Petition for Writ of Certiorari — Louisiana Public Service Commission, Petitioner v. Federal Energy Regulatory Commission, et al.
Supreme Court briefAug 1, 2018
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App. 1
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
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Argued February 2, 2018
Decided March 6, 2018
No. 16-1382
LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
ARKANSAS PUBLIC SERVICE COMMISSION AND
ENTERGY SERVICES, INC.,
INTERVENORS
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On Petition for Review of Orders of the
Federal Energy Regulatory Commission
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Michael R. Fontham argued the cause for petitioner. With him on the briefs were Noel J. Darce, Dana
M. Shelton, and Justin A. Swaim. Paul L. Zimmering
entered an appearance.
Holly E. Cafer, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent. With her on the brief were David L. Morenoff, General Counsel, and Robert H. Solomon, Solicitor.
Clifford M. Naeve argued the cause for intervenors. With him on the brief were Gerard A. Clark, Matthew W.S. Estes, Gregory W. Camet, Glen Ortman,
App. 2
Dennis Lane, and Paul Randolph Hightower. Jennifer
S. Amerkhail entered an appearance.
Before: GARLAND, Chief Judge, ROGERS, Circuit
Judge, and WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
WILLIAMS, Senior Circuit Judge: After finding a
rate unjust and unreasonable under § 206 of the Federal Power Act, 16 U.S.C. § 824e, the Federal Energy
Regulatory Commission sets a new just and reasonable rate to take effect for the future. In addition, the
Commission “may order” refunds for a portion of the
period in which the unreasonable rate was in effect. Id.
§ 824e(b). Here the Commission found in 2004 that certain of Entergy Corporation’s rates were unjust and
unreasonable. Opinion No. 468, 106 FERC ¶ 61,228,
PP 60-77 (2004). After a good deal of vacillation, it refused to require refunds. 135 FERC ¶ 61,218, PP 20-25
(2011); 142 FERC ¶ 61,211, PP 49-77 (2013). On a challenge by the Louisiana Public Service Commission
(“LPSC”), we remanded the case to the Commission,
finding, as urged by LPSC, that the Commission had
failed to adequately “explain its reasoning in departing
from its ‘general policy’ of ordering refunds when consumers have paid unjust and unreasonable rates.”
Louisiana Public Service Commission v. FERC, 772
F.3d 1297, 1298 (D.C. Cir. 2014) (“Louisiana III”). (The
numbering will soon be clear.)
On remand, the Commission clarified that it actually has no general policy of ordering refunds in cases
App. 3
of rate design. 155 FERC ¶ 61,120, P 17 (2016) (“Order
on Remand”); 156 FERC ¶ 61,221, P 20 (2016) (“Rehearing Order”). Now that the Commission has corrected its characterization of its own precedent, we find
that the Commission’s denial of refunds accords with
its usual practice in cost allocation cases such as this
one. We also find that the Commission adequately explained its conclusion that it would be inequitable to
award refunds in this case. The Commission did not
abuse its discretion; we deny the petition for review.
***
Much of the factual and procedural background
has been recited at length in our three prior decisions.
See Louisiana Public Service Commission v. FERC,
184 F.3d 892, 894-97 (D.C. Cir. 1999) (“Louisiana I”);
Louisiana Public Service Commission v. FERC, 482
F.3d 510, 513-15 (D.C. Cir. 2007) (“Louisiana II”); Louisiana III, 772 F.3d at 1299-1302. We repeat here only
what is necessary for the present decision.
More than two decades ago, LPSC filed a complaint under § 206(a), 16 U.S.C. § 824e(a), challenging
Entergy’s allocation of capacity costs among its various
operating companies. At the time, Entergy did so on
the basis of the companies’ total usage at the time of
peak demand, regardless of whether the load was
“firm” (entitling the customer to service at any time) or
“interruptible” (subject to Entergy’s curtailment at any
time of insufficient capacity). When Entergy had set
these rates, the system was “awash in capacity” and
projected firm load would have required no more
App. 4
capacity. As a result, charging interruptible load for capacity costs was of comparatively little importance in
terms of signaling to customers whether to use firm or
interruptible service, or to Entergy whether to invest
in more capacity. Over time, however, Entergy’s capacity became inadequate to handle all demand; it
changed its planning criteria so that, in deciding
whether to add capacity, it no longer counted interruptible load. Louisiana I, 184 F.3d at 896.
The Commission initially rejected LPSC’s complaint, 76 FERC ¶ 61,168 (1996); 80 FERC ¶ 61,282
(1997), but we reversed in Louisiana I. The Commission had in 1981 adopted the principle that costs
should be allocated to customers according to the principle of cost causation; we rejected the Commission’s
explanations for failing to adhere to that principle. As
we explained, interruptible customers do not cause the
utility to incur capacity costs; by definition, the utility
can curtail such service when load exceeds capacity.
Charging them for capacity costs thus creates an uneconomic disincentive to the use of interruptible service;
customers are dissuaded from using interruptible service even where the utility’s costs of providing that service fall well below the potential benefit to the
customer. By the same token, to the extent that such a
cost allocation relieves firm customers of the burden of
covering capacity costs that they do cause the utility to
incur, it provides an inadequate disincentive to the
choice of such service and signals to the utility more
need for adding capacity than really exists. Louisiana
I, 184 F.3d at 896-97; JAMES C. BONBRIGHT, PRINCIPLES
App. 5
OF PUBLIC UTILITY RATES 494-96 (2d ed. 1988); 1 KAHN,
ECONOMICS OF REGULATION 89-95 (2d ed. 1988).
On remand from Louisiana I, the Commission ultimately found Entergy’s inclusion of interruptible
load in the cost allocation equation to be unjust and
unreasonable. It ordered the cost allocation changed
for the future, but denied LPSC’s request for refunds,
which § 206(b), 16 U.S.C. § 824e(b), gave it authority to
order for a 15-month period starting at a date set by
the Commission at the outset of the proceedings. Opinion No. 468, 106 FERC ¶ 61,228, PP 60-77, 82-89
(2004), rehearing denied, Opinion 468-A, 111 FERC
¶ 61,080, PP 10-22. Because Louisiana customers relied on interruptible service in a higher proportion
than other Entergy customers, they gained from the
ordered future change in cost allocation, and would
have gained more from any refund. In a series of orders, the Commission took a considerable variety of positions on refunds, culminating in denial in the orders
reviewed in Louisiana III and in the present Order on
Remand and Rehearing Order.
***
Louisiana III’s conclusion determines our task
here. There we were convinced by LPSC’s argument
that the Commission had failed to “ ‘reasonably explain
the departure’ from its ‘general policy’ of ordering refunds when consumers have paid unjust and unreasonable rates.” Louisiana III, 772 F.3d at 1303. We
acknowledged that the Commission was free to “depart
from a prior policy or line of precedent, but it must
App. 6
acknowledge that it is doing so and provide a reasoned
explanation.” Id. We find that the Commission has
made its historic practice clear and justified its application of that practice here.
Above all, the Commission has clarified its previously muddled position, explaining that – despite its
prior representations to the contrary – it has no generally applicable policy of granting refunds. Order on Remand, 155 FERC ¶ 61,120, P 17. The Commission now
recognizes that its previous characterization of its refund policy does “not accurately represent that policy
as both the Commission and the courts have described
it in the past.” Id. The Commission found that it had
only twice – both times in the course of these proceedings – referred to a “general policy” in favor of refunds.
Id. at P 18.
The Commission does “generally award[ ] refunds
where there have been overcharges that result in overcollection of revenue.” Rehearing Order, 156 FERC
¶ 61,221, P 10. But a series of Commission decisions,
cited in the Order on Remand, 155 FERC ¶ 61,120, P
25 & n.58, makes clear that the Commission’s default
position is quite the opposite in the set of cases to
which this belongs: ones in which it has found a rate
unjust and unreasonable because of a flaw in rate design, such as cost allocation (at least so long as there is
no violation of the filed rate doctrine). In such instances (putting aside some filed rate violations), the
utility has received no net over-recovery. See id. “[I]n a
case where the company collected the proper level of
revenues, but it is later determined that those
App. 7
revenues should have been allocated differently, the
Commission traditionally has declined to order refunds.” Black Oak Energy, LLC, 136 FERC ¶ 61,040, P
25 (2011); see also Occidental Chem. Corp., 110 FERC
¶ 61,378, P 10 (2005) (“The Commission’s long-standing policy is that when a Commission action under section 206 of the FPA requires only a cost allocation
change, or a rate design change, the Commission’s order will take effect prospectively.”); Consumers Energy
Co., 89 FERC ¶ 61,138, 61,397 (1999) (“This case involves a change in rate design, that, while appropriate
on a prospective basis, is inappropriate for retroactive
application. The Commission’s policy, albeit discretionary, is to avoid retroactive application of changes in
rate design.”); S. Co. Servs., Inc., 64 FERC ¶ 61,033,
61,332 (1993) (explaining that where the “sole issue” is
cost “apportionment among the operating companies,”
the Commission’s typical practice is not to issue refunds).
Apart from noting that in such cases the utility
has received no net over-recovery, the Commission
rests this default position on its belief that two circumstances are usually present in such cases. Order on Remand, 155 FERC ¶ 61,120, P 28. First, it would be
difficult for the utility to recover its costs fully. The
sums that one set of customers lost through allocation
of excessive costs will usually be matched by unduly
low rates to another set, from whom it would be difficult or inequitable to extract recompense. Second, customer firms that had made operational decisions in
reliance on one set of rates would be unable to “undo”
App. 8
those transactions retroactively in light of the new, corrected rates; a refund would, at least in part, pull the
economic rug out from under those transactions.
In the present case, LPSC’s briefs do not respond
to these Commission decisions. Pressed on the point at
oral argument, counsel for LPSC offered two purported
distinctions. First, counsel observed correctly that several of the cases were under § 205 of the Federal Power
Act, 16 U.S.C. § 824d. But since § 205 also provides
that the Commission “may” require a refund where it
finds a rate to have been unjust and unreasonable, id.
§ 824d(e), it is unclear why the Commission should disregard its § 205 cases in the § 206 context.
Second, counsel noted that many of the cases invoked by the Commission did not involve a holding
company, such as Entergy. Counsel failed to explain,
however, why that should affect the Commission’s general principle as to refunds in rate design cases.
After oral argument, LPSC directed us to its attempt to distinguish these cases in the run-up to Louisiana III. See Petitioner’s Br. at 52-54, Louisiana III,
772 F.3d 1297 (2014) (No. 13-1155). But even if these
arguments had been renewed before us, we would find
them unavailing. In its previous briefing, LPSC emphasized that the cited cases involved situations in
which utilities would likely suffer a loss of revenue and
an under-recovery of costs. That of course is quite true,
as our summary of the cases and the Commission’s
reasoning make clear. LPSC then argued that the
cases did not support the Commission’s denial of
App. 9
refunds here. Id. That was true in the 2014 case, but is
no longer true, because the Commission has – reasonably – changed its position on the feasibility of recoupment by Entergy.
In the decision under review in 2014, the Commission had – without explanation – disclaimed any reliance on a risk of under-recovery. See 142 FERC
¶ 61,211, P 63; see also Louisiana III, 772 F.3d at 1304.
We noted that many of the cases in which the Commission had refused to order refunds involved at least “the
possibility of under-recovery,” Louisiana III, 772 F.3d
at 1304, but, because of the Commission’s disclaimer,
we found those cases inapposite.
The Commission has now reversed its prior disclaimer and affirmatively explained why there is at
least a risk of under-recovery. See Order on Remand,
155 FERC ¶ 61,120, PP 31-32.1 Specifically, the Commission explained that Entergy sought to recover from
retail customers surcharges to pay for certain other refunds previously ordered in this proceeding, id. at P 32;
see 120 FERC ¶ 61,241, P 9, but the Arkansas Commission rebuffed Entergy, asserting that the surcharges would violate the filed rate doctrine and
constitute retroactive ratemaking, Order on Remand,
155 FERC ¶ 61,120, P 32. As the Commission concedes,
1
The Commission’s conclusion that there is a risk of underrecovery rests in part on its interpretation of City of Anaheim v.
FERC, 558 F.3d 521 (D.C. Cir. 2009). Finding that the Commission would have reached the same conclusion about under-recovery even absent reliance on City of Anaheim, we do not address
the validity of the Commission’s interpretation of that case.
App. 10
the ultimate outcome of the Arkansas Commission proceedings is uncertain (if Entergy prevails, the Arkansas Commission’s order will be reversed), but the
Commission identifies definite evidence of at least a
non-trivial risk of under-recovery – one factor that
counsels against the issuance of refunds.
Second, the Commission offered a convincing answer to our query about the absence of evidence of
“particular decisions” made in reliance on the old rate
structure. First, since the object of sound cost allocation is to influence customer behavior by making those
who “cause” the incurrence of costs to bear those costs
and adjust their consumption accordingly (so that
costs will be incurred only up to the point that is justified by customer benefit, evidenced by the customer’s
willingness to pay), we may fairly infer that their purchase decisions reflected that principle. While we were
concerned in 2014 that “some amount of reliance is
likely to be present every time the Commission considers ordering refunds,” Louisiana III, 772 F.3d at 130506, it becomes apparent from the cases cited at footnote
58 of the Order on Remand that that is exactly the
Commission’s point: its general tendency to deny refunds in cost allocation cases stems from the high correlation between such reliance and that type of case.
See, e.g., Black Oak Energy, LLC, 136 FERC ¶ 61,040,
PP 25-28 (2011); Occidental Chem. Corp., 110 FERC
¶ 61,378, PP 10-12 (2005). (Of course in cases where
there has been over-recovery, the customers will also
have rested their decisions on the prices previously applied, but the only customers affected will be ones
App. 11
getting refunds from the utility, and they will obviously
not complain despite their inability to alter prior decisions.) Second, LPSC itself, in objecting to Entergy’s
prior cost allocation system, invoked the desirability of
correcting customers’ incentives for the purpose of
changing their behavior. Rehearing Order, 156 FERC
¶ 61,221, P 62; see also Order on Remand, 155 FERC
¶ 61,120, PP 34-35. That these past economic decisions
cannot be revisited also justifies denying refunds here.
Finally, under the facts of this case, the Commission noted an additional equity militating against refunds: the disjunction between the beneficiaries of the
old regime and those who would have to pay surcharges to ensure that each operating company fully
recouped costs retroactively allocated to it. Order on
Remand, 155 FERC ¶ 61,120, P 31. In part this referred to whatever customers might be said to have replaced the earlier era’s wholesale customers, which
then accounted for about 15% of Entergy Arkansas’s
load but have now almost entirely ceased to buy from
Entergy Arkansas. Id. Further, given the passage of
time, surcharges would fall on current Entergy Arkansas customers for benefits enjoyed by “past customers,
or a prior generation of customers.” Rehearing Order,
156 FERC ¶ 61,221, P 67; see also Order on Remand,
155 FERC ¶ 61,120, P 36.
LPSC argues that the Commission was largely responsible for the lag between LPSC’s original complaint and the Commission’s most recent orders, and
that the turnover in customers can therefore be at
least in part laid at the Commission’s door. Maybe so.
App. 12
But that would make it no more equitable to now force
consumers who neither were at fault nor received any
benefit to “pay back” consumers who were disadvantaged by the prior rate regime.
We note that the parties engaged in considerable
argument as to the possible effect of § 206(c), 16 U.S.C.
§ 824e(c). It provides that in a proceeding “involving
two or more electric utility companies of a registered
holding company,” refunds may not be awarded if they
will be paid for “through an increase in the costs to be
paid by other electric utility companies of such registered holding company,” unless the Commission can
determine that “the registered holding company would
not experience any reduction in revenues which results from an inability” of such electric utility companies of the same holding company “to recover such
increase in costs.” 16 U.S.C. § 824e(c)(2). To the extent
applicable, of course, the section would require the
Commission to deny refunds if it could not conclude
that the holding company will not suffer any reduction
in revenues. But that is just what the Commission has
independently chosen to do under § 206(b): it denied
refunds in part because it could not conclude Entergy
would be able to offset any refunds. Because we find
that choice reasonable, we need not address the parties’ debate over § 206(c)’s applicability.
***
The petition for review is
Denied.
App. 13
156 FERC ¶ 61,221
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Norman C. Bay, Chairman;
Cheryl A. LaFleur, and Tony Clark.
Louisiana Public Service
Docket Nos. EL00-66-020
Commission and the Council of the
City of New Orleans v. Entergy Corporation
Louisiana Public Service
EL95-33-014
Commission v. Entergy Services, Inc.
ORDER DENYING REHEARING
(Issued September 26, 2016)
1. The Louisiana Public Service Commission seeks
rehearing of the Commission’s April 29, 2016 order1 issued in response to the United States Court of Appeals
for the District of Columbia Circuit (D.C. Circuit) remand in La. Pub. Serv. Comm’n v. FERC.2 At issue was
the Commission’s reasoning in denying refunds in an
order issued on March 21, 2013,3 and the Order on Remand provides reasoning that responds to the points
that the D.C. Circuit raised. In this order, we deny rehearing.
1
La. Pub. Serv. Comm’n v. Entergy Corp., 155 FERC
¶ 61,120 (2016) (Order on Remand).
2
La. Pub. Serv. Comm’n v. FERC, 772 F.3d 1297 (D.C. Cir.
2014) (Remand Order).
3
La. Pub. Serv. Comm’n v. Entergy Corp., 142 FERC
¶ 61,211 (2013) (March 2013 Order).
