# Unite d States Court of Appe als

F O R T H E D I S T R

I C T O F C O L U M B I A

C I R C U I T

Arg ued January

19, 2018 Dec ided J une 1, 2018

No. 16-1305

A R K A N S A S P U B L I C S E R

V I C E C O M M I S S I O

N , P E TI TI O N E R

v.

F E D E R A L E N E R

G Y R E G U L A TO R Y C O M M I S S I O N , R E S P O N D E

N T

E N TE R G Y S E R V I C E S , I N C ., E T A L ., I N TE R V E N O R S

On Petition for Review of O rder s of the Fe dera l Energ y

Reg ulatory

Commi ssion

Dennis Lane arg ued the c ause f or petitioner. With him on the briefs wer e Gl en L. Ortman
, John E. McCaffrey

, and Rando lph Hightower

. Marie Deny se Zosa enter ed an appea ranc e.

Gregory W

. Camet
, Mark Strain
, and Marnie A. M c Cormic k

wer e on the briefs for i n t ervenor Enterg y Service s, I nc. in support of petitioner. Megan E. Vetula enter ed an appearance.

Lona T. Perry
, Deputy Solicitor, Fe dera l Energ y Reg ulatory Commi ssion, arg ued the cause for responde nt. Wit h her on the brief w ere David L. Morenoff , Gene ral Counsel, and Robert H.2

Solomon

, Solicitor. Anand Viswan athan

, Attorney
, enter ed an appea ranc e.

David E. Pomper arg ued the cause for intervenor s L ouisiana Pub lic Service Commi ssion, et al. Wit h him on the brief wer e Stephen Charles Pearson
, Michae l R. Fontham

, Noel J. Darce
, Dana Shelton

, Justin A. Swaim
, Clint on Andrew Vince
, Presley Randolph Ree d Jr.
, Jennifer Anne Morrissey
, and Chad Jame s Reynolds

. Paul L. Z

immering enter ed an a

ppear ance

.

Be fore : H E

N D E R S O N and W I L K I N S , Ci r cuit Judges

, and S E N TE L L E , Senior Circuit Judge

. Op inion for the Court filed by Senior Circuit Ju d g e S E N TE L L E

.

S E N TE L L E , Senior Circuit Judge : The Arka nsas Pub l ic Service Commi ssion petition s fo r revie w of a Fe dera l Energ y Reg ulatory Commi ssion (“F ERC”) final order

. Entergy Servs., In c. , 154 FERC ¶ 61,173 (Mar

. 4, 2016), reh’g denied in pa r t and granted in part , 156 FERC ¶ 61,112 (Aug

. 16, 2016). I n the order under revie w, FERC held that an opera ting company withdrawing from a multi-state ener g y sy stem must continue to share the proce eds of a pre- depar ture settlement with the other member companies. The Arka nsas Public Service Commi ssion (the “Ar kansas Commi ss i o n”), acting on behalf of Arka nsas

ener g y consumers, conten d s t hat FERC’s order to share the settlement bene fits and its method of allocating the benef its of the settlement was unlawful, arbitra ry , capr icious, and unsupported by substantial evidenc e. Be cause we conclude that FERC had a lawful basis to order the s haring of t he bene fits of the settlement and was reasone d in its allocation methodolog y , we de ny the petition for re view.3

I. Background

A. Fa ctual History

Be g inning in 1951, six companies in Ar kansas, L ouisiana, M i s s i s s i p p i

, an d T ex as (c o l l ec t i v e l y , t h e “O p er at i n g Companies”) enter ed into an arr ang ement to share the costs and benef its of power g ener ation and transmission. To that end, they formed the Enterg y Corporation, a publicly held and trade d utilit y holding co m p an y

