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Commission v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

June 1, 2018

Arkansas Public Service Commission, Petitioner
Federal Energy Regulatory Commission, Respondent Entergy Services, Inc., et al., Intervenors

          Argued January 19, 2018

         On Petition for Review of Orders of the Federal Energy Regulatory Commission

          Dennis 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.

          Lona 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 appearance.

          David 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.



         The 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 for review.

         I. Background

         A. Factual History

         Beginning 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).

         The 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.

         In 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.

         Under 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 ...

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