No. 03-14-00709-CV

________________________________________________________________________ In the Court of Appeals Third District of Texas at Austin

________________________________________________________________________ E NTERGY T EXAS , I NC ., Appellant,
V . P UBLIC U TILITY C OMMISSION OF T EXAS ,

Appellee.

________________________________________________________________________ BRIEF OF APPELLEE PUBLIC UTILITY COMMISSION OF TEXAS

________________________________________________________________________ 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 MEGAN NEAL Assistant Attorney General State Bar No. 24043797 megan.neal@texasattorneygeneral.gov O FFICE OF THE A TTORNEY G ENERAL P.O. Box 12548, MC-066 Austin, Texas 78711-2548 512.463.2012 512.457.4610 (fax) ATTORNEYS FOR APPELLEE, PUBLIC UTILITY COMMISSION OF TEXAS February 13, 2015 ORAL ARGUMENT REQUESTED ACCEPTED 03-14-00709-CV 4148278 THIRD COURT OF APPEALS

AUSTIN, TEXAS 2/13/2015 2:42:36 PM JEFFREY D. KYLE

CLERKi TAB LE OF CO NTE NTS
TA BLE OF C O N T E N T S
. ....... ....... ....... ....... ....... ....... ... i INDEX OF A U T H O R I T I E S
. ....... ....... ....... ....... ....... ...... v G L O S S A RY
. ....... ....... ....... ....... ....... ....... ....... ..... i x S T A T E M E N T O F T H E C A S E
....... ....... ....... ....... ....... ... xi ii I S S U E S P R E S E N T E D
. ....... ....... ....... ....... ....... ....... ... xi v I ssu e 1. Doe s the t er m “c os t s” as use d i n Te x as Ut i l i t i es Co d e § 39 .45 2( b) inc lude En ter gy’s “lostre venues”?.
. . . . . . . . . . . . . . . . . . . . . . . xi v Iss ue 2. Do es th e pla in la ngu ag e of T exas Utilitie s C ode § 39 .45 2( b) req ui re En te rg y t o re co ve r i mp le me nt a ti o n c o s ts b ef o re it has im pl eme nte d th e c o m p e t i t i v e g e n e r a t i o np r o g r a m ?
.. . . . . . . . . . . . . . . . . . . . . xi v Iss ue 3. Do es th e pla in la ngu ag e of T exas Utilitie s C ode § 39 .45 2( b) req ui re Ente rg y to re cei ve i nte reston the c osts of im pl eme nti ng the comp eti ti ve g ene rati on p rog ram?
. . . . . . . . . . . . . . . . . . . . . . . . xi v S T A T E M E N T O F F A C T S
...... ....... ....... ....... ....... ....... . . 1 A. En ter gy’s p rop osed Comp eti ti ve Pr ogr am . . . . . . . . . . . . . . . . . . . . . . . 4 B. The Ad min istr ativ e L aw Judge re jecte d E nte rgy ’s ini ti al Com pet it ive P r o g r a m ....... ....... ....... ....... ....... ....... ....... .... 7 C. The Co mmi ssion r ej ect ed En ter gy’s statutor y in ter pr etat ion.
. . . . . . . 8ii

D. St ip ulatio ns and sett lem ent s in Docket No. 3895 1 cre ated a ver y d iff ere nt Co m p et i t i ve Pr og r am tha n the p r og r am r ej ec t ed by the AL J – o ne tha t r e s u l t e d i nn o u n r e c o v e r e d c o s t s . ....... ....... ....... ....... ... 9 1. Part ici pant s in the Comp eti ti ve Pr ogr am. . . . . . . . . . . . . . . . . . . . . 1 1 2. C os t s r ec ov er ed f r om the Co m p et i t i ve Cu st om er s. . . . . . . . . . . . . 1 1 E. The Co mmi ssion ad opt ed th e r evi sed Comp eti ti ve Tarif f b u t not the Re j ec t ed R i d err el at i ngt o e mbe d d ed g en er at i onc os t s. . . . . . . . . . . . 1 3 F. En te rg y’ s imp lem ent ationcost s do notaccr ue unti l the st atute is impleme nted, an d interes t is no t all ow ed.
. . . . . . . . . . . . . . . . . . . . . . 1 4 S U M M A RY O F T H E A R G U M E N T
. ....... ....... ....... ....... ..... 1 5 A R G U M E N T
. ....... ....... ....... ....... ....... ....... ....... ... 1 7 A
. S t a n d a r d o f

R e v i e w . ....... ....... ....... ....... ....... ...... 1 7 B
. I ssu e 1: Th e Co m m i ssi on r ea so nably r ef use d t o in cl ud e E nt er gy ’s l os t rev enues i n the Co mp eti ti ve Tar iff
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 1. Th e p l ai n l an gu ag e of the st atut e r efer s t o c os t s, n otl os tr ev enue s.

. ....... ....... ....... ....... ....... ....... ....... ....... 1 8
a. The Ce nt erP oi nt201 1 c ase ho l d s th atl os tr ev enue s ar e no tc os t s.

. ....... ....... ....... ....... ....... ....... ....... ..... 1 9 b. Wh atE nt er gyse ek s ar e l os tr ev enue s, n otc os t s . . . . . . . . . . . . 2 1 2. En ter gy’s i ssue must be de nie d be cause itfail ed to show harm
. . 2 2iii

a. En ter gy h as not shown th at itwill notre cove r all it s costs und er the C o m p e t i t i v e T a r i f f
. ....... ....... ....... ....... ....... . . 2 3 b. T he str ucture of the r evi sed Comp eti ti ve Tar iff and th e fact s en sur e tha tE nt er gywi l l h av e no un r ec ov er ed c os t s. . . . . . . . . 2 6 3. The Co mmi ssion’s i nte rp ret ation of the statut e is reason able, and E nt er gy ’s i nt er p r et at i oni s un rea so na b le
. ....... ....... ....... 3 2
a. The Comm ission ’s int erp ret ationfol lows th e statute’s p lain l an gu ag e tha tl i m i t s r ec ov er y t o c os t s . . . . . . . . . . . . . . . . . . . . . 3 2 b. Th e Co m m i ssi on ’s i nt er p r et at i onof the st atut e i s r ea so nabl e. 33
c. E nt er gy ’s i nt er p r et at i onof the st atut e i s un reason able .
. . . . . 3 4 4. En ter gy c annotuse tr adit ional rat e-m akingconc ept s to avo id th e Le gisl ature’s m andat e t o tr ansiti on t o com pet it ion
. . . . . . . . . . . . 3 6 C. Issue 2: En ter gy should rec over only imp lem enta ti o n costs unde r the Co m p et i t i ve Ri d er, an d the y d o n otoc cu r un t i l the Co m p et i t i ve Pr og r am i s i m p l e m e n t e d
....... ....... ....... ....... ....... ....... .... 4 4 1. Ther e are no i mple me nt ationcost s forEn ter gy t o re cove r unt il the Com petitive P rogra m is impl emente d .
. . . . . . . . . . . . . . . . . . . . . . 4 4 2. En ter gy alr eadyre cove red th e cost s to d eve lop th e Com pet it ive Progr am as ope rati ng e xp enses i n a pr evi ous rate case. . . . . . . . . 4 6iv

a. InDocket3989 6 En ter gy recov ere d c osts t o d eve lop th e Co m p et i t i ve Pr og r am as op er at i nge x p en se s . . . . . . . . . . . . . . . 4 6 b. I t would vi olate th e p roh ibit ion o n re tr oacti ve r ate-m akingto per mit En ter gy to offse t the costs it has alre ady coll ect ed from th e C o s tR i d e r . ....... ....... ....... ....... ....... ..... 4 7 D. Issue 3 : En tergy is n ot e nti tl ed to coll ectint ere st onth e balance of i ts u n r e c o v e r e d c o s t s . ....... ....... ....... ....... ....... ....... 4 7 1. Like ra te-ca se e xpens es, the unre cov ered impleme nta tion c os ts a re r e l at i v e l y s m al l an d r e c o v e r e d qu i c k l y s o th at ad d i n g i n t e r est i s not r e a s o n a b l e . ....... ....... ....... ....... ....... ....... .... 4 8 2. The st atutes d o notre quire int ere st onunre cove red im pl eme ntat ion c o s t s . ....... ....... ....... ....... ....... ....... ....... ... 4 9 3. Th e 2004 Ce nt er Po i nt op i ni on d oe s no t m an d at e r ec ov er y of i nt er es t o na l l a m o u n t s i na r a t e c a s e . ....... ....... ....... ....... ... 5 0 CONCL USI ON AND PRA YER
....... ....... ....... ....... ....... . . 5 1 CE RT I FI CA TE OF COMPLI ANCE
. ....... ....... ....... ....... ..... 5 4 CE RT I FI CA TE OF SE RV IC E
. ....... ....... ....... ....... ....... ... 5 5 AP PEND ICES Ap p en d i x A I nt er i m Or d er, f i l ed J un e 12, 201 2 Ap p en d i x B Or d er, f i l ed J ul y 19, 201 3 Ap p en d i x C Te x . Ut i l
. Co d e § 39
. 452v INDEXOF AUTH ORITIES Cases: Ce nte rPoi nt Ene rgy Hous ton El ec ., LLC v . Pub. Util . Comm ’n of T ex ., 354 S.W. 3d 899 (Tex . A pp .—Aust in 2011, n o pe t. ).
. . . . . 8, 9 , 15 , 17, pa ssi m Ce nte rPoi nt Ene rgy Hous ton El ec ., LLC v . Pub. Util . Comm ’n of T ex ., 408 S.W. 3d 910 (Tex . A pp .—Aust in 2013, p et. de nie d)
. . . . . . . . . . . . . . . 4 4 Ce nte rPoi nt Ene rgy, In c. v . Pub. Util . Comm ’n of T ex ., 1 4 3 S
. W
. 3 d 8 1 ( T e x . 2 0 0 4 )
. ....... ....... ....... ....... ....... . 50, 51 Ci tie s f orFai r U til . Rate s v . Pub. Util . Comm ’n of T ex ., 9 2 4 S
. W
. 2 d 9 3 3 ( T e x . 1 9 9 6 )
. ....... ....... ....... ....... ....... ... 4 9 City of Frisco v. Tex. Wat er Rights Comm’n, 579 S.W. 2d 66 (Tex . C iv. App .—Aust in 1979, wri t r ef’d n. r. e. ).
. . . . 30, 31 Ci tyo f R oc kw al l v. Hu ghes , 2 4 6 S
. W
. 3 d 6 2 1 ( T e x . 2 0 0 8 )
. ....... ....... ....... ....... .... 17, 33, 35 Co nt in en ta l C as . Co
. v. Do w ns , 8 1 S
. W
. 3 d 8 0 3 ( T e x . 2 0 0 2 )
. ....... ....... ....... ....... ....... .... 2 0 Ga lbraith E ng’g Consulta nts, Inc. v. P ochucha, 2 9 0 S
. W
. 3 d 8 6 3 ( T e x . 2 0 0 9 )
. ....... ....... ....... ....... ....... ... 1 7 In r e Ente rgy C orp., 1 4 2 S
. W
. 3 d 3 1 6 ( T e x . 2 0 0 4 )
. ....... ....... ....... ....... ....... . . 1, 2vi

Nuc orSte el v. Pub. Uti l. Co mm’ n of Te x., 168 S.W. 3d 260 (Tex . A pp .—Aust in 2005, n o pe t. ).
. . . . . . . . . . . . . . . . . . 3 7 Ped er nal es Ele c. Co op ., Inc. v . Pub. Util . Comm ’n of T ex ., 809 S.W. 2d 332 (Tex . A pp .—Aust in 1991, n o writ ).
. . . . . . . . . . . . . . . . . 3 0 Pub. Uti l. Co mm’ n of

Te x. v . GTE-Sw., Inc ., 9 0 1 S
. W
. 2 d 4 0 1 ( T e x . 1 9 9 5 )
. ....... ....... ....... ....... ....... 43, 50 Re li ant Ene rgy, In c. v . Pub. Util . Comm ’n of T ex ., 153 S.W. 3d 174 (Tex . A pp .—Aust in 2004, p et. de nie d)
. . . . . . . . . . . . . . . 4 9 R.R . C omm’n o

f Tex. v. High P lains Nat ural G as Co. , 628 S. W.2d 753 (Tex . Civ. App .—Aust in 1981 , wr itre f’d n. r. e. ) (p er curi am)

. ...... ....... ....... ....... ....... ....... ....... ....... ....... . . 4 2 Stat e v . Pub. Util . Comm ’n of T ex ., 8 8 3 S
. W
. 2 d 1 9 0 ( T e x . 1 9 9 4 )
. ....... ....... ....... ....... ....... ... 4 7 Tex. Alarm &Signal A ss’n v. P ub. Util. Comm’n , 6 0 3 S
. W
. 2 d 7 6 6 ( T e x . 1 9 8 0 )
. ....... ....... ....... ....... ....... ... 3 8 Up jo hn Co
. v. Ry la nd er, 38 S. W.3d 600 (Tex. App .—Aust in 2000, p et. de nie d)
. . . . . . . . . . . . . . . . 1 8 St atut es: Tex. Go v’t. C ode § § 2 0 0 1
. 1 7 4 ( 2 )
. ....... ....... ....... ....... ....... ....... ....... 2 2 Tex. Uti l. Code § § 1 1
. 0 0 1
- 6 4
. 1 5 8 ( “ P U R A ” )
. ....... ....... ....... ....... ....... . xi, 1 § 3 2
. 1 0 1 ( a )
. ....... ....... ....... ....... ....... ....... ....... ... xi iv ii

St atut es (co nt .) : § 3 6
. 0 0 3
. ....... ....... ....... ....... ....... ....... ....... ..... 3 9 § 3 6
. 0 0 6
. ....... ....... ....... ....... ....... ....... ....... ..... 2 3 § 3 6
. 0 0 7
. ....... ....... ....... ....... ....... ....... ....... ...... 5 § 3 6
. 0 0 7 ( a )
. ....... ....... ....... ....... ....... ....... ....... ... 4 0 § 3 6
. 0 0 7 ( d )
. ....... ....... ....... ....... ....... ....... ....... ... 4 0 § 3 6
. 0 5 1
. ....... ....... ....... ....... ....... ....... ....... ... x i , 36 § 3 6
. 2 0 1
. ....... ....... ....... ....... ....... ....... ....... ..... 4 3 § § 3 9
. 0 0 1
- . 3 5 9
. ....... ....... ....... ....... ....... ....... ....... . 1 § 3 9
. 4 5 2
. ....... ....... ....... ....... ....... ....... ....... ..... 4 4 § 3 9
. 4 5 2 ( a )
. ....... ....... ....... ....... ....... ....... ....... .... 2 § 3 9
. 4 5 2 ( b )
. ....... ....... ....... ....... ....... . ix, xiii, xiv, 2, pa ssi m § 3 9
. 4 5 2 ( i )
. ....... ....... ....... ....... ....... ....... ....... .... 2 § § 5 5
. 0 2 4 ( b )
. ....... ....... ....... ....... ....... ....... ....... . . 2 0 § § 5 6
. 0 2 5 ( e )
. ....... ....... ....... ....... ....... ....... ....... . . 2 0 Rules: 16 Tex. Admin . Code § 2 5
. 2 3 1 ( a )
. ....... ....... ....... ....... ....... ....... ....... ... xi i T e x . R
. A p p . P
. 4 4
. 1 ( a )
. ....... ....... ....... ....... ....... ....... . . 2 3 Ot her Refere nc es: Application of CenterP oint E nergy Houston Electric, L. L. C. for a Co mpetition Tr ans iti on Ch ar

ge, DocketNo. 3070 6, Or de r at32 (July 14, 2005).
. . . . . . . . . . . . . . . . . . . . . . 4 9 Application of Reliant En ergy HL&Pfor Approval of Un bun dled Cost of Se rv ic e R ate Purs uant to PURA § 39.201 and Pu blic Utility Co mmission Su b st an ti ve R ul e § 25. 344, DocketNo. 2235 5, Or de r, FoF 98G (Oct . 4, 2001 ).
. . . . . . . . . . . . . . . . . . . 4 9v iii

Ot her Refere nc es (co nt .) : Complaintof the City o

f McKinn ey Against S outhw estern Bell Teleph one Co mp an y, DocketNo. 1102 7, Fi nal Or de r atCoL 9 (May 17, 1995).
. . . . . . . . . . . . . 4 9ix

Brief of A ppellee PublicUtility C ommission G LO S S ARY ALJ Adm ini str ativ e L aw Judge at t he State O ffi ce of Ad m i ni st r at i ve H ea r i ng s. C om p et it io n C u st om ers En ter gy’s ind ustri al custome rs that take ene rgy unde r Ent ergy’s Large In dustr ial PowerSe rv ice (“LI PS”) t ariff that c hoose to p arti cip ate in the Com petitive P rogra m. C om p et it iv e P ro gr am Th e co m p et i t i ve g en er at i onse r v i c e s p r o g r am requir ed und er PURA § 39.452(b) that i s de sign ed to move En ter gy away fr om i ts cur ren t mono pol y and t oward a comp eti ti ve m arke t. The p rog ram al lows custom er s to se lec t gen erat ion fro m a supp lie r otherth an E nte rgy . C om p et it iv e T ari ff The t arif f E nte rgy pr opose d t o comp ly with PURA § 39.452(b). The tari ff requir es En ter gy t o purchase com petit iv e g ene rati on ser vic e, sele cte d by p arti cip atin g Compet it ive Custome rs, and pr ovid e the g ene rati on t o th ose custo mer s at a ret ail p ri ce. C os t Ri d er The ri de r pr opose d by E nt er gy to re co ve r the costs o f im pl eme ntat ion and admi nistrati on of the comp eti ti ve gene rati on prog ram. This t ariff is on ly ap pl icable to the class of custome rs that i s el i gibl e fo r the c om p etiti ve g en er at i onp r og r am
— tho se who take ene rgy unde r En ter gy’s L arge I nd ust r i al Po we r S er vi ce t ar i ff (“ L I PS ”). T he se i m p l em en t at i onc os t s wi l l be ch ar ge d t o th e L I PSx

Brief of A ppellee PublicUtility C ommission class whetheror not the y choose to part ici pate in the pr ogr am. C om p et it iv e S u p p li er The qualifyi ng facil it ie s el ig ib le to s u pply alte rnat ive gen erat ion to the Co mp eti ti ve Custome rs i n the Co mp eti ti ve Pr ogr am. C om p et it iv e P u rc h as e The agr eem entth at the Co mp eti ti ve S uppl ier Agr ee me nt wi l l p r ov i d e the Co m p et i t ive Cus t om er ’s capaci ty and ener gy by suppl yin g it t o E nte rgy . Co m p en sat i onf orthe c ap ac i ty wou l d be p ai d by the cu sto mer a nd not b y Entergy. Co mpeti tiv e Rate The ra te charg ed und er the Comp eti ti ve Progr am. Do ck et377 44 PU C D oc ke tN o. 37744 Do ck et389 51 PU C D oc ke tN o. 389 51 Ent ergy En ter gy Te xas, I nc. , Pl aint iff in thi s case. ER COT El ect ri c Re liabi lity Counc il of Tex as. I n this c ase, the te rm “ER COT” is used to refer to the int erc onne cte d e lec tr ic g ri d that i s comp let ely wi thi n the S t at e of

Te x as. In te ri m O rd er I nt er i m Or der in Do cket 38 95 1, AR, B i nd er 1, I t em 77. LI PS Lar ge I nd ustri al Power Se rv ice s . T his i s one of the rat e cl asses in E nte rgy ’s tariff. Onl yxi

Brief of A ppellee PublicUtility C ommission members o f this r ate c lass are e ligible to part ici pate in the Comp eti ti ve Tar iff
. O rd er Fin al Or de r i n D ocke t 38 951. AR, Bi nd er 2, I tem 119. PFD Prop osal forDecisi on. P URA Pu blic Utility R egul at or y Ac t, Te x . Util. Code §§ 1 1. 001- 64. 158. Rate Design Aft er the re venue r e qu i r e men t i s de ter min ed , the Comm issionmust desi gn the rate s — how much of the r eve nue r equire ment should be col lec ted fr o m d i f f e r e n t r at e c l as s e s an d wh at m e th o d to use t o c ol l ec ttho se am ou nt s. Rej ec te d Ri d er En te r g y ’ s p r o p o s e d r i d e r th at s o ugh t t o coll ect the revenue th at E nte rgywould lose if som e cu st om er s m i gr at ed t o the Co m p et i t i ve Pr og r am fro m the c ustome rs th a t ar e no t e lig ible to part ici pate in the pr ogr am. The A dm ini str ativ e Law Judge and th e Com missi on r ej ect ed th is rider. Revenue Requ irement The tota l am ou nt tha t regu l ate d rate s are de sign ed to giv e the ut ili ty a reasonable opp ortunity t o re cove r. I t can be stated in as the foll owing for mula: (rat e base × rat e of return) + expens es = revenu e req ui rement. Se e PURA § 3 6.0 51 . (“In es tab lish ing a n electri c u tility's rate s, the [ Comm ission ] sha ll establi sh th ex ii

Brief of A ppellee PublicUtility C ommission util ity' s over all r ev en ues at an amo unt that wil l per mitth e uti lity a rea s onable opp ortunity t o earna reason able r etur n on the util ity' s inv este d capi tal used and useful i n p rov id ingser vi ce to the publi c inex cess of

th e utili ty' s reason able and nece ssary op erat ingex pen ses.”) Te stYe ar Th e ut i l i ty ’ s a c tu a l e x p en se s d ur i ng t he m os t recen t 12 -mon th period, ca lled the “ testyea r.” 16 T e x . A d m i n . C o d e § 25
. 23 1( a)
. The Co m m i ssi onuse s thi s h i st or i ca l i nf or m at i onas the start ingpoi nt for de ter min ingth e amountof the util ity’s re asonable and nec essary e xp en s es t o u se i n se t t i ngr at es . Ta ri ff A d ocumen t that the ele ctr ic ut ili ty fil es with the Comm issionsett ing out each rate that is subje ct to the C ommis sio n’s juris diction
. Se e PURA § 32.101(a). I n this br ief “tariff” is used with a modifie r like LIPS to des crib e the rate f or a par ti cu lar r ate c lass (a gr oup of custom ers with part icularchar acter isti cs).The admi ni strat i ve recor d i n PUC Docket 38951 was enter ed i nto evidenc e as Joint 1 Exh ibi ts 1 a nd 2, R.R . a t 4: 25 -5 :1 0. Th e Co mm i s s i on o rde red tha t th e rec ord in D oc ket N o. 37744 be i nclu ded i n severed Docket No. 38951. That recor d was vo luminous and co nt a ine d mo r e t ha t1 , 5 0 0 fil ing s. Th e e nt ir e a d min ist r a t iv e r e co r d in D o ck e tN o . 3 7 74 4 is i nc lu de d in D oc ket N o. 3 89 51 ; how ever, as a c ou rtes y to th e Co urt , th e p arti es ha ve a gree d to o nly copy and fi le the por tions of that record being relevant to this admini strat i ve appeal as a s up pl em en t to th e rec ord in D oc ket N o. 3 89 51 . The rec ord c ons i s ts of the i nd ex, fi ve bind ers of

ma teri al s inclu ding fi lings, w hi c h a re referen c ed as “i tem,” “e xhi bi ts ,” “offe rs of proof ,” or “tra ns c ri pts .” Ci tati ons to the Ad mini s trati ve Rec ord w i ll be i n the fo rm “ AR, Item (s ) ___

__ , Bi nd er _

__ __ ” f or fi lings ; “ AR, Ex( s ) _

__ __ , B i nd er _

__ __ ” f or exh ibi ts ; “ AR, Offe r of P roof __ __ _, Bind er _

__ __ ” f or of fer o f proof ; a nd “AR

, T R at__

__ _” fo r tran s c ri pts . C i tes to th e a dmi nis trati ve rec ord in P UC D oc ket 3 7744 w i ll be “D oc ket N o. 3 7 74 4 , _______ [ n a me o f d o cu me nt ]. ” C it e s t o t he Pr o p o sa l fo r De cis io n ( PF D) a r e in Docket 37744. The final order i s the Fin al Order of the Publi c Uti li ty C ommi ssi on of Texas (Order ) and i s at AR, It em 11, Binder 2.
x iii Brief of A ppellee PublicUtility C ommission

STATE ME NT OF THE CASE This i s a n admi nist rati ve ap peal chall eng ingth e PublicUti lity Comm issionof Texas’ (“the Comm ission ”) ord er in a c ont este d- case he arin g. Texas U ti li ties Cod e § 39.452(b) r equire s En ter gy Te xas, I nc. (“E nte rgy ”) to begi n t ransi ti onin g it s gen erat ion serv ice s to c o mpeti ti on. The chall eng ed ord er de ter min es r ates f or a Compe ti ti ve G ene rati on S erv ice pr ogr am (the “Comp eti ti ve Pr ogr am”), the ty pe o f co s ts E nte rgycan r ecov er as a resultof imp lem ent ingth e C o m p e t i t i v e P r o g r am, a n d wh e th e ri n t e restcan be rec over ed
onthe se am ou nt s. 1x iv

Brief of A ppellee PublicUtility C ommission ISS UES PRES ENT ED Is su e 1: Doe s the t er m “c os t s” as us ed i n Te x as Ut i l i t i es Co d e § 39
. 452( b)

i nc l ud e E nt er gy ’s “l os tr ev enue s”? Is su e 2: Do es the pla in la ngu ag e of T exas Utilitie s C ode § 39 .45 2( b) req ui re

En ter gy t o re co v e ri m p l e m e n t ati on co sts bef ore ithas im pl eme nte d the comp eti ti ve g ene rati on p rog ram? Is su e 3: Do es th e pla in la ngu ag e of T exas Utilitie s C ode § 39 .45 2( b) req ui re

