Opinion

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

Court: Texas Court of Appeals, 3rd District (Austin)
Filed: Mar 31, 2015
Status: Published
Cited by: 0 cases
Authority: More cited than 3.1%

holding that Fact 215 (“Staff's recommended 15–basis–point upward a return on equity falling within the range presented by adjustment to recognize the Company's exceptional expert testimony meets the substantial evidence test

How later courts described this case

holding that Fact 215 (“Staff's recommended 15–basis–point upward a return on equity falling within the range presented by adjustment to recognize the Company's exceptional expert testimony meets the substantial evidence test

Written by the judges who cited it.

The opinion

ACCEPTED

03-14-00735-CV

4704785

THIRD COURT OF APPEALS

AUSTIN, TEXAS

3/31/2015 9:56:35 AM

JEFFREY D. KYLE

CLERK

NO. 03-14-00735-CV

IN THE FILED IN

3rd COURT OF APPEALS

TEXAS COURT OF APPEALS AUSTIN, TEXAS

THIRD COURT OF APPEALS DISTRICT3/31/2015 9:56:35 AM

AT AUSTIN JEFFREY D. KYLE

Clerk

ENTERGY TEXAS, INC., ET AL.,

APPELLANTS,

PUBLIC UTILITY COMMISSION OF TEXAS, ET AL.,

APPELLEES

ON APPEAL FROM THE FINAL JUDGMENT

IN CAUSE NO. D-1-GN-13-000121 (CONSOLIDATED),

353RD JUDICIAL DISTRICT COURT,

TRAVIS COUNTY, TEXAS,

HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

APPELLANT’S BRIEF AND APPENDIX OF

THE OFFICE OF PUBLIC UTILITY COUNSEL

OFFICE OF PUBLIC UTILITY COUNSEL

Tonya Baer

Public Counsel

State Bar No. 24026771

Sara J. Ferris

Senior Assistant Public Counsel

State Bar No. 50511915

P.O. Box 12397

Austin, Texas 78711-2397

512/936-7500 (Telephone)

512/936-7525 (Facsimile)

Sara.Ferris@opuc.texas.gov

ORAL ARGUMENT REQUESTED

March 31, 2015

IDENTITY OF PARTIES AND COUNSEL

PARTIES ATTORNEYS

OFFICE OF PUBLIC Sara J. Ferris

UTILITY COUNSEL Senior Assistant Public Counsel

Office of Public Utility Counsel

P.O. Box 12397

Austin, Texas 78711-2397

sara.ferris@opuc.texas.gov

ENTERGY TEXAS, INC. Marnie A. McCormick

John F. Williams

Duggins, Wren, Mann & Romero, LLP

P.O. Box 1149

Austin, Texas 78767-1149

mmcormick@dwmrlaw.com

jwilliams@dwmrlaw.com

CITIES OF ANAHUAC, Daniel J. Lawton

BEAUMONT, ET. AL. Lawton Law Firm PC

12600 Hill Country Boulevard, Suite R275

Austin, Texas 78738

dlawton@ecpi.com

STATE AGENCIES OF Katherine H. Farrell

TEXAS Assistant Attorney General

Administrative Law Division – Energy

Rates Section

Office of the Attorney General

P. O. Box 12548

Austin, Texas 78711-2548

katherine.farrell@texasattorneygeneral.gov

TEXAS INDUSTRIAL Rex VanMiddlesworth

ENERGY CONSUMERS Benjamin Hallmark

Thompson & Knight, LLP

98 San Jacinto Blvd, Suite 1900

Austin, Texas 78701

rex.vanm@tklaw.com

benjamin.hallmark@tklaw.com

PUBLIC UTILITY Elizabeth R. B. Sterling

COMMISSION OF TEXAS Assistant Attorney General

Environmental Protection Division

Office of the Attorney General

P. O. Box 12548, Capitol Station

Austin, Texas 78711-2548

elizabeth.sterling@texasattorneygeneral.gov

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL........................................................................ i

TABLE OF CONTENTS......................................................................................................... iii

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

GLOSSARY OF ABBREVIATIONS & TECHNICAL TERMS .................................... ix

STATEMENT OF THE CASE ............................................................................................... 1

STATEMENT REGARDING ORAL ARGUMENT........................................................ 2

ISSUE PRESENTED ............................................................................................................... 2

Did the Commission err by allowing the inclusion of $13,014,379 in

1997 ice storm restoration costs that were directly related to the

Company’s imprudence and reasonably anticipated? Did the

Commission act arbitrarily in allowing the inclusion of these costs

in the Company’s storm reserve balance, and violate PURA and

the Commission’s own rules? ................................................................................... 2

STATEMENT OF FACTS ..................................................................................................... 3

BACKGROUND ........................................................................................................................... 3

THE RATE CASE, DOCKET NO. 39896 ................................................................................... 7

SUMMARY OF THE ARGUMENT ................................................................................... 8

ARGUMENT ............................................................................................................................ 13

A. Standard of Review ........................................................................................................ 13

B. The Commission Erred as a Matter of Law in Allowing the Inclusion

of $13,014,379 in 1997 Ice Storm Restoration Costs That Were

Directly Related to the Company’s Imprudence and Which Were

Reasonably Anticipated. The Commission Acted Arbitrarily in

Allowing the Inclusion of These Costs in the Company’s Storm

Reserve Accrual and Storm Reserve Balance, and Violated PURA

and the Commission’s Own Rules. .............................................................................. 15

iii

1. The Commission erred in approving the recovery of imprudent costs. .................... 16

2. The Commission erred by failing to hold ETI to its burden of showing that the

expenses it sought to include in the storm reserve were not reasonably

anticipated. .............................................................................................................. 20

3. Prior remedies assessed for poor quality of service, including imprudent

vegetation management do not address the subsequent imprudence of excessive

ice damage expenses. ............................................................................................... 22

4. The statutory burden of proof rests upon ETI to affirmatively prove each

element of its case. The Commission erred in excusing ETI from its burden of

proof merely because years had passed between the incurrence of the 1997 ice

storm restoration costs and Docket No. 39896. . .................................................. 25

a. ETI has the burden of persuasion on the entire case failed to prove each

required element to meet this burden. ............................................................ 27

b. The Commission erred in finding that ETI had established a prima facie

case sufficient to shift the burden of proof. .................................................... 28

c. The overall burden of proof remained on ETI to affirmatively prove each

element of its case by a preponderance of the evidence. The Commission

erred in failing to hold ETI to this burden. ................................................... 29

d. ETI’s statutory responsibilities do not expire or shift due to the passage of

time. .................................................................................................................. 31

e. The PFD adopted by the Commission improperly shifted the burden to

OPUC and intervening parties. ..................................................................... 32

f. Under Texas and Commission standards, ETI failed to meet its burden

of proof required for the inclusion of the $13,014,379 in 1997 ice storm

costs. ................................................................................................................. 36

5. The Commission’s decision to approve the inclusion of $13,014,379 in

1997 ice storm costs is arbitrary and capricious and constitutes an abuse

of discretion. ............................................................................................................. 37

PRAYER .................................................................................................................................... 40

CERTIFICATE OF COMPLIANCE .................................................................................. 41

CERTIFICATE OF SERVICE ............................................................................................. 41

APPENDIX

A: District Court Judgement, Cause No. D-1-GN-13-000121

(Consolidated)

B: PUC Docket No. 39896, Order on Rehearing

C: PURA, Chapter 36, Subchapters A and B, and Chapter 37,

Subchapter D

D: Entergy Gulf States, Inc. v. Public Utility Commission,

112 S.W.3d 208 (Tex. App. – Austin 2003, pet. denied)

E: Texas Utilities Electric Company v. Public Utility Commission,

881 S.W.2d 387 (Tex. App. – Austin 1994) aff’d in part, rev’d in

part on other grounds, 935 S.W.2d 109 (Tex. 1997)

