ENTERGY LOUISIANA, INC. v. LOUISIANA PUBLIC SERVICE COMMISSION et al.

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Syllabus
ENTERGY LOUISIANA, INC. v. LOUISIANA PUBLIC
SERVICE COMMISSION et al.
certiorari to the supreme court of louisiana
No. 02–299. Argued April 28, 2003—Decided June 2, 2003
The Federal Energy Regulatory Commission (FERC), which regulates
the sale of electricity at wholesale in interstate commerce, must ensure
that wholesale rates are “just and reasonable,” 16 U. S. C. § 824d(a).
Under the filed rate doctrine, FERC-approved cost allocations between
affiliated energy companies may not be subjected to reevaluation in
state ratemaking proceedings. Nantahala Power & Light Co. v.
Thornburg, 476 U. S. 953; Mississippi Power & Light Co. v. Mississippi
ex rel. Moore, 487 U. S. 354 (MP&L). Petitioner Entergy Louisiana,
Inc. (ELI), one of five public utilities owned by Entergy Corporation
(Entergy), shares capacity with its corporate siblings in other States,
which allows each company to access additional capacity when demand
exceeds the supply generated by that company alone. The resulting
costs are allocated among the companies; and that allocation is critical
to the setting of retail rates by state regulators, such as respondent
Louisiana Public Service Commission (LPSC). Entergy allocates costs
through a tariff approved by FERC called the system agreement.
Service Schedule MSS–1, which is included in the system agreement,
provides a formula under which those companies that use more capacity
than they contribute make payments to companies that contribute more
than their fair share of capacity. ELI has typically made, rather than
received, MSS–1 payments. In the 1980’s, the operating committee ini-
tiated the Extended Reserve Shutdown (ERS) program, which re-
sponded to systemwide overcapacity by allowing some generating units
not immediately necessary for capacity needs to be effectively moth-
balled. Because ERS units could be reactivated if needed, they were
considered available for purposes of calculating MSS–1 payments. On
August 5, 1997, FERC found that Entergy had violated the system
agreement in classifying ERS units as available, but determined that a
refund was not due to ELI customers as a result of MSS–1 overpay-
ments by ELI to other operating companies. FERC also approved an
amendment to the system agreement allowing an ERS unit to be
treated as available under MSS–1 if the operating committee determines
it intends to return the unit to service at a future date. In 1997, ELI
made its annual retail rate filing with the LPSC. One of the contested
issues in this proceeding was whether the cost of ERS units should be

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40 ENTERGY LA., INC. v. LOUISIANA PUB. SERV. COMM’N
Syllabus
considered in setting ELI’s retail rates. Confining its review to MSS–1
payments made after August 5, 1997, the LPSC concluded that it was
not pre-empted from disallowing MSS–1 related costs as imprudent sub-
sequent to that date. Thus, ELI was not permitted to charge retail
rates that reflected the cost of its MSS–1 payments. The State District
Court denied ELI’s petition for review, and the State Supreme Court
upheld the LPSC’s decision.
Held: Nantahala and MP&L rest on a foundation that is broad enough to
require pre-emption of the LPSC’s order. Pp. 47–51.
(a) The filed rate doctrine requires “that interstate power rates filed
with FERC or fixed by FERC must be given binding effect by state
utility commissions determining intrastate rates,” Nantahala, supra, at
962. In Nantahala and MP&L, this Court applied the doctrine to hold
that FERC-mandated cost allocations could not be second-guessed by
state regulators. The state order in Nantahala, which involved two
corporate siblings, allocated more of Nantahala’s purchases to low-cost
power than the proportion approved by FERC. By requiring Nanta-
hala to calculate its rates as if it needed to procure less high-cost power
than under FERC’s order, the state order “trapped” a portion of the
costs incurred by Nantahala in procuring its power. This ran counter
to the rationale for FERC approval of cost allocations because, when
costs under a FERC tariff are categorically excluded from consideration
in retail rates, the regulated entity cannot fully recover its costs of
purchasing at the FERC-approved rate. In MP&L, the Court con-
cluded that, contrary to the Mississippi Supreme Court’s ruling, the
pre-emptive effect of FERC jurisdiction does not turn on whether
a particular matter was actually determined in FERC proceedings.
Pp. 47–49.
(b) Applying Nantahala and MP&L here, the LPSC order impermis-
sibly “traps” costs that have been allocated in a FERC tariff. That the
operating committee has discretion to classify ERS units, while Nanta-
hala and MP&L involved specific mandates, does not provide room for
the LPSC’s imprudence finding. The Federal Power Act specifically
allows for the use of automatic adjustment clauses, and MSS–1 consti-
tutes such a clause. The Louisiana Supreme Court’s other basis for
upholding the LPSC’s order—that FERC had not specifically approved
the MSS–1 cost allocation after August 5—revives precisely the same
erroneous reasoning advanced by the Mississippi Supreme Court in
MP&L. It matters not whether FERC has spoken to the precise classi-
fication of ERS units, but only whether the FERC tariff dictates how
and by whom the classification should be made. Because the amended
system agreement clearly does so, the LPSC’s second-guessing of the

