FERC Refuses to Intervene in Dispute Over Allocation of Payments to Retail Customers

On May 8, 2009, FERC rejected proposed amendments to Entergy Services, Inc.’s (“Entergy”) System Agreement regarding allocation of bandwidth payments and receipts, finding that the Commission does not have jurisdiction to determine the allocation of such costs between state jurisdictions.

The Entergy system operates under a System Agreement that acts as an interconnection and pooling agreement, among other things, for the six Entergy operating companies. In Opinion No. 480, the Commission imposed a “bandwidth remedy” to equalize production cost disparities between the operating companies. On April 27, 2007, the Commission accepted Entergy’s proposed changes to Service Schedule MMS-3 of the System Agreement, including formulas for calculating actual and average production costs to determine receipts and payments under the +/- 11 percent bandwidth remedy.

Entergy then filed a proposed new section to its Service Schedule MSS-3 of the System Agreement (“2007 Allocation Amendment”), which would have confirmed the allocation of an individual operating company’s bandwidth payment or receipt to wholesale loads, if any. In addition, Entergy proposed amendments regarding allocation of bandwidth payments or receipts between Entergy Gulf States’ (“EGS”) retail customers in Texas and Louisiana. The Commission determined that the 2007 Allocation Amendment filing was premature, and stated that Entergy may raise its concerns about allocation once a state-ordered allocation of an operating company’s bandwidth payments results in a “trapping of costs.”

Subsequently, the Louisiana Public Service Commission (“Louisiana Commission”) and Public Utility Commission of Texas (“Texas Commission”) used different methodologies to determine the allocation of bandwidth receipts to Texas and Louisiana EGS retail customers. As a result of this discrepancy, Entergy claims, the amount of bandwidth receipts to be allocated between retail customers in the two states exceeds EGS’s actual bandwidth receipts by $18.6 million, resulting in trapped costs. Entergy also argued that the Texas Commission’s allocation method did not remedy the disparity from system average production costs, which was the intended result of the bandwidth allocation method.

In the instant filing, Entergy proposed two alternative mechanisms for rectifying the allocation discrepancy. Under Option 1, Entergy filed the same proposal as the 2007 Allocation Amendment. Option 2 (“the EGS Allocation Amendment”) would add a new section 30.15 to the Service Schedule MSS-3 to require the use of the bandwidth formula methodology for allocating EGS’s 2007 bandwidth receipts between Louisiana and Texas. The 2007 Allocation Amendment addresses a broader range of allocation issues than is necessary to remedy the current situation, whereas the EGS Allocation Amendment is narrowly tailored to address the discrepancy created by the Texas Commission order.

Protesters, including the Texas and Louisiana Commissions, argued that the Commission does not have the authority to make retail rate determinations, as requested by Entergy. While the states must allow utilities to pass through Commission-approved wholesale costs to their retail customers, the allocation of such costs between state jurisdictions and classes of retail customers has traditionally been a state commission decision.

The Commission rejected Entergy’s proposed amendments, and agreed with protestors that any issues related to the allocation of an individual utility’s payments or receipts to retail customers are beyond the jurisdiction of the Commission. Furthermore, the Commission noted that the Texas Commission’s retail allocation decision does not conflict with the Commission’s allocation for wholesale sales between the Entergy operating companies, but that it accepts the Commission’s determination of the amount of receipts to be distributed to EGS under Service Schedule MSS-3. Commission-approved allocation is not violated because two states allocated the receipts differently among their respective retail customers.