UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


LA PUB SVC CMSN

v.

FERC


98-1088a

D.C. Cir. 1999


*	*	*


Silberman, Circuit Judge: FERC determined that Enter- gy Corporation
had violated the inter-company formula tariff  that it administers to
equalize costs among its five parallel  subsidiaries; the Commission
declined, however, to order a  refund from the subsidiaries that were
undercharged by  virtue of the tariff violation to the customers of
the over- charged subsidiaries. The state regulatory bodies of Louisi-
ana and Mississippi (the service areas of the overcharged 
subsidiaries), supported by an energy consumer as interve- nor,
petition for review of the Commission's order, contending  that the
Commission abused its discretion in declining to  order a refund. We


I.


Entergy Corporation owns five public utilities--Entergy  Gulf States,
Entergy Arkansas, Entergy Louisiana, Entergy  New Orleans, and Entergy
Mississippi--that provide electri- cal power to retail customers in
Arkansas, Louisiana, Missis- sippi, and Texas. (Entergy Arkansas,
alone among the sub- sidiaries, sells wholesale as well as retail
power.) Entergy's  subsidiaries are linked by more than common
parentage:  each subsidiary makes its capacity available to its sister


companies as a backstop for when demand exceeds self- generated supply.
Maintaining the availability of such capac- ity, of course, carries
costs, even when it is not tapped for  power generation. Since the
subsidiaries' retail rates are set  by state regulators based on
principles of cost-of-service  ratemaking, it would be
inequitable--vis-a-vis a subsidiary's  retail customers--for that
subsidiary not to earn compensa- tion from its sister companies when
it keeps capacity on hand  for them.


The Entergy subsidiaries' response to this problem of cost 
equalization inter se is the System Agreement, a tariff that  has been
filed with and approved by the Commission pursu- ant to s 205 of the
Federal Power Act (FPA), 16 U.S.C.  s 824d (1994). One provision of
the Agreement, known as  the MSS-1 schedule, requires monthly payments
from subsid- iaries contributing less than their fair share of the
System's  total capacity to subsidiaries contributing more.1 A company
 first determines its capability: the power that its "available" 
generating units--whether owned, leased or operated for its 
benefit--can generate in the month at issue. Next the  company
ascertains its responsibility ratio by dividing its use  of power
(self-generated and otherwise)--known as load re- sponsibility--by the
sum of all the individual companies' load  responsibilities.2 Then the
company determines its propor- tionate share of total System
capability--known as capability  responsibility--by multiplying its
responsibility ratio by the  total System capability, and compares
this figure to its actual  capability for the month. If the company's
actual capability  is less than its capability responsibility, then
the company is  "short" and must make a monthly payment; if the
company's  actual capability exceeds its capability responsibility,
then the  company is "long" and will receive a monthly payment. The 




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n 1 These transactions are sales of electric energy at wholesale in 
interstate commerce, and hence are subject to the Commission's 
regulatory authority. See 16 U.S.C. s 824 (1994).


2 The company load responsibility, measured monthly, is a  rolling
12-month average of the company's hourly loads, i.e., sales  of power,
coincident with the System's monthly peak hour load.


company's MSS-1 rate--its average cost of oil and gas gener- ating
units based on the previous year's operating results--by  the number
of megawatts by which the company is long.3


As a formula rate tariff, the MSS-1 tariff's components  may vary and
hence the formula may dictate different equali- zation payments from
month to month. Such changes do not,  however, subject the Entergy
system to the Federal Power  Act's pre-filing and pre-approval
requirements for changes in  a tariff; they are instead countenanced
by FPA s 205(f), 16  U.S.C. s 824d(f), which governs automatic
adjustment claus- es. The retail rates charged by the subsidiaries to
their  customers are subject to state regulatory authority and oper-
ate quite differently. Apart from a fuel adjustment clause  that
allows for automatic changes in retail rates when fuel  costs change,
the retail rates are fixed by state regulators and  remain in place
until the regulators initiate a new rate case.


In 1985, when the current version of the System Agree- ment was
approved by the Commission, there were four  Entergy subsidiaries.
Entergy Louisiana and Entergy New  Orleans were consistently short;
Entergy Arkansas and En- tergy Mississippi consistently long. (A fifth
subsidiary, En- tergy Gulf States, joined the System in a merger
approved in  1993.) Despite this imbalance among the subsidiaries in 
terms of relative contribution to System capability, circum- stances
were such that each subsidiary, in terms of absolute  need for power
given consumer demand, was maintaining a  sizable number of operating
units that were rarely (if ever)  tapped for power generation. In
1986, Entergy's operating  committee initiated the Extended Reserve
Shutdown (ERS)  program in the hope of reducing the costs of
maintaining this  unnecessary capacity. Under the program, some of the
 generating units would be identified as unnecessary for ca- pacity
needs, removed from active service, and preserved in a  reserve
status. It was hoped that the ERS program would  allow the companies




__________

n 3 If there is more than one short company, the payment  obligation is
allocated based on the ratio of each short company's  deficiency to
the total deficiency of the short companies.


and maintenance expenses that otherwise would have been  required to
maintain the units in a constant state of readi- ness, enable the
companies to defer the cost of repairing  broken units until it was
necessary to bring the reserve units  back on line, and obviate the
need to construct costly new  generating capacity to meet long-term
requirements. Al- though Entergy contemplated retiring some of the ERS
units  rather than bringing them back on line, it intended to return 
many of the units to active service notwithstanding the 8-12  month
period necessary to restore the ERS units. Forty  percent of the units
placed in ERS since the inception of the  program in 1986 had been
restored to active service by 1993.


