On June 9, 2011, the Commission issued its order on rehearing in Docket Nos. EL00-66 and EL95-33 regarding whether the Commission should order refunds under section 206 of the Federal Power Act (“FPA”) to correct misallocations of Entergy System capacity costs (the “June 9 Order”). Ultimately, the Commission reversed an August 13, 2010 order. In doing so, FERC turned to prior precedent under which the Commission has declined to order refunds in the case where a company collected the proper level of revenues, but it is later determined that those revenues should have been allocated differently (as opposed to a case of over-collection). Accordingly, the Commission invoked its equitable discretion to find in favor of Entergy Services, Inc. (“Entergy”) and both the Arkansas Public Service Commission and the Mississippi Public Service Commission (“Arkansas/Mississippi”).
In previous Commission orders, the Commission found that while Entergy must exclude interruptible load from its computation of peak load responsibility for its operating companies, this allocation method could be phased in over twelve months. The Commission also found that while the company’s cost allocation resulted in unjust and unreasonable rates, refunds were precluded by Section 206(c) of the FPA. Those orders were appealed, and the D.C. Circuit held the Commission erred in allowing the new allocation to be phased in over twelve months, rather than being fully implemented immediately, and that the Commission failed to explain why FPA section 206(c) barred refunds in the case.
Following a series of remand orders and another appeal, on August 13, 2010 in Louisiana Pub. Serv. Comm’n and the Council of the City of New Orleans v. Entergy Corp, the Commission issued an order finding that FPA section 206(c) does not bar refunds, and refunds would be appropriate in the case. Specifically, the Commission held that: (1) the filed rate doctrine did not prevent refunds from being awarded; (2) the Supremacy Clause of the United States Constitution prohibits state commissions from preventing Commission-ordered refunds from being flowed through at the retail level; (3) alleged practical problems at the retail level that would impede Entergy’s full recovery of costs could not prevail over this constitutional doctrine; and (4) refunds were not barred by the court’s decision in City of Anaheim v. FERC. Entergy and Arkansas/Mississippi requested rehearing of the August 13, 2010 Order.
In the June 9 Order, the Commission denied rehearing with respect to its interpretation of section 206(c) of the FPA (i.e., that FPA Section 206(c) does not bar refunds in the case because Entergy would not experience any reduction in revenues as a result of making refunds) and granted rehearing on the issue of whether refunds should be ordered. The Commission found that while it has authority to grant refunds, “the better course is to invoke our equitable discretion to deny them.” The Commission stated that because it is invoking its discretion to deny refunds in the order, the parties’ argument concerning FPA section 206(c) authority is moot. Nonetheless, the Commission believed it was important to address the question as a matter of policy.
In its June 9 Order, the Commission also rejected Entergy’s argument that it will be difficult to obtain full retail rate recovery of the cost of refunds made to other operating companies because of state regulation. The Commission found that there was no basis to distinguish this principle with regard to the ordering of refunds, which could, “under particular circumstances, require the payment of a Commission-mandated rate to recover from other ratepayers the amounts being refunded.”
Entergy also objected to the Commission’s assertion that Congress intended FPA section 206(c) solely to remedy an operating company’s loss of revenues due to the operation of the filed rate doctrine. Entergy pointed to the statutory language which states the Commission must find that the holding company will not experience “any reduction” in revenues, not just those revenues lost due the operation of the filed rate doctrine. The Commission rejected this argument, stating that while the statutory text does not reference the filed rate, the language is sufficiently ambiguous to use extrinsic aids and legislative history which focus solely on potential revenue loss because of the operation of the filed rate doctrine.
Additionally, the Commission denied rehearing of Arkansas/Mississippi’s argument that the refund proposal in the case could lead to impermissible trapped costs due to federal and state laws disallowing retroactive increases to be collected by surcharges. The Commission stated that the mechanics of the refund would be matters for a compliance proceeding. FERC also rejected Arkansas/Mississippi’s “apparent understanding that any refund involving a surcharge would be illegal under state and federal law.” As to state law, the Commission indicated the Supremacy Clause prevails in ensuring the retail pass through of federally-mandated costs. As to federal law, FERC claimed refunds pursuant to a properly set refund effective date under section 206 cannot be considered retroactive ratemaking.
A copy of the Commission’s order is available here.