Court Opinion

ID: 4051198
Source: CourtListenerOpinion
Date Created: 2016-09-29 01:30:13.284149+00
Date Added: 2024-06-11T14:30:41.285463
License: Public Domain

ACCEPTED
                                                                                      03-14-00709-CV
                                                                                              4377970
                                                                             THIRD COURT OF APPEALS
                                                                                       AUSTIN, TEXAS
                                                                                  3/5/2015 9:28:45 AM
                                                                                     JEFFREY D. KYLE
                                                                                                CLERK
                             No. 03-14-00709-CV

                                IN THE                                 FILED IN
                                                                3rd COURT OF APPEALS
                        THIRD COURT OF APPEALS                      AUSTIN, TEXAS
                               AT AUSTIN                        3/5/2015 9:28:45 AM
                                                                  JEFFREY D. KYLE
                          ENTERGY TEXAS, INC.,                          Clerk
                                                       Appellant,
                                        v.

               PUBLIC UTILITY COMMISSION OF TEXAS,
                                          Appellee.

        Appeal from the 53rd Judicial District Court, Travis County, Texas
             The Honorable Amy Clark Meachum, Judge Presiding
 ________________________________________________________________

                   APPELLANT’S REPLY BRIEF
_________________________________________________________________

                                   John F. Williams
                                   State Bar No. 21554100
                                   jwilliams@dwmrlaw.com
                                   Marnie A. McCormick
                                   State Bar No. 00794264
                                   mmccormick@dwmrlaw.com
                                   DUGGINS WREN MANN & ROMERO, LLP
                                   600 Congress Ave., Ste. 1900 (78701)
                                   P. O. Box 1149
                                   Austin, Texas 78767-1149
                                   (512) 744-9300
                                   (512) 744-9399 fax

                                  ATTORNEYS FOR APPELLANT
                                  ENTERGY TEXAS, INC.

                    ORAL ARGUMENT REQUESTED
March 2015
                                        TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................... i 

INDEX OF AUTHORITIES.................................................................................... iii 

ARGUMENT AND AUTHORITIES ........................................................................1 

I.      The CGS program is the result of legislative choices that differ
        dramatically from traditional utility regulation. ..............................................1 

II.     The Commission has ignored part of the legislative enactment,
        contrary to the most basic rules of statutory construction. ..............................2 

        A.       The Commission's order is not sustainable on an undecided
                 factual theory. ........................................................................................4 

        B.       The Commission’s error is not harmless. ..............................................7 

        C.       The 2011 CenterPoint case does not support the Commission’s
                 interpretation of the CGS statute. ........................................................13 

                 1.       The statute at issue in CenterPoint authorized recovery of
                          very specific costs; the CGS statute is not so limited. ..............13 

                 2.       Here, ETI seeks to recover the very type of costs the
                          CGS statute authorizes it to recover. ........................................14 

        D.       The principle of cost-causation does not justify the
                 Commission’s disregard of language in the CGS statute....................17 

                 1.       This issue is a red herring. ........................................................17 

                 2.       Though it may not be clear which customers should pay
                          “unrecovered costs,” it is clear that ETI may not be
                          required to absorb them. ...........................................................19 

                 3.       The Commission’s brief casts doubt upon whether it
                          would be patently unfair to allocate “unrecovered costs”
                          to ineligible customers. .............................................................19 

                 4.       If the statute inescapably dictates an unpalatably unfair
                          result, the solution was to decline to adopt the program. .........21 

                                                           i
        E.      Other traditional ratemaking principles do not trump the plain
                language of the CGS statute. ...............................................................21 

                1.       The CGS statute is an exception to the traditional
                         regulatory scheme. ....................................................................21 

                2.       PURA 11.002 does not shed any light on the proper
                         interpretation of the CGS statute. .............................................22 

                3.       The concept of “regulatory lag” does not absolve the
                         Commission of its duty to follow the plain language of
                         the statute. .................................................................................23 

                4.       The reference to discount rates in the CGS statute
                         supports ETI’s argument. ..........................................................24 

III.    The Commission’s decision not to allow ETI to recover all of its costs
        of implementing the CGS tariff is reversible because it, too,
        contradicts the plain language of the statute..................................................26 

IV.     The Commission’s decision not to allow ETI to recover interest on its
        unrecovered costs is reversible because the CGS statute entitles ETI to
        all of its unrecovered costs. ...........................................................................27 

CONCLUSION AND PRAYER .............................................................................29 

CERTIFICATE OF COMPLIANCE .......................................................................30 

CERTIFICATE OF SERVICE ................................................................................31 

                                                         ii
                                       INDEX OF AUTHORITIES

Cases 
CenterPoint Energy Entex v. Railroad Comm’n of Tex.,
  213 S.W.3d 364 (Tex. App. – Austin 2006, no pet.).............................................7
CenterPoint Energy Houston Elec., LLC v. Public Util. Comm'n of Tex.,
 354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.) .................................... 13, 14
CenterPoint Energy, Inc. v. Public Util. Comm’n of Tex.,
  143 S.W.3d 81 (Tex. 2004) .......................................................................... 28, 29
City of Dallas v. Railroad Comm’n of Tex.,
  No. 03-06-00580-CV, 2008 WL 4823225 *1 (Tex. App. – Austin Nov. 6,
  2008, no pet.) ........................................................................................................15
City of El Paso v. Public Util. Comm’n of Tex.,
  883 S.W.2d 179 (Tex. 1994) ................................................................................15
Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue,
 271 S.W.3d 238 (Tex. 2008) ..................................................................................4
Continental Imports, Ltd. v. Brunke,
 No. 03-10-00719-CV, 2011 WL 6938489 *5
 (Tex. App. – Austin Dec. 30, 2011, pet. denied) ...................................................7
Hooks v. Texas Dep’t of Water Resources,
 611 S.W.2d 417 (Tex. 1981) ..................................................................................7
Houston Mun. Employees Pension Sys. v. Abbott,
 192 S.W.3d 862 (Tex. App. – Texarkana 2006, pet. denied).................................4
Jackson v. State Office of Administrative Hearings,
  351 S.W.3d 290 (Tex. 2011) ................................................................................21
Office of Public Util. Counsel v. Texas-New Mexico Power Co.,
  344 S.W.3d 446 (Tex. App. – Austin 2011, pet. denied) .....................................27
Railroad Comm’n of Tex. v. High Plains Natural Gas Co.,
  628 S.W.2d 753 (Tex. 1981) ................................................................................24
State v. Public Util. Comm’n,
   883 S.W.2d 190 (Tex. 1994) ...............................................................................27
State v. Shumake,
  199 S.W.3d 279 (Tex. 2006) ..................................................................................3

                                                            iii
Suburban Util. Corp. v. Public Util. Comm’n of Tex.,
  652 S.W.2d 358 (Tex. 1983) ................................................................................15
Texas Ass'n of Business v. Texas Air Control Bd.,
  852 S.W.2d 440 (Tex. 1993) ..................................................................................7
Texas Coast Utils. Coalition v. Railroad Comm’n of Tex.,
  423 S.W.3d 355 (Tex. 2014) .................................................................................4
Texas Nat’l Bank v. Karnes,
  717 S.W.2d 901 (Tex. 1986) ...............................................................................12
Statutes 
Tex. Gov’t Code Ann. § 2001.141...........................................................................12
Tex. Util. Code Ann. § 11.002 .................................................................................22
Tex. Util. Code Ann. § 36.003 .................................................................................19
Tex. Util. Code Ann. § 36.007 .................................................................................25
Tex. Util. Code Ann. § 36.061 .................................................................................28
Tex. Util. Code Ann. § 36.201 .................................................................................24
Tex. Util. Code Ann. § 39.452 ......................................................................... passim
Tex. Util. Code Ann. § 39.905 .................................................................................13
Commission	Proceedings 
Application of Entergy Texas, Inc. for Authority to Change Rates and
  Reconcile Fuel Costs, Docket No. 41791 ..............................................................9
Application of Entergy Texas, Inc. for Authority to Change Rates, Reconcile
  Fuel Costs, and Obtain Deferred Accounting Treatment, Docket No.
  39896 ......................................................................................................................9

                                                              iv
TO THE HONORABLE THIRD COURT OF APPEALS:

         Entergy Texas, Inc. (“ETI”) submits this reply to the briefs of the Public

Utility Commission of Texas (the “Commission” or “PUCT”), Texas Industrial

Energy Consumers (“TIEC”), and the Office of Public Utility Counsel (“OPUC”).

                          ARGUMENT AND AUTHORITIES

I.       The CGS program is the result of legislative choices that differ
         dramatically from traditional utility regulation.

         There is an unwarranted undercurrent of blame running through the

Commission’s brief. Contrary to the Attorney General’s rhetoric, ETI does not

seek a “free lunch,” to “avoid the reality of competition,” or to “maintain its

monopoly” by “designing an unfair program that is sure to be rejected.” Nor is

ETI “insinuating” or “pretending” “nonsense.”1

         ETI proposed the competitive generation service (“CGS”) program because

the legislature mandated that it propose one.           See Tex. Util. Code Ann.

§ 39.452(b). Moreover, this is a new program that differs in fundamental respects

from the way utilities have operated under traditional regulation. In crafting the

CGS statute, the legislature both expressly and impliedly rendered certain

traditional ratemaking principles inapplicable or unworkable. For example:

         •      Utilities subject to traditional regulation are responsible for
                procuring power for all their customers. The CGS program

1
    See PUCT’s Brief at 29 & 30.
                                           1
            provides a unique opportunity for some customers to contract
            for their own power.

      •     Utility rates are traditionally set based upon historical levels of
            expense. CGS program rates must be set in the same
            proceeding in which the program itself is created, even though
            there are no historical CGS expenses.

      •     Under traditional regulation, utilities charge rates to customers
            that include generation, transmission, and distribution costs.
            ETI, however, must charge an “unbundled” transmission
            services rate to CGS customers, who are deemed not to be
            “wholesale transmission customers.”

      •     Because bundled rates are set for the future based upon
            historical expenses, utilities generally bear the risk that costs
            will increase before the next rate case. In the CGS statute, the
            legislature expressly entitled ETI to recover “costs unrecovered
            as a result of the implementation of” the program.

      •     In contrast to general ratemaking principles, the legislature in
            the CGS statute specified that some customers may not bear the
            burden of unrecovered costs. It protected “manufacturers” who
            choose not to participate in the program.

      •     And though PURA generally limits a regulated utility’s ability
            to offer discount rates and then burden other customers with the
            costs the discounted customer avoids, CGS program rates “may
            not be considered to offer a discounted rate.”

The CGS program is not business as usual.

II.   The Commission has ignored part of the legislative enactment, contrary
      to the most basic rules of statutory construction.

      Over the lengthy course of the underlying contested case, the parties were

never able to agree unanimously on several issues, including the scope of ETI’s

entitlement to recover costs, the extent to which the CGS program may cause ETI

                                         2
not to recover costs embedded in its bundled rates, and who may fairly be required

to pay for any of those unrecovered costs.2 Though appellees continue to debate

the latter two issues, they are not bases for the agency order under review. The

Commission avoided those issues by defining the term “unrecovered costs” as

excluding production-related costs embedded in ETI’s bundled rates.3

       The CGS statute entitles ETI “to recover any costs unrecovered as a result of

the implementation of the tariff.” Tex. Util. Code Ann. § 39.452(b). The breadth

of those words, and their failure to exclude any category of costs, cannot

reasonably be disputed. Nevertheless, the Commission has declared that the statute

authorizes ETI to recover only certain costs – specifically, those “of”

implementing the program. The Commission has effectively written several words

out of the statute, as illustrated below:

               The utility’s rates shall be set … to recover any costs
            unrecovered as a result of the implementation of the tariff….

      This interpretation violates the paramount rule of statutory construction that

statutes must be construed according to their plain language.                 E.g., State v.

Shumake, 199 S.W.3d 279, 284 (Tex. 2006). The truest manifestation of what

legislators intended is what they enacted: the literal text they voted on. Texas

Coast Utils. Coalition v. Railroad Comm’n of Tex., 423 S.W.3d 355, 363 n.16

2
  Administrative Record (“AR”) Part I, Binder 2, Item 119 (Final Order at FOFs 11, 14, 18, 19,
27, 32-48, 52-56 & COLs 1-2).
3
  AR Part I, Binder 2, Item 119 (Final Order at 6, 7-8, 11, FOFs 49-51, COL 2).
                                              3
(Tex. 2014). The legislature is presumed to have chosen its words with care, and

statutes should not be construed to render legislatively enacted words superfluous.

E.g., Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256

(Tex. 2008). Moreover, when the meaning of a statute is plain from its text, rules

of construction or other extrinsic aids cannot be used to create ambiguity. E.g.,

Houston Mun. Employees Pension Sys. v. Abbott, 192 S.W.3d 862, 864 (Tex. App.

– Texarkana 2006, pet. denied). The Commission may not disregard or rewrite the

unambiguous mandate of the CGS statute.

         A.      The Commission's order is not sustainable on an undecided
                 factual theory.

         The Attorney General and TIEC assert that the Commission instead

determined that all of ETI’s base-rate production costs will in fact be recovered

through the CGS program that was ultimately adopted.4 The agency said no such

thing.        The Commission did not reach that question because, again, the

Commission said the statute does not entitle ETI to recover that type of cost at all.