The dispute before us stems not from Entergy's implemen- tation of the
ERS program itself, but rather from Entergy's  decision to allow the
individual companies to include ERS  units within the category of
"available" capability for pur- poses of cost equalization under the
MSS-1 tariff. Recall  that the higher a company's capability relative
to the capabili- ties of its sister companies, the better off that
company will  be in terms of cost equalization under MSS-1. Under the 
version of the System Agreement then in place,


A unit is considered available to the extent the capability  can be
demonstrated and (1) is under the control of the  System Operator, or
(2) is down for maintenance or  nuclear refueling. A unit is
considered unavailable if in  the judgement of the Operating Committee
it is of insuf- ficient value in supplying system loads because of (1)
 obsolescence, (2) physical condition, (3) reliability, (4)  operating
cost, (5) start-up time required, or (6) lack of  due-diligence in
effecting repairs or nuclear refueling in  the event of a scheduled or
unscheduled outage.


Entergy Servs., 80 F.E.R.C. p 61,197, at 61,787 (1997) (foot- note
omitted) (emphasis in original). Entergy's Operating  Committee
interpreted "available" to include ERS units,  which had the effect of
improving the lot of those companies  that had relatively more
ERS-eligible units. That benefitted  Entergy Arkansas and Entergy New
Orleans: in the period  1987-1993, Entergy Arkansas, which was long to


became more long, and Entergy New Orleans, which was  short to begin
with, grew less short. Conversely, Entergy  Mississippi and Entergy
Louisiana were, at least in this  respect, disadvantaged by virtue of
the inclusion of ERS units  in MSS-1: Entergy Mississippi, which was
long to begin  with, became less long, and Entergy Louisiana, which
was  short to begin with, became more short. (The inclusion of  ERS
units as "available" for MSS-1 purposes also bears on  the MSS-1 rates
of the long companies. As noted, that rate  is the average cost per
megawatt of the long company's oil  and gas-fired generating units. A
long company, by placing  units into ERS, reduces the cost associated
with those units  and consequently reduces the average cost of all of
its oil-and  gas-fired generating units, and hence its MSS-1 rate.)
Hold- ing constant the number of units that each company actually  put
in ERS from 1987-1993, an Entergy officer determined  that Entergy
Mississippi received $8.8 million less, and En- tergy Louisiana paid
$10.6 million more, than would have  been the case had ERS units been
excluded from MSS-1.


Though inclusion of ERS units in the MSS-1 calculation  began in 1986,
neither the Commission nor any other party  challenged the practice
until 1993. One issue presented in  FERC's review of the merger of
Gulf States into the Entergy  system as a fifth subsidiary was whether
to allow Gulf States  to include its then-existing ERS units as
available capability  for MSS-1 purposes before those units were
returned to  active service; the Commission decided that Gulf States 
should not receive credit for those ERS units because "there  has been
no historic practice of maintaining rough production  cost
equalization between Gulf States and the Operating  Companies."
Entergy Servs., Inc., 65 F.E.R.C. p 61,332, at  62,497 (1993). The
Commission, sua sponte, raised the  broader question of whether
Entergy's System Agreement  permits the four incumbent subsidiaries to
count their ERS  units as "available" for MSS-1 purposes, and
initiated a  proceeding under FPA s 206, 16 U.S.C. s 824e (1994), to 
determine whether the Entergy companies were violating the  Agreement.


The Louisiana Public Service Commission and the Missis- sippi Public
Service Commission, petitioners here, argued  that the Entergy system
had violated the MSS-1 tariff's clear  definition of "available" units
by including ERS units in  MSS-1. They requested that Entergy Arkansas
and Enter- gy New Orleans, the operating companies that benefitted 
from the inclusion of ERS units in the MSS-1 calculation,  refund to
the customers of Entergy Louisiana and Entergy  Mississippi the amount
by which their rates had been escalat- ed by virtue of the alleged
tariff violation. The Commission  agreed that Entergy had violated its
tariff, relying on the  ALJ's finding that ERS units are neither under
the control of  the System Operator nor down for maintenance or
nuclear  refueling, but rather are effectively in storage. See Entergy
 Servs., Inc., 80 F.E.R.C. at 61,786-87. But FERC decided  that the
equities of the case did not support a refund because  the end result
of the tariff violation was not unjust, unreason- able, or unduly
discriminatory. See id. at 61,787-88. (The  Commission expressly
disclaimed any reliance on Entergy's  submission that it acted in good
faith in interpreting the tariff  to address the novel problem of
unnecessary capacity. See  id. at 61,788 & n.45.)4