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Opinion of the Court
classification here is pre-empted. Finally, respondents advance the con-
tention that including ERS units in MSS–1 calculations violated the
amended agreement despite the LPSC’s own prior holding that it does
not have jurisdiction to determine whether the agreement was violated
and the State Supreme Court’s acceptance of that concession. The
question here is whether the LPSC order is pre-empted under Nanta-
hala and MP&L; that order does not rest on a finding that the system
agreement was violated. Consequently, this Court has no occasion to
address the question of the exclusivity of FERC’s jurisdiction to deter-
mine whether and when a filed rate has been violated. Pp. 49–51.
815 So. 2d 27, reversed.
Thomas, J., delivered the opinion for a unanimous Court.
Dav id W. Carpenter argued the cause for petitioner.
With him on the briefs were Virginia A. Seitz, J. Wayne
Anderson, and Kathryn Ann Washington.
Austin C. Schlick argued the cause for the United States
as amicus curiae urging reversal. With him on the brief
were Solicitor General Olson, Deputy Solicitor General
Kneedler, Cynthia A. Marlette, and Dennis Lane.
Michael R. Fontham argued the cause for respondents.
With him on the brief were Paul L. Zimmering, Noel J.
Darce, Dana M. Shelton, and Jason M. Bilbe.*
Justice Thomas delivered the opinion of the Court.
The Federal Energy Regulatory Commission (FERC) reg-
ulates the sale of electricity at wholesale in interstate com-
merce. 16 U. S. C. § 824(b). In this capacity, FERC must
ensure that wholesale rates are “just and reasonable,”
§ 824d(a). In Nantahala Power & Light Co. v. Thornburg,
476 U. S. 953 (1986), and Mississippi Power & Light Co. v.
Mississippi ex rel. Moore, 487 U. S. 354 (1988) (MP&L), the
Court concluded that, under the filed rate doctrine, FERC-
approved cost allocations between affiliated energy compa-
*Charles G. Cole, Edward H. Comer, and Barbara A. Hindin filed a
brief for Edison Electric Institute as amicus curiae urging reversal.

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42 ENTERGY LA., INC. v. LOUISIANA PUB. SERV. COMM’N
Opinion of the Court
nies may not be subjected to reevaluation in state rate-
making proceedings. We consider today whether a FERC
tariff that delegates discretion to the regulated entity to de-
termine the precise cost allocation similarly pre-empts an
order that adjudges those costs imprudent.
I
Petitioner Entergy Louisiana, Inc. (ELI), is one of five
public utilities owned by Entergy Corporation (Entergy), a
multistate holding company. ELI operates in the State of
Louisiana and shares capacity with its corporate siblings op-
erating in Arkansas, Mississippi, and Texas (collectively, the
operating companies). This sharing arrangement allows
each operating company to access additional capacity when
demand exceeds the supply generated by that company
alone. But keeping excess capacity available for use by all
is a benefit shared by the operating companies, and the costs
associated with this benefit must be allocated among them.
State regulators establish the rates each operating company
may charge in its retail sales, allowing each company to re-
cover its costs and a reasonable rate of return. Thus, the
cost allocation between operating companies is critical to the
setting of retail rates.
Entergy allocates costs through the system agreement, a
tariff approved by FERC under § 205 of the Federal Power
Act (FPA), 41 Stat. 1063, 16 U. S. C. § 824d. The system
agreement is administered by the Entergy operating com-
mittee, which includes one representative from each operat-
ing company and one from Entergy Services, a subsidiary of
Entergy that provides administrative services to the system.
Service Schedule MSS–1, which is included as § 10 of the sys-
tem agreement, allows for cost equalization of shared capac-
ity through a formula that dictates that those operating com-
panies contributing less than their fair share, i. e., using more
capacity than they contribute, make payments to the others

