Petition for Writ of Certiorari — Louisiana Public Service Commission, Petitioner v. Federal Energy Regulatory Commission, et al.

No. _________

================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------LOUISIANA PUBLIC SERVICE COMMISSION,

Petitioner,

versus

FEDERAL ENERGY REGULATORY COMMISSION, et al.,

Respondents.

-----------------------------------------------------------------On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The District Of Columbia Circuit

-----------------------------------------------------------------PETITION FOR A WRIT OF CERTIORARI

-----------------------------------------------------------------MELISSA WATSON

Deputy General Counsel

LOUISIANA PUBLIC SERVICE

COMMISSION

Galvez Building – 12th Floor

602 N. Fifth Street

Baton Rouge, Louisiana

70802

Telephone: (225) 342-9888

MICHAEL R. FONTHAM

Counsel of Record

DANA M. SHELTON

JUSTIN A. SWAIM

STONE PIGMAN WALTHER

WITTMANN L.L.C.

909 Poydras Street

New Orleans, Louisiana

70112

Telephone: (504) 581-3200

Email: mfontham@

stonepigman.com

Attorneys for the Louisiana Public Service Commission

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTIONS PRESENTED

1.

Given this Court’s holdings that the Federal

Power Act (“FPA”) preempts inconsistent state

ratemaking and requires state agencies to treat

cost allocations made by the Federal Energy Regulatory Commission (“FERC”) as reasonable, may

FERC deny a refund authorized by FPA Section

206(b) based on the threat of a state regulatory

commission to violate the Supremacy Clause by

denying recovery of the surcharge needed to make

the refund?

2.

When FERC grants a refund for an unjust and unreasonable holding company cost allocation, pursuant to its policy to grant refunds for unjust and

unreasonable rates, and numerous holding company refund decisions support the policy, may a

court of appeals accept without scrutiny FERC’s

subsequent reversal of its refund decision based

on its assertion that its previously-cited policy

never existed and its reversal of key prior findings

without explanation?

ii

LIST OF PARTIES TO THE PROCEEDING

The Petitioner, and petitioner below, is the Louisiana Public Service Commission. Respondent, and respondent below, is the Federal Energy Regulatory

Commission. Intervenors below were the Arkansas

Public Service Commission and Entergy Services, Inc.

RULE 29.6 CORPORATE

DISCLOSURE STATEMENT

The Louisiana Public Service Commission is a political subdivision of the State of Louisiana. No corporate disclosure is required.

iii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ................................

i

LIST OF PARTIES TO THE PROCEEDING ......

ii

RULE 29.6 CORPORATE DISCLOSURE

STATEMENT ......................................................

ii

TABLE OF CONTENTS ......................................

iii

TABLE OF AUTHORITIES .................................

v

PETITION FOR A WRIT OF CERTIORARI .......

1

OPINIONS BELOW.............................................

1

JURISDICTION ...................................................

2

CONSTITUTIONAL AND STATUTORY

PROVISIONS ...................................................

2

STATEMENT OF THE CASE..............................

8

1.

Introduction ...............................................

8

2.

Overview ....................................................

9

3.

FERC’s ratemaking and refund authority .... 12

4.

FERC ratemaking for holding companies .... 14

5.

Development of FERC refund policy ......... 15

6.

Prior refunds in this litigation .................. 19

REASONS FOR GRANTING THE PETITION ....

I.

24

FERC’S RECOGNITION OF A STATE

AGENCY VETO OF REFUNDS AUTHORIZED BY THE FEDERAL POWER ACT

OFFENDS THE SUPREMACY CLAUSE

AND IMPROPERLY CRIMPS FERC’S EXCLUSIVE JURISDICTION ........................ 26

iv

TABLE OF CONTENTS – Continued

Page

II.

THE COURT OF APPEALS FAILED IN

ITS TASK OF JUDICIAL REVIEW BY ACCORDING COMPLETE DEFERENCE TO

FERC’S REVERSALS OF POSITION ....... 31

CONCLUSION..................................................... 42

APPENDIX

Court of Appeals Opinion filed March 6, 2018 ... App. 1

Federal Energy Regulatory Commission Order

Denying Rehearing issued September 26,

2016 ................................................................ App. 13

Federal Energy Regulatory Commission Order

on Remand issued April 29, 2016 .................. App. 69

Court of Appeals Opinion filed December 5,

2014 ................................................................ App. 98

Federal Energy Regulatory Commission Order

Denying Rehearing issued March 21, 2013 .... App. 118

Federal Energy Regulatory Commission Order

Granting Rehearing in Part and Denying

Rehearing in Part issued June 9, 2011 ....... App. 173

Federal Energy Regulatory Commission Amended

Order on Remand issued August 13, 2010 .... App. 189

Court of Appeals Opinion filed April 3, 2007 .... App. 212

Court of Appeals Order Denying Rehearing filed

May 3, 2018 .................................................. App. 234

v

TABLE OF AUTHORITIES

Page

CASES

Christopher v. SmithKline Beecham Corp., 567

U.S. 142 (2012) ........................................................32

Cities of Batavia v. FERC, 672 F.2d 64 (D.C. Cir.

1982) .................................................................. 16, 17

Entergy La., Inc. v. La. Pub. Serv. Comm’n (Entergy Louisiana), 539 U.S. 39 (2003) ............. 8, 29, 32

Fed. Commc’ns Comm’n v. Fox Television Stations, Inc., 556 U.S. 502 (2009) ................................25

Fed. Power Comm’n v. Tenn. Gas Transmission

Co., 371 U.S. 145 (1962) ..........................................15

La. Pub. Serv. Comm’n v. FERC (LPSC I), 184

F.3d 892 (D.C. Cir. 1999) ............................. 10, 30, 33

La. Pub. Serv. Comm’n v. FERC (LPSC II), 482

F.3d 510 (D.C. Cir. 2007) ................................. passim

La. Pub. Serv. Comm’n v. FERC (LPSC III), 772

F.3d 1297 (D.C. Cir. 2014) ............................... passim

La. Pub. Serv. Comm’n v. FERC (LPSC IV), 883

F.3d 929 (D.C. Cir. 2018) ................................. passim

Miss. Power & Light Co. v. Miss. ex rel. Moore

(Mississippi Power & Light), 487 U.S. 354

(1988) ............................................................... passim

Mississippi Indus. v. FERC, 808 F.2d 1525 (D.C.

Cir. 1987) .................................................................15

vi

TABLE OF AUTHORITIES – Continued

Page

Nantahala Power & Light Co. v. Thornburg

(Nantahala), 476 U.S. 953 (1986) ........... 8, 27, 28, 29

Second Taxing Dist. of Norwalk v. FERC, 683

F.2d 477 (D.C. Cir. 1982) ................................... 16, 17

ADMINISTRATIVE DECISIONS

Am. Elec. Power Serv. Co., 8 F.E.R.C. ¶ 61,068

(1979) ................................................................. 18, 36

Am. Elec. Power Serv. Corp., 8 F.E.R.C. ¶ 61,302

(1979) ................................................................. 18, 36

Amended Order on Remand (2010 Order), 132

F.E.R.C. ¶ 61,133 (2010) ................. 11, 20, 27, 32, 41

Black Oak Energy, LLC, 136 F.E.R.C. ¶ 61,040

(2011) .......................................................................37

Cent. & S. W. Servs., Inc., 48 F.E.R.C. ¶ 61,197

(1989) ................................................................. 18, 36

Entergy Servs., Inc., 142 F.E.R.C. ¶ 61,011

(2013) .......................................................................37

Entergy Servs., Inc., 143 F.E.R.C. ¶ 61,120

(2013) ................................................................. 19, 35

La. Pub. Serv. Comm’n v. Entergy Corp., 120

F.E.R.C. ¶ 61,241 (2007) .........................................19

La. Pub. Serv. Comm’n v. Entergy Corp., 124

F.E.R.C. ¶ 61,010 (2008) ................................... 18, 35

La. Pub. Serv. Comm’n v. Entergy Corp., 132

F.E.R.C. ¶ 61,253 (2010) ................................... 18, 35

vii

TABLE OF AUTHORITIES – Continued

Page

La. Pub. Serv. Comm’n v. Entergy Corp., 139

F.E.R.C. ¶ 61,100 (2012) ............................. 18, 35, 36

La. Pub. Serv. Comm’n v. Entergy Servs. Inc., 106

F.E.R.C. ¶ 61,228 (2004) ................................... 10, 30

La. Pub. Serv. Comm’n v. Entergy Servs., Inc.,

106 F.E.R.C. ¶ 63,012 (2004)...................................34

La. Pub. Serv. Comm’n v. Entergy Servs., Inc.,

137 F.E.R.C. ¶ 61,047 (2011)...................................37

La. Pub. Serv. Comm’n v. Entergy Servs., Inc.,

163 F.E.R.C. ¶ 61,116 (2018)...................................37

La. Pub. Serv. Comm’n v. Entergy Servs. Inc., 111

F.E.R.C. ¶ 61,080 (2005) .........................................10

Middle S. Energy, Inc., 31 F.E.R.C. ¶ 61,305

(1985) ........................................................... 10, 17, 36

Middle S. Services, Inc., 16 F.E.R.C. ¶ 61,101

(1981) ................................................................. 17, 36

Nantahala Power & Light Co., 19 F.E.R.C.

