Opinion ID: 6936498
Heading Depth: 3
Heading Rank: 2

Heading: The Commission’s Rehearing Order

Text: On rehearing, CNO requested that FERC set for hearing now the issue of these future capacity costs and the prudence of Entergy incurring them. The Commission rejected CNO’s position, stating: We remain convinced ... that the issue of whether the existing rate methodologies for reserve sharing (Service Schedule MSS-1) will continue to be reasonable if there are future capacity additions is not ripe for review at this time. Until such time as we know the specifics of the capacity to be added, we cannot determine the effect of an addition on the reasonableness of the existing rate methodologies. Accordingly, we shall deny rehearing on this point. 55 F.E.R.C. at 61,729. Nevertheless, the Commission commented that an increase in overall billings, if any, would result from changes in energy costs as well as in capacity costs, and that the parties would not be precluded from litigating the accuracy of cost projections for both of these types of costs. 2 Specifically, FERC clarified that CNO “is not precluded from arguing that Entergy’s projections of overall billings under existing rates are inaccurate because Entergy has failed to accurately project the capacity component of the overall billings.” Id. Thus, FERC invited testimony regarding the cost of capacity replacement and its effect on billings, at the same time it reasserted the determination that the reasonableness of the existing rate methodologies if such capacity is added cannot yet be determined. 8. The Administrative Law Judge’s Initial Decisions On March 19, 1992, the presiding administrative law judge (“ALJ”) divided the hearing into two phases. Phase I, he determined, would address the question of whether overall billings would increase as a result of the transfer. If Phase I were answered affirmatively, Phase II would involve a determination of whether the billings were reasonable. Phase I In the Phase I Initial Decision, the ALJ adopted a ten-year yardstick for the overall billings inquiry and determined that, viewed from both a single-company and a system-wide perspective, the results “are sufficient to demonstrate billings increases [over a 10-year period] for purposes of moving on to the prudence inquiry.” City of New Orleans v. Entergy Corp., 59 F.E.R.C. ¶ 63,016, at 65,-092. No party filed exception to this finding. See City of New Orleans v. Entergy Corp., 65 FERC ¶ 61,333, at 62,560 (1993). Although the ALJ examined the increase in billings only over a ten-year period, he clarified that the billings phase time frame did not preclude the parties using twenty-year projections in Phase II. 59 F.E.R.C. at 65,092. Phase II During the Phase II proceedings, the parties introduced several studies predicting the short- and long-term economic effects of the spin-off. The studies varied in the length of the projections (from ten to thirty years), the costs considered (some took replacement capacity costs into account and some did not), the perspective used (some evaluated gains and losses from the perspective of individual companies and some from the system as a whole), and the conclusions reached (some predicted system detriments and some predicted gains). In the Phase II Initial Decision, the ALJ made several findings: first, he determined that a twenty-year time frame was appropriate for assessing the economic effects of the spin-off, “because it is only then that replacement costs enter the picture.” City of New Orleans v. Entergy Corp., 61 F.E.R.C. at 65,007. Second, the ALJ held that the Phase II evaluation should be made from the perspective of the system as a whole; and third, he found that Entergy’s decision to make the transfer had been based on flawed decision-making, but that the flawed decisionmaking did not matter, since the ultimate result (ie., the spin-off) was reasonable. Id. at 65,008. The ALJ noted that the testimony suggested that replacement costs would ultimately be even less than Entergy had predicted, and offered this final conclusion: “Complainants have raised serious doubts about the prudence of Entergy’s transfer to EPI; however, Entergy has rebutted those doubts. The record shows that the transfer decision was prudent for the System.” Id. at 65,020. 4. Commission Opinion No. 386. Opinion and Order Affirming in Part and Vacating in Part Initial Decisions In December, 1993, the Commission affirmed in part and vacated in part the Initial Decisions in this matter. 65 F.E.R.C. at 62,568 (1993). FERC found that the studies presented in Phase II had shown that, for the period from 1990 to 1999, the spin-off would harm neither the individual operating companies nor the system as a whole. Therefore, the opinion affirmed the ALJ’s determination that the rates were reasonable for the period up until 1999. Id. at 62,566. With respect to the replacement capacity costs, which would only be incurred, if at all, after 1999, the Commission expressly declined to make any prudence determination. The Commission reaffirmed its prior announcements that any evaluation of the reasonableness of rate methodologies with respect to this potential replacement capacity would be premature. Accordingly, the opinion vacated that portion of the Initial Decision which had addressed the issue of replacement capacity costs. Id. at 62,568. In declining to rule on the prudence with respect to replacement capacity, the Commission expressly left the door open for future litigation on this matter,.stating that “it follows that Entergy stockholders are not absolved from any potential disallowance in a future proceeding involving the assignment of replacement capacity costs.” Id. at 62,566. 5. Commission Opinion No. 386-A Order Denying Rehearing In an Order Denying Rehearing, the Commission reiterated that CNO could file a new complaint “if and when Entergy adds new capacity to its system.” City of New Orleans v. Entergy Corp., 66 F.E.R.C. ¶ 61,241, at 61,588 (1994) (Op. No. 386-A). The instant appeal followed.