En ter gy t o re cei ve i nt er est o n the c osts of im pl eme nti ng the comp eti ti ve g ene rati on p rog ram?Docket No. 37744, ETI Ex . 4, Joseph F. Domino Di rect at 1. 2 P ub li cUti li ty Re gu la tory Ac t, T ex. Uti l. C o d e § § 1 1
. 0 0 1
- 6 4
. 1 58 (h ereina ft er referred 3 to as “PURA”) §§ 39.001–.359. Page 1 Brief of A ppellee PublicUtility C ommission ST ATEMEN T O F F ACT S This c ase is about a co mp eti ti ve g ene rati on ser vic e t ariff (the “Comp eti ti ve Tar iff ”) that the Com missi on app rov ed forEn ter gy. E nte rgyis an in vest or- owned ele ctr ic ut ili ty thatpr ovid es r ate-r egulat ed ele ctr ic se rv ice to reta il cu sto mers loca ted in so uth ea stern Texa s. Entergy is loca ted ou tside 2 of the e lec tr ical gri d serv ing most of Texas, known as the E lec tr ic R eli abili ty Counci l of

Tex as (“ERC OT”). All inv estor -owned Tex as ele ctr ic utili ti es were ord ere d t o tr ansiti on t o a comp eti ti ve m arke t begi nni ng in 1999
. As a resul t, ele ctr ic ut ili ti es had to 3 unbundl e theirgen erat ion, tr ansmissi on, di str ibuti on, and re tail pr ovid er
se r vi ce s. U t i l i t i es wi thi n E RC OT c ou l d h a n d l e th i s t r an si t i onm or e ea si l y tha n uti lities like Entergy tha t opera te ou tside o f ERCO T. The l egi s la tu re ev en tu a ll y b ec a me co nc er ne d th a t En tergy ’s serv ice area
w as not rea dy to tra nsi tion to compe tition. Se e In re E nt ergy C orp. , 142 S
. W. 3dPURA § 39.452(i ). 4 PURA § 39.452(a). 5 Page 2 Brief of A ppellee PublicUtility C ommission 31 6, 3 20 (Te x. 20 04 ). The le gis l a t u re am ended the P ub lic Util ity Regu la tory Ac t( “PU RA ”) t o d el ay E nt er gy ’s t r an si t i ont o c om p et i t i on . PU RA ’s 4 amend men ts also p rov id ed th at th e Com mi s s ion would c ont inue to se t En ter gy’s r ates und er tr ad i t i o n alc o s t-o f-ser vic e r egulat ion unti l E nte rgyfull y tr ansiti ons t o a comp eti ti ve m arke t. 5 Howeve r, di scr e p an c i e s b e twe e ne l e c t r i c i typ r ice s in the En ter gy se rv ice
area and tho se with in ER COT conc ern ed custome rs ope rati ng un de r En ter gy’s mono pol y. The larg e ind ustri al custome rs are a n i mport ant segm ent of the econ omy, and the y wante d the abil ity t o shop forele ctr ici ty in
a c ompetit ive ma rket. Rec ogni zing thi s pr oblem, the l egi slature mad e an eff ortto move En ter gy c loserto becom inga full y com pet it ive util ity with r egar d t o gen erat ion. B y en acti ng PUR A § 39.452, th e le gisl ature requir ed Ente rg y to pr opose a comp eti ti ve g ene rati on t ariff. PURA § 39.452(b) state s in per ti nen t part :PURA § 39.452(b). 6 Page 3 Brief of A ppellee PublicUtility C ommission

An e lec tr ic ut ili ty subje ct to this subchap tershall pr opose a comp etitive g ene rati on t ariff t o allo w eli gibl e custo mer s the abili ty to contr act f or comp eti ti ve gen erat ion. The comm issionshall appr ove, re

je ct, or mod ifyth e prop osed tari ff not l ater than Se pt ember 1, 2010
. The t ariffs subje ct t o th is su bs ectio n ma y not b e con sid e r ed to off er a di scounte d r ate orrat es und er Se cti on 36 .007, and th e util ity’s rat es shall be set, in the pr ocee di ng i n whic h the tari ff is adop ted , to rec overany co sts unr ecov ere d as a resul t of the imp lem ent ation of the tari ff. The comm ission shall ensure that a c o m p e t i ti ve generat ion tari ff sh all n ot be im pl eme nte d i n a manne r t hat h arms t h e s us tain abili ty or comp eti ti ven ess of manufacturer s that choose notto take advant age of comp eti ti ve gen erat ion. Pursuant to the comp eti ti ve gene rati on tariff, an el ect ri c uti lity subjec t t o th is subsecti on shal l p urchase comp eti ti ve g e n e r at i o n s e r v i c e , s e l e c t e d b y th e c us t o m e r, and provide the genera tion a t reta il to the c us tomer. . . 6 Enter gy i s the onl y el ect ri c uti lity that would be i mp acted by the comp eti ti ve g ene rati on p rog ram ( “Comp eti ti ve Pr ogr am”) re quirem ent establi shed in PURA § 39.452(b). The statute is e ssent iall y a le gisl ativ e comp rom ise r equiri ng E nte rgyto eng age i n p arti al com pet it ion by off eri ng
some c ustome rs a ch oice of g ene rati on p rov id er s . The Co mp eti ti ve Tar iffId
. 7 Page 4 Brief of A ppellee PublicUtility C ommission requir es E nterg y t o allo w custome rs t o sel ectgen erat ion fro m another pr oduce r. Then

, E nte rgypr ovid es th at ge ner ationto the custom er at a re tail p r i ce . Th i s i m p or t an tst ep t owa r d s a t r an si t i on t o f ul l c om p et i t i onal l ows at 7 least some o f E nte rgy ’s custome rs r eli ef f rom En ter gy’s mo nop oly in the reg ion. A. Ent ergy’s p ropo sed C omp etiti ve Prog ram. To comply w ith PU RA § 39 .45 2( b)’ s req ui rements , Entergy propo sed a Comp eti ti ve Pr ogr am as partof i ts r ate c ase in PUC DocketNo. 3774 4. Th e Comp eti ti ve Pr ogr am con siste d o f thre e p arts: (1) a Com pet it ive Tarif f; (2) a

r i d erd es i gn ed t o r ec ov eri m p l em en t at i onan d ad m i n i st r at i onc os t s ( the “C os t Rid er”) ; and (3 ) a ri de r the Co mmi ssion r ej ect ed th at p rop osed to rec over En ter gy’s l ost r eve nues fr om cust omer s that are inel igible for the Comp eti ti ve Pro gra m (the “ Rejected Rider” ). The Co mp eti ti ve Tar iff re quires E nte rgyto purc hase Co mpeti ti ve Gen erat ion Se rv ice , se lec ted b y the p arti cip atin g custo mer s (“Comp eti ti onAR, It em 77, Binder 1, Inte rimOr der at 4; PURA § 39.452(b). 8 Id ; PURA § 36.007. 9 AR, It em 77, Binder 1, Inte rimOr der at 4; PURA § 39.452(b). 10 Id
. 11 Page 5 Brief of A ppellee PublicUtility C ommission Custome rs”), and pr ovid e the g ene rati on at ret ail t o th e custo mer . Pursuant 8 to the st atute, th e t ariff coul d n ot be consi de red a di scount rate – meani ng i t
co ul d n otbe d i sc ou nt ed by a p er ce nt ag e r at e t o al l Co m p et i t i ve Cu st om er s. 9 Furth e r, i tc o ul d n o tb e i m p l e m e n t e d i na m ann e r th ath ar m s th e sustainabil ity orcomp eti ti ven ess of m anufacture rs that c hoose no t to take advant ag e o f

th e pr ogr am. The statut e p erm it s En ter gy t o re cove r “any costs 10

un reco vered a s a resu lt of the implemen tati on o f the ta riff.” 11 En ter gy d esigned it s Cost R id er to r ecov er the cost s a s s ociat ed with im p l e m e n t i n ga n d a d m i n i s t e r i n gth e C o m p e t i t i v e P r o g r am . E n ter gy pr opos e d th ata l l o f

th e s e c o s t s wo ul d b e r e c o v e r e d b y th e e l i gibl e Comp eti ti on Custo mer s, whe the r ornotth ey t ook the comp eti ti ve g ene rati on
serv ice
. 11 Ent er gyso ug htanad d i t i on al r i d ertha twas r ej ec t ed be ca use i twasPFD at 24. 12 AR, TIEC Ex. 15, Binder 4, Jeffry Pollock Supp. Dir e ct at 17 ci tin g Docket No. 13 3 7 74 4 ; A R, E TI E x . 9 , B ind e r 1 (P a r t ia l E x hib it s & Tr a ns cr ipt s fr o m D o ck e t3 7 74 4 ) a tE x hib it PRM-1; Plainti ff’s B rief at 5. AR, ET I Ex. 9 at Exh ibi t P RM- 1 at 5, Bind er 1 (P arti al Exh ibi ts & T ran s c ri pts fro m 14 Docket 37744) (emphas i s added)
. Page 6 Brief of A ppellee PublicUtility C ommission i nh er en t l y i ne qui t abl e an d vi ol at ed PU RA ’s r at e- m ak i ng p r i nc i p l es that requir e just and reasonable rates. Und er the Rej ect ed Rid er, En ter gy sough t 12 to reco ver los t ba se- rate revenu es f r o m t h e cu sto mers tha t wo ul d notbe eli gibl e t o bene fitfr om the p rog ram. 13 This C om p et i t i ve G en er at i onS er vi ce Un r ec ov er ed S er vi ce Co st Ri d er( “R i d erCG S US C” or “ Ri d er ”) d efi ne s the p r oc ed ur e by wh ichEn ter gy Te xas, I nc. (“Comp any”) shal l i mp lem entand adju st ra tes f or re cove ry of lostbase ra te re ve nue re sulti ng f rom custome rs part ici pati ng in th e C o mp a ny ’ s Co mp etiti ve Gen erat ion Se rv ice (“CGS Progr am”). The purp ose of this R id er i s t o p r o v i d e a m e c h an i s m f o r r e c o v e r y o f such lo st base rate revenu es thatwere inc lude d i n the Co mp any’s last gen eral rat e ca se p r oc ee d i ngbe fo r e the Pub l i c Ut i l i ty Co m m i ssi on o f Te x as (“PUCT”). 14 Thro ugh this R ej ec te d R id er , En te rg y s o u gh t t o re co ve r r ev en u es itco u ld have billed to th e Com pet it ive Custome rs “but f or” the Co mp eti ti ve Pr ogr am. En ter gy l aterre charact eri zed thi s same cl aim as what i t n ow calls “embed de dPFD, CoL 10 at 45. 15 Page 7 Brief of A ppellee PublicUtility C ommission genera tion c os ts.” B. Th e Admi ni strativ e Law Ju dg e rejected En tergy’s ini tial C omp etiti ve Prog ram. InEn ter gy’s r ate c ase in PUC Docke t No . 37744, E nte rgysett led all matt ers ex cep t f or i ssues reg ard ing the Comp eti ti ve Pr ogr am. Aft er a heari ng
onthe Co m p et i t i ve Tar i ff an d the ass oc i at ed r i d er s, the Ad m i ni st r at i ve L aw Judg e (“AL J”) issued a Pro posal f or Dec ision(“PFD”) re comm end ingto the Com miss ion tha t Entergy’s e nti r e Co m p eti t i ve Pr og r ambe r ej ected. The A LJ 15

r ef use d to r ec om m en d tha tthe Co m p et i t i ve Pr og r am be ad op t ed be ca use En ter gy‘s Rej ect ed Rid er would pre ven t compe ti ti on by shifti ng c oll ect ion of all the r eve nues itw o u ld o therwise have rec over ed fr om Com pet it ive C u stom ers to the c ustome rs that do notpar ti cip ate i n the Co mp eti ti ve Progr am. The A LJ de ter min ed that the Rej ect ed Ri de r i mp osed unre asonable rate s on the c ustome rs who would notre cei ve the be nefitof the p rog ram, and the r ef or e, “r uns con t r ar y t o the fun d am en t al r at e- m ak i ngp r i nc i p l e of c os t causation an d m ay har m the com pet it ive ness of non -par ti cip atin gPFD at 24. 16 Ap pli ca ti o n o

f Ent erg y Te xa s, In c.

fo r Ap pr o va l o

f Co mpe ti ti ve Ge ner a ti o n Ta rif f (sev ere d 17 from Docket No. 3 7 744). Docket 37744, O rder No. 14, Memo riali zi ng Deci si on Granting Moti o n t o S ev er; Do c ket 3 89 51 , Ord er N o. 1 Es tab li s hing D oc ket. (The Com mi s s i on or dered t hat the r ecord in D ocket No. 37744 be inc luded in severed Docket No. 38951. That rec ord w as volu minou s an d c ont aine d mo re tha t 1, 50 0 fi lings . The en ti re a dm i ni s trati ve recor d i n Docket No. 37744 is i nclu ded i n Docket No. 38951; however , as a courtesy t o the Court, the part i es have agr eed to only c o p y a nd file the portions of that recor d being relev ant to thi s admini strat i ve appeal. AR, It em 77, Binder 1, Inte rimOr der at 6. 18 Page 8 Brief of A ppellee PublicUtility C ommission ma nu fa ctu rers.” 16 Si nce En ter gy h ad settl ed the rem aind er of the r ate c ase in DocketNo. 3774 4, the Co mmi ssion se ver ed th e issues p ert aini ng t o th e Competit ive Pr og r am i nt o P UC Do ck etN o. 389 51. 17 C. The Comm issi on re je cte d Ente rg y’ s sta tutor y inte rpr et at ion. The Co mmi ssion issued an In ter im Ord er in Doc ket3895 1 thatre ver sed the AL J’s re comm end ationin Docket3774 4 to re je ct the Co mp eti ti ve Progr am. The Comm issionhad th e ben efi t of th is Cour t’s 2011 deci sion in

18 CenterP oint E nergy Houston Electric, LLCv. P ublic Ut ility C ommission of Texas , 354 S.W. 3d 899 (Tex . A pp .—Aust in, 2011 , n o pe t. ) (“ C e n t e r P o i n t201 1" ) in de ter min ingth at inP U RA “ th e l e g i s l atur e e x p r e s s l yd i s t i n gui s h e s ‘costs’ fr omAR, Item 77, Bi nder 1, Inte rimOr der at 6; PURA § 39.452(b); CenterPoint Ene rgy 19 Houston Electric, L LC v. Pu blic Utili ty Commission of Texas , 354 S.W. 3d at 904-05.

Id. 20 AR, It em 119, Binder 2, Or der at 6. 21 Page 9 Brief of A ppellee PublicUtility C ommission ‘rev enues. ’” Ther efor e, th e ter m ‘costs, ’ as used by the l egi slature in PURA

19 § 39.4 5 2 (b ) “ onlypr ovid es for‘costs unr ecov ere d as a r esult of the imp lem ent ationof the t ariff’ and doe s not spec ifi cally pr ovid e for the util ity to reco ver los t revenu es o r any other type of co sts .” 20 D . S ti p u l a t i o n s a n d s e t t l e m e n t s i n D o c k e tN o . 3 8 9 5 1 c r e a t e d a v ery di ffere ntCo mpeti tiv e Program t hanth e prog ram reject ed by th e ALJ — on e th at resul ted in no un recovered co sts. Th e Co m p et i t i ve Pr ogra m tha tthe Co m m i ssi onac ce p t ed was sig nific an tly differe nt tha n the prog ram the ALJ reject ed in D ock et 3 77 44 . In
sever ed DocketNo. 3895 1, the p arti es n e g o t i at ed an accep table fr ameworkfor th e C o m p e t i t i v e P r o g r am . T h e p ar t i e s m ad e c e r t ai ns t i p ul at i o n s a nd sett lem ent agre eme nts that were adop ted in partby the Co mmi ssion. The 21

or i gi na l l y p r op os ed Co m p et i t i ve Pr og r am was ane ne r gy -o nl y p r og r am, but the part ies agre ed to chang e the pr ogr am to an ene rgy a nd ca pa ci ty-based pr ogr am. The test imo ny d emon str ated th at und er thi s new agr eem ent , theAR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 7. 22 Id . at 14-38. 23 Id. at 7, 12. 24 AR, It em 119, Binder 2, Or der at 17, FoF 42B(2)- (3) 25 Pag e 10 Brief of A ppellee PublicUtility C ommission Comp eti ti ve C ustome r would self-supp ly i ts own c apa ci ty and ene rgy ; the r ef or e, E nt er gywo ul d n oti nc ur g en er at i onc os t s. 22 This n ewly n egot iate d p rog ram i nvol ved two co ntr acts between the part ici pant s – one be tweenth e Com pet it ive Custome r and th e Com petitiv e Sup pl ier, and th e otherb et w ee n E nte rgyand th e Com pet it ive Sup pl ier(the “C om p et i t i ve Pur ch ase Ag r ee m en t ”)
. U nder the Co m p et i t i ve Pur ch ase 23 Agr eem ent

, the Co mp eti ti ve S uppl ierwould pr ovid e the Co mp eti ti ve Cu st om erf i r m p owe r an d e nt eri nt o a co nt r ac t wi th E nt er gy (o r onE nt er gy ’s beh alf) to be come a fir m-p ower r esource forEn ter gy. The Comp eti ti ve 24 Purchase A gre eme nt is a contr act for the purc hase of ene rgyand capaci ty for the same amoun t of

powerspe cified in the C o mp eti ti ve C ustome r and Comp eti ti ve S uppl ieragre eme nt. 25AR , It e m 1 1 3 , B i n d e r 2 , St i p u l a ti ona n d Se tt l e m e n t A gr e e ment b e tw e e n 26 Commi ssi on St aff, En ter gyT e xa s, In c . a n d T e xa s In d u s tr i a lE n e rgy C on s u m e rs, At tachment 1 at 1. AR, Item11 9, Bind er 2 , Ord er a t 17 , FoF 4 1A. 27 Id. at 22, Fo F 47. 28 AR, It em 119, Binder 2, Or der at 22, FoF 43. 29 Pag e 11 Brief of A ppellee PublicUtility C ommission 1. Partic ip ants inth e Comp etiti ve Prog ram. The p arti es also a gr ee d whi ch c ustome rs and whichsuppl ier s could p ar t i ci p at e i n the Co m p et i t i ve Pr og r am . On l y the i nd ust r i al cu st om er s tha t tookser vic e und er En ter gy’s l arge ind ustri al po wer ser vic es (“LIP S” ) tarif f could par ti cip ate. The Comp eti ti ve S uppl ier s would be th e Qualif yin g 26 Facil it ies c onne cte d wi th En ter gy’s syste m. The pr ogr am would be l imi ted 27 t o 1 0 C om p et i t i ve Cu st om er s an d c ap p ed be t we en80 M W a nd 150 MW
. 28 2. Co sts recovered from t he C omp etiti ve Cu stom ers. Th e p ar t i es al so st i p ul at ed tha t E nt er gy was p r oj ec t ed t o op er at e atan i nc r em en t al n etr es ou r ce d efi ci en cyof 260 MW i n 2012 an d 504 MW i n 2013
. 29 I n or d er t o r em ed y thi s ca p ac i ty d efi ci en cy an d p r ov i d e the n ee d ed bas e- l oa d capaci ty to se rv e it s cu s to mers, En ter gy would have to buy f rom oth erAR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 24-25. 30 Id . at 25 31 AR, TIEC Ex. 16, Binder 4, Pollock Supp. Rebuttal at 6. 32 Pag e 12 Brief of A ppellee PublicUtility C ommission gen erat ors. The agre ed Comp eti ti ve Progr am would offse t this d efi cie ncy

30 and make E nte rgyless d epe nd enton i ts syst em af fil iate s to p urchase enough powerto suppl y it s custom ers. Und er the re vise d C omp eti ti ve Pr ogr am, the
ex tr a capacity that Ent ergy a lr eady had to purch ase else where because of its de fic ien cy, would be p urchased unde r the Comp eti ti ve Pur chase Ag ree men t and passed thr ough di rec tl y t o th e Com pet it ive Custome rs at ret ail. E nte rgy would save mon ey be cause it could use it s ex isti ng g ene rati on t o ser ve i ts
es t abl i sh ed an d n ew c ust om er s wi tho utthe n ee d t o p ur ch ase e x ce ss gen erat ion to m aint ain r eli able ser vic e. 31 The on ly pr oduct ion- rel ated costs that En ter gy would have to inc ur t o
serv e the Co mpetitive Cu sto mers wo ul d be fo r ba cku p po w e r . How ever, 32 the par ti es sti pulat ed th at the Compe ti ti ve Customer would p ay En ter gy the fu l l p r i ce of bac ku p p owe r i n the ev en t of anou t ag e thr ou ghthe F i x ed Co stAR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 15. 33 AR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 15-16. 34 AR, It em 119, Binder 2, Or der at 26-27. 35 Id. at 23, Fo F 51 and CoL 2. 36 Id
. 37 Pag e 13 Brief of A ppellee PublicUtility C ommission Con t r ib ut i o na n d th e U n s e r v e d E n e r g y r at e . T h us , u n d e r th e a pp rov ed 33 progra m, all o f Entergy’ s ge nera tion c os ts a re cov ered. 34 E. The Comm issi on adopte d the re vise d Com peti tive Ta ri ff but not the Rejected Rid er relatingto emb edd ed gen eration cos ts. Alt hough the Comm ission adop tedEn ter gy’s r ev i s e d C omp eti ti ve Tar iff in DocketNo. 3895 1, itre je cte d E nte rgy ’s rid er thatwould per mititto 35

rec overlost b a s e-r ate r eve nues fr om cust omer s thatwere in eli gib le to eve n part ici pate in the pr ogr am. The Commi ssion r ej ect ed En ter gy’s d efi nit ion of
unre cove re d co sts: embe dd ed pr oduct ion costs and oth er rel ated base-rat e
cos ts. I ns t ea d , the Co m m i ssi ond et er m i ne d tha tthe on l y co st s tha twe re

36

rec over able wer e the c osts of im pl eme nta tion and adm ini str ationof the Comp eti ti ve Pr ogr am. 37AR, Item11 9, Bind er 2 , Ord er a t 25 , FoF 5 7A. 38 AR, It em 119, Binder 2, Or der at 9. 39 AR, ETI Ex. 101, Denni s R. Roach Supp. Di rect at 15. 40 AR, Item11 9, Bind er 2 , Ord er a t 25 , FoF 5 7C
. 41 Pag e 14 Brief of A ppellee PublicUtility C ommission F. Ent ergy’s imp lement ation c osts do no t accru e un til th e statu te is imple me nted, a nd inter es t is not a llowe d. The Co mmi ssion al so hel d that E nterg y was not ent it led to begi n accrui ng costs for the imp lem ent ation of the Co mp eti ti ve Pr ogr am unti l the dat e the Comp eti ti ve Tar iff was actually i mp lem ent ed
. The Comm ission 38 d enied Ente r gy ’s r eque stt o r ec ov eri t s c os t s f ord ev el op i ngthe p r og r am ret roact ive ly back to Nove mber 10, 2010
. En ter gy had alre a dy b een 39

rec over ingapp rox imat ely$300 ,000 per year for de vel opi ng the Co mp eti ti ve Progr am as partof i ts op erat ing ex pen ses includ ed in base r ates app rov ed in Doc k e tN o . 3 98 96
. T h e C o m m i s s i o na l s o f o un d th at , d ue t o th e r e l at i v e ly 40 lim it ed re gulator y lag, th e unr ecov ere d c osts shoul d be tr eate d c onsist ent ly wi th r at e- ca se e x p en se s. Th er ef or e, the Co m m i ssi onf ou nd tha ti twas inap pr opr iate forEn ter gy t o re cove r i nte rest o n the balance of i ts co sts
un reco vered a s a resu lt of the implemen tati on o f the Co mpetitive Ta riff. 41Pag e 15

Brief of A ppellee PublicUtility C ommission

SUMM AR Y OF THE A RGU ME NT The Co mmi ssion’s or de r sh ould be uph eld because itcor rec tl y de ter min ed th at th e on ly un rec over ed cost s thatEn ter gy h as as a result of imp lem ent ingth e Com pet it ive Prog ram ar e the c osts t o im pl em en t and ad m i ni st erthe p r og r am . Th e ev i d en ce i s c l ea r tha tun d erthe r ev i se d p r og r am consi de red by the Com missi on i n Docke t N o. 3895 1, E nte rgywould have n o othe r un r ec ov er ed c os t s. What E nte rgyclai ms are “costs” are real ly rev enues that itwould have
rec o ve re d b u t f or c ustome rs m igr atin g t o th e Com pet it ive Prog ram. Thi s Courthas alr eadyre

je cte d the ar gumen t that ut ili ti es should reco verth e los s es and sacri fic es sustaine d i n im pl eme nti ng a l egi slati vel y mand ated progra m. Ce nt erP oi nt201 1, 354 S. W.3d at 9 03. If the l egi slature int end ed for E nt er gy t o r ec ov eri t s l os tr ev enue s, i two ul d h av e sp ec i fi ca l l y i nd i ca t ed tha t intent a s it ha s in o ther s ectio ns o f PU RA. Id
. The Co mmi ssion’s st atutor y inte rp ret ationth at th e on ly r ecov erabl e costs ar e those r esulti ng f rom th e imp lem ent ationand adm ini str ationof the Comp eti ti ve Pr ogr am is r easonable. Thi s int erp ret ationis in a ccor danc e withPag e 16

