Louisiana Public Service Commission v. FERC ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 10, 2020 Decided August 20, 2021
No. 20-1024
LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
ENTERGY SERVICES, LLC AND ARKANSAS PUBLIC SERVICE
COMMISSION,
INTERVENORS
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 Dana M. Shelton and Justin A. Swaim.
Lona T. Perry, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were David L. Morenoff, Acting General
Counsel, and Robert H. Solomon, Solicitor.
Glen Ortman, Dennis Lane, Gregory W. Camet, Mark
Strain, and Marnie A. McCormick were on the brief for
intervenors Entergy Services, LLC and Arkansas Public
2
Service Commission in support of respondent. Jennifer S.
Amerkhail and Marie Denyse Zosa entered appearances.
Before: HENDERSON, PILLARD, and KATSAS, Circuit
Judges.
Opinion of the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: The Federal Energy Regulatory
Commission required Entergy Corporation’s five operating
companies to roughly equalize their electricity production
costs. In determining which costs must be equalized, FERC
excluded purchased-power costs that a Louisiana affiliate
incurred in 2005 and amortized in 2008 and 2009. The agency
reasoned that the governing tariff excluded the disputed
amortization expenses. The Louisiana Public Service
Commission (LPSC) challenges this exclusion.
I
Entergy, a public-utility holding company, owns five
operating companies that sell electricity in four states,
including Louisiana. The companies have been governed by a
system agreement requiring them to act as a “single economic
unit.” LPSC v. FERC, 184 F.3d 892, 894 (D.C. Cir. 1999)
(LPSC I). The agreement provided for the companies to
operate power facilities jointly, and it required a “rough
equalization” of their production costs. LPSC v. FERC, 522
F.3d 378, 383–84 (D.C. Cir. 2008) (LPSC II) (cleaned up).1
FERC has long reviewed the operating companies’
allocation of production costs, which affect electricity rates.
See LPSC II, 522 F.3d at 389–90. In 2005, FERC determined
1
The agreement terminated in August 2016, after the events
underlying this petition.
3
that the production costs were not roughly equal and imposed
a “bandwidth remedy” to achieve rough equalization after the
fact: Whenever the yearly production costs of an individual
operating company deviated from the average by more than
11%, companies with lower costs were required to pay
companies with higher costs as necessary to bring all five
companies within that range. LPSC, 111 FERC ¶ 61,311,
PP 28, 145 (2005). Although FERC initially made the
bandwidth remedy effective in 2006, we set aside that effective
date in 2008. See LPSC II, 522 F.3d at 400. In 2011, on
remand from this Court, FERC extended the bandwidth remedy
to production costs incurred on or after June 1, 2005. See
LPSC, 137 FERC ¶ 61,047, P 34 (2011).
In the meantime, Entergy filed a tariff establishing a
formula to calculate production costs subject to the bandwidth
remedy, which FERC largely accepted. LPSC, 117 FERC
¶ 61,203, P 75 (2006). The formula incorporated cost data
from the operating companies’ annual Form 1 reports, which
classify assets and expenses according to FERC’s Uniform
System of Accounts. See 18 C.F.R. pt. 101. The bandwidth
formula was keyed mostly to these FERC accounts. The
formula included a variable for purchased-power expenses
(PURP), which utilities incur when buying power on wholesale
markets. PURP incorporated expenses recorded in FERC
Account 555, which covers purchased-power expenses. See id.pt. 101, acct. 555.
The bandwidth remedy led to annual compliance
proceedings. In April of each year, the operating companies
would report production-cost data for the preceding year on
Form 1. Using that data, Entergy would determine whether any
of its operating companies fell outside the 11% bandwidth and
report the results to FERC.
4
This petition concerns how the bandwidth formula
accounts for deferred production costs. Utilities often must
spread over many years their recovery of large, non-recurring
costs. To do this, a company offsets those costs by creating a
regulatory asset—a type of credit. The company then
amortizes the asset in later years, creating debits chargeable to
customers. Over time, FERC and Entergy have taken different
positions on whether the bandwidth formula should recognize
these production costs when an operating company incurs them
or in later years as it amortizes the associated regulatory asset.
