PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-4288
_____________
METROPOLITAN EDISON COMPANY;
PENNSYLVANIA ELECTRIC COMPANY,
Appellants
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION;
ROBERT F. POWELSON; JOHN F. COLEMAN, JR.;
PAMELA A. WITMER; *GLADYS M. BROWN; JAMES
H. CAWLEY,
In their Official Capacities as Commissioners of The
Pennsylvania Public Utility Commission; OFFICE OF
SMALL BUSINESS ADVOCATE; MET-ED INDUSTRIAL
USERS GROUP; PENELEC INDUSTRIAL CUSTOMER
ALLIANCE
*(Pursuant to Fed. R. App. P. 43(c)(2))
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 5-11-cv-04474)
District Judge: Hon. James Knoll Gardner
_______________
Argued
April 8, 2014
Before: AMBRO, JORDAN and ROTH, Circuit Judges.
(Filed: September 16, 2014 )
_______________
Bradley A. Bingaman
Morgan E. Parke
FirstEnergy Corporation
76 Main Street
Akron, OH 44308
John N. Estes, III
Karis A. Gong
Christopher R. Howland
John L. Shepherd, Jr. [ARGUED]
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, NW
Washington, DC 20005
Glen R. Stuart
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellants
2
James P. Melia
Robert F. Young
Bohdan R. Pankiw
Aspassia V. Staevska [ARGUED]
Kenneth R. Stark
Pennsylvania Public Utility Commission
400 N. Street – 3rd Fl.
Harrisburg, PA 17102
Counsel for Appellees Pennsylvania Public
Utility Commission, Robert F. Powelson,
John F.Coleman, Jr., Pamela A. Witmer,
Gladys M. Brown, James H. Cawley
Kimberly M. Colonna
Vasiliki Karandrikas
Charis Mincavage
McNees, Wallace & Nurick
100 Pine Street
P.O. Box 1166
Harrisburg, PA 17108
Counsel for Intervenors-Appellees
_______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
This case requires us to decide the preclusive effect of
a state utility agency’s ruling, which has been affirmed by
Pennsylvania’s Commonwealth Court and denied review by
the Pennsylvania Supreme Court and the United States
Supreme Court. Although the Appellants, electric utility
3
companies Metropolitan Edison Co. (“Met-Ed”) and
Pennsylvania Electric Co. (“Penelec”) (collectively, the
“Companies”), also, in effect, invite us to review the agency’s
ruling on the merits, we need not and do not take that step.
The Companies’ end-game appears to be to recoup
from their customers more than $250 million in costs
associated with “line losses” – i.e., energy that is lost when
electricity travels over power lines – and interest related to
those costs. For reasons we will explain, the Companies’ line
loss costs had increased pursuant to a mandate by the Federal
Energy Regulatory Commission (“FERC”), and the
Companies’ ability to recover those costs depended on
whether line-loss costs were classified as a cost of electricity
generation or as a cost of electricity transmission on their
customers’ utility bills. In a prior proceeding, the
Pennsylvania Public Utility Commission (“PUC”) rejected
the Companies’ proposal to classify line-loss costs as a cost
of transmission, thereby preventing the Companies from
passing those costs through to their customers. The
Companies then pressed their arguments and lost in the
Pennsylvania state courts and were denied review by the
United States Supreme Court.
The Companies now seek declaratory judgment and
injunctive relief in federal court against the PUC and its
Commissioners in their official capacities, which would
effectively set aside the result of the earlier state proceeding.
The United States District Court for the Eastern District of
Pennsylvania held that the Companies’ unsuccessful pursuit
of relief in the state proceeding precluded their effort to claim
relief in federal court. In short, none of the Companies’
claims survived application of the doctrine of issue
4
preclusion. We agree and will affirm the District Court’s
order of dismissal.
I. BACKGROUND1
To understand the issues raised in this appeal, it is
helpful to first look at the legislative and administrative
framework of electricity regulation and how that framework
affects the parties before us.
A. The Federal Power Act and the Filed Rate
Doctrine
In 1935, Congress enacted the Federal Power Act
(“FPA”), 16 U.S.C. § 791a et seq., which authorized “federal
regulation of the expanding business of transmitting and
selling electric power in interstate commerce.” New York v.
FERC, 535 U.S. 1, 6 (2002) (internal quotation marks and
citation omitted). As it stands today, the FPA grants FERC
jurisdiction over “the transmission of electric energy in
interstate commerce and the sale of such energy at wholesale
in interstate commerce,” 16 U.S.C. § 824(a), and requires
“[a]ll rates and charges … subject to the jurisdiction of the
1
Consistent with our standard of review for dismissal
under Federal Rule of Civil Procedure 12(b)(6), the facts
from the Companies’ amended complaint are taken as true.
See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 322 (2007). We also consider the documents
incorporated by reference in the amended complaint. Id.
5
Commission” to be “just and reasonable,” id. § 824d(a).2 The
scope of that authority, broad though it is, is meant “to extend
only to those matters which are not subject to regulation by
the States.” Id. § 824(a).
The so-called “filed rate doctrine” is an application of
the FPA’s statutory grant of authority to FERC. See Borough
of Ellwood City v. FERC, 583 F.2d 642, 648 (3d Cir. 1978)
(calling the filed rate doctrine “not so much a judicially
created ‘doctrine’ as an application of explicit statutory
language”). It may be understood for our purposes as the rule
that “interstate power rates filed with FERC or fixed by
FERC must be given binding effect by state utility
commissions determining intrastate rates.” Nantahala Power
& Light Co. v. Thornburg, 476 U.S. 953, 962 (1986). The
filed rate doctrine thus “concern[s] the pre-emptive impact of
federal jurisdiction … on state regulation.” Miss. Power &
Light Co. v. Mississippi, 487 U.S. 354, 371 (1988). The
doctrine of federal pre-emption, in turn, is rooted in the
Supremacy Clause of the Constitution, which provides that
federal law “shall be the supreme Law of the Land[,] … any
Thing in the Constitution or Laws of any State to the Contrary
notwithstanding.” U.S. Const. art. VI, cl. 2; see also
Nantahala, 476 U.S. at 963 (stating that the application of the
filed rate doctrine to state tribunals is “a matter of enforcing
the Supremacy Clause”).
2
The FPA originally vested authority in the Federal
Power Commission, but that commission was reorganized
and renamed FERC in 1977. Department of Energy
Organization Act, Pub. L. No. 95-91, § 204, 91 Stat. 565, 571
(codified at 42 U.S.C. § 7134).
6
B. The Market for Electricity
Before the passage of the FPA, electricity was usually
sold by vertically integrated electric utilities that controlled
their own generators, transmission lines, and local distribution
networks.3 New York, 535 U.S. at 5; see also ARIPPA v. Pa.
Pub. Util. Comm’n, 792 A.2d 636, 642 (Pa. Commw. Ct.
2002) (noting that, historically, electric utilities in
Pennsylvania were vertically integrated). Services were
typically “bundled” together, “meaning consumers paid a
single price for generation, transmission, and distribution.”
Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361,
1363 (D.C. Cir. 2004); see also 66 Pa. Cons. Stat. Ann.
§ 2802(13) (stating that the same was the case in
Pennsylvania). “Although there were some interconnections
among utilities, most operated as separate, local monopolies
subject to state or local regulation.” New York, 535 U.S. at 5.
Advances in technology since the enactment of the
FPA have resulted in “[t]ransmission grids [that] are now
largely interconnected, which means that ‘any electricity that
3
In contrast with a horizontally integrated monopoly,
which relates to consolidation of market power “at the same
level of market structure,” a vertically integrated monopoly
consolidates “different levels of the market structure,” such as
electricity generation, transmission, and distribution facilities
and services. Oreck Corp. v. Whirlpool Corp., 579 F.2d 126,
131 (2d Cir. 1978); cf. Sitkin Smelting & Refining Co. v. FMC
Corp., 575 F.2d 440, 446 (3d Cir. 1978) (distinguishing
horizontal and vertical price-fixing).
7
enters the grid immediately becomes a part of a vast pool of
energy that is constantly moving in interstate commerce.’”
N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d 74, 81 (3d Cir.
2014) (quoting New York, 535 U.S. at 7). “[T]he
development of a national, interconnected grid has made it
possible for a generator in one state to serve customers in
another, thus opening the door to potential competition that
did not previously exist.” Id. Nevertheless, electric utilities
maintained ownership of transmission lines, and, thus, “the
ability to stifle competition from new generators by
‘refus[ing] to deliver energy produced by competitors or [by]
deliver[ing] competitors’ power on terms and conditions less
favorable than those they appl[ied] to their own
transmissions.’” Id. (alterations in original) (quoting New
York, 535 U.S. at 8-9). As a result, for many years,
monopolistic tendencies still restrained competition in the
market for electricity.
In 1996, FERC issued Order No. 888, a landmark
ruling aimed at encouraging competition and lowering
electricity rates. See Promoting Wholesale Competition
Through Open Access Non-Discriminatory Transmission
Services by Public Utilities, 61 Fed. Reg. 21,540, 21,541
(May 10, 1996) [hereinafter Order No. 888], aff’d in relevant
part, Transmission Access Policy Study Grp. v. FERC, 225
F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC,
535 U.S. 1 (2002). Significantly for this case, that Order
requires the “unbundling” of wholesale generation and
wholesale transmission services. Id. at 21,558, 21,571,
21,577-78. Each electric utility must apply the same rate for
wholesale transmission services to itself and others so as to
provide open access to transmission services. Id. at 21,541.
Although FERC noted that unbundling retail services would
8
also be helpful to encouraging competition, Order No. 888
only required the unbundling of wholesale transmission from
wholesale generation. Id. at 21,577.
That same year, Pennsylvania enacted the Electricity
Generation Customer Choice and Competition Act (the
“Electric Competition Act”), 66 Pa. Cons. Stat. Ann. § 2801
et seq., which deregulated the business of electricity
generation within the Commonwealth. The Electric
Competition Act was designed to promote competition in the
electricity market and lower retail rates for electric energy.
See 66 Pa. Cons. Stat. Ann. § 2802(4), (7) (noting the
relatively high rates for electricity in Pennsylvania and the
importance of transitioning to “greater competition in the
electricity generation market”); see also ARIPPA, 792 A.2d at
642 (stating the rationale behind the Electric Competition
Act). The Act “requires electric utilities to unbundle their
rates and services and to provide open access over their
transmission and distribution systems to allow competitive
suppliers to generate and sell electricity directly to consumers
in this Commonwealth.” 66 Pa. Cons. Stat. Ann. § 2802(14).
Under the law, customers in Pennsylvania can purchase
generation services directly from licensed “electric generation
suppliers” rather than just from electric utilities. Id. Electric
utilities, however, continue to provide the transmission and
distribution of electricity, and “[i]f consumers d[o] not choose
to or [a]re unable to purchase power from another supplier,
the local utility [i]s still required to provide electricity to them
as the Provider of Last Resort.”4 ARIPPA, 792 A.2d at 642
(citing 66 Pa. Cons. Stat. Ann. § 2802(16)).
4
The Electric Competition Act calls electric utilities
“electric distribution companies” since they do not
9
As a result of introducing competition into the market
for electricity generation services, the Electric Competition
Act left electric utilities with “transition,” or “stranded,”
costs, which are defined as “known and measurable”
generation-related costs that “traditionally would be
recoverable under a regulated environment but which may not
be recoverable in a competitive electric generation market
and which the [PUC] determines will remain following
mitigation by the electric utility.”5 66 Pa. Cons. Stat. Ann.
§ 2803 (defining “[t]ransition or stranded costs”). In other
words, stranded costs are costs that were incurred while an
electric utility developed as a generator and supplier of power
within a regulated market but that will no longer be
recoverable in a more competitive market. Indianapolis
Power & Light Co. v. Pa. Pub. Util. Comm’n, 711 A.2d 1071,
1074 (Pa. Commw. Ct. 1998); see also Roger A. Greenbaum,
Annotation, Recovery of “Stranded Costs” by Utilities, 80
A.L.R. 6th 1 (2012) (“‘Stranded costs’ represent that portion
necessarily provide customers with direct generation services
anymore. See 66 Pa. Cons. Stat. § 2803 (defining “[e]lectric
distribution company”). For ease of reference, we will
continue to refer to them as “local” or “electric” utilities.
5
Under the Electric Competition Act, electric utilities
have a “duty to mitigate generation-related transition or
stranded costs to the extent practicable,” which may include
efforts such as accelerating the depreciation and amortization
of existing generation assets, minimizing new capital
spending on generation assets, and maximizing market
revenues from existing generation assets. 66 Pa. Cons. Stat.
Ann. § 2808(c)(4).
10
of … a utility’s generation assets not yet recovered through
[regulated rates] that has become unrecoverable in a
deregulated environment.”). For example, stranded costs may
include a long-term investment in a generation facility that is
no longer used due to deregulation of the market or other
transition costs like the cost of retraining employees. 66 Pa.
Cons. Stat. Ann. § 2803; see also PECO Energy Co. v.
Commonwealth, 919 A.2d 188, 189 n.2 (Pa. 2007) (“Stranded
costs … often [involve] assets with high construction costs
which were due to be recuperated through the rate guaranteed
under the previous monopoly system and which now will
operate at a loss.”); Indianapolis Power & Light, 711 A.2d at
1074 n.4 (explaining the main categories of stranded costs).
The Electric Competition Act allows electric utilities to
recover certain stranded costs through a “charge applied to
the bill of every customer accessing the transmission or
distribution network,” separate from the charge for the actual
amount of electricity consumed. ARIPPA, 792 A.2d at 643
(internal quotation marks omitted) (citing 66 Pa. Cons. Stat.
Ann. §§ 2803, 2806(c), 2808).
To ease transition to a competitive market, the Electric
Competition Act required electric utilities in the
Commonwealth to submit “restructuring plans,” including
proposed rate schedules and plans for the recovery of
stranded costs, for approval by the PUC. 66 Pa. Cons. Stat.
§ 2806(d)-(f). The Act outlined some restructuring standards,
such as “caps” on service rates for certain periods of time in
exchange for electric utilities being able to recover their
stranded costs. Id. § 2804(4). The rate caps allowed
customers to obtain electricity at the capped rates, which put
downward pressure on any market rate above that level. Cf.