Brief of A ppellee PublicUtility C ommission the statut e’s pl ain l anguage, consi sten t with case l aw, and suppo rt s the statuto ry int entto pr omot e com pet it ion. E nte rgy ’s int erp r e t ati on onth e other hand , i s anti comp eti ti ve and seek s to c harg e custo mers that are n ot e lig ible for th e pr o gram unj ust and pr ej udi cial rate s in viol ationof t rad it ional rat em ak i ngp r i nc i p l es . Th i s un fa i r c os t -s hi ft i ngap p r oa ch was no t m an d at ed by the legi sla ture , and s hou ld not b e permitted. Norshould En ter gy be allowed to cir cumve nt the pl ain l anguage of th e st atut e an d r ec ov er d ev el op m en t co st s ac cr ue d p r i ort o the d at e the p r og r am is a ct u ally imp lem ent ed
. En ter gy h as alread y r ecov ere d i ts d eve lop men t
ex pen ses as ope rati ng costs in pr evi ous rate cases. Itshould notbe p erm it ted to r ecov er the m und er the statut e. Moreov er, En ter gy is no t enti tl ed to int ere st onim pl eme ntat ion costs
un der the sta tute . The co sts of imple menta tion a re de mini mis an d c anbe

r ec overe d quic kl y. B ec aus e E nt er gywi l l n otsuffe r r egul at or y l ag, the se
ex pen ses should be t reat ed as rate -case e xp enses. I t h as longbeenth e Comm ission ’s pr a ct ic e to d eny int ere st onrat e-case ex pen ses. This i s espe ciall y t rue h ere , as the s ta tu te is notde sign ed to put En ter gy i n a bet terPag e 17

Brief of A ppellee PublicUtility C ommission posi ti on tha n itwould have be en i n p ri or t o im pl eme nti ng the Co mp eti ti ve Pro gra m. The C ommis sio n’s order is c orrectand s hou ld be u pheld. AR GUME NT A. S ta n d ard o f Re vi ew The statutor y constr ucti on of PURA § 39.452(b) is at the cor e of thi s case. That sec ti on p erm it s a util ity im pl eme nti ng a Com pet it ive Prog ram “t o
reco ver a ny co sts unre cov ered as a resu lt of the implemen tati on o f the ta riff.” Id
. Whenconst ruin g statutes, a court ’s pr imar y object ive is to giv e effectto t h e l egis la ture ’s intent. Ce nt erP oi nt201 1 , 354 S. W.3d at 903; ci ti ng Ga lbraith E ng ’g C on su lt an ts , Inc . v. P oc hu cha , 290 S. W.3d 863, 867 (Tex. 2009 ). “The p lain

m ea ni ngof

the tex ti s the be ste x p r es si onof l eg i sl at i ve i nt en tun l es s a di ffe ren t m eanin g is sup pl ied by legisl ativ e defi nit ion or i s appar entfr om the
co nt ex t, orun l es s the p l ai n m ea ni ngwo ul d l ea d t o absu rd orn on se ns i ca l

r es ul t s tha tthe l egi sl atur e co ul d n oth av e i nt en d ed
. ” Ce nt erP oi nt201 1 , 354 S. W.3d at 903; ci ti ng Ci tyo f Rockw al l v. Hu ghes , 24 6 S.W .3d 6 21 , 62 5- 26 (Te x. 2008 ). Court s “look t o th e en tire a ct in d ete rm ini ng the l egi slature ’s int ent
w i th r e s p e c t t o th e s p e c i f i c p r o v i si on . ” Ce nt erP oi nt201 1 , 354 S
. W. 3d at903 ;PURA § 39.452(b) ( emphas i s added)
. 42 Appellant’s Brief at 26 (“Though ‘costs’ and ‘rev enues’ may not be the same in all 43 c ont exts, th ey a rethe same in the context of what ETI was seeki ng i n thi s cas e.”). Pag e 18 Brief of A ppellee PublicUtility C ommission cit ing Up jo hn Co
. v. Ry la nd er, 38 S. W.3d 600, 607 (Tex. App .—Aust in 2000, p et. denied). B . Issu e 1: T h e C om mi ss io n rea so n ab lyref u se d t o in cl u d e E n te rg y’ s lo strev en u es i n t h e C om p et it iv e T ari ff. 1. Th e pla in la ng uage o f th e statu te refer s to cos ts,no t lo st revenu es. Th e cr ux of

thi s l awsu i ti s the i nt er p r et ati on of PURA § 39
. 452( b) ’s language that

, for the Comp eti ti ve Rate s, “the util ity' s rate s shall be set... to
rec overany costs unre cove red as a resul t of the imp lem ent ationof the t ariff42 (em phasi s add ed ). The statute onl y r efe rs t o cost s. Thus, the Comm is s ion

r ea so nabl y d ec i d ed tha tl os tr ev enue s ar e no tc os t s. Although En ter gy at tem pt s to c onvi nce the Courtth at “costs” and “rev enues” are synonymous in this case, it conced es th at cost s and rev enues
are n ot the same th ing
. Further, whe n the st atutor y lan guage of PURA 43 § 3 9.4 52 (b) provides recov ery of “a ny cos ts,” the term “ an y” modifies “c os ts.”AR, It em 119, Binder 2, Or der at 7. 44 Pag e 19 Brief of A ppellee PublicUtility C ommission If th e amount s En ter gy se eks ar e no t co sts, th e mo di fie r “any” wil l no t e xp and the s tatu te to inc lu de thos e am ou nts th at a re not “ cos ts.”

a. Th e Ce nter

Po in t 20 11 case ho ld s that lost revenues are n ot cost s. I n r ea ch i ng its co nc l usi ontha tE nt er gy ’s l os tr ev enue s s ho ul d n otbe

r ec ov er ed as co st s, the Co m m i ssi onr el i ed on th i s C ou r t ’s an al ys i s tha t rej ect ed re cove ry of l ost r eve nu es a s ex pen di ture s in anoth er sect ion of PURA. Thi s Cou rt hel d that unr ecov ere d c osts associat ed withth e

44 i m p l em en tati onof

ane ne r gy -e ffi ci en cyp r og r am ar e l i m i t ed t o a ctual expenditu res made to sa tisfy the go al s o f the prog ram . Ce nt erP oi nt201 1 , 354 S
. W. 3d at 903. I n tha t ca se , thi s Cou r t r ej ec t ed ani nt er p r et at i onof “c os t s” tha t inc lude d “the l osses orsacri fic es sustaine d as a r esult of an e nd ea vor” and adop ted the narr ow int erp ret ation of “costs” rel ated to actual e xp en diture s
as so cia ted wi th a ttempts to compl y w ith the endea vor. Id
. The Comm ission , rel yin g on thi s hol di ng, made the same reasonable int erp ret ation in this c ase. En ter gy’s arg umentth at Ce nt erP oi nt201 1 's h old ingis som ehowAppellant’s Brief at 27. 45 Pag e 20 Brief of A ppellee PublicUtility C ommission di stin guishable because itwas inte rp ret inga di ffe ren t sec ti on of PURA i s
mer it less. The reason ingof Ce nt erP oi nt201 1 app lie s her e. Li ke Ce nte rPoi nt, En ter gy t akes th e p osit ion that“costs” in clud es it s losses orsacri fic es
su sta ined by impleme nting the prog ram . Id
. E nt er gy ad m i t s i n i t s br i ef tha t it is seeki ng lost reve nu es: “The same logi c, app lie d t o th e br oade r l anguage of the CG S st atute, lead s to the i nescap able conc lusionth at E TI i s ent it led to
rec over all the costs i t i ncurr ed (orstate d d iff ere ntl y, re venues itwould have
rec eiv ed to cove r those c osts) butforth e CGS pro gram .” This Co urt rej ect ed 45 thatargume nt in Ce nt erP oi nt201 1
. Ce nt erP oi nt201 1 , 35 4 S.W .3d a t 90 3- 04
. Court s mus t consi de r st atutes as a whol e, and notword s in isolat ion. Cont inental C as. C o. v. Do wn s , 81 S
. W. 3d 803 , 805 ( Te x . 20 02)
. A tl ea stt wo othe r se ct i on s o f PU RA d i ffer en t i at e be t we en“c os t s” a nd “r ev enue s” b y per mit ti ng r ecov eryof “a ll co st s inc urre d an d a l l l o ss o f revenue ” and to “i mplemen t a me cha nis m to repla ce the rea so na bly projected increase in costs or decrease in revenue
. ” Ce nt erP oi nt201 1 , 354 S. W.3d at 904 (emp hasis add ed ); PU RA §§ 55 .02 4( b) a nd 56 .02 5( e) (emph as is a dded). Ce nt erP oi nt201 1“Thi s Com pe ti ti ve Servi c e Un rec overe d Se rvi c e Co s t Ri de r (‘ Ri de r CG SUSC’ or 46 ‘Rider’) defines t he procedure by whi ch En ter gy Tex as, Inc. ( ‘Company’) shall i mplement an d a dju s t rate s fo r re co very of lost base rate revenue res ul ti ng from c us tom ers partici patin g in t he Company’s Competiti ve Generat i on Ser vic e (‘CGS Prog ram’). The purpose of this Ri der is to pr ov i de a mechan i sm f or recov ery of such lost bas e rate revenues that were i nclu ded i n the Company’s l ast gener al rat e-cas e proceeding before t he Pag e 21 Brief of A ppellee PublicUtility C ommission conc lude d that the t erm “costs, ” as used by the l egi slature in PU RA, do es not i n c lu de los t revenu es. Ce nt erP oi nt201 1 , 354 S. W.3d at 904. Thi s di stin cti on appl ies t o PURA as a whol e. This Co urt de ter min ed th at whenth e le gisl ature doe s nots pe ci fi ca lly pr ovid e forre cove ry of lo s t re ve nu es inadd it ion to c osts, th en the o nly
rec over able co sts are tho s e o u t-o f-p ocke t e xp enses associ ated withth e impleme nta tion o f the prog ram . Id
. The Comm iss ion’ s rea so na ble sta tuto ry
con stru ction is cons iste nt w ith this Cou rt’s ana lys is a nd sho ul d be a ffirmed.

b. What Ent ergy seeks are lost reven ues,no t co sts. En ter gy i s no t en ti tl ed to rec overit s lostre venue sim pl y bec ause it
rec haract eri z ed th a t lost r eve nue as cost s to e scape the Ce nt erP oi nt201 1 hold ing
. WhenEn ter gy fir st asked the Comm ission to set the se Com pet it ive R at e s ( i n 20 10 ) , i t c al l e d th e am o un t s i t s o ugh t t o r e c o v e r “l o s t b ase rat e
rev enues. ” Although itnow calls tho se amount s costs, th ey st ill re pr esent

46Pub li c Uti li ty C ommi ssi on of Texas (‘PUCT’).”

Docket No. 37744, ETI Ex . 9 at Exhib i t PRM-1 (emphas i s added)
. AR, ETI Ex. 91, Bind er 3, Phi lli p May S upp. D i rect at 5-6. 47Tex. Gov’ t Co de § 2001.174(2) 48 Pag e 22 Brief of A ppellee PublicUtility C ommission rev enues E nte rgywould have rec over ed but for custome rs choosi ng to t ake
serv ice und er th e Compet it ive Tariff r athe r than the L IPStar iff
. En ter gy pr opose d t o rec over : “the embe dd ed gen erat ion- rel ated costs and any other

r el at ed bas e r at e co st s tha two ul d h av e be enrecove r ed thr ou ght r ad i t i on al rate s charged to Co mp et it iv e C u s to me rs th a t w il l n o lo ng er b e r ec o ve re d from the Comp eti ti ve c ustome rs. ” Und er either phr aseolog y, what E nte rgyseek s 47 are l ost r eve nues. And th e p lainlang uage of the st atute doe s notpermit
reco very o f los t revenu es. T he Co mmis sio n’s order sh ou ld be a ffirmed. 2 . Ent ergy’s is su e mus t b e den ied becau se it fail ed t o sh ow harm. Entergy ha s fa iled to d emon stra te ha rm from the Comm iss ion’ s o rder. A showin g that “substant ial r igh ts hav e bee n p rej udic ed ” is re qu ir ed to p r ev ai l i n an ad m i ni st r at i ve ap p ea l
. Mo r eo ve r, thi s C ou r tm ay n otr ev er se 48 the di str ict court ’s affir mance of the Co mmi ssion’s or de r unl ess itconc lude s thatth e cl aimed er ror“pr obably caus ed th e r end it ion of an i mp rop erTex. R. App. P. 44.1(a) 49 SeePURA § 36.006. 50 Docket No. 37744, Hearin g on the Mer i ts, TR, Vol. 3 at 165:23-166:11 (Jul . 16, 2010). 51 Pag e 23 Brief of A ppellee PublicUtility C ommission jud gme nt. ” E nte rgymust n ot pre va il o n it s Issue On e bec ause it f aile d t o

49 demons trate how the Co mmis sio n’s order ha rms it.

a. Ent ergy h as no t show n that it w ill no t recover all its cost s u n d er t h e C om p et it iv e T ari ff. The bur de n of pr oof was on E nte rgyat the Co mmi ssion, and En ter gy 50 fa iled to mee t its b urden
. Testi monyby E nte rgy ’s witne s s P h i l l i p M ayr e v ealed th at the ut ili ty di d not ex pec t the Co mp eti ti ve Tar iff to on lyre cove r amo unts that i t would have

r ec ov er ed f r om the c ust om er s tha te x i st ed wh enthe Co m p et i t i onPr og r am
was i m p l em en t ed
. H e ad m i t t ed tha tE nt er gy ’s p r op os al wo ul d r ec ov erl os t
rev enues e venif the custome r joi nin g the Compe ti ti ve R ate p rog ram, had not pr evi ously r ecei ved ser vic e fr om E nte rgy . 51 Q: Okay. S o yourpr oposal fo r th e [R ej ect ed ] Ri de r i s to calculat e the d iff ere nce betwee n what would have bi lle d -
- beenbil led und er tr adit ional LI PS serv ice and th e amount s coll ect ed und er the [com pet it ive ] ser vic e?Id
. 52 AR, Citi es Ex. 6C, Bi nder 3, Kar l Nalepa Supp. Di rect at 5. 53 Id
. 54 Pag e 24 Brief of A ppellee PublicUtility C ommission A: That’s a fairchar acter izatio n. Q: Ok ay . S o l et me ge tthi s s t r ai gh t . U nd erthe c om p an y’ s pr oposal, if a brand -ne w ind ustri al custom er ca me to you thathad nev er rec eiv ed ser vic e fr om [ En ter gy] and th ey sa id, “W e w an t to si gn up for [the Com petitive P rogra m],” [E nte rgy ] would stil l seek t o re cove r l ost r eve nues based on LIPS from tha t cu sto mer? A: Yeah, I beli eve th at is c onsist entwithth e p rog ram. 52 Mr. May’s test imo ny p rov es th at E nte rgycould rec over amounts un de r the Comp etiti o n Tari ff i n ex cess of th e amount s thatit s cost- of-se rv ice rat es
w ere des igned to re cov er. Cit ies’ witness Kar l N alep a test ifi ed th at “[E nte rgy ]’s d efini ti o n of

u nrecove red cost s is unr easonable. ” I t i s unre asonable bec ause Ent ergy 53

w ou l d co nt i nu e t o i nc ur p r od uc t i on co st s fo r fi ve ye ar s or m or e fo r a
cu st om ertha ti td oe s not ser ve . TI E C w i tne ss Je ff r y Po l l oc k t es t i fi ed tha t 54 “un r ec ov er ed c os t s” s ho ul d n oti nc lud e E nt er gy ’s hy p othe t i ca l l os tAR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 14. 55 Id . at 14–15. 56 Appellant’s Brief

at 25, 26 57 Pag e 25 Brief of A ppellee PublicUtility C ommission rev enues. He also t esti fie d tha t th e co sts unr ecov ere d as a r esult of the

55 imp lem ent a ti o n of the t ariff shoul d o nlyinc lude th e ex pen di ture s actually made by En ter gy to imp lem ent and maint ain the Comp eti ti ve Progr am, and the e x p en se of

p r ov i d i ngbac ku p p owe r t o the Co m p et i t i ve Cu st om er s. 56 En ter gy m isle ads the Co urt when it ar gues th at because the A LJ agre ed thatth ere could be l ost r eve nues, th at m eans it will have lost rev enues. For 57

one thi ng, th e AL J con sid ere d the p rog ram that En ter gy ori gin ally pr opose d in Doc ket3774 4. Th at p rog ram was sign ifi cantl y d iff ere nt fro m the r evised pr o g r amth e C o m m i s s i o na p p r o v e d b as e d o nnum e r o us sett lem ent s in Docket 3895 1. Th rough out i ts br ief , E nte rgyre fer s to t esti monyand fi nd ing s in DocketNo. 3774 4 as thoughth ey ar e sti ll re le va nt to the ap pr oved Comp eti ti ve Pr ogr a m, b u t that i s notth e case. The Comm issionwas not consi de ri ng the same pr ogr am th e AL J was pr esent ed w it h. The t esti mony p r ov ed tha tun d erthe r ev i se d p r og r am, the r e wou l d be n o u nr ec ov er ed c os t s.AR, Citi es Ex. 6C, Bi nder 3, Nalepa Supp. Di rect at 8. 58 Id . at 9. 59 Pag e 26 Brief of A ppellee PublicUtility C ommission

b. The s t ruct ure of t he r ev ise d Compet itiv e T ar if f a nd the facts ensure that Entergy wil l have no un recovered co sts. Co n t r ar y t o s t at e m e n t s i n i t s b r i e f , E n t e r g y f ai l e d t o p r o v e th at any of the am ou nt s i nc l ud ed i n i t s co st -o f- se r vi ce r ev enue r equi r em en t wou l d no tbe
rec over ed und er Comp eti ti ve rates. En ter gy i gnor es sev eral fact ors that wil l al l ow the ut i l i ty t o r ec ov eral l of tho se am ou nt s e ve n wi th Co m p et i t i ve R at es . One factor that allows Ente rgy to r ecov er all of it s re venue re quirem ent is that e ven if some customer s buy unde r the Comp eti ti ve Tariff , the util ity is expected to sell more ele ctrici t y o v er time. Citie s’ wit nes s K arl N al epa
ex pl ained th at lo ad gr owth would rep lace the rev enues once rec over ed fr om a custome r that i s leavi ng the sy stem . 58 Another facto r is th at E nte rgymay i ncur lowercost s if custome rs l eave. E nt er gysho ul d n otbe p er m i t t ed t o c ol l ec tad d i t i on al r at es f orc ap ac i ty tha t it no long er needs
. Mr. Na lepa testif ied tha t “[ Entergy’ s] pro pos al to inclu de 59 lostre venues in it s de fi nit ion of unr ecov ere d c osts would re quire all otherId . at 8. 60 AR, It em 119, Binder 2, Or der at 17. 61 Pag e 27 Brief of A ppellee PublicUtility C ommission custome rs to pay for phan tom costs inc urre d to serv e a custome r tha t i s no long er bein g ser ved by [E nte rgy ]. ” I f custo mer s mig rate to the Co mp eti ti ve 60 Progr am, thatmean s thatEn ter gy will have to p urchase less e lec tr ici ty fro m oth ers and thus save mone y; itwill re lie ve E nte rgyfr om i ts ex isti ng c apacity deficit. En ter gy wil l hav e t o pur chase l ess el ect ricity at whol esale i f Comp eti ti on Custo mer s use th e Com pet it ion Tarif f. The part ies st ip ul a ted tha tE nt er gyh as an increm ent al n etr es ou r ce d efi ci en cyof 260 MW i n 2012
an d 504 MW i n 2013
. Th e S t i p ul at i onan d S et t l em en tr ea ch ed i n Doc ke t389 51 l i m i t s the amou ntof

e l ec t r i ci ty subj ec tt o the Co m p et i t i ve Pr og r am t o 1 15 MW— l es s tha n the am ou nt E nt er gy wou l d ha ve t o p ur ch ase f r om othe r s. 61 As a r es ul tof

the Co m p et i t i ve Pr og r am, E ntergy wi l l i nc ur sav i ng s b ec aus e itwill nothave to buy as m uch el ect ri city at whol esale. Ad d i t i on al l y, the r ev i se d p r og r am ad op t ed by the Co m m i ssi onal l ows En ter gy t o re cove r its pr o du cti on co sts thro ugh otherchar ges. The part iesTh e C o mpeti tive Customers wi ll buy bac kup power fro m Entergy when the 62 prov i der cannot pr ov i de the competiti ve capaci ty in a gi ven hour. These expenses wi ll be rec overe d th rou gh the Un s erved En ergy R ate an d a Fi xed Cos t Con tribu ti on F ee whi c h a re di scu ssed in the St i pu l a ti on a n d Se tt l e ment between Commi ssi on St aff, En ter gy Tex as, Inc., and Texas Indus tr i al Energy Consumers. SeeOr der at 17. Competiti ve Customer s wi ll pay 10 5% of the avoi de d e ne rgy c os t pl us anO&M Ad de r. Ad di ti ona ll y, th e Co mp eti ti ve Cu s tom er w i ll pa y a Fi xed Cos t Con tribu ti on Fee of $1 .1 0 p er kW -M onth of Com pe ti ti ve Contr act Capaci ty. Thus, the Competiti ve Customer s pay all of the i ncremental var i able costs ass oci ated wi th back-up p ower plus a contrib uti on to gener ation fi xed costs. AR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 15-16. 63 Id . at 16. 64 Pag e 28 Brief of A ppellee PublicUtility C ommission agree d th at th e Com pet it ive pr ogr am would allow E nte rgyto rel y on Comp eti ti ve Pur chase Ag ree men ts as a fi rm powersuppl y forgen erat ion pl annin g p u rp o ses. The t esti monyshowed th at und er thi s agre eme nt, Entergy w ou ld not inc ur pro duc tion c os ts o ther tha n ba cku p pow er. 62 Mr. Poll ock t esti fie d that ther e w ould be no unre cove red costs e xi stin g afterstartup. Ongoi ng and backup p ower c osts are paid by the Co mp eti ti ve Custome r. The Comp eti ti ve Customer (with the exce pt ion of cap acity cr ed it

63 and fix ed fue l fa ct o r) would pay E nte rgya ret ail r ate that i ncl udes al l other charg es th e custo merwould pay as a fir m cust omer, i ncl udin g a tr ansmissi on and dis tr ib u tion r ate and all o the r ap pl icable tar iff s. The Comp eti ti ve 64Id
. 65 Appellant’s Brief

at 19. 66 Id
. 67 Pag e 29 Brief of A ppellee PublicUtility C ommission Custome r’s en ergy cost s pass th roughto the custom ers, mean ingEn ter gy would n ot h a ve to pay the sup pl ierforcapaci ty. “Ther e would be no oth er
un reco vered co sts .” 65 En ter gy ult imat elyseek s to avoid th e r eali ty of co mp eti ti on and maint ain i ts m onop oly. Al though th e le gisl ature has ord ere d i t t o make a part ial tr ansiti on to comp eti ti on, En ter gy be lie ves i t sho uld notlose a penny in the p roc ess. En ter gy p ret end s thatth e le gisl ature mand ated th at itchar ge its lo st rev enu es f rom tho se mi gra ting to c ompe tition to the cu sto mers tha t are in el igib le t o p a r t i c i p a t e i n th e p r o g r a m . I t g o e s fu r th e r b y i n s i n u a t i n gt ha t 66 the re is no feasibl e way to imp lem entth e p rogra m in conf orm ity with the statute “without

, i n some mann er, cr eati ng a pr efe ren ti al rat e orassigni ng costs t o custom ers thatmay n ot c ause the m. ” Thi s is no nsense . The 67 leg islature ma de no suchmand ate—the p arti es, notth e le gisl ature,AR, Item11 3, Binder 2, S ti pu la ti on a nd Settl em en t Agre em en t b etw een 68 Commi ssi on St aff, Enter gy Te x a s, I nc . a nd Te x a s I nd us t r ial Energy Consumers, Attachment 1 at 1. Appellant’s Brief at 19-20. 69 Pag e 30 Brief of A ppellee PublicUtility C ommission de ter min ed which class w ould be el igible. Despi te En ter gy’s cl aim that the 68 statute mand ated an unfairre sult, th e Com missi on was able t o app rov e a p r og r am st r uc tur e wi tho utc aus i ngh ar m t o the i ne l i gibl e cl ass es . None the less, En ter gy se ek s a fre e lun ch. E nte rgyseem s cont entwith

av oi d i ngthe st atut or y m an date thati tm ov e t o p ar t i al c om p et i t i onby de sign ingan unfairpr ogr am th at is sur e t o b e re je ct ed
. Further, i f E nte rgy
ac tual l y ha s t o en t er the co m p et i t i ve m ar ke t, i t wan t s t o ass ur e tha ti td oe s s o wi tho ute x p er i en ci ngthe f i na nc i al r ea l i ty of c om p et i t i on . To p ur sue these obj ec t i ve s, E nt er gyg oe s s o f ar as t o m i sc ha ract er i ze f or m erCh ai r m an S m i the r m an ’s op en m ee t i ng co m m en t s re ga r d i ng the p r og r am . I t sh ou l d be 69

no t ed tha tCo m m i ssi on er s’ tho ug htp r oc es se s ar e i r r el ev an ti n the j ud i ci al determina tion o f the rea so na ble nes s o f an ag ency order. P ede rn al es E le c. Co op ., In c. v. P ub
. Ut il. Co mm ’n o f Te x. , 809 S
. W. 2d 332 , 342 ( Te x . Ap p . —A ust i n 1991 , no w rit); Ci tyo

f F ris co v. Tex. W

at er R igh ts Co mm ’n , 579 S. W.2d 66, 72 (Tex . C iv.Id . a t 20 citi ng Su pp . AR P art IV, V ol. F ( D oc ket N o. 3 7744, N ov. 1 0, 20 10 Ope n 70 Meet i ng Tr. at 179 & 210.

