Post on 15-Sep-2020
BEFORE THE
LOUISIANA PUBLIC SERVICE COMMISSION
LOUISIANA PUBLIC SERVICE COMMISSION, EX PARTE
GENERAL ORDER 6-7-2019
Docket No. R-34246, In re: Rulemaking to consider the appropriateness and potential scope
of the Louisiana Public Service Commission ’s review and pre—approval of utility contracts
regarding the construction and/or acquisition of significant generation and transmission
related assets.
(Decided at the May 15. 2019 Business and Executive Session.)
(Amends and Supersedes General Order dated May 7. 1982. Major Utility Construction Projects: Disclosure to Commission.)
Background and Procedural History
The Louisiana Public Service Commission ("LPSC“ or "Commission") issued General Order
dated May 7. 1982 (“1982 General Order") requiring all electric utility companies subject to the
jurisdiction of the Commission to notify the same in writing of the fact that a major capital outlay was
being contemplated prior to the electric utility executing the contract or expending funds, other than for
feasibility studies. The 1982 General Order defined a major capital outlay as one that is reasonably
anticipated to increase a utility‘s rate base. exclusive of retirements. by a factor in excess of ten percent
(10%). The impetus behind the 1982 General Order was the increased cost ofmajor construction projects.
coupled with the existence of unprecedented inflation. which raised the possibility that major construction
projects could severely impact rate base and correspondingly the rates to ratepayers.
The instant proceeding arose out ofa directive adopted by the Commission at its August 31. 2016
Business and Executive Session requesting Staff to “consider the appropriateness and potential scope of
the C ommission's review and pre—approval of utility contracts regarding the construction and acquisition
of significant generation and transmission related assets.” Staff was further directed to “review current
procedures. determine which contracts should be reviewed. and consider adopting new procedures that
would allow the Commission to hire outside consultants and counsel to review dened contracts prior to
execution.”
Pursuant to the Commission”s directive, a Notice ofRulemaking was led September 22. 2016
opening Docket No. R-34246 with publication in the Commission‘s Official Bulletin dated September 23.
2016 for a twenty—tive (25) day intervention period. Eleven (1 1) parties intervened — the Louisiana Energy
Users Group ("LEUG"). Cleco Power LLC ("Cleco Power"). Southwestern Electric Power Company
' Minutes of August 3 1. 2016 Business and Executive Session. Ex. 25.
3 Id.
General Order 6-7-2019
(Docket No. R-34246)
Page -1-
BEFORE THE
LOUISIANA PUBLIC SERVICE COMMISSION
LOUISIANA PUBLIC SERVICE COMMISSION, EX PARTE
GENERAL ORDER 6-7-2019
Docket No. R-34246, In re: Rulemaking to consider the appropriateness and potential scope
of the Louisiana Public Service Commission ’s review and pre—approval of utility contracts
regarding the construction and/or acquisition of significant generation and transmission
related assets.
(Decided at the May 15. 2019 Business and Executive Session.)
(Amends and Supersedes General Order dated May 7. 1982. Major Utility Construction Projects: Disclosure to Commission.)
Background and Procedural History
The Louisiana Public Service Commission ("LPSC“ or "Commission") issued General Order
dated May 7. 1982 (“1982 General Order") requiring all electric utility companies subject to the
jurisdiction of the Commission to notify the same in writing of the fact that a major capital outlay was
being contemplated prior to the electric utility executing the contract or expending funds, other than for
feasibility studies. The 1982 General Order defined a major capital outlay as one that is reasonably
anticipated to increase a utility‘s rate base. exclusive of retirements. by a factor in excess of ten percent
(10%). The impetus behind the 1982 General Order was the increased cost ofmajor construction projects.
coupled with the existence of unprecedented inflation. which raised the possibility that major construction
projects could severely impact rate base and correspondingly the rates to ratepayers.
The instant proceeding arose out ofa directive adopted by the Commission at its August 31. 2016
Business and Executive Session requesting Staff to “consider the appropriateness and potential scope of
the C ommission's review and pre—approval of utility contracts regarding the construction and acquisition
of significant generation and transmission related assets.” Staff was further directed to “review current
procedures. determine which contracts should be reviewed. and consider adopting new procedures that
would allow the Commission to hire outside consultants and counsel to review dened contracts prior to
execution.”
Pursuant to the Commission”s directive, a Notice ofRulemaking was led September 22. 2016
opening Docket No. R-34246 with publication in the Commission‘s Official Bulletin dated September 23.