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Opinion of the Court
that contribute more than their fair share of capacity.1
Those making such payments are known as “short” compa-
nies, and those accepting the payments are known as “long”
companies. Each operating company’s capability is deter-
mined monthly, and payments are made on a monthly basis—
a long company receives a payment equal to its average cost
of generating units multiplied by the number of megawatts
the company is long. Because the variables that determine
the MSS–1 cost allocation can change monthly, Service
Schedule MSS–1 is an automatic adjustment clause under
§ 205(f) of the FPA, 16 U. S. C. § 824d(f),2 which exempts it
from the FPA’s ordinary requirements for tariff changes.
In order to determine whether an operating company is
long or short in a given month, one must know how much
capacity that operating company is making available to its
siblings. The question is not as easy as asking whether the
generating facilities are on or off, however, because in the
mid-1980’s the operating committee initiated the Extended
Reserve Shutdown (ERS) program. Responding to system-
wide overcapacity, ERS allowed some generating units to be
identified as not immediately necessary for capacity needs
and effectively mothballed. However, these units could be
activated if demand increased, meaning that the capacity
they represented was not forever placed out of reach of the
operating companies. As a result, ERS units were consid-
ered “available” for purposes of calculating MSS–1 cost
equalization payments. Counting ERS units as available
1 Where, as here, public utilities share capacity, the allocation of costs of
maintaining capacity and generating power constitutes “the sale of electric
energy at wholesale in interstate commerce.” 16 U. S. C. § 824(b)(1).
2 Section 824d(f)(4) provides the definition of “automatic adjustment
clause”:
“a provision of a rate schedule which provides for increases or decreases
(or both), without prior hearing, in rates reflecting increases or decreases
(or both) in costs incurred by an electric utility. Such term does not in-
clude any rate which takes effect subject to refund and subject to a later
determination of the appropriate amount of such rate.”

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44 ENTERGY LA., INC. v. LOUISIANA PUB. SERV. COMM’N
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has generally had the effect of making ELI, already a short
company, even more short, thus increasing its cost equaliza-
tion payments.
In December 1993, FERC initiated a proceeding under
§ 206 of the FPA, 16 U. S. C. § 824e, to decide whether the
system agreement permitted ERS units to be treated as
available. Respondent Louisiana Public Service Commis-
sion (LPSC), which regulates ELI’s retail rates in Louisiana,
participated in the FERC proceeding and argued that cus-
tomers of ELI were entitled to a refund as a result of MSS–1
overpayments made by ELI after the alleged misclassifica-
tion of ERS units as available. FERC agreed that Entergy
had violated the system agreement in its classification of
ERS units as available, but determined that a refund was
not supported by the equities because the resultant cost allo-
cations, while violative of the tariff, were not unjust, unrea-
sonable, or unduly discriminatory. Entergy Servs., Inc., 80
FERC ¶ 61,197, pp. 61,786–61,788 (1997) (Order No. 415).
FERC also approved, over the objection of the LPSC, an
amendment to the system agreement that allows an ERS
unit to be treated as available under MSS–1 if the operating
committee determines it intends to return the unit to service
at a future date.3 The Court of Appeals for the District of
3 Section 10.02 of the system agreement, as amended on August 5, 1997,
pursuant to FERC Order No. 415 provides:
“A unit is considered available to the extent the capability can be demon-
strated and (1) is under the control of the System Operator, or (2) is down
for maintenance or nuclear refueling, or (3) is in extended reserve shut-
down (ERS) with the intent of returning the unit to service at a future
date in order to meet Entergy System requirements. The Operating
Committee’s decision to consider an ERS unit to be available to meet fu-
ture System requirements shall be evidenced in the minutes of the Operat-
ing Committee and shall be based on consideration of current and future
resource needs, the projected length of time the unit would be in ERS
status, the projected cost of maintaining such unit, and the projected cost
of returning the unit to service.” 80 FERC, at 61,788–61,789 (emphasis
deleted).

