ratemaking formula determines “revenue requirement”
How later courts described this case
- ratemaking formula determines “revenue requirement”
- “As a statutorily created body, the Commission has no inherent authority, and instead has only the authority that the Legislature confers upon it.”
- ruling that the Commission bad erred in delaying the accrual of carrying costs on slranded costs until the amounts were detennined, rather than starting carrying costs when the costs first arose
- ratemaking formula determines “cost of service”
Written by the judges who cited it.
The opinion
ACCEPTED
03-14-00709-CV
3761772
THIRD COURT OF APPEALS
AUSTIN, TEXAS
1/14/2015 10:35:02 AM
JEFFREY D. KYLE
CLERK
No. 03-14-00709-CV
IN THE FILED IN
3rd COURT OF APPEALS
THIRD COURT OF APPEALS AUSTIN, TEXAS
AT AUSTIN 1/14/2015 10:35:02 AM
JEFFREY D. KYLE
ENTERGY TEXAS, INC., Clerk
Appellant,
v.
PUBLIC UTILITY COMMISSION OF TEXAS,
Appellee.
Appeal from the 53rd Judicial District Court, Travis County, Texas
The Honorable Amy Clark Meachum, Judge Presiding
________________________________________________________________
APPELLANT’S BRIEF
_________________________________________________________________
John F. Williams
State Bar No. 21554100
jwilliams@dwmrlaw.com
Marnie A. McCormick
State Bar No. 00794264
mmccormick@dwmrlaw.com
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
ATTORNEYS FOR APPELLANT
ENTERGY TEXAS, INC.
ORAL ARGUMENT REQUESTED
January 2015
IDENTITY OF PARTIES AND COUNSEL
Pursuant to Texas Rule of Appellate Procedure 38.1(a), the following is a
list of all parties to the order appealed from and the names and addresses of all trial
and appellate counsel:
Parties: Attorneys:
Entergy Texas, Inc. David C. Duggins
Appellant 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
Counsel in District Court
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
Counsel on Appeal
Public Utility Commission of Texas Elizabeth R. B. Sterling
Appellee Megan M. Neal
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
Counsel in District Court
i
Texas Industrial Energy Consumers Rex VanMiddlesworth
Intervenor Benjamin Hallmark
Thompson & Knight LLP
98 San Jacinto Blvd., Ste. 1900
Austin TX 78701
Counsel in District Court
Meghan Griffiths
Andrews Kurth LLP
111 Congress Ave., Ste. 1700
Austin TX 78701
Counsel in District Court
Office of Public Utility Counsel Sara J. Ferris
Intervenor Office of Public Utility Counsel
1701 N. Congress Ave., Ste. 9-180
P. O. Box 12397
Austin, Texas 78711-2397
Counsel in District Court
ii
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ............................................................ i
TABLE OF CONTENTS ......................................................................................... iii
INDEX OF AUTHORITIES......................................................................................v
STATEMENT OF THE CASE .............................................................................. viii
STATEMENT REGARDING ORAL ARGUMENT ........................................... viii
ISSUES PRESENTED............................................................................................. ix
NOTE REGARDING ADMINISTRATIVE RECORD .......................................... ix
STATEMENT OF FACTS ........................................................................................1
I. ETI is an electric utility that is subject to traditional rate regulation by
the Public Utility Commission of Texas. ........................................................1
II. Under traditional ratemaking principles, a utility is entitled to a
reasonable opportunity to recover all of its reasonable and necessary
expenses and to earn a return on its investment. .............................................2
III. The Texas legislature has required ETI to participate in a new
program that creates new costs and guarantees ETI a way to recover
them outside the traditional ratemaking framework........................................5
IV. The Commission has refused to permit ETI to recover all of the costs
that result from the implementation of the new program. ...............................7
SUMMARY OF THE ARGUMENT ......................................................................12
ARGUMENT ...........................................................................................................14
I. The Commission erred in determining that “unrecovered costs,” as
contemplated by PURA section 39.452(b), include only the costs
necessary to implement and administer the CGS program, and do not
include “lost revenues, embedded generation costs, or any other types
of costs.” ........................................................................................................14
A. The Commission’s decision is inconsistent with the plain
language of PURA section 39.452(b). ................................................14
iii
B. The Commission’s decision also contradicts the framework for
cost recovery established in PURA section 39.452(b). .......................17
C. This Court’s decision in CenterPoint Energy Houston Electric,
LLC v. Public Util. Comm’n of Tex. does not support the
Commission’s decision. ......................................................................20
1. This Court in CenterPoint Energy Houston Electric
construed a different statute that had different language
and a different purpose.............................................................. 21
2. The Court’s reasoning in the CenterPoint Energy
Houston Electric case does not support the Commission’s
decision here. ............................................................................23
a. This Court did not distinguish “costs” and
“revenues” for all purposes.............................................23
b. Regardless, ETI indisputably sought “costs” here. ........24
D. The Commission’s decision runs afoul of the principle
espoused in High Plains and its progeny. ...........................................27
E. The quantity of production costs eligible for recovery is not at
issue here -- the Commission never reached that issue. ......................28
II. The Commission erred in determining that ETI may not recover CGS
implementation costs prior to the date that the CGSC rider is
approved.........................................................................................................30
III. The Commission erred in deciding not to authorize the recovery of
interest on CGS implementation costs. .........................................................34
PRAYER ..................................................................................................................36
CERTIFICATE OF COMPLIANCE .......................................................................37
CERTIFICATE OF SERVICE ................................................................................38
APPENDICES .........................................................................................................39
iv
INDEX OF AUTHORITIES
Cases
Bluefield Waterworks & Improvement Co. v. Public Serv. Comm’n of State
of W.Va.,
262 U.S. 679 (1923) ...............................................................................................3
CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex.,
354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.) ................................... passim
CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex.,
408 S.W.3d 910 (Tex. App. – Austin 2013, pet. denied) .............................. 32, 33
CenterPoint Energy, Inc. v. Public Util. Comm’n of Tex.,
143 S.W.3d 81 (Tex. 2004) ......................................................................... passim
City of Dallas v. Railroad Comm’n of Tex.,
No. 03-06-00580-CV, 2008 WL 4823225 *1 (Tex. App. – Austin Nov. 6,
2008, no pet.) ..........................................................................................................4
City of El Paso v. Public Util. Comm’n of Tex.,
344 S.W.3d 609 (Tex. App. – Austin 2011, no pet.) .............................................3
City of El Paso v. Public Util. Comm’n of Tex.,
883 S.W.2d 179 (Tex. 1994) ..............................................................................3, 4
Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue,
271 S.W.3d 238 (Tex. 2008) ................................................................................16
Federal Power Comm’n v. Hope Natural Gas Co.,
320 U.S. 591 (1944) ...............................................................................................2
In re Entergy Corp.,
142 S.W.3d 316 (Tex. 2004) (orig. proceeding) ....................................................2
Office of Public Util. Counsel v. Public Util. Comm’n of Tex.,
104 S.W.3d 225 (Tex. App. – Austin 2003, no pet.) .............................................1
Ojo v. Farmers Group, Inc.,
356 S.W.3d 421 (Tex. 2011) ...............................................................................17
v
Oncor Elec. Delivery Co. LLC v. Public Util. Comm’n of Tex.,
406 S.W.3d 253 (Tex. App. – Austin 2013, no pet.) .........................................3, 4
Railroad Comm’n of Tex. v. High Plains Natural Gas Co.,
628 S.W.2d 753 (Tex. 1981) ..................................................................... 3, 27, 28
Railroad Comm'n of Tex. v. Citizens for a Safe Future & Clean Water,
336 S.W.3d 619 (Tex. 2011) ................................................................................17
State v. Shumake,
199 S.W.3d 279 (Tex. 2006) ................................................................................16
Suburban Util. Corp. v. Public Util. Comm’n of Tex.,
652 S.W.2d 358 (Tex. 1983) ..............................................................................3, 4
Texas Alarm & Signal Ass’n v. Public Util. Comm’n of Tex.,
603 S.W.2d 766 (Tex. 1980) .................................................................................5
Texas Coast Utils. Coalition v. Railroad Comm’n of Tex.,
423 S.W.3d 355 (Tex. 2014) .............................................................. 3, 16, 20, 28
Statutes
Tex. Util. Code Ann. §§ 11.001, et seq. ............................................................. vii, 1
Tex. Util. Code Ann. Ch. 36 ......................................................................................2
Tex. Util. Code Ann. § 36.007 ............................................................................ 5, 18
Tex. Util. Code Ann. § 36.051 ............................................................... viii, 2, 15, 28
Tex. Util. Code Ann. §§ 39.001-.359 ........................................................................2
Tex. Util. Code Ann. § 39.252 .................................................................................35
Tex. Util. Code Ann. § 39.452 ......................................................................... passim
Tex. Util. Code Ann. § 39.905 .............................................................. 20, 21, 22, 29
Other Authorities
Act of May 30, 2005, 79th Leg., R.S., ch. 1072 (HB 1567), § 1 (amended
2006 & 2009) ..........................................................................................................5
vi
Rules
16 Tex. Admin. Code § 25.231 ........................................................................... 4, 15
16 Tex. Admin. Code § 25.234 ..................................................................................5
vii
STATEMENT OF THE CASE
This is a suit for judicial review of the final order of the Public Utility
Commission of Texas in its Docket Number 38951, a proceeding initiated by
Entergy Texas, Inc. for approval of tariffs implementing a competitive generation
service program. Entergy Texas, Inc. sought judicial review of the agency’s order
primarily on the grounds that it violated the Public Utility Regulatory Act1 and the
Texas Supreme Court’s decision in CenterPoint Energy, Inc. v. Public Util.