ARIPPA, 792 A.2d at 643 (noting that customers would buy
11
from an electric utility as the provider of last resort if market
rates rose above the capped rates). Electric utilities could
seek approval from the PUC for exceptions to the rate-cap
standards. 66 Pa. Cons. Stat. Ann. § 2804(4)(iii).
C. The Companies’ Settlement Agreement
The Companies provide electricity and associated
services to customers in their prescribed territories within
Pennsylvania. Pursuant to passage of the Electric
Competition Act, they filed restructuring plans with the PUC
in 1997. In 1998, they jointly and voluntarily entered into an
omnibus settlement agreement (the “Settlement Agreement”)
that resolved disputes related to their restructuring plans and
to pending litigation in the United States District Court for the
Eastern District of Pennsylvania. Of importance in the
present matter, the Companies agreed to caps on
“Transmission and Distribution (T&D) Charges” through
December 31, 2004, as well as caps on “Generation rates”
through December 31, 2010. (J.A. at 115.) Compared to the
standard time-frames for rate caps under the Electric
Competition Act, the periods for those agreed-upon rate caps
represented extensions of three-and-a-half years on the
transmission rate cap and five years on the generation rate
cap. 66 Pa. Cons. Stat. Ann. § 2804(4)(i), (ii). In exchange
for accepting those extensions, the Companies were given
additional time to recover certain stranded costs from their
customers. The PUC entered a final order approving the
Settlement Agreement in October 1998.6
6
Upon a challenge filed by a Pennsylvania state
representative, the Pennsylvania Commonwealth Court
upheld the PUC’s final order approving the terms of the
12
D. The Companies’ Line-Loss Costs
The Companies’ distribution facilities are connected to
an interstate transmission grid that is overseen by PJM
Interconnection, LLC (“PJM”). PJM is a regional
transmission organization, a voluntary association “to which
transmission providers … transfer operational control of their
facilities for the purpose of efficient coordination” of the
wholesale electricity market. Morgan Stanley Capital Grp.
Inc. v. Pub. Util. Dist. No. 1., 554 U.S. 527, 536 (2008).
Among other things, PJM ensures that there is a sufficient
amount of electricity in its regional transmission system,
which reaches the District of Columbia and thirteen Mid-
Atlantic and Midwest states, including Pennsylvania. N.J.
Bd. of Pub. Utils., 744 F.3d at 79, 82. FERC regulates the
wholesale rates that PJM charges the Companies, and those
rates are set forth in PJM’s Open Access Transmission Tariff
(“PJM’s Tariff”), which is on file with FERC. Among the
costs that the Companies are billed by PJM are the costs for
line losses.7 As noted earlier, line losses represent the energy
Settlement Agreement. George v. Pa. Pub. Util. Comm’n,
735 A.2d 1282 (Pa. Commw. Ct. 1999).
7
The parties refer to lines losses interchangeably as
“line losses,” “marginal transmission line losses,” “marginal
transmission losses,” and “generation line losses.” (See, e.g.,
Appellants’ Opening Br. at 32, 35; Br. of PUC and PUC
Commissioners at 9.) Because the dispute underlying this
case relates to whether the cost of those losses should be
billed to the Companies’ customers as a cost of transmission
or, instead, a cost of generation, we will use the neutral term
“line losses” to refer to such loss of energy.
13
that is lost when electricity travels over power lines. PJM
bills the Companies for line losses as a discrete line item
within the charge for “transmission” service. (J.A. at 41-42
(Amended Complaint); id. at 481, 483, 486, 488, 191-92
(PJM’s Tariff).)
Until June 30, 2007, PJM calculated and billed for line
losses using what is called the “average loss” methodology.
See Atl. City Elec. Co. v. PJM Interconnection, LLC (Atlantic
City I), 115 FERC ¶ 61,132, p. 61,473 (2006), reh’g denied,
117 FERC ¶ 61,169. As the name suggests, PJM charged its
customers for line losses “equal to the average loss cost” –
PJM recovered line-loss costs by allocating the cost to all of
its customers equally. Id. at 61,473. As a result, line-loss
costs did not depend on the distance between the point of
electricity generation and the point of electricity delivery. Id.
at 61,473-74.
On March 2, 2006, several electric utilities (but not the
Companies) filed a complaint with FERC alleging that, under
an agreement appended to PJM’s Tariff, PJM was required to
switch from the average loss methodology to a “marginal
loss” methodology to calculate the cost of line losses. Id. at
61,473. “Under the marginal loss method, the effect of losses
on the marginal cost of delivering energy is factored into the
energy price … at each location.” Id. at 61,474. Thus,
“[o]ther things being equal, customers near generation centers
pay prices that reflect smaller marginal loss costs while
customers far from generation centers pay prices that reflect
higher marginal loss costs.” Id.; see also Sacramento Mun.
Util. Dist. v. FERC, 616 F.3d 520, 524 (D.C. Cir. 2010)
(describing the marginal loss methodology as a rate structure
in which “prices are designed to reflect the least-cost of
14
meeting an incremental [energy] demand at each location on
the grid, and thus prices vary based on location and time”).
After issuing notice of the complaint, FERC solicited
comments from numerous electric utilities and customer
coalitions. Atlantic City I, 115 FERC at 61,474-77.
In an order issued in 2006, FERC held that the
agreement appended to PJM’s Tariff required PJM to use the
marginal loss methodology once it was technologically
feasible to do so and that PJM had conceded that it possessed
the necessary technology. Id. at 61,477. FERC also noted
that using marginal loss pricing would result in cost savings
to PJM and efficiencies in resource allocation. Id. at 61,474,
61,477-78. Accordingly, FERC required PJM to switch from
using the average loss methodology to the marginal loss
methodology of calculating line losses. Id. at 61,478. The
Companies did not participate in the comments process
before FERC or challenge the resulting order. Id. at 61,474-
77.
A few months later, FERC denied rehearing requests
but granted a request to delay implementation of the marginal
loss methodology to June 2007. Atl. City Elec. Co. v. PJM
Interconnection, LLC (Atlantic City II), 117 FERC ¶ 61,169,
pp. 61,858, 61,861 (2006). The Companies did not directly
challenge that order either; in fact, they assert that “no one
did.” (Appellants’ Opening Br. at 36.) PJM’s
implementation of FERC’s orders to change the calculation of
line-loss costs, which orders we will refer to collectively as
the Atlantic City decision, decreased the line-loss costs for
some electric utilities. However, it increased the line-loss
costs that PJM billed to the Companies.
15
II. PROCEDURAL HISTORY
Not surprisingly, the Companies eventually sought to
recover their increased line-loss costs by asking the PUC to
allow them to pass the expense through to their customers. A
“transmission rider,” which was approved by the PUC in
2006 after the Companies’ transmission rate cap had lapsed,
allowed the Companies to pass through various proposed
transmission costs to their customers and to engage in an
annual updating and reconciliation process in order to recover
projected transmission costs and adjust for the over- or under-
collection of past transmission costs. Pa. Pub. Util. Comm’n
v. Metro. Edison Co., Nos. R-00061366C0001 et al., 2007
WL 496359 (Pa. PUC Jan. 11, 2007), aff’d sub nom. Met-Ed
Indus. Users Grp. v. Pa. Pub. Util. Comm’n, 960 A.2d 189
(Pa. Commw. Ct. 2008). Under that annual process, the
Companies proposed for the first time in April 2008 to charge
their customers for the higher line-loss costs that the
Companies incurred after PJM’s implementation of the
Atlantic City decision. Because the generation rate cap under
the Settlement Agreement was still in effect at that time, the
Companies could only recover the line-loss costs if granted
approval to bill them to customers as a cost of transmission.
A. The PUC Order
Pennsylvania’s Office of Consumer Advocate and
Office of Small Business Advocate8 and two groups known as
8
The briefing refers to the “Office of Small Business
Advocate.” (See, e.g., Br. of PUC and PUC Commissioners
at 9.) We understand that to be an agency of the
Commonwealth of Pennsylvania.
16
the Met-Ed Industrial Users Group and the Penelec Industrial
Users Alliance (collectively, the “Customer Groups”) – all
representing the interests of various customers – filed
complaints before the PUC to contest the Companies’
proposed rate increase. They argued that line-loss costs
should properly be viewed as a generation cost, not a
transmission cost, and, thus, could not be increased due to the
Settlement Agreement’s generation rate cap in effect through
the end of 2010. The Customer Groups’ complaints were
consolidated for a hearing before a PUC administrative law
judge (“ALJ”).9 An evidentiary hearing was held after the
Companies and Customer Groups completed briefing.
The ALJ recommended dismissing the Customer
Groups’ complaints and approving the Companies’ requests
to recover line-loss costs as a transmission cost. In re Pa.
Elec. Co. Transmission Serv. Charge, Nos. M-2008-2036188
et al., 2009 Pa. PUC LEXIS 2328 (July 24, 2009). The
Customer Groups filed exceptions to the ALJ’s
recommendation, triggering review by the Commissioners of
the PUC. See 66 Pa. Cons. Stat. Ann. § 332(h) (providing
procedure for excepting to an ALJ’s recommendation).
The Customer Groups argued to the PUC that line-loss
costs should not be billed to them as transmission costs
because (1) line losses have historically been recognized as
part of the cost of electricity generation; (2) how PJM bills
9
Before consolidation, the PUC had instituted an
investigation of Met-Ed’s proposed transmission charges and
conditionally approved Penelec’s proposed charges, pending
resolution of the complaints.
17
the Companies for line losses is irrelevant to whether those
losses should be billed to the Companies’ customers as a
generation or transmission cost; and (3) the Companies
themselves have historically treated line-loss costs as
generation costs. The Companies responded by (1)
emphasizing how line losses are related to transmission, i.e.,
as electricity is transmitted over longer distances, line losses
increase; (2) pointing to the FERC-approved definition of
“transmission losses” in PJM’s Tariff;10 and (3) arguing that
PJM bills the Companies for line losses as a cost of
transmission service. The Companies also claimed that they
did not initially seek to recover line-loss costs as a
transmission cost because, at the time, FERC had not yet
mandated the use of marginal loss pricing.
The PUC in a split decision entered March 3, 2010 (the
“PUC Order”) ultimately rejected all of the Companies’
arguments and agreed with the Customer Groups. The PUC
did not adopt the ALJ’s recommendation that line losses be
considered a transmission cost, concluding instead that the
Companies’ line losses were generation costs subject to the
Settlement Agreement’s generation rate cap that was in effect
through 2010. As the merits of the PUC Order are not before
us, suffice it to say that the PUC thoroughly reviewed all of
the Companies and the Customer Groups’ arguments. By a
three-to-two vote of the Commissioners, the agency required
10
As defined in PJM’s Tariff, “[t]ransmission losses
refer to the loss of energy in the transmission of electricity
from generation resources to load, which is dissipated as heat
through transformers, transmission lines and other
transmission facilities.” (J.A. at 481.)
18
the Companies to file tariff supplements consistent with the
majority’s decision.11
B. Review of the PUC Order
The Companies petitioned the Pennsylvania
Commonwealth Court for review of the PUC Order to the
extent it denied their request to classify line-loss costs as a
transmission cost.12 In June 2011, the Commonwealth Court,
sitting en banc, affirmed that aspect of the PUC Order in a
unanimous opinion and order. The Commonwealth Court
11
Commissioner Powelson filed a dissenting
statement, saying that the Companies’ line-loss costs were a
cost of transmission because, inter alia, they were not
expressly included as a generation cost in the Settlement
Agreement, and including them in transmission costs would
be consistent with FERC’s view of line losses. However, he
was careful to note that “[t]his is not to say that … line losses
cannot be included within generation rates,” and he agreed
with the PUC majority that FERC’s treatment of line losses
“certainly is not controlling on whether the [PUC] should
allow for the recovery of such losses in retail rates.” (J.A. at
165.)
12
The Commonwealth Court consolidated the
Companies’ petition with a cross-petition for review filed by
Pennsylvania’s Office of Small Business Advocate that
sought review of the PUC Order to the extent it allowed the
Companies to recover certain interest charges. The
Commonwealth Court vacated the PUC Order with respect to
that issue, which is immaterial to this appeal.
19
reviewed whether the PUC’s findings of fact – “including the
[PUC’s] finding that line loss costs were and are being
recovered in [the] Companies’ generation rates” – were
supported by substantial evidence. (J.A. at 176.) The court
also reviewed whether the PUC erred as a matter of law in
concluding that line-loss costs are a generation cost. It found
no reversible error in either regard.
Important for purposes of this appeal, the
Commonwealth Court addressed the Companies’ argument
that classifying line-loss costs as a generation cost for
purposes of retail billing “violates the Filed Rate Doctrine and
is inconsistent with … FERC’s characterization of line
losses.” (J.A. at 183.) The Companies had cited FERC
decisions that allegedly treated line losses as a cost of
transmission, but the Commonwealth Court held that those
decisions “do not unambiguously state that such costs are
transmission-related.” (J.A. at 188.) As the court saw it,
several of those FERC decisions included language tying line
losses to the costs of generating electricity. The court thus
concluded that FERC’s decisions did not create any “direct
conflict” with the classification of the Companies’ line-loss
costs as generation costs. (J.A. at 189.)
Furthermore, the Commonwealth Court held that, for
two reasons, there was no impermissible “trapping” of the
Companies’ costs. Cost trapping, in this context, refers to a
state “bar[ring] regulated utilities from passing through to
retail consumers FERC-mandated wholesale rates.” Miss.
Power & Light, 487 U.S. at 372. First, the court stated that
the Companies’ trapping argument was “premised on the
[rejected] assumption that line loss costs are transmission-
related.” (J.A. at 191.) Second, it determined that any
20
alleged trapping was resolved by the Settlement Agreement
“because [the] Companies voluntarily extended th[e]
[generation] rate cap through December 31, 2010 … in
exchange for recovering stranded costs,” thus assuming the
risk that any increased costs would not be recoverable. (Id.)
The Commonwealth Court therefore affirmed the PUC Order
in relevant part, holding that the Order was not inconsistent
with FERC precedent, did not run afoul of the filed rate
doctrine, and did not improperly trap the Companies’ costs.