. The Enterg y Corporation is the
corpor ate pa

rent of inter

venor Ente rg y Service s, I nc. (“ Enterg y Service s”). The Oper ating Companies m emorializ ed their

arr ang ement in the Enterg y Sy stem Ag ree ment (“Sy stem Ag ree ment”), a FERC-appr oved rate plan that g overns the multi-state sy stem’s g ener ation and transmissions fac iliti es opera ted as a single sy stem (t h e “Enterg y Sy stem”) and administered by Enterg y Service s. Over the y ear s , Enterg y Service s supplemented the Sy stem Ag ree ment with seven service schedule s , MSS -1 throug h MSS -7, which updated the cost-shar ing and ener g y

capa city plan. The Sy stem Ag ree ment “has been a fea ture of many case s befor e this Court.” Council of New Orleans v. F

E R C
, 692 F.3d 172, 174 (D.C. C ir. 2012);

see, e .g. , Arkansas Pub. Serv. Comm’n v. FERC
, 712 F. App’ x 3, 4 (D.C. Cir. 2018); Louisi ana Pub. Serv. Comm’n v. FERC
, 522 F. 3 d 378, 383 (D.C. Cir. 2008); Louisi ana Pub. Serv. Comm’n v. F

ERC , 174 F.3d 218, 220 ( D.C. Cir. 1999).

The Sy stem Ag re em ent provided for the possibili ty of withdrawa l by an Oper ating Company an d require d an eig hty ear notice of intent to withdraw by any company prepa ring to do so. On Dec ember 19, 2005, Oper ating Company Enterg y Arka nsas g ave such a notic e, announcing its intention to withdraw on Dec ember 18, 2013

. Two y ear s later, another Oper ating Company
, Enterg y Mississ ippi, g ave a simil ar notice. The curr ent controve rsy over th e eff ects of the withdrawa l4

conce rns a settlement enter ed with coal transporte r Uni on Pacific in state court litigation befor e the withdrawa l of the two Oper ating Companies.

I n April 2 008, Enterg y Arka nsas, Enterg y Service s, and other parties settled Arka

nsas state court litigation ag ainst Union Pacific (t h e “Union Pacific Settlement”). The settlement, as rele vant t o t h e prese nt petition for revie w, locked in a belowmarke t rate for the rail delivery of coal by extending an Enterg y Arka nsas contra ct with Union Pacific to the period betwee n J uly 1, 2012 and J une 30, 2015. Enterg y Arka nsas remained in the Sy stem Ag ree ment until partway throug h this period.

Under the Sy stem Ag ree ment, the Oper ating Companies purcha se ex cess ener g y from other Oper ating Companies atcost. The s er v ice schedule s set out the price for ener g y purcha ses. That price incorporates the cost of co al transport at ion as one component. Enterg y Arka nsas was still participa ting in the Sy stem Ag ree ment when Un i o n Pacific failed to make the coa l deliveries in the conduct underly ing the settlement. There fore

, Enterg y Arka nsas passed a portion of the incre ased coal co s t s to the other Oper ating Companies under service schedule MSS -3. L ikewise, prior to Enterg y Arka nsas’s depar ture from the Sy stem Ag ree ment, Entergy Arka nsas also share d its benef

icial coal transporta

tion costs under the Union Pacific Settlement with the other Oper ating Co m p an ies. Addi t ionally

, some of the Oper ating Companies had other mecha nisms outside of the Sy stem Ag reem en t t o rea liz e some of t h e benef

its of Enterg y Arka

nsas’s reduc ed coal transporta tion costs, such as s h are d owner ship of the two aff ecte d plants and separ ate power purcha sing ag ree ments. Howeve r, the Union Pacific Settlement did not addre ss Enterg y Arka nsas’s impending withdrawa l from the Sy stem Ag ree ment.5

B. Procedur al History

On November 19, 2009, FERC acc epted Enterg y Arka nsas and Enterg y Mississ ippi’s notices of withdrawa l from the Enterg y Sy stem. Entergy Servs., Inc.
, 129 FERC ¶ 61,143 (Nov. 19, 2009) (“Wi t h draw al Orde r”)

