Louisiana Public Service Commission. v. FERC , 866 F.3d 426 ( 2017 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 2, 2016 Decided August 8, 2017
No. 14-1063
LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MISSISSIPPI PUBLIC SERVICE COMMISSION, ET AL.,
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 Paul L. Zimmering and Noel J. Darce.
Lona T. Perry, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief was Robert H. Solomon, Solicitor.
Clifford M. Naeve argued the cause for intervenors
supporting respondent. On the brief were John S. Moot,
Matthew W.S. Estes, Gregory W. Camet, Glen Ortman, Dennis
Lane, and Paul Randolph Hightower. Adrienne E. Clair
entered an appearance.
2
Before: ROGERS, KAVANAUGH and WILKINS, Circuit
Judges.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: This case continues a lengthy
saga of litigation dealing with the allocation of production costs
among Entergy Corporation’s utility operating companies
(“Operating Companies”). During the period relevant here,
Entergy1 sold electricity, both wholesale and retail, in
Arkansas, Louisiana, Mississippi, and Texas, through five
Operating Companies under the framework provided by the
Entergy System Agreement. The System Agreement sets forth
a rate schedule administered by the Federal Energy Regulatory
Commission (“FERC”) that allocates certain costs among the
Operating Companies and seeks to maintain rough equalization
of those costs among them. In Louisiana Public Service
Commission v. FERC (“LPSC”), 522 F.3d 378 (D.C. Cir.
2008), we affirmed FERC’s imposition of a so-called
“bandwidth” remedy (“Bandwidth Remedy” or “Remedy”) to
address unjust allocations of production costs among the
Operating Companies and return them to “rough equalization.”
We remanded to FERC, however, to address, among other
things, its decision to delay the effective date of the Remedy
until January 2006 when FERC had decided the Remedy was
necessary in June 2005. The Louisiana Public Service
Commission (“LPSC”) petitions this Court for review of
FERC’s decision on remand.
1
We use “Entergy” in this Opinion to refer to either Entergy
Corporation (the corporate parent of the Operating Companies and
their affiliates) or Entergy Services, Inc. (a service affiliate that has
acted on behalf of the Operating Companies in various FERC
proceedings).
3
I.
We described the relevant background at length in LPSC
and we recount it only briefly here. In Opinion No. 480, issued
on June 1, 2005, FERC determined that cost allocations under
the System Agreement were unjust and unreasonable, and
announced the Bandwidth Remedy to cure the disparities going
forward. See La. Pub. Serv. Comm’n v. Entergy Servs., Inc. et
al., 111 F.E.R.C. ¶ 61,311 (2005) (“Op. No. 480”), on reh’g,
113 F.E.R.C. ¶ 61,282 (2005) (“Op. No. 480-A”). The Remedy
provides that when an Operating Company’s production costs
deviate more than 11 percent above or below the Entergy
System’s average on an annual basis, 2 the Operating
Companies with the lower costs will make payments
(“Bandwidth Payments” or “Payments”) to the ones with
higher costs such that their overall costs return to rough
equalization. Op. No. 480, 111 F.E.R.C. ¶ 61,311, at 62,372.
At the outset, FERC ordered that the Remedy be implemented
prospectively and declared it would be “effective” in 2006. Id.
at 62,373. FERC later clarified that the first of any Bandwidth
Payments would be made in 2007, once a full year of 2006 cost
data was available. Op. No. 480-A, 113 F.E.R.C. ¶ 61,282, at
62,140. Such data is reported in Entergy’s annual Form 1 filed
with FERC each April, covering the previous calendar year.
FERC envisioned the first set of Bandwidth Payments
would be calculated and exchanged as follows: in April 2007,
Entergy would report the production costs of each of the
Operating Companies for the 2006 calendar year in its Form 1.
Based on that data, Entergy would use a formula to determine
whether any Operating Company’s production costs exceeded
the established bandwidth. If so, Bandwidth Payments based
2
This range – from 11 percent above average to 11 percent below
average – is the “bandwidth,” hence the term “Bandwidth Remedy.”
4
on 2006 data would be exchanged thereafter, but no later than
December 2007, to eliminate any severe disparities. The
process would repeat the following year, with Entergy
determining in 2008 to what extent Bandwidth Payments
should be exchanged based on 2007 production cost data.
