REVISED November 18, 2014

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 13-60874

LOUISIANA PUBLIC SERVICE COMMISSION, 

 Petitioner

v.

FEDERAL ENERGY REGULATORY COMMISSION, 

 Respondent

On Petition for Review of Orders

of the Federal Energy Regulatory Commission

Before KING, DENNIS, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

The Louisiana Public Service Commission (“LPSC”) seeks review of 

certain orders of the Federal Energy Regulatory Commission (“FERC”)

relating to the allocation of production costs among Entergy Corporation’s 

(“Entergy”) six operating companies. Because FERC’s procedural and 

ratemaking decisions were not arbitrary and capricious, we DENY LPSC’s 

petition for review.

United States Court of Appeals

Fifth Circuit

FILED

November 14, 2014

Lyle W. Cayce

Clerk

 Case: 13-60874 Document: 00512840698 Page: 1 Date Filed: 11/18/2014
No. 13-60874

FACTS AND PROCEEDINGS

I. Regulatory Background

Section 201 of the Federal Power Act (“FPA”) endows FERC with 

jurisdiction over the transmission and sale at wholesale of electricity in 

interstate commerce. 16 U.S.C. § 824(a)-(b). FERC reviews all rates within its 

jurisdiction to ensure that they are “just and reasonable.” Id. § 824d(a). In 

furtherance of this objective, FERC may, on its own initiative or upon the filing 

of a third-party complaint, investigate whether an existing rate is lawful. Id. 

§ 824e(a). This is referred to as a “Section 206” proceeding. The complainant—

whether it is FERC or a third party—bears the burden of proof to demonstrate 

that a rate is unjust or unreasonable. Id. § 824e(b). If FERC concludes that 

a rate is unlawful, it must set a new just and reasonable rate. Id. § 824e(a). 

A public utility itself may also pursue a rate change in a “Section 205” 

proceeding, and FERC has the power to determine whether the proposed rate 

is lawful and thus will take effect. Id. § 824d(d)-(e). If the public utility seeks 

to increase the rate, it bears the burden of proof to demonstrate that the 

increase is just and reasonable. Id. § 824d(e). 

II. Entergy System Agreement and Bandwidth Remedy

Entergy is a public utility holding company that sells electricity in 

Arkansas, Louisiana, Mississippi, and Texas through six operating 

subsidiaries.1 See La. Pub. Serv. Comm’n v. FERC, 522 F.3d 378, 383 (D.C. 

Cir. 2008) (“La. 2008”). The operating companies collaborate for their mutual 

benefit and their generation and transmission facilities, although individually 

owned, are operated as a single electric system (“System”). Id. at 383-84, 394. 

1 At the time the Bandwidth remedy was imposed, Entergy had only five operating 

companies: Entergy Arkansas, Inc.; Entergy Mississippi, Inc.; Entergy Gulf States, Inc.;

Entergy Louisiana, LLC; and Entergy New Orleans, Inc. At the end of 2007, Entergy Gulf 

States was split into Entergy Texas, Inc. and Entergy Gulf States Louisiana, L.L.C.

2

 

 Case: 13-60874 Document: 00512840698 Page: 2 Date Filed: 11/18/2014
No. 13-60874

Transactions among the six operating companies are governed by the System 

Agreement, a FERC-approved tariff that “acts as an interconnection and 

pooling agreement for the energy generated in the System and provides for the 

joint planning, construction and operation of new generating capacity in the 

System.” Id. at 383; see also Entergy La., Inc. v. La. Pub. Serv. Comm’n, 539 

U.S. 39, 42 (2003). New generating capacity is added to the System on a 

rotating basis, and because each operating company bears the costs of the 

generation facilities in its jurisdiction, “the rotation of new plants throughout 

the System historically had the effect of roughly evening out investment costs 

over time among the operating companies.” La. 2008, 522 F.3d at 384. 

Although this rotation system prevented substantial deviations in 

operating costs between the subsidiaries for the first thirty years of the 

System’s existence, the arrangement faltered in the early 1980s when Entergy 

Mississippi incurred billions of dollars in unanticipated costs in connection 

with its construction of a nuclear power plant. Id. FERC interpreted the 

System Agreement to require that production costs be “roughly equal” among 

the operating companies and ordered nuclear-investment equalization to 

remedy the disparity. Id. Production costs again diverged dramatically in the 

early 2000s when a spike in natural gas prices rendered electricity production 

more expensive for Entergy Louisiana, which relies more heavily on gas 

generation than its sister companies. Id. at 385. FERC again concluded that 

the System was “out of rough production cost equalization” and imposed a 

“bandwidth remedy.” Id. at 388-89 (internal quotation marks omitted). 

The bandwidth remedy establishes outer boundaries of +/-11% by which 

production costs may deviate from the System average. Id. at 387-89. 

Pursuant to this remedial measure, each calendar year the production costs of 

each operating company are calculated and, if necessary, “payments [are] made 

by the low cost Operating Company(ies) to the high cost Operating 

3

 Case: 13-60874 Document: 00512840698 Page: 3 Date Filed: 11/18/2014
No. 13-60874

Company(ies) such that, after reflecting the payments and receipts, no 

Operating Company would have production costs more than 11 percent above 

the Entergy System average or more than 11 percent below the Entergy 

System average.” La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 146 FERC ¶ 

61,152 at P 3 (2014). The D.C. Circuit found that FERC had jurisdiction to 

allocate production costs among the operating companies, and upheld the 

bandwidth remedy as a reasonable exercise of the agency’s discretion. La. 

2008, 522 F.3d at 389, 391.

III. Bandwidth-Related Proceedings 

A. Bandwidth Remedy Compliance Filings

In conjunction with its legislation of the bandwidth remedy, FERC 

directed Entergy to implement the remedy into the System Agreement. La. 

Pub. Serv. Comm’n v. Entergy Servs., Inc., 111 FERC ¶ 61,311 (2005) (“Op. No. 

480”), on reh’g, 113 FERC ¶ 61,282 (2005) (“Op. No. 480-A”). Entergy 

submitted amendments to the System Agreement, which FERC accepted with 

modifications. See La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 117 FERC ¶ 

61,203 (2006) (“2006 Compliance Order”), on reh’g and compliance, 119 FERC 

¶ 61,095 (2007), pet. for review denied, La. Pub. Serv. Comm’n v. FERC, 341 

Fed. App’x. 649 (D.C. Cir. 2009). Entergy modified “Service Schedule MSS-3” 

to prescribe a formula for calculating the production costs of the operating 

companies, which are then compared to the System average to determine 

whether a variation of greater than 11 percent from the average exists, and 

thus whether any rough production cost equalization payments are owed. See 

Service Schedule MSS-3, Sec. 30.12 (formula for determining actual production 

costs); id. Sec. 30.13 (formula for determining average production costs); 2006 

4

 Case: 13-60874 Document: 00512840698 Page: 4 Date Filed: 11/18/2014
No. 13-60874

Compliance Order, 117 FERC ¶ 61,203 at PP 23-27.2 Service Schedule MSS-3 

also specifies that in populating the actual production cost formula inputs: “All 

Rate Base, Revenue and Expense items shall be based on the actual amounts 

on the Company’s books for the twelve months ending December 31 of the 

previous year as reported in FERC Form 1 or such other supporting data as 

may be appropriate for each Company . . . .” Service Schedule MSS-3, Sec. 

