E NTERGY T EXAS , I NC ., ET AL . , Appellants,

v. P UBLIC U TILITY C OMMISSION OF T EXAS , I NC ., ET AL ., Appellees.


### R EPLY 

### B RIEF

KEN PAXTON Attorney General of Texas CHARLES E. ROY First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation JON NIERMANN Chief, Environmental Protection Division ELIZABETH R. B. STERLING Assistant Attorney General State Bar No. 19171100 elizabeth.sterling@texasattorneygeneral.gov Environmental Protection Division P.O. Box 12548, MC-066 Austin, Texas 78711-2548 512.463.2012 512.457.4616 (fax)

June 2, 2015 Oral Argument Requested 

# NO. 03-14-00735-CV

Filed by: Public Utility Commission of Texas ACCEPTED 03-14-00735-CV 5515882 THIRD COURT OF APPEALS

AUSTIN, TEXAS 6/2/2015 4:16:02 PM JEFFREY D. KYLE

CLERKi Ta bl e o f Co nte nts T ab l e o f C o n t e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i I n d e xo f A u t h o r i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii G l o s s a ry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii I s s u e s P r e s e n t e d
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v I n t r o d u ct i o n ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 S u m m a ry

o f R e p l y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Ar g u m e n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. In the fuel re conciliation, the Co mmis sion pro pe rly remov ed $4 mi ll io n i n fu el expen ses inc urr ed t o serve w ho l esa l e c u st om er s f

ro m the am ou n t o f

f u el ex pen ses E n t er gy s ho u l d r ec ov erf ro m i t s r et ai l r at epayer s.. . . . . . . . . . . 4 B
. T he C om mi ssi on ’s Or d erc om pl i es wi t h i t s r u l es. . . . . . . . . . . . 5 C. The C omm iss ion’s Orde r re sulte d in just and re as onab le f i n a l f u e l r a t e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 D. En tergy fa il s to show th atitwas h armed by the C o m m i s s i o n ’ s O r d e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 C o n cl u s i o n a n d P r ay e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 C e r t i f i c a t e o f C o m p l i a n c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 C e r t i f i c a t e o f S e rvi c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 APP END I C ES
1 6 T e x . A d m i n . C o d e § 2 5 . 2 3 6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
1 6 T e x . A d m i n . C o d e § 2 5 . 2 3 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bii Index o f Authorities Cases Page (s ) Ente rgy Gul

f States , Inc. v. Pu b. Util . Comm’n , 173 S.W.3d 1 99 (T ex. App .—A ust in 2005, pet . deni ed).
. . . . . . . . . . 6
Statutes T ex . Ut i l . C od e § 1 1 . 0 0 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 § 3 6
. 2 0 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rul es
1 6 T ex . Ad mi n . C od e § § 2 5 . 0 1 – . 5 0 8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv § 2 5 . 2 3 6 ( b )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii § 2 5 . 2 3 6 ( d ) ( 2 )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 § 2 5 . 2 3 6 ( e ) ( 1 ) ( A) &( C )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 § 2 5 . 2 3 6 ( e ) ( 2 )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 § 2 5 . 2 3 6 ( e ) ( 3 )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5, 8 § 2 5 . 2 3 6 ( e ) ( 4 )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 § 2 5 . 2 3 7 ( a ) ( 3 )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii i, 7iii Gl os sary A LJ A d mi n i st ra t i v e Law Ju d ge Ci t i es Ci t i es o f An ah u ac , B ea u mo n t , B ri d ge C i ty, Cl evela nd, C onr oe, Dayto n, Gro ves, Hou ston , Hu nt svi ll e, Mon tgom ery, Navasot a, Nederl and , Oak Ri d ge N ort h, Or an ge, P i n e F or est , R os e C i ty, Pi nehu rst, P ortArth ur, P ortNeches, Shenan doa h, Si l sbe e, S ou r La ke, Sp l en d or a, Vi d or , a n d We st Oran ge, Texas These cit ies are i n t he servi ce area o f Enter gy Texa s, Inc. and p articipa ted a s p artie s in th e rat e case atth e Commi ssion
. Comm issi on Pu bli c Uti li ty C ommi ssion of T exas En tergy En tergy T exas, Inc ., th e ut il it y th atasked t he Co mm i ssi on t o re c on c i l e f u el ex pen ses i n t hi s c as e ER COT El ect ri c Rel iabil it y Cou nci l of T exas FE RC Federal En ergy Regul at ory Co mmi ssion Fu el f act or A

t em po ra ry

r at e se t by the C om mi ssi on t o re c ov er t he u t i l i ty’s f

u el c os t s See 16 Tex. Admi n. Co de § 25.2 37(a)(3). Fuel recon ci li at io n Af ter the ut il it

y has co ll ect ed fo r fu el c osts u sing the fue l factor, it returns to the Co mmis sion to rec oncile act ual fu el c osts with amo un ts r ecov ered un der t he Fu el F act or . See 16 Tex. Admi n. Co de § 25.2 36(b). Line loss es Electricity tha t the utility ge ne rate s b ut is “los t” as it tr avel s al ong the wi res fro m t he generat or t o t he custom er (More ele ctricity is ge ne rate d than is metered where i t i s used.) Order Th e Commi ssion ’s order on r eheari ng t hatis the subjectof thi s lawsui t (A R, It em 24 4.)iv

Re c on c i l i at i on pe ri od T he tw o- yea r per i odf ro m J u n e 1 , 2 00 9 , thr ou gh Ju l y 31 , 2 01 1 ; the pe ri odd u ri n g w hi ch E n t er gy incurre d fue l exp en se s tha t wer e r ec onciled in this ad mi n i st ra t i v e c as e Rule The C omm iss ion’s ele ctric rules are found at 16 Texa s Adm inistra tive Co de §§ 25.0 1–50 8. In this br ief the Comm iss ion re fe rs to its rules as Rule 2 5.

_ _ _ r athe r t ha n u si n g t he l on gerc i t at i on , i.e. , 16 T ex . Ad mi n . C od e § 2 5. 2 36 (e )( 3) wi l l be r ef er en c ed as Ru le 2 5.236 (e)(3) i n t he brief
. $4 mi ll io n A r oun ded-u p amou ntused t o representth e $ 3,9 81 ,2 71 o f

f u el ex pen ses t ha t t he c on c u rr en t l i n eloss study

re vea led wa s los t delive ring ele ctricity to who lesal e cust omers ra th er th an d eli veri ng elect ri ci ty t o ret ai l cu stom ers dur in g th e recon ci li at io n peri odv Iss ues Presented A u ti li ty r ecov ers expenses for f uel used t o generat e elect ri ci ty thatis l ost as itis d eli vered t o t he cu stom er. Th e Commi ssion fou nd that$4 mi ll io n of f u el ex pen ses t ha t w as est i ma t ed i n t he t em po ra ry r at es ( c al l ed a f

u el facto r) t o be lo st servin g retai l cu stom ers was actu al ly l ost servi ng whole sa le cus tome rs . Be caus e the Comm iss ion only se ts ra tes for re tail cu stom ers, di d i t r easonabl y dedu ctth at$4 mi ll io n fr om the co sts t hat Enter gy could re cove r in its final ra tes (fue l reco nciliation) from its re tail c u st om er s?1 Int rod uct ion T he C om mi ssi on f

i l es thi s r eply t o t he “ Fu el C os t s” sect i on o f E n t er gy’ s Re sp on se B ri ef

