Louisiana Public Service Commission v. FERC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 23, 2021 Decided December 7, 2021
No. 20-1104
LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
ARKANSAS PUBLIC SERVICE COMMISSION AND ENTERGY
SERVICES, LLC,
INTERVENORS
Consolidated with 20-1356
On Petitions for Review of Orders
of the Federal Energy Regulatory Commission
Michael R. Fontham argued the cause for petitioner. With
him on the briefs were Dana M. Shelton and Justin A. Swaim.
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Carol J. Banta, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the briefs were Matthew R. Christiansen, General
Counsel, and Robert H. Solomon, Solicitor.
Dennis Lane, Glen L. Ortman, Paul R. Hightower, Sanford
I. Weisburst, Gregory W. Camet, Mark Strain, Jay Breedveld,
Marnie Ann McCormick, Carl R. Hennies, and Zackary R.
Clark were on the brief for intervenors Entergy Services, LLC,
and Arkansas Public Service Commission in support of
respondent. Marie Denyse Zosa entered an appearance.
Before: HENDERSON and JACKSON, Circuit Judges, and
SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: The Louisiana Public
Service Commission (“the Louisiana Commission”) petitions
for review of two orders of the Federal Energy Regulatory
Commission (“FERC”). Opinion No. 565, 165 FERC ¶ 61,022(Oct. 18, 2018), reh’g denied, 169 FERC ¶ 61,179 (Dec. 3,
2019); Order Denying Complaint, 169 FERC ¶ 61,113 (Nov.
21, 2019), Order Addressing Arguments Raised on Reh’g, 172
FERC ¶ 61,056 (July 16, 2020). The Louisiana Commission
objects that FERC acted arbitrarily and capriciously by
excluding certain transactions from the calculation of a remedy
and by denying a subsequent complaint relating to those same
transactions. Finding no merit to these objections, we deny the
petitions for review.
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I. Background
From 1982 to 2016, six utilities—Entergy Arkansas, Inc.;
Entergy Louisiana, L.L.C.; Entergy Mississippi, Inc.; Entergy
New Orleans, L.L.C.; Entergy Texas, Inc.; and Entergy Gulf
States, L.L.C.—operated according to the Entergy System
Agreement (“the System Agreement”), which required the six
utilities to plan and operate their facilities as a single electric
system. FERC mandated that production costs among the
utilities be roughly equal. Louisiana Pub. Serv. Comm’n v.
FERC, 522 F.3d 378, 384 (D.C. Cir. 2008). 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 F. App’x 3, 4 (D.C. Cir. 2018); Louisiana Pub.
Serv. Comm’n v. FERC, 522 F.3d at 383; Louisiana Pub. Serv.
Comm’n v. FERC, 174 F.3d 218, 220 (D.C. Cir. 1999).
Relevant to this case, the System Agreement includes
provisions concerning excess capacity held by any one utility.
Section 30.03 of the System Agreement, entitled “Allocation
of Energy,” establishes the procedure for allocating low-cost
energy. The lowest cost energy available to each utility must
first be allocated to the native load of that utility. The term
“native load” refers to the customers that each utility is required
to serve under franchise or long-term contract. Only then can it
be made available to supply the requirements of other
Companies’ loads. Unused, higher-cost energy may then be
sold to third parties.
In 2009, the Louisiana Commission filed a complaint (“the
2009 Complaint”) alleging that between 2000 and 2009,
Entergy Arkansas was selling low-cost energy to off-system
third parties in violation of the System Agreement. According
to the Louisiana Commission, the practice of selling low-cost
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energy to third parties before fulfilling the requirements of the
system violated the System Agreement. Review of this claim
proceeded in three phases: Phase 1 determined the existence of
any liability; Phase 2 determined the proper method for
calculating damages; and Phase 3 reviewed the damage
calculation for accuracy.