Putting aside certain disputes about the formula used, LPSC
acknowledges that Payments were made in 2007 based on 2006
disparities, and again in 2008 based on 2007 disparities.
In LPSC, we held that FERC’s “remedial choice” of the
Bandwidth Remedy was a lawful way to return the Entergy
System to rough equalization of its production costs. 522 F.3d
at 391. But we remanded to FERC to address certain issues
with its implementation. Of particular relevance here, we
determined that FERC would need to explain its decision to
delay implementation of the Bandwidth Remedy to a later date
– i.e., making it “effective” January 1, 2006 with Payments
commencing in 2007 – when it found that as of June 1, 2005,
the cost allocations under the System Agreement were unjust
and unreasonable. See id. at 400.
On remand, FERC advanced the “effective date” of the
Bandwidth Remedy from January 1, 2006 up to June 1, 2005,
and ordered that Bandwidth Payments be exchanged based on
production cost disparities that occurred in the June –
December 2005 period. See La. Pub. Serv. Comm’n v. Entergy
Servs., Inc. et al., 137 F.E.R.C. ¶ 61,047 (2011) (“Order on
Remand”); La. Pub. Serv. Comm’n v. Entergy Servs., Inc. et
al., 146 F.E.R.C. ¶ 61,152 (2014) (“Reh’g Order”). FERC
explained that although the agency initially contemplated that
the Remedy would apply to cost data on an annual basis, it
made an exception for the 7-month period now lodged between
the old and new “effective” dates of the Remedy – i.e., the
period from June 1, 2005 through December 31, 2005. Reh’g
5
Order, 146 F.E.R.C. ¶ 61,152, at 61,624-25. It ordered the
Remedy to be applied to that period. Id. at 61,625-26.
In the instant case, LPSC is satisfied with FERC’s decision
that the Remedy should begin as of June 1, 2005, but it
challenges the way in which the Remedy has been
implemented. Specifically, LPSC claims that FERC neglected
to provide a remedy for a portion of the post-2005 period and
that FERC engaged in unlawful retroactive ratemaking with
respect to its application of the Remedy to the June – December
2005 period. 3
II.
We review FERC’s orders under the Administrative
Procedure Act’s “arbitrary and capricious” standard.
Sithe/Independence Power Partners, L.P. v. FERC, 165 F.3d
944, 948 (D.C. Cir. 1999). The “scope of review under [that]
standard is narrow.” Motor Vehicle Mfrs. Ass’n of United
States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983). As we explained in LPSC when approving FERC’s
selection of the Bandwidth Remedy, “[T]he breadth of agency
discretion is, if anything, at zenith when the action assailed
relates primarily . . . to the fashioning of policies, remedies and
sanctions.” 522 F.3d at 393 (quoting Niagara Mohawk Power
Corp. v. FPC, 379 F.2d 153, 159 (D.C. Cir. 1967)). Similarly,
we owe FERC “great deference” in fashioning electricity rate
design. FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760,
3
In its petition for review, LPSC also challenged FERC’s decision
on remand regarding Section 206 refunds for the September 2001 –
May 2003 effective period. FERC has since requested that we
remand this issue to FERC in light of our more recent decision in
Louisiana Public Service Commission v. FERC, 772 F.3d 1297 (D.C.
Cir. 2014). We agree that FERC should reconsider this issue and
remand to FERC for further proceedings.
6
782 (2016), as revised (Jan. 28, 2016) (quoting Morgan Stanley
Capital Grp. Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 532
(2008)). “A court is not to ask whether a regulatory decision is
the best one possible or even whether it is better than the
alternatives.” Id. Rather, we ask whether the agency has
“examined the relevant considerations and articulated a
satisfactory explanation for its action, including a rational
connection between the facts found and the choice made.” Id.(quoting State Farm, 463 U.S. at 43) (alterations omitted).
III.
LPSC contends that, on remand, FERC eliminated a 7-
month delay (i.e., by providing a remedy for June to December
2005) but still left open a 17-month gap (i.e., January 2006 to
May 2007 4) to which it asserts FERC failed to apply the
Bandwidth Remedy. At first glance, this argument appears to
contradict LPSC’s acknowledgment that Bandwidth Payments
have been exchanged based on all production cost disparities
from June 1, 2005 onward. But LPSC’s challenge stems
primarily from a disagreement with FERC about what it means
for the Remedy to be “effective.”