. Th e Commi ssion properly removednearly $4 mil li on ( $3,981 ,271 ) fr om E n t er gy’ s r ec ov er ab l e f u el ex pen ses w

he n i t r ec on c i l ed E n t er gy’ s f u el cost s—when itdet ermin ed t he ut il it y’s fin al fu el r at es for r etai l servi ce pro vided during the two- ye ar p er iod from June 1, 200 9, thro ugh July 31,
2 01 1 (r ec on c i l i at i on pe ri od ). E n t er gy’ s c on c u rr en tl i n e- l os s st u dy r ev ea l ed th at$4 mi ll io n wa s spent o n fu el f or el ect ri ci ty thatwas l ost del iv erin g th e ele ctricity to who les ale cus tome rs rathe r than de livering that ele ctricity to reta il cu stom ers. Th us, i t w as notpartof the act ual , reta il fu el c osts a nd

w as pr op erl y ex cl u d ed f ro m f i n al r at es. Th e fuel recon ci li at io n rev ealedth atesti mat ed l in e lo sses of servi ng
re t ai l c u st om er s w er e n ott he act u al l i n e l os ses o f ser vi n g r et ai l c u st om er s. T he d i f f er en c e a pp ea re d bec au se, w he n the C om mi ssi on ap pr ov ed En tergy’s fu el f

act or thatappl ied du ri ng t he reco nci li at io n peri od, i t u sed a li ne-l oss stu dy perfo rmed i n 1 99 7. A l in e-lo ss stud

y estim at es the am oun t of el ect ri ci ty thatis l ost whi le d eli veri ng i t f rom the generat or t o t he endu ser . The c os t f

orgen er at i n g t ha t l os t el ect ri c i ty i s bi l l ed t o c u st om er s so t ha t t he u t i l i ty c an r ec ov eri t s r ea so n ab l e a n d n ec ess ar y ex pen ses . W

he n2

th e Commi ssion con du ct ed t he fu el r econc il ia ti on i n t hi s case, itused the
201 0 l in e-lo ss stud

y. Th atstu dy, perfo rmed d uri ng t he reco nci li at io n perio d an d appr ovedby the C ommi ssion in th is c ase (AR , Ord er, FF 246–247) , re vea led that $4 m illi on of fue l exp en se s tha t wer e e stima ted to be lostdel iv erin g elect ri ci ty t o ret ai l cu stom ers was actu al ly l ost del iv erin g el ect ri c i ty t o w

ho l esa l e c u st om er s.

Sum ma ry

of Reply En tergy’s argu ment s fai l to ackn owl edge the i mpactof the ju ri sdi ct io nal sep ar at i on betw een t he C om mi ssi on , w hi ch set s E n t er gy’ s reta il rat es, and t he F ed er al E n er gy R egu l at or y C om mi ssi on (F E RC ), w hi ch set s E n t er gy’ s who lesale rate s, on the line-los s is sue in this ap pe al. En tergy i gnores t he co ncl usi ons thatnat ura lly fol lo w fr om the j u ri sd i ct i on al sep ar at i on . Beca use FERC s ets Enterg y’ s wh oles ale r ates and the Comm iss ion se ts only its re tail rates , the fuel cos ts that the Comm iss ion allows Ente rg y to
re c ov eri n f

i n al f u el r at es a re o n l y c os t s i n c u rr ed t o ser v e r et ai l c u st om er s. Fuel cost s in cu rred t o serve w hol esale c ust omers ca nno t be i ncl ud ed as

re as on ab l e a n d n ec ess ar y f u el ex pen ses r ec ov er ed f ro m r et ai l c u st om er s. Thus, the Co mmis sion pro pe rly e xcluded the co st of fue l use d to ge ne rate elect ri ci ty thatwas l ost (l in e lo sses) in o rder t o serve w hol esale c ust omers3

du ri ng t he reco nci li at io n peri od. The Com missi on r easonabl y used t he Comm issi on-a pprov ed l in e-lo ss stud y don e dur in g th e recon ci li at io n pe riod b ec aus e it mor e a ccurate ly de term ines the s ep aration o f whole sa le fu el c osts f

rom r etai l fu el c osts thatocc urr ed as a r esul t o f l in e lo sses duri ng th e relev antperio d. Bec ause t he FE RC set s Ent ergy’s whol esale ra tes an d t he Com missi on sets on ly i ts r etai l rat es, the c la sses incl ud ed i n ra tes set by t he Com missi on in cl ud e onl y reta il cu stom er cl asses. Thu s, in terc la ss all oca ti ons thatth e Co mm i ssi on ma kes u n d erR u l e 2 5. 2 36 (e )( 3) ar e o n l y a mo n g r et ai l cl as ses . But the Com mis sion ’s dec ision to s ep arate out fuel e xpe nse s incur re d to serve who lesal e cust omers af fect ed t he t ot al amou ntof f uel expenses tha t
ar e r ea so n ab l y a n d n ec ess ar i l y r ec ov er ed t hr ou gh t he C om mi ssi on ’s ra t es. T he C om mi ssi on w as n otal l oc at i n g t ho se e xp en ses am on g r et ai l c u st om er
cl as ses . Beca use FERC s ets Enterg y’ s wh oles ale r ates and the Comm iss ion se ts
on l y i t s r et ai l r at es, r ec ov er y o f l i n e l os ses f

ro m w ho l esa l e c u st om er s wi l l be

con tr ol ledby FER C, no t the Com missi on. Lo oki ng on ly a t aComm issi onset fu el f act or a nd C ommi ssion -det ermin ed fu el r econc il ia ti on wil l show nothing ab out whe ther Enterg y r ec ove re d its e xpe nse s fo r fue l use d to4

ge ne rate ele ctricity that wa s los t (line los se s) in orde r to se rve whole sa le

c u st om er s. Ar gu me nt A. In t he fuel r econ ciliation , th e C omm ission pr oper ly rem oved $4 m illion in fuel e xp en ses in curr ed to se rve whol esal e cu stomers fro m the amount o f fu el e xpenses Enterg y should rec ov er fro m its retail ratepayers. Th e Commi ssion properly recon ci ledth e amou ntof f uel expenses tha t reta il rat epayers act ual ly o wed f or servic e dur in g th e recon ci li at io n peri od because t he upd at ed l in e-lo ss stud y reveal ed t hat$4 mi ll io n i n expenses for fue l was incur re d se rving whole sa le cus tome rs rathe r than s erving r etail

c u st om er s. As expl ai ned i n earl ier C ommi ssion brief in g, a ut il it

y’s fuel expenses are
recov ered no t thro ugh base rat es, but thro ugh a tw o-st ep facto r-an drecon ci li at io n pro cess. Th e Commi ssion ado pts a tempo rary r at e cal leda fu el f act or thatesti mat es whatth e ut il it y’s fuel expenses wil l be. Butfi nal rate s a re dete rmine d afte r the exp en se s we re incurre d so that the fina l rate

