Entergy Texas, Inc. v. Public Utility Commission of Texas, Office of Public Utility Counsel, and Texas Industrial Energy Consumers

ACCEPTED
03-14-00709-CV
4148278
THIRD COURT OF APPEALS
AUSTIN, TEXAS
2/13/2015 2:42:36 PM
JEFFREY D. KYLE
CLERK
No. 03-14-00709-CV
________________________________________________________________________
FILED IN
3rd COURT OF APPEALS
In the Court of Appeals AUSTIN, TEXAS
Third District of Texas at Austin 2/13/2015 2:42:36 PM
JEFFREY D. KYLE
________________________________________________________________________
Clerk

E NTERGY T EXAS, INC.,
Appellant,

V.

P UBLIC U TILITY C OMMISSION OF T EXAS,
Appellee.
________________________________________________________________________

BRIEF OF APPELLEE
PUBLIC UTILITY COMMISSION OF TEXAS
________________________________________________________________________
KEN PAXTON ELIZABETH R. B. STERLING
Attorney General of Texas Assistant Attorney General
State Bar No. 19171100
elizabeth.sterling@texasattorneygeneral.
CHARLES E. ROY gov
First Assistant Attorney General
MEGAN NEAL
Assistant Attorney General
JAMES E. DAVIS State Bar No. 24043797
Deputy Attorney General for megan.neal@texasattorneygeneral.gov
Civil Litigation
O FFICE OF THE A TTORNEY G ENERAL
P.O. Box 12548, MC-066
JON NIERMANN Austin, Texas 78711-2548
Chief, Environmental Protection 512.463.2012
Division 512.457.4610 (fax)

ATTORNEYS FOR APPELLEE, PUBLIC UTILITY COMMISSION OF TEXAS

February 13, 2015 ORAL ARGUMENT REQUESTED
 TABLE OF CONTENTS

TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv

Issue 1. Does the term “costs” as used in Texas Utilities Code § 39.452(b)
include Entergy’s “lost revenues”?. . . . . . . . . . . . . . . . . . . . . . . . xiv

Issue 2. Does the plain language of Texas Utilities Code § 39.452(b) require
Entergy to recover implementation costs before it has implemented
the competitive generation program?.. . . . . . . . . . . . . . . . . . . . . xiv

Issue 3. Does the plain language of Texas Utilities Code § 39.452(b) require
Entergy to receive interest on the costs of implementing the
competitive generation program? . . . . . . . . . . . . . . . . . . . . . . . . xiv

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A. Entergy’s proposed Competitive Program . . . . . . . . . . . . . . . . . . . . . . . 4

B. The Administrative Law Judge rejected Entergy’s initial Competitive
Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

C. The Commission rejected Entergy’s statutory interpretation. . . . . . . . 8

i
 D. Stipulations and settlements in Docket No. 38951 created a very different
Competitive Program than the program rejected by the ALJ – one that
resulted in no unrecovered costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1. Participants in the Competitive Program. . . . . . . . . . . . . . . . . . . . . 11

2. Costs recovered from the Competitive Customers. . . . . . . . . . . . . 11

E. The Commission adopted the revised Competitive Tariff but not the
Rejected Rider relating to embedded generation costs. . . . . . . . . . . . 13

F. Entergy’s implementation costs do not accrue until the statute is
implemented, and interest is not allowed. . . . . . . . . . . . . . . . . . . . . . . 14

SUMMARY OF THE ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

A. Standard of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

B. Issue 1: The Commission reasonably refused to include Entergy’s lost
revenues in the Competitive Tariff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1. The plain language of the statute refers to costs, not lost revenues.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

a. The CenterPoint 2011 case holds that lost revenues are not costs.
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

b. What Entergy seeks are lost revenues, not costs . . . . . . . . . . . . 21

2. Entergy’s issue must be denied because it failed to show harm. . 22

ii
 a. Entergy has not shown that it will not recover all its costs under the
Competitive Tariff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

b. The structure of the revised Competitive Tariff and the facts
ensure that Entergy will have no unrecovered costs. . . . . . . . . 26

3. The Commission’s interpretation of the statute is reasonable, and
Entergy’s interpretation is unreasonable . . . . . . . . . . . . . . . . . . . . . . 32

a. The Commission’s interpretation follows the statute’s plain
language that limits recovery to costs . . . . . . . . . . . . . . . . . . . . . 32

b. The Commission’s interpretation of the statute is reasonable. 33

c. Entergy’s interpretation of the statute is unreasonable . . . . . . 34

4. Entergy cannot use traditional rate-making concepts to avoid the
Legislature’s mandate to transition to competition . . . . . . . . . . . . 36

C. Issue 2: Entergy should recover only implementation costs under the
Competitive Rider, and they do not occur until the Competitive Program
is implemented. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

1. There are no implementation costs for Entergy to recover until the
Competitive Program is implemented . . . . . . . . . . . . . . . . . . . . . . . 44

2. Entergy already recovered the costs to develop the Competitive
Program as operating expenses in a previous rate case. . . . . . . . . 46

iii
 a. In Docket 39896 Entergy recovered costs to develop the
Competitive Program as operating expenses . . . . . . . . . . . . . . . 46

b. It would violate the prohibition on retroactive rate-making to
permit Entergy to offset the costs it has already collected from
the Cost Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

D. Issue 3: Entergy is not entitled to collect interest on the balance of its
unrecovered costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

1. Like rate-case expenses, the unrecovered implementation costs are
relatively small and recovered quickly so that adding interest is not
reasonable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2. The statutes do not require interest on unrecovered implementation
costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

3. The 2004 CenterPoint opinion does not mandate recovery of interest
on all amounts in a rate case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

CONCLUSION AND PRAYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

APPENDICES

Appendix A Interim Order, filed June 12, 2012

Appendix B Order, filed July 19, 2013

Appendix C Tex. Util. Code § 39.452

iv
 INDEX OF AUTHORITIES

Cases:

CenterPoint Energy Houston Elec., LLC v. Pub. Util. Comm’n of Tex.,
354 S.W.3d 899 (Tex. App.—Austin 2011, no pet.).. . . . . 8, 9, 15, 17, passim

CenterPoint Energy Houston Elec., LLC v. Pub. Util. Comm’n of Tex.,
408 S.W.3d 910 (Tex. App.—Austin 2013, pet. denied). . . . . . . . . . . . . . . 44

CenterPoint Energy, Inc. v. Pub. Util. Comm’n of Tex.,
143 S.W.3d 81 (Tex. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50, 51

Cities for Fair Util. Rates v. Pub. Util. Comm’n of Tex.,
924 S.W.2d 933 (Tex. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

City of Frisco v. Tex. Water Rights Comm’n,
579 S.W.2d 66 (Tex. Civ. App.—Austin 1979, writ ref’d n.r.e.). . . . . 30, 31

City of Rockwall v. Hughes,
246 S.W.3d 621 (Tex. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 33, 35

Continental Cas. Co. v. Downs,
81 S.W.3d 803 (Tex. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Galbraith Eng’g Consultants, Inc. v. Pochucha,
290 S.W.3d 863 (Tex. 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

In re Entergy Corp.,
142 S.W.3d 316 (Tex. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2

v
Nucor Steel v. Pub. Util. Comm’n of Tex.,
168 S.W.3d 260 (Tex. App.—Austin 2005, no pet.).. . . . . . . . . . . . . . . . . . 37

Pedernales Elec. Coop., Inc. v. Pub. Util. Comm’n of Tex.,
809 S.W.2d 332 (Tex. App.—Austin 1991, no writ). . . . . . . . . . . . . . . . . . 30

Pub. Util. Comm’n of Tex. v. GTE-Sw., Inc.,
901 S.W.2d 401 (Tex. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43, 50

Reliant Energy, Inc. v. Pub. Util. Comm’n of Tex.,
153 S.W.3d 174 (Tex. App.—Austin 2004, pet. denied). . . . . . . . . . . . . . . 49

R.R. Comm’n of Tex. v. High Plains Natural Gas Co.,
628 S.W.2d 753 (Tex. Civ. App.—Austin 1981, writ ref’d n.r.e.) (per curiam)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

State v. Pub. Util. Comm’n of Tex.,
883 S.W.2d 190 (Tex. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Tex. Alarm & Signal Ass’n v. Pub. Util. Comm’n,
603 S.W.2d 766 (Tex. 1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Upjohn Co. v. Rylander,
38 S.W.3d 600 (Tex. App.—Austin 2000, pet. denied). . . . . . . . . . . . . . . . 18

Statutes:
Tex. Gov’t. Code
§§ 2001.174(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Tex. Util. Code
§§ 11.001-64.158 (“PURA”). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi, 1
§ 32.101(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

vi
Statutes (cont.):
§ 36.003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
§ 36.006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
§ 36.007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
§ 36.007(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
§ 36.007(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
§ 36.051. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi, 36
§ 36.201. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
§§ 39.001-.359. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
§ 39.452. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
§ 39.452(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
§ 39.452(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix, xiii, xiv, 2, passim
§ 39.452(i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
§§ 55.024(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
§§ 56.025(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Rules:
16 Tex. Admin. Code
§ 25.231(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

Tex. R. App. P. 44.1(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Other References:
Application of CenterPoint Energy Houston Electric, L.L.C. for a Competition
Transition Charge,
Docket No. 30706, Order at 32 (July 14, 2005).. . . . . . . . . . . . . . . . . . . . . . 49

Application of Reliant Energy HL&P for Approval of Unbundled Cost of
Service Rate Pursuant to PURA § 39.201 and Public Utility Commission
Substantive Rule § 25.344,
Docket No. 22355, Order, FoF 98G (Oct. 4, 2001). . . . . . . . . . . . . . . . . . . . 49

vii
Other References (cont.):
Complaint of the City of McKinney Against Southwestern Bell Telephone
Company,
Docket No. 11027, Final Order at CoL 9 (May 17, 1995). . . . . . . . . . . . . . 49

viii
 GLOSSARY

ALJ Administrative Law Judge at the State Office of
Administrative Hearings.

Competition Customers Entergy’s industrial customers that take energy
under Entergy’s Large Industrial Power Service
(“LIPS”) tariff that choose to participate in the
Competitive Program.

Competitive Program The competitive generation services program
required under PURA § 39.452(b) that is
designed to move Entergy away from its current
monopoly and toward a competitive market.
The program allows customers to select
generation from a supplier other than Entergy.

Competitive Tariff The tariff Entergy proposed to comply with
PURA § 39.452(b). The tariff requires Entergy to
purchase competitive generation service, selected
by participating Competitive Customers, and
provide the generation to those customers at a
retail price.

Cost Rider The rider proposed by Entergy to recover the
costs of implementation and administration of
the competitive generation program. This tariff
is only applicable to the class of customers that is
eligible for the competitive generation program
— those who take energy under Entergy’s Large
Industrial Power Service tariff (“LIPS”). These
implementation costs will be charged to the LIPS

Brief of Appellee Public Utility Commission ix
 class whether or not they choose to participate in
the program.

Competitive Supplier The qualifying facilities eligible to supply
alternative generation to the Competitive
Customers in the Competitive Program.

Competitive Purchase The agreement that the Competitive Supplier
Agreement will provide the Competitive Customer’s
capacity and energy by supplying it to Entergy.
Compensation for the capacity would be paid by
the customer and not by Entergy.

Competitive Rate The rate charged under the Competitive
Program.

Docket 37744 PUC Docket No. 37744

Docket 38951 PUC Docket No. 38951

Entergy Entergy Texas, Inc., Plaintiff in this case.

ERCOT Electric Reliability Council of Texas. In this case,
the term “ERCOT” is used to refer to the
interconnected electric grid that is completely
within the State of Texas.

Interim Order Interim Order in Docket 38951, AR, Binder 1,
Item 77.

LIPS Large Industrial Power Services. This is one of
the rate classes in Entergy’s tariff. Only

Brief of Appellee Public Utility Commission x
 members of this rate class are eligible to
participate in the Competitive Tariff.

Order Final Order in Docket 38951. AR, Binder 2, Item
119.

PFD Proposal for Decision.

PURA Public Utility Regulatory Act, Tex. Util. Code
§§ 11.001-64.158.

Rate Design After the revenue requirement is determined, the
Commission must design the rates — how much
of the revenue requirement should be collected
from different rate classes and what method to
use to collect those amounts.

Rejected Rider Entergy’s proposed rider that sought to collect
the revenue that Entergy would lose if some
customers migrated to the Competitive Program
from the customers that are not eligible to
participate in the program. The Administrative
Law Judge and the Commission rejected this
rider.

Revenue Requirement The total amount that regulated rates are
designed to give the utility a reasonable
opportunity to recover. It can be stated in as the
following formula: (rate base × rate of return) +
expenses = revenue requirement. See PURA
§ 36.051. (“In establishing an electric utility's
rates, the [Commission] shall establish the

Brief of Appellee Public Utility Commission xi
 utility's overall revenues at an amount that will
permit the utility a reasonable opportunity to
earn a reasonable return on the utility's invested
capital used and useful in providing service to
the public in excess of the utility's reasonable and
necessary operating expenses.”)

Test Year The utility’s actual expenses during the most
recent 12-month period, called the “test year.”
16 Tex. Admin. Code § 25.231(a). The
Commission uses this historical information as
the starting point for determining the amount of
the utility’s reasonable and necessary expenses
to use in setting rates.

Tariff A document that the electric utility files with the
Commission setting out each rate that is subject
to the Commission’s jurisdiction. See PURA
§ 32.101(a). In this brief “tariff” is used with a
modifier like LIPS to describe the rate for a
particular rate class (a group of customers with
particular characteristics).

Brief of Appellee Public Utility Commission xii
 STATEMENT OF THE CASE

This is an administrative appeal challenging the Public Utility

Commission of Texas’ (“the Commission”) order in a contested-case hearing.

Texas Utilities Code § 39.452(b) requires Entergy Texas, Inc. (“Entergy”) to

begin transitioning its generation services to competition. The challenged

order determines rates for a Competitive Generation Service program (the

“Competitive Program”), the type of costs Entergy can recover as a result of

implementing the Competitive Program, and whether interest can be recovered

on these amounts.1

1
The administrative record in PUC Docket 38951 was entered into evidence as Joint
Exhibits 1 and 2, R.R. at 4:25-5:10. The Commission ordered that the record in Docket No.
37744 be included in severed Docket No. 38951. That record was voluminous and
contained more that 1,500 filings. The entire administrative record in Docket No. 37744 is
included in Docket No. 38951; however, as a courtesy to the Court, the parties have agreed
to only copy and file the portions of that record being relevant to this administrative appeal
as a supplement to the record in Docket No. 38951. The record consists of the index, five
binders of materials including filings, which are referenced as “item,” “exhibits,” “offers
of proof,” or “transcripts.” Citations to the Administrative Record will be in the form “AR,
Item(s) _____, Binder _____” for filings; “AR, Ex(s) _____, Binder _____” for exhibits; “AR,
Offer of Proof _____, Binder _____” for offer of proof; and “AR, TR at _____” for
transcripts. Cites to the administrative record in PUC Docket 37744 will be “Docket No.
37744, _______ [name of document].” Cites to the Proposal for Decision (PFD) are in
Docket 37744. The final order is the Final Order of the Public Utility Commission of Texas
(Order) and is at AR, Item 11, Binder 2.

Brief of Appellee Public Utility Commission xiii
 ISSUES PRESENTED

Issue 1: Does the term “costs” as used in Texas Utilities Code § 39.452(b)
include Entergy’s “lost revenues”?

Issue 2: Does the plain language of Texas Utilities Code § 39.452(b) require
Entergy to recover implementation costs before it has implemented
the competitive generation program?

Issue 3: Does the plain language of Texas Utilities Code § 39.452(b) require
Entergy to receive interest on the costs of implementing the
competitive generation program?

Brief of Appellee Public Utility Commission xiv
 STATEMENT OF FACTS

This case is about a competitive generation service tariff (the

“Competitive Tariff”) that the Commission approved for Entergy. Entergy is

an investor-owned electric utility that provides rate-regulated electric service

to retail customers located in southeastern Texas.2 Entergy is located outside

of the electrical grid serving most of Texas, known as the Electric Reliability

Council of Texas (“ERCOT”).

All investor-owned Texas electric utilities were ordered to transition to

a competitive market beginning in 1999.3 As a result, electric utilities had to

unbundle their generation, transmission, distribution, and retail provider

services. Utilities within ERCOT could handle this transition more easily than

utilities like Entergy that operate outside of ERCOT.

The legislature eventually became concerned that Entergy’s service area

was not ready to transition to competition. See In re Entergy Corp., 142 S.W.3d

2
Docket No. 37744, ETI Ex. 4, Joseph F. Domino Direct at 1.
3
Public Utility Regulatory Act, Tex. Util. Code §§ 11.001-64.158 (hereinafter referred
to as “PURA”) §§ 39.001–.359.
Brief of Appellee Public Utility Commission Page 1
316, 320 (Tex. 2004). The legislature amended the Public Utility Regulatory

Act (“PURA”) to delay Entergy’s transition to competition.4 PURA’s

amendments also provided that the Commission would continue to set

Entergy’s rates under traditional cost-of-service regulation until Entergy fully

transitions to a competitive market.5

However, discrepancies between electricity prices in the Entergy service

area and those within ERCOT concerned customers operating under

Entergy’s monopoly. The large industrial customers are an important

segment of the economy, and they wanted the ability to shop for electricity in

a competitive market.

Recognizing this problem, the legislature made an effort to move

Entergy closer to becoming a fully competitive utility with regard to

generation. By enacting PURA § 39.452, the legislature required Entergy to

propose a competitive generation tariff. PURA § 39.452(b) states in pertinent

part:

4
PURA § 39.452(i).
5
PURA § 39.452(a).
Brief of Appellee Public Utility Commission Page 2
 An electric utility subject to this subchapter shall
propose a competitive generation tariff to allow
eligible customers the ability to contract for
competitive generation. The commission shall
approve, reject, or modify the proposed tariff not later
than September 1, 2010. The tariffs subject to this
subsection may not be considered to offer a
discounted rate or rates under Section 36.007, and the
utility’s rates shall be set, in the proceeding in which
the tariff is adopted, to recover any costs unrecovered
as a result of the implementation of the tariff. The
commission shall ensure that a competitive
generation tariff shall not be implemented in a
manner that harms the sustainability or
competitiveness of manufacturers that choose not to
take advantage of competitive generation. Pursuant
to the competitive generation tariff, an electric utility
subject to this subsection shall purchase competitive
generation service, selected by the customer, and
provide the generation at retail to the customer. . .6

Entergy is the only electric utility that would be impacted by the

competitive generation program (“Competitive Program”) requirement

established in PURA § 39.452(b). The statute is essentially a legislative

compromise requiring Entergy to engage in partial competition by offering

some customers a choice of generation providers. The Competitive Tariff

6
PURA § 39.452(b).
Brief of Appellee Public Utility Commission Page 3
requires Entergy to allow customers to select generation from another

producer. Then, Entergy provides that generation to the customer at a retail

price.7 This important step towards a transition to full competition allows at

least some of Entergy’s customers relief from Entergy’s monopoly in the

region.

A. Entergy’s proposed Competitive Program.

To comply with PURA § 39.452(b)’s requirements, Entergy proposed a

Competitive Program as part of its rate case in PUC Docket No. 37744. The

Competitive Program consisted of three parts: (1) a Competitive Tariff; (2) a

rider designed to recover implementation and administration costs (the “Cost

Rider”); and (3) a rider the Commission rejected that proposed to recover

Entergy’s lost revenues from customers that are ineligible for the Competitive

Program (the “Rejected Rider”).