, reh’g denied

, 134 FERC ¶ 61,075 (F eb. 1, 2011) (“Withdrawa l Rehea ring Orde r”) (collectively

, “Withdrawal Procee dings” ). I n the Wit hdrawal Procee dings, FERC found that the Sy stem Ag ree ment “c ontain[ed] no provisions requiring withdrawing Oper ati n g Companies to pay a fee or otherwise co m p ensate other

rema ining Oper ating Companies prior to withdrawing.” Wit hdraw al Orde r P. 60. Acc ording ly

, FERC held that Enterg y Arka nsas and Enterg y Mississ ippi should not have to pay any exit fee s to the other Oper ating Companies upon their depar ture from the Ente rg y

Sy stem.

I nterve nor L ouisiana Public Service Commi ssion (the “L ouisiana Commi ssion”), which repr esents the i ntere sts of L ouisiana’s ener g y consumers, filed except i o n s to the Wit hdraw al Orde r, arg uing that FERC should allocate the Union Pacific S et tlement benef its as part of the Wit hdraw al Procee dings. FERC responde d that the L ouisi a n a Co mm is s ion’s

conce rns reg arding the allocation of the Union Pacific Settlement Be nefits wer e “be y ond the s cope of this procee ding and are more appropr iat ely raised” in a future proce eding
reg arding the structure of the post-withdraw al Enterg y Sy stem. Wit hdraw al Reh ea ri n g Orde r at n.54. FERC went on to reinfor ce that i t would still revie w “future opera ting

arr ang ements” to ensure they wer e “ju s t and rea sonable” in

acc ordanc e with FERC’s statutory obliga tions under 16 U.S.C. § 824d.

On September 1 4
, 2011, still conce rned about the allocation of the Union Pacific Set tlement benef its, the6

L ouisiana Commi ssio n fi l ed a complaint under section 206 of the Fe dera l Power Act. Louisi ana Pub. Serv. Com m’ n , 138 FERC ¶ 61,029 (Jan. 19, 2012). Ag ain, FERC reiter ated that it

was “pre mature” to consider the allocation of the Union Pacific Settlement benef

its and opined that the L ouisiana Commi ssion’s

conce rns would be resolved “in the future proce eding reg arding the str u ct u re of the post-withdrawa l Enterg y sy stem.” Id. at P. 53. Prior to the start of the Wit hdraw al Procee dings, the L ouisiana Commi ssion had also raised the allocation of th e Union P acific Settlement benef its during a 2008 bandwidth
proce eding

, but it withdrew the issue without prejudice based on the expectation it would be re solved in later pr ocee dings.

On Aug ust 14, 2012, this Court aff irmed the Wit hdraw al Procee dings, including FERC’s conclusion that the Sy stem Ag ree ment does not impose an exit fee or continuing obliga tion

on withdrawin g O p e r a

ti ng Companies. Council of New Orleans

, 692 F.3d at 174-77. We also rec og nized that FERC “must sti ll revie w the post-withdrawa l arr ang ements to ensure that they are just, reasona

ble and not unduly

discriminatory .” Id . at 177.

I n November 2012, under section 205 of the Fe dera l Power Act, Enterg y Service s filed its propos al for its postwithdrawal succe ssor plan. The succe ssor plan included the

nece ssary revisions to the Sy stem Ag ree ment and the formation of a new integ rate d utilit y sy stem (the Midcontinent I ndepende nt Sy stem) comprised of the rema ining Oper ating Companies. The L ouisiana Commi ssion ag ain protested the filing. For the fourth time, the L ou i s i an a Commi ssion raised the issue of the Union Pacific Settlement b enef its. I n response , the Arka nsas Commi ssion and Enterg y Service s challeng ed FERC’s authority
to order Enterg y Arka

nsas to share the Union Pacific Settlement benef its beca use Enterg y Arka

nsas was no longe r par

ticipating in the Sy stem Ag ree ment. FERC establi s h ed a hear ing to addre ss t hese issues. Entergy Servs., Inc.
, 145 FERC ¶ 61,2477

(D ec. 18, 2013), reh’g denied

, 153 FERC ¶ 61,154 (Nov. 9
, 2015).