The Pennsylvania Supreme Court subsequently denied
the Companies’ petition for allowance of appeal, and the
United States Supreme Court denied the Companies’ petition
for a writ of certiorari. The Commonwealth Court’s decision
(the “State Decision”) affirming the classification of line-loss
costs for retail billing purposes thus became final.
C. The Federal Action
On July 13, 2011, while their petition for review
before the Pennsylvania Supreme Court was pending, the
Companies filed the present action in the District Court,
naming as defendants the PUC and PUC Commissioners
Robert F. Powelson, John F. Coleman, Jr., Pamela A. Witmer,
Wayne E. Gardner,13 and James H. Cawley in their official
13
Gardner has since been replaced as a defendant,
pursuant to Rule 43(c)(2) of the Federal Rules of Appellate
Procedure, with PUC Commissioner Gladys M. Brown. See
Fed. R. App. P. 43(c)(2) (providing that, if an officeholder
who is sued in his or her official capacity ceases to hold
office, the officeholder’s successor is automatically
substituted as a party).
21
capacities (collectively, the “PUC Defendants”). As
originally filed, the suit claimed that the PUC Defendants had
violated the FPA and the filed rate doctrine, as well as the
Companies’ property interests under the Fourteenth
Amendment. The Companies later filed an amended
complaint to add a claim that the Electric Competition Act is
unconstitutional as applied. Pennsylvania’s Office of Small
Business Advocate, the Met-Ed Industrial Users Group, and
the Penelec Industrial Users Alliance filed motions to
intervene, which the District Court granted, permitting them
“to intervene as defendants.” (J.A. at 5 (Dkt. 41).)
The gravamen of the Companies’ amended complaint
is that the outcome of the state proceeding resulted in
unlawful trapping of the line-loss costs that PJM charged
them pursuant to FERC-approved tariffs. The Companies
ultimately seek to recover the line-loss costs they incurred
between 2007 and 2010.14 Those disputed costs, including
interest, allegedly total more than $250 million.15
Count I of the Companies’ amended complaint asserts
that the alleged cost-trapping violates the FPA and the filed
rate doctrine. Count II alleges that the PUC Order “imposes a
confiscatory rate on the Companies” by depriving them of a
14
There is no dispute that the State Decision leaves
them free to recover line-loss costs after the Settlement
Agreement’s generation rate cap lapsed at the end of 2010.
15
According to the Companies’ amended complaint in
this action, the amount that they seek to recover exceeds their
combined net income in 2009 and 2010.
22
property interest in recovering line-loss costs and, thus,
violates the Due Process Clause of the Fourteenth
Amendment and, by extension, the FPA’s requirement that
rates be just and reasonable. (J.A. at 50.) Count III claims
that the Electric Competition Act is unconstitutional as
applied because it is pre-empted by federal law. In sum, the
Companies allege that, by barring them from recovering the
line-loss costs that PJM charged them under a FERC-
mandated methodology, the PUC Order violates the filed rate
doctrine, the Supremacy Clause of the Constitution, the
Fourteenth Amendment, and the FPA, and, to the extent the
PUC and the Commonwealth Court relied on the Electric
Competition Act, that statute, as applied, is pre-empted by
federal law.
The PUC Defendants moved to dismiss the amended
complaint,16 arguing that the Companies’ claims are barred by
issue preclusion, claim preclusion, abstention principles, and
judicial estoppel.17 With respect to preclusion, the
16
The District Court initially denied the motion to
dismiss the amended complaint without prejudice to renew,
pending resolution of the certiorari petition in the United
States Supreme Court from the state proceeding. The PUC
Defendants renewed their motion to dismiss after the
Supreme Court denied certiorari.
17
The PUC Defendants also raised the Full Faith and
Credit Statute, 28 U.S.C. § 1738, as a separate ground for
dismissal in the District Court. However, as we will explain,
that statute directs us to Pennsylvania’s law on preclusion.
So, like the District Court, we will not examine the Full Faith
and Credit Statute as a separate basis for dismissal.
23
Companies responded with three arguments for why their
claims are not barred by preclusion principles: the state
proceeding was legislative, rather than judicial, in nature; the
Commonwealth Court reviewed the PUC’s ruling under the
wrong standard; and the PUC Order was facially pre-empted
by FERC’s exclusive jurisdiction.
After hearing oral argument on the renewed motion to
dismiss, the District Court dismissed all of the Companies’
claims on the basis of issue preclusion. The Companies then
timely filed this appeal.18
18
The Met-Ed Industrial Users Group and Penelec
Industrial Users Alliance filed a brief before us as
Intervenors-Appellees. In it, they adopt and join all of the
PUC Defendants’ arguments and emphasize that “the []PUC
appropriately enforced the Companies’ obligation under the
… Settlement Agreement.” (Intervenors-Appellees’ Br. at
14-15.) For simplicity, we only cite to the PUC Defendants’
briefing, and when we refer to the PUC Defendants in the text
from this point on, that reference includes the Met-Ed
Industrial Users Group and the Penelec Industrial Users
Alliance as well. Pennsylvania’s Office of Small Business
Advocate did not file a brief on appeal.
24
III. DISCUSSION19
At the outset, it is worth emphasizing what is and is not at
issue here. The question before us is whether the State
Decision – i.e., the Commonwealth Court’s decision that the
PUC’s classification of line-loss costs did not violate the filed
rate doctrine or impermissibly trap costs – bars litigation of
the claims in this federal action. It is not whether the PUC
correctly classified the Companies’ line-loss costs as
generation costs in the first instance.
19
The District Court had jurisdiction under 28 U.S.C.
§§ 1331 and 1343(a)(3). The Companies argue that the Court
also had jurisdiction under 16 U.S.C. § 825p, which provides
federal district courts with jurisdiction to “enforce any
liability or duty created by, or to enjoin any violation of [the
FPA] or any rule, regulation, or order thereunder.” We have
jurisdiction pursuant to 28 U.S.C. § 1291. We exercise
plenary review of a district court’s order of dismissal under
Federal Rule of Civil Procedure 12(b)(6), Atkinson v.
Lafayette Coll., 460 F.3d 447, 451 (3d Cir. 2006), including
the application of issue preclusion, Jean Alexander
Cosmetics, Inc. v. L’Oreal USA, Inc., 458 F.3d 244, 248-49
(3d Cir. 2006). “Under Rule 12(b)(6), a motion to dismiss
may be granted only if, accepting the well-pleaded allegations
in the complaint as true and viewing them in the light most
favorable to the plaintiff, a court concludes that those
allegations ‘could not raise a claim of entitlement to relief.’”
Simon v. FIA Card Servs., N.A., 732 F.3d 259, 264 (3d Cir.
2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558
(2007)).
25
The Companies offer several arguments for denying
the State Decision any preclusive effect, based on what they
call exceptions to the application of the Full Faith and Credit
Statute, 28 U.S.C. § 1738. (Appellants’ Opening Br. at 29-
44.) They also argue that the District Court misinterpreted
the reach of the State Decision to preclude all of their claims.
The PUC Defendants respond that the principles of issue
preclusion properly bar the present case and, in the
alternative, that dismissal would be proper under claim
preclusion, abstention principles, and judicial estoppel.
A. Issue Preclusion
The District Court viewed the State Decision as having
preclusive effect because the Commonwealth Court addressed
the Companies’ arguments that the PUC Order violated the
filed rate doctrine and impermissibly trapped costs. Under
the doctrine of issue preclusion, also referred to as collateral
estoppel, “once a court has decided an issue of fact or law
necessary to its judgment, that decision may preclude
relitigation of the issue in a suit on a different cause of action
involving a party to the first case.” Allen v. McCurry, 449
U.S. 90, 94 (1980). Federal courts give preclusive effect to
issues decided by state courts, to “not only reduce
unnecessary litigation and foster reliance on adjudication, but
also promote the comity between state and federal courts that
has been recognized as a bulwark of the federal system.” Id.
at 95-96. The preclusive effect of a state court judgment in a
subsequent federal lawsuit is determined by the Full Faith and
Credit Statute, which provides, in relevant part, that state
judicial proceedings “shall have the same full faith and credit
in every court within the United States … as they have by law
or usage in the courts of such State … from which they are
26
taken.” 28 U.S.C. § 1738. That statute has been interpreted
by the Supreme Court to require a federal court to look to
state law to determine the preclusive effect of a prior state
judgment. Marrese v. Am. Acad. of Orthopaedic Surgeons,
470 U.S. 373, 380 (1985).
Here, there is no dispute that Pennsylvania’s
preclusion law applies. The Pennsylvania Supreme Court has
established a five-prong test providing that issue preclusion
will apply when:
(1) the issue decided in the prior case is
identical to the one presented in the later action;
(2) there was a final adjudication on the merits;
(3) the party against whom the plea is asserted
was a party or in privity with a party in the prior
case; (4) the party … against whom the doctrine
is asserted had a full and fair opportunity to
litigate the issue in the prior proceeding; and (5)
the determination in the prior proceeding was
essential to the judgment.[20]
Office of Disciplinary Counsel v. Kiesewetter, 889 A.2d 47,
50-51 (Pa. 2005).
20
Some earlier Pennsylvania cases apply the same
issue preclusion test but without the fifth prong regarding
whether the prior determination was essential to the
judgment. E.g., Shaffer v. Smith, 673 A.2d 872, 874 (Pa.
1996).
27
As noted before, Count I of the amended complaint
alleges that the PUC Order trapped the Companies’ line
losses in violation of the filed rate doctrine and, by extension,
in violation of the FPA and the Supremacy Clause of the
Constitution. The Companies do not appear to dispute that
Count I meets all five of the requirements for issue preclusion
under Pennsylvania law. That is wise, since (1) the
Commonwealth Court squarely decided that the PUC Order
did not violate the filed rate doctrine or impermissibly trap
costs; (2) the court’s decision was on the merits and final after
both the Pennsylvania Supreme Court and the United States
Supreme Court denied petitions to review the State
Decision;21 (3) the Companies were parties to the underlying
state proceeding; (4) the Companies were given the
opportunity to fully and fairly litigate the issue, as they were
represented by counsel, filed multiple briefs, pointed to
evidence from the PUC proceeding, and presented oral
argument to the en banc Commonwealth Court;22 and (5) the
21
The Companies argue that the State Decision was a
legislative action rather than an adjudication. We will
address that argument when discussing the exceptions that
they raise to the application of issue preclusion.
22
“A party has been denied a full and fair opportunity
to litigate only when state procedures fall below the minimum
requirements of due process as defined by federal law.”
Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064, 1074 (3d
Cir. 1990). Those minimum requirements may, depending on
circumstances, include “the right to be represented by
counsel, … present testimony and documentary evidence, and
… subpoena and cross-examine witnesses.” Rue v. K-Mart
Corp., 713 A.2d 82, 85 (Pa. 1998); see also Rogin v.
28
determination was essential to the judgment because, had the
Commonwealth Court decided that there was a violation of
the filed rate doctrine, it could not have affirmed the PUC
Order as it did. Absent some exception, Count I is therefore
barred by issue preclusion.
According to the Companies, however, their claims in
Counts II and III – which allege a confiscatory taking and
federal pre-emption of the Electric Competition Act,
respectively – do not meet the five-prong issue preclusion test
under Pennsylvania law. They argue that those claims raise
new issues that were not decided in the state proceedings and
that the Companies were not given a full and fair opportunity
to litigate them. The PUC Defendants argue that the
Companies failed to object to the application of issue
preclusion to Counts II and III before the District Court,
thereby waiving their arguments against preclusion of those
two counts. The PUC Defendants further submit that Counts
II and III, like Count I, require adjudication of the very issues
that were fully litigated and decided in the state proceedings.
We consider the waiver argument first.
Bensalem Twp., 616 F.2d 680, 694 (3d Cir. 1980) (noting that
elements of procedural due process include whether there is
notice, a neutral arbiter, an opportunity for oral argument, an
opportunity to present evidence, an opportunity to cross-
examine witnesses or respond to written evidence, and an
explanatory decision based on the record).
29
1. Waiver
“[F]ailure to raise an issue in the district court
constitutes a waiver of the argument.” Gass v. V.I. Tel.
Corp., 311 F.3d 237, 246 (3d Cir. 2002) (internal quotation
marks and citation omitted). “We only depart from this rule
when manifest injustice would result from a failure to
consider a novel issue.” Id. (internal quotation marks and
citation omitted). The Companies do not attempt to show that
manifest injustice would result from a failure to consider their
arguments regarding Counts II and III. Rather, they claim
that there is no waiver because they “provided [the PUC
Defendants] with fair notice and the grounds on which Counts
II and III separately rested.” (Appellants’ Reply Br. at 24
(citing Phillips v. Cnty. of Allegheney, 515 F.3d 224, 233-35
(3d Cir. 2008)).) That argument misses the mark because,
even if it were factually accurate, it relates to pleading
requirements. It does not show that the Companies preserved
their arguments for appeal by raising them in the District
Court, and indeed they did not.
The Companies claim that they did not waive their
arguments because their “[b]rief … explain[ed] why Counts
II and III were not commingled with Count I.” (Appellants’
Reply Br. at 25.) But that argument is unavailing because the
brief that they cite to is the opening brief before us, not
anything that they filed in the District Court.23 The
23
The opening brief before us is the first time the
Companies raised arguments regarding how issue preclusion
might apply differently to Counts II and III. As the PUC
Defendants point out, the Companies did not even identify
30
Companies also argue that they did not litigate the merits of
Count III in the state proceeding, but that is an argument that
Count III is not precluded; it is not a justification for failing to
raise arguments specific to Count III in response to the
motion to dismiss in the District Court.
The only colorable argument that the Companies make
to rebut waiver is that the PUC and its Commissioners, in
their motion to dismiss, “did not argue [in the first place] that
Count II was barred by issue preclusion.” (Appellants’ Reply
Br. at 25.) In that regard, the Companies are correct. As a
consequence, we are not prepared to say that they were
required, at the risk of waiver, to argue that issue preclusion
does not apply to Count II. We will not consider the
Companies’ issue preclusion arguments with respect to Count
II waived. The PUC and its Commissioners did, however,
argue in the District Court that issue preclusion bars Counts I
and III. As the Companies did not attempt to distinguish
Count III in the District Court in response to the issue
preclusion arguments, they waived at least their arguments as
to that count.24
2. Issue preclusion analysis
In any event, as the PUC Defendants argue, Counts II
and III of the Companies’ amended complaint are both barred
by issue preclusion, absent any exceptions that would
those arguments in their Concise Summary of the Case filed
before us.
