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

• Decision Date: 01 August 2014
• Docket Number: Nos. 13–60140,13–60141.,s. 13–60140
• Citation: 761 F.3d 540
• Parties: LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

761 F.3d 540

LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 13–60140, 13–60141.

United States Court of Appeals,Fifth Circuit.

Aug. 1, 2014.

Michael Fontham, Esq., Noel Joseph Darce, Esq., Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA, Brandon Mark Frey, Louisiana Public Service Commission, Baton Rouge, LA, for Petitioner.

Carol Jayne Banta, Robert Harris Solomon, Esq., Federal Energy Regulatory Commission, Washington, DC, for Respondent.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

Before WIENER, HAYNES, and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

In these petitions for review the Louisiana Public Service Commission (the “Louisiana Commission”) challenges the Federal Energy Regulatory Commission's (“FERC”) interpretation of contractual language. Holding, among other things, that FERC's interpretation is not arbitrary, unreasonable, or contrary to law, we DENY in part and DISMISS in part the Louisiana Commission's petitions for review.

FACTS AND PROCEEDINGS

A. The Entergy System and the System Agreement

Entergy Corporation (“Entergy Corporation”) ¹ sells electricity in Arkansas, Louisiana, Mississippi, and Texas through its six operating companies. 120 FERC ¶ 61,079 at PP 1, 3 (2007). The “System Agreement,” which was first executed in 1951, governs dealings between the operating companies and establishes an operating committee that comprises representatives from Entergy Corporation and each operating company. La. Pub. Serv. Comm'n v. FERC, 522 F.3d 378, 383 (D.C.Cir.2008) (“ La.2008 ”). Each operating company accounts for the costs of generation plants in its jurisdiction, and the committee spreads investment costs among the operating companies by assigning new plants on a rotating basis and dispersing costs associated with facilities that benefit the entire Entergy System. Id.; see Entergy La., Inc. v. La. Pub. Serv. Comm'n, 539 U.S. 39, 42, 123 S.Ct. 2050, 156 L.Ed.2d 34 (2003). These efforts ideally achieve a rough equalization of costs among the operating companies.

B. FERC's Regulatory Role

The Federal Power Act (“FPA”), 16 U.S.C. §§ 824–824w, provides FERC statutory authority over the transmission and sale of electric energy at wholesale in interstate commerce. FERC regulates all rates and charges within its jurisdiction by confirming that they are “just and reasonable”and not unduly discriminatory or preferential. §§ 824d, 824e; see also New York v. FERC, 535 U.S. 1, 33, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) (Thomas, J., dissenting) (noting FERC's “statutory mandate to regulate when it finds unjust, unreasonable, unduly discriminatory, or preferential treatment”). Section 206 of the FPA provides FERC authority to independently investigate rates, § 824d(e), but a complainant may urge FERC to investigate a rate in a Section 206 proceeding. In a Section 206 proceeding the burden is on the complainant to demonstrate that the rate is “unjust, unreasonable, unduly discriminatory, or preferential.” § 824e(b). If FERC finds that the rate is unlawful, it must set a just, reasonable, nondiscriminatory rate. § 824e(a).

C. Entergy Louisiana Acquires the Vidalia Power Plant

In 1985, Entergy Louisiana purchased most of the output from the Vidalia Hydroelectric Power Plant (“Vidalia”). “Vidalia was a local affair”; Entergy Corporation was minimally involved in the purchase, and the Entergy System made no efforts to rely on resources similar to Vidalia. La.2008,522 F.3d at 396. The Louisiana Commission “approved a phased-in rate schedule for the costs of the plant, which limited its costs to Entergy Louisiana initially, but then increased them until they leveled off at the end of the long-term contract.” Id. at 385. The Louisiana Commission also guaranteed the “full recovery of [Vidalia's] costs through Louisiana ratepayers.” Id. at 396.

In 2002, the Louisiana Commission entered a settlement with Entergy Louisiana “granting the latter exclusive retention of Vidalia's accelerated tax deductions for the remaining life of the contract,” which allowed tax benefits to flow to Louisiana ratepayers. Id. Another component of the settlement provided that Entergy Louisiana would “maintain its pre-existing capital structure” in any rate proceeding for a ten-year period. In re Entergy La., No. U–20925, 2002 WL 31618829, at *10 (Sept. 18, 2002) (“ La. Pub. Serv. Comm'n 2002 ”). Accordingly, and as discussed in detail below, “[a]s part of a rate case subsequent to that order,” Entergy Louisiana's capital structure was adjusted. Entergy Servs., Inc., 137 FERC ¶ 61,029 at P 74 (2011) (“ Opinion No. 514 ”).