accura tely

re flects the a ctual, re as onab le and nec es sa ry amoun t the utility in cu rred i n fu el expen ses to serve i ts c ust omers du ri ng t he reco nci li at io n per i od . The f

u el f act ori s ba sedo n est i ma t ed c os t s, ba sedo n est i ma t ed usage, andis a tempo rary r at e; the f uel recon ci li at io n i s based on a ct ual

c os t s, ba sedo n act u al u sa ge, an d r esu l t s i n an act u al r at e.5

Th ere is no expect at io n t hatth e estim at ed fu el expen ses used to devel op t he f u el f act orwi l l be the sa me as t he ac t u al f u el ex pen ses f

ou n d i n t he f

u el

re c on c i l i at i on . Tha t i s t he v er y r ea so n f

ort he r ec on c i l i at i on . The tw o- st ep f act or -a n d -r ec on c i l i at i on pr oc ess i s u sedpr ec i sel y be c au se i ti s ex pect ed t ha t t he est i ma t ed f

u el ex pen ses wi l l d i f

f erf ro m the act u al f

u el ex pen ses . Th us, t here is n ot hi ng except io nal aboutth e Commi ssion ’s deci sion th at reta il rat epayers act ual ly u sed l ess elect ri ci ty d uri ng t he reco nci li at io n perio d t han esti mat ed. Thatth is d if ferenc e in usage was r eveal ed by th e mostcu rrentl in e-lo ss stud y is no reason to ign ore t hatl ess elect ri ci ty w as gen er at ed , a n d t he re f

or e l ess f u el u sed , t o ser

v e r et ai l c u st om er s. E xp en ses in cu rred t o serve w

hol esale, ra th er th an r etai l, cu stom ers are no t
re as on ab l e a n d n ec ess ar y ex pen ses t o i n cl u d e i n r et ai l r at es. B. The Commi ssi on’ s Order c ompl ie s wi th its rules . Contra ry to Enterg y’ s a rg ume nts, Rule 25 .23 6(e )(3 ) doe s no t app ly to t he C om mi ssi on ’s d ec i si on t ha t $ 4 mi l l i on i n w ho l esa l e c os t s sh ou l d be

remov ed fr om f

in al reta il fu el r at es. Expenses t o serve w hol esale c ust omers
ar e n oti n cl u d edi n t he po t o f f u el ex pen ses t ha t t he C om mi ssi on al l oc at es
am on g r et ai l r at e cl as ses . Not only is Ru le 2 5.236 (e)(3) abou t r efun ds, wh ich E nt ergy didnot
re ques t in this cas e, but mo re fundam en tally, the Comm iss ion can on lyEn ter gy ’s i nd ic a tio n o n p a ge 14 of i ts r es po ns e br ie f i s th us w ro ng : E nte rgy’ s 1 wholesale customers c annot buy electrici ty under a C ommissi on tariff. 6 appl y th atrul e to En tergy’s ret ai l rat e cl asses. Thi s is nec essaril y tr ue bec au se the C om mi ssi on c an o n l y se t r et ai l r at es f orE n t er gy. See Ente rgy Gul f States , Inc. v. Pu b. Util . Comm’n , 173 S.W.3d 19 9, 2 07 (T ex. App.— Au sti n 2 005, pet. d enied ) (expl ai ni ng t hatFE RC r egul at es the sal e of E n t er gy’ s sa l e o f

el ect ri c i ty a t w

ho l esa l e ( c i t i n g 1 6 U .S. C. § 8 2 4( b) ; Ente rgy La., Inc. v . Louis iana Pu b. Serv . Comm’n , 5 39 U .S. 39 , 4 1 , 1 56 L. E d .2 d 34 (2 00 3) ). The C om mi ssi on c an n oto rd err ef u n d s o r as ses s su rc

ha rg es agai nstEn tergy’s wh ol esale c ust omers becau se the Co mmi ssion has n o ju ri sdi ct io n t o set E nt ergy’s whol esale ra tes—o nl y it s reta il rat es. Th us, t he 1 Comm issi on’s d ecisi on that$4 mi ll io n i n fu el c osts w ere in cu rred t o serve who lesal e rat her t han reta il cu stom ers is u naf fect ed by a ru le that ad d re sse s E n t er gy’ s i n t er cl as s a l l oc at i on s o n l y a mo n g reta il cl as ses . No n e o f t he o t he r ru l es E n t er gy c i t es r equ i re t he C om mi ssi on t o i mp os e
w ho l esa l e f

u el c os t s o n r et ai l c u st om er s.

• Rul es 25.2 36(e)(1 )(A) & ( C) ar e aboutth e cal cu la ti on o f i nt erest. That d oe s n oti mp act t he C om mi ssi on ’s au t ho ri ty a s p art o f t he f u el

re conciliation to de term ine tha t fuel cos ts incurr ed to se rve whole sa le

cu stom ers are no t t o be impo sed on reta il c u st om er s.7

• Ru l e 2 5. 2 36 (e )( 2 ). B ec au se the C om mi ssi on set s no w ho lesale r at es, th ere is no Comm issi on-t ari ffedrat e schedu le f or w hol esale c ust omers that the C omm iss ion has authority to adjus t.

• Ru l e 2 5. 2 36 (e )( 4) c on c er n s intra cl ass al lo cat io ns. A lthou gh itment io ns
w ho l esa l e c u st om er s, i t c an h av e n o ap pl i c at i on t o t he C om mi ssi on ’s

re gu l at i on o f

E n t er gy b ec au se the C om mi ssi on h as n o j u ri sd i ct i on t o set whole sa le ra tes for Ente rg y. Becaus e tha t util ity is o utside ERCOT, its

w ho l esa l e sa l es a re i n i n t er st at e c om me rc e. An d t he r u l es the C om mi ssi on c i t ed i n i t s O rd erd o ap pl y.

• Rule 25 .23 6(d)( 2). Be caus e the Comm iss ion se ts only re tail rates , it

w ou l d be un re as on ab l e f ort he C om mi ssi on t o i n cl u d e f u el ex pen ses in cu rred t o serve w

hol esale c ust omers i n t he act ual , fi nal rat es, and a ny who lesal e fuel expenses Ent ergy recov ered fr om i ts r etai l cu stom ers th rou gh t he fu el f

act or w ere an over -re cove ry f ro m i t s r et ai l c u st om er s.