F: PUC Docket No. 18249, Order on Rehearing

G: Excerpt from: PUC Docket No. 16705, Proposal for

Decision

H: Excerpts from: PUC Docket No. 16705, Second Order on

Rehearing

I: 16 Tex. Admin. Code § 25.231

INDEX OF AUTHORITIES

CASES

Apresa v. Montfort Insurance Co.,

932 S.W.2d 246 (Tex. App.—El Paso 1996, no writ) ......................................... 34

Boaz v. Harris,

30 S.W.2d 810 (Tex. Civ. App.—Fort Worth 1930, no writ) .....................27, 28

Cameron Compress Co. v. Kubecka,

283 S.W. 285 (Tex. Civ. App.—Austin 1926, writ ref’d) ................................... 27

City of El Paso v. Public Util. Commission,

883 S.W.2d 179 (Tex. 1994) ................................................................................. 14, 38

Clark v. Hiles,

67 Tex. 141, 2 S.W. 356 (1886) ................................................................................... 33

Coalition for Long Point Preservation v. Texas Commission on Environmental Quality,

106 S.W.3d 363 (Tex. App – Austin 2003, pet. denied) .................................... 14

Dodson v. Watson,

110 Tex. 355, 220 S.W. 771 (1920)............................................................................. 28

Entergy Gulf States, Inc. v. Public Utility Commission,

112 S.W.3d 208 (Tex. App.—Austin 2003, pet. denied) ................. 16, 23, 27, 29

Fritsche v. Niechoy,

197 S.W. 1017 (Tex. App. – Galveston 1917, writ dism’d w.o.j.)........................ 28

Hernandez v. State,

161 S.W.3d 491 (Tex. Crim. App. 2005) ................................................................. 28

In re E.I. DuPont de Nemours & Co.,

136 S.W.3d 218 (Tex. 2004) (orig. proceeding) .................................................... 28

Koppe v. Koppe,

57 Tex. Civ. App. 204, 122 S.W. 68 (1909)............................................................. 33

Lykes Bros.-Ripley S. S. Co. v. Pluto,

146 S.W.2d 414 (Tex. Civ. App.—Galveston 1940, writ dism’d

judgm’t cor.) .................................................................................................................. 29

Public Utility Commission v. Gulf States Utilities,

809 S.W.2d 201 (Tex. 1991) ................................................................................ 12, 39

Public Utility Commission v. Houston Lighting & Power Co.,

778 S.W.2d 195 (Tex. App.—Austin 1989, no writ) ..................................... 27, 29

Reliant Energy, Inc. v. Public Util. Commission,

62 S.W.3d 833 (Tex. App. – Austin 2001, no pet.)............................................... 38

Texas Parks & Wildlife Department v. Dearing,

240 S.W.3d 330 (Tex. App.—Austin 2007, pet. denied) ................................... 28

Texas Utilities Electric Company v. Public Utility Commission,

881 S.W.2d 387 (Tex. App.—Austin 1994) aff’d in part, rev’d in part

on other grounds, 935 S.W.2d 109 (Tex. 1997) .................................................... 16, 18

Vance v. My Apartment Steak House,

677 S.W.2d 480 (Tex. 1984) ..................................................................................... 37

Wyeth v. Hall,

118 S.W.3d 487 (Tex. App. – Beaumont 2003, no pet.)....................................... 28

TEXAS STATUTES

TEX. GOV’T CODE § 2001.174 .................................................................................. 13-14, 15, 27

Public Utility Regulatory Act (PURA), TEX. UTIL. CODE §§ 11.001-66.017 .................. 2

PURA § 15.001 ........................................................................................................................... 13

PURA § 31.002(19) ..................................................................................................................... 3

PURA § 36.003(a) .................................................................................................................... 23

PURA § 36.006 ............................................................................................................ 23, 25, 27

vii

PURA § 36.051.................................................................................................................... 23, 25

PURA § 36.062 ....................................................................................................................23, 39

PURA § 36.064................................................................................................................... 20, 25

PURA § 36.064(a) .............................................................................................................. 15, 22

PURA § 36.101 – 36.111 ............................................................................................................... 3

PURA § 37.151.............................................................................................................................. 5

PURA § 38.001 ............................................................................................................................ 5

PURA § 39.452(e) ...................................................................................................................... 3

PUBLIC UTILITY COMMISSION OF TEXAS RULES

16 Tex. Admin. Code § 25.231 .......................................................................................... 12, 20

16 Tex. Admin. Code § 25.231(b) ........................................................................15, 16, 20, 25

16 Tex. Admin. Code § 25.231(b)(1)(G)................................... 12, 15-16, 20-21, 22, 25, 39

16 Tex. Admin. Code § 25.231(b)(2)(J)......................................................................... 12, 39

ADMINISTRATIVE PROCEEDINGS

Application of Entergy Texas for Approval of its Transition to Competition Plan and the

Tariffs Implementing the Plan, and for the Authority to Reconcile Fuel Costs,

Docket No. 16705, Proposal For Decision (Mar. 25, 1998). ......... 30, 34-35, 36

Application of Entergy Texas for Approval of its Transition to Competition Plan and the

Tariffs Implementing the Plan, and for the Authority to Reconcile Fuel Costs,

Docket No. 16705, Second Order on Rehearing (Oct. 14, 1998). ........... 4, 9, 26

Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket No. 16705),

Docket No. 18249, Order on Rehearing

(Apr. 22, 1998). .......................................... 3, 4, 5, 6, 7, 8, 9, 12-13, 17, 18, 21, 22, 39

LEARNED TREATISE

35 Tex Jur 3d, Evidence § 103 (Gene A. Noland, ed., 1984) .............................................. 27

viii

GLOSSARY OF ABBREVIATIONS & TECHNICAL TERMS

AR – Administrative Record

Cities – Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Dayton, Groves,

Houston, Huntsville, Montgomery, Navasota, Nederland, Oak Ridge North,

Orange, Pine Forest, Rose City, Pinehurst, Port Arthur, Port Neches, Shenandoah,

Silsbee, Sour Lake, Splendora, Vidor, and West Orange Texas, Plaintiffs in this

appeal

Commission or PUC– Public Utility Commission of Texas

Company – Entergy Texas, Inc.

Docket No. 16705 – The Company’s last fully litigated rate case

Docket No. 18249 – The Company’s Quality of Service Issues docket

Docket No. 39896 – The PUC docket underlying this appeal

EGS or EGSI – Entergy Gulf States, Inc., predecessor to ETI

Entergy – Entergy Corporation, ETI’s parent company

ETI – Entergy Texas, Inc.

Order – The Commission’s “Order on Rehearing” signed on November 1, 2012, the

final and appealable order of the Commission in Docket No. 39896, from which

OPUC appeals in this suit for judicial review

OPUC – Office of Public Utility Counsel

PFD – Proposal for Decision

PURA – Public Utility Regulatory Act, Tex. Util. Code §§ 11.001-66.017

ROE – Return on Equity

ROW – Right of Way

SAIDI – System Average Interruption Duration Index

SAIFI – System Average Interruption Frequency Index

Self-Insurance Storm Reserve – Account designed to provide for storm-related

property losses exceeding $50,000 that are not covered by commercial insurance

or eligible for securitization.

SOAH – State Office of Administrative Hearings

Test Year – July 1, 2010, through June 30, 2011

BRIEF OF APPELLANT,

OFFICE OF PUBLIC UTILITY COUNSEL

TO THE HONORABLE COURT OF APPEALS:

The Office of Public Utility Counsel (OPUC), Appellant, submits this brief

in support of its appeal from a portion of the final judgment of the District Court

on judicial review of the final Order on Rehearing (Order) of the Public Utility

Commission of Texas (Commission or PUC) in Docket No. 39896. 1 Appellant

respectfully presents the following:

STATEMENT OF THE CASE

The case is an appeal from the final judgment of the 353rd Judicial District

Court of Travis County, Texas, the Honorable John K. Dietz, Judge Presiding, in

Entergy Texas, Inc., et al. v. Public Utility Commission of Texas, Cause No. D-1-GN-13-

000121 (Consolidated). The case involves the judicial review of the final Order of

the Commission in Docket No. 39896, styled Application of Entergy Texas, Inc. for

Authority to Change Rates, Reconcile Fuel Costs, and Obtain Deferred Accounting Treatment, a

contested rate case. The final judgment of the District Court affirmed in part, and

reversed and remanded in part the final order of the Commission. OPUC appeals

the part of the District Court judgment affirming the Commission’s decision to

The final judgment of the District Court and the Commission’s Order on Rehearing are

submitted as Appendix A and Appendix B.

include in the Company’s storm reserve $13,014,379 in 1997 ice storm restoration

costs that were directly related to the Company’s imprudence.

STATEMENT REGARDING ORAL ARGUMENT

The Court should permit oral argument. Like most cases involving public

utility regulation, this case is complex; oral argument will assist the Court in

clarifying the law and facts of the case.

