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Louisiana Public Service Commission v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

March 6, 2018

Louisiana Public Service Commission, Petitioner
Federal Energy Regulatory Commission, Respondent Arkansas Public Service Commission and Entergy Services, Inc., Intervenors

          Argued February 2, 2018

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

          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.

          Holly 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. Solomon, Solicitor.

          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

         After 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.)

         On 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.

         * * *

         Much of 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.

         More 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.

          The 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).

         On 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 ΒΆ 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 ...

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