30.12, n.1.3

B. Annual Bandwidth Implementation Proceedings

As required by FERC, Entergy must annually file its rates calculated 

from Service Schedule MSS-3 and any bandwidth payments and receipts 

derived therefrom. These compliance filings implement the bandwidth 

formula using the prior calendar year’s production costs.

1. First Bandwidth Proceeding

FERC scheduled the first annual bandwidth payment for June of 2007 

and Entergy initiated the first bandwidth proceeding in May of 2007. On 

exceptions to many of the ALJ’s findings, FERC clarified, as relevant here, that 

“the bandwidth formula in Service Schedule MSS-3 is the lawful rate,” and 

that “amendments to correct errors or deficiencies . . . in the underlying 

methodology” could not be raised in an annual implementation proceeding. 

Entergy Servs., Inc., 130 FERC ¶ 61,023 at PP 12, 170, 245 (2010) (“Op. No. 

505”), on reh’g, 139 FERC ¶ 61,103 (2012) (“Op. No. 505–A”). LPSC and 

2 The formula rate methodology is based on Exhibits 26 and 28 that Entergy submitted 

in the bandwidth remedy proceeding. Exhibit 26 compared historical production costs of the 

operation companies for 1983-2002 and Exhibit 28 was a production cost analysis for 

September 2001 through August 2002 that detailed the figures supporting the data in Exhibit 

26.

3 FERC Form 1 is the annual report FERC requires large electric utilities to file each 

April. See 18 C.F.R. § 141.1. 

5

 

 Case: 13-60874 Document: 00512840698 Page: 5 Date Filed: 11/18/2014
No. 13-60874

Entergy each filed still-pending petitions for review of FERC’s orders related 

to the first bandwidth proceeding in the D.C. Circuit. 

2. Second Bandwidth Proceeding

Entergy initiated the second bandwidth proceeding in May of 2008. 

FERC again heard exceptions to the ALJ’s rulings on various issues, including 

the proper scope of bandwidth proceedings. Entergy Servs. Inc., 137 FERC ¶ 

61,029 (2011) (“Op. No. 514”), reh’g denied, 142 FERC ¶ 61,013 (2013) (“Op. 

No. 514–A”). LPSC appealed FERC’s orders to the Fifth Circuit and, as 

discussed infra, a panel of this court denied LPSC’s petition for review. La. 

Pub. Serv. Comm’n v. FERC, 761 F.3d 540 (5th Cir. 2014) (“Second Bandwidth 

Decision”).

3. Third Bandwidth Proceeding

The third bandwidth proceeding began in May of 2009. The ALJ ordered 

issues related to certain depreciation inputs removed from the proceeding 

based on FERC’s ruling in Op. No. 505 that the reasonableness of expense 

inputs cannot be litigated in annual bandwidth filings. FERC upheld the ALJ’s

removal order on interlocutory appeal. See Entergy Servs., Inc., 130 FERC ¶ 

61,170 (2010) (“Third Bandwidth Interlocutory Order”). After completing the 

hearing, the ALJ ruled that casualty loss ADIT recorded in bandwidth-eligible 

accounts is to be included in the bandwidth calculation. Entergy Servs., Inc., 

132 FERC ¶ 63,005 at PP 275-77 (2010) (“Third Bandwidth Initial Decision”). 

FERC affirmed the ALJ’s decision in relevant respects and those orders are 

now on review in this petition. See Entergy Servs., Inc., 139 FERC ¶ 61,105 

(2012) (“Op. No. 518”), on reh’g, 145 FERC ¶ 61,047 (2013) (“Third Bandwidth 

Rehearing Order”). 

4. Fourth Bandwidth Proceeding

Entergy initiated the fourth bandwidth proceeding in May of 2010. 

FERC set the matter for hearing and LPSC raised a number of issues that it 

6

 Case: 13-60874 Document: 00512840698 Page: 6 Date Filed: 11/18/2014
No. 13-60874

had raised in previous bandwidth proceedings, such as treatment of certain 

ADIT and depreciation inputs. Entergy Servs., Inc., 132 FERC ¶ 61,065 at P 

15 (2010), on reh’g, 137 FERC ¶ 61,019 (2011) (“Fourth Bandwidth Rehearing 

Order”). After further clarification from FERC, Entergy Servs., Inc., 145 FERC 

¶ 61,049 (2013) (“Fourth Bandwidth Clarification Order”), the ALJ issued an 

initial decision in the fourth bandwidth proceeding on September 19, 2014, 

Entergy Servs., Inc., 148 FERC ¶ 63,015 (2014) (“Fourth Bandwidth Initial 

Decision”).

5. Further Bandwidth Proceedings

The fifth, sixth, and seventh annual bandwidth proceedings (filed in May

of 2011, 2012, and 2013, respectively) remain pending before FERC, which has 

held the matters in abeyance pending resolution of the earlier bandwidth 

proceedings. See Entergy Servs., Inc., 136 FERC ¶ 61,057 at P 21 (2011); 

Entergy Servs., Inc., 140 FERC ¶ 61,111 at P 32 (2012); Entergy Servs., Inc., 

144 FERC ¶ 61,167 at P 30 (2013).

C. Complaint Proceedings

LPSC and the Arkansas Public Service Commission (APSC) have also 

filed complaints with FERC outside of the annual bandwidth proceedings

under Section 206 (and purportedly under Section 205) of the FPA challenging 

the bandwidth formula.

1. Scope Complaint (2008)

Before the administrative hearing in the first bandwidth proceeding, 

LPSC filed a complaint challenging Entergy’s methodology and the inputs used 

to calculate the operating companies’ production costs. FERC dismissed all 

issues “covering methodology deviation and the justness and reasonableness of 

cost inputs” because they were currently before FERC in the first bandwidth 

proceeding and there was “no need to establish a separate proceeding to 

7

 Case: 13-60874 Document: 00512840698 Page: 7 Date Filed: 11/18/2014
No. 13-60874

address them.” La. Pub. Serv. Comm’n v. Entergy Corp., 124 FERC ¶ 61,010 

at P 27 (2008) (“Louisiana Complaint”).

2. Arkansas Complaint (2009)

After Entergy’s initial bandwidth filing, APSC filed a complaint to 

modify formula language relating to depreciation and nuclear 

decommissioning expenses. FERC denied the complaint, explaining that the 

formula language was appropriate because FERC “must ensure that the inputs 

used to calculate the bandwidth are . . . just and reasonable” and “the authority 

to determine the payments under the bandwidth necessarily must include the 

ability to examine the inputs used to calculate the bandwidth.” Ark. Pub. Serv. 