• Ru l e 2 5. 2 37 (a )( 3) . B ec au se f u el f act or s a re o n l y t em po ra ry r at es, t he Comm issi on c an a dj ustfi nal fu el r at es in the reco nci li at io n pro ceedi ng to refl ectth e ut il it

y’s act ual fu el expen ses to serve r etai l cu stom ers du ri ng t he reco nci li at io n peri od. In th e recon ci li at io n, t he Com missi on i s f re e t o u se a c u rr en t l i n e- l os s st u dy t o d et er mi n e w ha t f u el ex pen ses E n t er gy a ct u al l y i n c u rr ed d u e t o l i n e l os ses ser vi n g i t s r et ai l c u st om er s.8

Fi n al l y, t he re i s n o c on f l i ct betw een t he se r u l es a n d R u l e 2 5. 2 36 (e )( 3)
. B ec au se, f

orE n t er gy, t he C om mi ssi on o n l y h as au t ho ri ty t o setr et ai l r at es, th e Commi ssion -set ra tes i ncl ud e onl y reta il rat e cl asses. Therefo re, th e interc lass allocations addre ss ed in Rule 25. 236( e) (3 ) ap ply only to re tail

ra t e cl as ses . C. Th e C omm ission’s Or de r re sult ed in j ust an d r ea sona ble fi nal fu el r ates. T he C om mi ssi on ’s Or d eri mp l em en t s t he st at u t or i l y p re sc ri bed l egi sl at i v e i n t en t . Tha t i n t en t i s st at ed i n Sect i on 1 1 .0 02 o f t he U t i l i t i es Cod e: “Th e purpo se of thi s ti tl e is t o establi sh a c omprehen siv e and ad equ at e r egu l at or

y sy st em f

orpu bl i cu t i l i t i es t o as su re r at es, o per at i on s, andservi ces th atare j ustandreasonable t o t he co nsumer s andto th e ut il it ies.” The Com missi on r egul at es onl y reta il rat es for E nt ergy. Andth e Legisla tu re, in Secti on 36 .203 of th e Ut il it ies Co de, au th ori zed t he Comm issi on t o u se a fuel facto r—a proc ess where fi nal fu el r at es are not deter min ed un ti l a fu el r econc il ia ti on i s don e aft er th e act ual expenses are kn own . The C om mi ssi on ’s d ec i si on — re f u si n g t o al l ow

E n t er gy t o re c ov er fue l exp en se s incur re d to se rve whole sa le cus tome rs from re tail

cu stom ers—fu lf

il ls the l egisl at iv e in tent . It i s reasonable t o co nsumer s and to the utility to re quire re tail custome rs to pay only fo r e xpe nse s incur re d to pr ovi d e se rvi c e t o re t ai l c u st om er s. An d t he cha n ge f ro m the est i ma t ed9

amou ntto th e act ual amou ntwas eff ect ed t hro ugh the two-st ep fuel -facto ran d -r ec on c i l i at i on pr oc ess au t ho ri ze d by the Leg i sl at u re . E n t er gy’ s a t t em pt s t o sh ow t he C om mi ssi on ’s d ec i si on as an yt hi n g o t he r than re as onab le ar e una vailing. Enterg y’ s s tatem en t: “N or did an y p arty
cha l l en ge the r ea so n ab l en ess o r n ec ess i ty o f t he f u el c os t s a ct u al l y i n c u rr ed f ort he r ec on c i l i at i on pe ri od ,” (E n t er gy R esp . B r. at4 ; se e al so at19 ) i s at bes t mi sl ea d i n g. While it is true that no pa rty ch alleng ed whe ther the p rice s Ente rg y p aid forit s fuel were t oo h igh, C it ies ch al len ged th e reasonabl eness of i ncl ud in g $4 million of fue l exp en se s tha t wer e a ctually incurre d to se rve whole sa le

cu stom ers in fu el r at es for o nl y reta il cu stom ers. Ci ti es’ wit ness Nalepa stat ed: “[E nt ergy]’s own a nal ysis demon stra tes t hatadj ust in g th e al lo cat io n of

fu el c osts o ver the reco nci li at io n peri od t o refl ectth e act ual line los se s fo r e ach voltag e le vel for the re conciliation pe riod re sults in reta il cu stom ers subsidi zi ng wh ol esale c ust omers by approx ima tel y $3.98 mil li on.” (A R, Ci ti es Ex. 6 at44, B in der 9 .) And C it ies’ bri ef fi ledatth e ad mi n i st ra t i v e p ro c eed i n g st at es: “ Fa i l i n g t o re f l ect t he act u al l i n e l os ses forth e recon ci li at io n peri od ... wou ldresul t i n T exas ret ai l cu stom ers subsid iz in g whol esale an d no n-fu el f act or c ust omers by $3,981 ,271 .” (A R, Item 1 61 (Ci ti es’ Init ia l Br .) at86, B in der 4.) Th is t esti mony a nd a rgument10

sh ow t ha t C i t i es cha l l en gedt he r ea so n ab l en ess o f i n cl u d i n g f

u el ex pen ses incurre d to se rve whole sa le cus tome rs in Enterg y’ s fina l fuel rate s fo r re tail

ser vi c e. Enter gy is als o wron g to s ugg es t that the Com mis sion ’s Orde r fails to

su pp ort i t s d ec i si on . A l t ho u gh t he C om mi ssi on ’s Or d erc ou l d h av e be en stat ed mor e cl early, when r ead as a who le, the Ord er’s fi ndi ng t hat E n t er gy’ s “ f

u el r ec on c i l i at i on o v er -r ec ov er y sh ou l d be r ed u c ed by $3, 981, 271” (O rde r, F F 246A) re vea ls that, although Enterg y p aid

re as on ab l e a mo u n t s f

ort he f u el i t pu rc

ha sed , E n t er gy o v er -r ec ov er ed approx ima tel y $4 mil li on i n fu el expen ses thatwas i ncu rred t o serve
w ho l esa l e, r athe r t ha n r et ai l c u st om er s. Th e fi ndi ngs th atEn tergy ci tes, Fi ndi ngs 21 4 an d 2 17, 2 18 an d 2 21 , and
22 2 a nd 2 25, sho w t hatth e amou nt s paidfornat ura l gas expenses, coal

ex pe nse s, and p urcha se d-e ne rg y e xpe nse s we re re as onab le. Althoug h it

w ou l d h av e be en cl ea re r ha d t he C om mi ssi on mo d i f i ed t ho se f

i n d i n gs w

he n itadd ed Fi ndi ng 2 46A , al l th e fi ndi ngs ta ken t ogeth er wi th th e di scussi on
on pa ge n i n e o f

t he Or d erex pl ai n t ha tt he o v er al l am ou n t o f r et ai l f u el

ex pen ses , m od i f

i ed by r em ovi n g t he $ 3,9 81 ,2 71 f orf u el ex pen ses i n c u rr ed t o ser v e w ho l esa l e c u st om er s, i s t he r ea so n ab l e a n d n ec ess ar y a mo u n t . An d Co ncl usi on o f Law 17 does no t i ncl ud e any amo un t. The amou ntof11

fu el expen ses the Co mmi ssion fou nd r easonabl e and necessary i s th e
amo unt that re sults from all of its finding s of fact, inc luding Findin g 246A. Th e Commi ssion ’s Order c ompl ies wi th th e legi sla tive i nt ent th atth e Comm iss ion use a two-s tep fuel- factor- and- re conciliation pr oce ss to devel op ra tes t hatare reason able t o t he co nsumer s andto th e ut il it y. Th e Orde r is s upp orte d by

the re cord a nd is inte rnally co nsis tent. D. E nte rg

y f ai l s to s ho w thati t w as har me d by the Commi ssi on’ s Order. Bec ause FE RC, n otth e Commi ssion , sets wh ol esale ra tes, an y recov ery of l in e lo sses from wh ol esale c ust omers wi ll be cont rol ledby FER C, no t the Comm issi on. Thus, l ooki ng on ly a t aComm issi on-setreta il fu el f act or a nd Comm issi on-d etermi ned r etai l fu el r econc il ia ti on wil l reveal nothi ng abou t whe ther Enterg y r ec ove re d its e xpe nse s fo r fue l use d to ge ne rate ele ctricity t ha t w as l os t (l i n e l os ses ) s er vi n g w ho l esa l e c u st om er s. T he r ec or d i n t hi s c as e c on t ai n s n o evi d en c e abo u t E n t er gy’ s F E RC -s et who lesal e rat es. Thu s, th e evid ence eq ual ly su pport s a fi ndi ng that En tergy’s wh ol esale f

uel cost s were un der-rec overedor o ver-rec overed
. T he t est i mo n y E n t er gy c i t es t o sh ow h ar m i s u n av ai l i n g. Fi rs t , E n t er gy’ s
wi t n ess st at ed : “ yo u ’r e go i n g o u t si d e m y ex pert i se. ” (A R P art II I, B i n d er 43 , V ol . I (M ay

