Louisiana Law Blog

By Angela W. Adolph

The Internal Revenue Service (the “Service”) released a Private Letter Ruling (“PLR”) earlier this year addressing private business use of a mixed-use output facility and whether tax-exempt bonds could be used to finance improvements to the facility.  The Issuer, which is a political subdivision of a state, owns electric generation, transmission and distribution facilities that are managed by a non-governmental electric cooperative (“NGEC”) pursuant to several contractual arrangements.  Under a power sales contract, the Issuer has the right to schedule or take the portion of power generated by the facility equal to the percentage of the facility’s net rated capacity reserved by Issuer for that year.  If the Issuer does not schedule or take all the output from its reserved portion of the facility’s net rated capacity, it must offer the unused output to the NGEC before offering to third parties.   The governing body of the Issuer establishes and approves the rates for power produced from Issuer’s reserved net rated capacity of the facility and sold to the Issuer’s customers. Under an operating agreement with the NGEC, the Issuer reimburses the NGEC for its share of the actual and direct expenditures incurred by the NGEC in the operation and maintenance of the facility.  The Issuer’s share of expenses is determined by its reserved percentage of the facility’s net rated capacity.

The Issuer expects  to finance capital improvements to the facility, the costs for which will be allocated between the  Issuer and the NGEC on the basis of their respective reservations and allocations of the net rated capacity of the facility.  The Issuer intends to issue tax-exempt governmental bonds to finance its portion of the improvement costs.  The Issuer represents that, while the bonds are outstanding, it will (a) maintain its reserved net rated capacity and (b) take a sufficient amount of the total energy generated at the facility so that no more than 10% of the facility’s improvements that are to be financed with the bonds will used for private business use.

The Service first considered whether the facility constitutes public utility property under Section 168(i)(10) of the Code.  “Public utility property” means property used predominantly in the trade or business of the furnishing or sale of electrical energy (among other things) if the rates for such furnishing or sale have been established or approved by a state or political subdivision thereof.  Because the facility consists of property used predominantly in the trade or business of furnishing or sale of electricity and the Issuer establishes and approves rates for electricity provided by the Issuer from its reserved share of the net rated capacity of the facility, then, to the extent of such share, the facility constitutes public utility property. 

Under the Advance Notice of Proposed Rulemaking, 2002-2 C.B. 685 (the “Advance Notice”), tax-exempt  bonds may be issued to finance costs attributable to the government use portion of a mixed-use output facility, plus any costs attributable to permitted de minimis private business use.  The government use portion is determined based on the percentage of the available output of the facility that is not used for a private business use.  The available output is determined by multiplying the number of units produced or to be produced by the facility in one year by the number of years in the measurement period of that facility for that bond issue.    The number of units produced or to be produced in one year is determined by reference to nameplate capacity or its equivalent, which is not reduced for reserves, maintenance or other unutilized capacity.  See Treas. Reg. Sec. 1.141-6 and 7.

The Service noted that the allocation of output based upon reserved net rated capacity under the power sales contract is the equivalent of an allocation based on available output of the facility.  Thus, the government use portion of the facility consists of the Issuer’s portion of the net rated capacity of the facility less the NGEC’s purchases of non-scheduled or taken output and any other private business use.  Therefore, the Issuer may issue bonds in an amount to cover the costs of the government use portion of the facility and its improvements plus any costs attributed to permitted de minimis private business use.

Additionally, since only actual and direct expenses incurred in the operation and maintenance of the Issuer’s share of the facility are payable to the NGEC for its management of such share under the operating agreement, the operating agreement is not treated as a management contract that results in private business use by the NGEC.  See Treas. Reg. Sec. 1.141-3.