In Phase 1, FERC held that individual utilities are
permitted to make off-system sales of energy so long as those
sales comply with the System Agreement. Opinion No. 521,
139 FERC ¶ 61,240 (June 21, 2012), reh’g denied in part and
granted in part, Opinion 521-A, 155 FERC ¶ 61,064 (Apr. 21,
2016). When an individual utility makes off-system sales, they
are known as opportunity sales and are governed by Section
30.04 of the System Agreement entitled “Energy for Sales to
Others.” Sales made by the System, rather than by an
individual utility, for the System’s collective benefit are known
as Joint Account Sales and are governed by Section 4.05 of the
System Agreement.
Despite finding that that Entergy Arkansas did have the
right under the System Agreement to make opportunity sales,
FERC held that Entergy Arkansas still violated the System
Agreement because it accounted for those sales as part of its
native load under Section 30.03 of the System Agreement
rather than as sales to others under Section 30.04. In sum,
Entergy Arkansas was selling low-cost energy to third parties
rather than giving the other utilities in the System an
opportunity to utilize that low-cost energy. FERC ordered that
Entergy Arkansas make payments to the other utilities in the
System to refund their losses resulting from the violation.
FERC’s distinguishing between Joint Account Sales under
Section 4.05 and opportunity sales under Section 30.04 was
reviewed and upheld as reasonable in Entergy Services, Inc. v.
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FERC, No. 17-1251, 2021 WL 3082798, *5 (D.C. Cir. July 13,
2021) (per curiam).
In Phase 2 of the litigation, FERC determined the method
for calculating the damages owed by Entergy Arkansas.
Opinion No. 548, 155 FERC ¶ 61,056 (Apr. 21, 2016), reh’g
denied, Opinion No. 548-A, 161 FERC ¶ 61,171 (Nov. 16,
2017). FERC ordered a “full re-allocation using the [Intra-
System Bill], to determine how the system would have looked
had Entergy properly applied the System Agreement . . . .” The
method selected for calculating damages is not at issue in this
petition.
In Phase 3, an Administrative Law Judge (“ALJ”) was
overseeing the calculation of damages by Entergy Arkansas.
Phase III Initial Decision, 160 FERC ¶ 63,009 (July 27, 2017).
Before the ALJ, Entergy Arkansas identified a subset of the
sales in question made from January through September 2000
(“the Grand Gulf Sales”), asserting that they should not be
included in the damage calculation. According to Entergy
Arkansas, the Grand Gulf Sales, unlike the other sales in
dispute, were accounted for as Joint Account Sales under
Section 4.05.
The ALJ rejected the argument that the Grand Gulf Sales
should be excluded from the damage calculation despite their
differences from the other sales. Upon review, FERC reversed
the decision of the ALJ, finding that the Grand Gulf Sales,
unlike the other sales, were accounted for as Joint Account
Sales and therefore should not be included in the damage
calculation. FERC distinguished the Grand Gulf Sales from
the other opportunity sales from 2000 through 2009 by finding
that the Grand Gulf Sales, unlike the other opportunity sales,
were not improperly allocated under section 30.03 because
Joint Account Sales are governed by Section 4.05.
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FERC went on to find that any determination of whether
the Grand Gulf Sales were properly accounted for as Joint
Account Sales was beyond the scope of the proceeding, which
was to remedy the damages caused by the opportunity sales of
Entergy Arkansas. FERC rejected the Louisiana
Commission’s argument that Entergy Arkansas ought to be
estopped from asserting that the Grand Gulf Sales were Joint
Account Sales or that this was an improper collateral attack on
earlier FERC opinions. FERC noted that the Louisiana
Commission could file an additional complaint to address the
issue of whether the Grand Gulf Sales were properly accounted
for as Joint Account Sales. FERC reaffirmed these holdings
upon the Louisiana Commission’s request for rehearing.
