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DC Circuit rules against refunds in Entergy, Louisiana PSC dispute

A federal appeals court Tuesday sided with the US Federal Energy Regulatory Commission in a long-running rate case involving the utility Entergy and the Louisiana Public Service Commission, denying a petition for review that would have opened the door for some $15 million in refunds for Entergy's Louisiana customers.

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The rate dispute stemmed from Entergy's inclusion of interruptible load in its calculation of capacity costs, which led to an unjust and unreasonable cost allocation, the PSC alleged in 1995.

As a result, consumers in Louisiana paid their utility companies too much while consumers in other states paid too little. The PSC sought refunds to transfer some of the overpayment to Entergy's Louisiana operating companies from other Entergy operating companies.

FERC after some back and forth agreed with the state regulators in 2004 and ordered Entergy to adjust its rates. The commission, however, has repeatedly declined to order refunds on the matter, triggering court challenges, most notably from the Louisiana PSC.



In December 2014, the DC Circuit Court of Appeals agreed with the Louisiana PSC that FERC did not justify departure from its "'general policy' of ordering refunds when consumers have paid unjust and unreasonable rates." A three-judge panel remanded the matter back to FERC to reevaluate the decision (Louisiana PSC v. FERC, 13-1155).

On remand, the commission issued an order on April 29, 2016, affirming its decision to exercise its discretion not to order refunds and explaining the reasons why this decision was made and why this determination was the appropriate determination.

FERC denied rehearing of that order on September 26, 2016, and the Louisiana PSC once again asked the DC Circuit to intervene, filing suit November 4, 2016 (Louisiana PSC v. FERC, 16-1382).


NO REFUND POLICY EXISTS FOR RATE DESIGN CASES


In a decision issued Tuesday, the DC Circuit acknowledged that FERC's order on remand "clarified that it actually has no general policy of ordering refunds in cases of rate design."

"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," the court said. "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."

A three-judge panel consisting of Chief Judge Merrick Garland, Senior Circuit Judge Stephen Williams and Circuit Judge Judith Rogers found that FERC, through a series of commission decisions cited in its order on remand, was able to clear up "its previously muddled position" on refunds.

In doing so, it was made evident that while the commission often awards refunds when overcharges lead to over-collection of revenue, the opposite is true in instances where a rate is found to be unjust and unreasonable due to a flaw in rate design, such as the cost allocation at issue in this case.

"In a case where the company collected the proper level of revenues, but it is later determined that those revenues should have been allocated differently, the commission traditionally has declined to order refunds," the court said in its ruling penned by Williams.


COURT POINTS TO LACK OF NET OVER-RECOVERY, OTHER FACTORS


In addition to Entergy not having received any net over-recovery, the case at hand also met two other circumstances common to other instances where FERC's default position is not to order refunds, the DC Circuit said.

"First, it would be difficult for the utility to recover its costs fully," the court said, as "the sums that one set of customers lost through allocation of excessive costs will usually be matched by unduly low rates to another set, from whom it would be difficult or inequitable to extract recompense."

"Second, customer firms that had made operational decisions in reliance on one set of rates would be unable to 'undo' those transactions retroactively in light of the new, corrected rates; a refund would, at least in part, pull the economic rug out from under those transactions," the DC Circuit added.

Of note, when FERC denied rehearing on September 26, 2016, it also conditionally approved Entergy's proposed settlement on the proper amount of refunds, if refunds were to be ultimately granted, for the 15-month period from May 14, 1995, through August 13, 1996. The black box settlement crafted in 2011 was uncontested and called for refunds totaling $15.2 million from Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Mississippi, Entergy New Orleans and Entergy Texas. Entergy Louisiana would be the recipient of that $15.2 million.

Entergy last year argued that the settlement was moot, pointing to the denial of rehearing as reaffirming that refunds should not be issued for the 15-month period. The Louisiana PSC, on the contrary, argued that the settlement was still in play as the rehearing order was subject to appeal, noting it had filed a petition for review of FERC's April and September 2016 orders with the DC Circuit.

Tuesday's opinion, having denied the PSC's appeal, does not address the settlement.

-- Jasmin Melvin, jasmin.melvin@spglobal.com
-- Edited by Matt Eversman, newsdesk@spglobal.com