Gordon v. Council of City of New Orleans
| Decision Date | 03 April 2009 |
| Docket Number | No. 2008-OC-1226.,No. 2008-OC-1240.,No. 2008-C-0932.,No. 2008-C-0929.,2008-C-0929.,2008-C-0932.,2008-OC-1226.,2008-OC-1240. |
| Citation | 9 So.3d 63 |
| Parties | Reverend C.S. GORDON, Jr., J. Michael Malec, Darryl Malek-Wiley, Willie Webb, Jr., and Maison St. Charles, L.L.C. d/b/a Quality Inn Maison St. Charles v. The COUNCIL OF the CITY OF NEW ORLEANS and Entergy New Orleans, Inc. |
| Court | Louisiana Supreme Court |
Wilkerson & Henry, Walter Jefferson Wilkerson, New Orleans; Sonnenschein, Nath & Rosenthal, Clinton A. Vince, Orlando Vidal, Washington, DC, for Applicant (2008-C-0929 & 2008-OC-1226).
Gordon, Arata, McCollam, Duplantis & Eagan, Ewell Elton Eagan, Jr., Phillip Jay Antis, Jr., Wendy Hickok Robinson, New Orleans; Entergy Services, Inc., Margot Gallup Augustin, Alyssa A. Maurice, Kathryn J. Lichtenberg; Roedel, Parsons, Koch, Blache, Balhoff & McCollister, Jon Kenton Parsons, Luke Francis Piontek, Thomas John Capella; Murray, Darnell & Associates, Michael Charles Darnell, Edwin Rene Murray, New Orleans; Domengeaux, Wright, Roy & Edwards, Bob F. Wright, James Parkerson Roy, Lafayette; Barkley & Thompson, Walter C. Thompson, Jr., New Orleans, for Respondents (2008-c-0929 & 2008-OC-1226).
Gordon, Arata, McCollam, Duplantis & Eagan, Ewell Elton Eagan, Jr., Phillip Jay Antis, Jr., Wendy Hickok Robinson, New Orleans; Entergy Services, Inc., Margot Gallup Augustin, Alyssa A. Maurice, Kathryn J. Lichtenberg, for Applicant (2008-C-0932 & 2008-OC-1240).
Roedel, Parsons, Koch, Blache, Balhoff & McCollister, Jon Kenton Parsons, Luke Francis Piontek, Thomas John Capella; Murray, Darnell & Associates, Michael Charles Darnell, Edwin Rene Murray, New Orleans; Domengeaux, Wright, Roy & Edwards, Bob F. Wright, James Parkerson Roy, Lafayette; Wilkerson & Henry, Walter Jefferson Wilkerson, New Orleans; Barkley & Thompson, Walter C. Thompson, Jr., New Orleans, Sonnenschein, Nath & Rosenthal, Clinton A. Vince, Orlando Vidal, Washington, DC, for Respondent (2008-C-0932 & 2008-OC-1240).
We granted and consolidated these writ applications primarily to determine whether the court of appeal erred in reversing an order of the Council of the City of New Orleans (the "Council") and directing Entergy New Orleans, Inc. ("ENO") to refund $34,300,000 to its ratepayers for charges related to System Fuels, Inc.("SFI") Period Costs which ENO had been collecting through its Fuel Adjustment Clause ("FAC") from 1985 through 2000. After reviewing the record and the applicable law, we reverse that portion of the court of appeal judgment because the Council's decision as ENO's regulator to allow ENO to pass SFI Period Costs through the FAC for that time period and not to require that ENO refund these costs to its customers was not arbitrary and capricious and was reasonably based on the evidence presented.
ENO is an electric utility company engaged in the manufacture, generation, transmission, distribution, and sale at retail of electric power and energy to approximately 190,000 residential, commercial, industrial, and governmental customers located in that portion of New Orleans east of the Mississippi River.1 ENO is a wholly owned subsidiary of Entergy Corporation ("Entergy").2 On May 12, 1999, customers of ENO ("plaintiffs") filed a complaint with the Council against ENO, Entergy, ESI, and Entergy Power, Inc. ("EPI")3 requesting that the Council institute an investigation to review ENO's FAC filings and the costs passed through to ENO's ratepayers, including, but not limited to, the propriety of the inclusion of certain costs in the FAC rather than in the base rate.4
FACs are "widely-accepted rate making tools utilized to allow a utility to recoup fluctuating fuel costs on an ongoing basis." Daily Advertiser v. Trans-La, a Div. of Atmos Energy Corp., 612 So.2d 7, 22 (La.1993). They are "a device to permit rates to adjust automatically, either up or down, in relation to fluctuations in certain, narrowly defined, operating expenses." Id. at 11 n. 1.5 Regulators "employ such clauses when they encounter an item of expense, such as fuel costs, that tends to be more volatile in comparison to the utility's other costs." Id. (Citing Southern California Edison Co. v. Public Utilities Com'n, 20 Cal.3d 813, 144 Cal. Rptr. 905, 576 P.2d 945 (1978)). The clause allows utilities to pass fluctuating fuel costs along to customers as the costs are incurred, without filing numerous base rate cases, and the customer's rate varies directly with the utility's fluctuating costs. Id.6
The charges complained of most relevant to this proceeding are SFI Period Costs. SFI is a corporate affiliate of ENO that has provided fuel-procurement and fuel-storage services to Entergy's affiliates, including ENO, since the 1970s. The "Period Costs" are non-fuel administrative costs incurred by SFI to provide the fuel procurement and fuel storage services to Entergy, and these costs are periodically allocated to members to the Entergy system, including ENO. ENO has passed these costs to its customers through its FAC since the 1970's. The plaintiffs claim that ENO ratepayers have been overcharged by approximately $26,000,000, plus interest, from 1985 through 2000, not because such costs were imprudently incurred, but because SFI Period Costs should have been included in ENO's base rates and not its FAC.
