Public Service v. Patch

• Court: Court of Appeals for the First Circuit
• Decided: December 3, 1998
• Docket: 98-1629
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-1629



         PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, ET AL.,



                      Plaintiffs, Appellees,



                               and



             CONNECTICUT VALLEY ELECTRIC COMPANY and

           CENTRAL VERMONT PUBLIC SERVICE CORPORATION,



                Plaintiffs/Intervenors, Appellees,



                                v.



     DOUGLAS L. PATCH, CHAIRMAN OF THE STATE OF NEW HAMPSHIRE

               PUBLIC UTILITIES COMMISSION, ET AL.,



                     Defendants, Appellants.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF NEW HAMPSHIRE



[Hon. Ronald R. Lagueux, U.S. District Judge]


Before



                     Boudin, Circuit Judge,

                                

Bownes and Reavley, Senior Circuit Judges.


Dennis Lane with whom Michael E. Tucci and Morrison & Hecker,

L.L.P. were on brief for defendants Douglas L. Patch, Bruce B.

Ellsworth and Susan S. Geiger.

     Sarah B. Knowlton, Steven V. Camerino and McLane, Graf,

Raulerson & Middleton, P.A. on brief for City of Claremont, New

Hampshire, Amicus Curiae.

     Douglas W. Smith, General Counsel, John H. Conway, Deputy

Solicitor, and Deborah B. Leahy on brief for Federal Energy

Regulatory Commission, Amicus Curiae.

     Philip T. McLaughlin, Attorney General, Martin P. Honigberg,

Senior Assistant Attorney General, Civil Bureau, James K. Brown,

John A. Shope and Foley, Hoag & Eliot LLP on brief for Jeanne

Shaheen, Governor of the State of New Hampshire, Amicus Curiae.

     F. Anne Ross and F. Anne Ross, P.C. on brief for Retail

Merchants Association of New Hampshire, New Hampshire Office of the

Consumer Advocate, Campaign for Ratepayers Rights, Community Action

Program, City of Manchester and Cabletron Systems, Inc., Amici

Curiae.

     Lee A. Freeman, Jr., and Allan B. Taylor with whom John F.

Kinney, James T. Malysiak, Glynna W. Freeman, Freeman, Freeman &

Salzman, P.C., Joseph M. Kraus, Vice President and General Counsel,

Central Vermont Public Service Corporation, Dom S. D'Ambruoso,

John T. Alexander, Ransmeier & Spellman, John B. Nolan, Allan B.

Taylor, Gary M. Becker, Robert W. Clark and Day, Berry & Howardwere on brief for appellees Connecticut Valley Electric Company,

Central Vermont Public Service Corporation, Public Service Company

of New Hampshire, North Atlantic Energy Corporation, Northeast

Utilities and Northeast Utilities Service Company.


December 3, 1998


BOUDIN, Circuit Judge.  On this appeal, we consider

whether the district court properly enjoined a state utility

commission to allow a specific increase in electric utility rates

sought by Connecticut Valley Electric Service Company ("Connecticut

Valley").  In timing and background facts, there is considerable

overlap between this decision and our companion decision today in

No. 98-1764, which arises out of the same district court

proceeding.  The reader's familiarity with that decision is

assumed, but additional background is required to understand the

events and legal issues peculiar to Connecticut Valley.

                          I. BACKGROUND

  Connecticut Valley is an electric utility that provides

retail service to end-user customers in certain New Hampshire

communities.  Its rates are set forth in a retail tariff subject to

the authority of the New Hampshire Public Utilities Commission

("the Commission").  R.S.A.  378:7 (1997); see Legislative Util.

Consumers' Council v. Public Serv. Co., 402 A.2d 626, 631 (N.H.

1979).  The company does not generate any electric power; it is

part of an integrated public utility system and purchases power

from others.