Id . at 210. 71 Id . at 212. 72 Pag e 31 Brief of A ppellee PublicUtility C ommission Ap p . —A ust i n 1979 , wr i tr ef’d n.r.e. ). Y et , E nt er gyst at es tha tCh ai r m an S m i the r m anac kn owl ed ge d tha tE nt er gysh ou l d n oth av e t o p i ck up the t ab fo r the p r og r am i f it co ul d no t fi nd an equi t abl e way t o pa y fo r i t : “[ I ]t ’s cl ea r you’re notsuppo sed to should er the burd en o f this [ pr ogr a m]
... ” and “[U]nd er no ci rcum stance s will you eatit [the c osts of

th e p rog ram] ” 70 Th es e co m m en t s b ea r n o r el at i ont o E nterg y’ s at t em p tt o c ol l ec tl os t
re v e n ue s f r o m c us t o m e r s th ata r e i n e l i g ib l e f o r th e p r o g r am . I nc o n tex t, for merChair man Sm ither man said thatEn ter gy would nothave to “eat ” the i m p l em en t at i onc os t s if non e of the LI PS c ustome rs op ted to mig rate to the Comp eti ti ve Pr ogr am. I n r espon se to En ter gy’s p lan t o col lec t e mbed de d 71 ge ne r at i onc os t s f r om i ne l i gibl e cu st om er s, f or m erCh ai rmanS m i the r m an
r ep l i ed , “Y ea h, I ’m no tc om fo r t abl e wi th tha t . ” H e fu r the r st at ed , “I d on ’t 72 thi nk we can put the m on resi de nti al custome rs. I don ’t thi nk that w a s theId . at 213. 73 Id . at 212. 74 Pag e 32 Brief of A ppellee PublicUtility C ommission intent.” And Cha irma n Nels on s tate d, “I wo u l dn ’ t a p prove tha t rider,

73 period.” Entergy’ s a ss ertion tha t the Co m m i ssi on ac kn ow ledged a sta tuto ry 74 inte nt to pl ace the bur de n of costs o n custo mer s thatdi d n ot c ause the m i s d i si ng enuo us.

En ter gy f aile d t o pr ove thatitwould be aggr iev ed by the Co m m i ssion ’s st atut or y i nt er p r et at i on . E nt er gyr el i es so l el y onp ot en t i al harm th at may have r esulte d f rom th e p rog ram p rop osed to the ALJ in Docket No. 3774 4. The r evi sed pr ogr am th e Com missi on co nsid ere d was str ucture d
so tha t E nt er gy wou l d no t ha ve an y un r ec ov er ed co st s other th an imp lem ent ationand adm ini str ation of the p rog ram. E nte rgyhas notbeen ha rmed an d its a ppea l of this iss ue sho ul d be denie d. 3. Th e C om mi ss io n ’s i n te rp ret at io n o f t h e s ta tu te i s reas on ab le , and En tergy’s i nt erpretationis unrea sona ble . a. Th e C om mi ss io n ’s i n te rp ret at io n fo ll ow s th e s ta tu te ’s pl ain lang uage t hat limi ts recov ery to c osts . The Co mmi ssion’s p lain language int erp ret ationis co nsist entwithth ePag e 33

Brief of A ppellee PublicUtility C ommission leg islat ive go a l o f p rom oti ng c omp eti ti on without i mp osingunj ust and

un r ea so nabl e r at es . Cour t s sho ul d r ej ec t p l ai n la nguag e in t er p r et at i on s tha t “w o u ld lead to absurd ornon sensic al re sults that the l egi slature could not ha ve intended. ” Ci tyo f R oc kw al l , 24 6 S.W .3d a t 62 5- 26 . Here, the Co urt should uphol d the Commi ssion’s r easonable int erp ret ationbecause E nte rgy seeks t o re cov er “lost rev enues, ” not “unrec over ed cost s,” whic h is inc onsist entwithth e p lainlang uage of the st atute.

b. Th e Comm issi on ’s in terpretatio n o f th e statu te is reas on ab le . The Co mmi ssion’s i nte rp ret ationis co nsist en t w ith th e obj ect ive of pr omot ingcomp eti ti on, itis co nsist entwithleg al pr eced ent , and itis consi sten t with t rad it ionalrat e-m aking pr inc ip les. I t d oes no t all ow En ter gy to sh iftrat es fr om on e cl ass of custom ers to anoth er. Nordo es th e Comm ission ’s int erp ret ationallow E nte rgyto rec over“costs” that i t n eve r i nc ur r ed
. A n i nt er p r et at i onm ak i ngtho se al l ow an ce s wo ul d l ea d t o a n absurd r esult.AR, TIEC Ex. 15, Binder 4, Pollock Supp. Di rect at 15-16. 75 Pag e 34 Brief of A ppellee PublicUtility C ommission

c. Ent ergy’s in terpretatio n o f th e statu te is un reas on ab le . En ter gy’s statutor y in ter pr etat ion conflic ts with the p lainlang uage of the statute . Itis unr easonable forEn ter gy t o in clud e embed de d g ene rati on
co st s i n i t s d efi ni t i onof un r ec ov er ed “c os t s. ” A s d em on st r at ed abo ve , wh at E nt er gyac tual l y se ek s t o r ec ov erar e l ost revenu es. “[ T] he t er m “c os t s, ” as
us ed by the legis la ture in PU RA, is not inte nded to incl ude lo st rev enu es.” Ce nt erP oi nt201 1 , 354 S
. W. 3d at904
. En ter gy also ign ore s the statut ory te rm “unrec over ed .” E nte rgyfail ed to m eetit s burd en o f p roof to de monst rate t ha t it w ould have unre cove red costs o the r than those c osts t o im pl eme nt and adm in is terth e Com pet it ive Pr og r am . S ubs t an t i al e vi d en ce sh owe d tha tun der the r ev i se d p r og r am appro ved by the Co mmis sio n “t here w ou ld be no other un reco vered co sts .” 75 E nt er gysh ou l d n otbe p ut i n a bet t er p os i t i on tha n itwo ul d be wi tho ut the Com pe ti ti ve Progr am. This was notth e in ten t of th e le gisl ature, and would be cont raryto the statut e’s pl ain l anguage. I f base r ates wer e setto
rec overa cer tainamountof r eve nues fr om L IPS serv ice but the reve nues d idAppellant’s Brief at 6-7. 76 Pag e 35 Brief of A ppellee PublicUtility C ommission notmee t the c omp any’s tar get s, E nte rgywould n o t b e a llowed t o re cove r tho se amount s or i ts car ryi ng c osts onth e lo st r eve nue. ButEn ter gy argues that it s capt ive custome rs—those not eli gibl e forth e Com petitive P rogra m—s hou ld ab so rb sub sta ntia l am ou nts o f mone y in extra rate s to cove r En ter gy’s hyp oth eti cal lost rev enues caused by mig ra ti o n of
members o f the LI PS r ate c lass to the Co mp eti ti ve Pr ogr am. En ter gy asser ts thatth e Re

je cte d R id er is d esigned to rec overbase-rat e cost s thatit s Com petit ive Custome rs would avoid by op ti ng i nto th e com pet it ive gen erat ion str ucture “from non -par ti cip a ting cust omer s.” E nte rgywould 76 de ter min e the di ffe ren ce betwee n what would have been billed u nder tr a di tional L IPS ser vic e and th e amount s coll ect ed und er the Comp eti ti ve Pr og r am . I n othe r wor d s, E nt er gy ’s p r op os ed r i d erwo ul d un fa i r l y p en al i ze the m aj or i ty of

i t s c ust om er s s o tha tE nt er gywo ul d n otl os e an y p ot en t i al
rev enue. Thi s int erp ret ationdo es not pr omot e compe ti ti on. It is the type of absurd and non sensic al re sult that m ust be r ej ect ed because itcould nothave bee n w ha t the legis la ture intended. Ci tyo f R oc kw al l , 246 S
. W. 3d at625 -2 6.See PURA § 36.051. 77 Pag e 36 Brief of A ppellee PublicUtility C ommission 4. Ent e r gy cann ot u se tradi tio nal rate-makin g co nc epts to av oid th e Legislat ure’s man date to tr ans itio n to com peti tion. En ter gy’s arg umentth at it s lost rev enues are unr ecov ere d c osts r ests on conflati ng two di ffe ren t aspe cts of rat e-m aking : En ter gy c onfl ates the t estye ar e x p en se s use d t o d et er m i ne a ut i l i ty’ s r ev enue r equi r em en twi th the l ast partof se tt ingrates —rate de sign
. To set regulated ele ctr ic ut ili ty rate s, the C o mmis sio n firs t decides how muc h revenu e the u tility nee ds to rec over. This amo unt r esults fro m the r ate of return mult ip lie d byth e uti lity’s in vest ed capi tal ( rate base) p lus th e uti lity’s re asonable and nec essary o per atin g
ex p en se s: (rat e base × rat e of return) + ex pen ses = re venue re quirem ent 77 Aft er the re venue re quirem entis d ete rm ine d, th e Com missi on m ust d esign the rat es—how muchof the r eve nue r eq u ir em entshould be col lec ted fr om differen t rate cla ss es a nd wh at me thod to u se to colle ct thos e am ou nts. Al tho ug h E nt er gyi s co r r ec t tha tthe Co m m i ssi onl oo ks t o the ut i l i ty’ s actual ex pen ses ina 12-month t est y ear to be ginit s de ter min ationof thePag e 37

Brief of A ppellee PublicUtility C ommission ut i l i ty’ s r easo na ble an d n ec es sar y ex p en se s t o i nc l ud e i n the r ev enue requir eme nt, th e Com missi on d oes no t d ete rm ine which rate class caused th e
ex pen ses to b e incurr ed when i t d ete rm ine s the re venue re quirem ent . The

r ev enue r equi r em en td oe s n otass i gnc er t ai n t es t -y ea r e x p en se s t o a r at e cl ass like the LIPS cla ss tha t is eli gib le to pa rticipa te in Co mpetitive Rate s. Ra te cla ss es a re, inst ea d, us ed to desi gn ra tes— to dev ise a doll ar- perun i tc ha r ge so tha tthe ut i l i ty wi l l h av e a rea so na b le opp ortunity t o re cove r the t ot al am ou ntof

i t s r ev enue r equi r em en t . A l tho ug h co stc aus at i on can be consi de red in de sign ing rate s, “[c]ost is not the onl y fact or that i s pe rt ine nt to the Co m m i ssi on ' s d ec i si on ; the Comm i ssi onm ay al so c on si d erthe p ur p os e forwhichth e ser vi ce i s re cei ved , the quanti ty rec eiv ed , the t ime of use, and the c on si st en cyan d r egul ar i ty of use , am on g othe r f ac t or s. ” Nu cor St eel v. P ub
. Ut il. Co mm ’n o

f Te x. , 168 S. W.3d 260, 268 (Tex. App.

— A u s ti n 20 05, no pet.). Inone case the Te xas S upre me C ourt rec ogni zed that “[r] ate de signis a comp lex pr oblem th at in volv es manyfact ors, ” and m ent ione d the costof
serv ice , the p urpo se forwhichth e servi ce or prod uct is rec eiv ed , the quantityAppellant’s Brief at 26. 78 Pag e 38 Brief of A ppellee PublicUtility C ommission or am ount r ecei ved , the d iff ere nt charact er of the se rv ice furn ishe d, th e t ime of i ts use, when the p eak of th e lo ad oc curs, th e const ancy and regularity of the u se m a de by th e con su mer, or a ny oth er ma tters. Tex. Alarm &Signal A ss’ n v. P ub
. Ut il. Co mm ’n , 603 S
. W. 2d 766 , 772 ( Te x . 198 0)
. Thus, the f ac ttha t a rate class is assigned cer taincost s in rate de signdo es notmeanth at th e
cu sto mer ca us ed thos e cos ts to be inc urre d. En ter gy i ncor rec tl y arg ues that : “[J]ust as test -ye ar ex pen ses d ete rm ine wh a t a ut i l i ty’ s an t i ci p at ed futur e r ev enue r equi r em en twi l l be f ora p ar t i cu l ar cla ss , a u t i l i t y ’s ant icipa ted revenu e req ui rement fo r a cl as s o f cu sto mers establi s he s what are in dis pu ta b ly t he c os ts o f se rvi ngt ho se c us to me rs. ” 78 (em phasi s add ed ). Thi s misl eadi ng statem ent unde rp ins Ent ergy’s argum ent tha ti twi l l i ne vi t abl y fa i l t o r ec ov eral l am ou nt s i ti nc ur s to serve a particular
cu st om er if tha t cu sto mer opts for Co mpetitive Genera tion Servi ce. Moreov er, th rough out i ts br ief , Ent ergy a tt emp ts t o use tr adit ional rat em ak i ng co nc ep t s as both a swor d an d a shi el d
. E nt er gy r el i es ont r ad i t i on al rate -maki ng p ri nci pl es whenitclai ms itis e nti tled to a reasonableAppellant’s Brief at 13 and 27. 79 PURA § 36.003. 80 PURA § 39.452(b). 81 Pag e 39 Brief of A ppellee PublicUtility C ommission opp ortunity t o re cove r all of i ts r easonable and nece ssary op erat ing
ex pen ses. Howev er, itvi olates es tab lish ed fund ament als of r ate-m aking

79 wh eni tat t em p t s t o r ec ov er the se co st s fr om i ne l i gibl e, ca p t i ve cu st om er s b y charg ingth em un

justand unre asonable r ates. Ev en th e AL J r ej ect ed th is 80 p r op os al as “c on t r ar y t o the fun d am en t al r at e- m ak i ngp r i nc i p l e of c os t
ca us at i o na n d m ayh ar m th e c o m p e t i t i v e n e s s o f n o n - p ar t i c i p atin g manufacturer s .” E nte rgycannotde mand adh ere nce withtr adit ional rat emakin g whenitsuits i t and di sreg ard itwhen i t d oes no t. E nt e r g y b a s e s i t s a r g u m e n t th a t i n e l i g ib l e r a t e p a y e r s s h o u l d p ay add it ional amount s on i ts inte rp ret ation of another part of the se nte nce in the statute . That sen ten ce be gin s: “The tari ffs subjec t to thi s subsecti on may no t be con sid ere d t o off er a di scounte d r ate or rate s unde r Se cti on 36.007.” Fr om 81 the l an gu ag e “m ay n otbe c on si d er ed , ” E nt er gy l ea p s t o the c on cl usi ontha t the C o mp et it ive Rate s must be th e opposite of d iscount ed rat es inSe cti onPURA § 36.007(a). 82 PURA § 36.007(d). 83 Pag e 40 Brief of A ppellee PublicUtility C ommission 36. 007. S ec tion 36 .007 (a ) r equi r es tha td i sc ou nt ed r at es m ustn otbe
unre asonably p refere nti al, pr ej udi cial, di scri min ato ry , p red ator y, or
an ti co mp eti ti ve. E nte rgy, ther efor e, int erp ret s 39.452(b) as givi ng i t f ree 82 rei gn t o char ge p refere nti al, pr ej udi cial, di scri min ator y, and anti comp eti ti ve prices . This is a bs urd. Further, be cause Se cti on 36.007(d ) stat es: “Notwithstand ingany other provis ion o f this title, the co mmis sio n sh al l ens ure tha t the elec tric u tility's alloc able co sts of serv ingcustom ers payi ng di s co unte d r ates und er thi s
se ct i onar e no tbo r ne by the ut i l i ty' s o the r cu st om er s” ; E nt er gy ass um es tha t 83

an y r at es tha t ar e no t d i sc ou nt ed r at es m ust e ns ur e tha tc os t s ar e born e by th e uti lity’ s o ther cu sto mers . Tha t ac rob ati c lea p is no t neces sa ry. A more reasonable read ing of the statem ent thatth e Com pet it ive rat es
a re no t di scounte d r ates i s thatth ey ar e no t flat p erc ent age r ate d iscount s above the ut ili ty’s m argi na l costs. The rate s charg ed must c overth e embe dd ed cost s of transm ission and di str ibuti on and be based upon the samePFD at 23-24 in Docket 37744; PURA § 39.452(b). 84 Pag e 41 Brief of A ppellee PublicUtility C ommission co stof se r vi ce as othe r c ust om er s. Th e Co m p et i t i ve Cus t om er s m ust neg oti a te th eir own barg ain with the Co mp eti ti ve S uppl ier s and reap th e bene fit of the bar gain the y make —itdo es notent it le them to a di scount. Entergy’ s inte rpreta tion w ou ld viola te a ctu al sta tuto ry ma n da t e s . If E nt er gyi s i nc or r ec t, an d i ne ligib l e cu st om er s n ee d n otbe ar the ad d i t i on al rate s th e u t i l i ty s e e k s , th e ni two ul d d e f e atth e p ur p o s e o f c r e atin g compe tition to mak e the Co mpetitive Cu sto mers pay Entergy w ha t they w ere
curr ent ly p ayingEnte rgy, and pay a Co mp eti ti ve S uppl iertoo. I f E nte rgy
we r e co r r ec ttha ti ne l i gibl e cu st om er s m ustp ay f orthe r ev enue l os twh enan el i gible c ust om erop t s f orthe Co m p et i t i ve Tar i ff , the n E nt er gy ’s p r op os al viol ates tha t p art of the st atute thatpr ohibi ts E nte rgyfr om h armi ng the sustainabil ity orcomp eti ti ven ess of m anufacture rs ch oosingnotto take advant age of

th e Com pet it ive pr ogr am, and resul ts i n unjust and

un rea s o n a b l e rate s fo r thos e cu sto mers . Becau se n ot a ll ma nu fa ctu rers 84 with in E nte rgy ’s service area use the L IPStar iff to buy ele ctr ici ty, th eir sustainabil ity and comp eti ti ven ess w ould be d imi nish ed if the y wer e for cedPFD at 24 i n Docket 37744. 85 Id
. 86 Id
. 87 Pag e 42 Brief of A ppellee PublicUtility C ommission to p ay add it ional lost -re ve nu e r ates whenLI PS c ustome rs used th e Comp eti ti ve Tar iff
. 85 The AL J r e c o g n i ze d th at , c o n t r ar y t o E n t e r g y ’ s a s s e r t i o n s , P U RA § 39.452(b) doe s notmand ate that unr ecov ere d c osts be rec over ed fr om n onp ar t i ci p at i ngc ust om er s. The AL J r ej ec t ed E nt er gy ’s Co m p et i t i ve Pr og r am 86 pr imar ilybecause “itruns c ont rary to the f undam ent al rat e-m akingpr inc ip le of co st causatio n and may h arm the c omp eti ti ven ess of n onpa rt ic ipatin g
m an uf ac tur er s. ” Th e Co m m i ssi on ac ce p t ed a r ev i se d Co m p et i t i ve Pr og r am 87 in Doc ketNo. 3895 1, but pr ope rl y r ej ect ed En ter gy’s cost - shi fti ng ap pr oach. Further, Ent ergy’s relian ce onth e High Plains opinio n is mis plac ed. Se e R.R . C omm’n o

f Tex. v. High P lains Nat ural G as Co. , 628 S. W.2d 753 (Tex. Civ
. App .—Aust in 1981, writ ref’d n. r. e. ) (pe r curi am). That case d oes no t d efi ne the te rm “costs” ina statut e no r e xp lainhow add ing a new tarif f may affec t the a mou nts th at a util ity ha d expected to rec over u nder an existin g ta riff.Pag e 43

Brief of A ppellee PublicUtility C ommission No r, d oe s High Plains stand for the pr oposi ti on that r ates m ust ex actl y coll ectth e amountof e xp enses tha t a util ity in curs. S uch a re quirem ent
wou l d r unaf ou l of

the S up r em e Co urt ’s sub se que ntr ec ogni t i ontha twh at determine s a jus t an d re as ona ble rate is fa r from a precis e proces s. P ub
. Ut il. Co mm ’n o

f Te x. v. G TE -S w . , Inc . , 901 S. W.2d 401, 411 (Tex. 1 9 9 5 ). The Comm issionmust ut ili ze in for med j udgm entand ex per ti se using p roj ect ions
an d estima tes in virtu al ly a ll are as of ra te-ma king. Id
. Instea d, High Plains a ddr es s ed a part icularcomp onen t i n a gas uti lity rate case, a p ur c h as e d
- gas-adj ustmen t cl ause, as app lie d un de r the G as Util ity Reg ulator y Act (“GUR A”). PURA § 36.201 p roh ibit s such a u to mati c adj ustmen ts and pass-th rough clauses. Thus, the analysis in High Plains of a typ e of rate th at PURA pr ohibi ts has n o beari ng onth is case. En ter gy’s con tor ted app lic ationof t rad it ional rat e-m ak ingpr inc ip les

an d mi sa pplica tion of ca se la w demons trate tha t the Co mmis sio n’s sta tuto ry i nt er p r et at i oni s the r ea so nabl e i nt er p r et at i on . Th er ef or e, the Co m m i ssi on ’s order s hou ld be u pheld.Tex. Util. Code § 39.452 (emphas i s added)
. 88 Imp le me ntDe

fi nition , Mer riam -Webs ter – Di cti onary and Thes aurus, 89 ht t p : //ww w. me r r ia m- we bs t e r . co m/ d ict io na r y / imp l e me nt (l a st v isit e d Ju ne 1 1 , 2 0 1 4 ). Th is Court noted t ha t “ imp lement” means to carry out in Cent erP o intEne rg y Ho ust o n El ect ric LLC, 408 S.W.3d 910, 917 (Tex. App.—Austi n 2013, pet. deni ed). Pag e 44 Brief of A ppellee PublicUtility C ommission C. Is sue 2: Ente rg y should re cove r onlyimple me ntat ion cos ts underthe Co mpeti tiv e Rider, and th ey do no t oc cu r un til th e Comp etiti ve Pro gr am is im plem ente d. 1. Th ere ar e no imp lement ation cost s for En tergy to recover u nt il the Com peti tive Prog ra m is i mple me nted. The Co mmi ssion p rop erl y i nc lu de d o nlyim pl eme ntat ion costs i n the Co m p et i t i onR i d er be ca use tha t i s all the p l ai n l an gu ag e of the st atut e d i r ec t s. The statute state s that“rate s shall be set... to re cove r anycost s unre cove red as a resultof the implementation of the t ariff, ” and the Comm issionfol lowed 88 that di rec ti ve. En ter gy inst ead wants th e Com missi on t o in clud e the c osts of develo ping the ta riff. But tho se a re differen t. Im pl eme ntat ion occurs once the tar iff has beencr eate d; de vel opm ent refers to the c reat ion of the tari ff. “Im pl eme ntat ion” m eans “carr y out,
ac compl ish ; esp eci al ly : t o g i ve p r ac t i ca l e ffe ctt o a nd e ns ur e of ac tual fu lfillme nt by conc rete mea su res” an d it is syn onym ou s w ith “ admin iste r.” 89Developm ent Defi nition , Mer riam -Webs ter – Di cti onary and Thes aurus, 90 http://www.m err i am-w ebster.com/di cti onary /develo pment(last vi si ted June 11, 2014).