Comm’n of Tex., 143 S.W.3d 81, 84 (Tex. 2004).2 The district court, Judge Amy
Clark Meachum presiding, summarily affirmed the order.3
STATEMENT REGARDING ORAL ARGUMENT
Cases involving public utility regulation are usually complex, and this one is
no exception. For that reason, the Court’s decisional process would be aided by
oral argument.
1
See Tex. Util. Code §§ 11.001, et seq.
2
Clerk’s Record (“CR”) 4-19.
3
CR 523-26.
viii
ISSUES PRESENTED
1. Did the Public Utility Commission of Texas misconstrue Public Utility
Regulatory Act section 39.452 by defining “any costs unrecovered as a
result of the implementation of” a competitive generation service program to
exclude base rate costs that Entergy Texas, Inc. may not recover as a result
of implementation of the program?
2. Did the Public Utility Commission misconstrue the same statutory provision
by refusing to enable Entergy Texas, Inc. to accrue and recover the cost of
developing the program at the legislature’s direction?
3. Did the Public Utility Commission violate Public Utility Regulatory Act
section 36.051 and the Texas Supreme Court’s decision in CenterPoint
Energy, Inc. v. Public Util. Comm’n of Texas, 143 S.W.3d 81, 84 (Tex.
2004) by refusing to authorize Entergy Texas, Inc. to recover interest on its
unrecovered costs of implementing the CGS program?
NOTE REGARDING ADMINISTRATIVE RECORD
The Administrative Record in this case is comprised of Joint Exhibits 1, 2,
and 3 to the Reporter’s Record. The record consists of documents filed in two
Commission dockets.
Joint Exhibit 1 is the Administrative Record (“AR”) first filed with the
district court, and consists of non-confidential filings in Public Utility
Commission Docket No. 38951.
Joint Exhibit 2 is a Supplemental Administrative Record (“Supp. AR”) filed
with the district court, and consists of non-confidential filings in Public
Utility Commission Docket No. 37744.
Joint Exhibit 3 is a Supplemental Administrative Record filed with the
district court and consists of documents that were filed confidentially in
Docket Nos. 37744 and 38951. These were sealed by the district court.
None of these documents are cited in this brief.
ix
STATEMENT OF FACTS
This case concerns the Public Utility Commission’s construction of a statute
that creates an exception to several regulatory principles traditionally applied to
electric utilities in Texas.
I. ETI is an electric utility that is subject to traditional rate regulation by
the Public Utility Commission of Texas.
Entergy Texas, Inc. (“ETI” or “the Company”) is an investor-owned electric
utility. ETI provides electric services to over 420,000 retail customers, primarily
in southeastern Texas.4
Historically, Texas electric utilities have been involved in all aspects of the
provision of electric service, from beginning to end. That is, electric utilities have
been responsible for either producing or purchasing power and delivering it over
transmission and distribution networks to end users. See, e.g., Office of Public Util.
Counsel v. Public Util. Comm’n of Tex., 104 S.W.3d 225, 227 (Tex. App. – Austin
2003, no pet.). Each electric utility has been responsible for providing power to all
requesting customers in a defined “service area.” Id. at 227-28. These services,
and the rates charged for them, have been subject to regulation by Public Utility
Commission of Texas (the “Commission” or “PUCT”) under the Public Utility
Regulatory Act (“PURA”).5
4
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 1).
5
See Tex. Util. Code §§ 11.001, et seq.
1
The Texas legislature in 1999 ordered electric utilities to “unbundle” their
generation, transmission, distribution, and customer service functions as part of an
effort to introduce competition into the Texas retail electric industry. See Tex.
Util. Code Ann. §§ 39.001-.359. However, in the course of implementing the
legislature’s mandate, uncertainty developed about whether several areas of the
state, including ETI’s service territory, were ready for the successful transition to
retail competition. See In re Entergy Corp., 142 S.W.3d 316, 320 (Tex. 2004)
(orig. proceeding). In 2009, the legislature amended PURA to require ETI to stop
activities relating to the transition to retail competition. See Tex. Util. Code Ann.
§ 39.452 (i). Accordingly, ETI remains subject to traditional rate regulation. Id.
§ 39.452(a).
II. Under traditional ratemaking principles, a utility is entitled to a
reasonable opportunity to recover all of its reasonable and necessary
expenses and to earn a return on its investment.
PURA sets the framework for setting electric utility rates in Texas. See
generally Tex. Util. Code Ann. Ch. 36. Under PURA and applicable constitutional
principles, a utility is entitled to rates that afford it 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.” Id. § 36.051; Federal Power Comm’n v. Hope Natural Gas
Co., 320 U.S. 591, 603 (1944); Bluefield Waterworks & Improvement Co. v. Public
2
Serv. Comm’n of State of W.Va., 262 U.S. 679, 692 (1923). In plain English, that
means a rate for a utility like ETI does two, separate things: enables the utility to
pay its expenses and to earn a return on its investment. Regarding the former,
PURA mandates that the Commission enable a utility to recover all of its
reasonable and necessary expenses. Tex. Util. Code Ann. § 36.051; see also Texas
Coast Utils. Coalition v. Railroad Comm’n of Tex., 423 S.W.3d 355, 367 (Tex.
2014) (citing Railroad Comm’n of Tex. v. High Plains Natural Gas Co., 628
S.W.2d 753 (Tex. 1981)) (construing materially analogous provision in Gas Utility
Regulatory Act).
In Texas, electric utility rates are set for an indefinite period in the future.
E.g.,Oncor Elec. Delivery Co. LLC v. Public Util. Comm’n of Tex., 406 S.W.3d
253, 263 (Tex. App. – Austin 2013, no pet.); City of El Paso v. Public Util.
Comm’n of Tex., 344 S.W.3d 609, 613 (Tex. App. – Austin 2011, no pet.). To set a
rate, the Commission projects the amount of money the utility will need to cover
both its expenses and a return on its investment. The total is called the utility’s
“revenue requirement” or “cost of service.” See, e.g., City of El Paso v. Public
Util. Comm’n of Tex., 883 S.W.2d 179, 187 (Tex. 1994) (ratemaking formula
determines “revenue requirement”); Suburban Util. Corp. v. Public Util. Comm’n
of Tex., 652 S.W.2d 358, 362 (Tex. 1983) (ratemaking formula determines “cost of
service”); City of Dallas v. Railroad Comm’n of Tex., No. 03-06-00580-CV, 2008
3
WL 4823225 *1 (Tex. App. – Austin Nov. 6, 2008, no pet.) (not designated for
publication) (using “revenue requirement” and “cost of service” to describe the
same thing); 16 Tex. Admin. Code § 25.231 (PUCT’s basic ratemaking rule
entitled “cost of service”).
The Commission has adopted a rule governing this process. To calculate a
utility’s expected cost of service, the Commission examines the utility’s costs from
a historical “test year.” See 16 Tex. Admin. Code § 25.231(a). The Commission
evaluates the reasonableness of the utility’s test-year expenses and adjusts them for
“known and measurable” changes that occur after the test year. Id. § 25.231(b);
see also Oncor Elec. Delivery Co. LLC, 406 S.W.3d at 263. The Commission also
determines what level of capital investment (or rate base) is reasonable, and then
determines a reasonable rate of return on that investment. E.g., Suburban Util.
