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Case number 16-1014, Louisiana Public Service Commission Petitioner versus Federal Energy Renewatory Commission.

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Ms.

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DeFonglin for the petitioner, Ms.

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Banta for the respondent, and Mr. Strang for the intervener.

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May it please the court, my name is Mike Fontum.

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I represent the Louisiana Public Service Commission.

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The Energy Bandwidth Tariff was created by FERC

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to end undue discrimination on the energy system by making sure that the production cost, the cost of generating electricity, of each of the energy operating companies would be brought within a bandwidth setting the outer limit of due discrimination of plus or minus 11 percent.

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That requires that the costs be added up.

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The costs are supposed to be calculated according to FERC accounting regulations recorded in FERC accounts and reported in the FERC Form 1.

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In this case, because energy has followed the practice of recording retail depreciation rates set many decades ago that are grossly disparate, grossly inconsistent, all of the evidence shows this, the bandwidth calculation is distorted.

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It is not an answer.

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to say that the nature of the tariff, which is a tariff to end undue discrimination, permits the perpetuation of undue discrimination.

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Can I ask, was there evidence that the disparate depreciation rates materially affected the production costs?

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Oh, yes.

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What was the evidence about how much of a difference in production costs there was between one state and another?

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The energy was required by an administrative law judge to perform new studies.

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Those new studies then became one basis for our case here.

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There is a calculation by FERC staff witness Pete Puterbaugh on the joint appendix at 1039.

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It's also cited in our brief, Your Honor.

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The differences in the depreciation, for instance... I appreciate there's difference in depreciation, but the question I'm asking about, is there a difference in the production costs as a concept, a material difference?

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I take it depreciation is only one part of the costs, right?

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That's true, but it's a dollar-for-dollar calculation.

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In other words, the depreciation that goes in raises the total cost of the company by that amount of dollars.

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It does, but I take it the question of whether it's material is what percentage of the total cost.

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Correct, Ron.

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I'm trying to get there.

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OK.

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The difference in Louisiana was over $40 million.

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That's 3% or 4% of the average.

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$40 million above the average.

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40 million above what it should have been, which would have raised Energy Louisiana's production costs approximately 4%.

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There's a balancing calculation.

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I know you have multiple arguments.

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I'm trying to focus on just one.

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Yes, your honor.

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And I'm trying to get there.

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But the point is that when you put in the calculation of the cost,

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The Louisiana was approximately $40 million in excess.

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In excess?

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In Arkansas?

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Can you pause?

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$40 million more than in Arkansas?

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$40 million more than the Louisiana should have been under the FERC regulation.

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That's a different question than I'm asking, so bear with me.

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My question is, the overall problem, as I understand it, is that they're supposed to be

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roughly equal production costs, that is, I would say, not materially significantly different production costs between the states.

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That's right, right?

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That's the bottom line.

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But there's a standard, and that's plus or minus 11%.

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My first question is just a fact question.

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Yes, sir.

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How much more were the depreciation rates costs in Louisiana than in any other state?

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Not compared to the FERC rates, but just compared to the state rates in the other states.

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Well, the evidence showed that, say, for nuclear plants, as an example, the difference between establishing it correctly in Arkansas and Louisiana

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and what was actually done, because Arkansas was faster than it should have been, Louisiana was slower than it should have been.

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The total difference was about $60 million.

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Can I ask you to pause?

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Can I ask you to pause again?

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You keep saying as compared to what it should have been, and that's not the question I'm asking.

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I just want to know how much different was the Louisiana, were the Louisiana costs

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based on the Louisiana state depreciation rates compared to the Arkansas costs based on the Arkansas depreciation rates.

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Your Honor, you're asking me a question that is very hard to answer for this reason.

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The Louisiana nuclear plants cost three billion dollars and four billion dollars.

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if you'd appreciate that over the service life, that appreciation is several hundred million dollars.

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The Arkansas plants cost 300 million only and 900 million only.

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So if you'd appreciate that on the wrong service life, the difference is, you know, maybe 30.

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It's a lot less per year.

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So to say that one

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investment of $3 billion is higher or lower or whatever than another investment of $300 million as it's being depreciated is very hard to do.

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Which is why the FERC standard simply says what it should be is the amount of the investment allocated over the service life of the unit which determines what the correct amount should be.

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So in the calculation, you're winding up.

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The companies were brought to the plus or minus 11% standard.

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But if the depreciation had been correct, there would have been much higher payments to bring them to within the plus or minus 11% standard.

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So the particular calculation you're asking for was not made in the record.

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The data is there to tell how far in percentages for each company it throws off their production cost calculation and therefore how much it would affect the

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differences after they're brought to plus or minus 11.

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So are you saying that your argument depends then on our agreeing that the FERC rates have to be the rates they apply?

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If we were to agree that the state rates were acceptable, then there wouldn't be the argument about, you wouldn't have the additional argument about

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the allocation of production costs.

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If you had a good reason why the state rates were acceptable, in other words, if FERC explained it.

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But to say, if you look at the opinions, our regulations don't always apply, but they do always apply, except for this case.

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Just to be clear then, your argument depends on our agreeing with you that the FERC rates are the ones that have to apply.

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You don't have an independent argument

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for which you submitted data that if we relied on the state rates, there would be a misallocation of the quality of production costs based on that data.

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I think that's right.

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However, as I was trying to say, I think that our argument is they haven't explained it.

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You know, how can the state rates apply in a FERC tariff?

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And, Your Honor, it's not like the states all adopted the same method.

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They all adopted different methods.

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So you have five different methods affecting a cost allocation tariff at FERC.

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And if you go back, Your Honor, to Judge Edwards was in the Middle South Energy case.

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And, you know, this court cited

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FERC is supposed to be the one exercising jurisdiction in this kind of a case.

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Why?

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Because you don't want the states trying to up the ante.

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Louisiana could have gotten more payments from Arkansas by raising the depreciation.

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And the evidence in the record shows that Arkansas did exactly that to lower its payments.

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But, Your Honor, how can it possibly be a reason

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to perpetuate undue discrimination to say, well, it's the nature of the tariff that allows it.

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The suit was about changing the tariff.

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Is your fundamental dispute with the bandwidth agreement, with the formula that was

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that was come up with there, because it didn't nail this down, right?

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It didn't say you have to use the FERC.