2016 for a twenty—tive (25) day intervention period. Eleven (1 1) parties intervened — the Louisiana Energy
Users Group ("LEUG"). Cleco Power LLC ("Cleco Power"). Southwestern Electric Power Company
' Minutes of August 3 1. 2016 Business and Executive Session. Ex. 25.
3 Id.
General Order 6-7-2019
(Docket No. R-34246)
Page -1-
("SWEPCO"). Entergy Louisiana. LLC ("ELL"). Marathon Petroleum Company LP ("Marathon").
Southwest Louisiana Electric Membership Corporation ("SLEMCO"). the Midcontinent Independent
System Operator. Inc. ("MISO"). Bayou Steel Group ("Bayou Steel"). Louisiana Generating LLC and
NRG Power Marketing LLC (collectively "NRG"). Occidental Chemical Corporation ("OxyChem"). and
the Sierra Club ("Sierra Club") (collectively "lntervenors"). Subsequent to the intervention period
expiring, Staff issued three (3) request for comments. two (2) proposed rules. and held a technical
conference prior to ling Staff s Report and Recommendation 0fFinal Rule on April 5. 2019.
Jurisdiction and Applicable Law
The Commission has been vested with the authority to regulate public utilities and common
carriers and exercisesjurisdiction in this proceeding pursuant to Article IV. Section 2 l (b) ofthe Louisiana
Constitution of 1974. which provides in pertinent part:
(B.) The commission shall regulate all common carriers and public utilities and
have such other regulatory authority as provided by law. It shall adopt and enforce
reasonable rules. regulations, and procedures necessary for the discharge of its
duties. and shall have other powers and perform other duties as provided by law.
This Constitutional authority delegates the exclusive and plenary power to regulate all common carriers
and public utilities to the Commission.3 Further. pursuant to this Constitutional authority, the Commission
has issued general orders throughout the years. three of which were relevant to Staff s review herein. The
Commission issued the 1982 General Order requiring utilities to notify the Commission in writing of
"major capital outlay" being contemplated before contracts are entered or funds are expended. which
requires notication only. there is no pre—approval requirement.
The Commission also issued General Order dated September 20. 1983. as most recently amended
by the Commissions General Order dated May 27. 2009. ("l983 General Order") which states that no
jurisdictional electric utility "shall commence any on site construction activity or enter into any contract
for construction without first having applied to the Commission for a certification that the public
convenience and necessity would be served through completion of such project or confection of such
contract." Additionally. the 1983 General Order requires that applications submitted pursuant to the 1983
General Order "shall include the specific data utilized by the utility in justification of the generation
project."
3 Bowie v. Lozzisianu Public Service C0n1n1i.s'.s'i(m, 627 So. 2d 164. 166 (La. I993) (“Bm1'ie").
General Order 6-7-2019
(Docket No. R-34246)
Page -2-
("SWEPCO"). Entergy Louisiana. LLC ("ELL"). Marathon Petroleum Company LP ("Marathon").
Southwest Louisiana Electric Membership Corporation ("SLEMCO"). the Midcontinent Independent
System Operator. Inc. ("MISO"). Bayou Steel Group ("Bayou Steel"). Louisiana Generating LLC and
NRG Power Marketing LLC (collectively "NRG"). Occidental Chemical Corporation ("OxyChem"). and
the Sierra Club ("Sierra Club") (collectively "lntervenors"). Subsequent to the intervention period
expiring, Staff issued three (3) request for comments. two (2) proposed rules. and held a technical
conference prior to ling Staff s Report and Recommendation 0fFinal Rule on April 5. 2019.
Jurisdiction and Applicable Law
The Commission has been vested with the authority to regulate public utilities and common
carriers and exercisesjurisdiction in this proceeding pursuant to Article IV. Section 2 l (b) ofthe Louisiana
Constitution of 1974. which provides in pertinent part:
(B.) The commission shall regulate all common carriers and public utilities and
have such other regulatory authority as provided by law. It shall adopt and enforce
reasonable rules. regulations, and procedures necessary for the discharge of its
duties. and shall have other powers and perform other duties as provided by law.
This Constitutional authority delegates the exclusive and plenary power to regulate all common carriers
and public utilities to the Commission.3 Further. pursuant to this Constitutional authority, the Commission
has issued general orders throughout the years. three of which were relevant to Staff s review herein. The
Commission issued the 1982 General Order requiring utilities to notify the Commission in writing of
"major capital outlay" being contemplated before contracts are entered or funds are expended. which
requires notication only. there is no pre—approval requirement.
