Introduction

In Entergy Arkansas, LLC v. Webb, the Eighth Circuit confronted the boundary between federal and state authority in utility ratemaking when a FERC-directed, inter-company refund leaves open who—shareholders or retail customers—must ultimately bear the cost. Entergy Arkansas sought to pass through to retail ratepayers approximately $135 million it paid to other operating companies in the Entergy System after FERC found historical accounting violations related to short-term “opportunity sales.” The Arkansas Public Service Commission (APSC) denied recovery from ratepayers and ordered Entergy Arkansas to credit retail customers with the “bandwidth adjustment” offset (about $13.7 million plus interest) on the rationale that retail customers had funded the original overpayments.

Entergy Arkansas sued in federal court, arguing that the APSC’s order violated (1) the federal filed-rate doctrine by “trapping” FERC-mandated costs and (2) the dormant Commerce Clause by discriminating against interstate commerce or imposing an excessive burden on it. After a three-day bench trial, the district court rejected those claims. The Eighth Circuit affirmed, clarifying when the filed-rate doctrine preempts state allocation decisions and rejecting a dormant Commerce Clause challenge to a state commission’s retail ratemaking judgment.

The decision’s significance is twofold:

• It crystallizes that the filed-rate doctrine does not preempt a state commission’s choice of who pays (shareholders or retail customers) when FERC expressly declines to allocate costs or to dictate who decides the allocation; and
• It confirms that refusing to pass through costs to retail ratepayers—without evidence of protectionist intent or effect—does not violate the dormant Commerce Clause, even if a utility’s shareholders are largely out-of-state and the underlying power flows crossed state lines.

Summary of the Opinion

Holding: The APSC’s order neither violates the filed-rate doctrine nor the dormant Commerce Clause.

• Filed-rate doctrine: No preemption. Although the Entergy System operating agreement is a “filed rate,” FERC determined only the amount and inter-company allocation of refunds. It expressly declined to decide who—retail customers or shareholders—should bear the cost and “went out of its way” not to preempt state allocation decisions. Because the FERC tariff did not dictate “how and by whom” the retail allocation must be made, the APSC retained authority to decide.
• Bandwidth adjustment: Same result. FERC did not direct how that offset would be allocated. The APSC could therefore order crediting that amount (plus interest) to retail customers.
• Dormant Commerce Clause: No discrimination and no clearly excessive burden. The APSC’s order reflects ordinary retail ratemaking (limiting recovery to costs reasonably necessary to serve Arkansas ratepayers), not protectionism. Any claimed burdens on interstate commerce were speculative and not clearly excessive relative to the state’s legitimate consumer-protection interests.

Factual and Procedural Background

Entergy Arkansas, a public utility, belonged to the multi-state Entergy System, which operated under FERC-filed tariffs and an operating agreement that centralized plant operations and equalized costs among operating companies through “bandwidth adjustment” payments (aimed to keep each company’s annual costs within ±11% of the system average).

Between 2000 and 2009, Entergy Arkansas made short-term wholesale “opportunity sales” using capacity previously set aside for wholesale purposes after late-1990s settlements and court orders. In 2009, the Louisiana Public Service Commission complained to FERC that Entergy Arkansas’s accounting of those sales violated the operating agreement. FERC agreed (Opinion No. 521, 139 FERC ¶ 61,240 (2012)) and later recognized that the resulting cost increases decreased bandwidth payments Entergy Arkansas otherwise would have owed (Opinion No. 565, 165 FERC ¶ 61,022 (2018)). Netting the bandwidth offset, Entergy Arkansas owed about $68 million, plus approximately $67 million in interest—a total near $135 million—to other Entergy System members.

Critically, FERC did not decide how the refund should be borne—by shareholders or retail customers—despite the APSC’s request for clarification (Opinion No. 548-A, 161 FERC ¶ 61,171 (2017)). The D.C. Circuit later confirmed that FERC “went out of its way not to say something that would be preemptive” about that allocation and left the issue to others to resolve (Entergy Services, Inc. v. FERC, No. 17-1251, 2021 WL 3082798, at *11 (D.C. Cir. July 13, 2021)).

Entergy Arkansas paid the refund in December 2018, then sought APSC approval to raise retail rates to recover the sum from ratepayers. The APSC denied recovery and ordered Entergy Arkansas to credit retail customers with the $13.7 million bandwidth offset plus interest, reasoning that retail customers funded the original overpayments. Entergy Arkansas complied with the credit and then sued, asserting violations of the filed-rate doctrine, the dormant Commerce Clause, and Arkansas law. After a bench trial, the district court rejected the federal claims (Entergy did not appeal the Arkansas-law holding). The Eighth Circuit affirmed.