In response to FERC’s orders, the Louisiana Commission
petitioned this court for review of FERC’s decision regarding
the Grand Gulf Sales. Contemporaneously, the Louisiana
Commission filed a new complaint (“the 2019 Complaint”).
The Louisiana Commission alleged that the Grand Gulf Sales,
while appropriately accounted for under Section 4.05 of the
agreement, were improperly calculated under that Section and
that the other utilities of the System were not properly
compensated from the revenues of those sales.
At that point in time, the litigation surrounding the Grand
Gulf Sales had outlived the Entergy System itself. Entergy
Arkansas withdrew from the System Agreement in 2013. The
remaining utilities and their respective regulators—including
the Louisiana Commission—formally terminated the System
Agreement at the end of 2015 by entering into the Settlement
Agreement.
In response to the 2019 Complaint, Entergy Services,
LLC, moved FERC to dismiss the Complaint because the
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Louisiana Commission had waived its right to bring this claim
in the Settlement Agreement. FERC agreed with Entergy
Services that the 2019 Complaint is barred by the Settlement
Agreement and denied the Complaint. Order Denying
Complaint, 169 FERC ¶ 61,113 (Nov. 21, 2019), Order
Addressing Arguments Raised on Rehearing, 172 FERC
¶ 61,056 (July 16, 2020). The Louisiana Commission timely
petitioned this court to review FERC’s Order Denying the 2019
Complaint.
We will set aside a decision of FERC if it is arbitrary,
capricious, or otherwise contrary to law. Louisiana Pub. Serv.
Comm’n v. FERC, 482 F.3d 510, 517 (D.C. Cir. 2007). Its
factual determinations must be supported by substantial
evidence. 16 U.S.C. § 825l(b).
II. The Grand Gulf Sales
The Louisiana Commission first contends that FERC’s
exclusion of the Grand Gulf Sales from the damage calculation
was an irrational change of position. Under the arbitrary and
capricious standard, FERC is permitted to change its position,
but it must provide a reasoned explanation before departing
from prior rulings. Louisiana Pub. Serv. Comm’n v. FERC,
184 F.3d 892, 897 (D.C. Cir. 1999). According to the
Louisiana Commission, FERC previously defined the sales at
issue to include the Grand Gulf Sales, and its ultimate decision
to exclude the Grand Gulf Sales must meet the standards
required for a change of agency position.
The Louisiana Commission is referring to FERC’s
creation of a defined term: “Opportunity Sales” (not to be
confused with generic, lower-case “opportunity sales”
governed by Section 30.04 of the System Agreement). FERC
defined the capitalized term “Opportunity Sales” to mean “the
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disputed off-system sales of energy by Entergy Arkansas to
third-party power marketers and others that are not members of
the System Agreement for its shareholders’ behalf from 2000
through 2009.” Opinion No. 521, ¶ 2 n.5. This term was
defined and used throughout several FERC orders in the
Entergy Arkansas litigation, but that does not turn FERC’s later
decision regarding the Grand Gulf Sales into a reversal of
position.
FERC’s definition of Opportunity Sales is a definition of
what sales were in dispute. No more; no less. In its use of the
term, FERC never made a finding about whether each sale was
an opportunity sale or a Joint Account Sale. FERC’s findings
were limited to the fact that there were sales between 2000 and
2009 that violated the System Agreement because Entergy
Arkansas allocated those sales to its native load under Section
30.03 rather than accounting for them as opportunity sales
under Section 30.04.
FERC’s finding regarding the Opportunity Sales was only
that there were sales at issue between 2000 and 2009 that
violated the System Agreement and that the extent of the
violation would be determined by re-calculating the Intra-
System Bill. FERC never found that the Grand Gulf Sales or
any other specific sales included in the Opportunity Sales were
a violation of the System Agreement. The Louisiana
Commission’s argument that this is a change of position falls
flat. There cannot be a change of position when no position
was taken in the first place. This was an initial determination.
