By Tom Kleckner
FERC last week affirmed its 2012 ruling requiring Entergy to make refunds to ratepayers because of an improper allocation of the sources of off-system energy sales between 2000 and 2009.
The commission denied in part and granted in part requests for rehearing by Entergy Services and the Louisiana Public Service Commission (EL09-61-003).
The PSC set the proceedings in motion with a 2009 complaint alleging Entergy and its affiliates violated their system agreement and engaged in “imprudent utility conduct” when Entergy Arkansas sold excess electric energy to third-party power marketers and other non-agreement members. Entergy’s system agreement is a 1982 contract between the companies and Entergy Services that governs the planning and operation of the companies’ generation and bulk transmission facilities on a single-system basis.
An administrative law judge’s initial decision found Entergy Arkansas had violated the system, ordering refunds. FERC affirmed part of the decision, finding that although the agreement’s relevant provisions are “ambiguous,” it does provide authority for the individual companies to make opportunity sales for their own accounts.
The PSC and Entergy requested a rehearing of the decision based on four issues:
- Was the commission correct in finding the system agreement permitted the opportunity sales?
- Did Entergy violate the agreement in accounting for the sales?
- Was FERC correct in ordering refunds?
- Did the commission err in reducing the refund amount as a result of the PSC’s delay in approving a power purchase agreement between Entergy Louisiana and Entergy Arkansas?
FERC rejected Entergy and the PSC’s arguments on each of the first three matters, affirming its previous decision.
“Although the Louisiana commission argues that the system agreement prohibits opportunity sales through its provisions concerning the powers of the operating committee … it is notable that the Louisiana commission can point to no specific provisions that make such a prohibition,” FERC said.
Over-Recovery
However, the commission also rejected Entergy’s contention that no refunds were due to ratepayers because the matter involved a misallocation of costs among different companies rather than an over-recovery. “Entergy Arkansas’ off-system sales of low-cost energy from system resources had the effect of forcing up the rates of captive customers of other operating companies by precluding their purchase of the low-cost energy,” the commission said. “Those captive customers were essentially over-charged as a result of Entergy’s improper accounting under the system agreement and thus are due refunds.”
The commission also clarified that interest on refunds should be included in the payments, consistent with the commission’s general policy.
And it agreed with the PSC’s argument that the refunds should not be reduced by a 12-month period in which the Louisiana regulators delayed approval of a PPA between Entergy Louisiana and Entergy Arkansas. FERC said a more equitable approach would be to reinstate refunds for the 12-month period at issue, saying it could not “necessarily conclude” the PSC’s delay in processing the PPAs was so excessive the refund amounts should be reduced.
In a separate order, FERC set further hearing procedures to determine the final allocation of refunds, which the Louisiana commission has estimated at $77.5 million (EL09-61-002). Entergy contends the amount should be less than $25 million.
The commission agreed with the ALJ that a full re-run of Entergy’s intra-system bill was necessary to provide a fair accounting of damages. FERC found the damages should be altered to reflect adjustments to service schedules and other provisions in the system agreement, including for bandwidth payments.
Entergy’s companies essentially operate as one system, although each has different operating costs. Low-cost companies make annual payments to the highest-cost company, using a “bandwidth” remedy that ensures no operating company has production costs more than 11% above or below the system average. Regulators in Entergy’s states have regularly challenged the annual bandwidth filings, which began in 2007.
