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

• Decision Date: 07 December 2021
• Docket Number: C/w 20-1356,No. 20-1104,20-1104
• Citation: 20 F.4th 1
• Parties: LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Arkansas Public Service Commission and Entergy Services, LLC, Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

20 F.4th 1

LOUISIANA PUBLIC SERVICE COMMISSION, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentArkansas Public Service Commission and Entergy Services, LLC, Intervenors

No. 20-1104

C/w 20-1356

United States Court of Appeals, District of Columbia Circuit.

Argued September 23, 2021

Decided December 7, 2021

Michael R. Fontham argued the cause for petitioner. With him on the briefs were Dana M. Shelton and Justin A. Swaim.

Carol J. Banta, Senior Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the briefs were Matthew R. Christiansen, General Counsel, and Robert H. Solomon, Solicitor.

Dennis Lane, Glen L. Ortman, Paul R. Hightower, Sanford I. Weisburst, Gregory W. Camet, Mark Strain, Jay Breedveld, Marnie Ann McCormick, Carl R. Hennies, and Zackary R. Clark were on the brief for intervenors Entergy Services, LLC, and Arkansas Public Service Commission in support of respondent. Marie Denyse Zosa entered an appearance.

Before: Henderson and Jackson, Circuit Judges, and Sentelle, Senior Circuit Judge.

Sentelle, Senior Circuit Judge:

The Louisiana Public Service Commission ("the Louisiana Commission") petitions for review of two orders of the Federal Energy Regulatory Commission ("FERC"). Opinion No. 565 , 165 FERC ¶ 61,022 (Oct. 18, 2018), reh'g denied , 169 FERC ¶ 61,179 (Dec. 3, 2019) ; Order Denying Complaint , 169 FERC ¶ 61,113 (Nov. 21, 2019), Order Addressing Arguments Raised on Reh'g , 172 FERC ¶ 61,056 (July 16, 2020). The Louisiana Commission objects that FERC acted arbitrarily and capriciously by excluding certain transactions from the calculation of a remedy and by denying a subsequent complaint relating to those same transactions. Finding no merit to these objections, we deny the petitions for review.

I. Background

From 1982 to 2016, six utilities—Entergy Arkansas, Inc.; Entergy Louisiana, L.L.C.; Entergy Mississippi, Inc.; Entergy New Orleans, L.L.C.; Entergy Texas, Inc.; and Entergy Gulf States, L.L.C.—operated according to the Entergy System Agreement ("the System Agreement"), which required the six utilities to plan and operate their facilities as a single electric system. FERC mandated that production costs among the utilities be roughly equal. Louisiana Pub. Serv. Comm'n v. FERC , 522 F.3d 378, 384 (D.C. Cir. 2008). The System Agreement "has been a feature of many cases before this Court." Council of New Orleans v. FERC , 692 F.3d 172, 174 (D.C. Cir. 2012) ; see, e.g. , Arkansas Pub. Serv. Comm'n v. FERC , 712 F. App'x 3, 4 (D.C. Cir. 2018) ; Louisiana Pub. Serv. Comm'n v. FERC , 522 F.3d at 383 ; Louisiana Pub. Serv. Comm'n v. FERC , 174 F.3d 218, 220 (D.C. Cir. 1999).

Relevant to this case, the System Agreement includes provisions concerning excess capacity held by any one utility. Section 30.03 of the System Agreement, entitled "Allocation of Energy," establishes the procedure for allocating low-cost energy. The lowest cost energy available to each utility must first be allocated to the native load of that utility. The term "native load" refers to the customers that each utility is required to serve under franchise or long-term contract. Only then can it be made available to supply the requirements of other Companies’ loads. Unused, higher-cost energy may then be sold to third parties.

In 2009, the Louisiana Commission filed a complaint ("the 2009 Complaint") alleging that between 2000 and 2009, Entergy Arkansas was selling low-cost energy to off-system third parties in violation of the System Agreement. According to the Louisiana Commission, the practice of selling low-cost energy to third parties before fulfilling the requirements of the system violated the System Agreement. Review of this claim proceeded in three phases: Phase 1 determined the existence of any liability; Phase 2 determined the proper method for calculating damages; and Phase 3 reviewed the damage calculation for accuracy.

In Phase 1, FERC held that individual utilities are permitted to make off-system sales of energy so long as those sales comply with the System Agreement. Opinion No. 521 , 139 FERC ¶ 61,240 (June 21, 2012), reh'g denied in part and granted in part , Opinion 521-A , 155 FERC ¶ 61,064 (Apr. 21, 2016). When an individual utility makes off-system sales, they are known as opportunity sales and are governed by Section 30.04 of the System Agreement entitled "Energy for Sales to Others." Sales made by the System, rather than by an individual utility, for the System's collective benefit are known as Joint Account Sales and are governed by Section 4.05 of the System Agreement.