The Commission also issued General Order dated September 20. 1983. as most recently amended
by the Commissions General Order dated May 27. 2009. ("l983 General Order") which states that no
jurisdictional electric utility "shall commence any on site construction activity or enter into any contract
for construction without first having applied to the Commission for a certification that the public
convenience and necessity would be served through completion of such project or confection of such
contract." Additionally. the 1983 General Order requires that applications submitted pursuant to the 1983
General Order "shall include the specific data utilized by the utility in justification of the generation
project."
3 Bowie v. Lozzisianu Public Service C0n1n1i.s'.s'i(m, 627 So. 2d 164. 166 (La. I993) (“Bm1'ie").
General Order 6-7-2019
(Docket No. R-34246)
Page -2-
Additionally. the Commission issued General Order dated April 10. 2002. as most recently
amended by the Commissions General Order dated October 29. 2008 ("MBM Order"). which states that
jurisdictional electric utilities "shall employ a market-based mechanism to support the acquisition of
generating capacity." and that the results and analysis from the market-based mechanism shall serve as
the "justification" required in the 1983 General Order. The MBM Order further dictates that the market-
based mechanism to be used "shall be a Request for Proposal (‘RFP’) competitive solicitation process."
The MBM Order requires that the "electric utility shall conduct its planning and REP process with the
objective being the provision of reliable electric service at lowest reasonable cost."
Intervenor Participation
Responses to Staff s Initial Request for Comments were received from LEUG. Cleco Power.
SWEPCO. and ELL (collectively "Initial Commenters"). The Initial Commenters were uniformly
opposed to rules requiring Commission pre-approval of utility contracts regarding the construction and/or
acquisition of significant generation and transmission related assets. Several potential issues were raised
by the Initial C ommenters such as potential usurpation and interference with the utility‘s core function of
entering into and managing contracts, potentially impeding efficient utility operations, and potential
transfer of risks to the utility‘s ratepayers. The Initial Commenters also raised the potential practical
problem of Staff and outside counsel and consultants conflicted out oflater prudence reviews should those
individuals have participated in the review and pre-approval process of the contract for the same project.
All Initial Commenters also noted the current obligation utilities have to enter into and manage contracts
prudently. which is subject to review by the Commission.
ELL. SWEPCO. and C leco Power also provided responses to Staffs Second and Third Reque.s'I.s‘
for Comments. as the requests specifically sought comments regarding the current ten percent (10%)
threshold requirement contained in the 1982 General Order. and what that amount equated to for each
utility. As indicated in response to Staffs Requestfor' Second Comments. for ELL, the 10% threshold is
approximately $830 million. For Cleco Power. it is approximately $270 million. and for SWEPCO. it is
$141 million. Cleco Power supported a reduction in the threshold amount to two percent (2%). or
alternatively proposed the threshold be based on a set dollar gure. Initially. ELL and SWEPCO
commented that the current threshold was reasonable. and believed the threshold amount should be
maintained as a percentage of rate base and not be based on a specific dollar amount. Subsequent
comments from SWEPCO indicated a two percent (2%) threshold would be a compromise from Staffs
General Order 6-7-2019
(Docket No. R-34246)
Page -3-
Additionally. the Commission issued General Order dated April 10. 2002. as most recently
amended by the Commissions General Order dated October 29. 2008 ("MBM Order"). which states that
jurisdictional electric utilities "shall employ a market-based mechanism to support the acquisition of
generating capacity." and that the results and analysis from the market-based mechanism shall serve as
the "justification" required in the 1983 General Order. The MBM Order further dictates that the market-
based mechanism to be used "shall be a Request for Proposal (‘RFP’) competitive solicitation process."
The MBM Order requires that the "electric utility shall conduct its planning and REP process with the
objective being the provision of reliable electric service at lowest reasonable cost."
Intervenor Participation
Responses to Staff s Initial Request for Comments were received from LEUG. Cleco Power.
SWEPCO. and ELL (collectively "Initial Commenters"). The Initial Commenters were uniformly
opposed to rules requiring Commission pre-approval of utility contracts regarding the construction and/or
acquisition of significant generation and transmission related assets. Several potential issues were raised
by the Initial C ommenters such as potential usurpation and interference with the utility‘s core function of
entering into and managing contracts, potentially impeding efficient utility operations, and potential
transfer of risks to the utility‘s ratepayers. The Initial Commenters also raised the potential practical
problem of Staff and outside counsel and consultants conflicted out oflater prudence reviews should those
individuals have participated in the review and pre-approval process of the contract for the same project.
All Initial Commenters also noted the current obligation utilities have to enter into and manage contracts
prudently. which is subject to review by the Commission.