Corp., 652 S.W.2d at 362. The Commission adds the expense and return
components together to calculate the utility’s total cost of service. The Texas
Supreme Court has acknowledged that a central goal of this process is to arrive at
cost recovery as representative as reasonably possible of the utility’s “cost situation
expected in the future.” City of El Paso, 883 S.W.2d at 188; see also Oncor Elec.
Delivery Co. LLC, 406 S.W.3d at 263.
Utilities have different classes of customer that have different purposes and
needs. Examples of some customer classes are residential, large industrial, and
4
state institutions of higher education. The Commission allocates a utility’s total
cost of service among its various customer classes in a process called “rate
design.” 16 Tex. Admin. Code § 25.234; Texas Alarm & Signal Ass’n v. Public
Util. Comm’n of Tex., 603 S.W.2d 766, 768 n.2 (Tex. 1980). This process results
in a separate “bundled” rate for each customer class going forward. The rate
design process is intended to assign each class of customer its fair share of the
utility’s total cost of service.
III. The Texas legislature has required ETI to participate in a new program
that creates new costs and guarantees ETI a way to recover them
outside the traditional ratemaking framework.
In 2005, the Texas legislature enacted a statute that required ETI to propose
a new program through which some customers could obtain service outside the
traditional paradigm. The legislature intended the new program to enable certain
retail customers to contract for “competitive generation” instead of relying upon
ETI’s portfolio of resources at ETI’s traditionally regulated rates. See Act of May
30, 2005, 79th Leg., R.S., ch. 1072 (HB 1567), § 1 (amended 2006 & 2009)
(current version at Tex. Util. Code Ann. § 39.452 (b)).
The provision governing this program currently reads:
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
5
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. 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.
Tex. Util. Code Ann. § 39.452 (b).
This new “competitive generation service” or “CGS” program costs ETI
money to develop and administer.6 It also costs ETI money in that the CGS
program permits eligible customers to contract for electric generation resources
from alternative suppliers, which allows them to avoid paying some of ETI’s costs
that would otherwise be allocated to them under ETI’s base rates.7 Specifically,
the program allows eligible customers to avoid generation, i.e., production-related,
6
AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 15).
7
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 12-13; Docket No.
37744, ETI Exh. 52, Hurstell Direct at 34; Docket No. 37744, ETI Exh. 9, May Direct at 9); AR
Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 2, 4, & 7).
6
costs. The customers continue to pay ETI for applicable transmission, distribution,
and customer service costs.8
It is clear from the language of section 39.452(b) that the legislature
recognized the implementation of this program may result in “unrecovered costs”
to ETI. It is equally clear that the legislature intended the utility to recover “any”
such costs.
IV. The Commission has refused to permit ETI to recover all of the costs
that result from the implementation of the new program.
In 2009, ETI initiated a general rate case because the rates then in effect did
not adequately compensate it for its cost of providing service.9 In accordance with
PURA section 39.452(b), quoted above, ETI proposed a CGS program. The
program consisted of three riders:
a CGS Tariff, proposed to describe the mechanics of the program and to
identify eligible customers as the Large Industrial Power Service (“LIPS”)
class of customers;
a CGS Cost Rider (“CGSC”), designed to recover from CGS-eligible
customers costs related to the start-up and ongoing operations incurred to
implement the CGS program; and
a CGS Unrecovered Service Cost Rider (“CGSUSC”).10
The CGSUSC rider is the principal tariff at issue in this appeal. The
CGSUSC rider was designed to recover, from non-participating customers, the
8
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 15).
9
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 5-10).
10
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct Exh. PRM-1).
7
base rate costs that CGS customers would avoid by switching. That is, it was
designed to recover the fixed costs of generating or acquiring electricity that do not
change with changes in customer demand.11 For example, CGS customers would
avoid the costs of building and running power plants. They would also avoid the
costs of capacity acquired under purchased power agreements.12 ETI proposed to
measure the costs at risk of non-recovery under the CGS program consistent with
the way its rates for these bundled services were set. That is, ETI proposed to
measure the embedded generation-related costs that migrating customers would
have been expected to pay under traditional rates but for the CGS program.13
The Commission assigned Docket Number 37744 to the rate case
proceeding. The parties eventually reached an agreement on all the issues in the
case except those pertaining to the CGS program. An Administrative Law Judge
(“ALJ”) conducted an evidentiary hearing on the CGS issues.
11
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21); AR Binder 3 (Docket
No. 38951, ETI Exh. 91, May Supp. Direct at 5-6).
12
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 15; Docket No. 37744,
Cities Exh. 6, Nalepa Direct at 58). “Capacity” is the amount of power a utility has available at
any given time to serve customers. Utilities are required to have a percentage surplus or
“cushion” of capacity available in reserve, in case demand exceeds expectations. Traditionally
regulated utilities supply their need for capacity either from their own generating plants or by
buying it from someone else. Some purchased power contracts are short term, but some are long
term. Like other base rate expenses, “purchased capacity costs” are quantified during a test year
and become a component of the utility’s revenue requirement that forms the basis for prospective
rates.
13
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21 & Exh. PRM-1,
“Competitive Generation Service Unrecovered Service Cost Rider”).
8
An ETI witness estimated that ETI would incur about $610,000 of costs to
implement the program, and another $330,000 annually to keep it going.14
Additionally, ETI estimated that, based upon the test year used in Docket No.
37744, the customers expected to be eligible for the CGS program (the LIPS class)
represented approximately 23% of ETI’s total demand and 32% of the Company’s
total sales.15 ETI estimated that the revenue requirement resulting from ETI’s
embedded generation costs for the total load eligible for the CGS program was
about $57.5 million.16 This was the total amount of ETI production costs that
eligible customers would avoid if they all took CGS service for their entire load.
ETI acknowledged, however, that it could not precisely identify the level of
unrecovered costs until the actual level of participation in the CGS program was
known.17
After the evidentiary hearing, the ALJ issued a proposal for decision on the
CGS issues. The ALJ recommended that the CGS program be rejected altogether,
one of the options authorized by the CGS statute. See Tex. Util. Code Ann. §
39.452(b). The basis of the ALJ’s decision was his conclusion that though the
program would definitely result in unrecovered costs for ETI, the only feasible way
for the Company to recover them in compliance with PURA section 39.452(b)
14
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 19).
15
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 13).
16
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 14).
17
AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 21).
9
would be to charge the unrecovered costs to customers that did not participate in
the program. The ALJ perceived this result as unfair.18
The Commission did not adopt the ALJ’s proposal. Instead, the
Commission severed the CGS issues from the rate case and established a new
docket for them to be addressed. The Commission ordered that the record from the
rate case be included in the new CGS docket.19 The Commission assigned Docket
Number 38951 to the new CGS docket, and urged the parties to attempt to settle as
many CGS-related issues as possible.
In the new docket, the parties reached agreements on many of the
outstanding issues. They filed several stipulations of fact, as well as partial
settlements addressing discrete elements of the program. They were unable to
agree, however, on the meaning of the phrase “costs unrecovered as a result of
implementation of the CGS program tariff” in PURA section 39.452(b).
The Commission issued an interim order on this issue. In that order, the
Commission disagreed with the ALJ’s proposal for decision and determined that
the term entitles ETI to recover only “costs to implement and administer the CGS
program,” not “lost revenues, embedded generation costs, or any other types of
costs.” In other words, the Commission determined as a matter of law that the
18
See Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 2-3).
19
The rate case record was voluminous, and much of it did not pertain to the CGS issue. Only
the pieces of the record in Docket No. 37744 that the parties to the district-court proceeding
identified as relevant have been included in the record. Again, those pieces comprise the
Supplemental Administrative Record, Joint Exhibit 2 of the Reporter’s Record.
10
statutory term “unrecovered costs” did not include unrecovered “embedded
generation costs.” The Commission, therefore, concluded that ETI could not
implement its proposed CGSUSC rider.20
After issuance of the interim order, the parties filed supplemental testimony.