Detailed Analysis

1) Precedents and Authorities Cited

• Federal Power Act, 16 U.S.C. § 824 et seq.; § 824d(c): FERC regulates interstate wholesale electricity transactions; utilities must file tariffs covering rates, charges, and related practices. These “filed rates” have binding, preemptive force in their domain.
• FERC v. Electric Power Supply Association, 577 U.S. 260 (2016): Reiterates FERC’s jurisdiction over wholesale sales and practices affecting wholesale rates, contrasted with state authority over retail rates.
• Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986): The classic “filed-rate doctrine” case. States must give binding effect to FERC determinations and may not “trap” FERC-mandated costs by disallowing their recovery in retail rates.
• Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988): Reinforces that states cannot second-guess FERC-mandated wholesale costs in retail ratemaking.
• Entergy Louisiana, Inc. v. Louisiana Public Service Commission, 539 U.S. 39 (2003): Crucial here: preemption turns not on whether FERC actually decided the issue, but on whether the FERC tariff dictates “how and by whom” the classification should be made. If FERC allocates or directs who decides, states must follow; if FERC leaves the matter open, state authority remains.
• FERC Opinions: Opinion No. 521 (139 FERC ¶ 61,240 (2012)) found violations in accounting; Opinion No. 548-A (161 FERC ¶ 61,171 (2017)) declined to decide retail allocation; Opinion No. 565 (165 FERC ¶ 61,022 (2018)) quantified and netted the bandwidth offset but, again, did not direct retail cost allocation.
• Entergy Services, Inc. v. FERC, No. 17-1251, 2021 WL 3082798 (D.C. Cir. July 13, 2021) (unpublished): Confirms that FERC intentionally left retail allocation to others and did not intend to preempt state commission decisions on the ratepayer-versus-shareholder question.
• Natural Pork Producers Council v. Ross, 598 U.S. 356 (2023): Reframes dormant Commerce Clause analysis, emphasizing that the doctrine targets protectionism and that downstream cost impacts alone do not establish a constitutional violation.
• LSP Transmission Holdings, LLC v. Sieben, 954 F.3d 1018 (8th Cir. 2020): Addresses discrimination and Pike balancing frameworks under the dormant Commerce Clause.
• Middle South Energy, Inc. v. Arkansas Public Service Commission, 772 F.2d 404 (8th Cir. 1985): APSC order struck down as discriminatory because it sought to block FERC-approved interstate contracts to shield Arkansans from costs, thus shifting costs to neighboring states—an economic protectionist purpose and effect.

2) The Court’s Legal Reasoning

a) Filed-rate doctrine

The linchpin is Entergy Louisiana’s “how and by whom” test for preemption. The Eighth Circuit accepts that the Entergy System operating agreement is a FERC-filed tariff. But it emphasizes that FERC made no decision that would preempt the APSC’s retail allocation:

• FERC determined the total inter-company refund and its division among operating companies.
• Yet FERC expressly declined to decide whether retail customers or shareholders should bear the cost and, indeed, “went out of its way” not to preclude state commissions from addressing that allocation.
• Because neither the FERC orders nor the filed tariff dictated the retail allocation or who must decide it, the filed-rate doctrine did not bar the APSC from resolving the shareholder-vs-ratepayer question.

Entergy Arkansas’s “cost-trapping” argument fails for the same reason. Cost-trapping occurs when a state blocks recovery of a FERC-mandated cost that the filed rate requires to be flowed through. Here, FERC did not require any pass-through to retail ratepayers; it left the retail allocation open. Without a FERC directive controlling the retail allocation, the state’s refusal to shift the burden to ratepayers is not impermissible “trapping” of a FERC-required retail charge.

The same logic disposes of Entergy Arkansas’s challenge to the APSC’s bandwidth-offset credit. Although the bandwidth mechanism is part of the filed rate, FERC did not direct how the offset must be reflected at retail. FERC stated that retail rate-setting is a matter for state commissions. The APSC therefore acted within its authority in ordering that retail customers receive the credit for overpayments they had originally funded.

b) Dormant Commerce Clause

Turning to the dormant Commerce Clause, the court distinguishes Middle South and rejects both discrimination and Pike balancing claims:

• No discrimination in purpose or effect: Unlike Middle South, the APSC’s order does not block FERC-approved interstate transactions or attempt to foist Arkansas’s share of a multi-state cost onto other states’ residents. The order simply decides a retail ratemaking allocation within Arkansas—an intrastate decision about who pays (shareholders or Arkansas retail customers). There is no evidence of a protectionist motive or of differential treatment favoring in-state economic interests over out-of-state interests.
• No clearly excessive burden under Pike: The APSC’s aim—ensuring recovery only of costs reasonably necessary to provide service to Arkansas ratepayers—is a conventional and legitimate local interest. Entergy Arkansas’s claimed burdens on interstate commerce (e.g., deterring regional participation or “penalizing” out-of-state sales) are “largely speculative” and not “clearly excessive” relative to the local benefits.