App. 14
I.
Background
2. This proceeding has a lengthy and complex history
which is summarized in the Order on Remand.4 We
note here only that in its Remand Order, the D.C. Circuit found that the Commission did not reasonably explain in the March 2013 Order its departure from the
Commission’s general policy of ordering refunds when
consumers have paid unjust and unreasonable rates.5
The court also found that the equitable factors the
Commission relied on in previous cases to deny refunds were largely absent in this case.6 Finally, the
court criticized the Commission’s conclusion that Entergy’s inability to review and revisit past decisions
made in reliance on pricing in effect at the time constituted an equitable ground disfavoring refunds.7
3. In the Order on Remand, the Commission explained how, historically, references to a Commission
“general policy” of awarding refunds for unjust and
reasonable rates pertained to a policy that typically
applied in a specific set of circumstances, i.e., where a
public utility had collected revenues in excess of what
it was entitled to under its tariff. The Commission
went on to explain that it had a separate policy of denying refunds where overcollection of revenues had not
occurred and other equitable considerations were
4
Order on Remand, 155 FERC ¶ 61,120 at PP 2-16.
Remand Order, 772 F.3d at 1303.
6
Id. at 1303, 1305.
7
Id. at 1305.
5
App. 15
present.8 In short, the Commission explained that it
had never adopted a single, general policy that applied
to all cases where rates had been found to be unjust
and unreasonable.
4. In the Order on Remand, the Commission went on
to explain how certain equitable considerations justified applying in this proceeding the Commission’s policy of denying refunds in cases where overcollection of
revenues has not occurred.9 The Commission found
there was a significant possibility that Entergy “could
not recover the portion of necessary surcharges that
would be attributed to wholesale customers during the
refund period.”10 The Commission found that litigation
before the Arkansas Commission regarding Entergy’s
ability collect surcharges constituted a second potential risk of under-recovery.11 The Commission also determined that refunds pursuant to section 206(c) of the
FPA were inappropriate. Under that section, the Commission may only order refunds if it determines that
the affected registered holding company (here, Entergy
Corporation) would “not 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.”12 Moreover, the Commission found
8
Order on Remand, 155 FERC ¶ 61,120 at PP 18-28.
Id. PP 30-36.
10
Id. P 31.
11
Id. P 32.
12
16 U.S.C. § 824e(c) (2012).
9
App. 16
that decisions made by the Entergy Operating Companies based on the prior rate could not be undone.
II.
Discussion
A. Procedural Issues
5. On March 16, 2016, Entergy Services, Inc. submitted a motion to establish a briefing schedule on remand in this proceeding and an initial brief on
remand. The Commission took no action on this motion. On rehearing, the Louisiana Commission maintains that the Commission improperly relied on
Entergy’s brief in the Order on Remand. We reject this
contention. The Order on Remand is based on the record as developed up to the time of the Remand Order.
6. We also reject the Louisiana Commission’s allegation that Entergy’s brief constituted an ex parte communication.13 An ex parte communication is an oral or
written communication not on the public record with
respect to which reasonable prior notice to all parties
is not given.14 No such communication occurred here.
Entergy’s brief was a public filing, and it was served on
each person on the service list for this proceeding,
which includes the Louisiana Commission. We also reject the Louisiana Commission’s contention that the
Commission committed procedural error by failing to
provide all parties the opportunity to present
13
14
Rehearing Request at 4-9.
5 U.S.C. § 551(14) (2012).
App. 17
arguments on pending issues.15 In response to Entergy’s filing, the Louisiana Commission submitted a
motion strenuously objecting to any further briefing in
this proceeding.16 As the Louisiana Commission itself
explained in response to Entergy’s proposed schedule
for briefing on remand, Entergy’s brief primarily recycled old arguments that had been previously rejected.
To the extent a new argument had been raised, the
Louisiana Commission disputed it as “specious.”17
The Louisiana Commission also stated that the refund
issue had been briefed 14 times in this case, and further briefing would only provide a forum for additional
frivolous or recycled arguments.18 We therefore reject
the suggestion that the parties did not have a full opportunity to present their views to the Commission.
7. The Louisiana Commission describes its objections
as raising a matter of procedural error, and it states
that the Commission should give full consideration to
its arguments on rehearing. We reject these objections,
and the full consideration we give to the Louisiana
Commission’s arguments in the following is the same
consideration that we give to all rehearing requests.
15
Rehearing Request at 9.
Louisiana Public Service Commission, March 26, 2016 Opposition of the Louisiana Public Service Commission to Motion on
Behalf of Entergy Services, Inc. for, Incredibly, Still Another
Round of Briefing (emphasis in original) (Opposition Motion).
17
Id. at 3.
18
Id. at 1-2.
16
App. 18
B. The Louisiana Commission’s Challenges
To The Order On Remand
8. In remanding this proceeding to the Commission,
the court did not fundamentally challenge the legitimacy of the Commission’s policy of not ordering refunds in rate design and cost allocation cases. Instead,
the court questioned whether the Commission had established that the factors for applying this policy existed in this proceeding, i.e., factors such as: potential
under-recovery by the utility; consumers’ and utilities’
inability to revisit past decisions; a “detrimental effect
upon an organized market”; different generations of
consumers paying the surcharges and receiving the
past benefits; and the “complication and cost of rerunning markets.”19
9. The Louisiana Commission addresses the factors
identified by the Commission as supporting the no-refund policy in this proceeding, but the bulk of its arguments on rehearing take issue with the legal basis for
the Commission’s policy. We turn first to those arguments.
1. Challenges to the Commission’s Description of its Refund Policy
10. In the Order on Remand, the Commission provided a summary of the two main strands of its refund
policy under the FPA. The Commission explained that
it generally does not impose refunds in cost allocation
19
Remand Order, 772. F.3d at 1304.
App. 19
and rate design cases where the public utility has not
overcollected recovered revenues, but it generally
awards refunds where there have been overcharges
that result in overcollection of revenue.20 The Commission also explained how references to a “general policy”
of paying refunds have been confined to the class of
cases in which the utility is found to have overcollected
its revenue requirement.21
11. The Louisiana Commission describes the Commission’s explanation of its refund policy in the Order
on Remand as “revisionist,” and it disputes the assertion that the presence or absence of overcharges that
result in overcollection of utility revenue is a longstanding element of Commission policy.22 This is incorrect. The Order on Remand creates no new Commission policy on refunds. Indeed, on two previous
occasions in this proceeding, the Commission has described its refund policy in terms that are identical in
all material respects to the description provided in the
Order on Remand.
12. Thus in an order issued in this proceeding on
June 9, 2011, the Commission stated
On the question of refunds, the Commission
has two lines of precedent, each dealing with
a different situation. When a case involves a
company over collecting revenues to which it
was not entitled, the Commission generally
20
Order on Remand, 155 FERC ¶ 61,120 at PP 17-28.
Id. PP 18-28.
22
Rehearing Request at 14.
21
App. 20
holds that the excess revenues should be refunded to customers. By contrast, in a case
where the company collected the proper level
of revenues, but it is later determined that
those revenues should have been allocated
differently, the Commission traditionally has
declined to order refunds.23
13. The Commission expanded on this observation in
great detail in an order denying rehearing in this proceeding issued on March 21, 2013.24 That expanded discussion is entirely consistent with the discussion of
Commission policy in the Order on Remand.25
In addition, the Commission stated in the March 2013
Order that the same description of Commission policy
had been provided in its recent Black Oak order.26
14. The Order on Remand goes beyond these earlier
discussions only in explaining the origin of references
to a Commission “general policy” on refunds and how
these references can be traced to Towns of Concord,
Norwood, and Wellesley, Mass. v. FERC,27 one of the
23
La. Pub. Serv. Comm’n v. Entergy Corp., 135 FERC
¶ 61,218 (2011) (internal citations omitted).
24
March 2013 Order, 142 FERC ¶ 61,211 at PP 54-60.
25
See, e.g., id. P 54 (stating that “[o]ne distinction that the
Commission has drawn . . . is between rate design and cost allocation cases, on the one hand, for which refunds are generally not
ordered, and cases involving over-recovery, for which refunds are
generally ordered”).
26
Id. (citing Black Oak Energy, L.L.C. v. PJM Interconnection, L.L.C., 136 FERC ¶ 61,040, at P 25 (Black Oak), reh’g denied, 139 FERC ¶ 61,111 (2012)).
27
955 F.2d 67, 75 (D.C. Cir. 1992) (Towns of Concord).
App. 21
seminal cases on the Commission’s refund authority.
The Commission explained that the court in Towns of
Concord used the term to refer to a policy of awarding
refunds in cases where a utility had overcollected revenues, i.e., the court used it to refer to one of the Commission’s two lines of precedent. The Commission also
explained how the term “general policy” had subsequently been limited to overcollection cases.28 This
discussion simply serves to clarify the apparent discrepancy between the assertion that the Commission
has two lines of precedent on refunds and references to
a Commission “general policy” on refunds. Taken out of
the context in which it was used in Towns of Concord,
the term “general policy” could be read to refer to a policy that applies in all cases. This clarification in the
Order on Remand does not result in any revision to established Commission refund policy, and it therefore
cannot be described as “revisionist.”
15. We thus reject the Louisiana Commission’s assertion that the Order on Remand presents “a drastic revision of policy that eliminates undue discrimination
as a Commission concern.”29 The Louisiana Commission argues that “if refunds cannot be granted for unduly discriminatory cost allocations, the Commission
will have eliminated any mechanism to enforce the
statutory requirements.”30 The mechanism for enforcing the statutory requirement that rates not be unduly
28
Order on Remand, 155 FERC ¶ 61,120 at PP 21-24.
Rehearing Request at 34.
30
Id. at 33-34.
29
App. 22
discriminatory is Commission action requiring that
the rates be revised to eliminate such discrimination.
The Louisiana Commission confuses the Commission’s
statutory obligation to ensure that rates are not unduly discriminatory with its discretionary authority to
require refunds where circumstances warrant them. A
finding that a rate is unduly discriminatory does not,
by itself, mandate that refunds should be awarded. The
Commission’s policy of not awarding refunds in cost allocation cases that meet certain criteria does not inherently conflict with or undermine the Commission’s
obligation to correct unduly discriminatory rates on a
prospective basis.
16. The Louisiana Commission argues that Commission policy on refunds in cost allocation and rate design
cases is inconsistent with the purpose of the FPA,
which is “ ‘the protection of consumers from excessive
rates or charges.’ ”31 This is a correct description of the
purpose of the statute, but the Commission policy in
question is not inconsistent with it.
17. The Louisiana Commission points out that when
interpreting the parallel purpose of the Natural Gas
Act (NGA), the Supreme Court stated that this statute
was intended “ ‘to protect consumers against exploitation at the hands of natural gas companies. . . .’ ”32 The
essential question is thus what is meant by the
31
Rehearing Request at 15 (quoting Municipal Light Boards
v. FPC, 450 F.2d 1341, 1348 (D.C. Cir. 1971)).
32
Id. at 16 (quoting FPC v. Hope Natural Gas Co., 320 U.S.
591, 610 (1944)).
App. 23
protection of consumers from “exploitation.” The answer is the protection of consumers from the exercise
of monopoly power. The Supreme Court has stated that
“public utility regulation typically assumes that the
private firm is a natural monopoly and that public
controls are necessary to protect the consumer from exploitation.”33 To exploit through the exercise of monopoly power means to charge excessive rates that the
absence of competition permits. Indeed, the “very reason for the regulation of private utility rates – by state
bodies and by the Commission – is the inevitability of
a monopoly that requires price control to take the place
of price competition.”34
18. This fact illuminates the Commission’s distinction in its refund policy between instances of utility
overcollection of revenues, on the one hand, and cost
allocation and rate design cases where no overcollection has occurred, on the other. Collection of revenues
above what the Commission has determined to be just
and reasonable is tantamount to collection of revenues
that could be received through the exercise of monopoly power in the absence of regulation. As explained in
the Order on Remand, this is precisely the type of situation in which the Commission has exercised its equitable discretion to award refunds.35
33
Cantor v. Detroit Edison Co., 428 U.S. 579, 595-96 (1976).
Otter Tail Power Co. v. U.S., 410 U.S. 366, 389 (1973)
(Stewart, J., dissenting).
35
Order on Remand, 155 FERC ¶ 61,120 at P 27.
34
App. 24
19. On the other hand, in cases where a cost allocation or rate design has been found to be unjust and unreasonable, but the utility has not collected more
revenue than allowed under its tariff, one cannot say
that exploitation in this sense has occurred. An unjust
and unreasonable cost allocation or rate design is, of
course, a problem that the statute requires be corrected, but if it has not resulted in what can be classified as unjust enrichment;36 it does not, for purposes of
refund policy, fall in the same category as the exploitation to which the Louisiana Commission refers. We
thus disagree with the Louisiana Commission when it
states that “[i]f refunds cannot be made for unduly discriminatory rates[ ] because a holding company or utility did not have an ‘overcollection of revenue,’ the
purpose of the [FPA] is disserved.”37
2. Analysis of Legal Precedent
20. The Louisiana Commission cites numerous cases
that it contends conflict with the description of Commission refund policy in the Order on Remand, and we
address these cases in the following discussion. The
cases are instructive, as they serve to highlight the nature and scope of the policy in question. As previously
indicated in this proceeding, the Commission’s policy
on refunds in cost allocation cases does not apply
where there has been a tariff violation or in situations
where past charges are corrected after review to
36
37
Towns of Concord, 955 F.2d at 75.
Rehearing Request at 16.
App. 25
ensure proper implementation of the tariff.38 Such
cases do not involve a finding that the cost allocation
or rate design itself is not just and reasonable. Many
of the cases that the Louisiana Commission cites fall
into one of these categories. Other cases that the Louisiana Commission cites involve other factors that distinguish them from cases that apply here.
21. One such case is FPC v. Tennessee Gas Transmission Co.,39 which the Louisiana Commission cites as
contradicting the Order on Remand.40 But Tennessee
Gas concerns refunds under the Natural Gas Act, not
the FPA. The Commission’s approach to refunds under
the two statutes differs.
22. The Supreme Court held in Tennessee Gas that in
a rate filing under section 4 of the NGA, a pipeline is
at risk of having to pay refunds in a rate design or cost
allocation case. The Court stated:
. . . an analysis of the policy of the [NGA]
clearly indicates that a natural gas company
initiating an increase in rates under [section]
4(d) assumes the hazards involved in that procedure. It bears the burden of establishing its
rate schedule as being ‘just and reasonable.’
In addition, the company can never recoup the
income lost when the five-month suspension
power of the Commission is exercised under
[section] 4(e). The company is also required to
38
March 2013 Order, 142 FERC ¶ 61,211 at PP 69, 73.
371 U.S. 145 (1962) (Tennessee Gas).
40
Rehearing Request at 17.
39
App. 26
refund any sums thereafter collected should it
not sustain its burden of proving the reasonableness of an increased rate, and it may suffer
further loss when the Commission upon a
finding of excessiveness makes adjustments
in the rate detail of the company’s filing.41
23. Applied to a cost allocation case, this holding provides for refunds where some customers have been
overcharged, but it treats recoupment of those refunded overcharges through surcharges to other customers as impermissible retroactive rate increases. In
short, the holding authorizes refunds notwithstanding
an inability to recoup the refunds and the resulting under-recovery.
24. Since Tennessee Gas, the Commission has taken
different approaches to granting refunds under NGA
section 4 and the corresponding FPA provision, section
205, in cases involving proposed changes in rate design
and cost allocation. Under the NGA, the Commission
generally has taken the position that, if a pipeline files
a rate case involving rate design or cost allocation, and
chooses to implement the proposed rate design or cost
allocation, the pipeline will be at risk for refunds if the
Commission ultimately determines that the proposed
approach is unjust and unreasonable. As a result of
this policy, pipelines usually propose rate design and
cost allocation changes in pro forma tariff records, separate from the actual records reflecting any proposed
increase in their cost of service. This allows the
41
Tennessee Gas, 371 U.S. at 152.
App. 27
pipeline to begin collecting the proposed cost of service
increase as soon as the suspension period ends, while
waiting to implement rate design and cost allocation
changes until after the Commission ultimately rules,
so the pipeline is not at risk of undercollection.42
25. In contrast, under the FPA, the Commission has
declined to order refunds in cases involving proposed
changes in rate design and cost allocation, ruling that
a change in rate design is, for example, appropriate
only on a prospective basis. The Commission has explained:
Our general policy has been to deny refunds
when ordering a change in rate design because retroactive implementation may result
in undercollections by the company and may
be unfair to the customers who cannot alter
their past demands in light of the new rate design.43
26. In addition, the approach that pipelines use in
NGA section 4 cases of making pro forma tariff filings
is unavailable in FPA section 206 proceedings, such as
this case. In section 206 proceedings, the utility has no
choice as to whether to subject itself to the potential
for refunds. Where the utility’s pre-existing rate is the
42
See Arkla Energy Resources, 48 FERC ¶ 61,305, at 61,980
(1989) (finding that “any rate changes required by applying the
Commission’s rate design policy statement will be implemented
prospectively”); National Fuel Gas Supply Corp., 140 FERC
¶ 61,114 (2012).
43
Commonwealth Edison Co., 25 FERC ¶ 61,323, at 61,732
(1983).
App. 28
target of a complaint, the utility cannot choose to make
the challenged rate design or cost allocation effective
prospectively from the date of the Commission order,
which would obviate the potential for undercollection.