¶ 61,152 (1982) ........................................................18

Occidental Chem. Corp., 110 F.E.R.C. ¶ 61,378

(2005) .......................................................................37

Order Conditionally Accepting Compliance Filing, etc., 112 F.E.R.C. ¶ 61,192 (2005) ....................19

Order Denying Rehearing, 156 F.E.R.C. ¶ 61,221

(2016) ............................................................... passim

Order Denying Rehearing (2013 Order), 142

F.E.R.C. ¶ 61,211 (2013) ......................... 1, 21, 23, 34

viii

TABLE OF AUTHORITIES – Continued

Page

Order Granting Rehearing in Part & Denying

Rehearing in Part (2011 Order), 135 F.E.R.C.

¶ 61,218 (2011) .............................................. 1, 20, 28

Order on Remand, 155 F.E.R.C. ¶ 61,120

(2016) ..................................................... 11, 22, 37, 40

CONSTITUTIONAL PROVISION

U.S. Const. art. VI, cl. 2 .................................................2

STATUTES AND REGULATIONS

5 U.S.C. § 706 ................................................................7

16 U.S.C. § 824 ............................................................13

16 U.S.C. § 824d .................................................. 2, 3, 13

16 U.S.C. § 824e .................................................. passim

16 U.S.C. § 825e .................................................... 10, 13

18 C.F.R. § 385.206 .....................................................27

1

PETITION FOR A WRIT OF CERTIORARI

The Louisiana Public Service Commission (“Louisiana Commission”) petitions for a writ of certiorari

to review the judgment of the United States Court of

Appeals for the District of Columbia Circuit (“court of

appeals” or “court”).

------------------------------------------------------------------

OPINIONS BELOW

The opinion of the court of appeals is reported at

883 F.3d 929 (D.C. Cir. 2018). App. 1. The decision of

the Federal Energy Regulatory Commission is reported at 155 F.E.R.C. ¶ 61,120 (2016), App. 69, and its

decision on rehearing is reported at 156 F.E.R.C.

¶ 61,221 (2016), App. 13.

Other relevant court and agency opinions below

include: 1) Louisiana Public Service Commission v.

FERC, 772 F.3d 1297 (D.C. Cir. 2014), App. 98; 2) Louisiana Public Service Commission v. FERC, 482 F.3d

510 (D.C. Cir. 2007), App. 212; 3) Order Denying Rehearing, 142 F.E.R.C. ¶ 61,211 (2013), App. 118; 4) Order Granting Rehearing in Part & Denying Rehearing

in Part, 135 F.E.R.C. ¶ 61,218 (2011), App. 173; and 5)

Amended Order on Remand, 132 F.E.R.C. ¶ 61,133

(2010), App. 189.

------------------------------------------------------------------

2

JURISDICTION

The court of appeals rendered its decision on

March 6, 2018. App. 1. A petition for rehearing was denied on May 3, 2018. App. 234. This Court has jurisdiction pursuant to 28 U.S.C. § 1254(1).

------------------------------------------------------------------

CONSTITUTIONAL AND

STATUTORY PROVISIONS

The U.S. Constitution’s Supremacy Clause, provides:

This Constitution, and the Laws of the United

States which shall be made in Pursuance

thereof; and all Treaties made, or which shall

be made, under the Authority of the United

States, shall be the supreme Law of the Land;

and the Judges in every State shall be bound

thereby, any Thing in the Constitution or

Laws of any State to the Contrary notwithstanding.

U.S. Const. art. VI, cl. 2.

Sections 205 and 206 of the Federal Power Act, 16

U.S.C. §§ 824d and 824e, provide, in relevant part:

FPA Section 205

(a) Just and reasonable rates. All rates and

charges made, demanded, or received by any

public utility for or in connection with the

transmission or sale of electric energy subject

to the jurisdiction of the Commission, and all

3

rules and regulations affecting or pertaining

to such rates or charges shall be just and reasonable, and any such rate or charge that is

not just and reasonable is hereby declared to

be unlawful.

(b) Preference or advantage unlawful. No

public utility shall, with respect to any transmission or sale subject to the jurisdiction of

the Commission, (1) make or grant any undue

preference or advantage to any person or subject any person to any undue prejudice or disadvantage, or (2) maintain any unreasonable

difference in rates, charges, service, facilities,

or in any other respect, either as between localities or as between classes of service.

*

*

*

16 U.S.C. § 824d.

FPA Section 206

(a) Unjust or preferential rates, etc.; statement of reasons for changes; hearing; specification of issues. Whenever the Commission,

after a hearing held upon its own motion or

upon complaint, shall find that any rate,

charge, or classification, demanded, observed,

charged, or collected by any public utility for

any transmission or sale subject to the jurisdiction of the Commission, or that any rule,

regulation, practice, or contract affecting such

rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just

and reasonable rate, charge, classification,

4

rule, regulation, practice, or contract to be

thereafter observed and in force, and shall fix

the same by order. Any complaint or motion of

the Commission to initiate a proceeding under

this section shall state the change or changes

to be made in the rate, charge, classification,

rule, regulation, practice, or contract then in

force, and the reasons for any proposed

change or changes therein. If, after review of

any motion or complaint and answer, the

Commission shall decide to hold a hearing, it

shall fix by order the time and place of such

hearing and shall specify the issues to be adjudicated.

(b) Refund effective date; preferential proceedings; statement of reasons for delay; burden of proof; scope of refund order; refund

orders in cases of dilatory behavior; interest.

Whenever the Commission institutes a proceeding under this section, the Commission

shall establish a refund effective date. In the

case of a proceeding instituted on complaint,

the refund effective date shall not be earlier

than the date of the filing of such complaint

nor later than 5 months after the filing of such

complaint. . . . At the conclusion of any proceeding under this section, the Commission

may order refunds of any amounts paid, for

the period subsequent to the refund effective

date through a date fifteen months after such

refund effective date, in excess of those which

would have been paid under the just and reasonable rate, charge, classification, rule, regulation, practice, or contract which the

Commission orders to be thereafter observed

5

and in force: Provided, That if the proceeding

is not concluded within fifteen months after

the refund effective date and if the Commission determines at the conclusion of the proceeding that the proceeding was not resolved

within the fifteen-month period primarily because of dilatory behavior by the public utility,

the Commission may order refunds of any or

all amounts paid for the period subsequent to

the refund effective date and prior to the conclusion of the proceeding. The refunds shall be

made, with interest, to those persons who

have paid those rates or charges which are the

subject of the proceeding.

(c) Refund considerations; shifting costs; reduction in revenues; “electric utility companies” and “registered holding company”.

Notwithstanding subsection (b), in a proceeding commenced under this section involving

two or more electric utility companies of a registered holding company, refunds which might

otherwise be payable under subsection (b)

shall not be ordered to the extent that such

refunds would result from any portion of a

Commission order that (1) requires a decrease

in system production or transmission costs to

be paid by one or more of such electric companies; and (2) is based upon a determination

that the amount of such decrease should be

paid through an increase in the costs to be

paid by other electric utility companies of

such registered holding company: Provided,

That refunds, in whole or in part, may be ordered by the Commission if it determines that

the registered holding company would not

6

experience any reduction in revenues which

results from an inability of an electric utility

company of the holding company to recover

such increase in costs for the period between

the refund effective date and the effective

date of the Commission’s order. For purposes

of this subsection, the terms “electric utility

companies” and “registered holding company”

shall have the same meanings as provided in

the Public Utility Holding Company Act of

1935, as amended.

16 U.S.C. § 824e.

The Administrative Procedure Act establishes the

“scope of review” of agency action, and provides, in relevant part:

To the extent necessary to decision and when

presented, the reviewing court shall decide all

relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the

terms of an agency action. The reviewing

court shall –

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions found to be –

(A) arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance

with law;

*

*

*

7

(E) unsupported by substantial evidence in a case subject to sections 556 and

557 of this title [5 USCS §§ 556 and 557]

or otherwise reviewed on the record of an

agency hearing provided by statute; or

*

*

*

In making the foregoing determinations,

the court shall review the whole record or

those parts of it cited by a party, and due

account shall be taken of the rule of prejudicial error.