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Well, Your Honor, the language on depreciation was borrowed from a different tariff.

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That said, set by retail regulators unless FERC determines otherwise.

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Now, if the retail regulator said it right, it would be fine to use it.

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But FERC in all other cases has said, if it's not according to our standards, we're going to change it.

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You have to file it.

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We have to approve it.

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Isn't there a different value here?

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I mean, you keep using as a baseline for which we should compare this case, FERC regulating a power plant.

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And that's not what's going on here.

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What we have here is we have FERC trying to enforce a system agreement, right?

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And that's a different inquiry.

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It's trying to enforce an undue discrimination requirement that it put into the system agreement.

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And the system agreement did not have that.

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FERC in in opinion 480 ordered that it happened and that that you know when that case was handled we said well there are a bunch of disallowances in Arkansas and we should take credit for those in the calculation.

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The answer was oh no you have to use a consistent methodology and that's the FERC account and we in in the case of their grand gulf costs as an example they had a huge disallowance in Arkansas

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And we said, well, the ratepayers aren't paying that.

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Why should Arkansas get credit for that?

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And the answer was, well, because energy has the cost on its books.

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And we're going to do a per books calculation.

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And if you look at the ALJ decision in that case, it's how do we get it consistent?

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And if you look at opinion 514, you'll see that FERC decided what happens at retail is irrelevant.

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There was a question of whether a Louisiana adjustment should be reflected in the bandwidth tariff.

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And FERC said, and this is in our brief, but FERC said, this is not about what the retail regulators do.

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This is about what should properly be recorded on Energy's FERC accounts.

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So that is universal except for depreciation.

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The, another example.

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So is your argument that when the system agreement was established and allowed for use of retail, that that was the original sin here?

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I mean, that allowed what you now would consider gaming and mischief to come in?

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The original sin here, well, first of all, the depreciation didn't have the effect it has had since the bandwidth tariff came about.

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But the utility practice was to use retail until Order 618 came out.

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And Order 618 said, basically, we're exercising plenary jurisdiction now, and you have to follow our rule in your accounts.

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And that rule wasn't all that arduous.

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It said, systematic and rational, over the service life.

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So as long as a state of systematic and rational over the service life can go in there.

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But if it's not, it's not supposed to be recorded.

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And if energy ever lets it get into a rate or any utility, FERC says we're going to review it and make sure it complies.

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So like from 2000 forward, it was supposed to be the FERC regulation.

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Energy did not change.

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Energy continued to use the retail.

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Well, as of 2000, some of them might have been right.

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I know the Arkansas

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nuclear depreciation was right as of 1999, they extended the service lives after that.

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So anyway, it didn't really come up until the 2007 case when all of a sudden we see this depreciation in the bandwidth tariff and it's wildly, grossly disproportionate as the judge held.

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And this whole idea that Arkansas can use a faster depreciation rate, which has the effect of exporting future depreciation costs to the other states through the bandwidth, the judge said you can't do that.

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FERC has to set the depreciation.

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So we're still back right now to FERC say, and you know, I would like to emphasize, I know the court knows this,

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But for the first five years, FERC said, we're going to set the depreciation in the bandwidth tariff.

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There's an Arkansas case where they tried to remove the UNLESS language out of the tariff.

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And FERC said, no, we got to do that.

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Three judges said, no, FERC has to do that.

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It didn't come about until 2011, when all of a sudden FERC said, oh, we're going to interpret the tariff to require us to use retail.

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And then in this case, we're saying, OK, change it.

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And they say, well, it's always been in there that we've got to use retail.

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That's completely circular in a case to change the tariff.

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When you get down to the actual basis of all this, it's that the depreciation is wrong.

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Their experts said it.

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Our experts said it.

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The FERC staff experts said it.

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They said it's wrong by tens of millions of dollars.

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And the FERC staff witness said, a different staff witness, that's distorting the bandwidth calculation.

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It cannot work.

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Our witness said that.

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No one refuted it.

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There is no evidence whatsoever refuting that.

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The, you know, and so FERC falls back on the nature of the tariff, respecting state settled interest.

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What the heck is the state settled interest in undue discrimination?

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Or in having Arkansas set, Louisiana set a FERC tariff cost that winds up in Louisiana rates?

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What is the state settled interest there?

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And, you know, all of the arguments are circular.

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Well, it's our policy to apply retail, therefore we have to apply retail.

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Without any confrontation of the evidence in this case, any at all.

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Your Honor, I suppose I can rest on my brief on the delegation.

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I know I'm out of time, but I'm happy to address that as well.

[00:16:46] Speaker 05:
Well, we'll give you a little time for rebuttal when we're out of time.

[00:16:50] Speaker 03:
Thank you, Your Honor.

[00:17:03] Speaker 07:
Good morning, Carol Bantek for the commission.

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I'll start by taking a step back and focusing on what's actually before the court and what's not.

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The bandwidth formula in its current form with the reference to the depreciation rates is the existing filed rate as this court held in 2015, Fifth Circuit held it twice, I think, in 2014.

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The interpretation of the on-less clauses and the interpretation of that tariff as incorporating the retail rates

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was squarely presented in opinion 514 from the second bandwidth proceeding in the Fifth Circuit, and it was upheld as a reasonable interpretation.

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That's not before this Court either.

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The clarification of the Commission's interpretation, which happened either in 2010 or 2011, depending which order you look at, Louisiana in various cases has taken the position that it's whichever case is before the Court.

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The Fifth Circuit, twice, in the second and third bandwidth proceedings, held that that clarification, that the Commission,

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The Fifth Circuit characterized it as a change in direction, which is not how the Commission had characterized it, but that's fine.

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The Fifth Circuit twice found that that was reasonable, it was explained, it was not arbitrary and capricious, and it was followed consistently after that.

[00:18:16] Speaker 05:
Are you saying that the Fifth Circuit's decisions are collateral estoppel here, or what?

[00:18:21] Speaker 07:
I think, yeah, I think we would use that term.

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Here we have a situation where at any given time there are about a half dozen different overlapping proceedings pending before the commission.

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And the timeline that we have in our dental cases and at the back of our brief is just a flavor of that.

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I left a lot of them out.

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But what you can see in that timeline

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is that a lot of decisions from different proceedings were clumped on the same dates.

