     Case: 13-60874    Document: 00512837021   Page: 1   Date Filed: 11/14/2014




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT


                                No. 13-60874                  United States Court of Appeals
                                                                       Fifth Circuit

                                                                     FILED
LOUISIANA PUBLIC SERVICE COMMISSION,                          November 14, 2014
                                                                Lyle W. Cayce
             Petitioner                                              Clerk

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.
                          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
    Case: 13-60874      Document: 00512837021        Page: 2    Date Filed: 11/14/2014



                                    No. 13-60874
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.
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



      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: 00512837021     Page: 3   Date Filed: 11/14/2014



                                 No. 13-60874
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
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 ¶
                                       3
     Case: 13-60874      Document: 00512837021        Page: 4     Date Filed: 11/14/2014



                                     No. 13-60874
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
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


      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.
                                            4
     Case: 13-60874      Document: 00512837021         Page: 5    Date Filed: 11/14/2014



                                      No. 13-60874
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
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.



       3FERC 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: 00512837021    Page: 6   Date Filed: 11/14/2014



                                No. 13-60874
No. 514–A”).   LPSC appealed FERC’s orders to the Fifth Circuit and, as
discussed infra, a panel of this court denied FERC’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
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,


                                      6
    Case: 13-60874     Document: 00512837021     Page: 7   Date Filed: 11/14/2014



                                No. 13-60874
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
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
                                      7
    Case: 13-60874     Document: 00512837021      Page: 8   Date Filed: 11/14/2014



                                   No. 13-60874
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
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
                                         8
    Case: 13-60874    Document: 00512837021     Page: 9   Date Filed: 11/14/2014



                                 No. 13-60874
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
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
                                       9
   Case: 13-60874     Document: 00512837021      Page: 10   Date Filed: 11/14/2014



                                  No. 13-60874
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
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
                                     10
    Case: 13-60874       Document: 00512837021          Page: 11     Date Filed: 11/14/2014



                                       No. 13-60874
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
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



       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: 00512837021      Page: 12   Date Filed: 11/14/2014



                                  No. 13-60874
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
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
                                       12
   Case: 13-60874    Document: 00512837021        Page: 13   Date Filed: 11/14/2014



                                   No. 13-60874
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
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


                                       13
   Case: 13-60874     Document: 00512837021       Page: 14   Date Filed: 11/14/2014



                                 No. 13-60874
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
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
                                       14
   Case: 13-60874    Document: 00512837021     Page: 15   Date Filed: 11/14/2014



                                No. 13-60874
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
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

                                      15
    Case: 13-60874      Document: 00512837021        Page: 16    Date Filed: 11/14/2014



                                    No. 13-60874
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.
      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




      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: 00512837021           Page: 17      Date Filed: 11/14/2014



                                        No. 13-60874
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
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;



       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.
        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.
                                               17
   Case: 13-60874     Document: 00512837021     Page: 18   Date Filed: 11/14/2014



                                 No. 13-60874
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 rehearing 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.
      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

                                       18
   Case: 13-60874     Document: 00512837021       Page: 19   Date Filed: 11/14/2014



                                   No. 13-60874
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
calculation (production storm damage expense), such costs are included in a
[FERC] cost-of-service rate. Therefore, consistent with Service Schedule MSS-
3, 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.


                                       19
    Case: 13-60874        Document: 00512837021          Page: 20     Date Filed: 11/14/2014



                                       No. 13-60874
       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
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


       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: 00512837021     Page: 21   Date Filed: 11/14/2014



                                  No. 13-60874
        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
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

                                        21
    Case: 13-60874        Document: 00512837021        Page: 22     Date Filed: 11/14/2014



                                      No. 13-60874
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
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


       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: 00512837021      Page: 23   Date Filed: 11/14/2014



                                  No. 13-60874
that FERC, consistent with its ruling in Op. No. 505, could require Entergy to
include casualty loss ADIT in the formula. Indeed, Entergy submitted pre-
filed 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
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

                                       23
   Case: 13-60874     Document: 00512837021     Page: 24    Date Filed: 11/14/2014



                                 No. 13-60874
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
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
                                       24
    Case: 13-60874        Document: 00512837021          Page: 25     Date Filed: 11/14/2014



                                       No. 13-60874
included in the bandwidth formula to the extent they are includable for cost-
of-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
casualty loss ADIT was recorded in a bandwidth-eligible account and was
generally and properly includable for cost-of-service purposes, FERC




       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
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.
                                              25
   Case: 13-60874     Document: 00512837021      Page: 26   Date Filed: 11/14/2014



                                  No. 13-60874
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
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



      11 Because the bandwidth formula—the filed rate—includes casualty loss ADIT,
LPSC’s retroactive ratemaking argument is meritless.
                                       26
    Case: 13-60874        Document: 00512837021          Page: 27     Date Filed: 11/14/2014



                                       No. 13-60874
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
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.




       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