Rather, the utility must continue to charge the filed
rate until a new and superseding rate is adopted. Thus
the question traditionally posed in FPA section 206
cases is whether, if the Commission determines that
refunds are appropriate in proceedings involving rate
design or cost allocation, the utility is at risk for those
refunds, as in Tennessee Gas, or if it can surcharge
other customers to avoid undercollection. The fact that
Tennessee Gas permits undercollection as a legal matter does not alter the balancing of equitable considerations that is central to the Commission determination
in electric proceedings not to order refunds in rate design and cost allocation cases. The Court affirmed this
policy in Cities of Batavia v. FERC, finding reasonable
the Commission’s consideration of the “practical consequences” of ordering refunds in rate design and cost
allocation proceedings.44
27. In any event, the Tennessee Gas approach is not
applicable to complaints against holding companies,
such as Entergy. Tennessee Gas finds that pipelines
(utilities) can be required to pay refunds in cost allocation or rate design cases and that any undercollection
of costs will be borne by the company and its shareholders. But Congress directed in FPA section 206(c)
that the Commission cannot order refunds unless it
44
672 F.2d 64, 85 (D.C. Cir. 1982) (Cities of Batavia).
App. 29
can find the holding company“[will] not 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.”
28. The Louisiana Commission criticizes the use of
City of Anaheim v. FERC45 in the Order on Remand.
The Commission stated there that “the court found in
Anaheim that ‘§ 206(b) authorizes only retroactive refunds (rate decreases), not retroactive rate increases’
such as those that Entergy would have to assess on any
wholesale customers subject to surcharges needed to
cover the refunds.”46 The Louisiana Commission states
that the Commission failed to reconcile this statement
with the Commission’s earlier finding that Anaheim
did not prevent the awarding of refunds in this case.
There is no conflict to reconcile. Anaheim does not prevent the Commission from ordering refunds. Rather,
the Order on Remand explained that Anaheim identified a prohibition on retroactive rate increases under
section 206(b).47 The Commission’s established policy
45
558 F.3d 521, 524 (D.C. Cir. 2009) (Anaheim).
Order on Remand, 155 FERC ¶ 61,120 at P 31 (quoting
Anaheim, 558 F. 3d at 524).
47
See Order on Remand, 155 FERC ¶ 61,120 at P 33. We
thus disagree with the Louisiana Commission when it says “if cost
reallocations, with refunds and surcharges, could not be awarded
under Section 206(b) in holding company cases, there would have
been no need to provide in Section 206(c) for situations in which
the holding company undercollects.” Rehearing Request at 46.
Section 206(b) authorizes, but does not require, refunds even if
they lead to undercollection. Section 206(c) creates an exception
by prohibiting refunds that lead to undercollection in the case of
registered holding companies. But see PP 33, 71.
46
App. 30
of not awarding refunds in rate design and cost allocation cases is predicated, in part, on the potential for
under-recovery if rates cannot be retroactively increased for those customers who paid too little under
the unjust and unreasonable rate design. Section
206(c) of the FPA evidences a similar concern and conditions the Commission’s refund authority upon a finding that refunds would not cause the registered
holding company to experience any reduction in revenus resulting from an inability of an electric utility in
the system to recovery the resulting increase in costs.
29. The Louisiana Commission argues that Nantahala
Power and Light Co.48 represents a cost allocation case
in which the Commission required refunds. This is incorrect. Nantahala is not a traditional cost allocation
case involving the allocation of costs among different
classes of utility system customers.49 Instead it involved an apportionment of power between two subsidiaries of the Aluminum Company of America (Alcoa),
and the ultimate finding was that Alcoa had used its
power over both subsidiaries to benefit its interests as
an industrial manufacturing company.
30. One of these subsidiaries, Tapoco, Inc. (Tapoco),
was engaged in providing power to Alcoa for private
use in its smelting operations. The other subsidiary,
Nantahala Power and Light Company (Nantahala),
supplied power for public service. The Commission
48
19 FERC ¶ 61,152 (1982) (Nantahala).
See, e.g., Louisiana Power & Light Co., 14 FERC ¶ 61,075,
at 61,126 (1981).
49
App. 31
found that the Tapoco and Nantahala systems could
not be treated as a single system,50 and the only jurisdictional rates at issue were Nantahala’s rates for certain wholesale customers. The matter in dispute was
not cost allocation under these rates, but rather the effects of an agreement between Tapoco and Nantahala
(Apportionment Agreement) that apportioned between
them entitlements to power received from the Tennessee Valley Authority (TVA).
31. The Apportionment Agreement had not been filed
with the Commission, and it was treated as a contract
affecting jurisdictional rates.51 It had been modified in
1971 to reduce Nantahala’s entitlement to TVA power,
and the Commission determined that the 1971 agreement did not fairly represent the interests of
Nantahala’s customers because there was not sufficient evidence to show that Nantahala had received
any consideration for entering into a less favorable
agreement. The Louisiana Commission states that
Nantahala’s “customers were overcharged because
Nantahala was allocated too much expensive power,”52
but this was not the case. Instead, the modification of
the Apportionment Agreement in 1971 required
Nantahala to make “unnecessary energy purchases . . .
from TVA,”53 of power not included in the original entitlement and thus not subject to the Apportionment
50
Id. at 61,276.
Id. at 61,279
52
Rehearing Request at 20.
53
Nantahala Commission order at 61,280.
51
App. 32
Agreement. This was not a situation involving an improper allocation of costs among different classes of
utility customers. It was a situation in which
Nantahala’s owner, Alcoa, unfairly imposed additional
costs on Nantahala’s jurisdictional wholesale customers by diverting for its own private use power to which
Nantahala had previously been entitled. Thus, this
case is similar to those in which the utility overcollected its just and reasonable revenue requirement to
the benefit of the corporation as a whole.
32. Indeed, the court of appeals characterized the
case in precisely these terms. It saw the case as involving a conflict between shareholders and utility customers, which is precisely the type of conflict involved in
an overcollection case, i.e., a conflict involving shareholders’ ability to profit from the exercise of monopoly
power. The court stated that
[u]nder the Nantahala framework, the utility’s shareholder (Alcoa) can unfairly benefit
vis-a-vis its customers not just directly
through excessive rates, but also indirectly, by
shifting resources from Nantahala to Alcoa,
through Nantahala’s sister corporation, Tapoco. The Commission’s role is the same under
these circumstances: to ensure that the customers are treated fairly.54
33. The Louisiana Commission points to a number of
cases involving holding companies in which the
54
Nantahala Power and Light Co. v. FERC, 727 F.2d 1342,
1348 (4th Cir. 1984).
App. 33
Commission “has rejected the contention that ‘no overcollections’ is a basis to deny refunds.”55 We first note
that the absence of overcollection is not, in and of itself,
the basis for the Commission policy of denying refunds
in cost allocation and rate design cases where overcollection has not occurred. Rather, the absence of overcollection leads to equitable considerations that do not
arise where overcollection is present, i.e., the inability
to revisit past decisions and potential undercollection,
and the Commission has held that these considerations generally preclude refunds. The holding company
cases that the Louisiana Commission cites are not relevant here because either they in fact involve overcollections of revenue requirements, tariff violations,56 or
55
Rehearing Request at 27.
In cases of tariff violations, the Commission can require
the payment of both refunds and surcharges to ensure that all
customers pay the rate on file. See DC Energy, LLC v. PJM Interconnection, L.L.C., 138 FERC ¶ 61,165 (2012) (the Commission
can require retroactive billing to correct a filed rate violation). See
generally, Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S.
116 (1990) (holding under Interstate Commerce Act, the filed rate
doctrine permits recovery from customers paying less than the
filed rate); IDACORP Energy L.P. v. FERC, 433 F.3d 879, 883 (D.C.
Cir. 2006) (stating that “[t]he ban on retroactive ratemaking, however, imposes no obstacle to amending invoices; in fact, the prohibition on retroactive ratemaking may well require an amended
invoice if the original invoice deviated from the tariff ”); Exelon
Corp. v. PPL Elec. Utils. Corp., 114 FERC ¶ 61,298, at P 14 (2006)
(stating that “[c]orrecting improperly billed invoices does not violate the ban on retroactive ratemaking . . . because it does not result in a change to a prior rate, but rather is enforcing the filed
rate”).
56
App. 34
other considerations that place them outside the Commission policy that is applicable in this case.
34. The Louisiana Commission argues that Blue
Ridge Power Agency v. Appalachian Power Co.57 is a
cost allocation case where the Commission awarded refunds in the absence of overcollection. However, Blue
Ridge did not involve a question of whether refunds
should be awarded after a cost allocation had been
found to be unjust and unreasonable. Blue Ridge instead dealt with whether a cost allocation that had not
been found to be unjust and unreasonable had been
implemented correctly. The Commission found that it
had not. Specifically, the Commission found that one
subsidiary of American Electric Power Service Corporation (AEP) had failed to credit to its ratepayers, as it
was required to do, its entire share of the gain on a
sale/leaseback transaction undertaken by other AEP
subsidiaries. Indeed, when the AEP subsidiary required to pay refunds argued that refunds could result
in trapped costs, i.e., under-recovery, in violation of
FPA section 206(c), the Commission replied that
[a]ny “trapped costs’ ” which may be created
have not been created by the Commission. Rather, they are created by a failure to abide by
the relevant filed rate as well as Commission
precedent. Consequently, they are not
“trapped costs” for which refunds are barred
by [FPA section 206(c)].58
57
58
58 FERC ¶ 61,193 (1992) (Blue Ridge).
Blue Ridge, 58 FERC ¶ 61,193 at 61,603.
App. 35
35. The refund policy described in the Order on Remand does not apply where ratepayers have been adversely affected by a tariff violation.59 No such
violation has been alleged in this case, and therefore
Blue Ridge is not on point.60
36. The Louisiana Commission also contends that
the Order on Remand is inconsistent with cases involving Entergy filings or related complaints concerning
the bandwidth remedy ordered in Opinion No. 480,61
where the Louisiana Commission states the Commission granted refunds for unjust and unreasonable
rates even though the holding company did not overcollect revenues. However, some of the Commission orders that the Louisiana Commission cites pertain to
Entergy’s annual filings to implement the bandwidth
59
See supra note 63.
A similar conclusion applies to Middle South Services, Inc.,
16 FERC ¶ 61,101 (1981), which the Louisiana Commission cites
in this connection. The Louisiana Commission also cites Middle
South Energy, Inc., 31 FERC ¶ 61,305 (1985), aff ’d and vacated
in part on another issue, Mississippi Indus. v. FERC, 808 F.2d
1525 (1987) but fails to explain how it relates to the Commission’s
refund policy. Apart from a mention in an ordering clause, the
case contains no discussion of refunds.
61
In Opinion Nos. 480 and 480-A, the Commission established a bandwidth remedy to ensure rough production cost equalization among the Entergy Operating Companies under the
System Agreement. See La. Pub. Servs. Comm’n v. Entergy Servs.,
Inc., Opinion No. 480, 111 FERC ¶ 61,311, order on reh’g, Opinion
No. 480-A, 113 FERC ¶ 61,282 (2005), order on compliance, 117
FERC ¶ 61,203 (2006), order on reh’g and compliance, 119 FERC
¶ 61,095 (2007), aff ’d in part and remanded in part, sub nom.
Louisiana Public Service Comm’n v. FERC, 522 F.3d 378 (D.C.
Cir. 2008), order on remand, 137 FERC ¶ 61,047 (2011).
60
App. 36
formula and calculate annual bandwidth remedy payments and receipts.62 These implementation proceedings, which the Commission required to achieve rough
equalization of production costs between the Entergy
Operating Companies, involve implementation of the
filed formula rate. Refunds in such cases are consistent
with the Commission’s policy of generally ordering refunds and surcharges where a utility violates the filed
rate.63 They can be viewed as a true-up process that
ensures that the filed rate is complied with. With one
exception,64 the other bandwidth cases that the Louisiana Commission cites as contradicting the conclusions
in the Order on Remand fall into this category.65 They
thus can be distinguished from the present proceeding,
62
Entergy Servs., Inc., 139 FERC ¶ 61,104 (2012); Entergy
Servs., Inc., 142 FERC ¶ 61,011 (2013).
63
See Gas Transmission Northwest Corp. v. FERC, 504 F. 3d
1318, 1320 (D.C. Cir. 2007) (stating that the Commission’s acceptance of unchallenged tariff provisions does not convert such
provisions into “policy” or “precedent”); Entergy Services, Inc., 130
FERC ¶ 61,170, at P 20 (2010) (stating that “the purpose of the
annual bandwidth filings is to apply the specified formula using
actual data to determine whether or not there was rough production cost equalization”).
64
This exception is cited infra note 73 below and is not on
point for other reasons.
65
These cases, cited in the Rehearing Request at 28-29 are:
Entergy Servs., Inc., 139 FERC ¶ 61,104 (involving a compliance
filing to implement an opinion addressing the first year implementation filing for the bandwidth formula); La. Pub. Serv.
Comm’n v. Entergy Corp., 132 FERC ¶ 61,253 (2010) (finding that
an asset had been improperly excluded from the bandwidth calculation); La. Pub. Serv. Comm’n v. Entergy Corp., 124 FERC
¶ 61,010 (2008) (finding that the bandwidth formula erroneously
included certain capital lease amounts in production costs).
App. 37
where the filed rate was complied with, but it was subsequently found to be unjust and unreasonable.
37. The Louisiana Commission cites to a number of
uncontested settlements involving Entergy that provided for refunds, and the Louisiana Commission
asserts that these settlements contradict the Commission policy described in the Order on Remand.66 However, Commission approval of uncontested settlements
does not constitute binding Commission precedent,67
and orders approving uncontested settlements where
the parties have agreed to refunds for their own reasons do not reflect Commission policy on refunds.
38. The Louisiana Commission also points to Southern Company Services, Inc.,68 which involved a section
206 investigation into the return on equity payable
from some companies to others under the Southern
Company Intercompany Interchange Contract. The
Louisiana Commission states that the return on equity
66
Rehearing Request at 29-30 (citing Entergy Mississippi,
Inc., 149 FERC ¶ 61,170 (2014); Entergy Servs., Inc., 127 FERC
¶ 63,027, approved, 128 FERC ¶ 61,181 (2009)).
67
Florida Power Corp., 70 FERC ¶ 61,321, at 61,980 (1995).
See also Westar Energy, Inc., 125 FERC ¶ 61,252, at P 3 (2008)
(stating that “Commission approval of the settlement does not
constitute approval of, or precedent regarding, any principle or
issue in these proceedings.”); Oklahoma Gas and Electric Co., 127
FERC ¶ 61,296, at P 3 (2009) (same); Southern Company Services,
Inc., 61 FERC ¶ 61,339, at 62,335 n.59 (1992), reh’g denied, 63
FERC ¶ 61,217 (1993); Old Dominion Elec. Coop. v. Va. Elec. and
Power Co., 139 FERC ¶ 61,137, at P 12 (2012).
68
61 FERC ¶ 61,075 (1992) (Southern), reh’g denied in part
and granted in part, 64 FERC ¶ 61,033 (1993).
App. 38
ultimately was modified from 14 percent to 13.25 percent, requiring payments by some companies to other
companies. The Louisiana Commission states that the
Commission required refunds even though Southern
Company as a whole did not overcollect revenues.69
However, the relevant portions of Southern involve a
settlement in which the parties stipulated to the modification of the return on equity from 14 percent to
13.25 percent.70 As a result, the refunds were part of a
voluntary settlement and, as with the other settlement
cases that the Louisiana Commission cites, they have
no precedential effect.
39. The Louisiana Commission cites Corporation
Comm’n of the State of Oklahoma v. American Elec.
Power Co.71 as a case involving a holding company in
which the Commission ordered refunds where the
“rates did not produce an ‘overcollection.’ ”72 This case
involved a tariff violation that misallocated costs under the AEP System Agreement, and this “violation . . .
provided AEP shareholders with a net gain.”73 This unauthorized benefit for shareholders is precisely the
type of overcollection of revenues that justifies refunds
69
The Louisiana Commission also cites to an initial decision
in Docket No. EL 10-49-005 as supporting its arguments. Rehearing Request at 33 (citing Old Dominion Elec. Coop. v. Va. Elec.
and Power Co., 154 FERC ¶ 63,014, at P 68 (2016)). However, initial decisions by Commission administrative law judges do not
constitute binding Commission precedent.
70
Southern, 61 FERC ¶ 61,075 n.6.
71
125 FERC ¶ 61,237 (2008) (Oklahoma).
72
Rehearing Request at 30.
73
Oklahoma, 125 FERC ¶ 61,237 at P 33.
App. 39
under Commission policy. The Louisiana Commission
argues that the Commission action in Oklahoma
should apply here because the net gain to AEP shareholders was a result of rate freezes in certain retail jurisdictions, and Entergy faced annual rate cases in
Louisiana in the 1990s, while retail rate cases were
rare in the other Entergy jurisdictions.74 However, neither a violation of the Entergy System Agreement nor
a net gain to Entergy shareholders has been alleged,
let alone found, in this case. As result, the grounds for
awarding refunds in Oklahoma are not present here.
40. The Louisiana Commission incorrectly describes
Central Power and Light Co.75 as a case where the
Commission awarded refunds in the absence of overcollection.76 Central Pow. & Light deals with Central
and South West Corporation’s (CSW) open access
transmission tariff. The CSW system was made up of
four separate utility operating companies, two of which
operated within the Electric Reliability Council of
Texas (ERCOT), which is not subject to Commission
jurisdiction, and two of which operated in the Southwest Power Pool (SPP), which is subject to our jurisdiction. All of the companies were, nevertheless,
interconnected to form a single integrated utility system, and the Commission had determined that while
CSW could have separate rates for wholly intraERCOT service and wholly intra-SPP service, it also
74
Rehearing Request at 30.