Following set t l ement discussions and a hear ing, the Administrative L aw J udg e deter mined that the Union Pacific Settlement benef

its should be allocate d among the Oper ating Companies and adopted an allocation methodology

. Entergy S er vs

. , Inc.
, 149 FERC ¶ 63,022 (De c. 12, 2014). On revie w

a n d rehe aring

, FERC aff

irmed the finding s of the Administrative L aw J udg e and reje cted the challeng e to its authorit y

. Entergy Servs., Inc.
, 154 FERC ¶ 61,173 (Mar

. 4, 2016), reh’g denied in part and granted in part

, 156 FERC ¶ 61,112 (Aug . 16, 2016). FERC ordered Enterg y Arka nsas to make a compliance filing that would ref

und benef its of the Union Pacific Settlement to the other Oper ating Companies in acc ordan ce with the presc ribed allocation method. Id

.

The Arka nsas Commi ssion timely filed a petition for revie w. The Court g rante d leave for the L ouisiana Commi ssion, the Mississ ippi Public Service Commi ssion, and the Council of the City of New Orlea

ns to intervene on behalf of FERC and for Enterg y Service s to intervene on b eh alf of the Arka nsas Commi ssion.

II. Analysi s

We revie w FERC’s final order s u n d e r th e A dminist rative Procedu re Ac t. We will vacate FERC decisions that are “ar bitrary

, capr icious, an abuse of discretion, or otherwise not in

acc ordanc e with l aw.” 5 U.S.C. § 706(2)( A). Fur ther, we will uphold FERC’s fac tual fi n d ings if they are supported by substantial evidenc e. 16 U.S.C. § 825 l (b); Town of Norwood v. FERC , 80 F.3d 526, 529 ( D.C. Cir. 1996).8

Under the Fe dera l Power Act, FERC is require d to

ensure that elec tric rate s are “j u s t an d rea sonable.” 16 U.S.C. § 824d. We af

fo rd “g rea t defe renc e” to FERC’s decisions on this subject beca

use “[t] he statutory require ment that ra t es be ‘just and rea sonable’ is obviously incapa ble of prec ise j u d i cial definition.” Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty.
, 554 U.S. 527, 532 (2008); see M aine

v. FERC
, 8 5 4 F. 3d 9, 22 (D.C. Cir. 2017). We do not ask whethe r FE R C ’s “dec ision is the best one possible or even whether it is better than the alterna tives.” FERC v. Elec. Power Supply Ass’n
, 136 S. Ct. 760, 782 (2016)

, a s r evised (Jan. 28, 2016). Our revie w in rate making case s is there fore “‘limited to ensuring t h at the Commi ssion has made a principled and

rea soned decision supported b y the evidentiar y rec ord.’” Southern Cal. Edison Co. v. FERC
, 717 F.3d 177, 181 (D.C. Cir. 2013) (quoting Complex Consol. Edison Co. of N.Y

., In c. v. FERC , 165 F.3d 992, 1000- 01 (D.C. Cir. 1999)).

The Arka

nsas Commi ssion arg ues that FERC acte d unlawfully

, arbitra

rily

, and capr iciou s l y by order ing Enterg y Arka nsas to share the Union Pacific Settlement benef its with the Oper ating Companies and by the method that it adopted to allocate the settlement benef its. We will consider FERC’s order for Enterg y Arka

nsas to share the Union Pacific Settlement benef its before revie wing the alloca tion method.