         TIEC champions the factual theory anyway, presumably because it was

TIEC’s principal argument to the agency. TIEC actually agreed that, “[i]f … the

Commission determines that there are unrecovered costs, then Entergy is entitled

4
    PUCT’s Brief at 15; TIEC’s Brief at 6-10, 14, 22-23, & 35-37.
                                                 4
under the statute to recover any such costs.”5 To TIEC, the dispute should not be

about the scope of the statutory entitlement – it should be about whether ETI

would actually recover all of its costs.6

       The Commission disagreed with TIEC about that. After the parties tried

unsuccessfully to settle remaining issues, the Commission conducted a hearing to

consider “the remaining contested threshold issue – what types of costs will be

considered unrecovered for purposes of PURA 39.452(b)….”7 Though the issue is

one of law, the parties submitted testimony on the proper interpretation of the

statute to aid the Commission in its determination.8               After the hearing, the

Commission issued an interim order “making its determination of the definition of

unrecovered costs.”9 The Commission said:

       [T]he 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.[10]

In its final order, the Commission acknowledged its interim ruling that:

5
   AR Part I, Binder 1, Item 22 (TIEC’s Nov. 1, 2011, List of Unsettled Issues and Request for
Procedural Schedule at 3).
6
  Id. at 4 n.3.
7
  AR Part I, Binder 2, Item 119 (Final Order at 3 (emphasis added), 7, & FOF 20); see also AR
Part I, Binder 1, Item 77 (Interim Order at 1 & 5).
8
  E.g., AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 5-6 of 23); AR
Part II, Binder 4, TIEC Exh. 15 (Supp. Direct Testimony of J. Pollock at 14).
9
  AR Part I, Binder 1, Item 77 (Interim Order at 6) (emphasis added).
10
   Id.
                                              5
       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.[11]

The Commission held fast to its previous interpretation of the statute:

              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.[12]

                                   ***
       2.     PURA § 39.452(b) does not allow for the recovery of lost
              revenue or embedded generation costs.[13]

       A review of the whole order reveals that it is TIEC, not ETI, that is

“plucking” isolated words out of context.14 It is abundantly clear throughout the

order that the Commission’s decision was premised not upon a factual

determination about the extent to which ETI might not recover base-rate costs, but

upon a legal conclusion about the scope of costs recoverable under the CGS

statute.15

       For that reason, the order cannot be affirmed on TIEC’s factual theory. This

Court has repeatedly recognized that an agency order can be upheld on any legal

basis shown in the record, but it may not be sustained on an unarticulated factual

11
   AR Part I, Binder 2, Item 119 (Final Order at FOF 20) (emphasis added).
12
   Id. at 6.
13
   Id. at COL 2.
14
   See TIEC’s Brief at 36.
15
   AR Part I, Binder 2, Item 119 (Final Order at 6, 7-8, 11, FOFs 49-51, COL 2).
                                               6
theory. See Continental Imports, Ltd. v. Brunke, No. 03-10-00719-CV, 2011 WL
6938489 *5 (Tex. App. – Austin Dec. 30, 2011, pet. denied) (not designated for

publication) (citations omitted).

         B.     The Commission’s error is not harmless.

         Though the Commission did not decide any factual dispute about

unrecovered costs, and though the Attorney General recognizes that this case

presents a legal question of statutory interpretation,16 the Attorney General now

advances a “no harm, no foul” theory. That is, the Attorney General contends that

ETI is not “aggrieved” by any error in the Commission’s statutory interpretation

because ETI will in fact recover all its costs.17 The order cannot be sustained on

this basis.

         The rule that only a party “aggrieved” by an agency order may challenge it

is the same as the rule that only a plaintiff with a “justiciable interest” may file a

lawsuit. Hooks v. Texas Dep’t of Water Resources, 611 S.W.2d 417, 419 (Tex.

1981); CenterPoint Energy Entex v. Railroad Comm’n of Tex., 213 S.W.3d 364,

368 (Tex. App. – Austin 2006, no pet.). This Court must review the pleadings in

favor of ETI, and if necessary, the record to determine if “any” evidence supports

standing. See Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440,

446 (Tex. 1993).

16
     PUCT’s Brief at 17.
17
     Id. at 12 & 22-29.
                                          7
         ETI undeniably pled that it is aggrieved by the agency’s order because the

order deprives ETI of dollars it is entitled to recover under the CGS statute.18 No

one disputed that ETI made this allegation in district court.

         Moreover, there is abundant evidence in the record showing that the

Commission’s order deprives ETI of an opportunity to recover all of its costs. The

CGS program was ultimately designed such that participating CGS customers

would bear the costs of the energy and capacity that they contract for under the

CGS program. But the program does not, even as redesigned through negotiations,

impose upon participating customers all the costs they would have borne under the

bundled rates that were set through the traditional ratemaking process.

         Under the traditional regulatory scheme, ETI must arrange generation

resources to serve all of its customers. ETI’s generation portfolio consists of many

types of resources. Those include power plants owned and operated by ETI and its

affiliates, short-term purchased capacity contracts, and long-term purchased

capacity contracts. ETI makes commitments and incurs costs to serve all its

customers, including the LIPS class, not knowing which of them might ultimately

migrate to the CGS program, or for how long. The Commission determined in

18
     See CR 5.
                                          8
Docket No. 37744 and subsequent rate cases19 which of those costs ETI reasonably

and necessarily incurred, and set base rates to recover those costs.20

       When a LIPS customer migrates to the CGS program, the customer will

receive a credit for the embedded production costs the customer would have paid

under ETI’s base rates.21 The credit is some $6.50/kW/month.22 But ETI is still at

risk of having to pay these costs.

       Several ETI witnesses explained that the Entergy system must continue to

plan for and acquire short-, limited-, and long-term resources to reliably serve all

its Texas customers, including LIPS customers who may or may not choose to

participate in the CGS program.23 These witnesses acknowledged that the CGS

program may help ETI avoid acquiring some capacity in the future.24 However,

the program has a limited ability to relieve ETI of its planning obligations because

19
    The Commission has reset ETI’s bundled rates twice since the Commission adjudicated
Docket No. 37744. See Application of Entergy Texas, Inc. for Authority to Change Rates,
Reconcile Fuel Costs, and Obtain Deferred Accounting Treatment, Docket No. 39896;
Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 41791.
20
   See Supplemental Administrative Record (“Supp. AR”) Part I, Binder 2, Item 53 (Docket No.
37744 Order at FOFs 35 & 40, COLs 7, 9, & 12).
21
   AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 8-9 of 23); AR Part
II, Binder 3, ETI Exh. 101 (Supp. Direct Testimony of D. Roach at 6 of 23).
22
   AR Part I, Binder 2, Item 119 (Final Order at FOF 53(A)). This credit is subject to adjustment
in future rate cases. Id. at FOF 41(C)(4).
23
   AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 4 of 23); AR Part II,
Binder 3, ETI Exh. 95 (Supp. Rebuttal Testimony of S. Dingle at 7-8 of 26); AR Part II, Binder
3, ETI Exh. 101 (Supp. Direct Testimony of D. Roach at 7 of 23).
24
   AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 27 of 30); AR Part
II, Binder 3, ETI Exh. 95 (Supp. Rebuttal Testimony of S. Dingle at 8 of 26); AR Part II, Binder
3, ETI Exh. 101 (Supp. Direct Testimony of D. Roach at 7 of 23).
                                               9
of the short-term nature and other characteristics of CGS contracts.25 As ETI

witness Stephen Dingle testified:

       The program … will not provide long-term resources to meet
       projected resource needs. The limited term nature of the proposed
       agreements, coupled with the uncertainty regarding the future
       continuation of the program, do not provide sufficient assurance that
       CGS resources will be available to meet ETI’s long-term resource
       needs. Furthermore, the program does not relieve ETI of its
       obligation to serve CGS customers in the event that providers
       withdraw or fail to renew under the program. Ultimately, the CGS
       program is at best a limited-term alternative that could defer or
       displace short- and limited-term PPAs [purchased power agreements],
       but it in no way can be considered a long-term resource option or
       affect ETI’s long-term acquisition strategy.[26]

Moreover, the CGS program in no way avoids embedded capacity costs that the

Company has already incurred, especially for existing power plants and long-term

purchased capacity contracts.27 Nor does the program enable ETI to recover a

return on investments it has already made to serve customers.28

       This evidence was presented after the parties proposed that CGS suppliers

would provide service that Entergy could treat as “firm” capacity.29 The Attorney

General ignores it. Instead, the Attorney General points to testimony from other

25
   AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 28 of 30); see also
id. at 16 of 23; AR Part II, Binder 3, ETI Exh. 93 (Supp. Direct Testimony of A. O’Brien at 3 &
8 of 11); AR Part II, Binder 3, ETI Exh. 94 (Supp. Rebuttal Testimony of A. O’Brien at 2 of 7).
26
   AR Part II, Binder 3, ETI Exh. 95 (Supp. Rebuttal Testimony of S. Dingle at 8 of 26).
27
   See AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 28 of 30); AR
Part II, Binder 3, ETI Exh. 95 (Supp. Rebuttal Testimony of S. Dingle at 12 of 26 & Exh. JSD-
R-1, Pollock Depo. at 73-74); AR Part III, Vol. B (Transcript of Hearing on the Merits at 180-
82).
28
   AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 29 of 30).
29
   See, e.g., AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 3 of 23).
                                              10
parties that, at best, suggests ETI may be able to avoid or mitigate some its base-

rate costs as customers migrate to the CGS program.30 ETI disputed the validity of

some of its opponents’ theories, and disputed the extent to which it could avoid

embedded production costs under others.31 ETI acknowledged that CGS customers

will pay a $1.10/kW fee that may offset some of the actual, embedded production

cost that CGS customers avoid by participating in the program.32                    But even

considering the costs the Company may reasonably be able to avoid or mitigate,

about $3.50/kW/month of the Company’s embedded production costs will still be

unrecovered.33     The Court should not be misled into thinking that the CGS

program, even as ultimately designed, ensures that ETI will not have unrecovered

costs.

         Nor would the CGS program that ETI proposed allow it to recover costs that

it does not actually incur. The CGSUSC rider contained true-up provisions that

would have ensured recovery only of actual, not hypothetical, costs.34 ETI did not

30
   See, e.g., PUCT’s Brief at 24 & 26-28.
31
   AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 11-16 of 23); AR Part
II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 7-18 of 30); AR Part II, Binder
3, ETI Exh. 95 (Supp. Rebuttal Testimony of S. Dingle at 5-26 of 26); AR Part II, Binder 3, ETI
Exh. 93 (Supp. Direct Testimony of A. O’Brien at 4-8 of 11); AR Part II, Binder 3, ETI Exh. 94
(Supp. Rebuttal Testimony of A. O’Brien at 1-5 of 7); AR Part II, Binder 3, ETI Exh. 101 (Supp.
Direct Testimony of D. Roach at 6-7 of 23).
32
   AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 26 of 30).
33
   AR Part II, Binder 3, ETI Exh. 91 (Supp. Direct Testimony of P. May at 17 of 23 & Exh.
PRM-4).
34
   See Supp. AR Part I, Binder 2, Item 36 (Docket No. 37744 Proposal for Decision at 18 & 21);
Supp. AR Part II, Binder 3, ETI Exh. 9 (Direct Testimony of P. May, Exh. PRM-1); AR Part II,
Binder 5, OOP-1.
                                              11
propose a program that would put the Company in a better position than it would

have been under traditional regulation. ETI simply sought to ensure that it would

not be in a worse position as a result of the program.35 That is, after all, what the

legislature mandated when it said CGS rates must be set to allow ETI to recover

“any costs unrecovered as a result of the implementation of the [CGS] tariff.” The

Commission’s erroneous interpretation of this mandate is not harmless – it

deprives ETI of any opportunity to recover costs that will effectively be “stranded”

as a result of the CGS program.

          The Attorney General essentially invites this Court to find, based on

conflicting evidence, that ETI is not harmed by the Commission’s decision. But

this Court cannot make original findings of fact. E.g., Texas Nat’l Bank v. Karnes,

717 S.W.2d 901, 903 (Tex. 1986). Moreover, at this juncture, resolving this case

based on conflicting evidence would deprive ETI of its substantive right to

findings on fact issues upon which the agency decision rests. See Tex. Gov’t Code

Ann. § 2001.141. If the Commission indeed disposed of the case on TIEC’s

factual theory, the Commission was required to say so, and harmed ETI by failing

to do that.

35
     AR Part II, Binder 3, ETI Exh. 92 (Supp. Rebuttal Testimony of P. May at 28 of 30).
                                                 12
      C.     The 2011 CenterPoint case does not support                    the
             Commission’s interpretation of the CGS statute.

             1.    The statute at issue in CenterPoint authorized
                   recovery of very specific costs; the CGS statute
                   is not so limited.

      The Commission based its interpretation of the CGS statute on this Court’s

decision in CenterPoint Energy Houston Elec., LLC v. Public Util. Comm'n of

Tex., 354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.). As ETI explained in its

initial brief, that opinion does not concern the CGS statute. It concerns the Energy

Efficiency Cost Recovery Factor (“EECRF”) statute, which by its very terms,

authorizes a utility to recover only costs made for the specific purpose of satisfying

the goal of an energy efficiency program.           See Tex. Util. Code Ann. §

39.905(b)(1). The EECRF statute does not authorize the recovery of other costs,

like those that “result from” the implementation of an energy efficiency program.