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The second, bandwidth, third, fourth, the commission would issue them on the same dates and it would answer, the parties raised the same issues in nearly every proceeding and the commission would often answer it and try to be consistent doing it the same way.

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Almost all of those cases have been or will be appealed either to this case or the Fifth Circuit.

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So I guess the question becomes if the same issues are raised in every proceeding and the commission speaks to them in all of the orders, how many bites of the apple does any litigate get?

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So while this court may not be bound precisely by the Fifth Circuit, between this court and the Fifth Circuit, all of these issues will be litigated at least once.

[00:19:26] Speaker 07:
And but in particular, opinion 514, which is the 2011 decision that council referred to, that was the one that was directly in front of the Fifth Circuit.

[00:19:36] Speaker 07:
So I would say that would be a collateral attack on the Fifth Circuit's holding to revisit the questions of- That's the 2014 decision of the- 2014 decision?

[00:19:44] Speaker 07:
We called it 2014-1 because there were actually two.

[00:19:47] Speaker 05:
August 1st, 2014.

[00:19:48] Speaker 05:
The- Decision of the- which-

[00:19:51] Speaker 07:
Yeah, 761 F-3rd.

[00:19:52] Speaker 05:
Yes, that's the one I'm thinking of.

[00:19:54] Speaker 07:
That's the second bandwidth proceeding, 771 F-3rd, which covered a lot of the same ground.

[00:19:59] Speaker 05:
But that one seems to depend on understanding that FERC is going to continue oversight in the Section 206 proceeding, which is this one, right?

[00:20:10] Speaker 05:
Absolutely, yes.

[00:20:12] Speaker 05:
We were to think that you had not appropriately provided that oversight, then the Fifth Circuit's decision would not bind us in any way, because it was dependent on belief that you would.

[00:20:22] Speaker 07:
On subdelegation, I'm just saying that the existing filed rate, which actually this Court has said, it's the existing filed rate.

[00:20:29] Speaker 07:
It always had the depreciation in there.

[00:20:31] Speaker 07:
The interpretation, I think, is separate.

[00:20:34] Speaker 07:
The Fifth Circuit treated it separately from the subdelegation argument as a tariff interpretation.

[00:20:39] Speaker 07:
They didn't even necessarily give a chevron deference as this Court would.

[00:20:42] Speaker 07:
they said we could have, I forget the name of the technical difference, they said even if we didn't get any difference at all, the interpretation was still reasonable.

[00:20:51] Speaker 07:
So I'm just saying that the existing filed rates incorporates the retail depreciation rates in the production cost comparison.

[00:21:00] Speaker 07:
And the unless clauses, the commission said that will only invoke those when there are some wholesale rates.

[00:21:08] Speaker 07:
Let me explain what this means.

[00:21:12] Speaker 07:
comparison done each year of the actual production costs of these, at different times, five or six different companies operating in, I believe, four different retail jurisdictions.

[00:21:23] Speaker 07:
The bandwidth formula takes the actual production costs of, and that means the cost of providing retail service, in fact, most of it's retail service, rather than wholesale service.

[00:21:34] Speaker 07:
I believe that Arkansas, Entergy Arkansas, was the only one that had any significant wholesale service.

[00:21:40] Speaker 07:
When the commission, I'm getting ahead of myself.

[00:21:43] Speaker 07:
So the formula was always intended to take a look at the actual production costs and it considered the retail rates or the retail depreciation numbers.

[00:21:54] Speaker 07:
Those are what the different retail jurisdictions are basing their own retail service rate makings on.

[00:22:02] Speaker 07:
Council says that the Commission never explained what it meant by the nature or the history.

[00:22:07] Speaker 07:
We have many sites for that, but I think the best one I want to point you to right now is at the end of opinion 514A.

[00:22:13] Speaker 07:
It's at JA 215 and 216, and particularly paragraph 54, where the Commission is talking about why the history matters.

[00:22:26] Speaker 07:
And it cites, specifically in paragraphs 91, 92, 93,

[00:22:29] Speaker 07:
to the original bandwidth opinions in 480-488.

[00:22:33] Speaker 07:
That's what this court had in front of you in 2008, approving the creation of this remedy.

[00:22:41] Speaker 07:
And it cites to this court's 2008 decision.

[00:22:45] Speaker 07:
In opinion 480, where the commission was looking at the data from the proceeding, Entergy put in these studies based on 2002 data.

[00:22:57] Speaker 07:
If it matters, that's actually a year after one of these license lives in Arkansas was extended.

[00:23:01] Speaker 07:
But it was 2002 data that in 2005, the Commission used to find this 30% or whatever disparity that motivated the 11% bandwidth.

[00:23:13] Speaker 07:
The Commission looked at the history and found that since the Grand Gulf reallocation in the Mississippi Industries case,

[00:23:20] Speaker 07:
The allocations of the companies had remained within about 22% of each other until the early 2000s when coal and gas prices diverged significantly.

[00:23:31] Speaker 07:
So the commission based the 11% remedy that this court affirmed on historical data that was based on different state data, including the state retail rates that were used in that study to begin with.

[00:23:43] Speaker 07:
So then that was put into the formula that was adopted in 2006, 2007, and that is the existing filed rate.

[00:23:52] Speaker 07:
So what the commission's pointing to in paragraph 54, it's pointing to, where did this remedy come from?

[00:23:57] Speaker 07:
How did we decide it was needed?

[00:23:59] Speaker 07:
How did we decide it should be set up?

[00:24:02] Speaker 07:
The commission and this court talked about that.

[00:24:04] Speaker 05:
Can I ask you, we're running sort of out of time, so I have a few questions for you.

[00:24:08] Speaker 05:
So the first one is, I understand the Fifth Circuit's decision.

[00:24:11] Speaker 05:
It's about the meaning of the agreement and what would be in the agreement.

[00:24:15] Speaker 05:
This case is about whether the consequence is unjust and unreasonable, right?

[00:24:21] Speaker 07:
Yes.

[00:24:22] Speaker 05:
And that wasn't decided by the Fifth Circuit?

[00:24:24] Speaker 07:
No.

[00:24:24] Speaker 05:
Okay.

[00:24:25] Speaker 07:
And then that goes to the problem of what Louisiana failed to show.

[00:24:30] Speaker 05:
Now we're getting to that question.

[00:24:33] Speaker 05:
If Louisiana could show that using the state retail rates led to materially unequal allocation of overall production costs,

[00:24:45] Speaker 05:
would the Commission conclude that using them, at least in those cases, was unjust and unreasonable?