O r de r at 8 ; E nte rgy’s red line d ta ri ff vers i on E xhi

bi t D RR- SD -6 at 1 , Se c ti on I I 91 P urp os e. Or der at 11. 92 Pag e 45 Brief of A ppellee PublicUtility C ommission The compe titi o n tari ff mu st b e crea ted bef ore it ca n be admin iste red. “Devel o pm ent

,” onth e otherhand , m eans “th e actor pr ocess of cr eati ng somethin g ove r a p eri od of t ime .” The costs En ter gy wanted to rec over —all 90 the costs it has inc urre d since Nove mber 10, 2010 when the Co mm ission consi de red th e PFD inDocketNo. 3774 4 thatre late d t o th e Co mp eti ti ve Tarif f —are c osts of

de vel opm entor cre ationof th e t ariff, notcost s of 91 impleme nting the tarif f. En ter gy wil l no t r ecov er imp lem ent ation cost s unti l the Co mp eti ti on Tar i ff i s i m p l em en t ed
. Th er ef or e, the Co m m i ssi on“[ d i d ] no tr ea chthe i ssu e of the am ount t o be r ecov ere d f o r th e impl eme ntat ion and admi nist rati on costs atth is t ime because the am ount c annotbe k no w n until [E nte rgy ]
ac tua lly implem ents the progra m.” 92 The Co mmi s s io n pr ope rl y fol lowed th e p lainlang uage of the st atute93

SeePFD in P.U.C. Docket No. 39896 at 229-231 htt p: //i nte rc ha nge .p uc .te xas .gov/We bA pp /In tercha nge /a pp li c ati on/ db ap ps /fi lings /p gSe arch_Results.as p?TXT_CNT R_NO=39896&TXT_ITEM_NO =764 (S t a t ing t ha titis appropr i ate for the $310,746 inexpenses ass oci ated wi th develo pment of the Competiti ve Tariff

to be charg ed to r atepaye rs as regulato ry expenses.) ; s e e al s o Final Orde r i n P .U. C. D oc ket N o. 3 98 96 at 1 htt p: //i nte rc ha nge .p uc .te xas .gov/We bA pp /In tercha nge /a pp li c ati on/ db ap ps /fi lings /p gSe a r ch

_ R e su l t s. a sp ?T X T_ C N TR

_ N O = 3 9 8 9 6 & TX T_ I TE M

_ N O = 8 0 7(“ E x ce p ta s d isc us se d in thi s Order , the Commi ssi on adopts the pr oposal for decis i on, as corre cted, i nclu di ng findings of fact and c onclus i ons of law.”) ; AR, ETI Ex. 101, Denni s R. Roach Supp. Di rect at 15. Pag e 46 Brief of A ppellee PublicUtility C ommission an d its decis ion s hou ld be a ffirmed. 2. Ent ergy already recov ered th e cost s to develo p th e Co mpeti tiv e P ro gr am as o p erat in g exp en se s ina p rev io u s rat e c as e.
a. In Do c ke t 3 9 8 9 6 E nt e r g y re cove re d costs to deve lop the Compe titiv e Pr ogr am as oper at ing e xpe nse s. The exp enses i ncurr ed pr iorto the tar iff’s imp lem ent ationre pr esenta regulated util ity’s costof doi ng business. They are op erat ingex pen ses. And E nt er gy ’s t ar i ff s i nc l ud e op era t i nge x p en se s. E nt er gyc l ai m ed the p r og r am d ev el op m en tc os t s as op er at i nge x p en se s i n i t s rat e ca se i n Doc ke tN o. 398 96. The t ariff app rov ed in that doc ket allowed En ter gy to recov er appr oxi mate ly $300 ,000 peryearto cove r those e xp enses. E nte rgyshould notbe all owed 93 t o c ol l ec tthe d ev el op m en tc os t s ag ai n unde r the Co st Rider.AR, It em 119, Order at 10. 94 Pag e 47 Brief of A ppellee PublicUtility C ommission

b . Itw ou ld v io la te t h e p ro h ib it io n o n ret ro ac ti ve rat ema king to p er mit Ente rg y to off se t the c osts it has alr ea dy co ll ec te d fro m t h e C os t Ri d er. Although En ter gy p rop osed to offse t that amo unt again st the imp l e m e n t at i o nc o s t s i n c l ud e d i nth e C o s tR i d e r, th e C o m m i s s i o nr e fused
no t i ng tha t wou l d am ou nt t o r et r oa ct i ve r at e- m ak i ng . Th e r ul e ag ai ns t ret roact ive rat e-m aking“pr ohibi ts a p ublic ut il it y commissionfr om set ti ng fu ture rates to a llow a utility to reco up pas t los ses or to refu nd to co nsu mers
ex ce ss ut i l i ty p r ofi t s. ” Stat e v . Pub. Util . Comm ’n of T ex ., 883 S
. W. 2d 190 , 199 (Tex . 199 4). Thus, det erm ini ng whethe r Ent ergy recov ere d all of it s ex pen ses forde vel opi ng the c omp eti tive ta ri ff would be p roh ibit ed re tr oacti ve r atemakin g. D. Issu e 3: Ent ergy is no t entitl ed to collect int erest on th e balan ce of it s un recovered co sts. Th e Co m m i ssi on p r op er l y r ej ec t ed E nt er gy ’s r eque stt o r ec ov eri nt er es t
onc os t s un r ec ov er ed as a r es ul tof i m p l em en t i ngthe t ar i ff
. Th e i nt er es t 94 En ter gy r equests i s analogous t o in ter est o n r ate-c ase ex pen ses, whichis n otId
. 95 Id . a t 25 , FoF 5 7C
. 96 Id . at 10. 97 Pag e 48 Brief of A ppellee PublicUtility C ommission allowed
. I t would be i napp ropri ate f or E nte rgyto rec overint ere st onth e

95

un r ec ov er ed bal an ce of i t s C os tR i d erc ha r ge s. 96 1. Lik e rate-case expens es, th e un recovered imp lement ationcos ts ar e r el at ive ly sm al l and r ec ove r e d qui ckly so thatadding in te res t is n otrea so n ab le . The i mp lem ent ationex pen ses should be t reat ed li ke r ate-c ase ex pen ses because th ey c an bothbe id ent ifi ed and rec over ed in a rel ativ elyshor t p eri od of t ime
. Rate -case exp enses are typi cally amort ized over a thr ee- yearpe ri od wi tho uta r etur n (i nterest) onthe un am or t i ze d bal an ce . L i ke r at e- ca se 97

ex pen ses, En ter gy’s unr ecov ere d i mp lem ent atio n costs wil l be rec ouped

r el at i ve l y qui ck l y m ak i ngi nt er es tam ou nt s de minimus
. Thus, unrec o ver ed i m p l em en t at i onc os t s ar e r ea so nabl y t r ea t ed c on si st en t l y wi th r at e- ca se
ex p en se s.Application of CenterPoint Energy Houston Electric, L .L.C. f or a Competit ion Transition 98 Charge, Docket No. 30706, O rder at 32 (July 14, 2005); Application of Reliant Energy HL&P for Approva l of U n bu n d led Cost of Servic e Rate Pursuant to PURA § 39.201 and Public Util ity Commissi on Substantive Ru le § 25.344 , Docket No. 22355, O rder , FoF 98G (Oct. 4, 2001); see Co mpl a int o

f th e Cit y o f M cKinn ey Ag a inst So ut hw est ern Be ll T eleph o ne Co mpa ny, Doc ket N o. 11027, Fin al Order at Co L 9 (May 17, 1995). Pag e 49 Brief of A ppellee PublicUtility C ommission 2 . Th e s t a t u t e s d o n o tr e q u i r e i n t e r e s to n u n r e c o v e red imp lement ationcos ts. En ter gy offer s no auth ori ty that would per mit itto rec overint ere st on it s unre cove red balance. Und er PURA Ch apte r 36, the tr adit ional cost -ofserv ice rate -maki ng parad igm per mit s a util ity t o re cove r i ts ex pen ses, but it does not a llow a u ti lity to pro fit from thos e expens es. Re lia ntE ne rgy, Inc . v. P ub
. Ut il. Co mm ’n o

f Te x. , 153 S.W. 3d 174, 183 (Tex . A pp .—Aust in 2004, p et. denied); Ci ti es f

orF ai r U ti l. Ra te s v. P ub
. Ut il. Co mm ’n o f Te x. , 924 S
. W. 2d 933 , 935 (Tex. 1996 ). I t h as longbee n th e Comm ission ’s pr acti ce n ot t o allo w ut i l i t i es t o r ec ov eri nt er es tonr at e- ca se e x p en se s. 98 Further mor e, th e Compet it ive Prog ram st atute doe s notpr ovid e for
carr yin g cost s re sulti ng f rom th e im pl eme ntat ion of the st atute. PURA § 39.452(b) doe s notmen ti on car ryi ng c osts orint ere st, c o n s e quentl y, th e r ules of st atutor y con str ucti on p resum e that the leg islature d id notint end to allowAR, It em 119, Order at 27, Or dering Paragraph 9. 99 Pag e 50 Brief of A ppellee PublicUtility C ommission interes t for the u nreco vered ba la nce. Ce nte rPoi nt 2 01 1, 354 S
. W. 3d at904
. The Co mmi ssion’s ord er per mit s En ter gy to fil e an app lic ationforth e i m p l em enta t i onan d ad m i ni st r at i onof c os t s aft erthe Co m p et i t i ve Pr og r am has beenim pl eme nte d f or si x m onths. E nte rgynee d n ot suff er a len gthy 99 “regulatory l a g”

— th e p er io d o f t im e b et w ee n w he n t he co s ts ofimple men ti ng the Co mpetitive Pro gra m are incu rred and w hen the y ca n be recov ered. Pu b. Uti l. Co mm’ n of

Te x. v . GTE-Sw., Inc ., 901 S. W.2d 401, 405 (Tex . 199 5). The t ime value of mon ey tha t En ter gy c laim s itmust f org o is m ini mal atbest. The statute do es notcont emp late th is ki nd of e xp ense. 3. Th e 200 4 Cen terPoi ntop in iondo es no t man date r e covery of in te res t onal l amo u n ts i n a ra te c as e. E nte rgy ’s rel iance on Ce nt e r Po i nt En e r gy , Inc . v . P ublic Ut ility Commission of Texas , is misp l ac ed
. Th e ca se i s i na p p l i cabl e he r e be ca use the on l y i ssu e deci d ed by the S up r em e Co ur ti n tha tc ase was w hen i n t e r e s to ns t r an de d costs c ould accr ue afte r d ere gulati on co mme nced , not if i nte restcould accr ue. 143 S.W. 3d 81, 83 (Te x. 2004 ) (“The onl y issue be for e us is the d ate from whichPag e 51

Brief of A ppellee PublicUtility C ommission ca r r yi ngc os t s m ay be r ec ov er ed on ce d er egul at i onc om m en ce d ...”)
. I n tha t case, the Tex as Sup rem e Court addr essed the calculat ion of carryi ng c osts on util it ies’ st rand ed costs in gen erat ion pl ants once ret ail comp eti ti on was fully esta blis hed. Id
. St rand ed cost s were substanti al amount s—in the bi lli ons of dol lars—and re cove red ove r a l ong p eri od of t ime
. Chapt er 39 of PURA allowed the util it ies t o “fullyre cove r thei r ‘ne t, ver ifi able, non mit igable str ande d c osts i ncurr ed in purc hasingpowerand pr ovid ingele ctr ic g e n e r a t ion s ervice .” Id
. at 84
. E n t e r g y ’ s c o s t s ar e n o t s t r an d e d c o s t s of purc hasingpower and pr ovid ing gen erat ion, but rath er, mi nist eri al tasks of dr afti ng c ont ract s and fin e-tuningit s bill ingsyste m. The Commi ssion’s deci sion to d eny En ter gy’s r equest f or i nte reston the unknown c osts associat ed with the imp lem ent ation and admi nist rati on of th e Com petitive P rogra m sho ul d be u pheld.

CO NC LUS ION AND PRAYER Th e Co m m i ssi onc or r ec t l y d et er m i ne d tha tthe c os t s un r ec ov er ed as a resul t of th e im pl eme ntat ion of the Co mp eti ti ve Pr ogr am tariff are the costs to i mp lem entand adm ini sterth e Com pet it ive Prog ram t ariff.Pag e 52

Brief of A ppellee PublicUtility C ommission The e vi de nce and test imo ny p rov e the “cost s” that En ter gy se eks t o
rec overare actually “l ost r eve nues. ” Le gal pre ced entsuppo rt s the ex clusion of lo st rev enu es u nles s s pecifi ca lly provided for by the legis la ture . Furthe r, the evi de nce ind icat es th at th e d esign of the C o mp etiti ve Pr ogr am d oes no t lea ve a ny co sts unre cov ered. The Co mmi ssion’s statutor y in ter pr etat ion is r easonable and consi sten t wi th the st atut or y l an gu ag e. Th e Co ur t sh ou l d up ho l d the Comm i ssi on ’s interpr etat ion and rej ectEn ter gy’s i nte rp ret ationth at would lead to i ne qui t abl e t r ea t m en t of the i ne l i gibl e cu st om er s, an d wo ul d p r ev en tac tual comp eti ti on withinth e serv ice area by all owing En ter gy t o con ti nue t o col lec t
rev enues f or c ustome rs it do es not serv e. The Comm ission ’s int erp ret ation also pr ope rl y id ent ifi es th at im pl eme ntat ion costs c annotbe r ecov ere d un ti l the Comp eti ti ve Tar iff is i mp lem ent ed , and no c oll ec ti o n of int ere st i s per mit ted on the unr ecov ere d bal ance. Th e Co m m i ssi onp r ay s tha tthi s C ou r tup ho l d the Co m m i ssi on ’s

r ea so nabl e i nt er p r et at i onof the sta tute base d onthe p l ai n l an gu ag e, l eg al preceden t, and evi dence a nd testim ony in the reco rd.Pag e 53

Brief of A ppellee PublicUtility C ommission Res pectfu lly s ub mitted, KEN PAXTON At t or ne y G en er al of

Te x as CHARLES E. ROY Fi r stAs si st an tAt t or ne y G en er al JAME S E . D AV IS DeputyAtt orn ey G ene ral f or C ivi l L it igat ion JON N IE RMANN Chie f, En vir onme ntal Prot ect ion Divisi on EL IZ ABE TH R. B. STE RL IN G As si st an tAt t or ne y G en er al S t at e B ar N o. 191 7110 0 eli zabeth. ster lin g@te xasatt orn eyg ene ral. gov /s/ M eg a n N ea l M E GA N NEA L A ssi st ant A t t orney G en eral St at e B ar N o. 24043797 m ega n. neal @ t exa s at t or neygener al
. gov O f f i ce of t he A t t orney G en eral P. O
. B ox 12548, M C 066 A ust i n, Tex as 78711- 2548 512. 463. 2012 51 2. 45 7. 46 10 ( f ax) ATT O RN EYS F O R T H E P UBLI C U TI LI TY COMM I S S I ON OF T E X ASPag e 54

Brief of A ppellee PublicUtility C ommission

CER TI FICA TE OF COMPL IA NCE I cer ti fy that the for egoi ng docum ent has 9,322 word s, c alculate d usi ng com puter p rog ram Wo rd Perf ect12, p ursuant t o Tex as Rules of App ell ate Pr oc ed ur e Ru l e 9. 4. /s/ M ega n Ne al Me ga n Ne alPag e 55

Brief of A ppellee PublicUtility C ommission CER TI FICA TE OF SER VI CE I her eby cer ti fy that on Febr uary 13, 2014, a tr ue and cor rec t co py of this docu ment w as electro nica lly file d with the Co urt o f Appea ls fo r the Th ird Distr ictof Te xas. All counsel were ser ved ele ctr onic al ly w it h a tr ue and co r r ec tc op y of

thi s d oc um en tthr ou ghane l ec t r on i c fi l i ngm an ag erorby email to the fol lowin g: JohnF. Wil liam s Marnie A. McCorm ick DU GGINS WREN M ANN & ROM ERO LLP 600 Co ng r es s A ve . , S t e. 190 0 ( 7870 1) P. O. B ox 114 9 Au st i n, Te x as 7 8767 -1 149 512. 744. 9300 51 2.7 44 .93 99 (fa x) jwil liam s@dwmr law.com mmc cor mic k@d wmrl aw.com ATTORNE YS FOR APPEL LAN T EN TER GY TE XAS, I NC.

/s/ M ega n Ne al Me ga n Ne al

# APPENDIX APUC DOCKET NO. 38951

APPLICATION OF ENTERGY TEXAS, § INC. FOR APPROVAL OF § COMPETITIVE GENERATION § SERVICE TARIFF (ISSUES SEVERED § FROM DOCKET NO. 37744) § PUBLIC UTILITY COMM16SSI^I

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_ INTERIM ORDER
1. Introduction This interim order addresses the Commission's decision regarding three threshold issues surrounding Entergy Texas, Inc.'s ( ETI's) proposed competitive generation service (CGS). The Commission makes its determination on these three threshold issues so the parties can move forward with the remaining issues that parties have characterized as being contingent on Commission decisions on the threshold issues: ( 1) what types of costs that will be considered unrecovered for purposes of PURA § 39.452(b); ( 2) what types of ETI customers will be eligible for participation in the CGS program; and (3) which ETI customers will be responsible for paying the unrecovered costs. ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy Consumers, State Agencies, Kroger Co., Cities,' Wal-Mart Stores Texas, LLC and Sam's East, Inc. participated in this docket.
II. Procedural History ETI submitted its proposed CGS tariff and related riders in Docket No. 37744, its last rate case.2 In that rate case, the parties settled on all issues except for ETI's CGS proposal. After a hearing on the CGS proposal and the associated riders, the administrative law judge (ALJ)

I The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville, Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches, Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange. zApplication of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, Docket No. 37744, Corrected Application ( Feb. 23, 2010). 

# e^ l

000000001PUC Docket No. 38951 Interim Order Page 2 of 17

forwarded the parties' stipulation and settlement agreement and the proposal for decision to the Commission for consideration. The Commission considered the settlement and the proposal for decision at the November 10 and December 1, 2010 open meetings. The Commission adopted the settlement for the rate case issues and severed the CGS issues into this docket, including the record in Docket No. 37744.3 At the December 1, 2010 open meeting, the Commission requested the parties to enter into negotiations and work to come to agreement on as many of the undetermined CGS program issues as possible, and then bring the issues for which an agreement could not be reached back to the Commission for consideration. Status reports were filed on January 13 and 28, February 18, March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that they were working to narrow the contested issues. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed a motion requesting a decision on the proposal for decision in this docket. TIEC and Commission Staff filed responses to the joint motion and generally opposed the motion. At the September 29, 2011 open meeting, the Commissioners considered the motions and issued an order requiring the parties to file pleadings identifying the CGS tariff issues that have been settled on by the parties and identifying the issues for which a settlement could not be reached. The parties were also permitted to identify issues that are contingent upon the Commission's determination of the unsettled issues. On November 1, 2011, several parties4 filed an agreed list of settled issues. However, the parties did not agree on a recommendation as to how the unsettled issues and issues that are contingent on the Commission's determination of unsettled issues should be addressed and resolved by the Commission. Therefore, TIEC also separately filed a list of unsettled issues and request for procedural schedule. TIEC also requested that the Commission receive additional evidence in order to resolve the unrecovered costs issue because ETI's proposal in Docket No. 37744 was based on ETI's proposal for an energy-only program, not an energy and

3 Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, Docket No. 37744, Order No. 14 Memorializing Decision Granting Motion to Sever ( Dec. 3, 2010).

' Cities, Entergy, OPUC, Commission Staff, State Agencies, and Wal-Mart/Sam's East. Kroger Company did not oppose the agreed settled issues and Cottonwood Energy has not participated in the discussions.

000000002PUC Docket No. 38951 Interim Order Page 3 of 17

capacity-based program. T1EC reported that during the time period when the parties were negotiating the Entergy Operating Committee had agreed that CGS power from qualifying facilities in the ETI service territory could provide firm generation. 5 At the December 8 and December 15, 2011 open meetings, the Commission decided that the parties should submit stipulated facts, the Commission would re-open the record to admit additional evidence, and then the Commission would make a decision on the unsettled issues. After that, the Commission planned to issue an interim order reflecting the decisions on the unsettled, threshold issues. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts. The parties reached agreement in principle on a number of discrete items within the overall framework of the CGS program and tariffs. Many of the items are simply elements of larger program issues that retain one or more as yet unsettled aspects essential to final resolution of that program issue. Items as to which agreement in principle exists are "subject to satisfactory resolution of unsettled issues. ,6 On January 26, 2012, ETI submitted supplemental direct testimony. On February 10, 2012, the intervenors submitted supplemental direct testimony and on February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The parties submitted statements of position and pre-hearing briefs on March 26, 2012. On April 13, 2012, the parties submitted an unopposed stipulation on the threshold issue regarding customers responsible for paying unrecovered costs. The parties, except ETI, agreed that CGS customers would be the only ETI customers responsible for unrecovered costs of the CGS program. ETI did not join or oppose this stipulation.7 On April 18, 2012, the parties submitted a third stipulation on customer eligibility stating that LIPS customers would be the CGS-eligible customers, with certain limitations on the LIPS customers' participation and other program minimums and caps.8

5 TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 2011). 6 CGS Stipulated Matters and Stipulated Facts ( Jan. 20, 2012). Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012). Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012).

000000003PUC Docket No. 38951 Interim Order Page 4 of 17

The Commission held a hearing on the remaining contested threshold issue on April 19, 2012.
III. Discussion PURA9 § 39.452(b) requires ETI to propose a CGS tariff that would require ETI to purchase CGS, selected by the CGS customer, and provide the generation at retail to the customer. ETI is required to provide and price retail transmission service, including necessary ancillary services, to retail customers who choose to take advantage of the competitive generation tariff at a rate that is unbundled from the utility's cost of service. Competitive generation customers are not to be considered wholesale transmission customers. The statute required the Commission to approve, reject, or modify the proposed tariff not later than September 1, 2010. The CGS tariff may not be considered to offer a discounted rate or rates under Section 36.007, and ETI's rates shall be set, in the proceeding in which the tariff is adopted, to recover any costs unrecovered as a result of the implementation of the tariff. The statute requires the Commission to ensure that a competitive generation tariff not be implemented in a manner that harms the sustainability or competitiveness of manufacturers that choose not to take advantage of competitive generation. PURA § 39.452(b) also prohibits the Commission from issuing a decision relating to the competitive generation tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction. The Commission finds that the three stipulation-and-settlement agreements are reasonable and adopts them to the extent they do not conflict with other Commission determinations in this docket. Adoption of the three stipulation-and-settlement agreements leaves one threshold issue remaining: the types of costs that will be considered ETI's unrecovered costs for purposes of PURA § 39.452(b). The Commission finds that unrecovered costs are only those costs necessary to implement and administer the CGS program and are not to be defined to include lost revenues, embedded generation costs, or any other types of costs.

2011). ' Public Utility Regulatory Act (PURA), TEX. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 2007 & Supp.

000000004PUC Docket No. 38951 Interim Order Page 5 of 17 A. Eligible Customers Stipulation The Commission adopts the stipulation and settlement regarding eligible customers and finds that LIPS customers are the ETI customers that will be eligible to participate in the CGS program (with further Iimitations as set forth in the parties' stipulation on this issue).10

B. Customers Responsible for Paying Unrecovered Costs Stipulation The Commission also adopts the stipulation and settlement regarding determining which customers will be responsible for paying the unrecovered costs referenced in PURA § 39.452(b). To the extent there are costs unrecovered as a result of implementation of the CGS program tariff, those costs will be borne solely by customers taking service under the CGS tarif£ " C. January 20, 2012 CGS Stipulated Matters and Stipulated Facts The Commission adopts the stipulated facts submitted by the parties on January 20, 2012 regarding ETI's capacity deficit and the program cap and notes that the items that are a part of the "agreed settlement terms" regarding eligible CGS suppliers, amount of CGS capacity, the CGS customer unbundled rate, the CGS energy payment, the CGS customer fixed-cost contribution, the CGS customer unserved energy rate, and the recognition of CGS supply as firm capacity are items for which there is only an agreement in principle that are subject to satisfactory resolution of unsettled issues.12
D. Unrecovered Costs The remaining threshold issue, the meaning of "costs unrecovered as a result of implementation of the CGS program tariff," as used in PURA § 39.452(b), was the subject of the April 19, 2012 hearing. In the proposal for decision, the ALJ found that ETI is entitled to collect unrecovered embedded generation costs and any other related base rate costs as a result of customer migration to the CGS program.13

'o Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012). " Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012). 'Z CGS Stipulated Matters and Stipulated Facts at 1(Jan. 20, 2012). " Proposal for Decision at 22 (Oct. 5, 2010).

000000005PUC Docket No. 38951 Interim Order Page 6 of 17

ETI argued that unrecovered costs should be defined as the embedded production costs and any other related base rate costs that would have been recovered through traditional rates charged to CGS customers that will no longer be recovered due to the CGS program.14 TIEC took the position that unrecovered costs should not include ETI's hypothetical lost revenues and that the costs that could be unrecovered as a result of implementation of the tariff should include the expenditures actually incurred by ETI to implement and maintain the CGS program.ts Cities and OPUC agreed with TIEC that unrecovered costs are not the same thing as unrecovered revenues. 16 Cities also noted that it would be unreasonable to allow ETI to continue to incur costs for a customer the utility no longer plans to serve. 17 In making its determination of the definition of unrecovered costs, the Commission follows the precedent set in CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n, 354 S.W.3d 899 (Tex. App-Austin, 2011 no pet.) where the Third Court of Appeals found that because the language of PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at least two other provisions of PURA 18 the legislature expressly distinguishes "costs" from "revenues," the term "costs," as used by the legislature in PURA § 39.905, is not intended to include lost revenues.19 Like PURA § 39.905, PURA § 39.452(b) only provides for "costs unrecovered as a result of implementation of the tariff' and does not specifically provide for the utility to recover lost revenues or any other type of costs. Based on the evidence and testimony, the Commission finds that the proper interpretation of "costs unrecovered as a result of implementation of the CGS program tariff' is costs to implement and administer the CGS program tariff. Such unrecovered costs do not include lost revenues, embedded generation costs, or any other types of costs. The Commission reverses the proposal for decision on this issue.

14 Supplemental Direct Testimony, Exhibits, and Workpapers of Phillip R. May, ETI Ex. 91 at 6. " s Supplemental Direct Testimony of Jeffry Pollock, TIEC Ex. 15 at 14-15.

"' Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7 and Supplemental Cross Rebuttal Testimony of Clarence Johnson, OPUC Ex. 8 at 6.

" Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7-8. 18 PURA § 55.024(b) and PURA § 56.025(e). 19 CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm'n, 354 S.W.3d 899, 903-904 (Tex.Civ.App-Austin, 2011)

000000006PUC Docket No. 38951 Interim Order Page 7 of 17

The Commission issues this interim order so that the parties may work to reach an agreement on the components of the CGS program tariff that are contingent on the Commission's decision on the threshold issues.
IV. Conclusion The Commission adopts each of the three stipulation-and-settlement agreements and finds that unrecovered costs for the CGS program are those needed to implement and administer the CGS program and are not lost revenues, embedded generation costs, or any other types of costs.
V. Findings of Fact Procedural History I. As part of its application in Docket No. 37744, Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, ETI proposed a competitive generation service (CGS) program pursuant to Public Utility Regulatory Act. Tex. Util. Code Ann. (PURA) § 39.452(b). 2. On July 16, 2010 and July 20, 2010, a State Office of Administrative Hearings administrative law judge held a hearing on the merits on ETI's CGS proposal. 3. A proposal for decision was issued on November 1, 2010. The ALJ ultimately recommended that the CGS proposal be rejected. 4. The Commission considered the proposal for decision at the November 10 and December 1, 2010 open meetings as part of Docket No. 37744. At the December 1, 2010 open meeting, the Commission adopted the settlement for the rate case issues and severed the CGS proposal into this Docket. The Commission requested that the parties enter into negotiations and work to come to agreement on as many of the undetermined issues as possible, and then bring the issues for which an agreement could not be reached back to the Commission for consideration. 5. Order No. I was issued on December 3, 2010 severing the CGS issues into this docket, including the record in Docket No. 37744.

