### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-14-00735- CV

Appellan t, Entergy Texas, Inc.//Cross- Appellan ts, Off ice of P ubl ic Utility Counsel and Publi c Ut ility Com m ission of T exas

v. Appellees, P ubl ic Utility Com m ission of T exas and Texas In dus trial Consum ers// Cross-A ppellees , Of

fi ce of P ubl ic Utility Counsel and Entergy Texas, Inc.

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 353 RD JUDICI AL DISTRICT NO. D-1 -GN-1 3-0 0012 1, H ONO RAB LE JO HN K. DIETZ, JUDGE PRESI DING

O P I N I O N

This is an appea l from a final order of the Public Utility Commi ssion in a rate making
proce eding filed by Enterg y Texas, I n c. (Doc ket Number 39896) for authority to raise its elec tric
rate s and rec oncile its fue l c osts. Both Enter g y and the Offic e of Public Utility Counsel f iled suits for judicial revie w of various aspects of the Comm ission’s order, a nd the suits were consolidated. The district court af

fi rm ed t he Commi ssion’s order on all issues but one, perta ining to the Commi ssion’s use of a contempora neous line-loss s t u d y in Enterg y ’s fuel rec onciliation, which the Commi ssion appea ls. Enterg y complains that (1 ) the Commi ssion improperly disallowed

rec overy of cer

tain hurrica

ne-r estoration costs and (2) s u b s t antial evidenc e does not support the Commi ssion’s deter

mination that Enterg y ’s projec ted fut ure purcha sed-c apac ity costs and transmission-equalization costs wer e not “known and rea sonable chang es” to its historical test-y earcosts. The Office of P ublic Utility Counsel (OPUC) complains that substantial evidenc e does not support the Commi ssion’s inclusion of Enterg y ’s 1997 ice- storm-repa ir expenses when computing its insurance r eser

ve. We will affir

m the district court’s fina l judgment.

BACK GR OUND
I n 2011, Enterg y , an elec tric utilit y that rema ins subject to traditional cost-of- service
rate reg ulation, see Tex. Util. Code § 39.452(a) (until date that Commi ssion authorizes non-ERCOT utilit y to implement customer choice , utilit y ’s rate s shall be reg ulated under traditional cost-ofservice reg

ulation), initiated a g ener al base- rate case seeking an annual incre ase of over $100 milli on
to cover its incre ased cost of service (Docket Numb er 39896). See id. § 36.051 (utility is entitled
to r ates that aff

ord it “a r easona

ble opportunity to e arn a rea sonable return on [i ts] invested capital used and useful in providing service to the public in excess of the utilit y ’s rea sonable and nece ssary
opera ting e x penses” ).

The Commi ssion sets rate s based on a utilit y ’s cost o f rende ring service to the public during a historical “test y ear ,” adjusted for known and measura b l e ch ang es. See 16 Tex. Admin. Code § 25.231(a), (b) (Pub. Util. Comm’n, Cost of S ervic e). During the reg ulatory “lag ” betwee n rate case s, the utilit y bear s the risk that its actu al o p er at i n g expenses will exceed the expectations incorpora

ted into the rate , while reta il customers bear the conver se risk. City of El Paso

v. Public Util. Comm’n , 344 S.W .3d 609, 613 (Tex. App.—Austin 2011, no pet.). Ex ceptions to this
g ener al rul e o f ri sk exis t for cer tain cate g ories of costs, such as fuel costs and ener g y -ef ficienc y
costs. For these ty

pes of costs, the utilit y has a separ ate rider throug h which it collects its projec ted costs, and it late r must re concile those reve nues with its actua l, rea sonable costs so that it r ecove rs
2no more or less than its actua l, rea sonable costs for the categ ory of expense cover ed by the rider.

S e e , e
. g
. , 1 6 T e x. A d

mi n . Co d e § § 2 5

. 1 8 1 ( Pu

b

. U ti l. Co mm ’ n , E n e r g

y E f f ic ie n c y G o a ls ) ( p r o v id in g f o r r e c o v e r

y o f ener g y -e f

f ic ie n c y c o s ts ) , . 2 3 5

– . 2 3 7 ( Pu b

. U ti l. Co mm ’ n , v a

r io u s ) ( p r o v id in g f

o r

r e c o v e r y of fue l costs). I n Docke t 39896, Enterg y also soug ht to rec oncile its fuel costs fora twoy ear period e nding June 2001.

E n te r g y , the Commi ssion, and OPUC eac h appea l a portion of the district cou r t’ s f in a l order in this suit for judicial revie w of the Commission’s Final Orde r on Rehea ring in this docket.

STANDARD OF REVIEW Our revie w is g overne d by the “substantial evidenc e” rule. Tex. Util. Code § 15.001;
Tex. Gov’t Code § 2001.174; see Anderson v. Railroad Comm’n , 963 S.W .2d 217 , 2 1 9 (T ex . A p p . — A u s ti n 1 9 9 8 , p e t. d e n ie d )

. Wh e n a n a p p e ll a n t c o n te n d s th a

t a n a g e n c y ’ s o r d e r is n o t s u

p p o r te d by substantial evidenc e, we deter mine whether substantial evidenc e supports the challeng ed finding or conclusion, that is, not whether the a g ency rea ched the “cor

rec t” conc lusion, but whether some

rea sonable basis exis ts in the rec ord for the ag ency ’s action. Texas Hea l th Facilities Comm’n v. Charter Med.-

Dall., Inc. , 665 S.W .2d 446, 452 (Tex. 1984); see also City of El Paso v. Public Util.
Comm’n , 883 S.W .2d 179, 185 (T ex . 1 9 9 4 ) (in conducting substantial-evidenc e revie w, we deter mine whether evidenc e as whole is such that rea sonable minds could have rea ched conclusion
ag ency must have rea ched in order to take disputed action). A revie wing court is not bound by the

rea sons g iven in an ag ency order , provided there is a valid basis for the action taken by the ag ency . Charter Med.-D all. , 665 S.W .2d at 452.

3DISCUSSIO N

Entergy’s issues

A. Hurri cane-re construction costs I n its first issue, Enterg y contends that the Commi ssion improperly disallowed over $11 milli on of costs that it incurred to r estore its sy stem afte r Hurric ane Rita. See Tex. Util. Code §§ 39.458(a) (purpose of statutory sections perta ining to “hurr icane rec onstruction costs” is “to enable an elec tric utilit y subject to this subchapte r t o o btain timely rec overy of hurrica ne

rec onstruction costs and to use secur itiz ation financ ing to rec over these costs, beca use that t y

pe of debt will lower the car ry ing costs associate d with the rec overy of hurrica ne rec on s t ru ct ion
costs rela tive to the costs that would be incurred using conventional financ i ng methods”), .459(a) (def ining “hurr icane rec onstruction costs” and “Hur rica ne Rita”). Resolution of the parties’ dispute hinge s on whether the Commi ssion proper ly deter mined that Enterg y had alre ady rec overe d the disallowed amount throug h rate -setting conducte d in a prior doc ket.