ELL. SWEPCO. and C leco Power also provided responses to Staffs Second and Third Reque.s'I.s‘
for Comments. as the requests specifically sought comments regarding the current ten percent (10%)
threshold requirement contained in the 1982 General Order. and what that amount equated to for each
utility. As indicated in response to Staffs Requestfor' Second Comments. for ELL, the 10% threshold is
approximately $830 million. For Cleco Power. it is approximately $270 million. and for SWEPCO. it is
$141 million. Cleco Power supported a reduction in the threshold amount to two percent (2%). or
alternatively proposed the threshold be based on a set dollar gure. Initially. ELL and SWEPCO
commented that the current threshold was reasonable. and believed the threshold amount should be
maintained as a percentage of rate base and not be based on a specific dollar amount. Subsequent
comments from SWEPCO indicated a two percent (2%) threshold would be a compromise from Staffs
General Order 6-7-2019
(Docket No. R-34246)
Page -3-
proposed one percent (1%). while ELL commented a reasonable threshold amount would be three percent
(3%). Another mutual comment among ELL, SWEPCO. and Cleco Power was the request for an
exemption from the 1982 General Order for emergency improvements such as improvements necessitated
by a stonn. such as storm recovery.
Sta’s Analysis and Final Recommendation
Staff reviewed and analyzed all comments submitted. performed research into contract pre-
approval in otherjurisdictions. and examined the existing regulatory paradigm in Louisiana. The existing
regulatory paradigm (the 1983 and MBM General Orders) already address utility projects that add or
acquire new capacity. and does not require pre-approval of construction. engineering and
procurement—type contracts associated with those projects. As discussed in detail in Staffs Report and
Recommendation of Final Rule. these contracts are subject to after-the—fact prudence reviews in the
Commission review process. In Staffs research of other jurisdictions. Staff did not find any other
jurisdiction that currently requires pre-approval of such contracts.
In examining the existing regulatory paradigm. Staff recognized that projects falling under the
1983 General Order and the MBM Order are already subject to ling requirements and an after-the-fact
prudence review process. And. practically speaking. utilities often file the relevant implementation
contracts associated with such projects with the certification application. The Commissions practice has
been not to pre—approve those implementation contracts. but rather to review the implementation contracts
in the after—the-fact prudence review. This practice allows the Commission to review the contract as a
whole related to the completion of the project and not in a vacuum at the beginning of a project.
"Prudence" is not a once and done obligation that terminates when a contract is executed. It is an ongoing
obligation and the utility is obligated to prudently manage the contract throughout the term. It is this type
of after—the-fact extensive review that allows the Commission to impose imprudence disallowances. as
necessary. to ensure contracts are entered into and administered by utilities prudently. The utilities are
currently required to seek the best contract terms available in the market place. to manage those contracts
using best practices. and are ultimately liable for the consequences for not doing so. While there is a
desire to ensure that contract terms are fair to ratepayers. it is not clear at this point that the Commission's
involvement in the implementation contracting process would improve contract terms or results for
ratepayers.
General Order 6-7-2019
(Docket No. R-34246)
Page -4-
proposed one percent (1%). while ELL commented a reasonable threshold amount would be three percent
(3%). Another mutual comment among ELL, SWEPCO. and Cleco Power was the request for an
exemption from the 1982 General Order for emergency improvements such as improvements necessitated
by a stonn. such as storm recovery.
Sta’s Analysis and Final Recommendation
Staff reviewed and analyzed all comments submitted. performed research into contract pre-
approval in otherjurisdictions. and examined the existing regulatory paradigm in Louisiana. The existing
regulatory paradigm (the 1983 and MBM General Orders) already address utility projects that add or
acquire new capacity. and does not require pre-approval of construction. engineering and
procurement—type contracts associated with those projects. As discussed in detail in Staffs Report and
Recommendation of Final Rule. these contracts are subject to after-the—fact prudence reviews in the
Commission review process. In Staffs research of other jurisdictions. Staff did not find any other
jurisdiction that currently requires pre-approval of such contracts.
In examining the existing regulatory paradigm. Staff recognized that projects falling under the
1983 General Order and the MBM Order are already subject to ling requirements and an after-the-fact
prudence review process. And. practically speaking. utilities often file the relevant implementation
contracts associated with such projects with the certification application. The Commissions practice has
been not to pre—approve those implementation contracts. but rather to review the implementation contracts
in the after—the-fact prudence review. This practice allows the Commission to review the contract as a
whole related to the completion of the project and not in a vacuum at the beginning of a project.
