LA Pub Svc Cmsn v. FERC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 6, 2006 Decided April 3, 2007

No. 05-1161

LOUISIANA PUBLIC SERVICE COMMISSION,
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT

ENTERGY SERVICES, INC., ET AL.,
INTERVENORS

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

Michael R. Fontham argued the cause for petitioner. With
him on the briefs were Paul L. Zimmering and Noel J. Darce.

Robert H. Solomon, Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief was Monique L. Watson, Attorney.

Mary W. Cochran argued the cause for intervenors
Arkansas Public Service Commission, et al. With her on the
brief were Paul R. Hightower, Clinton A. Vince, J. Cathy Fogel,
Paul E. Nordstrom, George M. Fleming, William S. Scherman,
 2

J. Wayne Anderson, and Gregory W. Camet.

Before: GINSBURG, Chief Judge, and ROGERS and
KAVANAUGH*, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The Louisiana Public Service
Commission (Louisiana) petitions for review of an order of the
Federal Energy Regulatory Commission (1) permitting Entergy
Corporation to phase interruptible load out of its calculation of
peak load, which it uses to equalize capacity costs for its
Operating Company subsidiaries; (2) refusing to order those
Operating Companies that benefitted from inclusion of
interruptible load in the calculation to make payments, pursuant
to § 206 of the Federal Power Act, to those Operating
Companies that were burdened by such inclusion; and
(3) refusing to determine in this proceeding whether Entergy
should have included the opportunity cost of allowances for
emissions of sulfur dioxide (SO2) in its calculation of each
Operating Company’s peak load responsibility.

I. Background

Entergy is a public utility holding company with five
subsidiary operating companies** that generate and sell
electricity in Arkansas, Louisiana, Mississippi, and Texas. La.

*
Circuit Judge Kavanaugh, who was a member of the panel at the
time the case was argued, recused himself from the case after oral
argument.
**
Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy
Louisiana, Inc., Entergy Mississippi, Inc., and Entergy New Orleans,
Inc.
 3

Pub. Serv. Comm’n v. Entergy Corp., 106 F.E.R.C. ¶ 61,228 at
61,793 P 2 n.1 (2004) (Opinion No. 468). In 1982 each
Operating Company entered into a contract (the System
Agreement) with another subsidiary, now called Entergy
Services, Inc., which agreement allocates capacity costs among
them. Id. Pursuant to the System Agreement, each Operating
Company was liable to make an “equalization payment” each
month, depending upon the amount of electricity it took at the
time of peak monthly demand on the Entergy system. Id. at
61,793-94 PP 2-3. If at the monthly peak an Operating
Company took more power than it generated, then it was “short”
and had to pay the companies that were “long.” Id. The
calculation of peak load was based upon a rolling average of the
12 previous monthly peak loads.

A. Interruptible Load in the Calculation of Peak Load
Responsibility

Under § 201(b) of the Act, the Commission has jurisdiction
to approve rates, terms, and conditions for wholesale electricity
service offered in interstate commerce, see 16 U.S.C. § 824(b)
(2004), which includes the electricity sold by the Operating
Companies. The Commission may review and order a change
in any rate it finds is “unjust, unreasonable, unduly
discriminatory or preferential.” § 206(a), 16 U.S.C. § 824e(a)
(2004).

Some of the Operating Companies carry an “interruptible
load” in addition to a “firm load.” Firm load is electricity sold
pursuant to a contract that entitles the customer to receive
service from the seller on demand. Interruptible load, on the
other hand, is electricity sold pursuant to a contract that entitles
the seller to curtail service when it does not have enough
capacity to produce electricity in excess of the quantity
demanded by customers with contracts for firm service.
 4

Louisiana regulates the retail rates charged by utilities operating
in Louisiana, where most of Entergy’s retail customers with
contracts for interruptible service are located.

In 1995 Louisiana filed a complaint with the Commission
claiming the formula for peak load responsibility in Entergy’s
System Agreement was unjust or unreasonable because it
allocated capacity costs to the Operating Companies based upon
monthly peak demand for both firm and interruptible load. The
Commission, whose trial staff estimated that removing
interruptible load from the formula Entergy used to calculate
peak load responsibility would shift $ 14 million in cost
responsibility from Entergy Louisiana’s ratepayers to the
ratepayers served by the other Operating Companies, rejected
Louisiana’s complaint. La. Pub. Serv. Comm’n v. Entergy
Servs., Inc., 76 F.E.R.C. ¶ 61,168 at 61,956 (1996), reh’g
denied, 80 F.E.R.C. ¶ 61,282 at 62,007 (1997). The
Commission also determined Louisiana was not entitled to a
hearing because it had not alleged that Entergy’s decision no
longer to count interruptible load when deciding whether to add
new capacity had upset the “rough” “equalization” of costs
among the Operating Companies achieved by the System
Agreement. Louisiana Commission, 80 F.E.R.C. ¶ 61,282 at
62,007.

