On September 26, 2016, FERC issued an order denying the Louisiana Public Service Commission’s (“LPSC”) request for rehearing (“Order Denying Rehearing”) of an April 29, 2016 order on remand from the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”), in which FERC clarified and distinguished its approach to refunds in cost allocation and rate design cases from its approach to refunds in cases of utility over-recovery (“April 29 Order”). As a result of the Order Denying Rehearing, Entergy Services, Inc. and its subsidiary operating companies (collectively, “Entergy”) will not be required to pay refunds for certain cost allocations that FERC has previously determined to be unjust and unreasonable.
The proceeding at issue has a complex history dating back to 1995 which is summarized in the May 9, 2016 edition of the WER. Most notably, FERC issued a March 21, 2013 order in which it concluded that Entergy did not engage in an over-collection of revenue, but rather a misallocation of revenue, thus Entergy would not be required to pay refunds. LPSC subsequently appealed FERC’s decision to refrain from ordering Entergy to pay refunds at the DC Circuit. The DC Circuit remanded the case back to FERC in order to explain its departure from what the DC Circuit described as FERC’s general policy of ordering refunds when consumers have paid unjust and unreasonable rates. FERC provided such an explanation in its April 29 Order of which LPSC sought rehearing.
In its request for rehearing, LPSC offered several arguments to contest FERC’s refund policy as set forth in the April 29 Order. First, LPSC disputed FERC’s assertion that distinguishing between over-collection and misallocation of revenue for the purpose of determining whether to order refunds is long-standing policy. FERC responded in the Order Denying Rehearing by citing several instances during the proceeding at issue and in previous proceedings where FERC has relied on the policy to either order or deny refunds. Additionally, LPSC argued that FERC’s stated refund policy undermines the Federal Power Act’s intended purpose of protecting consumers from undue discrimination and excessive rates or charges. FERC responded by explaining that a misallocation of revenues without over-collection is not necessarily an excessive rate, and a finding that a rate is unduly discriminatory because it misallocates cost does not, by itself, mandate that refunds should be awarded.
LPSC also cited numerous cases in which it claims that FERC failed to adhere to its stated refund policy. In the Order Denying Rehearing, FERC noted that its policy on refunds in cost allocation cases does not apply where there has been a tariff violation or in situations where past charges are corrected after review to ensure proper implementation of the tariff and FERC noted that most of the cases cited by LPSC fall into one of those two categories. Further, FERC argued that LPSC’s cited cases were factually distinct from the proceeding at issue.
The Order Denying Rehearing is available here.