This section contains the nature of the case and procedural background.

P, a producer, wholesaler, and retailer of electricity that provides retail electrical service to the city of New Orleans, is one of four wholly owned operating subsidiaries of Middle South Utilities, Inc. Middle South operates an integrated 'power pool' in which each of the four operating companies transmits produced electricity to a central dispatch center and draws back from the dispatch center the power it needs to meet customer demand. In 1974, P and its fellow operating companies entered a contract with Middle South Energy, Inc. (MSE), another wholly owned Middle South subsidiary, whereby the operating companies agreed to finance MSE's construction and operation of two 1250 megawatt nuclear reactors, Grand Gulf 1 and 2, in return for the right to the reactors' electrical output. The estimated cost of completing the two reactors was $ 1.2 billion. Consumer demand turned out to be far lower than expected, and regulatory delays, enhanced construction requirements, and [high inflation led to spiraling costs. Construction of Grand Gulf 2 was suspended, and the cost of completing Grand Gulf 1 alone eventually exceeded $ 3 billion. The cost of the electricity produced by the reactor greatly exceeded that of power generated by Middle South's conventional facilities. The Federal Energy Regulatory Commission (FERC) conducted extensive proceedings to determine 'just and reasonable' rates for Grand Gulf 1 power and to prescribe a 'just, reasonable, and nondiscriminatory' allocation of Grand Gulf's costs and output. The Commission issued a final order holding that the Middle South subsidiaries should pay for the Grand Gulf project 'roughly in proportion to each company's share of System demand.' FERC allocated 17 percent of Grand Gulf costs (approximately $13 million per month) to P, rejecting Middle South's proposal of 29.8 percent as well as the 9 percent figure favored by D. P sought a rate increase from D to cover the increase in wholesale rates resulting from FERC's allocation of Grand Gulf costs. D denied an immediate rate adjustment, explaining that a public hearing was necessary to explore ''the legality, prudence, and reasonableness of the expenses.' P filed an action for injunctive and declaratory relief in the District Court asserting that federal law required P to allow it to recover, through an increase in retail rates, its FERC-allocated share of the Grand Gulf expenses. D moved to dismiss and it was granted pursuant to the Johnson Act, 28 U. S. C. § 1342. The court held it had no jurisdiction to entertain the action, and that even if it had jurisdiction it would be compelled by Burford v. Sun Oil Co. to abstain. The Fifth Circuit reversed on both grounds, but later, on its own motion, vacated its earlier opinion in part and held that abstention was proper both under Burford and under Younger v. Harris. During this time D initiated an investigation into the prudence of P's involvement in Grand Gulf 1. D held that in setting the appropriate retail rate, it would ''not seek to invalidate any of the agreements surrounding Grand Gulf 1 or to order P to pay MSE a rate other than that approved by the FERC.'' P filed a second suit in District Court seeking to preclude D from requiring Por its shareholders to absorb any of P's FERC-allocated share of the Grand Gulf costs. The District Court dismissed the suit as unripe but held in the alternative that abstention was appropriate. The Fifth Circuit affirmed the judgment on ripeness grounds. D completed its prudence review and entered a final order disallowing $135 million of the Grand Gulf costs. It held that P acted imprudently in failing to reduce the risk of its Grand Gulf commitment, in the wake of the Three Mile Island nuclear incident in March 1979, 'by selling all or part of its share off-system.' P once again filed in District Court seeking declaratory and injunctive relief on the ground that, in light of this Court's recent decision in Nantahala Power & Light Co. v. Thornburg D's rate order was preempted by federal law. The District Court held it should abstain from deciding the suit. The Fifth Circuit affirmed the District Court's dismissal in that Burford and Younger abstention applied. The Supreme Court granted certiorari. This was on ongoing administrative nightmare and disaster related to the payment of the building of a nuclear power generating plant called Grand Gulf I. The state ratemaking authority deferred to FERC’s finding that New Orleans Public Service, Inc.’s (P) decision to participate in the venture of building the plant was reasonable. The sordid factual details of the original transaction entered into by P are listed in Re 5th edition pages 210-211. Eventually, the FERC got involved because it had exclusive regulatory authority over interstate wholesale power transaction. FERC issued its final order, which allocated 17% of the final costs of Grand Gulf I to P. The Council of the City of New Orleans (D) wanted that number to be 9%. P then sought a rate increase from D to cover the increase in wholesale rates resulting from the FERC’s ruling. After a prudence review, D denied the rate increase because it found that P’s management was negligent in failing to diversify its supply portfolio by selling a portion of its Grand Gulf power. P then petitioned the District Court for declaratory and injunctive relief from P’s determination that $135 million in costs should be disallowed. The District Court then abstained from exercising jurisdiction in deference to the state review process. The Fifth Circuit affirmed the dismissal by the District Court agreeing that the Burford and Younger abstention doctrines applied. The Supreme Court granted certiorari.

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