1 , 2 01 2 , T r. at1 47 0– 41 0) .) An d t he wi t n ess f u rthe r assumes: “you retr oactivel y chan ge an al lo cat io n fa ct or a nd yo u d on’thav e12

th e abil it y to go back an d rec over those co sts fr om an yone el se,” but, as
ex pl ai n ed ab ov e, the C om mi ssi on d i d n otal l oc at e c os t s t o an y who lesale rat e cl ass. Th us, t he Com missi on n eit her al lo cat es nor a dj ust s an al lo cat io n of thos e co sts to wholes ale cus tome rs ; the Comm iss ion only allocates re tail cost s amon g retai l cu stom ers. Mor eover, becau se Ent ergy provi ded n o in for mat io n abou t w

hol esale ra tes, wh ich ar e set by th e FER C, t he Cou rt
c an n otkn ow

w he t he r E n t er gy h as “ t he ab i l i ty t o go ba ck a n d r ec ov ert ho se
cos ts fro m any one els e” or whe ther the utility alre ady re cove re d thos e co sts f ro m w ho l esa l e c u st om er s. En tergy ha s notshow n t hatitwas h armed.

Concl usi on and Prayer Enter gy ’s arg ume nts a ga inst the Comm iss ion’s fuel- cos ts de cision fail to appreci at e th atFE RC set s Ent ergy’s whol esale ra tes an d t he Com missi on sets on ly r etai l rat es. When t he Com missi on d etermi ned that$4 mi ll io n of cost s Ent ergy cl ai med as f uel expenses to serve ret ai l cu stom ers were act ual ly i ncu rred t o serve w hol esale c ust omers, i t r easonabl y removedth at
amou ntfro m t he fu el expen ses Ent ergy cou ldrecov er fro m ret ai l cu stom ers t hr ou gh t he f

u el r ec on c i l i at i on . Th e Commi ssion asks th e Cou rtto issu e th e ju dgmentth atth e di stri ct court s hould have iss ued : one that affirm s the Comm iss ion’s Orde r on all13

i ssu es. Thu s, t he C om mi ssi on as ks t he C ou rtt o af f i rm t he d i st ri ct c ou rt ’s ju dgmenton the issu es raised by Ent ergy and O PU C, butto reverse t he di stri ctcou rt ’s ju dgmentto th e extentth atitfou nd er ror in th e Co mm i ssi on ’s Or d er . The C om mi ssi on as ks t he C ou rtf orsu ch othe r re l i ef as itmay be enti tl ed. Respectf ul ly su bmit ted, KE N PA XT ON At to rney General of T exas CHA RLES E . ROY Fi rst Assi stan t A

tt orn ey General JA M E S E . DA

VI S Deputy A

tt orn ey General forCi vi l Lit igat io n JO N NI E RM A

NN Di vi si on C hi ef En vi ron ment al Pr ot ect io n Divisi on /s / El izabe th R. B . Sterl ing El iz abeth R . B. St erl in g Ass istant Attorne y G en er al Texa s Stat e BarNo. 1 91 711 00 eli zabeth .sterl in g@texasatto rneygeneral .gov En vi ron ment al Pr ot ect io n Divisi on Off ic e of the At to rney General P.O. B ox 1 254 8, MC-0 66 Au sti n, T exas 7871 1-2 548 512.4 63. 2012 512 .457.46 16 (fa x) COUN SEL FOR PUBL IC UTI LI TY COMMI SS IO N O F TEXAS14 Certif ic ate of Compl ianc e I cert if y th atth e foregoi ng co mput er-generat ed do cu menthas 2 ,507 words , ca lculated us ing the comp uter p rog ram WordPe rfe ct 12, purs uant to Texa s Rul e of A

ppell at e Pro cedu re 9.4, andth atth e tot al nu mber of w ord s foral l of the Com missi on’s bri efin g is 1 5,905. /s/ El izabe th R. B . Sterl ing El iz abeth R . B. St erl in g15 Certif ic ate of Serv ic e I hereby cert if

y th aton thi s th e 2ndday o f Jun e 201 5, a t rue an d c or re ct c op y o f

t he f or ego i n g d oc u me n t w as ser v ed o n t he f

ol l ow i n g c ou n sel ele ctronically, throug h an e lectron ic filing s ervice a nd b y e mail: /s / El izabe th R. B . Sterl ing El iz abeth R . B. St erl in g Coun sel for Ap pella nt Ent ergy Tex as, In c.: M ar n i e A . M c Co rm i ck Patrick J . Pe ars all Dug gins , Wr en , Man n & Rom er o, L LP P. O. B ox 1 14 9 Au sti n, T exas 78767 -11 49 512 .744.9 300 512 .744.9 399 ( fax ) mmcc ormi ck@dwm rl aw.c om ppearsal l@dwmrl aw.c om
Coun sel for Ap pella nt s C ities of Ana hu ac, et al.: Dani el J. Law

to n Th e Lawt on Law

Fi rm, P .C. 12 600 H il l Cou nt ry B lv d, St e. R-27 5 A u st i n , TX 78 73 8 512.3 22.00 19 855.29 8.7978 (f

ax) dl awt on@ecpi .com16

Coun sel for Ap pella nt Office of Pub lic Ut ility C ouns el: Sa ra J . Fe rris Sen i orA ssi st an t P u bl i cC ou n sel Of f i c e o f P u bl i cU t i l i ty P.O. B ox 1 239 7 Au sti n, T exas 7871 1-2 397 512 .936.7500 512 .936.752 0 (fa x) sara.f erri s@opuc.t exas.gov Couns el f

or S tate Agenci es: Kathe rine H. Fa rre ll Ass istant Attorne y G en er al Ad min ist rat iv e Law Div isi on En ergy Rat es Secti on Off ic e of the At to rney General P.O. Box 12548 , MC 0 18- 12 A u st i n , T ex as 78 71 1 -2 54 8 512 .475.42 37 512 .320.01 67 (f

ax) kat heri ne.far rel l@t exasat to rneygeneral .gov Couns el f

or T exas I ndustri al E nergy Consu mers: Re x VanMidd les worth Benj ami n H al lm ark T ho mp so n &Kn i gh t LLP 98 San Jaci nt o B lv d., St e. 19 00 Au sti n, T exas 78701 512 .469 .61 00 512 .469 .61 80 (fax ) rex.va nm@t klaw.co m benjami n.hal lm ark@t klaw.co m

