Entergy La., Inc. v. LA. PUBLIC SERVICE COM'N

• Decision Date: 03 April 2002
• Docket Number: No. 2001-CA-1725.,2001-CA-1725.
• Citation: 815 So.2d 27
• Parties: ENTERGY LOUISIANA, INC. v. LOUISIANA PUBLIC SERVICE COMMISSION, et al.
• Court: Louisiana Supreme Court

815 So.2d 27

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

No. 2001-CA-1725.

Supreme Court of Louisiana.

April 3, 2002.

Rehearing Denied May 24, 2002.

J. Wayne Anderson, Margaret G. Augustin, Matthew R. Suffern, Kathryn A. Washington, New Orleans, Counsel for Applicant.

Noel J. Darce, Michael R. Fontham, Eve K. Gonzalez, Stephanie D. Shuler, Paul L. Zimmering, New Orleans, Counsel for Respondent.

JOHNSON, Justice.¹

Entergy Louisiana, Inc. ("ELI") filed suit in the Nineteenth Judicial District Court for the Parish of East Baton Rouge seeking a stay or injunctive relief with respect to portions of Order No. U-20925-G issued by the Louisiana Public Service Commission ("LPSC"). By its Order, the LPSC prohibited ELI from including generating units which are in Extended Reserve Shutdown status in the calculation of reserve equalization payments under Service Schedule MSS-1 of the Entergy System Agreement. The LPSC further ordered ELI to credit the overpayments back to its customers. The district court upheld the Order, finding that the LPSC's findings were neither arbitrary nor capricious and that the entity had acted within its constitutional and statutory authority. ELI appealed that judgment pursuant to La. Const. Art. IV, § 21(E).² The sole issue presented for review is whether the LPSC is federally preempted from assessing the prudence of ELI's decision in continuing to include the ERS units in its MSS-1 calculations. After a thorough review of the record, briefs, and relevant authorities, we hold that the LPSC is not precluded from assessing the prudence of ELI's actions and that the LPSC's ruling was not arbitrary or capricious or clearly erroneous. Accordingly, we affirm the LPSC's ruling.

FACTS AND PROCEDURAL HISTORY

Background

The LPSC is an independent regulatory agency created by the Louisiana Constitution. It exercises regulatory authority over most retail electric rates and charges in Louisiana. Pursuant to La. Const. Art. IV, § 21, the LPSC has the power to regulate common carriers and public utilities in the State of Louisiana. LSA-R.S. 45:1163 provides in pertinent part:

A. The Commission shall exercise all necessary power and authority over any street railway, gas, electric light, heat power, waterworks, or other local public utility for the purpose of fixing and regulating the rates charged or to be charged by and service furnished by such public utilities.

The Federal Energy Regulatory Commission ("FERC") is an independent regulatory agency within the United States Department of Energy which regulates, inter alia, the transmission and sale of electric energy at wholesale in interstate commerce. See 16 U.S.C.A. § 824 et seq.; 42 U.S.C.A. §§ 7101 et seq. The Federal Power Act defines "sale of electric energy at wholesale in interstate commerce" as the "sale of electric energy to any person for resale." 16 U.S.C.A. § 824(d). However, the Federal Power Act limits federal regulation of electric utilities engaged in interstate commerce "to those matters which are not subject to regulation by the States." 16 U.S.C.A. § 824(a).

ELI is an electric public utility wholly owned by Entergy Corporation, which also owns four other operating companies: Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Mississippi, Inc., and Entergy New Orleans, Inc. ELI operates in forty-three Louisiana parishes. The five operating companies plan, construct, and operate their collective electric generating and transmission facilities as a single, integrated system serving parts of Louisiana, Arkansas, Mississippi, and Texas. The costs and benefits of the coordinated operation of this interstate system are distributed among the operating companies pursuant to a rate schedule known as the Entergy System Agreement ("System Agreement").³ The System Agreement governs many of the transactions among the operating companies, and its general purpose is set forth in Article III of the Agreement, which states:

The purpose of this Agreement is to provide the contractual basis for the continued planning, construction, and operation of the electric generation, transmission and other facilities of the [Operating] Companies in such a manner as to achieve economies consistent with the highest practicable reliability of service, subject to financial considerations, reasonable utilization of natural resources and minimization of the effect on the environment. This Agreement also provides a basis for equalizing among the companies any imbalance of costs associated with the construction, ownership and operation of such facilities as are used for the mutual benefit of all the [Operating] Companies.