[00:24:53] Speaker 07:
Well, I think the production costs among the states were often unequal.

[00:24:57] Speaker 07:
I think the answer is no.

[00:24:58] Speaker 05:
I think the Commission said that... Isn't the point of the agreement that the production costs are supposed to be within the bandwidths?

[00:25:09] Speaker 07:
No, they're brought within the bandwidths by the payments, and that happens.

[00:25:12] Speaker 05:
Yeah, right, but if they're not, if they were materially unequal, the purpose, I thought, was to render production costs equal, right?

[00:25:26] Speaker 05:
Roughly equal.

[00:25:27] Speaker 07:
Roughly equal.

[00:25:27] Speaker 05:
Right.

[00:25:28] Speaker 05:
What if it doesn't render them roughly equal?

[00:25:32] Speaker 07:
Maybe what we're arguing about is the definition of roughly equal.

[00:25:34] Speaker 05:
Not arguing, I'm asking you a question.

[00:25:36] Speaker 07:
What we're arguing about is the definition of roughly equal.

[00:25:39] Speaker 07:
Yeah.

[00:25:39] Speaker 07:
Because the commission, and this goes back to what I was meandering a bit about, the state interests and the balancing act that this court... I want to leave the balancing act out for a moment, okay?

[00:25:47] Speaker 05:
Okay.

[00:25:48] Speaker 05:
I just want to focus on whether grossly just undifferent state

[00:25:57] Speaker 05:
retail depreciation rates would ever be inconsistent with the principle of establishing roughly equal production costs?

[00:26:12] Speaker 06:
Yes.

[00:26:13] Speaker 05:
And is your argument that they just didn't put in any evidence on that question?

[00:26:17] Speaker 05:
They put in evidence about differences in depreciation rates, but not about consequentially, grossly unequal production costs.

[00:26:26] Speaker 05:
Is that right?

[00:26:27] Speaker 07:
Yes.

[00:26:28] Speaker 07:
And that's what the commission was getting at in the first, in 519, in paragraph 44, in JA 27.

[00:26:34] Speaker 07:
The Louisiana Commission came in

[00:26:39] Speaker 07:
The commission said we're not going to look at the formula as if it were a tabula rasa, a typical wholesale rate with no prior history and no particular remedial function.

[00:26:48] Speaker 07:
Louisiana came in saying, these rates are different than what you would set for a wholesale rate.

[00:26:55] Speaker 07:
Therefore, they're obviously unjust and unreasonable.

[00:26:58] Speaker 07:
And the commission said, well, no, we don't agree with that.

[00:27:00] Speaker 07:
They said, Louisiana came in and said, obviously the depreciation rates have to be uniform across all the states or you can't make a comparison.

[00:27:08] Speaker 07:
And the commission said, no, that doesn't look at how we started this remedy.

[00:27:13] Speaker 07:
It doesn't look at what the remedy is intended to do.

[00:27:16] Speaker 07:
And the reason that the commission found it was not inherently unjust and unreasonable to have different retail depreciation rates incorporated

[00:27:24] Speaker 07:
is because, I know I keep going back to the state's settled interest because I want to explain it, it's not unexplained.

[00:27:30] Speaker 05:
But would the state's unsettled interests overcome grossly disproportionate rates, production costs?

[00:27:38] Speaker 07:
No, and that's, I should make two very important points.

[00:27:40] Speaker 05:
No, just answer my question for a second.

[00:27:43] Speaker 05:
Leaving aside your reasoning for why you use state depreciation rates, if using them led to

[00:27:51] Speaker 05:
undermining the principle of rough production cost equalization.

[00:27:57] Speaker 05:
Would you, in a particular case, continue to use them?

[00:28:02] Speaker 05:
Is your argument in this case that they just didn't show that?

[00:28:05] Speaker 05:
They showed at the most different depreciation rates, but not unequal production costs.

[00:28:12] Speaker 07:
I believe that's right.

[00:28:14] Speaker 05:
Now we can get to the next question, which is about settled expectations, et cetera.

[00:28:19] Speaker 05:
Why is it in the settled expect?

[00:28:22] Speaker 05:
What does that mean?

[00:28:25] Speaker 05:
When the consequence of, say, applying Arkansas's useful life?

[00:28:32] Speaker 05:
numbers leads to an effect on costs in Louisiana.

[00:28:39] Speaker 05:
I appreciate that might settle Arkansas's settled interest but it certainly doesn't settle Louisiana's settled interest.

[00:28:45] Speaker 07:
That's not the settled interest.

[00:28:47] Speaker 05:
Then what is the settled interest?

[00:28:48] Speaker 07:
And that's why I was starting with paragraph 54 and the sites to the original bandwidth proceeding because what the Commission discussed in 480 and 480A in particular

[00:28:56] Speaker 07:
is that we're coming in, it was partly in the discussion of full production.

[00:29:00] Speaker 05:
What is the settled interest that we're talking about?

[00:29:03] Speaker 07:
That the states have an interest in their, we're talking about generation costs, we're talking about retail regulations.

[00:29:13] Speaker 07:
And the commission said it would be a huge disruption to the state's role in regulating their own retail production costs for what's largely retail service.

[00:29:22] Speaker 07:
This is a formula that the commission adopted under its jurisdiction of affecting rates.

[00:29:27] Speaker 05:
Does the state regulate its own?

[00:29:28] Speaker 05:
retail production costs are just the ultimate rates that can be charged to consumers.

[00:29:33] Speaker 07:
Well, to be specific, it decides its own retail depreciation rates.

[00:29:39] Speaker 05:
Which, again, lead to cost charges that can be made to the consumers.

[00:29:43] Speaker 05:
Is that right?

[00:29:44] Speaker 05:
Is that the point?

[00:29:45] Speaker 05:
Yes.

[00:29:45] Speaker 07:
I mean, they set them in there.

[00:29:46] Speaker 07:
These are retail

[00:29:47] Speaker 05:
depreciation rates that their own retail customers... Yeah, so is there anything that would prevent them from using those retail rates for charging consumers while using FERC rates for the overall system agreement?

[00:30:02] Speaker 05:
Prevent... Well, the Commission made the policy... Anything that would prevent Arkansas from continuing to use state rates in determining how much

[00:30:14] Speaker 05:
a state utility could charge its consumers.

