas “which are not subject to regulation by the States.” 16 U.S.C. § 824(a). When the FPA was originally enacted in 1935, the wholesale electricity market as it operates today did not exist. In 1996 FERC issued an order to infuse competition into the interstate wholesale electricity market. See FERC Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996) (“Promoting Wholesale Competition Through Open Access NonDiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities”). The FERC order required that utilities controlling transmission facilities file open access non-discriminatory tariffs for the use of the facilities, thus opening up the wholesale power market to competition. Id.
In issuing its order, FERC’s goal was to “remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation’s electricity consumers.” Id. FERC’s order, combined with changes in technology, allowed for the emergence of a national wholesale market in electricity. See generally New York v. FERC, 535 U.S. at 5-14, 152 L. Ed. 2d at 55-60 (describing the evolution of the wholesale market); William H. Penniman & Paul B. Turner, A Jurisdictional Clash Over Electricity Transmission: Northern States Power v. FERC, 20 Energy L.J. 205, 207-10 (1999) (describing the evolution and effects of Order No. 888). Such a market did not exist at the time of the FPA’s enactment in 1935, when competition among utilities was the exception. New York v. FERC, 535 U.S. at 5, 152 L. Ed. 2d at 55. In other words, NCUC is attempting, in the present case, to regulate contracts in a federally-inspired, rapidly evolving market that did not exist at the time the FPA was enacted. The regulation of modern wholesale contracts in the manner attempted by NCUC, therefore, cannot be said to constitute a power “traditionally” exercised by the states. Rather, Congress has specifically granted FERC authority to regulate this rapidly evolving market. See 16 U.S.C. §§ 824(a), 824d(a), *536824e(a). Accordingly, to the extent that this market is federally-created regulatory territory, the saving clause in 16 U.S.C. § 824(a) does not reserve the power to states to regulate the wholesale interstate electricity market.
The majority unpersuasively attempts to distinguish the pre-contract review performed by NCUC from FERC’s prudence review authority. The majority reasons that since FERC’s and NCUC’s authorities derive from different sources and apply to different concerns, they do not pose a potential for conflict. In the majority’s view, pre-contract review is a legitimate exercise of NCUC’s traditional authority to regulate utilities to insure reliability of service for consumers, whereas FERC’s prudence review ability is a legitimate exercise of FERC’s authority under the FPA to insure that wholesale rates and the contracts affecting them are “just and reasonable”. 16 U.S.C. §§ 824d(a), 824e(a). But the concurrent federal and state regulatory inquiries the majority envisions are not necessarily mutually exclusive. Rather, the potential for conflict is clear when a proposed interstate wholesale electricity contract is concurrently reviewed by two separate regulatory authorities to determine whether the contract is “just and reasonable” as well as “fair to consumers.”
As an illustration, the majority examines the proceedings in Docket No. E-2, Sub 733 regarding regulatory conditions imposed upon Carolina Power & Light Company (CP&L). Those proceedings are relevant, however, only as background. They do not have any bearing on the order in question, NCUC’s 10 July 2002 order from Docket No. E-100, Sub 85A. Regardless of how NCUC actually applied a pre-contract review pertaining to CP&L, the 10 July 2002 order contains language propounded by NCUC that asserts plenary preexecution authority over wholesale contracts. The United States Supreme Court has stated: “The test of whether both federal and state regulations may operate, or the state regulation must give way, is whether both regulations can be enforced without impairing the federal superintendence of the field.” Fla. Lime & Avocado Growers, Inc., 373 U.S. at 142, 10 L. Ed. 2d at 256-57. Here, NCUC is attempting to undermine FERC authority by granting itself regulatory jurisdiction over the same terms of the same contracts that FERC governs pursuant to the FPA. The majority states that “NCUC’s twenty-day requirement did not inhibit CP&L from entering into the contracts or infringe upon the rates, charges, costs or other terms of the proposed sales.” This may be true, but the majority does not consider that the jurisdiction claimed by NCUC could have allowed it to do any of *537those things, which would clearly come into conflict with FERC’s prudence review of the same contract.
Contrary to the majority’s assertion, NCUC’s authority to monitor utility service reliability and reserve capacity is not at issue here. As noted above, NCUC has the obligation to monitor long-range electricity supply and demand and has the power to require utilities to submit reports concerning power generation, expected demand, and dealings with other power providers. N.C.G.S. § 62-110.1(c), (d). All of this can be effectuated without impermissibly interfering with wholesale contracts. As a result, NCUC has the authority to keep apprised of the effects of a utility’s wholesale contracts after they have taken effect, but NCUC is clearly preempted by federal law from reviewing, modifying, or rejecting such contracts before their execution.