### APPENDIX ACHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS. Subchapter F. METERING.

§25. 236

-- 1 effective 6/10/14 (P 41905) §25.236. Recovery of Fuel Costs. (a) Eligible fuel expenses. Eligible fuel expenses include expenses properly recorded in the Federal Energy Regulatory Commission Uniform System of Accounts, numbers 501, 502, 503, 509, 518, 536, 547, and 555, as modifi ed in this subsection, as of April 1, 2013, and the items specified in paragraph (8) of this subsection. Any later amendments to the System of Accounts are not incorporated into this subsection. Subject to the commission finding special circumstances und er paragraph (7) of this subsection, eligible fuel expenses are limited to: (1) For any account, the electric utility may not recover, as part of eligible fuel expense, costs incurred after fuel is delivered to the generating plant site, for example, but n ot limited to, operation and maintenance expenses at generating plants, costs of maintaining and storing inventories of fuel at the generating plant site, unloading and fuel handling costs at the generating plant, and expenses associated with the disposal of fuel combustion residuals. Further, the electric utility may not recover maintenance expenses and taxes on rail cars owned or leased by the electric utility, regardless of whether the expenses and taxes are incurred or charged before or after the fuel is delivered to the generating plant site. The electric utility may not recover an equity return or profit for an affiliate of the electric utility, regardless of whether the affiliate incurs or charges the equity return or profit before or after the fuel is delivered to the generating plant site. In addition, all affiliate payments must satisfy the Public Utility Regulatory Act (PURA) §36.058. (2) For Accounts 501 and 547, the only eligible fuel expenses are the delivered cost of fuel to the generating p lant site excluding fuel brokerage fees. For Account 501, revenues associated with the disposal of fuel combustion residuals will also be excluded. (3) For Account 502, the only eligible fuel expenses are environmental consumables that are: properly recor ded in the Account as chemicals; required to comply with applicable state or federal emission reduction statutes, orders, and regulations; and whose use is directly proportional to the fuel consumed to generate electricity. (4) For Account 509, the only el igible fuel expenses are allowances expensed concurrent with the monthly emissions of sulfur dioxide and nitrogen oxides. (5) For Accounts 518 and 536, the only eligible fuel expenses are the expenses properly recorded in the Account excluding brokerage fe es. For Account 503, the only eligible fuel expenses are the expenses properly recorded in the Account, excluding brokerage fees, return, non

- fuel operation and maintenance expenses, depreciation costs and taxes. (6) For Account 555, the electric utility may not recover demand or capacity costs. (7) Upon demonstration that such treatment is justified by special circumstances, an electric utility may recover as eligible fuel expenses fuel or fuel related expenses otherwise excluded in paragraphs (1)

- (6) of this subsection. In determining whether special circumstances exist, the commission shall consider, in addition to other factors developed in the record of the reconciliation proceeding, whether the fuel expense or transaction giving rise to the inelig ible fuel expense resulted in, or is reasonably expected to result in, increased reliability of supply or lower fuel expenses than would otherwise be the case, and that such benefits received or expected to be received by ratepayers exceed the costs that r atepayers otherwise would have paid or otherwise would reasonably expect to pay. (8) Eligible fuel expenses shall not be offset by revenues by affiliated companies for the purpose of equalizing or balancing the financial responsibility of differing levels of investment and operation costs associated with transmission assets. In addition to the expenses designated in paragraphs (1)

- (7) of this subsection, unless otherwise specified by the commission, eligible fuel expenses shall be offset by: (A) revenues from steam sales included in Accounts 504 and 456 to the extent expenses incurred to produce that steam are included in Account 503;CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS. Subchapter F. METERING.

§25. 236

-- 2 effective 6/10/14 (P 41905) (B) revenues from off

- system sales in their entirety, except as permitted in paragraph (9) of this subsection; and (C) re venues from disposition of allowances properly recorded in Account 411.8. (9) Shared margins from off - system sales. An electric utility may retain 10% of the margins from an off

- system energy sales transaction if the following criteria are met: (A) the el ectric utility participates in a transmission region governed by an independent system operator or a functionally equivalent independent organization; (B) a generally

- applicable tariff for firm and non

- firm transmission service is offered in the transmissi on region in which the electric utility operates; and (C) the transaction is not found to be to the detriment of its retail customers. (b) Reconciliation of fuel expenses. Electric utilities shall file petitions for reconciliation on a periodic basis so that any petition for reconciliation shall contain a maximum of three years and a minimum of one year of reconcilable data and will be filed no later than six months after the end of the period to be reconciled. (c) Petitions to reconcile fuel expenses. In addition to the commission prescribed reconciliation application, a fuel reconciliation petition filed by an electric utility must be accompanied by a summary and supporting testimony that includes the following information: (1) a summary of significa nt, atypical events that occurred during the reconciliation period that affected the economic dispatch of the electric utility's generating units, including but not limited to transmission line constraints, fuel use or deliverability constraints, unit oper ational constraints, and system reliability constraints; (2) a general description of typical constraints that limit the economic dispatch of the electric utility's generating units, including but not limited to transmission line constraints, fuel use or d eliverability constraints, unit operational constraints, and system reliability constraints; (3) the reasonableness and necessity of the electric utility's eligible fuel expenses and its mix of fuel used during the reconciliation period; (4) a summary tabl e that lists all the fuel cost elements which are covered in the electric utility's fuel cost recovery request, the dollars associated with each item, and where to find the item in the prefiled testimony; (5) tables and graphs which show generation (MWh), capacity factor, fuel cost (cents per kWh and cents per MMBtu), variable cost and heat rate by plant and fuel type, on a monthly basis; and (6) a summary and narrative of the next

- day and intra

- day surveys of the electricity markets and a comparison of tho se surveys to the electric utility's marginal generating costs. (d) Fuel reconciliation proceedings. Burden of proof and scope of proceeding are as follows: (1) In a proceeding to reconcile fuel factor revenues and expenses, an electric utility has the b urden of showing that: (A) its eligible fuel expenses during the reconciliation period were reasonable and necessary expenses incurred to provide reliable electric service to retail customers; (B) if its eligible fuel expenses for the reconciliation period included an item or class of items supplied by an affiliate of the electric utility, the prices charged by the supplying affiliate to the electric utility were reasonable and necessary and no higher than the prices charged by the supplying affiliate to it s other affiliates or divisions or to unaffiliated persons or corporations for the same item or class of items; and (C) it has properly accounted for the amount of fuel

- related revenues collected pursuant to the fuel factor during the reconciliation period

.CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS. Subchapter F. METERING.