[00:30:18] Speaker 07:
No, those rates have to be the same.

[00:30:20] Speaker 07:
The bandwidth formula incorporates the actual state depreciation rates, so they can't make up a fictitious one.

[00:30:27] Speaker 05:
If it didn't, if it didn't, if instead we followed the plaintiff's claim here and accepted it, that for purposes of the system agreement, you use the FERC rate, okay?

[00:30:40] Speaker 05:
What they described as the FERC accounting.

[00:30:43] Speaker 05:
Would that prevent the state from using its depreciation rates for something else?

[00:30:48] Speaker 05:
I don't know the answer.

[00:30:49] Speaker 05:
I don't know.

[00:30:50] Speaker 07:
No, it wouldn't.

[00:30:50] Speaker 07:
But it would change the nature of the bandwidth remedy.

[00:30:52] Speaker 07:
And the commission chose not to go that far in intruding.

[00:30:56] Speaker 07:
It was dealing with production costs that are generation costs, which is why I mentioned the affecting rates jurisdiction rather than setting a wholesale rate.

[00:31:06] Speaker 07:
It's looking at a multi-state system with a lot of different interests and saying,

[00:31:11] Speaker 07:
What's our way to look at this?

[00:31:13] Speaker 07:
And again, the remedy was built on a comparison of multi-state data.

[00:31:21] Speaker 07:
So that's what went into the formula.

[00:31:23] Speaker 04:
How do you respond to the argument that allowing it to proceed that way creates opportunities for mischief?

[00:31:30] Speaker 07:
Well, I would say first of all that the commission, the ALJ and the commission both affirmatively made findings that there had not been manipulation or that it had not been shown.

[00:31:42] Speaker 07:
And that is at around 115 and 118 of order 519 and I believe 37 to 42.

[00:31:53] Speaker 04:
Certainly the opportunity exists though, right?

[00:31:56] Speaker 07:
I think the Commission said, and one point I didn't get to earlier.

[00:31:58] Speaker 04:
Whereas it wouldn't exist with the fusing the FERC rates, right?

[00:32:02] Speaker 07:
So I do want to point out that the Commission also made the finding that

[00:32:05] Speaker 07:
This is not a case where Arkansas put in new depreciation rates that do something crazy like a 10-year or an accelerated.

[00:32:14] Speaker 07:
The commission found they just didn't immediately update them.

[00:32:18] Speaker 07:
The commission said, I think pair of 39 and 519A is a good place to point out, retail regulators have different reasons for updating depreciation studies when they do.

[00:32:28] Speaker 07:
These were just old studies that no one disputes were fine when they were done.

[00:32:32] Speaker 07:
They were based on a four-year service list.

[00:32:35] Speaker 04:
Could you explain for me again, because I didn't quite follow, what is the state's interest here?

[00:32:40] Speaker 04:
What is the settled expectation of the state?

[00:32:43] Speaker 07:
That refers to the fact that when the commission was deciding whether to do full production cost equalization or rough.

[00:32:49] Speaker 07:
It said we're going to make it rough because this is already an intrusion on the states.

[00:32:55] Speaker 07:
So incorporating state data, and again I go back to the fact that the entire remedy was premised on studies that had been done using these different state costs.

[00:33:04] Speaker 07:
The commission said rough equalization.

[00:33:08] Speaker 04:
So it had been done that way in the past, right?

[00:33:10] Speaker 04:
Is that what you said?

[00:33:11] Speaker 07:
Well, it was done in the 2002 study that Entergy put in that became the basis not only for finding a 30% disparity, but for imposing the equal.

[00:33:20] Speaker 04:
Would the states in some way be disadvantaged or harmed if FERC decided no, we're going to use the FERC rate for here?

[00:33:29] Speaker 07:
I think what the commission has said is it would be a change to our approach.

[00:33:34] Speaker 07:
and the way we've treated the states.

[00:33:35] Speaker 07:
And it would be what the commission has referred to as reconstructed inputs.

[00:33:39] Speaker 07:
It wouldn't be actual data.

[00:33:41] Speaker 07:
It would be tweaking the numbers to make an imaginary comparison of what the numbers would have been, rather than what are they actually?

[00:33:51] Speaker 07:
What are the facts on the ground in these different states?

[00:33:55] Speaker 07:
It's not comparing apples to oranges, but maybe it's comparing different kinds of apples.

[00:33:59] Speaker 04:
I mean, these different states do have different... So is your answer to the mischief question, is that the commission will just look at that when the case arises and we'll take care of it then?

[00:34:07] Speaker 07:
Well, and it looked at it here.

[00:34:08] Speaker 04:
It looked and said... And said it was not here.

[00:34:09] Speaker 04:
Right.

[00:34:09] Speaker 07:
And it also specifically said, even though these rates were not promptly updated with the new service lives, they were systematic and rational.

[00:34:17] Speaker 07:
They were straight-line depreciation over a service life that was valid when those rates were adopted.

[00:34:22] Speaker 07:
So the commission made those findings.

[00:34:24] Speaker 07:
So again, if you came in and showed a state had suddenly changed its depreciation rates to something weird, I mean, this opinion doesn't let that go.

[00:34:34] Speaker 05:
What does the commission mean when it says that using the state depreciation formulas reflects the actual depreciation?

[00:34:41] Speaker 05:
What does that mean?

[00:34:43] Speaker 05:
That means those are the... And the actual production costs?

[00:34:47] Speaker 07:
Actual production costs are defined as the numbers that are on

[00:34:54] Speaker 07:
the various operating companies' actual books.

[00:34:58] Speaker 05:
So that doesn't really mean actual in normal use of the word in English.

[00:35:03] Speaker 05:
It's just an accounting convention.

[00:35:05] Speaker 07:
I guess so.

[00:35:06] Speaker 07:
But it means it's not being manipulated by the commission to make some kind of artificial comparison.

[00:35:11] Speaker 05:
Fine, but it's an accounting convention.

[00:35:14] Speaker 05:
And I take it FERC's accounting convention is also an accounting convention, right?

[00:35:18] Speaker 05:
So what's the difference when they say, why is using the state better because it uses actual production costs?

[00:35:27] Speaker 07:
Well, I don't know if it's better.

[00:35:28] Speaker 07:
The commission found it more appropriate as a policy judgment.