  About 76 percent of the power purchased by Connecticut

Valley is acquired from its parent company, Central Vermont Public

Service Company ("Central Vermont").  Rates and contracts for

wholesale transactions in electric power, assuming an interstate

nexus, are normally subject to regulation by the Federal Energy

Regulatory Commission ("FERC") under the Federal Power Act, 16

U.S.C.  824, 824d (1994).  FERC has accepted for filing the

tariffs and contract under which Central Vermont supplies power to

Connecticut Valley.  See Appeal of Sinclair Mach. Prods., Inc., 498

A.2d 696, 698-99 (N.H. 1985).  

  In supplying Connecticut Valley and its own retail

customers in Vermont, Central Vermont purchases about 35 to 40

percent of its power under a long-term supply contract with Hydro

Quebec.  Contracts of this kind provide price and supply protection

(the Hydro Quebec contract runs until 2016), but also commit the

purchaser to buy even if market conditions change.  Apparently, the

Hydro Quebec contract price now exceeds wholesale electricity

prices available in New England, so  Connecticut Valley could lower

its power costs in the short run if it ceased to buy from Central

Vermont.

  The existing contract between Connecticut Valley and

Central Vermont permits Connecticut Valley to terminate its

purchase contract on short notice; oversimplifying slightly, the

notice period is one year.  Although Connecticut Valley says that

the Commission initially encouraged its contract with Central

Vermont, the Commission has recently criticized the purchases,

saying that the contract was being continued for the benefit of

Central Vermont and that the purchases could be regarded as

imprudent from Connecticut Valley's standpoint.

  In February 1997, when adopting the Final Plan discussed

in our companion decision, the Commission's implementing order as

to Connecticut Valley addressed the issue directly.  See Order No.

22,509.  The Commission's order said that in calculating the costs

that Connecticut Valley would be able to recover through its own

retail rates, the Commission would disallow the cost of power

acquired from Central Vermont to the extent that it exceeded the

cost of power generally available at wholesale prices in

Connecticut and in New Hampshire.  See id.  

  Central Vermont responded in June 1997 by initiating a

proceeding before FERC to terminate the contract with Connecticut

Valley; the request for termination, however, was contingent on

FERC's approval of a termination charge by which Central Vermont

could effectively impose upon Connecticut Valley a share of the

"loss" resulting from the difference between the long-term Hydro

Quebec rate and the lesser market rate now available.  FERC

rejected the Central Vermont proposal, but invited Central Vermont

to return to FERC with a differently structured plan for making

Connecticut Valley share in some measure in whatever loss resulted

from termination.  

     The next event leading to the present appeal occurred in

Fall 1997, when Connecticut Valley submitted tariff changes to the

Commission to secure an increase in Connecticut Valley's own retail

rates.  The purpose of the proposed increase, sought to be made

effective on January 1, 1998, was simply to pass through to

customers increases in Central Vermont's wholesale rate under its

FERC tariff.  It appears that the rate charged to Connecticut

Valley depended on Central Vermont's own costs of generating and

acquiring power, which vary from year to year.  The Commission had

previously allowed Connecticut Valley to make corresponding

increases in its retail rates without much fuss or delay.

     This time the story was different.  The Commission

announced on December 31, 1997, that it would not allow Connecticut

Valley to increase its retail rates to take account of the increase

in Central Vermont's wholesale rate charged to Connecticut Valley. 

See Order No. 22,815.  The Commission's order acknowledged that

this would cause a shortfall for Connecticut Valley, but it said

that the utility should earlier have terminated its contract with

Central Vermont.  The Commission said it would later determine what

prudently acquired wholesale power should cost Connecticut Valley,

creating the threat of an actual decrease in Connecticut Valley's

retail rates.

     On January 19, 1998, Connecticut Valley and Central

Vermont filed a motion in the district court in the pending

litigation brought by Public Service Company of New Hampshire

("PSNH"), described in our companion opinion.  Connecticut Valley

and Central Vermont, along with other utilities in New Hampshire,

had already intervened in that case.  See Public Serv. Co. v.

Patch, 173 F.R.D. 17 (D.N.H. 1997).  In their motion, Connecticut

Valley and Central Vermont sought a temporary restraining order and

then a preliminary injunction to require the Commission to put into

effect the rate increases that the Commission had disallowed in

December 1997.