After Hurric ane Rita and pursuant to applicable statutes, Enterg y filed an application with the Commi ssion to rec over its elig ible hurrica ne-r econstruc tion costs throug h “sec uritiz ation.” 1
I n that docket, Number 32907, the Commi ssion and Enterg y rea ched a settlement in which t h e parties ag ree d that over $380 milli on of Enterg y ’s reque sted rec onstruction expenses wer e elig ible for secur itiz ation and that Enterg y would dedu ct from that amount the insurance proce eds it expected to rec eive in the future. Be cause the insurance proce eds wer e an estimate, the parties

Securitization is a special i z ed form of debt financ ing wher e repa y ment of bondholders 1 achie ves a hig h deg ree of assura nce, r esulting in ve ry

low bond interest ra tes. 4further

ag ree d that afte r Enter g y had rec eived all of its insurance pay ments, a true- up would occur
to deter mine the differ ence betwee n the estimate and the amount actua lly rec eived. The ag ree ment, howeve r, did not specify a method for re covering any insurance under- rec overy from rate pay ers, but implicit in the t rue- up provision was the C ommissi on’s approval of Enterg y ’s future rec overy of any such insuranc e-pr ocee ds shortfall.
I n E n t erg y ’s next base- rate case , Docke t Number 37744, Enterg y specific ally
reque sted the previously anticipated true-up by seeking (1) ap p ro v al of a reg ulatory asset in the 2

amount of near ly $26 milli on (including acc rued “ca rry ing costs,” or interest), due to its insurance

proce eds estimate from the secur itiz ation docket being lower than its actua l rec eipts (the Rita asset) and (2) amortization of Rita a sset throug h its ba se rate s over five y ear s. That docket also resolved by settlement, in w hich the parties enter ed into a “blac k box settlement” resolving all of the issues betwee n the par

ties and ra ised by

Enterg y . I n a “blac k box settlement,” the pa rties ag ree to a total
amount th at t h e u t i l i t y may rec over in its rate s without specify ing any of the individual numbers used to calc ulate the amount. See Citi es of Dickinson v. Public Util. Comm’n , 284 S.W .3d 449, 450 (Tex. App.—Austin 2009, no pet.) (def ining “blac k box settlement”). Notably , neither the parties’ stipulation nor the Commi ssion’s order in Docke t Number 37744 direc tly ref err ed to the Rita asset, althoug h there is no dispute that Enterg y specific ally reque sted rec overy of the Rita asset, amortized

A “re g ulatory asset” is a mecha nism by which a utilit y car ries a cost on its books as a 2 balanc e-she et asset based on the ex pecta tion that the C ommissi on will allow the utility to rec over the cost over a period of y ear s in the futu re (t h rough amortization) instead of at the time the expenditure is made. See City of Corpus Christ i v. P u b l i c Ut i l

. Comm’n , 51 S.W .3d 231, 238 (Tex. 2001). 5throug h its rate s over five y ear s, and that the Commi ssion had previously authorized a true-up afte r

Enterg y ’s re ceipt of insura nce pr ocee ds.
I n the docket prese ntly on appea l, Enterg y ag ain reque sted approva l o f a Rita
reg ulatory asse t to rec over the balanc e of its overe stimated insurance proce eds, amounting to approximately $26 milli on, plus car ry ing costs. Severa l parties objected to the reque st, arg uing that all or some of the amount should be denied beca use Enterg y had (1) alre ady rec overe d the balanc e via the black- box settlement rea ched in Docket Nu m b er 37744 and (2) rec eived additional,

unacc ounted-for insurance proce eds si nce the conclusion of that docket. We there fore turn t o the evidenc e befor e the Commi ssion conce rning prior Docke t N umber 37744 and Enterg y ’s rec eipt of insurance proce eds.

I n their Proposal for Dec ision (PFD) in the docket on appea l here , the Administrative
L aw J udg es (AL J s) noted that in prior Docke t Number 37744: (1) no party objected to Enterg y ’s
reque sted reg ulatory asset or amortization; (2) the stipulat ion and settlement ag ree ment stated 3
that the parties resolved “a l l i s s u es ” except for one not rele vant t o this appea l; and (3) neither the

s ti p u la ti o n a n d s e tt le me n

t a g r e e me n t n o r th e Commi ssion’s order specific ally disapproved, exclude d ,

or defe rre d consideration of the rec overy of the Rita asset, althoug h those documents did specific ally exclude or di sapprove other it ems not rele vant t o this appea l. The AL J s also op i n ed that whether

Enterg y contends that the Administrative L aw J udg es’ (AL J s’) rec itation in the PFD that 3 in Docke t 37744 no party objected to Enterg y ’s proposed amortization is incorre ct, as in that docket witness J acob Pous had testified on behalf of sever al intervening cities that instead of amortizing the Rita asset and rec overing it throug h rate s, Enterg y should have to book the amount as a cre dit in its storm reser

ve. W hile Pous did so testify , he did not object to the leng th of amortization proposed by Enterg y

(five y ear s) or submit that any other a mortiz ation period should be utilized, should t he Commi ssion rejec t his storm-reser ve re commendation.

6the Rita-asset issue wa s re s o l v ed or left unresolved in Docke t Number 37744 was a “close call.”

I dentify ing fac tors supporting both finding s and discussing the issue at leng th, the AL J s ultimately conclude d that the prior docket did approve the Rita asset and that Enterg y s h o u l d have been amortizing the asset since the eff ecti v e d at e o f the rate s approve d in that docket and that,

acc ording ly , Enterg y ’s re quested re cover y should be reduc ed. The PFD proposed an $11 milli on 4
reduc tion in Enterg y ’s reque sted amount, calc ulated as follows: beg inning with the Rit a- asset balanc e that Enterg y reque sted in Docke t Number 37744, subtracting the p o rt i o n of that amount
t h at s h o u ld have been amortized for the period betwee n when rate s from that docket took ef fe ct until the end of the test y ear for this prese nt docket, and subtracting the additional insurance proce eds that Enterg y had rec eived since the conclusion of Docke t Number 37744. The Commi ssion adopted the AL J s’ finding s and rec ommendations on the issue as set forth in the PFD without amendment.