[00:35:33] Speaker 05:
But I don't understand what the actual part of it, how that makes it more appropriate as a policy judgment.

[00:35:38] Speaker 02:
Isn't isn't for just saying it's closer to the ground to let the states to determine the appreciation.

[00:35:44] Speaker 07:
Yes.

[00:35:45] Speaker 02:
And I also got a pass muster in the state that's closer to the ground.

[00:35:50] Speaker 02:
It could be determined any of a number of places and they're saying

[00:35:53] Speaker 02:
Let the state make that determination.

[00:35:55] Speaker 02:
There are going to be some variations.

[00:35:56] Speaker 02:
And we take account of that.

[00:35:59] Speaker 02:
That's the formula.

[00:35:59] Speaker 02:
I mean, it's nothing more or less than that, right?

[00:36:02] Speaker 07:
Well, I would add to that an efficiency and efficiency, not inefficiency, in that the commission, first of all, the commission said if we ordered full production and cost equalization, everybody would be litigating in each other's retail commissions.

[00:36:16] Speaker 02:
No, I mean, you're making it too complicated, I think.

[00:36:19] Speaker 02:
It's a rough justice notion.

[00:36:21] Speaker 02:
So the question is, where do you go to get the number?

[00:36:23] Speaker 07:
That's right.

[00:36:24] Speaker 02:
Perkins said, the states are closer to this number.

[00:36:27] Speaker 02:
These places are in their bailiwick.

[00:36:31] Speaker 02:
They deal with this all the time.

[00:36:33] Speaker 02:
These are the decisions they're making.

[00:36:34] Speaker 02:
Unless they're playing fairs, we're going to accept their number because the alternative would be us trying to come up with what?

[00:36:40] Speaker 02:
Something different.

[00:36:41] Speaker 02:
That's essential.

[00:36:42] Speaker 02:
At least that's what I was reading.

[00:36:43] Speaker 02:
Perkins said, so what do you want us to do?

[00:36:45] Speaker 02:
What is, should we say,

[00:36:50] Speaker 02:
x years and what sense does that make?

[00:36:53] Speaker 02:
Am I wrong is that?

[00:36:54] Speaker 07:
No and that's when the commission said retail regulators have reasons for not updating their rates immediately that goes to the same thing.

[00:37:02] Speaker 04:
Well FERC does have a rate that it uses doesn't it for wholesale depreciation am I wrong about that?

[00:37:11] Speaker 07:
It has a policy it does judge on a case-by-case basis but it does have policies.

[00:37:15] Speaker 02:
It does what wouldn't you say?

[00:37:17] Speaker 07:
It does judge on a case-by-case basis, but it does have policies.

[00:37:23] Speaker 04:
It doesn't always use the state numbers, does it?

[00:37:27] Speaker 07:
Well, certainly not in setting a wholesale rate.

[00:37:29] Speaker 07:
But that's the distinction that the Commission was making in several of the orders here, between setting a traditional wholesale rate for power sales.

[00:37:41] Speaker 07:
versus a rough equalization of what are essentially generation costs that are in our jurisdiction because they affect rates within our jurisdiction.

[00:37:53] Speaker 02:
Okay, they affect what rates?

[00:37:55] Speaker 07:
Oh, well, the allocation under the rough production cost is flowed through to rate pairs.

[00:38:02] Speaker 07:
So I think, I don't remember the details.

[00:38:03] Speaker 07:
I know in both Mississippi Industries and this court's 2008 decision, the basis for jurisdiction over these cost allocations among the companies was the affecting rates rather than the, it was the affecting rates part of the jurisdictional statute.

[00:38:18] Speaker 07:
The commission noted that in one of the orders.

[00:38:20] Speaker 07:
I can give you the site if you.

[00:38:21] Speaker 05:
Other questions?

[00:38:22] Speaker 05:
No.

[00:38:23] Speaker 07:
Thank you.

[00:38:23] Speaker 07:
Thank you.

[00:38:24] Speaker 05:
I know that the petitioner is out of time.

[00:38:26] Speaker 05:
Uh-oh, I'm sorry, we have an inter, sorry, apologize.

[00:38:29] Speaker 05:
Go ahead.

[00:38:34] Speaker 01:
I may please the court.

[00:38:36] Speaker 01:
I'm Mark strain for energy.

[00:38:37] Speaker 01:
Um, as Miss Banta reference, the first has taken this matter up now many, many times.

[00:38:43] Speaker 01:
Seven dockets, 12 different opinions for has looked at the same issue and come to the same conclusion that this chair requires the use of the retail regulator set depreciation rates expense and that it's reasonable to do that.

[00:38:57] Speaker 01:
They've been very consistent with that, and the Fifth Circuit agreed.

[00:39:01] Speaker 01:
The LPSC has continued to argue, in case after case, that these depreciation rates cannot form the basis for the actual cost included in the bandwidth calculations.

[00:39:13] Speaker 01:
These are the same rates, these erroneous rates that the LPSC uses to set retail rates in Louisiana.

[00:39:20] Speaker 01:
They say that FERC is arbitrary and capricious and unreasonable by doing that, but the LPSC relies on the same rates, and they've had before them the updated rates for many years now and have chosen not to update retail rates to reflect these updated depreciation rates.

[00:39:38] Speaker 01:
Judge Griffith, you talked about mischief and is there the potential for manipulation

[00:39:42] Speaker 01:
Well, I think there's potential for manipulation the other way as well.

[00:39:46] Speaker 01:
If the retail regulator is keeping retail rates artificially low by adopting an extended depreciation period, and then they go to the FERC and we get bandwidth payments that are based upon an assumption, a hypothetical assumption, that those retail ratepayers are paying something much higher,

[00:40:04] Speaker 01:
uh, that's not fair.

[00:40:05] Speaker 01:
That's potential mischief there.

[00:40:07] Speaker 01:
And so for wisely decided for purposes of that component of this tariff, and it's a very, this is a very unique tear.

[00:40:14] Speaker 01:
If you have to agree, I think you've all dealt with it at one point or another in cases here.

[00:40:20] Speaker 01:
It's very unique.

[00:40:21] Speaker 01:
It's very, very technical that appreciation components are extremely technical.

[00:40:25] Speaker 01:
And, you know, furt and exercising its discretion, relying upon its technical expertise has decided that for the purpose of these annual proceedings, we are going to rely upon the state regulator determined rates.