000000007PUC Docket No. 38951 Interim Order Page 8 of 17

6. Sabine Cogen, LP filed a motion to intervene in this docket on December 23, 2010. ETI tiled an objection to Sabine Cogen, LP's motion to intervene on December 30, 2010. Sabine Cogen, LP's motion to intervene was denied in Order No. 3 on January 12, 2011. 7. ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy Consumers, State Agencies, Kroger Co., Cities,20 Wal-Mart Stores Texas, LLC and Sam's East, Inc., and Cottonwood Energy are parties to this proceeding. 8. On January 11, 2011, the Commission ALJ issued Order No. 2 requiring ETI to either provide an update on the status of settlement discussions or to propose a schedule, agreed to by all parties, for finalizing the outstanding issues. 9. The parties filed status reports on January 13 and 28, February 18, March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that they thought that they could narrow the issues. 10. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed a motion requesting a decision on the proposal for decision in this docket. TIEC and Commission Staff filed responses to the joint motion and generally opposed the motion. At the September 29, 2011 open meeting, the Commissioners considered the motions and issued an order requiring the parties to file pleadings identifying the CGS tariff issues that have been settled on by the parties and identifying the issues for which a settlement could not be reached. The parties were also permitted to identify issues that are contingent upon the Commission's determination of the unsettled issues. 11. On November 1, several parties filed an agreed list of settled issues. TIEC also separately filed a list of unsettled issues and request for procedural schedule. TIEC also requested that the Commission receive additional evidence in order to resolve the unrecovered costs issues because ETI's proposal in Docket No. 37744 was based on ETI's proposal for an energy-only program, not an energy and capacity-based program. The circumstances had changed primarily due to the agreement of the Entergy Operating to treat CGS power from qualifying facilities in the ETI service territory as firm

20 The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville, Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches, Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.

000000008PUC Docket No. 38951 Interim Order Page 9 of 17

generation. The remainder of the parties tiled a joint agreed list of unsettled issues and issues contingent on a Commission determination of unsettled issues. 12. At the December 8 and December 15, 2011 open meetings, the Commissioners decided that the parties should submit stipulated facts, the Commission would re-open the record to admit additional evidence as requested by TIEC, and then the Commission would make a decision on the three threshold unsettled issues in an interim order. 13. On December 18, 2011, Order No. 4 was issued establishing a procedural schedule. 14. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts. The parties reached agreement in principle on a number of discrete items within the overall framework of the CGS program and tariffs. Many of the items are simply elements of larger program issues that retain one or more as yet unsettled aspects essential to final resolution of that program issue. Items as to which agreement in principle exists are "subject to satisfactory resolution of unsettled issues." 15. On January 24, 2012, Order No. 5 was issued clarifying the number of copies of testimony that were to be filed by the parties. 16. On January 26, 2012, ETI submitted supplemental direct testimony. On February 10, 2012, the intervenors submitted supplemental direct testimony and on February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The parties submitted statements of position and pre-hearing briefs on March 26, 2012. 17. Order No. 6 was issued on February 1, 2012 setting April 19, 2012 as the date for the hearing. 18. On April 13, 2012, the parties filed an unopposed stipulation that to the extent there are costs unrecovered as a result of the implementation of a CGS tariff, those costs should be borne solely by customers taking service under the CGS tariff. ETI did not join but did not oppose the stipulation. 19. On April 18, 2012, the parties filed an unopposed stipulation regarding customer eligibility. LIPS customers will be eligible to participate in ETI's CGS program (with further limitations as set forth in the stipulation on this issue). 20. The Commission held the hearing on the merits on April 19, 2012.

000000009PUC Docket No. 38951 Interim Order Page 10 of 17

Elizible customers stipulation 21. The parties agreed that only customers eligible to take service under ETI's Large Industrial Power Service ( LIPS) are eligible customers for the CGS program. 22. The parties agreed that only LIPS firm load will be eligible to participate in the CGS program. 23. The parties agreed that LIPS customers with interruptible service (IS) or standby and maintenance service (SMS) load are not precluded from participating in the CGS program, but this participation is limited to their firm LIPS load. To the extent that customers with IS load participate in the CGS program, they must comply with the terms of the IS tariffs regarding minimum LIPS load. Only the portion of the customer's LIPS load that is in excess of the firm contract power minimum requirement under section 1 of Schedule IS is eligible for the CGS program. 24. The parties agreed that to the extent there are increased administration costs associated with billing a customer that has CGS and IS or SMS load, the CGS customer will bear the costs. 25. The parties agreed that there will be a 115 MW cap on the CGS program. 26. The parties agreed that there will be a 5 MW minimum on CGS customer load. 27. The parties agreed that there will be no aggregation of CGS customer load to meet the 5 MW minimum on CGS customer load. 28. The parties agreed that there will be a cap of 10 CGS purchase agreements. Customers responsible for Paying unrecovered costs stipulation 29. The parties, except ETI, agreed that to the extent there are costs unrecovered as a result of the implementation of a CGS tariff, those costs should be borne solely by customers taking service under the CGS tariff, i.e., CGS customers. ETI did not oppose this stipulation. January 20, 2012 CGS Stipulated Matters and Stipulated Facts 30. In the CGS stipulated matters and stipulated facts filed on January 20, 2012, the parties stated they had reached an agreement in principle on a number of discrete items within

000000010PUC Docket No. 38951 Interim Order Page 11 of 17

the overall framework of the CGS program and tariffs, which were listed in Section I. A-G of the stipulation. However, many of those items are simply elements of larger program issues that retain one or more as yet unsettled aspects essential to final resolution of that program issue. Items as to which agreement in principle exists, subject to satisfactory resolution of unsettled issues, include the following: A. Eligible CGS suppliers 1. Eligible CGS suppliers will be limited to qualifying facilities that are or will be directly connected to ETI. Any expansion of eligible CGS suppliers would require initiation of new Commission proceedings. B. Amount of CGS capacity 1. A CGS customer will specify the amount of its load to be served by a specified CGS supplier. 2. The specified CGS supplier will enter into a contract with Entergy Services, Inc., on behalf of ETI, or directly with ETI, for the purpose of becoming an Entergy system network resource. The agreement between the CGS supplier and Entergy Services, Inc. or ETI shall include a contract for the purchase of capacity and energy (CGS purchase agreement). Per determination of the Entergy Operating Committee, the capacity and energy contracted for under the CGS purchase agreements shall be allocated solely to ETI. 3. The level of capacity contracted for under the CGS purchase agreement (CGS contract capacity) will be the same level of capacity contracted for in a separate but related contract between the CGS supplier and the CGS customer. 4. The monthly CGS supplied capacity shall be calculated monthly based on the on-peak energy deliveries of CGS-supplied energy from the CGS supplier. The monthly CGS supplied capacity shall be the lesser of the CGS contract capacity and the result of the following calculation-on a rolling 12-month basis (using a cumulative basis during the first 11 months), the sum of the CGS-supplied energy delivered by the CGS supplier during on-peak hours, divided by the number of on-peak hours during the same time period, divided by 0.8. On-peak hours are defined as the hours ending 7:00 am

000000011PUC Docket No. 38951 Interim Order Page 12 of 17 through 10:00 pm Monday through Saturday, excluding North American Electric Reliability Corporation holidays. C. CGS-customer unbundled rate 1. CGS customers are limited to, and will remain, ETI retail customers. 2. ETI will not make a capacity payment to the CGS supplier, and the CGS customer will not pay ETI the embedded production cost in the firm rate schedule under which the customer would otherwise be eligible to receive service. 3. The price for retail delivery service, including necessary ancillary services, to retail customers who choose to take advantage of the competitive generation tariff will be a rate that is unbundled from ETI's cost of service and that will be determined by a credit to the CGS customer's bill based on the unbundled production costs associated with the otherwise applicable firm rate. 4. The unbundled, embedded production cost for a LIPS customer based on current rates is $6.84 per kW per month. The CGS credit is subject to review and modification in subsequent rate cases. If the clause "less any corresponding concurrent reduction in energy purchased by the CGS customer" referenced in section F.1 below is adopted, then certain parties may recommend a further adjustment to the LIPS embedded production cost specified in this paragraph C.4. 5. With the exception of the capacity credit and fixed fuel factor, a CGS customer will pay ETI a retail rate that includes all other charges the customer would pay as a firm customer ( for example Rider TTC, HRC, SRC, SRO, and IFF charges, if applicable). D. CGS energy payment l. CGS customers will pay fuel costs based on avoided cost for CGS-supplied energy. Specifically, ETI will purchase hourly CGS energy supplied bythe CGS supplier from the CGS contract capacity at the system hourly avoided-energycost as determined under Rate Schedule LQF. ETI will charge the CGS customer at the same rate for that hourly CGS-supplied energy not to exceed the energy requirement of the CGS customer.

000000012PUC Docket No. 38951 Interim Order
E. CGS customer fixed-cost contribution Page 13 of 17

l. The level of compensation to ETI from CGS customers for CGS service will include a monthly fixed charge called a fixed-cost contribution. 2. The fixed-cost contribution will be $1.10 per kW of CGS load per month. 3. Revenues from the fixed-cost contribution will reduce any otherwise unrecovered costs associated with the program. F. CGS customer unserved energy rate l. If, in any hour in a delivery month, there is hourly CGS unserved energy, the CGS customer will take service from ETI under the CGS unserved energy rate. Hourly CGS unserved energy is the difference in any given hour between the amount of energy corresponding to the full amount of CGS contract capacity and the amount of energy actually supplied to ETI from the CGS contract capacity by the CGS supplier in such hour, not to exceed the energy requirement of the CGS customer. The parties have not agreed whether the following clause should be added to this last sentence: "less any corresponding concurrent reduction in energy purchased by the CGS customer." 2. The structure of the CGS unserved energy tariffed rate will include an agreed energy charge and agreed O&M adder. The monthly CGS unserved energy charge will be the sum of (a) the hourly CGS unserved energy for the month times 105% of the system hourly avoided energy cost as determined under Rate Schedule LQF and (b) the hourly CGS unserved energy for the month times specified variable O&M charges specified immediately below in paragraph 3. 3. The specified variable O&M charges for the CGS unserved energy rate are as follows: Delivery Voltage On-Peak Per kWh Off-Peak Per kWh Distribution (less than 69kV) $0.03555 0.00540 Transmission (69kV and greater) $0.02451 0.00222

000000013PUC Docket No. 38951 Interim Order Page 14 of 17 4. On-peak and off-peak hours for the CGS unserved energy rate are as follows:
a. Summer: On-peak hours are 1:00 pm to 9:00 pm Monday through Friday of each week beginning on May 15 and continuing through October 15 of each year except that Memorial Day, Labor Day and Independence Day (July 4 or the nearest weekday if July 4 is on a weekend) are not on-peak.

b. Winter: On-peak hours for each week of Monday through Friday beginning October 16 and continuing through May 14 of each year are 6:00 am to 10:00 am and 6:00 pm to 10:00 pm, except that Thanksgiving Day, Christmas Day, and New Year's Day (or the nearest weekday if the holiday should fall on a weekend) are not on-peak.
c. Off-peak hours are all hours of the year not specified as on-peak hours. With the approval of the Commission, ETI may at its sole discretion change on-peak hours and season from time to time. 5. Revenues from the CGS unserved energy rate derived from the variable O&M charges will go towards offsetting any unrecovered costs as a result of the implementation of the CGS tariff. 6. Revenues from the CGS unserved energy rate derived from 105% of the system hourly avoided energy charges will go towards offsetting ETI's eligible fuel costs. G. Recognition of CGS supply as firm capacity. Progress has been made on resolving issues regarding the recognition of CGS capacity as firm capacity, but final resolution of these issues, including the following, is contingent on the Entergy Operating Committee's approval as well as a final resolution of all issues. 1. The Entergy Operating Committee has established certain conditions that must be met before it will recognize a CGS purchase agreement as "capability" for the Entergy System, for purposes of determining reserve equalization payments or receipts. The parties are continuing to discuss the conditions established by the Operating Committee.

000000014PUC Docket No. 38951 Interim Order Page 15 of 17
2. The capacity product from CGS purchase agreements will be a 24/7 unit-contingent product. 3. The delivery term of CGS purchase agreements may be from one year to five years, and must be a whole number of years. 4. The contract capacity will be a fixed capacity amount throughout any successive 12-month period during the contract term. 5. The parties have tentatively agreed to a number of concepts for firming up CGS capacity that would be reflected in a form contract for use in implementing the CGS program. The parties will continue to negotiate other concepts and terms for inclusion in a form supply contract. 31. The parties stipulated that the Strategic Resource Plan (SRP) for the Entergy system (of which ETI is a part) projects a continuing need for additional capacity for ETI and the Entergy system through 2017. Entergy's and ETI's resource needs are subject to change at any time based on actual experience related to operational conditions, resource offers and solicitations, and other events that affect resource needs. 32. The parties stipulated that based on an assessment of load requirements and generating capability, the SRP projects that ETI has an incremental net resource deficiency of 260 MW in 2012 and 504 MW in 2013. 33. The parties stipulated that the Entergy system-wide planning process is conducted pursuant to the requirements of the Entergy system agreement and is designed to result in a portfolio of resources that differ by term and source. The Entergy system agreement states that the objective of this process is to ensure cost-effective, reliable levels of service. 34. The parties stipulated that CGS purchase agreements are resources that will be included in the Entergy System's portfolio of supply resources, consistent with the terms and conditions related to the delivery requirements of those purchase agreements (e.g., degree of dispatchability, term, degree of firmness). 35. The parties stipulated that it is reasonable at the outset of the CGS program to establish a cap on the amount of load that may subscribe to CGS service.

000000015PUC Docket No. 38951 Interim Order Page 16 of 17

36. The parties stipulated that the range of the cap should be between 80 MW and 150 MW. Unrecovered costs 37. It is reasonable to adopt the three unopposed stipulation-and-settlement agreements regarding customer eligibility for the CGS program; the customers responsible for paying for unrecovered costs; the capacity deficit; and the program cap. 38. PURA § 39.452(b) provides for the utility to be able to recover any costs unrecovered as a result of the implementation of the tariff. 39. In CenterPoint, the Third Court of Appeals found that because the language of PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at least two other provisions of PURA the legislature expressly distinguishes "costs" from "revenues," the term "costs," as used by the legislature in PURA § 39.905, is not intended to include lost revenues. Like PURA § 39.905, PURA § 39.452(b) only provides for "costs unrecovered as a result of implementation of the tariff" and does not specifically provide for the utility to recover lost revenues or any other type of costs. 40. The Commission finds that the costs that will be unrecovered as a result of the implementation of the CGS program tariff are the costs to implement and administer the CGS program tariff.
VI. Conclusions of Law l. The Commission has jurisdiction and authority over this proceeding pursuant to PURA §§ 14.001 and 39.452(b). 2. PURA § 39.452(b) does not allow for the recovery of lost revenue or embedded generation costs.
VII. Ordering Paragraphs l. The Commission adopts each of the three stipulation-and-settlement agreements filed on January 20, 2012, April 30, 2012, and April 18, 2012. 2. The parties shall work to reach an agreement on the issues that are considered contingent on the Commission's decision on the threshold issues.

000000016PUC Docket No. 38951 Interim Order Page 17 of 17

3. All other motions, requests for entry of specific findings of fact and conclusions of law, and any other requests for general or specific relief, if not expressly granted, are denied.



# #-- j WL-" SIGNED AT AUSTIN, TEXAS the / day of-114ay2012

PUBLIC UTILITY COMMISSION OF TEXAS

KENNETH W. AND , JR., COMMISSIONER

ROLANDO PABLOS, COMMISSIONER

y \cadm\orders\mterim\38000\38951 interim order.docx

000000017 DONNA L. NELSON, CHAIRMAN

# APPENDIX B^ra PUC DOCKET NO. 38951 ^fl f^ jUL 1 PH 3: ^ ^ APPLICATION OF ENTERGY TEXAS, § PUBLIC UTILITY COMMISSION INC. FOR APPROVAL OF § COMPETITIVE GENERATION § OF TEXAS SERVICE TARIFF ( ISSUES SEVERED § FROM DOCKET NO. 37744) §
ORDER
1. Introduction This order addresses Entergy Texas, Inc.'s (ETI's) application for a competitive generation service (CGS) under PURA § 39.452(b). The Commission approves ETI's CGS rider and competitive generation service cost (CGSC) rider as set out in this order. This order incorporates the Commission's interim order issued in this docket on June 12, 2012 and the Commission's rulings adopting in part and rejecting in part the stipulation and settlement agreement filed by ETI, Texas Industrial Energy Consumers (TIEC), and Commission Staff on May 17, 2013. The interim order addressed the Commission's decision regarding three threshold issues surrounding ETI's CGS program. The May 17 settlement, as adopted in part and rejected in part, resolves all other contested issues in this docket.
II. Procedural History ETI submitted its proposed CGS tariff and related riders in Docket No. 37744, its last rate case.' In that rate case, the parties settled on all issues except for ETI's CGS proposal. After a hearing on the CGS proposal and the associated riders, the administrative law judge (ALJ) forwarded the parties' stipulation and settlement agreement and the proposal for decision to the Commission for consideration.

I Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, Docket No. 37744, Corrected Application ( Feb. 23, 2010). 

# o^PUC Docket No. 38951 Order Page 2 of 27 The Commission considered the settlement and the proposal for decision at the November 10 and December 1, 2010 open meetings. The Commission adopted the settlement for the rate case issues and severed the CGS issues into this docket, including the record in Docket No. 37744.2 At the December 1, 2010 open meeting, the Commission requested the parties to enter into negotiations and work to come to agreement on as many of the undetermined CGS program issues as possible, and then bring the issues for which an agreement could not be reached back to the Commission for consideration. Status reports were filed on January 13 and 28, February 18, March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that they were working to narrow the contested issues. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed a motion requesting a decision on the proposal for decision in this docket. TIEC and Commission Staff filed responses to the joint motion and generally opposed the motion. At its September 29, 2011 open meeting, the Commissioners considered the motions and issued an order requiring the parties to file pleadings identifying the CGS tariff issues that have been settled on by the parties and identifying the issues for which a settlement could not be reached. The parties were also permitted to identify issues that are contingent upon the Commission's determination of the unsettled issues. On November 1, 2011, several parties3 filed an agreed list of settled issues. However, the parties did not agree on a recommendation as to how the unsettled issues and issues that are contingent on the Commission's determination of unsettled issues should be addressed and resolved by the Commission. Therefore, TIEC also separately filed a list of unsettled issues and request for procedural schedule. TIEC also requested that the Commission receive additional evidence in order to resolve the unrecovered costs issue because ETI's proposal in Docket No. 37744 was based on ETI's proposal for an energy-only program, not an energy and capacity-based program. TIEC reported that during the time period when the parties were

2 Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, Docket No. 37744, Order No. 14 Memorializing Decision Granting Motion to Sever (Dec. 3, 2010).

3 Cities, Entergy, OPUC, Commission Staff, State Agencies, and Wal-Mart/Sam's East. Kroger Company did not oppose the agreed settled issues and Cottonwood Energy has not participated in the discussions.PUC Docket No. 38951 Order Page 3 of 27

negotiating, the Entergy Operating Committee had agreed that CGS power from qualifying facilities in the ETI service territory could provide firm generation.4 At the December 8 and December 15, 2011 open meetings, the Commission decided that the parties should submit stipulated facts, the Commission would re-open the record to admit additional evidence, and then the Commission would make a decision on the unsettled issues. After that, the Commission planned to issue an interim order reflecting the decisions on the unsettled, threshold issues. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts. The parties reached agreement in principle on a number of discrete items within the overall framework of the CGS program and tariffs. Many of the items were simply elements of larger program issues that retained, at that time, one or more unsettled aspects essential to final resolution of that program issue. Items as to which there was agreement in principle were "subject to satisfactory resolution of unsettled issues."5 On January 26, 2012, ETI submitted supplemental direct testimony. On February 10, 2012, the intervenors submitted supplemental direct testimony and on February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The parties submitted statements of position and pre-hearing briefs on March 26, 2012. On April 13, 2012, the parties submitted an unopposed stipulation on the threshold issue regarding customers responsible for paying unrecovered costs. The parties, except ETI, agreed that CGS customers would be the only ETI customers responsible for unrecovered costs of the CGS program. ETI did not join or oppose this stipulation.6 On April 18, 2012, the parties submitted a third stipulation on customer eligibility stating that large industrial power service (LIPS) customers would be the CGS-eligible customers, with certain limitations on the LIPS customers' participation and other program minimums and caps.7 The Commission held a hearing on the remaining contested threshold issue-what types of costs will be considered unrecovered for purposes of PURA § 39.452(b)-on April 19, 2012.
4 TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 2011). 5 CGS Stipulated Matters and Stipulated Facts ( Jan. 20, 2012). 6 Unopposed Stipulation on Unresolved Issue No. 3 (Apr. 13, 2012). 7 Stipulation on Unresolved Issue No. 2 (Apr. 18, 2012).PUC Docket No. 38951 Order Page 4 of 27

An interim order was issued on June 12, 2012. It was expected that the parties would reach agreement on the remaining issues. On November 27, 2012, TIEC filed a motion to adopt a CGS program and submitted proposed CGS riders for approval. TIEC and ETI had not been able to resolve certain issues related to the CGS tariffs and TIEC stated that continued negotiations would only result in further delay of the implementation of the CGS program.8 Commission Staff requested that the parties be required to submit a procedural schedule to govern the handling of the docket.9 ETI submitted its own version of the CGS tariffs for approval and proposed procedures to lead to final disposition of this docket. 10 The Commission ALJ issued Order No. 10 adopting a procedural schedule that required the parties to indicate by February 8, 2013 whether a hearing was necessary. TIEC filed a letter stating that no party intended to file a request for a live hearing to cross-examine witnesses on the remaining contested issues.ll Cities, OPUC, ETI, TIEC, and Commission Staff filed briefs on March 1, 2013 and reply briefs on March 20, 2013. At the April 25, 2013 open meeting, the parties gave oral argument and the Commissioners discussed the Entergy Operating Committee review of the capacity component of the CGS program and the proposed MISO regulatory change provision. The Commission deferred its ultimate decision on all of the issues to the May 9, 2013 open meeting. On May 8, 2013, TIEC filed a letter stating that TIEC and ETI had reached a preliminary agreement on the remaining disputed issues, but that the other parties had not had an opportunity to review the agreement. 12 At the May 9 open meeting, the Commission deferred consideration of the docket until the May 23, 2013 open meeting. ETI filed a stipulation and settlement agreement on May 17, 2013 that addressed each of the disputed issues that remained in this case. ETI, TIEC, and Commission Staff signed the

8 TIEC's Motion to Adopt a Competitive Generation Services Program (Nov. 27, 2012). 9 Commission Staff's Response to TIEC's Motion to Adopt a Competitive Generation Services Program (Dec 4, 2012).

10 Entergy's Response to TIEC's Motion to Adopt Competitive Generation Services Program and Motion for Adoption of Competitive Generation Services Tariffs at 1-2 (Dec. 4, 2012).

11 Letter from TIEC (Feb. 8, 2013). 12 Letter from TIEC (May 8, 2013).PUC Docket No. 38951 Order Page 5 of 27

stipulation. The stipulation and settlement agreement included agreement on all of the issues regarding the CGS rider, i.e., how the CGS program would work, but delayed approval of the competitive generation service cost (CGSC) rider, which is the rider that will include implementation and administration costs for the CGS program, for a later date. Specifically, the signatories to the settlement agreed that the CGSC rider would not be proposed for approval, but would be filed with the Commission no earlier than six months after the CGS rider becomes effective. The parties also stipulated to five issues that would be addressed in the CGSC rider docket. ETI noted that Commission Staff supports the stipulation, but did not take a position relating to the deferral of the consideration of issues regarding the CGSC rider.13 OPUC, joined by Kroger Company, Wal-Mart Stores, LLC, and Sam's East, Inc. filed a statement of opposition to the stipulation stating that their opposition was limited to Section II.B. of the stipulation, which allows the delay of the resolution of the CGSC rider issues.14 Cities filed a letter on May 21 stating that it supports the resolution of the issues in the stipulation, but that they also support resolving all issues at this time in order to conserve judicial resources and provide certainty to parties in future cases.15 TIEC filed a response to the opposition16 and OPUC, Kroger, Wal-Mart, and Sam's East filed a reply to TIEC's response. 17 The Commission considered this docket again on the merits at the May 23, 2013 open meeting. The Commission adopts the May 17, 2013 stipulation and settlement agreement in part, but rejects the deferral of approval of the CGSC rider set out in section II.B.2. of the stipulation. The Commission adopts the stipulation and settlement agreement as it pertains to the CGS rider, and makes findings on the outstanding issues related to the CGSC rider.