"Prudence" is not a once and done obligation that terminates when a contract is executed. It is an ongoing
obligation and the utility is obligated to prudently manage the contract throughout the term. It is this type
of after—the-fact extensive review that allows the Commission to impose imprudence disallowances. as
necessary. to ensure contracts are entered into and administered by utilities prudently. The utilities are
currently required to seek the best contract terms available in the market place. to manage those contracts
using best practices. and are ultimately liable for the consequences for not doing so. While there is a
desire to ensure that contract terms are fair to ratepayers. it is not clear at this point that the Commission's
involvement in the implementation contracting process would improve contract terms or results for
ratepayers.
General Order 6-7-2019
(Docket No. R-34246)
Page -4-
Thus. Staffdid not recommend a blanket rule requiring preapprovals for implementation contracts
be adopted. as it determined such preapproval is not in the public interest. The Commission can consider
such preapprovals in a particular case as facts and circumstances dictate. but the regulatory regime should
not require or provide for implementation contract preapprovals as a matter of course. and in most cases.
pre-approvals of such implementation contracts should not be given in advance of project completion.
Staff noted that. in reviewing utility projects after completion. Staff should continue to pay close
attention to the implementation contracts associated with the project and evaluate their terms and
management for prudence. In reviewing the contracts. the following factors should be considered. as
appropriate under the particular facts and circumstances at issue. as well as any other factors deemed
appropriate:
(1) Whether the contract was obtained through a competitive solicitation process;
(2) Whether the contract contains liquidated damages. delay damages. liability. and indemnity
provisions consistent with industry standards;
(3) Whether the contract was negotiated in good faith. placing the lowest reasonable amount
of risk on ratepayers;
(4) Whether the utility could have obtained additional protections for ratepayers. and would
these additional protections resulted in the incurrence of additional costs;
(5) Whether insurance was available. and if it was. what was the associated cost; and
(6) Whether the contract was with an affiliate.
Staffdetermined that a regulatory gap exists for projects that do not necessarily fall under the 1983
General Order. the MBM Order. or the 1982 General Order — projects such as major repairs, renovations.
replacements and life extension activities that do not add capacity and do not exceed 10% of a utility's
rate base (“major maintenance projects"). Such an example is the large Waterford 3 Steam Generators
replacement project. for which ELL sought certication; however. in that proceeding. Staff determined
that the project was essentially plant maintenance and did not fall under the 1983 General Order.‘‘ Staffs
witness in Docket No. U-30670 also testified that there was no basis for Commission pre-approval ofthe
project or the related construction contracts under the Commissions 1982 General Order as that order is
merely a reporting requirements For projects falling in this regulatory gap. both the project and the
associated utility contracts may not be disclosed to the Commission. the Staff. or the public. unless or until
the utility makes a rate filing associated with the project. Consistent with Staffs witness testimony in
Docket No. 11-30670. Staff did not assert that such major maintenance projects require certification. but
4 Direct Testimony of Matthew Kahal in Docket No. U—30670_ page 14. led September 25. 2008.
5 Id.
General Order 6-7-2019
(Docket No. R-34246)
Page -5-
Thus. Staffdid not recommend a blanket rule requiring preapprovals for implementation contracts
be adopted. as it determined such preapproval is not in the public interest. The Commission can consider
such preapprovals in a particular case as facts and circumstances dictate. but the regulatory regime should
not require or provide for implementation contract preapprovals as a matter of course. and in most cases.
pre-approvals of such implementation contracts should not be given in advance of project completion.
Staff noted that. in reviewing utility projects after completion. Staff should continue to pay close
attention to the implementation contracts associated with the project and evaluate their terms and
management for prudence. In reviewing the contracts. the following factors should be considered. as
appropriate under the particular facts and circumstances at issue. as well as any other factors deemed
appropriate:
(1) Whether the contract was obtained through a competitive solicitation process;
(2) Whether the contract contains liquidated damages. delay damages. liability. and indemnity
provisions consistent with industry standards;
(3) Whether the contract was negotiated in good faith. placing the lowest reasonable amount
of risk on ratepayers;
(4) Whether the utility could have obtained additional protections for ratepayers. and would
these additional protections resulted in the incurrence of additional costs;
(5) Whether insurance was available. and if it was. what was the associated cost; and
(6) Whether the contract was with an affiliate.