§25. 236

-- 3 effective 6/10/14 (P 41905) (2) The scope of a fuel reconciliation proceeding includes any issue related to determining the reasonableness of the electric utility's fuel expenses during the reconciliation period and whether the electric utility has over

- or under

- recovered its reas onable fuel expenses. (e) Refunds. All fuel refunds and surcharges shall be made using the following methods. (1) Interest shall be calculated on the cumulative monthly ending under

- or over - recovery balance at the rate established annually by the commis sion for overbilling and underbilling in §25.28 (c) and (d) of this title (relating to Bill Payment and Adjustments). Interest shall be calculated based on principles set out in subparagraphs (A)

- (E) of this paragraph. (A) Interest shall be compounded a nnually by using an effective monthly interest factor. (B) The effective monthly interest factor shall be determined by using the algebraic calculation x = (1 + i) (1/12)

- 1; where i = commission

- approved annual interest rate, and x = effective monthly in terest factor. (C) Interest shall accrue monthly. The monthly interest amount shall be calculated by applying the effective monthly interest factor to the previous month's ending cumulative under/over recovery fuel and interest balance. (D) The monthly i nterest amount shall be added to the cumulative principal and interest under/over recovery balance. (E) Interest shall be calculated through the end of the month of the refund or surcharge. (2) Rate class as used in this subparagraph shall mean all custome rs taking service under the same tariffed rate schedule, or a group of seasonal agricultural customers as identified by the electric utility. (3) Interclass allocations of refunds and surcharges, including associated interest, shall be developed on a month

- by

- month basis and shall be based on the historical kilowatt

- hour usage of each rate class for each month during the period in which the cumulative under

- or over - recovery occurred, adjusted for line losses using the same commission

- approved loss factors that were used in the electric utility's applicable fixed or interim fuel factor. (4) Intraclass allocations of refunds and surcharges shall depend on the voltage level at which the customer receives service from the electric utility. Retail customers who receive service at transmission voltage levels, all wholesale customers, and any groups of seasonal agricultural customers as identified by the electric utility shall be given refunds or assessed surcharges based on their individual actual historical usag e recorded during each month of the period in which the cumulative under

- or over - recovery occurred, adjusted for line losses if necessary. All other customers shall be given refunds or assessed surcharges based on the historical kilowatt

- hour usage of th eir rate class. (5) Unless otherwise ordered by the commission, all refunds shall be made through a one

- time bill credit and all surcharges shall be made on a monthly basis over a period not to exceed 12 months through a bill charge. However, refunds may be made by check to municipally

owned electric utility systems if so requested. Retail customers who receive service at transmission voltage levels, all wholesale customers, and any groups of seasonal agricultural customers as identified by the electric u tility shall be given a one

- time credit or assessed a surcharge made on a monthly basis over a period not to exceed 12 months through a bill charge. All other customers shall be given a credit or assessed a surcharge based on a factor which will be applie d to their kilowatt

- hour usage over the refund or surcharge period. This factor will be determined by dividing the amount of refund or surcharge allocated to each rate class by forecasted kilowatt

- hour usage for the class during the period in which the re fund or surcharge will be made.CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS. Subchapter F. METERING.

§25. 236

-- 4 effective 6/10/14 (P 41905) (6) A petition to surcharge or refund a fuel under

- or over - recovery balance not associated with a proceeding under subsection (d) of this section shall be processed in accordance with the filing schedules in §25.237(d) of this title (relating to Fuel factors) and the deadlines in §25.237(e) of this title. (f) Procedural schedule. Upon the filing of a petition to reconcile fuel expenses in a separate proceeding, the presiding officer shall set a procedural schedule that wi ll enable the commission to issue a final order in the proceeding within one year after a materially complete petition was filed. However, if the deadlines result in a number of electric utilities filing cases within 45 days of each other, the presiding o fficers shall schedule the cases in a manner to allow the commission to accommodate the workload of the cases irrespective of whether such procedural schedule enables the commission to issue a final order in each of the cases within one year after a materi ally complete petition is filed.

### APPENDIX BCHAPTER 2 5 . SUBSTANTIVE RULES APPLICABLE TO ELEC TRIC SERVICE PROVIDERS. Subchapter J . COSTS, RATES AND TARIFFS. DIVISION 1: RETAIL RATES.

§25.237

-- 1 9 /0 4 / 08 §25.237. Fuel Factors. (a) Use and calculation of fuel factors. An electric utility's fuel costs will be recovered from the electric utility's customers by the use of a fuel factor that will be charged for each kilowatt

- hour (kWh) consumed by the custom er. (1) An electric utility may determine its fuel factor in dollars per kilowatt

- hour pursuant to either subparagraph (A) or (B) of this paragraph. Fuel factors must account for system losses and for the difference in line losses corresponding to the vol tage at which the electric service is provided. An electric utility may have different fuel factors for different times of the year to account for seasonal variations. A different method of calculation may be allowed upon a showing of good cause by the e lectric utility. (A) Fuel factors may be determined by dividing the electric utility’s projected net eligible fuel expenses, as defined in §25.236(a) of this title (relating to Recovery of Fuel Costs), by the corresponding projected kilowatt

- hour sales for the period in which the fuel factors are expected to be in effect. (B) Fuel factors may be determined using a commission

- approved, utility

- specific fuel factor formula. Fuel factor formulas may be approved or revised only in a general rate change proceed ing or a proceeding to consider an application to establish a fuel factor formula with notice and an opportunity for a hearing. (2) An electric utility may initiate a change to its fuel factor as follows: (A) Pursuant to subsection (a)(1)(A) of this sectio n, an electric utility may petition to adjust its fuel factor as often as once every four months according to the schedule set out in subsection (d) of this section. (B) Pursuant to subsection (a)(1)(B) of this section, an electric utility may petition to adjust its fuel factor in accordance with its approved fuel factor formula no sooner than four months after the filing of its most recent fuel factor adjustment petition. (C) Notwithstanding subsection (a)(2)(A) of this section, an electric utility may p etition to change its fuel factor at times other than provided in the schedule if an emergency exists as described in subsection (f) of this section. (D) An electric utility's fuel factor may be changed in any general rate proceeding. (3) Fuel factors are temporary rates, and the electric utility's collection of revenues by fuel factors is subject to the following adjustments: (A) The reasonableness of the fuel costs that an electric utility has incurred will be periodically reviewed in a reconciliation pro ceeding, as described in §25.236 of this title, and any disallowed costs resulting from a reconciliation proceeding will be reflected in the calculation of the utility’s recoverable fuel and over/(under) collections. (B) To the extent that there are variat ions between the fuel costs incurred and the revenues collected, it may be necessary or convenient to refund overcollections or surcharge undercollections. Refunds or surcharges may be made without changing an electric utility's fuel factor. Nothwithstan ding §25.236(e)(6) of this title, a n electric utility may petition for a surcharge any time it has materially undercollected its fuel costs and projects that it will continue to be in a state of material undercollection. Notwithstanding §25.236(e)(6) of t his title, a n electric utility shall petition to make a refund any time it has materially overcollected itsCHAPTER 2 5 . SUBSTANTIVE RULES APPLICABLE TO ELEC TRIC SERVICE PROVIDERS. Subchapter J . COSTS, RATES AND TARIFFS. DIVISION 1: RETAIL RATES.