97 FERC ¶ 61,157 (2001) (Central Pow. & Light).
76
Rehearing Request at 32.
75
App. 40
required that there be a single system-wide rate for
transmission through both ERCOT and SPP.77
41. The Commission found in Central Pow. & Light
that the CSW operating companies did not propose in
their compliance filing a single-system rate in place of,
or in addition to, separate intra-ERCOT and intra-SPP
rates, as had been required. Instead, “they kept the intra-ERCOT rate and removed the intra-SPP rate in favor of a rate [i.e., the single-system rate] that inflates
transmission rates for SPP-only customers, and that
over-charges SPP-only customers.”78 The Louisiana
Commission argues that the CSW “tariff had the effect
of overcharging SPP-only customers, although it produced the proper level of revenues on a total System
basis,”79 but the Commission made no such finding.
Central Pow. & Light involves inflated charges for
SPP-only customers that resulted from a failure to satisfy compliance requirements.80 The fact that a rate
was inflated for these customers in this situation does
not imply that there was a corresponding deflation
elsewhere. These facts distinguish Central Pow. &
Light from this proceeding, where no violations of
Commission requirements by Entergy have been alleged.
42. The Louisiana Commission is also incorrect in its
assertion that the award of refunds in Public Serv.
77
Central Pow. & Light, 97 FERC ¶ 61,157 at 61,696.
Id. at 61,698 (emphasis supplied).
79
Rehearing Request at 32.
80
Central Pow. & Light, 97 FERC ¶ 61,157 at 61,698.
78
App. 41
Comm’n of Wisconsin v. Midcontinent Indep. Sys. Operator, Inc.81 supports a similar award here. An order on
rehearing and clarification has recently been issued in
that proceeding,82 and we distinguish our decision here
from our reasoning in that proceeding based on this
recent order. In Wisconsin, the Commission found that
the two primary grounds for the Commission’s general
denial of refunds in cost allocation cases were not present. First, the Commission found that, unlike in the
instant case, the parties had not identified any particular decisions made in reliance on the challenged cost
allocation methodology.83 Second, the Commission
found that, unlike in the instant case, there was no potential under-recovery of revenues, nor was there any
concern that refunds would be charged to persons
without any connection to these proceedings, because
surcharges would be assessed on the persons who had
paid too little under the previous cost allocation methodology to fund refunds to those persons who paid too
much.84 The Commission also found that the costs in
the Wisconsin proceeding were out-of-market; thus,
subsequent changes to the allocation of such costs
would not undermine confidence in the settlements
produced by any markets.85 In addition, Wisconsin did
not present notice issues of the type we describe
81
150 FERC ¶ 61,104 (2015) (Wisconsin).
Public Serv. Comm’n of Wisconsin v. Midcontinent Ind.
Sys. Op., Inc., 156 FERC ¶ 61,205 (2016) (Wisconsin).
83
Id. P 45.
84
Id. PP 47, 51.
85
Id. P 54.
82
App. 42
below.86 Finally, Wisconsin concerned mandatory,
short-term agreements, and the Commission found
that, if relief were granted only on a prospective basis,
the customers that had been allocated unjust and unreasonable costs under those agreements would likely
receive no compensation.87 Under those factual circumstances, when considered as a whole, the Commission
in Wisconsin found that the equitable considerations
warranted refunds.88
43. The Louisiana Commission maintains that seven
cases under FPA section 205 cited in the Order on Remand do not support the refund policy described there.
It states that six of the seven cases do not provide support because “there was no prior notice that the rates
might be changed so as to justify applying the rate
change retroactively.”89
44. However, in all six of these cases, the Commission
applied the same policy it is applying here and denied
refunds because the cases involved cost allocation and
rate design. The Commission did not deny refunds
based on a lack of notice. In fact, under FPA section
86
Id. P 51; see infra P 58.
Wisconsin, 156 FERC ¶ 61,205 at P 53.
88
Id. PP 51, 56.
89
Rehearing Request at 35. These cases are Consumers Energy Co., 89 FERC ¶ 61,138 (1999) (Consumers); Union Elec. Co.,
58 FERC ¶ 61,247 (1992) (Union Elec.); Commonwealth Edison
Co., 25 FERC ¶ 61,323 (1983) (Commonwealth 2); Second Taxing
Dist. of Norwalk v. FERC, 683 F.2d 477 (D.C. Cir. 1982) (Second
Taxing Dist.); Cities of Batavia, 672 F2d 64; Commonwealth Edison Co., 8 FERC ¶ 61,277 (1979) (Commonwealth 1).
87
App. 43
205(d) proper notice of the filing was made and the
Commission accepted and suspended the rates in question subject to refund.90 The Commission did not impose refunds because to do so would have resulted in
the utility being unable to collect its just and reasonable revenue requirement. As the Commission has explained, the refund provisions of FPA sections 205 and
206 do not permit the utility retroactively to surcharge
those customers paying rates lower than the just and
reasonable rate ultimately determined. The Louisiana
Commission is thus incorrect in arguing that an absence of notice justified a denial of refunds in these six
cases.
45. The Louisiana Commission contends that in the
seventh case91 the Commission “simply allowed [the
rate] to take effect pursuant to the statutory requirement,”92 implying the case does not support the Commission’ s policy of not ordering refunds in rate design
and cost allocation cases. In this case, an intervenor
requested waiver of the prior notice requirement, contending that earlier implementation of the cost allocation filing would reduce its rates. The Commission
90
See Consumers Energy Co., 85 FERC ¶ 61,100, at 61,359
(1998) (relating to Consumers); Union Elec., 58 FERC ¶ 61,247 at
61,817-8; Commonwealth Edison Co., 23 FERC ¶ 61,219, at
61,464 (1983) (relating to Commonwealth 2); Connecticut Light
and Power Co., 13 FERC ¶ 61,155, at 61,330-31 (1980) (relating
to Second Taxing Dist.); Cities of Batavia, 672 F.2d at 68; Commonwealth 1, 8 FERC ¶ 61,277 at 61,837.
91
Portland Gen. Elec. Co., 106 FERC ¶ 61,193 (2004) (Portland).
92
Rehearing Request at 35.
App. 44
properly denied the request, because only the utility
itself can request such a waiver under section 205(d).
In the order, however, the Commission noted that, in
any event, under its policy, any changed rates in cost
allocation proceedings would be prospective only.93
This statement of Commission policy is consistent with
the description of Commission policy set forth in the
Order on Remand.
46. The Louisiana Commission appears to conclude
that the Commission cited these cases to argue that
the absence of overcollection by itself was a justification for denying refunds.94 In fact, the Commission
cited them to support its long-standing policy of denying refunds in cost allocation and rate design cases
where overcollection had not occurred. The Commission went on to explain why this was the case, i.e., refunds could lead to under-recovery by the utility in
such cases or it was too late for the utility or customers
to alter decisions they had made under the prior cost
allocation.95 All of the cases in question deny refunds
for such reasons, not because of the mere absence of
overcollection.96
93
Portland, 106 FERC ¶ 61,193 at PP 4-5.
See Rehearing Request at 34-35.
95
Order on Remand, 155 FERC ¶ 61,120 at P 28.
96
Consumers Energy Company, 85 FERC ¶ 61,100 at 61,359
and Consumers Power Co., 89 FERC ¶ 61,138, at 61,397 (denying
refunds on the grounds that customers cannot revisit past decisions); Union Elec., 58 FERC ¶ 61,247 at 61,818 (stating that refunds would lead to under-collection by the utility and customers
could not revisit their past economic decisions); Commonwealth
94
App. 45
47. The Louisiana Commission acknowledges in its
rehearing request that the Commission has denied refunds for the reasons described here,97 but it maintains
that the Commission has done this only in rate design,
and not in cost allocation, cases.98 This is incorrect. In
fact, one of the cases that the Louisiana Commission
cites as expressing the policy in question specifically
notes that the policy applies in both cost-allocation and
rate design cases.99
48. The Louisiana Commission bases its argument
that the policy does not apply in cost allocation cases
on Entergy Services, Inc. v. FERC. This case involved
the allocation of the output of qualifying facilities
(QFs) that provided power to a host industrial facility.
In instances where a QF scheduled a wholesale sale,
2, 25 FERC ¶ 61,323 at 61,732 (denying refunds on the grounds
that they could lead to undercollection by the utility, customers
cannot alter past demand in light of new rate, and the existing
rate was long-standing); Second Taxing Dist., 683 F.2d at 490
(stating that refunds were denied because they could lead to undercolletion by the utility and retroactive changes in rates cannot
affect customer demand); Cities of Batavia, 672 F.2d at 85 (refunds denied because of potential undercollection and customer
usage can be affected only prospectively); Commonwealth 1, 8
FERC ¶ 61,277 at 61,844 (refunds denied because of potential undercollection and customer usage can be affected only prospectively); Portland, 106 FERC ¶ 61,193 at P 5 (citing Consumers, 89
FERC ¶ 61,138 at 61,397 and Commonwealth 2, 25 FERC
¶ 61,323 at 61,732).
97
See Rehearing Request at 36 (citing Occidental Chem.
Corp. v. PJM Interconnection, L.L.C., 110 FERC ¶ 61,378 (2005)
(Occidental); Black Oak, 136 FERC ¶ 61,040).
98
Rehearing Request at 36.
99
Black Oak, 136 FERC ¶ 61,040 at P 10.
App. 46
i.e., a sale other than to the industrial facility, Entergy
would deem the QF’s output to go first to the scheduled
transaction, with the remainder deemed to serve the
host load. To the extent there was insufficient QF
power to serve the host in these situations, Entergy
would supply the host at much higher retail rates. The
Commission found this to be unduly discriminatory,
imposed a “host loads first” allocation methodology for
QF power, and ordered refunds.100
49. On rehearing, Entergy argued that the host loads
first allocation methodology constituted a change in
rate design, and the Commission had failed to explain
its departure from its policy of not awarding refunds in
such cases. The Commission responded that there had
been no change in rate design; Entergy had simply
“billed the wrong customers at the wrong rates.”101 “In
other words,” the court explained “there were no rate
design changes in this case.”102 In short, this case involved a tariff violation – billing the wrong customers
at the wrong rates – and as such it does not speak to
the Commission’s refund policy in cost allocation and
rate design cases that applies when a tariff violation
has not occurred.
100
Entergy Servs., Inc. v. FERC, 400 F.3d 5, 7 (D.C. Cir.
2005).
101
Id. at 8 (quoting Entergy Servs., Inc., 104 FERC ¶ 61,061,
at 61,212 (2003)).
102
Id.
App. 47
3. Legislative History
50. The Louisiana Commission argues that the refund policy described in the Order on Remand conflicts
with testimony by Commission Chairman Martha O.
Hesse and one of her advisors before Congress in 1988
concerning the Regulatory Fairness Act (RFA), which
revised FPA section 206 to include its current refund
provisions. We disagree.
51. The only statement in this testimony cited by the
Louisiana Commission that is relevant here comes
from Chairman Hesse. When asked about the applicability of FPA section 206 to interconnection, powerpooling, intra-system, coordination, or joint ownership
agreements, a class of agreements that would include
the Entergy System Agreement, she stated:
If a complaint is filed which alleges that excessive revenues are being collected pursuant to a
coordination transaction or power pooling arrangement, the same arguments that would
support the imposition of section 206 refund
protection to traditional wholesale electric
power relationships also appears to support
the imposition of section 206 refund protection for non-traditional, interchange transactions. Moreover, when a coordination or power
pooling arrangement is originally filed under
section 205, refund protection attaches. If the
intent of the proposed legislation is to parallel
the refund protection accorded under section
205, then refund protection should also attach
to section 206 complaints involving interchange transactions. Under section 205 or
App. 48
[the proposed legislation], the Commission
would retain ultimate discretion as to
whether refunds would be in the public interest.103
52. Situations in which “excessive revenues are being
collected” are precisely the situations in which it is
Commission policy to award refunds. Chairman
Hesse’s remarks do not support the Louisiana Commission’s position. In fact, one could read them to imply that the Commission could have a different policy
where excessive revenues have not been collected.104
53. Indeed, Congress recognized that cost allocation
presents special problems that may require different
approaches to refunds. The Senate Report on the RFA
stated:
The Committee is aware that there may be
challenges to power pooling and system integration agreements brought under section
206 of the Federal Power Act in which refunds
might not be appropriate, for example, where
the issue relates to cost allocation among
103
S. Rep. No. 100-491, at 154 (1988) (emphasis added).
The Louisiana Commission also quotes remarks by Chairman Hesse’s assistant, Cynthia A. Marlette, stating that “[u]nder
section 205 the commission normally orders refunds where rates
are found to be unjust and unreasonable,” and the Louisiana
Commission interprets this statement as inconsistent with the refund policy described in the Order on Remand. Rehearing Request at 24 (quoting S. Rep. No. 100-491 at 17). However, this
statement was made after section 205 cases such as Commonwealth 2; Second Taxing Dist.; Cities of Batavia; and Commonwealth 1, where refunds were not awarded. The precise meaning
that this statement has for this proceeding is thus unclear.
104
App. 49
utilities, and the bill as reported by the Committee is intended to provide the Commission
with the discretion needed to deal with individual instances in which refunds would not
be in the public interest.105
54. This proceeding involves cost allocation among
utilities, and the Commission’s decision regarding that
cost allocation is consistent with the expectations expressed in the legislative history. Indeed, the Senate
Committee stated that with respect to power pooling,
it expected, among other things, “the Commission to
consider whether, and the extent to which, a refund
would adversely affect decisions made on the basis of
energy pricing provisions of such pooling agreements.”106 This is precisely the type of consideration
the Commission has incorporated into its refund policy.
55. Finally, the Louisiana Commission states that
the legislative history shows that Congress took the
position that the absence of overcollection by a holding
company would not be an equitable consideration justifying the denial of refunds.107 However, as noted
above, the Commission did not say in the Order on Remand that the absence of overcollection was a justification for denying refunds. It stated that “in cases
where a cost allocation or rate design has been found
unjust and unreasonable, but where no over-collection
105
S. Rep. No. 100-491 at 6.
Id.
107
Rehearing Request at 27 (citing S. Rep. No. 100-491 at 7).
106
App. 50
of revenue has occurred, other factors come into
play.”108 The Commission explained those other factors
in the Order on Remand,109 and, as discussed above,
those factors are consistent with Congressional expectations.
4. Notice Issues
56. The Louisiana Commission argues that the Commission’s reliance in the Order on Remand on possible
undercollection of revenues and the inability of Entergy to revisit past decisions as equitable reasons
for denying refunds is arbitrary because it fails to
recognize the notice provided in the complaint. The
Louisiana Commission states that “[n]otice eliminates
concerns that refunds would violate the rule against
retroactive ratemaking and that the utility or customers may have relied on the prior rate.”110
57. We disagree that notice resulting from the filing
of the complaint warrants providing refunds here. As
the Commission found in the Order on Remand, the
facts of this case show that there is some likelihood
that Energy Arkansas would not be able to recover any
refunds paid to Entergy Louisiana. This finding is sufficient for the Commission to deny refunds under section 206(c), since the Commission cannot determine
that Entergy, the registered holding company, “[will]
108
Order on Remand, 155 FERC ¶ 61,120 at P 27 (emphasis
supplied).
109
Id.
110
Rehearing Request at 38.
App. 51
not 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.”111
58. Moreover, whatever notice is provided to wholesale customers from the filing of the complaint, would
not necessarily provide notice to retail customers sufficient to permit Entergy Arkansas to recover through
surcharges the refunds it would pay to Entergy Louisiana. The Commission made clear in the Order on Remand that reliance by these ratepayers was an
important concern.112 None of the cases the Louisiana
Commission cites on the issue of notice find that the
notice provided by filing of a complaint is sufficient for
the Commission to retroactively raise the rates of customers under FPA section 206(b). For instance, the
Louisiana Commission cites Oxy USA, Inc. v. FERC,113
for the proposition that “ ‘[t]he goals of equity and predictability are not undermined when the Commission
warns all parties involved that a change in rates is
only tentative and might be disallowed.’ ”114 However,
the Louisiana Commission omits reference to the immediately preceding statement by the court finding
that “[t]he rule against retroactive ratemaking, however, ‘does not extend to cases in which [customers] are
on adequate notice that resolution of some specific
111
16 U.S.C. § 824e(c).
Order on Remand, 155 FERC ¶ 61,120 at P 36.
113
64 F.3d 679 (D.C. Cir. 1995) (Oxy USA).
114
Rehearing Request at 38 (quoting Oxy USA, 64 F.3d at
112
699)
App. 52
issue may cause a later adjustment to the rate being
collected at the time of service.’ ”115 We have inadequate
basis on this record to conclude that the complaint in
this case gave the retail customers who would be assessed surcharges adequate notice that the resolution
of some specific issue may cause a later adjustment to
the rate being collected at the time of service.