We granted Louisiana’s petition for review and held the
Commission did not give an adequate explanation for departing
from the precedent it had set in Kentucky Utilities Co., 15
F.E.R.C. ¶ 61,002 at 61,004-05 (1981), where the Commission
held it was unjust or unreasonable for a utility to charge capacity
costs to a customer purchasing only interruptible service because
the utility could control its capacity costs by curtailing
interruptible service during times of peak demand. See La. Pub.
Serv. Comm’n v. FERC, 184 F.3d 892, 896-97 (1999)
(Louisiana I). We remanded the case for the Commission to
 5

determine whether including interruptible load in the formula for
allocating peak load responsibility was unjust or unreasonable
and, if not, then to explain its reasoning in light of Kentucky
Utilities. See id. at 897, 900. Because we could not “discern the
content of its ‘rough equalization’ standard,” we also directed
the Commission to clarify the standard and “either reveal why
[Louisiana’s] allegation of an unjust and unreasonable method
of allocation with facially significant consequences does not
meet that standard, or grant [Louisiana] a hearing, as the case
may be.” Id. at 899.

Nearly five years later, in March 2004, the Commission
determined it was unjust or unreasonable for Entergy to include
interruptible load in its calculation of peak load responsibility
because the Operating Companies could control capacity costs
by curtailing interruptible service during times of peak demand.
Louisiana Commission, 106 F.E.R.C. ¶ 61,228 at 61,802-04
PP 67-77 (Opinion No. 468). Entergy moved for rehearing,
arguing it should not have to remove interruptible load from its
calculation of peak load for the 12 months preceding April 2004
so that “the effect of Opinion No. 468 will be phased in
prospectively over the ensuing twelve months.” In April 2005
the Commission answered, rather cryptically: “Entergy must
adjust the system peaks and its rates beginning April 1, 2004, as
required by Opinion No. 468.” La. Pub. Serv. Comm’n v.
Entergy Servs., Inc., 111 F.E.R.C. ¶ 61,080 at 61,372 P 31
(2005) (Opinion No. 468-A). Later that month, at a hearing
before the Louisiana Public Service Commission, counsel for
Entergy Services, Inc. took the position that the Opinion No.
468-A “was saying that you begin the rolling 12 months in April
of ‘04, so that, by the time you get to April of ‘05, you’ll have
the effect”; in other words, Entergy interpreted Opinion No.
468-A as adopting its request to phase the interruptible load out
of its formula for peak load responsibility over a period of 12
months.
 6

In June 2005 Louisiana filed a protest with the Commission.
In a Compliance Order issued that August, however, the
Commission expressly accepted Entergy’s phase-out approach
as the “natural result of the billing lag built into the formula
rate.” La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 112
F.E.R.C. ¶ 62,192 at 62,014 P 13 (2005). Louisiana now seeks
review of Opinion Nos. 468 and 468-A, so interpreted.

B. Refunds for Cost of Interruptible Load

Entergy continued to include interruptible load in its
calculation and allocation of peak load responsibility after
Louisiana had filed its complaint in March 1995. Louisiana
contends the Commission may and should, pursuant to § 206(b)
of the Act, 16 U.S.C. § 824e(b), order the Operating Companies
that were benefitted by the inclusion of interruptible load in the
calculation to pay the Operating Companies that were burdened
the amount each would have paid if interruptible load had not
been included for the 15-month period following the “refund
effective date.” That section of the Act authorizes the
Commission to order a public utility that has charged customers
an unjust or unreasonable rate:

to make refunds of any amounts paid, for the period
subsequent to the refund effective date through a date
fifteen months after such refund effective date, in
excess of those which would have been paid under the
just and reasonable rate ... which the Commission
orders to be thereafter observed and in force.