The Commission then turned to the appropriate treatment  of ERS units
going forward. An amendment to the System  Agreement was proposed that
would include an ERS unit as  an available unit under MSS-1 if Entergy
intends to return  the unit to service at a future date, with
Entergy's "intent" to  be ascertained by an examination of several
enumerated  factors and recorded in the minutes of the Operating
Commit- tee. See id. at 61,788-89. Over the objections of the Louisi-
ana and Mississippi regulators that it would be unjust to  impose
MSS-1 costs for units that provide no present benefit  to the system
and that the amendment's ambiguity made it 




__________

n 4 The Commission also noted that because it was declining to  order
refunds based on its discretion, it had no need to address  whether or
to what extent FPA s 206(c), 16 U.S.C. s 824e(c) (1994),  might
preclude ordering refunds in any event. See Entergy Servs.,  80
F.E.R.C. at 61,788 n.46.


susceptible to discriminatory application, the Commission ap- proved
the proposed amendment. See id. at 61,789.


Upon FERC's denial of the Louisiana and Mississippi  regulators'
request for rehearing on the refund and amend- ment issues, see
Entergy Services, Inc., 82 F.E.R.C. p 61,098  (1998), the regulators,
joined by an energy consumer (Occi- dental Chemical Corporation) as
intervenor, brought the in- stant petition for review. They contend
that the Commission  abused its discretion by relying on superficial,
even irrational,  equitable factors to deny the requested refund,
especially  when the Commission's self-described general policy is to 
provide refunds to remedy overcharges.5 And, while aban- doning their
complaint to the Commission that the concept of  the amendment is
unlawful insofar as it countenances the  inclusion of some ERS units
in the MSS-1 schedule, petition- ers argue that the wording of the
amendment is so ambiguous  and prone to discriminatory implementation
that the Commis- sion has effectively abdicated its statutory


II.


We take up the refund issue first. Before addressing  petitioners'
various attacks on the Commission's reasoning,  we think we should
clarify a point on which the briefs were  somewhat obscure: just what
sort of injury has been caused  by Entergy's violation of its tariff.
No one disputes that  holding everything else constant, the decision
to include ERS  units in MSS-1 worked to the detriment of the two




__________

n 5 Intervenor Occidental makes a similar argument for a full  refund
but, unlike petitioners, alternatively seeks a refund under  Western
Resources, Inc., 65 F.E.R.C. p 61,271, at 62,252 (1993), in  which the
Commission held that in certain circumstances involving a  tariff
violation that benefits ratepayers, it would deny a full refund  but
award a refund of the time value of the overcharged amount.  But since
only intervenor Occidental raises the Western Resources  refund issue
before us, we decline to address it. See Illinois Bell  Tel. Co. v.
FCC, 911 F.2d 776, 786 (D.C. Cir. 1990) ("An intervening  party may
join issue only on a matter that has been brought before  the court by
another party.").


nies, Entergy Louisiana and Entergy Mississippi, that had  fewer
ERS-eligible units than the other companies in the  system. Entergy
Louisiana, a short company, became more  short, i.e., faced higher
MSS-1 payment obligations; Entergy  Mississippi, consistently a long
company, became less long,  i.e., received less in MSS-1 payments. But
since the retail  rates of both companies were fixed before Entergy
began to  include ERS units in MSS-1 and did not change until peti-
tioners initiated rate cases in 1994, the harm cannot be found  in an
increase in retail rates charged to customers--as retail  rates were
fixed, no such increase occurred. Nor can it be  asserted that the
injured parties are Entergy Louisiana and  Entergy Mississippi--after
all, these companies, along with  the other Entergy subsidiaries and
the holding company,  support the Commission's order. We gather the
harm arises  from petitioners' expectation that but for the
distortions in  MSS-1 payments flowing from the tariff violation, they
would  have brought rate cases earlier that would have lowered retail 


This injury might well warrant a refund to the retail  customers of
Entergy Louisiana and Entergy Mississippi.  But the Commission claimed
it took a broader perspective  and concluded that the equities cut
against ordering a refund.  Petitioners, while emphasizing the
Commission's self- described "general policy ... to order refunds to
remedy  overcharges," Entergy Servs., 82 F.E.R.C. at 61,369 (footnote 
omitted), do not--and, indeed, could not--contend that the  policy is
without exception. See Koch Gateway Pipeline Co.  v. FERC, 136 F.3d
810, 816 (D.C. Cir. 1998) (vacating refund  order as an abuse of
discretion); Towns of Concord v. FERC,  955 F.2d 67, 72 (D.C. Cir.
1992) ("[O]ur examination of the  Federal Power Act reveals no
statutory command mandating  refunds when the rate charged exceeds
that filed.").6 In- stead, petitioners submit that the Commission's




__________

n 6 The Commission's authority to order refunds of amounts  improperly
collected in violation of the filed rate derives from FPA  s 309, 16
U.S.C. s 825h (1994). See Towns of Concord, 955 F.2d at  73.