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Columbia Circuit denied the LPSC’s petition for review of
FERC Order No. 415. Louisiana Public Service Comm’n
v. FERC, 174 F. 3d 218 (1999). With respect to the amend-
ment, the Court of Appeals found that “FERC under-
standably concluded that [it] set out the parameters of the
operating committee’s discretion, and that discriminatory
implementation of the amendment could be remedied in a
proceeding under FPA § 206.” Id., at 231.
ELI made its annual retail rate filing with the LPSC in
May 1997. One of the contested issues was “whether pay-
ments under the System Agreement for the cost of generat-
ing units in Extended Reserve Shutdown should be included
or excluded from ELI’s revenue requirement.” App. to Pet.
for Cert. 25a. Given FERC’s determination that the inclu-
sion of ERS units as available prior to August 5, 1997 (the
date FERC Order No. 415 issued), was just and reasonable,
the LPSC confined its review to MSS–1 payments made after
August 5, 1997. Its own staff argued before the LPSC that
after August 5, 1997, ELI and the operating committee vio-
lated amended § 10.02(a) of the operating agreement by con-
tinuing to count ERS units as available. The LPSC con-
cluded, however, that it was “pre-empted from determining
whether the terms of a FERC tariff have been met, for the
issue of violation of or compliance with a FERC tariff is pe-
culiarly within FERC’s purview.” Id., at 64a.
Nevertheless, the LPSC held that it was not pre-empted
from disallowing MSS–1-related costs as imprudent subse-
quent to August 5, 1997:
“[T]hough FERC has exclusive jurisdiction over the
issue of whether the System Agreement has been vio-
lated, there currently exists no FERC order that has
found that the Operating Committee’s decision is in com-
pliance with the System Agreement. In the absence of
such FERC determination, this Commission can scruti-
nize the prudence of the Operating Committee’s decision

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without violating the [S]upremacy [C]lause insofar as
that decision affects retail rates.” Id., at 65a.
The LPSC concluded that the operating committee’s treat-
ment of ERS units after August 5, 1997, was imprudent and
that ELI’s MSS–1 payments would not be considered when
setting ELI’s retail rates in Louisiana. In other words,
though ELI made the MSS–1 payments to its “long” corpo-
rate siblings, it would not be allowed to recoup those costs
in its retail rates.4
ELI petitioned for review of the LPSC’s decision in State
District Court. That petition was denied, and ELI appealed
to the Supreme Court of Louisiana, which upheld the LPSC’s
decision. 2001–1725 (La. 4/3/02), 815 So. 2d 27. The Su-
preme Court of Louisiana held that the LPSC’s order was
not barred by federal pre-emption because the LPSC was
not “attempting to regulate interstate wholesale rates” or
“challeng[ing] the validity of the FERC’s declination to order
refunds of amounts paid in violation of the System Agree-
ment prior to the amendment.” Id., at 38. Further, the
court reasoned, “FERC never ruled on the issue of whether
ELI’s decision to continue to include the ERS units [after
August 5, 1997, was] a prudent one” or made “it mandatory
for the [operating committee] to include the ERS units in its
MSS–1 calculations.” Ibid.
We granted ELI’s petition for writ of certiorari to address
whether the Court’s decisions in Nantahala and MP&L lead
to federal pre-emption of the LPSC’s order. 537 U. S. 1152
(2003). We hold that Nantahala and MP&L “res[t] on a
foundation that is broad enough,” MP&L, 487 U. S., at 369,
to require pre-emption of the order in this case.
4 The MSS–1 payments that were disallowed were, in fact, those made
in 1996, which were to be used in calculating 1997–1998 retail rates by the
LPSC. App. to Pet. for Cert. 76a.

