AECM-88-0169, Forwards Executive Summary of Us Supreme Court Decision on Mississippi Power & Light Grand Gulf Unit 1 Rate Litigation. Federally Mandated Wholesale Rates Through Retail Rate Structure Upheld

Forwards Executive Summary of Us Supreme Court Decision on Mississippi Power & Light Grand Gulf Unit 1 Rate Litigation. Federally Mandated Wholesale Rates Through Retail Rate Structure Upheld

ML20153B704
Person / Time
Site:	Grand Gulf, Arkansas Nuclear, Waterford, 05000000
Issue date:	08/26/1988
From:	Kingsley O SYSTEM ENERGY RESOURCES, INC.
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
References
AECM-88-0169, AECM-88-169, NUDOCS 8808310060
Download: ML20153B704 (5)

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EYETEM ENENGY MEDLMCEE, IIVC.

OtM9 D KimEv. A h%'g6 August 26, 1988 U. S. Nuclear Regulatory Comission Mail Station P1-137 Washington, D. C. 20555 Attention: Document Control Desk Gentlemen:

SUBJECT:

Grand Gulf Nuclear Station Units 1 & 2 Docket Nos. 50-416 and 50-417 License No. NPF-29 and Pennit No. CPPR-119 Waterford 3 SES Docket No. 50-382 License No. NPF-38 Arkansas Nuclear One - Units 1 & 2 Docket Nos. 50-313 and 50-368 License Nos. DPR-51 and NPF-6 Executive Sumary of United States Supreme Court Decision on MP&L Grand Gulf Unit 1 Rate Litigation AECM-8P/0169 In our June 15, 1988 meeting and our June 28, 1988 telephone conversation on the proposed Middle South Utilities nuclear consolidation, System Energy Resources, Inc. (SERI) comitted to submit information regarding the recent Supreme Court decision on Mississippi Power & Light Company (MP&L) rates. An executive sumary of the MP&L rate litigation and the action of the United States Supreme Court on MP&L's appeal is attached.

SERI believes that the attached sumary is responsive to your requests in this area. Copies of additional documents can also be provided if needed including:

o Copy of the June 24, 1988 Supreme Court Decision o Copy of the Supreme Court's Mandate issued on August 8, 1988 o Securities Exchange Comission (SEC) filing on Form 8-K dated June 24, 1988, describing the United States Supreme Court decision i o SEC filing dated July 22, 1988, amending an Application-Declaration on Form U-1 (filed in connection with the registration by SERI of certain securities), which also the Supreme Court decision and its effect on SERI and SERI's 0g affiliates

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AECM-88/0,?69

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Page 2 j- If you have any additional que;tions concerning the Supreme Court litigation or concerning any other tatter relating to SERI's implementation of its wholesale rate structure as apr oved by the Federal Energy Regulatory Commission or if copies of additie .1 related documents are needed, please contact me.

Your uly, i-

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ODK:mcg Attachments ,

cc: Mr. T. H. Cloninger (w/a)

Mr. W. D. Johnson - ANO (w/a)

Mr.N.R.

Mr. S. B. McGehee Reynolds (w/a (w/a))

Mr. W. Smith - WSES 3 (w/a)

Mr. H. L. Thomas w Mr. J. L. Mathis w Dr. Ji Nelson Grace, Regional Administrator (w/a)

U. S. Nuclear Regulatory Comission Region II 101 Marietta St., N. W., Suite 2900 '

Atlanta, Georgia 30323 Mr. L. L. Kintner, Project Manager (w/a)

Office of Nuclear Reactor Regulation V. S. Nuclear Regulatory Comission Mail Stop 14B20

Washington, D.C. 20555 Mr.D?nnisM.Crutchfield, Director (w/a)

Division of Reactor Projects III, IV, V, and Special Projects Office of Nuclear Reactor Regulation V. S. Nuclear Regulatory Comission Mail Stop 13A2 ,

Washington, D.C. 20555 >

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y AECM-88/0169 Page 3 '

Mr. David L. Wigginton, Project Manager (w/a)

Project Directorate - IV Division of Reactor Projects - III, IV, Y and Special Projects -

Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Comission Mail Stop 13D18 Washington, D. C._20555 Dr.AltonB.Cobb(w/a)

• T', ate Health Officer State Board of Health Box 1700 Jackson, Mississippi 39205 Ms. Greta Dieus, Director (w/a)  !

Division of Radiation Control .'