The Competitive Tariff requires Entergy to purchase Competitive

Generation Service, selected by the participating customers (“Competition

7
Id.
Brief of Appellee Public Utility Commission Page 4
Customers”), and provide the generation at retail to the customer.8 Pursuant

to the statute, the tariff could not be considered a discount rate – meaning it

could not be discounted by a percentage rate to all Competitive Customers.9

Further, it could not be implemented in a manner that harms the

sustainability or competitiveness of manufacturers that choose not to take

advantage of the program.10 The statute permits Entergy to recover “any costs

unrecovered as a result of the implementation of the tariff.”11

Entergy designed its Cost Rider to recover the costs associated with

implementing and administering the Competitive Program. Entergy

proposed that all of these costs would be recovered by the eligible

Competition Customers, whether or not they took the competitive generation

service.11

Entergy sought an additional rider that was rejected because it was

8
AR, Item 77, Binder 1, Interim Order at 4; PURA § 39.452(b).
9
Id; PURA § 36.007.
10
AR, Item 77, Binder 1, Interim Order at 4; PURA § 39.452(b).
11
Id.
Brief of Appellee Public Utility Commission Page 5
inherently inequitable and violated PURA’s rate-making principles that

require just and reasonable rates.12 Under the Rejected Rider, Entergy sought

to recover lost base-rate revenues from the customers that would not be

eligible to benefit from the program.13

This Competitive Generation Service Unrecovered Service Cost
Rider (“Rider CGSUSC” or “Rider”) defines the procedure by
which Entergy Texas, Inc. (“Company”) shall implement and
adjust rates for recovery of lost base rate revenue resulting from
customers participating in the Company’s Competitive
Generation Service (“CGS Program”). The purpose of this Rider
is to provide a mechanism for recovery of such lost base rate
revenues that were included in the Company’s last general rate
case proceeding before the Public Utility Commission of Texas
(“PUCT”).14

Through this Rejected Rider, Entergy sought to recover revenues it could have

billed to the Competitive Customers “but for” the Competitive Program.

Entergy later recharacterized this same claim as what it now calls “embedded

12
PFD at 24.
13
AR, TIEC Ex. 15, Binder 4, Jeffry Pollock Supp. Direct at 17 citing Docket No.
37744; AR, ETI Ex. 9, Binder 1 (Partial Exhibits & Transcripts from Docket 37744) at Exhibit
PRM-1; Plaintiff’s Brief at 5.
14
AR, ETI Ex. 9 at Exhibit PRM-1 at 5, Binder 1 (Partial Exhibits & Transcripts from
Docket 37744) (emphasis added).
Brief of Appellee Public Utility Commission Page 6
generation costs.”

B. The Administrative Law Judge rejected Entergy’s initial Competitive
Program.

In Entergy’s rate case in PUC Docket No. 37744, Entergy settled all

matters except for issues regarding the Competitive Program. After a hearing

on the Competitive Tariff and the associated riders, the Administrative Law

Judge (“ALJ”) issued a Proposal for Decision (“PFD”) recommending to the

Commission that Entergy’s entire Competitive Program be rejected.15 The ALJ

refused to recommend that the Competitive Program be adopted because

Entergy‘s Rejected Rider would prevent competition by shifting collection of

all the revenues it would otherwise have recovered from Competitive

Customers to the customers that do not participate in the Competitive

Program. The ALJ determined that the Rejected Rider imposed unreasonable

rates on the customers who would not receive the benefit of the program, and

therefore, “runs contrary to the fundamental rate-making principle of cost

causation and may harm the competitiveness of non-participating

15
PFD, CoL 10 at 45.
Brief of Appellee Public Utility Commission Page 7
manufacturers.”16

Since Entergy had settled the remainder of the rate case in Docket No.

37744, the Commission severed the issues pertaining to the Competitive

Program into PUC Docket No. 38951.17

C. The Commission rejected Entergy’s statutory interpretation.

The Commission issued an Interim Order in Docket 38951 that reversed

the ALJ’s recommendation in Docket 37744 to reject the Competitive

Program.18 The Commission had the benefit of this Court’s 2011 decision in

CenterPoint Energy Houston Electric, LLC v. Public Utility Commission of Texas,

354 S.W. 3d 899 (Tex. App.—Austin, 2011, no pet.) (“CenterPoint 2011") in

determining that in PURA “the legislature expressly distinguishes ‘costs’ from

16
PFD at 24.
17
Application of Entergy Texas, Inc. for Approval of Competitive Generation Tariff (severed
from Docket No. 37744). Docket 37744, Order No. 14, Memorializing Decision Granting
Motion to Sever; Docket 38951, Order No. 1 Establishing Docket. (The Commission
ordered that the record in Docket No. 37744 be included in severed Docket No. 38951. That
record was voluminous and contained more that 1,500 filings. The entire administrative
record in Docket No. 37744 is included in Docket No. 38951; however, as a courtesy to the
Court, the parties have agreed to only copy and file the portions of that record being
relevant to this administrative appeal.
18
AR, Item 77, Binder 1, Interim Order at 6.
Brief of Appellee Public Utility Commission Page 8
‘revenues.’”19 Therefore, the term ‘costs,’ as used by the legislature in PURA

§ 39.452(b) “only provides for ‘costs unrecovered as a result of the

implementation of the tariff’ and does not specifically provide for the utility

to recover lost revenues or any other type of costs.”20

D. Stipulations and settlements in Docket No. 38951 created a very
different Competitive Program than the program rejected by the ALJ
— one that resulted in no unrecovered costs.

The Competitive Program that the Commission accepted was

significantly different than the program the ALJ rejected in Docket 37744. In

severed Docket No. 38951, the parties negotiated an acceptable framework for

the Competitive Program. The parties made certain stipulations and

settlement agreements that were adopted in part by the Commission.21 The

originally proposed Competitive Program was an energy-only program, but

the parties agreed to change the program to an energy and capacity-based

program. The testimony demonstrated that under this new agreement, the

19
AR, Item 77, Binder 1, Interim Order at 6; PURA § 39.452(b); CenterPoint Energy
Houston Electric, LLC v. Public Utility Commission of Texas, 354 S.W. 3d at 904-05.
20
Id.
21
AR, Item 119, Binder 2, Order at 6.
Brief of Appellee Public Utility Commission Page 9
Competitive Customer would self-supply its own capacity and energy;

therefore, Entergy would not incur generation costs.22

This newly negotiated program involved two contracts between the

participants – one between the Competitive Customer and the Competitive

Supplier, and the other between Entergy and the Competitive Supplier (the

“Competitive Purchase Agreement”).23 Under the Competitive Purchase

Agreement, the Competitive Supplier would provide the Competitive

Customer firm power and enter into a contract with Entergy (or on Entergy’s

behalf) to become a firm-power resource for Entergy.24 The Competitive

Purchase Agreement is a contract for the purchase of energy and capacity for

the same amount of power specified in the Competitive Customer and

Competitive Supplier agreement.25

22
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 7.
23
Id. at 14-38.
24
Id. at 7, 12.
25
AR, Item 119, Binder 2, Order at 17, FoF 42B(2)-(3)
Brief of Appellee Public Utility Commission Page 10
 1. Participants in the Competitive Program.

The parties also agreed which customers and which suppliers could

participate in the Competitive Program. Only the industrial customers that

took service under Entergy’s large industrial power services (“LIPS”) tariff

could participate.26 The Competitive Suppliers would be the Qualifying

Facilities connected with Entergy’s system.27 The program would be limited

to 10 Competitive Customers and capped between 80 MW and 150 MW.28

2. Costs recovered from the Competitive Customers.

The parties also stipulated that Entergy was projected to operate at an

incremental net resource deficiency of 260 MW in 2012 and 504 MW in 2013.29

In order to remedy this capacity deficiency and provide the needed base-load

capacity to serve its customers, Entergy would have to buy from other

26
AR, Item 113, Binder 2, Stipulation and Settlement Agreement between
Commission Staff, Entergy Texas, Inc. and Texas Industrial Energy Consumers, Attachment
1 at 1.
27
AR, Item 119, Binder 2, Order at 17, FoF 41A.
28
Id. at 22, FoF 47.
29
AR, Item 119, Binder 2, Order at 22, FoF 43.
Brief of Appellee Public Utility Commission Page 11
generators.30 The agreed Competitive Program would offset this deficiency

and make Entergy less dependent on its system affiliates to purchase enough

power to supply its customers. Under the revised Competitive Program, the

extra capacity that Entergy already had to purchase elsewhere because of its

deficiency, would be purchased under the Competitive Purchase Agreement

and passed through directly to the Competitive Customers at retail. Entergy

would save money because it could use its existing generation to serve its

established and new customers without the need to purchase excess

generation to maintain reliable service.31

The only production-related costs that Entergy would have to incur to

serve the Competitive Customers would be for backup power.32 However,

the parties stipulated that the Competitive Customer would pay Entergy the

full price of backup power in the event of an outage through the Fixed Cost

30
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 24-25.
31
Id. at 25
32
AR, TIEC Ex. 16, Binder 4, Pollock Supp. Rebuttal at 6.
Brief of Appellee Public Utility Commission Page 12
Contribution and the Unserved Energy rate.33 Thus, under the approved

program, all of Entergy’s generation costs are covered.34

E. The Commission adopted the revised Competitive Tariff but not the
Rejected Rider relating to embedded generation costs.

Although the Commission adopted Entergy’s revised Competitive Tariff

in Docket No. 38951,35 it rejected Entergy’s rider that would permit it to

recover lost base-rate revenues from customers that were ineligible to even

participate in the program. The Commission rejected Entergy’s definition of

unrecovered costs: embedded production costs and other related base-rate

costs.36 Instead, the Commission determined that the only costs that were

recoverable were the costs of implementation and administration of the

Competitive Program.37

33
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 15.
34
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 15-16.
35
AR, Item 119, Binder 2, Order at 26-27.
36
Id. at 23, FoF 51 and CoL 2.
37
Id.
Brief of Appellee Public Utility Commission Page 13
F. Entergy’s implementation costs do not accrue until the statute is
implemented, and interest is not allowed.

The Commission also held that Entergy was not entitled to begin

accruing costs for the implementation of the Competitive Program until the

date the Competitive Tariff was actually implemented.38 The Commission

denied Entergy’s request to recover its costs for developing the program

retroactively back to November 10, 2010.39 Entergy had already been

recovering approximately $300,000 per year for developing the Competitive

Program as part of its operating expenses included in base rates approved in

Docket No. 39896.40 The Commission also found that, due to the relatively

limited regulatory lag, the unrecovered costs should be treated consistently

with rate-case expenses. Therefore, the Commission found that it was

inappropriate for Entergy to recover interest on the balance of its costs

unrecovered as a result of the implementation of the Competitive Tariff. 41

38
AR, Item 119, Binder 2, Order at 25, FoF 57A.
39
AR, Item 119, Binder 2, Order at 9.
40
AR, ETI Ex. 101, Dennis R. Roach Supp. Direct at 15.
41
AR, Item 119, Binder 2, Order at 25, FoF 57C.
Brief of Appellee Public Utility Commission Page 14
 SUMMARY OF THE ARGUMENT

The Commission’s order should be upheld because it correctly

determined that the only unrecovered costs that Entergy has as a result of

implementing the Competitive Program are the costs to implement and

administer the program. The evidence is clear that under the revised program

considered by the Commission in Docket No. 38951, Entergy would have no

other unrecovered costs.

What Entergy claims are “costs” are really revenues that it would have

recovered but for customers migrating to the Competitive Program. This

Court has already rejected the argument that utilities should recover the

losses and sacrifices sustained in implementing a legislatively mandated

program. CenterPoint 2011, 354 S.W.3d at 903. If the legislature intended for

Entergy to recover its lost revenues, it would have specifically indicated that

intent as it has in other sections of PURA. Id.

The Commission’s statutory interpretation that the only recoverable

costs are those resulting from the implementation and administration of the

Competitive Program is reasonable. This interpretation is in accordance with
Brief of Appellee Public Utility Commission Page 15
the statute’s plain language, consistent with case law, and supports the

statutory intent to promote competition. Entergy’s interpretation on the other

hand, is anticompetitive and seeks to charge customers that are not eligible

for the program unjust and prejudicial rates in violation of traditional rate-

making principles. This unfair cost-shifting approach was not mandated by

the legislature, and should not be permitted.

Nor should Entergy be allowed to circumvent the plain language of the

statute and recover development costs accrued prior to the date the program

is actually implemented. Entergy has already recovered its development

expenses as operating costs in previous rate cases. It should not be permitted

to recover them under the statute.

Moreover, Entergy is not entitled to interest on implementation costs

under the statute. The costs of implementation are de minimis and can be

recovered quickly. Because Entergy will not suffer regulatory lag, these

expenses should be treated as rate-case expenses. It has long been the

Commission’s practice to deny interest on rate-case expenses. This is

especially true here, as the statute is not designed to put Entergy in a better
Brief of Appellee Public Utility Commission Page 16
position than it would have been in prior to implementing the Competitive

Program. The Commission’s order is correct and should be upheld.

ARGUMENT

A. Standard of Review

The statutory construction of PURA § 39.452(b) is at the core of this case.

That section permits a utility implementing a Competitive Program “to

recover any costs unrecovered as a result of the implementation of the tariff.”

Id. When construing statutes, a court’s primary objective is to give effect to

the legislature’s intent. CenterPoint 2011, 354 S.W.3d at 903; citing Galbraith

Eng’g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 867 (Tex. 2009). “The plain

meaning of the text is the best expression of legislative intent unless a

different meaning is supplied by legislative definition or is apparent from the

context, or unless the plain meaning would lead to absurd or nonsensical

results that the legislature could not have intended.” CenterPoint 2011, 354

S.W.3d at 903; citing City of Rockwall v. Hughes, 246 S.W.3d 621, 625-26 (Tex.

2008). Courts “look to the entire act in determining the legislature’s intent

with respect to the specific provision.” CenterPoint 2011, 354 S.W.3d at 903;
Brief of Appellee Public Utility Commission Page 17
citing Upjohn Co. v. Rylander, 38 S.W.3d 600, 607 (Tex. App.—Austin 2000, pet.

denied).

B. Issue 1: The Commission reasonably refused to include Entergy’s
lost revenues in the Competitive Tariff.

1. The plain language of the statute refers to costs, not lost
revenues.

The crux of this lawsuit is the interpretation of PURA § 39.452(b)’s

language that, for the Competitive Rates, “the utility's rates shall be set … to

recover any costs unrecovered as a result of the implementation of the tariff42

(emphasis added). The statute only refers to costs. Thus, the Commission

reasonably decided that lost revenues are not costs.

Although Entergy attempts to convince the Court that “costs” and

“revenues” are synonymous in this case, it concedes that costs and revenues

are not the same thing.43 Further, when the statutory language of PURA

§ 39.452(b) provides recovery of “any costs,” the term “any” modifies “costs.”

42
PURA § 39.452(b) (emphasis added).
43
Appellant’s Brief at 26 (“Though ‘costs’ and ‘revenues’ may not be the same in all
contexts, they are the same in the context of what ETI was seeking in this case.”).
Brief of Appellee Public Utility Commission Page 18
If the amounts Entergy seeks are not costs, the modifier “any” will not expand

the statute to include those amounts that are not “costs.”

a. The CenterPoint 2011 case holds that lost revenues are not
costs.

In reaching its conclusion that Entergy’s lost revenues should not be

recovered as costs, the Commission relied on this Court’s analysis that

rejected recovery of lost revenues as expenditures in another section of

PURA.44 This Court held that unrecovered costs associated with the

implementation of an energy-efficiency program are limited to actual

expenditures made to satisfy the goals of the program. CenterPoint 2011, 354

S.W.3d at 903. In that case, this Court rejected an interpretation of “costs” that

included “the losses or sacrifices sustained as a result of an endeavor” and

adopted the narrow interpretation of “costs” related to actual expenditures

associated with attempts to comply with the endeavor. Id. The Commission,

relying on this holding, made the same reasonable interpretation in this case.

Entergy’s argument that CenterPoint 2011's holding is somehow

44
AR, Item 119, Binder 2, Order at 7.
Brief of Appellee Public Utility Commission Page 19
distinguishable because it was interpreting a different section of PURA is

meritless. The reasoning of CenterPoint 2011 applies here. Like CenterPoint,

Entergy takes the position that “costs” includes its losses or sacrifices

sustained by implementing the program. Id. Entergy admits in its brief that

it is seeking lost revenues: “The same logic, applied to the broader language

of the CGS statute, leads to the inescapable conclusion that ETI is entitled to

recover all the costs it incurred (or stated differently, revenues it would have

received to cover those costs) but for the CGS program.”45 This Court rejected

that argument in CenterPoint 2011. CenterPoint 2011, 354 S.W.3d at 903-04.

Courts must consider statutes as a whole, and not words in isolation.

Continental Cas. Co. v. Downs, 81 S.W.3d 803, 805 (Tex. 2002). At least two

other sections of PURA differentiate between “costs” and “revenues” by

permitting recovery of “all costs incurred and all loss of revenue” and to

“implement a mechanism to replace the reasonably projected increase in costs

or decrease in revenue.” CenterPoint 2011, 354 S.W.3d at 904 (emphasis added);

PURA §§ 55.024(b) and 56.025(e) (emphasis added). CenterPoint 2011

45
Appellant’s Brief at 27.
Brief of Appellee Public Utility Commission Page 20
concluded that the term “costs,” as used by the legislature in PURA, does not

include lost revenues. CenterPoint 2011, 354 S.W.3d at 904. This distinction

applies to PURA as a whole.

This Court determined that when the legislature does not specifically

provide for recovery of lost revenues in addition to costs, then the only

recoverable costs are those out-of-pocket expenses associated with the

implementation of the program. Id. The Commission’s reasonable statutory

construction is consistent with this Court’s analysis and should be affirmed.

b. What Entergy seeks are lost revenues, not costs.

Entergy is not entitled to recover its lost revenue simply because it

recharacterized that lost revenue as costs to escape the CenterPoint 2011

holding. When Entergy first asked the Commission to set these Competitive

Rates (in 2010), it called the amounts it sought to recover “lost base rate

revenues.”46 Although it now calls those amounts costs, they still represent

46
“This Competitive Service Unrecovered Service Cost Rider (‘Rider CGSUSC’ or
‘Rider’) defines the procedure by which Entergy Texas, Inc. (‘Company’) shall implement
and adjust rates for recovery of lost base rate revenue resulting from customers
participating in the Company’s Competitive Generation Service (‘CGS Program’). The
purpose of this Rider is to provide a mechanism for recovery of such lost base rate
revenues that were included in the Company’s last general rate-case proceeding before the
Brief of Appellee Public Utility Commission Page 21
revenues Entergy would have recovered but for customers choosing to take

service under the Competitive Tariff rather than the LIPS tariff. Entergy

proposed to recover: “the embedded generation-related costs and any other

related base rate costs that would have been recovered through traditional

rates charged to Competitive Customers that will no longer be recovered from

the Competitive customers.”47 Under either phraseology, what Entergy seeks

are lost revenues. And the plain language of the statute does not permit

recovery of lost revenues. The Commission’s order should be affirmed.

2. Entergy’s issue must be denied because it failed to show harm.

Entergy has failed to demonstrate harm from the Commission’s order.