5 U.S.C. § 706.

Rule 206 of the FERC’s Rules of Practice and Procedure, 18 C.F.R. § 385.206, provides, in relevant part:

(a) General rule. Any person may file a

complaint seeking Commission action

against any other person alleged to be in

contravention or violation of any statute,

rule, order, or other law administered by

the Commission, or for any other alleged

wrong over which the Commission may

have jurisdiction.

(b)

Contents. A complaint must:

*

*

*

(10) Include a form of notice of the complaint

suitable for publication in the Federal Register in accordance with the specifications in

§ 385.203(d) of this part. The form of notice

shall be on electronic media as specified by the

Secretary.

8

*

*

*

(d) Notice. Public notice of the complaint will be issued by the Commission.

18 C.F.R. § 385.206.

------------------------------------------------------------------

STATEMENT OF THE CASE

1. Introduction. This Court has held three

times that holding company cost allocations adopted

by the Federal Energy Regulatory Commission

(“FERC”) pursuant to the Federal Power Act (“FPA”)

preempt inconsistent state ratemaking, preventing retail regulators from disallowing the costs in setting retail rates. Nantahala Power & Light Co. v. Thornburg

(Nantahala), 476 U.S. 953 (1986); Miss. Power & Light

Co. v. Miss. ex rel. Moore (Mississippi Power & Light),

487 U.S. 354 (1988); Entergy La., Inc. v. La. Pub. Serv.

Comm’n (Entergy Louisiana), 539 U.S. 39 (2003). Two

of the three cases involved the cost allocations among

operating company subsidiaries of Entergy Corp. (“Entergy”), which are also at issue here. Pursuant to the

Court’s requirement, the Louisiana Commission went

to FERC to secure relief from an unjust and unreasonable Entergy cost allocation.

FERC after years granted relief, but denied statutorily-authorized refunds because the Arkansas Public

Service Commission (“Arkansas Commission”) said it

would defy federal preemption and deny recovery of

the surcharge needed to make the refund. FERC also

ruled that it never had a policy to provide refunds for

9

unjust and unreasonable rates in holding company

cost allocation cases, even though it previously said in

the same proceeding that it did have that policy and

its decisions over four decades have granted refunds in

accordance with that policy. The court of appeals upheld FERC’s ruling that the Arkansas Commission

might be able to violate the Supremacy Clause as “reasonabl[e]” and accepted FERC’s denial of its own policy

without scrutinizing the change. App. 9. The decision

provides complete deference to FERC’s decision to

grant a state veto over the exercise of FERC’s exclusive

power to grant refunds and its inconsistent reasoning.

This Court’s rulings established that the Louisiana Commission could not itself disallow the unreasonable cost allocation – it had to go to FERC. It did so

and, after a long delay, obtained relief. But FERC denied a refund for the statutorily-authorized period,

holding that the Arkansas Commission was likely to

disallow the surcharge FERC would require to make

the refund. That decision turns preemption upside

down and rewards defiance of the Court’s rulings. The

Court should not let stand a determination that

FERC’s ruling was “reasonabl[e].”

2. Overview. Pursuant to Section 206 of the

FPA, FERC is granted discretionary power to provide

refunds for a specified “refund-effective” period if it

finds pursuant to a complaint that rates are unjust and

unreasonable. 16 U.S.C. § 824e(b). FERC, over decades,

has repeatedly granted refunds for holding company

cost allocations it found to be unjust and unreasonable,

in both FPA Section 205 and FPA Section 206 cases.

10

FERC granted one of those refunds in the decision underlying Mississippi Power & Light, when Entergy was

named Middle South Utilities, Inc. Middle S. Energy,

Inc., 31 F.E.R.C. ¶ 61,305 (1985).

In 1995, the Louisiana Commission filed a complaint against Entergy, arguing that it was unjust, unreasonable and unduly discriminatory to allocate the

fixed costs of Entergy generating units based on electric loads that could be interrupted during times of

peak usage. Section 306 and Section 206 of the FPA

permit state agencies to file complaints at FERC. 16

U.S.C. § 825e; 16 U.S.C. § 824e. FERC dismissed the

complaint, but the court of appeals overruled the decision as arbitrary and capricious, and remanded. La.

Pub. Serv. Comm’n v. FERC (LPSC I), 184 F.3d 892

(D.C. Cir. 1999).

Five years later, FERC found that the cost allocation among the Entergy companies was unjust and unreasonable. It denied refunds, however, holding that

some Entergy companies might not be able to collect

the surcharges necessary to make the refunds in retail

rates. La. Pub. Serv. Comm’n v. Entergy Servs. Inc., 106

F.E.R.C. ¶ 61,228 (2004), reh’g denied, 111 F.E.R.C.

¶ 61,080 (2005). The court of appeals overruled that

decision, holding that FERC had not explained why its

refund allocation would not preempt inconsistent state

ratemaking decisions and why the notice of the complaint would not satisfy any retroactive ratemaking

concerns. La. Pub. Serv. Comm’n v. FERC (LPSC II),

482 F.3d 510, 520 (D.C. Cir. 2007), App. 230-31.

11

On remand, FERC at first granted refunds. FERC

held that it had a policy to grant refunds for unjust and

unreasonable rates and would have to justify deviating

from that policy. It also held that the Supremacy

Clause would require retail regulators to permit recovery of the surcharges needed to make refunds.

Amended Order on Remand (2010 Order), 132 F.E.R.C.

¶ 61,133, ¶¶ 23-30 (2010), App. 203-07. But FERC

changed its decision on rehearing, applying an exception to the general policy that it had previously made

for “rate design” cases, even though the Entergy cost

allocation does not determine the design of rates

charged to Entergy customers. The court of appeals

again overruled the decision, holding that FERC had

not justified its departure from the general policy to

grant refunds. La. Pub. Serv. Comm’n v. FERC (LPSC

III), 772 F.3d 1297, 1303-05 (D.C. Cir. 2014), App. 11014.

In this, the final round of decisions, FERC doubled

down. It again denied refunds, finding that Entergy

might not collect the surcharges needed to make refunds because the Arkansas Commission said it would

deny recovery to Entergy Arkansas, Inc., one of Entergy’s subsidiaries. FERC relied on “potential litigation,” the outcome of which would be “uncertain.”

Order on Remand, 155 F.E.R.C. ¶ 61,120, ¶ 32 (2016),

App. 91-92. FERC also denied that it ever had a policy

to grant refunds for unjust and unreasonable holding

company cost allocations, asserting that its own prior

descriptions of the policy were erroneous. Id. ¶ 18, App.

80-82. Relying on “rate design” precedents, FERC

12

ruled that the general policy did not apply to cost allocations, which FERC equated to rate design. Id. ¶¶ 2025, App. 82-86. On rehearing, FERC brushed off numerous holding company cost allocation cases where it

granted refunds, mischaracterizing them or attempting distinctions. Order Denying Rehearing, 156

F.E.R.C. ¶ 61,221, ¶¶ 36 & nn.60-62 (2016), App. 35-37.

On judicial review, the court of appeals threw up

its hands and surrendered. La. Pub. Serv. Comm’n v.

FERC (LPSC IV), 883 F.3d 929 (D.C. Cir. 2018), App. 1.

The court approved FERC’s contention that it should

deny refunds because the Arkansas Commission might

deny pass-through of the associated surcharges. Id. at

934, App. 9-10. The court ruled that the outcome would

be “uncertain” and did not even mention this Court’s

preemption holdings, nor its own ruling in LPSC II. Id.

Additionally, although in its previous ruling the court

rejected FERC’s contention that its policy required

denying refunds in holding company cost allocation

cases, the court accepted without any scrutiny FERC’s

contention that the rate design policy also applies to

cost allocation. LPSC III, 772 F.3d at 1304, App. 112

(stating that “one decision does not constitute a ‘line[ ]

of precedent’ ”); LPSC IV, 883 F.3d 929, 932, App. 6

(FERC “clarified” its “previously muddled” position, explaining its policy required denying refunds in cases

where rates are changed “because of a flaw in rate design, such as cost allocation.”). The court deemed that

so-called “clarif[ication]” sufficient.