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Opinion of the Court
II
A
The filed rate doctrine requires “that interstate power
rates filed with FERC or fixed by FERC must be given
binding effect by state utility commissions determining in-
trastate rates.” Nantahala, 476 U. S., at 962. When the
filed rate doctrine applies to state regulators, it does so
as a matter of federal pre-emption through the Supremacy
Clause. Arkansas Louisiana Gas Co. v. Hall, 453 U. S. 571,
581–582 (1981).
In Nantahala and MP&L, the Court applied the filed rate
doctrine to hold that FERC-mandated cost allocations could
not be second-guessed by state regulators. Nantahala in-
volved two corporate siblings, Nantahala Power & Light
Company and Tapoco, Inc., the former of which served retail
customers in North Carolina. Both Nantahala and Tapoco
provided power to the Tennessee Valley Authority (TVA),
which in turn sold power back to them pursuant to an agree-
ment between all three parties. But the power was not pur-
chased at a uniform price. Low-cost power was made avail-
able to both Nantahala and Tapoco in consideration for the
right to pour all of their power into the TVA grid. This
low-cost power was apportioned 80% to Tapoco, which
served exclusively the corporate parent of Tapoco and Nan-
tahala, and 20% to Nantahala. Nantahala purchased the re-
mainder of its power requirements at higher prices. FERC
approved this cost allocation with a slight modification, so
that Nantahala received 22.5% of the low-cost entitlement
power. However, the North Carolina Supreme Court up-
held the North Carolina Utilities Commission’s (NCUC) de-
termination that Nantahala’s share of the low-cost power
was properly 24.5%. This resulted in a lower cost computa-
tion for Nantahala, and therefore lower rates for North Caro-
lina retail customers, than would have obtained if FERC’s
cost allocation had been respected by NCUC.

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This Court held that the state cost allocation order was
pre-empted:
“Nantahala must under NCUC’s order calculate its re-
tail rates as if it received more entitlement power than
it does under FERC’s order, and as if it needed to
procure less of the more expensive purchased power
than under FERC’s order. A portion of the costs in-
curred by Nantahala in procuring its power is there-
fore ‘trapped.’ ” 476 U. S., at 971.
Trapping of costs “runs directly counter,” id., at 968, to the
rationale for FERC approval of cost allocations, the Court
concluded, because when costs under a FERC tariff are cate-
gorically excluded from consideration in retail rates, the reg-
ulated entity “cannot fully recover its costs of purchasing at
the FERC-approved rate . . . ,” id., at 970.
In MP&L, the Court further defined the scope of filed rate
doctrine pre-emption in the cost allocation context. Prede-
cessors of the operating companies concerned here were
jointly involved in the construction of the Grand Gulf nuclear
power plant in Mississippi. The costs of the project turned
out to be significantly higher than had been originally
planned, and as a result the wholesale cost of power gener-
ated at Grand Gulf was much higher than power available
from other system generating units. But the high fixed
costs of building Grand Gulf had to be recouped, and the
operating companies agreed that each of them would pur-
chase a specific proportion of the high-cost power generated
at Grand Gulf. The original allocation was challenged be-
fore FERC, which ultimately approved a modified tariff.
That tariff required Mississippi Power and Light (MP&L,
now Entergy Mississippi) to purchase 33% of the power
produced at Grand Gulf.
Mississippi regulators allowed MP&L to pass along these
costs to consumers through retail rate increases. The Mis-
sissippi Supreme Court, however, reasoned that “FERC’s de-