Id. That is why this Court held that the EECRF statute does not authorize a utility

to recover lost revenues that were intended to pay for something other than the

utility’s costs of implementing an energy efficiency program. CenterPoint Energy

Houston Elec., LLC, 354 S.W.3d at 904. Though the Court made observations

about other PURA provisions as well, it did not mention the CGS statute.

Moreover, none of those observations were essential to the Court’s interpretation

of the EECRF statute. Because the statute at issue in the 2011 CenterPoint case

                                         13
and the one at issue here are materially different, appellees’ reliance upon the case

is misplaced.

                 2.     Here, ETI seeks to recover the very type of costs
                        the CGS statute authorizes it to recover.

         In an attempt to make this case sound like CenterPoint, or perhaps because

they recognize that the legislature clearly intended ETI to recover all the costs that

will otherwise be unrecovered as a result of implementing the program, appellees

focus their efforts on arguing that ETI is seeking something other than “costs.”

They argue that because the word “revenue” appears in the proposed CGSUSC

rider, ETI is seeking to get (and presumably keep) money that it will not have to

pay out for any expense. That is not true. ETI has throughout this case sought to

recover the money the Commission authorized it to recover via test-year

ratemaking, because that was the amount of money the Commission determined is

necessary to pay ETI’s costs, and because the legislature entitled ETI to recover

that money in the CGS statute.

         Appellees’ repeated suggestion that there is some significance to the way

ETI has characterized these amounts is without merit. It is true that ETI has

characterized this money as both “revenues” and “costs” in this case. But that is

not to “escape” this Court’s ruling in CenterPoint.36 ETI simply recognizes the

fundamental ratemaking principle that base rate costs are a utility’s revenue

36
     See PUCT’s Brief at 21.
                                            14
requirement. They are flip sides of the same coin. Texas courts, including this

one, understand this concept. See, e.g., City of El Paso v. Public Util. Comm’n of

Tex., 883 S.W.2d 179, 187 (Tex. 1994) (ratemaking formula determines “revenue

requirement”); Suburban Util. Corp. v. Public Util. Comm’n of Tex., 652 S.W.2d
358, 362 (Tex. 1983) (ratemaking formula determines “cost of service”); City of

Dallas v. Railroad Comm’n of Tex., No. 03-06-00580-CV, 2008 WL 4823225 *1

(Tex. App. – Austin Nov. 6, 2008, no pet.) (not designated for publication) (using

“revenue requirement” and “cost of service” to describe the same thing). Even the

Attorney General acknowledges the logical link between “revenues” and “costs” in

test-year ratemaking.37

          Appellees’ witnesses acknowledged that, putting semantics aside, what ETI

is seeking is a measure of expenses it will not recover as a result of implementation

of the program. OPUC witness Clarence Johnson testified that the costs at issue

are the embedded test-year production costs upon which base rates were

established in Docket No. 37744.38              He confirmed that fact again on cross-

examination:

          Q.     And the costs that may go unrecovered due to the CGTS [CGS]
                 program, they are reflected as part of the overall embedded
                 costs in the test-year—right—that the rates are set on?

37
     Id. at 36.
38
     See Supp. AR Part II, Binder 4, OPUC Exh. 1 (Johnson Direct at 88).
                                                15
        A.    There were costs allocated to the CGS customers and to their
              class. So in that sense, yes.39

TIEC witness Jeffry Pollock agreed on cross-examination that the Company’s

proposed rider would account for migrating customers’ share of the Company’s

embedded fixed production costs:

        Q.    And do you agree that if a LIPS customer decides to switch to
              CGS service that ETI will not collect the fixed production cost
              included in the LIPS rate from that customer?

        A.    I think the fact that the customer has switched [to CGS] and the
              Company is not collecting the same revenue certainly creates
              the potential that some costs would be uncollected...—
              unrecovered… unless there are some additional benefits to
              offset those unrecovered costs. That’s correct.40

Staff witness Stephen Mendoza confirmed on cross-examination that lost revenues

could be a measure of unrecovered costs.41 In any event, testimony on this point is

immaterial. What constitutes “costs” under the CGS statute is a question of law,

and no number of witnesses testifying that costs are not really costs can make it

true.

        The Commission repeatedly suggests that ETI’s proposed rider would enable

it to recover amounts not contemplated by the test-year calculation, so ETI must

39
   See Supp. AR Part IV, Vol. E (Docket No. 37744 7/20/2010 Transcript of Hearing on the
Merits at 350-51).
40
   See id. at 261-62; see also Supp. AR Part IV, Vol. D (Docket No. 37744 7/16/2010 Transcript
of Hearing on Merits at 154-57 & 161-62).
41
   Supp. AR Part IV, Vol. E (Docket No. 37744 7/20/2010 Transcript of Hearing on the Merits at
356).
                                             16
not be seeking “costs.”42 As noted above, the rider contained a true-up provision

that would ensure ETI recovered only amounts it actually paid, not hypothetical

costs. Moreover, this argument concerns the extent to which ETI may have

unrecovered costs, not whether the CGS statute entitles ETI to recover them. That

ETI might get limited relief in a narrow, hypothetical situation (i.e., if a new LIPS

customer joins and participates in the CGS program) does not address or excuse

the Commission’s broad error in denying ETI a mechanism for full relief.

       D.     The principle of cost-causation does not justify the
              Commission’s disregard of language in the CGS statute.

       OPUC, representing residential and small business customers, argues the

Commission’s order must be sustained because charging unrecovered base-rate

costs to customers who “indisputably” did not cause them (i.e., customers

ineligible for the CGS program) would be unfair and contravene traditional

ratemaking concepts embodied in PURA.43              The Commission echoes this

argument.44 This is no justification for upholding the Commission’s decision.

              1.      This issue is a red herring.

       ETI’s challenge to the Commission’s order does not hinge on charging

“unrecovered costs” to one group of customers versus another. ETI expressed

opinions about which customers may be required to pay “unrecovered costs,” but

42
   PUCT’s Brief at 24 & 33.
43
   OPUC’s Brief at 6.
44
   PUCT’s Brief at 16, 33, 35, & 41.
                                           17
largely left the issue to the parties who represent the customer groups to resolve.

ETI did not join in or oppose the other parties’ stipulation on the subject.45

       Ultimately, the Commission did not decide which customers should pay

unrecovered embedded production costs because the Commission determined they

are not recoverable from anyone.46 The effect of that decision is to impose the

costs on ETI. That result is what ETI disagrees with, because it violates the CGS

statute. Appellees tilt at windmills by arguing about which customers should or

must pay unrecovered costs, or whether ETI is somehow barred from taking a

position on the issue.47 The issue here is whether ETI, rather than customers, may

be forced to bear the costs.

45
   AR Part I, Binder 1, Item 67 (Apr. 13, 2012, Stipulation).
46
   Contrary to the Commission’s Statement of Facts, nowhere in the Commission’s order is there
any hint that the agency rejected the proposed CGSUSC rider based upon principles of equity or
any PURA provision other than the CGS statute itself. Indeed, the Attorney General does not
cite the Commission’s order as support for that statement. Instead, the Attorney General cites
the ALJ’s proposal for decision. See PUCT Brief at 6. It is true that the ALJ expressed a belief
that it would be inequitable to shift unrecovered LIPS-class, base-rate costs to other customer
classes through the CGSUSC rider. Supp. AR Part I, Binder 2, Item 36 (Docket No. 37744
Proposal for Decision at 24). That belief, coupled with the ALJ’s recognition that ETI will have
unrecovered base rate costs that the CGS statute effectively precludes assigning to LIPS
customers or ETI itself, is the reason the ALJ recommended that the CGS program not be
adopted at all. Id. The Commission, however, did not adopt that recommendation. The
Commission expressly reversed it, concluding that the costs are not recoverable and ordering ETI
to implement the CGS program anyway. AR Part I, Binder 2, Item 119 (Final Order at 8).
47
   OPUC begins its brief by arguing that ETI, by failing to oppose a stipulation among other
parties to the case, “waived” its right to argue that customers ineligible for the CGS program
may be required to pay “unrecovered costs.” OPUC’s Brief at 2-3. The Commission expressly
found that ETI did not waive its right to appeal unsettled issues, and reserved its rights under
applicable state and federal law. AR Part I, Binder 2, Item 119 (Final Order at FOF 55).
                                              18
               2.     Though it may not be clear which customers
                      should pay “unrecovered costs,” it is clear that
                      ETI may not be required to absorb them.

        It is true that the CGS statute does not expressly state which customer

groups should pay ETI’s unrecovered costs.        But there can be no reasonable

disagreement that ETI gets to recover its costs from someone. And appellees

ignore that, to the extent there is inequity built into the CGS program, the

legislature – not ETI – has required this result. Just as the legislature had the

power to enact the general prohibition on preferential rates in PURA,48 it had the

power to enact an exception to that prohibition. There is no way to implement a

program in conformity with the terms of the CGS statute without, in some manner,

creating a preferential rate or assigning costs to customers that may not cause

them.

               3.     The Commission’s brief casts doubt upon
                      whether it would be patently unfair to allocate
                      “unrecovered costs” to ineligible customers.

        OPUC argues it is unfair to allocate to customers who are ineligible for the

CGS program costs that would have been paid by LIPS customers under base

rates.49   The Attorney General, too, argues that it would be “absurd,” indeed

“anticompetitive,” to saddle ineligible customers with these costs.50 Implicit in

48
   See Tex. Util. Code Ann. § 36.003.
49
   OPUC’s Brief at 6.
50
   E.g., PUCT’s Brief at 16, 35, & 39.
                                         19
these arguments is the assumption that LIPS customers, not others, caused these

costs.

          It is strange, then, that the Attorney General elsewhere questions whether

base rate costs allocated to LIPS customers in traditional rate cases were actually

caused by LIPS customers. The Attorney General notes that test-year expenses are

allocated to customer classes based on several factors, only one of which is the

principle of “cost causation.”51

          First, regardless of whether the costs were “caused” by LIPS customers, the

costs were nevertheless allocated to LIPS customers in ETI’s rate cases. They are

the costs LIPS customers avoid by migrating to the program52 and, therefore, the

costs ETI is at risk of not recovering. ETI is entitled to recover them under the

CGS statute.

          Second, the Attorney General’s insistence that LIPS customers do not

necessarily cause these costs defeats its own argument that it is unfair to charge

them to other customers. If the costs at issue were not necessarily caused by the

LIPS class, then how can the Attorney General logically argue it violates the

principle of cost causation to assign them to other customer classes? That makes

no sense. Someone caused the costs, because the Commission has determined in

rate cases that ETI reasonably and necessarily incurred them to serve customers.

51
     Id. at 36-38.
52
     AR Part I, Binder 2, Item 119 (Final Order at FOF 41(C)(2)-(4)).
                                                 20
             4.    If the statute inescapably dictates an
                   unpalatably unfair result, the solution was to
                   decline to adopt the program.

      If the CGS program cannot fairly be implemented with full adherence to

statutory parameters, then the Commission could and should have declined to

adopt a CGS program. PURA expressly authorizes the Commission to take that

route. Tex. Util. Code Ann. § 39.452(b). The Commission may not instead ignore

the language of the statute to create a program that it perceives to be better (but

detrimental to ETI). The legislature clearly said ETI gets to recover its costs, and

the Commission cannot ignore that mandate simply because it believes the

mandate was “absurd” or difficult to comply with.

      E.     Other traditional ratemaking principles do not trump the
             plain language of the CGS statute.

             1.    The CGS statute is an exception to the
                   traditional regulatory scheme.

      OPUC ignores that the legislature, in enacting the CGS statute, created an

exception to the traditional regulatory scheme. A specific statutory provision

prevails as an exception over a conflicting general provision. E.g., Jackson v. State

Office of Administrative Hearings, 351 S.W.3d 290, 297 (Tex. 2011). Moreover,

“if statutes are irreconcilable, the statute latest in date of enactment prevails.”

Jackson, 351 S.W.3d at 297. The CGS statute is irreconcilable with traditional

                                         21
ratemaking principles in several respects. Because it is more specific and more

recently enacted, it controls in these respects.

         OPUC argues that a statutory exception to a general rule must be “strictly”

or “narrowly” construed.53        Courts have construed certain statutory “exceptions”

narrowly, but only when the language of those statutes – or some other legal

provision – has required it. Again, the principle rule of statutory construction is to

give effect to the legislature’s expression of its intent through the words it enacted.

No rule of statutory construction is paramount to that one.

                2.        PURA 11.002 does not shed any light on the
                          proper interpretation of the CGS statute.

         OPUC nevertheless argues that PURA section 11.002, assuring rates that are

reasonable to both customers and utilities, supports the Commission’s decision.54

See Tex. Util. Code Ann. § 11.002(a). OPUC ignores that the outcome here is not

fair to the utility, which is mandated to propose this program and statutorily

entitled to recover costs unrecovered as a result of it. PURA section 11.002

weighs against the Commission’s decision as much as it supports it.

53
     OPUC’s Brief at 7.
54
     Id.
                                            22
               3.     The concept of “regulatory lag” does not
                      absolve the Commission of its duty to follow the
                      plain language of the statute.