59. The Louisiana Commission cites Transcontinental Gas Pipe Line Corp. v. FERC for the proposition
that “after notice, ‘[t]he expectations of those who act
in anticipation of the right rate are protected, and they
would seem presumptively the most deserving,’ ”116 but
Transcontinental was a case in which the court found
the Commission had committed legal error. In such a
circumstance, the courts have permitted the Commission to require both refunds and surcharges to correct
that legal error.117 The Louisiana Commission cites
Westar Energy, Inc. v. FERC118 as supporting its position on notice, but that case involved a section 205 rate
filing, which the Commission rejected and required the
115
Oxy USA Inc., 64 F.3d at 699 (quoting Natural Gas Clearinghouse v. FERC, 965 F.2d 1066, 1075 (D.C. Cir. 1992) (Natural
Gas Clearinghouse)) (emphasis supplied).
116
Rehearing Request at 38-39 (quoting Transcontinental
Gas Pipe Line Corp. v. FERC, 54 F.3d 893, 899 899 (D.C. Cir.
1995) (Transcontinental)).
117
See, e.g., Pub. Utils. Comm’n of Cal.v. FERC, 988 F.2d
154, 162 (D.C.Cir.1993) (CAPUC) (stating “[t]his court has previously recognized FERC’s authority to order retroactive rate adjustments when its earlier order disallowing a rate is reversed on
appeal”).
118
568 F.3d 985 (D.C. Cir. 2009).
App. 53
payment of refunds as permitted under section 205.
However, that case does not establish that the Commission has authority to authorize retroactive rate increases under either section 205 or 206(b). In NSTAR
Elec. & Gas Corp. v. FERC,119 which the Louisiana
Commission cites, the court found that a market rule
gave actual market participants adequate notice that
a rate was subject to change,120 but that case again is
not applicable to the issue of authorizing retroactive
rate increases under section 206(b). None of these
cases present facts regarding notice and customer expectations that resemble the facts of this case.
5. Revisiting Past Decisions
60. The Commission has noted in this proceeding
that consumers and utilities are unable to revisit decisions based on cost allocations or rate designs in effect
in the past,121 and the Commission has held that this
inability to revisit past decisions is an equitable reason
for denying refunds.122 The court noted this fact in its
Remand Order, but it also stated that, nonetheless,
“[t]he Commission did not identify any particular decisions made by Entergy in reliance on the inclusion of
interruptible load in its cost allocation that in some
119
481 F.3d 794 (D.C. Cir. 2007).
Id. at 801.
121
Order on Remand, 155 FERC ¶ 61,120 at P 28; March
2013 Order, 142 FERC ¶ 61,211 at P 63, n.142.
122
Id.
120
App. 54
way particularly weakened the case for refunds.”123
The Commission explained in the Order on Remand
that the Entergy Operating Companies acted in accordance with standard economic principles and
avoided transactions that would raise their costs. Specifically, their decisions were designed to avoid the additional costs that the inclusion of interruptible load in
the cost allocation created for companies that made interruptible sales.124 This is a necessary conclusion because the central premise of the argument that the
cost allocation was unjust and unreasonable was that
it discouraged sales of interruptible service.
61. The Louisiana Commission maintains that the
Commission’s conclusion regarding Entergy’s inability
to revisit past decisions constitutes a “generic possibility,” and that the D.C. Circuit has taken issue with
such reasoning.125 However, in criticizing the Commission for reliance on generic possibilities, the court’s
central point was that “ ‘past decisions’ in the abstract
cannot be the only factor against refunds,” as “some
amount of reliance [on a rate] is likely to be present
every time the Commission considers ordering refunds.”126 To be clear, we do not make past decisions the
only factor counseling against refunds. As discussed in
this order, we also rely on other factors in finding that
123
Remand Order, 772 F.3d at 1306.
Order on Remand, 155 FERC ¶ 61,120 at PP 34-35.
125
Rehearing Request at 41 (quoting Remand Order, 772
F.3d at 1306).
126
Remand Order, 772 F.3d at 1305-1306 (emphasis in original).
124
App. 55
the equities of this case do not support refunds, including a possibility of underrecovery.
62. There is nothing generic about the Commission’s
finding that Entergy operating companies made decisions to avoid the additional costs that the inclusion of
interruptible load in the cost allocation created for
companies that made interruptible sales. The Louisiana Commission contends that there is no evidence
that the Entergy operating companies acted based on
the incentive described and that it “never attempted to
prove that Entergy ever acted, or did not act, based on
the disincentive.”127 However, the Commission may
reasonably assume that parties do act on the basis of
economic incentives.128 In fact, the Louisiana Commission argued, and the Commission found, that the Entergy cost allocation was unjust and unreasonable
precisely because the operating companies would act
on the basis of economic incentives and including curtailable load as part of the cost allocation sent improper incentives. The conclusion that the rate was
unjust and unreasonable necessarily relies on generally accepted principles regarding economic decision
making, i.e., principles rooted in assumptions about
how persons and companies can be expected to act
when presented with certain facts. Such reasoning is
127
Rehearing Request at 42.
Associated Gas Distributors v. FERC, 824 F. 2d 981, 1009
(D.C. Cir. 1987) (agencies need not prove the “prediction that an
unsupported stone will fall”).
128
App. 56
no less appropriate for explaining decisions by Entergy
operating companies that cannot be revisited.
63. The Louisiana Commission states that “[t]he
Commission finds that Entergy blithely imposed an
uneconomic, artificial disincentive upon itself so that
it would not enter sales that would avoid the need to
build generation that would have lowered rates.”129
There is no basis for such a conclusion. At the time the
initial complaint was filed in this proceeding on March
15, 1995, the System Agreement had included interruptible loads in the calculation of peak load responsibility for 44 years.130 The complaint alleged that
changed circumstances had caused this aspect of the
System Agreement to become unjust and unreasonable, and the Commission initially dismissed the complaint on the grounds that this had not been shown.131
The subsequent complex proceedings in this matter
constitute, in part, a process for determining what the
implications of the provision complained of were. There
is nothing in the record to support the Louisiana Commission’s claim that this Commission has found that
that Entergy blithely imposed an uneconomic, artificial disincentive upon itself. That an action was done
in response to economic incentives that are subsequently shown to be less than optimal does not imply
that the action was done in bad faith. Indeed, it was
not uncommon in the electric power industry to require
129
Rehearing Request at 41.
La. Pub. Serv. Comm’n v. Entergy Corp., Opinioin No. 468,
106 FERC ¶ 61,228, at P 6 (2004).
131
Id.
130
App. 57
transmission payment for interruptible load on the assumption that the system should be designed to support both firm and interruptible load.132 The treatment
of interruptible load in the calculation of peak load,
therefore, was a matter on which reasonable persons
could disagree.133 These facts apply equally to the Louisiana Commission’s argument that “Entergy at all
times had the power to change its own uneconomic tariff to remove any disincentive to acting in the public
interest” through a FPA section 205 filing.134 This argument assumes what had yet to be proven, i.e., that
the provision was not in the public interest.
6. Under-Recovery of Revenues and
Source of Refunds
64. The Louisiana Commission states that the Commission erred in the Order on Remand in finding that
potential litigation at the state level could prevent surcharges and lead to under-recovery in this case. The
Louisiana Commission argues that the finding is in error because in making it the Commission failed to explain its departure from its prior finding that the
Supremacy Clause of the U.S. Constitution would require pass-through of Commission-ordered refunds to
132
Occidental, 110 FERC ¶ 61,378 (finding PJM’s add-back
of interruptible load to determine charges based on coincident
peak was unjust and unreasonable).
133
Opinion No. 468, 106 FERC ¶ 61,228 at PP 60-77.
134
Rehearing Request at 41.
App. 58
retail rates.135 However, the Commission has not departed from that finding. The issue here is whether the
Commission should apply its general policy of not ordering refunds in cost allocation and rate design cases.
As discussed earlier, this policy is based on the Commission’s inability to order surcharges under FPA section 206(b) to ensure that the utility does not
underrecover its revenue requirement. We continue to
find that, as a result, the Entergy system would not be
made whole if the Commission were to require refunds.
65. Moreover, as the Commission discussed in the Order on Remand, there is some question as to whether
Entergy would be able retroactively to recover the cost
of any refunds from departing load. Commission precedent on under-recovery refers to a possibility, not a
certainty, of under-recovery as a basis for denying refunds.136
66. The Louisiana Commission argues that the Commission was incorrect in finding that the source of refunds in this case is unclear given the disappearance
of wholesale load that would have been a source of surcharges. The Louisiana Commission states the source
of refunds is clear, i.e., it is current customers. It states
that this is standard ratemaking practice and that it
has been applied in the Entergy bandwidth cases, as
135
Id. at 45-46 (citing La. Pub. Serv. Comm’n v. Entergy
Corp., 132 FERC ¶ 61,133, at PP 22, 24 (2011)).
136
Occidental, 110 FERC ¶ 61,378 at P 10 (stating that “retroactive implementation of such a rate design might result in an
under-recovery of legitimate costs”); Black Oak, 136 FERC
¶ 61,040 at P 26 (same).
App. 59
well as refunds and surcharges that Entergy imposes
itself for error corrections.137
67. Generally, when the Commission is authorized to
require surcharges, for example when the Commission
is found to have committed legal error or the utility violates the rate on file, the utility seeks those funds
from the customers who paid too little under the prior
rate design or cost allocation.138 While the examples
used by the Louisiana Commission may be used in
some cases with respect to retail load, that fact does
not indicate that retail load in Arkansas needs to subsidize refunds being paid to Louisiana retail load. 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.139
C. Request to Consider New Argument
68. On rehearing, the Louisiana Commission argues
for the first time that the Commission should order
four years of refunds on the grounds that the Commission erred in dismissing its complaint in 1996.140 The
137
Rehearing Request at 47-48.
Panhandle Eastern Pipe Line Co. v. FERC, 95 F.3d 62, 7374 (D.C. Cir. 1996) (Panhandle).
139
Am. Elec. Power Serv. Corp., Opinion No. 311-B, 46 FERC
¶ 61,382, at 62,195 (1989).
140
See La. Pub. Serv. Comm’n v. FERC, 522 F. 3d 378, 398
(D.C. Cir. 2008) (considering refunds under section 206(b) of the
138
App. 60
Louisiana Commission states that when a court of appeals remands a case, the Commission has the authority to reconsider the whole of its original decision.141
The Louisiana Commission goes on to state that, given
this authority, the Commission has “an equitable obligation to correct the harm caused” by its error in dismissing the complaint in 1996.142 The Louisiana
Commission maintains the Commission should “order
that Entergy provide refunds for the period from April
1, 2000 to March 31, 2004,” the date the Commission’s
order in this proceeding became effective.143
69. We deny this request. While the Commission does
have the authority to reconsider its original decision
on remand, the Louisiana Commission failed to make
a filing seeking to broaden the remanded issue to include four years of potential refunds due to the
FPA); La. Pub. Serv. Comm’n v. FERC, 772 F. 3d 1297, 1299 (D.C.
Cir. 2014) (same).
141
Rehearing Request at 10 (citing FPL Energy Marcus
Hook, L.P. v. PJM Interconnection, L.L.C., 123 FERC ¶ 61,289, at
P 22 (2008); Southeastern Mich. Gas Co. v. FERC, 133 F.3d 34, 38
(D.C. Cir. 1998) (Southeastern Mich.); Process Gas Consumers
Group v. FERC, 292 F.3d 831, 834 (D.C. Cir. 2002)).
142
Rehearing Request at 11, 13 (citing Tennessee Valley Municipal Gas Assoc. v. FPC, 470 F.2d 446 (D.C. Cir. 1972) (Tennessee Valley); Exxon Co. U.S.A. v. FERC, 182 F.3d 30 (D.C. Cir.
1999); CAPUC, 988 F.2d 154; Natural Gas Clearinghouse, 965
F.2d 1066; Southeastern Mich. Gas Co. v. FERC, 133 F.3d 34
(1998).
143
Rehearing Request at 11. The Louisiana Commission
computes the four year delay based on the period from August 5,
1996, the date on which the Commission dismissed the complaint,
and August 22, 2000, the date on which the Commission set the
matter for hearing.
App. 61
Commission’s legal error in dismissing the initial complaint until its rehearing of the third remand order.144
This case has been in process for 16 years, through two
prior court remands, and the Louisiana Commission
has failed to raise this argument when it had the opportunity. Indeed, the Louisiana Commission points
out that the section 206(b) refund issue has been
briefed 14 times in the case,145 and rejected the suggestion of further briefing on this remand, asking the
Commission act promptly and issue an order requiring
refunds.146 We, therefore, conclude that the Louisiana
Commission has failed to preserve this issue, and we
decline to re-open the record to consider the issue now.
70. Even if the Louisiana Commission’s request were
appropriate at this time, we deny it on the merits.
When the Commission commits legal error, however, it
144
We reject rehearing requests based on new issues that
could properly have been raised at an earlier stage of the proceeding. Dominion Transmission, Inc., 155 FERC ¶ 61,234, at P 10
(2016) (stating “we reject requests for rehearing that raise a new
issue, unless we find that the issue could not have been previously
presented, e.g., claims based on information that only recently became available or concerns prompted by a change in material circumstances”); Texas Gas Transmission, LLC, 155 FERC ¶ 61,099,
at P 23 (2016) (same); 18 C.F.R. § 385.713 (c)(3) (requiring justification that matters were not available for consideration at the
time of the final decision). See also NO Gas Pipeline v. FERC, 756
F.3d 764, 770 (D.C. Cir. 2014) (stating that “FERC regularly rejects requests for rehearing that raise issues not previously presented where there is no showing that the issue is ‘based on
matters not available for consideration . . . at the time of the final
decision’ ”).
145
Opposition Motion at 1-2
146
Id. at 1.
App. 62
can seek to correct that legal error by requiring refunds and authorizing the utility to seek surcharges to
place the parties in the position in which they would
have been if the error had not occurred.147 The courts
have found that the correction of legal error, including
the retroactive collection of higher rates from some
customers, is justified because the parties would be on
notice from the rehearing petition that the Commission’s order might change.148 The issue here is whether
the Commission should order refunds for the four year
delay occasioned by the Commission’s initial order dismissing the complaint.
71. FPA section 206 does not permit the Commission
to adjust rates retroactively, which the exception of the
15 month refund period provided for in section 206(b).
The statute requires that any action of the Commission must be prospective from the date on which the
Commission establishes the rate “to be thereafter observed and enforced.”149 Moreover, in passing section
206(b), Congress found that any refund under section
147
Southwest Power Pool, Inc., 156 FERC ¶ 61,057 (2016);
Black Oak Energy, L.L.C. v. PJM Interconnection, L.L.C., 153
FERC ¶ 61,231 (2015). See Panhandle, 95 F.3d 62, 73-74 (D.C.
Cir. 1996); Panhandle Eastern Pipe Line Co. v. Mich. Consol. Gas
Co., 937 F. Supp. 641, 646 (E.D. Michigan 1996) (finding an obligation to pay based on the parties’ contractual relationship and
15 U.S.C. § 717u providing courts with jurisdiction over “ . . . all
suits . . . brought to enforce any liability or duty created by . . .
any . . . order thereunder”); Panhandle Eastern Pipe Line Co. v.
Utilicorp United Inc., 928 F. Supp. 466, 472 (D. Delaware 1996)
(finding an obligation under 15 U.SC. § 717u).
148
Transcontinental, 54 F.3d at 899.
149
16 U.S.C. § 824e(a).
App. 63
206 be limited to 15 months; Congress made no distinction based on the length of the proceeding.
72. The Louisiana Commission argues that Tennessee Valley governs this situation and requires the Commission to reach back four years from the date of the
order making the revised rate effective and require refunds for the delay that the Commission’s initial order
dismissing the complaint caused. In Tennessee Valley,
the Federal Power Commission dismissed a complaint
under section 5(a) of the NGA claiming that existing
rates for natural gas were excessive on the grounds
that the record was too stale to form the basis for a
prospective ruling, and also because it appeared highly
conjectural that initiation of a new section 5 proceeding at that time would be in the public interest. One
hundred twelve days later, the Commission vacated
the dismissal, reopened the proceedings, and established a hearing to update the record and compile figures for a more recent test period.150
73. The court found that the Commission had come
“very close to an admission that it did err in refusing
to order reopening and updating, of an admittedly stale
record.” Based on what the court found to be the Commission’s illegal action,151 it “command[ed]” that the
Commission provide retroactive relief to put the complainant in the same position it would have occupied if
the Commission had acted 112 days earlier.152 The
150
Tennessee Valley, 470 F.2d at 449-450.
Id. at 452.
152
Id. at 453.
151
App. 64
court essentially required that the Commission assume that all stages of the proceeding remained constant, so that the resulting order would have occurred
112 days earlier without the legal error.
74. This proceeding is not similar to Tennessee Valley.
Here, the Commission did not itself recognize relatively quickly that it committed error. The court’s initial remand found only that the Commission had failed
to justify its order dismissing the complaint in light of
precedent, and it permitted the Commission to provide
an alternate dismissal of the complaint based on a reasoned explanation. The fact that the Commission instead chose to establish a section 206 hearing does not
reveal a legal error of the type the court found dispositive in Tennessee Valley. Moreover, there is a vast difference between the Commission’s correction of its own
error in 112 days and the 1,460 days of retroactive relief requested here. With a four-year time delay, it is
difficult to assume that the case timing would have remained constant and that the proceeding would have
taken the same path and reached the same conclusion
that it would have if it had begun four years earlier.