ISSUE PRESENTED

Did the Commission err by allowing the inclusion of $13,014,379 in 1997 ice storm

restoration costs that were directly related to the Company’s imprudence and

reasonably anticipated? Did the Commission act arbitrarily in allowing the

inclusion of these costs in the Company’s storm reserve balance, and violate PURA

and the Commission’s own rules? 2

Public Utility Regulatory Act, PURA, Tex. Util. Code §§ 11.001-66.017.

STATEMENT OF FACTS

BACKGROUND

Entergy Texas, Inc. (ETI or the Company), an investor-owned electric

utility with a retail service area in southeastern Texas, filed an application with

the Commission on November 28, 2011 for authority to increase its rates. ETI’s

application was designated as Commission Docket No. 39896. See generally, PURA

§§ 31.002(19), 36.101–36.111; Administrative Record (AR), Binder 7, Item 244, Order

on Rehearing. 3 Previously, the Company had been known as Entergy Gulf States,

Inc. (EGS) but on December 31, 2007, EGS jurisdictionally separated pursuant to

PURA § 39.452(e).4 ETI succeeded to EGS’s certificate of convenience and

necessity (CCN) for its Texas retail jurisdiction. 5 Prior to 1993 and Entergy

Corporation’s merger with Gulf States Utilities, Inc., the company serving this

territory and holding the CCN was Gulf States Utilities. 6

On November 27, 1996, EGS filed its transition to competition plan and rate

case in PUC Docket No. 16705. In this docket, the Commission issued two

preliminary orders related to EGS’s service quality. The second or supplemental

In this brief, citations to the Administrative Record will be in the following format: AR, Binder

X, Item X, Item name.

Docket No. 34800, Application of Entergy Gulf States, Inc. for Authority to Change Rates and to Reconcile

Fuel Costs, Order at 1-2 n.1 (Mar. 16, 2009).

Id.

See Docket No. 18249, Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket No. 16705),

Order on Rehearing at 1 (Apr. 22, 1998). This Order is submitted as Appendix F.

preliminary order addressed whether EGS’s management policy devoted adequate

resources to ensure adequate and reliable service to its ratepayers, whether there

were patterns of variable service quality in the service territory, what were the

cause and resolution of the variations, and what procedures should the

Commission implement to monitor EGS’s service quality and to respond when its

service quality falls below benchmark levels. 7 On November 4, 1997, the

Commission severed the quality of service issues from Docket No. 16705 into

Docket No. 18249.8 One of the issues which remained in Docket No. 16705 was the

amount of the Company’s storm reserve funding includable in rates. The

Commission considered the Company’s proposal to include a post-test-year

adjustment for the January 1997 ice storm expenses. In Finding of Fact Number

147, the Commission found:

Any reduction to the reserve fund occurring after the test year should

not be considered in this case because EGS did not prove a

reasonable post-test year level for its existing reserve fund or that the

amount expended in 1997 to reduce the fund was prudent or

appropriate. Reserve fund levels following the test year in this case

can be addressed in EGS’ November 1998 rate filing when all parties

will have the opportunity to evaluate the reasonableness of changes

to the insurance reserve fund. (emphasis added) 9

Id. at 2.

Id. at 3.

Application of Entergy Texas for Approval of its Transition to Competition Plan and the Tariffs Implementing

the Plan, and for the Authority to Reconcile Fuel Costs, Docket No. 16705, Second Order on Rehearing

(Oct. 14, 1998). Excerpts from this Order are submitted with this brief as Appendix H.

In the severed Service Quality Issues proceeding (Docket No. 18249), after a

hearing on the merits presided over by two Commissioners and briefing by the

parties, the Commission issued its Order on Rehearing on April 22, 1998. 10 The

Order on Rehearing discussed the importance of reliability and the vital role

electricity plays in our lives. Under Texas law, an electric utility is required by

PURA § 37.151 to provide “continuous and adequate service” in its service area, and

is further obligated by PURA § 38.001 to furnish service, instrumentalities and

facilities that are safe, adequate, efficient and reasonable. In Docket No. 18249, the

Commission concluded that the quality of the Company’s electric service to its

customers in Texas had been less than adequate, specifically since Entergy

Corporation acquired Gulf States Utilities, Inc., in 1993. 11 The Commission also

discussed numerous deficiencies in the Company’s service quality, including

inadequate distribution maintenance policies, inadequate vegetation management

practices, distribution poles in poor condition or in need of comprehensive

vegetation clearing, and inadequate pole inspection and repair work cycles. 12 The

culmination of these inadequacies led the Commission to make findings regarding

Docket No. 18249, Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket No. 16705), Order

on Rehearing at 4 (Apr. 22, 1998).

Id. at 1.

Id. at 8-19.

the state of the Company’s distribution maintenance, including its vegetation

management practices. 13

The Commission also considered the damage caused in the EGS (now ETI)

service territory due to a severe ice storm which occurred in January 1997. After

finding that EGS should have been better prepared to deal with the January 1997

ice storm, the Commission found that up to 120,000 of the Company’s

approximately 318,000 customers were without power and that the restoration of

service took seven days to complete. 14 The Commission then found in Finding of

Fact 102 that EGS’s restoration efforts would have been more effective if the

Company had been more diligent in its preventative vegetation management

practices and if it had a better communication and management program in place

to deal with emergency situations. The Commission also stated the following:

A major cause of the outages during the storm were broken or bowed

ice-laden tree limbs overhanging the wires. Tree limbs in ROW

overhanging distribution lines pose a threat to system reliability, and

are largely within EGS’ control. The Company’s failure to clear the

limbs before the storm was a major factor in the number and duration

of outages experienced by customers. While Company’s initial efforts

to mobilize and deploy additional non-EGS personnel were slow and

cause concern, vegetation management failures greatly aggravated the

situation. 15

Id. at 42-49, Findings of Fact Nos. 45, 46, 67, 79-83, 91-92, 94-96, 97-99, 102, 123-124, and 127;

See Id. at 50, Conclusions of Law Nos. 5-7.

Id. at 46, Findings of Fact Nos. 91 and 92.

Id. at 18-19.

The Order on Rehearing in Docket No. 18249 also contained the following

findings of fact:

82. Neglect and backlog of vegetation management projects has

posed unacceptable risks of increasing and recurrent service

outages, especially during major ice storms.

83. The Commission finds that the Company’s vegetation

management efforts have not been adequate, have led to a

backlog in vegetation clearing, and have resulted in an unacceptably

high risk to the system. (emphasis added)

97. The impact of the January 1997 ice storm was greatly

exacerbated by the Company’s failure to maintain its ROW

clear of excessive vegetation.

THE RATE CASE, DOCKET NO. 39896

In the underlying rate case now on appeal, ETI included in the storm reserve

$13,014,379 in 1997 ice storm expenses but did not provide an affirmative case

supporting the prudence of the 1997 ice storm costs. Instead, the Company’s

testimony focused on future quality of service practices and anticipated future

storm costs. The Commission’s Order failed to make required findings as to the

prudence of these costs or whether the costs ETI sought to include “were not

reasonably anticipated” as required by PURA and the Commission’s rules. OPUC

appeals the Commission’s consequent inclusion of the 1997 ice storm costs as legal

error.

SUMMARY OF THE ARGUMENT

The Commission’s Order contains legal error that prejudices the rights of

residential and small commercial customers. The Commission’s inclusion of the

1997 ice storm restoration expenses in the Company’s self-insurance storm reserve

violates PURA and the Commission’s own rules, was arbitrary, and capricious,

and made through unlawful procedure. For these reasons, the District Court’s

judgment upholding the Commission’s Order on this issue should be reversed and

the case remanded to the Commission for further proceedings based upon the

existing evidentiary record and consistent with this Court’s decision.

It is a violation of PURA to include imprudent costs in rates. When there is

imprudence within a utility’s request for recovery, any imprudent costs must be

removed either by separating them out from the prudent costs, or disallowing the

entire amount of the intermingled requested costs. Despite the Commission’s

finding in Docket No. 18249 that the 1997 ice storm damage was greatly

exacerbated by the Company’s imprudence, particularly with regard to its

vegetation management, ETI made no showing or even an attempt at showing that

the costs of cleaning up the damage caused by its imprudent actions had been

excluded from its storm balance request. Nor did the Commission hold ETI to this

required showing.