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termination that MP&L’s assumption of a 33% share of the
costs associated with Grand Gulf would be fair to its sister
operating companies did not obligate the State to approve
a pass-through of those costs to state consumers without
a prudence review.” MP&L, 487 U. S., at 367. The Missis-
sippi Supreme Court distinguished Nantahala by limiting
the scope of its holding to “matters actually determined,
whether expressly or impliedly, by the FERC.” Mississippi
ex rel. Pittman v. Mississippi Public Service Comm’n, 506
So. 2d 978, 986 (Miss. 1987) (citation omitted).
This Court disagreed, holding that the state court “erred
in adopting the view that the pre-emptive effect of FERC
jurisdiction turned on whether a particular matter was actu-
ally determined in the FERC proceedings.” MP&L, 487
U. S., at 374. Although FERC had not explicitly held that
the construction of Grand Gulf was prudent, the cost alloca-
tion filed with FERC pre-empted any state prudence review,
because “if the integrity of FERC regulation is to be pre-
served, it obviously cannot be unreasonable for MP&L to
procure the particular quantity of high-priced Grand Gulf
power that FERC has ordered it to pay for.” Ibid.
B
Applying Nantahala and MP&L to the facts of this case,
we conclude that the LPSC’s order impermissibly “traps”
costs that have been allocated in a FERC tariff. The
amended system agreement differs from the tariffs in
MP&L and Nantahala because it leaves the classification of
ERS units to the discretion of the operating committee,
whereas in Nantahala and MP&L the cost allocations were
specific mandates. The Louisiana Supreme Court concluded
that this delegated discretion provided room for the LPSC’s
finding of imprudence where a mandated cost allocation
would not. However, Congress has specifically allowed for
the use of automatic adjustment clauses in the FPA, and it
is uncontested that the MSS–1 schedule constitutes such an

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50 ENTERGY LA., INC. v. LOUISIANA PUB. SERV. COMM’N
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automatic adjustment clause. We see no reason to create an
exception to the filed rate doctrine for tariffs of this type
that would substantially limit FERC’s flexibility in approv-
ing cost allocation arrangements.
The Louisiana Supreme Court’s other basis for upholding
the LPSC’s order was that FERC had not specifically ap-
proved the MSS–1 cost allocation after August 5, 1997, when
it issued Order No. 415. See 815 So. 2d, at 38 (“The FERC
never ruled on the issue of whether ELI’s decision to con-
tinue to include the ERS units is a prudent one”). In so
holding, the Louisiana Supreme Court revived precisely the
same erroneous reasoning that was advanced by the Missis-
sippi Supreme Court in MP&L. There this Court noted
that the “view that the pre-emptive effect of FERC jurisdic-
tion turn[s] on whether a particular matter was actually de-
termined in the FERC proceedings” has been “long re-
jected.” MP&L, supra, at 374. It matters not whether
FERC has spoken to the precise classification of ERS units,
but only whether the FERC tariff dictates how and by whom
that classification should be made. The amended system
agreement clearly does so, and therefore the LPSC’s second-
guessing of the classification of ERS units is pre-empted.
Finally, we address respondents’ contention that the inclu-
sion of ERS units in MSS–1 calculations was a violation of
the amended system agreement and that, consequently, the
LPSC’s order is shielded from federal pre-emption. Curi-
ously, respondents advance this argument here despite the
LPSC’s own prior holding that it does not have jurisdiction
to determine whether the system agreement was violated
and the Louisiana Supreme Court’s acceptance of that con-
cession. See App. to Pet. for Cert. 64a; 815 So. 2d, at 35–36.
ELI and the United States maintain that the LPSC was cor-
rect when it initially held that FERC has exclusive jurisdic-
tion to determine whether a FERC tariff has been violated
and that state regulatory agencies may not, consistent with
the FPA, disallow costs based on their own assessment of

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noncompliance with a FERC tariff. But the question before
us is whether the LPSC’s order is pre-empted under Nanta-
hala and MP&L, and that order does not rest on a finding
that the system agreement was violated. The LPSC’s ex-
press statement that it had no jurisdiction to conclude that
there had been a violation of the system agreement confirms
this. Consequently, we have no occasion to address the
question of the exclusivity of FERC’s jurisdiction to deter-
mine whether and when a filed rate has been violated.
For the foregoing reasons, the judgment of the Louisiana
Supreme Court is reversed.
It is so ordered.