24
For the reasons already discussed, issue preclusion
does apply to Count I, absent any applicable exception.
31
preserve them. Count II alleges that the PUC Order “imposes
a confiscatory rate on the Companies in violation of the
Constitution because it deprives the Companies of their
property right to recover their federally-approved costs of
providing electric service, which includes marginal
transmission line loss charges, to their Pennsylvania
customers.” (J.A. at 50.) Count II further alleges that the
PUC Order is confiscatory because it violates the FPA’s
requirement for rates to be just and reasonable. In other
words, Count II is premised on the success of the argument
that the PUC Order violated the filed rate doctrine and, thus,
impermissibly “trapped” the Companies’ line-loss costs – the
same argument that the Companies raise in Count I and that is
precluded by the State Decision, absent an applicable
exception. Without a legal determination that their costs were
impermissibly “trapped,” the Companies have no basis for
asserting an unconstitutional deprivation of any property
interest. Because Count II depends entirely on the same
issues that were already litigated to finality in the state
proceeding, it is foreclosed by issue preclusion.
A similar fate would befall Count III, even if the
Companies’ arguments regarding that count were not waived.
Count III relates to the constitutionality of the Electric
Competition Act as applied to the Companies, to the extent
the PUC Order “disregard[ed] FERC orders or …
interpret[ed] FERC tariffs” in violation of the filed rate
doctrine. (J.A. at 51.) Although the constitutional challenge
to the Electric Competition Act was not raised until the PUC
made its decision, it depends, like Count II, on the Companies
being able to establish that the PUC Order violated the filed
rate doctrine. Again, the State Decision expressly held that
32
there was no violation of the filed rate doctrine, so Count III
would also be precluded, absent any exception.25
B. Exceptions to the Full Faith and Credit
Statute
Although issue preclusion would typically foreclose
their claims, the Companies argue that three exceptions to the
Full Faith and Credit Statute apply to render the State
Decision devoid of any preclusive effect: (1) the state
proceeding was legislative rather than judicial in nature; (2)
the Companies had a substantially higher burden of
persuasion in the Commonwealth Court than they do in this
federal action; and (3), under the filed rate doctrine, the PUC
and the Commonwealth Court infringed on FERC’s exclusive
jurisdiction. [Appellants’ Opening Br. at 24-26.] We are
not persuaded that any of those exceptions apply to foreclose
the application of issue preclusion in this case.
25
To the extent the Companies claim that they have
not had a full and fair opportunity to litigate Counts II and III,
that argument is unavailing. While the Companies may not
have litigated the claims set forth in Counts II and III in the
state proceeding, they had a full and fair opportunity to
litigate the underlying issues of whether classifying their line-
loss costs as a generation cost for retail billing purposes
violated the filed rate doctrine or impermissibly trapped costs.
33
1. Whether the state proceeding was
legislative or judicial in nature
The Full Faith and Credit Statute, by its terms, applies
only to “judicial proceedings.” 28 U.S.C. § 1738. The
Companies argue that the state proceeding was legislative, not
judicial, in nature, so the Full Faith and Credit Statute – and
the principles of preclusion that stem from it – do not apply.
The parties do not dispute that the Supreme Court has
counseled federal courts to defer to each state’s
characterization of its own proceedings. See Okla. Packing
Co. v. Okla. Gas & Elec. Co., 309 U.S. 4, 7 (1940) (looking
to “[t]he pronouncements of the Oklahoma Supreme Court
concerning the character of … a [prior] determination”);
Okla. Natural Gas Co. v. Russell, 261 U.S. 290, 291 (1923)
(“The Constitution of Oklahoma[] … gives an appeal to the
Supreme Court of the State, acting in a legislative capacity …
, with power to substitute a different order and to grant a
supersedeas in the meantime.”); cf. Prentis v. Atl. Coast Line
Co., 211 U.S. 210, 226 (1908) (“We shall assume that when[]
… a state Constitution sees fit to unite legislative and judicial
powers in a single hand, there is nothing to hinder, so far as
the Constitution of the United States is concerned.”). In
addition, the Supreme Court in New Orleans Public Service,
Inc. v. Council of New Orleans (“NOPSI”), 491 U.S. 350
(1989), said that the proper characterization of an agency’s
actions “depends not upon the character of the body but upon
the character of the proceedings. … The nature of the final act
determines the nature of the previous inquiry.” Id. at 371
(first alteration in original) (internal quotation marks and
citation omitted). NOPSI teaches that
34
[a] judicial inquiry investigates, declares and
enforces liabilities as they stand on present or
past facts and under laws supposed already to
exist. That is its purpose and end. Legislation
on the other hand looks to the future and
changes existing conditions by making a new
rule to be applied thereafter to all or some part
of those subject to its power.
Id. at 370-71 (internal quotation marks and citation omitted).
The Companies argue that Pennsylvania has not
clearly decided whether the Commonwealth Court’s review
of a PUC order is legislative or judicial, while the PUC
Defendants counter that the Pennsylvania Administrative Law
and Procedure Act and the Pennsylvania Judicial Code
unequivocally call appellate review of PUC proceedings
“judicial.” (PUC Defendants’ Br. at 44.) The District Court
concluded that the Commonwealth Court’s review of the
PUC Order was judicial in nature because the Commonwealth
Court’s authority to review PUC orders under 2 Pa. Cons.
Stat. § 704 “is limited to determining whether a constitutional
violation, an error of law, or a violation of PUC procedure has
occurred and whether necessary findings of fact are supported
by substantial evidence.”26 (J.A. at 30 (quoting Popowsky v.
26
Under 2 Pa. Cons. Stat. Ann. § 704, which relates to
“Judicial Review of Commonwealth Agency Action”:
The [reviewing] court shall hear the appeal
without a jury on the record certified by the
Commonwealth agency. After hearing, the
court shall affirm the adjudication unless it shall
35
Pa. Pub. Util. Comm’n, 910 A.2d 38, 48 (Pa. 2006)) (internal
quotation marks omitted).) The District Court further found
support for the judicial nature of the proceeding in “the
Commonwealth Court[’s] reli[ance] upon past facts (as found
in the proceeding before the []PUC) and existing law (as the
Commonwealth Court interpreted it) to resolve a challenge to
the legality of a prior action (the []PUC … Order).” (Id.)
The Companies contend that the District Court’s
reasoning was erroneous because “[i]t cannot be true that
[the] commonplace standard of agency review – one that
applies to both ratemaking and non-ratemaking agencies alike
– makes the Commonwealth Court’s decision here judicial.”
(Appellants’ Opening Br. at 51.) In other words, they argue
that the scope of the Commonwealth Court’s review, alone,
cannot determine whether such review is judicial or
legislative in nature. That argument fails, however, because
find that the adjudication is in violation of the
constitutional rights of the appellant, or is not in
accordance with law, or that the provisions of
Subchapter A of Chapter 5 (relating to practice
and procedure of Commonwealth agencies)
have been violated in the proceedings before the
agency, or that any finding of fact made by the
agency and necessary to support its adjudication
is not supported by substantial evidence. If the
adjudication is not affirmed, the court may enter
any order authorized by 42 Pa. C.S. § 706
(relating to disposition of appeals).
2 Pa. Cons. Stat. Ann. § 704.
36
the scope of agency review is not the sole basis for
concluding that the State Decision was judicial rather than
legislative. Other aspects of the state proceeding also indicate
that it was judicial in nature.
The Companies rely on two Pennsylvania cases from
the 1950s to argue that Pennsylvania courts consider their
review of a state agency’s rate-making to be legislative in
nature. The two are a 1954 Pennsylvania Superior Court
case, Duquesne Light Co. v. Pennsylvania Public Utility
Commission, which includes the comment that “[r]ate making
is an exercise of the legislative power, delegated to the
Commission,” 107 A.2d 745, 755 (Pa. Super. Ct. 1954), and a
Pennsylvania Supreme Court opinion from 1956,
Pennsylvania State Chamber of Commerce v. Torquato, that
says “[t]he [United States Supreme] Court has permitted
resort to a federal court of equity where a state was enforcing
confiscatory rates and by its law precluded a stay … until the
state courts ‘acting in a legislative capacity’ had taken final
action,” 125 A.2d 755, 763 (1956) (quoting Aircraft & Diesel
Equip. Corp. v. Hirsch, 331 U.S. 752, 773 n.38 (1947)).
Duquesne, however, relates to the nature of certain PUC rate-
making; it does not dictate that all PUC actions are legislative
in nature, let alone hold that the Commonwealth Court’s
review of a PUC decision is a legislative act. And the
Pennsylvania Supreme Court in Torquato simply recognized
that a state court acting in a legislative capacity does not
necessarily establish precedent that prevents resort to a
federal court; it did not hold that review of a PUC action is by
definition legislative.
We recognized in Kentucky West Virginia Gas Co. v.
Pennsylvania Public Utility Commission, 837 F.2d 600 (3d
37
Cir. 1988), that PUC proceedings may be judicial in nature:
“When a state agency acting in a judicial capacity resolves
disputed issues of fact properly before it which the parties
have had an adequate opportunity to litigate, federal courts
must give the agency factfinding the same preclusive effect to
which it would be entitled in the state’s courts.” Id. at 611
(emphasis added). Moreover, Pennsylvania law recognizes
that PUC action and subsequent court review can be judicial
in nature. See 2 Pa. Cons. Stat. Ann. § 704 (Pennsylvania
Administrative Law and Procedure Act describing the various
dispositions when a court reviews a state agency’s
“adjudication”). As the PUC Defendants point out, PUC
decisions can be “the product of a quasi-judicial, on-the-
record proceeding that includes a presiding ALJ who has the
power to administer oaths, conduct evidentiary hearings,
allow for cross-examination, rule on motions, review briefs
submitted by the parties, and issue recommended decisions
with findings of fact and conclusions of law.” (PUC
Defendants’ Br. at 44 (citing 66 Pa. Cons. Stat. Ann. § 331; 2
Pa. Cons. Stat. Ann. §§ 504-507).) By implication, if a state
agency proceeding is judicial, appellate review of that
proceeding is also judicial.
A straightforward application of the distinction
between judicial and legislative inquiry outlined in NOPSI
confirms that the Commonwealth Court decision at issue here
is judicial in nature. As the District Court held, “the
Commonwealth Court of Pennsylvania did not conduct an
independent, forward-looking ... investigation.” (J.A. at 30.)
Instead, the Commonwealth Court, like the PUC, referred to
and endeavored to enforce (whether correctly or not is
immaterial at this juncture) the pre-existing Settlement
Agreement. The Commonwealth Court further made a
38
determination specific to the Companies. It determined that
there was no violation of the filed rate doctrine with respect to
how the PUC required the Companies to classify their line
losses, which involved a review of the record regarding how
the Companies, specifically, had treated line losses in the
past. At bottom, both the PUC and the Commonwealth Court
adjudicated the adversarial dispute between the Customer
Groups and the Companies after considering those parties’
respective legal arguments. We have no difficulty holding
that the state proceeding was judicial, not legislative. The
nature of the state proceeding therefore does not bar the
application of issue preclusion in this case.
2. Whether the Companies’ burdens before
the Commonwealth Court and in the
instant case are different
The Companies also argue that the so-called
“difference-in-burden exception” bars giving the State
Decision any preclusive effect. (Appellants’ Opening Br. at
44.) They rely on Section 28(4) of the Restatement (Second)
of Judgments, which states that preclusion does not apply
when
[t]he party against whom preclusion is sought
had a significantly heavier burden of persuasion
with respect to the issue in the initial action than
in the subsequent action; the burden has shifted
to his adversary; or the adversary has a
significantly heavier burden than he had in the
first action.
39
Restatement (Second) of Judgments § 28(4) (1982). The
Companies do not argue that the burden of proof ever shifted
to their adversaries. (See Oral Argument Transcript (“Tr.”) at
29:11-12 (“We have the burden – either way we have the
burden.”).) Rather, they argue that, in reviewing the PUC
Order, the Commonwealth Court applied the wrong standard
of review and placed a substantially more onerous burden of
persuasion on them than the Companies would face in this
action. The PUC Defendants respond by arguing that “the
use of the [difference-in-burden] exception is not ‘well-
established’ in relevant case law,” and that, in any event, the
Companies confuse the concept of a party’s burden of proof
with a court’s standard of review. (PUC Defendants’ Br. at
42.)
According to the Companies, Section 28(4) of the
Restatement is well-established because it provides the basis
for the axiomatic rule that, “‘even when the parties are the
same, an acquittal in a criminal proceeding is not conclusive
in a subsequent civil action arising out of the same event.’”
(Appellants’ Opening Br. at 44 (quoting Restatement
(Second) of Judgments § 28 cmt. f).) A comment to Section
28 of the Restatement explains that, “[t]o apply issue
preclusion in the cases described in Subsection (4) would be
to hold, in effect, that the losing party in the first action would
also have lost had a significantly different burden been
imposed.” Restatement (Second) of Judgments § 28 cmt. f.
However, we need not decide whether Pennsylvania
recognizes the difference-in-burden exception, wherein a
party that lost on an issue in a first proceeding is nevertheless
permitted to relitigate the issue in a second proceeding if its
40
burden of proof is lower in the second proceeding.27
Assuming such an exception exists in Pennsylvania law, the
Companies have failed to show any relevant difference in
burden here. They argue that a federal district court reviews
an issue of federal pre-emption de novo as a question of law,
whereas the Commonwealth Court afforded deference to the
PUC’s factual findings underlying the determination that line
losses are not a transmission cost. Contrary to the
Companies’ position, the District Court was not reviewing the
merits of the PUC Order, so it makes little sense to speak of
the Companies’ burden of persuasion in the District Court in
terms of de novo “review.” What the Companies point to is
the Commonwealth Court’s use of an allegedly incorrect
standard of review, not a change in their own burden of proof
27
We note, without holding, that Pennsylvania would
appear to recognize the difference-in-burden exception under
Restatement (Second) of Judgments § 28(4). The
Pennsylvania Supreme Court has cited other provisions of
Section 28 favorably. See, e.g., Cohen v. Workers’ Comp.