3. FERC’s ratemaking and refund authority. The FPA grants FERC exclusive jurisdiction over

13

wholesale sales of electricity, defined as a “sale of electric energy to any person for resale.” 16 U.S.C. § 824(b),

(d). Section 205 requires that all rates subject to the

jurisdiction of FERC shall be “just and reasonable” and

forbids maintaining “any unreasonable difference in

rates . . . either as between localities or as between

classes of service.” 16 U.S.C. § 824d(a), (b). For rate

changes filed by utilities, the FPA provides FERC with

authority to investigate while the rates are being assessed, hold hearings, and grant refunds for aspects of

the rate found unreasonable or unduly discriminatory.

16 U.S.C. § 824d(e).

Section 206 allows FERC to conduct rate investigations, initiated on its own or pursuant to a complaint, and disallow rates as unjust and unreasonable

or unduly discriminatory. The statute directs FERC to

establish new just and reasonable rates. 16 U.S.C.

§ 824e(a). Until 1988, FERC could only change the

rates prospectively. In that year, however, Congress

passed the Regulatory Fairness Act (“RFA”), which permits FERC to establish a refund-effective date upon

initiation of an investigation and grant refunds for up

to 15 months after the filing of the complaint for unjust

and unreasonable rates. 16 U.S.C. § 824d(b). In “registered” holding company cases, Section 206(b) and (c) of

the FPA permit FERC to grant refunds on finding that

the holding company would not suffer a reduction in

revenues “which results from an inability of an electric

utility company of the holding company” to recover the

surcharge necessary to make the refund. 16 U.S.C.

§ 824e(c).

14

4. FERC ratemaking for holding companies.

FERC exercises jurisdictions over sales from some

companies at wholesale to independent parties, such

as other utilities, municipalities, or electric cooperatives that resell at retail to ultimate customers. FERC

also has always exercised jurisdiction over cost allocations within holding company systems. In the case of

Entergy, for instance, the entire electric system was

planned and constructed as a single system. The Entergy System dispatched “all energy in the entire system” from a “single dispatch center . . . ,” directly to

ultimate customers or to independent wholesale customers. Miss. Power & Light, 487 U.S. at 357. The Entergy System Agreement, filed as a FERC tariff,

“provided the basis for planning and operating the

companies’ generating units on a single-system basis

and for equalizing cost imbalances among the four

companies.” Id. The System Agreement was terminated in 2016; Entergy now allocates costs under other

tariffs filed with FERC.

For Entergy’s sales to ultimate customers, the

rates charged to ultimate customers and design of

those rates are determined by retail agencies, not

FERC. The System Agreement allocated System production and transmission costs to the companies in different retail jurisdictions; those costs were then added

to costs incurred for distributing electricity and serving customers, and translated into rates by retail agencies. Sales from Entergy companies to independent

wholesale customers were established by FERC, but in

separate tariffs with their own rate designs. The

15

System Agreement cost allocations were entirely separate from the rate designs faced by customers. The Entergy holding company itself made no electric sales and

was not subject to FERC rate regulation; the cost allocations were treated as wholesale transactions among

the Entergy companies.

FERC has traditionally regulated cost allocation

agreements among affiliated entities. See, e.g., Miss.

Power & Light, 487 U.S. at 361. As the court of appeals

stated in Mississippi Indus. v. FERC, 808 F.2d 1525,

1549 (D.C. Cir. 1987) (“Moreover, when, as here, affiliated operating companies in an integrated regional

system enter into agreements for wholesale power

sales in interstate commerce which allocate costs,

FERC jurisdiction has additional merits.”).

5. Development of FERC refund policy. For

decades after the passage of the FPA, FERC – then

the Federal Power Commission – required refunds of

unjust and unreasonable rates, even if that imposed

undercollections on a utility. FERC did so even if it retroactively corrected flaws in a rate design without

prior notice that the rate design might change. This

Court commented on FERC’s practice in a natural gas

case, Fed. Power Comm’n v. Tenn. Gas Transmission

Co., 371 U.S. 145 (1962), where the Court upheld an

interim rate reduction issued before rate design details

were determined. The Court said:

The company . . . may suffer further loss when

the Commission upon a finding of excessiveness makes adjustments in the rate detail of

16

the company’s filing. In this latter respect a

rate for one class or zone of customers may be

found by the Commission to be too low, but the

company cannot recoup its losses by making

retroactive the higher rate subsequently allowed; on the other hand, when another class

or zone of customers is found to be subjected

to excessive rates and a lower rate is ordered,

the company must make refunds to them. The

company’s losses in the first instance do not

justify its illegal gain in the latter. Such situations are entirely consistent with the policy

of the Act and, we are told, occur with frequency.

In the 1970s, FERC created an exception to its refund policy. When it ordered a change in the design of

rates affecting independent parties, it would waive retroactive application relating to the change. FERC

ruled that the utility might not be able to collect the

rates retroactively increased due to the rate design

change. It also found that customers whose behavior

was influenced by the previous rate design could not

react retroactively to the new rate design. See Cities of

Batavia v. FERC, 672 F.2d 64 (D.C. Cir. 1982); Second

Taxing Dist. of Norwalk v. FERC, 683 F.2d 477 (D.C.

Cir. 1982).

A rate design sometimes is driven by cost allocations, but often departs from cost causation in order

to influence customer behavior. In both Batavia and

Norwalk, for instance, the disapproved rate designs involved “ratchets,” which bill customers all year based

on a single peak of electric demand. Batavia, 672 F.3d

17

at 83; Norwalk, 683 F.3d at 489-90. One purpose is to

curb usage at the peak and promote usage at other

times, not necessarily to allocate costs properly. Batavia, 672 F.3d at 83. Customers arguably would have responded to the ratchet, but could not change their

behavior retroactively.

FERC did not apply this rate design policy to holding company cost allocations. In the same time period

as Batavia and Norwalk were decided, for instance,

FERC disapproved cost allocations proposed by Entergy’s predecessor-in-name, Middle South Utilities,

Inc., and other holding companies. In Middle South

Services, Inc., 16 F.E.R.C. ¶ 61,101 (1981), FERC found

that the company proposed unjust and unreasonable

System Agreement cost allocations. FERC ordered tariff revisions and held that: “the operating subsidiaries

of Middle South Utilities, Inc., shall refund to their customers any amounts collected in excess of those

amounts which would have been payable under the

rates and charges approved in accordance with Ordering Paragraph (D), above.” Id. at 61,223.

In the FERC decision underlying this Court’s

preemption ruling in Mississippi Power & Light, FERC

allocated the costs of the Grand Gulf nuclear unit and

altered cost allocations that Entergy had proposed in

the 1982 System Agreement. Middle S. Energy, Inc., 31

F.E.R.C. ¶ 61,305 (1985). FERC ordered Entergy to

make changes to the System Agreement and “refund,

with interest, any amounts collected in excess of those

allowed pursuant to this opinion.” Id. at 61,667. Similarly, in the FERC cost allocation ruling underlying

18

this Court’s well-known Nantahala decision, FERC ordered refunds. Nantahala Power & Light Co., 19

F.E.R.C. ¶ 61,152 (1982). Nantahala and an affiliate

were owned by Alcoa Aluminum Co. FERC adjusted

Nantahala’s rates to wholesale customers, holding that

Alcoa had allocated too much cheap energy to the other

subsidiary and too little to Nantahala. Id. at 61,279.

FERC ordered Nantahala to make refunds to customers. Id. at 61,287.

FERC refunded unjust and unreasonable cost allocations in other holding company cases. Am. Elec.

Power Serv. Co., 8 F.E.R.C. ¶ 61,068, Ordering Para. D

(1979), on reh’g, 8 F.E.R.C. ¶ 61,302 (1979) (requiring

interest on the refunds); Cent. & S. W. Servs., Inc., 48

F.E.R.C. ¶ 61,197, at 61,741 (1989).

FERC’s practice of refunding unjust and unreasonable holding company cost allocations continued

into the period when this case was pending on the remand from LPSC II. Four times FERC ordered refunds

for unjust and unreasonable System Agreement cost

allocations. Three of the cases involved complaints

filed by the Louisiana Commission to change the cost

allocations in the System Agreement “bandwidth” tariff, designed to “roughly equalize” production costs

among the Entergy Companies. La. Pub. Serv. Comm’n

v. Entergy Corp., 124 F.E.R.C. ¶ 61,010, ¶ 28 (2008); La.

Pub. Serv. Comm’n v. Entergy Corp., 132 F.E.R.C.

¶ 61,253, ¶ 41 (2010); La. Pub. Serv. Comm’n v. Entergy

Corp., 139 F.E.R.C. ¶ 61,100, ¶ 27 (2012). One case involved bandwidth tariff changes proposed by Entergy,

which FERC disapproved in part and required refunds.