[00:40:38] Speaker 01:
That gives us a common ground to do that.

[00:40:40] Speaker 01:
That way each year we're not having to come in here and recalculate new new new depreciation based on new updated rates and creating hypothetical costs for comparison.

[00:40:52] Speaker ?:
Um,

[00:40:54] Speaker 01:
It's argued that based upon the uniqueness of this terror, you should allow deference to FERC and its expertise.

[00:41:00] Speaker 01:
It has exercised that deference or that discretion, as I said, now 12 times consistently.

[00:41:07] Speaker 05:
There should be... I think we're out of time.

[00:41:08] Speaker 05:
Let me just ask you if any of the judges have questions.

[00:41:11] Speaker 01:
Thank you.

[00:41:13] Speaker 05:
All right, we'll give you another two minutes.

[00:41:15] Speaker 05:
We'll let the other side go over as well.

[00:41:17] Speaker 03:
I'd like to answer, Judge.

[00:41:19] Speaker 03:
First of all, with regard to this rough justice idea,

[00:41:23] Speaker 03:
The rough justice idea was built into plus or minus 11%.

[00:41:27] Speaker 03:
If there is an accounting error of $500,000, FERC changes the account and takes out the $500,000 in an annual proceeding.

[00:41:39] Speaker 03:
It does not say, oh, well, it's still rough justice.

[00:41:43] Speaker 03:
You have to come exactly to plus or minus 11%.

[00:41:47] Speaker 03:
If you're half a million off, a million off, two million off, and it's accounting,

[00:41:51] Speaker 03:
an error of accounting under FERC regulations, they change it.

[00:41:57] Speaker 03:
So it is not a rough justice kind of an argument.

[00:42:00] Speaker 02:
I just don't understand where that gets you.

[00:42:02] Speaker 02:
It is rough justice.

[00:42:04] Speaker 02:
Well, let me tell you the question before we start answering.

[00:42:09] Speaker 02:
They're saying we're going to look for actual meaning with the states.

[00:42:13] Speaker 02:
Because otherwise it's possibly arbitrary for us.

[00:42:19] Speaker 02:
So we're going to do that.

[00:42:20] Speaker 02:
But we realize

[00:42:22] Speaker 02:
The variance can be too great.

[00:42:25] Speaker 02:
So this plus or minus 11 is the protection against that.

[00:42:28] Speaker 02:
So what?

[00:42:28] Speaker 02:
What's wrong with that?

[00:42:30] Speaker 03:
What am I missing?

[00:42:31] Speaker 03:
This takes you beyond plus or minus 11.

[00:42:33] Speaker 03:
It takes you well beyond plus or minus 11.

[00:42:35] Speaker 03:
That's the first thing.

[00:42:37] Speaker 03:
The second thing is that they don't do that for anything else.

[00:42:41] Speaker 02:
I don't know why.

[00:42:42] Speaker 02:
I just don't understand why that would carry the day.

[00:42:45] Speaker 02:
I mean, that's the fact that something is not unreasonable.

[00:42:48] Speaker 02:
On its base, if it's a different approach, this whole agreement is different.

[00:42:54] Speaker 02:
If it's different from other arrangements, then you can't win on that one just because this is different from other arrangements that's made appropriate for this arrangement.

[00:43:02] Speaker 03:
That's not what I'm relying on at all.

[00:43:05] Speaker 03:
Every other wholesale tariff, you have to follow the FERC regulation on depreciation.

[00:43:10] Speaker 03:
Everyone that exists.

[00:43:11] Speaker 03:
The cost equalization tariff for service schedule MSS-1, you have to.

[00:43:16] Speaker 03:
The cost equalization tariff for service schedule MSS-2 in the energy system agreement, you have to.

[00:43:21] Speaker 03:
The transmission agreement.

[00:43:23] Speaker 03:
On the wholesale.

[00:43:24] Speaker 03:
Well, those are cost equalization.

[00:43:26] Speaker 03:
On the wholesale.

[00:43:27] Speaker 03:
This is a wholesale tariff.

[00:43:29] Speaker 03:
I understand, but it incorporates a retail component.

[00:43:32] Speaker 03:
And so do all the other wholesale tariffs.

[00:43:34] Speaker 03:
They incorporate transmission costs that are regulated at retail.

[00:43:39] Speaker 03:
When you make a power sales agreement, your generating unit is in the retail.

[00:43:44] Speaker 02:
No, no, no.

[00:43:45] Speaker 02:
I mean, for what it's worth, I'm just telling you, respond if you want.

[00:43:48] Speaker 02:
It doesn't sell to me that you

[00:43:52] Speaker 02:
from other things that we're looking at.

[00:43:54] Speaker 02:
That doesn't make it inherently unreasonable.

[00:43:56] Speaker 03:
Your Honor, I'm not the one that's saying it's different.

[00:43:59] Speaker 03:
I'm the one that's saying it should be the same.

[00:44:01] Speaker 02:
I understand, but that's saying it is different and therefore it's unreasonable.

[00:44:08] Speaker 02:
That doesn't follow to me.

[00:44:10] Speaker 03:
I'm saying, well, if you have every cost that goes into the tariff has to follow the FERC regulation, and this is the one cost that does not have to follow the FERC regulation,

[00:44:23] Speaker 03:
That's different, I agree that's different, but all I'm saying is it should be the same.

[00:44:30] Speaker 03:
That if they're gonna have a standard that you use a FERC accounting data, then they should have a standard that says you use a FERC accounting data.

[00:44:38] Speaker 03:
And if I show, which I did, that the retail accounting data defeats the purpose of the tariff,

[00:44:48] Speaker 03:
Then they should either fix it or they should explain a lot.

[00:44:52] Speaker 04:
You heard your opponent's response to my question about the mischief that may be built into this.

[00:44:58] Speaker 04:
What is your reply?

[00:45:00] Speaker 03:
Your Honor, the evidence that we reviewed was never disputed.

[00:45:04] Speaker 03:
The evidence that we reviewed was testified to by energy officials.

[00:45:10] Speaker 03:
They testified that they made a study that Arkansas could export $500 million of future depreciation if they kept the Arkansas Nuclear One depreciation the same after the life extension instead of changing.

[00:45:27] Speaker 03:
They went to the Arkansas Commission and they said, OK, we're going to leave it the same.