When FERC said the Remedy was “effective” January 1,
2006, that meant production cost disparities would be roughly
equalized from that date forward, with Payments commencing
once the prior year’s data had been collected. In LPSC’s view,
however, the Remedy could not effectuate the “just and
reasonable rate” under 16 U.S.C. § 824e(a) until Payments
were exchanged – only then could the proper rate be
“thereafter observed and in force.” As such, FERC’s original
4
This is the gap between the 2005 period addressed on remand and
the date the first set of Bandwidth Payments were exchanged as
originally contemplated by FERC.
7
announcement in Opinion No. 480 that the Bandwidth Remedy
would be “effective” in 2006 was a “fiction” because no
Payments were made until June 2007. Pet’r Br. 34, 42. Under
that premise, LPSC sought on remand to have the Remedy
(theoretically) begin with Payments in 2005 based on 2004
data, Payments in 2006 based on 2005 data, and so on, until the
purported “two year delay” was resolved. See Reh’g Order,
146 F.E.R.C. ¶ 61,152, at 61,625.
FERC addressed this point on remand, explaining there
was simply no basis for LPSC’s assertion that FERC was
required to provide a remedy for a “two year delay” or
Payments based on disparities occurring in “calendar years
2004 and 2005.” Id. FERC correctly observed that this Court’s
decision ordering remand did not provide the directive sought
by LPSC. Id. at 61,625-26.
LPSC relies here – as it did before FERC – on a reference
in LPSC to the delay of the Bandwidth Remedy “until 2007,”
522 F.3d at 400, as an endorsement of its view that the Remedy
does not begin until Bandwidth Payments commence. In that
decision, although we took issue with the unexplained delay of
the Remedy beyond June 2005, we did not purport to resolve
the outer bound of that delay. See id. In any event, we
understood the “effective” date of the Remedy was January 1,
2006, even though Payments would not commence until 2007.
See, e.g., id. at 388, 399. Read in its proper context, our
reference to 2007 simply did “not tak[e] sides in any dispute”
over the meaning of the effective date of the Bandwidth
Remedy. AT&T Wireless Servs., Inc. v. FCC, 365 F.3d 1095,
1103 (D.C. Cir. 2004).
On remand, rather than attempting to offer an explanation
for delaying the Remedy to a date beyond June 2005, FERC
sought to cure it by advancing the “effective date” to June 1,
8
2005. Order on Remand, 137 F.E.R.C. ¶ 61,047, at 61,214-15.
In doing so, FERC reiterated its conceptualization of the
Bandwidth Remedy as one that would come into play only “if
the Entergy System exceeded historical cost disparities” – that
is, if any Operating Company has production costs more than
11 percent above or below the Entergy System average. Id. at
61,210; see also Op. No. 480, 111 F.E.R.C. ¶ 61,311, at 62,356.
In practice, that meant the Remedy would be “effective” in
2006 but Payments would only be triggered if severe
production cost disparities existed among the Operating
Companies across the entire year – a determination that would
not be made until after that year’s end. See Reh’g Order, 146
F.E.R.C. ¶ 61,152, at 61,625-26. On remand, FERC explained
that Payments had already been exchanged for 2006 and 2007
production cost disparities, and thus there was no basis for
LPSC’s contention that FERC had left a “two year delay”
unresolved. Id. at 61,625 (“[T]he 2006 calendar year’s data is
accounted for under the bandwidth formula th[r]ough
payments the following year. Similarly, the 2007 calendar
year’s data is roughly equalized through payments
commencing in 2008.”). LPSC offers no basis for undermining
the great deference we owe to FERC in fashioning the
Bandwidth Remedy the way it did.
LPSC claims that FERC’s explanation on remand is
“specious” because it deviates from the way FERC typically
designs formula rates. Pet’r Br. 31. But FERC confronted an
unusual problem here – one that is only highlighted by LPSC’s
comparison of this case to Louisiana Public Service
Commission v. FERC, 482 F.3d 510 (D.C. Cir. 2007). There,
we held that it was unlawful for FERC to continue to allow any
amount of “interruptible load” to be included in cost allocations
among the Operating Companies after FERC determined that
such inclusion resulted in an unjust and unreasonable rate. See
id. at 514, 518. However, the Bandwidth Remedy evaluates
9
total production costs for disparities among the Operating
Companies at year’s end – there is no factor comparable to
interruptible load that can be preemptively controlled for to
maintain a just and reasonable rate going forward. To the
extent LPSC asserts the Remedy should have used historical
disparities as a proxy for future ones, we are mindful of our
obligation to refrain from asking “whether a regulatory
decision is . . . better than the alternatives,” as long as the
agency gives a “satisfactory explanation” for its decision. Elec.
