United States Court of Appeals, District of Columbia Circuit
January 19, 2018
Petition for Review of Orders of the Federal Energy
Lane argued the cause for petitioner. With him on the briefs
were Glen L. Ortman, John E. McCaffrey, and Randolph
Hightower. Marie Denyse Zosa entered an appearance.
Gregory W. Camet, Mark Strain, and Marnie A. McCormick were
on the briefs for intervenor Entergy Services, Inc. in
support of petitioner. Megan E. Vetula entered an appearance.
T. Perry, Deputy Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were David L. Morenoff, General Counsel, and Robert H.
Solomon, Solicitor. Anand Viswanathan, Attorney, entered an
E. Pomper argued the cause for intervenors Louisiana Public
Service Commission, et al. With him on the brief were Stephen
Charles Pearson, Michael R. Fontham, Noel J. Darce, Dana
Shelton, Justin A. Swaim, Clinton Andrew Vince, Presley
Randolph Reed Jr., Jennifer Anne Morrissey, and Chad James
Reynolds. Paul L. Zimmering entered an appearance.
Before: Henderson and Wilkins, Circuit Judges, and Sentelle,
Senior Circuit Judge.
SENTELLE, SENIOR CIRCUIT JUDGE.
Arkansas Public Service Commission petitions for review of a
Federal Energy Regulatory Commission ("FERC") final
order. Entergy Servs., Inc., 154 FERC ¶ 61, 173
(Mar. 4, 2016), reh'g denied in part and granted in
part, 156 FERC ¶ 61, 112 (Aug. 16, 2016). In the
order under review, FERC held that an operating company
withdrawing from a multi-state energy system must continue to
share the proceeds of a pre-departure settlement with the
other member companies. The Arkansas Public Service
Commission (the "Arkansas Commission"), acting on
behalf of Arkansas energy consumers, contends that FERC's
order to share the settlement benefits and its method of
allocating the benefits of the settlement was unlawful,
arbitrary, capricious, and unsupported by substantial
evidence. Because we conclude that FERC had a lawful basis to
order the sharing of the benefits of the settlement and was
reasoned in its allocation methodology, we deny the petition
in 1951, six companies in Arkansas, Louisiana, Mississippi,
and Texas (collectively, the "Operating Companies")
entered into an arrangement to share the costs and benefits
of power generation and transmission. To that end, they
formed the Entergy Corporation, a publicly held and traded
utility holding company. The Entergy Corporation is the
corporate parent of intervenor Entergy Services, Inc.
("Entergy Services"). The Operating Companies
memorialized their arrangement in the Entergy System
Agreement ("System Agreement"), a FERC-approved
rate plan that governs the multi-state system's
generation and transmissions facilities operated as a single
system (the "Entergy System") and administered by
Entergy Services. Over the years, Entergy Services
supplemented the System Agreement with seven service
schedules, MSS-1 through MSS-7, which updated the
cost-sharing and energy capacity plan. The System Agreement
"has been a feature of many cases before this
Court." Council of New Orleans v. FERC, 692
F.3d 172, 174 (D.C. Cir. 2012); see, e.g.,
Arkansas Pub. Serv. Comm'n v. FERC, 712
Fed.Appx. 3, 4 (D.C. Cir. 2018); Louisiana Pub. Serv.
Comm'n v. FERC, 522 F.3d 378, 383 (D.C. Cir. 2008);
Louisiana Pub. Serv. Comm'n v. FERC, 174 F.3d
218, 220 (D.C. Cir. 1999).
System Agreement provided for the possibility of withdrawal
by an Operating Company and required an eight-year notice of
intent to withdraw by any company preparing to do so. On
December 19, 2005, Operating Company Entergy Arkansas gave
such a notice, announcing its intention to withdraw on
December 18, 2013. Two years later, another Operating
Company, Entergy Mississippi, gave a similar notice. The
current controversy over the effects of the withdrawal
concerns a settlement entered with coal transporter Union
Pacific in state court litigation before the withdrawal of
the two Operating Companies.
April 2008, Entergy Arkansas, Entergy Services, and other
parties settled Arkansas state court litigation against Union
Pacific (the "Union Pacific Settlement"). The
settlement, as relevant to the present petition for review,
locked in a below-market rate for the rail delivery of coal
by extending an Entergy Arkansas contract with Union Pacific
to the period between July 1, 2012 and June 30, 2015. Entergy
Arkansas remained in the System Agreement until partway
through this period.
the System Agreement, the Operating Companies purchase excess
energy from other Operating Companies at-cost. The service
schedules set out the price for energy purchases. That price
incorporates the cost of coal transportation as one
component. Entergy Arkansas was still participating in the
System Agreement when Union Pacific failed to make the coal
deliveries in the conduct underlying the settlement.
Therefore, Entergy Arkansas passed a portion of the increased
coal costs to the other Operating Companies under service
schedule MSS-3. Likewise, prior to Entergy Arkansas's
departure from the System Agreement, Entergy Arkansas also
shared its beneficial coal transportation costs under the
Union Pacific Settlement with the other Operating Companies.
Additionally, some of the Operating Companies had other
mechanisms outside of the System Agreement to realize some of
the benefits of Entergy Arkansas's reduced coal