Comm’n, 128 FERC ¶ 61,020 at P 25 (2009) (“Arkansas Complaint”). In its

October 2011 rehearing order, after ruling on the first two bandwidth 

proceedings, FERC noted that it had issued “clarification in a number of 

orders” since its initial decision, and that modifications to the formula 

methodology in Service Schedule MSS-3 must be made in a separate section 

205 or 206 filing. Ark. Pub. Serv. Comm’n, 137 FERC ¶ 61,030 at P 21 (2011) 

(“Arkansas Rehearing Order”); see also id. at P 23 (“If parties believe that the 

methodology in Service Schedule MSS-3 with respect to depreciation expenses 

should be changed, they should file a separate section 206 complaint (or, in the 

case of Entergy, a section 205 filing).”).

3. Out-of-Period Complaint (2011)

In 2011, LPSC filed a section 206 complaint to force Entergy to remove 

from the second and third bandwidth calculations costs and expenses that, 

although recorded in relevant FERC accounts for those years, related to 

periods before the bandwidth remedy took effect. FERC denied the complaint 

insofar as it sought retroactive relief on the grounds that such relief would 

require a modification to the bandwidth formula, which is not permitted 

retroactively under the FPA. La. Pub. Serv. Comm’n v. Entergy Corp., 139 

8

 Case: 13-60874 Document: 00512840698 Page: 8 Date Filed: 11/18/2014
No. 13-60874

FERC ¶ 61,102 at PP 26-27 (2012). FERC held the complaint for prospective 

relief in abeyance. Id. at P 28.

IV. Orders on Review

LPSC raises two issues on appeal. At the initial hearing in front of the 

ALJ, LPSC argued that certain revenues and expenses should be removed from 

the bandwidth calculation for 2008 because they were not incurred in that test 

year. LPSC also argued that the production cost formula should account for 

the mid-year acquisition of generation facilities by Entergy Gulf States 

Louisiana and Entergy Arkansas on a partial-year basis. FERC affirmed the 

ALJ’s rulings that Entergy did not have the discretion to exclude out-of-period 

costs or implement partial-year accounting. FERC held that because Service 

Schedule MSS-3 mandates that formula inputs be based on the “actual 

amounts” reported on the operating companies’ FERC Form 1 reports, the 

bandwidth formula does not permit exclusion of out-of-period costs, and only 

allows for assets on the books at the end of the calendar year to be reflected in 

the calculation as though they had existed for the full year. Op. No. 518, 139 

FERC ¶ 61,105 at PP 43, 61. FERC accordingly concluded that LPSC’s 

challenges were challenges to the “justness and reasonableness” of the 

bandwidth formula itself and could not be raised in an annual bandwidth 

proceeding, but must be made through a separate FPA section 206 proceeding. 

Id. at P 44, 62. On review, LPSC challenges as arbitrary (1) FERC’s 

interpretation of the tariff as requiring inputs to be the “actual amounts” on 

FERC 1 forms and (2) FERC’s reversal of its interpretation that annual 

bandwidth proceedings could be used to challenge unjust and unreasonable 

cost inputs into the formula. 

FERC also affirmed the ALJ’s ruling that casualty loss deferred taxes 

should be included in the bandwidth calculations for 2008. Id. at P 84. LPSC 

challenges this determination on the grounds that (1) it did not receive proper 

9

 Case: 13-60874 Document: 00512840698 Page: 9 Date Filed: 11/18/2014
No. 13-60874

notice that casualty ADIT could be included in the production cost formula and 

(2) FERC did not provide a rational basis for its inclusion.

STANDARD OF REVIEW

FERC’s orders are reviewed under the Administrative Procedure Act’s 

“arbitrary and capricious” standard. See 5 U.S.C. § 706(2)(A); La. 2008, 522 

F.3d at 391. To satisfy this standard, FERC “must examine the relevant data 

and articulate a satisfactory explanation for its action including a rational 

connection between the facts found and the choice made.” Motor Vehicle Mfrs. 

Ass’n of United States, Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 

(1983) (internal quotation marks omitted). FERC’s ratemaking decisions are 

entitled to “great deference.” Morgan Stanley Capital Grp. v. Pub. Util. Dist. 

No. 1, 554 U.S. 527, 532 (2008); see also Pub. Utils. Comm’n of State of Cal. v. 

FERC, 254 F.3d 250, 254 (D.C. Cir. 2001) (“Because issues of rate design are 

fairly technical and, insofar as they are not technical, involve policy judgments 

that lie at the core of the regulatory mission, our review of whether a particular 

rate design is ‘just and reasonable’ is highly deferential.” (internal quotation 

marks and alterations omitted)). If language in the System Agreement is 

ambiguous, we defer to FERC’s construction of the provision so long as it is 

reasonable. Second Bandwidth Decision, 761 F.3d at 553. In this circuit, 

however, a reviewing court will not defer to FERC’s construction of a tariff 

unless the agency relied on its factual or technical expertise in arriving at its 

interpretation. See id.; Tenn. Gas Pipeline Co. v. FERC, 17 F.3d 98, 102 (5th 

Cir. 1994).

DISCUSSION

I. FERC reasonably excluded challenges to the “justness and 

reasonableness” of formula inputs from annual bandwidth 

implementation proceedings.

LPSC first challenges FERC’s rulings that Entergy could not modify cost 

inputs to exclude out-of-period costs or account for the fact that two of the 

10

 Case: 13-60874 Document: 00512840698 Page: 10 Date Filed: 11/18/2014
No. 13-60874

operating companies had not owned their newly-acquired plants for a full year. 

As LPSC makes clear, these rulings are not simply a procedural inconvenience, 

because even if LPSC’s underlying grievances are rectified in a complaint 

proceeding, the inputs will be modified only prospectively. See Louisiana Pub. 

Serv. Comm’n v. Entergy Corp., 139 FERC ¶ 61,102 at PP 26-27 (2012); City of

Anaheim, Cal. v. FERC, 558 F.3d 521, 523 (D.C. Cir. 2009) (“On its face, § 

206(a) prohibits retroactive adjustment of rates.”). Because the out-of-period 

costs and facility acquisitions are recorded for the bandwidth year at issue, 

altering the formula inputs prospectively will not allow Entergy Louisiana or 

Entergy Gulf States Louisiana—the two LPSC-regulated operating 

companies—to recover greater equalization payments based on those 

adjustments.4 

A. FERC reasonably interpreted the System Agreement and

correctly applied the filed rate doctrine.

The bandwidth formula as laid out in Service Schedule MSS-3 of the 

System Agreement is the existing filed rate under the FPA. Second Bandwidth 

Decision, 761 F.3d at 555; Op. No. 514, 137 FERC ¶ 61,029 at P 49 (“[FERC] 

already found the formula rate contained in Service Schedule MSS-3 to be just 

and reasonable when it approved that formula as being in compliance with 

Opinion No. 480. Because [FERC] has approved the formula, it is the filed rate 

. . . .” (footnote omitted)); see also Pub. Utils. Comm’n of State of Cal. v. FERC, 

254 F.3d 250, 254 & n.3 (D.C. Cir. 2001) (“[A] formula rate specifies the cost 

components that form the basis of the rates a utility charges its customers” 

and “the formula itself is the filed rate that provides sufficient notice to 

4 It follows that the lower the bandwidth payments to the Louisiana entities, the more 

Louisiana consumers will likely be forced to pay for electricity. See La. Pub. Serv. Comm’n, 

539 U.S. at 42 (noting that, because state regulators allow utility companies to recover their 

costs and a reasonable rate of return, “the cost allocation between operating companies is 

critical to the setting of retail rates.”). 