19

Entergy Servs., Inc., 143 F.E.R.C. ¶ 61,120, Ordering

Para. C (2013) (on rehearing). No state agency has

tried to disallow any surcharge required to make those

refunds.

6. Prior refunds in this litigation. There have

been four refunds required by FERC in this litigation.

After FERC granted the LPSC complaint in 2004, Entergy obtained permission to delay changing the rates

until after a rehearing order. When FERC denied rehearing, Entergy made refunds and no state agency

questioned the associated surcharges. Order Conditionally Accepting Compliance Filing, etc., 112 F.E.R.C.

¶ 61,192 (2005). Entergy computed the refund based

on a phase-in of the rate change, which the court of appeals overruled in LPSC II, along with overruling the

denial of refunds. LPSC II, 482 F.3d at 518, App. 22627. On remand, FERC granted two refunds – for the

phase-in and for the refund-effective period. La. Pub.

Serv. Comm’n v. Entergy Corp., 120 F.E.R.C. ¶ 61,241,

¶¶ 7, 8 (2007). Although four companies were required

to make payments to Entergy Louisiana, Inc., no state

agency questioned the phase-in surcharges.

Entergy and the Arkansas Commission sought rehearing of the Section 206(b) refund for the refundeffective period, which FERC denied. Entergy and the

Arkansas Commission sought judicial review and

FERC requested a voluntary remand, which was

granted. In the meantime, Entergy Arkansas, Inc. requested recovery of the Section 206(b) refund at the

Arkansas Commission. The Arkansas Commission denied recovery, citing the state’s filed-rate doctrine, and

20

litigation ensued in federal court. But FERC retracted

the refund decision in 2011 and the case became moot.

When FERC reversed its ruling, refunds and surcharges were again assessed among the companies

to return the previously-refunded funds. With the

exception of the single surcharge disallowed by the

Arkansas Commission, which it was simultaneously

opposing at FERC, no state agency questioned any of

the refunds or surcharges.

On the voluntary remand, FERC initially held:

1) refunds and surcharges would not violate the filedrate doctrine and federal preemption would require

pass-through of FERC-ordered cost allocations at the

retail level; 2) Section 206(c) was not applicable in any

event because Entergy was no longer a registered holding company; 3) FERC had a policy to refund unjust

and unreasonable rates and would have to justify deviating from that policy. See, e.g., 2010 Order, 132

F.E.R.C. ¶ 61,133, ¶¶ 23-30, 31 n.63, App. 203-08. On

rehearing, however, FERC ruled that it would exercise

“discretion” to deny refunds, relying on an alleged separate policy to deny refunds in cost allocation cases.

Order Granting Rehearing in Part & Denying Rehearing in Part (2011 Order), 135 F.E.R.C. ¶ 61,218, ¶ 23

(2011), App. 186-87. FERC “disavow[ed] the distinction

[it] attempted to draw . . . between the treatment of refunds in rate design and cost allocation cases.” Id. ¶ 23,

App. 187. Although Entergy in a brief relied heavily on

the Arkansas Commission’s disallowance to show a

risk of under-collection, FERC still ruled that “the danger of under-recovery of costs in this case is not

21

present.” Order Denying Rehearing (2013 Order), 142

F.E.R.C. ¶ 61,211 ¶ 63, App. 162; Brief Opposing Refunds of Entergy Services, Inc. at 18-19, FERC Docket

No. EL00-66 (Nov. 7, 2011).

In LPSC III, the court of appeals ruled that FERC

did not adequately explain its departure from its “ ‘general policy’ of ordering refunds when consumers have

paid unjust or unreasonable rates.” 772 F.3d at 1303,

App. 110. FERC cited one similar holding company

cost allocation case in which it denied refunds, but the

court found that “one decision does not constitute a

‘line[ ] of precedent’ . . . much less offer a comprehensive theory.” Id. at 1304, App. 112. The court noted that

FERC conceded that the danger of under-recovery “ ‘is

not present.’ ” Id., App. 113. The court rejected FERC’s

assertion that the cost allocation might have affected

decisions of the Entergy companies, finding that consideration “generic” and applicable in any case, including cases granting refunds. Id. at 1306, App. 116.

On remand, Entergy submitted a motion requesting still another round of briefing. Mot. to Establish

Briefing Schedule on Remand, Mar. 16, 2015 (FERC

Docket No. EL00-66) (available at FERC E-Library).

Entergy submitted an extensive Initial Brief with the

motion and asked FERC to establish a briefing schedule. Initial Br. of Entergy Services Inc. on Remand,

Mar. 16, 2015 (FERC Docket No. EL00-66) (available

at FERC E-Library). The LPSC filed an opposition to

the motion, but said if FERC considered Entergy’s

brief it should allow other parties to respond. Opp’n of

the Louisiana Public Service Commission, etc., Mar.

22

26, 2015 (FERC Docket No. EL00-66) (available at

FERC E-Library).

Entergy’s brief asked FERC to revisit prior decisions. It requested FERC: 1) to clarify its refund policy

as one pertaining only to over-recovery, 2) hold that

there was a possibility of under-recovery, again based

on the Arkansas Commission’s disallowance, and 3)

draw an inference, without evidence, that the prior cost

allocation affected decisions of the Entergy companies.

Initial Br. of Entergy Services Inc. on Remand at 8, 10,

16-17, Mar. 16, 2015 (FERC Docket No. EL00-66)

(available at FERC E-Library).

FERC did not rule on Entergy’s motion. It did not

invite a reply from the LPSC, and neither the LPSC

nor any other party submitted a brief. Yet when FERC

issued its Order on Remand, it adopted the arguments

in Entergy’s brief.

First, FERC asserted it needed to explain why the

court’s “description of Commission policy under the

FPA is inaccurate and then to explain the Commission’s long-established approach.” Order on Remand,

155 F.E.R.C. ¶ 61,120, ¶ 17, App. 80. The key factor always present when refunds are granted, FERC asserted, was an “over-collection of revenue by the

utility.” Id. ¶ 20, App. 83. Next, FERC ruled there was

a possibility of under-recovery. True to Entergy’s brief,

FERC relied on “potential litigation” in Arkansas. Id.

¶¶ 31-32, App. 90-92. FERC also adopted Entergy’s

“artificial disincentive” argument, agreeing to draw an

inference, without evidence, that the cost allocation

23

influenced behavior of the Entergy companies. Id. ¶ 35,

App. 94-96. FERC said the Companies may have “engage[d] in firm sales that cannot now be undone” rather than interruptible sales. Id., App. 95. On

rehearing, FERC attempted to distinguish the many

holding company cost allocation cases over four decades, in which FERC granted refunds. 2013 Order, 142

F.E.R.C. ¶ 61,211 (2013), App. 24-46.

In LPSC IV, the court of appeals accepted FERC’s

reversals, without apparent scrutiny. It held that

FERC’s reliance on the possibility that the Arkansas

Commission would violate the Supremacy Clause and

deny refunds presented a “reasonabl[e]” change of position “on the feasibility of recoupment by Entergy.”

LPSC IV, 883 F.3d at 933, App. 9. The court found that

the prior Arkansas litigation presented “definite evidence of at least a non-trivial risk of under-recovery.”

Id. at 934, App. 10. The Court did not mention this

Court’s preemption decisions.

The court uncritically accepted FERC’s contention

that it never had a policy to award refunds for unjust

and unreasonable holding company cost allocations.

The court said that the “Commission has clarified its

previously muddled position.” Id. at 932, App. 6. It said

FERC “makes clear” that its policy is “the opposite”

when rates are found unjust and unreasonable “because of a flaw in rate design, such as cost allocation.”

Id. The court relied on the same cases it found inadequate in LPSC III, which were rate design cases or

cases in which “cost allocations” directly determined

24

the design of rates to independent parties, not cost allocations among affiliates in a holding company. Id.

The court of appeals also approved FERC’s theory

that it could infer that Entergy’s previous allocation

detrimentally affected the Entergy companies, but it

transformed the theory into something new. According

to the court’s description, the Entergy company sellers

were “customers” who respond to price signals in the

“rate design,” allowing the court itself to “infer” on effect on the companies’ “purchase decisions.” Id. at 934,

App. 10. But “customers” do not pay Entergy pursuant

to the System Agreement tariffs and never see its socalled “price signals.” They pay rates established by retail agencies.