On appea l, the Commi ssion arg ues that an y “ambig uity ” in the prior order from Docket Nu m b er 37744 must be resolved in acc ordanc e with its interpre tation beca use courts
g ener ally defe r t o an ag ency ’s interpre tation of its prior order. See Office of Pub. Util. Counsel v. Te x a s - Ne w M e x ic o P o we r Co

. , 3 4 4 S. W. 3 d 4 4 6 , 4 5 2

– 5 3 & n . 5 ( T e x. A p p . — A u s ti n 2 0 1 1 , p e t. d e n ie d ) (ag ency is entitled to interpre t its o wn p rior order as long as it does not use occa sion to amend prior order , and if prior ag ency order is ambig uous, we defe r to ag ency ’s rea sonable interpre tation);

The AL J s conclude d their discussion of whether the prior docket approve d the Rita a sset 4 thus: “More over, when there is uncer tainty whether an undis

p u t ed issue was defe rre d for future consideration or was included w ithin the rates set in a black-box settlement, the burden should be on the utilit y to establish that the issue was defe rre d for future consideration.” As alre ady indicated, nothing in the black- box settlement or the Commi ssion’s or der approving the settlement indicated that resolution of the Rita asset would be defe rre d for f uture c onsideration. 7A E

P Te x
. N. Co

. v
. P u b li c U

ti l. Co m m ’n , 2 9 7 S. W. 3 d 4 3 5 , 4 4 7 ( T e x. A p p . — A u s ti n 2 0 0 9 , p e t. d e n ie d ) (“Just as we g ive g rea t weig ht to an ag ency ’s interpre tation of its own rules and reg ulations, we g ive
g rea t weig ht to an ag ency ’s interpre tation of its administrative order s.”); Citi es of Abilene v Public
U ti l. Co m m ’n . , 1 4 6 S. W. 3 d 7 4 2 , 7 4 8 ( T e x. A p p . — A u s ti n 2 0 0 4 , n o p e t. ) ( “ I f th e Se tt le me n t O r d e r is

a mb ig u o u s , w e w il l a f

f ir m th e Co mm is s io n ’ s in

te r p r e ta ti o n o f it in th e F in a l O r d e r if th e in te r p r e ta ti o n is supported by

substantial evidence .”). We a g ree . Be cause (1) the issue of rec overy and amortization of the Rita asset was specific ally befor e the Commi ssion and undisputed in Docke t 37744; (2) the black- box settlement in that docket resolved “all issues”; and (3) the R i t a- as s et issue was not specific ally excluded or defe rre d for fu t u re consideration, the Commi ssion’s interpre tation of its prior order as approving the R i t a asset, including it in Enterg y ’s rate s, and authorizing Enterg y ’s reque sted amortization schedule is rea sonable. We conclude that there is a rea sonable basis in the rec ord for the Commi ssion’s

5
d e te r mi n a ti o n to d is a ll o w th e a

p p r o x i m a t e $ 1 1 m i l l i o n o f E n

t e r g y ’ s r e q

u e s te d h u r r ic a n e - r e c o n s tr

u c ti o n costs. Acc ording ly , we ove rrule E nterg y ’s first issue. 6

The Commi ssion’s interpre tation is also in line with the doctrine of res judicata, which was 5 raised by various parties and has been applied to administrative proce eding s. See McM illan v. Texas Nat. Re s. Conservation Comm’n , 983 S.W .2d 359, 364–65 (Tex. App.—Austin 1998, pet. denied) (re s judicata applies to final decisions made by adminis t ra t i v e age ncies in their adjudication of co n tested case s, including final order s embody ing settlement ag ree ment among parties) ; see a l s o Citi zens Ins. Co. of Am. v. Dacc ach , 217 S.W .3d 430, 449 (Tex. 2007) (listing elements of res judicata) ; Coalit ion of Citi es for Affordable Util. Rates v. Public Util. Comm’n , 7 9 8 S

. W .2d 560 (Tex. 1990) (eve n wher e Commi ssion’s final order purported to defe r issue of prudenc e of expenses for future resolution, beca use utilit y had not met burden of proof in prior docket to s h ow that expenses wer e prudently incurre d, res judicata barr ed issue’s later revie w by Commi ssion, wher e no statute authorized Commiss ion to defer and re consider issue)

. I n this issue, Enterg y also asser ts that the Com m i ssion err oneously interpre ted Public 6 Utility Reg ulatory Act (PURA) section 39.462(a) t o “re quire” it to resolve the issue of h u rr i cane8B. Adju stm ents for anti cipated “purchased capac ity” costs
I n its second issue, Enterg y contends that the Commi ssion’s disallowance of o v er $30 milli on of its anticipated ex p en s es for purcha sing “ca pacity ” (g ener ated power ) from third parties (“pur chase d-ca

pacity costs” ) was not supported by substantial evidenc e. The Commi ssion

7 responds t h at E n t er gy failed to meet its burden to prove that its projec ted capa city costs wer e “known and measura

ble chang es” to the costs incurre d during the test y ear , see 16 Tex. Admin. Code § 25.231(b) (“I n computing an elec tric utilit y ’s allowable expenses, only the elec tric utilit y ’s historical t est y ear

expenses as adjusted f

or known a

nd measura

ble cha ng es will be considered.” ), and that it proper ly exercised its broad discretion in disallowing the expenses, see Citi es of Corpus Christ i v. Public Util. Comm’n , No. 03-06-00585- CV, 2008 WL 615417 at *9 (Tex. App.—Austin
Mar. 5, 2008, no pet.) (m em . op.) (“The Commi ssion may decide in its discretion whether to incorpora te ‘known and measura

ble’ chang es to the test-y ear data.” ); Central Power & Light/ Citi es of Alice v. Public Util. Comm’n , 36 S.W .3d 547, 563 (Tex. App.—Austin 2000, pet. denied) (“[T]he

rec onstruction costs in Docke t 37744 rathe r than in the prese nt docket on appea l. See Tex

. Ut i l. Code § 39.462(a) (“A n elec tric utilit y subject to this subchap t er is entitled to rec over hurrica ne rec onstruction costs consistent with the provisions of this subchapte r and is entitled to seek rec overy of amounts no t re co v er ed under this subchapte r, including hurrica ne rec onstruction costs not y et incurre d at the time an application is filed under Subsection (b), i n i t s n ex t rate case procee ding or through any other procee ding authorized by Subchapter C , Chap t er 3 6.” (empha sis added) ). Be cause we conclude that substantial evidenc e supports the Co m m i s s ion’s deter mination that Enterg y alre ady soug ht and rec overe d the amounts in dispute, we need not addre ss this statutory arg ument beca

use it pertains only

to unrecov ered

amounts. “Capa city costs” repr esent the seller’ s fix ed costs in g ener ating power , see City of El Paso 7 v. El Paso Elec. Co. , 851 S.W .2d 896, 898 (Tex. App.