The Louisiana Commission then contends that FERC’s
finding that the Grand Gulf Sales should be excluded from the
damage calculation was not supported by a rational
explanation. If an agency does not provide a rational
explanation for its action based on the relevant data, then that
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action is arbitrary and capricious. 5 U.S.C. § 706(2)(A); Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto Ins.
Co., 463 U.S. 29, 43 (1983).
In this case, FERC explained that Phase 3 of the
proceedings should be focused on violations of Section 30.03
because FERC’s findings in Phase 1 concerned Entergy
Arkansas treating third-party sales as part of their native load
under that section. The allegations regarding the Grand Gulf
Sales do not concern Section 30.03 because those sales were
always treated as Joint Account Sales and therefore never
treated as part of Entergy Arkansas’s native load. This
explanation is more than rational and entirely within reason.
In response, the Louisiana Commission asserts that FERC
cited to no evidence in its determination that the Grand Gulf
Sales were initially accounted for as Joint Account Sales, but
this is not accurate. A factual determination such as this one
must be supported by substantial evidence. “Substantial
evidence is more than a mere scintilla. It means such relevant
evidence as a reasonable mind might accept as adequate to
support a conclusion.” Consolidated Edison Co. v. NLRB, 305
U.S. 197, 217 (1938). The substantial evidence standard “can
be satisfied by something less than a preponderance of the
evidence.” Louisiana Pub. Serv. Comm’n v. FERC, 522 F.3d
378, 395 (D.C. Cir. 2008) (quoting FPL Energy Main Hydro
LLC v. FERC, 287 F.3d 1151, 1160 (D.C. Cir 2002)).
The Louisiana Commission’s own witness conceded on
the record that the Grand Gulf Sales were always classified by
Entergy as Joint Account Sales. In his testimony about why
the Grand Gulf Sales should be remedied in the current
proceeding, the witness acknowledged that the Grand Gulf
Sales were not a violation of Section 30.03 and instead asserted
that they were a violation of Section 30.04. This is the same
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justification adopted by FERC in its ruling that the Grand Gulf
Sales were outside the scope of the proceeding. Certainly, this
satisfies the low bar of the substantial evidence standard.
The Louisiana Commission’s argument that FERC should
have remedied the Grand Gulf Sales in the same proceeding
also falls short. FERC reasonably determined that the
violations being remedied in this proceeding were opportunity
sales that were disguised as native load to funnel money to
Entergy Arkansas shareholders. The Louisiana Commission’s
contention that the Grand Gulf Sales caused the same kind of
harm because they were not properly accounted for as Joint
Account Sales is unpersuasive. FERC “enjoys broad discretion
in determining how best to handle related, yet discrete, issues
in terms of procedures . . . .” Mobil Oil Expl. & Producing Se.
Inc. v. United Distrib. Cos., 498 U.S. 211, 230 (1991) (citing
Vermont Yankee Nuclear Power Corp. v. Natural Res. Def.
Council, Inc., 435 U.S. 519 (1978)). This case even resulted
from an earlier decision similar to this one when Entergy
Arkansas’s contested sales (including the Grand Gulf Sales)
were first discovered in the midst of another dispute. In that
case, FERC held the contested sales to be outside the scope of
that proceeding, spurring the Louisiana Commission to file the
2009 Complaint. Louisiana Pub. Serv. Comm’n v. Entergy
Corp., 129 FERC ¶ 61,205 at P 4 (citing Louisiana Pub. Serv.
Comm’n v. FERC, 551 F.3d 1042 (D.C. Cir. 2008)).
The Louisiana Commission’s last-ditch effort to label the
characterization of the Grand Gulf Sales as Joint Account Sales
as a collateral attack on prior FERC orders fails for the same
reason that the argument alleging a change of position did:
there was no prior determination about whether the Grand Gulf
Sales violated Section 30.03 of the System Agreement.
