Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-11-01044/USCOURTS-caDC-11-01044-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Louisiana Public Service Commission
Petitioner

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 13, 2012 Decided August 14, 2012

No. 11-1043

COUNCIL OF THE CITY OF NEW ORLEANS, LOUISIANA, AND 

LOUISIANA PUBLIC SERVICE COMMISSION,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

ARKANSAS PUBLIC SERVICE COMMISSION, ET AL.,

INTERVENORS

Consolidated with No. 11-1044

On Petitions for Review of Orders of 

the Federal Energy Regulatory Commission

Michael R. Fontham argued the cause for petitioner 

Louisiana Public Service Commission. Daniel D. Barnowski

argued the cause for petitioner Council of the City of New 

Orleans, Louisiana. With them on the briefs were Paul L. 

Zimmering, Noel J. Darce, Clinton A. Vince, William D. 

Booth, and Daniel D. Barnowski. Jennifer A. Morrissey

entered an appearance.

USCA Case #11-1044 Document #1389038 Filed: 08/14/2012 Page 1 of 9
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Carol J. Banta, Attorney, Federal Energy Regulatory 

Commission, argued the cause for respondent. With her on 

the brief was Robert H. Solomon, Solicitor.

John S. Moot argued the cause for intervenors Entergy 

Services, Inc., et al. in support of respondent. With him on the 

brief were John Lee Shepherd Jr., Andrea Weinstein, Mary W. 

Cochran, Paul Randolph Hightower, Chad James Reynolds, 

Dennis Lane, and Glen L. Ortman.

Before: SENTELLE, Chief Judge, GRIFFITH, Circuit Judge, 

and RANDOLPH, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge GRIFFITH.

GRIFFITH, Circuit Judge: The Council of the City of New 

Orleans and the Louisiana Public Service Commission 

petition for review of an order of the Federal Energy 

Regulatory Commission allowing two companies to withdraw 

from a regional energy system agreement without paying exit 

fees not mentioned in the agreement. For the reasons set forth 

below, we deny the petitions.

I

The Entergy System Agreement (the Agreement), which 

has been a feature of many cases before this Court, establishes 

the operating framework for the six Entergy companies 

servicing Arkansas, Louisiana, Mississippi, and Texas (the 

Operating Companies). La. Pub. Serv. Comm’n v. FERC

(Louisiana IV), 522 F.3d 378, 383 (D.C. Cir. 2008). The 

Agreement sets forth a rate schedule administered by FERC 

and creates a centralized process for determining when and 

where the Operating Companies will build new power plants.

Id. at 383-84. By the express terms of the Agreement, each 

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Operating Company assumes responsibility for the costs of 

building and operating plants in its own area and retains the 

rights to the energy those plants produce. Id. at 383-84; see 

also La. Pub. Serv. Comm’n v. FERC (Louisiana I), 174 F.3d 

218, 220 (D.C. Cir. 1999). Each party to the Agreement must 

also make any excess capacity available “to its sister 

companies as a backstop for when demand exceeds selfgenerated supply.” Louisiana I, 174 F.3d at 220. 

In 1982, FERC interpreted the Agreement to require that

the cost of producing electricity be “roughly equal” among 

the Operating Companies. Louisiana IV, 522 F.3d at 384. But 

production costs are likely to be unequal because the 

Operating Companies use different types of fuel. For 

example, Entergy Arkansas relies primarily on coal, whereas

Entergy Louisiana and Entergy Gulf States rely more heavily 

on natural gas. Id. at 384-85. In order to satisfy the 

Agreement’s equality mandate, FERC requires the Operating 

Companies with lower production costs to make payments to 

those with higher expenses. Id. at 384. 

In 2000, the price of natural gas shot up, sharply

increasing the existing cost disparities among the Operating 

Companies. Id. at 384-85. On December 19, 2005, FERC

ordered the Operating Companies to make payments to each 

other to offset any difference in their respective annual 

production costs greater than eleven percent of the System 

average. La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 113 

F.E.R.C. ¶ 61,282 (2005). As a result, Entergy Arkansas was 

required to pay hundreds of millions of dollars annually to the 

other Operating Companies. The same day as the FERC 

order, Entergy Arkansas notified the other Operating 

Companies that it intended to withdraw from the Agreement

eight years later, the earliest it could do so under the 

Agreement’s mandatory notice provision. On November 8, 

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2007, Entergy Mississippi likewise informed the other 

Operating Companies that it would exit the Agreement eight

years hence.