Some (but not all) of the parties reached another agreement on unresolved issues.21
The Commission ultimately adopted some aspects of that agreement, but rejected
other aspects of it. In the end, the Commission issued a final order that adopted
CGS and CGSC riders but not a CGSUSC rider.22
In its final order, the Commission incorporated its interim order. The
agency expressly ruled that ETI may recover only the costs necessary to
“implement and administer” the CGS program, and not “lost revenues, embedded
generation costs, or any other types of costs.”23 The Commission even excluded
from evidence the “CGSUSC” rider that ETI proffered in its supplemental
testimony on the ground that the Commission’s interim decision rendered it
“irrelevant.”24 The Commission further imposed a limitation on ETI’s ability to
recover CGS implementation costs. That is, the Commission ruled that ETI could
not accrue (or, consequently, recover) implementation costs incurred before the
20
AR Binder 1, Item 77 (Docket No. 38951, Interim Order at 5-7 & FOFs 38-40).
21
AR Binder 2, Item 113 (Docket No. 38951, May 17, 2013 Stipulation and Settlement
Agreement at 4).
22
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order).
23
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 7-8 & FOFs 50-51).
24
AR Binder 2, Item 25 (Docket No. 38951, Order No. 11).
11
CGSC rider was approved.25 The Commission also declined to authorize ETI to
recover interest on its unrecovered balance of CGSC rider costs.26
ETI filed a motion for rehearing challenging each of these decisions.27 The
motion was overruled by operation of law. ETI then filed a suit for judicial review
of the Commission’s decisions on these issues.28 The district court, Judge Amy
Clark Meachum presiding, summarily affirmed the Commission’s order.29 ETI
appeals that judgment to this Court.
SUMMARY OF THE ARGUMENT
The Commission erred as a matter of law when it determined that “any costs
unrecovered as a result of the implementation of” the CGS program includes only
the costs of implementing and administering the program. The Commission’s
decision violates the plain language of PURA section 39.452(b), which does not
circumscribe the categories of cost eligible for recovery. The decision also violates
other provisions of the statute, which evidence the legislature’s intent that
“unrecovered costs” be determined using the same test-year production costs that
are used to determine base rates, and that the program not constitute a “discounted
rate,” enabling ETI to allocate unrecovered base rate costs to customers who do not
25
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at FOF 57A).
26
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at FOF 57C).
27
AR Binder 2, Item 121 (Docket No. 38951, ETI’s Aug. 8, 2013 Motion for Rehearing).
28
CR 4-19.
29
CR 523-26.
12
participate in the CGS program. The Commission is bound to give effect to the
legislature’s mandates.
The Commission is also bound to adhere to a more fundamental principle of
utility ratemaking. That is, the Commission must set rates that afford a utility a
reasonable opportunity to recover all of its reasonable and necessary operating
expenses. By excluding a significant chunk of ETI’s expenses from eligibility for
recovery under CGS program tariffs, the Commission violated this principle.
The only legal justification the Commission gave for its decision is this
Court’s opinion in CenterPoint Energy Houston Electric, LLC v. Public Util.
Comm’n of Tex., 354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.). This Court
in that case construed a different statute that is worded in materially different
language from the CGS statute. Viewed in context, the Court’s reasoning in
CenterPoint Energy Houston Electric does not support the Commission’s decision
– it actually undermines the Commission decision. There is no legal justification
for the Commission’s disregard of a clear legislative mandate. The decision to
render production costs unrecoverable is entitled to no deference and must be
reversed.
The Commission further erred in determining that ETI may not recover costs
it incurred to put the legislatively mandated CGS program in place. Again, PURA
section 39.452(b) allows ETI to recover any and all costs that result from
13
implementation of the program. Because the program cannot be implemented
without start-up costs, the Commission’s decision violates the statute and must be
reversed.
Finally, the Commission erred as a matter of law in deciding not to authorize
the recovery of interest on CGS implementation costs. The Texas Supreme Court
has confirmed that when PURA expressly confers upon a utility a right to recover
certain costs, PURA impliedly entitles the utility to recover interest on those costs
until they are recovered. See CenterPoint Energy, Inc. v. Public Util. Comm’n of
Tex., 143 S.W.3d 81, 84 (Tex. 2004). Regardless of when ETI was entitled to
begin accruing implementation costs, ETI is entitled to interest on recoverable
amounts until they are recovered. The Commission’s order to the contrary must be
reversed.
ARGUMENT
I. The Commission erred in determining that “unrecovered costs,” as
contemplated by PURA section 39.452(b), include only the costs
necessary to implement and administer the CGS program, and do not
include “lost revenues, embedded generation costs, or any other types of
costs.”
A. The Commission’s decision is inconsistent with the plain
language of PURA section 39.452(b).
PURA section 39.452(b) says that a utility’s rates “shall be set … to recover
any costs unrecovered as a result of the implementation of the tariff.” Tex. Util.
14
Code Ann. § 39.452(b). As the ALJ correctly observed,30 the statute does not limit
the categories of cost that are subject to this requirement. So long as a cost flows
from the implementation of the CGS program and is not otherwise recovered, it
falls within the express language of the statutory mandate.
As noted above, ETI proved there are several categories of costs that may be
unrecovered as a result of the implementation of the CGS program. There are
costs directly associated with the development of the program itself and carrying
costs between the time of expenditure and recovery. Also, under the traditional
ratemaking paradigm, ETI’s rates, and the revenue requirement used to establish
them, are required by statute and Commission rule to be designed to recover the
embedded production costs the Company incurs to serve each and every one of its
customers. Tex. Util. Code Ann. § 36.051; 16 Tex. Admin. Code § 25.231(a) &
(b). With every customer that migrates to the CGS program, ETI is not recovering
through base rates charged to that customer the fixed costs it has previously
incurred to provide electricity to that customer. For example, if the fixed test-year
cost of serving ten customers is shown to be $50 million, but those ten customers
migrate to the CGS program, the utility is at risk of not recovering that $50 million
from anyone.
30
Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 23).
15
The legislature understood this and mandated that ETI be allowed to recover
“any” costs that would otherwise be unrecovered as a result of implementing the
program. Tex. Util. Code Ann. § 39.452(b). Even though this mandate is
expansive and unlimited in category of cost, the Commission dramatically
circumscribed the categories of costs eligible for recovery. The Commission found
that the only costs recoverable under the CGS statute are the costs “to implement
and administer the CGS program tariff.”31 The Commission did not (nor can it)
point to any language in the statute that supports its interpretation.
First and foremost, statutes must be construed according to their plain
language. E.g., State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). The
Commission reads the statute as requiring reimbursement for only the costs “of
implementing” the program, giving the phrase “unrecovered as a result of” no
meaning. The Commission has written that phrase out of the statute. It is well
established that the legislature is presumed to have chosen its words with care, and
that statutes should not be construed to render legislatively enacted words
superfluous. E.g., Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d
238, 256 (Tex. 2008). The Commission’s erroneous construction of the clear,
unambiguous words of the CGS statute is not entitled to any deference. E.g.,
Texas Coast Utils. Coalition, 423 S.W.3d at 363 n.16; Ojo v. Farmers Group, Inc.,
31
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 23 & FOF 51).
16
356 S.W.3d 421, 443 (Tex. 2011) (Willett, J., concurring) (“This Court does not
consider agency interpretations of unambiguous statutes.”); Railroad Comm'n of
Tex. v. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 634 (Tex.
2011) (Jefferson, C.J., concurring) (“We do not defer to agency interpretations of
unambiguous statutes.”). The Commission’s decision must be reversed on this
basis alone.
B. The Commission’s decision also contradicts the framework
for cost recovery established in PURA section 39.452(b).
The Commission’s decision not only flatly ignores the absence of any
limitation on costs eligible for recovery and the legislature’s express confirmation
that “any” costs be included. The decision also contradicts other language in the
statute.
First, the cost recovery framework of section 39.452(b) includes the
requirement that “unrecovered costs” be identified, and rates be “set, in the [same]
proceeding in which the tariff is adopted,” to recover those costs. Thus, the statute
plainly contemplates that the level of “unrecovered costs” will be determined based
on the same test-year production costs that are used to determine base rates. By
excluding embedded production-related base rate costs from the definition of
“unrecovered costs,” the Commission has violated this key requirement of the
statute.