       OPUC says the “harm” from the Commission’s decision can be ameliorated

in ETI’s next rate case.55 This statement ignores not only the effects of regulatory

lag, but also the language in the CGS statute requiring that CGS rates be set “in the

proceeding in which the [CGS] tariff is adopted.” See Tex. Util. Code Ann.

§ 39.452(b).

       OPUC begrudgingly acknowledges this problem, and says ETI could have

avoided it by requesting an adjustment to test-year billing determinants in its last

rate case.56 But as the Commission found and no one disputes, it is not possible to

know the full effects of the CGS program until customers sign up and start taking

service.57

       OPUC ultimately argues that it is perfectly reasonable to saddle ETI with

losses that occur during the regulatory lag period, because that is a known risk

borne by utilities subject to traditional ratemaking.58 But again, the legislature in

the CGS statute crafted an exception to traditional ratemaking, and entitled ETI to

its otherwise unrecovered costs.            This entitlement to full cost recovery is

necessarily an exception to the risk of regulatory lag.

55
   Id. at 13.
56
   Id. at 14.
57
   AR Part I, Binder 2, Item 119 (Final Order at FOF 57(E)).
58
   OPUC’s Brief at 15 & 18.
                                              23
          This statutory entitlement is also why the High Plains case is especially

relevant. That case confirms that a ratemaking agency must give a utility an

opportunity to recover 100% of its reasonably incurred costs. Railroad Comm’n of

Tex. v. High Plains Natural Gas Co., 628 S.W.2d 753 (Tex. 1981). In the same

way the Railroad Commission did in High Plains, the Commission here has

eliminated the opportunity to recover a portion of the reasonable and necessary

costs the utility will incur. OPUC and the Commission point out that PURA

contains a prohibition on the use of some automatic adjustment clauses, while the

Gas Utility Regulatory Act (“GURA”) administered by the Railroad Commission

does not.59 See Tex. Util. Code Ann. § 36.201. That fact is irrelevant because it

was not a basis of the Court’s decision in High Plains. The decision was based

upon a GURA section that has a materially identical counterpart in PURA section

36.051. See High Plains, 628 S.W.2d at 753. Both provisions require the agencies

to afford utilities a reasonable opportunity to recover their costs. The Commission

did not do that here.

                 4.      The reference to discount rates in the CGS
                         statute supports ETI’s argument.

          OPUC and the Commission contend the legislature’s reference to PURA

section 36.007 in the CGS statute does not support ETI’s argument. First, ETI’s

argument is based upon the legislature’s mandate that ETI recover its unrecovered

59
     Id. at 26; PUCT’s Brief at 43.
                                          24
costs. The reference to section 36.007 simply supports that mandate, by allowing

costs avoided by CGS customers to be allocated to other customers. See Tex. Util.

Code Ann. § 36.007(d).

      Second, appellees stretch to come up with another meaning for the reference.

They contend it harks to other aspects of PURA section 36.007, which contemplate

that discounted rates may not be less than a utility’s marginal costs. They contend

the legislature, by referring to section 36.007, simply meant that CGS rates can be

less than a utility’s marginal costs, to enable CGS customers to negotiate their own

deals. Either way, OPUC and the Commission argue, ETI may be forced to absorb

the costs it incurs to serve customers that migrate to the CGS program.

      These musings are not supported by the language of the CGS statute. It does

not refer to one particular aspect of PURA section 36.007. It renders the whole of

section 36.007 inapplicable, and in the same sentence says ETI gets to recover any

unrecovered costs. The whole sentence reads:

      The tariffs subject to this subsection may not be considered to offer a
      discounted rate or rates under Section 36.007, and the utility’s rates
      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.

Id. § 39.452(b). The legislature obviously meant to remove the CGS program from

all the limitations of the discount rate statute, including the prohibition on

recovering discounts from other customers.

                                         25
III.   The Commission’s decision not to allow ETI to recover all of its costs of
       implementing the CGS tariff is reversible because it, too, contradicts the
       plain language of the statute.

       The Commission and TIEC contend that the CGS statute does not authorize

ETI to recover the costs of developing the CGS program because they are just a

“cost of doing business.”60      But development of a CGS program is not a cost of

doing business under traditional rate regulation. The legislature mandated ETI to

design this program, and authorized ETI to recover all the costs that result from

implementing it.

       Appellees also argue that adopting a rider that allows ETI to recover costs

incurred before the program goes live would enable ETI to over-recover the costs,

because some early costs were included in base rates.61 But ETI recognized this

issue and proposed to credit any of these costs that were included in base rates, so

the costs will not be recovered twice.62

       The Commission says it refused to do that because it would constitute

improper retroactive ratemaking.63          The rule against retroactive ratemaking

prohibits a utility commission from making a retrospective inquiry to determine

whether a prior rate was reasonable and imposing a surcharge when rates were too

low or a refund when rates were too high. State v. Public Util. Comm’n, 883
60
   PUCT’s Brief at 46; TIEC’s Brief at 39.
61
   PUCT’s Brief at 46; TIEC’s Brief at 40.
62
   AR Part II, Binder 3, ETI Exh. 101 (Supp. Direct Testimony of D. Roach at 15); AR Part II,
Binder 3, ETI Exh. 103 (Supp. Rebuttal of D. Roach at 3).
63
   PUCT’s Brief at 47.
                                             26
S.W.2d 190, 199 (Tex. 1994). The rule requires only that the Commission and

courts abide by an administrative determination that a particular rate is just and

reasonable. Office of Public Util. Counsel v. Texas-New Mexico Power Co., 344
S.W.3d 446, 453 (Tex. App. – Austin 2011, pet. denied). ETI’s request, which it

made when it first proposed the CGS program in Docket No. 37744, and before the

costs at issue were even incurred, does not implicate a “prior rate.”           The

Commission itself has recognized – and this Court has affirmed – that authorizing

recovery of costs in an analogous circumstance does not constitute retroactive

ratemaking. Office of Public Util. Counsel, 344 S.W.3d at 454. Indeed, the tariff

adopted in this case contemplates a future recovery of past expenses, as it

authorizes ETI to accrue implementation costs but wait 6 months to file the CGSC

rider.64 This is no basis upon which to sustain the Commission’s misapplication of

the CGS statute.

IV.       The Commission’s decision not to allow ETI to recover interest on its
          unrecovered costs is reversible because the CGS statute entitles ETI to
          all of its unrecovered costs.

          Because the CGS statute entitles ETI to recover all of its costs that are

unrecovered as a result of implementation of the CGS program, ETI is entitled to

recover interest on the balance of those costs until they are recovered.        The

Commission offers several purported justifications for denying ETI that interest.

64
     AR Part I, Binder 2, Item 119 (Final Order at FOFs 54(A), 57(A) & (E)).
                                                27
         First, the Commission says the unrecovered balance is “relatively small” and

will be recouped “quickly” so should be treated consistently with rate case

expenses, upon which the Commission has not historically allowed interest to

accrue.65       The Commission’s historical treatment of rate case expenses is not

persuasive in this context. The Commission may award rate case expenses. See

Tex. Util. Code Ann. § 36.061(b).         But the CGS statute does not give the

Commission any discretion not to allow ETI’s unrecovered costs. And the statute

does not say ETI may recover only its “sizable” or “significant” costs – it says

“any” of its costs. Id. § 39.452(b).

         Second, the Commission argues that ETI is not entitled to earn interest on

unrecovered expenses under the traditional ratemaking construct.66 As explained

above, the CGS statute is a marked departure from that construct. In traditional

ratemaking, a utility bears some risk that its rates will not cover its actual expenses.

The CGS statute, in contrast, says ETI gets to recover costs that are unrecovered as

a result of the implementation of the CGS program.

         When PURA entitles a utility to recover its costs dollar for dollar, PURA

impliedly requires the Commission to award interest on those costs until they are

recovered. CenterPoint Energy, Inc. v. Public Util. Comm’n of Tex., 143 S.W.3d
81, 84 (Tex. 2004). The Commission misstates the basis of the Texas Supreme

65
     PUCT’s Brief at 48.
66
     Id. at 49.
                                          28
Court’s holding in CenterPoint Energy, Inc. The Court reversed the Commission’s

refusal to allow utilities to accrue interest on stranded cost balances for the whole

time they were on the books. The Court expressly said that was error because

requiring a utility to wait two or three years before interest began would contradict

the utility’s statutory entitlement to recover of all its stranded costs. Id. at 84. The

Court so held even though PURA did not expressly authorize utilities to earn

interest on their unrecovered stranded costs.

      The same is true here. The CGS statute does not expressly authorize ETI to

accrue interest on its unrecovered cost balance. But because the statute entitles

ETI to all of its unrecovered costs, ETI will not be made whole unless it is able to

accrue interest while the balances are unrecovered.

                          CONCLUSION AND PRAYER

      For all these reasons, Entergy Texas, Inc. respectfully requests that the Court

reverse the district court’s judgment insofar as it upholds the Commission’s

decision in the respects discussed above. ETI requests that this Court remand the

case to the Commission for further proceedings consistent with the Court’s

decision. Finally, ETI requests its costs of court and any other relief to which it

may show itself justly entitled.

                                          29
                               Respectfully submitted,

                               DUGGINS WREN MANN & ROMERO, LLP

                               By:     /s/ Marnie A. McCormick
                                     John F. Williams
                                     State Bar No. 21554100
                                     jwilliams@dwmrlaw.com
                                     Marnie A. McCormick
                                     State Bar No. 00794264
                                     mmccormick@dwmrlaw.com
                                     P. O. Box 1149
                                     Austin, Texas 78767-1149
                                     (512) 744-9300
                                     (512) 744-9399 fax

                                     ATTORNEYS FOR APPELLANT
                                     ENTERGY TEXAS, INC.

                     CERTIFICATE OF COMPLIANCE

        I certify that this document contains 7,460 words in the portions of the
document that are subject to the word limits of Texas Rule of Appellate Procedure
9.4(i), as measured by the undersigned’s word-processing software.

                                        /s/ Marnie A. McCormick
                                        Marnie A. McCormick

                                        30
                         CERTIFICATE OF SERVICE

       As required by Texas Rule of Appellate Procedure 9.5, I certify that on the
5th day of March, 2015, the foregoing document was electronically filed with the
Clerk of the Court using the electronic case filing system of the Court, and that a
true and correct copy was served on the following lead counsel for all parties listed
below via electronic service:

Elizabeth R. B. Sterling
Megan M. Neal
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, TX 78711-2548
Counsel for the Public Utility Commission of Texas

Rex VanMiddlesworth
Benjamin Hallmark
Thompson & Knight LLP
98 San Jacinto Blvd., Ste. 1900
Austin, TX 78701
Counsel for Texas Industrial Energy Consumers

Sara J. Ferris
Office of Public Utility Counsel
1701 N. Congress Ave., Ste. 9-180
P.O. Box 12397
Austin, TX 78711-2397
Counsel for Office of Public Utility Counsel

                                        /s/ Marnie A. McCormick
                                       Marnie A. McCormick

                                         31
                                          PUC DOCKET NO. 37744                            .. ;.
                                     SOAH DOCKET NO. 473-10-1962-
                                                                                                       b • C"^

  APPLICATION OF ENTERGY TEXAS, §                                  PUBLIC UTILITY COMMISSION
  INC. FOR AUTHORITY TO CHANGE  §
  RATES AND RECONCILE FUEL      §                                                 OF TEXAS
  COSTS                         §

                                                     ORDER

         This Order addresses the application of Entergy Texas, Inc. (ETI) for authority to change
rates and reconcile fuel costs.         ETI, Commission Staff, the Office of Public Utility Counsel
(OPUC), the Steering Committee of Cities Served by ETI (Cities),' Texas Industrial Energy
Consumers (TIEC), The Kroger Company (Kroger), and Wal-Mart Stores Texas, LLC and
Sam's East, Inc. (collectively Wal-Mart), through their duly authorized representatives entered

into and filed a stipulation and settlement agreement that resolves all of the issues in this
proceeding except the issues related to ETI's proposal for competitive generation service.
Cottonwood Energy, L.P. and the State of Texas agencies and institutions of higher education
( State Agencies) did not join but do not oppose the stipulation.

         The Commission severed the competitive generation service issues into Docket
No. 389512 in Order No. 14.

         The Commission adopts the following findings of fact and conclusions of law:

         1 Steering Committee of Cities is comprised of 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.
         2
           Application of Entergy Texas, Inc. for Approval of Competitive Generation Service Tariff (Issues Severed
From Docket No. 37744), Docket No. 38951.

                                                                                                                      iq
 PUC Docket No. 37744                          Order                                     Page 2 of 15
 SOAH Docket No. XXX-XX-XXXX

                                      1.    Findings of Fact

 Procedural Histo
 1.     On December 30, 2009, ETI filed an application requesting approval of (1) base rate
        tariffs and riders designed to collect an overall revenue requirement of $1,758.4 million,
        which includes a total non-fuel retail revenue requirement of $838.3 million (base rate
        revenues of $486 million plus revenue from riders of $352.3 million); (2) a set of
        proposed tariff schedules presented in the Electric Utility Rate Filing Package for
        Generating Utilities (RFP) accompanying ETI's application; (3) a request for final
        reconciliation of ETI's fuel and purchased power costs for the reconciliation period from
        April 1, 2007 to June 30, 2009; and (4) certain waivers to the instructions in RFP
        Schedule V accompanying ETI's application.