Section 206(c), however, specifically prohibits the Commission
from ordering one subsidiary of a holding company to refund
monies to a sister subsidiary unless the Commission determines
the holding company will not experience any reduction of
revenue because of the payor subsidiary’s “inability ... to
 7

recover such increase in costs” from its ratepayers.*

After this court held in Louisiana I that the Commission had
not adequately explained its decision permitting Entergy to
include interruptible load in its calculation of peak load, the
Commission established May 14, 1995 as the refund effective
date. La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 93
F.E.R.C. ¶ 61,013 at 61,027 (2000). In Opinion Nos. 468 and
468-A, however, the Commission determined it could not order
refunds because it could not find, as required by § 206(c), that
the Operating Companies would be able to recover the refunded
amounts from their retail customers. Louisiana Commission,
106 F.E.R.C. ¶ 61,228 at 61,805-06 PP 82-89 (Opinion No.
468), reh’g denied, 111 F.E.R.C. ¶ 61,080 at 61,370 PP 21-22
(Opinion No. 468-A). In response to Louisiana’s contention that

*
Section 206(c), 16 U.S.C. § 824e(c) says:

Notwithstanding subsection (b) of this section, in a
proceeding commenced under this section involving two or
more electric utility companies of a registered holding
company, refunds which might otherwise be payable under
subsection (b) of this section shall not be ordered to the
extent that such refunds would result from any portion of a
Commission order that ... (2) is based upon a determination
that the amount of such decrease should be paid through an
increase in the costs to be paid by other electric utility
companies of such registered holding company: Provided,
That refunds, in whole or in part, may be ordered by the
Commission if it determines that the registered holding
company would not experience any reduction in revenues
which results from an inability of an electric utility company
of the holding company to recover such increase in costs for
the period between the refund effective date and the effective
date of the Commission’s order.
 8

a refund ordered by the Commission would preempt inconsistent
state retail rates, the Commission observed that it lacked
jurisdiction “to directly prescribe retail rates.” Louisiana
Commission, 111 F.E.R.C. ¶ 61,080 at 61,370 P 22 (Opinion No.
468-A). The Commission also rejected as being without
probative value testimony proffered by Louisiana asserting that
the payor subsidiaries could pass the cost of refunds on to their
retail customers in the same manner as they pass on equalization
payments under the System Agreement. Louisiana Commission,
106 F.E.R.C. ¶ 61,228 at 61,805-06 PP 85-89 (Opinion No.
468). Louisiana also seeks review of Order Nos. 468 and 468-A
with respect to this question of Commission authority.

C. Opportunity Cost of Allowances for Emissions of SO2

The Congress enacted the Acid Deposition Control portion
of the Clean Air Act Amendments of 1990 in order to reduce the
emission of atmospheric pollutants that contribute to acid rain.
See Clean Air Act Amendments of 1990, Pub. L. No. 101-549,
tit. IV, 104 Stat. 2399, 2584-631 (codified at 42 U.S.C. §§ 7651-
7651o). The Amendments capped annual emissions of SO2 and
established a system for the purchase and sale of “allowances,”
each of which is essentially a permit to emit one ton of SO2. Id.
tit. IV, § 402(3) (codified at 42 U.S.C. § 7651a(3)).

In 1999 Entergy filed with the Commission a proposed
amendment to the System Agreement designed to “ensure[] that
each Entergy Operating Company will be compensated for any
sulfur dioxide emission allowances used to generate energy
exchanged among the Operating Companies.” See Entergy
Services, Inc., 89 F.E.R.C. ¶ 61,331 at 62,004 (1999). Because
of the effect this so-called SO2 Amendment would have upon the
allocation of costs among the Operating Companies, Louisiana
intervened in opposition, arguing the amendment was unjust or
unreasonable insofar as it disrupted the “rough equalization” of
 9

costs among the Operating Companies provided in the System
Agreement. See id. at 62,004-05. The Commission accepted the
amendment “subject to refund” and subject to the Commission’s
determination, pursuant to our remand order in Louisiana I,
whether the inclusion of interruptible load in the calculation of
peak load was consistent with the same “rough equalization”
requirement (Docket No. EL95-33-000). Id. at 62,005. In later
filings in that proceeding, Louisiana argued the Commission
should reject the SO2 Amendment as inconsistent not only with
the Entergy System Agreement but also with a 1993 agreement
between Entergy and its retail regulators, presumably including
Louisiana.