------------------------------------------------------------------

REASONS FOR GRANTING THE PETITION

The acceptance of a state agency veto over FERC’s

exercise of jurisdiction pursuant to the FPA to grant

refunds for unjust and unreasonable rates undermines

the federal plan to ensure that consumers are protected from unreasonable rates and undue discrimination. This Court has ruled three times – two involving

Entergy – that state agencies may not disallow cost allocations approved by FERC. The FPA allows FERC to

adjust rates and provide refunds and, according to the

Court’s decisions, state agencies must go to FERC to

obtain relief pursuant to the statute. That is what the

Louisiana Commission did here, only to be denied a refund based on the threat of an agency in a different

25

state to violate the Supremacy Clause. The court of appeals’ approval of that rationale as “reasonabl[e],”

when it would be illegal, requires review by this Court.

This Court has made clear that courts on judicial

review should ensure that when an agency changes its

policy or deviates from prior holdings, it must

acknowledge the change and show that there are good

reasons for it. Fed. Commc’ns Comm’n v. Fox Television

Stations, Inc., 556 U.S. 502, 515 (2009). An agency must

provide a more detailed explanation when a new policy

“rests upon factual findings that contradict those

which underlay its prior policy.” Id. Here, FERC in

2010 and 2011 declared it had a policy, applicable to

this cost allocation case, to grant refunds for unjust

and unreasonable rates. But then it reversed position,

contending that the policy always provided for denying

refunds in cost allocation cases, as well as rate design

cases. In LPSC IV the court of appeals unquestioningly

accepted that rationale, even though it is demonstrably untrue. The court of appeals accepted without analysis FERC’s change of position on the collectability of

refunds and supplied a new rationale for FERC on

“customer” incentives. It also accepted FERC’s reversal of findings without scrutiny. This level of review

does not suffice, particularly in a case involving important considerations of federalism.

The Louisiana Commission followed the directives

of this Court by going to FERC for relief from an unjust

cost allocation, rather than trying to disallow it at retail. But FERC denied a statutorily-authorized refund

on the ground that the Arkansas Commission might

26

disallow the necessary surcharge at retail, defying the

Court’s rulings. The court of appeals approved that rationale as “reasonabl[e]” and failed to apply even minimal scrutiny to multiple reversals of policy and

findings. LPSC IV, 883 F.3d at 933, App. 9. The Court

should review the upending of federal preemption and

approval of agency recalcitrance.

I.

FERC’S RECOGNITION OF A STATE

AGENCY VETO OF REFUNDS AUTHORIZED BY THE FEDERAL POWER ACT OFFENDS THE SUPREMACY CLAUSE AND

IMPROPERLY CRIMPS FERC’S EXCLUSIVE JURISDICTION.

FERC held categorically in 2010 and 2011, responding to the voluntary remand after LPSC II, that

state agencies could not disallow refunds ordered by

FERC pursuant to Section 206(b) of the FPA. FERC in

this phase said it had not departed from that finding,

but nevertheless held that the Arkansas Commission

might try again to disallow the refunds and might succeed. The court of appeals, which in LPSC II rejected

the same rationale, accepted it without question in

LPSC IV. Approving this rationale conflicts with this

Court’s preemption decisions and upends the federal

plan for wholesale regulation.

The RFA, incorporated into the FPA, provides

FERC with authority to refund unjust and unreasonable rates for up to 15 months after the filing of a complaint. 16 U.S.C. § 824e(b). The RFA was intended to

27

prevent harm to consumers from FERC delays in resolving complaint cases, which contrasted with the

right of utilities under Section 205 to begin charging

new rates after a short delay, subject to potential future disallowances. Congress incorporated a “registered” holding company exception in Section 206(c),

which prevented refunds if holding company subsidiaries had an “inability” to collect the surcharges associated with refunds. 16 U.S.C. § 824e(c). In the absence

of an “inability” to collect, the prohibition does not apply. Id.

In LPSC II, the court of appeals held that FERC’s

reliance on Section 206(c) to deny refunds was irrational. It found that Congress was concerned with the

filed-rate doctrine in enacting Section 206(c), and

FERC had not explained why the notice of the complaint – published pursuant to a FERC regulation in

the Federal Register – would not satisfy filed-rate concerns. 18 C.F.R. § 385.206(b)(10); LPSC II, 482 F.3d at

520, App. 230-31. It also held that FERC had not explained “why, under the Supremacy Clause, a rate increase ordered by the Commission may be recovered

through retail rates but a refund ordered by the Commission may not be.” Id. at 520, App. 231.

On remand, FERC held that Section 206(b) authorized it to establish a refund-effective date, which

placed all parties on notice that the rates might

change. 2010 Order, 132 F.E.R.C. ¶ 61,133, ¶ 23, App.

203. It also held that state agencies would have to pass

through FERC-ordered refunds, citing Nantahala and

Mississippi Power & Light. Id. ¶ 24, App. 204. On

28

rehearing, it reaffirmed those rulings. It also held that

Entergy is no longer a “registered” holding company

given the repeal of the Public Utility Holding Company

Act in 2005 and could not claim the protection of Section 206(c). 2011 Order, 135 F.E.R.C. ¶ 61,218, ¶ 12 &

n.24, App. 180-81. But FERC said it would exercise equitable power to deny refunds based on “rate design”

precedents. Id., ¶¶ 22, 24, App. 185-87. That decision

was overruled in LPSC III.

Here, FERC switched position on the collectability

of refund-associated surcharges at retail. It said it

“ha[d] not departed from” its prior finding, but in the

same breath found that Entergy would not be made

whole. Order Denying Rehearing, 156 F.E.R.C.

¶ 61,221, ¶ 64, App. 58. The court of appeals accepted

without scrutiny FERC’s rationale that the Arkansas

Commission, one of five affected agencies, might try

successfully to deny recovery of the surcharges needed

to make the rates just and reasonable in the refund

period. This acceptance of “definite evidence of at least

a non-trivial risk of under-recovery” undercuts the Supremacy Clause and the Congressional plan for utility

regulation. LPSC IV, 883 F.3d at 934, App. 10.

This Court has held repeatedly that FERCordered allocations preempt inconsistent state ratemaking; state agencies may not “trap” costs by refusing

to recognize the legitimacy of costs incurred pursuant

to FERC rulings. In Nantahala, the Court overruled a

state agency’s adjustment of Alcoa’s allocation of cheap

power between Nantahala and another Alcoa subsidiary because it was different from FERC’s. It said:

29

Once FERC sets such a rate, a State may not

conclude in setting retail rates that the

FERC-approved wholesale rates are unreasonable. A State must rather give effect to

Congress’ desire to give FERC plenary authority over interstate wholesale rates, and to

ensure that the States do not interfere with

this authority.

476 U.S. at 966.

In Mississippi Power & Light, the Court ruled that

the Mississippi Public Service Commission could not

investigate the prudence of FERC-allocated costs of

the Grand Gulf nuclear unit. The Court followed

Nantahala, holding that “States 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.” 487 U.S. at 374. In Entergy Louisiana,

the Court held that the Louisiana Commission had to

respect System Agreement cost allocations, even when

made by Entergy’s management pursuant to authority

delegated by FERC in the tariff. The Court found that

federal preemption still applied: “We see no reason to

create an exception to the filed rate doctrine for tariffs

of this type that would substantially limit FERC’s flexibility in approving cost allocation arrangements.” 539

U.S. at 50.

The message of these decisions is inescapable:

state agencies must go to FERC to secure just and reasonable wholesale rates and protection from unduly

discriminatory cost allocations. But the process at

30

FERC is extremely slow – FERC delayed five years after LPSC I before granting relief. La. Pub. Serv.

Comm’n v. Entergy Servs. Inc., 106 F.E.R.C. ¶ 61,228

(2004). The RFA was designed to fill at least 15 months

of the gap due to FERC’s delays, allowing refunds for

unjust, unreasonable, or unduly discriminatory rates.

Granting refunds fulfills the purpose of the statute.

The Louisiana Commission followed the Court’s

rulings and sought redress at FERC for an unjust and

unreasonable cost allocation. After years, it succeeded

and obtained prospective relief. But FERC denied refunds, holding that an agency in a different jurisdiction

might try to disallow the surcharge needed to pay the

refunds, which the law says it could not do. The court

of appeals’ approval of this rationale as “reasonabl[e]”

is incomprehensible, especially since it conflicts directly with this Court’s rulings and the holding in

LPSC II.

The same threat of disallowance was present in

LPSC II. 482 F.3d at 519, App. 227-28 (FERC said it

“could not be certain the Operating Companies owing

refunds would be allowed by their state regulators to

recover at retail the revenue needed to pay the refunds.”). LPSC II rejected that claim of uncertainty,

holding that FERC would have to explain why the public notice of the complaint and federal preemption

would not eliminate that possibility as a matter of law.