§25.237

-- 2 9 /0 4 / 08 §25.237(a)(3)(B) continued fuel costs and projects that it will continue to be in a state of material overcollection. "Materially" or "materia l," as used in this section, shall mean that the cumulative amount of over

- or under

- recovery, including interest, is greater than or equal to 4.0% of the annual actual fuel cost figures on a rolling 12

- month basis, as reflected in the utility’s monthly fu el cost reports as filed by the utility with the commission. (b) Petitions to revise fuel factors. (1) An electric utility using the fuel factor methodology set forth under subsection (a)(1)(A) of this section may file a petition requesting revised fuel f actors pursuant to subsection (a)(2)(A) of this section during the first five business days of the months specified in subsection (d) of this section. A copy of the complete petition package shall be served on each party in the utility’s most recent fuel reconciliation and on the Office of Public Utility Counsel. Service shall be accomplished by email if possible. Each complete filing package shall include the commission

- prescribed fuel factor application, a tariff sheet reflecting the proposed fuel fact ors and supporting testimony that includes the following information: (A) For each month of the period in which the fuel

- factor has been in effect and has not been reconciled up to the most recent month for which information is available, (i) the revenues collected pursuant to fuel factors by customer class; (ii) any other items that to the knowledge of the electric utility have affected fuel factor revenues and eligible fuel expenses; and (iii) the difference, by customer class, between the revenues collec ted pursuant to fuel factors and the eligible fuel expenses incurred. (B) For each month of the period for which the revised fuel factors are expected to be in effect, provide system energy input and sales, accompanied by the calculations underlying any di fferentiation of fuel factors to account for differences in line losses corresponding to the voltage at which the electric service is provided. (2) An electric utility using the fuel factor formula methodology set forth under subsection (a)(1)(B) of this s ection may file a petition requesting revised fuel factors pursuant to subsection (a)(2)(B) of this section at least 15 days prior to the first billing cycle in the billing month in which the proposed fuel factors are requested to become effective. A copy of the complete petition package shall be served on each party in the utility’s most recent fuel reconciliation and on the Office of Public Utility Counsel. Service shall be accomplished by email if possible. Each complete filing package shall include: (A) a tariff sheet reflecting the proposed fuel factors; (B) workpapers supporting the calculation of the revised fuel factors; (C) calculations underlying any differentiation of fuel factors to account for differences in line losses corresponding to the v oltage at which the electric service is provided; and (D) any computer generated documents must be provided in their native electronic format with all cells and internal formulas disclosed.CHAPTER 2 5 . SUBSTANTIVE RULES APPLICABLE TO ELEC TRIC SERVICE PROVIDERS. Subchapter J . COSTS, RATES AND TARIFFS. DIVISION 1: RETAIL RATES.

§25.237

-- 3 9 /0 4 / 08 §25.237 continued (c) Fuel factor revision proceeding. Burden of proof and scope of proceeding are as follows: (1) In a proceeding to revise fuel factors pursuant to subsection (a)(1)(A) of this section, an electric utility has the burden of proving that: (A) the expenses proposed to be recovered through the fuel fac tors are reasonable estimates of the electric utility's eligible fuel expenses during the period that the fuel factors are expected to be in effect; (B) the electric utility's estimated monthly kilowatt

- hour system sales and off

- system sales are reasonable estimates for the period that the fuel factors are expected to be in effect; and (C) the proposed fuel factors are reasonably differentiated to account for line losses corresponding to the voltage at which the electric service is provided. (2) The scope o f a fuel factor revision proceeding under subsection (a)(1)(B) of this section is limited to the issue of whether the petitioning electric utility has appropriately calculated its proposed fuel factors. In a proceeding to revise fuel factors pursuant to s ubsection (a)(1)(B) of this section, an electric utility has the burden of proving that: (A) the electric utility has calculated its proposed fuel factors in compliance with the commission

- approved fuel factor formula; and (B) the proposed fuel factors uti lize a commission

- approved adjustment to account for line losses corresponding to the voltage at which the electric service is provided. (d) Schedule for filing petitions to revise fuel factors . A petition to revise fuel factors or to initiate or revise a fuel factor formula may be filed with any general rate proceeding. (1) Otherwise, except as provided by subsection (f) of this section which addresses emergencies, petitions by an electric utility to revise fuel factors pursuant to subsection (a)(1)(A) o f this section may only be filed in accordance with the following schedule: (A) February, June and October : El Paso Electric Company; (B) March, July and November : E ntergy T exas, I nc. ; (C) April, August and December : Southwestern Public Service Company; (D) May, September and January : Southwestern Electric Power Company; and (E) March, July and November : any other electric utility not named in this subsection that uses one or more fuel factors. (2) Petitions by an electric utility to revise fuel factor s pursuant to subsection (a)(1)(B) of this section may be filed in any month except December. (e) Procedural schedules. (1) Upon the filing of a petition to revise fuel factors pursuant to subsection (a)(1)(A) of this section, the presiding officer shall set a procedural schedule that will enable the commission to issue a final order in the proceeding as follows: (A) within 60 days after the petition was filed, if no hearing is requested within 30 days of the petition; and (B) within 90 days after the peti tion was filed, if a hearing is requested within 30 days of the petition. If a hearing is requested, the hearing will be held no earlier than the first business day after the 45th day after the application was filed.CHAPTER 2 5 . SUBSTANTIVE RULES APPLICABLE TO ELEC TRIC SERVICE PROVIDERS. Subchapter J . COSTS, RATES AND TARIFFS. DIVISION 1: RETAIL RATES.

§25.237

-- 4 9 /0 4 / 08 §25.237( e ) continued (2) Upon the f iling of a petition to revise fuel factors pursuant to subsection (a)(1)(B) of this section, the presiding officer shall set a procedural schedule as follows: (A) the presiding officer shall issue an order approving the proposed fuel factors on an interim basis no later than 12 days after the date the petition was filed, if no objection to interim approval is filed within 10 days after the date the petition was filed; (B) if no hearing is requested within 30 days after the petition was filed, the presiding officer shall, after submission of proof of notice by the electric utility, issue an order approving the fuel factors without hearing or action by the commission; and (C) if a hearing is requested within 30 days after the petition was filed, the hearing wi ll be held no earlier than the first business day after the 45th day after the petition was filed and a final order will be issued within 90 days after the petition was filed, subject to submission of proof of notice by the electric utility. (f) Emergency revisions to the fuel factor. If fuel curtailments, equipment failure, strikes, embargoes, sanctions, or other reasonably unforeseeable circumstances have caused a material under

- recovery of eligible fuel costs, the electric utility may file a petition w ith the commission requesting an emergency interim fuel factor. Such emergency requests shall state the nature of the emergency, the magnitude of change in fuel costs resulting from the emergency circumstances, and other information required to support th e emergency interim fuel factor. The commission shall issue an interim order within 30 days after such petition is filed to establish an interim emergency fuel factor. If within 120 days after implementation, the emergency interim factor is found by the commission to have been excessive, the electric utility shall refund all excessive collections with interest calculated on the cumulative monthly ending under

- or overrecovery balance in the manner and at the rate established by the commission for overbill ing and underbilling in §25.28(c) and (d) of this title (relating to Bill Payment and Adjustments Billing). If, after full investigation, the commission determines that no emergency condition existed, a penalty of up to 10% of such over

- collections may al so be imposed on investor

- owned electric utilities.