The additional four years provides an opportunity for
parties to update the record and Commission jurisprudence itself can change, and has sometimes dramatically changed, over a four-year period. All of this may
influence the outcome of the Commission order on remand.153
153
SeeOpinion No. 468, 106 FERC ¶ 61,228, at P 69 (relying
on data from the year 2000). The Commission’s precedent also
App. 65
75. While the Commission’s initial dismissal of the
complaint contributed to the delay, section 206(b) proceedings can and often do last for extended periods of
time due to a variety of factors, and customers are not
protected from excessive charges during that period,
with the potential exception of the 15-month refund
period provided for in section 206(b).154 In addition,
while one could argue that parties had notice that the
Commission’s dismissal of the complaint might be
overturned, there was no notice as to when during the
period of appeal and remand their transactions might
be subject to correction. As the court in CAPUC
changed during this time period. For example, in 2002, prior to
Opinion No. 468, the Commission found that adding back curtailed interruptible load to a system peak was unjust and unreasonable because adding interruptible load is inconsistent with the
underlying rationale for allocating costs based on a system peak,
and it would create a disincentive for customers to implement a
load response program on their own systems because they will be
charged for system costs regardless of whether they curtail load
during system peaks. Occidental Chem. Corp. v. PJM Interconnection, L.L.C., 101 FERC ¶ 61,005 (2002), reh’g denied, 102
FERC ¶ 61,275 (2003). After a voluntary remand, however, the
Commission determined, as it did here, that retroactive refunds
should not be permitted because ordering refunds would result in
the transmission owners being unable to recover their legitimately incurred costs and because they could not alter decisions
made in reliance on the previously accepted rate design. Occidental, 110 FERC ¶ 61,378.
154
Cf. Atlantic Refining Co. v. Public Service Commission of
NY, 360 U.S. 378, 389 (1959) (stating that purchasers “have no
protection from excessive charges collected during the pendency
of a § 5 proceeding”).
App. 66
recognized, at some point the notice required to correct
legal error becomes “more atmospheric than explicit.”155
76. While other cases cite Tennessee Valley for the
proposition that the Commission can act retroactively
to correct its legal error, none of the other cases that
the Louisiana Commission cites utilize a hypothetically created effective date, much less one that is four
years earlier. Other decisions indicate that for a remedy to be prospective, the starting date for the remedy
must be determined by the date on which the Commission has found the rate or practice to be unjust and unreasonable. In Office of Consumers’ Counsel v. FERC,156
the court affirmed the Commission’s finding that certain pipeline practices were imprudent under NGA
section 5, but it found that the Commission erred in
failing to impose a remedy for these violations. On remand, the Commission did not impose a retroactive
remedy, contending that because NGA section 5 is prospective, the Commission could not determine what
remedies to impose for the pipeline’s section 5 violations until it first held a hearing to determine whether
155
CAPUC, 988 F.2d at 164. In other cases involving correction of legal error, the determination of the period over which refunds, and particularly surcharges, would be owed is not so
indeterminate. In cases under NGA section 4 or FPA section 205,
parties have clear notice when the disputed rate design or cost
allocation takes effect. See Transcontinental, 54 F.3d 893 (date on
which the pipeline initiated service); Natural Gas Clearinghouse,
965 F.2d 1066 (date on which rate took effect subject to notice).
CAPUC, 988 F.2d at 164.
156
826 F.2d 1136 (D.C. Cir. 1987).
App. 67
those violations continue at the present time. The
court, however, determined that the Commission had
misinterpreted the statutory language and that the
prospective nature of the act would be honored as long
as the Commission imposed remedies for the section 5
violations it had found as of the date of its opinion finding the violation.157 In contrast, in this proceeding, it
was not until Opinion No. 468, i.e., March 8, 2004, that
the Commission ruled Entergy’s inclusion of interruptible service in allocating costs was unjust and unreasonable.
77. Moreover, the courts have recognized that, in correcting legal error, the Commission not only can authorize refunds to customers that paid too much, but
also authorize the pipeline or public utility to surcharge those customers that may have paid too little.158
While the Louisiana Commission requests four years
of refunds, it does not address whether the cost of those
refunds could be recovered through retroactive surcharges and to whom. As discussed earlier, the ability
of Entergy Arkansas retroactively to recover through
surcharges the 15 months’ worth of refunds is in
157
Id. at 1139 (agreeing with the interpretation that a remedy imposed as of the date of the Commission opinion finding a
violation is a prospective remedy within the meaning of section
5).
158
See Panhandle, 95 F.3d 62, 73-74 (authorizing the Commission to surcharge customers that no longer shipped on the
pipeline); Transcontinental, 54 F.3d at 899 (finding that the Commission could correct its legal error by allowing the pipeline to
retroactively put into effect a rate design resulting in refunds to
some customers and surcharges to others).
App. 68
question. Collection of over four years would be even
more problematic, as are the customers’ inability to revisit their past decisions.
78. In exercising our discretion as to whether to order
refunds, we find for all the foregoing reasons that, under the facts of this case, refunds should not be paid for
the hypothetical period starting four years earlier than
the Commission’s decision in Opinion No. 468.
The Commission orders:
The Louisiana Commission’s requests for rehearing and for consideration of a new argument are denied, as discussed in the body of this order.
By the Commission. Commissioner Honorable is not
participating.
(SEAL)
Nathaniel J. Davis, Sr.,
Deputy Secretary.
App. 69
155 FERC ¶ 61,120
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Norman C. Bay, Chairman;
Cheryl A. LaFleur, and
Tony Clark.
Louisiana Public Service
Commission and the Council
of the City of New Orleans
v. Entergy Corporation
Docket Nos. EL00-66-019
Louisiana Public Service
Commission v. Entergy
Services, Inc.
EL95-33-013
ORDER ON REMAND
(Issued April 29, 2016)
1. In response to a petition for review of a Commission order issued on March 21, 2013 in this proceeding,1 the United States Court of Appeals for the
District of Columbia Circuit (D.C. Circuit) issued an order on December 5, 2014 remanding the matter, in
part, to the Commission for further proceedings.2 At issue is the Commission’s reasoning in denying refunds
in the March 2013 Order. The court found that the line
of precedent that the Commission relied on in denying refunds involved rationales that the Commission
1
La. Pub. Serv. Comm’n v. Entergy Corp., 142 FERC ¶ 61,211
(2013) (March 2013 Order).
2
La. Pub. Serv. Comm’n v. FERC, 772 F.3d 1297 (D.C. Cir.
2014).
App. 70
concluded were not present here. The court also found
that the existence of the equitable factor that the Commission identified in denying refunds is unclear and
that the Commission inadequately explained its relevance. The court instructed the Commission to consider on remand the relevant factors for ruling on the
question of refunds, to weigh the relevant factors
against one another, and to strike a reasonable accommodation among them.3 In this order, we clarify our
policy on refunds and find that refunds should be denied in this case.
I.
Background
2. This proceeding began on March 15, 1995, when
the Louisiana Public Service Commission (Louisiana
Commission) filed a complaint alleging that certain
cost allocation calculations by Entergy Services, Inc.
(Entergy) under the Entergy System Agreement (System Agreement) were unjust and unreasonable and
seeking revision of the System Agreement to exclude
interruptible load from the calculation of peak load responsibility.4 The Commission issued an order finding
that including interruptible load in such calculations
3
Id. at 1306.
Under the System Agreement, Entergy had included interruptible load when calculating an Operating Company’s (Operating Company) peak load responsibility if the Operating Company
was serving interruptible load at the time of the Entergy System
peak. The bulk of the interruptible load on the Entergy System is
located in Louisiana, and the inclusion of interruptible load in the
calculation of peak load responsibility therefore tended to increase the share of costs allocated to Louisiana’s customers.
4
App. 71
was reasonable, noting that the System Agreement
had included interruptible load in the calculation of
peak load responsibility since the parties entered into
the System Agreement in 1951.5
3. However, on appeal, the D.C. Circuit found that
the Commission had failed to explain its departure from
certain Commission precedent, including, in particular, Kentucky Utilities Company.6 Kentucky Utilities involved the Commission’s rejection of the inclusion of
interruptible load in allocating capacity costs since the
utility, by interrupting supply, could keep the interruptible customer from imposing demand on the system during peak periods and could thus control its
capacity costs. The court directed the Commission either to adhere to the principles that it had articulated
in Kentucky Utilities or to provide a reason for including interruptible load in the allocation of capacity
costs.7
4. On remand, the Commission held in Opinion No.
468 that Entergy must exclude interruptible load from
its computation of peak load responsibility used to allocate certain costs among the Operating Companies
5
La. Pub. Serv. Comm’n v. Entergy Serv., Inc., 76 FERC
¶ 61,168, at 61,955 (1996), reh’g denied, 80 FERC ¶ 61,282 (1997).
6
Opinion No. 116, 15 FERC ¶ 61,002, reh’g denied, Opinion
No. 116-A, 15 FERC ¶ 61,222 (1981) (Kentucky Utilities).
7
La. Pub. Serv. Comm’n v. FERC, 184 F.3d 892, 897, 900
(D.C. Cir. 1999).
App. 72
under the System Agreement.8 The Commission also
held that the new allocation method could be phased
in over 12 months and that while the existing cost allocation had resulted in unjust and unreasonable
rates, section 206(c) of the Federal Power Act (FPA)
precluded refunds for the 15-month period following
the filing of the complaint (refund period).9
5. On appeal of Opinion No. 468, the D.C. Circuit
held, inter alia, that the Commission had failed to explain sufficiently why FPA section 206(c) barred refunds in this case, and remanded that issue “for a more
considered determination.”10 In its subsequent order,
8
La. Pub. Serv. Comm’n v. Entergy Corp., Opinion No. 468,
106 FERC ¶ 61,228 (2004), reh’g denied, Opinion No. 468-A, 111
FERC ¶ 61,080 (2005).
9
The refund period runs from May 14, 1995 through August
13, 1996. 16 U.S.C. § 824e(c) (2012). Section 206(c) provides that
in a proceeding under section 206 involving two or more electric
utility companies of a registered holding company system
refunds, in whole or in part, may be ordered by the
Commission if it determines that the registered holding company would not 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.
Entergy was a registered holding company during the refund
period.
10
La. Pub. Serv. Comm’n v. FERC, 482 F.3d 510, 520 (D.C.
Cir. 2007).
App. 73
the Commission determined that refunds were both legal and appropriate, and it ordered that they be paid.11
6. The Arkansas Public Service Commission (Arkansas Commission) and Entergy appealed this decision
to the D.C. Circuit.12 However, on June 24, 2009, in response to a Commission motion, the court remanded
the refund issue so that the agency could address it
more fully.
7. On August 13, 2010, the Commission issued an
amended order on remand holding that: (1) the Commission was authorized to order refunds in this case in
spite of the strictures of section 206(c) of the FPA; and
(2) the Commission was ordering refunds pursuant to
its discretionary remedial authority.13 In ordering refunds, the Commission explained that it has a policy of
granting full refunds to correct unjust and unreasonable rates and that “[t]he only issue is whether Arkansas/Mississippi and Entergy have demonstrated any
reason here for the Commission to deviate from its policy of granting full refunds.”14 The Commission held
that they had not demonstrated such a reason, and it
further explained that “there is no doubt that Entergy’s inclusion of interruptible load affected the Operating Companies’ cost of service, led to an overcharge
11
La. Pub. Serv. Comm’n v. Entergy Corp., 120 FERC ¶ 61,241,
at P 8 (2007), reh’g denied, 124 FERC ¶ 61,275 (2008).
12
Ark. Pub. Serv. Comm’n v. FERC, Nos. 08-1330, et al. (D.C.
Cir. October 14, 2008).
13
La. Pub. Serv. Comm’n v. Entergy Corp., 132 FERC
¶ 61,133 (2010) (August 2010 Remand Order).
14
Id. P 31.
App. 74
to Louisiana customers, and resulted in unjust and unreasonable rates.”15 In addition, the Commission held
that this was not a rate design case where customer
usage patterns are relevant, but rather involved misallocation of costs, so that one group of customers was
paying too much, while others paid too little. The Commission found that, under the facts of the case, it did
not consider the length of time since the complaint was
filed to be a relevant factor “one way or the other” in
whether refunds were warranted.16
8. On June 9, 2011, the Commission issued an order
granting, in part, rehearing of the August 2010 Remand Order, affirming its interpretation of FPA section 206(c), but now invoking its equitable discretion
to deny refunds in accordance with Commission precedent denying refunds in cost allocation and rate design
cases.17 The Commission determined that the Entergy
system as a whole collected the proper level of revenue,
but that Entergy incorrectly allocated peak load responsibility among the various Entergy Operating
Companies, and that Entergy therefore did not engage
in an over-collection of revenue that would justify refunds.18 The Commission explained that it would
therefore “apply here our usual practice in such cases,
invoking our equitable discretion to not order refunds,
15
Id. P 32.
Id.
17
La Pub Serv. Comm’n v. Entergy Corp., 135 FERC
¶ 61,218, at P 25 (2011).
18
Id. P 24.
16
App. 75
notwithstanding our authority to do so.”19 As a result,
the amounts previously refunded were reversed on
July 5, 2011.20
9. On July 11, 2011, the Louisiana Commission filed
a request for rehearing that challenged the Commission’s finding that refunds were not warranted. On
March 21, 2013, the Commission issued an order denying rehearing and upholding its decision to deny
refunds. The Commission stated that all parties recognized that this case involves an improper allocation of
costs among the Operating Companies. In addition, the
Entergy System as a whole did not recover an amount
in excess of its cost of service, and there had been no
violation of a tariff or filed rate.21 The Commission thus
found that it was appropriate to follow its general practice of finding that new cost allocations or rate designs
that do not reflect over-recoveries or other special circumstances will run prospectively from the date of the
issuance of the order, and that as a result it would not
order refunds.22
10. The Commission stated that it has broad equitable discretion in determining whether and how to apply remedies,23 and that in exercising this discretion it
19
Id.
See July 20, 2011 Amended/Corrected Refund Report of
Entergy Services, Inc. in Docket No. EL00-66-012 at p. 2.
21
March 2013 Order, 142 FERC ¶ 61,211 at P 50.
22
Id. P 51.
23
Id. P 53 (citing Niagara Mohawk Power Corp. v. FPC, 379
F.2d 153, 159 (D.C. Cir. 1967) (noting that the Commission’s breadth
of discretion is “at its zenith” when fashioning remedies)).
20
App. 76
had drawn a distinction between rate design and cost
allocation cases, on the one hand, for which refunds are
generally not ordered, and cases involving over-recovery, for which refunds are generally ordered.24
11. The Commission stated that refunds are not ordered in rate design and cost allocation cases for two
reasons. First, refunds would potentially result in under-recovery in such cases, and second, a different allocation would have resulted in a different decision by
consumers or the utility had it been instituted at the
time of the facts at issue, but it is simply too late to
alter the result. The Commission stated that these considerations do not exist in over-recovery cases.25
12. The Commission concluded that its precedent
denying refunds in rate design and cost allocation
cases should apply in this proceeding. It stated:
. . . we view the issues of inclusion or exclusion
of interruptible load in allocating costs as a
demand allocation dispute, rather than a case
of cost over-recovery. And the allocation of
demand-related reserve costs under [the applicable System Agreement provision] is a
zero-sum game in which the Entergy System
receives no excess revenues. There is no dispute as to the appropriate level of production
capacity costs and revenues subject to the demand allocator at issue in this proceeding,
24
Id. P 54 (citing Black Oak Energy, L.L.C. v. PJM Interconnection, L.L.C., 136 FERC ¶ 61,040, at P 25 (2011) (Black Oak),
reh’g denied, 139 FERC ¶ 61,111 (2012)).
25
Id. P 55.
App. 77
only their apportionment among the Operating Companies.26
13. The Commission stated that the danger of underrecovery of costs is not present in this case based on
the Commission’s earlier finding that state retail proceedings would not block recovery of the costs of surcharges at the retail level.27 However, the Commission
also found that an equitable ground disfavoring refunds is the fact that Entergy cannot review and revisit past decisions were the Commission to order a
refund. The Commission noted that it had previously
found that when dealing with affiliated operating companies within a holding company context, refunds may
not be appropriate because system operating decisions
cannot be revisited and redone.28
14. The Louisiana Commission petitioned the D.C.
Circuit for review of the March 2013 Order, and the
D.C. Circuit remanded the matter to the Commission
for further proceedings on the issue of refunds. In its
remand order, the court agreed with the Louisiana
Commission that “the Commission ‘did not reasonably
explain the departure’ from its ‘general policy’ of ordering refunds when consumers have paid unjust and unreasonable rates.”29 The court stated that while the
26
Id. P 61 (internal citations omitted).
March 2013 Order, 142 FERC ¶ 61,211 at PP 62-63 (citing
August 2010 Remand Order, 132 FERC ¶ 61,133 at P 26).
28
Id. P 63 (citing Southern Co. Servs., Inc., 64 FERC
¶ 61,033, at 61,332 (1993) (Southern Co.)).
29
La. Pub. Serv. Comm’n v. FERC, 772 F.3d at 1303 (internal citations omitted).
27
App. 78
Commission had argued that it had relied on a different “general policy” in which refunds are denied in
both cost allocation and rate design cases, “[i]n fact, the
Commission’s decisions have relied on specific factors
rather than such a broad policy.”30 The court noted that
the Commission had awarded refunds in cost allocation decisions where the utility had over-recovered or
had violated the filed rate.31 The court stated that decisions denying refunds have generally involved the
possibility of under-recovery.32
15. The court stated that a further problem with the
Commission’s reasoning is that the equitable factors it
relied on in previous refund denials were largely absent in this case. The court stated that the Commission
had not mentioned here many of the reasons for denying refunds it had given in the past.33 The court noted
that the Commission based its denial of refunds in this
case on two considerations: the lack of over-recovery by
30
Id. at 1303.
