D.C. Circuit Rejects FERC Order Denying Refunds to Louisiana Utilities

On December 5, the D.C. Circuit (Rogers, Wilkins, Williams) issued a decision in Louisiana Public Service Commission v. FERC, the latest in a string of decisions arising out of cost allocations amongst .  Entergy Corporation, through six operating subsidiaries, sells electricity in Arkansas, Louisiana, Mississippi, and Texas.  The six subsidiaries own their generation and transmission facilities individually, but operate jointly as a single system.  Because of this joint operation, the six subsidiaries share production costs pursuant to a FERC-approved System Agreement.  In 1995, the Louisiana Public Service Commission complained that the allocation of capacity costs under the System Agreement was unjust and unreasonable, in violation of the Federal Power Act.  After much litigation, remands, and rehearings, FERC eventually agreed with the Louisiana Public Service Commission that the costs were unjust and unreasonable but declined to order refunds of the misallocated costs.  Unlike excessive rates, FERC reasoned, misallocated costs involve a zero-sum game where the system overall has not over-recovered.  The D.C. Circuit granted Louisiana’s petition for review, holding that FERC had failed to justify its decision not to order a refund of the misallocated costs.  The court noted that FERC does not follow a strict policy against refunds of misallocated costs, and so had to explain why the particular circumstances in this case did not warrant a refund.

—Todd Aagaard