A. Orde r to Share the Union Pacific Settlement Be nefits

The Arka

nsas Commi ssion petitions for revie w of FERC ’s o rder for Enterg y Arka nsas t o share the Union Pacific Settlement benef

its afte r it s withdrawa l from the Enterg y Sy stem by arg ui n g t h at the order is an unlawful exit fee and that it violated the filed rate doctrine. We will addre ss eac h arg ument in turn.9

Is sharing the settlement be nefits an exit fee?

The Arka

nsas Commi ssion arg ues that FERC’s order essentially amounts to the imposit ion of an unlawful exit fee or post-withdrawa l continuing obliga tion contra ry to the Wit hdraw al P roc ee d i n g s. I t is undisputed that the W ithdrawa l Procee dings confirme d that Enterg y Arka nsas has no obliga tion
t o pay an exit fee and it has no continuing obliga tion to the

re m ai n ing member companies of the Enterg y Corporation as a result of its withdrawa l from the Sy stem Ag ree ment. This Court aff irmed that conclusion. Council of New Orleans

, 692 F.3d at 174-77. Howeve r, that i s not the question befor e us. A deter mination that a withdrawing company cannot be compelled
to pay an exit fee i s s ep ara te from the question of whether a sharing of a settlement of pre- split rec overy constitutes such a forbidden exit fee

. I t doesn’t. By any l o gic, an exit fee must have been g ener ated beca use of the exit

. Had Enterg y Arka nsas

rema ined in the cooper ative g roup, there is littl e, if any , question that the settlement woul d h av e been share d among it and the other c ompanies.

The Withdrawal Proc eeding s did not settle this issue as the Arka nsas Com m i s s i on maintains. I n the Wit hdraw al Procee dings, FERC put Enterg y Arka nsas on notice that allocating the Union Pacific Settlement w as “be y ond the scope of this proce eding and more appropriately raised in a future
proce eding reg arding th e structure of the post-withdrawa l Enterg y sy stem.” W i t h draw al Rehea ring Orde r n.54. Fur

ther,

we expressly limit ed our decision affi rm ing the Wit hdraw al Procee dings to FERC’s conclusions reg arding “the obliga tion of withdrawing Companies under the [S y stem] Ag ree m en t .” Council of

New Orleans

, 692 F.3d at 174-77. We acknow ledg ed that FERC would still be revie wing “post-withdra wal

arr ang ements” to e nsure that they are just and rea sonable.10

Given this history

, we must co n s ider whether FERC allocate d the Union Pacific S et t lement benef its based on its obliga tion to ensure just and rea sonable rate s in the postwithdrawa l succe ssor arr ang ements or as an “exit fee ” from the Sy stem Ag ree ment.

All the Oper ating Companies wer e injured by Union Pacific’ s brea ch of contra ct. FERC relied on undisputed evidenc e that the settlement was enter ed into for the benef its of the entire Enterg y Sy stem. The Oper ating Companies ’ claims
to the settlement benef

its arose from the nature of the collective harm from Union Pacific’ s contra ct brea ch. Prior to Enterg y Arka nsas’s withdrawa l from the Enterg y Sy stem, the Oper ating Companies rec eived the benef its they wer e due by way of the Sy stem Ag ree ment’s cost-shar ing mecha nisms. FERC proper ly

rea soned that the Oper ating Companies’ claims to t h e Union Pacific Settl em ent benef its did not arise from the Sy stem Ag ree ment just beca

use t he settl ement sharing was ef fec tuated by the Sy stem Ag ree ment.

Fur ther, the Arka

nsas Commi ss i on’s arg ument that the all o ca t i o n method is evidenc e that FERC’s order is an exit fee is simil arly uncon v i ncing

. I t is true that FERC’s allocation method was based on a calc ulation that assumed that Enterg y Arka ns as re mained part of the Sy stem Ag ree ment. The use of that method does not requir e us to draw the conclusion that the obl i gat i on to share the benef its arises from the Sy stem Ag ree ment. Rather, FERC rea ched a reasoned conclusion t h at using the Sy s t em Ag ree ment as a model would ensure the benef its would continue to flow in a “j u s t and rea sonable”

manner

.