Id. at 1303-1304 (citing March 2013 Order, 142 FERC
¶ 61,211 at PP 65, 69, 73 (citing Nantahala Power and Light Co.,
19 FERC ¶ 61,152, at 61,280 (1982) (over-recovery); Blue Ridge
Power Agency v. Appalachian Power Co., 58 FERC ¶ 61,193, at
61,603 (1992) (filed rate violation))).
32
Id. at 1304 (citing Black Oak, 136 FERC ¶ 61,040 at P 28;
Occidental Chemical Corp. v. PJM Interconnection, LLC, 110 FERC
¶ 61,378, at P 10 (2005) (Occidental)).
33
Id. (noting that the Commission had given as possible reasons for denying refunds consumers’ inability to revisit past decisions,
detrimental effects on organized markets, different generations of
consumers paying the surcharges and receiving the past benefits,
and the complication and cost of rerunning markets, but the Commission did not apply them here).
31
App. 79
Entergy and Entergy’s inability to review and revisit
past decisions, but the court ruled that neither consideration carries the Commission’s burden of reasoned
explanation or ties this case to the long-standing refund policy.34 The court stated that the Commission did
not explain why the absence of over-recovery “should
automatically negate refunds,” and the Commission
neither identified any specific past decisions that Entergy could not revisit, nor explained why that fact was
more significant in this case than in other decisions
in which the Commission orders refunds.35 The court
stated that invoking Commission policy on refunds did
not eliminate the need to consider the fact that an unjust and unreasonable cost allocation had caused consumers in Louisiana to pay their utility companies too
much and consumers in other states to pay too little
and that refunds, if ordered, would transfer a subset of
the total overpayment to Entergy’s Louisiana operating companies from its other operating companies.36
16. Finally, the court criticized the Commission’s conclusion that Entergy’s inability to review and revisit
past decisions made in reliance on pricing in effect
at the time constituted “an equitable ground disfavoring refunds.”37 The court stated that some amount of
reliance will likely be present every time the Commission considers ordering refunds, and therefore “ ‘past
34
Id.
Id.
36
Id. at 1305.
37
Id. (quoting March 2013 Order, 142 FERC ¶ 61,211 at P
35
63).
App. 80
decisions’ in the abstract cannot be the only factor
against refunds,” as “the same factor is present whenever the Commission does order refunds.”38 The court
stated that the Commission did not identify any particular decisions that Entergy made “in reliance on the
inclusion of interruptible load in its cost allocation that
in some way particularly weakened the case for refunds.”39
II.
Discussion
17. In remanding this case to the Commission, the
court agreed with the Louisiana Commission that “the
Commission ‘did not reasonably explain the departure’
from its ‘general policy’ of ordering refunds when consumers have paid unjust and unreasonable rates.”40
However, as explained further below, this description
of the Commission’s refund policy under the FPA is
based on statements made by the Commission in this
proceeding that do not accurately represent that policy
as both the Commission and the courts have described
it in the past. Thus to fulfill the task the court has set
for us on remand, it is necessary first to explain why
this description of Commission policy under the FPA is
inaccurate and then to explain the Commission’s longestablished approach to refunds under the FPA.
18. On reflection, certain references to the Commission’s “general policy” on refunds in this proceeding fail
38
Id. at 1305-1306 (emphasis in original).
Id. at 1306.
40
Id. at 1303 (quoting Petitioner’s Brief at 48).
39
App. 81
to accurately describe the scope of that policy. In fact,
only two Commission orders, both of which have been
issued in this proceeding, refer to a general policy of
ordering refunds when consumers have paid unjust
and unreasonable rates.41 Moreover, the Commission
described its refund policy – in hindsight imprecisely –
in these terms in only one of these orders, with the
cases it cited in doing so all referring, in fact, to a
narrower policy of awarding refunds as a remedy for
utility overcharges that result in the over-collection of
revenue.42 In the other order, the Commission only
noted that the Louisiana Commission had stated that
“Commission and D.C. Circuit decisions have recognized that the Commission has a general policy requiring refunds for unjust and unreasonable rates.”43 The
Commission did not accept this description, however,
and it went on in the order to describe in considerable
detail how its approach to refunds was made up of two
41
August 2010 Remand Order, 132 FERC ¶ 61,133 at P 31;
March 2013 Order, 142 FERC ¶ 61,211 at P 34.
42
August 2010 Remand Order, 132 FERC ¶ 61,133 at P 31,
n.62. The Commission does refer at this point in the August 2010
Remand Order to Westar Energy, Inc. v. FERC, 568 F.3d 985
(2009) (Westar) as supporting a “policy,” although not a “general
policy,” of refunds in cases of unjust and unreasonable rates.
However, Westar concerns refunds on sales by two wholesale
sellers who possessed market power at the point of sale. An exercise of market power allows the entity exercising that power to
receive a higher price than would prevail under competitive market conditions. As a result, Westar should be viewed as a variant
of the Commission’s policy on refunds in over-collection cases.
43
March 2013 Order, 142 FERC ¶ 61,211 at P 34; see also id.
P 39.
App. 82
separate lines of precedent, each of which applies to
different types of fact patterns.44
19. The situation is the same with the courts. With
the exception of the statement by the court in remanding this matter quoted above, no court has ascribed to
the Commission a general policy of ordering refunds
whenever consumers have paid unjust and unreasonable rates. Descriptions of the Commission’s refund
policy under the FPA by the courts have generally referred to specific types of fact patterns, with refunds
being ordered or not ordered in a particular case depending on the fact pattern presented in that case. Indeed, in remanding this matter, the court stated that
in dealing with refunds, “the Commission’s decisions
have relied on specific factors rather than such a broad
policy,”45 an observation that correctly captures Commission practice.
20. In short, notwithstanding the statements made
by the Commission in this proceeding that indicated to
the contrary, the Commission has never enunciated a
single, general policy on refunds that applies to all
instances where it has found rates to be unjust and
unreasonable under the FPA. The Commission’s approach to refunds has instead been shaped by the way
certain equitable considerations are typically associated with certain specific fact patterns. The term “general policy” does appear in Commission discussions of
refunds, but it has not been used to refer to a broad
44
45
Id. PP 54-60.
La. Pub. Serv. Comm’n v. FERC, 772 F.3d at 1303.
App. 83
policy that applies to refunds generally. Instead, it is a
term that has always been associated with one specific
factor that the Commission has considered when dealing with refunds, i.e., the presence or absence of overcharges that result in over-collection of revenue by
the utility.46 This can be seen by examining the origin
of references to a Commission “general policy” on refunds.
21. The earliest reference to a general policy on refunds appears to be Towns of Concord, Norwood, and
Wellesley, Mass. v. FERC.47 In that case, the court refers
to “[t]he Commission’s general policy of granting full
refunds.”48 However, the statement, by itself, is incomplete, as it does not indicate when or how the policy is
applied. The court in Towns of Concord supports its reference to a general policy by citing Illinois Power Co.,49
46
See Consol. Edison Co. of New York, Inc. v. FERC, 347 F.3d
964, 972 (D.C. Cir. 2003) (stating that the Commission has a
“ ‘general policy of granting full refunds’ for overcharges” (internal citations omitted); Entergy Serv., Inc., 82 FERC ¶ 61,098, at
61,369 (1998) (stating that “the Commission’s general policy is to
order refunds to remedy overcharges”), aff ’d, 174 F.3d 218 (D.C.
Cir. 1999) (stating that “the Commission’s self-described general
policy is to provide refunds to remedy overcharges”); Corporation
Comm’n of the State of Oklahoma v. American Electric Power Co.
Inc., 125 FERC ¶ 61,237, at P 33 (2008) (stating that “the Commission’s general policy is to order refunds for overcharges”).
47
955 F.2d 67, 75 (D.C. Cir. 1992) (Towns of Concord).
48
Id. at 76.
49
Illinois Power Co., 52 FERC ¶ 61,162, at 61,625 (1990) (Illinois Power).
App. 84
and to ascertain the content of the policy the court was
referring to, one must consider that case.
22. In Illinois Power, Illinois Power Company (Illinois Power) sought approval to recover, through its fuel
adjustment clause, amounts that it had paid to obtain
releases from certain coal supply and transportation
contracts. The Commission’s regulations specified the
types of costs or charges that were eligible for recovery
through a fuel adjustment clause, and the regulations
also specified that a waiver was required to recover
any other costs in this way. The Commission found that
a waiver was required to pass contract buyout costs
through a fuel adjustment clause, and Illinois Power
had not obtained one.50 The Commission found that as
a result, Illinois Power had overcharged its customers,
i.e., collected unauthorized charges, and the Commission thus directed it to refund to customers the contract buyout costs it had recovered.51
23. Towns of Concord also dealt with costs passed
through a fuel adjustment clause, in that instance
costs associated with the disposal of spent nuclear fuel.
The Commission had sought to address confusion that
changes in national policy on spent nuclear fuel had
created concerning recovery of disposal costs for such
fuel through fuel adjustment clauses.52 In connection
with these efforts, the Commission had urged utilities that had improperly collected spent nuclear fuel
50
Id. at 61,623.
Id. at 61,621.
52
Towns of Concord, 955 F.3d at 69-70.
51
App. 85
disposal costs through their fuel adjustment clauses to
come forward. As part of this process, the Commission
promised that any utility that did come forward would
not have to make refunds if it could satisfy a four-part
test designed to ensure that the company was not “unjustly enriched by the improper collection” and if denying refunds would not otherwise be contrary to the
public interest.53 Boston Edison Company had met
these requirements, and some of its customers objected
to the absence of refunds.54 On appeal, the court held
that the Commission’s authority to award refunds was
discretionary, that the Commission had appropriately
justified its discretionary action of withholding refunds in this case, and that otherwise “[t]he Commission’s general policy of granting full refunds” as stated
in Illinois Power, “remains in effect.”55
24. The policy in question has, of course, not been limited to cases involving fuel adjustment clauses, but
it has been limited to cases involving utility overcollection.56 It is described as a “general policy” because
53
Id. at 70.
Id. at 72.
55
Id. at 76 (citing Illinois Power, 52 FERC ¶ 61,162, at
61,625).
56
See, e.g., Consol. Edison Co. of New York, Inc. v. FERC, 347
F.3d 964, 972 (stating that the Commission has a “ ‘general policy
of granting full refunds’ for overcharges” and citing as support
Towns of Concord, 955 F.2d at 76) (Con. Ed.); Corporation Comm’n
of the State of Oklahoma v. Am. Elec. Power Co., 125 FERC
¶ 61,237 at P 33 (stating that “the Commission’s general policy is
to order refunds for overcharges” and citing to language in Con.
Ed. supported by Towns of Concord); see also Central Power and
54
App. 86
it is a policy that applies generally to cases of utility
over-collection, but the Commission has never treated
it as a policy that encompasses all cases involving unjust and unreasonable rates.57
25. The Commission takes a different approach when
addressing refund requests in cases where a cost allocation or rate design has been found to be unjust and
unreasonable. Specifically, “in a case where the company collected the proper level of revenues, but it is
later determined that those revenues should have been
allocated differently, the Commission traditionally has
declined to order refunds.”58
Light Co., 97 FERC ¶ 61,157, at 61,698, n.24 (2001); Ameren
Corp., 147 FERC ¶ 61,225, at P 28, n.39 (2014).
57
Black Oak, 136 FERC ¶ 61,040 at P 25 (stating that
“[w]hen a case involves a company overcollecting revenues to
which it was not entitled, the Commission generally holds that
the excess revenues should be refunded to customers”).
58
Id.; see also Portland Gen. Elec. Co., 106 FERC ¶ 61,193,
at P 5 (2004) (accepting rate design change on a prospective basis); Consumers Energy Co., 89 FERC ¶ 61,138, at 61,397 (1999)
(same); Union Elec. Co., 58 FERC ¶ 61,247, at 61,818 (1992) (Union Elec.) (same); Commonwealth Edison Co., 25 FERC ¶ 61,323,
at 61,732 (1983) (Comm. Ed.); accord Second Taxing Dist. of City
of Norwalk v. FERC, 683 F.2d 477, 490 (D.C. Cir. 1982) (Norwalk)
(affirming determination to make rate design changes prospective
only); Cities of Batavia v. FERC, 672 F.2d 64 (D.C. Cir. 1982) (Batavia) (same)); Occidental, 110 FERC ¶ 61,378 at P 10 (stating
that the “Commission’s longstanding policy is that when a Commission action under Section 206 of the FPA requires only a cost
allocation change, or a rate design change, the Commission’s order will take effect prospectively”); Commonwealth Edison Co, 8
FERC ¶ 61,277, at 61,844 (1979) (stating that “any change of rate
form due to modification in the demand ratchet or in the form of
energy charging . . . should not be given effect in computing
App. 87
26. To explain why this distinction exists, it is necessary to consider briefly the nature of the Commission’s
refund authority. This authority is discretionary, and
refund decisions are to be guided by equitable principles. The courts have held that
[c]ustomer refunds are a form of equitable relief, akin to restitution, and the general rule is
that agencies should order restitution only
when money was obtained in such circumstances that the possessor will give offense to
equity and good conscience if permitted to retain it.59
27. In short, the basic consideration in ruling on refunds is one of fairness. From this perspective, the
Commission’s practice of awarding refunds in overcollection cases is readily explainable. If a utility has
collected revenues from its customers that it is not entitled to under its tariff, fairness dictates that the excess revenues should be refunded to customers. On the
other hand, in cases where a cost allocation or rate design has been found unjust and unreasonable, but
where no over-collection of revenue has occurred, other
factors come into play.
refunds, if any, due under this decision” because the utility “cannot retroactively collect more from any customer than has already
been collected subject to refund, even though a redesigned rate
presumably would show some customers should be charged more
and others less than under the rates in effect subject to refund”).
59
Towns of Concord, 955 F.3d at 75 (internal quotation
marks omitted).
App. 88
28. If the utility collected no more than it was entitled to, refunds would potentially result in underrecovery. This “would be unfair because it would result
in a loss of revenue from the reallocation when the utility would not have the opportunity to file a new rate
case to recover those revenues.”60 In addition, in cost
allocation and rate design cases, a different cost allocation or rate design could have led to different
decisions by consumers or a utility, including utility
operating companies within a holding company system,61 but it is now too late to alter the decisions that
were in fact made.62 In other words, retroactive implementation of the new rate may be unfair to utilities or
customers who cannot alter their past purchase or sale
decisions in light of that new rate.63
29. We now turn to the application of these considerations to this proceeding. We begin with the Commission’s finding in the March 2013 Order that “we
view the issues of inclusion or exclusion of interruptible load in allocating costs as a demand allocation dispute, rather than a case of cost over-recovery.”64 The
Commission went on to say that there “is no dispute as
60
Black Oak, 136 FERC ¶ 61,040 at P 26; see also Occidental,
110 FERC ¶ 61,378 at P 10; Union Elec., 58 FERC ¶ 61,247 at
61,818.
61
See Southern Co., 64 FERC ¶ 61,033 at 61,332 (denying
refunds in part because “operational decisions made while the operating companies’ proposed cost classification was in effect, and
thus made in reliance on that classification, cannot be undone”)
62
Comm. Ed., 25 FERC ¶ 61,323 at 61,732.
63
See, e.g., Union Elec. Co., 64 FERC ¶ 61,355, at 63,468 (1993).
64
March 2013 Order, 142 FERC ¶ 61,211 at P 61.
App. 89
to the appropriate level of production capacity costs
and revenues subject to the demand allocator at issue
in this proceeding, only their apportionment among
the Operating Companies.”65 Indeed, the Louisiana
Commission initiated this proceeding by arguing that
changed circumstances had made the cost allocation
under the Entergy System Agreement unjust and unreasonable and that the System Agreement should be
modified as a result. Specifically, the Louisiana Commission stated that its
Complaint seeks revision of the Entergy System Agreement, because due to changed circumstances, the terms of that agreement are
unjust and unreasonable, and because the
rough equalization previously established . . .
for the Entergy System has been upset. Specifically, the absence of any provision excluding curtailable load from the determination
of a company’s load responsibility under the
65
Id.; see also id. P 50. In response to the court’s comments
on the significance the Commission attributed to the absence of
over-recovery, see La. Pub. Serv. Comm’n v. FERC, 772 F.3d at
1304, we note that the absence of over-recovery is not an independent reason for denying refunds. It is, however, a precondition
for applying Commission precedent on refunds in cost allocation
cases. As the court noted, the Commission has awarded refunds
in cost allocation cases where the utility did over-recover revenues, id. at 1303-04, as the presence of over-recovery eliminates
the primary grounds for denying refunds in cost allocation and
rate design cases, namely the possibility of under-recovery and
unfairness resulting from retroactive implementation of a new
rate. If over-recovery has occurred, refunds of the excess amounts
will not cause under-recovery, and fairness dictates that the excess amounts be refunded.
App. 90
System Agreement results in an unjust and
unreasonable cost allocation. . . . The inclusion of curtailable loads in calculating load responsibilities artificially penalizes individual
companies for engaging in sales that benefit
the System as a whole, creating an unreasonable disincentive to economic transactions.66
30. Given that this is a cost allocation case, the “general policy” of awarding refunds in over-collection cases
does not apply here, and the question becomes whether
the facts presented support following here the Commission’s established practice of not awarding refunds
in cost allocation cases. We conclude that they do. The
facts presented here evidence the two primary grounds
the Commission has cited in denying refunds in cost
allocation cases, the potential for under-recovery and
the unfairness that results from retroactive implementation of a new rate for both utilities and customers
who cannot alter their past actions in light of that new
rate.