— Au s t i n 1 993, writ denied) , and they are g ener ally rec overa

ble in base rate s, see City of El Paso v. Public Util. Comm’n , 344 S.W .3d 609, 614 (Tex. App.—Austin 2001, no pet.). 9Commi ssion’s authority to al l o w post-test-y ear adjustments for ‘known and measura ble chang es to historical test-y ear

data’ is discretionary .”). We a g ree with the Commi ssion.
I n this c ase, Enterg y demonstrated that it incur red purcha sed-c apac ity costs of over $245 milli on for the test y ear ; it soug ht an additional $31 milli on based upon what it believed it would incur throug h purcha sed-c apac ity ag ree ments d u ri n g t h e “ra te y ear ”—the first y ear that

new rate s set by the case would take eff ect. Severa l parties opposed Enterg y ’s reque st for t his adjustment to test-y ear expenses and submitt ed testimony to suppor t the ir opposition, ar g uing that the additi onal ra te-y ear

costs wer e mere projections, not “known and measura ble chang es.” Such evi d en ce s h o wed the following : (1) many of the pay ments that Enterg y claimed it would pay under third- party

purcha sed-c apac ity contra cts in the future did not contain fixed-price terms, and Enterg y ’s costs would fluctuate based on fac tors such as availability and perf ormanc e; (2) Enterg y ’s proj ections under these purcha sed-c apac ity contra cts contained assumptions about availability and perf ormanc e that wer e not supported by historical p ay ments for third-par

ty contra cts; (3) Enterg y ’s costs under its purcha sed-c apac ity contra cts with aff iliates would also fluctuate , based on

a complicated formula set out i n a Fe dera l Energ y Reg ulatory Commi ssion (F ERC) tariff with multipl e var iables, unknown a t the time of t he rate case; (4) some purcha sed-c apac ity contra cts at issue had not y et rec eived requisite reg ulatory approv al and did not have set pricing , awa iting development of future pri ci n g s ch edules; and (5) Enterg y ’s expected load g rowth in the coming
y ear s, includin g the rate y ear , would likely offse t or completely outpace its projec ted future purcha sed-c apac ity

costs. 8

Enterg y corr ectly notes that the Commi ssion is not directly authorized by the L eg islature 8 to consider future load g rowth in setting base rate s; howeve r, neither has the L eg islature direc ted the 10The C o m m i s sion was fre e to weig h this and other evidenc e, and we may not

substitut e our judgme nt for its on the weig ht of the evidenc e. See Central Power & Light , 36 S.W .3d

at 561; see also Charter-Med. Dall. , 6 6 5 S

. W .2d at 452–53 (eve n if court would rea ch differ ent conclusion from one ag ency rea ched, court must uphold ag ency ’s decision if it is within bounds of

rea sonablene ss). The AL J s considere d the evidenc e befor e them and conclude d that Enterg y “fa iled
to meet its burden to prove that the adjustment it seeks to its Test y ear [purchased- capa city contra cts] is know n and measura

ble” and found that the interve nors had “ prese nted substantial evidenc e that all of the components of [Enterg y ]’s purcha sed power capa city contain signific ant varia bil i t y and

uncer tainty in costs.” The Commi ssion ag ree d with the AL J s and denied Enterg y ’s request. We hold that substantial evidence supports the Commis sion’s determination and acc ording ly overr ule Enterg y ’s second issue. See Charter-Med. Dall. , 665 S.W .2d at 452 (substantial evidenc e require s only more than mere scintilla of evidenc e, and we must aff irm ag ency decision if rational basis for it ex ists in record)

.

C. Adju stm ents for anti cipated “transm ission equalizati on” expenses
I n its third issue, Enterg y contends that the Co mm is s io n ’ s r e f u s a l to ma k e a d ju s tments
to E n te r g y ’ s te s t- y

e a r le v e l o f “ tr a

n s mi s s io n e q

u a li za ti o n ” e xp e n s e s w a s n o t s u p p o r te d b y s u b s ta n ti a l 9

Commi ssion to consider projec ted future expenses. See Central Power & Light Co/Ci ties of Alice. v. Public Util. Comm’n , 36 S.W .3d 547, 564 (Tex. App.—Austin 2 0 0 0, pet. denied) (upholding Commi ssion’s de cision to de ny post te st-y ear adjustment that failed to take into account a ttendant impacts of incr ease d elec tricity sales fr om load g rowth). “Tra nsmissi on equalization” ref ers to the allocation of opera ting costs among various 9 Enterg y opera ting companies (loca ted in sever al sou thern states) for share d use of Enterg y ’s transmission g rid. The costs of opera ting this sy stem are allocate d p u rs u an t t o a FERC tariff , ref err ed to by the parties as Service Schedule MSS -2, and desig ned to ensure that eac h company 11e v id e n c e . T h e Co mm is s io n r e s p o n d s th a t, a s w it h th e p u r c h a s e d

- c a

p a c it y c o s ts , E n te r g

y f a il e d to me e t its burden to prove that the reque sted expenses wer e “known and measura ble.” See 16 Tex. Admin.
Co d e § 2 5

. 2 3 1 ( b )

. E n

te r g y s o u g h t to r e c o v e r $ 9 mi ll io n mo r e f o r tr a n s mi s s io n - e q

u a li za ti o n e xp e n s e s than it incurre d in the test y ear , seeking these adjustments based on its estimates of transmissionconstruction proje cts expected to be c ompleted af ter the te st y ear

and incur red in the r ate y ear . 1 0
Ex pert witnesses t estify ing on behalf of the Commi ssion and intervening parties opposed Enterg y ’s reque st and identified sever al “unknowns” with respe ct to t h e re q u est : (1) the transmission-equalization formula is complex and involves the input of a number of interdepe ndent varia bles from the various opera ting companies, including things such as eac h company ’s future
transm i s s i on investment, defe rre d taxes, depre ciation rese rves, and costs of capital; (2) Enterg y ’s post-test-y ear adjustment was predic ated on a calc ulation that require d numerous predic tions about

t h ese unknown future varia bles; and (3) the projec ted expenses wer e premised on transm i s s i o n projec ts t h at we re not y et in service and wer e in vary ing stag es of desig n and construction, some with c ompletion da tes of six months a fter Enterg y ’s new rate s would g o into eff ect, and in-servic e

contributes its just and rea sonable share of the costs. Depe nding on vary ing transmission c apac ity and needs among the individual opera ting companies—f or instance, some months Enterg y may be “long ” (owning more capa city than it needs) or “short” (owning less than it needs) —the companies pay or rec eive MSS -2 pay ments from or to one another , and the pay ments that Enterg y makes when it is “short” are rec overa

ble in its rates. During the test y ear , Enterg y was “short” and paid more than $1.7 milli on in MSS -2 1 0 pay ments to the other opera

ting com p an i es . The additional $9 milli on that Enterg y reque sted as post-test-y ear adjustments was based on its e s timates of transmission-construction projec ts expected to be completed afte r the test y ear , resulting in chang es to the rela tive transmission-line-owner ship ratios among the opera ting companies, with the appar ent result that Enterg y would be incre asing ly “short” a nd its MS S-2 pay

ments would g row. 12dates are not g uara ntees and can chang e, while investment for MSS -2 purposes is not counted until projec ts actually

g o into service.
Ba sed on this a

nd other evidenc e, the AL J s conclude d that Enterg y did not meet its burden to prove that the adjustments it was seeking wer e for “known and measura ble” chang es, and the Commi ssion ag ree d. As discussed with respe ct to Enterg y ’s previous issue, the Commi ssion was the s ole j udg e of the weight of the evidence, and we may not substitut e our j u d gm en t fo r i t s . See Central P o wer & Light , 36 S.W .3d at 561. We conclude that substantial evidenc e supports the Commi ssion’s deter

mination, and we acc ording ly overr ule Enterg y ’s third issue. See Charter-Med. Dall. , 665 S.W .2d at 452.