2.      The 12-month test year employed in ETI's filing ended on June 30, 2009.

3.      ETI provided notice by publication for four consecutive weeks before the effective date

        of the proposed rate change in newspapers having general circulation in each county of

        ETI's Texas service territory. ETI also mailed notice of its proposed rate change to all of
       its customers. Additionally, ETI timely served notice of its statement of intent to change

       rates on all municipalities retaining original jurisdiction over its rates and services. ETI

       also published one-time supplemental notice by publication in newspapers and by bill
       insert.

4.     The following parties were granted intervenor status in this docket:        OPUC, Cities,
       Cottonwood, Kroger, State Agencies, TIEC, and Wal-Mart. Commission Staff was also a
       participant in this docket.

5.     On January 4, 2010, the Commission referred this case to the State Office of
       Administrative Hearings (SOAH) for processing.

6.     On February 19, 2010, the ALJs issued Order No. 3, which approved an agreement
       between ETI, Staff, Cities, State Agencies, OPUC, TIEC, Kroger, and Wal-Mart, to
       (1) establish an interim rate increase of $17.5 million annually above ETI's then-existing
       base rates commencing with service rendered on and after May 1, 2010 subject to
       true-up and refund for service rendered prior to September 13, 2010 to the extent final
  PUC Docket No. 37744                               Order                                         Page 3 of 15
  SOAH Docket No. XXX-XX-XXXX

          overall rates established by the Commission amounted to less than a $17.5 million rate
          increase; (2) extend the jurisdictional deadline by which the Commission must issue a
          final order on the Company's rate request from July 5, 2010 to November 1, 2010;
          (3) establish a September 13, 2010 effective date for rates such that, notwithstanding the
          extension of the jurisdictional deadline, the final overall rates established by the
          Commission would relate back to service rendered on and after September 13, 2010;
          (4) require ETI to publish supplemental notice, once in newspapers and by a bill insert,
          setting forth the effect of its proposed rate change in terms of the percentage increase in
         non-fuel revenues; and (5) establish a procedural schedule and discovery deadlines for
         this proceeding.      Order No. 3 also granted Mr. Kurt Boehm's motion for admission
         pro hac vice as counsel for Kroger and ETI's February 3 and February 11, 2010 petitions
         for review of cities' ordinances and motions to consolidate with respect to the rate
         decisions adopted by the Cities of Ames, Anderson, Bedias, Bevil Oaks, Bremond,
         Caldwell, Calvert, Chester, China, Colmesneil, Corrigan, Cut and Shoot, Daisetta,
         Dayton, Devers, Franklin, Groveton, Hardin, Hearne, Iola, Kosse, Kountze, Liberty,
         Lumberton, Madisonville, Midway, New Waverly, Normangee, Nome, Patton Village,
         Plum Grove, Riverside, Rose Hill Acres, Somerville, Taylor Landing, Todd Mission,
         Trinity, and Woodville.

7.       On June 14, 2010, the ALJs issued Order No. 6 granting Staff's June 1, 2010 motion and
         severing rate case expense issues to Docket No. 38346.3 Through Order No. 6, the ALJs
         also granted ETI's March 12, April 29, and May 17 petitions for review and motions to
         consolidate with respect to the rate decisions adopted by the Cities of Anahuac,

         Beaumont, Bridge City, Cleveland, Conroe, Groves, Houston, Huntsville, Montgomery,
        Navasota, Nederland, Oak Ridge North, Orange, Panorama Village, Pine Forest,

        Pinehurst, Port Arthur, Port Neches, Roman Forest, Rose City, Shenandoah, Shepard,
        Silsbee, Sour Lake, Splendora, Vidor, West Orange, Willis, Woodbranch Village, and
        Woodloch.

        3 Application of Entergy Texas, Inc. for Rate Case Expenses Severed from PUC Docket No. 37744,
                                                                                                       Docket
No. 38346.
 PUC Docket No. 37744                                       Order                                               Page 4 of 15
 SOAH Docket No. XXX-XX-XXXX

 8.        The hearing on the merits commenced on July 13, 2010 and was immediately recessed in
           order to facilitate settlement negotiations.                  The hearing was again convened on
           July 15, 2010, at which time the signatories announced their intent to continue settlement
           discussions to resolve all issues related to the Company's application with the exception
           of those related to ETI's proposal for competitive generation service (CGS) and
           associated riders.

 9.        On August 6, 2010, the signatories submitted the stipulation resolving all outstanding
          issues regarding the Company's application with the exception of those related to ETI's
          CGS proposal. Under the stipulation, ETI will be allowed to implement base rate tariffs

          and riders designed to collect an overall revenue requirement of $1,614.9 million,4 which
          includes a total non-fuel retail revenue requirement of $694.9 million (base rate revenues
          of $599 million plus revenue from riders of $95.9 million).                            The signatories also
          submitted, on August 6, 2010, an agreed motion to revise interim rates and to consolidate
          the severed rate-case expense docket. The interim rates requested in the agreed motion
          mirrored the final rates proposed for Commission approval in the stipulation. The agreed
          motion further requested that the ALJs consolidate with the instant proceeding Docket
          No. 38346, related to severed Docket No. 37744 rate case expense issues, and admit the
          parties' pre-filed exhibits into evidence.

 10.      On July 16 and July 20, 2010, the ALJs held the hearing on the merits with respect to
          ETI's CGS proposal.

11.       On August 9, 2010, the ALJs issued Order No. 12, granting approval of revised interim
          rates for usage on and after August 15, 2010.

12.      On October 5, 2010, the ALJs issued a proposal for decision regarding issues related to
         ETI's CGS proposal.

13.      On October 5, 2010, the ALJs issued Order No. 13, ordering the consolidation of Docket
         No. 38346, related to severed rate-case expense issues, into the instant proceeding,

         4 This figure includes fuel at test year prices. If current fuel prices are substituted for test year fuel prices,
the overall revenue requirement figure would be $1,504.0 million.
 PUC Docket No. 37744                            Order                                      Page 5 of 15
 SOAH Docket No. XXX-XX-XXXX

        admitting evidence, and returning this docket to the Commission consistent with the
        agreed motion filed on August 6, 2010.

 14.    The   Commission considered this           Docket      at   the   November 10, 2010 and
        December 1, 2010 open meetings.

 15.    On November 30, 2010 ETI filed an unopposed motion to sever the competitive CGS
        issues from the settled issues in this docket. The Commission granted the motion at the
        December 1, 2010 open meeting and the Commission's decision was memorialized in
        Order No. 14 issued on December 3, 2010. The CGS issues were severed into Docket
        No. 38951 in Order No. 14.

Description of the stipulation and Settlement Agreement
16.    The signatories to the settlement stipulated that ETI should be allowed to implement an
       initial overall increase in base-rate revenues of $59 million for usage on and after

       August 15, 2010. The signatories further stipulated that they would request approval of
       interim rates by the ALJs presiding or by the Commission, as necessary, to ensure timely
       implementation of this initial rate increase.      The signatories further stipulated that ETI
       should be allowed to implement an additional overall increase in base-rate revenues of
       $9 million on an annualized basis effective for bills rendered on and after May 2, 2011,
       the first billing cycle for the revenue month of May.

17.    The signatories agreed that ETI's authorized return on equity shall be 10.125% and its
       weighted average cost of capital shall be 8.5209%.

18.    The signatories stipulated that the amount of rate increase authorized under finding of
       fact 16 includes rate-case expenses and contemplates their full amortization in 2010, and
       that this amount constitutes the full and final recovery of all rate-case expenses relating to
       Docket No. 37744.

19.    The signatories stipulated to the amount of transmission and distribution invested capital
       by function as of June 30, 2009 as set out in attachment 1 to the stipulation.
 PUC Docket No. 37744                              Order                                  Page 6 of 15
 SOAH Docket No. XXX-XX-XXXX

 20.    The signatories stipulated that the Company's proposed purchased-power recovery rider
        will not be approved in this docket, and purchased capacity costs will be included in
        base rates.

21.     The signatories stipulated that the Company's proposed transmission cost recovery factor
        (TCRF) will not be approved in this docket. The signatories stipulated to the baseline
        values as shown in attachment 2 to the stipulation to be used in the Company's request, if
        any, for a TCRF in a separate proceeding.

22.     The signatories agreed that ETI's proposed cost-of-service adjustment rider and formula
        rate plan will not be approved in this docket.

23.     The signatories stipulated that the Company's proposed renewable-energy-credit rider

       will not be approved in this docket, and the Company's renewable-energy-credit costs
       shall be recovered in base rates.      The signatories further stipulated that a transmission
       customer that opts out pursuant to P.U.C. SUBST. R. 25.173(j) shall receive a credit that

       offsets the amount of renewable-energy-credit costs that are recovered in base rates from
       the transmission customer.

24.    The signatories agreed that ETI's proposed remote-communications-link rider should be
       approved as filed by the Company.

25.    The signatories agreed that ETI's proposed market-valued-energy-reduction service rider
       will not be approved in this docket.

26.    The signatories reached the following specific agreements regarding rate design as a part
       of the overall resolution of this docket:

       a.      Rate Schedule IS.     Rate Schedule IS will be opened to new business. In the
              Company's next base-rate case, the amount of interruptible credits recoverable
              from Texas retail customers shall be limited to an increase of $1 million more
              than the amount requested in this docket (or a total of $6.8 million); provided,
              however, that in the next rate case, the Company may request an exception to this
              limitation upon a showing that the test-year credit amount in excess of the
              $6.8 million cap is both cost effective and necessary to meet the Company's
              generation reserve margin requirement.       The signatories further agreed that the
PUC Docket No. 37744                           Order                                      Page 7 of 15
SOAH Docket No. XXX-XX-XXXX

              Company will not offer additional interruptible service if the availability of total
              interruptible service supplied by the Company under all interruptible service
              riders exceeds 5% of the projected aggregate Company peak demand unless the
              additional level of interruptible service offered in excess of the 5% cap is both
              cost effective and necessary to meet the Company's generation reserve margin
              requirement. To the extent that the credit amount or participation level exceeds
              the limitations described in this paragraph and the Company includes test-year
               credits over the $6.8 million credit-amount cap or additional participation in
               excess of the 5% participation-level cap in its next rate case, the Company shall
              have the burden to prove whether those test-year credits or participation levels
               meet the standards established in this paragraph for inclusion in the test year. The
               standards in this paragraph are in addition to any requirements in PURA for
               inclusion of costs in rates.   The signatories further agreed to the Schedule IS
               revisions shown on attachment 3 to the stipulation.

       b.      Rate Schedule IHE. The signatories agreed that no change shall be made to rate
               schedule IHE in this docket.

       c.      Lighting Class Rates.     The signatories stipulated that the language under the
               paragraph relating to rate group C in rate schedule SHL will be revised to reflect
               that, where the Company agrees to install facilities other than its standard street
               light fixture and lamp as provided under Rate Group A, a lump sum payment will
               be required, based upon the installed cost of all facilities excluding the cost of the
               standard street light fixture and lamp, and the customer will be billed under rate
               group A.

       e.      Electric Extension Policy. The signatories agreed to the line-extension terms and
               conditions as reflected in attachment 4 to the stipulation.

       f.      Life-of-Contract    Demand     Ratchet.       The signatories     agreed    that   the
               life-of-contract demand ratchet provision in rate schedules Large Industrial Power
               Service, Large Industrial Power Service-Time of Day, General Service, General
               Service-Time of Day, Large General Service, and Large General Service-Time of
PUC Docket No. 37744                             Order                                        Page 8 of 15
SOAH Docket No. XXX-XX-XXXX

               Day shall be excluded from rate schedules in ETI's next rate case.                     The

               signatories further stipulated that the foregoing rate schedules will be revised so
                that the life-of-contract demand ratchet provision shall not be applicable to new
                customers and shall not exceed the level in effect on August 15, 2010 for existing

                customers.

        g.      Residential Customer Charge.           The signatories agreed that the residential
                customer charge shall be increased to $5.00.

        h.      Non-Sufficient Funds Char^e.         The signatories agreed that the non-sufficient

                funds charge shall be increased to $15.00.

27.     The signatories agreed to the class cost allocation set forth in attachment 5 to
        the stipulation.

28.     The signatories stipulated that the appropriate allocation between ETI's wholesale and
        retail jurisdictions of baseline values and costs to be included in a TCRF is to be
        addressed in the proceeding, if any, in which ETI seeks approval of a TCRF.

 29.    The signatories stipulated that no party waives its right to address in any subsequent
        proceeding the appropriate treatment for Texas retail ratemaking purposes of power sales
        between ETI and Entergy Gulf States Louisiana, L.L.C.