31. Both Commission and court precedent refer to a
potential for, or possibility of, under-recovery as a reason for denying refunds,67 and that possibility arises
here from two sources. First, there is a significant possibility that Entergy could not recover the portion of
66
Louisiana Public Service Commission, Third Amended
Complaint, Docket No. EL95-33-000, at 2 (filed October 27, 1999)
(Third Amended Complaint).
67
La. Pub. Serv. Comm’n v. FERC, 772 F.3d at 1304 (citing
March 2013 Order, 142 FERC ¶ 61,211, at P 55 & n.127); Norwalk, 683 F.2d at 490; Occidental, 110 FERC ¶ 61,378 at P 10.
App. 91
necessary surcharges that would be attributed to
wholesale customers during the refund period. As Entergy previously explained in this proceeding, 15 percent of Entergy Arkansas’ peak load during the refund
period was made up of wholesale customers, but none
of those entities are currently Entergy Arkansas customers. In addition, at the time Entergy provided these
facts, Entergy Arkansas had only one wholesale customer, which made up .002 percent of its load. This customer was not a wholesale customer during the refund
period.68 Given this situation, the source of surcharges
is unclear, and if these surcharges cannot be assessed,
refunds would lead to under-recovery to that extent.
There is no basis to conclude that these surcharges
could be assessed on retail customers. In addition, as
the court found in City of Anaheim, Cal. v. FERC,69
“§ 206(b) authorizes only retroactive refunds (rate decreases), not retroactive rate increases” such as those
that Entergy would have to assess on any wholesale
customers subject to surcharges needed to cover the refunds.
32. Second, there is a possibility of under-recovery
based on potential litigation, as demonstrated by proceedings before the Arkansas Commission in which
Entergy has sought approval to collect surcharges to
pay for the refunds the Commission previously imposed in this case. The Arkansas Commission rejected
68
See Entergy Services, Inc., Initial Brief on Remanded Refund Issues, Docket Nos. EL00-66-013 and EL95-33-009, at 14-15
(filed Jan. 19, 2010).
69
558 F.3d 521 (D.C. Cir. 2009) (City of Anaheim).
App. 92
Entergy’s request to recover surcharges from its retail
customers, concluding that the surcharges would violate the filed rate doctrine and rule against retroactive ratemaking under Arkansas law and that federal
preemption does not require the Arkansas Commission to pass-through those costs to Arkansas retail customers.70 The ultimate outcome of this decision, of
course, remains uncertain, but it represents a second
potential risk of under-recovery.
33. These facts also bring FPA section 206(c) to bear
in this proceeding. As noted above,71 section 206(c) provides that in a proceeding under section 206 involving
two or more electric utility companies of a registered
holding company system, the Commission may order
refunds only if it determines that the refunds would
not cause the registered holding company to experience any reduction in revenues resulting from an inability of an electric utility company in the system to
recover the resulting increase in costs. Entergy Corporation was a registered holding company during the refund period, and the inability of an Entergy Operating
Company to recover surcharges for one or more of the
reasons described above would trigger the prohibition
on refunds set forth in section 206(c). We are not able
to find that the Entergy system would not experience
a reduction in revenues if refunds were awarded here.
This is because of the impediments to assessing the
70
Entergy Services, Inc., Brief Opposing Refunds, Docket
Nos. EL00-66-017 and EL95-33-0011, at 18-19 (filed November 7,
2011).
71
See supra note 9.
App. 93
surcharges that would be necessary to prevent reduction of the holding company’s revenues, i.e., the absence of wholesale customers in the proportion that
existed during the refund period, litigation challenging
surcharges, and the prohibition on retroactive rate increases under section 206(b) identified in City of Anaheim.
34. This case also presents past decisions that cannot
be undone and this represents an equitable basis for
denying refunds. Specifically, the complaint in this proceeding indicates that the tariff provision challenged
here created incentives for the Entergy Operating
Companies that resulted in decisions that cannot now
be undone. Specifically, the Louisiana Commission argues that the Entergy Operating Companies, in particular Entergy Louisiana, “have engaged in sales to
curtailable customers at extremely low prices,” and
these sales “provide system benefits” and “avoid the
need for generating capacity.” However, “by assigning
generation and transmission costs to a company for its
curtailable load, the System Agreement allocates additional costs to an individual company for entering
curtailable contracts, which may render the sales uneconomic from an individual company perspective.”72 As
a result, “the System Agreement provides an artificial
disincentive – one that is not cost justified – for an
individual company to make curtailable sales.”73 The
Louisiana Commission asserted that the “imposition of
72
73
Third Amended Complaint at 6 (emphasis in original).
Id. at 6-7.
App. 94
a penalty on a company that reacts to competitive
forces by lowering rates to a customer through tariffs
that permit curtailment is inconsistent with economic
reality and an undue deterrent to competitive conduct.”74
35. These points address the court’s statement in remanding this matter that “[t]he Commission did not
identify any particular decisions made by Entergy in
reliance on the inclusion of interruptible load in its cost
allocation that in some way particularly weakened the
case for refunds.”75 The incentives that the System
74
Id. at 7. These points address the court’s statement that
the contention that the Entergy Operating Companies’ decision
“not to shave their peak load,” which they might have done under
a different cost allocation, was “a generic possibility of reliance”
on the challenged cost allocation, and once the complaint was
filed, “Entergy was on notice that interruptible load could be ordered removed from the calculation of peak load.” La. Pub. Serv.
Comm’n v. FERC, 772 F.3d at 1306. Entergy was indeed on notice
that the cost allocation could change. However, the presence of
notice does not alter the fact that to avoid a possible refund requirement in this situation, the Entergy Operating Companies
would have had to enter into uneconomic transactions – i.e., curtailable sales that impose additional costs under the System
Agreement – that the System Agreement did not require and, in
fact, discouraged through its cost allocation provisions. The existence of notice does not override the equities involved in requiring
refunds for transactions that were authorized under the System
Agreement. This conclusion is consistent with the court’s observation in remanding this matter that in Am. Elec. Power Serv.
Corp., 114 FERC ¶ 61,288 (2006), “the Commission unsurprisingly did not award refunds with respect to the lawful rates previously in effect.” La. Pub. Serv. Comm’n v. FERC, 772 F.3d at
1304.
75
La. Pub. Serv. Comm’n v. FERC, 772 F.3d at 1306.
App. 95
Agreement created produced a disincentive to make
curtailable sales because those sales created a penalty
in terms of costs to an Operating Company that lowered rates to make those sales. Refunds would serve to
impose potentially unrecoverable costs on Operating
Companies that, based on the incentives that the System Agreement created, chose to engage in firm sales
that cannot now be undone instead of curtailable sales
that the System Agreement discouraged from their
perspective. It is well recognized that the Commission
may conclude that this disincentive that the filed rate
created has resulted in decisions not to enter into
transactions without specific findings concerning individual actions.76 In addition, the Commission has previously found that reliance on curtailed loads can
create disincentives of the type discussed here,77 and it
has denied refunds after removing interruptible load
from an allocation of transmission costs, in part, on
the grounds that it would not permit the utilities in
76
Batavia, 672 F.2d at 83-84 (accepting Commission inferences about the effect of demand ratchets on ratepayer conduct);
Norwalk, 683 F.2d 477 (finding generalizations regarding customer conduct sufficient to support a determination that a rate
ratchet would prove useful in encouraging reductions in demand
at the time of the system peak); see also Associated Gas Distribs.
v. FERC, 824 F.2d 981, 1008-09 (D.C. Cir. 1987) (stating that
“[a]gencies do not need to conduct experiments in order to rely on
the prediction that an unsupported stone will fall”).
77
Occidental, 110 FERC ¶ 61,378 at P 3 n.3 (stating that “relying on curtailed loads to allocate PJM’s access charge costs may
create a disincentive for load serving entities (LSEs) to implement
load response programs on their own systems, since LSEs would
be charged for system costs regardless of whether they curtail
load during system peaks”).
App. 96
question to alter their decisions made in reliance on
the rate in effect at the time.78
36. We are mindful of the court’s statement, in remanding this case, that invoking a Commission policy
on refunds does not eliminate the need to consider the
fact that an unjust and unreasonable cost allocation
caused consumers in Louisiana to pay too much and
consumers in other states to pay too little and that refunds, if ordered, would transfer monies to Entergy’s
Louisiana operating companies from its other operating companies.79 We agree that this is an important
consideration in determining whether refunds are
warranted, and one the Commission has considered as
part of its refund precedent. However, refunds in cost
allocation cases where over-recovery has not occurred
must be implemented through surcharges, which create a zero sum game in which customers, not regulated
public utilities, are the source of refunds made to other
customers. While it may be inequitable that some
customers paid too much under the filed rate, the Commission also considers the equities involved in assessing additional charges on other customers who
were not responsible for the misallocation but who
would be required to make additional payments for
past purchases they reasonably concluded were final
and cannot revisit. In balancing these equities, the Commission has traditionally denied refunds and made the
new, corrected rate applicable prospectively.
78
79
Id. P 12.
La. Pub. Serv. Comm’n v. FERC, 772 F.3d at 1305.
App. 97
37. Therefore, upon consideration of the refund issue
remanded to the Commission, we affirm our finding
that refunds should be denied in this proceeding.
The Commission orders:
The Commission hereby finds that refunds should
be denied in this proceeding, as discussed in the body
of this order.
By the Commission. Commissioner Honorable is not
participating.
(SEAL)
Kimberly D. Bose,
Secretary.
App. 98
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
-----------------------------------------------------------------------
Argued September 18, 2014
Decided December 5, 2014
No. 131155
LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER
V.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
ARKANSAS PUBLIC SERVICE COMMISSION, ET AL.,
INTERVENORS
-----------------------------------------------------------------------
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
-----------------------------------------------------------------------
Michael R. Fontham argued the cause for petitioner. With him on the briefs were Paul L. Zimmering,
Noel J. Darce, Dana M. Shelton, and Stephen Kebel.
Holly E. Cafer, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent.
With her on the brief were David L. Morenoff, Acting
General Counsel, and Robert H. Solomon, Solicitor.
John S. Moot argued the cause for intervenors.
With him on the brief were Gerard A. Clark, John L.
Shepherd, Jr., Andrea Weinstein, Dennis Lane, Glen L.
App. 99
Ortman, Paul Randolph Hightower, and Chad James
Reynolds.
Before: ROGERS and WILKINS, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
ROGERS, Circuit Judge: The Louisiana Public Service Commission (“LaPSC”) petitions for review of an
order of the Federal Energy Regulatory Commission
denying refunds to certain Louisiana-based utility
companies for payments they made pursuant to a cost
classification later found to be “unjust and unreasonable.” The Commission failed, LaPSC contends, adequately to explain its reasoning in departing from its
“general policy” of ordering refunds when consumers
have paid unjust and unreasonable rates. We agree.
Although the Commission enjoys broad discretion in
fashioning remedies, see, e.g., La. Pub. Serv. Comm’n v.
FERC, 522 F.3d 378, 393 (D.C. Cir. 2008), it must rationally explain its decision, Towns of Concord, Norwood, & Wellesley v. FERC, 955 F.2d 67, 76 (D.C. Cir.
1992) (“Town of Concord”). In denying LaPSC’ s refund
request, the Commission relied on precedent it characterized as a policy to deny refunds in cost allocation
cases, yet the precedent on which it relied is based
largely on considerations the Commission did not find
applicable. Otherwise the Commission relied on the
holding company’s inability to “revisit” past decisions,
seemingly a universally true circumstance. Accordingly, we grant the petition and remand.
App. 100
I.
Section 206(a) of the Federal Power Act (“FPA”), 16
U.S.C. § 824e(a), requires the Commission to reform
any public utility wholesale electricity rate that it determines is “unjust, unreasonable, unduly discriminatory or preferential.”1 See also La. Pub. Serv. Comm’n
v. FERC, 184 F.3d 892, 897 (D.C. Cir. 1999) (“Louisiana
1”). Originally, section 206 allowed a party seeking
lower rates to obtain only prospective relief at the conclusion of a FERC rate-reform proceeding—often several years after the initial filing of the complaint. See
S. REP. NO. 100-491, at 3 (1988). By contrast, under section 205 of the FPA, utility companies seeking to raise
their rates could receive nearly immediate relief, subject to refund only where the Commission declined to
approve the increase. See 16 U.S.C. § 824d. In 1988,
Congress enacted the Regulatory Fairness Act, Pub. L.
No. 100-473, which amended section 206 to authorize
the Commission to order refunds for certain overpayments made during the pendency of a rate-reform
proceeding.
Section 206(b), as amended, requires the Commission to set a “refund effective date,” which is “no[t]
later than 5 months after the filing of [the] complaint.”
16 U.S.C. § 824e(b). At the conclusion of the proceeding,
1
Section 206(a) requires the reform of “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 . . . any rule, regulation, practice, or
contract affecting such rate, charge, or classification.” 16 U.S.C.
§ 824e(a).
App. 101
“the Commission may order refunds of any amounts
paid” during the first 15 months following the refund
effective date “in excess of those which would have
been paid under the just and reasonable rate . . . which
the Commission orders to be thereafter observed and
in force.” Id. An exception provides that in a rate
reform proceeding
involving two or more electric utility companies of a registered holding company, refunds
which might otherwise be payable under subsection (b) of [section 206] 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[.]
16 U.S.C. § 824e(c) (emphases added). This is subject to
a proviso “[t]hat refunds, in whole or in part, may be
ordered by the Commission”
if it determines that the registered holding
company would not 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
effective date of the Commission’s order.
Id. § 824e(c)(2).
App. 102
LaPSC’s petition for review concerns the last remaining issue in litigation this court has previously
addressed. See Louisiana I, 184 F.3d 892; La. Pub.
Serv. Comm’n v. FERC, 482 F.3d 510 (D.C. Cir. 2007)
(“Louisiana II”). In the State of Louisiana, electricity
is supplied to consumers by, among others, three
“Entergy”-branded public utility companies: Entergy
Louisiana, LLC, Entergy Gulf States Louisiana, LLC,
and Entergy New Orleans, Inc. These companies are
owned, alongside several other Entergy operating companies in neighboring states, by a single holding company, Entergy Corporation (“Entergy”). Transactions
among Entergy operating companies are governed by
a Commission-approved system agreement, which enables the operating companies “to act as a single economic unit.” Louisiana I, 184 F.3d at 894. Under the
agreement, the operating companies share electricity
with each other and allocate costs among themselves
with the aim of “equalizing . . . any imbalance of costs
associated with the construction, ownership and operation of such facilities as are used for the mutual
benefit of all the [c]ompanies.” Id. (quoting System
Agreement § 3.01). This court has explained:
The system agreement allocates capacity (or
demand) costs to each operating company in
direct proportion to the power that it takes
when total demand upon the Entergy system
peaks each month. If, at the monthly system
peak, a company takes more energy than it
generates, then it is considered “short” and
must make an equalizing payment to the
“long” companies that have provided the
App. 103
excess capacity. This arrangement is mutually
beneficial because companies that are long
have a ready outlet for their surplus energy
and are thereby compensated for carrying excess capacity, while companies that are short
enjoy the benefit of a low cost and dependable
way of meeting their energy requirements.
Id. at 894–95.
In March 1995, LaPSC filed a complaint under
section 206 “alleging that, due to changed circumstances, the allocation of capacity costs [under the system agreement] had become unjust and unreasonable.”
Louisiana I, 184 F.3d at 895. In particular, it objected
to the inclusion of “interruptible load” when calculating an operating company’s capacity charge. See id. at
895–96. The Commission dismissed the complaint. See
La. Pub. Serv. Comm’n v. Entergy Serv., Inc., 76
F.E.R.C. ¶ 61,168 (1996), reh’g denied, 80 F.E.R.C.
¶ 61,282 (1997). After the court remanded for further
explanation, see Louisiana I, 184 F.3d at 900, the Commission determined that Entergy’ s inclusion of interruptible load in assessing capacity costs was unjust
and unreasonable. See Opinion No. 468, 106 F.E.R.C.
¶ 61,228, at PP 60-77 (2004). Entergy was ordered to
adjust its rates beginning April 1, 2004, but the Commission declined to order refunds for any overcharges
incurred during the pendency of the proceeding because it could not “find, as [it] must under Section
206(c) of the FPA, that the Operating Companies that
would pay refunds as a result of a reallocation of costs
App. 104
would be able to collect those refunds from their ratepayers.” Id. at P 88.
LaPSC again petitioned for review, and the court
again remanded the case, holding that the Commission
had not adequately explained why it could not make
the requisite section 206(c) finding. See Louisiana II,
482 F.3d at 520. On remand, the Commission eventually concluded that refunds were unwarranted. But its
path to that conclusion was somewhat circuitous. See
Order Denying Rehearing, 142 F.E.R.C. ¶ 61,211, at PP
7–13 (2013).
On remand from Louisiana II, the Commission ordered refunds, citing the determination by the Administrative Law Judge (“ALP) that the non-Louisiana
operating companies could, in fact, recover surcharges
prospectively. Order on Remand, 120 F.E.R.C. ¶ 61,241
(2007) (“First Order”) (citing La. Pub. Serv. Comm’n
v. Entergy Corp. 96 F.E.R.C. ¶ 63,002, at 6
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