11

 

 Case: 13-60874 Document: 00512840698 Page: 11 Date Filed: 11/18/2014
No. 13-60874

ratepayers.”). Under the filed rate doctrine, “[t]he rate filed by the wholesale 

seller of electricity or fixed by FERC is the only lawful charge and deviation 

from it is not permitted upon any pretext.” California ex rel. Lockyer v. FERC, 

383 F.3d 1006, 1012 (9th Cir. 2004) (internal quotation marks and alteration 

omitted); see also Montana-Dakota Utils. Co. v. Nw. Pub. Serv. Co., 341 U.S. 

246, 251-52 (1951). Not only must utilities adhere to the filed rate, but “[FERC] 

itself has no power to alter a rate retroactively.” Ark. La. Gas Co. v. Hall, 453 

U.S. 571, 578 (1981). Even where FERC finds an existing rate to be unjust and 

unreasonable under the FPA, its replacement rate applies only prospectively. 

See id.

FERC has interpreted the bandwidth formula in the System Agreement 

to require that cost inputs be populated with the actual data on the operating 

companies’ books for each year as reported in their FERC 1 forms. See, e.g., 

Op. No. 505, 130 FERC ¶ 61,023 at P 171 (“[F]or calculating the 2006 

production payments to be made in 2007, section 30.12 of Service Schedule 

MSS-3 mandates that Entergy use the actual data that exists on the Operating 

Companies’ books for 2006.”) Accordingly, FERC has concluded that 

adjustments to the formula inputs are adjustments to the bandwidth formula 

itself, and because the formula is the filed rate, challenges to the justness and 

reasonableness of the inputs cannot be raised in an annual bandwidth filing, 

but must instead be brought in a separate rate change proceeding. See, e.g., 

Third Bandwidth Interlocutory Order, 130 FERC ¶ 61,170 at P 20 (“[T]he 

purpose of the annual bandwidth filings is to apply the specified formula using 

actual data to determine whether or not there was rough equalization, and not 

to determine what production costs would have been if different depreciation 

rates had been in effect for the relevant period.”); Fourth Bandwidth 

Clarification Order, 145 FERC ¶ 61,049 at P 6 (“[T]he focus of litigation in the 

annual bandwidth filings is whether Entergy properly implemented the 

12

 Case: 13-60874 Document: 00512840698 Page: 12 Date Filed: 11/18/2014
No. 13-60874

bandwidth formula, not whether the bandwidth formula is just and 

reasonable.”). FERC has explained that the scope of challenges in annual 

bandwidth proceedings is limited to: “(1) whether the inputs were calculated 

consistent with the formula and the applicable accounting rules; (2) 

conformance with retail regulatory approvals . . . [;] and, (3) in instances where 

there are details omitted from the accepted Service Schedule MSS-3 formula, 

[whether Entergy’s calculations comply] with the underlying details included 

in the methodology used in Exhibits ETR-26 and ETR-28,” as well as “the 

prudence of cost inputs to the bandwidth formula.” Fourth Bandwidth 

Rehearing Order, 137 FERC ¶ 61,019 at P 13.

FERC’s determination that the System Agreement mandates that 

Entergy use actual data on the companies’ books is based on Footnotes 1 and 

2 in Section 30.12 of Service Schedule MSS-3. Footnote 1 provides that: “All 

Rate Base, Revenue and Expense items shall be based on the actual amounts 

on the Company’s books for the twelve months ending December 31 of the 

previous year as reported in FERC Form 1 or such other supporting data as 

may be appropriate for each Company . . . .” Footnote 2 likewise specifies that: 

“Rate Base values shall be based on the actual balances on the Company’s 

books as of December 31 of the previous year . . . .” LPSC raises a number of 

challenges to FERC’s interpretation of the System Agreement, but does not 

opine on whether FERC relied on its technical expertise to reach it. In any 

case, with or without special deference, FERC’s interpretation is clearly not 

arbitrary. 

LPSC argues in the first instance that FERC’s interpretation reads out 

of Footnote 1 the clause “or such other supporting data as may be appropriate 

for each Company.” LPSC asserts that this other “supporting data” alternative 

permits it to challenge the justness and reasonableness of formula inputs in a 

bandwidth proceeding if they are not reflective of the company’s actual costs in 

13

 Case: 13-60874 Document: 00512840698 Page: 13 Date Filed: 11/18/2014
No. 13-60874

the test year. But Footnote 1 does not state that formula inputs will be based 

on an operating company’s actual costs. The provision plainly states that 

inputs “shall be based on the actual amounts on the Company’s books” for the 

prior year. These amounts are determined by reference to FERC Form 1 or 

other supporting data. Thus, FERC could reasonably find that “other 

supporting data” is useful only insofar as it can be used to ascertain “actual 

amounts on the Company’s books” for the test year that were not included (or 

not included in a useful form) or were misrepresented in FERC Form 1. 

Further, in the Second Bandwidth Decision, a panel of this circuit 

recently rejected LPSC’s argument that it could challenge formula inputs as 

unjust or unreasonable in annual bandwidth proceedings. The specific issue 

in that case was whether FERC could modify depreciation rates set by retail 

regulators and incorporated into the bandwidth formula. As it did with the 

inputs at issue here, FERC concluded that the challenge to the state 

depreciation input constituted a challenge to the bandwidth formula itself that 

could not be raised in an annual bandwidth proceeding. This court found that 

“[t]he System Agreement reflects a decision to incorporate actual costs reflected 

on FERC Form 1 into the formula.” Second Bandwidth Decision, 761 F.3d at 

555 (emphasis added). It agreed with FERC that supplanting the retail-set 

depreciation inputs would change the bandwidth formula and that such an 

“attack on the formula” in the bandwidth proceeding violated the filed-rate 

doctrine and thus was not valid. Id.

As this court concluded in the Second Bandwidth Decision, FERC’s 

interpretation that the bandwidth formula requires inputs based on actual 

FERC 1 data is a plain reading of the System Agreement—specifically, 

Footnotes 1 and 2 to Service Schedule MSS-3—and is not arbitrary or 

irrational. “Unlike FERC’s interpretation, [LPSC]’s interpretation undercuts 

th[e] remedial scheme in favor of a yearly reconstruction of each company’s 

14

 Case: 13-60874 Document: 00512840698 Page: 14 Date Filed: 11/18/2014
No. 13-60874

costs in the bandwidth proceedings.” Id. Although LPSC protests that 

prohibiting challenges to the justness and reasonableness of formula inputs in 

annual bandwidth proceedings will leave consumers without a complete 

remedy, “the absence of retroactive relief is a function of the filed-rate 

doctrine.” Id. at 556. Therefore, regardless of the merits of LPSC’s underlying 

challenges to the reasonableness of the formula inputs, it could not seek to 

modify the definition of those inputs in the third bandwidth proceeding. LPSC 

does not contend that Entergy failed to use the FERC Form 1 values as 

prescribed in the System Agreement or that it made a calculation error 

implementing the algebraic equation. Accordingly, LPSC’s challenges to 

Entergy’s inclusion in the production cost formula of end-of-year rate balances 

for newly-acquired generation plants and out-of-period revenues and expenses

drawn from the operating companies’ FERC Form 1 filings are not cognizable 

in a bandwidth proceeding.