 30.    The signatories reached the following specific agreements regarding fuel-related issues as
        part of the overall resolution of this docket:

        a.       Agreed Fuel Disallowance. The Company stipulated to a fuel disallowance of
                 $3.25 million not associated with any particular issue raised by the signatories.
                 The disallowance will be allocated pro rata with interest over each month of the
                 reconciliation period and reflected in the refund in Docket No. 38403.5               The

                 signatories stipulated that the Company's fuel costs shall be finally reconciled for
                 the reconciliation period of April 1, 2007 through June 30, 2009.

         b.      Rider IPCR. The signatories agreed that ETI's eligible Rider IPCR costs for the

          5 Application of Entergy Texas, Inc. to Implement an Interim Fuel Refund,. Docket No. 38403, Order
 (Sept. 16, 2010).
PUC Docket No. 37744                               Order                                         Page 9 of 15
SOAH Docket No. XXX-XX-XXXX

                 period April 1, 2007 through the date the rider terminated shall be finally
                 reconciled with a disallowance of $300,000. The signatories further agreed that
                 the under-recovered balance of Rider IPCR costs shall be booked as fuel expense
                 in the month in which the Commission issues an order adopting the stipulation;
                 provided, however, that the under-recovered balance shall be allocated to
                 customer classes using A&E4CP.

        c.        Rough Production Cost Equalization (RPCE) Payments. The signatories agreed
                  that ETI will credit an additional $18.6 million to Texas fuel-factor customers,
                  which the signatories stipulated represents the remaining portion of RPCE
                  payments ETI received in 2007 that were at issue in Docket No. 35269.6 The
                  RPCE credit shall be allocated to rate classes based on loss-adjusted kilowatt
                  hours at plant for calendar year 2006. For customers in the Large Industrial
                  Power Service rate class, the credit will be refunded based on the customer's

                  actual kWh usage during the billing months of January 2006 through
                  December 2006.      Upon issuance of a final order approving the stipulation, the
                  RPCEs shall be credited to customers as a separate one-month bill credit in the
                  same form as the RPCEA Rider last approved in Docket No. 38098.7 ETI agreed
                  that it will terminate all appeals related to Docket No. 35269.

31.      The signatories agreed that ETI will continue its accrual of storm-cost reserves at the
         level of $3.65 million annually and that this amount shall be subsumed in the base-rate
         revenue increase described in finding of fact 16 above.

 32.     The signatories agreed that ETI shall maintain River Bend depreciation rates at current

         levels, i.e., based on a 60-year life. River Bend decommissioning costs will be set at
         $2,019,000 annually, which is based upon a labor-factor escalation rate of 1.67%, an
         energy-factor escalation rate of 0.25%, and a waste-burial-factor-escalation rate of

        6 Compliance Filing of Entergy Texas, Inc. Regarding Jurisdictional Allocation of 2007 System Agreement
 Payments, Docket No. 35269, Order (Jan. 7, 2009).
        7 Application of Entergy Texas, Inc. for Authority to Implement New RPCEA Rate, Docket No. 38098,
 Order (July 1, 2010).
PUC Docket No. 37744                          Order                                     Page 10 of 15
SOAH Docket No. XXX-XX-XXXX

       1.71%, resulting in an overall escalation rate of 3.62%, and net investment yields as

       follows:
                       Nuclear-Decommissioning-Trust Projected Returns
                                    Tax- ualified         Non-Tax-Qualified
                                     Investments              Investment

                    2010                           5.475%                   5.057%
                    2011                           5.837%                   5.236%
                    2012                           6.306%                   5.567%
                    2013                           6.304%                   5.607%
                    2014                           6.481%                   5.896%
                    2015                           6.493%                   5.909%
                    2016                           6.412%                   5.826%
                    2017                           6.412%                   5.830%
                    2018                           6.364%                   5.790%
                    2019                           6.316%                   5.748%
                    2020                           6.268%                   5.712%
                    2021                           6.220%                   5.670%
                    2022                           2.503%                   5.458%
                    2023                           5.817%                   5.055%
                    2024                           5.382%                   4.628%
                    2025                           5.036%                   4.516%
                  2026-2034                        4.920%                   4.409%

 33.    The signatories stipulated that the Company's depreciation rates for non-River Bend
        production plant, transmission, distribution, and general plant will remain at current
        levels and the Company will maintain its accounting records on a prospective basis for
        purposes of depreciation accrual, depreciation reserve, retirements, additions, salvage,

        and cost of removal by FERC account.

 Consistency of the AQreement with PURA and the Commission Requirements

 34.    Considered in light of (1) the pre-filed testimony by the parties entered into evidence and
        (2) the additional evidence and testimony admitted during the course of the hearing on
        the merits on the Company's application, the stipulation is the result of compromise from
        each signatory, and these efforts, as well as the overall result of the stipulation viewed in
        light of the record evidence as a whole, support the reasonableness and benefits of the

        terms of the stipulation.
PUC Docket No. 37744                            Order                                     Page 11 of 15
SOAH Docket No. XXX-XX-XXXX

35.    The evidence addressed in finding of fact 34 demonstrates that the rates, terms, and
       conditions resulting from the stipulation are just and reasonable and consistent with the
       public interest.

36.    The total level of the Texas retail revenue requirement contemplated by the stipulation
       will allow ETI the opportunity to earn a reasonable return over and above its reasonable
       and necessary operating expense.

37.    The stipulated revenue requirement is consistent with applicable provisions of PURA
       chapter 36 and the Commission's rules.

38.    To the extent that affiliate costs are included in the stipulated revenue requirement and
       fuel expense, they are reasonable and necessary for each class of affiliate costs presented
       in ETI's application.

39.    To the extent that affiliate costs are included in the stipulated revenue requirement and
       fuel expense, the price charged to ETI is not higher than the prices charged by the
       supplying affiliate for the same item or class of items to its other affiliates or divisions, or
       a non-affiliated person within the same market area or having the same market
       conditions.

40.    The retail revenue requirement in the stipulation does not include any expenses
       prohibited from recovery under PURA.

41.    A return on equity of 10.125% and a weighted average cost of capital of 8.5209% for ETI
       should be adopted consistent with the stipulation.

42.    The agreed rate-design provisions and terms and conditions of service included in the
       stipulation are just and reasonable.

43.    The treatment of rate-case expenses described in the stipulation is reasonable.

44.    The Company's proposed remote-communications-link rider as filed by the Company
       is reasonable.

45.    The depreciation rates agreed to in the stipulation are just and reasonable.
PUC Docket No. 37744                            Order                                 Page 12 of 15
SOAH Docket No. XXX-XX-XXXX

46.    The recovery of $2,019,000 annually for decommissioning costs of nuclear production
       assets based on the factors agreed to in the stipulation is reasonable.

47.    A $3.65 million annual storm cost accrual is reasonable.

48.    The class allocation methodologies described in the stipulation are just and reasonable.

49.    The fuel and IPCR-related provisions of the stipulation are reasonable.

                                    H.     Conclusions of Law
1.     ETI is a public utility as that term is defined in PURA § 11.004(1) and an electric utility
       as that term is defined in PURA § 31.002(6).

2.     The Commission exercises regulatory authority over ETI and jurisdiction over the subject
       matter of this application pursuant to PURA §§ 14.001, 32.001, 32.101, 33.002, 33.051,
        36.001-.111, 36.203, 39.452, and 39.455.

3.      SOAH has jurisdiction over matters related to the conduct of the hearing and the
       preparation of a proposal for decision in this docket, pursuant to PURA § 14.053 and
        TEx. Gov'T CODE ANN. § 2003.049.

4.      This docket was processed in accordance with the requirements of PURA, the Texas
        Administrative Procedure Act,g and Commission rules.

5.      ETI provided notice of its application in compliance with PURA § 36.103, P.U.C. PROC.
        R. 22.51(a), and P.U.C. SUBST. R. 25.235(b)(1)-(3).

6.      This docket contains no remaining contested issues of fact or law.

7.      The stipulation, taken as a whole, is a just and reasonable resolution of all issues it
        addresses; results in just and reasonable rates, terms, and conditions; is supported by a
        preponderance of the credible evidence in the record; is consistent with the relevant
        provisions of PURA; and is consistent with the public interest.

 8.     ETI has properly accounted for the amount of fuel and IPCR-related revenues collected
        pursuant to the fuel factor and Rider IPCR.

        8 TEX. Gov'T CODE ANN. Chapter 2001 (Vernon 2007 and Supp. 2009).
PUC Docket No. 37744                           Order                                   Page 13 of 15
SOAH Docket No. XXX-XX-XXXX

9.     The revenue requirement, cost allocation, revenue distribution, and rate design
       implementing the stipulation result in rates that are just and reasonable, comply with the
       ratemaking provisions in PURA, and are not unreasonably discriminatory, preferential, or
       prejudicial.

10.    Based on the evidence in this docket, the overall total invested capital through the end of
       the test year meets the requirement in PURA § 36.053(a) that electric utility rates be
       based on the original cost, less depreciation, of property used by and useful to the utility
       in providing service.

11.    ETI has met its burden of proof in demonstrating that it is entitled to the level of retail
       base rate and rider revenue set out in the stipulation.

12.    ETI has met its burden of proof in demonstrating that the rates resulting from the
       stipulation are just and reasonable, and consistent with PURA.

                                 III.    Ordering Paragraphs
1.     ETI's application seeking authority to change its rates; reconcile its fuel and purchased
       power costs for the Reconciliation Period from April 1, 2007 to June 30, 2009; and for
       other related relief is approved consistent with the above findings of fact and conclusions
       of law.

2.     Rates, terms, and conditions consistent with the stipulation are approved.

3.     The tariffs and riders consistent with the stipulation are approved for the initial and
       second step rate increases.

4.     ETI's request for waivers of RFP instructions (RFP Schedule V) is granted.

5.     ETI shall adjust decommissioning expense related to the River Bend Nuclear Generating
       Station consistent with the terms of this Order.

6.     Neither the stipulation and settlement agreement nor this Order constitutes the
       Commission's agreement with, or consent to, the manner in which ETI, or any entity
       affiliated with ETI, has interacted with any decommissioning trust to which ETI or its
       ratepayers have made contributions or provided funds. Furthermore, this Order in no
                                              Order                                     Page 14 of 15
PUC Docket No. 37744
SOAH Docket No. XXX-XX-XXXX

       way constitutes a waiver or release of any conduct, whether or not such conduct occurred
       before the date of this Order, that may constitute a violation of any provision of state law,
       including, without limitation, the rules and regulations of this Commission relating to
       nuclear decommissioning trust funds; or prevents the Staff of the Commission from
       opening an investigation and taking enforcement action relating to violations of such

       rules and regulations.

7.     Nothing contained in this Order constitutes the consent or approval, explicit or implied,
        of any modification, amendment or clarification of any power purchase agreement
        between ETI and any other Entergy entity relating to the River Bend Station.        Without

        limiting the foregoing, nothing contained in this Order shall constitute the consent or
        approval of any modification, amendment, or clarification of any power purchase
        agreement between ETI and any other Entergy entity relating to the River Bend Station,
        which is made to address any concerns raised by the NRC in its Request for Additional
        Information regarding the River Bend Station dated March 11, 2010.

 8.     The Rider IPCR costs and eligible fuel costs requested by ETI are, consistent with this
        Order, reconciled through June 30, 2009, and are approved consistent with the

        stipulation.

 9.     ETI shall adjust its fuel over/under recovery balance consistent with the findings in this

        Order.

 10.    ETI shall file an RPCEA Rider consistent with the above findings of fact and conclusions
        of law to be effective with the first billing cycle of the billing month immediately
        following the effective date of this Order..

 11.    Because the final approved rates are equal to or higher than the interim rates adopted in
        Order No. 3, no refund of the interim rates authorized by Order No. 3 is necessary.

 12.    The interim rates approved in Order No. 12 are herby approved for the initial step rate
         increase contemplated by the stipulation, and ETI shall implement the second step rates
         for bills rendered on and after May 2, 2011, the first billing cycle for the revenue month

         of May.
PUC Docket No. 37744                                Order                                 Page 15 of 15
SOAH Docket No. XXX-XX-XXXX

13.       Within 30 days of the date of this Order, ETI shall file a clean copy of all of the tariffs
          and schedules approved in this docket and a clean copy of the attachments to the
          stipulation.

14.       The entry of this Order consistent with the stipulation does not indicate the Commission's
          endorsement of any principle or method that may underlie the stipulation. Neither should
          entry of this Order be regarded as a precedent as to the appropriateness of any principle
          or methodology underlying the stipulation.

15.       All other motions, requests for entry of specific findings of fact, conclusions of law, and
          ordering paragraphs, and any other requests for general or specific relief, if not expressly
          granted in this order, are hereby denied.

          SIGNED AT AUSTIN, TEXAS the ^C> I day of December 2010

                                          PUBLIC UTILITY COMMISSION OF TEXAS

                                           d                ^
                                          BA     . SMITHERMAN, CHAIRMAN

                                          DONNA L. NELSON, COMMISSIONER

y:\cadm\orders\final\37000\37744fo.docx
            State Office of Administrative Hearings

                                       Cathleen Parsley
                                Chief Administrative Law Judge

                                              October 4, 201 0

TO:    Stephen Journeay, Director                                                          Courier Pick-up
       Commission Advising and Docket Management
       William B. Travis State Office Building
       1701 N. Congress, 7th Floor
       Austin, Texas 78701

RE:    SOAH Docket No. XXX-XX-XXXX
       PUC Docket No. 37744

       Application of Entergy Texas, Inc. for Authority to Change Rates and to Reconcile Fuel
       Costs

        Enclosed are two copies of the Proposal for Decision (PFD) in the above-referenced case.
Please file-stamp and return a copy to the State Office of Administrative Hearings for our records. By
copy of this letter, the parties to this proceeding are being served with the PFD.