In 2004 the Commission concluded that the reasonableness
of the SO2 Amendment was not properly before it in the
aforementioned docket; pursuant to an agreement approved by
the Commission in 2001, the parties (including Louisiana) had
settled a number of issues with respect to the allocation of costs
under the System Agreement, and the Commission concluded
that the “SO2 amendment issue and all other issues related to the
rough equalization of costs among the Operating Companies”
had been moved to another docket (No. EL01-88-000).
Louisiana Commission, 106 F.E.R.C. ¶ 61,228 at 61,807 PP 96-
99 (Opinion No. 468). In particular, the parties agreed not to
submit in this docket the question whether, in order “[t]o amend
the System Agreement to reflect the cost of emission
allowances,” Entergy first should be “required to show that the
‘rough equalization’ of costs among the Operating Companies
[had] been upset.” Though the Commission overlooked it in
Opinion No. 468, the parties contemplated that the question
whether the “amendment to add the replacement cost of SO2
allowances to costs billed under MSS-3 in the System
Agreement [is] just and reasonable and consistent with the
[Act]” would remain pending in this docket (No. EL95-33-002).
 10

Upon Louisiana’s petition for rehearing, which called
attention to the Commission’s oversight, the Commission
decided it would not be appropriate after all to resolve that issue
in that docket (No. EL01-88-000) because the issues raised in
that docket had already been briefed, tried, and resolved by the
Administrative Law Judge (ALJ), see La. Pub. Serv. Comm’n v.
Entergy Servs., 106 F.E.R.C. ¶ 63,012 (2004). See Louisiana
Commission, 111 F.E.R.C. ¶ 61,080 at 61,371 P 26 (Opinion No.
468-A). The Commission also held, however, that Louisiana’s
challenge to the SO2 Amendment was untimely, having been
raised only when Louisiana had excepted to the ALJ’s initial
decision in the case involving the calculation of peak load and
the issue of refunds (Docket Nos. EL00-66-000 & EL95-33-
002), see La. Pub. Serv. Comm’n v. Entergy Corp., 96 F.E.R.C.
¶ 63,002 (2001); therefore the Commission determined
Louisiana could pursue the SO2 Amendment issue in “the next
case Entergy files regarding the System Agreement, or ... a
complaint” initiating a new proceeding. Louisiana Commission,
111 F.E.R.C. ¶ 61,080 at 61,371 P 26 (Opinion No. 468-A).
Louisiana petitions the court for review of this procedural
decision, arguing the Commission must determine whether the
SO2 Amendment is proper without Louisiana having to file a
new complaint.

II. Analysis

We will set aside a decision of the Commission only if it is
“arbitrary and capricious or otherwise contrary to law.” Envtl.
Action, Inc. v. FERC, 939 F.2d 1057, 1061 (D.C. Cir. 1991).
Before considering the merits of Louisiana’s petition, however,
we must dispose of the jurisdictional objections to our review.

A. Jurisdiction

The Commission and the Intervenors argue the court may
 11

not entertain Louisiana’s challenge to the Commission’s
decision permitting Entergy to phase interruptible load out of its
calculation of peak load because Louisiana did not first ask the
Commission to rehear that issue. Under § 313(b) of the Act, 16
U.S.C. § 825l(b), the court may not consider an objection to an
order of the Commission “unless such objection shall have been
urged before the Commission in [an] application for rehearing
[or] there is reasonable ground for failure so to do.” Satisfaction
of § 313(b) is a “jurisdictional prerequisite to judicial review,”
Pub. Serv. Comm’n of the State of N.Y. v. FPC, 543 F.2d 757,
774 n.116 (D.C. Cir. 1974).

Louisiana claims as its “reasonable ground” that it had no
reason to seek rehearing of the Commission’s decision requiring
Entergy to remove interruptible load from its calculation of peak
load until the Commission issued the Compliance Order, at
which time the deadline for filing a rehearing petition had
passed. We agree. According to both the Compliance Order
and the Commission’s argument on review, Opinion Nos. 468
and 468-A call for Entergy to phase interruptible load out of its
calculation of peak load over a 12-month period; the
Compliance Order merely interprets the Opinions to that effect.
This is far from apparent on the face of the Opinions, however;
indeed, they give no indication that Entergy’s removal of
interruptible load from its calculation is to be anything other
than immediate. Louisiana could not be expected to seek
rehearing of decisions that, on their faces, represented a
complete victory for it. Only when the agency by interpretation
made the victory less than complete — after the time for
rehearing had passed — did Louisiana have reason to seek
review. If review were unavailable in these circumstances, then
an “agency [could] enter an ambiguous or obscure order,
wilfully or otherwise, wait out the required time, then enter an
‘explanatory’ order that would extinguish the review rights of
parties prejudicially affected.” Sam Rayburn Dam Elec. Coop.
 12

v. FPC, 515 F.2d 998, 1007 (D.C. Cir. 1975). As the cited case
makes clear, the law of this circuit does not allow such a
“perversion” of the “policy requiring timely filing of motions for
reconsideration.” Id.