Historically, the Entergy companies recorded regulatory
assets and their related amortization expenses in two FERC
accounts not referenced in the bandwidth formula—Account
407.3 (Regulatory Debits) and Account 407.4 (Regulatory
Credits). Entergy continued this practice in its first bandwidth
filing, the 2007 filing concerning 2006 production data. In
excluding regulatory assets and their amortization from the
bandwidth calculation, Entergy effectively accounted for
deferred production costs when they were incurred, rather than
when the related amortization expenses were recorded. But
FERC rejected this approach. It prohibited the companies from
recording regulatory assets and amortization expenses in
Accounts 407.3 and 407.4 when the assets and expenses could
be traced to another account. See Entergy Servs., Inc., 130
FERC ¶ 61,023, PP 261–65 (2010). And when the assets and
expenses could be traced to accounts incorporated into the
bandwidth formula, it ordered Entergy to treat amortization
expenses as production costs for purposes of the formula. See
LPSC, 132 FERC ¶ 61,253, P 34 (2010).
Perhaps anticipating these rulings, Entergy revised its
accounting for deferred purchased-power costs during the 2008
bandwidth proceedings for 2007 cost data. Because the
regulatory assets and related amortization expenses could be
5
traced to Account 555, Entergy began recording them there,
rather than in Accounts 407.3 and 407.4. And because the
bandwidth formula defined purchased-power expenses by
reference to Account 555, this approach included amortization
expenses in the bandwidth calculation. Entergy thus counted
deferred purchased-power costs when the associated regulatory
assets were amortized, rather than when the underlying costs
actually were incurred.
LPSC challenged this approach, and the parties reached a
settlement. See Entergy Servs., Inc., 128 FERC ¶ 61,181
(2009). It required Entergy to amend the bandwidth formula
“starting with the 2009 Bandwidth Calculation (i.e., effective
May 31, 2009) to provide that all purchased power costs will
be included in the Bandwidth Calculation in the year the costs
are incurred, regardless of whether they are deferred on the
individual Operating Company’s books.” J.A. 1298.
Pursuant to the settlement, Entergy proposed amending the
definition of PURP. Under the amendment, PURP still would
include most purchased-power expenses recorded in Account
555, but it would “exclud[e] the effects, debits and credits,
resulting from a regulatory decision that causes the deferral of
the recovery of current year costs or the amortization of
previously deferred costs.” J.A. 1327. FERC accepted the
proposal and made the amendment effective May 31, 2009,
before the 2009 bandwidth proceedings. See Entergy Servs.,
Inc., 128 FERC ¶ 61,069, P 11 (2009). Under the amendment,
the bandwidth formula again considered deferred purchased-
power costs when the operating companies incurred them, not
when the companies amortized the relevant regulatory assets.
This petition concerns application of the amendment to the
2009 and 2010 bandwidth proceedings, which involve
production costs for 2008 and 2009. FERC reopened these
6
proceedings after it discovered accounting errors in the delayed
bandwidth proceeding for 2005 production costs. There, an
administrative law judge ruled that the operating companies
had erroneously recorded certain regulatory assets and their
associated amortization expenses in Accounts 407.3 and 407.4.
LPSC, 157 FERC ¶ 63,018, P 101 (2016). One of these
deferrals is at issue—a $56.3 million purchased-power cost that
Entergy Louisiana, one of the operating companies, incurred in
2005. To blunt its impact on ratepayers, LPSC had ordered the
company to establish a regulatory asset and amortize it over
four years. Id. The ALJ ruled that Entergy Louisiana should
have recorded the asset and its amortization in Account 555,
and that Entergy had to revise the bandwidth calculation
accordingly. Id. PP 113–14. FERC agreed, but stressed that
any corrections “should be limited to accounting adjustments
that have been shown to have a bandwidth implication.” LPSC,
163 FERC ¶ 61,116, PP 119–20 (2018) (Recalculation Order).
Recognizing that the error implicated the bandwidth
calculations for later years, FERC ordered Entergy Louisiana
to refile its Form 1 report and ordered Entergy to adjust
bandwidth payments for subsequent years “to ensure that
legitimate production costs are properly accounted for on the
FERC Form 1 reports and reflected in rates under the filed
formula.” Id. P 121.
