Nantahala Power & Light Company v. Thornburg

PETITIONER: Nantahala Power & Light Company
RESPONDENT: Thornburg
LOCATION: Circuit Court of Jefferson County

DOCKET NO.: 85-568
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: North Carolina Supreme Court

CITATION: 476 US 953 (1986)
ARGUED: Apr 21, 1986
DECIDED: Jun 16, 1986

ADVOCATES:
Louis R. Cohen - for the United States, as amicus curiae, in support of Appellants
Louis R. Cohen - for U.S., as amicus curiae, by special leave of Court
Rex E. Lee - on behalf of Appellants
William T. Crisp - on behalf of Appellees

Facts of the case

Question

Media for Nantahala Power & Light Company v. Thornburg

Audio Transcription for Oral Argument - April 21, 1986 in Nantahala Power & Light Company v. Thornburg

Warren E. Burger:

We'll hear arguments next in Nantahala Power against the Utilities Commission.

Mr. Lee, you may proceed whenever you're ready.

Rex E. Lee:

Mr. Chief Justice and may it please the Court:

Notwithstanding the length of the lower court's opinion and notwithstanding the variety of the Appellees' arguments, this is at bottom a simple case whose solution is controlled by one simple and eminently sensible principle of law, namely that the Federal Power Act requires state regulators, when they set retail electric rates, to include within those rates power supply costs incurred as a result of the Federal Energy Regulatory Commission's rate schedules and decisions.

Today much of our nation's electricity is distributed under interstate arrangements which are subject at one stage of the process to FERC's wholesale regulatory authority, and then at a later stage to local retail ratemaking.

It is also quite common that interstate electric suppliers have more than one source of power and that the costs of the different sources vary widely.

Where that occurs, each affected state would like to have for itself and its consumers as much as possible of the low cost power and as little as possible of the high cost.

Someone has to decide who gets how much of each.

The logical candidate, indeed the only logical candidate, is FERC, because it is the only regulatory authority that, even as a theoretical matter, has no reason to favor the interests of one state over those of another.

Appropriately enough, it is a series of state supreme court decisions which have held that the Federal Power Act requires that logical result, that is that the Federal Power Act requires that state regulators include all FERC-regulated power supply costs in the retail rates.

This does not preclude the states from their customary function of setting the retail rates.

It simply fixes one of the cost components.

Here the question involves the competing interests of two states, Tennessee and North Carolina, and two electric retailers, both of which are wholly owned subsidiaries of Alcoa.

One of them, Nantahala Power and Light, serves exclusively a public load in North Carolina; and the other, Tapoco, Inc., serves only Alcoa's aluminum plant in Tennessee.

William H. Rehnquist:

Where is Tapoco located, Mr. Lee?

Rex E. Lee:

A short distance over the North Carolina-Tennessee border, in eastern Tennessee.

William H. Rehnquist:

How far from the border?

Rex E. Lee:

I would say, Justice Rehnquist, on the order of 50, 60 miles, but I could be off by a few yards.

During the period at issue, Nantahala and Tapoco operated under two contracts that were filed with FERC as rate schedules.

Under one of them, called the New Fontana Agreement, TVA incorporates the hydroelectric generation of these two companies into its system and then delivers back electricity which is lesser in quantity, but more dependable.

These NFA entitlements from TVA were divided between Nantahala and Tapoco by a 1971 apportionment agreement.

Prior to that time, that is prior to 1971, Nantahala's entitlements had been sufficient for its customers' needs.

But since then, Nantahala, like Tapoco before it, has had to purchase additional power from TVA.

And these TVA power purchases cost more than three times as much as the hydro entitlements.

So that for each company, the power supply cost is a blend cost, resulting in the consequence that an increase in the amount of its entitlements for either company means a decrease in its purchases and consequently a decrease in its total cost of power and in its customers' electric bills.

And that's what the dispute in this case is all about: How much of this low cost entitlement power should be allocated to Nantahala's customers, all of whom are in North Carolina, and how much to Tapoco's customers in Tennessee?

In one sense, the case varies from the usual pattern because it involves the allocation of low cost FERC-regulated power, where in each of the Narragansett and Northern States line of cases, the issue was high cost.

And yet, high cost power is also at issue here, because for both companies and both states the real cost is the mix of the entitlements and the purchases.

Sandra Day O'Connor:

Well, Mr. Lee, what's the filed rate that the North Carolina Commission is bound by?

Rex E. Lee:

The filed rate in this instance was the New Fontana Agreement, supplemented by the 1971 allocation.