The Commission also challenges Louisiana’s standing to
object to the Commission’s decision to permit Entergy to phase
interruptible load out of its calculation of peak load on the
ground that, because the proceeding that was the subject of the
Compliance Order is still ongoing, Louisiana has not suffered an
immediate or concrete injury. The Compliance Order, however,
authorized Entergy to phase the interruptible load out of its
calculation of peak load and that is in fact what Entergy did, as
the result of which Louisiana clearly sustained an immediate and
concrete injury.* Therefore, we hold Louisiana has standing to
challenge the inclusion of interruptible load in Entergy’s
calculation and allocation of peak load responsibility, see Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), and we turn
to the merits of its case.

B. Phasing Out Interruptible Load

Louisiana argues the Commission acted arbitrarily and
capriciously by allowing Entergy to phase interruptible load out
of its calculation of peak load over the course of a year. The gist
of its argument is simply that the Commission, having held a
rate unjust or unreasonable and approved a new rate in place
thereof, may not carry forward the effect of the disapproved rate,
any more than it could simply leave the unjust or unreasonable

*
At oral argument, counsel for the Commission made clear that it
awaited in the compliance proceeding only Entergy’s submission of
calculations and work papers showing precisely how it phased the
interruptible load out of its calculation of peak load, a step in no wise
material to the injury claimed, which goes to phasing-out in any form.
 13

rate in place. See Pub. Util. Comm’n of Cal. v. FERC, 254 F.3d
250, 254 (D.C. Cir. 2001) (“the formula itself is the rate, not the
particular components of the formula” (quoting Ocean State
Power II, 69 F.E.R.C. ¶ 61,146 at 61,544 (1992)).

The Commission contends the phase-in of the new rate was
the “natural result of the billing lag built into the formula rate.”
Louisiana Commission, 112 F.E.R.C. ¶ 61,192 at 62,014 P 13.
The Commission’s point appears to be that the System
Agreement called for a “cost of service” rate, which required
that costs incurred in one month be recovered in a later month,
thus necessarily creating a billing lag for the intervening months.
See Pub. Serv. Co. of N.H. v. FERC, 600 F.2d 944, 948 (D.C.
Cir. 1979). Louisiana, on the other hand, argues the System
Agreement provided a “fixed rate” formula, which used data
from a past period as a proxy for current costs. See id. at 948,
950-52.

The Commission errs insofar as it suggests the lingering
inclusion of interruptible load in the calculation of peak load
was justified on the ground that it properly recovered an actual
cost incurred in the provision of service. The cost of providing
interruptible service is, by definition, avoidable and therefore —
as the Commission has held, see Kentucky Utilities, 15 F.E.R.C.
¶ 61,002 at 61,004 — not an expense that justifies an increase in
capacity, and therefore not the type of expense for which one
Operating Company may recover from others under the Entergy
System Agreement, Louisiana Commission, 106 F.E.R.C.
¶ 61,228 at 61,802-04 PP 63-77 (Opinion No. 468). This is so
regardless whether including interruptible load in Entergy’s
calculation of peak load enabled it to recover actual costs via
deferred billing or served as a proxy for actual costs in a fixed
rate formula. On either view, the Commission has not explained
why Entergy may continue to bill for costs the Commission has
determined may not be justly and reasonably recovered. We
 14

hold, therefore, the Commission acted arbitrarily and
capriciously by allowing Entergy to phase interruptible load out
of its calculation of peak load for the purpose of allocating costs
among the Operating Companies after the Commission had
determined inclusion of interruptible load in the determination
of peak load responsibility was unreasonable and therefore
unlawful.