The majority properly observes that NCUC is preempted from conducting a prudence review or overruling FERC, yet allows NCUC to conduct pre-execution review of wholesale interstate electricity contracts. Exactly what regulatory actions NCUC may take pursuant to the majority’s newly-created review authority is left unexplained. The majority states that state regulatory review allows NCUC to “remain apprised of pertinent matters of local concern, including the adequacy of the state’s supply of electricity, North Carolina’s public utilities’ capacity and reserve margins, and any need for additional generating capacity.” The modal ability to “remain apprised” of the terms of proposed wholesale contracts, however, does not concomitantly vest NCUC with authority to modify the terms of such contracts through the “back door.” In short, if NCUC is preempted from conducting a prudence review, as the majority acknowledges, NCUC cannot modify or reform the proposed terms of such contracts. Accordingly, NCUC is preempted from exercising the potentially open-ended authority it purports to exercise in its 10 July 2002 order.
The majority attempts to distinguish two cases which are, in fact, directly on point. Both cases involve attempted review and modification of wholesale agreements by state regulatory agencies. In Appalachian Power Co. v. Public Service Commission, the Public Service Commission of West Virginia tried to require a utility to submit a FERC-approved wholesale contract for prudence review. 812 F.2d 898, 899-902 (4th Cir. 1987). The Fourth Circuit found the state’s regulatory assertion to be preempted, holding, “Because it *538is fundamentally at odds with the scheme Congress has established in the FPA to allow the states to change the arrangements filed with or established by FERC, we find the authority the [Public Service Commission] asserts here violative of the supremacy clause.” Id. at 905.
Similarly, Utah v. FERC involved an attempt by the Utah Public Service Commission to require modification of a FERC-approved wholesale agreement. 691 F.2d at 445-46. The Tenth Circuit held the state’s action to be preempted, stating that “once a utility becomes involved in sales of interstate commodities it brings itself under the regulatory authority of the FERC, and its remedy is to obtain review and to appeal ultimately to the Supreme Court.” Id. at 448. Again, this case demonstrates that a state utility commission is preempted from interfering with FERC-regulated wholesale contracts.
The majority attempts to distinguish these two cases on the ground that they both concerned executed, FERC-filed agreements, while NCUC is purporting to assert pre-execution review authority over wholesale interstate contracts. The preemption holdings of Appalachian Power and Utah, however, did not hinge on the timing of the state’s attempted regulation of wholesale contracts, and the majority’s reasoning to the contrary is unconvincing. Put simply, if a state is preempted from reviewing, modifying, or rejecting a wholesale agreement after execution, it is obviously preempted from attempting the same action before execution. Congress has determined that FERC is vested with exclusive regulatory authority over wholesale electricity contracts. See 16 U.S.C. § 824(a). And it is not within the authority of this Court to revise the FPA.
FERC has asserted its jurisdiction over these contracts in the form of pre-approved terms and conditions for competitive wholesale transactions. Federal preemption bars concurrent state regulation when, as here, NCUC’s attempted regulation presents “an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hines, 312 U.S. at 67, 85 L. Ed. at 587. If the majority is correct in its reasoning, however, state regulators could arbitrarily exert power to influence utilities’ decisions regarding wholesale contracts before such contracts are executed. For example, in a pre-execution review, NCUC could unilaterally set conditions for a utility attempting to enter into a wholesale agreement that would not affect the contract rate or terms per se, but that would effectively prevent the utility from executing the contract. Congress *539has provided FERC with exclusive authority over wholesale contracts, and NCUC’s asserted pre-execution review authority presents a clear obstacle to this congressional objective in that it allows NCUC to functionally override FERC — simply by regulating first.
It is undisputed that NCUC plays a crucial role in protecting North Carolina’s captive retail electricity consumers. NCUC has broad statutory authority to accomplish this important objective. Congress has exclusively entrusted the regulation of wholesale interstate electricity contracts, however, to FERC. Undoubtedly, NCUC has the authority to require notice of the terms of such contracts, but it cannot otherwise regulate them. Although NCUC may seek federal review of a contract perceived to be “unjust, unreasonable, unduly discriminatory or preferential,” 16 U.S.C. § 824e(a), it cannot vest itself, consistent with federal preemption doctrine, with jurisdiction to conduct pre-execution review of wholesale interstate electricity contracts.
I would affirm the decision of the Court of Appeals.
Justice BRADY joins in this dissenting opinion.