1

On February 2, 2009, Entergy Services, Inc., the parent 

corporation that owns all six Operating Companies, submitted 

formal notices to FERC on behalf of Entergy Arkansas and 

Entergy Mississippi, stating that they would exit the

Agreement. See 18 C.F.R. § 35.15 (“When a rate schedule, 

tariff or service agreement or part thereof required to be on 

file with the Commission is proposed to be cancelled or is to 

terminate by its own terms and no new rate schedule, tariff or 

service agreement or part thereof is to be filed in its place, a 

filing must be made [with the Commission].”). The notices

provided that the two withdrawing Companies would each 

operate independently while the other four Operating 

Companies would remain in the System. Entergy Arkansas 

and Entergy Mississippi would still be able to buy and sell 

power from the remaining Operating Companies, but without 

the preferential treatment the Agreement affords.

On November 19, 2009, FERC accepted the notices and 

issued orders concluding that the Agreement required no

further conditions on the withdrawals other than the alreadyproffered eight-year notice to the other Operating Companies. 

Order Accepting Notices of Cancellation, Entergy Servs., Inc., 

129 F.E.R.C. ¶ 61,143 (Nov. 19, 2009). The Council of the 

City of New Orleans and the Louisiana Public Service 

Commission petition for review of FERC’s order. We take 

jurisdiction under 16 U.S.C. § 825l(b).

 1 While the parties were clear about Entergy Arkansas’s 

reasons for withdrawal, they did not explain why Entergy 

Mississippi would be leaving the System. 

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II

We review FERC orders under the Administrative 

Procedure Act, which requires that we determine whether the 

challenged action was arbitrary and capricious. Louisiana IV, 

522 F.3d at 391. Because the gist of the petitioners’ argument 

is directed at FERC’s reading of the Agreement, we resort to 

the learning of Chevron, U.S.A., Inc. v. Natural Resources 

Defense Council, 467 U.S. 837 (1984), to see if the agency’s 

interpretation of the contract was reasonable. Entergy Servs., 

Inc. v. FERC, 568 F.3d 978, 981-82 (D.C. Cir. 2009) (“We 

review claims that the Commission acted arbitrarily and 

capriciously in interpreting contracts within its jurisdiction by 

employing the familiar principles of Chevron.”). Under that 

standard, “We evaluate de novo the Commission’s 

determination that a contract is ambiguous, but we give 

Chevron-like deference to its reasonable interpretation of 

ambiguous contract language.” Id. at 982. The petitioners 

argue that FERC misinterpreted the Agreement and failed to 

impose two conditions on Entergy Arkansas and Entergy 

Mississippi that are required when a Company withdraws 

from the System. As the petitioners read the Agreement, a 

Company may not leave the System without compensating the 

remaining Companies for the assets it takes. And even after 

leaving, the withdrawing Company must continue making

“rough equalization” payments to its former partners. FERC

found no such conditions in the Agreement, and we hold that 

its view is reasonable.

The Agreement provides that “any Company may 

terminate its participation in this Agreement by ninety-six 

(96) months written notice to the other Companies hereto.” 

System Agreement § 1.01. FERC held that the Agreement’s 

text places no explicit conditions on the withdrawing 

Companies save this requirement of notice. The petitioners 

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concede that the text of the Agreement “says nothing about

the rights and obligations of withdrawing Companies 

regarding System assets,” but argue that the Agreement’s 

purpose requires that withdrawing Companies leave behind 

the “assets built for the System,” Pet’rs’ Br. 55, 58, or pay for 

the assets they take with them, id. at 55. This argument from 

purpose presumes that the System as a whole has claims to 

individual assets built by each Operating Company. But the

text of the Agreement provides that “[e]ach Company shall 

normally own . . . such generating capability and other 

facilities as are necessary to supply all of the requirements of 

its own customers.” System Agreement § 4.01 (emphasis 

added). Individualized ownership, as opposed to System 

ownership, also squares with the Agreement’s mandate that

each Operating Company “is responsible for the costs of the 

generation plants in its jurisdiction.” Louisiana IV, 522 F.3d 

at 384. While the Agreement establishes a centralized process 

for determining when and where to build new plants, FERC 

reasonably concluded that the Agreement’s purpose is central 

planning, not central ownership, and that there is nothing 

about that purpose that compels payments prior to 

withdrawal. 