17
Second, the legislature not only entitled ETI to recover costs, but it said
some things that affect who may and may not pay them. The legislature prohibited
the program from prejudicing eligible customers who choose not to participate in
it. See Tex. Util. Code Ann. § 39.452(b). The logical result of that prohibition is
that costs avoided by participating customers may not be assigned to customers
who are eligible but opt out. The legislature did not, however, say anything that
prohibits costs from being recovered from other customers. In fact, the legislature
expressly opened the door for recovering costs from other customers. That
invitation is embodied in the legislature’s reference in the CGS statute to another
provision of PURA – section 36.007. Tex. Util. Code Ann. § 39.452(b) (“The
tariffs subject to this subsection may not be considered to offer a discounted rate or
rates under Section 36.007….”).
Section 36.007 generally governs what happens when a utility gives a
customer a “discounted rate.” That provision prevents a utility from recovering in
its base rates, which are charged to all customers that take service under traditional
regulation, the “allocable costs of serving customers paying discounted rates under
this section….” Id. § 36.007. That is, section 36.007 prohibits a utility from
giving one customer a discount, and then saddling another customer with the costs
the first one avoided. The result is that, generally, a utility risks having
unrecovered costs if it chooses to give a customer a discounted rate.
18
But the legislature said the CGS program may not result in a “discounted
rate.” By saying so, the legislature effectively removed the general prohibition on
shifting costs to customers who do not pay a discount, and confirmed that ETI
must be allowed to recover the full allocable costs of serving customers even after
they migrate to the CGS program. The Commission’s constricted definition of
“unrecovered costs” leaves ETI in the same position regarding cost recovery as if it
were charging a discount rate.32 In this respect, the decision violates the language
of section 39.452(b).
The Commission and intervenors have characterized the assignment of costs
to non-participating customers as unfair. These arguments ignore that the
legislature – not ETI – has required this result. There is no way to implement the
CGS program in conformity with the terms of the CGS statute without, in some
manner, creating a preferential rate or assigning costs to customers that may not
cause them. There is no free lunch, and the legislature dictated that ETI not pick
up the tab for the special deal it authorized for certain customers. It gave the
Commission the power to cancel the lunch altogether if it could not find a way to
pay for it equitably, but did not give the Commission the power to host the lunch at
the utility’s expense.
32
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 76, May Rebuttal at 26); AR Binder 3
(Docket No. 38951, ETI Exh. 91, May Supp. Direct at 8); Supp. AR Part IV, Vol. E (Docket No.
37744, 7/20/2010 Tr. at 341-48).
19
PUCT Chairman Smitherman acknowledged this fact in his public
discussion of the CGS program. Speaking to ETI, he said, “[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] ….”).33 Nevertheless, the
Commission has chosen to implement a CGS program and prevent ETI from
recovering costs that may be unrecovered as a result of its implementation.
The Commission is bound to adhere to the strictures of its enabling statute.
E.g., Texas Coast Utils. Coalition, 423 S.W.3d at 359-60 (“As a statutorily created
body, the Commission has no inherent authority, and instead has only the authority
that the Legislature confers upon it.”). The Commission may not violate the plain
language of PURA.
C. This Court’s decision in CenterPoint Energy Houston
Electric, LLC v. Public Util. Comm’n of Tex. does not
support the Commission’s decision.
The only legal basis the Commission articulated in its order to support its
definition of “unrecovered costs” was this Court’s decision in CenterPoint Energy
Houston Electric, LLC v. Public Util. Comm’n of Tex., 354 S.W.3d 899 (Tex. App.
– Austin 2011, no pet.). The Commission characterized ETI’s request for
embedded production costs as a request for “lost revenues,” and found:
50. In CenterPoint, the Third Court of Appeals found that because
the language of PURA § 39.905 did not specifically provide for
33
Supp. AR Part IV, Vol. F (Docket No. 37744, Nov. 10, 2010 Open Meeting Tr. at 179 & 210).
20
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.34
According to the Commission, this Court in CenterPoint Energy Houston Electric
decided that the term “costs,” everywhere it appears in PURA, is not intended to
include “lost revenues.” This Court did not so hold. Even if it had, the holding
would not support the Commission’s decision in this case.
1. This Court in CenterPoint Energy Houston Electric
construed a different statute that had different
language and a different purpose.
CenterPoint Energy Houston Electric concerned a Commission rule
implementing a PURA provision that governed an energy efficiency program. In
PURA section 39.905, the legislature directed utilities to implement energy
efficiency programs to reduce the state’s demand for electricity. Tex. Util. Code
Ann. § 39.905. The legislature directed the Commission to establish “energy
efficiency cost recovery factors” (“EECRFs”) under which utilities could recover
the expenditures they made to satisfy the legislature’s energy efficiency goals. Id.
§ 39.905(b)(1). The legislature further required a mechanism by which a utility’s
EECRF would periodically be trued-up to “reflect any over-collection or under-
34
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 22-23 & FOF 50).
21
collection of energy efficiency cost recovery revenues in previous years.” Id.
§ 39.905(b-1). CenterPoint contended these provisions required the Commission
to afford it an opportunity to recover not only the expenditures it made to
implement its program, but also revenues it lost as a result of the program’s
success in reducing demand for electricity. This Court disagreed, holding that the
EECRF statute precluded the Commission from accounting for “lost revenues” in
the reconciliation mechanism. CenterPoint Energy Houston Electric, 354 S.W.3d
at 905.
The CenterPoint Energy Houston Electric decision does not inform the
question presented in this case. The language of the EECRF statute is materially
different from the language of the CGS statute. The EECRF statute authorizes
“cost recovery for utility expenditures made to satisfy the goal of this section….”
Tex. Util. Code Ann. § 39.905(b)(1) (emphasis added). The use of the term
“expenditures,” and the qualification of eligible expenditures as those made for the
purpose of satisfying the energy efficiency program goal, circumscribe the universe
of costs eligible for recovery under the EECRF. The Court determined that this
language, “[c]onsidered in context,” indicates an intent for a utility to recover “out-
of-pocket expenditures associated with its implementation of energy-efficiency
programs, not to compensate a utility for any associated lost revenues attributable
to those programs.” CenterPoint, 354 S.W.3d at 904.
22
The CGS statute, in contrast, requires that “rates shall be set … to recover
any costs unrecovered as a result of the implementation of the tariff.” Id.
§ 39.452(b) (emphasis added). The CGS language is broader than the EECRF
language. “Any” costs means just that, including fixed production costs incurred
to provide electric service to customers who ultimately migrate to the CGS
program. In contravention of this language, the Commission has categorically
precluded ETI from recovering these costs via the CGSUSC rider. This Court’s
construction of the EECRF statute does not speak to the proper construction of the
CGS statute, much less bind the Commission to misconstrue the latter.
2. The Court’s reasoning in the CenterPoint Energy
Houston Electric case does not support the
Commission’s decision here.
The Commission cites the CenterPoint Energy Houston Electric decision as
support for the broad proposition that the concepts of “costs” and “revenues” are
distinct throughout PURA, such that express authority to recover “costs” is never
authority to recover “revenues” the utility has lost as the result of the
implementation of one program or another.
a. This Court did not distinguish “costs” and
“revenues” for all purposes.
This Court did not say that. The only issue before the Court in CenterPoint
was the scope of costs recoverable under the EECRF statute. CenterPoint argued
that the cost-recovery provisions of the EECRF statute authorized utilities to
23
recover not only the direct costs of implementing the energy efficiency program,
but also “revenues” lost as a result of implementing that program. In rejecting that
argument, the Court first examined the express language of the energy efficiency
provisions. The Court then observed that the legislature in two other places in
PURA distinguished between “costs” and “revenues.” CenterPoint Energy
Houston Electric, 354 S.W.3d at 903-04. The Court said, “[t]hese provisions
further support our conclusion that the term ‘costs,’ as used by the legislature in
PURA, is not intended to include lost revenues.” Id. at 904. This discussion
appeared in the context of construing the EECRF provision. The Court certainly
did not cite or discuss the CGS provision. It is clear from the language of the CGS
statute that the legislature did intend the utility to recover costs that result from
implementing that program. Those are the very words of the statute.
b. Regardless, ETI indisputably sought “costs”
here.
Furthermore, the facts before this Court in CenterPoint Energy Houston
Electric were fundamentally different from those presented in this case.
CenterPoint asked to recover “lost revenues” that were not tied to the particular
category of “expenditure” it was entitled to recover under the EECRF statute. ETI
in contrast, does not seek “lost revenues” different from or in addition to the
“costs” it is entitled to recover under the statute. ETI gets to recover “any” costs
that result from CGS program implementation, including production costs.