13 Stipulation and Settlement Agreement (May 17, 2013). 14 Joint Statement of Position (May 17, 2013). 15 Cities' Letter Addressing the Settlement Reached by Entergy and TIEC (May 21, 2013). 16 TIEC's Response to OPUC's Statement of Opposition (May 21, 2013). 17 Joint Reply to TIEC's Response to the Joint Statement of Opposition (May 22, 2013).PUC Docket No. 38951 Order Page 6 of 27 III. Discussion PURA18 § 39.452(b) requires ETI to propose a CGS tariff that would require ETI to purchase CGS, selected by the CGS customer, and provide the generation at retail to the customer. ETI is required to provide and price retail transmission service, including necessary ancillary services, to retail customers who choose to take advantage of the competitive generation tariff at a rate that is unbundled from the utility's cost of service. Competitive generation customers are not to be considered wholesale transmission customers. The statute required the Commission to approve, reject, or modify the proposed tariff not later than September 1, 2010. The CGS tariff may not be considered to offer a discounted rate or rates under Section 36.007, and ETI's rates shall be set, in the proceeding in which the tariff is adopted, to recover any costs unrecovered as a result of the implementation of the tariff. The statute requires the Commission to ensure that a competitive generation tariff not be implemented in a manner that harms the sustainability or competitiveness of manufacturers that choose not to take advantage of competitive generation. PURA § 39.452(b) also prohibits the Commission from issuing a decision relating to the competitive generation tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction. The Commission finds that the three stipulation and settlement agreements submitted by the parties in January and April 2012 are reasonable and adopts them to the extent they do not conflict with other Commission determinations in this docket. The Commission also finds that unrecovered costs are only those costs necessary to implement and administer the CGS program and are not to be defined to include lost revenues, embedded generation costs, or any other types of costs. Finally, the Commission finds that the May 17, 2013 stipulation with regard to the CGS rider is reasonable and adopts that portion of the stipulation. The Commission declines to adopt the stipulation regarding the CGSC rider, and finds that the issues regarding the CGSC rider should not be deferred and that the CGSC rider should not include costs prior to implementation of the CGS program; LIPS and LIPS time-of-day customers should be responsible for the CGSC

18 Public Utility Regulatory Act (PURA), TEx. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 2007 & Supp. 2011).PUC Docket No. 38951 Order Page 7 of 27

rider costs if the CGS program is unsubscribed; ETI should not recover interest on any unrecovered balance of the CGSC rider; and the CGSC rider costs should not be offset to account for the CGS costs included in ETI's base rates.
A. Unrecovered Costs As explained in the interim order, the meaning of "costs unrecovered as a result of implementation of the CGS program tariff," as used in PURA § 39.452(b), was the subject of the April 19, 2012 hearing. In the proposal for decision, the ALJ found that ETI is entitled to collect unrecovered embedded generation costs and any other related base rate costs as a result of customer migration to the CGS program.t9 ETI argued that unrecovered costs should be defined as the embedded production costs and any other related base rate costs that would have been recovered through traditional rates charged to CGS customers that will no longer be recovered due to the CGS program. 2' TIEC took the position that unrecovered costs should not include ETI's hypothetical lost revenues and that the costs that could be unrecovered as a result of implementation of the tariff should include the expenditures actually incurred by ETI to implement and maintain the CGS program.21 Cities and OPUC agreed with TIEC that unrecovered costs are not the same thing as unrecovered revenues.22 Cities also noted that it would be unreasonable to allow ETI to continue to incur costs for a customer the utility no longer plans to serve.23 In making its determination of the definition of unrecovered costs, the Commission follows the precedent set in CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n, 354 S.W.3d 899 (Tex. App-Austin, 2011 no pet.) where the Third Court of Appeals found that because the language of PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at least two other provisions of PURA24 the legislature expressly

19 Proposal for Decision at 22 (Oct. 5, 2010). 20 Supplemental Direct Testimony, Exhibits, and Workpapers of Phillip R. May, ETI Ex. 91 at 6. 2 1 Supplemental Direct Testimony of Jeffry Pollock, TIEC Ex. 15 at 14-15. 22 Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7 and Supplemental Cross Rebuttal Testimony of Clarence Johnson, OPUC Ex. 8 at 6.

23 Supplemental Direct Testimony of Karl Nalepa, Cities Ex. 6C at 7-8. 24 PURA § 55.024(b) and PURA § 56.025(e).PUC Docket No. 38951 Order Page 8 of 27

distinguishes "costs" from "revenues," the term "costs," as used by the legislature in PURA § 39.905, is not intended to include lost revenues.25 Like PURA § 39.905, PURA § 39.452(b) only provides for "costs unrecovered as a result of implementation of the tariff' and does not specifically provide for the utility to recover lost revenues or any other type of costs. Based on the evidence and testimony, the Commission finds that the proper interpretation of "costs unrecovered as a result of implementation of the CGS program tariff' is costs to implement and administer the CGS program tariff. Such unrecovered costs do not include lost revenues, embedded generation costs, or any other types of costs. The Commission reverses the proposal for decision on this issue.

B. May 17, 2013 Stipulation and Settlement Agreement The Commission adopts the May 17, 2013 stipulation and settlement agreement in part, and rejects the settlement in part. Under the terms of the stipulation, the parties agreed on issues relating to a CGS credit amount, a fixed cost contribution fee, unserved energy, a termination payment, a force majeure clause, the Entergy Operating Committee, and MISO. Those issues are covered under findings of fact 53A-H. Under the stipulation, decisions regarding the CGS cost rider were to be deferred until no earlier than six months after the CGS rider became effective. The Commission adopts the stipulation except for the portion of the stipulation that would defer decisions regarding the CGS cost rider. The Commission elects to make those decisions now rather than deferring them, and no party at the open meeting objected to this proposal.
C. CGSC rider 1. Retroactive Recovery of Historical Costs ETI proposed to recover the costs it incurred since November 10, 2010 related to the CGS program.26 TIEC's version of the CGSC rider would permit ETI to be able to recover the incremental, reasonable, and necessary CGS program implementation and administration costs
25 CenterPoint Energy Houston Electric, LLC v. Pub. Util. Comm 'n, 354 S.W.3d 899, 903-904 (Tex.Civ.App-Austin, 2011) 26 ETI's redlined tariff version Exhibit DRR-SD-6 at 1, Section II Purpose.PUC Docket No. 38951 Order Page 9 of 27

incurred by ETI following the approval of the CGS program pursuant to PURA § 39.452(b).27 Commission Staff did not support allowing ETI to recover costs in excess of the amounts already in base rates until the CGS program is actually implemented and the implementation costs associated with the eventual design of the CGS program are actually incurred.28 The Commission finds that ETI should not be able to recover any costs via the CGSC rider until the CGS program is implemented. 2. Cost Recovery if the CGS program is unsubscribed ETI proposed that if the CGS program is unsubscribed, the CGSC rider rate would apply to the classes that are eligible to participate in the program.29 Commission Staff agreed with ETI and noted that even if the costs incurred to implement the program are de minimis because there are no subscribers, ETI would still be entitled to recover those costs under PURA § 39.452(b).3o OPUC agreed with ETI and Commission Staff.31 TIEC urged the Commission to defer this issue until the facts are not speculative in order to balance the twin charges of the statute of allowing ETI to recover any costs that are unrecovered as a result of the implementation of the tariff and ensuring that the tariff is not implemented in a manner that harms the sustainability or competitiveness of manufacturers that choose not to take advantage of the CGS program.32 The Commission finds that ETI should be allowed to recover CGSC rider costs in the event that there are no subscribers to the CGS program, because PURA § 39.452(b) entitles ETI to recover those costs. The Commission finds that those costs should be borne by the customer class that the program was designed to benefit-the LIPS and LIPS-TOD customers-the customers that are eligible to participate in the program. The Commission adopts the language proposed by ETI on this issue in Section III of the redlined tariff.

27 TIEC's Initial Brief at 21-24. 28 Commission Staff's Initial Brief at 6-7 (March 1, 2013). 29 ETI's redlined tariff version Exhibit DRR-SD-6 at 1, Section III Rate. 3 0 Commission Staff s Initial Brief at 7 (March 1, 2013). 31 OPUC's Reply Brief at 12 (March 20, 2013). 32 TIEC's Initial Brief at 24-25 (March 1, 2013).PUC Docket No. 38951 Order Page 10 of 27

3. Interest Citing PURA § 39.452(b), that ETI should be allowed to recover any costs unrecovered as a result of implementing the tariff, ETI requested recovery of interest on the unrecovered balance of the CGSC rider charges.33 TIEC noted that the CGSC rider would be periodically adjusted to reflect ETI's actually incurred costs, so there would be no need for ETI to accrue interest on any unrecovered balance. The Commission finds that not allowing interest would be consistent with the treatment of rate-case expenses, which are typically amortized over a three-year period without a return on the unamortized balance.34 ETI should not be permitted to recover interest on the unrecovered balance of the CGSC rider charges. 4. CGSC rider costs recovered in rate-base offset OPUC argued that the interim order is clear that the costs to implement the CGS program are to be borne only by CGS customers. However, $299,372 was included in ETI's base rates for costs related to the CGS program and will be paid by all retail customer classes. OPUC recommended that the same amount that is being recovered from all retail customers in base rates for CGS costs be recovered solely through the CGSC rider. Since the LIPS class is being charged $49,192 per year in base rates, OPUC recommended that the CGS rider should be reduced by $49,192 to prevent double-recovery and that the remainder that is being recovered in retail base rates, $249,960, should be refunded directly to each class in the amount allocated in base rates.35 TIEC took the position that OPUC was attempting make a collateral attack on the Commission's order in ETI's rate case. Furthermore, TIEC argues that ETI should not be required to conduct OPUC's proposed "offset" for the same reason that ETI should not be permitted to include costs incurred since November 2010-the costs are not costs to implement the CGS program.36

33 ETI's Initial Brief at 24 (March 1, 2013). 34 TIEC's Initial Brief at 25 (March 1, 2013). 35 OPUC's Initial Brief at 3-7 (March 1, 2013). 36 TIEC's Reply Brief at 17-18 (March 20, 2013).PUC Docket No. 38951 Order Page 11 of 27

ETI proposed to credit the CGSC rider with $299,372 to recognize amounts that were used in setting ETI's current base rates. This amount represents the amount of CGS-related coststhat ETI is already recovering in base rates pursuant to the Commission's order in ETI's mostrecent rate case, Docket No. 39896.37 The Commission agrees with TIEC on this issue and goes further to state that to permit an offset to the CGSC rider for amounts already included in rates may be retroactive ratemaking. 5. Amount to be recovered in the CGSC rider The Commission does not reach the issue of the amount to be recovered for the implementation and administration costs at this time because the amount cannot be known until ETI actually implements the program.
IV. Conclusion The Commission adopts each of the stipulation and settlement agreements except for section II.B.2 of the May 17, 2013 stipulation, and finds that unrecovered costs for the CGS program are those needed to implement and administer the CGS program and are not lost revenues, embedded generation costs, or any other types of costs. The Commission finds that ETI should not be able to recover any costs via the CGSC rider until the CGS program is implemented, that ETI should be allowed to recovery CGSC rider costs in the event that there are no subscribers to the CGS program, that ETI should not be permitted to recover interest on the unrecovered balance of the CGSC rider charges, and that ETI should not be required to conduct OPUC's proposed "offset."

37 Application of Entergy Texas, Inc. for Authority to Change Rates, Reconcile Fuel Costs, and Obtain Deferred Accounting Treatment, Docket No. 39896, Order (Sept. 14, 2012).PUC Docket No. 38951 Order Page 12 of 27 V. Findings of Fact Procedural History 1. As part of its application in Docket No. 37744, Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs, ETI proposed a competitive generation service ( CGS) program pursuant to Public Utility Regulatory Act. Tex. Util. Code Ann. (PURA) § 39.452(b). 2. On July 16, 2010 and July 20, 2010, a State Office of Administrative Hearings administrative law judge held a hearing on the merits on ETI's CGS proposal. 3. A proposal for decision was issued on November 1, 2010. The ALJ ultimately recommended that the CGS proposal be rejected. 4. The Commission considered the proposal for decision at the November 10 and December 1, 2010 open meetings as part of docket No. 37744. At the December 1, 2010 open meeting, the Commission adopted the settlement for the rate case issues and severed the CGS proposal into this Docket. The Commission requested that the parties enter into negotiations and work to come to agreement on as many of the undetermined issues as possible, and then bring the issues for which an agreement could not be reached back to the Commission for consideration. 5. Order No. 1 was issued on December 3, 2010 severing the CGS issues into this docket, including the record in Docket No. 37744. 6. Sabine Cogen, LP filed a motion to intervene in this docket on December 23, 2010. ETI filed an objection to Sabine Cogen, LP's motion to intervene on December 30, 2010. Sabine Cogen, LP's motion to intervene was denied in Order No. 3 on January 12, 2011. 7. ETI, Commission Staff, Office of Public Utility Counsel, Texas Industrial Energy Consumers, State Agencies, Kroger Co., Cities,38 Wal-Mart Stores Texas, LLC and Sam's East, Inc., and Cottonwood Energy are parties to this proceeding.

38 The cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville, Montgomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port Arthur, Port Neches, Rose City, Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.PUC Docket No. 38951 Order Page 13 of 27

8. On January 11, 2011, the Commission AU issued Order No. 2 requiring ETI to either provide an update on the status of settlement discussions or to propose a schedule, agreed to by all parties, for finalizing the outstanding issues. 9. The parties filed status reports on January 13 and 28, February 18, March 11, and April 8, 2011. These reports indicated that parties continued to negotiate and that they thought that they could narrow the issues. 10. On September 8, 2011, State Agencies, Cities, OPUC, Kroger, and Wal-Mart jointly filed a motion requesting a decision on the proposal for decision in this docket. TIEC and Commission Staff filed responses to the joint motion and generally opposed the motion. At the September 29, 2011 open meeting, the Commissioners considered the motions and issued an order requiring the parties to file pleadings identifying the CGS tariff issues that have been settled on by the parties and identifying the issues for which a settlement could not be reached. The parties were also permitted to identify issues that are contingent upon the Commission's determination of the unsettled issues. 11. On November 1, several parties filed an agreed list of settled issues. TIEC also separately filed a list of unsettled issues and request for procedural schedule. TIEC also requested that the Commission receive additional evidence in order to resolve the unrecovered costs issues because ETI's proposal in Docket No. 37744 was based on ETI's proposal for an energy-only program, not an energy and capacity-based program. The circumstances had changed primarily due to the agreement of the Entergy Operating Committee to treat CGS power from qualifying facilities in the ETI service territory as firm generation. The remainder of the parties filed a joint agreed list of unsettled issues and issues contingent on a Commission determination of unsettled issues. 12. At the December 8 and December 15, 2011 open meetings, the Commissioners decided that the parties should submit stipulated facts, the Commission would re-open the record to admit additional evidence as requested by TIEC, and then the Commission would make a decision on the three threshold unsettled issues in an interim order. 13. On December 18, 2011, Order No. 4 was issued establishing a procedural schedule.PUC Docket No. 38951 Order Page 14 of 27

14. On January 20, 2012, the parties submitted agreed settlement terms and stipulated facts. The parties reached agreement in principle on a number of discrete items within the overall framework of the CGS program and tariffs. Many of the items were simply elements of larger program issues that retain one or more as yet unsettled aspects essential to final resolution of that program issue. Items as to which agreement in principle existed were "subject to satisfactory resolution of unsettled issues." 15. On January 24, 2012, Order No. 5 was issued clarifying the number of copies of testimony that were to be filed by the parties. 16. On January 26, 2012, ETI submitted supplemental direct testimony. On February 10, 2012, the intervenors submitted supplemental direct testimony and on February 25, 2012, ETI and intervenors submitted rebuttal and cross rebuttal testimony. The parties submitted statements of position and pre-hearing briefs on March 26, 2012. 17. Order No. 6 was issued on February 1, 2012 setting April 19, 2012 as the date for the hearing. 18. On April 13, 2012, the parties filed an unopposed stipulation that to the extent there are costs unrecovered as a result of the implementation of a CGS tariff, those costs should be borne solely by customers taking service under the CGS tariff. ETI did not join but did not oppose the stipulation. 19. On April 18, 2012, the parties filed an unopposed stipulation regarding customer eligibility. LIPS customers will be eligible to participate in ETI's CGS program (with further limitations as set forth in the stipulation on this issue). 20. The Commission held the hearing on the merits on April 19, 2012, and issued an interim order on June 12, 2012 that adopted the unopposed issues and ruled that the types of costs that will be considered ETI's unrecovered costs for purposes of PURA § 39.452(b) are those costs necessary to implement and administer the CGS program and are not to be defined to include lost revenues, embedded generation costs, or any other types of costs. 21. Subsequent to the interim order, the parties continued discussions regarding how to develop a CGS tariff ( or tariffs) that would conform to the interim order rulings and resolve other remaining contested issues.PUC Docket No. 38951 Order Page 15 of 27

22. On November 27, 2012, TIEC filed a motion to adopt a competitive generation services program that included its proposed Rider Schedule CGS and Rider Schedule CGSC, the latter of which addressed ETI's recovery of its costs of implementing and administering the CGS program. TIEC's motion also addressed a number of issues that the parties had not been able to resolve, and asked that the Commission rule in TIEC's favor on those remaining contested issues. 23. On December 4, 2012, ETI filed a response to TIEC's November 27 motion. ETI's response addressed the same contested issues raised by TIEC and asked the Commission to rule in favor of ETI's position. ETI's response also included its own versions of the CGS and CGSC riders (based on its positions on the contested issues), plus a redlined version of both riders that compared TIEC's versions to ETI's versions. 24. On January 7, 2013, in response to a motion filed by TIEC, the Commission issued a procedural schedule that required parties to file supplemental testimony in support of their positions later in January and early February, and that parties were to indicate, on February 8, 2013, whether a hearing was necessary. Interested parties filed supplemental testimony in accordance with that schedule, and no party requested an evidentiary hearing. 25. On February 19, 2013, the Commission issued an agreed briefing schedule which called for parties to file a joint motion to stipulate testimony and RFIs into the record on February 25, and for parties to file initial and reply briefs on March 1 and 20, respectively, which briefs were filed by ETI, TIEC, Staff, OPUC, and Cities. 26. On May 8, 2013, TIEC filed a letter stating that TIEC and ETI had reached a preliminary agreement on the remaining disputed issues and asked that this matter be deferred to the next open meeting. All parties indicated their agreement with the deferral. The Commission deferred consideration until the May 23, 2013 open meeting. 27. On May 17, 2013, ETI filed a stipulation and settlement agreement, which was supported by TIEC and Staff, but with Staff taking no position on Sections II.B.1 and 2 of that settlement.PUC Docket No. 38951 Order Page 16 of 27

28. On May 17, 2013, OPUC, Kroger, and Wal-Mart filed a Joint Statement of Opposition to the May 17 settlement. Their opposition was limited to Section II.B. of that settlement and pertained to the proposed delay in deciding certain issues before the Commission, including which customer classes should pay for costs recovered through the CGSC rider in the event there are no CGS program subscribers, and the treatment of CGS project code costs "embedded" in ETI's base rates in accordance with the Commission's order in Docket No. 39896. 29. TIEC filed a response to the Joint Statement of Opposition on May 21, 2013. 30. OPUC, Kroger and Wal-Mart filed a joint reply to TIEC's response on May 22, 2013. 31. The Commission considered this matter at its May 23, 2013 open meeting, at which it voted to accept in part and reject in part the May 17 settlement. Elisible customers stipulation 32. The parties agreed that only customers eligible to take service under ETI's Large Industrial Power Service ( LIPS) are eligible customers for the CGS program. 33. The parties agreed that only LIPS firm load will be eligible to participate in the CGS program. 34. The parties agreed that LIPS customers with interruptible service (IS) or standby and maintenance service (SMS) load are not precluded from participating in the CGS program, but this participation is limited to their firm LIPS load. To the extent that customers with IS load participate in the CGS program, they must comply with the terms of the IS tariffs regarding minimum LIPS load. Only the portion of the customer's LIPS load that is in excess of the firm contract power minimum requirement under section 1 of Schedule IS is eligible for the CGS program. 35. The parties agreed that to the extent there are increased administration costs associated with billing a customer that has CGS and IS or SMS load, the CGS customer will bear the costs. 36. The parties agreed that there will be a 115 MW cap on the CGS program. 37. The parties agreed that there will be a 5 MW minimum on CGS customer load.PUC Docket No. 38951 Order Page 17 of 27

38. The parties agreed that there will be no aggregation of CGS customer load to meet the 5 MW minimum on CGS customer load. 39. The parties agreed that there will be a cap of 10 CGS purchase agreements. Customers responsible for nayinQ unrecovered costs stipulation 40. The parties, except ETI, agreed that to the extent there are costs unrecovered as a result of the implementation of a CGS tariff, those costs should be borne solely by customers taking service under the CGS tariff, i.e., CGS customers. ETI did not oppose this stipulation. January 20, 2012 CGS Stipulated Matters and Stipulated Facts 41. In the CGS stipulated matters and stipulated facts filed on January 20, 2012, the parties stated they had reached an agreement in principle on a number of discrete items within the overall framework of the CGS program and tariffs, which were listed in Section I. A-G of the stipulation. However, many of those items were simply elements of larger program issues that retained one or more unsettled aspects essential to final resolution of that program issue. Items as to which agreement in principle existed, subject to satisfactory resolution of unsettled issues, included the following: A. Eligible CGS suppliers 1. Eligible CGS suppliers will be limited to qualifying facilities that are or will be directly connected to ETI. Any expansion of eligible CGS suppliers would require initiation of new Commission proceedings. B. Amount of CGS capacity 1. A CGS customer will specify the amount of its load to be served by a specified CGS supplier. 2. The specified CGS supplier will enter into a contract with Entergy Services, Inc., on behalf of ETI, or directly with ETI, for the purpose of becoming an Entergy system network resource. The agreement between the CGS supplier and Entergy Services, Inc. or ETI shall include a contract for the purchase of capacity and energy (CGS purchase agreement). Per determination of the Entergy Operating Committee, thePUC Docket No. 38951 Order Page 18 of 27 capacity and energy contracted for under the CGS purchase agreements shall be allocated solely to ETI. 3. The level of capacity contracted for under the CGS purchase agreement (CGS contract capacity) will be the same level of capacity contracted for in a separate but related contract between the CGS supplier and the CGS customer. 4. The monthly CGS supplied capacity shall be calculated monthly based on the on-peak energy deliveries of CGS-supplied energy from the CGS supplier. The monthly CGS supplied capacity shall be the lesser of the CGS contract capacity and the result of the following calculation-on a rolling 12-month basis (using a cumulative basis during the first 11 months), the sum of the CGS-supplied energy delivered by the CGS supplier during on-peak hours, divided by the number of on-peak hours during the same time period, divided by 0.8. On-peak hours are defined as the hours ending 7:00 am through 10:00 pm Monday through Saturday, excluding North American Electric Reliability Corporation holidays. C. CGS-customer unbundled rate 1. CGS customers are limited to, and will remain, ETI retail customers. 2. ETI will not make a capacity payment to the CGS supplier, and the CGS customer will not pay ETI the embedded production cost in the firm rate schedule under which the customer would otherwise be eligible to receive service. 3. The price for retail delivery service, including necessary ancillary services, to retail customers who choose to take advantage of the competitive generation tariff will be a rate that is unbundled from ETI's cost of service and that will be determined by a credit to the CGS customer's bill based on the unbundled production costs associated with the otherwise applicable firm rate. 4. The unbundled, embedded production cost for a LIPS customer based on current rates is $6.84 per kW per month.39 The CGS credit is subject to review and modification in subsequent rate cases. If the clause "less any corresponding concurrent
39 The parties subsequently agreed to set this amount at $6.50 per kW per month until rates are changed in ETI's next base rate case (that is, the next base rate case after May 16, 2013). Finding of Fact No. 53A.PUC Docket No. 38951 Order Page 19 of 27 reduction in energy purchased by the CGS customer" referenced in section F.1 below is adopted, then certain parties may recommend a further adjustment to the LIPS embedded production cost specified in this paragraph C.4. 5. With the exception of the capacity credit and fixed fuel factor, a CGS customer will pay ETI a retail rate that includes all other charges the customer would pay as a firm customer (for example Rider TTC, HRC, SRC, SRO, and IFF charges, if applicable). D. CGS energy payment 1. CGS customers will pay fuel costs based on avoided cost for CGS-supplied energy. Specifically, ETI will purchase hourly CGS energy supplied bythe CGS supplier from the CGS contract capacity at the system hourly avoided-energycost as determined under Rate Schedule LQF. ETI will charge the CGS customer at the same rate for that hourly CGS-supplied energy not to exceed the energy requirement of the CGS customer. E. CGS customer fixed-cost contribution 1. The level of compensation to ETI from CGS customers for CGS service will include a monthly fixed charge called a fixed-cost contribution. 2. The fixed-cost contribution will be $1.10 per kW of CGS load per month. 3. Revenues from the fixed-cost contribution will reduce any otherwise unrecovered costs associated with the program. F. CGS customer unserved energy rate 1. If, in any hour in a delivery month, there is hourly CGS unserved energy, the CGS customer will take service from ETI under the CGS unserved energy rate. Hourly CGS unserved energy is the difference in any given hour between the amount of energy corresponding to the full amount of CGS contract capacity and the amount of energy actually supplied to ETI from the CGS contract capacity by the CGS supplier in such hour, not to exceed the energy requirement of the CGS customer. The parties havePUC Docket No. 38951 Order Page 20 of 27 not agreed whether the following clause should be added to this last sentence: "less any corresponding concurrent reduction in energy purchased by the CGS customer."40 2. The structure of the CGS unserved energy tariffed rate will include an agreed energy charge and agreed O&M adder. The monthly CGS unserved energy charge will be the sum of (a) the hourly CGS unserved energy for the month times 105% of the system hourly avoided energy cost as determined under Rate Schedule LQF and (b) the hourly CGS unserved energy for the month times specified variable O&M charges specified immediately below in paragraph 3. 3. The specified variable O&M charges for the CGS unserved energy rate are as follows: Delivery Voltage On-Peak Per kWh Off-Peak Per kWh Distribution ( less than 69kV) $0.03555 0.00540 Transmission (69kV and greater) $0.02451 0.00222

4. On-peak and off-peak hours for the CGS unserved energy rate are as follows:
a. Summer: On-peak hours are 1:00 pm to 9:00 pm Monday through Friday of each week beginning on May 15 and continuing through October 15 of each year except that Memorial Day, Labor Day and Independence Day (July 4 or the nearest weekday if July 4 is on a weekend) are not on-peak.

b. Winter: On-peak hours for each week of Monday through Friday beginning October 16 and continuing through May 14 of each year are 6:00 am to 10:00 am and 6:00 pm to 10:00 pm, except that Thanksgiving Day, Christmas Day, and New Year's Day (or the nearest weekday if the holiday should fall on a weekend) are not on-peak.