Entergy corrected the accounting and bandwidth
calculations for the $56.3 million regulatory credit that Entergy
Louisiana received in 2005 and the associated amortization
expenses that it recorded in 2006 and 2007. But Entergy did
not change its calculations for the amortization expenses
recorded in 2008 and 2009. It reasoned that those expenses
would not affect the bandwidth remedy under the 2009
amendment, which expressly excluded amortization expenses
from the calculation of purchased-power costs.
7
Entergy’s calculation locked a portion of Entergy
Louisiana’s $56.3 million production cost out of the bandwidth
remedy. When Entergy Louisiana incurred that cost in 2005,
the bandwidth formula recognized deferred purchased-power
costs only upon amortization, so the bandwidth calculation for
2005 did not account for the costs. But for amortization
expenses realized in 2008 and 2009, Entergy read the amended
bandwidth formula to recognize deferred purchased-power
costs only when they were actually incurred, so its revised
calculations excluded those amortization expenses. As a result,
Entergy Louisiana never received bandwidth credit for portions
of the 2005 production cost that it amortized in 2008 and 2009.
FERC agreed with Entergy that the 2009 amendment
excluded these amortization expenses. LPSC, 167 FERC
¶ 61,186, PP 23–25 (2019) (Compliance Order). It reasoned
that because the amended bandwidth formula was part of the
filed rate, FERC could not include the amortization expenses
in the bandwidth calculation. Id. P 29. On rehearing, FERC
rejected LPSC’s proposed interpretation of the 2009
amendment and its fallback arguments for departing from the
amendment. See LPSC, 169 FERC ¶ 61,247 (2019) (Rehearing
Order).
LPSC now seeks review of FERC’s ruling. We have
jurisdiction to consider its petition under 16 U.S.C. § 825l(b).
II
We review FERC orders under the Administrative
Procedure Act, which requires us to set aside decisions that are
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A); see Verso
Corp. v. FERC, 898 F.3d 1, 7 (D.C. Cir. 2018). In a “technical
area like electricity rate design,” we give FERC a significant
degree of deference. FERC v. Elec. Power Supply Ass’n, 577
8
U.S. 260, 292 (2016). We must accept FERC’s factual findings
if they are “supported by substantial evidence.” 16 U.S.C.
§ 825l(b). We must also defer to FERC’s reasonable
interpretation of tariffs, PSEG Energy Res. & Trade LLC v.
FERC, 665 F.3d 203, 208 (D.C. Cir. 2011), and of its own prior
orders, NSTAR Elec. & Gas. Corp. v. FERC, 481 F.3d 794, 799
(D.C. Cir. 2007).
The Federal Power Act requires electric utilities to charge
“just and reasonable” rates. 16 U.S.C. § 824d(a). If FERC
finds that a rate is unreasonable, it may establish a just and
reasonable rate. Id. § 824e(a). Under this authority, FERC
may reallocate production costs under the Entergy system
agreement, including by ensuring compliance with the
bandwidth remedy. LPSC II, 522 F.3d at 390–91. But because
the bandwidth formula is part of a filed rate, FERC’s discretion
is significantly limited. See LPSC v. FERC, 771 F.3d 903, 910
(5th Cir. 2014) (LPSC III); LPSC v. FERC, 606 F. App’x 1, 4
(D.C. Cir. 2015) (LPSC IV). Under the filed-rate doctrine, a
utility “may not charge, or be forced by [FERC] to charge, a
rate different from the one on file.” SFPP, L.P. v. FERC, 967
F.3d 788, 801–02 (D.C. Cir. 2020) (cleaned up); see also 16
U.S.C. § 824d(c), (d) (requiring regulated utilities to
prospectively file rates with FERC). As a corollary, FERC may
adjust rates only prospectively. See id. § 824e(a). It cannot
alter rates to retroactively correct for a past under-collection.
Verso Corp., 898 F.3d at 10.
A
Because this case turns on the effect of the 2009
amendment, we first decide what it means. We review FERC’s
tariff interpretations with a “Chevron-like analysis.” PSEG,
665 F.3d at 208 (cleaned up). Under that framework, we must
9
enforce unambiguous tariff language, but we defer to FERC’s
reasonable interpretation of ambiguous text. Id.