FERC define s an exit fee as one “ imposed upon a par ty beca use of its exit from [t he Sy s t em Ag ree ment]

. . . as compensa tion for or a penalty for its depar ture.” T h i s i s n ot a11

case of FERC order ing Enterg y Arka nsas to compensate the other Oper ating Companies as a penalty for its depar tur e. Enterg y Service s’ orig inal proposed succe ssor arr ang ement would have deprive d the Oper ating Companies of the
compensa tion they wer e due for their injuries, while Enterg y Arka nsas would receive benef its gre ater than i ts injury

. FERC found t h at t h is would be an unjust and unrea sonable cost allocation.

Be cause FERC was rea soned in concluding that sharing the Union Pacific Settlement benef its was nece ssary under the principles of equity

, and was not a penalty or rec ompense for the Company ’s ex i t from the sy stem, we reje ct the Arka nsas Commi ssion’s arg ument that FERC’s order cre ates an unlawful exit fee

. Did FERC violate the filed rate doctrine?

We next turn to the Arka

nsas Commiss ion’s asser tion that FERC violated th e filed rate doctrine by order ing Enterg y Arka nsas to share the Union Pacific Settlement benef its. Under that doctrine, public utilit ies may only char g e rate s filed with FERC. Arkansas La. Gas Co. v. Hall

, 453 U.S. 571, 578 (1981). This assure s that customers rec eive adequa te notice of their utilit y costs. Transmissi on Acc ess Pol icy Study G rp. v. FERC, 225 F.3d 667, 709 (D.C. Cir. 2000) (per curia m), aff’d sub nom. New Y ork v. FERC
, 535 U.S

. 1 (2002). The Arka nsas Commi ssion arg ues that FE R C ’s order incre ases the cost to A r kansas consumers without notice, cre ating a new public utilit y rate contra

ry to the filed ra te doctrine . We disag ree

.

The filed rate doctrine h as n ever been construed as requiring FERC to close its ey es to chang es in circ um s t ance s that rende r a rate that was once just and rea sonable but no longe r comports with the new rea lity

. FERC has “br o ad authority to12

fashion equitable reme di es i n a variety of setti ng s.” Columbia Gas Transmissi on Corp. v. FERC, 750 F.2d 105, 109 (D.C. Cir. 1984).

I n this case , FE R C rea sons that it is not overr iding a filed
rate but merely

eff ectua ting the purpose of a non-jurisdictional
contra ct, the Union Pacific Settlement. Enterg y Service s was a party to t h e Union Pacific Settlement, and FERC found it

en t er ed into the settlement on behalf of all the Oper atin g Companies while they wer e under FERC’s jurisdiction throug h the Sy stem Ag ree ment, a filed rate

. Even though FERC, in at least one case , has relied on an ex i s t i ng filed rate provision in deciding not to impose post-withdrawa l obliga tions on a par

ty , that is not s u ff

i ci ent to limit FERC’s authority in this case

. Midwest Indep. Transmissi on Sys. Operator, Inc
., 124 FERC ¶ 61,219 at P. 173 (Sept. 3, 2008). I n that decision, FERC noted that it was rese rving its authority to impose equitable relief “in the future” in differ ent circ umstances, and it is not rea sonable to extend this one-time decision to bar e quitable re lief in all postwithdrawa l succe ssor ar range ments. Id. We ag ree , FERC has the authority

to fashion a r emedial r ate.