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III. The 2019 Complaint
As suggested in FERC’s orders that refused to address the
Grand Gulf Sales along with the opportunity sales made by
Entergy Arkansas, the Louisiana Commission filed the 2019
Complaint alleging that the Grand Gulf Sales—despite being
accounted for as Joint Account Sales—still violated the System
Agreement. Entergy Services responded and moved to dismiss
the 2019 Complaint on the ground that it was foreclosed by the
2015 Settlement Agreement entered into by the Louisiana
Commission when the pact between the Entergy utilities was
dissolved.
FERC granted the motion and denied the 2019 Complaint.
This effectively closed the door on the Louisiana Commission
ever recovering damages for the alleged injury incurred from
the Grand Gulf Sales. The Louisiana Commission argues that
FERC misinterpreted the Settlement Agreement and that the
order denying the complaint should be vacated so that the
Louisiana Commission may pursue a remedy.
The portions of the Settlement Agreement that are relevant
to this case are those which govern claims brought by members
of the Settlement Agreement under the now-terminated System
Agreement. Section G(1) provides that the parties of the
Settlement Agreement “irrevocably waive and release” any
claims against other settling parties “arising out of or relating
to the System Agreement that are not filed and served upon the
applicable parties as of the filing of the Settlement Agreement
. . . .” Then, in the midst of language regarding the obligation
of parties to roughly equalize production costs under the
System Agreement, Section G(2) clarifies that the “Settlement
Agreement shall have no effect on cost allocation disputes
affecting costs incurred prior to January 1, 2016.”
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The Louisiana Commission first contends that Section
G(1) does not foreclose the 2019 Complaint because it only
applies to claims that were “not filed and served upon the
applicable parties as of the filing of the Settlement
Agreement . . . .” According to the Louisiana Commission, it
preserved the allegations in the 2019 Complaint via the 2009
Complaint (which was filed prior to the 2015 Settlement
Agreement) because the two “alleged the same substantive
violation.” But this is not so.
The 2009 Complaint focused on sales of electricity by
Entergy Arkansas that allegedly “violated the provision of the
System Agreement that prohibits sales to third parties by
individual companies absent an offer of a Right-of-First-
Refusal to the other companies.” The 2019 Complaint, on the
other hand, focused on sales made “for the benefit of Entergy
Arkansas” that allegedly violated the terms of the System
Agreement governing the reimbursement for energy used to
supply sales to others for the joint account of the Entergy
Operating Companies.
FERC reasonably concluded that the two complaints
alleged different violations of the System Agreement and
therefore that the 2009 Complaint did not preserve the
allegations in the 2019 Complaint for purposes of the 2015
Settlement Agreement waiver provisions.
The Louisiana Commission then narrows in on a single
sentence of Section G(2) to rescue the 2019 Complaint. “This
Settlement Agreement shall have no effect on cost allocation
disputes affecting costs incurred prior to January 1, 2016.”
Read in isolation, this sentence does support the Louisiana
Commission’s argument that the Settlement Agreement does
not bar the 2019 Complaint. But FERC does not review
excerpts in isolation; rather, it “must review the entire
13
agreement and particular words should be considered, not as if
isolated from the context, but in light of the obligations as a
whole and the intention of the parties as manifested therein.”
Xcel Energy Servs. Inc. & N. States Power Co., a Wisc. Corp.
v. American Transmission Co., 140 FERC ¶ 61,058 at P 60
(2012).
When read in its entirety, Section G(2) regards the
obligation to roughly equalize production costs under the
System Agreement. Since 2007, if an individual utility’s
“production costs deviate more than 11 percent above or below
the Entergy System’s average on an annual basis, the [utilities]
with the lower costs will make payments . . . to the ones with
higher costs such that their overall costs return to rough
equalization.” Louisiana Pub. Serv. Comm’n v. FERC, 866
F.3d 426, 427 (D.C. Cir. 2017). This remedy was affirmed in
Louisiana Pub. Serv. Comm’n v. FERC, 522 F.3d 378 (D.C.