Staffdetermined that a regulatory gap exists for projects that do not necessarily fall under the 1983
General Order. the MBM Order. or the 1982 General Order — projects such as major repairs, renovations.
replacements and life extension activities that do not add capacity and do not exceed 10% of a utility's
rate base (“major maintenance projects"). Such an example is the large Waterford 3 Steam Generators
replacement project. for which ELL sought certication; however. in that proceeding. Staff determined
that the project was essentially plant maintenance and did not fall under the 1983 General Order.‘‘ Staffs
witness in Docket No. U-30670 also testified that there was no basis for Commission pre-approval ofthe
project or the related construction contracts under the Commissions 1982 General Order as that order is
merely a reporting requirements For projects falling in this regulatory gap. both the project and the
associated utility contracts may not be disclosed to the Commission. the Staff. or the public. unless or until
the utility makes a rate filing associated with the project. Consistent with Staffs witness testimony in
Docket No. 11-30670. Staff did not assert that such major maintenance projects require certification. but
4 Direct Testimony of Matthew Kahal in Docket No. U—30670_ page 14. led September 25. 2008.
5 Id.
General Order 6-7-2019
(Docket No. R-34246)
Page -5-
Staff determined that such projects, and the associated major maintenance contracts. should require notice
to the Commission under the Commission's 1982 General Order.
Staff also found that the threshold for triggering the application of the notice requirements under
the 1982 General Order should be lowered to a more meaningful standard. Lowering the threshold. would
help to close the gap of current projects not falling under the 1982 General Order, the 1983 General Order.
and the MBM Order. The 1982 General Order‘s requirement for a utility to provide notice is currently a
significant sum for all of Louisiana's investor—owned electric utilities. As a practical matter. this threshold
is so high that it rarely, if ever. triggers the 1982 General Order notice requirements. Furthermore. if a
utility is conducting a major capital outlay project that is below the current threshold and is not adding
additional capacity. arguably. the Commission would not be aware until such time as the utility came in
for rate relief. To ensure that utilities provide advance notice of major capital outlay projects to the
Commission. the threshold should be lowered to a more relevant threshold applicable to today's
environment.
ELL. SWEPCO. and Cleco Power raised valid concerns with Staffs proposed one percent (1%)
threshold. To ensure that its recommendation would not encroach upon day-to—day management of the
utilities. Staff recommended that the threshold be lowered to require written notification of "major capital
outlays" that are expected to increase a utility's rate base by more than three percent (3%). This
recommendation is consistent with ELL’s proposed compromise. is a higher threshold than SWEPCO and
Cleco Power indicated they were willing to accept. and would ensure that the Commission receive notice
of any major maintenance project by a utility. Staff therefore recommended the 1982 General Order be
revised to require notice to the Commission for major capital outlay projects that would result in a change
in the utility's rate base by more than three percent (3%). Major capital outlay projects. include but are
not necessarily limited to major repairs. renovations. and replacement projects by a utility. Furthermore.
Staff also recommended that there be an exemption from the 1982 General Order for storm recovery
situations.
This notice under the 1982 General Order is not intended to replace a prudence determination for
inclusion of such costs in rate base. Should a utility seek to recover costs of such major maintenance
projects from ratepayers. the utility would seek Commission approval at the appropriate time in a docketed
proceeding. Commission analysis of that application would include a prudence determination on the
project. including any implementation contracts associated therewith. This would be a docketed
General Order 6-7-2019
(Docket No. R-34246)
Page -6-
Staff determined that such projects, and the associated major maintenance contracts. should require notice
to the Commission under the Commission's 1982 General Order.
Staff also found that the threshold for triggering the application of the notice requirements under
the 1982 General Order should be lowered to a more meaningful standard. Lowering the threshold. would
help to close the gap of current projects not falling under the 1982 General Order, the 1983 General Order.
and the MBM Order. The 1982 General Order‘s requirement for a utility to provide notice is currently a
significant sum for all of Louisiana's investor—owned electric utilities. As a practical matter. this threshold
is so high that it rarely, if ever. triggers the 1982 General Order notice requirements. Furthermore. if a
utility is conducting a major capital outlay project that is below the current threshold and is not adding
additional capacity. arguably. the Commission would not be aware until such time as the utility came in
for rate relief. To ensure that utilities provide advance notice of major capital outlay projects to the
Commission. the threshold should be lowered to a more relevant threshold applicable to today's
environment.
ELL. SWEPCO. and Cleco Power raised valid concerns with Staffs proposed one percent (1%)
threshold. To ensure that its recommendation would not encroach upon day-to—day management of the
utilities. Staff recommended that the threshold be lowered to require written notification of "major capital
outlays" that are expected to increase a utility's rate base by more than three percent (3%). This
recommendation is consistent with ELL’s proposed compromise. is a higher threshold than SWEPCO and
Cleco Power indicated they were willing to accept. and would ensure that the Commission receive notice
of any major maintenance project by a utility. Staff therefore recommended the 1982 General Order be
revised to require notice to the Commission for major capital outlay projects that would result in a change
in the utility's rate base by more than three percent (3%). Major capital outlay projects. include but are
not necessarily limited to major repairs. renovations. and replacement projects by a utility. Furthermore.