     In the TRO motion, the two utilities argued that the

Commission's rejection of the rate increases effectively violated

the injunction against the Final Plan previously obtained by PSNH,

and further argued that, independent of the district court's prior

orders, the Commission's December 31, 1997, order was "preempted"

by FERC's exclusive jurisdiction over the wholesale rate contract

and over Central Vermont's pending application to modify the

contract to impose an exit fee.  The motion was also accompanied by

affidavits of the two utilities' vice president and the companies'

independent auditor attesting to the severe economic harm,

including possible bankruptcy of Connecticut Valley, threatened by

the Commission's action.  

     On January 20, 1998, the Commission granted rehearing in

the rate proceeding and allowed Connecticut Valley to file

additional testimony, but the Commission did not authorize the

retail rate increases sought by the utility.  In February 1998, the

Commission filed papers in the district court opposing the TRO and

disputing jurisdiction, the merits, and the predictions of

irreparable injury.  Further materials were filed by  Connecticut

Valley and Central Vermont, and on April 3, 1998, the district 

court held a hearing on the request for a TRO and preliminary

injunction.

     At the hearing, there were extensive arguments and

counsel brought the district court up to date as to intervening

developments.  The court then took a brief recess and returned to

make extensive oral rulings, generally favorable to Connecticut

Valley and Central Vermont.  Describing the Commission's conduct as

a violation of the court's earlier grant of injunctive relief

against the Final Plan, the court directed counsel for the

utilities to prepare a preliminary injunction.

     On April 9, 1997, the district court entered a formal

preliminary injunction adopting its oral rulings as findings of

fact and conclusions of law.  The injunction specifically directed

the Commission to allow Connecticut Valley to recover through

retail rates the full cost of wholesale power obtained from Central

Vermont pursuant to the latter's FERC tariffs.  It appears that

since that time--possibly retroactively to January 1, 1998--

Connecticut Valley has been obtaining the increased rates that it

sought in its Fall 1997 filing.  

     The Commission has now appealed from the April 9, 1998,

injunction.  Its appeal raises threshold objections to the grant of

the injunction, it denies that the utilities are likely to prevail

on the merits, and it treats very briefly the issue of irreparable

injury.  We consider the arguments in the same order.  The familiar

requirements for a preliminary injunction and the standards for

appellate review are set forth in our companion decision.

                         II.  DISCUSSION

     At the threshold, the strictest limit on the district

court's jurisdiction is the Johnson Act, 28 U.S.C.  1342 (1994). 

This statute, described more fully in our companion decision,

prohibits district court injunctions against state rate orders

under certain circumstances.  But one of the circumstances in which

the Johnson Act does not bar injunction against a state rate order

is where the order is found to be inconsistent with a federal

statute or federal agency determination.  See 28 U.S.C.  1342(1);

New Orleans Pub. Serv., Inc. v. City of New Orleans, 782 F.2d 1236,

1242 (5th Cir. 1986), modified in part, 798 F.2d 858, cert. denied,

481 U.S. 1023 (1987); see also Aluminum Co. of America v. Utilities

Comm'n, 713 F.2d 1024, 1028 (4th Cir. 1983).

     Connecticut Valley is making just such a FERC preemption

argument in this case.  Such a claim is not barred by the Johnson

Act.  See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n.14

(1983); New Orleans Pub. Serv., 782 F.2d at 1242.  This is also

true of Connecticut Valley's other claim on the merits--that the

district court's earlier injunction against the Final Plan required

the Commission to allow the increase; although we have found no

case in point, it is unlikely that Congress intended that

enforcement of a federal court injunction be barred by the Johnson

Act. 

     The Commission's other threshold arguments are no more

persuasive.  Even if the modified Final Plan were itself too

inchoate to make "ripe" a request to enjoin it--and we hold

otherwise in our companion decision--the Commission's action in

rejecting the Connecticut Valley rate increase is a formal agency

rate action that has an immediate effect.  See generally Abbott

Labs. v. Gardner, 387 U.S. 136, 149-51 (1967).  Of course, the

possibility that it might be corrected by the Commission itself or

by a state court might raise exhaustion concerns; but those are not

very powerful in the face of a claim that the rejection violates

FERC authority, and that it is going to cause immediate irreparable

injury to the utility. Cf. Bowen v. City of New York, 476 U.S. 467,

483-84 (1986); Matthews v. Eldridge, 424 U.S. 319, 330-31 (1976).

