La. Pub. Serv. Comm'n v. Fed. Energy Regulatory Comm'n

• Decision Date: 05 December 2014
• Docket Number: No. 13–1155.,13–1155.
• Citation: 772 F.3d 1297
• Parties: LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Arkansas Public Service Commission, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

772 F.3d 1297

LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.Arkansas Public Service Commission, et al., Intervenors.

No. 13–1155.

United States Court of Appeals, District of Columbia Circuit.

Dec. 5, 2014.

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. Ortman, Paul Randolph Hightower, and Chad James Reynolds.

Before: ROGERS and WILKINS, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion

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.

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 I ”). 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), 1988 U.S.C.C.A.N. 2684. 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, “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).

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 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 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 (“ALJ”) 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 65,023–24 (2001)), reh'g denied, Order Denying Rehearing, 124 F.E.R.C. ¶ 61,275 (2008) ( “Second Order ”). In August 2010, after Entergy petitioned for review and the Commission requested a remand, it amended the refund order to provide further explanation.See Amended Order on Remand, 132 F.E.R.C. ¶ 61,133 (2010) ( “Third Order ”). “There is no question,” the Commission acknowledged, “that the Commission has a policy of granting full refunds to correct unjust and unreasonable rates.” Id. at P. 31. It also rejected several equitable reasons for deviating from the general policy. For one, the fact that the mis-allocation “was not undertaken in bad faith does not militate against applying the Commission's general refund policy here....” Id. at P. 32. For another, because customer usage patterns were not at issue, the Commission did “not see the passage of time as affecting the equities one way or the other.” Id.

Upon rehearing, the Commission reversed itself. See Order Granting Rehearing in Part and Denying Rehearing in Part (“Fourth Order ”), 135 F.E.R.C. ¶ 61,218 (2011). Although confirming that section 206(c) did not bar the refunds LaPSC requested, the Commission declined to order them. Id. at P. 2. “[D]isavow[ing] the distinction” it had “attempted to...