Nantahala Power & Light Co. v. Thornburg
476 U.S. 953, 90 L. Ed. 2d 943, 1986 U.S. LEXIS 61 (1986)
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Rule of Law:
Under the filed rate doctrine, a state utility commission setting intrastate retail electricity rates is preempted by federal law from using an allocation of wholesale power that differs from the allocation determined by the Federal Energy Regulatory Commission (FERC) in a wholesale ratemaking proceeding.
Facts:
- Nantahala Power & Light Company (Nantahala) and Tapoco, Inc. (Tapoco) are both wholly owned subsidiaries of the Aluminum Company of America (Alcoa).
- Both companies own hydroelectric plants and contribute their power generation to the Tennessee Valley Authority (TVA) grid under the New Fontana Agreement (NFA).
- In exchange, TVA jointly provides Nantahala and Tapoco with a fixed amount of low-cost 'entitlement power.'
- A 1971 Apportionment Agreement (AA) between the two subsidiaries allocates 80% of this entitlement power to Tapoco and 20% to Nantahala.
- Nantahala serves retail customers in North Carolina and must supplement its share of low-cost power by buying high-cost 'purchased power' from TVA.
- Tapoco's sole customer is its parent company, Alcoa, to whom it sells its share of the low-cost power.
Procedural Posture:
- Nantahala filed for a wholesale rate increase with the Federal Energy Regulatory Commission (FERC), and a wholesale customer filed a related complaint.
- FERC consolidated the proceedings and, in its final order, determined that for wholesale ratemaking, a 22.5% allocation of entitlement power to Nantahala was just and reasonable.
- FERC's order was subsequently affirmed by the U.S. Court of Appeals for the Fourth Circuit.
- Separately, Nantahala applied to the Utilities Commission of North Carolina (NCUC) for an increase in its intrastate retail rates.
- NCUC rejected FERC's allocation and instead calculated Nantahala's costs based on a 24.5% allocation of entitlement power.
- Nantahala appealed NCUC's order in the North Carolina state court system.
- The Supreme Court of North Carolina affirmed the NCUC's order, finding it was not preempted by federal law.
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Issue:
Does the filed rate doctrine, derived from the Federal Power Act and the Supremacy Clause, preempt a state utility commission from setting intrastate retail rates by allocating a utility's entitlement to low-cost wholesale power in a manner that conflicts with an allocation previously determined by the Federal Energy Regulatory Commission (FERC) in a wholesale rate proceeding?
Opinions:
Majority - Justice O’Connor
Yes. A state utility commission's allocation of entitlement and purchased power is pre-empted by federal law when it conflicts with an allocation set by the Federal Energy Regulatory Commission (FERC). The filed rate doctrine establishes that interstate power rates filed with or fixed by FERC are binding on state utility commissions when they determine intrastate rates. This doctrine ensures that states do not interfere with FERC's plenary authority over interstate wholesale rates. The Court reasoned that FERC's jurisdiction extends not only to the ultimate wholesale price but also to the underlying factors that determine that price, such as the allocation of low-cost power entitlements. Here, FERC determined that a 22.5% allocation of entitlement power to Nantahala was just and reasonable for wholesale ratemaking purposes. The North Carolina Utilities Commission (NCUC) disregarded this finding and calculated retail rates based on a 24.5% allocation. This action impermissibly 'traps' costs by preventing Nantahala from recovering its actual, FERC-determined wholesale power costs in its retail rates, a result prohibited by the Supremacy Clause.
Analysis:
This decision significantly reinforces the 'bright line' of exclusive federal jurisdiction over interstate wholesale energy regulation under the Federal Power Act. It clarifies that the filed rate doctrine is not narrowly limited to the final wholesale price per unit but extends to FERC's factual findings and allocations that are integral to setting that rate. By prohibiting states from re-evaluating the reasonableness of power allocations already decided by FERC, the Court prevents states from indirectly regulating wholesale rates and 'trapping' costs for utilities. This precedent solidifies federal supremacy in the wholesale energy market and limits the ability of state regulators to second-guess the economic arrangements and cost structures approved by the federal commission.