     The Commission also argues inventively that its December

31, 1997, order is akin to the so-called suspension orders by which

federal agencies, under statutes authorizing this step, temporarily

delay ("suspend") a carrier or utility increase rate while

investigating it.  E.g., 16 U.S.C.  824d(e).  As a matter of

federal administrative law, a refusal by the regulatory agency to

suspend rates under these statutes is usually (but not always)

deemed unreviewable because the order is an interim measure and the

shipper or customer is usually made whole automatically if the rate

increase is ultimately found unjustified.

     The present situation is in no way akin to these cases. 

Although the Commission's December 31, 1997, order did suspend the

tariffs, it also made a formal determination to disallow the

increase on the ground that it was imprudent for Connecticut Valley

to continue its contract.  See Order No. 22,815.  This disallowance

was final and is not akin to a mere suspension; the further

investigation contemplated by the Commission's order was directed

not to possible approval of the increase but to the possibility

that a further reduction might be ordered.

     In its last threshold objection, the Commission asserts

that the district court erred in considering the utilities' request

as a "related" case to be heard by the same judge considering the

original action brought by PSNH.  It is sufficient to say that the

two matters involve a substantial overlap, amply qualifying for

consolidation under the terms of Local Rule 42.1(a) & (c) of the

New Hampshire District Court.  This is so even though we ultimately

conclude that the December 31, 1997, order is not to be treated as

an implementation of the Final Plan.

     We turn now to the merits, or, more precisely, the

requirement that the party seeking injunctive relief show that it

is likely to prevail on the merits.  See Ross-Simons of Warwick,

Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1st Cir. 1996).  The first

ground urged by the utilities in their brief is that the April 9,

1998, injunction is justified as an extension of the earlier

injunctive relief secured by the PSNH against the Final Plan.  The

district court itself, at the April 3, 1998, hearing, described the

Commission's December 31, 1997, order as an "end run" around the

earlier injunction.

     It is true that the Commission discussed the imprudence

of the Connecticut Valley-Central Vermont contract in its order

implementing the Final Plan; and both the December 31, 1997, order

and the Final Plan reflect a common desire to hold down customer

rates.  Nevertheless, the disallowance of the specific increase

does not purport to rest on the Final Plan and is expressed as an

exercise of conventional cost-based rate regulation--whether or not

a lawful exercise is another matter.  Thus, the injunction of April

9, 1997, requiring the rate increase, cannot be defended as

enforcing the earlier injunction against the Final Plan.

     What would support a preliminary injunction requiring the

rate increase is a determination that the December 31, 1997, order

would itself likely be found to violate  the Federal Power Act or

otherwise would contravene FERC's authority.  The two utilities

have argued forcefully that the December 31, 1997, order does

violate federal law in two respects: by disregarding FERC's

authority to determine what is a just and reasonable wholesale rate

and by interfering with FERC's authority to impose a termination

charge on Connecticut Valley.

     The first of these two FERC-preemption arguments is

expressed by the two utilities as a claim that the Commission has

"violated the filed-rate doctrine" in its December 31, 1997, order

rejecting the rate increase.  The "filed rate" locution is commonly

used in the case law (and in more than one way), but it is merely

a shorthand as likely to confuse as to assist analysis.  Indeed,

the label is somewhat misleading, since the doctrine on which the

utilities here rely is not limited to rates.

     Rather, the Supreme Court has ruled that where the FERC

has lawfully determined a rate, allocation, or other matter, a

state commission cannot take action that contradicts that federal

determination.  And even without explicit federal approval of a

rate, the Court has treated a rate reflected in a FERC tariff as

setting a rate level binding on a state commission in regulating

the costs of the purchasing utility.  See Mississippi Power & Light

Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 373-74 (1988);

Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 962-66

(1986); cf. Montana-Dakota Utils. Co. v. Northwestern Pub. Serv.