This report was last updated on December 5, 2011

By J. Randy Young and Katherine W. King

The following is a report prepared by the Kean Miller LLP Utilities Regulation team on important topics affecting large consumers of electrical power in Louisiana.  For more information, please contact us at client_services@keanmiller.com

Entergy Application for Approval to Construct Nine Mile Generating Facility: Entergy filed an application with the Louisiana Public Service Commission (“LPSC”) in June 2011 seeking certification approval for Entergy Louisiana (“ELL”) to build a new 550 MW Combined Cycle Generating Turbine (“CCGT”) unit at its Nine Mile Point Station and for approval to sell part of the capacity and energy to Entergy Gulf States (“EGSL”) through a purchase power contract. Entergy New Orleans would also purchase a portion of the output from the new plant. Entergy reports that the construction cost will be approximately $721 million ($1,310/kW). The plant will be fueled primarily with natural gas, but have capability to run on ultra low sulfur fuel oil for short periods. Shaw Group has been selected as the contractor for the project. Proceedings are ongoing at the LPSC to consider Entergy’s certification request for the Nine Mile project.

Entergy Cancellation of Little Gypsy Repower: The Louisiana Public Service Commission (“LPSC”) approved cancellation of a Little Gypsy generation plant repower project and related cost recovery. The existing Little Gypsy gas-fired generation plant was to be repowered to run primarily on petroleum coke as a solid fuel source, but the project was suspended and ultimately cancelled due primarily to the decline in natural gas prices. Entergy Louisiana will recover $200 million in cancellation costs, after a $7 million disallowance. Securitization financing will be used to lower financing costs to ratepayers over a ten year payment term. The LPSC cancellation approval was decided in May 2011.

Entergy Fuel Adjustment Clause Audits: The Louisiana Public Service Commission (“LPSC”) approved a settlement of a Staff audit and related proceeding for the Fuel Adjustment Clause (“FAC”) filings for Entergy Gulf States Louisiana (“EGSL”) for the period 1995-2004, at its October 2011 meeting. An audit is currently being conducted by Louisiana Public Service Commission Staff on the Fuel Adjustment Clause (“FAC”) filings for Entergy Louisiana (“ELL”) for the period 2005-2009.

Entergy Application for Nuclear Certification: Entergy is requesting certification under the Louisiana Public Service Commission (“LPSC”) Nuclear Incentive Cost Recovery Rule to pursue activities to preserve the option to develop and construct new nuclear generation in Louisiana that could potentially provide service beginning in 2024. Entergy has identified $72 million in its certification request, including $63 million incurred prior to 2010, and $9 million to be incurred for 2010-2012. However, Entergy indicates that the economics of nuclear plant construction changed dramatically in the latter half of 2008 and into 2009 as natural gas prices declined sharply and expectations for long-term prices of natural gas also dropped. Thus, according to Entergy, new nuclear construction presently does not appear to be an economically compelling alternative to natural gas fired CCGT generation, and the potential long-term economics of new nuclear relative to other base load generation is uncertain. At this point in time, Entergy reportedly believes it is more prudent to engage in limited activities on new nuclear development and take a wait and see approach on how the proposed new nuclear initiatives of other utilities progress. Proceedings before the LPSC on Entergy’s certification application are ongoing.

Entergy Formula Rate Plans: The Louisiana Public Service Commission (“LPSC”) has extended the Formula Rate Plan (“FRP”) for Entergy Louisiana and for Entergy Gulf States through the 2011 Test Year review proceeding and rate change that will occur in 2012. The LPSC also provided for rate cases to begin following the extended FRP.

Entergy - ICT and RTO Options: While Entergy’s transmission system is currently operated with oversight pursuant to an Independent Coordinator of Transmission (“ICT”) arrangement, Entergy filed an application with the Louisiana Public Service Commission (“LPSC”) in November 2011 seeking approval to join the MISO Regional Transmission Organization (“RTO”). Entergy had previously submitted an informational filing on the MISO option to the LPSC, and it had presented the results of its analysis in support of the MISO option at an LPSC meeting. Entergy’s filing submits that joining MISO will provide $430 to $575 million net present value benefits to Entergy Louisiana and Entergy Gulf States customers over ten years. Proceedings at the LPSC will analyze the MISO option as well as alternative options such as joining the Southwest Power Pool (“SPP”) RTO and continuing some form of ICT arrangement.