C. Refunds

As we have seen, Louisiana asked the Commission to order
the Operating Companies that benefitted to make refunds to the
Operating Companies that were burdened by Entergy’s inclusion
of interruptible load in its calculation of peak load. The
Commission declined on the ground that, because it could not be
certain the Operating Companies owing refunds would be
allowed by their state regulators to recover at retail the revenue
needed to pay the refunds, it could not find, as required under
§ 206(c), that Entergy “would not experience any reduction in
revenues” as a result. See Louisiana Commission, 111 F.E.R.C.
¶ 61,080 at 61,370 PP 21-22 (Opinion No. 468-A).

Louisiana maintains that an order of the Commission
requiring an Operating Company to make refunds would
preempt state retail ratemaking in the same way that an order of
the Commission requiring a change in rates it finds are unjust or
unreasonable preempts inconsistent state ratemaking. See Miss.
Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354,
373 (1988) (holding state retail ratemaking preempted pro tanto
by Commission order approving allocation of costs of a new
facility among subsidiaries of a holding company); see also
Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 966
(1986) (“State may not conclude in setting retail rates that the
FERC-approved wholesale rates are unreasonable”).
 15

The Commission responds that, because its jurisdiction is
limited to setting wholesale rates, it lacks authority to require a
state public utility commission to permit an Operating Company
owing refunds to collect from retail customers the revenue
necessary to pay those refunds. See Louisiana Commission, 111
F.E.R.C. ¶ 61,080 at 61,370 PP 21-22 (Opinion No. 468-A).
Further to that point, the Commission maintains Louisiana
provided insufficient evidence that the concerned state
commissions would permit the Operating Companies owing
refunds to recover the costs thereof from retail customers. At
oral argument, counsel for the Commission elaborated that a
state commission might not permit a utility to pass the cost of
refunds through to retail customers because the retroactive
nature of a refund would conflict with the state’s filed rate
doctrine, which allows only prospective recovery of costs. See,
e.g., Cullum v. Seagull Mid-South, Inc., 907 S.W.2d 741, 744-45
(Ark. 1995) (adopting filed rate doctrine, which “forbids a
regulated entity from charging rates for its services other than
those properly filed with the [Arkansas PSC]” (quoting H.J. Inc.
v. Nw. Bell Tel. Co., 954 F.2d 485, 488 (8th Cir. 1992)).
Louisiana, on the other hand, argues that when the Commission
orders the payment of a refund, the filed rate for the refund-
effective period is changed by the refund order.

The Congress added subsections (b) and (c) to § 206 of the
Act, authorizing the Commission to order a refund when the
Commission finds an approved rate has become unjust or
unreasonable, in 1988. Regulatory Fairness Act, Pub. L. No.
100-473 § 2, 102 Stat. at 2299-300.* The Commission points to

*
The Intervenors point out that the Congress acted after the
Supreme Court had made clear in Nantahala (1986) and in Mississippi
Power (1988) that the states are required by the Supremacy Clause to
allow a utility to pass through to customers a rate increase ordered by
the Commission. Because the Congress is presumed to know how the
 16

a Report of the Senate Committee on Energy and Natural
Resources, S. Rep. No. 100-491 at 6-7, as reprinted in 1988
U.S.C.C.A.N. 2684, 2688-89, stating that the Regulatory
Fairness Act would amend § 206(c) to address the Congress’s
concern that the cost of Commission-ordered refunds — as
opposed, presumably, to a change in rates mandated by the
Commission — would be “trapped” on the books of the paying
subsidiary if the state utility commission prevented the utility
from recovering that cost from its retail customers. In
particular, the Committee feared the state utility commissions
would invoke the filed rate doctrine to prevent the pass through.

This is all very interesting but, as Louisiana notes, the
Commission fails to explain why the requirements of the filed
rate doctrine would not be satisfied with respect to the refunds
here at issue considering that all parties were on notice as of the
filing of Louisiana’s complaint in 1995 that Entergy’s
calculation of peak load responsibility might be held unjust or
unreasonable. Cf. Canadian Ass’n of Petroleum Producers v.

courts have interpreted extant law when it enacts a new law, Goodyear
Atomic Corp. v. Miller, 486 U.S. 174, 184-85 (1988), the Intervenors
(alone) argue the requirement of a finding under § 206(c) — that the
holding company will not experience a reduction in revenue from the
inability of a subsidiary to recover the cost of refunds — would be
superfluous if the states already had to permit those costs to be passed
through to retail customers.