for departing from its general policy are irrational. As the 
Commission did not set forth these equitable factors in the 
alternative or otherwise suggest that its decision would be the  same
in the absence of one or more of the four factors, we  consider each
one. See Sundor Brands, Inc. v. NLRB, 1999  WL 94803, *3 (D.C. Cir.
Feb. 26, 1999) (citing SEC v.  Chenery Corp., 318 U.S. 80, 87


We bear in mind, however, that "[w]hen a federal court of  appeals
reviews an administrative agency's choice of remedies  to correct a
violation of a law the agency is charged with  enforcing, the scope of
judicial review is particularly narrow."  National Treasury Employees
Union v. FLRA, 910 F.2d 964,  966-67 (D.C. Cir. 1990) (en banc); see
also ICC v. Transcon  Lines, 513 U.S. 138, 145 (1995); Towns of
Concord, 955 F.2d  at 76 (explaining that the words "necessary or
appropriate" in  FPA s 309, 16 U.S.C. s 825h, evince Congress' intent
to  leave refund determinations to the Commission's "expert 
judgment"). Indeed, "the breadth of agency discretion is, if 
anything, at [its] zenith when the action assailed relates  primarily
not to the issue of ascertaining whether conduct  violates the
statute, or regulations, but rather to the fashion- ing of policies,
remedies and sanctions ... in order to arrive  at maximum effectuation
of Congressional objectives." Niag- ara Mohawk Power Corp. v. FPC, 379
F.2d 153, 159 (D.C.  Cir. 1967). Thus, we will set aside FERC's
remedial decision  only if it constitutes an abuse of discretion. See,
e.g., Public  Utils. Comm'n of Calif. v. FERC, 143 F.3d 610, 617 (D.C.
Cir.  1998); Koch Gateway, 136 F.3d at 816. To the extent the 
Commission made factual determinations in the course of  exercising
its discretion, we of course ask whether those  conclusions are
supported by substantial evidence. See 16  U.S.C. s 8251(b) (1994).


A.


We begin with the Commission's "disincentive" rationale  for denying a
refund:


[G]iven that there would have been a disincentive to  participate in
the ERS program without Schedule MSS-1  treatment for the units,
Entergy's actions, both in creat- ing the ERS program and in
continuing to include these  units in Schedule MSS-1 calculations,
resulted in consid- erable system-wide benefits, in the form of
enhanced  system efficiencies and cost reductions, that ultimately 


Entergy Servs., 80 F.E.R.C. at 61,787 (footnotes omitted). In  other
words, the Commission thought it inequitable to order a  refund when
the predicate tariff violation had conferred bene- fits on the system,
including the allegedly injured parties,  that would not have come to
pass absent the tariff violation.


Petitioners' primary argument is that FERC is simply  wrong in
asserting that the operating companies needed any  added incentive to
place units in ERS.7 They submit that the  enormous benefits expected
to flow from the ERS program in  terms of reduced operating,
maintenance, and fuel costs, far  outweigh any disincentive created by
adverse MSS-1 treat- ment. One view of Entergy's own data supports
this claim:  company by company, over a roughly concurrent six-year 
period, the benefit of the ERS program in terms of operating  and
other cost savings outweighs the "cost" of adverse MSS-1  treatment
for all but Entergy New Orleans. In the case of  Entergy Louisiana and
Entergy Mississippi, adverse MSS-1  treatment, i.e., inclusion of ERS




__________

n 7 Petitioners also argue--half-heartedly--that treating ERS  units as
available capability for MSS-1 purposes would neither  avoid a
disincentive, nor create an incentive, for the operating  companies to
place units in ERS. But, in a world where ERS units  are excluded from
treatment as available capability, an operating  company will not be
indifferent between receiving MSS-1 credit  now (by keeping the unit
in active service) and receiving MSS-1  credit later (by putting the
unit in ERS and later restoring it to  active service)--money now is
always more valuable than money  later. And petitioners overlook that
treating ERS units as "avail- able" for MSS-1 also creates an "extra"
incentive in that the life of  the unit is extended and the unit
continues to receive MSS-1 credit  (albeit at lower rates in the case
of a long company) while in ERS.


actually occurred. Yet Entergy Louisiana's ERS savings of  $13.8
million outweigh its MSS-1 detriment of $10.6 million;  Entergy
Mississippi's ERS savings of $11.2 million similarly  surpass its
MSS-1 detriment of $8.8 million. In the case of  Entergy Arkansas and
Entergy New Orleans, adverse  MSS-1 treatment, i.e., exclusion of ERS
units from MSS-1  treatment, did not occur in fact. Supposing that ERS
units  had been excluded from MSS-1 treatment, Entergy Arkansas  would
have lost $6.3 million in MSS-1 receipts but would still  have enjoyed
$33.9 million in ERS savings; on the other  hand, Entergy New Orleans
would have faced $13.1 million  more in MSS-1 payments and would have
enjoyed only $6.8  million in ERS savings. (This assumes that Entergy
Arkan- sas and Entergy New Orleans would have placed the same  number
of units into ERS had those units been excluded from  MSS-1
treatment.) All this suggests that each company  except Entergy New
Orleans would have made roughly the  same ERS "investment" even if it
had received adverse  MSS-1 treatment as a result.