Appeal Bd., 909 A.2d 1261, 1267 n.13, 1270-71 (Pa. 2006)
(declining to apply collateral estoppel for policy reasons
consistent with Restatement (Second) of Judgments § 28);
Rue, 713 A.2d at 86 (relying on Restatement (Second) of
Judgments § 28(3), (5)). Moreover, the Pennsylvania
Superior Court recently adopted the difference-in-burden
exception. See Weissberger v. Myers, 90 A.3d 730, 735 (Pa.
Super. Ct. 2014) (“[T]he fact that the [plaintiffs] proved fraud
by the preponderance of the evidence in the Bankruptcy Court
does not establish that they met their burden of proving fraud
by clear and convincing evidence[,] [so] the collateral
estoppel doctrine is foreclosed.”).
41
on the merits. To the extent the Companies complain that the
Commonwealth Court applied the incorrect standard of
review, that argument was something to be remedied on
direct appeal, not something that opens the PUC Order to
collateral attack in federal court.28 See Del. River Port Auth.
v. Fraternal Order of Police, 290 F.3d 567, 576 (3d Cir.
2002) (“Error in a prior judgment is not a sufficient ground
for refusing to give it preclusive effect.”). The Companies’
reliance on the Restatement (Second) of Judgments § 28(4) is
therefore unpersuasive.
3. Whether the PUC and the
Commonwealth Court were without
jurisdiction
That brings us to the Companies’ only remaining
argument that the State Decision lacks any preclusive effect:
that “[t]he PUC and [the] Commonwealth Court lacked
subject matter jurisdiction to construe the nature of new
charges imposed by a FERC transmission tariff.”
(Appellants’ Opening Br. at 24.) We have recognized that
Pennsylvania’s preclusion law appears to require subject
matter jurisdiction in the first proceeding for a decision made
in that proceeding to have preclusive effect, McCarter v.
Mitcham, 883 F.2d 196, 199 (3d Cir. 1989), and the PUC
28
At oral argument, the Companies also raised the
concern that Pennsylvania “ha[s] [its] own version of
Chevron deference” that would not apply in federal court.
(Tr. at 29:20-24, 30:17-31:8.) The Companies, however,
conceded that that argument also relates to a “standard of
review,” not a burden of proof on the merits. (Tr. at 31:9-14.)
42
Defendants do not dispute that jurisdiction is a prerequisite to
the application of issue preclusion in this case.
To be clear, the Companies’ position is that the State
Decision is “void ab initio for want of subject matter
jurisdiction and not merely voidable as wrongly decided on
the merits.” (Appellants’ Supp. Br. at 10.) They argue that
the PUC and the Commonwealth Court “invaded th[e]
exclusive federal scheme [of power regulation] by purporting
to reclassify FERC-mandated interstate transmission rates as
generation charges.” (Appellants’ Opening Br. at 32.) In
other words, the Companies’ jurisdictional argument is
premised on the outcome of the merits in the state proceeding
being adverse to them. Notably, they do not dispute that the
Commonwealth Court had jurisdiction to consider the import
of the filed rate doctrine to the classification of line losses.
(Id. at 33-34 (“The Companies did not contend that the
Commonwealth Court lacked subject matter jurisdiction to
address the Companies’ filed rate doctrine claim.”).) They
only dispute that the PUC and the Commonwealth Court had
jurisdiction to say they lose.
We begin by emphasizing “the limited scope of review
one court may conduct to determine whether a foreign court
had jurisdiction to render a challenged judgment.”
Underwriters Nat’l Assurance Co. v. N.C. Life & Accident &
Health Ins. Guar. Ass’n, 455 U.S. 691, 706 (1982).
Generally, when fully and fairly litigated to finality, “a
tribunal’s determination of its own jurisdiction is accorded
the same status for issue preclusion purposes as the merits of
a dispute.” Crossroads Cogeneration Corp. v. Orange &
Rockland Utils., 159 F.3d 129, 135 (3d Cir. 1998); see also
Durfee v. Duke, 375 U.S. 106, 111 (1963) (“[A] judgment is
43
entitled to full faith and credit – even as to questions of
jurisdiction – when … those questions have been fully and
fairly litigated and finally decided in the court which rendered
the original judgment.”).
With respect to its jurisdiction, the PUC held:
[I]t is within the [PUC’s] discretion whether
and how to allocate costs via [the Transmission
Rider] or otherwise. And, we believe it is
unreasonable to suggest that the [PUC] is
required to rubber stamp recovery of such costs
simply because they are imposed by PJM, even
when the Companies voluntarily (and properly)
sought approval of their recovery from [the
PUC] acting within its jurisdiction to set just
and reasonable retail rates for jurisdictional
transmission and distribution facilities.
(J.A. at 154.) In short, the PUC concluded that it had
jurisdiction not only to consider how to classify line losses for
the Companies’ retail rate structure but also to resolve the
classification of costs under the Settlement Agreement as it
did. As the Companies have conceded, they challenged the
PUC’s exercise of jurisdiction on direct appeal to the
Commonwealth Court and lost. (See Appellants’ Supp. Br. at
10 (“The basis for the Companies’ appeal – forum and field
preemption under the FPA and filed rate doctrine – was
jurisdictional, not factual.”).)
Under Pennsylvania law, the Commonwealth Court
has “jurisdiction of appeals from final orders of … the
[PUC].” 42 Pa. Cons. Stat. Ann. § 763(a). The
44
Commonwealth Court affirmed the PUC, holding that the
PUC Order “was not inconsistent with FERC precedent, did
not violate the Filed Rate Doctrine, and did not improperly
prevent [the] Companies from recovering trapped costs.”
(J.A. at 191.) On application for discretionary review to both
the Pennsylvania Supreme Court and the United States
Supreme Court, the Companies again argued that the state
tribunals lacked authority to decide the matter adversely to
the Companies. (Tr. at 22:6-11 (confirming that the
Companies’ petitions for discretionary review in the state
proceeding sought a determination that the PUC lacked
authority to make the decision that it did).) Both courts
denied discretionary review, and the PUC’s determination of
its own jurisdiction stood as final. Typically, we would
afford that determination of jurisdiction preclusive effect, and
that would be the end of it.
The Companies, however, submit that their argument
raises a question that we reserved in Crossroads
Cogeneration v. Orange & Rockland: whether “an exception
to the rule [of according preclusive effect to a tribunal’s
determination of jurisdiction] applies in a case … where a
federal statute … preempts [a] state agency from acting
altogether.” 159 F.3d at 135. But we again do not need to
reach that question because we conclude that, contrary to the
Companies’ position, the PUC and the Commonwealth Court
were not divested of jurisdiction to act altogether in the state
proceeding.
45
a. Whether the state tribunals have
been divested of jurisdiction
The Companies maintain that the result of the state
proceeding is void for lack of jurisdiction, and it is true that
“[a] void judgment is a legal nullity.” United Student Aid
Funds, Inc. v. Espinosa, 559 U.S. 260, 270 (2010). To be
deemed void, a judgment must be “so affected by a
fundamental infirmity that the infirmity may be raised even
after the judgment becomes final.” Id. “Federal courts
considering [whether] a judgment is void because of a
jurisdictional defect generally have reserved relief only for
the exceptional case in which the court that rendered
judgment lacked even an arguable basis for jurisdiction.” Id.
at 271 (internal quotation marks and citation omitted)
(discussing a motion filed under Rule 60(b)(4) of the Federal
Rules of Civil Procedure to render a judgment void).
Showing that a state tribunal lacked even an arguable
basis for jurisdiction over a federal question is difficult
because, under the principles of federalism, there is a “deeply
rooted presumption in favor of concurrent state court
jurisdiction.” Tafflin v. Levitt, 493 U.S. 455, 459 (1990).
Federal and state law “together form one system of
jurisprudence, which constitutes the law of the land for the
State; and the courts of the two jurisdictions are … courts of
the same country, having jurisdiction partly different and
partly concurrent.” Claflin v. Houseman, 93 U.S. 130, 137
(1876). The concurrent jurisdiction of the States is “subject
only to limitations imposed by the Supremacy Clause.”
Tafflin, 493 U.S. at 458; see also Del. River Port Auth., 290
F.3d at 576 (noting that it is well-settled that “[s]tate courts
may answer federal questions”). Indeed, “[s]o strong is the
46
presumption of concurrency that it is defeated only in two
narrowly defined circumstances: first, when Congress
expressly ousts state courts of jurisdiction, and second,
‘[w]hen a state court refuses jurisdiction because of a neutral
state rule regarding the administration of the courts.’”29
Haywood v. Drown, 556 U.S. 729, 735 (2009) (second
alteration in original) (citations omitted). The second
circumstance is not relevant here, so we focus on the first,
which is typically stated in unmistakable terms:
29
There seems to be some tension in the Supreme
Court’s jurisprudence as to how Congress may remove
jurisdiction from state courts. In an earlier case, the Supreme
Court said, more broadly, that Congress may divest states of
jurisdiction in three ways: explicit statutory directive,
unmistakable implication of the statute’s legislative history,
or clear incompatibility between federal interests and state
jurisdiction. Tafflin, 493 U.S. at 459-60. However, the
Companies do not point to any legislative history of the FPA
or any “factors indicating clear incompatibility,” such as “the
desirability of uniform interpretation, expertise of federal
judges in federal law, [or] the assumed greater hospitality of
federal courts to peculiarly federal claims.” Id. at 464
(internal quotation marks and citation omitted). The
Companies would be hard pressed to make any such
arguments, since, as cited infra, state courts have been
recognized as properly considering issues arising under the
FPA. Therefore, even under Tafflin’s more expansive
framework, we cannot discern a clear ouster of state
jurisdiction by Congress.
47
In the standard fields of exclusive federal
jurisdiction, the governing statutes specifically
recite that suit may be brought “only” in federal
court, Investment Company Act of 1940, as
amended, 84 Stat. 1429, 15 U.S.C. § 80a-
35(b)(5); that the jurisdiction of the federal
courts shall be “exclusive,” Securities Exchange
Act of 1934, as amended, 48 Stat. 902, 15
U.S.C. § 78aa; Natural Gas Act of 1938, 52
Stat. 833, 15 U.S.C. § 717u; Employee
Retirement Income Security Act of 1974, 88
Stat. 892, 29 U.S.C. § 1132(e)(1); or indeed
even that the jurisdiction of the federal courts
shall be “exclusive of the courts of the States,”
18 U.S.C. § 3231 (criminal cases); 28 U.S.C.
§§ 1333 (admiralty, maritime, and prize cases),
1334 (bankruptcy cases), 1338 (patent, plant
variety protection, and copyright cases), 1351
(actions against consuls or vice consuls of
foreign states), 1355 (actions for recovery or
enforcement of fine, penalty, or forfeiture
incurred under Act of Congress), 1356 (seizures
on land or water not within admiralty and
maritime jurisdiction).
Tafflin, 493 U.S. at 471.
The Companies are correct that the FPA grants FERC
exclusive jurisdiction over certain matters, but the relevant
question here is whether Congress divested state utility
agencies or state courts of jurisdiction to hear cases requiring
an adjudication of the filed rate doctrine’s scope, and the
answer to that is no. The FPA plainly leaves a role for states
48
in electricity regulation.30 While section 201(b) of the FPA
grants federal regulatory authority as to “the transmission of
electric energy in interstate commerce and to the sale of
electric energy at wholesale in interstate commerce,”31 16
30
Our dissenting colleague asserts that Congress,
through the FPA, “divest[ed] states of jurisdiction to interpret
FERC orders that define the elements of the rates of
transmission facilities, such as PJM.” (Dissenting Op. at 7.)
The authorities she cites for that proposition, however, are
two cases reviewing whether FERC had jurisdiction to make
certain other determinations. See New Orleans Pub. Serv.,
Inc. v. Council of New Orleans, 911 F.2d 993, 1001 (5th Cir.
1990) (“We must decide whether FERC has jurisdiction to
determine whether [the public utility] acted prudently once
the … project [at issue to build nuclear reactors] was
underway.”); N.J. Bd. of Pub. Utils., 744 F.3d at 95-96
(reviewing whether FERC’s elimination of a state-mandated
exception was “in excess of statutory jurisdiction, authority,
or limitations, or short of statutory right” (internal quotation
marks omitted) (quoting 5 U.S.C. § 706(2)(C))). It is neither
troubling nor surprising that the PUC’s adjudication here
required the interpretation of FERC orders. Adjudication of
the reach of the filed rate doctrine will in some cases
necessarily involve looking to and interpreting FERC
decisions.
31
“Furthermore, § 205 of the FPA prohibited, among
other things, unreasonable rates and undue discrimination
‘with respect to any transmission or sale subject to the
jurisdiction of [FERC],’ 16 U.S.C. §§ 824d(a)-(b), and § 206
gave [FERC] the power to correct such unlawful practices, 16
U.S.C. § 824e(a).” New York, 535 U.S. at 7.
49
U.S.C. § 824(b)(1), at the same time, it provides that federal
regulation is “to extend only to those matters which are not
subject to regulation by the States,” id. § 824(a). Thus, in
enacting the FPA, Congress expressly envisioned a role for
state utility agencies in electricity regulation, which may well
require consideration of the import of the filed rate doctrine.
Cf. Crossroads, 159 F.3d at 135 (“Given the substantial role
given state utility agencies by Congress in enacting [the
Public Utility Regulatory Policies Act], we conclude
Congress did not intend to prevent application of common
law rules of preclusion.”).
Nevertheless, the Companies submit that the PUC and
Commonwealth Court so exceeded the scope of their
authority under the “preemptive force of the federal
regulatory scheme” of the FPA and the filed rate doctrine that
those tribunals utterly lacked jurisdiction. (Appellants’
Opening Br. at 29.) The Companies point out that a federal
statute or regulation may pre-empt state regulation in three
ways. First, under express pre-emption, Congress can pre-
empt state law by explicit statutory language. Barnett Bank
of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 31 (1996).