We may in our discretion “entertain arguments raised only by an
intervenor on review if they have been fully litigated in the agency
proceedings and [are] potentially determinative of the outcome of
judicial review.” Nat’l Ass’n of Regulatory Util. Comm'rs v. ICC, 41
F.3d 721, 729-30 (D.C. Cir. 1994) (internal quotation marks omitted).
This rationale for why a Commission-ordered refund does not preempt
inconsistent state ratemaking was not, however, offered, let alone
vetted, before the Commission.
 17

FERC, 254 F.3d 289, 299 (D.C. Cir. 2001) (“So long as the
parties had adequate notice that surcharges might be imposed in
the future, imposition of surcharges does not violate the filed
rate doctrine”). In fact, the Commission itself has previously
taken the position that a refund ordered pursuant to § 206(c)
“would be ... ‘prospective’ from the refund date, rather than
‘retroactive.’” Blue Ridge Power Agency v. Appalachian Power
Co., 57 F.E.R.C. ¶ 61,100 at 61,374 (1991). Nor has the
Commission explained why, under the Supremacy Clause, a rate
increase ordered by the Commission may be recovered through
retail rates but a refund ordered by the Commission may not be.
Cf. Mississippi Power, 487 U.S. at 369-72.

Commission counsel argues in the alternative that the
Commission, even if it was in error about its authority to order
refunds, merely exercised its discretion not to do so in this case.
There is not even a hint of discretion being exercised, however,
in the orders under review, and “courts may not accept appellate
counsel’s post hoc rationalizations for agency action.” See
Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 50 (1983). Therefore, with respect
to the Commission’s determination that it could not make the
finding necessary to order some of the Entergy Operating
Companies to make refunds to other Entergy Operating
Companies in order to compensate them for costs unjustly or
unreasonably allocated to them, we shall grant the petition for
review and remand the matter to the Commission for a more
considered determination.

D. Opportunity Cost of Allowances for Emissions of SO2

Louisiana asks us to require the Commission — in the
docket underlying this appeal — to pass upon Louisiana’s claim
that it is unjust or unreasonable for Entergy to allocate among
the Operating Companies the opportunity cost some of them
 18

incur by using rather than selling their allowances to emit SO2.
Louisiana argues the Commission has shuffled that issue back
and forth among various dockets in order to avoid addressing it.
We afford the Commission “broad discretion in determining
how best to handle related, yet discrete, issues in terms of
procedures.” Mobil Oil Exploration & Producing S.E., Inc. v.
United Distrib. Cos., 498 U.S. 211, 230 (1991). The agency
abuses that discretion only when its manner of proceeding
significantly prejudices a party or unreasonably delays a
resolution. GTE Serv. Corp. v. FCC, 782 F.2d 263, 274 (D.C.
Cir. 1986).

Louisiana argues for the first time in its reply brief that it
“might” be prejudiced by the potential inability of the Entergy
Louisiana Operating Company to recover the costs allocated to
it under the SO2 Amendment, which the Commission approved
subject to refund. See Entergy Services, 89 F.E.R.C. ¶ 61,331
at 62,005. Specifically, Louisiana states, without explanation,
“In a future case that refund condition might not carry over.”
This argument — if it is an argument and not just the
speculation it seems to be — is forfeit because Louisiana did not
raise it earlier. Grant v. U.S. Air Force, 197 F.3d 539, 542 n.6
(D.C. Cir. 1999) (“our caselaw makes clear that an argument
first made in a reply comes too late”). Therefore, we shall not
disturb the Commission’s decision to defer consideration of the
SO2 issue to “the next case Entergy files regarding the System
Agreement, or ... a complaint raising this issue.” Louisiana
Commission, 111 F.E.R.C. ¶ 61,080 at 61,371 P 26 (Opinion No.
468-A).

III. Conclusion

We grant the petition for review insofar as the Commission,
having determined that inclusion of interruptible load in the
formula for allocating peak load responsibility was
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unreasonable, acted arbitrarily and capriciously in allowing
Entergy to phase that load out of its calculation. With respect to
the Commission’s refusal to order refunds of costs unjustly or
unreasonably allocated to certain Operating Companies due to
such inclusion, we grant the petition and remand the matter to
the Commission for further proceedings consistent with
Part II.C. of this opinion. Finally, with respect to the
Commission’s decision to defer consideration of the sulfur
dioxide issue, we deny the petition; the Commission acted
within its broad discretion to manage the matters before it and
Louisiana failed to show any cognizable prejudice therefrom.

So ordered.