A showing that “substantial rights have been prejudiced” is required to

prevail in an administrative appeal.48 Moreover, this Court may not reverse

the district court’s affirmance of the Commission’s order unless it concludes

that the claimed error “probably caused the rendition of an improper

Public Utility Commission of Texas (‘PUCT’).”
Docket No. 37744, ETI Ex. 9 at Exhibit PRM-1 (emphasis added).
47
AR, ETI Ex. 91, Binder 3, Phillip May Supp. Direct at 5-6.
48
Tex. Gov’t Code § 2001.174(2)
Brief of Appellee Public Utility Commission Page 22
judgment.”49 Entergy must not prevail on its Issue One because it failed to

demonstrate how the Commission’s order harms it.

a. Entergy has not shown that it will not recover all its costs
under the Competitive Tariff.

The burden of proof was on Entergy at the Commission,50 and Entergy

failed to meet its burden.

Testimony by Entergy’s witness Phillip May revealed that the utility did

not expect the Competitive Tariff to only recover amounts that it would have

recovered from the customers that existed when the Competition Program

was implemented. He admitted that Entergy’s proposal would recover lost

revenues even if the customer joining the Competitive Rate program, had not

previously received service from Entergy.51

Q: Okay. So your proposal for the [Rejected] Rider is to
calculate the difference between what would have billed --
been billed under traditional LIPS service and the amounts
collected under the [competitive] service?

49
Tex. R. App. P. 44.1(a)
50
See PURA § 36.006.
51
Docket No. 37744, Hearing on the Merits, TR, Vol. 3 at 165:23-166:11 (Jul. 16, 2010).
Brief of Appellee Public Utility Commission Page 23
 A: That’s a fair characterization.

Q: Okay. So let me get this straight. Under the company’s
proposal, if a brand-new industrial customer came to you
that had never received service from [Entergy] and they
said, “We want to sign up for [the Competitive Program],”
[Entergy] would still seek to recover lost revenues based on
LIPS from that customer?

A: Yeah, I believe that is consistent with the program.52

Mr. May’s testimony proves that Entergy could recover amounts under

the Competition Tariff in excess of the amounts that its cost-of-service rates

were designed to recover.

Cities’ witness Karl Nalepa testified that “[Entergy]’s definition of

unrecovered costs is unreasonable.”53 It is unreasonable because Entergy

would continue to incur production costs for five years or more for a

customer that it does not serve.54 TIEC witness Jeffry Pollock testified that

“unrecovered costs” should not include Entergy’s hypothetical lost

52
Id.
53
AR, Cities Ex. 6C, Binder 3, Karl Nalepa Supp. Direct at 5.
54
Id.
Brief of Appellee Public Utility Commission Page 24
revenues.55 He also testified that the costs unrecovered as a result of the

implementation of the tariff should only include the expenditures actually

made by Entergy to implement and maintain the Competitive Program, and

the expense of providing backup power to the Competitive Customers.56

Entergy misleads the Court when it argues that because the ALJ agreed

that there could be lost revenues, that means it will have lost revenues.57 For

one thing, the ALJ considered the program that Entergy originally proposed

in Docket 37744. That program was significantly different from the revised

program the Commission approved based on numerous settlements in Docket

38951. Throughout its brief, Entergy refers to testimony and findings in

Docket No. 37744 as though they are still relevant to the approved

Competitive Program, but that is not the case. The Commission was not

considering the same program the ALJ was presented with. The testimony

proved that under the revised program, there would be no unrecovered costs.

55
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 14.
56
Id. at 14–15.
57
Appellant’s Brief at 25, 26
Brief of Appellee Public Utility Commission Page 25
 b. The structure of the revised Competitive Tariff and the
facts ensure that Entergy will have no unrecovered costs.

Contrary to statements in its brief, Entergy failed to prove that any of

the amounts included in its cost-of-service revenue requirement would not be

recovered under Competitive rates. Entergy ignores several factors that will

allow the utility to recover all of those amounts even with Competitive Rates.

One factor that allows Entergy to recover all of its revenue requirement

is that even if some customers buy under the Competitive Tariff, the utility is

expected to sell more electricity over time. Cities’ witness Karl Nalepa

explained that load growth would replace the revenues once recovered from

a customer that is leaving the system.58

Another factor is that Entergy may incur lower costs if customers leave.

Entergy should not be permitted to collect additional rates for capacity that

it no longer needs.59 Mr. Nalepa testified that “[Entergy’s] proposal to include

lost revenues in its definition of unrecovered costs would require all other

58
AR, Cities Ex. 6C, Binder 3, Nalepa Supp. Direct at 8.
59
Id. at 9.
Brief of Appellee Public Utility Commission Page 26
customers to pay for phantom costs incurred to serve a customer that is no

longer being served by [Entergy].”60 If customers migrate to the Competitive

Program, that means that Entergy will have to purchase less electricity from

others and thus save money; it will relieve Entergy from its existing capacity

deficit.

Entergy will have to purchase less electricity at wholesale if

Competition Customers use the Competition Tariff. The parties stipulated

that Entergy has an incremental net resource deficiency of 260 MW in 2012

and 504 MW in 2013. The Stipulation and Settlement reached in Docket 38951

limits the amount of electricity subject to the Competitive Program to 115

MW— less than the amount Entergy would have to purchase from others.61

As a result of the Competitive Program, Entergy will incur savings because

it will not have to buy as much electricity at wholesale.

Additionally, the revised program adopted by the Commission allows

Entergy to recover its production costs through other charges. The parties

60
Id. at 8.
61
AR, Item 119, Binder 2, Order at 17.
Brief of Appellee Public Utility Commission Page 27
agreed that the Competitive program would allow Entergy to rely on

Competitive Purchase Agreements as a firm power supply for generation

planning purposes. The testimony showed that under this agreement,

Entergy would not incur production costs other than backup power.62

Mr. Pollock testified that there would be no unrecovered costs existing

after startup. Ongoing and backup power costs are paid by the Competitive

Customer.63 The Competitive Customer (with the exception of capacity credit

and fixed fuel factor) would pay Entergy a retail rate that includes all other

charges the customer would pay as a firm customer, including a transmission

and distribution rate and all other applicable tariffs.64 The Competitive

62
The Competitive Customers will buy backup power from Entergy when the
provider cannot provide the competitive capacity in a given hour. These expenses will be
recovered through the Unserved Energy Rate and a Fixed Cost Contribution Fee which are
discussed in the Stipulation and Settlement between Commission Staff, Entergy Texas, Inc.,
and Texas Industrial Energy Consumers. See Order at 17. Competitive Customers will pay
105% of the avoided energy cost plus an O&M Adder. Additionally, the Competitive
Customer will pay a Fixed Cost Contribution Fee of $1.10 per kW-Month of Competitive
Contract Capacity. Thus, the Competitive Customers pay all of the incremental variable
costs associated with back-up power plus a contribution to generation fixed costs.

63
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 15-16.
64
Id. at 16.
Brief of Appellee Public Utility Commission Page 28
Customer’s energy costs pass through to the customers, meaning Entergy

would not have to pay the supplier for capacity. “There would be no other

unrecovered costs.”65

Entergy ultimately seeks to avoid the reality of competition and

maintain its monopoly. Although the legislature has ordered it to make a

partial transition to competition, Entergy believes it should not lose a penny

in the process. Entergy pretends that the legislature mandated that it charge

its lost revenues from those migrating to competition to the customers that are

ineligible to participate in the program.66 It goes further by insinuating that

there is no feasible way to implement the program in conformity with the

statute “without, in some manner, creating a preferential rate or assigning

costs to customers that may not cause them.”67 This is nonsense. The

legislature made no such mandate—the parties, not the legislature,

65
Id.
66
Appellant’s Brief at 19.
67
Id.
Brief of Appellee Public Utility Commission Page 29
determined which class would be eligible.68 Despite Entergy’s claim that the

statute mandated an unfair result, the Commission was able to approve a

program structure without causing harm to the ineligible classes.

Nonetheless, Entergy seeks a free lunch. Entergy seems content with

avoiding the statutory mandate that it move to partial competition by

designing an unfair program that is sure to be rejected. Further, if Entergy

actually has to enter the competitive market, it wants to assure that it does so

without experiencing the financial reality of competition. To pursue these

objectives, Entergy goes so far as to mischaracterize former Chairman

Smitherman’s open meeting comments regarding the program.69 It should be

noted that Commissioners’ thought processes are irrelevant in the judicial

determination of the reasonableness of an agency order. Pedernales Elec. Coop.,

Inc. v. Pub. Util. Comm’n of Tex., 809 S.W.2d 332, 342 (Tex. App.—Austin 1991,

no writ); City of Frisco v. Tex. Water Rights Comm’n, 579 S.W.2d 66, 72 (Tex. Civ.

68
AR, Item 113, Binder 2, Stipulation and Settlement Agreement between
Commission Staff, Entergy Texas, Inc. and Texas Industrial Energy Consumers, Attachment
1 at 1.
69
Appellant’s Brief at 19-20.
Brief of Appellee Public Utility Commission Page 30
App.—Austin 1979, writ ref’d n.r.e.). Yet, Entergy states that Chairman

Smitherman acknowledged that Entergy should not have to pick up the tab

for the program if it could not find an equitable way to pay for it: “[I]t’s clear

you’re not supposed to shoulder the burden of this [program] ...” and

“[U]nder no circumstances will you eat it [the costs of the program]”70

These comments bear no relation to Entergy’s attempt to collect lost

revenues from customers that are ineligible for the program. In context,

former Chairman Smitherman said that Entergy would not have to “eat” the

implementation costs if none of the LIPS customers opted to migrate to the

Competitive Program.71 In response to Entergy’s plan to collect embedded

generation costs from ineligible customers, former Chairman Smitherman

replied, “Yeah, I’m not comfortable with that.”72 He further stated, “I don’t

think we can put them on residential customers. I don’t think that was the

70
Id. at 20 citing Supp. AR Part IV, Vol. F (Docket No. 37744, Nov. 10, 2010 Open
Meeting Tr. at 179 & 210.
71
Id. at 210.
72
Id. at 212.
Brief of Appellee Public Utility Commission Page 31
intent.”73 And Chairman Nelson stated, “I wouldn’t approve that rider,

period.”74 Entergy’s assertion that the Commission acknowledged a statutory

intent to place the burden of costs on customers that did not cause them is

disingenuous.

Entergy failed to prove that it would be aggrieved by the

Commission’s statutory interpretation. Entergy relies solely on potential

harm that may have resulted from the program proposed to the ALJ in Docket

No. 37744. The revised program the Commission considered was structured

so that Entergy would not have any unrecovered costs other than

implementation and administration of the program. Entergy has not been

harmed and its appeal of this issue should be denied.

3. The Commission’s interpretation of the statute is reasonable,
and Entergy’s interpretation is unreasonable.

a. The Commission’s interpretation follows the statute’s
plain language that limits recovery to costs.

The Commission’s plain language interpretation is consistent with the

73
Id. at 213.
74
Id. at 212.
Brief of Appellee Public Utility Commission Page 32
legislative goal of promoting competition without imposing unjust and

unreasonable rates. Courts should reject plain language interpretations that

“would lead to absurd or nonsensical results that the legislature could not

have intended.” City of Rockwall, 246 S.W.3d at 625-26. Here, the Court

should uphold the Commission’s reasonable interpretation because Entergy

seeks to recover “lost revenues,” not “unrecovered costs,” which is

inconsistent with the plain language of the statute.

b. The Commission’s interpretation of the statute is
reasonable.

The Commission’s interpretation is consistent with the objective of

promoting competition, it is consistent with legal precedent, and it is

consistent with traditional rate-making principles. It does not allow Entergy

to shift rates from one class of customers to another. Nor does the

Commission’s interpretation allow Entergy to recover “costs” that it never

incurred. An interpretation making those allowances would lead to an

absurd result.

Brief of Appellee Public Utility Commission Page 33
 c. Entergy’s interpretation of the statute is unreasonable.

Entergy’s statutory interpretation conflicts with the plain language of

the statute. It is unreasonable for Entergy to include embedded generation

costs in its definition of unrecovered “costs.” As demonstrated above, what

Entergy actually seeks to recover are lost revenues. “[T]he term “costs,” as

used by the legislature in PURA, is not intended to include lost revenues.”

CenterPoint 2011, 354 S.W.3d at 904.

Entergy also ignores the statutory term “unrecovered.” Entergy failed

to meet its burden of proof to demonstrate that it would have unrecovered

costs other than those costs to implement and administer the Competitive

Program. Substantial evidence showed that under the revised program

approved by the Commission “there would be no other unrecovered costs.”75

Entergy should not be put in a better position than it would be without

the Competitive Program. This was not the intent of the legislature, and

would be contrary to the statute’s plain language. If base rates were set to

recover a certain amount of revenues from LIPS service but the revenues did

75
AR, TIEC Ex. 15, Binder 4, Pollock Supp. Direct at 15-16.
Brief of Appellee Public Utility Commission Page 34
not meet the company’s targets, Entergy would not be allowed to recover

those amounts or its carrying costs on the lost revenue.

But Entergy argues that its captive customers—those not eligible for the

Competitive Program—should absorb substantial amounts of money in extra

rates to cover Entergy’s hypothetical lost revenues caused by migration of

members of the LIPS rate class to the Competitive Program. Entergy asserts

that the Rejected Rider is designed to recover base-rate costs that its

Competitive Customers would avoid by opting into the competitive

generation structure “from non-participating customers.”76 Entergy would

determine the difference between what would have been billed under

traditional LIPS service and the amounts collected under the Competitive

Program. In other words, Entergy’s proposed rider would unfairly penalize

the majority of its customers so that Entergy would not lose any potential

revenue. This interpretation does not promote competition. It is the type of

absurd and nonsensical result that must be rejected because it could not have

been what the legislature intended. City of Rockwall, 246 S.W.3d at 625-26.

76
Appellant’s Brief at 6-7.
Brief of Appellee Public Utility Commission Page 35
 4. Entergy cannot use traditional rate-making concepts to avoid
the Legislature’s mandate to transition to competition.

Entergy’s argument that its lost revenues are unrecovered costs rests on

conflating two different aspects of rate-making: Entergy conflates the test-

year expenses used to determine a utility’s revenue requirement with the last

part of setting rates—rate design. To set regulated electric utility rates, the

Commission first decides how much revenue the utility needs to recover.

This amount results from the rate of return multiplied by the utility’s invested

capital (rate base) plus the utility’s reasonable and necessary operating

expenses:

(rate base × rate of return) + expenses = revenue requirement77

After the revenue requirement is determined, the Commission must design

the rates—how much of the revenue requirement should be collected from

different rate classes and what method to use to collect those amounts.

Although Entergy is correct that the Commission looks to the utility’s

actual expenses in a 12-month test year to begin its determination of the

77
See PURA § 36.051.
Brief of Appellee Public Utility Commission Page 36
utility’s reasonable and necessary expenses to include in the revenue

requirement, the Commission does not determine which rate class caused the

expenses to be incurred when it determines the revenue requirement. The

revenue requirement does not assign certain test-year expenses to a rate class

like the LIPS class that is eligible to participate in Competitive Rates.

Rate classes are, instead, used to design rates—to devise a dollar-per-

unit charge so that the utility will have a reasonable opportunity to recover the

total amount of its revenue requirement. Although cost causation can be

considered in designing rates, “[c]ost is not the only factor that is pertinent to

the Commission's decision; the Commission may also consider the purpose

for which the service is received, the quantity received, the time of use, and

the consistency and regularity of use, among other factors.” Nucor Steel v.

Pub. Util. Comm’n of Tex., 168 S.W.3d 260, 268 (Tex. App.—Austin 2005, no

pet.).

In one case the Texas Supreme Court recognized that “[r]ate design is

a complex problem that involves many factors,” and mentioned the cost of

service, the purpose for which the service or product is received, the quantity
Brief of Appellee Public Utility Commission Page 37
or amount received, the different character of the service furnished, the time

of its use, when the peak of the load occurs, the constancy and regularity of

the use made by the consumer, or any other matters. Tex. Alarm & Signal

Ass’n v. Pub. Util. Comm’n, 603 S.W.2d 766, 772 (Tex. 1980). Thus, the fact that

a rate class is assigned certain costs in rate design does not mean that the

customer caused those costs to be incurred.

Entergy incorrectly argues that: “[J]ust as test-year expenses determine

what a utility’s anticipated future revenue requirement will be for a particular

class, a utility’s anticipated revenue requirement for a class of customers

establishes what are indisputably the costs of serving those customers.”78

(emphasis added). This misleading statement underpins Entergy’s argument

that it will inevitably fail to recover all amounts it incurs to serve a particular

customer if that customer opts for Competitive Generation Service.

Moreover, throughout its brief, Entergy attempts to use traditional rate-

making concepts as both a sword and a shield. Entergy relies on traditional

rate-making principles when it claims it is entitled to a reasonable

78
Appellant’s Brief at 26.
Brief of Appellee Public Utility Commission Page 38
opportunity to recover all of its reasonable and necessary operating

expenses.79 However, it violates established fundamentals of rate-making

when it attempts to recover these costs from ineligible, captive customers by

charging them unjust and unreasonable rates.80 Even the ALJ rejected this

proposal as “contrary to the fundamental rate-making principle of cost

causation and may harm the competitiveness of non-participating

manufacturers.” Entergy cannot demand adherence with traditional rate-

making when it suits it and disregard it when it does not.

Entergy bases its argument that ineligible ratepayers should pay

additional amounts on its interpretation of another part of the sentence in the

statute. That sentence begins: “The tariffs subject to this subsection may not

be considered to offer a discounted rate or rates under Section 36.007.”81 From

the language “may not be considered,” Entergy leaps to the conclusion that

the Competitive Rates must be the opposite of discounted rates in Section

79
Appellant’s Brief at 13 and 27.
80
PURA § 36.003.
81
PURA § 39.452(b).
Brief of Appellee Public Utility Commission Page 39
36.007. Section 36.007(a) requires that discounted rates must not be

unreasonably preferential, prejudicial, discriminatory, predatory, or

anticompetitive.82 Entergy, therefore, interprets 39.452(b) as giving it free

reign to charge preferential, prejudicial, discriminatory, and anticompetitive

prices. This is absurd.

Further, because Section 36.007(d) states: “Notwithstanding any other

provision of this title, the commission shall ensure that the electric utility's

allocable costs of serving customers paying discounted rates under this

section are not borne by the utility's other customers”83; Entergy assumes that

any rates that are not discounted rates must ensure that costs are borne by the

utility’s other customers. That acrobatic leap is not necessary.

A more reasonable reading of the statement that the Competitive rates

are not discounted rates is that they are not flat percentage rate discounts

above the utility’s marginal costs. The rates charged must cover the

embedded costs of transmission and distribution and be based upon the same

82
PURA § 36.007(a).
83
PURA § 36.007(d).
Brief of Appellee Public Utility Commission Page 40
cost of service as other customers. The Competitive Customers must

negotiate their own bargain with the Competitive Suppliers and reap the

benefit of the bargain they make—it does not entitle them to a discount.

Entergy’s interpretation would violate actual statutory mandates. If

Entergy is incorrect, and ineligible customers need not bear the additional

rates the utility seeks, then it would defeat the purpose of creating

competition to make the Competitive Customers pay Entergy what they were

currently paying Entergy, and pay a Competitive Supplier too. If Entergy

were correct that ineligible customers must pay for the revenue lost when an

eligible customer opts for the Competitive Tariff, then Entergy’s proposal

violates that part of the statute that prohibits Entergy from harming the

sustainability or competitiveness of manufacturers choosing not to take

advantage of the Competitive program, and results in unjust and

unreasonable rates for those customers.84 Because not all manufacturers

within Entergy’s service area use the LIPS tariff to buy electricity, their

sustainability and competitiveness would be diminished if they were forced

84
PFD at 23-24 in Docket 37744; PURA § 39.452(b).
Brief of Appellee Public Utility Commission Page 41
to pay additional lost-revenue rates when LIPS customers used the

Competitive Tariff.85

The ALJ recognized that, contrary to Entergy’s assertions, PURA

§ 39.452(b) does not mandate that unrecovered costs be recovered from non-

participating customers.86 The ALJ rejected Entergy’s Competitive Program

primarily because “it runs contrary to the fundamental rate-making principle

of cost causation and may harm the competitiveness of nonparticipating

manufacturers.”87 The Commission accepted a revised Competitive Program

in Docket No. 38951, but properly rejected Entergy’s cost- shifting approach.