ETI also bore the burden of showing that any cost it sought to include in the

storm reserve was “not reasonably anticipated.” Both PURA and the Commission’s

rules require that costs included in the storm reserve be “not reasonably

anticipated.” Vegetation management is required in order to prevent foreseeable

damage due to tree limbs or other vegetation coming into contact with conductors

or power lines. The damage resulting from imprudent vegetation management is

by its very nature, “reasonably anticipated.” Thus, the inclusion of the $13,014,379

in 1997 ice storm restoration costs was improper and in violation of the applicable

law.

The Commission committed legal error in failing to hold ETI to its burden of

proving that the $13,014,379 in costs the Company was seeking to include in the

storm reserve, the cost of service and ultimately reflected in rates, were not

reasonably anticipated. The Commission, through the adopted PFD, erroneously

relied on a 60 basis point reduction to the return on equity (ROE) from Docket

No. 18249 that was imposed to compensate ratepayers for poor quality of service.

The ROE reduction did not address or remedy the imprudent restoration costs

that were caused by the original imprudent acts. In fact, the Commission’s Order

in Docket No. 16705, which was issued after the Docket No. 18249 Order,

expressly contemplated that the reasonableness of including the 1997 ice storm

costs in the Company’s storm reserve would be addressed in the next rate case

because the Company had not proven the prudence of those costs in its request to

include them in that docket as a post-test year adjustment. The underlying docket

to this appeal, Docket No. 39896 is the first fully-litigated rate case for the

Company since Docket No. 16705. The Commission erred in failing to give effect

to this prior order and further erred by failing to require ETI to address the

imprudence findings from Docket No. 18249 before having 1997 ice storm costs

included in the storm reserve.

The Commission violated PURA by approving the recovery of the entire

$13,014,379 in ice storm restoration expenses without requiring ETI to show that

no costs caused by imprudent vegetation management were included in the

Company’s request. Under PURA, the burden of proof rests upon ETI to

affirmatively prove each element of its case. The Commission erred in lifting that

burden from ETI because fifteen years had passed between the incurrence of the

1997 ice storm restoration costs and Docket No. 39896. The Company’s burden to

prove that the requested costs were reasonable, prudent, and not reasonably

anticipated under PURA does not expire.

The burden of proof in an electric rate proceeding is on the utility and it is

ETI’s burden to prove that each dollar included in rates was reasonable and

prudent. ETI failed to provide evidence that the $13,014,379 in 1997 ice storm costs

were “not reasonably anticipated.” With regard to prudence, ETI only provided

evidence as to the reasonableness of how the clean-up was carried out; ETI wholly

failed to address the prudence of these costs with regard to what portion was or

was not related to the exacerbated damage caused by the imprudent vegetation

management, or what amount would have been incurred even if no imprudent

conditions had existed at the time of the storm. Further, ETI made no attempt to

separate out imprudent costs from prudent costs, and the Commission erred in

adopting the portion of the PFD that excused this lack of evidence due to the

passage of time.

Further, the Commission erroneously shifted the burden of proof to OPUC and

intervening parties and compounded this error by applying an improper standard

of proof. Requiring OPUC and intervening parties to challenge specific expense

items is contrary to what is required when rebutting a prima facie case under Texas

law and Commission precedent. Under those standards, ETI failed to meet its

burden of proof for the inclusion of $13,014,379 in the storm reserve, the cost of

service, and ultimately reflected in rates. ETI failed to prove the existence of each

element of its claim and consequently, the Commission erred in approving the

inclusion of the $13,014,379 in 1997 ice storm restoration costs in the storm reserve.

Moreover, the Commission’s decision approving the $13,014,379 in 1997 ice

storm restoration costs was arbitrary and capricious. The Commission failed to

consider factors the legislature directs it to consider, including whether the costs

were “not reasonably anticipated” and prudently incurred. Tellingly, there were

no findings of fact or conclusions of law with regard to whether the costs were not

reasonably anticipated. The Commission also considered irrelevant factors,

including the passage of time between the rate case and the incurrence of the

storm expenses, and the 60 basis-point reduction to the Company’s ROE imposed

for poor quality of service.

Additionally, the Commission acted arbitrarily and capriciously by failing to

“follow the clear, unambiguous language of its own regulation.” 16 The Commission

failed to follow the clear, unambiguous language of Rule 25.231, which clearly

states that “any expenditure found by the Commission to be unreasonable,

unnecessary or not in the public interest” “shall never be a component of the cost

of service.” 16 Tex. Admin. Code § 25.231(b)(2)(J). The Commission also acted

arbitrarily and capriciously by failing to follow its own rule which only allows

storm costs to be included in the storm reserve to the extent they are reasonable

and necessary, and are not reasonably anticipated. 16 Tex. Admin. Code

§ 25.231(b)(1)(G). In allowing the 1997 ice storm restoration costs to be included

without addressing what portion was due to damage related to poor vegetation

management, the Commission disregarded its prior finding from the final order of

the Commission in Docket No. 18249 that storm damage was “greatly exacerbated

Public Util. Comm’n v. Gulf States Utilities, 809 S.W.2d 201, 207 (Tex. 1991).

by the state of the Company’s vegetation management.”

As discussed in the sections below, the Commission committed reversible error

in approving the inclusion of $13,014,379 in the storm reserve balance ultimately

reflected in rates. The Commission’s decision violates PURA and the

Commission’s own rules, is arbitrary, and capricious, affected by other error of law

and made through unlawful procedure. For these reasons, the District Court’s

judgment upholding the Commission’s Order on this issue should be reversed and

the case and remanded to the Commission for further proceedings based upon the

existing evidentiary record and consistent with this Court’s decision.

ARGUMENT

A. Standard of Review

Any party to a proceeding before the Commission is entitled to judicial

review under the substantial evidence rule. PURA § 15.001. The statutory

standard of review is as follows:

If the law authorizes review of a decision in a contested case under

the substantial evidence rule or if the law does not define the scope of

judicial review, a court may not substitute its judgment for the

judgment of the state agency on the weight of the evidence on

questions committed to agency discretion but:

(1) may affirm the agency decision in whole or in part; and

(2) shall reverse or remand the case for further proceedings if

substantial rights of the appellant have been prejudiced

because the administrative findings, inferences, conclusions, or

decisions are:

(A) in violation of a constitutional or statutory provision;

(B) in excess of the agency’s statutory authority;

(D) affected by other error of law;

(E) not reasonably supported by substantial evidence

considering the reliable and probative evidence in the

record as a whole; or

(F) arbitrary or capricious or characterized by abuse of

discretion or clearly unwarranted exercise of discretion.

Tex. Gov’t Code § 2001.174.

In conducting a substantial evidence review, the court must determine

whether the evidence as a whole is such that reasonable minds could have reached

the same conclusion as the agency in the disputed action. 17 The court may not

substitute its judgment for that of the agency and may consider only the record on

which the agency based its decision. 18 The issue for the reviewing court is not

whether the agency reached the correct conclusion, but rather, whether there is

some reasonable basis in the record for its action. 19

The Commission’s Order prejudices the substantial rights of residential and

small commercial customers by the excessive rates established in the Order, and

because the Order’s findings, inferences, conclusions and decisions with regard to

Coalition for Long Point Preservation v. Texas Commission on Environmental Quality, 106 S.W.3d 363,

366 (Tex. App – Austin 2003, pet. denied).

Id.

City of El Paso v. Public Util. Comm’n, 883 S.W.2d 179, 185 (Tex. 1994).

the 1997 ice storm restoration expenses included in the Company’s self-insurance

storm reserve and reflected in the Company’s cost of service were in violation of

PURA, affected by other error of law, and were arbitrary, and capricious. Under

the standard articulated in Tex. Gov’t Code § 2001.174, the Commission’s Order

should be reversed and the case remanded for determination based upon the

existing evidentiary record to determine rates consistent with the Court’s

decision.

B. The Commission Erred as a Matter of Law in Allowing the Inclusion of

$13,014,379 in 1997 Ice Storm Restoration Costs That Were Directly

Related to the Company’s Imprudence and Which Were Reasonably

Anticipated. The Commission Acted Arbitrarily in Allowing the Inclusion

of These Costs in the Company’s Storm Reserve Accrual and Storm

Reserve Balance, and Violated PURA and the Commission’s Own Rules.