Staff also recommended that there be an exemption from the 1982 General Order for storm recovery
situations.
This notice under the 1982 General Order is not intended to replace a prudence determination for
inclusion of such costs in rate base. Should a utility seek to recover costs of such major maintenance
projects from ratepayers. the utility would seek Commission approval at the appropriate time in a docketed
proceeding. Commission analysis of that application would include a prudence determination on the
project. including any implementation contracts associated therewith. This would be a docketed
General Order 6-7-2019
(Docket No. R-34246)
Page -6-
proceeding in which the general public could intervene. participate. and advocate positions regarding the
project costs.
Consistent with the review and analysis described above. Staff recommended that the existing
regulatory paradigm provides optimum review of implementation contracts. and those rules should not be
modified to provide for preapproval of implementation contracts. However. Staff recommended that
utilities continue to file contracts with lings made under the 1983 General Order, the MBM Order. and
the 1982 General Order. as amended and superseded by this proceeding. to the extent applicable. and that
the Commission continue the practice of reviewing implementation contacts for prudence on an after-the-
fact basis. considering the factors outlined above. Further. Staff recommended that the 1982 General
Order be modified to lower the current 10% of rate base threshold for requiring notification of major
capital outlay projects. to 3% of rate base as follows:
All electric utility companies subject to the jurisdiction of this Commission shall
notify this Commission in writing of the fact that a major capital outlay is being
contemplated prior to the letting of contract and expenditure of funds other than
for feasibility studies. For purposes of this Order. a "major capital outlay" shall
be one in which it is reasonably anticipated that the utility's rate base. exclusive
of retirements. will be increased by a factor in excess of10% 3%. In any event,
all new generating plants. and any new transmission facilities which meet the
above rate base criterion, shall be so disclosed prior to the letting of construction
contracts and the expenditures of funds for construction. Prior notice is not
required when an electric utility must enter into a contract for storm recovery or
emergency repairs‘ however, notice should be provided to the Commission as
soon as possible after the electric utility has entered into such a contract.
Commission Consideration
This matter was taken up at the Commissions May 15. 2019 Business and Executive Session. On
motion of Commissioner Skrmetta. seconded by Commissioner Greene. and unanimously adopted. the
Commission voted to accept Staff s Report and Recommendation ofthe Final Rule as filed into the record
on April 5. 2019.
IT IS THEREFORE ORDERED THAT:
(1) Electric Utilities shall continue to file construction. engineering. and procurement contracts with
lings made under the 1983 General Order. the MBM Order. and this Order. to the extent
applicable;
(2) Commission and Staff shall continue the ractice of reviewin im lementation contracts for P g P
prudence on an after-the-fact basis. considering the following factors. when applicable and other
such factors as may be appropriate:
General Order 6-7-2019
(Docket No. R-34246)
Page -7-
proceeding in which the general public could intervene. participate. and advocate positions regarding the
project costs.
Consistent with the review and analysis described above. Staff recommended that the existing
regulatory paradigm provides optimum review of implementation contracts. and those rules should not be
modified to provide for preapproval of implementation contracts. However. Staff recommended that
utilities continue to file contracts with lings made under the 1983 General Order, the MBM Order. and
the 1982 General Order. as amended and superseded by this proceeding. to the extent applicable. and that
the Commission continue the practice of reviewing implementation contacts for prudence on an after-the-
fact basis. considering the factors outlined above. Further. Staff recommended that the 1982 General
Order be modified to lower the current 10% of rate base threshold for requiring notification of major
capital outlay projects. to 3% of rate base as follows:
All electric utility companies subject to the jurisdiction of this Commission shall
notify this Commission in writing of the fact that a major capital outlay is being
contemplated prior to the letting of contract and expenditure of funds other than
for feasibility studies. For purposes of this Order. a "major capital outlay" shall
be one in which it is reasonably anticipated that the utility's rate base. exclusive
of retirements. will be increased by a factor in excess of10% 3%. In any event,
all new generating plants. and any new transmission facilities which meet the
above rate base criterion, shall be so disclosed prior to the letting of construction
contracts and the expenditures of funds for construction. Prior notice is not
required when an electric utility must enter into a contract for storm recovery or
emergency repairs‘ however, notice should be provided to the Commission as
soon as possible after the electric utility has entered into such a contract.
Commission Consideration
This matter was taken up at the Commissions May 15. 2019 Business and Executive Session. On
motion of Commissioner Skrmetta. seconded by Commissioner Greene. and unanimously adopted. the
Commission voted to accept Staff s Report and Recommendation ofthe Final Rule as filed into the record
on April 5. 2019.