The 2009 amendment added the emphasized language to
the definition of the PURP variable in the bandwidth formula:
PURP = Purchased Power Expense recorded in FERC
Account 555, but excluding payments made pursuant
to Section 30.09(d) of this Service Schedule and
excluding the effects, debits and credits, resulting
from a regulatory decision that causes the deferral of
the recovery of current year costs or the amortization
of previously deferred costs.
J.A. 1327 (emphasis added). The parties dispute whether the
amendment applies to costs that are amortized after its adoption
but rest on deferral decisions that predate it. FERC and Entergy
contend that the amendment does so apply, while LPSC
contends that it does not.
We agree with FERC, for nothing in the amendment turns
on the timing of a deferral decision. The amendment does not
target deferral decisions as such, but rather their “effects.” So
long as a purchased-power expense arises after the
amendment’s effective date and results from a deferral
decision, the amendment applies by its terms. And when a
regulatory decision orders a company to amortize a previously
incurred cost over several years, the ensuing amortizations
plainly qualify as such “effects.”
In response, LPSC highlights the phrase “debits and
credits.” It argues that the amendment applies only if it would
exclude both the debits and credits associated with a particular
deferral decision. And so, LPSC concludes, the amendment
does not exclude the “debits” of a preexisting deferral decision
10
because the related “credits” occurred at the time of the
deferral—before the amendment had become effective.
LPSC’s interpretation defies grammar. As nouns set off
by commas, “debits and credits” are “explanatory
equivalent[s]” of “effects,” the immediately preceding noun.
Appositives, The Chicago Manual of Style § 6.28 (17th ed.
2017); see R. Huddleston & G. Pullum, The Cambridge
Grammar of the English Language 1357–58 (1st ed. 2002). In
this context, “and” assumes its “distributive sense”—i.e., it
means “A and B, jointly or severally.” Or and And, Garner’s
Dictionary of Legal Usage (3d ed. 2011) (emphasis added); see
also Huddleston & Pullum, supra, at 1281 (distributive sense
is the “default”). The amendment treats debits and credits as
distinct classes of excluded “effects.” After all, an effect is
“[s]omething brought about by a cause or agent; a result.”
Effect, American Heritage Dictionary (5th ed. 2018). And no
fair reading of that term requires both a debit and a credit to
constitute an effect resulting from a deferral decision. Instead,
debits that arise from a deferral decision are “effects” of the
decision regardless of whether the amendment also happens to
cover a related credit.
LPSC’s interpretation is also in tension with the rest of the
amendment, which contemplates decisions that create only
debits or only credits. Recall that the amendment excludes the
effects of regulatory decisions that cause “the deferral of the
recovery of current year costs or the amortization of previously
deferred costs.” J.A. 1327 (emphasis added). A decision that
requires a company to defer cost recovery causes only a credit,
while a decision that permits the company to amortize
previously deferred costs causes only debits. By listing these
causes disjunctively, the amendment confirms its extension to
regulatory decisions that cause only credits or only debits. In
contrast, to apply only to decisions that cause both a credit and
11
a debit, the amendment would have had to cover regulatory
decisions that cause “the deferral of the recovery of costs and
the amortization of those costs.”
LPSC next argues that other evidence, such as trial
testimony and the settlement agreement that precipitated the
amendment, show an intent to limit the amendment to later
deferral decisions. According to LPSC, the settlement
agreement is particularly important because it too is part of the
filed rate. But because the amendment “unambiguously
addresses the matter at issue,” its language controls. PSEG,
665 F.3d at 208 (cleaned up). As for the settlement agreement,
it simply required Entergy to amend the definition of the PURP
variable in the future; the agreement itself did not alter the
bandwidth formula, so it is not part of the filed rate.2
In sum, the 2009 amendment is not limited to deferral
decisions that postdate it. So long as an amortized purchased-
power expense “result[s] from” a deferral decision, the
amendment applies.