The PFD adopted by the Commission erroneously found the entirety of

ETI’s $13,014,379 in storm expenses related to the 1997 ice storm to be reasonable

and necessary and properly included in the self-insurance storm reserve.20 By

adopting the PFD on these points, the Commission erred as a matter of law by

violating PURA’s and PUC Substantive Rule 25.231(b)’s requirement that

expenses included in rates be reasonable and necessary, and further erred by

violating the requirement of both PURA § 36.064(a) and PUC Substantive Rule

25.231(b)(1)(G) that only those property and liability losses which “could not have

AR, Binder 5, Item No. 185, PFD at 56 and 57.

been reasonably anticipated” may be included in a self-insurance plan.21 The

Commission’s failure to either disallow the entire $13,014,379 in ice storm costs or

determine what portion of those costs was incurred imprudently as a result of the

Company’s poor vegetation management results in the inclusion of imprudent

costs in the Company’s rates.

1. The Commission erred in approving the recovery of imprudent costs.

Imprudently incurred costs may not be recovered in the utility’s base rates. 22

The utility bears the burden of proving the prudence of each cost for which

recovery is sought, and if some but not all of the requested costs are imprudent,

the imprudent costs must be removed either by separating them out or

disallowing the intermingled requested costs. In Texas Utilities Electric Company v.

Public Utility Commission, the Texas Third Court of Appeals found that, where a

portion of the utility’s $537.90 million in costs for the Comanche Peak nuclear

project were imprudently incurred, the Commission acted properly in disallowing

some but not all of the costs due to imprudence. 23 In the originating docket, the

16 Tex. Admin. Code § 25.231(b). The PUC’s Cost of Service Rule, 16 Tex. Admin.

Code § 25.231, is submitted as Appendix I.

See Entergy Gulf States, Inc. v. Public Utility Commission, 112 S.W.3d 208, 214 (Tex. App.—Austin

2003, pet. denied) (“[I]n order to raise the price of its product, the utility must participate in a

rate case and bear the burden of proving that each dollar of cost incurred was reasonably and

prudently invested.”) (Appendix D).

Texas Utilities Electric Company v. Public Utility Commission, 881 S.W.2d 387, 405-406 (Tex. App.—

utility had argued that all of its Comanche Peak costs were prudently incurred,

while intervening parties had argued that the costs should be disallowed

entirely. 24 The Commission had then brought in a third party to evaluate the

prudence of the costs. Based upon the third party recommendation, the

Commission disallowed part of the costs because they were imprudent but

allowed other costs. 25 The Austin court, reviewing the Commission’s decision to

reject an all-or-nothing approach and disallow a portion of the expenses, stated

that “it is the Commission that is charged with sifting through the evidence and

deciding whether imprudent conduct caused certain expenditures.” 26

The instant case is distinguishable from Texas Utilities Electric Company in that

the decision as to whether imprudent conduct caused certain expenditures has

already been made. “The impact of the January 1997 ice storm was greatly

exacerbated by the Company’s failure to maintain its ROW clear of excessive

vegetation.” 27 Finding of Fact 97 from PUC Docket No. 18249 provided the

Commission with the starting point in its decision-making process, and it was the

Commission’s job at that point to either deny ETI’s requested 1997 storm expenses

Austin 1994) aff’d in part, rev’d in part on other grounds, 935 S.W.2d 109 (Tex. 1997). Texas Utilities

Electric Company is submitted as Appendix E.

Id. at 404.

Id. at 403-405.

Id. at 404.

Appendix F, Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket No. 16705), Docket No.

18249 at 47, FoF No. 97 (Apr. 22, 1998).

in their entirety or determine what portion was imprudently incurred and deny

the portion of expenses that were caused by ETI’s imprudence in managing its

system. The Commission erroneously failed to take either approach, and the

imprudent costs became part of the approved rates through their inclusion in the

storm reserve. Additionally, the Commission’s discussion of the 1997 ice storm in

its Order on Rehearing in Docket No. 18249, the Company’s Service Quality Issues

docket, included the following statement:

The January 1997 ice storm was certainly a severe storm that would

have adversely affected even the best-maintained distribution system.

EGS’ distribution system, however, is not the best-maintained. A

major cause of the outages during the storm were broken or

bowed ice-laden tree limbs overhanging the wires. Tree limbs in

ROW overhanging distribution lines pose a threat to system

reliability, and are largely within EGS’ control. The Company’s

failure to clear the limbs before the storm was a major factor in

the number and duration of outages experienced by customers. 28

Unlike in the Texas Utilities Electric Company case, in the absence of evidence

from ETI in the underlying docket (Docket No. 39896) on what portion of the

costs were attributable to the Company’s imprudence, the Commission did not

have a third party recommend what portion was due to imprudence. Nor did the

Commission consider alternative recommendations for partial disallowance in the

evidentiary record. OPUC provided evidence the Commission could have relied

Id. at 18 (Emphasis added).

upon to disallow a portion of the expenses if the Commission wished to avoid

making a total disallowance. In addition to recommending total disallowance of

the 1997 ice storm expenses, OPUC offered a reasonable, alternative

recommendation which would have disallowed a portion of the 1997 ice storm

expenses to account for the Company’s imprudence that heavily contributed to

the expenses, but the Commission did not adopt either of OPUC’s

recommendations. 29

Despite the Commission’s finding in Docket No. 18249 that the ice storm

damage was greatly exacerbated by the Company’s failings, ETI made no showing

or even an attempt at showing that the fruit of their imprudent actions has been

excluded from their storm balance request. As OPUC Witness Nathan Benedict

testified, “the Company has provided no analysis regarding the incremental

damage caused by its imprudent vegetation management practices.” 30 Despite this,

the Commission failed to hold ETI to its burden of proof and ignored the fact that

imprudence had already been established as the cause of at least some of the storm

damage that is the subject of the restoration costs in question. The Commission

committed reversible error in failing completely to take into account the expenses

AR Binder 39, OPUC Exhibit No. 6 (Benedict Direct) at 16.

AR, Binder 39, OPUC Exhibit No. 6, Benedict Direct at 13.

that resulted from the Company’s imprudence established in a prior Commission

final order to have, in fact, been a major cause of the ice storm damage.

2. The Commission erred by failing to hold ETI to its burden of showing

that the expenses it sought to include in the storm reserve were not

reasonably anticipated.

In addition to the burden of proving that the costs the Company incurred

were reasonable and necessary or “reasonably and prudently invested” and in the

public interest, ETI also bore the burden of showing that any cost it sought to

include in the storm reserve was “not reasonably anticipated.” The purpose of the

storm reserve is set forth in PURA § 36.064. PURA Section 36.064 authorizes an

electric utility to “self-insure all or part of the utility’s potential liability or

catastrophic property loss . . . that could not have been reasonably anticipated and

included under operating and maintenance expenses.”

The Commission’s cost of service rule, 16 Tex. Admin. Code § 25.231, further

explains what the Company must show in order to include storm damage

expenses in the storm reserve. One component of the cost of service is allowable

expenses. Subsection 25.231(b), entitled “allowable expenses” states that “only

those expenses which are reasonable and necessary to provide service to the public

shall be included in allowable expenses.” Rule 25.231(b)(1) sets out the

components of allowable expenses and states that “allowable expenses, to the

extent they are reasonable and necessary, and subject to this section, may

include . . .(G) Accruals credited to reserve accounts for self-insurance under a

plan requested by the Commission.” Rule 25.231(b)(1)(G) also states that the

reserve accounts are to be charged with “property and liability losses which occur,

and which could not be reasonably anticipated and included in operating and

maintenance expenses and are not paid or reimbursed by commercial insurance.”

Expenses incurred due to the Company’s “neglect of regular vegetation

clearing” 31 are not unanticipated. The very purpose of vegetation management is

to anticipate and prevent future damage. As stated in the PFD adopted by the

Commission in the Company’s Service Quality Issues docket, vegetation

management is employed to ensure, to the greatest extent possible, that vegetation

in or near the utility’s right-of-way does not come into contact with the

conductors and cause wire breakage or ground faults. 32 The existence of a storm

reserve account, combined with the fact that expenses were incurred in the

cleanup efforts related to the 1997 storm, in no way speaks to whether these past

storm expenses were reasonably anticipated, prudently incurred and properly

Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket No. 16705), Docket No. 18249, Order

on Rehearing at 16 and 19, Finding of Fact No. 97 (April 21, 1998) (submitted with this brief as

Appendix F). This cited portion of the order is also found at AR, Binder 39, OPC Exhibit No. 6,

Benedict Direct at Exhibit NAB-2.