Co., 341 U.S. 246, 251-52 (1951).

     The difficulty for Connecticut Valley is that the 

Commission did not disallow its retail rate increase on the ground

that the wholesale rates charged by Central Vermont were unjust or

unreasonable.  Rather, the Commission found that it is imprudent

for Connecticut Valley to continue purchasing from Central Vermont

since lower cost sources of energy are allegedly available--even if

Central Vermont's wholesale rate might be just and reasonable in

the conventional (regulatory) sense that that rate merely covers

Central Vermont's own acquisition costs.  

     The Supreme Court has never squarely decided the question

of whether imprudence is an escape hatch from the Commission's

otherwise existing obligation to respect FERC's authority to

determine the just and reasonable rate.  But the Court has twice

said that it would assume arguendo that such escape hatch existed;

the Third Circuit has so held; and FERC has concurred, citing prior

cases of its own.  See Mississippi Power & Light, 487 U.S. at 373-

74; Nantahala Power & Light, 476 U.S. at 972; Kentucky W. Va. Gas

Co. v. Pennsylvania Pub. Util. Comm'n, 837 F.2d 600, 609 (3d Cir.

1988); Palisades Generating Co., 48 FERC  61,144, at 61,574 and

n.10 (1989).  We agree with FERC.

     Connecticut Valley says that the present situation is

different because it is required to purchase from Central Vermont

under a contract filed with FERC itself.  It is arguable that the

Commission could not disregard a long-term commitment by

Connecticut Valley if FERC had blessed a contract that contained

such a commitment, cf. Mississippi Power & Light, 487 U.S. at 373-

74; Nantahala Power & Light, 476 U.S. at 972; but here the contract

filed with FERC itself contains a provision allowing Connecticut

Valley to extract itself on one year's notice.

     In the district court, the utilities made an alternative

argument for preemption, namely, that Central Vermont is seeking to

impose some kind of an exit fee in proceedings before FERC, and the

Commission's action in this case is trespassing on FERC's authority

to impose such a fee.  As noted, FERC has in fact indicated that it

may entertain such a proposal, see 82 F.E.R.C. at 61,237, at 1998

WL 111732 (F.E.R.C.), at *1, and no doubt termination without an

exit fee could leave Central Vermont customers to bear the full

brunt of the higher cost power.  But nothing in the state

commission's December 31, 1997, order precludes FERC from imposing

such a fee.

     In sum, Connecticut Valley and Central Vermont have not

shown likelihood of success on the merits, or even of fair ground

for further litigation, in claiming that the December 31, 1997,

order violates federal law insofar as it disallows the increase

sought.  That disallowance is the only issue on appeal in this

case; if reductions of Connecticut Valley rates below existing

levels are ordered, it will be time enough to consider whether they

are precluded by the district court's injunction against the Final

Plan or on other grounds.

     If taken at face value, the claims of irreparable injury

made by Connecticut Valley and Central Vermont are serious.  The

Commission's brief merely argues that Connecticut Valley had

alternative means of relief--to appeal the Commission's orders to

the state supreme court and to collect the higher rate pending

appeal, subject to the filing of a bond.  The utilities say that

these options will not work.  In all events irreparable injury is

not itself a basis for injunction, absent some claim likely to

succeed on the merits in the federal court action.

     If we have misapprehended Connecticut Valley's arguments

on the merits, it is free to petition for reconsideration; and a

timely petition for reconsideration will stay the mandate--and thus

maintain the April 12, 1998, injunction in effect until the

petition is disposed of.  Fed. R. App. P. 41(a).  However, if

Connecticut Valley does face the kind of calamity it predicts, it

would be wise to consider at once its alternative remedies at FERC

or through discussion with the Commission.

     Accordingly, the April 12, 1998, injunction is vacated. 

The Commission is entitled, once the mandate becomes effective, to

require Connecticut Valley to reduce rates back to the level

prevailing on December 31, 1997.

     It is so ordered.