Further, Entergy’s reliance on the High Plains opinion is misplaced. See

R.R. Comm’n of Tex. v. High Plains Natural Gas Co., 628 S.W.2d 753 (Tex. Civ.

App.—Austin 1981, writ ref’d n.r.e.) (per curiam). That case does not define

the term “costs” in a statute nor explain how adding a new tariff may affect

the amounts that a utility had expected to recover under an existing tariff.

85
PFD at 24 in Docket 37744.
86
Id.
87
Id.
Brief of Appellee Public Utility Commission Page 42
 Nor, does High Plains stand for the proposition that rates must exactly

collect the amount of expenses that a utility incurs. Such a requirement

would run afoul of the Supreme Court’s subsequent recognition that what

determines a just and reasonable rate is far from a precise process. Pub. Util.

Comm’n of Tex. v. GTE-Sw., Inc., 901 S.W.2d 401, 411 (Tex. 1995). The

Commission must utilize informed judgment and expertise using projections

and estimates in virtually all areas of rate-making. Id.

Instead, High Plains addressed a particular component in a gas utility

rate case, a purchased-gas-adjustment clause, as applied under the Gas Utility

Regulatory Act (“GURA”). PURA § 36.201 prohibits such automatic

adjustments and pass-through clauses. Thus, the analysis in High Plains of

a type of rate that PURA prohibits has no bearing on this case.

Entergy’s contorted application of traditional rate-making principles

and misapplication of case law demonstrate that the Commission’s statutory

interpretation is the reasonable interpretation. Therefore, the Commission’s

order should be upheld.

Brief of Appellee Public Utility Commission Page 43
C. Issue 2: Entergy should recover only implementation costs under the
Competitive Rider, and they do not occur until the Competitive
Program is implemented.

1. There are no implementation costs for Entergy to recover until
the Competitive Program is implemented.

The Commission properly included only implementation costs in the

Competition Rider because that is all the plain language of the statute directs.

The statute states that “rates shall be set … to recover any costs unrecovered

as a result of the implementation of the tariff,”88 and the Commission followed

that directive. Entergy instead wants the Commission to include the costs of

developing the tariff. But those are different.

Implementation occurs once the tariff has been created; development

refers to the creation of the tariff. “Implementation” means “carry out,

accomplish; especially: to give practical effect to and ensure of actual

fulfillment by concrete measures” and it is synonymous with “administer.”89

88
Tex. Util. Code § 39.452 (emphasis added).
89
Implement Definition, Merriam-Webster – Dictionary and Thesaurus,
http://www.merriam-webster.com/dictionary/implement (last visited June 11, 2014). This
Court noted that “implement” means to carry out in CenterPoint Energy Houston Electric
LLC, 408 S.W.3d 910, 917 (Tex. App.—Austin 2013, pet. denied).
Brief of Appellee Public Utility Commission Page 44
The competition tariff must be created before it can be administered.

“Development,” on the other hand, means “the act or process of creating

something over a period of time.”90 The costs Entergy wanted to recover—all

the costs it has incurred since November 10, 2010 when the Commission

considered the PFD in Docket No. 37744 that related to the Competitive

Tariff91—are costs of development or creation of the tariff, not costs of

implementing the tariff.

Entergy will not recover implementation costs until the Competition

Tariff is implemented. Therefore, the Commission “[did] not reach the issue

of the amount to be recovered for the implementation and administration

costs at this time because the amount cannot be known until [Entergy]

actually implements the program.”92

The Commission properly followed the plain language of the statute

90
Development Definition, Merriam-Webster – Dictionary and Thesaurus,
http://www.merriam-webster.com/dictionary/development (last visited June 11, 2014).
91
Order at 8; Entergy’s redlined tariff version Exhibit DRR-SD-6 at 1, Section II
Purpose.
92
Order at 11.
Brief of Appellee Public Utility Commission Page 45
and its decision should be affirmed.

2. Entergy already recovered the costs to develop the Competitive
Program as operating expenses in a previous rate case.

a. In Docket 39896 Entergy recovered costs to develop the
Competitive Program as operating expenses.

The expenses incurred prior to the tariff’s implementation represent a

regulated utility’s cost of doing business. They are operating expenses. And

Entergy’s tariffs include operating expenses. Entergy claimed the program

development costs as operating expenses in its rate case in Docket No. 39896.

The tariff approved in that docket allowed Entergy to recover approximately

$300,000 per year to cover those expenses.93 Entergy should not be allowed

to collect the development costs again under the Cost Rider.

93

See PFD in P.U.C. Docket No. 39896 at 229-231
http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSe
arch_Results.asp?TXT_CNTR_NO=39896&TXT_ITEM_NO=764 (Stating that it is
appropriate for the $310,746 in expenses associated with development of the
Competitive Tariff to be charged to ratepayers as regulatory expenses.); see also Final
Order in P.U.C. Docket No. 39896 at 1
http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSe
arch_Results.asp?TXT_CNTR_NO=39896&TXT_ITEM_NO=807 (“Except as discussed in
this Order, the Commission adopts the proposal for decision, as corrected, including
findings of fact and conclusions of law.”); AR, ETI Ex. 101, Dennis R. Roach Supp.
Direct at 15.
Brief of Appellee Public Utility Commission Page 46
 b. It would violate the prohibition on retroactive rate-
making to permit Entergy to offset the costs it has already
collected from the Cost Rider.

Although Entergy proposed to offset that amount against the

implementation costs included in the Cost Rider, the Commission refused

noting that would amount to retroactive rate-making. The rule against

retroactive rate-making “prohibits a public utility commission from setting

future rates to allow a utility to recoup past losses or to refund to consumers

excess utility profits.” State v. Pub. Util. Comm’n of Tex., 883 S.W.2d 190, 199

(Tex. 1994). Thus, determining whether Entergy recovered all of its expenses

for developing the competitive tariff would be prohibited retroactive rate-

making.

D. Issue 3: Entergy is not entitled to collect interest on the balance of its
unrecovered costs.

The Commission properly rejected Entergy’s request to recover interest

on costs unrecovered as a result of implementing the tariff.94 The interest

Entergy requests is analogous to interest on rate-case expenses, which is not

94
AR, Item 119, Order at 10.
Brief of Appellee Public Utility Commission Page 47
allowed.95 It would be inappropriate for Entergy to recover interest on the

unrecovered balance of its Cost Rider charges.96

1. Like rate-case expenses, the unrecovered implementation costs
are relatively small and recovered quickly so that adding
interest is not reasonable.

The implementation expenses should be treated like rate-case expenses

because they can both be identified and recovered in a relatively short period

of time. Rate-case expenses are typically amortized over a three-year period

without a return (interest) on the unamortized balance.97 Like rate-case

expenses, Entergy’s unrecovered implementation costs will be recouped

relatively quickly making interest amounts de minimus. Thus, unrecovered

implementation costs are reasonably treated consistently with rate-case

expenses.

95
Id.
96
Id. at 25, FoF 57C.
97
Id. at 10.
Brief of Appellee Public Utility Commission Page 48
 2. The statutes do not require interest on unrecovered
implementation costs.

Entergy offers no authority that would permit it to recover interest on

its unrecovered balance. Under PURA Chapter 36, the traditional cost-of-

service rate-making paradigm permits a utility to recover its expenses, but it

does not allow a utility to profit from those expenses. Reliant Energy, Inc. v.

Pub. Util. Comm’n of Tex., 153 S.W.3d 174, 183 (Tex. App.—Austin 2004, pet.

denied); Cities for Fair Util. Rates v. Pub. Util. Comm’n of Tex., 924 S.W.2d 933,

935 (Tex. 1996). It has long been the Commission’s practice not to allow

utilities to recover interest on rate-case expenses.98

Furthermore, the Competitive Program statute does not provide for

carrying costs resulting from the implementation of the statute. PURA

§ 39.452(b) does not mention carrying costs or interest, consequently, the rules

of statutory construction presume that the legislature did not intend to allow

98
Application of CenterPoint Energy Houston Electric, L.L.C. for a Competition Transition
Charge, Docket No. 30706, Order at 32 (July 14, 2005); Application of Reliant Energy HL&P for
Approval of Unbundled Cost of Service Rate Pursuant to PURA § 39.201 and Public Utility
Commission Substantive Rule § 25.344, Docket No. 22355, Order, FoF 98G (Oct. 4, 2001); see
Complaint of the City of McKinney Against Southwestern Bell Telephone Company, Docket No.
11027, Final Order at CoL 9 (May 17, 1995).
Brief of Appellee Public Utility Commission Page 49
interest for the unrecovered balance. CenterPoint 2011, 354 S.W.3d at 904.

The Commission’s order permits Entergy to file an application for the

implementation and administration of costs after the Competitive Program

has been implemented for six months.99 Entergy need not suffer a lengthy

“regulatory lag”—the period of time between when the costs of implementing

the Competitive Program are incurred and when they can be recovered. Pub.

Util. Comm’n of Tex. v. GTE-Sw., Inc., 901 S.W.2d 401, 405 (Tex. 1995). The time

value of money that Entergy claims it must forgo is minimal at best. The

statute does not contemplate this kind of expense.

3. The 2004 CenterPoint opinion does not mandate recovery of
interest on all amounts in a rate case.

Entergy’s reliance on CenterPoint Energy, Inc. v. Public Utility Commission

of Texas, is misplaced. The case is inapplicable here because the only issue

decided by the Supreme Court in that case was when interest on stranded

costs could accrue after deregulation commenced, not if interest could accrue.

143 S.W.3d 81, 83 (Tex. 2004) (“The only issue before us is the date from which

99
AR, Item 119, Order at 27, Ordering Paragraph 9.
Brief of Appellee Public Utility Commission Page 50
carrying costs may be recovered once deregulation commenced…”). In that

case, the Texas Supreme Court addressed the calculation of carrying costs on

utilities’ stranded costs in generation plants once retail competition was fully

established. Id. Stranded costs were substantial amounts—in the billions of

dollars—and recovered over a long period of time. Chapter 39 of PURA

allowed the utilities to “fully recover their ‘net, verifiable, nonmitigable

stranded costs incurred in purchasing power and providing electric

generation service.” Id. at 84. Entergy’s costs are not stranded costs of

purchasing power and providing generation, but rather, ministerial tasks of

drafting contracts and fine-tuning its billing system.

The Commission’s decision to deny Entergy’s request for interest on the

unknown costs associated with the implementation and administration of the

Competitive Program should be upheld.

CONCLUSION AND PRAYER

The Commission correctly determined that the costs unrecovered as a

result of the implementation of the Competitive Program tariff are the costs

to implement and administer the Competitive Program tariff.
Brief of Appellee Public Utility Commission Page 51
 The evidence and testimony prove the “costs” that Entergy seeks to

recover are actually “lost revenues.” Legal precedent supports the exclusion

of lost revenues unless specifically provided for by the legislature. Further,

the evidence indicates that the design of the Competitive Program does not

leave any costs unrecovered.

The Commission’s statutory interpretation is reasonable and consistent

with the statutory language. The Court should uphold the Commission’s

interpretation and reject Entergy’s interpretation that would lead to

inequitable treatment of the ineligible customers, and would prevent actual

competition within the service area by allowing Entergy to continue to collect

revenues for customers it does not serve. The Commission’s interpretation

also properly identifies that implementation costs cannot be recovered until

the Competitive Tariff is implemented, and no collection of interest is

permitted on the unrecovered balance.

The Commission prays that this Court uphold the Commission’s

reasonable interpretation of the statute based on the plain language, legal

precedent, and evidence and testimony in the record.
Brief of Appellee Public Utility Commission Page 52
 Respectfully submitted,

KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

JAMES E. DAVIS
Deputy Attorney General for Civil Litigation

JON NIERMANN
Chief, Environmental Protection Division

ELIZABETH R. B. STERLING
Assistant Attorney General
State Bar No. 19171100
elizabeth.sterling@texasattorneygeneral.gov

/s/ Megan Neal
MEGAN NEAL
Assistant Attorney General
State Bar No. 24043797
megan.neal@texasattorneygeneral.gov

Office of the Attorney General
P.O. Box 12548, MC 066
Austin, Texas 78711-2548
512.463.2012
512.457.4610 (fax)

ATTORNEYS FOR THE PUBLIC UTILITY
COMMISSION OF TEXAS

Brief of Appellee Public Utility Commission Page 53
 CERTIFICATE OF COMPLIANCE

I certify that the foregoing document has 9,322 words, calculated using
computer program WordPerfect 12, pursuant to Texas Rules of Appellate
Procedure Rule 9.4.

/s/ Megan Neal
Megan Neal

Brief of Appellee Public Utility Commission Page 54
 CERTIFICATE OF SERVICE

I hereby certify that on February 13, 2014, a true and correct copy of this
document was electronically filed with the Court of Appeals for the Third
District of Texas. All counsel were served electronically with a true and
correct copy of this document through an electronic filing manager or by
email to the following:

John F. Williams
Marnie A. McCormick
DUGGINS WREN MANN & ROMERO LLP
600 Congress Ave., Ste. 1900 (78701)
P. O. Box 1149
Austin, Texas 78767-1149
512.744.9300
512.744.9399 (fax)
jwilliams@dwmrlaw.com
mmccormick@dwmrlaw.com

ATTORNEYS FOR APPELLANT
ENTERGY TEXAS, INC.

/s/ Megan Neal
Megan Neal

Brief of Appellee Public Utility Commission Page 55
APPENDIX A
 PUC DOCKET NO. 38951

APPLICATION OF ENTERGY TEXAS, § PUBLIC UTILITY COMM16SSI^I
INC. FOR APPROVAL OF §
r,
COMPETITIVE GENERATION § OF TEXAS =^--
SERVICE TARIFF (ISSUES SEVERED § r^ ..w f_^+ ^.3
FROM DOCKET NO. 37744) § ^^^•^ ^ y^ 1 '^

r c^^
rrt, _^, ^c t° rJ
INTERIM ORDER

1. Introduction
This interim order addresses the Commission's decision regarding three threshold issues
surrounding Entergy Texas, Inc.'s ( ETI's) proposed competitive generation service (CGS). The

Commission makes its determination on these three threshold issues so the parties can move
forward with the remaining issues that parties have characterized as being contingent on
Commission decisions on the threshold issues: ( 1) what types of costs that will be considered
unrecovered for purposes of PURA § 39.452(b); ( 2) what types of ETI customers will be eligible

for participation in the CGS program; and (3) which ETI customers will be responsible for
paying the unrecovered costs.

ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy
Consumers, State Agencies, Kroger Co., Cities,' Wal-Mart Stores Texas, LLC and Sam's East,
Inc. participated in this docket.

II. Procedural History
ETI submitted its proposed CGS tariff and related riders in Docket No. 37744, its last rate
case.2 In that rate case, the parties settled on all issues except for ETI's CGS proposal. After a
hearing on the CGS proposal and the associated riders, the administrative law judge (ALJ)

I
The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville,
Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches,
Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.
zApplication of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Corrected Application (Feb. 23, 2010).

e^ l

000000001
PUC Docket No. 38951 Interim Order Page 2 of 17

forwarded the parties' stipulation and settlement agreement and the proposal for decision to the
Commission for consideration.

The Commission considered the settlement and the proposal for decision at the
November 10 and December 1, 2010 open meetings. The Commission adopted the settlement
for the rate case issues and severed the CGS issues into this docket, including the record in
Docket No. 37744.3

At the December 1, 2010 open meeting, the Commission requested the parties to enter
into negotiations and work to come to agreement on as many of the undetermined CGS program
issues as possible, and then bring the issues for which an agreement could not be reached back to
the Commission for consideration. Status reports were filed on January 13 and 28, February 18,
March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that
they were working to narrow the contested issues.

On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed
a motion requesting a decision on the proposal for decision in this docket. TIEC and
Commission Staff filed responses to the joint motion and generally opposed the motion. At the
September 29, 2011 open meeting, the Commissioners considered the motions and issued an
order requiring the parties to file pleadings identifying the CGS tariff issues that have been
settled on by the parties and identifying the issues for which a settlement could not be reached.
The parties were also permitted to identify issues that are contingent upon the Commission's
determination of the unsettled issues.

On November 1, 2011, several parties4 filed an agreed list of settled issues. However, the
parties did not agree on a recommendation as to how the unsettled issues and issues that are
contingent on the Commission's determination of unsettled issues should be addressed and
resolved by the Commission. Therefore, TIEC also separately filed a list of unsettled issues and
request for procedural schedule. TIEC also requested that the Commission receive additional
evidence in order to resolve the unrecovered costs issue because ETI's proposal in Docket
No. 37744 was based on ETI's proposal for an energy-only program, not an energy and

3 Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Order No. 14 Memorializing Decision Granting Motion to Sever ( Dec. 3, 2010).
' Cities, Entergy, OPUC, Commission Staff, State Agencies, and Wal-Mart/Sam's East. Kroger Company
did not oppose the agreed settled issues and Cottonwood Energy has not participated in the discussions.

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PUC Docket No. 38951 Interim Order Page 3 of 17

capacity-based program. T1EC reported that during the time period when the parties were
negotiating the Entergy Operating Committee had agreed that CGS power from qualifying
facilities in the ETI service territory could provide firm generation. 5

At the December 8 and December 15, 2011 open meetings, the Commission decided that
the parties should submit stipulated facts, the Commission would re-open the record to admit
additional evidence, and then the Commission would make a decision on the unsettled issues.
After that, the Commission planned to issue an interim order reflecting the decisions on the
unsettled, threshold issues.

On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts.
The parties reached agreement in principle on a number of discrete items within the overall
framework of the CGS program and tariffs. Many of the items are simply elements of larger
program issues that retain one or more as yet unsettled aspects essential to final resolution of that
program issue. Items as to which agreement in principle exists are "subject to satisfactory
resolution of unsettled issues. ,6

On January 26, 2012, ETI submitted supplemental direct testimony. On
February 10, 2012, the intervenors submitted supplemental direct testimony and on
February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The
parties submitted statements of position and pre-hearing briefs on March 26, 2012.

On April 13, 2012, the parties submitted an unopposed stipulation on the threshold issue
regarding customers responsible for paying unrecovered costs. The parties, except ETI, agreed
that CGS customers would be the only ETI customers responsible for unrecovered costs of the
CGS program. ETI did not join or oppose this stipulation.7 On April 18, 2012, the parties
submitted a third stipulation on customer eligibility stating that LIPS customers would be the
CGS-eligible customers, with certain limitations on the LIPS customers' participation and other
program minimums and caps.8

5 TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 2011).
6 CGS Stipulated Matters and Stipulated Facts (Jan. 20, 2012).
Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012).
Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012).

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PUC Docket No. 38951 Interim Order Page 4 of 17

The Commission held a hearing on the remaining contested threshold issue on
April 19, 2012.