See Appendix F, Docket No. 18249, Entergy Gulf States, Inc. Service Quality Issues (Severed from Docket

No. 16705), Order on Rehearing at 14 (Apr. 22, 1998).

includable in the storm damage accrual. ETI failed to demonstrate that the 1997

ice storm costs were “not reasonably anticipated.”

By failing to hold ETI to this required showing, the Commission’s Order

results in violations of the requirements in both PURA § 36.064(a) and PUC

Substantive Rule 25.231(b)(1)(G) that only those property and liability losses

which “could not have been reasonably anticipated” may be included in a self-

insurance plan. See Appendix C and Appendix I. Expenses that directly result

from the Company’s “neglect of regular vegetation clearing” 33 are not

unanticipated. The purpose of vegetation management is to prevent damage

caused by vegetation in or near the utility’s right-of-way coming into contact with

the conductors and causing wire breakage or ground faults. 34 The Commission’s

failure to disallow the inclusion of $13,014,379 in storm restoration costs or

determine what portion of those costs were incurred imprudently as a result of the

Company’s imprudent vegetation management violates PURA and results in a

storm reserve that impermissibly includes costs that were reasonably anticipated.

3. Prior remedies assessed for poor quality of service, including imprudent

vegetation management do not address the subsequent imprudence of

excessive ice damage expenses.

Appendix F, Docket No. 18249, Order on Rehearing at 16 and 19, Finding of Fact No. 97.

See Appendix F, Docket No. 18249, Order on Rehearing at 14.

The PFD adopted by the Commission states on page 57 that “the

Commission’s retroactive reduction of ETI’s ROE in Docket No. 18249 in part

compensated ratepayers for the poor service issues that exacerbated the storm

damage.”35 This statement misses the point. The 60 basis point reduction to the

ROE was the ratepayers’ remedy for poor quality of service, including for such

things as billing rate error and call center response time, and should not be

presumed to inoculate the Company from facing the costs caused as a result of its

poor performance with regard to vegetation management. Reducing the ROE was

consistent with PURA § 36.062’s requirement that the utility’s quality of service

and efficiency of operations be considered when establishing a return on invested

capital. The PFD adopted by the Commission in Docket No. 39896 confuses one

set of imprudence (poor quality of service) and its remedy (60 basis-point

reduction), with a second, separate imprudence (costs associated with excessive

ice damage caused by imprudence). This second imprudent condition requires a

separate remedy; that is, the costs associated with the damage caused by

imprudence should be disallowed. Moreover, PURA requires that imprudent

costs not be included in rates.36 The Commission’s decision to allow all of the 1997

ice storm costs is an error of law.

AR, Binder 5, Item No. 185, PFD at 57.

Tex. Util. Code §§ 36.003(a), 36.006(1) and 36.051; See Entergy Gulf States, Inc. v. Public Utility

The PFD adopted by the Commission stated that ETI had to take

appropriate action to repair the damage and restore service and that ETI had

established that the expenses incurred in those efforts were reasonable and

necessary. However, costs can be imprudent in two different ways. First, costs

can be imprudent because of their source, the fruit of a bad act. Second, costs can

be imprudent due to how they are carried out, such as the amount spent or

activities performed. The evidence provided by ETI went to this second type of

prudence question (i.e., the prudence of costs incurred to restore exacerbated

levels of storm damage), but ETI wholly failed to show which or how much of the

$13,014,379 of expenses was caused or not caused by the poor vegetation

management. The Commission erred in allowing the entirety of ETI’s $13,014,379

in 1997 ice storm costs and ignoring the established fact that imprudence was a

major factor in the extent of damage. The Commission’s failure to take into

account or determine what portion of the requested 1997 ice storm costs were

imprudent due to the exacerbated damage and what portion could reasonably

have been anticipated violated PURA and the Commission’s own rules and

consequently, the District Court’s Judgment and the Commission’s Order should

Commission, 112 S.W.3d 208, 214 (Tex. App.—Austin 2003, pet. denied) (“[I]n order to raise the

price of its product, the utility must participate in a rate case and bear the burden of proving

that each dollar of cost incurred was reasonably and prudently invested.”) (Appendix D).

be reversed and remanded to correct this error of law based upon the existing

record.

4. The statutory burden of proof rests upon ETI to affirmatively prove

each element of its case. The Commission erred in excusing ETI from its

burden of proof merely because years had passed between the

incurrence of the 1997 ice storm restoration costs and Docket No. 39896.

The PFD adopted by the Commission erroneously absolves ETI of its burden

of proof on the 1997 ice storm restoration costs due to the passage of time and

merely states that it is “not feasible to accurately determine now what portion of

ice storm damage that occurred 15 years ago was caused by preventative

maintenance issues.”37 This attempt at justification is in error; the Company is

charged with the affirmative burden of proof under PURA § 36.006, and must

show not only that its expenses included in rates are reasonable and necessary, but

that expenses included in the storm reserve were not reasonably anticipated. 38

PURA § 36.006 unequivocally establishes that the utility has the burden of proof

on the case. If too much time had passed to prove what portion of the storm costs

was not related to the imprudence, then the Commission should have found that

ETI failed to meet its burden of proof and disallowed the entire amount.

AR, Binder 5, Item No. 185, PFD at 56.

PURA §§ 36.051 and 36.064; 16 Tex. Admin. Code § 25.231(b) and (b)(1)(G).

More directly, the Commission failed to give effect to the Order in Docket

No. 16705 with regard to the storm costs. In that docket, the Company had

proposed recovery of the 1997 costs as a post-test year adjustment. The

Commission rejected ETI’s request and expressly found:

147. Any reduction to the reserve fund occurring after the test year

should not be considered in this case because EGS did not prove a

reasonable post-test-year level for its existing reserve fund or that the

amount expended in 1997 to reduce the fund was prudent or

appropriate. Reserve fund levels following the test year in this case

can be addressed in EGS’ November 1998 rate filing when all parties

will have the opportunity to evaluate the reasonableness of changes to

the insurance reserve fund. 39

The underlying docket to this appeal, Docket No. 39896, is the first fully

litigated rate case for the Company since Docket No. 16705 due to a rate freeze

imposed on the Company and settlement of all subsequent rate cases for the

Company after the freeze was lifted. As such, Docket No. 39896 represented the

first opportunity to address the inclusion of 1997 storm costs. The parties

effectively stood in the same position as if it was November 1998, and it was error

for the Commission to treat the issue and the parties as if it were otherwise.

Altering the burden of proof, ignoring the imprudence finding related to the cause

of the storm damage and failing to require the company to show the

Docket No. 16705, Application of Entergy Texas for Approval of its Transition to Competition Plan and the

Tariffs Implementing the Plan, and for the Authority to Reconcile Fuel Costs, Second Order on Rehearing at

84 (Finding of Fact No. 147) (Oct. 14, 1998).

reasonableness of including these costs in the reserve fund constitutes reversible

error under APA § 2001.174(2)(A),(D),(E) and (F).

a. ETI has the burden of persuasion on the entire case failed to prove

each required element to meet this burden.

The burden of proof for a contested electric utility rate proceeding is on the

electric utility. PURA Section 36.006(1) states that the electric utility has the

burden of proving that the rate change is just and reasonable, if the utility

proposes the change. 40 Courts have interpreted this statutory burden of proof to

mean that, “in order to raise the price of its product, the utility must participate in

a rate case and bear the burden of proving that each dollar of cost incurred was

reasonably and prudently invested.” 41 PURA Section 36.006 serves to place the

burden of persuasion on the electric utility in that if no evidence at all were

offered, the electric utility would not prevail. 42 The burden of persuasion does not

shift but remains with the same party for the entire case.43

PURA Chapter 36, subchapters A and B and Chapter 37, subchapter D is submitted as

Appendix C.

Entergy Gulf States, Inc. v. Public Utility Commission, 112 S.W.3d 208, 214 (Tex. App.—Austin 2003,

pet. denied) citing Public Utility Commission v. Houston Lighting & Power Co., 778 S.W.2d 195, 198 (Tex.

App.—Austin 1989, no writ)); See Boaz v. Harris, 30 S.W.2d 810, 811 (Tex. Civ. App.—Fort Worth

1930, no writ). Entergy Gulf States, Inc. v. Public Utility Commission is submitted as Appendix D.