Second, under field pre-emption, Congress can enact a
regulatory scheme “so pervasive as to make reasonable the
inference that Congress left no room for the States to
supplement it.” Id. at 31 (internal quotation marks and
citation omitted). And third, “federal law may be in
‘irreconcilable conflict’ with state law,” which creates what is
known as conflict pre-emption.32 Id. (internal quotation
32
Field pre-emption and conflict pre-emption can be
characterized as falling under “implied,” as opposed to
“express,” pre-emption. See Roth v. Norfalco LLC, 651 F.3d
50
marks and citation omitted). The Companies have cast their
net widely, arguing that “[t]his case concerns all three” types
of pre-emption.33 (Appellants’ Supp. Br. at 1.) Not ones to
367, 374 (3d Cir. 2011). We recognize, though, “that the
categories of preemption are not ‘rigidly distinct.’” Crosby v.
Nat’l Foreign Trade Council, 530 U.S. 363, 372 n.6 (2000)
(quoting English v. Gen. Elec. Co., 496 U.S. 72, 79 n.5
(1990)).
33
At oral argument, we asked the parties to submit
supplemental briefing on whether pre-emption may be
waived. The PUC Defendants argue that the Companies
waived their pre-emption arguments by entering into the
Settlement Agreement. They point to a provision in the
agreement that provides, in part, that the Companies “agree
that they shall not initiate or join in any court challenge,
arising out of the issues resolved by this Settlement, to the
constitutionality or legality of the Electric Competition Act
such that would prevent or preclude implementation of this
Settlement.” (Supp. App. at 70.) There may be an argument
that the Companies, pursuant to that provision, waived their
ability to bring Count III to challenge the constitutionality of
the Electric Competition Act as applied. We need not reach
that conclusion, though, because, as we have already
discussed, see supra Part III.A.1, the Companies waived any
argument that Count III rises or falls separately from Count I
for purposes of issue preclusion.
The PUC Defendants also submit that, by fully arguing
pre-emption in the Commonwealth Court, the Companies
have waived their ability to raise pre-emption in federal court.
But that is not a waiver argument related to the Companies’
failure to raise an argument when it should have. It simply
51
shy from emphatic declarations, they submit that the filed rate
doctrine is “a uniquely sweeping and clear manifestation of
field preemption” that divests states of jurisdiction to classify
line losses as generation costs in a retail rate structure.
(Appellants’ Opening Br. at 29.) We cannot concur.
As we have recently noted, pre-emption arguments do
not ordinarily raise issues of subject matter jurisdiction.
Harris v. Kellogg Brown & Root Servs., Inc., 724 F.3d 458,
464 n.1 (3d Cir. 2013) (“[W]e must clarify that our prior
decision did not imply … that Rule 12(b)(1) [of the Federal
Rules of Civil Procedure] is the right vehicle for ordinary
preemption arguments.”). That is because “[p]reemption
arguments, other than complete preemption, relate to the
merits of the case.” Id. (citing In re U.S. Healthcare, Inc.,
193 F.3d 151, 160 (3d Cir. 1999)); see also Joyce v. RJR
Nabisco Holdings Corp., 126 F.3d 166, 171 (3d Cir. 1997)
(pointing out the distinction “between the complete
preemption doctrine for jurisdictional purposes and ordinary
preemption, which merely constitutes a defense to a state law
cause of action”).
While the Supreme Court has said that “[d]octrines of
federal pre-emption … may in some contexts be controlling”
over “the general rule of finality of jurisdictional
determinations,” Durfee, 375 U.S. at 114, this case does not
restates the PUC Defendants’ view that the State Decision –
having been fully litigated – should bar the Companies from
relitigating the issue of pre-emption. We are satisfied from a
review of the record that the Companies timely raised their
pre-emption arguments in the District Court.
52
present such an exception. In the Atlantic City decision on
which the Companies so heavily rely, FERC required PJM to
factor marginal line losses into the energy price at each
location. Atlantic City I, 115 FERC at 61,473-74. Certain
FERC language from that decision certainly does highlight
the connection between line losses and the transmission of
electricity. See, e.g., id. at 61,473 (“As in the case of all
electric transmission, there is some loss … as … power is
transmitted from the point of generation to the point of
delivery.”). But the agency did not say that line losses should
be categorized as a cost of transmission, and indeed it made
comments that can be read as supporting the view that line
losses could be understood as a factor in electricity
generation. It noted, for example, that “[s]uch loss[es]
result[] in a cost PJM incurs to maintain the level of the
scheduled power and to deliver it under conditions of system
reliability.” Id. at 61,473.34 In the end, the FERC orders that
the parties point us to require PJM to calculate line losses in a
certain way but do not make the kind of categorical
statements that lead to pre-emption and override the finality
of the state ruling the Companies themselves sought. That is
in sharp contrast with a case like Nantahala Power & Light
Co. v. Thornburg, in which the Supreme Court held that
FERC’s express allotment of entitlement power to two
owners of hydroelectric power plants pre-empted a state
agency’s retail rate-making order allocating entitlement
power differently. 476 U.S. at 955, 958.
34
We are not suggesting that FERC would endorse
what the PUC and the Commonwealth Court decided. Our
dissenting colleague has ably discussed why that can be
doubted. We eschew any comments on the merits beyond our
observation that there is no definitive FERC ruling.
53
The Companies also try to rely on “complete pre-
emption,” which is jurisprudentially distinct from the three
“ordinary” types of pre-emption – express, field, and conflict
pre-emption – described above. Ry. Labor Exec. Ass’n v.
Pittsburgh & Lake Erie R.R. Co., 858 F.2d 936, 939 (3d Cir.
1988); see also Lontz v. Tharp, 413 F.3d 435, 440 (4th Cir.
2005) (“[W]e may not conflate ‘complete preemption’ with
… ‘ordinary’ preemption. While these two concepts are
linguistically related, they are not as close kin
jurisprudentially as their names might suggest. Complete pre-
emption is a ‘jurisdictional doctrine,’ while ordinary
preemption simply declares the primacy of federal law,
regardless of the forum or the claim.”). Under complete pre-
emption, “the pre-emptive force of a statute is so
‘extraordinary’ that it ‘converts’” a state-law complaint into a
federal one. Caterpillar Inc. v. Williams, 482 U.S. 386, 393
(1987) (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58,
65 (1987)).
Complete pre-emption, however, stands as a limited
exception to the well-pleaded complaint rule, i.e., the rule that
“a case may not be removed to federal court on the basis of a
federal defense, including the defense of pre-emption, even if
the defense is anticipated in the plaintiff’s complaint, and
even if both parties concede that the federal defense is the
only question truly at issue.” Id. Complete pre-emption, in
other words, arises in the context of removal jurisdiction. It
serves as a basis for federal jurisdiction over causes of action
that may appear, on their face, to be based on state law but
that are in truth only actionable under federal law due to
Congress’s clear intent “to completely pre-empt a particular
area of law.” U.S. Healthcare, 193 F.3d at 160 (internal
quotation marks and citation omitted). It does not resolve
54
whether state tribunals have been wholly divested of
jurisdiction to hear the federal cause of action.35 Cf. Avco
Corp. v. Aero Lodge No. 735, Int’l Ass’n of Machinists &
Aerospace Workers, 390 U.S. 557, 560 n.2 (1968)
(recognizing that a state court may retain jurisdiction over an
action that is completely pre-empted if the defendant does not
elect to have the case removed to federal court). The
Companies have cited no cases to indicate otherwise.
Perhaps recognizing that the doctrine is not the best vehicle
for their argument, they did not even raise complete pre-
35
We have some doubt that either the FPA or the filed
rate doctrine effects a complete pre-emption of state law.
“The Supreme Court has recognized the ‘complete
preemption’ doctrine in only three instances: § 301 of the
[Labor Management Relations Act]; § 502(a) of [the
Employee Retirement Income Security Act of 1974]; and
§§ 85 and 86 of the National Bank Act.” N.J. Carpenters v.
Tishman Constr. Corp., -- F.3d --, 2014 WL 3702591, at *4
(3d Cir. 2014) (citations omitted). With respect to whether
the FPA completely pre-empts state law, the United States
Court of Appeals for the Seventh Circuit has observed that
“nearly all of the other courts that have considered the
question [have] conclude[d] that the [FPA] does not
completely preempt state law. … [F]ederal law leaves a role
for state law in wholesale power regulation.” Ne. Rural Elec.
Membership Corp. v. Wabash Valley Power Ass’n, Inc., 707
F.3d 883, 893, 895 (7th Cir. 2013). The Seventh Circuit also
held that the filed rate doctrine does not completely pre-empt
state law because that doctrine is “properly treated as a
federal defense rather than an affirmative basis for
jurisdiction.” Id. at 896.
55
emption, used as a term of art, until oral argument. (Tr. at
5:22-24 (saying that field pre-emption and conflict pre-
emption in this case “add up to complete preemption”).) That
has the look of a waiver, but even assuming, arguendo, that
the Companies have not waived their argument, complete pre-
emption has no place in this discussion.
Furthermore, history matters here. The Supreme Court
has recognized, without indicating that there were any
jurisdictional defects, that “state courts have examined th[e]
interplay [of the filed rate doctrine] in determining the effect
of FERC-approved wholesale power rates on retail rates for
electricity.” Nantahala, 476 U.S. at 964-65; see also Gen.
Motors Corp. v. Ill. Commerce Comm’n, 574 N.E.2d 650, 655
(Ill. 1991) (deciding whether a state utility agency’s action
violated the filed rate doctrine); Me. Yankee Atomic Power
Co. v. Me. Pub. Utils. Comm’n, 581 A.2d 799, 804-05 (Me.
1990) (same); Pa. Power Co. v. Pa. Pub. Util. Comm’n, 561
A.2d 43, 49-52 (Pa. Commw. Ct. 1989) (same). Binding
precedent instructs that, “when a state proceeding presents a
federal issue, even a pre-emption issue, the proper course is to
seek resolution of that issue by the state court.” Chick Kam
Choo v. Exxon Corp., 486 U.S. 140, 149-50 (1988). Thus,
despite the Companies’ attempt to craft a way for us to review
whether the State Decision complies with their interpretation
of the FPA and the filed rate doctrine, we cannot say that the
PUC and the Commonwealth Court “lacked even an arguable
basis for jurisdiction,” Espinosa, 559 U.S. at 270, to decide
the merits of classifying line losses for purposes of a retail
rate structure. As the PUC and the Commonwealth Court
were not divested of authority to act altogether, the result of
the state proceeding is not void on that ground.
56
b. Whether the state proceedings
were an impermissible “collateral
attack” on a FERC decision
The Companies also argue that the FPA explicitly
proscribes the state agencies and courts, as improper forums,
from resolving the dispute between the Companies and the
Customer Groups such that the state proceedings were an
impermissible “collateral attack” on a FERC decision. The
United States Supreme Court in City of Tacoma v. Taxpayers
of Tacoma, 357 U.S. 320 (1958), held that, pursuant to FPA
§ 313(b), “Congress … prescribed the specific, complete and
exclusive mode for judicial review of the Commission’s
orders,” which consists of direct review by a federal circuit
court of appeals and, possibly, the United States Supreme
Court.36 Id. at 336. Direct review of FERC’s orders
36
FPA § 313(b) provides, in relevant part:
Any party to a proceeding under this chapter
aggrieved by an order issued by the
Commission in such proceeding may obtain a
review of such order in the United States court
of appeals for any circuit wherein the licensee
or public utility to which the order relates is
located … by filing in such court, within sixty
days after the order of the Commission upon the
application for rehearing, a written petition
praying that the order of the Commission be
modified or set aside in whole or in part. …
Upon the filing of such petition such court shall
have jurisdiction, which upon the filing of the
record with it shall be exclusive, to affirm,
57
necessarily preclude[s] de novo litigation
between the parties of all issues inhering in the
controversy, and all other modes of judicial
review. Hence, upon judicial review of the
Commission’s order, all objections to the order,
to the license it directs to be issued, and to the
legal competence of the licensee to execute its
terms, must be made in the Court of Appeals or
not at all.
Id. (footnote omitted). Emphasizing that the rule bars
tribunals – with the exception of federal circuit courts and the
United States Supreme Court – from hearing direct challenges
to FERC orders, the Companies claim it shows a
jurisdictional deficiency with the state proceeding. Their
argument is akin to what we have referred to as “forum pre-
emption”:
modify, or set aside such order in whole or in
part. … The judgment and decree of the court,
affirming, modifying, or setting aside, in whole
or in part, any such order of the Commission,
shall be final, subject to review by the Supreme
Court of the United States upon certiorari or
certification … .
16 U.S.C. § 825l(b) (emphasis added). The relevant language
of that provision has not changed materially since the City of
Tacoma decision, except that when that opinion issued,
exclusive jurisdiction attained “[u]pon the filing of [the]
transcript” from the challenged FERC proceeding. 16 U.S.C.
§ 825l(b) (1958).
58
When Congress intends a particular forum to
have exclusive jurisdiction … , that policy
decision deprives other fora of subject matter
jurisdiction. This doctrine of “forum
preemption” implements Congressional
determinations that development of the
substantive law in a particular area should be
left to a particular administrative agency created
for that purpose.
Ry. Labor Execs. Ass’n v. Pittsburgh & L.E.R. Co., 858 F.2d
936, 943 (3d Cir. 1988); see also Int’l Longshoremen’s Ass’n
v. Davis, 476 U.S. 380, 388 (1986) (“It is clearly within
Congress’ powers to establish an exclusive federal forum to
adjudicate issues of federal law in a particular area that
Congress has the authority to regulate under the
Constitution.”).
The Companies argue that, to the extent the Customer
Groups had any grievances regarding the proposed line
losses, they could and should have brought their grievances in
a federal court of appeals on direct appeal of a FERC order,
rather than waiting to contest the Companies’ proposed rates
before the PUC in a separate proceeding. However, the issue
in the state proceeding – whether the Companies could
classify line losses as transmission charges – was not an issue
arising from any FERC order that the Companies have
identified. To the extent the Companies complain that the
Customer Groups should have directly appealed the Atlantic
City decision, their argument is misplaced. The Customer
Groups did not challenge how FERC has mandated PJM to
calculate its line losses. If anything, the classification of the
Companies’ line-loss costs for retail billing was an issue
59
made relevant by the voluntarily agreed-upon terms of the
Settlement Agreement, which provided different end dates on
transmission rate caps and generation rate caps.37
c. Conclusion on state jurisdiction
Ultimately, for purposes of jurisdiction, we need not
resolve whether the Companies are correct that their
interpretation of line losses is required under FERC’s
regulatory scheme or that the Commonwealth Court
improperly deferred to certain aspects of the PUC Order. Cf.