Entergy System Agreement: Proceedings are ongoing at the Louisiana Public Service Commission (“LPSC”) to evaluate successor System Agreement options, as withdrawal notices are effective in December 2013 for Entergy Arkansas and December 2015 for Entergy Mississippi.

Louisiana Public Service Commission Net Metering Rule: The Louisiana Public Service Commission (“LPSC”) Net Metering Program allows residential generating capacity installations up to 25 kW and commercial and agricultural installations up to 300 kW. The Net Metering Program also allows for case-by-case consideration of individual projects above 300 kW. However, if net metering for a utility reaches .5% of retail peak load, then its program is suspended pending review by the Commission.

LPSC Rulemaking - Renewable Energy: The Louisiana Public Service Commission (“LPSC”) has implemented a Pilot Renewable Program that provides for a research component and a Request for Proposals (“RFP”) component for electric utilities in Louisiana. The Research Component provides a Standard Offer Tariff with pricing at Avoided Cost plus $30 per MWH for up to a five year term, and with each utility having a 30 MW limit. The RFP component allows utilities in Louisiana to seek up to 350 MW of renewable capacity, allocated as follows: Entergy Louisiana = 143 MW, Entergy Gulf States = 90 MW, Cleco = 43 MW, SWEPCO = 28 MW and Electric Cooperatives = 46 MW. Cleco is currently pursuing co-firing at its Madison petroleum coke fired generation unit rather than issuing an RFP. Entergy’s RFP in ongoing.  SWEPCO has filed an application for certification of renewable resources resulting from its RFP.  

LPSC Rulemaking - Energy Efficiency: The Louisiana Public Service Commission (“LPSC”) has a docket open and is pursuing comments on potential development of an Energy Efficiency program for Louisiana.

LPSC Rulemaking – Integrated Resource Planning: The Louisiana Public Service Commission (“LPSC”) has received comments and is working on a rule that would require electric utilities to develop Integrated Resource Plans (“IRP”) under a process that includes input from stakeholders.

Cross State Air Pollution Rule: The Louisiana Public Service Commission (“LPSC”) initiated proceedings to consider the EPA’s new Cross State Air Pollution Rule (“CSAPR”) and the impacts on electric service in Louisiana. A Technical Conference was held with stakeholders, and the LPSC has pursued a Request for Reconsideration filed with the EPA and a Petition for Review filed with the Court of Appeals for the District of Columbia. The LPSC has also filed comments with the EPA on proposed technical revisions to CSAPR. 
 

by Gordon D. Polozola

The Louisiana Public Service Commission has issued a General Order, dated February 9, 2009, once again adopting a new basis for its state Universal Service Fund or “state USF.” In short, the revised state USF effectively maintains the subsidies that have been provided to Louisiana’s rural incumbent local exchange carriers or “rural ILECs” under previous Commission mechanisms.

The state USF has been through several iterations. The state USF was originally created to make up for the loss of revenues the rural ILECs stated they would experience due to the introduction of 1+ presubscription (i.e., the ability of a customer to choose his or her local toll provider). The amount of the fund, then called the Interim Local Optional Service (LOS) Preservation Plan, was based on this potential loss to the rural ILECs, and was designed to subsidize the rural ILECs in the amount of that potential loss. See Order No. U-23267, dated December 3, 1998, adopting the Interim LOS Preservation Plan. Only the rural ILECs were eligible to draw from the fund. As for its funding, the Order provided, “[t]he plan is funded by BellSouth Telecommunications, Inc. and IXCs [long distance companies] and includes access reductions from BellSouth Telecommunications, Inc. to each IXC equivalent to the IXC’s contribution.” Under Section 101(B)(1) of the Order, no competitive local exchange carrier or “CLEC”, wireless carrier, or rural ILEC was required to contribute to the Plan.