III. Discussion
PURA9 § 39.452(b) requires ETI to propose a CGS tariff that would require ETI to
purchase CGS, selected by the CGS customer, and provide the generation at retail to the
customer. ETI is required to provide and price retail transmission service, including necessary
ancillary services, to retail customers who choose to take advantage of the competitive
generation tariff at a rate that is unbundled from the utility's cost of service. Competitive
generation customers are not to be considered wholesale transmission customers. The statute
required the Commission to approve, reject, or modify the proposed tariff not later than
September 1, 2010. The CGS tariff may not be considered to offer a discounted rate or rates
under Section 36.007, and ETI's rates shall be set, in the proceeding in which the tariff is
adopted, to recover any costs unrecovered as a result of the implementation of the tariff. The
statute requires the Commission to ensure that a competitive generation tariff not be
implemented in a manner that harms the sustainability or competitiveness of manufacturers that
choose not to take advantage of competitive generation. PURA § 39.452(b) also prohibits the
Commission from issuing a decision relating to the competitive generation tariff that is contrary
to an applicable decision, rule, or policy statement of a federal regulatory agency having
jurisdiction.

The Commission finds that the three stipulation-and-settlement agreements are
reasonable and adopts them to the extent they do not conflict with other Commission
determinations in this docket.

Adoption of the three stipulation-and-settlement agreements leaves one threshold issue
remaining: the types of costs that will be considered ETI's unrecovered costs for purposes of
PURA § 39.452(b). The Commission finds that unrecovered costs are only those costs necessary
to implement and administer the CGS program and are not to be defined to include lost revenues,
embedded generation costs, or any other types of costs.

' Public Utility Regulatory Act (PURA), TEX. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 2007 & Supp.
2011).

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PUC Docket No. 38951 Interim Order Page 5 of 17

A. Eligible Customers Stipulation
The Commission adopts the stipulation and settlement regarding eligible customers and
finds that LIPS customers are the ETI customers that will be eligible to participate in the CGS
program (with further Iimitations as set forth in the parties' stipulation on this issue).10

B. Customers Responsible for Paying Unrecovered Costs Stipulation
The Commission also adopts the stipulation and settlement regarding determining which
customers will be responsible for paying the unrecovered costs referenced in
PURA § 39.452(b). To the extent there are costs unrecovered as a result of implementation of

the CGS program tariff, those costs will be borne solely by customers taking service under the
CGS tarif£ "

C. January 20, 2012 CGS Stipulated Matters and Stipulated Facts
The Commission adopts the stipulated facts submitted by the parties on January 20, 2012
regarding ETI's capacity deficit and the program cap and notes that the items that are a part of
the "agreed settlement terms" regarding eligible CGS suppliers, amount of CGS capacity, the
CGS customer unbundled rate, the CGS energy payment, the CGS customer fixed-cost
contribution, the CGS customer unserved energy rate, and the recognition of CGS supply as firm
capacity are items for which there is only an agreement in principle that are subject to
satisfactory resolution of unsettled issues.12

D. Unrecovered Costs
The remaining threshold issue, the meaning of "costs unrecovered as a result of
implementation of the CGS program tariff," as used in PURA § 39.452(b), was the subject of the
April 19, 2012 hearing. In the proposal for decision, the ALJ found that ETI is entitled to collect
unrecovered embedded generation costs and any other related base rate costs as a result of
customer migration to the CGS program.13

'o Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012).

" Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012).
'Z CGS Stipulated Matters and Stipulated Facts at 1(Jan. 20, 2012).

" Proposal for Decision at 22 (Oct. 5, 2010).

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PUC Docket No. 38951 Interim Order Page 6 of 17

ETI argued that unrecovered costs should be defined as the embedded production costs
and any other related base rate costs that would have been recovered through traditional rates
charged to CGS customers that will no longer be recovered due to the CGS program.14 TIEC
took the position that unrecovered costs should not include ETI's hypothetical lost revenues and
that the costs that could be unrecovered as a result of implementation of the tariff should include
the expenditures actually incurred by ETI to implement and maintain the CGS program.ts Cities
and OPUC agreed with TIEC that unrecovered costs are not the same thing as unrecovered
revenues. 16 Cities also noted that it would be unreasonable to allow ETI to continue to incur
costs for a customer the utility no longer plans to serve. 17

In making its determination of the definition of unrecovered costs, the Commission
follows the precedent set in CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n,
354 S.W.3d 899 (Tex. App-Austin, 2011 no pet.) where the Third Court of Appeals found that
because the language of PURA § 39.905 did not specifically provide for recovery of "lost
revenues" and that in at least two other provisions of PURA 18 the legislature expressly
distinguishes "costs" from "revenues," the term "costs," as used by the legislature in
PURA § 39.905, is not intended to include lost revenues.19 Like PURA § 39.905,
PURA § 39.452(b) only provides for "costs unrecovered as a result of implementation of the
tariff' and does not specifically provide for the utility to recover lost revenues or any other type
of costs.

Based on the evidence and testimony, the Commission finds that the proper interpretation
of "costs unrecovered as a result of implementation of the CGS program tariff' is costs to
implement and administer the CGS program tariff. Such unrecovered costs do not include lost
revenues, embedded generation costs, or any other types of costs. The Commission reverses the
proposal for decision on this issue.

14 Supplemental Direct Testimony, Exhibits, and Workpapers of Phillip R. May, ETI Ex. 91 at 6.
" s Supplemental Direct Testimony of Jeffry Pollock, TIEC Ex. 15 at 14-15.
"' Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7 and Supplemental Cross Rebuttal
Testimony of Clarence Johnson, OPUC Ex. 8 at 6.
" Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7-8.
18 PURA § 55.024(b) and PURA § 56.025(e).
19 CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm'n, 354 S.W.3d 899, 903-904
(Tex.Civ.App-Austin, 2011)

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PUC Docket No. 38951 Interim Order Page 7 of 17

The Commission issues this interim order so that the parties may work to reach an
agreement on the components of the CGS program tariff that are contingent on the
Commission's decision on the threshold issues.

IV. Conclusion
The Commission adopts each of the three stipulation-and-settlement agreements and
finds that unrecovered costs for the CGS program are those needed to implement and administer
the CGS program and are not lost revenues, embedded generation costs, or any other types of
costs.

V. Findings of Fact

Procedural History
I. As part of its application in Docket No. 37744, Application of Entergy Texas, Inc. for
Authority to Change Rates and Reconcile Fuel Costs, ETI proposed a competitive
generation service (CGS) program pursuant to Public Utility Regulatory Act. Tex. Util.
Code Ann. (PURA) § 39.452(b).

2. On July 16, 2010 and July 20, 2010, a State Office of Administrative Hearings
administrative law judge held a hearing on the merits on ETI's CGS proposal.

3. A proposal for decision was issued on November 1, 2010. The ALJ ultimately
recommended that the CGS proposal be rejected.

4. The Commission considered the proposal for decision at the November 10 and
December 1, 2010 open meetings as part of Docket No. 37744. At the December 1, 2010
open meeting, the Commission adopted the settlement for the rate case issues and severed
the CGS proposal into this Docket. The Commission requested that the parties enter into
negotiations and work to come to agreement on as many of the undetermined issues as
possible, and then bring the issues for which an agreement could not be reached back to
the Commission for consideration.

5. Order No. I was issued on December 3, 2010 severing the CGS issues into this docket,
including the record in Docket No. 37744.

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PUC Docket No. 38951 Interim Order Page 8 of 17

6. Sabine Cogen, LP filed a motion to intervene in this docket on December 23, 2010. ETI

tiled an objection to Sabine Cogen, LP's motion to intervene on December 30, 2010.
Sabine Cogen, LP's motion to intervene was denied in Order No. 3 on January 12, 2011.

7. ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy
Consumers, State Agencies, Kroger Co., Cities,20 Wal-Mart Stores Texas, LLC and
Sam's East, Inc., and Cottonwood Energy are parties to this proceeding.

8. On January 11, 2011, the Commission ALJ issued Order No. 2 requiring ETI to either
provide an update on the status of settlement discussions or to propose a schedule, agreed
to by all parties, for finalizing the outstanding issues.

9. The parties filed status reports on January 13 and 28, February 18, March 11, and
April 8, 2011. These reports indicated that parties continued to negotiate and that they
thought that they could narrow the issues.

10. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed
a motion requesting a decision on the proposal for decision in this docket. TIEC and
Commission Staff filed responses to the joint motion and generally opposed the motion.
At the September 29, 2011 open meeting, the Commissioners considered the motions and
issued an order requiring the parties to file pleadings identifying the CGS tariff issues that
have been settled on by the parties and identifying the issues for which a settlement could
not be reached. The parties were also permitted to identify issues that are contingent
upon the Commission's determination of the unsettled issues.

11. On November 1, several parties filed an agreed list of settled issues. TIEC also
separately filed a list of unsettled issues and request for procedural schedule. TIEC also
requested that the Commission receive additional evidence in order to resolve the
unrecovered costs issues because ETI's proposal in Docket No. 37744 was based on
ETI's proposal for an energy-only program, not an energy and capacity-based program.
The circumstances had changed primarily due to the agreement of the Entergy Operating
to treat CGS power from qualifying facilities in the ETI service territory as firm

20 The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville,
Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches,
Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.

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PUC Docket No. 38951 Interim Order Page 9 of 17

generation. The remainder of the parties tiled a joint agreed list of unsettled issues and
issues contingent on a Commission determination of unsettled issues.

12. At the December 8 and December 15, 2011 open meetings, the Commissioners decided
that the parties should submit stipulated facts, the Commission would re-open the record
to admit additional evidence as requested by TIEC, and then the Commission would
make a decision on the three threshold unsettled issues in an interim order.

13. On December 18, 2011, Order No. 4 was issued establishing a procedural schedule.

14. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts.
The parties reached agreement in principle on a number of discrete items within the
overall framework of the CGS program and tariffs. Many of the items are simply
elements of larger program issues that retain one or more as yet unsettled aspects
essential to final resolution of that program issue. Items as to which agreement in
principle exists are "subject to satisfactory resolution of unsettled issues."

15. On January 24, 2012, Order No. 5 was issued clarifying the number of copies of
testimony that were to be filed by the parties.

16. On January 26, 2012, ETI submitted supplemental direct testimony. On
February 10, 2012, the intervenors submitted supplemental direct testimony and on
February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony.
The parties submitted statements of position and pre-hearing briefs on March 26, 2012.

17. Order No. 6 was issued on February 1, 2012 setting April 19, 2012 as the date for the
hearing.

18. On April 13, 2012, the parties filed an unopposed stipulation that to the extent there are
costs unrecovered as a result of the implementation of a CGS tariff, those costs should be
borne solely by customers taking service under the CGS tariff. ETI did not join but did
not oppose the stipulation.

19. On April 18, 2012, the parties filed an unopposed stipulation regarding customer
eligibility. LIPS customers will be eligible to participate in ETI's CGS program (with
further limitations as set forth in the stipulation on this issue).

20. The Commission held the hearing on the merits on April 19, 2012.

000000009
PUC Docket No. 38951 Interim Order Page 10 of 17

Elizible customers stipulation
21. The parties agreed that only customers eligible to take service under ETI's Large
Industrial Power Service ( LIPS) are eligible customers for the CGS program.

22. The parties agreed that only LIPS firm load will be eligible to participate in the CGS
program.

23. The parties agreed that LIPS customers with interruptible service (IS) or standby and
maintenance service (SMS) load are not precluded from participating in the CGS
program, but this participation is limited to their firm LIPS load. To the extent that
customers with IS load participate in the CGS program, they must comply with the terms
of the IS tariffs regarding minimum LIPS load. Only the portion of the customer's LIPS
load that is in excess of the firm contract power minimum requirement under section 1 of
Schedule IS is eligible for the CGS program.

24. The parties agreed that to the extent there are increased administration costs associated
with billing a customer that has CGS and IS or SMS load, the CGS customer will bear the
costs.

25. The parties agreed that there will be a 115 MW cap on the CGS program.

26. The parties agreed that there will be a 5 MW minimum on CGS customer load.

27. The parties agreed that there will be no aggregation of CGS customer load to meet the
5 MW minimum on CGS customer load.

28. The parties agreed that there will be a cap of 10 CGS purchase agreements.

Customers responsible for Paying unrecovered costs stipulation

29. The parties, except ETI, agreed that to the extent there are costs unrecovered as a result of
the implementation of a CGS tariff, those costs should be borne solely by customers
taking service under the CGS tariff, i.e., CGS customers. ETI did not oppose this
stipulation.

January 20, 2012 CGS Stipulated Matters and Stipulated Facts

30. In the CGS stipulated matters and stipulated facts filed on January 20, 2012, the parties
stated they had reached an agreement in principle on a number of discrete items within

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PUC Docket No. 38951 Interim Order Page 11 of 17

the overall framework of the CGS program and tariffs, which were listed in
Section I. A-G of the stipulation. However, many of those items are simply elements of
larger program issues that retain one or more as yet unsettled aspects essential to final
resolution of that program issue. Items as to which agreement in principle exists, subject
to satisfactory resolution of unsettled issues, include the following:

A. Eligible CGS suppliers

1. Eligible CGS suppliers will be limited to qualifying facilities that are or
will be directly connected to ETI. Any expansion of eligible CGS suppliers would
require initiation of new Commission proceedings.

B. Amount of CGS capacity

1. A CGS customer will specify the amount of its load to be served by a
specified CGS supplier.

2. The specified CGS supplier will enter into a contract with Entergy
Services, Inc., on behalf of ETI, or directly with ETI, for the purpose of becoming an
Entergy system network resource. The agreement between the CGS supplier and Entergy
Services, Inc. or ETI shall include a contract for the purchase of capacity and energy
(CGS purchase agreement). Per determination of the Entergy Operating Committee, the
capacity and energy contracted for under the CGS purchase agreements shall be allocated

solely to ETI.

3. The level of capacity contracted for under the CGS purchase agreement
(CGS contract capacity) will be the same level of capacity contracted for in a separate but
related contract between the CGS supplier and the CGS customer.

4. The monthly CGS supplied capacity shall be calculated monthly based on
the on-peak energy deliveries of CGS-supplied energy from the CGS supplier. The

monthly CGS supplied capacity shall be the lesser of the CGS contract capacity and the
result of the following calculation-on a rolling 12-month basis (using a cumulative basis
during the first 11 months), the sum of the CGS-supplied energy delivered by the CGS
supplier during on-peak hours, divided by the number of on-peak hours during the same
time period, divided by 0.8. On-peak hours are defined as the hours ending 7:00 am

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PUC Docket No. 38951 Interim Order Page 12 of 17

through 10:00 pm Monday through Saturday, excluding North American Electric

Reliability Corporation holidays.

C. CGS-customer unbundled rate

1. CGS customers are limited to, and will remain, ETI retail customers.

2. ETI will not make a capacity payment to the CGS supplier, and the CGS
customer will not pay ETI the embedded production cost in the firm rate schedule under
which the customer would otherwise be eligible to receive service.

3. The price for retail delivery service, including necessary ancillary
services, to retail customers who choose to take advantage of the competitive generation
tariff will be a rate that is unbundled from ETI's cost of service and that will be
determined by a credit to the CGS customer's bill based on the unbundled production
costs associated with the otherwise applicable firm rate.

4. The unbundled, embedded production cost for a LIPS customer based on
current rates is $6.84 per kW per month. The CGS credit is subject to review and
modification in subsequent rate cases. If the clause "less any corresponding concurrent
reduction in energy purchased by the CGS customer" referenced in section F.1 below is
adopted, then certain parties may recommend a further adjustment to the LIPS embedded
production cost specified in this paragraph C.4.

5. With the exception of the capacity credit and fixed fuel factor, a CGS
customer will pay ETI a retail rate that includes all other charges the customer would pay
as a firm customer (for example Rider TTC, HRC, SRC, SRO, and IFF charges, if
applicable).

D. CGS energy payment

l. CGS customers will pay fuel costs based on avoided cost for
CGS-supplied energy. Specifically, ETI will purchase hourly CGS energy supplied by
the CGS supplier from the CGS contract capacity at the system hourly avoided-energy-
cost as determined under Rate Schedule LQF. ETI will charge the CGS customer at the
same rate for that hourly CGS-supplied energy not to exceed the energy requirement of
the CGS customer.

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 Interim Order Page 13 of 17
PUC Docket No. 38951

E. CGS customer fixed-cost contribution

l. The level of compensation to ETI from CGS customers for CGS service

will include a monthly fixed charge called a fixed-cost contribution.

2. The fixed-cost contribution will be $1.10 per kW of CGS load per month.

3. Revenues from the fixed-cost contribution will reduce any otherwise

unrecovered costs associated with the program.

F. CGS customer unserved energy rate

l. If, in any hour in a delivery month, there is hourly CGS unserved energy,
the CGS customer will take service from ETI under the CGS unserved energy rate.
Hourly CGS unserved energy is the difference in any given hour between the amount of
energy corresponding to the full amount of CGS contract capacity and the amount of
energy actually supplied to ETI from the CGS contract capacity by the CGS supplier in
such hour, not to exceed the energy requirement of the CGS customer. The parties have
not agreed whether the following clause should be added to this last sentence: "less any
corresponding concurrent reduction in energy purchased by the CGS customer."

2. The structure of the CGS unserved energy tariffed rate will include an
agreed energy charge and agreed O&M adder. The monthly CGS unserved energy
charge will be the sum of (a) the hourly CGS unserved energy for the month times 105%
of the system hourly avoided energy cost as determined under Rate Schedule LQF and
(b) the hourly CGS unserved energy for the month times specified variable O&M charges

specified immediately below in paragraph 3.

3. The specified variable O&M charges for the CGS unserved energy rate are
as follows:

Delivery Voltage On-Peak Per kWh Off-Peak Per kWh

Distribution (less than 69kV) $0.03555 0.00540

Transmission (69kV and $0.02451 0.00222

greater)

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PUC Docket No. 38951 Interim Order Page 14 of 17

4. On-peak and off-peak hours for the CGS unserved energy rate are as
follows:

a. Summer: On-peak hours are 1:00 pm to 9:00 pm Monday through
Friday of each week beginning on May 15 and continuing through October 15 of each
year except that Memorial Day, Labor Day and Independence Day (July 4 or the nearest
weekday if July 4 is on a weekend) are not on-peak.

b. Winter: On-peak hours for each week of Monday through Friday
beginning October 16 and continuing through May 14 of each year are 6:00 am to
10:00 am and 6:00 pm to 10:00 pm, except that Thanksgiving Day, Christmas Day, and
New Year's Day (or the nearest weekday if the holiday should fall on a weekend) are not
on-peak.

c. Off-peak hours are all hours of the year not specified as on-peak
hours. With the approval of the Commission, ETI may at its sole discretion change
on-peak hours and season from time to time.

5. Revenues from the CGS unserved energy rate derived from the variable
O&M charges will go towards offsetting any unrecovered costs as a result of the
implementation of the CGS tariff.

6. Revenues from the CGS unserved energy rate derived from 105% of the
system hourly avoided energy charges will go towards offsetting ETI's eligible fuel costs.

G. Recognition of CGS supply as firm capacity. Progress has been made on
resolving issues regarding the recognition of CGS capacity as firm capacity, but final
resolution of these issues, including the following, is contingent on the Entergy Operating
Committee's approval as well as a final resolution of all issues.

1. The Entergy Operating Committee has established certain conditions that
must be met before it will recognize a CGS purchase agreement as "capability" for the
Entergy System, for purposes of determining reserve equalization payments or receipts.
The parties are continuing to discuss the conditions established by the Operating
Committee.

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PUC Docket No. 38951 Interim Order Page 15 of 17

2. The capacity product from CGS purchase agreements will be a 24/7
unit-contingent product.

3. The delivery term of CGS purchase agreements may be from one year to

five years, and must be a whole number of years.

4. The contract capacity will be a fixed capacity amount throughout any

successive 12-month period during the contract term.