The Com m ission ’s issue

I n its sole issue, the C ommissi on contends that the t ri al court err ed in reve rsing its order on the question of whether it proper ly used a contempora neous “line loss study ” in Enterg y ’s 1 1
fuel rec onciliation rathe r than the same, historical study that it used in previously setting Enterg y ’s 1 2

A “line loss study ” estimates the amount of elec tricity that is lost throug h transmission as 1 1 a uti lity delivers it from the g ener ator to the end-user. T h e cost for ge nera ting that lost elec tricity is billed to customers so that the ut ility can rec over its reasonable a nd nece ssary

expenses. Ba sed on the study , differ ent “loss fac tors” are computed to allocate the losses to the utilit y ’s various rate classes, based on the voltag e at which the elec tric servi ce i s provided, and the loss fac tors are incorpora ted into the “fue l fac tor,” a temporar y rate (or “ride r”) included in the rate s that customers pay . See, e.g. , 16 Tex. Admin. Code §§ 2 5

. 2 3 7 (a) (1) (Pub. Util. Comm’n, Fue l Fa ctors) (“F uel fac tors must acc ount fo r s y s tem losses and for the differ ence in line losses corr esponding to the voltag e at which the elec tric service is provided.” ), .237(a)(3) (“F uel fa ctors ar e tempora ry rate s,” subject to periodic r eview f or the re asonable ness of fue l costs that a utility has incurr ed.). A fuel rec onciliation is a periodic proce eding in which the Commi ssion makes a d ju s tm e n ts 1 2 to a utility ’s rates to acc ount for f luctuations in the cost of fue l, which is volatile and constitutes a larg e part of a utilit y ’s expenses. The Commi ssion uses a two-step proce ss to allow rec overy for fuel expenses: (1) first, the Commi ssion sets a temporar y , estimated rate called a “fue l fac tor” and (2) 13fuel fa ctor a nd which Enter g y proposed using. Enterg y ’s application to c hang e rate s in the docket befor e us on appea l also included a reque st for a fuel reconc iliation for the period from J uly 20 0 9
to J une 2010 (the “re conciliation period” ). See 16 Tex. Admin. Code § 25.236 (b ) (P u b

. Util. Comm’n, Recove ry of Fu el Costs) (“Ele ctric utilit ies shall file petitions for rec onciliation on a periodic ba sis so that any petition for reconc iliation shall contain a maxi mum of t hree y ear s and a minimum of one y ear of rec oncilable data and will be filed no later than six months afte r the end of the period to be rec onciled.”) ; see also Tex. Util. Code § 36.203(e) (“The Commi ssion by rule shall provide for the rec onciliation of a utilit y ’s fuel costs on a timely basis.”). Enterg y deter mined that it had over- rec overe d its fuel costs during the rec onciliation period by about $243 milli on; established that it had alre ady refu n d ed ab o ut $237 milli on of that amount in acc ordanc e with interim Commi ssion order s; and soug ht to “roll forwa rd” the rema ining fuel over- rec overy balanc e of approximately $5.6 milli on “to serve as the beg inning balanc e for the next Reconc iliation Period,” rathe r than re fund that amount to customers.

later, the Commi ssion makes adjustments to the utilit y ’s rate s by rec onciling the amounts the utilit y rec eived unde r the fue l fac tor with the actua l, r easona ble expenses that the utilit y incurre d for fuel to g ener ate elec tricity for its customers. See Texas Utils. Elec. Co. v. Public Ut i l

. Comm’n , 881 S.W .2d 387, 411–12 (Tex. App.—Austin 1994), aff’d in part, rev’ d in part , 935 S.W .2d 109 (Tex. 1996). I n a fuel rec oncil i ation, the utilit y may ask to ref und any over- rec overy or surcha rg e any under- rec overy , and those ref unds or surcha

rg es will be allocate d to differ ent rate classes based on the us ag e of eac h class, ad j u s t ed fo r l ine l osses. See 16 Tex. Admin. Code §§ 25.236(e) (3) (Pub. Util. Comm’n, Recove ry of Fue l Costs) (“I nterc lass allocations of ref unds and surcha

rg es . . . shall be based on the historical kilowatt-hour usa g e of eac h rate class .

. . adjusted for line losses

. . .”), .237(a) (3)( A) (Public Util. Comm’n, Fue l Fa ctors) (“Th e re as o nablene ss of the fuel costs that an elec tric utilit y has incurre d will be periodica lly revie wed in a rec onciliation proce eding , as descr ibed in § 25.236 of this title, and any disallowed costs resulting from a rec onciliation proce eding will be ref lected in the c alculation of the utilit y ’s re cover able f uel and ove r/(under ) collec tions.”). 14The dispute betwee n the parties conce rns whether the Commi ssion prop e r ly f o llowe d the rec ommendation of the intervenor Citi es to use a contempora neous (2010) line-loss study 1 3
that Enterg y prese nted during this rate making proce eding to support its cost-of- service analy sis for its reque sted base rate s or whether t h e Commi ssion should have used the same line-loss study from 1997 that was used when it approve d the fuel fac tor for the rec onciliation period. T he resolution of the pa

rties’ dispute turns on construction of t he C ommissi on’s rules apply ing to f uel

rec onciliations, as the AL J s and the district cour t noted.
T h e AL J s reje cted the Citi es’ “unpre cede nted” rec ommendat io n th a t th e Co mm is s io n

use the contempora

neous line-loss s t u d y i n allocating Enterg y ’s fuel costs actua lly incurre d over the rec onciliation pe riod. The Citi es rec ommended using the newe r 2010 study beca use its e x pert witness, Carl Nalepa , explained that allocating Enterg y ’s fuel expenses betwee n reta il and wholesale

cu s tomers using the more rec ent loss fac tors reve aled that reta il customers wer e “subsidizi ng” wholesale customers in the approximate amount of $3.8 milli on. Acc ording to the Citi es, updating Enterg y ’s allocation of fuel costs to ref lect curr en t l i n e l o sses would result in a more acc urate
amount that Enterg y actua lly expended to provide service t o retail customers (ra ther than to wholesale customers) over the rec onciliation period. Th e AL J s reje cted the Citi es’ proposal, deter mining that (1) its rec ommendation would result i n a “mismatch” betwee n the allocation of fuel costs to customer cla s s es and the alre ady -re ceive d collections from those customers for fuel
costs (which wer e deter

mined throug h the use of historical line losses) and (2) the Commi ssion’s

The Citi es of Br idge City , Grove s, Ora ng e, Pine For est, and West Ora ng e (the Citi es)—a ll 1 3 municipalities in the service territory of Enterg y —filed a joint motion to intervene in the rate -ca se, which the Commission gra nted. 15rules “re quire the use of Commi ssion-approve d line losses that wer e in eff ect at the time fuel costs

wer e billed to customers in a fuel rec oncil i ation.” See 16 Tex. Admin. Code § 25.236(e) (3) (“Interc lass allocations of ref unds and surcha

rg es, including associate d interest, shall be develope d

on a month-by -month basis and shall be based on the historical k i l o wa t t -h o u r usag e of eac h rate class for eac h month during the period in which the cumulative under- or over- rec overy occur red, adjusted for line losses using the same commission-approve d loss factors that were used in the elec tric utili ty’s applicable fixe d or interim fuel factor .” (e mphasis added) ).