24
None of the experts in this case disputed that the CGS program could lead
to unrecovered “costs” of the type claimed by ETI, and the ALJ agreed it would.35
While intervenor and Staff experts argued that certain alleged benefits of the CGS
program, or revenues from load growth, might be available to offset ETI’s
unrecovered costs, they did not say that the Company could not experience
unrecovered production costs. This fact is confirmed in the agreement on how to
quantify the rate reduction that CGS customers earn by switching from traditional
rates. The credit is explicitly based on the level of ETI’s fixed production costs
that CGS customers are able to avoid paying by switching.36
Logically, then, ETI proposed to measure its unrecovered costs caused by
migrating LIPS customers by calculating “the difference between what would have
been billed under traditional LIPS service and the amounts collected under CGS
service.”37 What would have been billed may logically be termed “revenues.” But
even assuming arguendo that a utility cannot recover lost “revenues” without the
35
Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 2-3 & 21-22);
Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1, Johnson Direct at 85 & 88 (“The CGS-
USC rider will allow the company to flow through unrecovered embedded cost to other customer
classes.”); Docket No. 37744, Kroger Exh. 1, Higgins Direct at 6; Docket No. 37744, State
Agencies Exh. 2, Pevoto Direct at 39-41; Docket No. 37744, TIEC Exh. 1, Pollock Direct at 51-
52 & Exh. JP-16); AR Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 6-7);
Supp. AR Part IV, Vol. E (Docket No. 37744, 7/20/2010 Tr. at 261-63).
36
AR Binder 2, Item 113 (Docket No. 38951, Stipulation and Settlement Agreement ¶ A.1 &
Attachment 1, “Competitive Generation Service” tariff at ¶ VI.B; Docket No. 38951, July 19,
2013 Order at FOF 41.c. 2-4); AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp.
Direct at 7-8).
37
Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21); AR Binder 3 (Docket
No. 38951, ETI Exh. 91, May Supp. Direct at 6-7).
25
legislature expressly saying so, the Commission reached the wrong decision here.
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.38
In the test-year ratemaking construct, a utility’s revenues are designed to
recover exactly the amount of its costs.39 A utility’s “revenue requirement” is its
“cost of service.” And just 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. Unlike CenterPoint, ETI is not
seeking to recover lost revenues in addition to, or instead of, a category of costs
that are guaranteed by a statute. The costs ETI seeks here – and the “revenues”
that the Commission says the Company seeks – are the same thing. The ALJ
understood this reality.40
Even this Court in CenterPoint Energy Houston Electric recognized a
connection between eligible costs and revenues when it discussed the EECRF true-
up provision. That is, the Court acknowledged that CenterPoint was entitled to
38
Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1, Johnson Direct at 88 (“Revenues are
intended to equal embedded cost of service for the adjusted test year.”)); Supp. AR Binder 3
(Docket No. 37744, ETI Exh. 76, May Rebuttal at 28); AR Binder 3 (Docket No. 38951, ETI
Exh. 92, May Supp. Rebuttal at 4-5).
39
AR Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 7; Docket No. 38951, ETI
Exh. 92, May Supp. Rebuttal at 4); Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1,
Johnson Direct at 88; Docket No. 37744, TIEC Exh. 1, Pollock Direct at 51-52 & Exh. JP-16
(recognizing that ETI could incur unrecovered costs)).
40
Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 22).
26
recover revenues equal to its EECRF costs. CenterPoint Energy Houston Electric,
354 S.W.3d at 901. The Court simply found that CenterPoint was seeking
revenues unrelated to the narrow class of costs the EECRF statute addressed --
those related to setting up and running the EECRF program. 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. Thus, though the CenterPoint Energy Houston Electric decision is not
on point because it addresses statutory language fundamentally different from the
CGS statute, this Court’s reasoning in that case undermines the Commission’s
decision in this case.
D. The Commission’s decision runs afoul of the principle
espoused in High Plains and its progeny.
The Commission’s decision not only violates the language and intent of
PURA section 39.452(d), it also violates a more fundamental tenet of Texas utility
ratemaking also embodied in that statutory language. That is, as noted above,
PURA requires that a utility’s rates be set to permit it to recover all of its
reasonable and necessary operating costs. Tex. Util. Code Ann. § 36.051. The
Texas Supreme Court construed a materially identical requirement in the Gas
Utility Regulatory Act and concluded that the Railroad Commission violated the
requirement by adopting a tariff that provided for less than 100% of the utility’s
27
cost recovery. The Court noted that the statutory language at issue “mandates that
the Commission structure a system that will permit the utility to recover all of its
operating expenses.” See High Plains Natural Gas Co., 628 S.W.2d at 753. The
Texas Supreme Court last year reiterated the same principle, citing High Plains
Natural Gas Co., in upholding a Railroad Commission tariff that was designed to
give the utility the opportunity to recover all of its reasonable and necessary costs.
See Texas Coast Utils. Coalition, 423 S.W.3d 367. The Commission’s decision in
this case, like the Railroad Commission’s decision in High Plains, categorically
renders ineligible for recovery certain costs that are indisputably reasonable and
necessary for the utility to provide service to customers. This is contrary to law
and must be reversed.
E. The quantity of production costs eligible for recovery is not
at issue here -- the Commission never reached that issue.
There was much debate before the Commission and district court over the
extent to which ETI’s embedded production-related costs will actually be
unrecovered, and the extent to which unrecovered costs might be offset or
mitigated upon implementation of the CGS program. Indeed, both the
Commission and intervenor Texas Industrial Electric Consumers (“TIEC”) argued
that the basis of the Commission’s decision was a determination that none of ETI’s
embedded production costs will be unrecovered as a result of the CGS program.
These parties will likely make the same argument again. It has no merit.
28
The Commission did not make a factual determination that ETI will not have
any unrecovered costs as a result of CGS program implementation.
The Commission said:
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.
***
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.) … Like PURA § 39.905, PURA §
39.452 (b) [the CGS statute] 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.41
In short, the Commission’s order is based solely upon its interpretation of
the CGS statute. The Commission did not reach the issue of how much of ETI’s
costs will be unrecovered as a result of implementing the CGS program, because
the Commission defined the term “unrecovered costs” in a way that precludes the
41
AR Binder 2 (Docket No. 38951, Final Order at 6, 7-8; see also FOFs 49-51) (emphasis added;
footnotes omitted)).
29
issue from arising. The Commission concluded that the words “any unrecovered
costs” in PURA section 39.452(b) include only the costs of implementing and
administering the CGS program. That is the only reason the Commission gave for
rejecting the proposed CGSUSC rider, which was designed to recover embedded
production costs avoided by participating CGS customers.
To be clear, the debate on appeal is not whether -- or what -- costs will in
fact be unrecovered. The question before this Court is whether ETI is statutorily
entitled to recoup unrecovered, embedded production-related costs of serving
customers that migrate to the CGS program. The Commission answered that
question in the negative. This Court must reverse that decision because it
contravenes the clear language and intent of PURA section 39.452(b).
II. The Commission erred in determining that ETI may not recover CGS
implementation costs prior to the date that the CGSC rider is approved.
In addition to its request to recover, via its CGSUSC rider, all embedded
production-related costs that are unrecovered as a result of customers migrating to
the CGS program, ETI sought to recover through its CGSC rider all the costs of
implementing and administering the CGS program. Though the Commission
apparently recognized that ETI is entitled to recover its costs of implementing and
administering the program, the Commission improperly narrowed the universe of
costs that qualify. The Commission decided that ETI “should not be able to
30
recover any costs via the CGSC rider until the CGS program is implemented.”42
The Commission found:
57A. 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 [sic].43
The effect of this ruling is to prevent ETI from recovering the lion’s share of the
CGS implementation costs it has incurred in the conduct of this proceeding and in
its previous good faith efforts to reach agreement with the parties on a host of
issues related to the design of the CGS program and tariffs. These collaborative
efforts among the parties led to stipulations on the vast majority of the elements of
the CGS program and tariffs. Before the underlying proceeding had concluded,
ETI had already incurred over $900,000 in costs toward implementation of the
program.44
The Commission’s decision on this issue violates the plain language of
PURA section 39.452(b). Again, that statute requires that ETI be allowed to
recover “any costs unrecovered as a result of the implementation of the [CGS]
tariff….” Tex. Util. Code Ann. § 39.452(b). The statute does not limit recoverable
42
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 9).
