By Tom Kleckner

FERC last week reversed an administrative law judge’s 2013 finding preventing Entergy from including the costs from an abandoned repowering project in the company’s allocation of costs to its operating companies.

Judge Philip Baten in June 2013 rejected efforts by Entergy Services and the Louisiana Public Service Commission (LPSC) to pass on to ratepayers through its “bandwidth formula” $200 million in canceled costs from the $1.8 billion Little Gypsy repowering project (ER12-1384-001, et al).

FERC’s Nov. 20 ruling said Baten’s reading of a provision in Entergy’s system agreement was “unreasonably narrow.” It said adopting his interpretation would negate the inclusion in the bandwidth formula of other production-related costs that were just and reasonable, and found Entergy’s proposal to include Little Gypsy cancellation costs in the bandwidth formula consistent with the system agreement.

Entergy uses its bandwidth formula to allocate production costs among its half dozen operating companies under its system agreement. Payments are made annually by low-cost operating companies to the highest-cost company in the system, using a bandwidth remedy that ensures no operating company has production costs more than 11% above or below the Entergy system average.

FERC also reversed Baten in including the project’s cancellation costs in the bandwidth formula as being “consistent with the purpose of the bandwidth remedy.” It disagreed that the inclusion of the costs “would constitute a landmark policy shift for the Entergy system,” as Baten had said, noting that the commission had already determined the propriety then-current version of the system agreement.

The commission disagreed with the initial ruling and interventions by the Arkansas and Mississippi regulatory commissions, which argued the cancellation costs should be considered “construction work in progress” and excluded from the bandwidth formula. Noting that Entergy had securitized the cancellation costs, FERC found them to be production costs “and, therefore, “the kinds of costs that are appropriate for inclusion in the bandwidth formula.”

At the same time, FERC affirmed Baten’s decision that the repowering project met the needs of the Entergy System “as a whole,” and not just regional needs. It rejected the Mississippi Public Service Commission’s allegation that the LPSC “avoided cost responsibility for its ratepayers” by approving the project’s cancellation, rather than require it be completed.

The commission also sided with the judge in ruling that the LPSC had failed to provide sufficient evidence backing its complaint that his ruling was discriminatory.

The Little Gypsy project would have converted an old gas-fired generator on the Mississippi River west of New Orleans into a petroleum-coke burner. Entergy cited the shale-gas boom and resultant drop in natural gas prices in suspending the project in 2009. It wasn’t until 2011 that the LPSC officially canceled the project and granted cost recovery.