By Tom Kleckner

The D.C. Circuit Court of Appeals on Tuesday refused to overturn FERC’s decision to require Entergy Arkansas (EAI) to make $11 million in retroactive payments to its affiliate companies.

The Arkansas Public Service Commission last month appealed FERC’s rejection of its request to exclude EAI from making the backdated 2005 “bandwidth” payments stemming from Entergy’s system operating agreement, which EAI exited in 2013 (EL01-88-013). (See Ark. Regulators Contest Entergy Bandwidth Payments.)

The state regulator contended the agreement made no provision for assessing payments after withdrawal, which meant the utility had no continuing obligation to its sister companies.

A three-judge panel for the D.C. Circuit disagreed with the PSC’s argument, saying EAI’s withdrawal does not mean it “extinguished its obligation to make incurred bandwidth payments” (No. 16-1193).

The court said contract law principles “support FERC’s conclusion that a party’s accrued contractual obligations continue beyond its withdrawal from a contract.” It cited commercial code that provides that “all obligations which are still executory on both sides are discharged” upon a contract’s termination, but “any right based on prior … performance” — that is, any accrued obligation — “survives.”

The PSC “points to no case or authority suggesting otherwise,” the court said.

The judges also disagreed with FERC’s contention that it should refrain from deciding the case because it “lacks the finality and/or ripeness necessary for judicial review.” They said FERC’s earlier decision consummated the agency’s decision-making process and determined EAI’s obligations.

Delaying consideration of EAI’s liability “would not ‘permit better review of the issues,’” the court said, “because the issues on review largely revolve around contract interpretation uninfluenced by future events.”

The ruling was issued by Chief Judge Merrick Garland and Circuit Judges Sri Srinivasan and Patricia Millett, who heard oral arguments in December.

The Arkansas commission is evaluating the ruling and considering “the options we may have,” Executive Director John Bethel told RTO Insider. “We want to make sure the Arkansas ratepayers are fairly treated.”

Under the Entergy system agreement, which expired in 2016, low-cost operating companies made annual payments to the system’s highest-cost company. The “bandwidth” remedy was used to ensure that production costs for Entergy’s five utilities were no more than 11% above or below the system average.