B. FERC’s reversal of its initial interpretation of the scope of 

bandwidth implementation proceedings was not arbitrary.

LPSC also argues that because FERC previously held that it would 

review the justness and reasonableness of cost inputs in the annual bandwidth 

proceedings, its subsequent decision “without explanation” to exclude such 

review in the proceedings was arbitrary. It is true that, in two of its early 

orders, FERC stated that challenges to the formula inputs could be raised at 

the annual bandwidth proceedings, and even dismissed part of LPSC’s 2008 

Scope Complaint on that ground. But FERC corrected its previous 

interpretation in its very first ruling on an annual bandwidth proceeding. Op. 

No. 505, 130 FERC ¶ 61,023 at PP 172-73. As this court found in the Second 

Bandwidth Decision, “FERC changed its interpretation in light of its gained 

experience conducting annual bandwidth proceedings, explained its new 

interpretation of the System Agreement, and consistently has interpreted the 

15

 Case: 13-60874 Document: 00512840698 Page: 15 Date Filed: 11/18/2014
No. 13-60874

System Agreement after the change.” 761 F.3d at 556. “Here, FERC offered a 

reasoned explanation for its approach; no more is required.” Id. (internal 

quotation marks and alteration omitted).

LPSC continues that FERC’s attempts at clarification were beset by 

inconsistency and that the agency has now “shift[ed] back” to its original 

interpretation. LPSC points to the Fourth Bandwidth Clarification Order’s 

statement that “challenges in a bandwidth proceeding can include whether the 

formula was misapplied or miscalculated because the inputs were unjust and 

unreasonable.” 145 FERC ¶ 61,049 at P 14.5 Although this statement in 

isolation could be read to support LPSC’s reversion argument, it loses its force 

when considered in context. In responding to LPSC’s request that FERC 

“clarify what it meant by limiting the bandwidth challenges to the prudence of 

cost inputs” in the Fourth Bandwidth Rehearing Order, id. at P 13, FERC 

stated:

The Rehearing Order provided that parties can challenge whether 

the inputs were calculated consistent with the formula and the 

applicable accounting rules. As part of its determination, the 

Commission also stated that “with respect to whether or not 

particular costs were prudently incurred,” parties can challenge 

the prudence of those cost inputs. We clarify that challenges that 

may be raised in a bandwidth implementation proceeding to the 

“inputs” used in the bandwidth formula include misapplication of 

the formula rate (such as use of erroneous data or incorrect 

calculations), which includes the prudence of a cost input. On this 

basis, the Rehearing Order did not limit challenges to “the 

prudence of cost inputs.” Instead, challenges in a bandwidth 

proceeding can include whether the formula was misapplied or 

miscalculated because the inputs were unjust and unreasonable. 

5 LPSC raised this same reversion argument based on the Fourth Bandwidth 

Rehearing Order in the Second Bandwidth Decision. Although not specifically addressed in 

that opinion, given the panel’s conclusion that FERC has interpreted the System Agreement 

consistently since the first bandwidth proceeding, that panel evidently also found LPSC’s 

claim unpersuasive. 

16

 

 Case: 13-60874 Document: 00512840698 Page: 16 Date Filed: 11/18/2014
No. 13-60874

However, challenges to the formula itself, not the inputs, must be 

brought in an FPA section 205 or section 206 proceeding.

Id. at P 14 (emphasis added) (footnotes omitted). 

In explaining that the Fourth Bandwidth Rehearing Order did not “limit” 

challenges at the annual bandwidth proceedings to the prudence of cost 

inputs,6 FERC repeated its instruction that challenges may be made to the 

“misapplication of the formula rate (such as use of erroneous data or incorrect 

calculations).” Id. FERC continued that such challenges included, but were 

not limited to, the prudence of cost inputs. Id. Accordingly, FERC’s statement 

that challenges “can include whether the formula was misapplied or 

miscalculated because the inputs were unjust and unreasonable” related to the 

just-referenced input of erroneous data or incorrect calculations, not to the 

merits of including each formula input itself. See id. This reading is consistent 

with other statements in the order. See id. at P 12 (“[P]arties can challenge in 

a bandwidth proceeding erroneous inputs, implementation errors, or prudence 

of cost inputs. However, challenges to the bandwidth formula itself must be 

raised in an FPA section 206 complaint or section 205 filing.”). In any case, 

ambiguity in the use of the phrase “unjust and unreasonable” in the Fourth 

Bandwidth Clarification Order is not sufficient to cast doubt on the litany of 

FERC orders clarifying that formula inputs may be challenged for incorrect 

data, faulty math, and imprudent expenditures—not for whether the cost 

6 A cost is prudent if it is one that “a reasonable utility management (or that of another 

jurisdictional entity) would have made, in good faith, under the same circumstances, and at 

the relevant point in time.” Op. No. 505, 130 FERC ¶ 61,023 at P 51 (citation omitted). LPSC 

previously understood that “imprudence occurs when it is determined that a utility acted 

unreasonably when incurring a cost, and that an imprudent cost is an unreasonable cost that 

violates the just and reasonable standard of the Federal Power Act.” Entergy Servs., Inc., 

137 FERC ¶ 61,019 at P 6 (2011). Insofar as LPSC is now contending that it understands 

imprudence to allow challenges to any perceived unjust cost input, such an interpretation is 

unreasonable.

17

 

 Case: 13-60874 Document: 00512840698 Page: 17 Date Filed: 11/18/2014
No. 13-60874

variables themselves should be included in the formula.7 See, e.g., Op. No. 505, 

130 FERC ¶ 61,023 at PP 172-73; Op. No. 505-A, 139 FERC ¶ 61,103 at P 50; 

Op. No. 514, 137 FERC ¶ 61,029 at P 48; Third Bandwidth Interlocutory Order, 

130 FERC ¶ 61,170 at P 20; Op. No. 518, 139 FERC ¶ 61,105 at PP 25-26; 

Fourth Bandwidth Rehearing Order, 137 FERC ¶ 61,019 at PP 11-12; 

Arkansas Rehearing Order, 137 FERC ¶ 61,030 at PP 21-23.

LPSC’s petition for review of FERC’s order that LPSC cannot challenge 

the justness and reasonableness of including certain cost inputs in the 

bandwidth formula during an annual bandwidth proceeding is denied.

II. FERC reasonably required Entergy to include casualty loss ADIT 

in its third bandwidth calculation.

LPSC next claims that FERC’s ruling that Entergy must include 

casualty loss ADIT in its third bandwidth calculation (1) violated due process 

and statutory notice requirements and (2) is arbitrary because FERC failed to 

provide a rational explanation for its inclusion.

ADIT is defined in the bandwidth formula as:

ADIT = Net Accumulated Deferred Income Taxes (ADIT) recorded 

in FERC Accounts 190, 281 and 282 (as reduced by amounts not 

generally and properly includable for FERC cost of service 

purposes, including but not limited to, SFAS 109 ADIT amounts 

and ADIT amounts arising from retail ratemaking decisions) plus 

Accumulated Deferred Income Tax Credit-3% portion only 

recorded in FERC Account 255[.]