       Please place this case on an open meeting agenda for the Commissioners' consideration. The
deadline by which a final order must be issued in this case is. November 1, 2010. It is my
understanding that you will be notifying me and the parties of the open meeting date, as well as the
deadlines for filing exceptions to the PFD, replies to the exceptions, and requests for oral argument.

                                                       Sincerely,

                                                            ~---
                                                      Travis Vickery
                                                      Administrative Law Judge

Enclosure
xc:    All Parties ofRecord

        300 West 15 th Street Suite 502 Austin, Texas 78701/ P.O. Box 13025 Austin, Texas 78711-3025
                       512.475.4993 (Main) 512.475.3445 (Docketing) 512.475.4994 (Fax)
                                              www.soah.state.tx.us
                         SOAR DOCKET NO. XXX-XX-XXXX
                           PUC DOCKET NO. 37744

 APPLICATION OF ENTERGY TEXAS,           §      BEFORE THE STATE OFFICE
 INC. FOR AUTHORITY TO CHANGE            §
 RATES AND TO RECONCILE FUEL             §                    OF
 COSTS                                   §
                                         §      ADMINISTRATIVE HEARINGS

                             TABLE OF CONTENTS

I.     INTRODUCTION                                                          1

II.    PROCEDURAL HISTORY                                                    1

III.   SUMMARY                                                               2

IV.    BACKGROUND                                                            3

       A.   The CGS Legislation                                              3

       B.   The Company's CGS Proposal                                       5

            1.    The CGS Tariff                                             6
            2.    The CGSC Rider                                             7
            3.    The CGSUSC Rider                                           7
            4.    The System Agreement                                       7

V.     ARGUMENT AND ANALySIS                                                 9

       A.   The CGS Tariff                                                   9

            1.    Eligible Customers                                         9
            2.    Eligible Suppliers                                        12

                  a.     Expanding the Supply to Include IPPs               13
                  b.     Expanding the Supply to Include Cottonwood         15
                  c.     Expanding the Supply to Include Out-of-State QFs   15

       B.   Cost Recovery Riders                                            17

            1.    CGSC Rider                                                18
            2.    CGSUSC Rider                                              21

                  8.    Cost Estimates                                      24
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PUC DOCKET NO. 37744

                   b.     Annual True-ups Should Account for Load Growth      26
                   c.     Potential Benefits of the CGS Program               30

                          i.    Capacity Savings                              30
                          ii.   Potential Average Fuel Cost Savings           37

       C.    ETI May Recover its Costs Through a Rider                        38

       D.    The UBserved Energy Rate                                         39

VI.    CONCLUSION                                                             41

VII.   PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW                       42

       A.    Findings of Fact on ETl's CGS Proposal                           42

       B.    Conclusions of Law on ETl's CGS Proposal.                        44

ATTACHMENT A
                                    SOAH DOCKET NO. XXX-XX-XXXX
                                       PUC DOCKET NO. 37744

 APPLICATION OF ENTERGY TEXAS,                            §         BEFORE THE STATE OFFICE
 INC. FOR AUTHORITY TO CHANGE                             §
 RATES AND TO RECONCILE FUEL                              §                            OF
 COSTS                                                    §
                                                          §        ADMINISTRATIVE HEARINGS

                                       PROPOSAL FOR DECISION

                                             I. INTRODUCTION

       On December 30, 2009, Entergy Texas, Inc. (ETl or Company) filed its application for
authority to change rates and reconcile fuel costs (Application). On July 13, 2010, the parties
appeared for the hearing on the merits. At the beginning of the hearing, the parties informed the
Administrative Law Judges (ALJs) that they were engaged in settlement negotiations.                         On
July 15, 2010, the parties advised the ALJs that there was a settlement in principle on all issues
in the case except for ETl's Competitive Generation Service (CGS) proposal. Concurrent with
this Proposal for Decision (PFD) the AU is forwarding to the Commission the parties'
Stipulation and Settlement Agreement and Proposed Final Order filed on August 6, 2010. The
ALJ recommends that the Commission reject ETl's CGS proposal. However, the Commission
may disagree. As a result, the ALJ provides a full discussion of the parties' arguments.

                                      II. PROCEDURAL HISTORY

       On July 16 and July 20, 2010, the parties attended a limited hearing on the merits for
issues solely related to CGS. 1 ALJ Travis Vickery presided and drafted this PFD. The following
parties attended the hearing on the merits and submitted post-hearing briefing: ETl, Staff of the
Public Utility Commission of Texas (PUC or Commission), Office of Public Utility Counsel of
Texas (OPUC), State of Texas' Agencies and Institutions of Higher Education (State),
Cottonwood Energy Company, L.P. (Cottonwood), and Texas Industrial Energy Consumers

       I   In the interests ofjudicial economy, the AU has borrowed liberally from the parties' briefing.
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PUC DOCKET NO. 37744

(TIEC),z The parties submitted post-hearing briefing and the record closed on August 26, 2010.
Other procedural matters are dealt with in the proposed Findings of Fact and Conclusions of
Law. 3

                                           III. SUMMARY

         All parties that participated in the hearing, except TIEC and Cottonwood, oppose ETI's
CGS proposal, including Staff (referred to generally as opponents). In general, the opponents
argue that the Company's proposed CGS tariff runs contrary to legislative intent and sound
economic and public policy. These parties, however, also make arguments in the alternative.
Cottonwood argues only that independent power producers (IPPs) be included as eligible
suppliers. TIEC argues that the program should be approved with certain modifications.

         Although the ALJ offers a discussion of the major Issues raised by the parties, he
recommends rejection ofETI's CGS proposal. ETI, as a regulated member ofa multi-state set of
related utilities, is limited in its ability to propose a CGS program that offers somewhat
competitive choice to a limited class of customers. The ALJ finds that ETI's CGS proposal
reflects a good faith attempt to navigate the conflicting interplay of its status within the Entergy
system, principles of traditional ratemaking, and the competitive goals of the CGS legislation.
The ALJ's primary reasons for recommending rejection of the proposal echoes the opponents'
arguments: the anticipated costs are not ascertainable until the program has been implemented;
and these potentially substantial costs are shifted to parties who may chose not to, or are not
eligible to, participate in the program.

         Although ETI is a necessary third party to any transaction between a CGS supplier and
customer, it has attempted to render itself neutral by adopting a pass-through rate for supplier
and customer. The fundamental problem is, for every customer that migrates to the program,
ETI loses a customer that contributes to the recovery of its embedded production costs. As

       2 The following parties intervened or participated in this docket: Staff, OPUC, the State, Cities,
Cottonwood, TIEC, Kroger Co., and Wal-Mart Stores Texas, LLC and Sam's East, Inc. (Wal-Mart).
        3 Although a number of parties proposed Findings of Fact and Conclusions of Law, the ALJ adopted
Staffs with limited modifications.
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PUC DOCKET NO. 37744

explained below, the CGS legislation makes clear ETl is not to bear any costs as a result of the
implementation of the program. As a result, ETl's proposal shifts the bulk of these unrecovered
costs to all non-participating customers. This cost-shifting violates the basic principal of cost-
causation. Although the parties offered some discussion of legislative intent, the ALJ is not
convinced that this cost-shifting was intended by the Legislature. It is clear, however, that the
drafters sought to create a program that offers competitive choice to certain ETl customers.
Although the ALJ recommends rejection, he also understands the Commission may find, as a
matter of policy, that the Legislature's intent to develop a competitive set of suppliers overrides
the principal of cost-causation.

                                         IV. BACKGROUND

A.          The CGS Legislation

            The Company's proposed CGS program in this proceeding is the product of legislation
first enacted in 2005 as House Bill 1567. 4 The bill addressed a number of issues related to the
timing of rate cases and cost recovery during Entergy Gulf States, Inc.'s (EGSI) efforts to
transition to retail open access. The legislation authorized EGSI to file a rate proceeding with an
effective date no earlier than June 30, 2008, and stipulated that as a part of that rate proceeding:

        [t]he utility shall propose a competitive generation tariff to allow eligible
        customers the ability to contract for competitive generation. The commission
        shall approve, reject, or modify the proposed tariff The tariffs subject to this
        subsection may not be considered to offer a discounted rate or rates under Section
        36.007, and the utility's rates 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
        tariffS

       4 Public Utility Regulatory Act, TEX. UIIL. CODE ANN., §§ 39.451 - 39.463 (Vernon 1998 & Supp. 2005)
(PURA 2005).
        5   PURA 2005 at § 39.452(b).
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         To comply with HB 1567, EGSI submitted a CGS proposal as part of its application in
Docket No. 34800. 6            In that proposal, CGS customers were to be treated as wholesale
transmission customers so they could seek competitive wholesale generation supply on the same
tenns as other wholesale market participants. The Commission approved a settlement of that
proceeding whereby the Company's CGS proposal was severed into a separate proceeding, 7
Docket No. 36713. 8

         Soon after the resolution of Docket No. 34800 and initiation of Docket No. 36713, the
Texas Legislature enacted House Bill 1492, which, among other things, altered the Company's
obligations with regard to the transition to retail open access and significantly amended the
provisions of PURA § 39.452(b) that addressed the requirements of a proposed competitive
generation tariff, which now reads:

         An electric utility subject to this subchapter shall propose a competItIve
         generation tariff to allow eligible customers the ability to contract for competitive
         generation. The commission shall approve, reject, or modify the proposed tariff
         not later than September 1,2010. The tariffs subject to this subsection may not be
         considered to offer a discounted rate or rates under Section 36.007, and the
         utility's rates shall be set, in the proceeding in which the tariff is adopted, to
         recover any costs unrecovered as a result of the implementation of the tariff. The
         commission shall ensure that a competitive generation tariff shall not be
         implemented in a manner that harms the sustainability or competitiveness of
         manufacturers that choose not to take advantage of competitive generation.
         Pursuant to the competitive generation tariff, an electric utility subject to this
         subsection shall purchase competitive generation service, selected by the
         customer, and provide the generation at retail to the customer. An electric utility
         subject to this subsection shall provide and price retail transmission service,
         including necessary ancillary services, to retail customers who choose to take
         advantage of the competitive generation tariff at a rate that is unbundled from the
         utility's cost of service. Such customers shall not be considered wholesale
         transmission customers. Notwithstanding any other provision of this chapter, the
         commission may not issue a decision relating to a competitive generation tariff

        6 Application of Entergy Gulf States, Inc. for Authority to Change Rates and Reconcile Fuel Costs, Docket
No. 34800 (Mar. 16,2009).
         7   Id., Final Order at FoF 32, Ordering Paragraph No.5.
         8 Application of Entergy Texas, Inc. for Approval of Competitive Generation Services Tariff, Docket
No. 36713 (pending). Other than the Control Number Request filed on February 18, 2009, no other documents have
been filed in Docket No. 36713.
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PUC DOCKET NO. 37744

       that is contrary to an applicable decision, rule, or policy statement of a federal
                                             9
       regulatory agency havingjurisdiction.

       A comparison ofthe two statutes reveals that the amended PURA § 39.452(b) retains key
components of the prior statute, as shown below:

       •    The Company shall propose a CGS program;

       •     The CGS program shall be available only to "eligible customers";

       •     The Commission may approve, reject, or modify the proposal;

       •     The tariff shall not constitute a discount rate under PURA § 36.007; and

       •     The rates shall be set in the proceeding in which the CGS tariff is adopted to
             recover any unrecovered costs resulting from implementation.

       The new statute also adds several new provisions, summarized as follows:

       •     The tariff shall not result in harm to "manufacturers" that choose not to
             participate in the CGS program;

       •     The Company must purchase the energy selected by the CGS customer;

       •     The CGS customer shall not be considered a wholesale transmission
             customer; rather, the Company must provide the purchased energy through
             unbundled retail transmission service; and

       •     The Commission's decision regarding the Company's proposal must not be
             contrary to a decision, rule, or policy statement of the Federal Energy
             Regulatory Commission (FERC).

B.     The Company's CGS Proposal

       Pursuant to PURA § 39.452, ETl proposed a CGS tariff as part of its Application. The
Company's CGS proposal consists of a CGS Tariff, a CGS Cost Rider (CGSC) and a CGS
Unrecovered Service Cost Rider (CGSUSC). In its initial brief, ETl provided a diagram to
illustrate the mechanics of the tariff and how costs are handled under the Company's proposed

       9   PURA § 39.452(b).
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PUC DOCKET NO. 37744

COS program.         For the benefit of the Commission, the diagram is attached to the PFD as
Attachment A.

        1.         The CGS Tariff

        ETl's proposed COS tariff provides eligible customers with the opportunity to have ETl
purchase competitive generation selected by the COS customer and provide the selected
generation at retail to the COS customer. Under the proposal, the eligible customers are Large
Industrial Power Service (LIPS) and LIPS Time-of-Day rate schedule customers.                         A   cas
customer would have the ability to contract with a participating COS supplier (an eligible QF
located in ETl's service territory) that puts energy to ETl for a set amount of load at an agreed
upon price. The      cas customer must designate what portion of its load will be served by its cas
supplier under the COS tariff and what portion will be served under the applicable LIPS tariff
rate.