Decker v. Nw. Envtl. Defense Ctr., 133 S. Ct. 1326, 1335
(2013) (“For jurisdictional purposes, it is unnecessary to
determine whether [the respondent] is correct in arguing that
only its readings of the [relevant] Rule is permitted under the
[Clean Water] Act.”); Avco, 390 U.S. at 561 (“Any error in
granting … relief does not go to the jurisdiction of the court.”
(internal quotation marks and citation omitted)).
The Companies have not cited a single instance in
which a party has been allowed to litigate a substantive issue
all the way through the state courts and a petition for
certiorari to the United States Supreme Court and then
subsequently argue that the state courts lacked jurisdiction in
the first place. The closest case is Southern Union Co. v.
FERC, 857 F.2d 812 (D.C. Cir. 1988), in which the United
States Court of Appeals for the District of Columbia Circuit
declined to apply issue preclusion “with its full rigor” and
37
The Companies themselves, who were adversely
affected by the Atlantic City decision, did not mount any
challenge to that FERC order.
60
decided that a state court had no power to enforce a damage
award that effectively awarded a price for interstate gas that
was under FERC’s exclusive jurisdiction. Id. at 816.
However, Southern Union is distinguishable because the D.C.
Circuit’s rationale for not applying issue preclusion rested on
“the distinct possibility that the [United States Supreme]
Court may have declined to issue … [a] writ [of certiorari] in
deference to the pendency of the proceedings [in FERC].” Id.
We have no such indication here prompting us to set aside the
result of a state proceeding that has been litigated to finality
and denied review by the United States Supreme Court.38
The Companies also cite several Supreme Court
decisions in which actions by state utility agencies were held
to be pre-empted by FERC actions. See Entergy La., Inc. v.
La. Pub. Serv. Comm’n, 539 U.S. 39 (2003); Miss. Power &
Light, 487 U.S. at 356-57; Nantahala, 476 U.S. at 955. But
those decisions were all made on direct review from state
agency decisions. Entergy, 539 U.S. at 49-50; Miss. Power &
Light, 487 U.S. at 373-75; Nantahala, 476 U.S. at 970-72.
Here, the United States Supreme Court denied discretionary
review, rendering the State Decision final. We have held that,
“[i]f [a state tribunal] answered federal questions erroneously,
it remained for state appellate courts, and ultimately for the
United States Supreme Court, to correct any mistakes. Error
in a prior judgment is not a sufficient ground for refusing to
38
To be clear, we agree with our dissenting colleague
that “[t]he fact that the Supreme Court did not grant certiorari
does not mean that [a] question may not be validly raised in
federal district court.” (Dissenting Op. at 14 n.3.) As
Southern Union illustrates, there may be exceptions.
61
give it preclusive effect.”39 Del. River Port Auth., 290 F.3d at
576. The Supreme Court’s decisions in Entergy, Mississippi
Power & Light, and Nantahala support the conclusion that
any error in the application of the filed rate doctrine should
have been corrected on direct appeal of the PUC Order.
Moreover, “[t]here is … no reason to believe that
Congress intended to provide a person claiming a federal
right an unrestricted opportunity to relitigate an issue already
decided in state court simply because the issue arose in a state
proceeding in which he would rather not have been engaged
at all.” San Remo Hotel, L.P. v. San Francisco, 545 U.S. 323,
343 (2005) (internal quotation marks and citation omitted).
Here, the Companies have even less reason to complain, as
they affirmatively chose to litigate their case through the state
system. They admit that “[t]here was nothing preventing
39
Although we have no occasion to revisit the
substance of the PUC Order, it is worth noting that FERC has
gone to some lengths to reserve to state agencies various
issues regarding the potential recovery of retail costs. See
Exelon Corp. v. PPL Elec. Utils. Corp., EL05-49-000, EL05-
49-001, 117 FERC ¶ 61,176, p. 61,876 (Nov. 9, 2006)
(stating that “issues involving potential recovery of costs
from retail customers are within the province of the state” and
that, in approving a settlement, FERC was “not specifically
endorsing … characterizations” of the charges as transmission
related); Va. Elec. & Power Co., ER08-1540-000, 125 FERC
¶ 61,391, p. 62,845 (Dec. 31, 2008) (approving tariff
revisions but leaving “the issue of whether, or under what
circumstances, [wholesale] costs may be recovered in retail
rates” to the state).
62
[them] from going to FERC” and that, had they obtained a
favorable ruling from FERC, they could have enforced it.
(Tr. at 7:3-8:9; see also id. at 21:8-19 (stating that the
Companies could go to FERC, even at this point).) In other
words, the Companies chose their forum for litigation and
lost. As the Supreme Court has stated,
[p]ublic policy[] … dictates that there be an end
of litigation; that those who have contested an
issue shall be bound by the result of the contest;
and that matters once tried shall be considered
forever settled as between the parties. We see
no reason why this doctrine should not apply in
every case where one voluntarily appears,
presents his case and is fully heard, and why he
should not, in the absence of fraud, be thereafter
concluded by the judgment of the tribunal to
which he has submitted his cause.
Durfee, 375 U.S. at 111-12 (internal quotation marks and
citation omitted).40
40
Our dissenting colleague believes that the policy
interests in pre-emption outweigh those in applying issue
preclusion. Even if her view of those policy interests were
correct, however – and that is something as to which we make
no further comment – the premise of her argument about pre-
emption is problematic, for reasons we have noted already.
She asserts that FERC has spoken in a binding way as to the
classification of line losses. We respectfully disagree. While
FERC has ruled on the method that PJM must use to calculate
line losses, no one has presented to FERC the issue presented
here, i.e., how line losses should be categorized for billing
63
The Companies could have withdrawn their federal
issues from the state proceeding and brought them in federal
court, as has been done before. See Ky. W. Va. Gas v. Pa.
Pub. Util. Comm’n, 837 F.2d 600, 604 n.2 (3d Cir. 1988)
(noting that a gas utility that had appealed a PUC denial of a
pass-through rate to the Commonwealth Court had withdrawn
its constitutional claims from the state proceeding and
brought them in federal court). The only reason the
Companies proffered for not withdrawing their federal pre-
emption issues was that they had to keep those issues before
the Commonwealth Court to complete “[t]he legislative
process.” (Tr. at 23:1-2.) As we have explained, however,
the state proceeding was a judicial process, not a legislative
one, and the Companies’ excuses now for not pursuing their
claims in federal court in the first instance have the ring of
post-hoc rationalization.41
purposes, especially in light of a settlement agreement of the
sort involved in this case. (At least no one has directed our
attention to such a FERC order.)
41
In their supplemental briefing, the Companies argue
that “[i]f the state court found the FERC tariff and precedent
unclear, it should have certified the question to FERC itself.”
(Appellants’ Supp. Br. at 3.) That, however, is immaterial
because “[t]he relevant question … is not whether the [party]
has been afforded access to a federal forum; rather, the
question is whether the state court actually decided an issue
of fact or law that was necessary to its judgment.” San Remo,
545 U.S. at 342.
64
In the end, we are compelled to reject the Companies’
efforts to pose their merits-based pre-emption arguments –
the same ones that were rejected in the State Decision – as
jurisdictional arguments. They would like, as the saying
goes, to have it both ways – if they had obtained approval to
charge their customers line-loss costs as a transmission cost,
the PUC and the Commonwealth Court would have had
jurisdiction to approve their proposed rates; otherwise, as they
perceive it, the PUC and the Commonwealth Court must lack
jurisdiction, and the Companies get a “do-over” with a clean
slate in federal court. It is the classic “heads I win, tails you
lose” approach to dispute resolution.42 (Tr. at 5:9.) And it
must fail because there is no sound justification for a rule that
provides for jurisdiction in a state tribunal only when a pre-
ordained merits outcome is reached by that tribunal.
42
At oral argument, the Companies conceded that they
were taking such a position. (Tr. at 5:8-19 (“THE COURT:
So your position is really a heads I win, tails you lose
position? … [COUNSEL FOR THE COMPANIES]: Well,
that’s the … characterization that the … opposing side put in
their briefs[,] … but it’s accurate.”).) They tried to distance
themselves from that characterization on rebuttal but simply
highlighted their position that, again, the state had to decide
in their favor on the merits. (Id. at 59:13-17 (“This is not a
heads I win, tails you lose situation, really … . It’s a … heads
we all win if the State follows federal law, and tails we all
win if … the State follows federal law.”).)
65
IV. CONCLUSION
The Companies chose to challenge the PUC Order on
direct appeal, and they must abide by the result.43 The
operative concern before us is not whether the result of the
state proceeding “got it right” but whether the Companies
litigated the merits of the underlying issues legitimately and
to finality. They did. To refuse to give the State Decision
any preclusive effect would be a violation of the Full Faith
and Credit Statute, which we cannot endorse. Cf.
Underwriters Nat’l, 455 U.S. at 694 (concluding that a state
court’s refusal to accord preclusive effect to another state’s
prior judgment was a violation of the Full Faith and Credit
Clause and its implementing federal statute).
We will therefore affirm the District Court’s dismissal
of the Companies’ amended complaint.
43
Because all of the Companies’ claims in this action
are foreclosed by the doctrine of issue preclusion, we need
not reach matters of claim preclusion, abstention, or judicial
estoppel.
66
Metropolitan Edison, et. al. v. PA Public Utility Commission,
et. al.
No. 13-4288
_________________________________________________
ROTH, Circuit Judge, dissenting:
I do not dispute that the federal courts are precluded
from reviewing a state court decision applying filed rates.
However, I disagree with the majority that this is what is at
issue. The issue here is whether the Commonwealth Court’s
misinterpretation of FERC orders, defining a component of a
rate, is subject to collateral attack in federal court. I would
hold that it is.
Contrary to the Commonwealth Court’s assessment
that the FERC orders in question are ambiguous, FERC has
clearly classified the component “line loss” as a transmission
related cost. Atl. City Elec. Co. v. PJM Interconnection, LLC
(Atlantic City I), 115 FERC ¶ 61,132 (2006); Atl. City Elec.
Co. v. PJM Interconnection, LLC (Atlantic City II), 117
FERC ¶ 61,169 (2006) (denying rehearing of Atlantic City I);
Pa.–N.J.–Md. Interconnection (PJM Interconnection I), 81
FERC ¶ 61,257 (1997); Pa.–N.J.–Md. Interconnection (PJM
Interconnection II), 92 FERC ¶ 61,282 (2000) (denying
rehearing and granting clarification of PJM Interconnection
I). I therefore respectfully dissent.
I. Background
1
The dispute here starts in June 2007, when PJM, a
facility that transmits wholesale electricity over an interstate
grid, implemented a new pricing scheme. Atlantic City I, 115
FERC ¶ 61,132. This change resulted in an additional
amount of over $250 million being charged for line loss to the
Companies when they purchased power from PJM to be
resold at retail. Line loss is the power lost as electricity is
transmitted over a distance. The Companies sought
permission from the PUC to pass this line loss expense along
to their retail ratepaying customers. The PUC denied the
request. The PUC held that the line losses were related to the
cost of generation, and that the Companies had agreed to
postpone any increase in generation costs until 2010. The
Companies appealed to the Commonwealth Court arguing
that the new charges are related to transmission costs. The
Commonwealth Court affirmed the PUC’s determination
reasoning that the PUC’s classification was permissible
because FERC has not expressly classified “line loss” as a
transmission related cost. Metropolitan Edison Co. v. Pa.
Pub. Util. Comm’n, 22A.3d 353, 365. The Commonwealth
Court is incorrect. FERC has clearly classified line losses as
a transmission related cost. As a consequence, the
Commonwealth Court lacked jurisdiction to interpret the
FERC orders.
To understand these issues, I will go back to the
enactment of the Federal Power Act (FPA) and the ensuing
FERC oversight of the interstate transmission of electric
power. In 1927, the Supreme Court held that the sale of
electricity in interstate commerce falls under the exclusive
jurisdiction of Congress. Pub. Utils. Comm’n v. Attleboro
Steam & Elec. Co., 273 U.S. 83 (1927). In response,
Congress enacted the FPA, “which authorized federal
2
regulation of the interstate sale of electricity, and created a
new independent agency, the Federal Power Commission
(precursor to FERC), to administer the statute.” N.J. Bd. of
Pub. Utils. v. FERC, 744 F.3d 74, 80 (3d Cir. 2014). The
FPA grants FERC exclusive regulatory authority over “all the
facilities for such transmission or sale of electricity,” but
reserves for the states regulatory authority over “facilities
used for the generation of electric energy.” Id. (citing 16
U.S.C. § 824). In addition, the FPA tasks FERC with
ensuring that “[a]ll rates and charges … subject to the
jurisdiction of the Commission … be just and reasonable.”
16 U.S.C. § 824d(a). FERC’s approach to this task has been
to review rates proposed by each facility, rather than to
directly set the rates itself. N.J. Bd. of Pub. Utils., 744 F.3d at
81.
The Companies acquire electricity from PJM and
deliver it to retail ratepayers. Id at 82. Pursuant to the FPA,
the rate PJM charges the Companies for this transaction is
regulated exclusively by FERC. Id. FERC has reviewed
PJM’s rates on various occasions. Relevant here is FERC’s
review of PJM rates calculated via the locational marginal
pricing (LMP) methodology, which classifies line losses as a
transmission related costs. See PJM Interconnection I, 81
FERC ¶ 61,257 (1997); see also PJM Interconnection II, 92
FERC ¶ 61,282 (2000); see also Atlantic City I, 115 FERC
¶ 61,132 (2006); see also Atlantic City II, 117 FERC ¶ 61,169
(2006).
In PJM Interconnection I, FERC approved a proposal
by PJM to begin calculating rates based on the LMP
methodology. Id. 81 FERC ¶ 61, 257. The issue to be
decided by this ruling was the allocation of the additional cost
3
to transmission caused by congestion of demand in certain
areas. FERC summarized the purpose and mechanics of the
LMP as follows:
The Commission accepted, with certain
modifications, the Supporting Companies’
locational marginal pricing (LMP) model for
calculating and recovering congestion costs.
