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Louisiana Public Service Commission v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

August 8, 2017

Louisiana Public Service Commission, Petitioner
v.
Federal Energy Regulatory Commission, Respondent Mississippi Public Service Commission, et al., Intervenors

          Argued December 2, 2016

         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 and Noel J. Darce.

          Lona T. Perry, Deputy Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief was Robert H. Solomon, Solicitor.

          Clifford M. Naeve argued the cause for intervenors supporting respondent. On the brief were John S. Moot, Matthew W.S. Estes, Gregory W. Camet, Glen Ortman, Dennis Lane, and Paul Randolph Hightower. Adrienne E. Clair entered an appearance.

          Before: Rogers, Kavanaugh and Wilkins, Circuit Judges.

          OPINION

          WILKINS, CIRCUIT JUDGE

         This case continues a lengthy saga of litigation dealing with the allocation of production costs among Entergy Corporation's utility operating companies ("Operating Companies"). During the period relevant here, Entergy[1] sold electricity, both wholesale and retail, in Arkansas, Louisiana, Mississippi, and Texas, through five Operating Companies under the framework provided by the Entergy System Agreement. The System Agreement sets forth a rate schedule administered by the Federal Energy Regulatory Commission ("FERC") that allocates certain costs among the Operating Companies and seeks to maintain rough equalization of those costs among them. In Louisiana Public Service Commission v. FERC ("LPSC"), 522 F.3d 378 (D.C. Cir. 2008), we affirmed FERC's imposition of a so-called "bandwidth" remedy ("Bandwidth Remedy" or "Remedy") to address unjust allocations of production costs among the Operating Companies and return them to "rough equalization." We remanded to FERC, however, to address, among other things, its decision to delay the effective date of the Remedy until January 2006 when FERC had decided the Remedy was necessary in June 2005. The Louisiana Public Service Commission ("LPSC") petitions this Court for review of FERC's decision on remand.

         I.

         We described the relevant background at length in LPSC and we recount it only briefly here. In Opinion No. 480, issued on June 1, 2005, FERC determined that cost allocations under the System Agreement were unjust and unreasonable, and announced the Bandwidth Remedy to cure the disparities going forward. See La. Pub. Serv. Comm'n v. Entergy Servs., Inc. et al., 111 F.E.R.C. ¶ 61, 311 (2005) ("Op. No. 480"), on reh'g, 113 F.E.R.C. ¶ 61, 282 (2005) ("Op. No. 480-A"). The Remedy provides that when an Operating Company's production costs deviate more than 11 percent above or below the Entergy System's average on an annual basis, [2] the Operating Companies with the lower costs will make payments ("Bandwidth Payments" or "Payments") to the ones with higher costs such that their overall costs return to rough equalization. Op. No. 480, 111 F.E.R.C. ¶ 61, 311, at 62, 372. At the outset, FERC ordered that the Remedy be implemented prospectively and declared it would be "effective" in 2006. Id. at 62, 373. FERC later clarified that the first of any Bandwidth Payments would be made in 2007, once a full year of 2006 cost data was available. Op. No. 480-A, 113 F.E.R.C. ¶ 61, 282, at 62, 140. Such data is reported in Entergy's annual Form 1 filed with FERC each April, covering the previous calendar year.

         FERC envisioned the first set of Bandwidth Payments would be calculated and exchanged as follows: in April 2007, Entergy would report the production costs of each of the Operating Companies for the 2006 calendar year in its Form 1. Based on that data, Entergy would use a formula to determine whether any Operating Company's production costs exceeded the established bandwidth. If so, Bandwidth Payments based on 2006 data would be exchanged thereafter, but no later than December 2007, to eliminate any severe disparities. The process would repeat the following year, with Entergy determining in 2008 to what extent Bandwidth Payments should be exchanged based on 2007 production cost data. Putting aside certain disputes about the formula used, LPSC acknowledges that Payments were made in 2007 based on 2006 disparities, and again in 2008 based on 2007 disparities.

         In LPSC, we held that FERC's "remedial choice" of the Bandwidth Remedy was a lawful way to return the Entergy System to rough equalization of its production costs. 522 F.3d at 391. But we remanded to FERC to address certain issues with its implementation. Of particular relevance here, we determined that FERC would need to explain its decision to delay implementation of the Bandwidth Remedy to a later date - i.e., making it "effective" January 1, 2006 with Payments commencing in 2007 - when it found that as of June 1, 2005, the cost allocations under the System Agreement were unjust and unreasonable. See id. at 400.

         On remand, FERC advanced the "effective date" of the Bandwidth Remedy from January 1, 2006 up to June 1, 2005, and ordered that Bandwidth Payments be exchanged based on production cost disparities that occurred in the June - December 2005 period. See La. Pub. Serv. Comm'n v. Entergy Servs., Inc. et al., 137 F.E.R.C. ¶ 61, 047 (2011) ("Order on Remand"); La. Pub. Serv. Comm'n v. Entergy Servs., Inc. et al., 146 F.E.R.C. ¶ 61, 152 (2014) ("Reh'g Order"). FERC explained that although the agency initially contemplated that the Remedy would apply to cost data on an annual basis, it made an exception for the 7-month period now lodged between the old and new "effective" dates of the Remedy - i.e., the period from June 1, 2005 through December 31, 2005. Reh'g Order, 146 F.E.R.C. ¶ 61, 152, at 61, 624-25. It ordered the Remedy to be applied to that period. Id. at 61, 625-26.

         In the instant case, LPSC is satisfied with FERC's decision that the Remedy should begin as of June 1, 2005, but it challenges the way in which the Remedy has been implemented. Specifically, LPSC claims that FERC neglected to provide a remedy for a portion of the post-2005 period and that FERC engaged in unlawful retroactive ...


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