FERC’s most recent order on an Entergy subsidiary’s tax violations and lease payment collections for the Grand Gulf Nuclear Station in Mississippi reignited a longstanding dispute over how much in refunds should be due to customers.

FERC this week didn’t appear to order more refunds stemming from litigation. However, regulators argue FERC’s most recent order means Entergy should reimburse ratepayers more than half a billion dollars.

FERC last year ruled that Entergy subsidiary System Energy Resources Inc. (SERI) charged an excessive revenue requirement to ratepayers because it had improperly excluded accumulated deferred income tax (ADIT) deductions since 2004. Those deductions are related to the future estimated decommissioning expenses for Grand Gulf that Entergy claimed on its consolidated federal income tax return. Entergy claims it’s already taken care of the matter by crediting about $100 million to customers.

The newest order on Grand Gulf matters, issued Aug. 28, doesn’t clear up exactly how much Entergy owes for the tax violations, though it rehashes longstanding disagreements over Grand Gulf accounting practices (EL18-152). FERC restated that SERI “must refund amounts resulting from the improper exclusion of ADIT liabilities from the [unit-power sales agreement] rate base.”

FERC also decided last year that SERI must refund ratepayers about $149 million plus interest for overbilling on the Grand Gulf annual lease payments it collected from Entergy companies from 2015 through 2022. This week’s order allows Entergy to offset the undepreciated remaining book value of the sale/leaseback property, letting it partly recover some of that amount.

The Louisiana Public Service Commission and New Orleans City Council maintain Entergy owes roughly $550 million in refunds split between ratepayers in Louisiana, Arkansas and New Orleans. (See Regulators File Emergency Motion in Ongoing Grand Gulf Battle.)

SERI operates and owns 90% of the 1,400-MW Grand Gulf plant in Port Gibson, Miss. It sells the plant’s output to Entergy’s Arkansas, Louisiana, Mississippi and New Orleans affiliates under a unit-power sales agreement (UPSA) that includes the costs of the Grand Gulf Nuclear Power Station’s sale-leaseback renewals.

In a press release, Entergy said its actions “have been and continue to be in the best interest of its customers.” It also encouraged the state regulators and city councilors to consider accepting a settlement related to the remaining litigation involving Grand Gulf performance issues and accounting practices. (See Entergy Offers Regulators $588M to End Grand Gulf Complaints.)

“We are pleased today’s order resolves a major source of litigation between our regulators and SERI,” said Rod West, Entergy group president of utility operations. “We hope the clarity provided by the FERC in this ruling helps to guide constructive discussions with our regulators to resolve the remaining SERI litigation matters. A comprehensive settlement could provide significant and imminent refunds to our customers at a time when energy bills are high due to record usage.”

New Orleans City Council Vice President Helena Moreno called Entergy’s reading of the order and the utility’s claim it doesn’t owe further refunds “bizarre.”

The Louisiana Public Service Commission also said it disagreed with Entergy’s interpretation.

“The FERC order confirms that SERI does owe refunds, contrary to Entergy’s assertions. FERC denied SERI’s request for rehearing of the refund issue. Entergy’s public statement provides no FERC language alleged to support its position,” the Louisiana PSC said in the release. The state commission also predicted more litigation.

Louisiana PSC Vice Chair Mike Francis vowed to fight for more refunds.

“It’s time for Entergy Corp. to stop these legal challenges and comply with the order to refund what is owed to our people. The time is now to bring the matter to rest,” Louisiana PSC Commissioner Davante Lewis said.

Despite the murky refund issue, FERC’s order contained myriad decisions on rehearing. It said though Entergy defended its accounting treatment of Grand Gulf’s lease renewal, it remains inappropriate for SERI to have handled the renewal as a financing extension of the original sale-leaseback agreement that lasted from 1989 to 2015. The lease renewal from 2015 onward should have been considered standalone, FERC said.

The commission reaffirmed that the lease renewal “was not simply an extension of the original sale-leaseback under the terms of that agreement, pursuant to, for example, an evergreen clause,” but a separate transaction using “new lease instruments that memorialized a new lease term, as well as the amounts and frequency of new rental payments.”

FERC also asserted that it was wrong of SERI to attempt to recover the costs of a return on net capital additions through both its rate base and the lease renewal payments because it constitutes a double recovery.

Additionally, FERC directed SERI to transfer and reclassify $147.3 million of excess ADIT associated with nuclear decommissioning tax deductions to a property-related ADIT account.

Tiff Arises over ALJ Authority

Lastly, FERC rejected SERI’s argument on rehearing that it shouldn’t have allowed an administrative law judge to conduct the hearing and issue an initial decision in the Grand Gulf sale-leaseback and tax disputes. SERI had surprisingly alleged that “proceedings before an administrative law judge are unconstitutionally insulated from the president’s control by multiple layers of removal protections.” It said such judge’s decisions are invalid because they are unconstitutionally appointed by the FERC chair alone.

FERC Commissioner Mark Christie said he was taken aback that SERI raised a constitutional issue so late and in a rehearing request. He wrote separately to second FERC’s rejection of Entergy’s argument and admonish SERI for throwing a curveball so late in the game “in only a few pages buried near the end of its rehearing request.”

“A constitutional issue of this magnitude is not one that is appropriate to raise for the first time on rehearing. It should have been raised and fully briefed well before this point in the process and — preferably in my view — set down for oral argument before the full commission, before any final determination by this commission would be rendered,” Christie wrote. “Ideally, a constitutional issue of this magnitude should be raised only in a general proceeding where all interested parties can weigh in extensively.”

It was FERC’s defense of the use of an administrative law judge in this case that had Commissioner James Danly tacking a dissent onto the order. He said FERC’s argument that it can use an after-the-fact ratification of an administrative law judge’s appointment in a docket or a full commission review and adoption of an administrative law judge’s findings to remedy a possible constitutional infirmity was legally flawed.