Next, the Arka

nsas Commi s s i o n p oints out that when the Union Pacif

i c Settlement was neg otiated and executed, all the parties knew that Enterg y Arka nsas would be exit ing the Sy stem Agr ee ment and y et the Union Pacific Settlement does n o t contain any terms ab o u t post-withdrawa l obliga tions. Fur ther, the Arka nsas C o m mission arg

ues that FERC cannot have authority over the Union P acific Settlement unless it was actua lly filed as a rate or other amendment to the Sy stem Ag ree ment. There fore

, the Arka nsas Commi ssion urg es, FERC

err ed by inferr ing that the parties intended the settlement to be share d afte r Enter g y

Arka nsas’s withdra

wal.13

Howeve r, FERC considere d evidenc e that the who le Enterg y Sy stem was harme d by Union Pacifi c’s brea ch. Acc ording ly

, FERC inferr ed that the benef its of t h e settlement

wer e meant to be share d by the entire sy stem. I n other contexts, FERC has exercised its authority to interpre t an unfiled contra ct,

even when that interpre tation has implications on a filed rate , as part of ensuri n g a j ust and rea sonable rate

. See e.g. , Public Util s. Comm’n of State of Cal. v. FERC
, 254 F.3d 250, 255 (D.C. Cir. 2001); City of Osce ola v. Entergy Ark., Inc
., 791 F.3d 904, 908 (8th Cir. 2015) (citing Portland Gen. Elec. Co.
, 72 FERC ¶ 61,009, 61,021 n.14 (1995))

. FERC’s authority extends
to r emedial jurisdiction ove r cost allocation even when it is not

a filed rate , in or der to pr event an unjust a nd unrea sonable rate

. See Louisiana Pub. Serv. Comm’n
, 522 F.3d at 390. Given the absenc e of any evidenc e that the parties did not intend that the Union P acif

ic S ettlement benefits would continue to be shared betwee n the Oper ating Companies, FERC was not arbitra ry and
capr icious by m ak i n g a decision rec og nizi ng the chang e in circ umstances.

Persuasively

, even he re, the Arka nsas C ommissi on and Enterg y Service s are not protesting FERC’s decision to order the Op era ting Companies to continue to share the cost of th e Ouac hita Plant transmission network upg rade as part of the

succe ssor arr ang ements. Thoug h the Arka nsas Commi ssion and Enterg y Service s attempt to distinguish the post-withdrawa l require ment to share the cost of t he Oua chita upg rade from the Union Pacific Settlement benef its, both arose during Enterg y Arka nsas’s opera tion as a member of the Sy stem Ag ree ment. I t is true that Sy stem Ag ree ment does not direc tly add re s s t he Union Pacific Settlement ben ef i t s, nor the Ouac hita Plant
upg rade cost sh ar i ng , post-withdrawa l. But, FERC’s authority
reg arding the Union Pacific Settlement stems from its authority

over the filed rate in forc e at the time the Oper ating Companies

wer e injured a

nd the Union Pacific Settlement was executed.14

FERC has the obliga tion t o review the succe ssor

arr ang ements following the withdrawa l of an Oper ating Company under Fe dera l Power Act beca use the conditions of the withdrawa l can impact other marke t participa nts. See Maine P u b

. Utiliti es Comm’n v. FERC
, 454 F.3d 278, 285-87 (D.C. Cir. 2006). I n this case , FERC order ed the sharing of the Union Pacific Settlement benef

its prec isely beca

use failing to do so

wou l d b e unjust and unrea sonable to the other marke t participa nts who wer e injured by Union Pacific’ s brea ch. FERC’s decision to enter a re medial orde r to preve nt an unjus t and unrea sonable rate is not the same a s overr iding a filed rate

.

There fore , beca

use F ERC did not impose an ex it fee or

overr ide a f

iled rate , but effe ctuated a just and reasonable costb e n e f it s a ll o c ation, we deny the Arka nsas Commi ssion’s peti ti o n to revie w FERC’s order that Arka n s as E nterg y must share the Union Pacific Settlement be nefits.