Service Schedule MSS-3, Sec. 30.12. 

7 LPSC also cites a recent order of an ALJ that cites the “unjust and unreasonable” 

language from the Fourth Bandwidth Clarification Order. See Fourth Bandwidth Initial 

Decision, 148 FERC ¶ 63,015 at PP 33, 39. To the extent the ALJ interpreted FERC as 

permitting challenges to formula inputs outside of faulty math, erroneous data, or imprudent 

expenditures, this was inconsistent with FERC’s position for the reasons described above. 

We also note that the ALJ’s decision has not yet been reviewed by FERC.

18

 

 Case: 13-60874 Document: 00512840698 Page: 18 Date Filed: 11/18/2014
No. 13-60874

In its third bandwidth filing, Entergy excluded from the operating 

companies’ production cost calculations ADIT associated with both net 

operating losses (NOL) and casualty losses, recorded in FERC accounts 190 

and 282, respectively. A NOL is an “income tax benefit that may be carried 

forward to future years and treated as an offset to future years’ taxable 

income.” Entergy Servs., Inc., 145 FERC ¶ 61,045 at P 3 n.10 (2013). As 

LPSC’s witness testified in the third bandwidth proceeding, the NOL ADIT 

amounts in account 190 “represent the tax benefits that the operating 

companies have not yet been able to realize because of insufficient taxable 

income.” Thus, this is an asset ADIT account that generally increases the rate 

base. In contrast, the casualty loss ADIT in account 282 is a liability account 

that generally decreases the rate base.

An Entergy witness testified at the third bandwidth hearing that 

Entergy’s exclusion of NOL ADIT was consistent with Entergy’s treatment of 

NOL ADIT in its two previous bandwidth filings. Casualty loss ADIT was not 

an issue in the prior filings because those amounts were previously recorded 

in account 283, which the System Agreement did not specify for use in the 

bandwidth formula. Prior to the third bandwidth filing, however, Entergy 

reclassified certain ADIT amounts, including casualty loss taxes, into account 

282, which is included in the bandwidth calculation. Entergy’s third 

bandwidth filing letter explained this reclassification, and the parties agreed 

in the Joint Statement of Issues that there was no dispute as to the propriety 

of the account reclassification.

After Entergy submitted its third bandwidth filing, FERC issued Op. No. 

505, in which FERC, siding with LPSC, reversed the ALJ’s decision that 

Entergy could exclude from the first bandwidth filing all NOL ADIT amounts. 

130 FERC ¶ 61,023 at PP 233-34. FERC explained that, “[t]o the extent storm 

damage costs are amortized to expense accounts included in the bandwidth 

19

 Case: 13-60874 Document: 00512840698 Page: 19 Date Filed: 11/18/2014
No. 13-60874

calculation (production storm damage expense), such costs are included in a 

[FERC] cost-of-service rate. Therefore, consistent with Service Schedule MSS3, ADIT for NOL carryforwards associated with production storm damage 

expenses may not be excluded from the bandwidth calculation.” Id. at P 234. 

Because of this ruling, one of the issues to be litigated at the third bandwidth 

hearing was what portion of NOL ADIT to include in the bandwidth 

calculation.

In his pre-filed Final Testimony, Entergy witness Bruce Louiselle 

compared the amounts of casualty loss ADIT and NOL ADIT for the operating 

companies to demonstrate that casualty loss ADIT “far exceeds” NOL ADIT. 

Louiselle explained that “[w]hat is important is that [Entergy] excluded both 

the storm-caused NOL ADIT and the storm-caused Casualty Loss ADIT on a 

consistent basis and for the same reason, to wit: such amounts are not 

generally and properly includable for FERC cost of service purposes.” Louiselle 

also testified that LPSC’s proposal “to include the storm-caused NOL ADIT 

recorded in Account 190 but not to include the storm-caused ADIT recorded in 

Account 282” amounted to “‘cherry picking’ which storm-caused tax effects to 

include.”8 A FERC Trial Staff witness concurred that, if storm-related NOL 

ADIT were included in the calculation, storm-related casualty loss ADIT 

should be included as well.

Affirming the ALJ’s initial decision, FERC ruled that both NOL ADIT 

and casualty loss ADIT that are properly includable for cost-of-service 

purposes should be included in the bandwidth calculation. Op. No. 518, 139 

FERC ¶ 61,105 at P 84. FERC rejected Entergy’s argument that Op. No. 505 

8 In addition to his pre-filed testimony, Louiselle also testified on redirect testimony 

at the hearing that if the ALJ or FERC included NOL ADIT, there is “no logical reason” not 

to also include casualty loss ADIT. 

20

 

 Case: 13-60874 Document: 00512840698 Page: 20 Date Filed: 11/18/2014
No. 13-60874

required that “only that portion of storm-related ADIT which is attributable to 

production may be included in the Bandwidth calculation.” Id. at P 87 

(alteration and internal quotation marks omitted). FERC explained that:

The Net Operating Loss carry-forwards are the result of a 

calculation that combines all the revenues and expenses of 

Entergy. The Net Operating Loss is made up of many expenses, 

none of which, in isolation, can be considered the singular cause of 

the Net Operating Loss. Therefore, attributing ADIT related to the 

Net Operating Loss to a particular expense or function in isolation 

is arbitrary because the Net Operating Loss is not created by any 

single category of expenses. . . .

[T]o properly include Net Operating Loss ADIT amounts in 

bandwidth calculations, Entergy must multiply its Net Operating 

Loss carry-forward balance by the ratio of incurred expenses 

includable for [FERC] cost-of-service purposes to total expenses 

incurred during the period the Net Operating Loss was recognized. 

ADIT related to the calculated Net Operating Loss carry-forward 

balance to be included in the bandwidth calculations must then be 

allocated to the production function in the bandwidth formula 

using the plant ratios as prescribed by Service Schedule MSS-3. 

Id. at P 85 (quoting Op. No. 505-A, 139 FERC ¶ 61,103 at P 59-60).

LPSC requested clarification as to whether Entergy was required to use 

the NOL ADIT ratio laid out in Op. No. 518 to also determine the amount of 

casualty loss ADIT to include in the bandwidth calculation. FERC clarified 

that:

Entergy is not required to use the net operating loss ADIT ratio to 

determine the amount of casualty loss ADIT to include in 

bandwidth calculations. Instead, Entergy must include all the 

casualty loss ADIT amounts in bandwidth calculations without 

applying the net operating loss ADIT ratio, and Entergy must 

functionalize the casualty loss ADIT amounts to production based 

on plant ratios, in accordance with the provisions of the bandwidth 

formula.

Third Bandwidth Rehearing Order, 145 FERC ¶ 61,047 at P 22. FERC 

explained that, “[i]n comparison to the inability to attribute specific expenses 

21

 Case: 13-60874 Document: 00512840698 Page: 21 Date Filed: 11/18/2014
No. 13-60874

to the cause of the net operating loss, the cause of the casualty loss is directly 

attributable to expenses incurred due to storm damages.” Id. at P 24. FERC 

noted that “[n]either the [LPSC] nor Entergy contest that the casualty loss is 

not the result of storm damages.” Id.