The regulatory proceeding before the Council that is the subject of these writ applications was initiated on August 19, 1999, when the Council issued Resolution No. R-99-525, opening Docket No. UD-99-2, and ordering an investigation and evidentiary hearing into matters raised by the plaintiffs in their complaint filed on May 12, 1999. For more than three years, the issues raised were the subject of extensive discovery and intensive review and analysis by the parties. From February 26, 2002, through March 15, 2002, an evidentiary hearing was conducted by Hearing Officer Jeffery S. Gulin, who compiled the evidentiary record upon which the Council relied in rendering its decision in this proceeding. Following the hearing, the parties filed post-hearing briefs, and proposed findings of fact and conclusions of law.
On February 5, 2004, the Council issued Resolution and Order No. R-04-66. In this 79-page Resolution and Order, the Council ordered a refund of approximately $7,200,000, plus $4,100,000 in interest, relating to certain costs which the Council found had been improperly flowed through ENO's FAC: (1) $3,957,925, plus interest, associated with excess costs from transactions related to EPI; (2) $1,831,404, plus interest, associated with "wrongful profits"; and (3) $1,414,098, plus interest, associated with capacity costs related to firm energy purchases. The Council rejected the plaintiffs' claims relating to SFI Period Costs, the use of a margin in making power purchase decisions, and other alleged "imprudent procurement practices." ENO complied with the Resolution and refunded $11,310,072 to its customers.
The plaintiffs appealed the Council's Resolution to the district court seeking additional refunds. On May 26, 2005, after briefing and oral argument, Judge Robin Giarrusso affirmed the Council's Resolution, finding that the evidence in the record supported the Council's decision not to award any refund based on the margin or the SFI Period Costs.
The plaintiffs then appealed this ruling to the Fourth Circuit Court of Appeal. On February 25, 2008, the Fourth Circuit issued a 157-page decision affirming in part and amending in part the Council's Resolution and the trial court's judgment. Gordon v. Council of City of New Orleans, 05-1381 (La.App. 4 Cir. 2/25/08), 977 So.2d 212. The Fourth Circuit rejected three of the four assignments of error, finding that the Council did not act arbitrarily and capriciously when it dismissed the plaintiff's claims regarding SFI Period Costs (Assignment of Error No. 1), the Arkansas Electric Cooperative Corporation Adders7 (Assignment of Error No. 2), or fraud (Assignment of Error No. 4). Regarding the SFI Period Costs, the Fourth Circuit devoted 64 pages analyzing the Council's role in setting rates, the parties' positions on SFI Period Costs, relevant legal authorities, expert testimony, and the testimony before the Council. The court then made several paragraphs of relevant findings on the SFI period costs, all supporting its conclusion that "we find that this assignment of error does not have merit, and conclude that the district court was also correct in affirming the Resolution of the City Council as to its findings in the administrative proceeding."8 Id. at 277. However, the Fourth Circuit substantially modified the Council's decision not to award any refund based on ENO's use of the margin.9 With respect to plaintiffs' claim concerning the margin, the court discussed the issue for 32 pages and then reversed the Council's Resolution only as to the amount refunded, which had been $11,000,000 as to the margin. Id. at 297.10 This modification to the refund amount was stated to be based on the court's apparent beliefs that the Council's refund, $11,000,000, was (1) disproportionate to a refund ordered as a result of a settlement with the Louisiana Public Service Commission ("LPSC") in another case, Delaney v. Entergy, Inc., $72,000,000, and (2) too low considering the refund amount the Council's own advisors had recommended, which the court stated was $34,300,000. Id. In reality, the $72,000,000 refund in Delaney had nothing to do with margins and the $34,300,000 recommended by the City Council advisors was actually for SFI Period Costs, not margins. After reviewing the opinion, both parties moved for a rehearing, with the plaintiffs requesting that the Fourth Circuit correct its "clerical error" and leave in place the refund amount, but change its justification for the refund from Assignment of Error Three to Assignment of Error One.
The court of appeal denied the defendants' rehearing application but granted that of ...
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