B. A llocation Method

The Arkansas Com mission next p et i tions for review of FERC’s method o f allocation of the Union Pacific Settlement benef its. We will revie w the method FERC adopted to allocate the settlement benef

its an d t he Arka

nsas Commi ssion’s proposed a lternative be fore turning to FERC’s rea soning.

FERC considere d expert testimony reg arding three valuation analy ses prepa red by an Enterg y Service s witness, Thomas D. Crowley

. I n 2008, Crowley perf ormed an initial study to estimate the value of the Union Pacific Settl ement as part of Enterg y Arka

nsas’s prudenc e revie w to make sure the
terms of the settlement fairly compensa ted it for its damag es. I n 2010, Crowley updated the study with more curr ent information (the “ 2010 Crowley

Study ”).15

The 2010 Crowley Study quantified the hy pothetical coal transporta tio n co s ts if Enterg y Arka nsas did not enter into the Union Pacific Settlement. Wit hout the settlement, Enterg y Arka nsas’s coal transporta ti o n contra ct would have expired in J u n e 2 011. The study assumed that Enterg y Arka nsas would hav e procur ed repla ceme nt transporta tion throug h its usual business prac tice of enter ing multi-y ear transporta tion contra cts. Crowley used the rate another railroa d offe red Enterg y Arka nsas for coal transporta tion in November 2009 as the proxy fo r t h e contra ct ra te that Enterg y Arka nsas would have likely

paid had it enter ed into a repla ceme nt contra ct in 2011. The differ ence betwee n that hy

pothetical tran s p o rt ation contra ct and the m ore advanta g eous contra ct aff orded by the Union Pacific Settlement

was used to define the benef its of the settlement. FERC adopted the results of the 2010 Crowley Study in order to quantify the benef its of the Union Pacific Settlement.

I n the alterna tive, the Arka nsas Commi ssion ad v ance s a 2014 study also per fo rmed by Crowley (the “2014 Crowley Study ”) as a better estimate of the benef its of the barg ain. As it
turns out, coal transporta tion price s wer e lower in 2012 than the 2010 Crowley Study predic ted. There fore

, th e 2 014 Crowley Study incorpora

tes that price differ ence in its result, reduc ing the valuation of the Union Pacific Settlement be nefits compar ed to the 2010 Crowley

Study ’s pre diction.

FERC rea son ed that the 2014 Crowley Study was not a g ood estimate o f t h e benef its of the barg ain. Specifica lly

, the 2014 Crowley Study assumes t hat Enterg y Arka nsas knew tha t the transporta tion price s woul d drop in 2012. To perf orm the valuation, Crowley combined a hy pothetical transporta tion
contra ct for 2011-2012 and a follo w- o n contra ct from 2012- 2015, which would take advanta g e of the reduc ed rate s available in 2012. FE R C dismiss ed this study as suffe ring from “hindsig ht bias” that does not ref lect the rea lity of what Enterg y16

Arka nsas would have paid for coal transporta tion in the absenc e of the settlement. Wit hout the Union Pacific Settlement, FERC found it likely that Enterg y Arka nsas would have enter ed into a multi-y ear transpor t ati on contra ct in 2011 and not benef ited from the price dip in 2012. To rea ch its finding s, FERC consi d ered evidenc e of actua l contra cting prac tices and the testimo n y o f an economics expert. Fur ther, there was no evidenc e that Enterg y Arka nsas could have anticipated the 2012 drop in coal transporta tion price s and made differ ent contra cting decisions.

FERC’s adoption of the 2010 Crowley Study to allocate the Union Pacific Settlement benef its was the product of a rea soned decision and based on substantial evidenc e. There for e, we aff irm FERC’s use of this alloca tion method.

III. Conclusi on

For the rea sons set forth above, we hold that FERC’s order for Enterg y Arka

nsas to share the Union Pacific Settlement benef its and its method for all o ca ting the settlement was not arbitra ry , capr icious, or contra ry to law. Acc o rd i n gl y , the Arka nsas Commiss ion’s petition for re view is denied.