I n its final order , the Commi ssion ag ree d with the Citi es and reve rsed the PFD on the issue, deter

mining that the “ same curr ently available [2010] line-loss fac tors [t hat Enterg y used to calc ulate demand- and ener g y -re lated allocations in it s cost-of- service analy sis supporting its
reque sted base rate s] should have been utiliz ed in Enterg y ’s fuel rec onciliation.” Ba sed on using the contempora

neous line-loss study , the Commi ssion deter mined that approximately $3. 8 m i l l i on should be remove d from Enterg y ’s rec overa ble fuel expenses. Whil e adding a new finding of fac t and conclusion of law to ref lect this deter

mination, the Commi ssion did not revise any of the

1 4
PFD’s finding s of fac t rec iting that Enterg y ’s fuel expenses incurre d during the rec onciliation period

wer e “re asonable and nece ssary . . . to provide reliable elec tric service to reta il customers” or its leg al

The new finding of fac t , n u m ber 246A, rea ds: “E[nterg y ]’s 2010 line-loss fac tors 1 4 should be used to rec oncile [i ts] fuel costs. There fore , E[nterg y ]’s fuel rec onciliation over- rec overy should be reduc ed [si c—Enter g y submits that the word should rea d “incr eased,” and the Commi ssion does not disag ree ] by $3,981,271.” The new conclusion of l aw, number 19B, reads: “R[ule] 25.236(d)( 2) define s the scope of a fuel rec onciliation proce eding to include any issue rela ted to the rea sonablene ss of a utilit y ’s fuel expenses and whether the utilit y has over- or underrec overe d its rea sonable fuel expenses. I t is proper to use the new line-loss study to calc ulate Enterg y ’s fue l rec onciliation and over -re cover y .” 16conclusion to the same e ffe ct. See id. § 25.236(d)( 1)(A) (“I n a proc eeding to rec oncile fuel fac tor

reve nues and expenses, an elec tric utilit y has the burden of showing that: its elig ible fuel expenses during the rec onciliation period wer e rea sonable and nece ssary expenses incurre d to provide reliable elec tric service to reta il customers.” ). I n short, the Commi ssion did not deter mine that Enterg y had

n o t re as onably or actua lly incurre d the $3.8 milli on in fuel expenses, but, rathe r, that those expenses—using new line-loss data—should be allocate d to wholesale customers rathe r than reta il
customers and, there fore , remove d from the “pot” of expenses to be rec onciled with reve nues. The Commi ssion did not provi de for any proce dure throug h which Enterg y would be cre dited for the $3.8 milli on it indisputably spent on fuel expenses and that i t s expert witness testified would be “strande d” if disallowed.

The dis t ri ct co urt reve rsed the Commi ssion’s deter mination conce rning use of the contempora

neous line-loss s tudy and $3.8 milli on adjustment to Enterg y ’s over- rec overy , upholding Enterg y ’s issue in which it asser ted that the Commi ssion vi o lated two of its rules in using the
2010 study

. S

ee i d

. §§ 25.236(e) (3) (providing for methods to be used in developing intercla ss allocations of fuel ref

unds and surcha

rg es), .237(a) , (c )( 2 )( B) (Pub. Util. Comm’n, Fue l Fa ctors) (providing for use and calc ulation of fuel fac tors and scope of fuel-f actor -re vision proce eding ). We
ag ree with the district court and the AL J s t hat by using the 2010 line-loss study , the Commi ssion did not follow the p l ai n , u n ambig uous lang uag e of its own rule 25.236(e) (3) in rec onciling Enterg y ’s fuel costs and, there by , acte d arbitra rily

. See Reliant Energy, Inc. v. Public Util. Comm’n , 153 S.W .3d 174, 199 (Tex. App.—Austin 2004, pet. denied) ( ag ency decision i s arbitra

ry when it fails to follow cl ea r, unambig uous lang uag e of its own reg ulations); Southwest Pharmacy Sols.,
Inc. v. Texas Health & Human Servs. , 408 S.W .3d 549, 558 (Tex. App.—Austin 2013, pet. denied)
17(cour

ts will not defe r to ag ency ’s interpre tation of its own rules if interpre tation is plainly err oneous or contradicts text ); see also Public Util. Comm’n v. Gulf States Utils. Co. , 809 S.W .2d 201, 207,
2 1 1 (T ex . 1991) (in revie wing decision for arbitra riness, we may not substitut e our judgme nt fo r that of ag ency , and o u r revie w is limit ed to deter mining whether administrative interpre tation is “plainly err oneous or inconsistent with the re g ulation”). Rule 25.236(e) (3) unambiguously provides that under- and over-re co v er i es of fuel
expenses shall be allocate d to differ ent rate cla s s es an d ad j usted for line losses using the same Commi ssion-approve d loss factors tha t were used in setting the fuel fa ctor:

I nterc lass allocations of ref unds and surcha

rg es, including associate d interest, shall be develope d on a month-by -month basis and s hall be based on the historical kilowatt-hour usag e of eac h rate class for eac h month during the period in which the cumulative under- or over- rec overy occur red, adjusted for line losses using the same commission-approved loss fa ctors that wer e used in the ele ctric utility ’s applica ble fix ed or inter im fuel fac tor.

16 Tex. Admin. Code § 25.23 6 (e)(3). The Commi ssion contends that this rule is inapplicable beca use (1) Enterg y was n o t s ee k i n g to ref und its over- rec overy (but only to car ry it forwa

rd as a balanc e into the ne x t fuel re conciliation) a nd (2) it a pplies only to E nterg y ’s reta il-rate classes and “does not c oncer

n allocating fuel c osts between r etail and whole sale ser vice.” Whil e it is true that Enterg y did not seek to o u t ri gh t refund its over- rec overy , its proposal to car

ry the balanc e forwa

rd is eff ectively a “re fund” and will be the startin g p o int for deter mining over- or under- rec overie s g oing forwa rd. The various cus to me r classes will nonetheless

rec eive the benef

it of any dollars they overpa id, allocate d appropr iately to eac h class, under this rule when t h e n ext fuel rec onciliation occur s. Fur thermore , the rule does not speak to the actua l