This analysis is inadequate, however, because it assumes  that the
companies make their ERS decisions with hindsight  on a net basis,
rather than at the margin looking forward.  For each of the four
pre-merger companies, if ERS units  were excluded from MSS-1
treatment, there would be a cost  to placing an extra unit into ERS;
the company will suffer in  its MSS-1 standing vis-a-vis the other
companies (and they  could not be sure how the other companies would
behave).  To be sure, there is also a benefit, in terms of ERS
savings,  upon placing that marginal unit into ERS. But, as the 
Commission and intervenor Entergy point out, the magnitude  of the
costs was certain whereas the scope of the benefits was  not.
Accordingly, we cannot say the Commission abused its  discretion in
rejecting an analysis that itself ignored the  distinction between ex


Be that as it may, petitioners argue that it makes little  sense to
talk of "providing incentives" or "avoiding disincen- tives" to the
operating companies' putting units into ERS.  That analytical
framework is, according to petitioners, a post  hoc construct that
ignores the reality that the operating 


companies are wholly owned subsidiaries of Entergy Corpora- tion and
therefore have neither the ability nor the inclination  to flout the
System's goals. The only incentives that matter,  petitioners submit,
are those faced by the System as a whole.


Petitioners acknowledge, as they must, however, the record  testimony
of several witnesses that the operating companies  do in fact possess
the authority to identify and recommend  for final approval by the
System's operating committee  which--and how many--units to place in
ERS. One of  FERC's trial staff testified, for example, that "each
operating  company ... made the decision as to which unit if any to 
place in ERS and when to place a unit in ERS." There was  further
testimony that the visibility of the adverse MSS-1  treatment felt by
each of the companies on a unit-by-unit  basis might raise the ire of
state regulators ignorant of the  less visible (and more uncertain)
benefits of ERS. To these  witnesses, the aggravation of justifying
the ERS program to  state regulators might deter even the most
System-loyal  operating company officers from putting units into ERS.
As  one witness summarized, "as long as there are individual 
Operating Companies with responsibilities to their regulators  and
ratepayers, such individual Operating Company interests  cannot be
ignored." Surely this constitutes substantial evi- dence in support of




__________

n 8 Petitioners submit that other record evidence casts doubt on  the
Commission's finding that the operating companies approached  the ERS
program in a self-interested way. They point to the  testimony of the
operating committee's delegate that the System's  final approval of
units for ERS was not always documented careful- ly, and suggest that
if the operating companies really were looking  out for themselves,
they would have insisted on more fastidious  record-keeping. This
testimony stands in contrast to the numerous  other witnesses
testifying that the operating companies did have  some autonomy in ERS
decisions, and surely cannot be said to tip  the scales such that no
"reasonable jury [could] reach the [Commis- sion's] conclusion,"
Allentown Mack Sales & Serv., Inc. v. N.L.R.B.,  522 U.S. 359, 367


Still, petitioners claim that the Commission's, and our own,  prior
interpretations of the nature of the Entergy system  support their
conception of the operating companies as indis- tinguishable (and
unthinking) parts of a whole. However, we  think that precedent is not
inconsistent with the Commis- sion's findings here. In Middle South
Energy, Inc., 31  F.E.R.C. p 61,305 (1985), the Commission, in the
course of  approving the 1985 (and still current) version of the
System  Agreement, rejected an ALJ's finding that the operating 
companies exhibited a "pattern of autonomy." Id. at 61,645  (quoting
Middle South Energy, Inc., 30 F.E.R.C. p 63,030, at  65,168 (1985)).
The Commission found that "major critical  decisions, including
decisions to build new generating units,  are made by the Operating
Committee for the benefit of the  system as a whole." Id. But the
Commission also acknowl- edged that "it is clear that there is input
from the individual  companies and consideration of their needs in
making coordi- nated decisions." Id. And, in denying petitions for
review of  the Commission's decision in Middle South, we described the
 Commission as finding, inter alia, that the "individual operat- ing
companies were intimately involved in the planning stages  of new
generation units and sought to promote their own  interests."
Mississippi Indus. v. FERC, 808 F.2d 1525,  1555-56 (D.C. Cir. 1987),
rev'd on other grounds, 822 F.2d  1104 (D.C. Cir. 1987). That the
operating companies are  involved in the "planning stages" of the ERS
program--not  that their decisions are final--is all the Commission