Id. at 520, App. 230-31. But here, the court blandly

accepted the same bare claim of uncertainty as a

“reasonabl[e]” ground to prevent refunds. That

31

determination conflicts with the law and upends federal preemption.

The court of appeals’ approval of a state agency

veto over refunds authorized by the FPA disrupts the

federal plan of electric regulation. The Court should

grant the writ to review it.

II.

THE COURT OF APPEALS FAILED IN ITS

TASK OF JUDICIAL REVIEW BY ACCORDING COMPLETE DEFERENCE TO

FERC’S REVERSALS OF POSITION.

In LPSC IV, the court of appeals bowed before an

intransigent agency, bent on denying refunds for Entergy’s unduly discriminatory rates. Of particular importance here, the court of appeals accepted without

scrutiny FERC’s contention that its previously described policy for holding company cost allocations

never existed. Also, rather than examining FERC’s assertion that the prior allocation might have affected

decisions of the sellers, the Entergy Companies, the

court translated that concern into something else – a

supposed effect on ultimate customers, even though

they do not face Entergy’s cost-allocation “rate design.”

FERC made other aberrational rulings that the court

of appeals approved or ignored. Rather than scrutinizing FERC’s turnabouts, the court gave them nearabsolute deference.

The members of this Court have not always agreed

on the appropriate standard of review when an agency

changes its policy or its findings. But four members of

32

the Court made clear in 2005 that a reviewing court

should ensure at least that the agency “display awareness that it is changing position[s]” and provide a

“more detailed justification” when its factual findings

contradict prior findings. Fed. Commc’ns Comm’n v.

Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).

A fifth member determined that an agency may be arbitrary if it “ignores or countermands its earlier factual findings without reasoned explanation.” 556 U.S.

at 537 (Kennedy, J., concurring in part). Four justices

ruled that when the agency reverses course, the arbitrary and capricious standard may require a more

thorough explanation of the reasons for the change.

556 U.S. at 549-50 (Breyer, J., dissenting). In Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 155

(2012), the Court determined that no deference may be

due when “the agency’s interpretation conflicts with a

prior interpretation.”

In the rulings leading up to LPSC III, FERC ruled

that it had a policy, applicable to the Entergy cost allocation, of granting refunds for unjust and unreasonable rates. 2010 Order, 132 F.E.R.C. ¶ 61,133, ¶ 31, App.

207-08 (“There is no question that the Commission has

a policy of granting full refunds to correct unjust and

unreasonable rates” and no reason to deviate from the

policy.). In LPSC III, FERC conceded the existence of

its policy but suggested it had not been applied in cases

of “no over-recovery” by a holding company. The court

held, however, that FERC had not adequately explained why its “ ‘general policy’ of ordering refunds

when consumers have paid unjust and unreasonable

33

rates” did not apply to Entergy. LPSC III, 772 F.3d at

1303, App. 110. It also found that “[t]he Commission

did not explain why a lack of over-recovery should automatically negate refunds.” Id. at 1304, App. 113.

On remand, FERC glommed cost allocation and

rate design together, finding that its “policy” actually

required denying refunds in both types of cases. That

would be true if the cost allocation were always synonymous with rate design, but it is not always synonymous. In the case of Entergy, the companies jointly

comprise a single seller and the rates to true customers

are established under separate retail and wholesale

tariffs. As FERC found before LPSC I, “ ‘Here . . . the

rate at issue allocates the costs of an integrated system

among its constituent parts. While ostensibly purchasers, the Entergy operating companies in reality comprise the seller, the Entergy System.’ ” See LPSC I, 184

F.3d at 897.

During the period at issue, Entergy planned its

generation as a single System. Entergy Services, Inc.

dispatched the entire System from a single, centralized

dispatch center. Miss. Power & Light, 487 U.S. at 356

(All energy “in the entire system . . . distributed by a

single dispatch center.”). None of the Companies made

decisions to purchase electricity; acting as one, they

sold electricity. The Companies could not control consumption because Entergy’s electricity was consumed

by retail and wholesale requirements customers. As a

joint seller, they could not react to price signals in retail rate designs. As the presiding judge in the rough

equalization case ruled, “[t]he Operating Companies

34

are operated and centrally dispatched as one company,

and thus could not have any individual company incentive . . . to minimize production costs.” La. Pub.

Serv. Comm’n v. Entergy Servs., Inc., 106 F.E.R.C.

¶ 63,012, ¶ 44 (2004). The cost allocation here was in

no sense a “rate design.”

The court of appeals accepted, without any apparent question, FERC’s explanation that Entergy’s cost

allocation was controlled by the “rate design” exception

to the general policy to grant refunds. The court found

that FERC “clarified its previously muddled position”

and, despite prior pronouncements, explained “it has

no generally applicable policy of granting refunds.”

LPSC IV, 883 F.3d at 932, App. 6. It accepted that “the

set of cases to which this [case] belongs” involved “a

flaw in rate design, such as cost allocation.” Id. The

court said “a series of Commission decisions” – the

same decisions FERC cited in LPSC III, established

that new policy. Id. But the court did not examine this

revision of FERC’s stance.

The court of appeals’ acquiesce in FERC’s turnabout might not be so concerning if FERC were not requiring refunds right and left in other Entergy System

Agreement cases while the remand was pending. The

Louisiana Commission cited numerous Entergy cost

allocation cases where FERC granted refunds. FERC

in the 2013 Order said that happened because the

Commission “initially doubted its authority to deny refunds based on equitable considerations in matters involving holding company systems.” 2013 Order, 142

F.E.R.C. ¶ 61,211, ¶ 75, App. 170. It also said “our

35

policy in this area was still under consideration and

evolving” when it granted all those refunds. Id. That

does not square with the FERC’s new assertion after

LPSC III that there was always a policy to deny refunds.

In the Order Denying Rehearing, FERC switched

tactics and brushed those refund cases off as cases requiring compliance with the Entergy Bandwidth Tariff, which is part of the System Agreement. Order

Denying Rehearing, 156 F.E.R.C. ¶ 61,221, ¶ 36, App.

35-37. But there were three Section 206 complaint

cases in which the LPSC succeeded in obtaining

changes to unjust and unreasonable provisions in the

Bandwidth Tariff. FERC granted refunds in all three

cases. La. Pub. Serv. Comm’n v. Entergy Corp., 139

F.E.R.C. ¶ 61,100, ¶ 27 (2012); La. Pub. Serv. Comm’n

v. Entergy Corp., 132 F.E.R.C. ¶ 61,253, ¶ 41 (2010); La.

Pub. Serv. Comm’n v. Entergy Corp., 124 F.E.R.C.

¶ 61,010, ¶ 28 (2008). The inaccuracy of FERC’s attempted distinction did not trouble the court of appeals. In another case, Entergy sought a change in the

Bandwidth Tariff. FERC disallowed the proposal in

part as unjust and unreasonable and required years of

refunds. Entergy Servs., Inc., 143 F.E.R.C. ¶ 61,120, Ordering Para. C (2013) (on rehearing).

These cases are indistinguishable in principle

from this case. The holding company had “no overrecovery” in each; the tariff was changed in each; FERC

granted refunds in each. One case is just like this case.

In this case, the Louisiana Commission succeeded in

obtaining the removal of interruptible load from the

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Service Schedule MSS-1 reserve capacity allocator in

the System Agreement; in the other, the Louisiana

Commission succeeded in obtaining the removal of interruptible load from the allocator for “fixed” capacity

costs in the Bandwidth Tariff. La. Pub. Serv. Comm’n v.

Entergy Corp., 139 F.E.R.C. ¶ 61,100, ¶ 27 (2012).

FERC said in the Order Denying Rehearing that the

two cases were distinguished in “note 73 below.” Order

Denying Rehearing, 156 F.E.R.C. ¶ 61,221, ¶ 36 n.64,

App. 36. Footnote 73 was a bare citation of a case involving a different holding company, in which FERC

granted refunds. Nor was the reference to “note 73” a

typo; no footnote in the entire Order distinguished the

cases. The inconsistency was never explained, but that

did not bother the court of appeals.

FERC has granted System Agreement refunds for

unjust and unreasonable rates in cases involving Entergy’s predecessor-in-name since the 1980s. Middle S.

Servs., Inc., 16 F.E.R.C. ¶ 61,101 (1981); Middle S. Energy, Inc., 31 F.E.R.C. ¶ 61,305 (1985). Its normal practice in other holding company cost allocation cases was

to grant refunds for unjust and unreasonable rates.