18issuance of ref unds or imposit ion of surcha rg es, but instead to “a l l o cations” of them to various classes—w hether and whene ver the utilit y actua lly makes a ref und or collects a surcha

rg e from its various customer classes (or mere ly ro l l s t h e balanc e forwa rd), the utilit y must nonetheless make
reg ular allocations of th e o ver- or under- rec overie s to its customer classes and maintain those
amounts on its books until rec onciled. See id. (“I nterc lass allocations o f refunds and surcha rg es, in c lu d in g a s s o c ia

te d in te r e s t, s h a ll b e d e v e lo p e d o n a mo n th

- b y - mo n th b a s is

. . . . ” ) ; c f. id

. 2 5

. 2 3 6 ( e ) ( 5 ) (“U nless otherwise order ed by the co m mission, all ref unds shall be made throug h one-time bill

cre dit and all surcha

rg es shall be made on a monthly basis . . . .”).
As for the Commi ssion’s arg ument that Rule 25.236(e) (3) does not apply beca use it does not conce rn allocating costs betwee n reta il and wholesale classes but only applies to allocations
among various reta il customers, that contention direc tly conflicts with the rule’s specific definition of “ra te class” as meaning “all customers taking service under the same tariff ed rate schedule .” Id. § 25.236(e) (2). Bo th reta il and wholesale customers take service under tariff ed rate schedule s, althoug h the Commi ssion does not itself set the wholesale tariff ed base rate s (F ERC does). Neither this rule nor any rule or statute the Commi ssion has identified prohibits the utilit y from rec overing
costs mere ly beca

use those costs wer e incurre d to p ro v i de ener g y to wholesale rathe r than reta il
customers. Cf. 16 Tex. Admin. Code §§ 25.231(a) , (b) (ra tes are to be based on elec tri c u t i l i t y ’s
cost of rende ring service “to the public” during historical test y ear , and allowable expenses are those “re asonable and nece ssary to provide service to the public”), .235(a) (Pub. Util. Comm’n, Fue l
Costs—Genera l) (Commissi on must set utilit y ’s rate s at level that will permit utilit y “a rea sonable opportunity to ear

n a reasonable rate of return on its invested ca pital and to rec over its rea sonable and nec essar

y expenses, including the cost of fue l and purc hased pow er” ).
19Moreov er , t he same rule also contemplates that a utilit y will make ref unds to or collect surcha

rg es from all cust o m er cl asses, including wholesale classes, see id. § 25.236(e) (4) (noting that all wholesale customers shall be g iven ref unds or assessed su rc h ar ges based on their individual actua l h i s t orica l usag e), and undoubtedly both reta il and wholesale customers paid the fuel fac tor and contributed to reve nues during the rec onciliation period. Fur thermore , in subsection (a) of Rule 25.236, there i s a limit ed list of “elig ible fuel expenses” for which a utilit y may seek

rec overy , see id. § 25.236(a) ; the list does not me ntion e x penses incurre d for ener g y produce d that is delivere d only to reta il customers. I n sum, the Commi ssion has not advanc ed any convincing
arg uments that Rule 25.236(e) (3) does not apply to Enterg y ’s fuel rec onciliation, nor has it offe red

an al t erna te, rea sonable interpre tation of the phrase “ using the same commission-approve d l o s s fa c to r s th a t w e r e u s e d in th e e le c tr ic u ti li ty ’ s a p p li c a b le f ixe d o r in te r im f u e l f a c to r . ” T h e lo s s f

a c to r s that wer e used in setting Enterg y ’s fuel fac tor rele vant to the fuel rec onciliation at issue are the 1997 loss fac tors that Enterg y proposed using to rec oncile its fuel costs. The rule unambig uously require s
t h e Commi ssion to use these same 1997 fac tors in calc ulating the amount of ref und that Enterg y
may car ry forwa rd on its books. Despite Rule 25.236(e) (3)’ s d i re cti ve, the Commi ssion relies on the rule’s subpara g raphs (d)( 1)(A) and (d)( 2) to support its deter mination. Howeve r, the first of those subpara g raphs rec ites mere ly that the utilit y has the burden of proving that its elig ible fuel
expenses during the rec onciliation period wer e rea sonable and nece ssary expenses i n cu rred to provide relia b l e elec tric service to reta il customers, see id. § 25.236(d)( 1)(A)

. The Commi ssion expli citly found that Enterg y had met this burden in i ts finding s of fac t and conclusions of law.

20Moreove r, even had the Commi ssion not made these expli cit finding s, we are not c onvinced by its

contention t hat s ubpara g raph (d)(1) (A) permits the C ommissi on to deduct the actua l expenses for providing elec tricity to wholesale customers from the “pot” of total fuel ex p enses that a utilit y incurre d—such allocation among classes is the very purpose of s u b p ar agr aph (e) and its specific outline of proce dures f

or so doing

. T h e o t h er subpara g raph, (d)( 2), cited by the Commi ssion mere ly rec ites that the “scope o f a fuel rec onciliation proce eding includes any issue rela ted to deter mining the

rea sonablene ss of the elec tr i c utilit y ’s fuel expenses during the rec onciliation period and whether the elec tric utilit y has over- or under- rec overe d its rea sonable fuel expenses,” see id. § 25.236(d)( 2). The Commi s s i o n supports its decision to exclude $3.8 milli on from Enterg y ’s fuel expenses incurr ed d u ri ng the rec onciliation period by arg uing that whether the expenses wer e incurre d to provide ener g y to reta il or wholesale customers is “r el at ed” to whether it has “over - or underr e c o v e r e d ” it s f

u e l e xp e n s e s . T h e r e is n o b a s is in s u b p a r a g r a p h ( d ) ( 2 ) f o r th e Co mm is s io n ’ s c o n te n ti o n that this reta il–wholesale distinction is rele vant to whether a utilit y has over- or under- rec overe d its fuel expenses. There is no dispute that Enter gy did over- rec over its fuel expenses. Moreove r, as alre ady noted, the Commi ssion’s de termination is dir ectly at odds with the more specific direc tive in subpara g raph (e) of the same rule to adjust allocations of ref unds using the same line-loss fac tors that wer e used in setting the fue l fac tor. 1 5

The Com mission alterna

tively arg ues that Enter g y

was not har

med by its deter

mination 1 5 on this issue. See Tex. Gov’t C ode § 2001.174(2) (directing court to “re verse or remand t h e ca se for further proce eding s if substantial rig hts of the appellant have been prejudiced”). Howeve r, Enterg y ’s ex pert witness testified t hat i f t he costs wer e dis allowed , t h ey wo u l d be “stranded” and not rec overe d otherwise, and the Commi ssion has identified no re co rd evidenc e indicating other 21The C ommissi on acte d arbitra rily and abused its discretion by not following Rule 25.236(e) (3), using the 2010 line-loss study to rec oncile Enterg y ’s fu el co sts, and disallowing $3.8 milli on of Enterg y ’s elig ible fuel expenses incurre d d u ri ng the rec onciliation period in deter mining the amount of ref unds that Enterg y may keep on its b alanc e sheets. We overr ule the Commi ssion’s issue and hold that the district court did not err i n re v er s i ng the Commi ssion’s deter m i n at i o n o n t he issue of the line-loss study and rema nding the issue for further proce eding s consistent with the district court’s orde r.