Taking the broadest tack, petitioners also seek to under- mine the
Commission's very premise that the ERS program  "ultimately benefitted
ratepayers." Petitioners do not dis- pute that the ERS program
provided benefits; but it is  asserted that those benefits, rather
than being passed on to  ratepayers, stayed within the Entergy system,
and thus  within the pockets of Entergy's shareholders. How could it 
be, petitioners ask, that ratepayers enjoyed the benefits of  the ERS
program--which predominantly take the form of 


reduced operating costs that are reflected in retail rates only  when
a new rate case is initiated--when no such rate case  occurred during
the first seven years of the program?  FERC responds by pointing to
several ERS-related benefits  that flowed to ratepayers in Louisiana
and Mississippi, the  service areas regulated by petitioners. For one,
a 1994 rate  case involving Entergy Mississippi resulted in a $28.1
million  reduction in retail rates; Entergy Louisiana was in the 
course of a similar rate proceeding not yet completed (based  on the
current record) but expected to have a similar out- come. For another,
even before the 1994 rate cases, the  Commission identifies certain
benefits that flowed to Louisi- ana and Mississippi ratepayers. The
ERS program produced  some $2.6 million in energy cost savings, $2.1
million of which  was passed on to Entergy Louisiana's and Entergy
Mississip- pi's ratepayers through the automatic fuel adjustment
clauses  in those companies' retail rate tariffs. And perhaps more 
important, as the Commission explained in its order denying 
rehearing, the ERS savings support an inference that, ceteris 
paribus, the companies would have less need to seek rate  increases.
See Entergy Servs., 82 F.E.R.C. at 61,370.


There is ample evidence, therefore, supporting the Com- mission's
general finding that some ERS-related benefits  accrued to Louisiana
and Mississippi ratepayers. Nor can we  quarrel with the Commission's
"expert judgment" that these  benefits supported denying the requested
refund, a proposi- tion that we have endorsed in the past. See Gulf
Power Co.  v. FERC, 983 F.2d 1095, 1100 (D.C. Cir. 1993). Petitioners 
do not even respond to the Commission's point about the  pass-through
of fuel cost savings to retail ratepayers, or to  the Commission's
observation that the 1994 rate cases un- doubtedly have captured some
of the ERS-related benefits  for ratepayers. And the Commission's
finding that the ERS  program obviated the need for Entergy Louisiana
and Enter- gy Mississippi to seek rate increases is not, as
petitioners  suggest, suspect because based on an inference from the 
record. Those sorts of "sound inference[s] from all the 
circumstances," Allentown Mack Sales & Serv., Inc. v. 


N.L.R.B., 522 U.S. 359, 379 (1998), are the stuff of which 
substantial evidence is made.


B.


Now to the Commission's second reason: "[T]he non-Gulf  States ERS
units were planned and constructed for the  benefit of all of the
pre-merger Operating Companies." En- tergy Servs., 80 F.E.R.C. at
61,787 (footnote omitted). In  other words, the ERS units are really
just another sort of  excess capacity--albeit an "extended
reserve"--that is avail- able, once restored, to serve the System's
needs, and there- fore should receive the same cost equalization
treatment  under MSS-1 as does "ordinary" excess capacity. See id. 
(Placing a unit in ERS, while significantly reducing the costs 
associated with that unit, does not eliminate those costs  entirely.
See Entergy Servs., 82 F.E.R.C. at 61,370 n.9.)  The Commission also
pointed out that even during the units'  ERS tenure, they provide
System-wide benefits. See Enter- gy Servs., 80 F.E.R.C. at 61,788.
Most notably for present  purposes, the companies' ability to return
ERS units to active  status allows the companies to defer the
construction of costly  new generation units. Moreover, the
Commission's approval  of an amendment to the System Agreement
specifically to  address this situation would have been forthcoming if
re- quested (as it was in this proceeding). See id. Though 
petitioners attack this rationale--that extended reserves  should be
treated like ordinary reserves--insofar as it sup- ported the
Commission's decision on refunds, paradoxically  they do not take
issue with the identical concept underlying  the amendment approved by
the Commission, which express- ly countenances the inclusion of ERS
units in MSS-1 going  forward. In challenging the amendment solely on
the ground  that it is too vague, petitioners have de facto conceded


Even aside from petitioners' implied concession, they do  not persuade
us that the Commission has abused its "consid- erable discretion in
fashioning remedies." Public Utils.  Comm'n, 143 F.3d at 617.
Petitioners contend that ERS  units provide no benefits to the System
during their ERS 


tenure, and hence are properly excluded from MSS-1 cost  equalization
because they are not presently "used and useful"  to the System. But
the Commission explained that ERS  units are useful to the System in
providing a backup reserve  to the System and in allowing the
companies to defer repairs  of the ERS units and construction of new
generating units,  and we see no reason not to defer to the
Commission's  conception of usefulness. Nor are we impressed with
peti- tioners' alternative point that, even though ERS units may be 
useful if restored to active service, Entergy officials have 
testified that some of the ERS units would be retired perma- nently
rather than restored. The Commission reasonably  concluded that all of
the ERS units could be brought back to  active service, and that this
benefit was sufficient, especially  when the decision to retire
certain ERS units would be made  in the future. (Indeed, as we noted
earlier, 40% of the units  placed in ERS since the inception of the
program in 1986 had  already been restored to active service by 1993.)
FERC's  judgments on these questions of benefits readily support its 
application of the well-settled principle that the costs associat- ed
with ERS units (whether construction expenses incurred  in the past or
maintenance costs incurred today) should be  borne by those who
benefit from them. See, e.g., Gulf Power  Co., 983 F.2d at 1100; City
of New Orleans v. FERC, 875  F.2d 903, 905 (D.C. Cir. 1989).


