Nantahala P. & L. v. Thornburg
476 U.S. 953 (1986)

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U.S. Supreme Court

Nantahala P. & L. v. Thornburg, 476 U.S. 953 (1986)

Nantahala Power & Light Co. v. Thornburg

No. 85-568

Argued April 21, 1985

Decided June 17, 1986

476 U.S. 953

APPEAL FROM THE SUPREME COURT OF NORTH CAROLINA

Syllabus

Appellants Nantahala Power & Light Co and Tapoco, Inc., are wholly owned subsidiaries of appellant Aluminum Co. of America (Alcoa). Each owns hydroelectric powerplants on the Little Tennessee River, which the Tennessee Valley Authority operates in exchange for providing them jointly with a fixed supply of low-cost "entitlement power." In addition, Nantahala buys a variable amount of high-cost "purchased power" from the TVA's power grid. Tapoco sells all its power to an Alcoa plant in Tennessee, and Nantahala serves public customers in North Carolina. For the purpose of calculating the rate to be charged Nantahala's retail customers, the North Carolina Utilities Commission (NCUC) issued an order allocating entitlement and purchased power between Tapoco and Nantahala that differs from the allocation of entitlement power between them ordered by the Federal Energy Regulatory Commission (FERC) in a wholesale ratemaking proceeding. The NCUC's order resulted from Nantahala's request to raise its intrastate retail rates. The North Carolina Supreme Court affirmed that order.

Held: NCUC's allocation of entitlement and purchase power is preempted by federal law. 476 U. S. 962-972.

(a) FERC has exclusive jurisdiction over the rates to be charged Nantahala's interstate wholesale customers. Once FERC sets such a rate, a State may not conclude in setting retail rates that the FERC-approved wholesale rates are unreasonable. Rather, a State must 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. The "filed rate" doctrine, under which interstate power rates filed with or fixed by FERC must be given binding effect by state utility commissions in determining intrastate rates, is not limited to "rates" per se. Here, FERC's decision directly affected Nantahala's wholesale rates by determining the amount of low-cost power that it may include in its source of power, and FERC required Nantahala's wholesale rates to be filed in accordance with that allocation. FERC's allocation of entitlement power is therefore presumptively entitled to more than the negligible weight given it by NCUC. Pp. 476 U. S. 962-967.

Page 476 U. S. 954

(b) NCUC's decision that Nantahala should have included more of the low-cost, FERC-regulated power than it in fact can under FERC's order runs directly counter to that order, and therefore cannot withstand its preemptive force. Moreover, NCUC's order impermissibly interferes with the scheme of federal regulation. Since Congress intended FERC's allocation of power in wholesale interstate ratemakings to preempt any inconsistent state ratemakings, it is FERC's order, rather than NCUC's, that must be given effect. Pp. 476 U. S. 967-972.

313 N.C. 614, 332 S.E.2d 397, reversed and remanded.

O'CONNOR, J., delivered the opinion of the Court, in which all other Members joined, except POWELL and STEVENS, JJ., who took no part in the consideration or decision of the case.

JUSTICE O'CONNOR delivered the opinion of the Court.

The Nantahala Power & Light Company (Nantahala) and Tapoco, Inc. (Tapoco), are both wholly owned subsidiaries of the Aluminum Company of America (Alcoa). Tapoco and

Page 476 U. S. 955

Nantahala each own hydroelectric powerplants on the Little Tennessee River. Almost all of the power that they produce goes to the Tennessee Valley Authority (TVA). In exchange for allowing TVA to pour into its grid the variable quantity of power produced by Tapoco's and Nantahala's facilities, Tapoco and Nantahala jointly receive a fixed supply of low-cost "entitlement power" from TVA. In addition, Nantahala buys a variable amount of high-cost "purchased power" from the TVA grid. Tapoco sells all its power to Alcoa; Nantahala serves public customers.

For the purposes of calculating the rate to be charged Nantahala's retail customers, all of whom are in North Carolina, the Utilities Commission of North Carolina (NCUC) chose an allocation of entitlement and purchased power between Tapoco and Nantahala that differs from the allocation of entitlement power between Tapoco and Nantahala adopted by the Federal Energy Regulatory Commission (FERC) in a wholesale ratemaking proceeding. The North Carolina Supreme Court upheld NCUC's allocation. We noted probable jurisdiction to decide whether NCUC's allocation may stand in light of FERC's ruling. 474 U.S. 1018 (1985). We hold that NCUC's allocation of entitlement and purchased power is preempted by federal law.

I

A

This case involves a number of agreements, all of which concern the power grid of TVA. Under the New Fontana Agreement (NFA), to which TVA, Tapoco, and Nantahala are parties, TVA operates all of Tapoco's hydroelectric facilities and 8 of the 11 dams owned by Nantahala. The facilities operated by TVA produce an amount of power that varies in magnitude with the fullness of the harnessed streams. The NFA gives TVA the right to pour all that power into the TVA grid. In exchange, TVA provides jointly to Tapoco and Nantahala a constant annual allocation of low-cost "entitlement

Page 476 U. S. 956

power" of 1.8 billion kilowatt-hours per year. The NFA is on file with FERC as a rate schedule. Nantahala Power & Light Co., 19 FERC

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