# Entergy Texas, Inc. v. Public Utility Commission of Texas, Office of Public Utility Counsel, and Texas Industrial Energy Consumers > Texas Court of Appeals, 3rd District (Austin) · January 14, 2015 URL: https://www.frixlaw.com/law-library/cases/4040853 ## Case - **Court:** Texas Court of Appeals, 3rd District (Austin) - **Decided:** January 14, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4040853 ## Opinion text 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 i [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4040853. Public record. Not legal advice.