Petitioners, moreover, oversimplify in claiming that the 
appropriateness of MSS-1 cost equalization treatment at a  given point
in time hinges on whether the unit in question is  "used and useful"
to the System at that time. We explored  this issue in Town of Norwood
v. FERC, 80 F.3d 526 (D.C.  Cir. 1996), which involved the analogous
context of a dispute  over which assets a single utility could
appropriately include  in its rate base--analogous because an
individual Entergy  company's catalogue of MSS-1 eligible units is
akin to a  "cost-equalization rate base." The utility in Norwood had 
shut down its nuclear power plant temporarily in response to  a
regulator's safety concerns, and four months later decided  to retire
the plant permanently because the costs of restart- ing it and
operating it through the remainder of its license 


exceeded the value of the energy it could produce. See id. at  528.
The Commission granted the utility's request to include  in its rate
base 100% of its $48.4 million investment in the  plant that it would
have recovered if it had operated the plant  through the remainder of
its license, and its post-shutdown  operating and maintenance expenses
of $68.9 million. See id.  at 528, 530. A petition for review
asserted, inter alia, that  forcing ratepayers to pay for a plant no
longer producing  electricity conflicts with the principle that
ratepayers should  only pay for items "used and useful" in providing
service.  We rejected the argument:


Although a utility's rate base normally consists only of  items
presently "used and useful," see New England  Power Co. Mun. Rate
Comm. v. FERC, 668 F.2d 1327,  1333 (D.C. Cir. 1981), cert. denied,
457 U.S. 1117 (1982), a  utility may include "prudent but canceled
investments" in  its rate base as long as the Commission reasonably 
balances consumers' interest in fair rates against inves- tors'
interest in "maintaining financial integrity and ac- cess to capital
markets." Jersey Cent. Power & Light  Co. v. FERC, 810 F.2d 1168, 1178
(D.C. Cir. 1987) [(en  banc)].


Town of Norwood, 80 F.3d at 531 (emphasis and bracketed  material
added). We held that the Commission had reason- ably approved the
requested cost recovery, in light of the  nuclear plant's record of
serving ratepayers for decades and  the promise of savings going
forward. Here, no one disputes  that the ERS units have a record of
service as available  capacity, or that placement of units into ERS
yields savings  going forward.9 And, unlike the nuclear plant in
Norwood,  many of the ERS units will be returned to active service in




__________

n 9 As noted earlier, there are ongoing costs associated with the  ERS
units, which are akin to the post-shutdown maintenance  expenses
approved for recovery in Norwood. And petitioners  themselves indicate
that the ERS units still have some initial  investment costs that have
not yet been recovered, see Brief for  Petitioners at 25, the
recoupment of which we also sanctioned in  Norwood.


the future. So even were we to assume the ERS units are  not presently
"used and useful," our broader explication of  the "used and useful"
principle in Norwood provides ample  support for the Commission's
reasoning.


C.


The final two factors relied on by the Commission are not  all that
weighty. FERC concluded that "there was no unjust  enrichment as a
result of the violation [of the tariff's defini- tion of "available"],
given that Entergy as a whole received no  net gain from the inclusion
of ERS units in Schedule MSS-1."  Entergy Servs., 80 F.E.R.C. at
61,787. The Commission  explained that the only consequence of the
decision to include  or exclude ERS units for MSS-1 purposes is a
different  MSS-1 payment pattern among the operating companies; but 
MSS-1 payments and receipts always cancel out from the  perspective of
the System as a whole, and so Entergy Corpo- ration (the holding
company) had nothing to gain by violating  its tariff. See id. at
61,787 n.37. Petitioners appreciate this  algebraic truth, but suggest
that it is too superficial a charac- terization of the holding
company's motives. Pointing to an  Entergy official's testimony that
one of the reasons for includ- ing ERS units in MSS-1 was to maintain
stability in MSS-1  payments and receipts so as to avoid the
initiation of rate  cases by state regulators, petitioners contend
that this strate- gy--which proved successful until 1994--unjustly
enriched  the holding company by enabling it to keep the benefits of 
ERS for the shareholders for longer than if ERS units had  been
excluded from MSS-1. The Commission responds by  claiming that the
benefits identified by petitioners flow from  the ERS program, not


We admit that petitioners cast doubt on the strength of this  factor,
especially given the Commission's failure squarely to  address in its
brief petitioners' notion that the tariff violation  provided a
benefit insofar as it made rate cases less likely by  not "rocking the
boat" of MSS-1 payments and receipts. But  under the deferential
review we accord to the Commission's  remedial decisions, we think the
Commission's reasoning just 


passes muster. A reasonable response to petitioners' point,  although
missing in the Commission's brief, can be found in  the Commission's
explanation in its orders of the separate  disincentive rationale we
discussed at the outset of our analy- sis. The Commission explained
that the System (and its  shareholders) did not retain all of the
benefits of the tariff  violation that facilitated the ERS program.
Even though no  rate case was initiated before 1994, ratepayers were
made  better off insofar as the operating companies were less likely 
to seek rate increases. See Entergy Servs., 82 F.E.R.C. at  61,370.
And the 1994 rate cases appear to have captured  benefits for
ratepayers in the form of reduced retail rates.  The Commission's view
that this division of benefits between  the Entergy System and the
retail ratepayers was not "un- just" deserves deference. Indeed, it is
hardly unusual for a  utility whose rates are set by cost-of-service
ratemaking  principles to seek to reduce its costs, thereby increasing
 profits, during the interim between rate-setting proceedings.  See
National Rural Telecom Ass'n v. FCC, 988 F.2d 174, 178  (D.C. Cir.
1993); Stephen Breyer, Regulation and its Reform  48 (1982).