A. LPSC had notice of the casualty loss ADIT issue.

LPSC first claims that it did not receive notice that casualty loss ADIT 

would be included in the bandwidth formula, in violation of the APA and its 

due process rights. See 5 U.S.C. § 554(b)(3) (agency shall give parties notice of 

“the matters of fact and law asserted”); Pub. Serv. Comm’n v. FERC, 397 F.3d 

1004, 1012 (D.C. Cir. 2005) (“The Due Process Clause and the APA require that 

an agency setting a matter for hearing provide parties with adequate notice of 

the issues that would be considered, and ultimately resolved, at that hearing.” 

(internal quotation marks omitted)). LPSC argues that FERC violated its 

notice obligation because Entergy did not propose to include—and in fact, 

specifically excluded—casualty loss ADIT from its third bandwidth calculation 

in its filing letter.9

LPSC is correct that Entergy’s filing letter identified that it did not 

include casualty loss ADIT in its bandwidth calculation, but LPSC’s conclusion 

that this statement prevented it from receiving notice of the issue completely 

omits the context in which it was made. As discussed above, the System 

Agreement provides that ADIT amounts recorded in accounts 190 and 282 that 

are generally and properly includable for FERC cost-of-service purposes should 

be included in the bandwidth formula. Entergy’s filing letter acknowledged 

that casualty loss ADIT had been moved into account 282, but stated that, like 

9 FERC argues that LPSC has waived its due process argument because it did not 

specifically raise it on rehearing. But LPSC certainly pressed its lack-of-notice argument, 

which is the basis for its denial of due process claim. Although LPSC has repackaged its 

claims as due process violations, it is not raising in the instant petition any argument that 

was not previously considered by FERC.

22

 

 Case: 13-60874 Document: 00512840698 Page: 22 Date Filed: 11/18/2014
No. 13-60874

NOL ADIT, casualty loss ADIT was not included in the bandwidth calculation 

because it was “storm-related.” After Entergy submitted its filing letter, FERC 

issued Op. No. 505, which, in response to LPSC’s challenge, held that Entergy 

must include storm-related NOL ADIT in eligible accounts in the bandwidth 

formula. See Op. No. 505, 130 FERC ¶ 61,023 at PP 233-34. Accordingly, 

LPSC was certainly on notice that Entergy’s justification for excluding 

casualty loss ADIT—that it was “due to storm losses”—was no longer valid and 

that FERC, consistent with its ruling in Op. No. 505, could require Entergy to 

include casualty loss ADIT in the formula. Indeed, Entergy submitted prefiled testimony that NOL ADIT and casualty loss ADIT were excluded on the 

same basis, and, consequently, including the former but not the latter would 

constitute “cherry-picking.” 

The amount of NOL ADIT to be included in the bandwidth formula was 

listed as an issue to be litigated in the bandwidth hearing. Multiple witnesses, 

including LPSC’s own, were questioned about casualty loss ADIT in connection 

with NOL ADIT. Although it may have been strategic for LPSC to avoid the 

issue in an attempt to keep casualty loss ADIT out of the formula, that LPSC 

was ultimately unsuccessful in doing so does not indicate that it lacked notice 

that the ALJ or FERC would require inclusion of those deferred taxes 

consistent with Op. No. 505. See Op. No. 518, 139 FERC ¶ 61,105 at P 91 

(finding LPSC had “ample opportunity” to address the casualty loss ADIT issue 

during the hearing). LPSC’s notice argument is meritless. 

B. FERC’s decision to include casualty loss ADIT in the

bandwidth formula was rational.

LPSC finally argues that FERC’s requirement that Entergy include all 

casualty loss ADIT amounts in the bandwidth calculation is void because (1) 

FERC’s decision to include storm-related casualty loss ADIT conflicts with one

23

 Case: 13-60874 Document: 00512840698 Page: 23 Date Filed: 11/18/2014
No. 13-60874

of its earlier decisions; and (2) there is no rational basis to include all of the 

recorded casualty loss ADIT but only a portion of the NOL ADIT.

LPSC first protests that FERC’s inclusion of storm-related casualty loss 

ADIT in the bandwidth calculation departs without explanation from FERC’s 

prior order approving a settlement excluding storm cost accruals in account 

924 from the bandwidth calculation because “storm damage reserve is largely 

unrelated to production costs.” Entergy Servs., Inc., 128 FERC ¶ 61,275 at P 

28 (2009). This contention fails for a number of reasons. First, it was not 

raised before FERC and thus cannot be considered here. See 16 U.S.C. § 

825l(b) (“No objection to the order of [FERC] shall be considered by the court 

unless such objection shall have been urged before [FERC] in the application 

for rehearing unless there is reasonable ground for failure so to do.”). Second, 

FERC’s approval of a settlement does not have precedential effect. Entergy 

Servs., Inc., 128 FERC ¶ 61,275 at PP 8-11; see also Consol. Gas. Supply Corp., 

14 FERC ¶ 61,291 at P 61,567 (1981) (“It is [FERC’s] well established policy 

that settlements do not have precedential effect.”). Third, LPSC’s broad 

assertion that Op. No. 518 conflicts with FERC’s “earlier determination that 

storm-related costs should not be included in the Bandwidth Calculation” is 

selective, if not disingenuous. As discussed above, LPSC challenged the ALJ’s 

decision in the first bandwidth proceeding excluding NOL ADIT amounts from 

the bandwidth calculation. FERC agreed with LPSC and determined that 

storm damage costs (resulting from Hurricanes Katrina and Rita) amortized 

in bandwidth-eligible expense accounts are included in FERC’s cost-of-service 

rate and must be included in the calculation. Op. No. 505, 130 FERC ¶ 61,023 

at P 234. The ALJ relied on Op. No. 505 in finding that storm damage expenses

attributable to production are properly includable for cost-of-service purposes, 

Third Bandwidth Initial Decision, 132 FERC ¶ 63,005 at P 275, and FERC, 

consistent with Op. No. 505, affirmed this determination, Op. No. 518, 139 

24

 Case: 13-60874 Document: 00512840698 Page: 24 Date Filed: 11/18/2014
No. 13-60874

FERC ¶ 61,105 at P 88. Thus, to the extent that FERC’s initial treatment of 

storm-related costs varies from its current treatment of them, LPSC itself 

brought about this change by challenging the exclusion of such costs in the first 

bandwidth proceeding.