See Cameron Compress Co. v. Kubecka, 283 S.W. 285, 286 (Tex. Civ. App.—Austin 1926, writ ref’d)

(“[T]he burden of proof rests upon the party who holds the affirmative of an issue or proposition

of fact.” . . . The general test in determining who has the affirmative of an issue is “which party

would be successful if no evidence at all were given.”).

Boaz v. Harris, 30 S.W. 2d 810, 811; 35 Tex Jur 3d, Evidence § 103 at 190 (Gene A. Noland, ed.,

b. The Commission erred in finding that ETI had established a prima

facie case sufficient to shift the burden of proof.

Another subset of the burden of proof is the burden of production. This

burden may shift from party to party during the case and is the burden of

producing or going forward with the evidence in order to make or meet a prima

facie case. Boaz v. Harris, 30 S.W.2d 810, 811 (quoting Fritsche v. Niechoy, 197 S.W. 1017,

1018 (Tex. App. – Galveston 1917, writ dism’d w.o.j.) (“The burden of proof does

not shift at any time in the trial of a cause, though the weight of the evidence

does.”)). 44 The establishment of a prima facie case plays a role in determining which

party has the burden of production. Prima facie evidence is evidence that suffices

for proof of a particular fact until it is contradicted and overcome by other

evidence. 45 The prima facie standard requires the production of sufficient evidence

with which to support a rational inference that the allegation of fact is true. 46 A

prima facie case must be established for each and every element of proof. 47 If a prima

facie case is fully established, the burden of production shifts to the opponent.

1984).

See Texas Parks & Wildlife Department v. Dearing, 240 S.W.3d 330, 355-56 (Tex. App.—Austin

2007, pet. denied).

Dodson v. Watson, 110 Tex. 355, 358, 220, S.W. 771, 772 (1920).

See In re E.I. DuPont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004) (orig. proceeding).

See Hernandez v. State 161 S.W.3d 491, 497-98 (Tex. Crim. App. 2005); Wyeth v. Hall, 118 S.W.3d

487, 491 (Tex. App. – Beaumont 2003, no pet.).

However, if the plaintiff fails to establish a prima facie case, the defendant is

under no obligation or duty to produce any evidence. 48 In Docket No. 39896, ETI

failed to prove that the requested $13,014,379 in 1997 ice storm costs were “not

reasonably anticipated” and further failed to affirmatively prove that the costs

were prudently incurred with regard to the reason why the costs had to be

expended, not merely how the clean-up was carried out. The Commission erred in

failing to hold ETI to its burden of proof on these elements.

c. The overall burden of proof remained on ETI to affirmatively prove

each element of its case by a preponderance of the evidence. The

Commission erred in failing to hold ETI to this burden.

In the electric rate case context, Texas courts have stated that once the

utility has presented a prima facie case in support of its application, the burden of

going forward or burden of production shifts to the intervening parties, and that in

turn, once the utility’s prima facie case is rebutted, the burden falls back onto the

utility to prove its case by a preponderance of the evidence. 49 Texas courts have

held that “a utility enjoys no presumption that the expenditures reflected therein

have been prudently incurred by simply opening its books to inspection.” 50 Past

Lykes Bros.-Ripley S. S. Co. v. Pluto, 146 S.W.2d 414, 416 (Tex. Civ. App.—Galveston 1941, writ

dism’d judgm’t cor.).

Entergy Gulf States, Inc. v. Public Utility Commission, 112 S.W.3d 208, 215 (Tex. App.—Austin 2003,

pet. denied).

Id. citing Public Utility Commission v. Houston Lighting & Power Co., 778 S.W.2d 195, 198 (Tex. App.—

Austin 1989, no writ).

Commission orders provide further guidance as to the burden of proof in the

context of a prima facie case. The PFD adopted by the Commission in the

Company’s last litigated rate case, PUC Docket No. 16705, discussed the burden of

proof in the context of a prima facie case, stating:

The utility's task is not finished when it makes a prima facie case, by a

preponderance of the evidence that its expenditures were in fact

reasonably incurred. That case may be challenged, and the

challenger can make a reasonable challenge without introducing

evidence which directly establishes imprudence. A challenger need

not establish that a particular decision proximately caused

unnecessary or [avoidable] costs. The challenging evidence need

only tend to disprove prudence by making a prima facie case.

Once such evidence has been produced by the challenger, the burden

returns to the utility to produce evidence to show, by a

preponderance of the evidence, that the challenged decisions were

prudent.

When what is at issue is not simple facts, such as the price actually

paid, but why certain things were done, … [and when] one party is

far better able to know what the relevant facts were and how they

fit together, it is manifestly reasonable to require only that a

challenge be plausible, and that rebuttal be substantial. . . .

A utility which does not present all the evidence relevant to its

claim to have acted prudently cannot succeed by pointing to mere

evidentiary gaps in challengers' cases. “Only upon presentation of

the affirmative evidence supporting all of the utility's actions during

the reconciliation period can interested or affected persons know

exactly what actions were taken.” 51

Application of Entergy Texas for Approval of its Transition to Competition Plan and the Tariffs Implementing

This discussion from the Company’s last fully-litigated rate case details the

burden-shifting process that applies in electric utility rate cases and makes clear

that despite the potential shifting of the burden of production, the overall burden

of proof remains on the utility to show by a preponderance of the evidence that the

expenditures it seeks to recover in rates were reasonably and prudently incurred.

The Commission erred in failing to hold ETI to its burden of proof in violation of

PURA.

d. ETI’s statutory responsibilities do not expire or shift due to the

passage of time.

Merely because many years have elapsed from the time the costs were

incurred to the time the costs were presented as part of ETI’s Docket No. 39896

rate increase request, does not mean that the Company is somehow absolved of its

burden to affirmatively prove each element required for those costs to be included

in the storm reserve and reflected in rates. A reasonable company, after

experiencing a 60 basis-point reduction in its authorized rate of return due to

quality of service inadequacies and having it expressly stated in the same

Commission Order that the amount of storm damage was greatly exacerbated due

to the Company’s inadequate vegetation management, would make some attempt

the Plan, and for Authority to Reconcile Fuel Costs, to Set Revised Fuel Factors, and to Recover a Surcharge for

Under-Recovered Fuel Costs, PUC Docket No. 16705, Proposal For Decision at 7-9 (Mar. 25, 1998)

(Citations omitted) (Emphasis in bold added). An excerpt from the Docket No. 16705 PFD is

submitted as Appendix G.

to quantify or carve out what portion of the storm restoration costs were due to

the exacerbated damage. This could have been done by the Company in 1998, very

close in time to the actual restoration effort, or anytime in the years thereafter

prior to filing its rate case in Docket No. 39896. There are other ways beyond

tracking expenses the Company could have attempted in order to show what ice

storm costs a prudent company would have incurred, but the passage of time does

not excuse the Company from carrying its burden. The distance in time is not a

valid basis on which to decide not to require proof of prudence from the Company,

and the Commission erred in adopting this faulty justification.

e. The PFD adopted by the Commission improperly shifted the burden

to OPUC and intervening parties.

The PFD adopted by the Commission erroneously found that ETI had

established a prima facie case that shifted the burden of proof to OPUC and the

intervening parties. As discussed in the above sections, ETI failed to establish a

prima facie case on each required element of proof. However, even if ETI had

established a prima facie case sufficient to prevail if unrebutted, the standard of

proof imposed on OPUC and other parties by the PFD adopted by the Commission

was far beyond what is required under Texas law and established Commission

precedent.

Texas law makes clear that, in order to defeat a prima facie case, the opponent

must meet the weight of the evidence provided and, once met, the party with the

burden of proof must prove its case by a preponderance of the evidence. The

Texas Court of Civil Appeals articulated the rule to be followed:

The rule that, when the defendant seeks to defeat the prima facie case

made by the plaintiff by evidence tending to show that some fact

necessary to establish such prima facie case is not true, the burden

does not rest upon him to establish the nonexistence of such fact by a

preponderance of the evidence, but in such case, unless the jury find

from a preponderance of all the evidence that the facts necessary to

establish plaintiff’s right to recover are true, they should find for the

defendant, is firmly fixed by the decisions of our Supreme Court.