The Commission's final factor sounds in estoppel; the  Commission
stated that "nearly every participant in this  proceeding, including
[petitioners], at one time either believed  that the System Agreement
permitted the inclusion of ERS  units in Schedule MSS-1 calculations,
or at least did not  protest such treatment." Entergy Servs., 80
F.E.R.C. at  61,787-88 (footnote omitted). Petitioners concede that
they  did not object until the Commission initiated its s 206 investi-
gation into the possible tariff violation, but argue that the  timing
of their protest is irrelevant. They explain that in the  merger
review proceeding, their entire focus was on the  treatment of Gulf
States' ERS units, and thus they should not  be faulted for missing
the possibility that inclusion of ERS  units in MSS-1 by the incumbent
subsidiaries was working to  the detriment of Entergy Louisiana and
Entergy Mississippi.  Only when they concentrated on the s 206
proceeding, peti- tioners tell us, did they discover the disparity
among the  incumbent subsidiaries in ERS-eligible units and recognize


the impact on Entergy Louisiana and Entergy Mississippi of  including
ERS units in MSS-1. Petitioners also urge that  even if they should
have complained earlier, that failing  should not be attributed to the
retail ratepayers, the ultimate  beneficiaries of the hoped-for
refund.


Again, though this factor is less weighty than the others--
particularly the first two--and perhaps would be inadequate  standing
alone, we do not regard it as objectionable.


III.


There remains petitioners' challenge to the amendment  approved by the
Commission to govern the MSS-1 treatment  of ERS units going forward.
The amendment provides:


A unit is considered available to the extent the capability  can be
demonstrated and (1) is under the control of the  System Operator, or
(2) is down for maintenance or  nuclear refueling, or (3) is in
extended reserve shutdown  (ERS) with the intent of returning the unit
to service at  a future date in order to meet Entergy System require-
ments. The Operating Committee's decision to consider  an ERS unit to
be available to meet future System  requirements shall be evidenced in
the minutes of the  Operating Committee and shall be based on
consider- ations of current and future resource needs, the project- ed
length of time the unit would be in ERS status, the  projected cost of
maintaining such unit, and the project- ed cost of returning the unit


Entergy Servs., 80 F.E.R.C. at 61,788-89 (emphasis in origi- nal).
Petitioners contend that this amendment grants unfet- tered discretion
to Entergy, and thus is an effective abdica- tion of the Commission's
statutory responsibility to ensure  that rates are just and
reasonable. See 16 U.S.C. s 824d(a).  They explain that the amendment
does not indicate in which  direction the various factors point, and
does not say anything  about the relative weights of the factors.
Petitioners bolster  their claim by directing us to the testimony of


witness who opined that the factors could cut for or against  MSS-1
inclusion depending on the circumstances.


While the amendment is certainly closer to a standard than  to a rule,
we defer to the Commission's judgment that it is  just and reasonable.
See Northern States Power Co. v.  FERC, 30 F.3d 177, 180 (D.C. Cir.
1994) ("Because '[i]ssues 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." (quoting  Town of Norwood v. FERC, 962 F.2d 20, 22 (D.C.
Cir. 1992))  (alteration in original)). FERC understandably concluded 
that the amendment set out the parameters of the operating 
committee's discretion, and that discriminatory implementa- tion of
the amendment could be remedied in a proceeding  under FPA s 206, 16
U.S.C. s 824e, a review facilitated by  the requirement that the
operating committee record the  reasons for its decisions in writing.
The amendment, more- over, is a far cry from the vacuous tariff
provisions that the  Commission has rejected in the past. See, e.g.,
Southern  Natural Gas Co., 47 F.E.R.C. p 61,205, at 61,708 (1989) 
(rejecting portion of proposed tariff that granted oil pipeline 
authority to construct facilities to serve shippers "in its sole 
discretion"); Tennessee Gas Pipeline Co., 45 F.E.R.C.  p 61,236, at
61,693 (1988) (same); cf. Farmers Union Cent.  Exch., Inc. v. FERC,
734 F.2d 1486 (D.C. Cir. 1984) (vacating  Commission order setting
permissible oil pipeline rates so  high that "regulation" would be
left to market forces, reason- ing that the Commission thereby
contravened its statutory  responsibility to ensure that rates are


* * * *


For the foregoing reasons, the petition for review is denied.


So ordered.