IT IS THEREFORE ORDERED THAT:
(1) Electric Utilities shall continue to file construction. engineering. and procurement contracts with
lings made under the 1983 General Order. the MBM Order. and this Order. to the extent
applicable;
(2) Commission and Staff shall continue the ractice of reviewin im lementation contracts for P g P
prudence on an after-the-fact basis. considering the following factors. when applicable and other
such factors as may be appropriate:
General Order 6-7-2019
(Docket No. R-34246)
Page -7-
a. Whether the contract was obtained through a competitive solicitation process;
b. Whether the contract contains liquidated damages. delay damages. liability. and indemnity
provisions consistent with industry standards;
c. Whether the contract was negotiated in good faith. placing the lowest reasonable amount
of risk on ratepayers;
d. Whether the utility could have obtained additional protections for ratepayers, and would
these additional protections resulted in the incurrence of additional costs;
e. Whether insurance was available. and if it was. what was the associated cost; and
f. Whether the contract was with an affiliate; and
(3) All electric utility companies subject to the jurisdiction of this Commission shall notify this
Commission in writing of the fact that a major capital outlay is being contemplated prior to the
letting of contract and expenditure of funds other than for feasibility studies. For purposes of this
Order. a "major capital outlay" shall be one in which it is reasonably anticipated that the utility's rate base. exclusive of retirements. will be increased by a factor in excess of 3%. In any event. all
new generating plants. and any new transmission facilities which meet the above rate base
criterion. shall be so disclosed prior to the letting of construction contracts and the expenditures of
funds for construction. Prior notice is not required when an electric utility must enter into a
contract for storm recovery or emergency repairs; however. notice should be provided to the
Commission as soon as possible after the electric utility has entered into such a contract.
This Order is effective immediately.
BY ORDER OF THE COMMISSION
BATON ROUGE, LOUISIANA
June 7, 2019
/S/ MIKE FRANCIS
DISTRICT IV
CHAIRMAN MIKE FRANCIS
/S/ FOSTER L. CAMPBELL
DISTRICT V
VICE CHAIRMAN FOSTER L. CAMPBELL
/S/ LAMBER T C. BOISSIERE
DISTRICT III
COMMISSIONER LAMBERT C. BOISSIERE, III
/S; ERIC F. SKRMETTA
//DISTRICT 1
COMMISSIONER ERIC F. SKRMETTA
RANDON M. FR
SECRETARY
/S/CRAIG GREENE
DISTRICT II
COMMISSIONER CRAIG GREENE
General Order 6-7-2019
(Docket No. R-34246)
Page -8-
a. Whether the contract was obtained through a competitive solicitation process;
b. Whether the contract contains liquidated damages. delay damages. liability. and indemnity
provisions consistent with industry standards;
c. Whether the contract was negotiated in good faith. placing the lowest reasonable amount
of risk on ratepayers;
d. Whether the utility could have obtained additional protections for ratepayers, and would
these additional protections resulted in the incurrence of additional costs;
e. Whether insurance was available. and if it was. what was the associated cost; and
f. Whether the contract was with an affiliate; and
(3) All electric utility companies subject to the jurisdiction of this Commission shall notify this
Commission in writing of the fact that a major capital outlay is being contemplated prior to the
letting of contract and expenditure of funds other than for feasibility studies. For purposes of this
Order. a "major capital outlay" shall be one in which it is reasonably anticipated that the utility's rate base. exclusive of retirements. will be increased by a factor in excess of 3%. In any event. all
new generating plants. and any new transmission facilities which meet the above rate base
criterion. shall be so disclosed prior to the letting of construction contracts and the expenditures of
funds for construction. Prior notice is not required when an electric utility must enter into a
contract for storm recovery or emergency repairs; however. notice should be provided to the
Commission as soon as possible after the electric utility has entered into such a contract.
This Order is effective immediately.
BY ORDER OF THE COMMISSION
BATON ROUGE, LOUISIANA
June 7, 2019
/S/ MIKE FRANCIS
DISTRICT IV
CHAIRMAN MIKE FRANCIS
/S/ FOSTER L. CAMPBELL
DISTRICT V
VICE CHAIRMAN FOSTER L. CAMPBELL
/S/ LAMBER T C. BOISSIERE
DISTRICT III
COMMISSIONER LAMBERT C. BOISSIERE, III
/S; ERIC F. SKRMETTA
//DISTRICT 1
COMMISSIONER ERIC F. SKRMETTA
RANDON M. FR
SECRETARY
/S/CRAIG GREENE
DISTRICT II
COMMISSIONER CRAIG GREENE
General Order 6-7-2019
(Docket No. R-34246)
Page -8-