On December 5, 2014, the United States Court of Appeals for the District of Columbia Circuit remanded a 2013 Commission order, finding that FERC had failed to adequately explain its reasoning in departing from its “general policy” of ordering refunds when consumers have paid unjust and unreasonable rates.
The case arose out of a long-running dispute involving the Entergy operating companies (see June 13, 2011 edition of the WER). Litigation began in 1995, when the Louisiana Public Service Commission (“Louisiana PSC”) filed a complaint under Section 206 of the Federal Power Act, claiming that the allocation of capacity costs under the Entergy operating companies’ system agreement (the agreement governing transactions among the Entergy operating companies) had become unjust and unreasonable. In particular, the Louisiana PSC objected to the inclusion of “interruptible load” when calculating an operating company’s capacity charge.
At early stages in the litigation, the Commission ordered refunds, citing its “general policy” of granting full refunds to correct unjust and unreasonable rates, which it initially found to be the case in this particular context. During subsequent stages however, the Commission reversed itself, and in 2013 issued an order concluding that the awarding of refunds was not appropriate. In reaching this conclusion, the Commission contended that its precedent supported an alternative “general policy” composed of two distinct paths.
In particular, according to the Commission, when a case involved a company over-collecting revenues to which it was not entitled, the Commission has generally held that the excess revenues should be refunded to customers. By contrast, 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 contended that it has traditionally declined to order refunds. The Commission found that the case involving Entergy fell into the latter category, and concluded that the Entergy system had simply misallocated costs, and did not over-recover. On appeal, the Louisiana PSC contended, among other things, that the Commission did not reasonably explain the departure from its well established “general policy” of ordering refunds when consumers have paid unjust and unreasonable rates.
In granting the Louisiana PSC’s petition, the court noted that the Commission can depart from a prior policy or line of precedent, but it must acknowledge that it is doing so and provide a reasoned explanation. The court determined that in this case, the Commission had failed to meet this standard. Specifically, the court found that the precedent relied on by FERC in denying the refunds did not constitute a broad, alternative “general policy,” but rather relied on individual factors specific to each case. The court also found that the equitable factors relied on by the Commission in previous refund denials were largely absent in the Commission’s 2013 order, and therefore could not constitute a “general policy” that included the present case involving Entergy. The court concluded that the Commission cannot reasonably apply a “general policy” that is based on factors that are not present in a given case.
A copy of the court’s decision may be found here.