OP UC’s issue
I n its sole issue, OPUC c ontends that the Commi ssion c ommitt ed leg al err or, acte d arbitra rily and capr iciously , and abused its discretion by allowing the inclusion of about $13 milli on of 1997 ice- storm re s t o ration costs in Enterg y ’s storm-rese rve acc ount beca use the costs wer e alleg edly direc tly rela ted to Enterg y ’s imprudence and wer e rea sonably anticipated. Enterg y and the Commi ssion respond that OPUC’s arg ument hinge s on two false premises: (1) that the Commi ssion deter mined in a prior docket th at s o m e o f E nterg y ’s $13 milli on in 1997 ice- storm costs wer e imprudently incurre d and (2) that Enterg y prese nted no evidenc e demonstrating the rea sonablene ss and nece ssity o f the $13 milli on in costs associate d with the 1997 ice storm. Our revie w of the

rec ord leads us to ag ree with Enterg y and the Commi ssion. Whil e OPUC fra mes its issue in various
way s, it essentially is asking this Court to re- weig h the evidenc e befor e the AL J s and Commi ssion, which we may not do. See Central Power & Light , 36 S.W .3d at 561 (ag ency is sole judge of weig ht

proce dures throug h which Enter g y would rec oup them.

22to be acc orded testimony of eac h witness); see also Charter-Med. Dall. , 665 S.W .2d at 452–53 (eve n

if court wo u l d re ach differ ent conclusion from one ag ency rea ched, court must uphold ag ency ’s decision if it is within bounds of reasona bleness). The prior docket to which OPUC cites, Number 18249, was sever ed from a 1996 rate

case for the purpose of hear ing and resolving issues rela ting to Enterg y ’s service quality afte r it had
merg ed with Gulf States Utiliti es, I nc. A small p o rt i o n of the order in Docke t Number 18249 addre ssed the 1997 ice storm and f o u n d tha t Enterg y ’s service -quality issues (such as poor veg etation
manag ement in failing to tri m t re es above transmission lines) contributed to the ex tent of t he icestorm damag e. Howeve r, the Commi ssion also found that signific ant damag e would have occur red

even with exemplary veg etation-mana g ement and other preve ntive measure s. Significa ntly , the Commi ssion did not addre ss the prudenc e of the ice- storm restora tion costs (or of any particula r expenditure) or conclude that any portion of the restora tion costs should be disallowed; in fac t, it did
not adjudicate cost-re cover y issues at all in Docke t 18249 but did penalize Enterg y for its defic ient maintenanc e and other forms of poor service quality by requiring it to retroa ctively reduc e its return on its equity

(ROE) by

making ref

unds to customers. Nonethele ss, OPUC essentially arg ues that the Commi ssion’ s finding s in Docke t 18249 reg arding the ice storm estop it from allowing rec overy for ice- storm restora tion expenditures in this docket. Howeve r, none of the actua l expenditures that Enterg y incurre d to restore its sy stem afte r the 1997 ice storm nor the prudenc e of those particula r expenditures wer e at issue in the prior docket or wer e essential to the Commi ssion’s decision in that docket. Cf. El Paso Elec. Co. v. Public Util. Comm’n , 917 S.W .2d 8 4 6 , 859 (Tex. App.—Austin 1995, writ dism’d by ag r.) (to invoke

23coll ater al estoppel, party must establish that (1) fac ts soug ht to be litigated in second actio n we re

fully and fairly litigated in prior action and (2) those fac ts wer e essential to judgme nt in first action).
We conclude that Enterg y was not estopped by Docke t Number 18249 from reque sting the ice- storm
restora tion costs in thi s docket.

Reg arding whether Enterg y met its burden in this docket to show that its ice- storm
restora tion c osts were rea sonable a nd nece ssary

and wer e not r easona

bly anticipated, we conclude that substantial evidenc e supports the Commi ssion’s deter mination in fa v or of Enterg y . Enterg y witness Shawn Corkran descr ibed the sever ity of the storm and the are a aff ecte d; detailed the work performed to restore the sy stem; descr ibed how the acc umulation of ice cause d many of the distribution lin es t o coll apse, without reg ard to damag e from falling tree limbs; descr ibed the
company ’s response to the damag e, including hiring numerous contra ctors to ass i s t wi th the
restora tion eff

ort; and descr ibed how he evaluat ed t h e reasonablene ss of the costs that wer e incurre d d uring the restora tion eff ort. Enterg y witness Michae l Considine opined that Enterg y could not have rea sonably anticipated the costs beca use annual expenditures are extremely varia ble, both in amount and with respec t to tim ing.

OPUC did not challeng e any specific item in the reque sted restora tion expenses but rathe r relied upon the Commi ssion’s finding s in Docke t 18249 and its insistence that Enterg y failed
to make a prima fac ie case that its ice- storm restora tion cost s we re prudently incurre d.

. See Entergy Gulf States, Inc. v. Public Util. Comm’n , 112 S.W .3d 208, 214–15 (Te x . App.—Austin 2003, pet. denied) (utility has burden to establish prima fac ie case of prudenc e of expenses; if utilit y makes such case , burden shifts to intervenor to prese nt evidenc e that rea sonably challeng es expenditure). Howeve r, the utilit y may meet its burden without p ro ving the rea sonablene ss and
24nece ssity of ever y i n d i v idual dollar paid on a g ranula r level, but may prese nt evidenc e that is
compre hensive. Id. at 215 n.5.

To support its prima fac ie ca se, Enterg y submitt ed evidenc e of the costs it incurred
to restore service to customers as quickly as possible afte r t he ice storm and ex pert testim ony that

s u ch expenses wer e rea sonable and nece ssary to repa ir the damag e and restore power . Enter gy witness Corkran discussed Enterg y ’s distribution opera tions, industry -re cog nized comprehensive
storm plans, annual storm drills, storm response and restora tion proce sses, distribution maintenanc e and asset-improve ment proce sses, service quality and continuous-improvem ent prog rams, and
veg etation-mana g ement prac tices. He descr ibed how Enterg y prepa res for emer g ency situations and how charg es t o the s torm rese rve are capture d and recor d ed

. He also submitt ed ex hibits showing that Enterg y ’s opera tion and maintenanc e costs for distribution compar e very favor ably to the costs of other utilities.

Be cause there is substantial evidenc e supporting the Commi ssion’s deter mination on the issue of ice- storm restora tion costs, and beca use Enterg y was not estopped from rec overing these
costs by prior Docke t Number 18249, we overr ule OPUC’s sole issue and hold that the district court
proper ly upheld the Commissi on’s orde r on these c osts.

CONCLUSION Having o v e r

r uled all of Enterg y ’s issues, the Commi ssion’s issue, and OPUC’s issue,

w e a f f ir m th e ju d g me n t o f th e d is tr ic t c o u r t r e v e r s in g a

n d r e ma n d in g th e Co mm is s io n ’ s f in a l o r d e r o n th e is s u e o f it s u s e o f a c o n te mp o r a n e o u s li n e - lo s s s tu d

y to a d ju s t E n te r g y ’ s r e c o v e r a

b le f u e l e xp e n s e s for the r econc iliation period and upholding the Commiss ion’s final orde r in all other r espec ts.

25__________________________________________ David Pury ear , J ustice
Be fore J ustices Pury ear , Goodwin, and B ourland Affir med Filed: Apr il 8, 2016

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