B
Our construction of the 2009 amendment largely resolves
this appeal. As noted, the bandwidth formula is part of the filed
rate. See LPSC III, 771 F.3d at 910; LPSC IV, 606 F. App’x at
4. In the proceedings below, FERC found that the amendment
was part of the bandwidth formula—and thus the filed rate—
2
To the extent LPSC contends that the settlement agreement
should control over the amendment, we cannot consider its
argument. The 60-day deadline to challenge FERC’s order
approving the 2009 amendment has long expired. See 16 U.S.C.
§ 825l(b). Challenging the validity of that amendment would
constitute an untimely collateral attack on the order approving it. See
Pac. Gas & Elec. Co. v. FERC, 533 F.3d 820, 825 (D.C. Cir. 2008).
12
for the 2009 and 2010 proceedings. See Rehearing Order, 169
FERC ¶ 61,247, P 29; Compliance Order, 167 FERC ¶ 61,186,
P 25. This ruling, which no party disputed below, is consistent
with FERC’s order accepting the amendment and ruling that it
was effective for the 2009 bandwidth proceedings. Entergy
Servs., Inc., 128 FERC ¶ 61,069, P 11.
This finding obligated Entergy to exclude the disputed
expenses from the bandwidth calculation. Even though the
purchased-power expenses that Entergy Louisiana amortized
in 2008 and 2009 were recorded in Account 555, they were also
“effects” (or “debits”) “resulting from a regulatory decision
that causes the deferral of the recovery of current year costs.”
The 2009 amendment thus unambiguously excluded them from
the bandwidth calculation. And FERC was bound to enforce
the amendment as part of the filed rate, which it could not
waive or retroactively amend. See NSTAR, 481 F.3d at 800.
C
LPSC raises three fallback arguments to support including
the amortized expenses in the bandwidth formula despite the
2009 amendment. They are unpersuasive.
First, LPSC contends that FERC failed to follow its
Recalculation Order, which required Entergy to adjust
bandwidth payments after correcting the accounting errors
uncovered in the 2005 bandwidth proceeding. 163 FERC
¶ 61,116, P 121. LPSC claims that this required Entergy to
include amortization expenses in its subsequent bandwidth
calculations for later years. But the Recalculation Order
mandated corrections to ensure that Entergy Louisiana’s
expense was “reflected in rates under the filed formula.” Id.And beginning with bandwidth calculations for 2008 expenses,
the “filed formula” included the 2009 amendment, which
FERC was bound to apply. See NSTAR, 481 F.3d at 800.
13
Second, LPSC contends that applying the amendment to
expenses that stem from the 2005 deferral decision would
violate the prohibition on retroactive ratemaking. According
to LPSC, the 2005 rate must govern because it was effective
when LPSC ordered Entergy Louisiana to defer recovering the
$56.3 million expense. By changing the applicable rate, LPSC
reasons, FERC retroactively removed a benefit that Entergy
Louisiana could reasonably expect to receive.
LPSC misunderstands the rule against retroactive
ratemaking. As discussed, the bandwidth remedy turns on
production costs recorded in the preceding year. At most, the
rule prohibited FERC from changing the rate for expenses that
the companies had already recorded. See NSTAR, 481 F.3d at
800. For example, as the ALJ in these proceedings held, the
rule prohibited applying the 2009 amendment to 2005
production costs, which would have allowed Entergy
Louisiana to fully account for its costs. LPSC, 157 FERC
¶ 63,018, P 111. Although LPSC’s 2005 deferral decision led
to the amortization expenses at issue, Entergy Louisiana
incurred those expenses in 2008 and 2009. And the rule against
retroactive ratemaking does not protect a utility’s expectation
that a rate will not change in the future. By seeking to change
the rate that would otherwise govern production expenses
recorded in 2008 and 2009, LPSC itself asks for an improper
retroactive rate increase. As FERC correctly concluded, it
cannot adjust current rates to make up for “over- or under-
collection in prior periods.” Old Dominion Elec. Coop. v.
FERC, 892 F.3d 1223, 1227 (D.C. Cir. 2018) (cleaned up).
Alternatively, LPSC contends that the rule against
retroactive ratemaking at least prohibited FERC from applying
the 2009 amendment to expenses that the operating companies
had incurred before FERC approved the amendment—that is,
to production costs between January 2008 and May 2009.