Despite finding that that Entergy Arkansas did have the right under the System Agreement to make opportunity sales, FERC held that Entergy Arkansas still violated the System Agreement because it accounted for those sales as part of its native load under Section 30.03 of the System Agreement rather than as sales to others under Section 30.04. In sum, Entergy Arkansas was selling low-cost energy to third parties rather than giving the other utilities in the System an opportunity to utilize that low-cost energy. FERC ordered that Entergy Arkansas make payments to the other utilities in the System to refund their losses resulting from the violation.

FERC's distinguishing between Joint Account Sales under Section 4.05 and opportunity sales under Section 30.04 was reviewed and upheld as reasonable in Entergy Services, Inc. v. FERC , No. 17-1251, 2021 WL 3082798, *5 (D.C. Cir. July 13, 2021) (per curiam).

In Phase 2 of the litigation, FERC determined the method for calculating the damages owed by Entergy Arkansas. Opinion No. 548 , 155 FERC ¶ 61,056 (Apr. 21, 2016), reh'g denied , Opinion No. 548-A , 161 FERC ¶ 61,171 (Nov. 16, 2017). FERC ordered a "full re-allocation using the [Intra-System Bill], to determine how the system would have looked had Entergy properly applied the System Agreement ...." The method selected for calculating damages is not at issue in this petition.

In Phase 3, an Administrative Law Judge ("ALJ") was overseeing the calculation of damages by Entergy Arkansas. Phase III Initial Decision , 160 FERC ¶ 63,009 (July 27, 2017). Before the ALJ, Entergy Arkansas identified a subset of the sales in question made from January through September 2000 ("the Grand Gulf Sales"), asserting that they should not be included in the damage calculation. According to Entergy Arkansas, the Grand Gulf Sales, unlike the other sales in dispute, were accounted for as Joint Account Sales under Section 4.05.

The ALJ rejected the argument that the Grand Gulf Sales should be excluded from the damage calculation despite their differences from the other sales. Upon review, FERC reversed the decision of the ALJ, finding that the Grand Gulf Sales, unlike the other sales, were accounted for as Joint Account Sales and therefore should not be included in the damage calculation. FERC distinguished the Grand Gulf Sales from the other opportunity sales from 2000 through 2009 by finding that the Grand Gulf Sales, unlike the other opportunity sales, were not improperly allocated under section 30.03 because Joint Account Sales are governed by Section 4.05.

FERC went on to find that any determination of whether the Grand Gulf Sales were properly accounted for as Joint Account Sales was beyond the scope of the proceeding, which was to remedy the damages caused by the opportunity sales of Entergy Arkansas. FERC rejected the Louisiana Commission's argument that Entergy Arkansas ought to be estopped from asserting that the Grand Gulf Sales were Joint Account Sales or that this was an improper collateral attack on earlier FERC opinions. FERC noted that the Louisiana Commission could file an additional complaint to address the issue of whether the Grand Gulf Sales were properly accounted for as Joint Account Sales. FERC reaffirmed these holdings upon the Louisiana Commission's request for rehearing.

In response to FERC's orders, the Louisiana Commission petitioned this court for review of FERC's decision regarding the Grand Gulf Sales. Contemporaneously, the Louisiana Commission filed a new complaint ("the 2019 Complaint"). The Louisiana Commission alleged that the Grand Gulf Sales, while appropriately accounted for under Section 4.05 of the agreement, were improperly calculated under that Section and that the other utilities of the System were not properly compensated from the revenues of those sales.

At that point in time, the litigation surrounding the Grand Gulf Sales had outlived the Entergy System itself. Entergy Arkansas withdrew from the System Agreement in 2013. The remaining utilities and their respective regulators—including the Louisiana Commission—formally terminated the System Agreement at the end of 2015 by entering into the Settlement Agreement.

In response to the 2019 Complaint, Entergy Services, LLC, moved FERC to dismiss the Complaint because the Louisiana Commission had waived its right to bring this claim in the Settlement Agreement. FERC agreed with Entergy Services that the 2019 Complaint is barred by the Settlement Agreement and denied the Complaint. Order Denying Complaint , 169 FERC ¶ 61,113 (Nov. 21, 2019), Order Addressing Arguments Raised on Rehearing , 172 FERC ¶ 61,056 (July 16, 2020). The Louisiana Commission timely petitioned this court to review FERC's Order Denying the 2019 Complaint.

We will set aside a decision of FERC if it is arbitrary, capricious, or otherwise contrary to law. Louisiana Pub. Serv. Comm'n v. FERC , 482 F.3d 510, 517 (D.C. Cir. 2007). Its factual determinations must be supported by substantial evidence. 16 U.S.C. § 825l(b).

II. The Grand Gulf Sales

The Louisiana Commission first contends that FERC's exclusion of the Grand Gulf Sales from the damage calculation was an irrational change of position. Under the arbitrary and capricious standard, FERC is permitted to change its position, but it must provide a reasoned explanation before departing from prior rulings. Louisiana Pub. Serv....