LMP is defined as the marginal cost of
supplying the next increment of electric demand
at a specific location on the electric power
network, taking into account both generation
and marginal cost and the physical aspects of
the transmission system. When the PJM system
is unconstrained, there is a single market
clearing price for hourly energy equal to the
marginal cost of meeting the last increment of
demand. When transmission constraints occur
on the PJM system, the marginal cost of energy
varies by location because not all supply can be
delivered to all demand. The differences
between the LMPs at different locations
represent congestion costs.
PJM Interconnection II, 92 FERC at p. 61,952. In other
words, the LMP accounted for two components, (1)
generation and (2) transmission constraints, and at this time
transmission constraints consisted of only transmission
congestion. The generation component pertained to the cost
of providing electricity absent transmission constraints. The
transmission constraints component pertained to the
additional costs incurred to meet demand of providing
electricity in congested areas, which increases as congestion
4
in an area increases. Accordingly, calculation of this cost
creates an incentive for PJM to consider methods for
alleviating congestion and “encourage[d] efficient use of the
transmission system.” PJM Interconnection I, 81 FERC at p.
62,253. For example, billing for congestion will “send price
signals that are likely to encourage efficient location of new
generating resources, dispatch of new and existing generating
resources, and expansion of the transmission system.” Id.
In Atlantic City I, FERC issued an order requiring PJM
to account for a third component in the LMP, “transmission
line losses.” Id. 115 FERC ¶ 61,132. The “transmission line
loss” component pertains to the additional costs incurred to
compensate for the “loss of the scheduled megawatts as the
power is transmitted from the point of generation to the point
of delivery.” Id. at p. 61,474. In other words, the longer the
distance that electricity travels across a power line, the greater
the loss of power, creating the additional cost necessary to
compensate for the power lost in transmission, i.e., line loss.
Prior to Atlantic City, “transmission line losses” were
recovered under an average loss method. Id. at 61,473. The
average loss method calculated losses separately from the
LMP via an uplift charge, distributing losses equally among
all loads. Id. In other words, customers in nearby locations
paid the same amount as customers in more distant locations
– the cost of the lost power being distributed equally among
all customers. In Atlantic City, FERC mandated that PJM
implement the marginal loss method, in which “the effect of
losses on the marginal cost of delivering energy is factored
into the energy price (i.e., the Locational Marginal Price, or
the LMP) at each location.” Id. at 61,474. Under this
method, the cost of line losses increases as the distance
5
between generator and user increased. Id. Akin to
calculating congestion costs, calculating line losses is an
incentive to PJM to use the transmission grid more
efficiently. For example, in an effort to decrease the costs of
line loss, PJM will consider distance in determining “which
generators to dispatch to meet its loads.” Id. 1
Pertinent here, PJM implemented the marginal loss
method in June 2007, resulting in new charges to the
Companies, reflecting the cost of transmitting power over
long distances. The Commonwealth Court, in affirming the
PUC, misinterpreted the above mentioned FERC orders,
holding these orders to be ambiguous. On this basis, the court
denied the Companies’ appeal to pass these costs on to retail
ratepayers.
II. Preclusive Effects of the Commonwealth’s
Determination
How we frame the question presented in this case
matters a great deal. The Companies do not question that the
Commonwealth Court can review rates to be charged to retail
customers, taking into account the interstate rate charged by
PJM. Rather, the Companies ask us to review the
Commonwealth Court’s interpretation of one of these
elements of the PJM rate, the charge for “line loss” as defined
in the FERC orders.
1
In a separate order, FERC noted that prior to the
implementation of the marginal loss method, “[l]osses were
not included in the calculation of LMPs, and thus, were not
recovered in the LMP energy prices collected from loads.”
Black Oak Energy, LLC, 122 FERC ¶ 61,208 (2008).
6
The FPA clearly divests states of jurisdiction to
interpret FERC orders that define the elements of the rates of
transmission facilities, such as PJM. See New Orleans Pub.
Serv., Inc. v. Council of New Orleans, 911 F.2d 993, 1001
(5th Cir. 1990) (“Nantahala and Mississippi Power and Light
reaffirmed the well-established principle that if FERC has
jurisdiction over a subject, states cannot have jurisdiction
over it”); see also N.J. Bd. of Pub. Utils., 744 F.3d at 82
(FERC has jurisdiction over rates set by PJM). It is true that
the states have flexibility in reviewing rates. However, once
FERC has defined an element of a rate, the states cannot
redefine it.2 The Commonwealth Court acknowledged as
much in its ruling on this matter. According to the court,
“[b]ecause FERC’s opinions have not expressly stated that
line loss costs are transmission costs, there is no direct
conflict between the Commission’s Order and FERC.”
Metropolitan Edison Co., 22 A.3d at 365. It is the
Commonwealth Court’s conclusion that there was no conflict
here with FERC that is at issue. As explained in depth below,
FERC has clearly defined the element of “line loss,” and
therefore, the Commonwealth Court’s interpretation is
preempted.
2
It is FERC’s prerogative to determine the elements that
go into a filed rate. In Nantahala the element in question was
the percentage of entitlement power to be allocated between
two utilities. In the present case, the element is “line loss”
and its classification by FERC as an element of transmission.
Once FERC has spoken on the definition of any such element,
the matter is preempted. The states may not then dispute that
classification. The Commonwealth Court’s conclusion that
there was no conflict here with FERC is invalid for the
reasons set forth above.
7
As the majority indicates, we are not bound by
preclusion when “Congress expressly ousts state courts of
jurisdiction.” Haywood v. Drown, 556 U.S. 729, 771 (2009).
Therefore, preclusion does not apply here.
Furthermore, the Supreme Court has cautioned that a
state-court judgment is subject to collateral attack when “the
policy underlying the doctrine of res judicata is outweighed
by the policy against permitting the court to act beyond its
jurisdiction.” Durfee v. Duke, 375 U.S. 106, 115 n.12 (1963)
(quoting Restatement (First) of Conflict of Laws § 451(2)
(Supp. 1948)). In Travelers Indemnity, Co. v. Bailey, the
Court provided similar guidance, noting that collateral attack
is warranted under circumstances where “[a]llowing the
judgment to stand would substantially infringe the authority
of another tribunal or agency of government[.]” 557 U.S.
137, 153 n.6 (2009). Additionally, this Court has noted:
When Congress intends a particular forum to
have exclusive jurisdiction to determine the
rights of the parties in a particular situation, that
policy decision deprives other fora of subject
matter jurisdiction. This doctrine of “forum
preemption” implements Congressional
determinations that development of the
substantive law in a particular area should be
left to a particular administrative agency created
for that purpose.
Ry. Labor Exec. Ass’n v. Pittsburgh & Lake Erie R.R.
Co., 858 F.2d 936, 939 (3d Cir. 1988).
8
Here, it is clear that the policy interests in preemption
outweigh the policy interests of applying issue preclusion.
Allowing the Commonwealth Court’s judgment to stand,
without clarification, substantially infringes upon FERC’s
exclusive authority over its own orders. Furthermore, the
Commonwealth should not be permitted to use filed rates as a
pretense for construing FERC orders solely to benefit retail
ratepayers, the constitutents of the PUC. Therefore, the
Commonwealth Court’s assessment of FERC orders, as
ambiguous, is subject to collateral attack.
III. Commonwealth’s Review of FERC Orders
The Commonwealth Court’s conclusion that the FERC
orders “do not unambiguously state that [line losses] are
transmission related” is flatly contradicted by FERC’s
persistent use of the term “transmission line losses”
throughout the orders of Atlantic City I and Atlantic City II.
Metropolitan Edison Co., 22 A.3d at 356; see 115 FERC ¶
61,132; see also 117 FERC ¶ 61,169. These repeated
references explicitly classify “line losses” as related to
“transmission.”
Furthermore, the language quoted by the court to
illustrate ambiguity does nothing of the sort. According to
the Commonwealth Court, FERC associated line losses with
both transmission and generation. Metropolitan Edison Co.,
22 A.3d at 365. First, the court referred to FERC’s statement
that “marginal losses are a part of the payment for
transmission service.” Id. (quoting 117 FERC at p. 61,863).
Then, the court referred to language in Atlantic City I and
Atlantic City II that seemingly associated line loss with the
cost of generation. According to the Commonwealth Court:
9
FERC stated “locational marginal prices [ (how
line losses are calculated) ] are at the core of the
PJM pricing methodology, because marginal
prices send the proper price signals about the
cost of obtaining generation.” FERC then
explained how line loss costs impact a utility’s
decision regarding from which generator to
purchase energy. Similarly, in Atlantic City I,
FERC noted that requiring PJM to charge for
line loss on a locational marginal basis “ensures
that each customer pays the proper marginal
cost price for the power it is purchasing” and
that, in using marginal pricing, “PJM would
change the way that it dispatches generators by
considering the effects of losses.”
Id. (quoting Atlantic City I, 115 FERC at p. 61,478; Atlantic
City II, 117 FERC at pp. 61,862, 61,863). The court was
misguided.
In these statements, FERC simply illustrated the
transmission related incentives that arise when line losses are
calculated into the LMP. When line loss costs are calculated,
PJM will attempt to shorten the route of delivering electricity
by choosing the generators that are closest to the customers.
Thus, this calculation encourages PJM to use the transmission
system more efficiently. Atlantic City I, 115 FERC at 61,478.
Furthermore, FERC has indicated that similar
incentives arise when congestion is calculated into the LMP,
a cost that both the PUC and the Commonwealth Court have
found to be related to transmission. PJM Interconnection I,
81 FERC at p. 62,253; Metropolitan Edison Co., 22 A.3d at
10
356. FERC noted that calculating congestion costs would
“send price signals that are likely to encourage efficient
location of new generating resources, dispatch of new and
existing generating resources, and expansion of the
transmission system.” PJM Interconnection I, 81 FERC at p.
62,253. Accordingly, the calculation “encourage[s] efficient
use of the transmission system.” Id. It is noteworthy that
neither the PUC nor the Commonwealth Court found this
statement to be ambiguous in their finding that congestion
was related to transmission, and not generation.
Finally, the Commonwealth Court referred to language
in PJM Interconnection I and PJM Interconnection II that
seemingly associated line loss with the cost of generation.
Metropolitan Edison Co., 22 A.3d at 365. According to the
court, “FERC did refer to the amount of line losses as being
related to transmission; however, it also indicated that ‘the
price of line losses is related to generation, and the cost of
generation is determined by LMP.’” Id. (quoting PJM
Interconnection, 92 FERC at p. 61,960). The court took this
statement out of context.
At the time PJM Interconnection was decided, the
LMP calculated two cost components, generation and the
transmission constraints of congestion. PJM Interconnection
II, 92 FERC at 61,952. In PJM Interconnection II, FERC
noted, “[w]hen transmission constraints occur on the PJM
system, the marginal cost of energy varies by location
because not all supply can be delivered to all demand.” Id.
Meanwhile, generation refers to the baseline cost for
providing electricity absent transmission constraints, which
does not vary by location. Id. At the time, line losses were
not associated with transmission constraints, but rather, were
11
calculated via an uplift charge. Atlantic City I, 115 FERC at
61,473. Thus, like generation, line losses did not vary by
location. It is therefore understandable why FERC, at that
time, might categorize line losses with generation, as opposed
to transmission.
However, under LMP, the Commonwealth Court’s
assessment of FERC orders as ambiguous is misplaced. It is
clear that in conjunction with LMP, FERC has consistently
classified line loss as a transmission related cost.
IV. Conclusion
In focusing on the Companies’ attempt to have us
review the Commonwealth’s substantive determination under
the filed rate doctrine, the majority misses the forest for the
trees. The state may not improperly interpret a matter outside
of its jurisdiction when the matter has been left to the
exclusive jurisdiction of FERC.3 Because our review is not
3
From the beginning the Companies have taken the
position that this is a matter that can only be determined by
FERC. And, in essence, this is the question asked by the
Companies in their petition for certiorari to the Supreme
Court:
The Federal Power Act, 16 U.S.C. §§824
et seq., grants the Federal Energy Regulatory
Commission (“FERC”) “exclusive authority to
regulate the transmission and sale at wholesale
of electric energy in interstate commerce.” New
England Power Co. v. New Hampshire, 455
U.S. 331, 340 (1982). A regional transmission
12
organization (“RTO”) implementing its federal
tariff charged petitioners for “transmission line
losses” - the energy that dissipates when
electricity is transmitted through wires.
Although it was undisputed that the RTO
imposed those charges as a cost of transmission,
the Pennsylvania Public Utility Commission
and the court below barred petitioners from
recovering those federally imposed costs in
retail rates by ruling that “transmission line
losses” are generation costs (a cost of producing
electricity), not transmission costs.
Notwithstanding the filed rate doctrine, they
deemed it irrelevant that the RTO had imposed
the charges as “transmission” costs. They held
that state regulators were free to recategorize
the charges because FERC had not
“unambiguously” or “explicitly” declared that
“transmission line losses” are “transmission
costs.” The questions presented are:
1. Whether, contrary to a decision of the
Fifth Circuit, the Federal Power Act and filed
rate doctrine permit a state public utility
commission to deny recovery of FERC-
mandated charges by classifying those costs
differently from the entity responsible for
administering the federal tariff on the ground
that the tariff and FERC's orders do not
“unambiguously” or “explicitly” foreclose the
State's chosen classification.
2. Whether, contrary to a decision of the
D.C. Circuit, “transmission line losses” reflect
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precluded and FERC has clearly spoken, I respectfully
dissent. Thus, I conclude that this matter should be remanded
to the District Court with instructions to issue an order
enjoining the PUC and its Commissioners from asserting
jurisdiction to define line losses in any manner other than is
provided by FERC, i.e., that “marginal losses are part of the
payment for transmission service.” Atl. City Elec. Co., 117
FERC at 61,858.
the costs of generating electricity rather than the
costs of transmitting it.
Petition for Writ of Certiorari, Metro. Edison Co. v. Pa. Pub.
Util. Comm'n, 133 S.Ct. 426 (No. 12-4) (emphasis added).
The fact that the Supreme Court did not grant certiorari does
not mean that this question may not be validly raised in
federal district court. Cf. White v. Ragen, 324 U.S. 760, 767
(1945) (“A denial of certiorari by this Court in such
circumstances does not bar an application to a federal District
Court for the relief, grounded on federal rights, which the
Supreme Court of Illinois has denied.”).
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