Power Supply Ass’n, 136 S. Ct. at 782. We have reviewed
LPSC’s remaining arguments challenging FERC’s decision to
proceed as it did on remand and find they are all without merit.
On remand, FERC retroactively applied its Remedy such
that it cured any severe disparities from June 1, 2005 onward.
LPSC does not dispute that, prior to FERC’s final decision on
remand, the Bandwidth Remedy (as conceived of by FERC)
had been applied and Payments exchanged based on cost data
from 2006 and 2007 – the period it claims FERC has
neglected. 5 Nor does it dispute that FERC applied the Remedy
to the June – December 2005 period on remand. Thus, any
severe production cost disparities that post-date June 2005 have
been accounted for with Bandwidth Payments, and we agree
with FERC that there was nothing left for it to resolve on
remand. Accordingly, LPSC’s petition is denied with respect
to FERC’s advancement of the effective date to the 2005
period.
5
To the extent LPSC claims that “[t]he 2007 payments and receipts
did nothing to remedy undue discrimination in 2006,” it is taking
issue with the fact that the Bandwidth Remedy was not structured to
use prior year data as a proxy for disparities going forward, and
instead Payments were not exchanged until 2007. Pet’r Br. 34.
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IV.
LPSC also challenges the particular formula FERC applied
to the 2005 period, arguing FERC engaged in unlawful
retroactive ratemaking. To be sure, LPSC does not object to
FERC’s altering the “effective date” of the Bandwidth Remedy
to cure disparities in the previously-overlooked 2005 period.
Indeed, that is the result LPSC urged. That result is also
consistent with FERC’s ample authority to remedy its own
errors after being reversed in court, notwithstanding the
prohibition on retroactive ratemaking. See, e.g., Pub. Utils.
Comm’n v. FERC, 988 F.2d 154, 162 (D.C. Cir. 1993); see also
Xcel Energy Servs. v. FERC, 815 F.3d 947, 955-56 (D.C. Cir.
2016). 6
Rather, LPSC contends that FERC should have
retroactively applied to that period the methodology announced
in Opinion No. 480 in June 2005 (which was not to go into
effect until January 2006), instead of the methodology later
integrated into the System Agreement in 2006. LPSC agrees
that if the 2006 formula “had adhered to” the one announced in
Opinion No. 480, FERC’s decision on remand “would be
lawful.” Pet’r Br. 57. However, when presented with the 2006
methodology, FERC determined that it did adhere to the one
announced in Opinion No. 480. See La Pub. Serv. Comm’n v.
Entergy Servs., Inc., 117 F.E.R.C. ¶ 61,203, at 62,000-01
(2006), on reh’g, 119 F.E.R.C. ¶ 61,095 (2007), aff’d, La. Pub.
Serv. Comm’n v. FERC, 341 Fed. App’x 649 (D.C. Cir. 2009).
As we previously held, LPSC waived any dispute it had with
that conclusion by failing to raise it in the compliance
6
City of Anaheim v. FERC does not control the outcome here
because, in that case, FERC was not “responding to a court decision
when it imposed retroactive surcharges.” 558 F.3d 521, 525 (D.C.
Cir. 2009).
11
proceedings. See La. Pub. Serv. Comm’n v. FERC, 606 F.
App’x 1, 5 (D.C. Cir. 2015). In sum, there is no basis for
LPSC’s contention that FERC engaged in unlawful retroactive
ratemaking. Accordingly, we deny its petition as to the
application of the Bandwidth Remedy to the 2005 period.
V.
For the foregoing reasons, LPSC’s petition for review of
FERC’s decisions regarding the implementation of the
Bandwidth Remedy to the June 2005 – May 2007 period is
denied. We grant FERC’s request to remand to FERC for
further consideration of the denial of Section 206 refunds for
the September 2001 – May 2003 effective period.
So ordered.