Opinion ID: 187138
Heading Depth: 3
Heading Rank: 1

Heading: System-wide Planning Approach

Text: Entergy Corporation is a public utility holding company that sells electricity, both wholesale and retail, in Arkansas, Louisiana, Mississippi, and Texas. It does so through five operating companies named after their respective jurisdictions: Entergy Arkansas, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy Gulf States, Inc., and Entergy New Orleans, Inc. The Entergy System has been highly integrated for over fifty years, with transactions within the System governed by a System Agreement. The current System Agreement was filed in 1982. The System Agreement 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. The System Agreement assigns the task of coordinating the addition of new generating capacity to a systemwide operating committee that is composed of a representative from Entergy Corporation and each of its operating companies. Miss. Indus. v. FERC, 808 F.2d 1525, 1529 (D.C.Cir.1987). The operating committee makes the major decisions concerning general timing, location and size of plant additions, in view of the overall needs of the system, while accommodating individual company needs wherever possible. Id. at 1556 (internal quotations omitted). In adding generating capacity, the committee follows both a system-planning approach, which ensures that generation facilities are planned, constructed and operated for the benefit of the whole system, and a rotational approach, which adds new capacity on a rotating basis to the jurisdictions in the System. 111 F.E.R.C. at 61,351; 113 F.E.R.C. at 62,132. Because an operating company is responsible for the costs of the generation plants in its jurisdiction, id., the rotation of new plants throughout the System historically had the effect of roughly evening out investment costs over time among the operating companies, Miss. Indus., 808 F.2d at 1531. Within this scheme, in the 1950s and 1960s, the operating committee tended to add new generating units in Louisiana to take advantage of its inexpensive oil and gas reserves. Id. In the late 1960s and early 1970s, the operating committee decided to shift away from oil and gas generation and to add nuclear and coal capacity. Id. at 1556. A company's ability to construct oil- and gas-fired units generally depended on the existence of sufficient natural resources within its service area, while the ability to build coal and nuclear units was less restricted. Id. at 1555. In accordance with the rotational scheme of asset additions, much of the coal capacity was constructed in Arkansas. 111 F.E.R.C. at 62,352. As before, production costs among the operating companies remained roughly equal. 113 F.E.R.C. at 62,133. The investment in nuclear generation, on the other hand, proved prohibitively expensive and catastrophically uneconomical. Miss. Indus., 808 F.2d at 1531-32. The Grand Gulf nuclear plant in Port Gibson, Mississippi, for example, was initially projected to cost $1.2 billion for two generating units, but ended up costing more than $3 billion for one unit. Id. at 1531. After it became apparent that Entergy Mississippi, then named Mississippi Power & Light, could not bear the cost of the Grand Gulf facility, the System formed a generating subsidiary to finance and run the Grand Gulf plant. Id. at 1533. The costs of Grand Gulf were allocated to the operating companies through an addendum to the 1982 System Agreement. Id. at 1554. The Commission considered the proposed allocation of nuclear investment costs in proceedings initiated by the System in 1982. Id. at 1534. The Commission found that the System Agreement requires that production costs be roughly equal among the operating companies. 111 F.E.R.C. at 62,351. It further found that the great disparities in installed nuclear investment costs disrupted the rough equalization of production costs that had existed on the system and thereby produced undue discrimination in violation of Section 206 of the Federal Power Act. Id. The Commission concluded that equalizing responsibility for the nuclear investment costs among the operating companies would remedy the undue discrimination. Id.; Miss. Indus., 808 F.2d at 1553. On petition for review, this Court agreed that the System Agreement showed an intent to roughly equalize capacity costs among the operating companies, id. at 1554-55, that the Commission could properly conclude that the tremendous disparities in nuclear capacity costs among the operating companies disrupt[ed] the System's historical pattern of roughly equalizing capacity costs, id. at 1557, and that the Commission's choice to order nuclear investment equalization to remedy the problem was both rational and within its discretion, id. at 1565.