The System Agreement is a tariff approved by the FERC, and any revisions or amendments to the Agreement/tariff must be approved by the FERC. The overall administration of the Agreement is carried out by the Entergy Operating Committee, pursuant to Section 2.06 of the System Agreement. The Agreement is a binding contract on all of the operating companies, and pursuant to Section 1.01, termination of participation in the Agreement by any of the companies requires ninety-six months (eight years) written notice to the other companies.

The System Agreement allows the operating companies, among other things, to enter into arrangements among themselves to exchange resources. For instance, if one company is unable to meet the energy requirements for its system, it may make arrangements with one of the other companies to use its facilities and/or energy supply. The arrangements for such exchanges must be in the form of a Service Schedule which becomes a part of the System Agreement subsequent to FERC approval.

Since the effective date of the System Agreement, various FERC-approved Service Schedules have been added, one of which is Schedule MSS-1 ("MSS-1").⁴ MSS-1 is set forth in Section 10 of the System Agreement and provides the mechanism for equalizing system reserves among the operating companies. Pursuant to MSS-1, each of the operating companies is responsible for a share of the total Entergy system capability. Each company's share is equal to the ratio of that company's contribution to the system's yearly average peak load. Some of the companies provide more than their calculated share of the system's capability, while others provide less than their calculated share. The companies providing less than their calculated share make deficiency payments to the companies providing more than their share. For example, if one company has reserves (excess capacity), and the other four companies do not, the other four companies may use the reserves, but must make payments to the company for their use. The revenue received from the other four companies is credited against the company with the reserve's payment to the system. Each of the operating companies makes or receives payments based on whether its capacity exceeds, equals, or is less than the system capability for which it is responsible.

In order to be counted as part of a company's capability for determining MSS-1 payments, a generating unit has to be "available" for use by the system. Prior to August 5, 1997, Section 10.02 of the System Agreement provided in relevant part:

A unit is considered available to the extent the capability can be demonstrated and (1) is under the control of the System Operator, or (2) is down for maintenance or nuclear refueling.

A unit is considered unavailable if, in the judgment of the Operating Committee, it is of insufficient value in supplying system loads because of (1) obsolescence, (2) physical condition, (3) reliability, (4) operating cost, (5) start-up time required, or (6) lack of due diligence in effecting repairs or nuclear refueling in the event of a scheduled or unscheduled outage.

Several years after the System Agreement was executed, the operating companies had excess generating capacity. The companies conceived the Extended Reserve Shutdown (ERS) program, which allows the companies to save money (for the customers, as well as for the companies themselves) by placing the excess generating units in an inactive, i.e. extended reserve status. Rather than disposing of units not in use, the companies kept twenty-four units on standby to have the power capacity for the future, in the event there was an increase in power demand. By placing the units in extended reserve status, the companies were able to reduce operating staff and maintenance costs and defer costs of repairing the units.⁵ The ERS units were not available to serve customers and, therefore, did not meet the definition of "available" in the System Agreement because they were not "down for maintenance or nuclear refueling" as required by the Agreement. Nonetheless, Entergy included the ERS units for purposes of calculating the Entergy operating companies' capability under MSS-1. This treatment of the inactive units resulted in ELI making higher MSS-1 payments than it would have had if the units had not been included in the computation. These costs were passed on to ELI customers in the form of higher retail electricity rates.

The Proceedings Before the FERC

In 1993, Gulf States Utilities Company ("Gulf States") merged with Entergy Corporation, and Entergy sought to amend the System Agreement to add Gulf States as an operating company subsidiary. In connection with the events surrounding the merger, the FERC reviewed the System Agreement and, thereafter, initiated proceedings to determine whether Entergy had violated the Agreement by including the ERS units in its MSS-1 calculations. The LPSC intervened in the FERC proceeding, alleging that Entergy violated the System Agreement by counting the ERS units as available capacity. To remedy the alleged violation, the LPSC sought retroactive refunds for Entergy's Louisiana customers, plus interest.

Following an evidentiary hearing, a FERC administrative law judge concluded that (1) the language of the System...