43
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 25 & FOF 57A).
44
AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 15). There is a small
amount of CGS-related expense (approximately $300,000) that forms part of the test-year costs
upon which ETI’s base rates were established in Docket No. 37744. ETI proposed to credit that
amount under the CGSC rider, so the costs will not be recovered twice. AR Binder 3 (Docket
No. 38951, ETI Exh. 101, Roach Supp. Direct at 15; Docket No. 38951, ETI Exh. 103, Roach
Supp. Rebuttal at 3).
31
costs to those incurred in any particular time period. The provision contemplates
recovery of all CGS tariff implementation costs, regardless of when they are
incurred.
This is not the first time the Commission has assigned an unduly narrow
meaning to the concept of program implementation. In the docket underlying
CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex., 408
S.W.3d 910 (Tex. App. – Austin 2013, pet. denied) (“CenterPoint Energy Houston
Electric II”), the Commission decided CenterPoint was not entitled to a
performance bonus on energy efficiency programs funded by $10 million in
settlement proceeds. The basis for the Commission’s decision was that although
performance bonuses were due on programs “implemented under” the
Commission’s rule, the programs at issue were implemented under a settlement,
not the rule. In reversing the Commission’s decision, this Court noted, “the PUC’s
position here unnecessarily complicates what is fairly standard statutory and
regulatory language. ‘Implement’ simply means ‘carry out.’” CenterPoint Energy
Houston Electric II, 408 S.W.3d at 917. The Court applied this common-sense
meaning to the word, holding that CenterPoint was entitled to a performance bonus
on all its programs “carried out” to achieve the energy efficiency goals of the rule,
so long as they met the other requirements of the rule, regardless of the source of
program funding.
32
The same common-sense meaning should be applied to the word
“implementation” in the CGS statute. Furthermore, the Court should give effect to
the breadth of the CGS entitlement. That is, in the CGS statute, the legislature not
only entitled the utility to the costs of implementing the program; the legislature
also entitled the utility to the unrecovered costs that result from implementing the
program. Without incurring the costs of proposing, negotiating, and developing
the CGS tariff (and the associated CGSC and CGSUSC riders), the program could
not be implemented or “carried out.”45 The costs incurred to develop the tariff and
riders are just as much a result of program implementation as are the costs incurred
after they are adopted and go into effect. Moreover, excluding recovery of any of
these costs is inconsistent with the legislative intent, discussed above, that ETI not
subsidize the implementation of the CGS program and tariffs. In short, the
Commission’s limitation of the time frame for accrual of CGS implementation
costs is contrary to PURA section 39.452(b) and must be reversed.
45
AR Binder 3 (Docket No. 38951, ETI Exh. 103, Roach Supp. Rebuttal at 2).
33
III. The Commission erred in deciding not to authorize the recovery of
interest on CGS implementation costs.
Finally, ETI requested to earn interest on the unrecovered balance of the
CGSC rider charges.46 The Commission decided that ETI should not be permitted
to recover interest on this balance.47 The Commission found:
57C. It is not appropriate for ETI to recover interest on the
unrecovered balance of the CGSC rider charges.48
The sole rationale for the Commission’s decision is that it typically does not allow
interest to accrue on the unamortized balance of legal and consulting expenses (i.e.,
“rate case expenses”) that utilities incur in prosecuting full, general rate cases.49
That is not a legitimate basis upon which to deny ETI interest on
unrecovered CGSC rider charges. Rate case expenses are not governed by PURA
section 39.452(b), which assures, without exception, ETI’s right to recover all
costs associated with implementing the CGS program. The time value of money
that ETI must forego while it waits for the CGSC rider to be approved, and that it
will just as surely forego between periods of adjustment to that rider, is an
46
AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct, Exh. DRR-SD-3 at 2
(Section V “True-Up Provision”) and DRR-SD-6 (redline) at 2 (Section V “True-Up
Provision”)).
47
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 10).
48
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 25 & FOF 57C).
49
AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 10).
34
unrecovered cost to the same extent as are the other CGS program implementation
costs.50
The Texas Supreme Court’s decision in CenterPoint Energy, Inc. v. Public
Util. Comm’n of Tex., 143 S.W.3d 81, 84 (Tex. 2004) confirms that when PURA
expressly confers upon a utility a right to recover certain costs, PURA impliedly
entitles the utility to recover interest on those costs until they are recovered. In
CenterPoint Energy, Inc., CenterPoint sought to accrue interest on stranded costs
until they were quantified. PURA section 39.252(a) expressly authorized utilities
like CenterPoint to recover their stranded costs that resulted from the introduction
of retail competition into their service territories. Tex. Util. Code Ann.
§ 39.252(a). PURA did not expressly authorize utilities to earn interest on their
unrecovered stranded costs. The Commission adopted a rule that precluded the
utility from beginning to accrue interest on the stranded costs when they arose, and
required the utility to wait to accrue interest until the stranded costs were
quantified. The Texas Supreme Court invalidated the rule, holding that it was
“inconsistent with the Legislature’s intent, expressed in Chapter 39 of the PURA,
that utilities fully recover their ‘net, verifiable, nonmitigable stranded costs’ … A
two- or three-year gap in recovery of carrying costs would not permit generation
50
AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 17; Docket No. 38951,
ETI Exh. 103, Roach Supp. Rebuttal at 6).
35
companies full recovery of their stranded costs as the Legislature envisioned.”
CenterPoint Energy, Inc., 143 S.W.3d at 84.
The Court’s reasoning applies equally to this case. ETI is statutorily entitled
to recover all of its costs of implementing the CGS program, including interest.
The Commission, in denying ETI the right to earn interest on unrecovered
amounts, violated PURA section 39.452(b). This Court must reverse the
Commission’s ruling on this issue.
PRAYER
For all these reasons, Entergy Texas, Inc. respectfully requests that the Court
reverse the district court’s judgment insofar as it upholds the Commission’s
decision in the respects discussed above. ETI has the statutory right to recover: its
embedded production-related costs that are unrecovered as a result of
implementing the CGS program; costs ETI incurred to implement the program
before the CGSC rider becomes effective; and interest on the unrecovered balance
of costs incurred to implement the CGS program. ETI requests that this Court
remand the case to the Commission for further proceedings consistent with the
Court’s decision. Finally, ETI requests its costs of court and any other relief to
which it may show itself justly entitled.
36
Respectfully submitted,
DUGGINS WREN MANN & ROMERO, LLP
By: /s/ Marnie A. McCormick
John F. Williams
State Bar No. 21554100
jwilliams@dwmrlaw.com
Marnie A. McCormick
State Bar No. 00794264
mmccormick@dwmrlaw.com
P. O. Box 1149
Austin, Texas 78767-1149
(512) 744-9300
(512) 744-9399 fax
ATTORNEYS FOR APPELLANT
ENTERGY TEXAS, INC.
CERTIFICATE OF COMPLIANCE
I certify that this document contains 9,085 words in the portions of the
document that are subject to the word limits of Texas Rule of Appellate Procedure
9.4(i), as measured by the undersigned’s word-processing software.
/s/ Marnie A. McCormick
Marnie A. McCormick
37
CERTIFICATE OF SERVICE
As required by Texas Rule of Appellate Procedure 9.5, I certify that on the
14th day of January, 2015, the foregoing document was electronically filed with
the Clerk of the Court using the electronic case filing system of the Court, and that
a true and correct copy was served on the following lead counsel for all parties
listed below via electronic service:
Elizabeth R. B. Sterling
Megan M. Neal
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, TX 78711-2548
Counsel for the Public Utility Commission of Texas
Rex VanMiddlesworth
Benjamin Hallmark
Thompson & Knight LLP
98 San Jacinto Blvd., Ste. 1900
Austin, TX 78701
Counsel for Texas Industrial Energy Consumers
Sara J. Ferris
Office of Public Utility Counsel
1701 N. Congress Ave., Ste. 9-180
P.O. Box 12397
Austin, TX 78711-2397
Counsel for Office of Public Utility Counsel
/s/ Marnie A. McCormick
Marnie A. McCormick
38
APPENDICES
A. Final Order of the Public Utility Commission of Texas in Docket No. 38951
B. Interim Order of the Public Utility Commission of Texas in Docket No.
38951
C. Entergy Texas, Inc.’s Motion for Rehearing in Docket No. 38951
D. Texas Utilities Code section 39.452(b)
E. District Court’s Judgment
39
APPENDIX A
FINAL ORDER
. ... .
