Miss. P. & L. Co. v. Miss. Ex Rel. Moore, 487 U.S. 354 (1988)

Mississippi Power & Light Co. v. Mississippi ex rel. Moore

No. 86-1970

Argued February 22, 1988
Decided June 24, 1988
487 U.S. 354

APPEAL FROM THE SUPREME COURT OF MISSISSIPPI

Syllabus

Appellant (MP&L), a subsidiary of Middle South Utilities (MSU), engages in wholesale sales of electricity, which are regulated by the Federal Energy Regulatory Commission (FERC), and in retail sales, which are subject to the jurisdiction of the Mississippi Public Service Commission (MPSC). MSU formed a new subsidiary, Middle South Energy, Inc. (MSE), to undertake the construction of a nuclear powerplant, Grand Gulf, in Mississippi. Although appellant was to operate the plant, Grand Gulf was planned and designed to meet the need of the entire MSU system for a diversified and expanded fuel base. The MPSC approved the application of MP&L and MSE to build Grand Gulf. As Grand Gulf neared completion, MSU filed for FERC’s approval agreements allocating Grand Gulf’s capacity among its four operating subsidiaries and setting forth, inter alia, wholesale rates for the sale of Grand Gulf’s capacity and energy. Following extensive hearings in which parties representing consumer interests and various state regulatory agencies, including the MPSC, participated, FERC entered an order allocating Grand Gulf costs among the members of the MSU system in proportion to their relative demand for energy generated by the system as a whole. The order required appellant to purchase 33% of the plant’s output at rates determined by FERC to be just and reasonable. On review, the United States Court of Appeals for the District of Columbia Circuit affirmed. After public hearings, the MPSC granted appellant an increase in its retail rates to enable it to recover the costs of purchasing its FERC-mandated allocation of Grand Gulf power. The Mississippi Attorney General and certain other parties representing Mississippi consumers appealed to the Mississippi Supreme Court, charging that, under state law, the MPSC had exceeded its authority by adopting retail rates to pay Grand Gulf expenses without first determining that the expenses were prudently incurred. The court agreed and remanded the case, concluding that requiring the MPSC to review the prudence of management decisions incurring costs associated with Grand Gulf would not violate the Supremacy Clause of the Federal Constitution. The court rejected appellant’s argument that a state prudence review was foreclosed by the decision in Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, which barred a State from setting retail rates that did not take into account FERC’s allocation of power between two related utility companies.

Held: The FERC proceedings preempted a prudence inquiry by the MPSC. The decision in Nantahala rests on a foundation that is broad enough to support the order entered by FERC here, and to require the MPSC to treat appellant’s FERC-mandated payments for Grand Gulf costs as reasonably incurred operating expenses for the purpose of setting appellant’s retail rates. Nantahala relied on the fundamental preemption principles, applicable here, that FERC has exclusive authority to determine the reasonableness of wholesale rates; that FERC’s exclusive jurisdiction applies not only to rates, but also to power allocations that affect wholesale rates; and that States may not bar regulated utilities from passing through to retail consumers FERC-mandated wholesale rates. The Supremacy Clause compels the MPSC to permit appellant to recover as a reasonable operating expense costs incurred as a result of paying a FERC-determined wholesale rate for a FERC-mandated allocation of power. The Mississippi Supreme Court erred in adopting the view that the preemptive effect of FERC jurisdiction turned on whether a particular matter (here, the "prudence" question) was actually determined in the FERC proceedings. The reasonableness of rates and agreements regulated by FERC may not be collaterally attacked in state or federal courts. Here, the question of prudence was not discussed in the proceedings before FERC or on review by the Court of Appeals, because no party raised the issue, not because it was a matter beyond the scope of FERC’s jurisdiction. Moreover, FERC did, in fact, consider and reject some aspects of the prudence review that the Mississippi Supreme Court directed the MPSC to conduct. Pp. 369-377;

506 So.2d 978, reversed.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, O’CONNOR, and KENNEDY, JJ., joined. SCALIA, J., filed an opinion concurring in the judgment, post, p. 377. BRENNAN, J., filed a dissenting opinion, in which MARSHALL and BLACKMUN, JJ., joined, post, p. 383.