Cir. 2008). FERC reasonably concluded that Section G(2)
“pertains to the bandwidth calculation and the sentence cited
by the Louisiana Commission clarifies that the Settling Parties
would not be precluded from pursuing cost allocation disputes
related to a final bandwidth calculation compliance filing that
had not yet been submitted at the time of the 2015 Settlement
Agreement.”
Neither Section G(1) or G(2) saves the allegations in the
2019 Complaint from being barred by the 2015 Settlement
Agreement. And finally, the Louisiana Commission’s
argument that FERC should have denied the motion to deny the
2019 Complaint as to Entergy Arkansas because it was not a
party to the 2015 Settlement Agreement is unpersuasive. The
Louisiana Commission asserts that even if the other named
parties are protected by the Settlement Agreement, damages
could be collected from Entergy Arkansas, which withdrew
from the Entergy System without ever entering the Settlement
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Agreement. As FERC explained, the core issue of the 2019
Complaint was not the actions of Entergy Arkansas, but the
accounting methods used by Entergy Services, LLC, which is
a party to the 2015 Settlement Agreement. FERC’s reasoning
to dismiss the 2019 Complaint as to all parties was not arbitrary
and capricious when the violations were allegedly committed
by a party to the Settlement Agreement, even if a portion of the
damages would have been paid out by a non-party.
The Louisiana Commission’s last attempts to argue
estoppel and mutual mistake similarly fail. To prevail on a
claim of equitable estoppel, a party must show that there was a
“false representation, a purpose to invite action by the party to
whom the representation was made, ignorance of the true facts
by that party, and reliance, as well as a showing of an injustice
and lack of undue damage to the public interest.” ATC
Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir.
1988) (cleaned up). The Louisiana Commission argues that it
relied upon Entergy’s representations about the Grand Gulf
Sales when it agreed to the waiver provisions of the Settlement
Agreement.
Regardless of the Louisiana Commission’s reasons for
entering the Settlement Agreement, FERC correctly found that
the Louisiana Commission never alleged that any
representations made by Entergy in 2010 were made for the
purpose of inducing the Louisiana Commission to enter the
2015 Settlement Agreement. Order Addressing Arguments
Raised on Reh’g, 172 FERC ¶ 61,056 at P 35 (July 16, 2020).
Under the doctrine of judicial estoppel, when “a party
assumes a certain position in a legal proceeding, and succeeds
in maintaining that position, he may not thereafter, simply
because his interests have changed, assume a contrary position,
especially if it be to the prejudice of the party who has
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acquiesced in the position formerly taken by him.” New
Hampshire v. Maine, 532 U.S. 742, 749 (2001). FERC
correctly focused on the fact that, while Entergy may have
made prior representations that the Grand Gulf Sales were
Opportunity Sales, Entergy never succeeded in inducing FERC
to find the same. 172 FERC ¶ 61,056 at P 33 (2020).
Under the doctrine of mutual mistake, “a contract may be
rescinded if the contracting parties entertained a material
mistake of fact that went to the heart of the bargain.” Harbor
Ins. Co. v. Stokes, 45 F.3d 499, 501 (D.C. Cir. 1995) (quoting
Bituminous Coal Operators’ Ass’n v. Connors, 867 F.2d 625,
635 (D.C. Cir. 1989)). FERC contends that this argument was
waived below because it was not raised until the Louisiana
Commission’s petition for rehearing. Even if the Louisiana
Commission’s mutual mistake argument was not waived,
FERC reasonably determined on the merits that the Louisiana
Commission presented no evidence that any initial shared
impression about the Grand Gulf Sales was a material fact that
formed the basis of the 2015 Settlement Agreement.
IV. Conclusion
For the reasons set forth above, the Louisiana
Commission’s petitions for review are denied.