D. FERC Imposes the “Bandwidth Remedy”

Over the 50–year operation of the Entergy System FERC twice has fixed an inequitable rate. In 1985, FERC attempted to remedy disparities in nuclear-capacity costs among the operating companies by ordering nuclear-investment equalization in the Entergy System. La.2008,522 F.3d at 384. In 2005, FERC acted again, this time by fashioning a “bandwidth remedy” in response to a complaint initiated by the Louisiana Commission. At the initial stage of the complaint proceeding, an administrative law judge found that fuel-cost disparities among the operating companies had left production costs unequal and imposed a “numerical bandwidth remedy” to roughly equalize production costs across the operating companies. La. Pub. Serv. Comm'n v. Entergy Servs., Inc., 106 FERC 63,012 at P 25, 51 (2004). The bandwidth remedy “ensure[d] that for each calendar year beginning with 2003, no Entergy Operating Company is more than +/7.5% relative to [the] System average [production costs].” Id. at P 50.

FERC subsequently affirmed the administrative law judge's finding that production costs were no longer just and reasonable and affirmed the imposition of a bandwidth remedy. La. Pub. Serv. Comm'n v. Entergy Servs., Inc., 111 FERC ¶ 61,311 at P 1 (2005) (“ Opinion No. 480 ”). FERC, however, “reverse[d] [the administrative law judge's] determination on the appropriate bandwidth in favor of a broader bandwidth that eases the severity of the remedy's impact.” Id. Instead of the 7.5% bandwidth, FERC “conclude[d] that a bandwidth remedy of +/11 percent allowing for a maximum of a 22 percent spread of production costs, between Operating Companies on an annual basis, is just and reasonable and will help keep the Entergy System in rough production cost equalization.” Id. at P 144. FERC also excluded Vidalia from the Entergy System when applying the bandwidth remedy because Vidalia was exclusively an Entergy Louisiana resource. Id. at PP 173, 184. The D.C. Circuit held “FERC's adoption of the +/11 percent bandwidth to be within its discretion,” and affirmed FERC's “determination that Vidalia was not planned as a System resource.” La.2008,522 F.3d at 394, 397.

E. Entergy Corporation Implements the Bandwidth Remedy

In 2006, Entergy Corporation amended the System Agreement to account for the bandwidth remedy, and FERC accepted the modifications in 2006 and 2007. See La. Pub. Serv. Comm'n v. Entergy Servs., Inc., 117 FERC ¶ 61,203 (2006) (“ 2006 Compliance Order ”), on reh'g and compliance,119 FERC ¶ 61,095 (2007) (“ 2007 Compliance Order ”), aff'd, La. Pub. Serv. Comm'n v. FERC, 341 Fed.Appx. 649, 649 (D.C.Cir.2009) (“ La.2009 ”). Specifically, Entergy Corporation modified “Service Schedule MSS–3” to comply with Opinion No. 480's bandwidth remedy. The System Agreement now controls deviations in each operating company's production costs to contain them within +/11% of the System average production costs. The System Agreement provides a formula for calculating the actual production costs for each company and the System's average production costs and specifies the billing procedure for paying or receiving funds as required to maintain the rough equalization of production costs. See Section 31.09(d). The System Agreement also provides that the operating companies' data reported in their annual FERC Form 1 will populate the bandwidth formula. See, e.g., Section 30.12.1 (“All Rate Base, Revenue and Expense items shall be based on the actual amounts on the Company's Books for the twelve months ended December 31 of the previous year as reported in FERC Form 1.”).

1. First Annual Bandwidth Proceeding

At Entergy Corporation's first annual bandwidth proceeding, Entergy Corporation filed calculations of cost disparities and the operating companies' respective payments and receipts based on the previous year's production-cost data. An administrative law judge ruled on Entergy Corporation's submissions, Entergy Servs. Inc., 124 FERC ¶ 63,026 (2007), and FERC affirmed in part and reversed in part. Entergy Servs. Inc., 130 FERC ¶ 61,023 (2010) (“ Opinion No. 505 ”), on reh'g,139 FERC ¶ 61,103 (2012) (“ Opinion No. 505–A ”), order on compliance,139 FERC ¶ 61,104 (2012), order on further reh'g,145 FERC ¶ 61,046 (2013). The Louisiana Commission petitioned for review of Opinion Nos. 505 and 505–A before the D.C. Circuit, and the petition is pending. La. Pub. Serv. Comm'n v. FERC, D.C.Cir. No. 12–1282 (D.C.Cir. Filed July 5, 2012).²

2. Second Annual Bandwidth Proceeding

Entergy Corporation's second annual bandwidth proceeding commenced in 2008, and after an initial determination by the administrative law judge, FERC issued two of the orders now before us in this petition. Opinion Nos. 514 and 514–A.

3. Third Annual Bandwidth Proceeding

In the third annual bandwidth proceeding in 2009, FERC denied an interlocutory appeal of an initial decision by the administrative law judge. Entergy Servs. 12–1282 Inc., 130 FERC ¶ 61,170 (2010) (“ Third Bandwidth Interlocutory Order ”). FERC subsequently affirmed the administrative law judge's decision. Entergy Servs., Inc., 139 FERC ¶ 61,105 (2012) (“ Opinion No. 518 ”), on reh'g,145 FERC ¶ 61,047 (2013). The Louisiana Commission petitioned for review of these orders in our Court (5th Cir.13–60874)...