Entergy Gulf States v. PUBLIC SERV. COM'N

• Decision Date: 20 January 1999
• Docket Number: No. 98-CA-0881.,98-CA-0881.
• Citation: 726 So.2d 870
• Parties: ENTERGY GULF STATES, INC. v. LOUISIANA PUBLIC SERVICE COMMISSION, et al.
• Court: Louisiana Supreme Court

726 So.2d 870

ENTERGY GULF STATES, INC. v. LOUISIANA PUBLIC SERVICE COMMISSION, et al.

No. 98-CA-0881.

Supreme Court of Louisiana.

January 20, 1999.

J. Wayne Anderson, Kathryn J. Lichtenberg, Margot Gallup Augustin, New Orleans, L. Richard Wersterburg, Jr., Michael R. Fontham, Baton Rouge, Wayne Joseph Lee, Laurie A. Barcelona, Stephanie DeSales Shuler, New Orleans, Eve Kahao Gonzalez, Brian Eddington, Baton Rouge, for Appellant.

KIMBALL, J.¹

This is a direct appeal from the Nineteenth Judicial District Court pursuant to La. Const. Art. IV, Sec. 21(E). Both the Louisiana Public Service Commission ("the Commission") and Entergy Gulf States ("the Company") appealed portions of the district court ruling regarding Commission Order No. U-19904-D ("the Order") which requires the Company to refund to its ratepayers $34.24 million of the fuel adjustment charges collected from 1991 through 1994. Because our review of the Commission's Order revealed no error of law, and we find that the disallowances were fully supported by the record, and were therefore not arbitrary, capricious, nor an abuse of authority, we conclude that the trial court erred in reversing portions of the Commission's Order. We therefore affirm the ruling of the trial court in part and reverse in part.

FACTS AND PROCEDURAL HISTORY

In 1993 the Commission began an investigation into the Company's fuel adjustment clause filings between 1988 and 1994.² The proceedings were broken into two segments, Phase I and II respectively.³ Phase II hearings, covering the years 1991 through 1994 began December 4, 1995, and were completed March 14, 1996, resulting in the Commission issuing the Order which is the subject of the instant appeal.⁴

The Commission has "broad and independent" regulatory powers over public utilities, derived from the Louisiana Constitution. Daily Advertiser v. Trans-La, 612 So.2d 7, 16 (La.1993) quoting La Const. Art. IV, Sec. 21(B).⁵ These regulatory powers include the authority to fix and change rates charged by the utility. Id. There are two classes of rates which are at issue in this opinion: the ordinary rate charged per unit of electricity, which is the "base rate," and the cost of fuel that is charged to the ratepayer in addition to the base rate through the "fuel adjustment clause charge." Under its regulatory powers, the Commission reviews both of these classes of rates in separate proceedings for each type of rate. The Commission fixes the base rate charged to utility customers in an annual base rate proceeding, and reviews fuel clause charges in a fuel review proceeding.⁶ The retrospective review of fuel clause charges which produced the Order under consideration in this case, is considered an exception to the ordinary ratemaking process as it does not involve a prior review by the Commission. Rather, under the fuel adjustment clause exception, a utility company is allowed to charge fuel costs directly to its customers on a monthly basis with only a retrospective review by the Commission. This procedure is allowed because the cost of fuel fluctuates, cannot reasonably be predetermined, and therefore, cannot be pre-set by the Commission. L.P.S.C. Order U-19904-D (10/7/1996).

When the Commission reviews a utility's rates it is required to apply a "prudence" standard. Under this so-called "prudence review," the Commission scrutinizes the utility's decision-making processes for reasonableness. This Court has established that in a prudence review of a utility company's rates, the burden of proof is on the utility, which must "demonstrate that it went through a reasonable decision making process to arrive at a course of action and, given the facts as they were or should have been known at the time, responded in a reasonable manner." Gulf States Util. Co. v. Louisiana Pub. Serv. Comm'n., 578 So.2d 71, 85 (La. 1991).

The utility must demonstrate that its decisions and actions are prudent in order to counterbalance the monopolistic effects on the ratepayers who do not have a choice about which company provides their utility service. Gulf States Util. Co., supra,578 So.2d at 84, n. 6.

Because customers of a monopolistic enterprise do not have the choice to take their business to a more efficient provider, market forces provide no incentive to utilities to act prudently. Therefore, a utility's only motivation to act prudently "arises from the prospect that imprudent costs" may be disallowed.

Gulf States Util. Co. v. Louisiana Pub. Serv. Comm'n., 96-2046 p. 12 (2/25/97), 689 So.2d 1337, 1345 at n. 9, (citing In Re Long Island Lighting Co., 71 P.U.R. 4th 262 (N.Y.P.S.C. 1985)).

