United States: FERC Affirms Initial Decision Regarding Entergy's Bandwidth Calculation Filing

On May 17, 2018, FERC affirmed an Initial Decision addressing a bandwidth calculation filing applicable to a seven-month period in 2005 filed by Entergy Services, Inc. on behalf of the Entergy Operating Companies ("Operating Companies"; collectively, "Entergy") in November 2016. 

In June 2005, FERC issued Opinion No. 480 determining that Entergy's System Agreement required that production costs be roughly equal among the Operating Companies (i.e., "cost equalization").  In Opinion Nos. 480 and 480-A, FERC held that the Entergy System was no longer in approximate production cost equalization and adopted a numerical bandwidth remedy.  The bandwidth remedy achieves cost equalization by disallowing any Operating Company from having production costs more than 11 percent above or below the Entergy system's average production costs.  In Opinion No. 480, FERC found that the bandwidth remedy should apply prospectively only starting in calendar year 2006, with the first payments, based on calendar year 2006 production costs, occurring in 2007.  In April 2008, the United States Court of Appeals for the District of Columbia Circuit issued a decision remanding Opinion Nos. 480 and 480-A to FERC, finding that FERC had not provided a reasonable explanation for its decision to delay implementation of the bandwidth remedy until after a full year of data had become available for the 2006 test year.  In October 2011, FERC issued an Order on Remand, stating that it would implement the bandwidth remedy on June 1, 2005, the date FERC issued Opinion No. 480.  FERC directed Entergy to submit a compliance filing calculating the bandwidth payments and receipts for the period June 1, 2005 through December 31, 2005 (the "2005 Period").  After rejecting two compliance filings submitted by Entergy in 2014 in response to the 2011 Order on Remand, FERC issued an order in October 2015, accepting and suspending Entergy's proposed rates and establishing hearing and settlement judge procedures.  FERC's 2015 Order responded to Entergy's 2014 compliance filing which calculated bandwidth payments and receipts for the seven-month period of June 1, 2005 through December 31, 2005.

In November 2016, the Presiding Judge issued the Initial Decision, finding that: (1) the start date for the interest on bandwidth payments should be June 1, 2006; (2) a portion of Entergy Louisiana's Net Operating Loss Accumulated Deferred Income Taxes ("ADIT") must be excluded from the ADIT input variable of the bandwidth formula to the extent that the ADIT is properly attributable to the Vidalia Hydroelectric Power Plant ("Vidalia") tax deduction; (3) Entergy Louisiana's accounting for the leased portion of the Waterford 3 plant should be revised to reflect that it is a financing transaction; (4) Entergy did not properly account for certain regulatory asset deferrals identified in several Staff exhibits; and (5) Entergy will be required to determine the impact of accounting changes on the bandwidth calculation for the 2005 bandwidth period and make a compliance filing to change the result accordingly.

In its May 17, 2018 Order, FERC affirmed all of the Presiding Judge's findings in the Initial Decision.  First, FERC affirmed that interest on the bandwidth payments should start on June 1, 2006.  Specifically, FERC referenced its prior orders in this proceeding in which FERC unambiguously ordered that interest begin on this June start date.  As FERC stated, no party sought rehearing on this issue.  Second, FERC agreed with the Presiding Judge that a portion of Entergy ADIT is attributable to the Vidalia tax deduction.  Specifically, FERC found that the bandwidth formula requires the exclusion of capital and tax related effects of the Vidalia tax deduction in order to avoid shifting tax burdens and benefits to other Operating Companies.  Third, FERC agreed that Entergy Louisiana's accounting for the leased portion of the Waterford 3 plant should be revised to reflect that it is a financing transaction.  Fourth, FERC affirmed the Presiding Judge's decision to adopt FERC Trial Staff's recommendation that the accounting for three regulatory asset deferrals be switched to a bandwidth-eligible account from a non-bandwidth account.  Fifth, FERC agreed with the Presiding Judge that Entergy must determine the impact of accounting changes on the bandwidth calculation and directed Entergy to make a compliance filing.

A copy of FERC's Order is available here.

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