DC Circuit Upholds Entergy Generating Capacity Allocation, First Refusal Rights Remain Unanswered
The United States Court of Appeals for the District of Columbia Circuit affirmed an order of the Federal Energy Regulatory Commission approving a new long-term allocation of power-generating capacity among the affiliates of the Entergy system. Facing a complaint from New Orleans, which asserted that it was bearing unusually high production costs, Entergy submitted to FERC a proposed reallocation of generating capacity. Under the proposed allocations, Entergy Arkansas and Entergy Gulf States’ cheaper generation capacity would be “sold” to Entergy New Orleans and Entergy Louisiana. As described by the Court, this would thereby allow New Orleans to “pass costs from its more expensive generators on to the now-undersupplied Entergy Gulf States. These paper transfers of power would lower costs for New Orleans and Louisiana but raise costs for Gulf States.” The Louisiana Commission opposed the allocations as discriminatory. But, granting deference to FERC, the Court found there was not enough evidence to second-guess FERC’s decision.
In affirming the FERC decision, the Court cited to evidence in the record indicating: (1) uncertainty regarding the source of Entergy Gulf States’ cost increases and the extent to which they were caused by the new resource allocation versus alternative reasons such as increasing natural gas costs, (2) Entergy Gulf States was slated for its own long term capacity additions in the future, (3) the production cost equalization bandwidth formula previously put into effect by FERC provides a backstop protection for Entergy Gulf States, and (4) the FERC ALJ saw no reason to order a further fine tuning by reallocating long term life of unit generation shares to perhaps shift Gulf States’ relative percentage down a percent or two.
In contrast to the Court’s deference to FERC on the long term allocation issue, the Court found that FERC’s statements that short term, off system capacity sales by Entergy of cheap power did not trigger right-of first-refusal provisions among the Entergy operating companies under the System Agreement was, in fact, nothing more than dicta in the case at hand and would not preclude the Louisiana Commission from presenting this issue in a different proceeding.
Louisiana Public Service Com'n v. F.E.R.C., --- F.3d ----, 2008 WL 5396704 (C.A.D.C. 12/30/08).