5. The parties have tentatively agreed to a number of concepts for firming up
CGS capacity that would be reflected in a form contract for use in implementing the CGS
program. The parties will continue to negotiate other concepts and terms for inclusion in

a form supply contract.

31. The parties stipulated that the Strategic Resource Plan (SRP) for the Entergy system (of
which ETI is a part) projects a continuing need for additional capacity for ETI and the
Entergy system through 2017. Entergy's and ETI's resource needs are subject to change
at any time based on actual experience related to operational conditions, resource offers
and solicitations, and other events that affect resource needs.

32. The parties stipulated that based on an assessment of load requirements and generating
capability, the SRP projects that ETI has an incremental net resource deficiency of

260 MW in 2012 and 504 MW in 2013.

33. The parties stipulated that the Entergy system-wide planning process is conducted
pursuant to the requirements of the Entergy system agreement and is designed to result in
a portfolio of resources that differ by term and source. The Entergy system agreement
states that the objective of this process is to ensure cost-effective, reliable levels of

service.

34. The parties stipulated that CGS purchase agreements are resources that will be included
in the Entergy System's portfolio of supply resources, consistent with the terms and
conditions related to the delivery requirements of those purchase agreements (e.g., degree

of dispatchability, term, degree of firmness).

35. The parties stipulated that it is reasonable at the outset of the CGS program to establish a
cap on the amount of load that may subscribe to CGS service.

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PUC Docket No. 38951 Interim Order Page 16 of 17

36. The parties stipulated that the range of the cap should be between 80 MW and 150 MW.

Unrecovered costs

37. It is reasonable to adopt the three unopposed stipulation-and-settlement agreements
regarding customer eligibility for the CGS program; the customers responsible for paying
for unrecovered costs; the capacity deficit; and the program cap.

38. PURA § 39.452(b) provides for the utility to be able to recover any costs unrecovered as
a result of the implementation of the tariff.

39. In CenterPoint, the Third Court of Appeals found that because the language of
PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at
least two other provisions of PURA the legislature expressly distinguishes "costs" from
"revenues," the term "costs," as used by the legislature in PURA § 39.905, is not
intended to include lost revenues. Like PURA § 39.905, PURA § 39.452(b) only
provides for "costs unrecovered as a result of implementation of the tariff" and does not
specifically provide for the utility to recover lost revenues or any other type of costs.

40. The Commission finds that the costs that will be unrecovered as a result of the
implementation of the CGS program tariff are the costs to implement and administer the
CGS program tariff.

VI. Conclusions of Law
l. The Commission has jurisdiction and authority over this proceeding pursuant to PURA
§§ 14.001 and 39.452(b).

2. PURA § 39.452(b) does not allow for the recovery of lost revenue or embedded
generation costs.

VII. Ordering Paragraphs
l. The Commission adopts each of the three stipulation-and-settlement agreements filed on
January 20, 2012, April 30, 2012, and April 18, 2012.

2. The parties shall work to reach an agreement on the issues that are considered contingent
on the Commission's decision on the threshold issues.

000000016
PUC Docket No. 38951 Interim Order Page 17 of 17

3. All other motions, requests for entry of specific findings of fact and conclusions of law,
and any other requests for general or specific relief, if not expressly granted, are denied.

SIGNED AT AUSTIN, TEXAS the /
#-- j WL-"
day of-114ay2012

PUBLIC UTILITY COMMISSION OF TEXAS

DONNA L. NELSON, CHAIRMAN

KENNETH W. AND , JR., COMMISSIONER

ROLANDO PABLOS, COMMISSIONER

y \cadm\orders\mterim\38000\38951 interim order.docx

000000017
APPENDIX B
 ^ra
PUC DOCKET NO. 38951 ^fl f^ jUL 1 PH 3: ^
^

APPLICATION OF ENTERGY TEXAS, § PUBLIC UTILITY COMMISSION
INC. FOR APPROVAL OF §
COMPETITIVE GENERATION § OF TEXAS
SERVICE TARIFF (ISSUES SEVERED §
FROM DOCKET NO. 37744) §

ORDER

1. Introduction
This order addresses Entergy Texas, Inc.'s (ETI's) application for a competitive
generation service (CGS) under PURA § 39.452(b). The Commission approves ETI's CGS rider
and competitive generation service cost (CGSC) rider as set out in this order.

This order incorporates the Commission's interim order issued in this docket on
June 12, 2012 and the Commission's rulings adopting in part and rejecting in part the stipulation
and settlement agreement filed by ETI, Texas Industrial Energy Consumers (TIEC), and
Commission Staff on May 17, 2013. The interim order addressed the Commission's decision
regarding three threshold issues surrounding ETI's CGS program. The May 17 settlement, as
adopted in part and rejected in part, resolves all other contested issues in this docket.

II. Procedural History
ETI submitted its proposed CGS tariff and related riders in Docket No. 37744, its last rate
case.' In that rate case, the parties settled on all issues except for ETI's CGS proposal. After a
hearing on the CGS proposal and the associated riders, the administrative law judge (ALJ)
forwarded the parties' stipulation and settlement agreement and the proposal for decision to the
Commission for consideration.

I Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Corrected Application (Feb. 23, 2010).

o^
 PUC Docket No. 38951 Order Page 2 of 27

The Commission considered the settlement and the proposal for decision at the
November 10 and December 1, 2010 open meetings. The Commission adopted the settlement
for the rate case issues and severed the CGS issues into this docket, including the record in
Docket No. 37744.2

At the December 1, 2010 open meeting, the Commission requested the parties to enter
into negotiations and work to come to agreement on as many of the undetermined CGS program
issues as possible, and then bring the issues for which an agreement could not be reached back to
the Commission for consideration. Status reports were filed on January 13 and 28, February 18,
March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that
they were working to narrow the contested issues.

On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed
a motion requesting a decision on the proposal for decision in this docket. TIEC and
Commission Staff filed responses to the joint motion and generally opposed the motion. At its
September 29, 2011 open meeting, the Commissioners considered the motions and issued an
order requiring the parties to file pleadings identifying the CGS tariff issues that have been
settled on by the parties and identifying the issues for which a settlement could not be reached.
The parties were also permitted to identify issues that are contingent upon the Commission's
determination of the unsettled issues.

On November 1, 2011, several parties3 filed an agreed list of settled issues. However, the
parties did not agree on a recommendation as to how the unsettled issues and issues that are
contingent on the Commission's determination of unsettled issues should be addressed and
resolved by the Commission. Therefore, TIEC also separately filed a list of unsettled issues and
request for procedural schedule. TIEC also requested that the Commission receive additional

evidence in order to resolve the unrecovered costs issue because ETI's proposal in Docket
No. 37744 was based on ETI's proposal for an energy-only program, not an energy and
capacity-based program. TIEC reported that during the time period when the parties were

2
Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Order No. 14 Memorializing Decision Granting Motion to Sever (Dec. 3, 2010).
3 Cities, Entergy, OPUC, Commission Staff, State Agencies, and Wal-Mart/Sam's East. Kroger Company
did not oppose the agreed settled issues and Cottonwood Energy has not participated in the discussions.
PUC Docket No. 38951 Order Page 3 of 27

negotiating, the Entergy Operating Committee had agreed that CGS power from qualifying
facilities in the ETI service territory could provide firm generation.4

At the December 8 and December 15, 2011 open meetings, the Commission decided that
the parties should submit stipulated facts, the Commission would re-open the record to admit
additional evidence, and then the Commission would make a decision on the unsettled issues.
After that, the Commission planned to issue an interim order reflecting the decisions on the
unsettled, threshold issues.

On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts.
The parties reached agreement in principle on a number of discrete items within the overall
framework of the CGS program and tariffs. Many of the items were simply elements of larger
program issues that retained, at that time, one or more unsettled aspects essential to final
resolution of that program issue. Items as to which there was agreement in principle were
"subject to satisfactory resolution of unsettled issues."5

On January 26, 2012, ETI submitted supplemental direct testimony. On
February 10, 2012, the intervenors submitted supplemental direct testimony and on
February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The
parties submitted statements of position and pre-hearing briefs on March 26, 2012.

On April 13, 2012, the parties submitted an unopposed stipulation on the threshold issue
regarding customers responsible for paying unrecovered costs. The parties, except ETI, agreed
that CGS customers would be the only ETI customers responsible for unrecovered costs of the
CGS program. ETI did not join or oppose this stipulation.6 On April 18, 2012, the parties
submitted a third stipulation on customer eligibility stating that large industrial power service
(LIPS) customers would be the CGS-eligible customers, with certain limitations on the LIPS
customers' participation and other program minimums and caps.7

The Commission held a hearing on the remaining contested threshold issue-what types
of costs will be considered unrecovered for purposes of PURA § 39.452(b)-on April 19, 2012.

4 TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 2011).
5 CGS Stipulated Matters and Stipulated Facts (Jan. 20, 2012).
6 Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012).

7 Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012).
PUC Docket No. 38951 Order Page 4 of 27

An interim order was issued on June 12, 2012. It was expected that the parties would reach
agreement on the remaining issues.

On November 27, 2012, TIEC filed a motion to adopt a CGS program and submitted
proposed CGS riders for approval. TIEC and ETI had not been able to resolve certain issues
related to the CGS tariffs and TIEC stated that continued negotiations would only result in
further delay of the implementation of the CGS program.8 Commission Staff requested that the
parties be required to submit a procedural schedule to govern the handling of the docket.9 ETI
submitted its own version of the CGS tariffs for approval and proposed procedures to lead to
final disposition of this docket. 10

The Commission ALJ issued Order No. 10 adopting a procedural schedule that required
the parties to indicate by February 8, 2013 whether a hearing was necessary. TIEC filed a letter
stating that no party intended to file a request for a live hearing to cross-examine witnesses on
the remaining contested issues.ll Cities, OPUC, ETI, TIEC, and Commission Staff filed briefs
on March 1, 2013 and reply briefs on March 20, 2013. At the April 25, 2013 open meeting, the
parties gave oral argument and the Commissioners discussed the Entergy Operating Committee
review of the capacity component of the CGS program and the proposed MISO regulatory
change provision. The Commission deferred its ultimate decision on all of the issues to the
May 9, 2013 open meeting.

On May 8, 2013, TIEC filed a letter stating that TIEC and ETI had reached a preliminary
agreement on the remaining disputed issues, but that the other parties had not had an opportunity
to review the agreement. 12 At the May 9 open meeting, the Commission deferred consideration
of the docket until the May 23, 2013 open meeting.

ETI filed a stipulation and settlement agreement on May 17, 2013 that addressed each of
the disputed issues that remained in this case. ETI, TIEC, and Commission Staff signed the

8 TIEC's Motion to Adopt a Competitive Generation Services Program (Nov. 27, 2012).
9 Commission Staff's Response to TIEC's Motion to Adopt a Competitive Generation Services Program
(Dec 4, 2012).
10 Entergy's Response to TIEC's Motion to Adopt Competitive Generation Services Program and Motion
for Adoption of Competitive Generation Services Tariffs at 1-2 (Dec. 4, 2012).
11 Letter from TIEC (Feb. 8, 2013).
12
Letter from TIEC (May 8, 2013).
PUC Docket No. 38951 Order Page 5 of 27

stipulation. The stipulation and settlement agreement included agreement on all of the issues
regarding the CGS rider, i.e., how the CGS program would work, but delayed approval of the
competitive generation service cost (CGSC) rider, which is the rider that will include

implementation and administration costs for the CGS program, for a later date.

Specifically, the signatories to the settlement agreed that the CGSC rider would not be
proposed for approval, but would be filed with the Commission no earlier than six months after
the CGS rider becomes effective. The parties also stipulated to five issues that would be
addressed in the CGSC rider docket. ETI noted that Commission Staff supports the stipulation,
but did not take a position relating to the deferral of the consideration of issues regarding the
CGSC rider.13 OPUC, joined by Kroger Company, Wal-Mart Stores, LLC, and Sam's East, Inc.

filed a statement of opposition to the stipulation stating that their opposition was limited to
Section II.B. of the stipulation, which allows the delay of the resolution of the CGSC rider
issues.14 Cities filed a letter on May 21 stating that it supports the resolution of the issues in the
stipulation, but that they also support resolving all issues at this time in order to conserve judicial
resources and provide certainty to parties in future cases.15 TIEC filed a response to the
opposition16 and OPUC, Kroger, Wal-Mart, and Sam's East filed a reply to TIEC's response. 17

The Commission considered this docket again on the merits at the May 23, 2013 open
meeting. The Commission adopts the May 17, 2013 stipulation and settlement agreement in
part, but rejects the deferral of approval of the CGSC rider set out in section II.B.2. of the
stipulation. The Commission adopts the stipulation and settlement agreement as it pertains to the

CGS rider, and makes findings on the outstanding issues related to the CGSC rider.

13
Stipulation and Settlement Agreement (May 17, 2013).
14 Joint Statement of Position (May 17, 2013).
15
Cities' Letter Addressing the Settlement Reached by Entergy and TIEC (May 21, 2013).
16 TIEC's Response to OPUC's Statement of Opposition (May 21, 2013).
17 Joint Reply to TIEC's Response to the Joint Statement of Opposition (May 22, 2013).
PUC Docket No. 38951 Order Page 6 of 27

III. Discussion
PURA18 § 39.452(b) requires ETI to propose a CGS tariff that would require ETI to
purchase CGS, selected by the CGS customer, and provide the generation at retail to the
customer. ETI is required to provide and price retail transmission service, including necessary

ancillary services, to retail customers who choose to take advantage of the competitive
generation tariff at a rate that is unbundled from the utility's cost of service. Competitive
generation customers are not to be considered wholesale transmission customers. The statute
required the Commission to approve, reject, or modify the proposed tariff not later than
September 1, 2010. The CGS tariff may not be considered to offer a discounted rate or rates
under Section 36.007, and ETI's rates shall be set, in the proceeding in which the tariff is
adopted, to recover any costs unrecovered as a result of the implementation of the tariff. The
statute requires the Commission to ensure that a competitive generation tariff not be
implemented in a manner that harms the sustainability or competitiveness of manufacturers that
choose not to take advantage of competitive generation. PURA § 39.452(b) also prohibits the
Commission from issuing a decision relating to the competitive generation tariff that is contrary
to an applicable decision, rule, or policy statement of a federal regulatory agency having
jurisdiction.

The Commission finds that the three stipulation and settlement agreements submitted by
the parties in January and April 2012 are reasonable and adopts them to the extent they do not
conflict with other Commission determinations in this docket.

The Commission also finds that unrecovered costs are only those costs necessary to
implement and administer the CGS program and are not to be defined to include lost revenues,
embedded generation costs, or any other types of costs.

Finally, the Commission finds that the May 17, 2013 stipulation with regard to the CGS

rider is reasonable and adopts that portion of the stipulation. The Commission declines to adopt
the stipulation regarding the CGSC rider, and finds that the issues regarding the CGSC rider
should not be deferred and that the CGSC rider should not include costs prior to implementation
of the CGS program; LIPS and LIPS time-of-day customers should be responsible for the CGSC

18 Public Utility Regulatory Act (PURA), TEx. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 2007 & Supp.
2011).
PUC Docket No. 38951 Order Page 7 of 27

rider costs if the CGS program is unsubscribed; ETI should not recover interest on any
unrecovered balance of the CGSC rider; and the CGSC rider costs should not be offset to
account for the CGS costs included in ETI's base rates.

A. Unrecovered Costs
As explained in the interim order, the meaning of "costs unrecovered as a result of
implementation of the CGS program tariff," as used in PURA § 39.452(b), was the subject of the
April 19, 2012 hearing. In the proposal for decision, the ALJ found that ETI is entitled to collect
unrecovered embedded generation costs and any other related base rate costs as a result of
customer migration to the CGS program.t9

ETI argued that unrecovered costs should be defined as the embedded production costs
and any other related base rate costs that would have been recovered through traditional rates
charged to CGS customers that will no longer be recovered due to the CGS program. 2' TIEC
took the position that unrecovered costs should not include ETI's hypothetical lost revenues and
that the costs that could be unrecovered as a result of implementation of the tariff should include
the expenditures actually incurred by ETI to implement and maintain the CGS program.21 Cities
and OPUC agreed with TIEC that unrecovered costs are not the same thing as unrecovered
revenues.22 Cities also noted that it would be unreasonable to allow ETI to continue to incur
costs for a customer the utility no longer plans to serve.23

In making its determination of the definition of unrecovered costs, the Commission
follows the precedent set in CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n,
354 S.W.3d 899 (Tex. App-Austin, 2011 no pet.) where the Third Court of Appeals found that
because the language of PURA § 39.905 did not specifically provide for recovery of "lost
revenues" and that in at least two other provisions of PURA24 the legislature expressly

19 Proposal for Decision at 22 (Oct. 5, 2010).
20 Supplemental Direct Testimony, Exhibits, and Workpapers of Phillip R. May, ETI Ex. 91 at 6.
2 1 Supplemental Direct Testimony of Jeffry Pollock, TIEC Ex. 15 at 14-15.
22
Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7 and Supplemental Cross Rebuttal
Testimony of Clarence Johnson, OPUC Ex. 8 at 6.
23
Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7-8.
24 PURA § 55.024(b) and PURA § 56.025(e).
PUC Docket No. 38951 Order Page 8 of 27

distinguishes "costs" from "revenues," the term "costs," as used by the legislature in
PURA § 39.905, is not intended to include lost revenues.25 Like PURA § 39.905,
PURA § 39.452(b) only provides for "costs unrecovered as a result of implementation of the

tariff' and does not specifically provide for the utility to recover lost revenues or any other type
of costs.

Based on the evidence and testimony, the Commission finds that the proper interpretation
of "costs unrecovered as a result of implementation of the CGS program tariff' is costs to
implement and administer the CGS program tariff. Such unrecovered costs do not include lost
revenues, embedded generation costs, or any other types of costs. The Commission reverses the
proposal for decision on this issue.

B. May 17, 2013 Stipulation and Settlement Agreement
The Commission adopts the May 17, 2013 stipulation and settlement agreement in part,
and rejects the settlement in part.

Under the terms of the stipulation, the parties agreed on issues relating to a CGS credit
amount, a fixed cost contribution fee, unserved energy, a termination payment, a force majeure
clause, the Entergy Operating Committee, and MISO. Those issues are covered under findings
of fact 53A-H. Under the stipulation, decisions regarding the CGS cost rider were to be deferred
until no earlier than six months after the CGS rider became effective. The Commission adopts
the stipulation except for the portion of the stipulation that would defer decisions regarding the
CGS cost rider. The Commission elects to make those decisions now rather than deferring them,
and no party at the open meeting objected to this proposal.

C. CGSC rider
1. Retroactive Recovery of Historical Costs

ETI proposed to recover the costs it incurred since November 10, 2010 related to the
CGS program.26 TIEC's version of the CGSC rider would permit ETI to be able to recover the
incremental, reasonable, and necessary CGS program implementation and administration costs

25
CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n, 354 S.W.3d 899, 903-904
(Tex.Civ.App-Austin, 2011)
26
ETI's redlined tariff version Exhibit DRR-SD-6 at 1, Section II Purpose.
PUC Docket No. 38951 Order Page 9 of 27

incurred by ETI following the approval of the CGS program pursuant to PURA § 39.452(b).27
Commission Staff did not support allowing ETI to recover costs in excess of the amounts already
in base rates until the CGS program is actually implemented and the implementation costs
associated with the eventual design of the CGS program are actually incurred.28 The
Commission finds that ETI should not be able to recover any costs via the CGSC rider until the
CGS program is implemented.