14
Because LPSC did not raise this argument before FERC, we
cannot consider it. See 16 U.S.C. § 825l(b). In its rehearing
motion, LPSC argued only that the rule required the 2005 rate
to govern all amortization expenses related to the deferral. It
did not seek to apply the filed rate for the year in which
expenses were amortized. Indeed, LPSC asserted to the ALJ
that the amendment was “effective beginning with the 2009
Bandwidth filing for the 2008 test year.” J.A. 90. And it told
FERC that the settlement agreement “unambiguously applies
to costs and deferrals going forward, beginning in the 2008 test
year used for the 2009 Bandwidth Calculation.” J.A. 1335.
LPSC cannot now pivot to new arguments that it previously
conceded. See Cal. Dep’t of Water Res. v. FERC, 306 F.3d
1121, 1125 (D.C. Cir. 2002).3
Third, LPSC contends that FERC arbitrarily declined to
account for the amortized expenses under 16 U.S.C. § 825h,
which allows FERC to “perform any and all acts . . . as it may
find necessary or appropriate” to enforce the Federal Power
Act. But the filed-rate doctrine “restrict[s] the remedies that
FERC may order” under § 825h, Verso Corp., 898 F.3d at 10,
by depriving it of “discretion to waive the operation of a filed
rate or to retroactively change or adjust a rate for good cause or
for any other equitable considerations,” Old Dominion, 892
F.3d at 1230. And, to reiterate, the filed rate required FERC to
exclude the disputed expenses from the bandwidth calculation.
LPSC objects that the filed-rate doctrine does not apply
“when judicial invalidation of Commission decisions has
3
Given our disposition, we need not consider FERC’s
alternative ruling that LPSC consented to any retroactive rate.
Rehearing Order, 169 FERC ¶ 61,247, P 30; see also NSTAR, 481
F.3d at 801 (parties can “agree[] to make a rate effective
retroactively” (cleaned up)).
15
resulted in retroactive changes in rates.” W. Deptford Energy,
LLC v. FERC, 766 F.3d 10, 22 (D.C. Cir. 2014). But the
exception LPSC invokes is narrow: FERC can retroactively
correct for legal error only where, among other requirements,
the parties “were aware in advance of the risk of litigation-
induced change.” Id. at 23. To create notice, there must be a
close link between the claimed error and the change
retroactively imposed on remand. Usually this means that the
rate itself is subject to challenge, though in one case the
challenge concerned the lawfulness of a rate in a settlement
agreement that a party had accepted “in reliance on an unlawful
FERC order.” Pub. Utils. Comm’n of Cal. v. FERC, 988 F.2d
154, 162–66 (D.C. Cir. 1993).
Here, there was no notice that the rate set by the 2009
amendment was subject to change. The validity of the
amendment itself has never been questioned. Instead, LPSC
offers an attenuated chain of causation between an unrelated
legal error and approval of the amendment: This Court
invalidated FERC’s decision to make the bandwidth remedy
effective in 2006, which led FERC to extend the remedy to
some costs incurred in 2005, which led an ALJ to discover that
the operating companies had mistakenly recorded amortization
expenses in non-bandwidth accounts. Had the arbitrary
effective date not substantially delayed bandwidth proceedings
for the 2005 production costs, LPSC continues, Entergy would
have discovered the error in time to propose a different 2009
amendment permitting all deferred-production costs to be
recognized in the bandwidth calculation. Even assuming that
LPSC’s inferences are true and that legal errors unrelated to
underlying rates can trigger the exception, more than bare, but-
for causation is required to overcome the “nearly impenetrable
shield” against retroactive ratemaking. Old Dominion, 892
F.3d at 1230. The litigation over the bandwidth’s start date
could not have given notice that an ALJ would find accounting
16
errors significant enough to affect settlement negotiations over
the 2009 amendment. The notice exception to the filed-rate
doctrine does not apply. And because the filed-rate doctrine
does apply, LPSC’s § 825h argument is without merit. See
Verso Corp., 898 F.3d at 10.
III
For these reasons, we deny the petition for review.
So ordered.