Am. Elec. Power Serv. Corp., 8 F.E.R.C. ¶ 61,068 (1979);

Am. Elec. Power Serv. Corp., 8 F.E.R.C. ¶ 61,302 (1979);

Cent. & S. W. Servs., Inc., 48 F.E.R.C. ¶ 61,197 (1989).

In briefing its case for the court of appeals in LPSC III,

FERC found only one holding company case where refunds for unjust and unreasonable rates were not

granted. LPSC III, 772 F.3d at 1304, App. 112 (“[O]ne

decision does not constitute a ‘line[ ] of precedent.’ ”).

FERC found no more for LPSC IV. It cited two other

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“cost allocation” cases, but in both, the cost allocation

did determine the rate design charged by Regional

Transmission Organizations to independent customers

or parties. Black Oak Energy, LLC, 136 F.E.R.C.

¶ 61,040 (2011); Occidental Chem. Corp., 110 F.E.R.C.

¶ 61,378 (2005). That is nothing like the Entergy cost

allocation, which does not affect the design of rates to

customers.

Also, many refunds were passing back and forth in

this decade in other Entergy cases in which there was

“no over-recovery” by the holding company. Many of

these cases involved accounting errors corrected by

FERC years after annual bandwidth filings. FERC ordered so many adjustments requiring refunds that Entergy obtained leave to file “comprehensive” refund

reports covering multiple issues and dockets, including

complaint dockets. E.g., Entergy Servs., Inc., 142

F.E.R.C. ¶ 61,011, ¶ 20 (2013). Additional refunds were

granted because FERC improperly delayed the Bandwidth Remedy. La. Pub. Serv. Comm’n v. Entergy

Servs., Inc., 137 F.E.R.C. ¶ 61,047 (2011). Most recently, FERC in 2018 granted refunds for test year

2005 after adjusting Entergy’s filing for that period.

La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 163

F.E.R.C. ¶ 61,116 (2018). And as the court of appeals

noted in LPSC III, “[u]nrebutted expert evidence of

record . . . indicated that refunds between operating

companies in the context of billing errors were routine

and not disruptive.” LPSC III, 772 F.3d at 1306, App.

116-17.

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All of the Entergy holding company cases involved

“no over-recovery” by the holding company. Also, if a

state agency had a novel “filed rate doctrine” that required disallowance of refunds for the past, regardless

of federal law, the policy would have to apply to all of

these refunds and surcharges. Yet except for the single

case involving the Arkansas Commission’s decision to

disallow the refund that it was simultaneously opposing at FERC, there was no evidence that a state agency

ever disallowed a surcharge needed to make a refund

in the past 40 years.

None of this was deemed worthy of mention by the

court of appeals. It simply accepted FERC’s so-called

“clarif[ication],” which actually was a policy reversal.

LPSC IV, 883 F.3d at 932, App. 6. It said FERC’s reliance on the Arkansas Commission’s threat to violate

the Supremacy Clause was “reasonabl[e],” including

FERC’s determination that “the ultimate outcome . . .

is uncertain. . . .” LPSC IV, 883 F.3d at 933-34, App. 910. The court recognized that FERC “has now reversed” its prior ruling that the Supremacy Clause

would require the agency to allow recovery, but made

no analysis of how that could be correct. Id. The court

did not even acknowledge its own prior, contrary holding in LPSC II.

The court also supplied reasoning for FERC that

the agency never adopted. FERC had suggested, based

on Entergy’s unilateral brief, that the unjust and unreasonable cost allocation to interruptible load might

have affected the conduct of the Entergy companies,

driving them to add firm rather than interruptible load

39

in decisions that could not be undone. Order on Remand, 155 F.E.R.C. ¶ 61,120, ¶ 35, App. 94-96. There

was no evidence to support that conclusion, although

it would easily be the subject of proof. Moreover, adding

firm customers rather than interruptible customers

would have made the companies better off, because

“firm” rates contain a full allocation of capacity costs

and interruptible rates do not. See LPSC I, 184 F.3d at

895-96. Further, FERC’s theory rested on the assumption that the joint sellers would impose a “disincentive”

on themselves. Order on Remand, 155 F.E.R.C.

¶ 61,120, ¶ 35, App. 95.

The court of appeals chose not to address FERC’s

irrational reliance on possible Entergy decisions to add

firm customers. Instead, it substituted its own rationale, transforming the Entergy companies into “customers.” The court said that “the object of sound cost

allocation is to influence customer behavior” and “we

may fairly infer that their purchase decisions reflected

that principle.” LPSC IV, 883 F.3d at 934, App. 10.

FERC never suggested that the Entergy cost allocation

could possibly affect customers, who are all served under separate tariffs with their own rate designs.

In the Order Denying Rehearing, FERC tossed out

other aberrational rulings that the court of appeals

deemed unworthy of scrutiny. For instance, it ruled

that the public notice published in the Federal Register – the same public notice provided for all utility rate

change filings and all complaint cases – is not adequate notice for ultimate customers. Order Denying

Rehearing, 156 F.E.R.C. ¶ 61,221, ¶ 58, App. 51. Based

40

on that, FERC reversed its prior finding that Section

206(c) would not bar refunds. Id. ¶¶ 64-65, App. 57-58.

But in LPSC II, the court had ruled that “all parties

were on notice” as of the filing of the complaint that the

cost allocation might be found unjust and unreasonable. LPSC II, 482 F.3d at 520, App. 230. The court did

not discuss the notice finding or the conflict with LPSC

II. It simply said its decision did not determine the applicability of Section 206(c). LPSC IV, 883 F.3d at 935,

App. 12.

In the Order on Remand, FERC gullibly accepted

Entergy’s argument – from the unilateral brief – that

Entergy Arkansas would have to look for past wholesale requirements customers to collect the surcharges

needed to make refunds. Order on Remand, 155

F.E.R.C. ¶ 61,120, ¶ 31, App. 90-91. That rationale was

preposterous – it has never happened in Entergy’s history, which the Louisiana Commission demonstrated

on rehearing. FERC-ordered refunds and surcharges

always are reflected in current rates to current customers. FERC’s rehearing order grudgingly accepted that

point, but added a sentence: “Indeed, the Commission

has previously found that a requirement that current

load would have to pay for charges incurred by past

customers, or a prior generation of customers, is an equitable consideration that supports denial of refunds

in such cases.” Order Denying Rehearing, 156 F.E.R.C.

¶ 61,221, ¶ 67, App. 59.

To the extent this single sentence was designed to

provide a rationale for this case, it constitutes another

unexplained reversal of position. FERC in the 2010

41

Order deemed the passage of time irrelevant, which

makes sense because all refunds involve past periods.

2010 Order, 132 F.E.R.C. ¶ 61,133, ¶ 32 (“Under the

facts of this case, we do not consider the length of time

to be a relevant factor, and we decline to consider this

a relevant factor in determining whether refunds are

equitable.”). The court of appeals elevated FERC’s sentence to a rationale and, despite the unexplained reversal, accepted it without scrutiny. LPSC IV, 883 F.3d

at 934-35, App. 11.

The court of appeals did not acknowledge FERC’s

unusual procedure, in which it adopted arguments

from a brief on one side without receiving a response

from the other. The LPSC asked for “full consideration”

of its arguments on rehearing, to which FERC responded: “[T]he full consideration we give to the Louisiana Commission’s arguments . . . is the same

consideration that we give to all rehearing requests.”

Order Denying Rehearing, 156 F.E.R.C. ¶ 61,221, ¶ 7,

App. 17. FERC then demonstrated what that meant.

The court of appeals’ ready acceptance of FERC’s

flurry of unexplained reversals and its transformation

of federal preemption into state veto authority does not

satisfy the review standards announced by this Court.

If anything, FERC’s reversals deserved heightened

scrutiny, but they could not have survived normal appellate review. This Court should review the court of

appeals’ decision to defer completely to FERC.

------------------------------------------------------------------

42

CONCLUSION

The ruling of the court of appeals approves

FERC’s repudiation of the preemption doctrine and accords complete deference to unexplained agency reversals. The Court should grant the petition to review

these errors.

Respectfully submitted,

MELISSA WATSON

Deputy General Counsel

LOUISIANA PUBLIC SERVICE

COMMISSION

Galvez Building – 12th Floor

602 N. Fifth Street

Baton Rouge, Louisiana

70802

Telephone: (225) 342-9888

MICHAEL R. FONTHAM

Counsel of Record

DANA M. SHELTON

JUSTIN A. SWAIM

STONE PIGMAN WALTHER

WITTMANN L.L.C.

909 Poydras Street

New Orleans, Louisiana

70112

Telephone: (504) 581-3200

Email: mfontham@

stonepigman.com

Attorneys for the Louisiana Public Service Commission