by Gordon D. Polozola

“Shreveport and Bossier City and Caddo and Bossier parishes have been working on a comprehensive set of ordinances to give local governments leverage in controlling drilling in the Haynesville Shale natural gas field,” reports the Shreveport Times. According to the report, “the ordinances are aimed at protecting water, limiting road damage, and controlling noise, lighting and hours of operation at drilling sites. The Shreveport area has taken queues [sic] from Fort Worth, Texas, where the local government drew up similar laws for Barnett Shale production.”

by Gordon D. Polozola

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.

by Gordon D. Polozola

In an action exceeding the requirements of Louisiana’s new, stricter ethics laws, pushed through the Legislature by Governor Bobby Jindal, the Louisiana Public Service Commission voted to forbid commissioners and their staff from accepting any food, beverage or entertainment paid for by companies regulated by the Commission or that have business pending before the Commission. Current state law allows state officials to accept meals provided the cost does not exceed $50 – the expenditure must also be reported.

The proposed meal ban has been pushed by Commissioner Foster Campbell for years, during which time the media has criticized the LPSC and its staff for accepting meals from regulated utilities. Other elected officials will continue to be governed under the more lenient state law.
 

by Lawrence J. Hand, Jr.

On December 20, 2007, the Federal Energy Regulatory Commission approved a final rule in docket no. RM07-10-000 to require certain natural gas market participants to file an annual report reflecting wholesale, physical natural gas transactions. In a related action, the Commission issued a notice of proposed rulemaking in docket no. RM08-2-000 that would require interstate and certain major, non-interstate pipelines to post daily information on capacity, actual flows and scheduled flows.   Both actions are taken under the Commission’s authority under the Energy Policy Act of 2005 to facilitate transparency of price and availability of supply in natural gas markets. 

by Gordon D. Polozola

The Federal Communications Commission has issued a Report and Order prohibiting cable operators from enforcing or executing any provision in a contract that grants an operator the exclusive right to provide cable services to apartment buildings, condominiums and certain other multiple dwelling units (MDUs) in an effort to bring the benefits of competition to the increasing number of residents living in MDUs.  The FCC found that cable operators’ use of exclusivity clauses in MDU cable service contracts constitutes “an unfair method of competition or an unfair act or practice” proscribed by the federal Communications Act.  

by Lawrence J. Hand, Jr.

The Federal Energy Regulatory Commission has recently issued a notice of proposed rulemaking which seeks to increase the Commission’s oversight over intrastate natural gas pipelines and other non-jurisdictional sellers of natural gas. FERC Docket Nos. RM07-10-000 and AD06-11-000. Specifically, the proposed regulations would require that intrastate natural gas pipelines post, on a daily basis, the capacities of and volumes flowing through major receipt and delivery points and mainline segments. Additionally, the new regulations would require annual filings by buyers and sellers of natural gas in the United States wholesale markets. Traditionally, intrastate natural gas pipelines were not subject to oversight by the Federal Energy Regulatory Commission, unless and to the extent that such intrastate pipeline elected to transport gas in interstate commerce pursuant to the provisions of Section 311(a)(2) of the Natural Gas Policy Act of 1978. The proposed rulemaking marks a significant advancement of FERC’s jurisdiction over non-jurisdictional intrastate pipelines as the proposed rule applies to all intrastate pipelines, not merely those that perform service pursuant to Section 311(a)(2) of the Natural Gas Policy Act of 1978.

by Gordon D. Polozola

The Louisiana Supreme Court issued a unanimous decision clearing the way for the City of Lafayette to issue bonds to finance its Fiber-to-the-Home (FTTP) Project. As described by the Court, FTTH technology delivers telecommunications services via fiber optic cables to every home and business in the covered area. In contrast, a more traditional system delivers services to a distant point, with the remaining distance to each home and business being covered by technically inferior and bandwidth-limiting copper (telephone) wires. The decision ends eighteen months of litigation, starting after the citizens of Lafayette voted 62% to 38% in a July 16, 2005 election to issue up to $125 million in bonds for the Project. Project opponents filing suit to block the bond issuance included the incumbent cable and telephone companies, as well as two Lafayette residents. For additional news articles relating to the decision, see http://www.theadvertiser.com/apps/pbcs.dll/article?AID=/20070223/NEWS01/702230321/1002 and http://www.2theadvocate.com/news/6008236.html  

by Lawrence J. Hand, Jr.