Koppe v. Koppe, 57 Tex. Civ. App. 204, 210, 122 S.W. 68, 71-72 (1909). One of the

Supreme Court decisions Koppe referred to is Clark v. Hiles, 67 Tex. 141, 2 S.W. 356

(1886). Clark was an appeal of a boundary dispute in which the question presented

to the Court dealt with the burden of proof and what shifts when a plaintiff has

made out a prima facie case. Id. at 360, 148. The Court stated that the general rule is

that “the burden of proof ‘remains on a party affirming a fact in support of his case,

and does not change in any aspect of the cause, though the weight of the evidence

may shift from side to side, according to the nature and strength of proof

offered in support or denial of the main fact to be established.’” Id. at 360, 148

(citations omitted) (emphasis added).

Going beyond the required standard for sufficiently rebutting a prima facie

case, The PFD adopted by the Commission placed upon OPUC the burden to

produce evidence to challenge “specific expense items included in the storm

damage reserve.” AR, Binder 5, Item No. 185, PFD at 56. This standard for

production required OPUC to go beyond rebutting prima facie evidence; it required

OPUC to rebut data on a level of specificity the Company did not present in

evidence. Rebuttal evidence is “evidence given to disprove facts given in evidence by

an adverse party.” 52

In the electric rate case context, the Commission in the past has articulated

what is required when rebutting a prima facie case. In the Company’s last litigated

rate case, PUC Docket No. 16705, the Commission adopted the majority of the

March 25, 1998 Proposal for Decision, including an analysis of the burden of proof

in the context of a prima facie case and, citing past PUC precedent, stated:

The utility's task is not finished when it makes a prima facie case,

by a preponderance of the evidence that its expenditures were in fact

reasonably incurred. That case may be challenged, and the

challenger can make a reasonable challenge without introducing

evidence which directly establishes imprudence. A challenger need

not establish that a particular decision proximately caused

unnecessary or [avoidable] costs. The challenging evidence need

only tend to disprove prudence by making a prima facie case.

Apresa v. Montfort Ins. Co., 932 S.W.2d 246, 251 (Tex. App.—El Paso 1996, no writ).

Once such evidence has been produced by the challenger, the burden

returns to the utility to produce evidence to show, by a

preponderance of the evidence, that the challenged decisions were

prudent. 53

The PFD further stated:

A utility which does not present all the evidence relevant to its

claim to have acted prudently cannot succeed by pointing to mere

evidentiary gaps in challengers' cases. “Only upon presentation of

the affirmative evidence supporting all of the utility's actions during

the reconciliation period can interested or affected persons know

exactly what actions were taken.” 54

As noted above, the standard for rebutting a prima facie case is not as high as that

which the Commission imposed on OPUC in Docket No. 39896. The

Commission’s error in finding that ETI had established a prima facie case was

compounded by shifting the burden and improperly requiring OPUC to produce

evidence on specific expense items in order to rebut ETI’s prima facie case.

Application of Entergy Texas for Approval of its Transition to Competition Plan and the Tariffs Implementing

the Plan, and for Authority to Reconcile Fuel Costs, to Set Revised Fuel Factors, and to Recover a Surcharge for

Under-Recovered Fuel Costs, PUC Docket No. 16705, Proposal For Decision at 7-9 (Mar. 25, 1998)

(citations omitted) (emphasis in bold added).

Id. (citations omitted) (emphasis in bold added).

f. Under Texas and Commission standards, ETI failed to meet its

burden of proof required for the inclusion of the $13,014,379 in 1997

ice storm costs.

To summarize, under the burden of proof standards articulated by the

Commission, ETI failed to make a prima facie case.55 And, even assuming for the

sake of argument that ETI had made a prima facie showing, the Commission erred

in imposing an improper standard of proof for rebutting any such prima facie

showing. OPUC and Cities provided evidence that “tends to disprove” prudence

and supports the conclusion that the expenses were in fact reasonably

anticipated. 56 The burden then returned to the Company to produce evidence that

affirmatively showed by a preponderance of the evidence that either the entirety of

the approx. $13 million in restoration costs were unrelated to the imprudent

action, or to show what portion thereof was and was not related to the imprudent

action and was not reasonably anticipated.

ETI failed to establish a prima facie case for each element of proof required in

order to include its requested $13,014,379 of 1997 ice storm restoration costs in the

storm reserve balance. By allowing ETI to include its requested 1997 ice storm

restoration costs in the storm reserve balance without actually establishing a prima

Id.

AR, Binder 39, OPUC Exhibit No. 6, Benedict Direct at 6-12, 78-87 and 88; AR Binder 8, Cities

Exhibit No. 5, Pous Direct at 46-59.

facie case for each element of proof, the Commission violated PURA’s requirement

that the burden of proof be placed on the utility. For this reason, the

Commission’s Order should be reversed on the issue of the storm reserve balance

and remanded to the Commission based upon the existing evidentiary record.

ETI’s task was to show “the existence of each element of [its claim],” i.e., “to

prove every fact essential to their case.” 57 ETI failed to show that the expenses the

Company requested to include in its storm reserve balances are reasonable and

prudent and not reasonably anticipated. Consequently, the Commission erred as a

matter of law in failing to hold ETI to its burden of proof with regard to storm

damage expenses.

5. The Commission’s decision to approve the inclusion of $13 ,014,379 in

1997 ice storm costs is arbitrary and capricious and constitutes an abuse

of discretion.

The Commission committed legal error by abusing its discretion and acting

in an arbitrary and capricious manner when approving the inclusion of the 1997 ice

storm costs in ETI’s storm reserve, cost of service, and rates. An administrative

agency’s decision is arbitrary or results from an abuse of discretion if the agency:

(1) failed to consider a factor the legislature directs it to consider; (2) considers an

irrelevant factor; or (3) weighs only relevant factors that the legislature directs it

Vance v. My Apartment Steak House, 677 S.W.2d 480, 482 (Tex. 1984).

to consider but still reaches a completely unreasonable result. 58 In allowing the

inclusion of all $13,014,379 of ice storm expenses in ETI’s cost of service, the

Commission failed to consider factors the legislature directs it to consider,

including whether the costs were “not reasonably anticipated” and prudently

incurred. Tellingly, there were no findings of fact or conclusions of law with

regard to whether the costs were not reasonably anticipated.

The Commission also acted in an arbitrary and capricious manner by

considering irrelevant factors. The Commission, through the adopted PFD,

erroneously considered the passage of time between the rate case and the

incurrence of the storm expenses, and absolved the Company of its burden to

prove what portion of the approximately $13 million was due to the exacerbated

damages caused by the imprudent vegetation management and what portion

would have been incurred even with prudent management. 59 The Commission,

through the adopted PFD, also erroneously considered the 60 basis-point

reduction to the Company’s ROE imposed for poor quality of service including

poor call center response time. 60

City of El Paso v. Public Util. Comm’n, 883 S.W.2d 179, 184 (Tex. 1994). See also, Reliant Energy, Inc. v.

Public Util. Comm’n, 62 S.W.3d 833, 841 (Tex. App. – Austin 2001, no pet.).

AR, Binder 5, Item No. 185, PFD at 56; see supra pp. 16-19, 25-26 and 31-32.

Id.; see supra pp. 22-24.

Additionally, when an agency fails to “follow the clear, unambiguous

language of its own regulation,” it acts arbitrarily and capriciously. 61 The

Commission failed to follow the clear, unambiguous language of its own

substantive rule which states unequivocally that “any expenditure found by the

Commission to be unreasonable, unnecessary or not in the public interest” “shall

never be a component of the cost of service.” 16 Tex. Admin. Code

§ 25.231(b)(2)(J).62 The Commission also failed to follow its own substantive rule

which allows storm costs to be included in the storm reserve, to the extent they

are reasonable and necessary, and are not reasonably anticipated. 16 Tex. Admin.

Code § 25.231(b)(1)(G). Moreover, as stated above, the Commission made no

findings of fact or conclusions of law as to whether the ice storm expenses were

not reasonably anticipated. Further, the Commission disregarded the prior-

established finding from the final order of the Commission in Docket No. 18249

which found that storm damage was greatly exacerbated by the state of the

Company’s vegetation management.

For these reasons, it was arbitrary and capricious to include all of the

Company’s requested ice storm expenses in SPS’s storm reserve and allow these

costs to be reflected in SPS’s cost of service and rates.

Public Util. Comm’n v. Gulf States Utilities, 809 S.W.2d 201, 207 (Tex. 1991).