The court thus reaffirms that ordinary retail ratemaking decisions allocating costs between a utility’s investors and its in-state customers do not constitute economic protectionism merely because many investors reside out of state or because the power flows underlying the cost were interstate.

3) Impact and Implications

This decision has meaningful implications for the federal-state interplay in utility ratemaking:

• Clearer boundary for filed-rate preemption: The case operationalizes Entergy Louisiana’s “how and by whom” test. If FERC either (i) actually allocates a refund’s cost to retail or (ii) dictates in the tariff who must make that allocation, a state commission must comply. But if FERC declines to decide and the filed rate is silent on retail allocation, the state retains authority to determine whether shareholders or retail customers bear the cost.
• Practical guidance for utilities: When facing potential FERC-ordered refunds or surcharges tied to tariff violations or resettlements, utilities that want preemption at the retail level should seek explicit language from FERC directing the retail allocation or declaring that specific costs “shall be flowed through” to retail customers. Absent such direction, states may lawfully assign costs (or credits) to shareholders or ratepayers based on state law principles.
• Bandwidth and similar mechanisms: Even when offsets, credits, or adjustments arise under filed rates, state commissions may decide their retail treatment if FERC has not fixed the retail allocation. This supports commissions’ efforts to ensure symmetry—e.g., crediting retail customers with offsets that correspond to overpayments originally funded by those customers.
• Dormant Commerce Clause stability: The decision underscores that state ratemaking allocating costs between local customers and a utility’s owners usually raises no dormant Commerce Clause concerns, absent evidence of protectionism or targeted burden-shifting to other states. Following Natural Pork Producers, speculative ripple effects on interstate markets are not enough.

Complex Concepts, Simplified

• Filed-rate doctrine: Once FERC approves a rate or allocation for wholesale power, states cannot change it or prevent recovery of it in a way that contradicts FERC’s decision. But preemption hinges on what FERC actually decided or required. If FERC leaves an issue open—like who (shareholders vs. retail customers) pays at the retail level—states may decide that question.
• “How and by whom” test (Entergy Louisiana): Preemption does not require that FERC have decided the specific outcome; it is enough if FERC’s tariff dictates which decision-maker decides and how. If neither the tariff nor FERC’s order assigns the decision, the state may act.
• “Cost-trapping”: A state “traps” costs when it prevents a utility from recovering FERC-mandated wholesale charges that must be passed through. Here, no FERC mandate required recovery from retail customers, so denying a pass-through is not “trapping.”
• Bandwidth adjustment: An internal equalization mechanism among Entergy operating companies aimed at keeping each company’s costs within a set band around the system average. Adjustments can produce refunds or credits between the operating companies; whether and how any related amounts reach retail customers depends on FERC directives (if any) and, otherwise, state ratemaking.
• Opportunity sales: Short-term wholesale sales of electricity to third parties, often when a utility has surplus capacity or favorable market conditions.
• Dormant Commerce Clause: Limits state laws that discriminate against or unduly burden interstate commerce. A law is invalid if it targets out-of-state interests (purpose or effect) or if its burdens on interstate commerce are clearly excessive compared to local benefits. Ordinary retail ratemaking inside a state, without protectionist intent, typically survives.
• Middle South vs. this case: In Middle South, the APSC tried to block FERC-approved interstate contracts to spare Arkansans from costs, shifting them to other states—classic protectionism. Here, the APSC did not block interstate deals or force other states to pay Arkansas’s share; it made an intrastate decision about who pays within Arkansas.

Conclusion

Entergy Arkansas v. Webb delineates a crisp rule for the filed-rate doctrine’s reach in the wake of FERC-ordered refunds: unless FERC or the tariff dictates “how and by whom” retail allocation must occur, the state commission retains authority to decide whether shareholders or retail customers bear the cost—or receive the credit. By affirming the APSC’s decision to deny recovery from ratepayers and to credit customers with the bandwidth offset, the Eighth Circuit confirms that state commissions can protect retail customers without transgressing federal preemption where FERC has expressly declined to decide the allocation.

The court also rejects an expansive use of the dormant Commerce Clause against state retail ratemaking. Without protectionist aim or a clearly excessive burden, a commission’s decision on cost allocation between investors and in-state consumers is constitutionally sound—even if the utility’s shareholders are mostly out-of-state and the underlying power transactions cross state lines.

Key takeaways:

• Filed-rate preemption attaches to what FERC decides or dictates—not to issues FERC leaves unresolved. Where FERC is silent on retail cost allocation, states may decide.
• Ordering retail bill credits tied to wholesale offsets is permissible when FERC does not require a different retail treatment and when retail customers funded the original overpayments.
• Dormant Commerce Clause challenges to intrastate allocation decisions will fail absent evidence of economic protectionism or a clearly excessive burden on interstate commerce.

In short, the Eighth Circuit reinforces a cooperative federalism model: FERC governs wholesale rates and inter-company allocations; state commissions govern retail ratemaking—unless and until FERC says otherwise.