• , .. . - f '
• l ·' : .I r. ! )
'"
PUC DOCKET NO. 38951
- '2013 JUL I 9 PH 3: II
t--\l,JL I(; .J' II.
I ( ( ( • I'
FILi l'fG C( t. R,..,' .. ~ .l..t·:
APPLICATION OF ENTERGY TEXAS, § PUBLIC UTILITY COMMISSION
INC. FOR APPROVAL OF §
COMPETITIVE GENERATION § OF TEXAS
SERVICE TARIFF (ISSUES SEVERED §
FROM DOCKET NO. 37744) §
ORDER
I. 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. 1 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 (AU)
forwarded the parties' stipulation and settlement agreement and the proposal for decision to the
Commission for consideration.
1
Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Corrected Application (Feb. 23, 201 0).
PUC Docket No. 389~1 Order Page 2 of27
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, 201 0 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-Martjointly 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 ETrs 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 Page3 of27
negotiating, the Entergy Operating Committee had agreed that CGS power from qualifying
facilities in the ETI service territory could provide firm generation.•
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."s
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, 201 2, the parties
submitted a third stipulation on customer eligibility stating that large industrial power service
(LIPS) customers would be the COS-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.
• TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 20 11 ).
5
CGS Stipulated Maners 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, 20 12).
PUC Docket No. 38951 Order Page4 ofl7
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 AU 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. 11 Cities, OPUC, ETI, TIEC, and Commission Staff filed briefs
on March 1, 2013 and reply briefs on March 20, 2013. At the April25, 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
1
TIEC's Motion to Adopt a Competitive Generation Services Program (Nov. 27, 2012).
9
Com.mission 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, 20 12).
11
Letter from TIEC (Feb. 8, 2013).
12
Letter from TIEC (May 8, 2013).
PUC Docket No. 38951 Order PageS of27
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 progr~ 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. 1s TIEC filed a response to the
opposition 16 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, 20 13).
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, 20 13).
PUC Docket No. 38951 Order Page 6 of27
III. Discussion
PURA 18 § 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 201 2 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
11
Public Utility Regulatory Act (PURA), TEx. UTIL CODE ANN.§§ 11.001-66.017 (Vernon 2007 & Supp.
201 1).
PUC Docket No. 38951 Order Page 7 of27
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 AU 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. 19
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.20 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. Uti/. Comm 'n,
354 S.W.3d 899 (Tex. App-Austin, 201 1 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.
21
Supplemental Direct Testimony of Jeffry Pollock, TlEC 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 PageS of27
distinguishes "costs" from ''revenues," the term "costs," as used by the legislature in
PURA § 39.905, is not intended to include lost revcnues.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 Comrnjssion 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, 201 0 related to the
26
CGS program. TIEC's version of the CGSC rider would permH ETI to be able to recover the
incremental, reasonable, and necessary CGS program implementation and administration costs
25
CenterPoint Energy Houston Electric, UC v. Pub. Uti/. Comm'n, 354 S.W.3d 899, 903-904
(Tex.Civ.App-Austin. 2011 )
26
ElTs redlined tariff version Exhibit DRR-SD-6 at I, Section 11 Purpose.
PUC Docket No. 38951 Order Page9ofl7
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 ofthe 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).30
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 Staffs Initial Brief at 6-7 (March 1, 2013 ).
29
ETI's redlined tariff version Exhibit DRR-SD-6 at I , Section Ill Rate.
3
°Commission Statrs Initial Brief at 7 (March I, 2013).
31
OPUC's Reply Brief at 12 (March 20, 2013).
32
TIEC's Initial Briefat24-25 (March 1, 2013).
PUC Docket No. 38951 Order Page 10 of27
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. Js
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 201 0-the costs are not costs to implement
the CGS program. 36
33
Ell'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
TlEC's Reply Brief at 17-18 (March 20, 20 13).
PUC Docket No. 38951 Order Pagellof27
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 ETrs most-
recent rate case, Docket No. 39896.37
The Commission agrees with TIEC on this issue and goes further to state that to pennit
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 11.8 .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 ETl should not be pennitted 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
Defe"ed Accounting Treatment, Docket No. 39896, Order (Sept. 14, 20 12).
PUC Docket No. 38951 Order Page 12 ofl7
V. Findings of Fact
ProcedMrlll 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 AU 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, 201 1.
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. Huntsv ille,
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 of27
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-Martjointly 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 ETl 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 of17
14. On January 20, 2012, the parties submitted agreed settlement tenns 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 confonn to the interim order rulings and
resolve other remaining contested issues.
PUC Docket No. 38951 Order Page 15 ofl7
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, TlEC, 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.l and 2 of that
settlement.
PUC Docket No. 38951 Order Page 16 of27
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.
Eligible 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 finn 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 of27
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.
Customen responsible for IHiving 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 S#pu/ated Matten and StiouiiJted 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 detennination of the Entergy Operating Committee, the
PUC Docket No. 38951 Order Page 18 of27
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 COS-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 ll 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 finn 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 finn 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, 201 3). Finding of Fact No. 53A.
PUC Docket No. 38951 Order Page 19 of27
reduction in energy purchased by the COS customer" referenced in section F. I 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 COS
customer will pay ETI a retail rate that includes all other charges the customer would pay
as a finn customer (for example Rider TIC, HRC, SRC, SRO, and IFF charges, if
applicable).
D. COS energy payment
I. COS customers will pay fuel costs based on avoided cost for
COS-supplied energy. Specifically, ETI will purchase hourly COS energy supplied by
the COS supplier from the COS contract capacity at the system hourly avoided-energy-
cost as determined under Rate Schedule LQF. ETI will charge the COS customer at the
same rate for that hourly COS-supplied energy not to exceed the energy requirement of
the COS customer.
E. COS customer fixed-cost contribution
1. The level of compensation to ETI from CGS customers for COS service
will include a monthly fixed charge called a fixed-cost contribution.
2. The fixed-cost contribution will be $1.10 per kW of COS load per month.
3. Revenues from the fixed-cost contribution will reduce any otherwise
unrecovered costs associated with the program.
F. COS customer unserved energy rate
1. If, in any hour in a delivery month, there is hourly COS unserved energy,
the CGS customer will take service from ETI under the CGS unserved energy rate.
Hourly COS 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 COS contract capacity by the COS supplier in
such hour, not to exceed the energy requirement of the CGS customer. The parties have
PUC Docket No. 38951 Order Page 20 of27
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 prn 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 of27
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 COS 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 detennining 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 2417
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 Page22 of27
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 ofl7
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.
Tire Mql7, 2013 Stipu/11tum1U1d 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 COS rider, the CGSC rider,
and appeal rights.
53. Agreements as to CGS Rider:
A. COS Credit: The parties agree to a COS 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 COS supplier and thereby avoid unserved energy charges to the extent the CGS
customer's CGS load is reduced.
C. Tennination Payment: The parties agree to remove ETI's proposed liquidated
damages provisions from the COS 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 0(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.. infonnation.
E. Force Majeure: The parties agree to remove TIEC's proposed force majeure
provision.
PUC Docket No. 38951 Order Page24of27
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 11.8 .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 11.8.2. now,
rather than deferring them as proposed in the May 17, 2013 settlement.
PUC Docket No. 38951 Order Page25of27
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-TOO 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 2.6 of 2.7
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.
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
1. The Commission adopts each of the three stipulation and settlement agreements filed on
January 20,20 12, April30, 2012, and April l8, 2012.
2. The Commission adopts each of the provisions of the stipulation and settlement
agreement filed on May 17, 2013, except for section 11.8 .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 Page27 of27
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.
I 0. 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 ~y of July 2013
PUBLIC UTILITY COMMISSION OF TEXAS
~vt-
DONNA L. NELSON, CHAIRMAN
q:'cadm\ordcrs\final\38000\3895 I fo.docx
APPENDIX B
INTERIM ORDER
PUC DOCKET NO. 38951
APPLICATION OF ENTERGY TEXAS, § PUBLIC UTILITY COMM16SSI^I
INC. FOR APPROVAL OF §
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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.
000000002
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).
000000003
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 &
This text is long and has been trimmed here. Open the source document for the complete record.