2. Cost Recovery if the CGS program is unsubscribed

ETI proposed that if the CGS program is unsubscribed, the CGSC rider rate would apply
to the classes that are eligible to participate in the program.29 Commission Staff agreed with ETI
and noted that even if the costs incurred to implement the program are de minimis because there
are no subscribers, ETI would still be entitled to recover those costs under PURA § 39.452(b).3o
OPUC agreed with ETI and Commission Staff.31 TIEC urged the Commission to defer this issue
until the facts are not speculative in order to balance the twin charges of the statute of allowing
ETI to recover any costs that are unrecovered as a result of the implementation of the tariff and
ensuring that the tariff is not implemented in a manner that harms the sustainability or
competitiveness of manufacturers that choose not to take advantage of the CGS program.32

The Commission finds that ETI should be allowed to recover CGSC rider costs in the
event that there are no subscribers to the CGS program, because PURA § 39.452(b) entitles ETI
to recover those costs. The Commission finds that those costs should be borne by the customer
class that the program was designed to benefit-the LIPS and LIPS-TOD customers-the
customers that are eligible to participate in the program. The Commission adopts the language
proposed by ETI on this issue in Section III of the redlined tariff.

27 TIEC's Initial Brief at 21-24.
28 Commission Staff's Initial Brief at 6-7 (March 1, 2013).
29 ETI's redlined tariff version Exhibit DRR-SD-6 at 1, Section III Rate.
3 0 Commission
Staff s Initial Brief at 7 (March 1, 2013).
31 OPUC's Reply Brief at 12 (March 20, 2013).
32 TIEC's Initial Brief at 24-25 (March 1, 2013).
PUC Docket No. 38951 Order Page 10 of 27

3. Interest

Citing PURA § 39.452(b), that ETI should be allowed to recover any costs unrecovered
as a result of implementing the tariff, ETI requested recovery of interest on the unrecovered
balance of the CGSC rider charges.33 TIEC noted that the CGSC rider would be periodically
adjusted to reflect ETI's actually incurred costs, so there would be no need for ETI to accrue
interest on any unrecovered balance.

The Commission finds that not allowing interest would be consistent with the treatment
of rate-case expenses, which are typically amortized over a three-year period without a return on
the unamortized balance.34 ETI should not be permitted to recover interest on the unrecovered
balance of the CGSC rider charges.

4. CGSC rider costs recovered in rate-base offset

OPUC argued that the interim order is clear that the costs to implement the CGS program
are to be borne only by CGS customers. However, $299,372 was included in ETI's base rates
for costs related to the CGS program and will be paid by all retail customer classes. OPUC
recommended that the same amount that is being recovered from all retail customers in base
rates for CGS costs be recovered solely through the CGSC rider. Since the LIPS class is being
charged $49,192 per year in base rates, OPUC recommended that the CGS rider should be
reduced by $49,192 to prevent double-recovery and that the remainder that is being recovered in
retail base rates, $249,960, should be refunded directly to each class in the amount allocated in
base rates.35

TIEC took the position that OPUC was attempting make a collateral attack on the
Commission's order in ETI's rate case. Furthermore, TIEC argues that ETI should not be
required to conduct OPUC's proposed "offset" for the same reason that ETI should not be

permitted to include costs incurred since November 2010-the costs are not costs to implement
the CGS program.36

33 ETI's Initial Brief at 24 (March 1, 2013).
34 TIEC's Initial Brief at 25 (March 1, 2013).
35 OPUC's Initial Brief at 3-7 (March 1, 2013).

36 TIEC's Reply Brief at 17-18 (March 20, 2013).
 PUC Docket No. 38951 Order Page 11 of 27

ETI proposed to credit the CGSC rider with $299,372 to recognize amounts that were
used in setting ETI's current base rates. This amount represents the amount of CGS-related costs
that ETI is already recovering in base rates pursuant to the Commission's order in ETI's most-
recent rate case, Docket No. 39896.37

The Commission agrees with TIEC on this issue and goes further to state that to permit
an offset to the CGSC rider for amounts already included in rates may be retroactive ratemaking.

5. Amount to be recovered in the CGSC rider

The Commission does not reach the issue of the amount to be recovered for the
implementation and administration costs at this time because the amount cannot be known until
ETI actually implements the program.

IV. Conclusion
The Commission adopts each of the stipulation and settlement agreements except for
section II.B.2 of the May 17, 2013 stipulation, and finds that unrecovered costs for the CGS
program are those needed to implement and administer the CGS program and are not lost
revenues, embedded generation costs, or any other types of costs. The Commission finds that
ETI should not be able to recover any costs via the CGSC rider until the CGS program is
implemented, that ETI should be allowed to recovery CGSC rider costs in the event that there are
no subscribers to the CGS program, that ETI should not be permitted to recover interest on the
unrecovered balance of the CGSC rider charges, and that ETI should not be required to conduct
OPUC's proposed "offset."

37 Application of Entergy Texas, Inc. for Authority to Change Rates, Reconcile Fuel Costs, and Obtain
Deferred Accounting Treatment, Docket No. 39896, Order (Sept. 14, 2012).
PUC Docket No. 38951 Order Page 12 of 27

V. Findings of Fact

Procedural History
1. As part of its application in Docket No. 37744, Application of Entergy Texas, Inc. for
Authority to Change Rates and Reconcile Fuel Costs, ETI proposed a competitive
generation service ( CGS) program pursuant to Public Utility Regulatory Act. Tex. Util.
Code Ann. (PURA) § 39.452(b).

2. On July 16, 2010 and July 20, 2010, a State Office of Administrative Hearings
administrative law judge held a hearing on the merits on ETI's CGS proposal.

3. A proposal for decision was issued on November 1, 2010. The ALJ ultimately
recommended that the CGS proposal be rejected.

4. The Commission considered the proposal for decision at the November 10 and
December 1, 2010 open meetings as part of docket No. 37744. At the December 1, 2010
open meeting, the Commission adopted the settlement for the rate case issues and severed
the CGS proposal into this Docket. The Commission requested that the parties enter into
negotiations and work to come to agreement on as many of the undetermined issues as
possible, and then bring the issues for which an agreement could not be reached back to
the Commission for consideration.

5. Order No. 1 was issued on December 3, 2010 severing the CGS issues into this docket,
including the record in Docket No. 37744.

6. Sabine Cogen, LP filed a motion to intervene in this docket on December 23, 2010. ETI
filed an objection to Sabine Cogen, LP's motion to intervene on December 30, 2010.
Sabine Cogen, LP's motion to intervene was denied in Order No. 3 on January 12, 2011.

7. ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy
Consumers, State Agencies, Kroger Co., Cities,38 Wal-Mart Stores Texas, LLC and
Sam's East, Inc., and Cottonwood Energy are parties to this proceeding.

38 The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville,
Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches,
Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.
PUC Docket No. 38951 Order Page 13 of 27

8. On January 11, 2011, the Commission AU issued Order No. 2 requiring ETI to either

provide an update on the status of settlement discussions or to propose a schedule, agreed
to by all parties, for finalizing the outstanding issues.

9. The parties filed status reports on January 13 and 28, February 18, March 11, and
April 8, 2011. These reports indicated that parties continued to negotiate and that they
thought that they could narrow the issues.

10. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed
a motion requesting a decision on the proposal for decision in this docket. TIEC and
Commission Staff filed responses to the joint motion and generally opposed the motion.
At the September 29, 2011 open meeting, the Commissioners considered the motions and
issued an order requiring the parties to file pleadings identifying the CGS tariff issues that
have been settled on by the parties and identifying the issues for which a settlement could
not be reached. The parties were also permitted to identify issues that are contingent
upon the Commission's determination of the unsettled issues.

11. On November 1, several parties filed an agreed list of settled issues. TIEC also
separately filed a list of unsettled issues and request for procedural schedule. TIEC also
requested that the Commission receive additional evidence in order to resolve the
unrecovered costs issues because ETI's proposal in Docket No. 37744 was based on
ETI's proposal for an energy-only program, not an energy and capacity-based program.
The circumstances had changed primarily due to the agreement of the Entergy Operating
Committee to treat CGS power from qualifying facilities in the ETI service territory as
firm generation. The remainder of the parties filed a joint agreed list of unsettled issues
and issues contingent on a Commission determination of unsettled issues.

12. At the December 8 and December 15, 2011 open meetings, the Commissioners decided
that the parties should submit stipulated facts, the Commission would re-open the record
to admit additional evidence as requested by TIEC, and then the Commission would
make a decision on the three threshold unsettled issues in an interim order.

13. On December 18, 2011, Order No. 4 was issued establishing a procedural schedule.
PUC Docket No. 38951 Order Page 14 of 27

14. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts.

The parties reached agreement in principle on a number of discrete items within the
overall framework of the CGS program and tariffs. Many of the items were simply
elements of larger program issues that retain one or more as yet unsettled aspects
essential to final resolution of that program issue. Items as to which agreement in
principle existed were "subject to satisfactory resolution of unsettled issues."

15. On January 24, 2012, Order No. 5 was issued clarifying the number of copies of
testimony that were to be filed by the parties.

16. On January 26, 2012, ETI submitted supplemental direct testimony. On
February 10, 2012, the intervenors submitted supplemental direct testimony and on
February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony.
The parties submitted statements of position and pre-hearing briefs on March 26, 2012.

17. Order No. 6 was issued on February 1, 2012 setting April 19, 2012 as the date for the
hearing.

18. On April 13, 2012, the parties filed an unopposed stipulation that to the extent there are
costs unrecovered as a result of the implementation of a CGS tariff, those costs should be
borne solely by customers taking service under the CGS tariff. ETI did not join but did
not oppose the stipulation.

19. On April 18, 2012, the parties filed an unopposed stipulation regarding customer
eligibility. LIPS customers will be eligible to participate in ETI's CGS program (with
further limitations as set forth in the stipulation on this issue).

20. The Commission held the hearing on the merits on April 19, 2012, and issued an interim
order on June 12, 2012 that adopted the unopposed issues and ruled that the types of costs
that will be considered ETI's unrecovered costs for purposes of PURA § 39.452(b) are

those costs necessary to implement and administer the CGS program and are not to be
defined to include lost revenues, embedded generation costs, or any other types of costs.

21. Subsequent to the interim order, the parties continued discussions regarding how to
develop a CGS tariff (or tariffs) that would conform to the interim order rulings and
resolve other remaining contested issues.
PUC Docket No. 38951 Order Page 15 of 27

22. On November 27, 2012, TIEC filed a motion to adopt a competitive generation services
program that included its proposed Rider Schedule CGS and Rider Schedule CGSC, the
latter of which addressed ETI's recovery of its costs of implementing and administering
the CGS program. TIEC's motion also addressed a number of issues that the parties had
not been able to resolve, and asked that the Commission rule in TIEC's favor on those
remaining contested issues.

23. On December 4, 2012, ETI filed a response to TIEC's November 27 motion. ETI's
response addressed the same contested issues raised by TIEC and asked the Commission
to rule in favor of ETI's position. ETI's response also included its own versions of the
CGS and CGSC riders (based on its positions on the contested issues), plus a redlined
version of both riders that compared TIEC's versions to ETI's versions.

24. On January 7, 2013, in response to a motion filed by TIEC, the Commission issued a
procedural schedule that required parties to file supplemental testimony in support of
their positions later in January and early February, and that parties were to indicate, on
February 8, 2013, whether a hearing was necessary. Interested parties filed supplemental
testimony in accordance with that schedule, and no party requested an evidentiary
hearing.

25. On February 19, 2013, the Commission issued an agreed briefing schedule which called
for parties to file a joint motion to stipulate testimony and RFIs into the record on
February 25, and for parties to file initial and reply briefs on March 1 and 20,
respectively, which briefs were filed by ETI, TIEC, Staff, OPUC, and Cities.

26. On May 8, 2013, TIEC filed a letter stating that TIEC and ETI had reached a preliminary
agreement on the remaining disputed issues and asked that this matter be deferred to the
next open meeting. All parties indicated their agreement with the deferral. The
Commission deferred consideration until the May 23, 2013 open meeting.

27. On May 17, 2013, ETI filed a stipulation and settlement agreement, which was supported
by TIEC and Staff, but with Staff taking no position on Sections II.B.1 and 2 of that
settlement.
PUC Docket No. 38951 Order Page 16 of 27

28. On May 17, 2013, OPUC, Kroger, and Wal-Mart filed a Joint Statement of Opposition to

the May 17 settlement. Their opposition was limited to Section II.B. of that settlement
and pertained to the proposed delay in deciding certain issues before the Commission,
including which customer classes should pay for costs recovered through the CGSC rider
in the event there are no CGS program subscribers, and the treatment of CGS project
code costs "embedded" in ETI's base rates in accordance with the Commission's order in
Docket No. 39896.

29. TIEC filed a response to the Joint Statement of Opposition on May 21, 2013.

30. OPUC, Kroger and Wal-Mart filed a joint reply to TIEC's response on May 22, 2013.

31. The Commission considered this matter at its May 23, 2013 open meeting, at which it
voted to accept in part and reject in part the May 17 settlement.

Elisible customers stipulation
32. The parties agreed that only customers eligible to take service under ETI's Large
Industrial Power Service (LIPS) are eligible customers for the CGS program.

33. The parties agreed that only LIPS firm load will be eligible to participate in the CGS
program.

34. The parties agreed that LIPS customers with interruptible service (IS) or standby and
maintenance service (SMS) load are not precluded from participating in the CGS
program, but this participation is limited to their firm LIPS load. To the extent that
customers with IS load participate in the CGS program, they must comply with the terms
of the IS tariffs regarding minimum LIPS load. Only the portion of the customer's LIPS
load that is in excess of the firm contract power minimum requirement under section 1 of
Schedule IS is eligible for the CGS program.

35. The parties agreed that to the extent there are increased administration costs associated
with billing a customer that has CGS and IS or SMS load, the CGS customer will bear the
costs.

36. The parties agreed that there will be a 115 MW cap on the CGS program.

37. The parties agreed that there will be a 5 MW minimum on CGS customer load.
PUC Docket No. 38951 Order Page 17 of 27

38. The parties agreed that there will be no aggregation of CGS customer load to meet the

5 MW minimum on CGS customer load.

39. The parties agreed that there will be a cap of 10 CGS purchase agreements.

Customers responsible for nayinQ unrecovered costs stipulation

40. The parties, except ETI, agreed that to the extent there are costs unrecovered as a result of
the implementation of a CGS tariff, those costs should be borne solely by customers
taking service under the CGS tariff, i.e., CGS customers. ETI did not oppose this
stipulation.

January 20, 2012 CGS Stipulated Matters and Stipulated Facts

41. In the CGS stipulated matters and stipulated facts filed on January 20, 2012, the parties
stated they had reached an agreement in principle on a number of discrete items within
the overall framework of the CGS program and tariffs, which were listed in
Section I. A-G of the stipulation. However, many of those items were simply elements of
larger program issues that retained one or more unsettled aspects essential to final
resolution of that program issue. Items as to which agreement in principle existed,
subject to satisfactory resolution of unsettled issues, included the following:

A. Eligible CGS suppliers

1. Eligible CGS suppliers will be limited to qualifying facilities that are or
will be directly connected to ETI. Any expansion of eligible CGS suppliers would
require initiation of new Commission proceedings.

B. Amount of CGS capacity

1. A CGS customer will specify the amount of its load to be served by a
specified CGS supplier.

2. The specified CGS supplier will enter into a contract with Entergy
Services, Inc., on behalf of ETI, or directly with ETI, for the purpose of becoming an
Entergy system network resource. The agreement between the CGS supplier and Entergy
Services, Inc. or ETI shall include a contract for the purchase of capacity and energy
(CGS purchase agreement). Per determination of the Entergy Operating Committee, the
PUC Docket No. 38951 Order Page 18 of 27

capacity and energy contracted for under the CGS purchase agreements shall be allocated

solely to ETI.

3. The level of capacity contracted for under the CGS purchase agreement
(CGS contract capacity) will be the same level of capacity contracted for in a separate but
related contract between the CGS supplier and the CGS customer.

4. The monthly CGS supplied capacity shall be calculated monthly based on
the on-peak energy deliveries of CGS-supplied energy from the CGS supplier. The
monthly CGS supplied capacity shall be the lesser of the CGS contract capacity and the
result of the following calculation-on a rolling 12-month basis (using a cumulative basis
during the first 11 months), the sum of the CGS-supplied energy delivered by the CGS
supplier during on-peak hours, divided by the number of on-peak hours during the same
time period, divided by 0.8. On-peak hours are defined as the hours ending 7:00 am
through 10:00 pm Monday through Saturday, excluding North American Electric
Reliability Corporation holidays.

C. CGS-customer unbundled rate

1. CGS customers are limited to, and will remain, ETI retail customers.

2. ETI will not make a capacity payment to the CGS supplier, and the CGS
customer will not pay ETI the embedded production cost in the firm rate schedule under
which the customer would otherwise be eligible to receive service.

3. The price for retail delivery service, including necessary ancillary
services, to retail customers who choose to take advantage of the competitive generation
tariff will be a rate that is unbundled from ETI's cost of service and that will be
determined by a credit to the CGS customer's bill based on the unbundled production
costs associated with the otherwise applicable firm rate.

4. The unbundled, embedded production cost for a LIPS customer based on
current rates is $6.84 per kW per month.39 The CGS credit is subject to review and
modification in subsequent rate cases. If the clause "less any corresponding concurrent

39 The parties subsequently agreed to set this amount at $6.50 per kW per month until rates are changed in
ETI's next base rate case (that is, the next base rate case after May 16, 2013). Finding of Fact No. 53A.
PUC Docket No. 38951 Order Page 19 of 27

reduction in energy purchased by the CGS customer" referenced in section F.1 below is

adopted, then certain parties may recommend a further adjustment to the LIPS embedded

production cost specified in this paragraph C.4.

5. With the exception of the capacity credit and fixed fuel factor, a CGS
customer will pay ETI a retail rate that includes all other charges the customer would pay
as a firm customer (for example Rider TTC, HRC, SRC, SRO, and IFF charges, if
applicable).

D. CGS energy payment

1. CGS customers will pay fuel costs based on avoided cost for
CGS-supplied energy. Specifically, ETI will purchase hourly CGS energy supplied by
the CGS supplier from the CGS contract capacity at the system hourly avoided-energy-
cost as determined under Rate Schedule LQF. ETI will charge the CGS customer at the
same rate for that hourly CGS-supplied energy not to exceed the energy requirement of
the CGS customer.

E. CGS customer fixed-cost contribution

1. The level of compensation to ETI from CGS customers for CGS service
will include a monthly fixed charge called a fixed-cost contribution.

2. The fixed-cost contribution will be $1.10 per kW of CGS load per month.

3. Revenues from the fixed-cost contribution will reduce any otherwise
unrecovered costs associated with the program.

F. CGS customer unserved energy rate

1. If, in any hour in a delivery month, there is hourly CGS unserved energy,
the CGS customer will take service from ETI under the CGS unserved energy rate.
Hourly CGS unserved energy is the difference in any given hour between the amount of
energy corresponding to the full amount of CGS contract capacity and the amount of
energy actually supplied to ETI from the CGS contract capacity by the CGS supplier in
such hour, not to exceed the energy requirement of the CGS customer. The parties have
PUC Docket No. 38951 Order Page 20 of 27

not agreed whether the following clause should be added to this last sentence: "less any
corresponding concurrent reduction in energy purchased by the CGS customer."40

2. The structure of the CGS unserved energy tariffed rate will include an
agreed energy charge and agreed O&M adder. The monthly CGS unserved energy
charge will be the sum of (a) the hourly CGS unserved energy for the month times 105%
of the system hourly avoided energy cost as determined under Rate Schedule LQF and
(b) the hourly CGS unserved energy for the month times specified variable O&M charges
specified immediately below in paragraph 3.

