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Gulf States Utilities Co. v. Federal Energy Regulatory Commission

decided: August 25, 1993.


Petition for Review of Orders of the Federal Energy Regulatory Commission. D.C. DOCKET NUMBER: EL87-51-000, EL87-51-001, ER88-477-000, ER88-477-001

Before Reynaldo G. Garza, Smith, and Barksdale, Circuit Judges.

Author: Barksdale

BARKSDALE, Circuit Judge:

Gulf States Utilities Company (GSU) challenges the Federal Energy Regulatory Commission's denial of both its request to correct, retroactively and prospectively, claimed billing errors, and its application for a waiver of related filing requirements, arising from its contract with Cajun Electric Power Cooperative, involving GSU's high-voltage electricity transmission system, owned in part by Cajun. We REVERSE and REMAND.


GSU is a utility company servicing customers in Louisiana and Texas; and, under a Power Interconnection Agreement executed in 1978, it provides electricity transmission services to Cajun, a government-funded rural electric cooperative in Louisiana. Because Cajun's cost of capital is less than GSU's, due to Cajun's government-funded status, GSU and Cajun executed Service Schedule CTOC in 1980 (the CTOC agreement), which provided that the two companies would establish a co-owned Integrated Transmission System (ITS) comprised of qualified high-voltage transmission facilities (QTFs).*fn1 In exchange for its investment in the ITS, Cajun would not be billed for its use of the ITS to the extent of that investment. In essence, the plan allowed Cajun to invest in the ITS in lieu of paying a portion of the bill that would otherwise be payable to GSU.

The CTOC agreement established a rather complex billing mechanism with regard to the ITS. In order to credit Cajun for its investment, GSU was to deduct GSU's revenue requirements associated with the ITS from Cajun's monthly general transmission charges, in the form of "CTOC credits". The CTOC credits were to be "determined on the basis of the methodology, procedures and data used as the basis for GSU's transmission service rates most recently approved or accepted for filing by FERC ...".

Additionally, in the event that Cajun's investment in the ITS was not proportionate to its relative use, an equalization charge would be imposed. The equalization charge was to be calculated by multiplying the amount of Cajun's investment deficiency by a percentage referred to as "Factor APM". Factor APM is computed by dividing GSU's annual revenue requirement associated with the ITS by its total investment in the ITS. For example, if GSU invested a total of $100 million in the ITS, and its annual revenue requirements for the ITS were $20 million, Factor APM would be 20% for that year. Accordingly, Cajun's yearly equalization charge would be 20% of the amount of its investment deficiency. Because the monthly equalization charges were to be based on estimates, the CTOC agreement also provided for annual "true-ups" once the actual figures became available.

In early 1981, GSU submitted the CTOC agreement for FERC approval. In response to FERC's request for additional information, GSU specified, inter alia, the Factor APM to be used initially. FERC accepted the agreement for filing that August, but advised GSU that "any changes in the applicable Equalizing Charge resulting from the use of a Factor APM different from that specified in your instant filing, must be timely filed ... as a change in rate schedule in accordance with [regulations]". FERC did not similarly direct GSU to file changes to the CTOC credits, and the CTOC agreement did not specify how such changes were to be initiated or implemented. Accordingly, until GSU's filing in the present proceeding, CTOC credits (as a component of the stated rate) were never filed with FERC.

The CTOC agreement billing provisions took effect January 1, 1982, when Cajun acquired two high-voltage transmission lines -- QTFs -- from GSU. At that time, GSU computed Cajun's CTOC credits from the data filed with FERC in GSU's most recent general transmission rate filing, submitted in 1980. It used the specified Factor APM (24.4047%), which was also based on that data.

In July 1982, GSU submitted new general transmission rates for filing. FERC approved a settlement in that case in June 1983, with the new rates made effective July 1982. See Gulf States Utils. Co. , 25 F.E.R.C. 61,131 (1983).

GSU again submitted new general transmission rates in July 1985. In January 1987, FERC approved a settlement of that case, which provided for two new rates -- one effective July 1985, and a superseding rate effective July 1986. See Gulf States Utils. Co. , 38 F.E.R.C. 61,048 (1987). Cajun intervened in the second (1985) rate case to protest GSU's designation of the QTFs under the CTOC agreement (QTF dispute),*fn2 but the 1987 settlement agreement expressly excluded any resolution of that dispute.*fn3

As noted, in neither its 1982 nor its 1985 filing did GSU separately designate revised CTOC credits or Factors APM. However, upon each filing, it recalculated both, based on the new data submitted, and billed Cajun accordingly. FERC accepted GSU's refund compliance filings for each case in May 1984 and September 1987, respectively.

In July 1987, Cajun renewed its claims with FERC regarding the QTF dispute, among others. GSU answered, and filed its own action with FERC, proposing to cancel the CTOC agreement. FERC denied GSU's request to cancel, see Cajun Elec. Power Corp., Inc. v. Gulf States Utils. Co. , 41 F.E.R.C. 61,136 (1987), and affirmed the denial on rehearing, see Gulf States Utils. Co. , 42 F.E.R.C. 61,163 (1988).

Meanwhile, GSU allegedly discovered that it had erred all along in calculating the CTOC credits. In November 1987, after the denial of its request to cancel the CTOC agreement, GSU began billing Cajun using revised (lowered) CTOC credits, resulting in an annual increase in the billings to Cajun of approximately $4 million. Cajun has paid those increased charges. Additionally, as noted, GSU had never filed, as directed, the changes to Factor APM from the figure initially filed in 1981. Accordingly, on June 20, 1988, GSU submitted for filing retroactive and prospective revisions to the CTOC credits and Factors APM, requesting a waiver of the Factor APM filing requirement for good cause.

In August 1988 (Initial Order), FERC rejected GSU's proposed retroactive changes to the CTOC credits, holding that those credits had been at issue in, and resolved by, the settlements of the 1982 and 1985 rate cases in 1983 and 1987, respectively. See Cajun Elec. Power Corp., Inc. v. Gulf States Utils. Co. , 44 F.E.R.C. 61,259, 61,972 (1988) [hereinafter 44 F.E.R.C. at _____. In addition, it denied GSU's request for a waiver of the Factor APM filing requirement. Id. at 61,970-71. For prospective application only, FERC accepted GSU's proposed Factor APM, based on the 1986 rate, and set that matter for hearing. Id. Finally, for purposes of hearing and decision, FERC consolidated ...

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