On November 17, 2006, the United States Court of Appeals for the District of Columbia Circuit vacated the Federal Energy Regulatory Commission’s Standards of Conduct as applied to interstate natural gas pipelines. These Standards of Conduct, which are set forth in Order No. 2004 and codified at 18 CFR Part 358, govern the relationship between an interstate natural gas pipeline and various affiliates. The Court found that FERC’s effort to expand the pre-existing standards of conduct beyond relationships between an interstate natural gas pipeline and its marketing affiliates was not supported by record evidence. It is not clear if or when the Commission will revisit Order 2004 and how it will attempt to address the infirmities cited by the Court. It is worth noting that the current Chairman of the Commission, Joseph Kelliher, issued a strong dissent when Order 2004 was originally enacted and argued in favor of keeping the Standards of Conduct applicable only to marketing affiliates of interstate pipelines.

by Gordon D. Polozola

The Louisiana Supreme Court has affirmed an order of the Louisiana Public Service Commission establishing a state universal service fee for telecommunications service providers operating in the state. T-Mobile, a wireless provider operating in Louisiana, appealed the LPSC’s order, arguing that the USF fee constituted a tax and, thus, the LPSC lacked jurisdictional authority to mandate the charge. The Supreme Court disagreed, finding that the charge constituted a fee, not a tax, and that the LPSC had the jurisdiction to impose a USF fee under both the Telecommunications Act of 1996, and the Louisiana Constitution.  A copy of the decision is available at the following link: http://www.lasc.org/opinions/2006/05ca2578.pdf

by Gordon D. Polozola

Governor Kathleen Blanco has reportedly vetoed the controversial Competitive Cable and Video Services Act, House Bill 699. There has been significant disagreement between BellSouth, the proponent of the bill, cable providers, who appeared to turn neutral as to its passage after the bill was amended, and Parish presidents and mayors, who urged the Governor to veto the bill. Of particular concern was the lack of any requirements for telecommunications companies to provide service to consumers in rural and poor neighborhoods, which cable providers typically must do under current franchise agreements. Local officials also argued that the bill would reduce or eliminate local governments' authority to manage their rights-of-way. Under Louisiana law, a bill vetoed by the Governor must subsequently be approved in a veto session by two-thirds of the elected members of both the House and Senate to become law. The bill originally passed both houses by a two-thirds vote before being sent to the Governor. For recent new articles regarding this matter, visit http://www.theadvertiser.com/apps/pbcs.dll/article?AID=/20060712/NEWS01/60712013  and http://www.2theadvocate.com/news/3248951.html?showAll=y

by Gordon D. Polozola

To say there has been consolidation in the telecom market over the last decade would obviously be an understatement. Competitive telecom companies, which entered the market by the hundreds after passage of the federal Telecommunications Act, have merged with each other (or have been acquired) as a means of survival or market penetration. The (then) giants of the telecom world have also consolidated into mega-regional communications companies. SBC acquired Pacific Telesis, Southern New England Telephone, Ameritech (which itself acquired Illinois Bell, Indiana Bell, Michigan Bell, Ohio Bell and Wisconsin Bell), and most recently AT&T. The new AT&T became the largest telecom company in the U.S. Now it is proposing to acquire BellSouth, currently the third largest telecom company in the U.S. (For more information on the history of telecom mergers, visit http://www.fcc.gov/wcb/armis/carrier_filing_history/COSA_History/)