3. The specified variable O&M charges for the CGS unserved energy rate are
as follows:

Delivery Voltage On-Peak Per kWh Off-Peak Per kWh

Distribution (less than 69kV) $0.03555 0.00540

Transmission (69kV and $0.02451 0.00222
greater)

4. On-peak and off-peak hours for the CGS unserved energy rate are as
follows:

a. Summer: On-peak hours are 1:00 pm to 9:00 pm Monday through
Friday of each week beginning on May 15 and continuing through October 15 of each
year except that Memorial Day, Labor Day and Independence Day (July 4 or the nearest
weekday if July 4 is on a weekend) are not on-peak.

b. Winter: On-peak hours for each week of Monday through Friday
beginning October 16 and continuing through May 14 of each year are 6:00 am to
10:00 am and 6:00 pm to 10:00 pm, except that Thanksgiving Day, Christmas Day, and
New Year's Day (or the nearest weekday if the holiday should fall on a weekend) are not
on-peak.

40 The parties subsequently agreed that this quoted language would be added.
PUC Docket No. 38951 Order Page 21 of 27

c. Off-peak hours are all hours of the year not specified as on-peak
hours. With the approval of the Commission, ETI may at its sole discretion change
on-peak hours and season from time to time.

5. Revenues from the CGS unserved energy rate derived from the variable
O&M charges will go towards offsetting any unrecovered costs as a result of the
implementation of the CGS tariff.

6. Revenues from the CGS unserved energy rate derived from 105% of the
system hourly avoided energy charges will go towards offsetting ETI's eligible fuel costs.

G. Recognition of CGS supply as firm capacity. Progress has been made on
resolving issues regarding the recognition of CGS capacity as firm capacity, but final
resolution of these issues, including the following, is contingent on the Entergy Operating
Committee's approval as well as a final resolution of all issues.

1. The Entergy Operating Committee has established certain conditions that
must be met before it will recognize a CGS purchase agreement as "capability" for the
Entergy System, for purposes of determining reserve equalization payments or receipts.
The parties are continuing to discuss the conditions established by the Operating
Committee.

2. The capacity product from CGS purchase agreements will be a 24/7
unit-contingent product.

3. The delivery term of CGS purchase agreements may be from one year to
five years, and must be a whole number of years.

4. The contract capacity will be a fixed capacity amount throughout any
successive 12-month period during the contract term.

5. The parties have tentatively agreed to a number of concepts for firming up
CGS capacity that would be reflected in a form contract for use in implementing the CGS
program. The parties will continue to negotiate other concepts and terms for inclusion in
a form supply contract.

42. The parties stipulated that the Strategic Resource Plan (SRP) for the Entergy system (of
which ETI is a part) projects a continuing need for additional capacity for ETI and the
PUC Docket No. 38951 Order Page 22 of 27

Entergy system through 2017. Entergy's and ETI's resource needs are subject to change

at any time based on actual experience related to operational conditions, resource offers

and solicitations, and other events that affect resource needs.

43. The parties stipulated that based on an assessment of load requirements and generating
capability, the SRP projects that ETI has an incremental net resource deficiency of
260 MW in 2012 and 504 MW in 2013.

44. The parties stipulated that the Entergy system-wide planning process is conducted
pursuant to the requirements of the Entergy system agreement and is designed to result in
a portfolio of resources that differ by term and source. The Entergy system agreement
states that the objective of this process is to ensure cost-effective, reliable levels of
service.

45. The parties stipulated that CGS purchase agreements are resources that will be included
in the Entergy System's portfolio of supply resources, consistent with the terms and
conditions related to the delivery requirements of those purchase agreements (e.g., degree
of dispatchability, term, degree of firmness).

46. The parties stipulated that it is reasonable at the outset of the CGS program to establish a
cap on the amount of load that may subscribe to CGS service.

47. The parties stipulated that the range of the cap should be between 80 MW and 150 MW.

48. It is reasonable to adopt the three unopposed 2012 stipulation and settlement agreements
regarding customer eligibility for the CGS program; the customers responsible for paying
for unrecovered costs; the capacity deficit; and the program cap.

Unrecovered costs

49. PURA § 39.452(b) provides for the utility to be able to recover any costs unrecovered as
a result of the implementation of the tariff.

50. In CenterPoint, the Third Court of Appeals found that because the language of
PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at
least two other provisions of PURA the legislature expressly distinguishes "costs" from
"revenues," the term "costs," as used by the legislature in PURA § 39.905, is not
intended to include lost revenues. Like PURA § 39.905, PURA § 39.452(b) only
PUC Docket No. 38951 Order Page 23 of 27

provides for "costs unrecovered as a result of implementation of the tariff' and does not

specifically provide for the utility to recover lost revenues or any other type of costs.

51. The Commission finds that the costs that will be unrecovered as a result of the
implementation of the CGS program tariff are the costs to implement and administer the
CGS program tariff.

The May 17, 2013 Stipulation and Settlement Agreement

52. The May 17 settlement addresses the remaining contested issues that were not resolved
through the 2012 stipulation and settlement agreements and the interim order. The
substantive provisions of the May 17 settlement address the CGS rider, the CGSC rider,
and appeal rights.

53. Agreements as to CGS Rider:

A. CGS Credit: The parties agree to a CGS credit set at $6.50 per kW/month until
rates are changed in ETI's next base rate case.

B. Unserved Energy: The parties agree to accept TIEC's proposed CGS rider tariff
language in the Second Supplemental Direct Testimony of Jeffry Pollock, which will
allow a CGS customer to attempt to decrease its load to match a decrease in deliveries by
the CGS supplier and thereby avoid unserved energy charges to the extent the CGS
customer's CGS load is reduced.

C. Termination Payment: The parties agree to remove ETI's proposed liquidated
damages provisions from the CGS rider and deal with liquidated damages provisions in
the supplier contract negotiations. The amount of liquidated damages, if any, received by
ETI shall be used to offset any capacity costs incurred by ETI to replace the lost CGS
supply.

D. The Tracking Certificate: The parties agree to remove ETI's proposed
prioritization provisions in Section G(5) and H from the tracking certificate (leaving them
to contract negotiations) and delete the provisions that would require the CGS customer
to provide what TIEC deemed "competitively sensitive" information.

E. Force Majeure: The parties agree to remove TIEC's proposed force majeure
provision.
PUC Docket No. 38951 Order Page 24 of 27

F. The Entergy Operating Committee: The parties agree to remove the following

ETI-proposed "reservation" provision from the CGS rider:
In addition, entering into new ETI-Supplier Contracts under the CGS
Program (i.e., ETI-Supplier Contracts that have not already been entered
into by ETI in response to CGS Service requests) at any given time must
be consistent with the Entergy System's need for capacity. Capacity
resources associated with the CGS Program will receive no preferential
treatment, but will be considered as part of the Entergy System's planning
process on the same basis as other potential capacity resources.
Recognition of the capacity component of the CGS Program on an
ongoing basis is contingent on periodic Entergy Operating Committee
conclusion that ETI requires the capability that would be obtained through
this program component.

ETI shall have the right by notice to the applicable customer, to deny or
terminate a request for CGS Service at any time prior to entering into the
ETI-Supplier Contract corresponding to such request if the limitations in
the penultimate paragraph of § I above apply ...

The following clause in Rider CGS Section III.B.3 of ETI's proposed
Rider CGS is modified as follows: Unless a CGS Service request is earlier
denied or terminated according to tariff provisions (or provisions of law)
applicable to the CGS Service ...
G. MISO: The parties agree that ETI's proposed RTO/MISO provision will stay in
the CGS rider, but the phrase "it will be necessary or appropriate to include [MISO terms
and conditions]" is changed to "it may be appropriate to include [MISO terms and
conditions)."

H. $1.10 Fixed Cost Contribution Fee: The parties agree that this fee will not be
applied as an offset to CGS administration and implementation costs.

54. Agreement as to CGSC Rider:

A. ETI has agreed that an application for the CGSC rider will be filed with the
Commission no earlier than six months after the CGS rider becomes effective.

B. Section II.B.2. in the May 17, 2013 settlement was challenged by OPUC, Kroger,
and Wal-Mart, with Cities also supporting resolution of the issues in Section II.B.2. now,
rather than deferring them as proposed in the May 17, 2013 settlement.
PUC Docket No. 38951 Order Page 25 of 27

C. Other than Section II.B.2, no other sections of the May 17 settlement were
opposed by OPUC, Kroger, Wal-Mart, or Cities, and were supported by ETI, TIEC, and
Commission Staff. The Commission finds that those unopposed provisions in the May
17 settlement are reasonable and in the public interest.

D. The record from the current CGS docket (Docket No. 38951) and from Docket
No. 37744 shall be incorporated into the record in the CGSC rider application docket.

E. All parties agree that only the variable O&M portion of the unserved energy rate
should be used to offset the unrecovered implementation and administrative costs. Fuel-
related revenues from the unserved energy rate will offset ETI's fuel balance, and not be
used to offset unrecovered costs.

F. There will be no changes to ETI's current base rates as a result of this proceeding.

55. Agreement as to Appeal Rights: The parties agree that ETI is not waiving its right to
appeal the Commission's final order to the courts on any issues that are not resolved by
settlement in this docket. All parties reserve their rights under applicable state and
federal law.

56. Proposed CGS Program Tariff: The proposed CGS program tariff (the CGS rider), which
is attached to the May 17 settlement as Attachment 1, is agreed to by the parties and
represents the CGS program as set out in the preceding Findings of Fact.

57. The Commission makes the following findings regarding the five issues within Section
II.B.2. of the May 17 settlement:

A. The appropriate date upon which ETI is authorized to begin accruing CGS
program implementation and administration costs is the date that the CGS Rider
implemented.

B. In the event there are no subscribers to the CGS program, it is reasonable and
appropriate for unrecovered implementation and administration costs accrued to the
CGSC rider will be charged to the LIPS and LIPS-TOD customers, the customer class
that the program was designed to benefit.

C. It is not appropriate for ETI to recover interest on the unrecovered balance of the
CGSC rider charges.
PUC Docket No. 38951 Order Page 26 of 27

D. It is not appropriate for there to be an offset to the CGSC rider for amounts
included in rates in Docket No. 39896.

E. The Commission declines to address at this time the amount to be recovered as
implementation and administration costs because such amount is not known at this time.

V1. Conclusions of Law
1. The Commission has jurisdiction and authority over this proceeding pursuant to PURA
§§ 14.001 and 39.452(b).

2. PURA § 39.452(b) does not allow for the recovery of lost revenue or embedded
generation costs.

VII. Ordering Paragraphs
1. The Commission adopts each of the three stipulation and settlement agreements filed on
January 20, 2012, April 30, 2012, and April 18, 2012.

2. The Commission adopts each of the provisions of the stipulation and settlement
agreement filed on May 17, 2013, except for section II.B.2, pertaining to deferring
decisions on issues related to (a) the date ETI uses to start accruing implementation costs,
(b) whether rider CGSC will also recover interest on unrecovered costs, (c) whether any
historical costs billed to the CGS project code that are currently in base rates should be
removed from base rates, credited, and recovered through rider CGSC, and (d) who pays
if there are no subscribers. Those issues are resolved as set forth in this order.
Accordingly, the Commission adopts in part and rejects in part the May 17 settlement as
set forth in this order.

3. The CGS rider, attached to the May 17 stipulation and settlement agreement, is approved
as of the date of this order. ETI shall file a clean CGS rider tariff in this docket within 10
days of the date of this order.

4. In the event there are no subscribers to the CGS program, unrecovered implementation
and administration costs accrued to the CGSC rider will be charged to the LIPS and
LIPS-TOD customers, the customer class that the program was designed to benefit.
PUC Docket No. 38951 Order Page 27 of 27

5. ETI is not authorized to recover interest on the unrecovered balance of the CGSC rider
charges.

6. There shall be no offset to the CGSC rider for amounts included in rates in Docket
No. 39896.

7. The Commission declines to address at this time the amount to be recovered as
implementation and administration costs because such amount is not known at this time.

8. The date upon which ETI is authorized to begin accruing CGS program implementation
and administration costs is the date that the CGS Rider is implemented.

9. ETI shall not file an application for the CGSC rider earlier than six months after the CGS
rider becomes effective. ETI shall file an application for the CGSC rider in accordance
with the agreement approved by this order.

10. All other motions, requests for entry of specific findings of fact and conclusions of law,
and any other requests for general or specific relief, if not expressly granted, are denied.

SIGNED AT AUSTIN, TEXAS the
g L
day of July 2013

PUBLIC UTILITY COMMISSION OF TEXAS

DONNA L. NELSON, CHAIRMAN

NNETH W. ANDE ., COMMISSIONER
V

q:\cadm\orders\fmal\38000\38951 fo.docx
APPENDIX C
§ 39.452. Regulation of Utility and Transition to Competition, TX UTIL § 39.452

Vernon's Texas Statutes and Codes Annotated
Utilities Code (Refs & Annos)
Title 2. Public Utility Regulatory Act
Subtitle B. Electric Utilities (Refs & Annos)
Chapter 39. Restructuring of Electric Utility Industry
Subchapter J. Transition to Competition in Certain Non-Ercot Areas

V.T.C.A., Utilities Code § 39.452

§ 39.452. Regulation of Utility and Transition to Competition
Effective: June 19, 2009
Currentness

(a) Until the date on which an electric utility subject to this subchapter is authorized by the commission to implement customer
choice under Section 39.453, the rates of the electric utility shall be regulated under traditional cost-of-service regulation and
the electric utility is subject to all applicable regulatory authority prescribed by this subtitle and Subtitle A, including Chapters
14, 32, 33, 36, and 37.

(b) An electric utility subject to this subchapter shall propose a competitive generation tariff to allow eligible customers the
ability to contract for competitive generation. The commission shall approve, reject, or modify the proposed tariff not later than
September 1, 2010. The tariffs subject to this subsection may not be considered to offer a discounted rate or rates under Section
36.007, and the utility's rates shall be set, in the proceeding in which the tariff is adopted, to recover any costs unrecovered as
a result of the implementation of the tariff. T he commission shall ensure that a competitive generation tariff shall not be
implemented in a manner that harms the sustainability or competitiveness of manufacturers that choose not to take advantage
of competitive generation. Pursuant to the competitive generation tariff, an electric utility subject to this subsection shall purchase
competitive generation service, selected by the customer, and provide the generation at retail to the customer. An electric utility
subject to this subsection shall provide and price retail transmission service, including necessary ancillary services, to retail
customers who choose to take advantage of the competitive generation tariff at a rate that is unbundled from the utility's cost of
service. Such customers shall not be considered wholesale transmission customers. Notwithstanding any other provision of this
chapter, the commission may not issue a decision relating to a competitive generation tariff that is contrary to an applicable
decision, rule, or policy statement of a federal regulatory agency having jurisdiction.

(c) That portion of any commission order issued before the effective date of this section requiring the electric utility to comply
with a provision of this chapter is void.

(d) Until the date on which an electric utility subject to this subchapter implements customer choice:

(1) the provisions of this chapter do not apply to that electric utility, other than this subchapter, Sections 39.904 and 39.905, the
provisions relating to the duty to obtain a permit from the Texas Commission on Environmental Quality for an electric generating
facility and to reduce emissions from an electric generating facility, and the provisions of Subchapter G that pertain to the
recovery and securitization of hurricane reconstruction costs authorized by Sections 39.458-39.463; and

© 2015 Thom son Reuters. No claim to original U.S. Governm ent W orks. 1
§ 39.452. Regulation of Utility and Transition to Competition, TX UTIL § 39.452

(2) the electric utility is not subject to a rate freeze and, subject to the limitation provided by Subsection (b), may file for rate
changes under Chapter 36 and for approval of one or more of the rate rider mechanisms authorized by Sections 39.454 and
39.455.

(e) An electric utility subject to this subchapter may proceed with and complete jurisdictional separation to establish two
vertically integrated utilities, one of which is solely subject to the retail jurisdiction of the commission and one of which is solely
subject to the retail jurisdiction of the Louisiana Public Service Commission.

(f) Not later than January 1, 2006, an electric utility subject to this subchapter shall file a plan with the commission for identifying
the applicable power region or power regions, enumerating the steps to achieve the certification of a power region in accordance
with Section 39.453, and specifying the schedule for achieving the certification of a power region. The utility may amend the
plan as appropriate. The commission may, on its own motion or the motion of any affected person, initiate a proceeding to certify
a qualified power region under Section 39.152 when the conditions supporting such a proceeding exist.

(g) Not later than the earlier of January 1, 2007, or the 90th day after the date the applicable power region is certified in
accordance with Section 39.453, the electric utility shall file a transition to competition plan. The transition to competition plan
must:

(1) identify how the electric utility intends to mitigate market power and to achieve full customer choice, including specific
alternatives for constructing additional transmission facilities, auctioning rights to generation capacity, divesting generation
capacity, or any other measure that is consistent with the public interest;

(2) include a provision to reinstate a customer choice pilot project and to establish a price to beat for residential customers and
commercial customers having a peak load of 1,000 kilowatts or less; and

(3) include any other additional information or provisions that the commission may require.

(h) The commission shall approve, modify, or reject a plan filed under Subsection (g) not later than the 180th day after the date
the plan is filed unless a hearing is requested by any party to the proceeding. A modification to the plan by the commission may
not be in conflict with the jurisdiction or orders of the Federal Energy Regulatory Commission or result in significant additional
cost without allowing for timely recovery for that cost. If a hearing is requested, the 180-day deadline is extended one day for
each day of the hearing. The transition to competition plan shall be updated or amended annually, subject to commission
approval, until the initiation of customer choice by an electric utility subject to this subchapter. Consistent with its jurisdiction,
the commission shall have the authority in approving or modifying the transition to competition plan to require the electric utility
to take reasonable steps to facilitate the development of a wholesale generation market within the boundaries of the electric
utility's service territory.

(i) Notwithstanding any other provision of this chapter, if the commission has not approved the transition to competition plan
under this section before January 1, 2009, an electric utility subject to this subchapter shall cease all activities relating to the
transition to competition under this section. The commission may, on its own motion or the motion of any affected person, initiate

© 2015 Thom son Reuters. No claim to original U.S. Governm ent W orks. 2
§ 39.452. Regulation of Utility and Transition to Competition, TX UTIL § 39.452

a proceeding under Section 39.152 to certify a power region to which the utility belongs as a qualified power region when the
conditions supporting such a proceeding exist. The commission may not approve a plan under Subsection (g) until the expiration
of four years from the time that the commission certifies a power region under Subsection (f). If after the expiration of four years
from the time the commission certifies a power region under Subsection (f), and after notice and a hearing, the commission
determines consistent with the study required by Section 5, S.B. No. 1492, Acts of the 81st Legislature, Regular Session, 2009,
that the electric utility cannot comply with Section 38.073, it shall consider approving a plan under Subsection (g).

(j) Notwithstanding any other provision of this subtitle, in awarding a certificate of convenience and necessity or allowing cost
recovery for purchased power by an electric utility subject to this section, the commission shall ensure in its determination that
the provisions of Sections 37.056(c)(4)(D) and (E) are met and that the generating facility or the purchased power agreement
satisfies the identified reliability needs of the utility.

Credits

Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. Amended by Acts 2006, 79th Leg., 3rd C.S., ch. 11, § 1, eff.
May 31, 2006; Acts 2009, 81st Leg., ch. 1226, § 3, eff. June 19, 2009.

V. T. C. A., Utilities Code § 39.452, TX UTIL § 39.452
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.

© 2015 Thom son Reuters. No claim to original U.S. Governm ent W orks. 3