United States Court of Appeals, District of Columbia Circuit
February 2, 2018
Petition for Review of Orders of the Federal Energy
Michael R. Fontham argued the cause for petitioner. With him
on the briefs were Noel J. Darce, Dana M. Shelton, and Justin
A. Swaim. Paul L. Zimmering entered an appearance.
E. Cafer, Senior Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were David L. Morenoff, General Counsel, and Robert H.
Clifford M. Naeve argued the cause for intervenors. With him
on the brief were Gerard A. Clark, Matthew W.S. Estes,
Gregory W. Camet, Glen Ortman, Dennis Lane, and Paul Randolph
Hightower. Jennifer S. Amerkhail entered an appearance.
Before: Garland, Chief Judge, Rogers, Circuit Judge, and
Williams, Senior Circuit Judge.
Williams, Senior Circuit Judge
finding a rate unjust and unreasonable under § 206 of
the Federal Power Act, 16 U.S.C. § 824e, the Federal
Energy Regulatory Commission sets a new just and reasonable
rate to take effect for the future. In addition, the
Commission "may order" refunds for a portion of the
period in which the unreasonable rate was in effect.
Id. § 824e(b). Here the Commission found in
2004 that certain of Entergy Corporation's rates were
unjust and unreasonable. Opinion No. 468, 106 FERC
¶ 61, 228, PP 60-77 (2004). After a good deal of
vacillation, it refused to require refunds. 135 FERC ¶
61, 218, PP 20-25 (2011); 142 FERC ¶ 61, 211, PP 49- 77
(2013). On a challenge by the Louisiana Public Service
Commission ("LPSC"), we remanded the case to the
Commission, finding, as urged by LPSC, that the Commission
had failed to adequately "explain its reasoning in
departing from its 'general policy' of ordering
refunds when consumers have paid unjust and unreasonable
rates." Louisiana Public Service Commission v.
FERC, 772 F.3d 1297, 1298 (D.C. Cir. 2014)
("Louisiana III"). (The numbering will
soon be clear.)
remand, the Commission clarified that it actually has no
general policy of ordering refunds in cases of rate design.
155 FERC ¶ 61, 120, P 17 (2016) ("Order on
Remand"); 156 FERC ¶ 61, 221, P 20 (2016)
("Rehearing Order"). Now that the
Commission has corrected its characterization of its own
precedent, we find that the Commission's denial of
refunds accords with its usual practice in cost allocation
cases such as this one. We also find that the Commission
adequately explained its conclusion that it would be
inequitable to award refunds in this case. The Commission did
not abuse its discretion; we deny the petition for review.
* * *
the factual and procedural background has been recited at
length in our three prior decisions. See Louisiana Public
Service Commission v. FERC, 184 F.3d 892, 894-97 (D.C.
Cir. 1999) ("Louisiana I"); Louisiana
Public Service Commission v. FERC, 482 F.3d 510, 513-15
(D.C. Cir. 2007) ("Louisiana II");
Louisiana III, 772 F.3d at 1299-1302. We repeat here
only what is necessary for the present decision.
than two decades ago, LPSC filed a complaint under §
206(a), 16 U.S.C. § 824e(a), challenging Entergy's
allocation of capacity costs among its various operating
companies. At the time, Entergy did so on the basis of the
companies' total usage at the time of peak demand,
regardless of whether the load was "firm"
(entitling the customer to service at any time) or
"interruptible" (subject to Entergy's
curtailment at any time of insufficient capacity). When
Entergy had set these rates, the system was "awash in
capacity" and projected firm load would have required no
more capacity. As a result, charging interruptible load for
capacity costs was of comparatively little importance in
terms of signaling to customers whether to use firm or
interruptible service, or to Entergy whether to invest in
more capacity. Over time, however, Entergy's capacity
became inadequate to handle all demand; it changed its
planning criteria so that, in deciding whether to add
capacity, it no longer counted interruptible load.
Louisiana I, 184 F.3d at 896.
Commission initially rejected LPSC's complaint, 76 FERC
¶ 61, 168 (1996); 80 FERC ¶ 61, 282 (1997), but we
reversed in Louisiana I. The Commission had in 1981
adopted the principle that costs should be allocated to
customers according to the principle of cost causation; we
rejected the Commission's explanations for failing to
adhere to that principle. As we explained, interruptible
customers do not cause the utility to incur capacity costs;
by definition, the utility can curtail such service when load
exceeds capacity. Charging them for capacity costs thus
creates an uneconomic disincentive to the use of
interruptible service; customers are dissuaded from using
interruptible service even where the utility's costs of
providing that service fall well below the potential benefit
to the customer. By the same token, to the extent that such a
cost allocation relieves firm customers of the
burden of covering capacity costs that they do cause the
utility to incur, it provides an inadequate disincentive to
the choice of such service and signals to the utility more
need for adding capacity than really exists. Louisiana
I, 184 F.3d at 896-97; James C. Bonbright, Principles of
Public Utility Rates 494-96 (2d ed. 1988); 1 Kahn, Economics
of Regulation 89-95 (2d ed. 1988).
remand from Louisiana I, the Commission ultimately
found Entergy's inclusion of interruptible load in the
cost allocation equation to be unjust and unreasonable. It
ordered the cost allocation changed for the future, but
denied LPSC's request for refunds, which § 206(b),
16 U.S.C. § 824e(b), gave it authority to order for a
15-month period starting at a date set by the Commission at
the outset of the proceedings. Opinion No. 468, 106
FERC ¶ 61, 228, PP 60-77, 82-89 (2004), rehearing
denied, Opinion 468-A, 111 FERC ¶ 61, 080, PP 10-
22. Because Louisiana customers relied on interruptible
service in a higher proportion than other Entergy customers,
they gained from the ordered future change in cost
allocation, and would have gained more from any refund. In ...