The standard for our review of Commission orders was set forth by this Court in Gulf States Util. Co. v. Louisiana Pub. Serv. Comm'n., 96-0345 p. 2 (7/2/96), 676 So.2d 571, 573 (quoting Central Louisiana Elec. Co. v. Pub. Serv. Comm'n., 508 So.2d 1361, 1364 (La.1987) (quoting South Central Bell v. Louisiana Pub. Serv. Comm'n., 352 So.2d 964, 968 (La.1977) and Southern Bell Tel. & Tel. Co. v. Louisiana Pub. Serv. Comm'n., 239 La. 175, 118 So.2d 372, 378 (La.1960))), wherein we described our role in the following way:

Initially, as the orders of the Commission are entitled to great weight, they should not be overturned absent a showing of arbitrariness, capriciousness, or abuse of authority by the Commission. Secondly, courts should be reluctant to substitute their own views for those of the expert body charged with the legislative function of rate-making. Lastly, a decision of the Commission will not be overturned absent a finding that it is clearly erroneous or that it is unsupported by the record.

Gulf States Util. Co., supra, 96-0345 p. 2, 676 So.2d at 573 (internal citations omitted).

In the instant case, the Commission ordered the Company to refund $34.24 million in fuel adjustment clause charges to its customers, with interest from December 31, 1995 because it found multiple acts of imprudence.⁷ Additionally, the Commission found with respect to other fuel clause charges, that even though the expenses were not imprudently incurred, they were not properly recoverable through use of the fuel adjustment clause; rather, those costs were appropriate for consideration in a base rate proceeding.⁸ The Company appealed $19.967 million of the ordered refunds to the district court. The court below affirmed the Commission's Order with respect to approximately $8.795 million in disallowances, but reversed the Commission on $9.147 million of the total $10.951 million disallowance refund arising from the Commission's finding of imprudence related to outages and outage extensions at the River Bend Nuclear Generating Station ("River Bend") and a $1.459 million imprudence disallowance and refund based on the Company's failure to upgrade the capacity of River Bend.

Each party briefed multiple assignments of error on appeal to this Court. In order to efficiently address all of the issues presented for review, we have grouped the assignments of error into the following issues for discussion: (1) whether the Commission applied the proper "prudence" standard in its review of the Company's outages and outage extensions and properly disallowed the associated replacement power costs; (2) whether the Commission properly found imprudence in the failure of the Company to upgrade River Bend's capacity; (3) whether the Commission properly found imprudence and disallowed the nuclear fuel inventory costs associated with retention of uranium for River Bend; (4) whether the Commission properly found imprudence regarding coal costs associated with the Company's Nelson 6 Station; and (5) whether the Commission properly disallowed costs associated with the Company's gas storage facilities at "Spindletop" and the Nelson Industrial Steam Company ("NISCO").

I. THE OUTAGES AND OUTAGE EXTENSIONS AT RIVER BEND

The Commission examined twenty-six outages and refueling outage extensions at River Bend that occurred between October, 1991, and December, 1994, ("the review period"). As we explained in Phase I, there are two different types of "outages," the refueling outage, which is a planned outage, and a forced outage, which is an unplanned outage. All nuclear power plants must schedule refueling outages to replace spent fuel. During refueling outages, the Company takes advantage of the down time to conduct maintenance, inspections and testing that cannot safely be performed while the nuclear reactor is in operation. Because it is planned and scheduled in advance, a refueling outage is considered a "planned outage."⁹ By contrast, a "forced outage" occurs when the plant shuts down automatically or manually in response to unplanned problems like system failures, equipment failures, or incidents such as a fire or an explosion. Gulf States Util. Co., supra, 96-2046 p. 14, 689 So.2d at 1346.

River Bend had an extremely high outage rate during the review period. Commission Staff expert, Dr. William R. Jacobs, Jr., Ph. D., testified that "the Cumulative Forced Outage Rate ("CFOR") ... was 25.97%, an extremely high rate by industry standards."¹⁰ Dir. Test. Dr. Jacobs p.12, L.P.S.C. (6/30/95). The CFOR is a measure of the lost energy generation due to forced outages and is similar to a performance indicator used by the Institute of Nuclear Power Operation ("INPO") called the Unplanned Capability Loss Factor ("UCLF"). Id. Dr. Jacobs explained that the INPO monitors nuclear reactors around the nation and assesses their performance under this indicator. Id. "This parameter is similar to the Forced Outage Rate and is defined to be the percentage of maximum energy generation that a plant is not capable of supplying to the electrical grid because of unplanned energy losses, such as unplanned shutdowns or outage extensions." Id. The UCLF is broader than the CFOR because it includes not only forced outages but also extensions to planned outages. Id. Because the UCLF has a broader scope, the figure is...