[00:45:33] Speaker 03:
Please don't review depreciation.

[00:45:35] Speaker 03:
This was all undisputed and it's undisputed in the record in this case.

[00:45:41] Speaker 03:
The first staff witness way back when, in 2007, alleged that they had manipulated the terror.

[00:45:48] Speaker 03:
Arkansas Public Service Commission had manipulated the terror.

[00:45:51] Speaker 03:
It's clear that energy did.

[00:45:54] Speaker 03:
Then the Arkansas Public Service Commission had a fit and moved to strike his testimony, and he withdrew that it was a manipulation.

[00:46:02] Speaker 03:
He didn't withdraw any of the rest of it, and he changed to there's a potential for manipulation.

[00:46:08] Speaker 03:
FERC later ruled that all of that unrebutted evidence doesn't show manipulation by the Arkansas Public Service Commission.

[00:46:17] Speaker 03:
But there was manipulation and you know, I can't do anything about it.

[00:46:22] Speaker 03:
It's a ruling and and you know, I think the Fifth Circuit said there was nothing wrong with the ruling.

[00:46:29] Speaker 03:
But it is an undisputed fact.

[00:46:31] Speaker 05:
Can I ask about the arguments that you make about the need to use the FERC?

[00:46:36] Speaker 05:
The argument that you make about the need to use the FERC accounting rate rather than the state.

[00:46:42] Speaker 05:
Isn't that the same argument you made in the Fifth Circuit?

[00:46:44] Speaker 03:
No.

[00:46:45] Speaker 03:
Well, on the delegation, yes.

[00:46:48] Speaker 05:
On the question of which kind of depreciation rate should be used?

[00:46:51] Speaker 03:
No.

[00:46:52] Speaker 03:
The argument in the Fifth Circuit was, look, they sent us to the annual bandwidth cases.

[00:46:57] Speaker 03:
They dismissed our complaint in 2008.

[00:47:00] Speaker 03:
We won before the first judge.

[00:47:02] Speaker 03:
We won before the second judge.

[00:47:04] Speaker 03:
We won before the third judge.

[00:47:06] Speaker 03:
And then they issue a ruling that says, oh, you're in the wrong forum.

[00:47:11] Speaker 03:
You have to file a complaint.

[00:47:13] Speaker 03:
The Fifth Circuit affirmed that, the change of course, as the Fifth Circuit said.

[00:47:19] Speaker 03:
And the change of course was based on a reinterpretation of the language in the tariff.

[00:47:25] Speaker 03:
They had interpreted it to say that they had jurisdiction and should and would adjust that appreciation.

[00:47:33] Speaker 03:
But in that case that went before the Fifth Circuit, they said, no, the language means we can't do it.

[00:47:41] Speaker 03:
So you have to file a complaint.

[00:47:43] Speaker 03:
So we in our complaint said, okay, we'd like to change the terror.

[00:47:48] Speaker 03:
And then, you know, the first hand with proceeding, which had been obeyed, came before this court.

[00:47:53] Speaker 03:
Judge Edwards was on that panel, and the panel said, you're in the wrong forum.

[00:47:59] Speaker 03:
Your complaint case is the right forum to try to do something about this.

[00:48:04] Speaker 03:
So here we are in the complaint case, and they say, oh, this has already been litigated.

[00:48:08] Speaker 05:
What about the subdelegation argument?

[00:48:10] Speaker 03:
Subdelegation, Your Honor, is simply this.

[00:48:13] Speaker 03:
They have not.

[00:48:14] Speaker 05:
Is it not the same argument that was rejected in the Fifth Circuit?

[00:48:18] Speaker 03:
It has some of the same elements, but that was according to FERC.

[00:48:22] Speaker 03:
I mean, according to the Fifth Circuit, FERC was going to decide whether the bandwidth tariff justly and reasonably allocated the production costs, so it was exercising discretion.

[00:48:35] Speaker 03:
Now FERC has said, we don't care what the evidence is.

[00:48:38] Speaker 05:
That's not how I understand what they're describing their argument about.

[00:48:42] Speaker 05:
Their argument is if it shows unjust and reasonableness with respect to the overall production cost.

[00:48:49] Speaker 03:
There is absolutely nothing in those orders that says that, Your Honor.

[00:48:53] Speaker 03:
There is no attempt to show that this is not a distortion, none whatsoever.

[00:48:58] Speaker 03:
They do say we didn't carry our burden of proof, but they don't say how.

[00:49:03] Speaker 05:
I thought you told me that you didn't have evidence in the record on that issue.

[00:49:07] Speaker 03:
Your Honor, I have in the record that anything incorrect about the depreciation takes you beyond plus or minus 11%.

[00:49:18] Speaker 03:
You have to have the consistent calculation.

[00:49:21] Speaker 03:
That's in the record.

[00:49:22] Speaker 03:
The question that you asked me was,

[00:49:25] Speaker 03:
Can you compare the depreciation cost on a $3 billion, I added this, a $3 billion nuclear unit to a $300 million nuclear unit?

[00:49:35] Speaker 03:
I can't.

[00:49:36] Speaker 03:
I mean, no, you can't.

[00:49:38] Speaker 03:
But you can say that the investment has to be allocated over the service life in a systematic manner.

[00:49:44] Speaker 05:
What you're saying is you, by comparison to the FERC accounting rate, is that what you're saying?

[00:49:50] Speaker 05:
That you put in evidence comparing the state rate with the FERC accounting rate.

[00:49:54] Speaker 03:
and with Energy's depreciation study, which was done in 2000.

[00:49:59] Speaker 05:
But not comparing the different state rates.

[00:50:01] Speaker 03:
Comparing the different state rates to the rates in the Energy's depreciation study, which was largely supported by our expert and the FERC staff expert, the rates are grossly disparate.

[00:50:17] Speaker 03:
74 of the units have the wrong service life in the existing rates.

[00:50:23] Speaker 03:
74 out of 75 would have to be changed under energy's new studies.

[00:50:32] Speaker 05:
All right, I think we have the argument.

[00:50:34] Speaker 05:
Is there any further questions from either of the editors?

[00:50:36] Speaker 05:
All right, we'll take the matter on.

[00:50:38] Speaker 03:
Thank you, Your Honor.

[00:50:38] Speaker 03:
Appreciate it.