Even if the Agreement does not compel withdrawing 

Companies to pay exit fees, the petitioners argue that an 

earlier FERC order interpreting the Agreement does. In 2007, 

FERC stated:

[I]n light of the history and nature of the existing 

members’ planning and operation of their facilities under 

the System Agreement, it is possible that it may 

ultimately be appropriate to require transition measures 

or other conditions to ensure just and reasonable 

wholesale rates and services for affected Operating 

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Company members going forward from the effective date 

of Entergy Arkansas’ withdrawal.

La. Pub. Serv. Comm’n v. Entergy Corp., 119 F.E.R.C. 

¶ 61,224, 62,315 (2007) (emphasis added). The petitioners

point to FERC’s reference to “transition measures or other 

conditions” as a call for the type of exit fees they argue are 

required here. But the petitioners overlook the language we 

have emphasized. The fact that FERC put the Operating 

Companies on notice that it might impose additional

conditions on withdrawal does not mean it must do so now. 

Certainly an agency may leave open the possibility of future 

action without binding itself to choose a particular path before 

it determines the circumstances are right to do so. See Citizens 

Against Burlington, Inc. v. Busey, 938 F.2d 190, 196 (D.C. 

Cir. 1991) (“Once an agency has considered the relevant 

factors, it must define goals for its action that fall somewhere 

within the range of reasonable choices. We review that 

choice, like all agency decisions to which we owe deference, 

on the grounds that the agency itself has advanced.”). In this 

case, FERC reasonably concluded that ninety-six months 

provided sufficient time for the Operating Companies to plan 

for withdrawal. Order Accepting Notices of Cancellation, 129 

F.E.R.C. at 61,603 (“To the extent the remaining Operating 

Companies are concerned with their own mix of capacity, we 

note that the 96 month notice period should provide all of the 

Operating Companies time to adjust their long-term plans and 

to acquire any needed capacity.”).

Putting aside the issue of exit fees, the petitioners argue 

that a 2001 FERC order requires a withdrawing Company to

continue to make rough equalization payments even after 

exiting the Agreement. See Pet’rs’ Br. 40-41 (citing La. Pub. 

Serv. Comm’n v. Entergy Corp., 95 F.E.R.C. ¶ 61,266 

(2001)). But that order concerned the very different question 

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of what conditions are required of an Operating Company that 

leaves the System within the ninety-six month notice period,

not what a Company must do when it withdraws after that 

period, as happened here. The 2001 order had no reason to 

consider the circumstances in which the Operating Companies 

have time to plan for a withdrawal because proper notice has 

been given as provided for in the Agreement. See Entergy 

Servs., Inc., 134 F.E.R.C. ¶ 61,075, 61,359 n.28 (2009) (“[The 

2001 order] is not relevant . . . because . . . [there] Entergy 

Arkansas was seeking to exit the System 

Agreement . . . before the 96-month notice period had run.”).

Finally, the petitioners abandon the Agreement altogether 

and claim that “rough equalization” payments must continue 

after withdrawal because of “Entergy’s history of singleSystem planning.” Pet’rs’ Br. 38. Withdrawal, they contend, 

will have “disparate consequences” on the remaining 

Operating Companies, which will then need to charge higher 

rates to their customers. Id. at 39. Because the requirement for 

rough equalization is “based on these imbalances, not on 

contract language,” the petitioners argue that the payments 

must continue, potentially forever. Id. Not so. The 

requirement of rough equalization is rooted in the Agreement. 

La. Pub. Serv. Comm’n v. FERC (Louisiana V), 551 F.3d 

1042, 1043 (D.C. Cir. 2008) (“We have long viewed the 

System Agreement as requiring that affiliates share the costs 

of power generation in roughly equal proportion.”). Because 

rough equalization is tied to the Agreement, it was reasonable 

for FERC to conclude that once a Company leaves the 

Agreement, it need not continue to make the payments.

Our decision today reaches only the obligation of 

withdrawing Companies under the Agreement. As FERC 

noted, it must still review the post-withdrawal arrangements 

to ensure that they are just, reasonable, and not unduly 

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discriminatory. Order Accepting Notices of Cancellation, 129 

F.E.R.C. at 61,604 (“Entergy will have to file under [the 

Federal Power Act] to reflect the arrangements to be in place 

after the withdrawal of Entergy Arkansas and Entergy 

Mississippi from the System Agreement.”). But as far as the 

Agreement is concerned, FERC’s interpretation was 

reasonable. 

III

For the foregoing reasons, the petitions for review are

Denied. 

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