Finally, FERC thoroughly explained its reasons for including casualty 

loss ADIT amounts in the bandwidth calculation. FERC stated that its 

decision was based on the plain language of the System Agreement, which 

expressly requires that ADIT amounts recorded in FERC account 282 be 

included in the bandwidth formula to the extent they are includable for costof-service purposes. Op. No. 518, 139 FERC ¶ 61,105 at PP 84, 88. Casualty 

loss ADIT—as a result of Entergy’s recent reclassification—was recorded in 

FERC account 282. Id. at PP 88, 92. Storm damage costs included in 

bandwidth-eligible accounts are includable for cost-of-service purposes. Id. at 

P 88 (citing Op. No. 505, 130 FERC ¶ 61,023 at P 234). Casualty loss ADIT 

amounts are directly attributable to storm damages. Third Bandwidth 

Rehearing Order, 145 FERC ¶ 61,047 at P 24 (explaining that neither LPSC 

nor Entergy disputed that casualty loss is the result of storm damages and that 

Louiselle’s testimony supported this conclusion).10 Accordingly, because 

10 In proceedings related to the fourth bandwidth filing, LPSC argued to the ALJ that,

in the third bandwidth proceeding, Entergy misled FERC as to the basis for casualty loss 

ADIT. LPSC contended that the testimony of Entergy’s witness in the fourth bandwidth 

proceeding that the casualty loss tax deduction is a difference in the value of the damaged 

property before and after the catastrophic event contradicted Entergy’s testimony in the third 

bandwidth proceeding that the deduction is based on recorded expenses for “internal labor, 

contracted labor, and materials and supplies used to repair or replace damaged property.” 

LPSC argues here that the ALJ “found that casualty Loss ADIT is ‘not based on storm costs 

included in the expense accounts in the bandwidth formula,’ but is ‘the difference in the value 

of damaged property before and after a catastrophic event.’” This is a misrepresentation of 

the ALJ’s findings. The ALJ rejected LPSC’s argument as to Entergy’s “alleged 

contradiction” and found that LPSC’s claim was the consequence of a “misunderstanding of 

basic tax law.” Fourth Bandwidth Initial Decision, 148 FERC ¶ 63,015 at P 117. As the ALJ 

clearly explained, the casualty loss tax deduction is indeed technically a difference in the 

value of the damaged property, but “[t]he proxy that is properly used for tax purposes to 

25

 

 Case: 13-60874 Document: 00512840698 Page: 25 Date Filed: 11/18/2014
No. 13-60874

casualty loss ADIT was recorded in a bandwidth-eligible account and was 

generally and properly includable for cost-of-service purposes, FERC 

reasonably concluded that the System Agreement required its inclusion in the 

bandwidth calculation.11

LPSC’s irrationality challenge also fails for this same reason. LPSC 

argues that casualty loss ADIT was included in the bandwidth calculation 

solely because of its “alleged connection to NOL ADIT, based on the premise 

that both were caused by storm costs.” The argument continues that, because 

FERC found that “casualty loss ADIT and net operating loss ADIT are not 

equivalent,” Third Bandwidth Rehearing Order, 145 FERC ¶ 61,047 at P 24, 

the “nexus” between the two disappeared, and including casualty loss ADIT 

was therefore irrational.

As explained above, FERC’s decision was necessitated by the System 

Agreement, which specifies that deferred taxes (1) recorded in FERC accounts 

190 and 282 and (2) properly includable for cost-of-service purposes must be 

included in the bandwidth formula. In contrast to FERC’s determination that 

all casualty loss ADIT is attributable to storm damages and thus properly 

includable for cost-of-service purposes, FERC found that not all NOL ADIT 

could be attributed to storm damage loss. Third Bandwidth Rehearing Order, 

145 FERC ¶ 61,047 at PP 23-24. FERC explained that “the net operating loss 

is made up of many expenses, none of which, in isolation, can be considered the 

represent that differential, since such values are hard to determine, is the cost of repair such 

as the ‘internal labor, contracted labor, and materials and supplies used to repair or replace 

damaged property’ as [Entergy’s witness] testified in the Third Bandwidth Proceeding.” Id. 

at P 118. Thus, contrary to LPSC’s representation here that the ALJ’s findings establish that 

casualty loss ADIT did not result from storm damages costs, the ALJ concluded that the 

storm-related costs are precisely those appropriately used to determine the casualty loss tax 

deduction. 11 Because the bandwidth formula—the filed rate—includes casualty loss ADIT, 

LPSC’s retroactive ratemaking argument is meritless.

26

 

 Case: 13-60874 Document: 00512840698 Page: 26 Date Filed: 11/18/2014
No. 13-60874

singular cause of the net operating loss.” Id. at P 23. Because certain expenses 

associated with NOL ADIT “are not costs includable for [FERC] cost-of-service 

purposes,” FERC requires Entergy to use a FERC-developed ratio to determine 

the amount of NOL ADIT that can be included in the bandwidth calculations. 

Id. In both instances, FERC, consistent with the explicit directive of the 

System Agreement, included only the portion of ADIT “properly includable for 

cost of service purposes.” See id. at P 22. It was not irrational for FERC to 

refuse to require the use of the net operating loss ratio to determine the amount 

of casualty loss ADIT includable in the bandwidth calculation. See id. at P 25 

(“[I]t is unnecessary for Entergy to use the net operating loss ADIT ratio to 

determine casualty loss ADIT amounts to include in bandwidth calculations 

because the expenses associated with the casualty loss are directly attributable 

to storm damage costs . . . .”).12 

LPSC does not approach the showing needed to demonstrate that 

FERC’s order to include all casualty loss ADIT amounts in bandwidth-eligible 

accounts in the production cost formula was irrational. This is especially so in 

12 LPSC quotes Louiselle’s testimony that “[e]xcept for [Entergy Arkansas], the storm 

costs of the other Operating Companies having federal NOL ADIT are or will be ‘securitized’” 

and these securitized costs “are not included in the cost of service.” LPSC, however, does not 

raise any argument suggesting that casualty loss ADIT is securitized and should not be 

included in the bandwidth calculation. Because LPSC has not briefed the issue, it is waived. 

See Fed. R. App. P. 28(a)(8)(A); United States v. Whitfield, 590 F.3d 325, 346 (5th Cir. 2009). 

In any case, here, as in front of FERC, LPSC “has not explained how [contra-securitization 

ADIT] amounts arise or demonstrated why they are ‘generally and properly includable for 

FERC cost of service purposes.’” Op. No. 518, 139 FERC ¶ 61,105 at P 89. When LPSC did 

present its argument that casualty loss ADIT should be offset by including formula cost 

entries for contra-securitization ADIT in the fourth bandwidth proceeding, the ALJ noted, as 

relevant here, that “Entergy’s tax expert . . . testified at the [fourth bandwidth] hearing that 

casualty loss tax deductions are not securitized. Thus, the casualty loss ADIT that is included 

in the bandwidth calculation cannot be the corresponding entry to the contra-securitization 

ADIT amounts in question.” Fourth Bandwidth Initial Decision, 148 FERC ¶ 63,015 at P 

258 (footnotes omitted). Likewise, here LPSC has not pointed to any evidence indicating that 

the storm damage costs related to the casualty loss ADIT included in the bandwidth formula 

for the third bandwidth proceeding were securitized. For all of these reasons, any argument

that LPSC intended to raise related to contra-securitization fails.

27

 

 Case: 13-60874 Document: 00512840698 Page: 27 Date Filed: 11/18/2014
No. 13-60874

light of the deference given to FERC’s ratemaking decisions. LPSC’s petition 

for review on the issue is denied.

CONCLUSION

For the foregoing reasons, LPSC’s petition for review of FERC’s orders 

in the third bandwidth proceeding is DENIED.

28

 Case: 13-60874 Document: 00512840698 Page: 28 Date Filed: 11/18/2014