By Rich Heidorn Jr.

FERC on Thursday ordered hearing and settlement procedures on a complaint by the Louisiana Public Service Commission alleging that its ratepayers are being overcharged by an Entergy subsidiary that sells power from the Grand Gulf nuclear plant (EL18-204).

The ruling effectively reinstates a portion of a complaint FERC had earlier dismissed for lack of evidence over System Energy Resources Inc. (SERI), an Entergy subsidiary that sells Grand Gulf’s output to four Entergy operating companies: Entergy Arkansas, Entergy Louisiana, Entergy New Orleans and Entergy Mississippi.

In August, FERC set for hearing and settlement the PSC’s complaint that SERI’s return on equity of 10.94% was based on outdated data that did not reflect current capital markets (EL18-142). (See FERC Sets La. Entergy Complaint for Settlement.)

But the commission rejected the PSC’s complaint over SERI’s capital structure, saying the regulators had not demonstrated that it was unjust and unreasonable.

The PSC had contended that SERI’s equity ratio of 64.9% was “unusually rich” and that it was cross-subsidizing more highly leveraged activities while transferring most of its risk to the four operating companies.

FERC said the PSC had not presented any evidence that SERI does not meet the requirements of the federal commission’s three-part test for determining whether to use an operating company’s actual capital structure: whether the operating company issues its own debt without guarantees, has its own bond rating and has a capital structure within the range of structures approved by the commission.

The PSC responded to the Aug. 24 order a month later with a new complaint that offered evidence that SERI did not meet the three-part test.

It provided records that it said showed SERI’s debt is guaranteed by its parent and the operating companies. It also contended that SERI is a shell company with no employees and that each of its corporate officers is an executive officer of Entergy. It said SERI’s equity ratio should be reduced to 35.8%, or at least no higher than 49%, the equity ratio of SERI combined with the operating companies.

FERC rejected Entergy’s contention that it had already decided the merits of the capital structure allegations.

“The language in the Aug. 24 order indicated that the allegations in the complaint in docket No. EL18-142-000 concerning capital structure did not establish a prima facie case to justify setting that issue for hearing. Thus, there was no hearing litigating SERI’s capital structure … and the Aug. 24 order cannot be considered an ‘on the merits’ judgment on SERI’s capital structure,” the commission said.

FERC said it will let the chief administrative law judge decide whether to consolidate this proceeding with docket EL18-142.

Rehearing Denied

Separately, FERC on Thursday also rejected the PSC’s request for rehearing of its May 17 order regarding Entergy’s “bandwidth” calculation for a seven-month period in 2005 (EL01-88-020). (See FERC Affirms Rulings in Entergy Bandwidth Dispute.)

The calculations were used to equalize production costs among Entergy’s operating companies.