40 The parties subsequently agreed that this quoted language would be added.PUC Docket No. 38951 Order Page 21 of 27

c. Off-peak hours are all hours of the year not specified as on-peak hours. With the approval of the Commission, ETI may at its sole discretion change on-peak hours and season from time to time. 5. Revenues from the CGS unserved energy rate derived from the variable O&M charges will go towards offsetting any unrecovered costs as a result of the implementation of the CGS tariff. 6. Revenues from the CGS unserved energy rate derived from 105% of the system hourly avoided energy charges will go towards offsetting ETI's eligible fuel costs. G. Recognition of CGS supply as firm capacity. Progress has been made on resolving issues regarding the recognition of CGS capacity as firm capacity, but final resolution of these issues, including the following, is contingent on the Entergy Operating Committee's approval as well as a final resolution of all issues. 1. The Entergy Operating Committee has established certain conditions that must be met before it will recognize a CGS purchase agreement as "capability" for the Entergy System, for purposes of determining reserve equalization payments or receipts. The parties are continuing to discuss the conditions established by the Operating Committee. 2. The capacity product from CGS purchase agreements will be a 24/7 unit-contingent product. 3. The delivery term of CGS purchase agreements may be from one year to five years, and must be a whole number of years. 4. The contract capacity will be a fixed capacity amount throughout any successive 12-month period during the contract term. 5. The parties have tentatively agreed to a number of concepts for firming up CGS capacity that would be reflected in a form contract for use in implementing the CGS program. The parties will continue to negotiate other concepts and terms for inclusion in a form supply contract. 42. The parties stipulated that the Strategic Resource Plan (SRP) for the Entergy system (of which ETI is a part) projects a continuing need for additional capacity for ETI and thePUC Docket No. 38951 Order Page 22 of 27 Entergy system through 2017. Entergy's and ETI's resource needs are subject to change at any time based on actual experience related to operational conditions, resource offers and solicitations, and other events that affect resource needs. 43. The parties stipulated that based on an assessment of load requirements and generating capability, the SRP projects that ETI has an incremental net resource deficiency of 260 MW in 2012 and 504 MW in 2013. 44. The parties stipulated that the Entergy system-wide planning process is conducted pursuant to the requirements of the Entergy system agreement and is designed to result in a portfolio of resources that differ by term and source. The Entergy system agreement states that the objective of this process is to ensure cost-effective, reliable levels of service. 45. The parties stipulated that CGS purchase agreements are resources that will be included in the Entergy System's portfolio of supply resources, consistent with the terms and conditions related to the delivery requirements of those purchase agreements (e.g., degree of dispatchability, term, degree of firmness). 46. The parties stipulated that it is reasonable at the outset of the CGS program to establish a cap on the amount of load that may subscribe to CGS service. 47. The parties stipulated that the range of the cap should be between 80 MW and 150 MW. 48. It is reasonable to adopt the three unopposed 2012 stipulation and settlement agreements regarding customer eligibility for the CGS program; the customers responsible for paying for unrecovered costs; the capacity deficit; and the program cap. Unrecovered costs 49. PURA § 39.452(b) provides for the utility to be able to recover any costs unrecovered as a result of the implementation of the tariff. 50. In CenterPoint, the Third Court of Appeals found that because the language of PURA § 39.905 did not specifically provide for recovery of "lost revenues" and that in at least two other provisions of PURA the legislature expressly distinguishes "costs" from "revenues," the term "costs," as used by the legislature in PURA § 39.905, is not intended to include lost revenues. Like PURA § 39.905, PURA § 39.452(b) onlyPUC Docket No. 38951 Order Page 23 of 27 provides for "costs unrecovered as a result of implementation of the tariff' and does not specifically provide for the utility to recover lost revenues or any other type of costs. 51. The Commission finds that the costs that will be unrecovered as a result of the implementation of the CGS program tariff are the costs to implement and administer the CGS program tariff. The May 17, 2013 Stipulation and Settlement Agreement 52. The May 17 settlement addresses the remaining contested issues that were not resolved through the 2012 stipulation and settlement agreements and the interim order. The substantive provisions of the May 17 settlement address the CGS rider, the CGSC rider, and appeal rights. 53. Agreements as to CGS Rider: A. CGS Credit: The parties agree to a CGS credit set at $6.50 per kW/month until rates are changed in ETI's next base rate case. B. Unserved Energy: The parties agree to accept TIEC's proposed CGS rider tariff language in the Second Supplemental Direct Testimony of Jeffry Pollock, which will allow a CGS customer to attempt to decrease its load to match a decrease in deliveries by the CGS supplier and thereby avoid unserved energy charges to the extent the CGS customer's CGS load is reduced. C. Termination Payment: The parties agree to remove ETI's proposed liquidated damages provisions from the CGS rider and deal with liquidated damages provisions in the supplier contract negotiations. The amount of liquidated damages, if any, received by ETI shall be used to offset any capacity costs incurred by ETI to replace the lost CGS supply. D. The Tracking Certificate: The parties agree to remove ETI's proposed prioritization provisions in Section G(5) and H from the tracking certificate (leaving them to contract negotiations) and delete the provisions that would require the CGS customer to provide what TIEC deemed "competitively sensitive" information. E. Force Majeure: The parties agree to remove TIEC's proposed force majeure provision.PUC Docket No. 38951 Order Page 24 of 27
F. The Entergy Operating Committee: The parties agree to remove the following ETI-proposed "reservation" provision from the CGS rider: In addition, entering into new ETI-Supplier Contracts under the CGS Program (i.e., ETI-Supplier Contracts that have not already been entered into by ETI in response to CGS Service requests) at any given time must be consistent with the Entergy System's need for capacity. Capacity resources associated with the CGS Program will receive no preferential treatment, but will be considered as part of the Entergy System's planning process on the same basis as other potential capacity resources. Recognition of the capacity component of the CGS Program on an ongoing basis is contingent on periodic Entergy Operating Committee conclusion that ETI requires the capability that would be obtained through this program component. ETI shall have the right by notice to the applicable customer, to deny or terminate a request for CGS Service at any time prior to entering into the ETI-Supplier Contract corresponding to such request if the limitations in the penultimate paragraph of § I above apply ... The following clause in Rider CGS Section III.B.3 of ETI's proposed Rider CGS is modified as follows: Unless a CGS Service request is earlier denied or terminated according to tariff provisions (or provisions of law) applicable to the CGS Service ... G. MISO: The parties agree that ETI's proposed RTO/MISO provision will stay in the CGS rider, but the phrase "it will be necessary or appropriate to include [MISO terms and conditions]" is changed to "it may be appropriate to include [MISO terms and conditions)." H. $1.10 Fixed Cost Contribution Fee: The parties agree that this fee will not be applied as an offset to CGS administration and implementation costs. 54. Agreement as to CGSC Rider: A. ETI has agreed that an application for the CGSC rider will be filed with the Commission no earlier than six months after the CGS rider becomes effective. B. Section II.B.2. in the May 17, 2013 settlement was challenged by OPUC, Kroger, and Wal-Mart, with Cities also supporting resolution of the issues in Section II.B.2. now, rather than deferring them as proposed in the May 17, 2013 settlement.PUC Docket No. 38951 Order Page 25 of 27
C. Other than Section II.B.2, no other sections of the May 17 settlement were opposed by OPUC, Kroger, Wal-Mart, or Cities, and were supported by ETI, TIEC, and Commission Staff. The Commission finds that those unopposed provisions in the May 17 settlement are reasonable and in the public interest. D. The record from the current CGS docket (Docket No. 38951) and from Docket No. 37744 shall be incorporated into the record in the CGSC rider application docket. E. All parties agree that only the variable O&M portion of the unserved energy rate should be used to offset the unrecovered implementation and administrative costs. Fuelrelated revenues from the unserved energy rate will offset ETI's fuel balance, and not be used to offset unrecovered costs. F. There will be no changes to ETI's current base rates as a result of this proceeding. 55. Agreement as to Appeal Rights: The parties agree that ETI is not waiving its right to appeal the Commission's final order to the courts on any issues that are not resolved by settlement in this docket. All parties reserve their rights under applicable state and federal law. 56. Proposed CGS Program Tariff: The proposed CGS program tariff (the CGS rider), which is attached to the May 17 settlement as Attachment 1, is agreed to by the parties and represents the CGS program as set out in the preceding Findings of Fact. 57. The Commission makes the following findings regarding the five issues within Section II.B.2. of the May 17 settlement: A. The appropriate date upon which ETI is authorized to begin accruing CGS program implementation and administration costs is the date that the CGS Rider implemented. B. In the event there are no subscribers to the CGS program, it is reasonable and appropriate for unrecovered implementation and administration costs accrued to the CGSC rider will be charged to the LIPS and LIPS-TOD customers, the customer class that the program was designed to benefit. C. It is not appropriate for ETI to recover interest on the unrecovered balance of the CGSC rider charges.PUC Docket No. 38951 Order Page 26 of 27
D. It is not appropriate for there to be an offset to the CGSC rider for amounts included in rates in Docket No. 39896. E. The Commission declines to address at this time the amount to be recovered as implementation and administration costs because such amount is not known at this time.
V1. Conclusions of Law 1. The Commission has jurisdiction and authority over this proceeding pursuant to PURA §§ 14.001 and 39.452(b). 2. PURA § 39.452(b) does not allow for the recovery of lost revenue or embedded generation costs.

VII. Ordering Paragraphs 1. The Commission adopts each of the three stipulation and settlement agreements filed on January 20, 2012, April 30, 2012, and April 18, 2012. 2. The Commission adopts each of the provisions of the stipulation and settlement agreement filed on May 17, 2013, except for section II.B.2, pertaining to deferring decisions on issues related to (a) the date ETI uses to start accruing implementation costs, (b) whether rider CGSC will also recover interest on unrecovered costs, (c) whether any historical costs billed to the CGS project code that are currently in base rates should be removed from base rates, credited, and recovered through rider CGSC, and (d) who pays if there are no subscribers. Those issues are resolved as set forth in this order. Accordingly, the Commission adopts in part and rejects in part the May 17 settlement as set forth in this order. 3. The CGS rider, attached to the May 17 stipulation and settlement agreement, is approved as of the date of this order. ETI shall file a clean CGS rider tariff in this docket within 10 days of the date of this order. 4. In the event there are no subscribers to the CGS program, unrecovered implementation and administration costs accrued to the CGSC rider will be charged to the LIPS and LIPS-TOD customers, the customer class that the program was designed to benefit.PUC Docket No. 38951 Order Page 27 of 27

5. ETI is not authorized to recover interest on the unrecovered balance of the CGSC rider charges. 6. There shall be no offset to the CGSC rider for amounts included in rates in Docket No. 39896. 7. The Commission declines to address at this time the amount to be recovered as implementation and administration costs because such amount is not known at this time. 8. The date upon which ETI is authorized to begin accruing CGS program implementation and administration costs is the date that the CGS Rider is implemented. 9. ETI shall not file an application for the CGSC rider earlier than six months after the CGS rider becomes effective. ETI shall file an application for the CGSC rider in accordance with the agreement approved by this order. 10. All other motions, requests for entry of specific findings of fact and conclusions of law, and any other requests for general or specific relief, if not expressly granted, are denied.



# g L SIGNED AT AUSTIN, TEXAS the day of July 2013

PUBLIC UTILITY COMMISSION OF TEXAS

NNETH W. ANDE
. , COMMISSIONER



# V

q:\cadm\orders\fmal\38000\38951 fo.docx DONNA L. NELSON, CHAIRMAN

# APPENDIX C§ 39 .452 . R egula tion of U tilityand T ran sitio n t o C ompet itio n, TX U T IL § 39 .452

© 2 0 1 5 T h o m s o n R e u te rs . N o c l a i m to o rig i n a l U .S . G o v e rn m e n t W o rk s . 1 Ve r non ' s Te x as St at ut e s a nd Co de s Annot at e d U t i l i t i es Cod e ( R ef

s & A nn os) Ti t l e 2. P u bl i c U t i l i t y R egul ator y A ct S u bt i t l e B. E l ect ri c U t i l i t i es ( R ef s & A nn os) C h ap ter 39 . R estru ctu ri n g o f E l ectri c U ti l i ty Ind u stry Subchap t er J. Tr ans i t i on t o Com pe t i t i on i n Cer t ai n N on- Erc ot A r ea s V. T. C. A . , U t i l i t i es Code § 39. 452 § 3 9. 45 2 . Re g ul at i on o f U t i l i t y a nd T r an s i t i on t o Co m pe t i t i on Ef fe c t i v e : J une 1 9, 2 009 C u rr entness ( a) U nt i l t he dat e on whi ch an el ect r i c ut i l i t y s ubj ect t o t hi s s ubcha pt er i s aut hor i zed by t he com mi s s i on t o i mp l ement cu s t om er cho i ce und er Se ct i on 39. 453 , t he rat es of t he el ect ri c ut i l i t y shal l be regul at ed unde r t radit i o nal co st - o f
- ser vi ce regul at i o n and t he el ect ri c ut i l i t y i s subject t o al l ap p l i cab l e regul at o ry aut ho ri t y prescri b ed by t hi s subt i t l e and Sub t i t l e A , i ncl ud i ng C hap t ers 14, 32, 33, 36, a n d 37.
(b) A n e le c tric u t i l i t y s ub ject t o t hi s subchap t er s hal l pro p o se a com p et i t i ve generat i o n t ari f f t o al l o w el i gi b l e cust o m ers t he abi l i t y t o cont r act f

or c om pet i t i ve gen er at i on. T he com mi s s i on s hal l approve, r ej ect , or mo di f y t he propo s ed t ar i f

f not l at er t han Se p t em b er 1 , 2 0 1 0
. T he t ari f f s subject to t hi s subsect i o n m ay no t b e co nsi d ered to o f f er a d i scounted rat e o r r at es under Se ct i o n 36. 007 , an d t he ut i l i t y ' s r at es s hal l be set , i n t he procee di ng i n whi ch t he t ar i f f i s ad op t ed, t o r ecove r any cos t s un r ecove r ed as a r es u l t of

t h e i mpl eme n t at i on of t h e t ar i f

f
. T he co m m i s s i on s h al l e n s u r e t h at a c ompet i t i v e g en er at i on t ar i f f s h al l n ot be i m p l em ent ed i n a m anner t hat harms t he sus t ai nab i l i t y or co m p et i t i veness of m anuf act urers t hat cho o se no t t o t ake ad vant age o f co m p eti t i ve ge ne rati o n. P ursu an t t o t he co m p eti t i ve ge ne rati o n tarif f , an elec t ric uti l i t y s ub je ct t o t his s ub sec t i o n sha l l p urc ha se c o m p e tit ive ge n e ra tio n se rv ic e , se le c te d b y the c u sto m e r, a n d p ro v id e the ge n e ra tio n a t re ta il to the c u sto m e r. A n e le c tric utilit y su b je c t t o this su b se c tio n sh a ll p ro v id e a n d p ric e re ta il tra n sm issio n se rv ic e , i n c lud ing ne c e ssa ry a n c ill a ry se rv ic e s, to re ta il cu s t omer s w h o c h oos e t o t ak e adv an t ag e of t h e compe t i t i v e g en er at i on t ar i f f at a r at e t h at i s u n bu n dl ed f r om t h e u t i l i t y ' s c os t of se rv ic e . S u c h c u sto m e rs sh a ll n o t b e c o n sid e re d w h o le sa le tra n sm issio n c u sto m e rs . N o tw ithsta n d ing a n y o the r p ro v isio n o f t h is c h a p te r, t he co m m i ss i o n m ay no t i ss ue a d eci si o n rel at i ng t o a co m p et i t i ve generat i o n t ari f f t hat i s co nt rary t o an ap p l i cab le d eci si o n, rul e, or p o l i cy st at em ent of a f ed eral regul at o ry agency havi ng jur i sdi ct i o n. (c ) T h a t p o rtio n o f an y c o m m issio n o rd e r issu e d b e fo re the e ff e c tive d a te o f t h is se c tio n re q u iring the e le c tric u til ity to c o m p ly wi t h a pr ov i s i on of

t h i s c h apt er i s v oi d. ( d) U nt i l t he dat e on w hi ch an el ect r i c u t i l i t y s ubj ect t o t hi s s ubcha pt er i mp l ement s cu s t om er ch oi ce:

(1 ) th e p ro v isio n s o f t h is c h a p te r d o no t ap p ly t o tha t ele c tric utilit y, o the r th a n this su b c h a p te r, Se ct i on s 39. 904 a n d 39. 905 , t he p rovis i o ns rel at i ng t o t he d ut y t o o b t ai n a p erm i t f rom t he T exas C o m m i ss i o n on E nvi ronm ent al Q ual i t y f o r an el ect ri c generat i ng f aci l ity and t o reduce em i ss i o ns f rom an el ect ri c generat i ng f aci l i t y , and t he p rovis i o ns o f Sub chap t er G t hat pe rt ai n t o t he re c o v e ry a n d se c u ritiza tio n o f hu rr ic a n e re c o n stru c tio n c o sts a u tho riz e d b y Se ct i on s 39. 458
- 39. 463 ; and§ 39 .452 . R egula tion of U tilityand T ran sitio n t o C ompet itio n, TX U T IL § 39 .452

© 2 0 1 5 T h o m s o n R e u te rs . N o c l a i m to o rig i n a l U .S . G o v e rn m e n t W o rk s . 2 (2 ) th e e le c tric utilit y is no t sub je c t t o a ra te fre e z e a n d , su b je c t to th e lim itatio n p ro v id e d b y S u b se c tio n ( b ), m a y fi le fo r ra te c h a n g e s u n d e r C h a p te r 3 6 a n d fo r a p p r o v a l o f o n e o r m o re o f t h e ra te rid e r m e c h a n ism s a u tho riz e d b y Se ct i on s 39. 454 and 39. 455
. ( e) An el ect r i c u t i l i t y s ubj ect t o t hi s s ubcha pt er may procee d wi t h a nd comp l et e j ur i s di ct i onal s ep ar at i on t o es t abl i s h t wo v e rtic a lly inte g ra te d utilit ie s, o n e o f w h ic h is so le ly su b je c t to the re ta il ju risd ic tio n o f the c o m m issio n a n d o n e o f wh ic h is so le ly subject t o t he ret ai l jur i sdi ct i o n of t he Lo ui si ana P ub l i c Se rvi ce C o m m i ss i o n.
(f ) N o t l at er t han January 1 , 2 0 0 6 , an el ect ri c ut i l i t y s ub ject t o t hi s subchap t er s hal l f i l e a p l an wi t h t he co m m i ss i o n f o r i d ent i f y i ng t he appl i cabl e po wer r egi on or po wer r egi ons , enu mera t i ng t he s t eps t o a chi eve t he cer t i f i cat i on of

a power r egi on i n a ccor dance wi t h Se ct i on 39. 453 , and sp eci f y i ng the sched ul e f

o r achievi ng the cert i f

i cat i o n of a p o wer regi o n. T he ut i l i t y m ay am end t he p la n a s a p p ro p ria te . T h e c o m m issio n m a y, o n its o w n m o tio n o r th e m o tio n o f an y a ff e c te d p e rs o n , i n iti a te a p ro c e e d ing to c e rtify a q ual i f i ed po wer regi o n unde r Se ct i on 39. 152 w h e n the c o n d iti o n s su p p o rting su c h a p ro c e e d ing e x ist. (g ) N o t l a te r th a n the e a rlie r o f Ja n u a ry 1 , 2 0 0 7 , o r th e 9 0 th d a y a ft e r t h e d a te the a p p lica b le p o w e r re g io n is ce rtifi e d in acco rdanc e wi t h Se ct i on 39. 453 , t he el ect r i c u t i l i t y s hal l f i l e a t r ans i t i on t o com pet i t i on pl an. T he t r ans i t i on t o com pet i t i on pl an m u st:

( 1 ) i d e n ti fy h o w the e le c tric utilit y inte n d s to m iti g a te m a rk e t p o w e r a n d to a c h ie v e full cu sto m e r c h o ic e , i n c lud ing sp e c ifi c al t er n at i v es f

or c on s t r u ct i n g a ddi t i on al t r an s mi s s i on f ac i l i t i es , a u ct i on i n g r i g h t s t o g en er at i on c apa ci t y , di v es t i n g g en er at i on c a p a c ity, o r a n y o the r m e a su re tha t i s c o n siste n t with the p u b lic in te re st; (2) i ncl ud e a p rovis i o n t o rei nst at e a cust o m er choice pi l o t pro ject and t o est ab l i sh a p ri ce t o be at f o r r esi d ent i al cust o m ers and co m m erci al cust o m ers havi ng a pe ak l o ad of 1 , 0 0 0 ki l o watt s o r l ess ; and ( 3) i ncl ude a ny ot her addi t i onal i nf ormat i on or provi s i ons t hat t he com mi s s i on may r equi r e. (h ) T h e c o m m issio n s h a ll a p p ro v e , m o d ify, o r reje c t a p la n filed u n d e r S u b se c tio n ( g ) n o t la te r tha n th e 1 8 0 th d a y a fter th e d a te t he pl an i s f

i l ed un l es s a h ear i ng i s r eques t ed by any part y t o t he procee di ng . A mo di f i cat i on t o t he pl an by t he com mi s s i on may not be i n c onf

l i ct wi t h t he j ur i s di ct i on or order s of t he Federa l E ner gy R egu l at ory C om mi s s i on or r es ul t i n s i gn i f i can t addi t i onal cos t w i t h ou t a l l owi n g f or t i mel y r ec ov er y f

or t h at cos t . If

a he ar i n g i s re qu es t ed, t h e 180- day dea dl i n e i s e x t en ded on e day f or ea ch da y of

t h e h ea r i n g . T h e t r an s i t i on t o c ompet i t i o n p l an s h al l be u pdat ed or a men ded an n u al l y , s u bj ec t t o c ommi s s i on ap p roval, unt i l t he i ni t i at i o n of cust o m er choice by an el ect ri c ut i l i t y sub ject to t hi s subchap t er. C o nsi st ent wi t h i t s juri sdi ct i o n, the c o m m issio n sh a ll h a v e the a u tho rity in a p p ro v ing o r m o d ifyi n g th e tr a n sitio n to c o m p e tit io n p la n to r e q u ire th e e le c tric utilit y to tak e re a so n a b le ste p s to fac ili ta te the d e v e lo p m e n t o f a w h o le sa le ge n e ra ti o n m a r k e t w ithin the b o u n d a rie s o f t h e e le c tric u til ity' s se rv ic e ter rito ry.
( i ) N ot wi t hs t andi ng an y ot her provi s i on of t hi s ch apt er , i f

t he com mi s s i on ha s not approved t he t r ans i t i on t o com pet i t i on pl an und er t hi s sect i o n be f

o re January 1, 20 0 9 , an el ect ri c ut i l i t y s ub ject t o t hi s subchap te r sh a ll c e a se a l l act i vi t i es r el at i ng t o t he tra n sitio n to c o m p e tit io n un d e r th is s e c tio n . T h e c o m m issio n m a y, o n it s o w n m o tio n o r th e m o tio n o f an y a ff e c te d p e rs o n , i n iti a te§ 39 .452 . R egula tion of U tilityand T ran sitio n t o C ompet itio n, TX U T IL § 39 .452

© 2 0 1 5 T h o m s o n R e u te rs . N o c l a i m to o rig i n a l U .S . G o v e rn m e n t W o rk s . 3 a p roce ed i ng unde r Se ct i on 39. 152 t o cert i f y a po wer regi o n to whi ch t he ut i l i t y b el o ngs as a q ual i f i ed po wer regi o n when t he con di t i on s s u ppor t i n g s u ch a pr oce edi n g e x i s t . T h e c ommi s s i on m ay not appr ov e a pl an un der Su bs ec t i on ( g ) u n t i l t h e ex pi r at i on o f f o ur y ears f

rom t he t i m e t hat t he co m m i ss i o n cert i f i es a p o wer regi o n und er Sub sect i o n (f ). If af t er t he exp i rat i o n of f

o ur y ears f r om t h e t i me t h e commi ss i o n c ert i f i es a pow er r eg i on u n der Su bs ec t i on ( f ) , a n d a f t er n ot i ce a n d a h ea r i n g , t h e commi s s i on det er mi n es c on s i s t en t w i t h t h e s t u dy r equ i r ed by Se ct i on 5, S. B
. N o. 1492, Act s of t h e 81s t Le g i s l at u r e, Reg u l ar Se s s i on , 2009, t hat t he el ect ri c ut i l i t y canno t co m p l y wi t h Se ct i on 38. 073 , i t s hal l co nsi d er app roving a p l an und er Sub sect i o n (g)
. (j) N o t w i t hstand i ng an y othe r p ro visi o n o f this sub t i t l e, in aw ard i ng a c erti f i ca t e o f c o nv en i en ce a nd n ec essit y or a l l o w i ng co st r ecove r y f

or pur cha s ed po wer by an el ect r i c ut i l i t y s ubj ect t o t hi s s ect i on, t he com mi s s i on s hal l en s ur e i n i t s det er mi nat i on t hat the p ro v isio n s o f S e c t i o n s 3 7
. 0 5 6 ( c ) ( 4 ) ( D) a n d ( E) are m et and t hat t he generat i ng f aci l i t y or t he p urchased p o wer agreem ent sa tisf ie s the id e n tif

ie d re liab ili ty ne e d s o f t h e utilit y.
C red i ts A d d e d b y Act s 2005, 79t h Le g . , ch
. 1072, § 1, ef f
. Ju n e 18, 2005 . A m e n d e d b y A c ts 2 0 0 6 , 7 9 th L e g ., 3 rd C .S ., ch . 1 1 , § 1 , eff. M ay 31, 2006 ; Act s 2009, 81s t Le g . , c h
. 1226, § 3, e f f
. J u n e 19, 2009
.

V
. T
. C. A. , U t i l i t i es Code § 39. 452, T X U T I L § 39. 452 C urr ent t hrough t he end of t he 2 0 1 3 T hi rd C al l ed Sessi o n of t he 8 3 rd L egi sl at ure End of Docum ent © 2015 T homs on Reuter s. N o cl aim to o rig inal U.S . G ov e rnme nt W or ks.