& Emergency Management Arkansas 9ept. of Health 4815 West Markham Street Little Rock, Arkansas 72205

- Mr.W.H. Spell, Administrator (w/a)

NuclearEnergyDivision(StateofLouisiana)

P.O. 14690 Baton Rouge, Louisiana 70898 Mr.RobertD. Martin,RegionalAdministrator(w/a)  :

U.S. Nuclear Regulatory Comission -p Region IV 611 Ryan Plaza Drive, Suite 1000 Arlington, Texas 76011 ,

Mr. C. Craig Harbuck, Project Manager (w/a)

Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Comission Mail Stop 13E18 Washington, D. C. 20555 J14AECM88081201 - 3

Attachment to AECM-88/0169

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SUMMARY

OF MP&L RATE LITIGATION

. AND SUPREME COURT DECISION System Energy Resources, Inc. ("SERI") is the operator and 90 percent owner of Unit No.1 of the Grand Gulf Nuclear Station ("Grand Gulf 1"). SERI's only source of operating revenues is derived from the allocation of cost associated with its 90 percent share of Grand Gulf 1 to four affiliated companies, one of which is Mississippi Power & Light Company ("MP&L"). Pursuant to a Unit Power Sales Agreement ("UPSA"), as modified and approved by the Federal Energy Regulatory Commission ("FERC"), 33 percent of SERI's capacity and ~ energy from Grand Gulf 1 is allocated to MP&L on a full cost of service basis.

In September 1985, MP&L obtained a rate order from the Mississippi Public Service Commission ("MPSC") granting permanent rate relief to MP&L with respect to recovery of its Grand Gulf 1 related costs. On February 25, 1987, the Mississippi Supreme Court ("Mississippi Court") reversed and remanded the September 1985 rate order to the MPSC finding, among other things, that'the MPSC should not have allowed MP&L rate relief with respect to Grand Gulf I related costs without first determining the prudence of MP&L's decision to participate in the UPSA.

MP&L appealed the Mississippi Court's February 25, 1987 decision to the United States Supreme Court. In connection with this appeal, SERI, MP&L and Middle South Utilities. Inc. were required to file with the Mississippi Court various corporate undertakings and corporate guarantees to secure MP&L's potential refund obligation in the event of a final judicial detemination adverse to MP&L. As part of this bonding arrangement, SERI was also required to deposit in trust. for the benefit of MP&L's customers, an amount equal to MP&L's cash collections for Grand Gulf 1-related expenses from and after June 1, 1987 until disposition by the United States Supreme Court of MP&L's appeal of the Mississippi Court's decision. As of August 1, 1988, SERI had deposited $215.6 million under this arrangement.

On June 24, 1988, the United States Supreme Court rendered a decision '

reversing the February 25, 1987 decision of the Mississippi Court. The Supreme Court held that states may not alter FERC-ordered allocations of wholesale power by substituting their own detemination of what would be just and fair, i and that the MPSC must therefore recognize MP&L's Grand Gulf 1-related costs as reasonable operating expenses, and allow MP&L to recover such costs through retail rates. The Supreme Court stated in its decision that "FERC-mandated allocations of power are binding on the states, and states must treat those allocations as fair and reasonable when determining retail rates".

In affirming the FERC's jurisdiction to set wholesale ratos, and applying the principals of federal preemption to the facts in MP&L's case, the Supreme Court concluded that the Supremacy Clause of the United States Constitution compels the MPSC to permit MP&L to recover as reasonable operating expense costs incurred as a result of paying FERC-determined wholesale rates for FERC-mandated alloc3tions of power.

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Attachment to AECM-88/0169 In addressing the prudence" question relied upon in part by the Mississippi Court in reversing the September 1985 rate order, the United States Supreme Court held that "(s)tates may not regulate in areas where FERC has properly exercised its jurisdiction to determine just and reasonable wholesale rates or to insure that agreements affecting wholesale rates are reasonable".

Therefore, that MPSC may not, consistent with the Supremacy Clause, conduct any proceedings, including proceedings designed to determine the prudence of MP&L's decision to be a party to various Grand Gulf 1 agreements, that challenge the reasonableness of FERC's allocation. Instead, the proper forum for such a challenge.is to the FERC.

On August 8, 1988, the United States Supreme Court issued its mandate in the MP&L proceeding, and, as a result, the judicial detennination of the MPSC's September 1985 order became final. Accordingly, on August 11, 1988, the funds deposited in trust by SERI in accordance with the bonding arrangement required in connection with MP&L's appeal were returned to SERI.

In light of the Supreme Court decision, a major uncertainty facing SERI has been resolved, and the principal of federal preemption which is necessary to secure implementation of SERI's federally mandated wholesale rates through the retail rate structures of its customers has been upheld.

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