        So long as the COS supplier provides the energy contracted by the                cas buyer, ETI will
continue to purchase energy from the QF at the avoided cost rate and the COS customer will pay
ETl the avoided cost rate for the level contracted for in place of all generation related
components that would otherwise be billed under the LIPS tariff. A                  cas customer and a QF
supplier are free to contract, without ETl's participation, for a price other than avoided cost, in
which case, the costs above or below the avoided costs would be accounted for in payments
between the COS customer and COS supplier, or vice versa, as prescribed by the contract. 10

        ETl explains that the COS customer could avoid costs it would otherwise incur under the
Company's fixed fuel factor, along with the portion of the Company's retail rates that represent
embedded production costs. Transmission service associated with the delivery of power would
be provided at an unbundled retail rate. In the event the QF with whom the COS customer has
contracted fails to deliver the contracted-for power, the Company would provide service at an
"Unserved Energy" rate. The initial period of implementation would be one-year, beginning in
January 2011, followed by a Company report to the Commission.                       ETl anticipates possible

        10   ETI Ex. 3 at ETI Rate Schedule LQF; ETI Ex. 9 at 9-10, Ex. PRM-l; ETI Ex. 52 at 34-36.
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PUC DOCKET NO. 37744

unforeseen issues that may require modification or supplementation of the CGS program's tenns
or reconsideration of the program altogether. 11

       2.         The CGSC Rider

       The CGSC rider is designed to recover costs related to the start-up and ongomg
operations incurred to implement the CGS. Costs will be based on estimates and ETI proposes
they be trued-up on an annual basis to match what the Company has actually incurred as a result
of the program. As proposed, the costs would be recovered from all CGS eligible customers
                                                                                                    12
(LIPS) through Rider CGSC regardless of whether they actually take the CGS service.

       3.          The CGSUSC Rider

        ETI proposes the CGSUSC rider to recover avoided embedded generation costs that
would have been allocated to LIPS customers under ETI's retail base rates, had those customers
not elected to participate in CGS. Rider CGSUSC is designed to recover the difference between
what would have been billed by ETI under traditional LIPS service and what is billed under the
combined CGS tariff and modified LIPS service. Rider CGSUSC would recover embedded
generation costs and ',Uly other related base rate costs and would apply to all non-participating
customers across all classes, including LIPS customers not participating in the CGS program,
through a rider that will be trued-up against the actual avoided embedded generation costs and
reset on an annual basis. 13

        4.         The System Agreement

       ETI developed its CGS proposal under constraints associated with its relation to the
Entergy System (System), the Entergy Operating Committee, and the Entergy System
Agreement (System Agreement). The System Agreement is a PERC-approved tariff governing

        II   PURA § 39.452(b); ETI Ex. 52 at 37; ETI Ex. 9 at 15,22-24, Ex. PRM-l; ETI Ex. 52 at 44-46.
        12   ETI Ex. 9 at 14, 19,20, Ex. PRM-l.
        13   ETI Ex. 9 at 14-15, 21-22, Ex. PRM-l; Tr. at 348, 356
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PUC DOCKET NO. 37744

the manner in which the Entergy System is operated and resources are selected for serving the
energy and capacity needs of the six Entergy Operating Companies. The Entergy Operating
Committee is the entity charged by the FERC with administering the Entergy System
Agreement.        The System Agreement vests the Operating Committee with the discretion to
allocate QF put energy among the Operating Companies.                       The Operating Committee has
                              ,
exercised that discretion and determined that QF put should be allocated to the host Operating
Company. 14

       The Supreme Court has held that matters delegated to the Entergy Operating Committee
as part of its duty to administer the System Agreement are matters of exclusive FERC
jurisdiction. IS PURA § 39.452(b) explicitly prohibits the Commission from issuing a decision
addressing the Company's CGS program "that is contrary to an applicable decision, rule, or
policy statement of a federal regulatory agency having jurisdiction.,,16 The System Agreement
constitutes an applicable decision, rule, or policy statement of a federal regulatory agency having
jurisdiction, within the meaning of that provision. Because the System Agreement prohibits a
single Operating Company, such as ETI, from unilaterally selecting and purchasing a resource to
supply its energy needs, ETI posits that the CGS program cannot: (1) result in the purchase of
resources other than those that would have been selected and purchased pursuant to the System
Agreement; or (2) require a different economic dispatch of resources or allocation of power and
associated costs among the Operating Companies than would occur pursuant to the System
Agreement. 17

       ETI generally asserts that its CGS proposal complies with the statute by making QF put
to the Entergy System from ETl's service territory available to participating customers at the
avoided cost rate paid to QFs for that energy. Limiting the available CGS resources to such QF
put avoids interference with the System Agreement because these Texas QF resources have

       14    ETl Ex. 9 at 12-13, Ex. JPH-R-2.
       15.   Entergy Louisiana, Inc. v. Louisiana Pub. Servo Comm'n, 539 U.S. 39,49-50 (2003).
       16    PURA § 39.452(b).
       17    ETl Ex. 5 at 41-42; ETI Ex. 52 at 34.
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PUC DOCKET NO. 37744

already been assigned to the Texas jurisdiction by the Operating Committee,IS to comply with
the requirement of the Public Utility Regulatory Policies Act (PURPA) that a utility purchase the
energy that is put to it by QFs. Thus, the Company contends that it designed the CGS proposal
                                                                                                      9
consistent with the System Agreement. This contention has been acknowledged by Staff.I

                                        v.   ARGUMENT AND ANALYSIS

A.       The CGS Tariff

         1.          Eligible Customers

         Participation in the CGS tariff is limited to LIPS customers.                 The parties, however,
disagree over the definition of "eligible customers" under PURA § 39.452(b). Cities and the
State propose expanding the program to include additional and perhaps all customer classes. ETI
counters that the limitation to LIPS is supported by the statute and practical constraints on the
makeup of a customer class. Although the ALJ ultimately recommends rejection of ETl's CGS
proposal, in the event the Commission approves the tariff, the limitation to LIPS customers is
acceptable for initial implementation of the program. 20

         ETI argues that the term "eligible" naturally implies a limitation on customer class and
that the provision is not explicit as to the parameters of eligibility. However, based on the
background and context ofPURA § 39.452(b), ETI argues that the term "manufacturers" should
be viewed as a reference to large manufacturing concerns such as industrial customers. 21 ETI
also argues that the limitation to LIPS was based on a number of practical factors, including:

        18    ETI Ex. 73 at 13, Ex. JPH-R-2.
        19    ETI Ex. 52 at 43-44; Staff Ex. 3 at 6-7.
        20    State Ex. 1 at 36-39; Cities Ex. 6 at 57; Cities Initial Brief at 8-9.
       21 State v. Hodges, 92 S.W.3d 489, 494 (Tex. 2002) (even where statute is clear and unambiguous, courts
may consider the statute's objectives and the consequences of a particular construction).
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PUC DOCKET NO. 37744

              •     presumed technical expertise of LIPS customers to enter into
                   sophisticated contractual arrangements with Texas QFs;

              •    the need for interval data recorder meters and backup meters to measure
                   consumption, which LIPS customers have already installed;

              •    the increased start-up and ongoing administrative costs that would be
                   passed on to non-participating customers if the CGS program were opened
                   up to a larger pool of potential participants; and

              •    in terms of demand, the minimum block needed to attract suppliers would
                   be 5 MW. 22

       According to ETI, limiting the pool of eligible customers to those most likely to
participate necessarily limits the amount of the Company's unrecovered costs. Based on ETl's
proposal, a limited pool of eligible customers also results in allocating unrecovered costs across a
larger pool of non-participants.              This will mitigate the potential impact on all customers,
including, as required by the statute, non-participating manufacturers.            On the flipside, ETI
argues that expanding the pool of eligible customers would increase start-up and implementation
costs, spread over a smaller pool of non-participants -- something Cities concedes. 23 According
to established rate setting principles, ETI argues those increased costs should be borne by the
larger pool of eligible customers. ETI notes, however, there is little to no likelihood, and no
evidence that Cities' proposed expanded customer class would actually participate in the
program. Finally, under the current proposal, any increase in the amount of unrecovered costs
would also be borne by non-participants, including manufacturers.

       Although the State's witness also testified that the customer class should be expanded,
Cities framed strong arguments that the LIPS limitation should be rejected. Cities propose that
the program be available to any customer who has the demand and resources to contract for
CGS. Cities acknowledges not every customer will possess the means to contract for or accept
such service. Nevertheless, Cities contend that ETl's limit to the LIPS class is too narrow.

       22   ETI Ex. 9 at 10-11; Tr. at 253.
       23   Cities Initial Brief at 8-9.
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PUC DOCKET NO. 37744

       First, Cities argue that LIPS class customers do not possess a monopoly of sophistication
to contract for CGS service. Where demand is concerned, Cities note that some non-LIPS
customers' combined demand may exceed 5 MW, in addition to the fact that some suppliers may
be willing to contract for less than 5 MW. As for interval data recording meters, Cities argue
that some customers' demand is constant, such as the City of Beaumont, which has some 10,000
street lights for which billing is unmetered. Although Cities provided no record cites for these
propositions, its main point is that certain customers outside the LIPS class may be in a position
to contract for and benefit from the CGS program. Finally, with regard to increased startup and
administration costs associated with an expanded customer class, Cities proposes that only
participants be responsible for cost recovery on a kWh basis.

       Staffs position is that, while the term "eligible" is a limitation on the customer class, the
provision's reference to "manufacturers" does not mandate the program's limitation to LIPS
customers. Not all LIPS customers are manufacturers and some manufacturers may be members
of commercial classes. 24 Nevertheless, Staff also acknowledges there may be other issues which
justify ETI's limitation to customers in the LIPS class.

       The ALl agrees with ETI and Staff that the term "eligible" in PURA § 39.452(b) implies
ETI should limit participation in the program to certain customers. Although the provision does
not define the terms of eligibility, the reference to "manufacturers" suggests that the program
should be extended to ETI's larger customers, but as noted by Cities, Staff, and other opponents,
the LIPS class is not a perfect fit for all of ETI's customers engaged in manufacturing.
Nevertheless, the ALl finds that ETI has articulated a reasonable and practical limit on the CGS
eligible customer class for the implementation of the program. Based on the uncertain nature of
ETI's cost estimates and unknown levels of participation, there are too many unexplored
variables involved in expanding the customer class beyond LIPS customers at this time. In the
event the Commission approves the CGS proposal, the ALl recommends eligible customers be
limited to the LIPS class, leaving open the possibility for further expansion as the program
develops.

       24   Cities share this view.
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PUC DOCKET NO. 37744

       2.         Eligible Suppliers

       As proposed by ETI, eligible suppliers for the CGS program are limited to fourteen QFs
within ETl's service territory.25 These QFs are facilities that generate power for their own use,
and then sell their excess power to ETI. ETI is required by federal law to purchase that excess
power regardless of the CGS program. 26 ETI claims that QF suppliers within its own service
area are the only source of power it could incorporate into the CGS program without running
afoul of the System Agreement, because energy put by QFs located in ETl's service territory is
allocated to ETI through the System Agreement, so that dedicating that energy to CGS supply
does not upset the allocation of energy or costs among the Entergy Operating Companies. 27 ETI
also describes QF put as a viable supply option for the CGS program because the delivery of that
energy can be controlled by the CGS customer and the QF.

       Cities and other intervenors generally argue that the limitation on eligible suppliers does
not do enough to bring competition to the market. TlEC witness Jeffry Pollock echoed this
concern when he testified that there is simply not enough capacity available in ETl's plan to
allow for true competition. 28 Aside from the limited number of QFs eligible to participate,
competition is further limited because QFs must first meet their own power needs before they put
to ETI. 29 And Cities argue that even if IPPs currently dedicated to serving ETI are added to the
supply, there is still too little competition, because that power is already under contract by ETI or
is required to be purchased by ETI.

       ETI responds, and the ALJ agrees, that PURA § 39.452(b) does not require ETI to
develop a CGS program that mimics an open market. That would be impossible. ETI is a
regulated entity and part of a multi-state utility system, whose available resources and resource
and cost allocations are governed by the Operating Committee as sanctioned by the FERC. It is

       25   TIEC Ex. 1 at 14.
       26   Tr. at 51,67-68.
       27   ETI Ex. 73 at 11-12.
       28   TIEC Ex. 1 at 38.
       29   TIEC Ex. 1 at 67-68.
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a reality that ETI has very limited resource options available for customer choice through the
CGS program.           Instead, the CGS program is intended to give eligible customers a supply
alternative to ETI's generation. It is not intended to be retail open access, and the amendments
to the CGS provision in the 2009 legislation law make it clear that the program should not make
the CGS customer a wholesale market participant.

                  a.       Expanding the Supply to Include IPPs

        TIEC proposes that CGS suppliers be expanded to include IPPs currently dedicated to
serving ETI. ETI argues, however, that while this proposal would avoid interference with the
resource allocation principles of the System Agreement, it still runs afoul of the economic
dispatch requirements of the System Agreement. ETI points out that the System Agreement
dictates the dispatch of System resources using the lowest cost resources capable of reliably
serving load for the System as a whole and without regard to which Operating Company owns or
controls the resource. The System Agreement does not permit the dispatch of certain resources
out of order for the benefit of a single Operating Company or customers in a particular
jurisdiction.30

        ETI argues that including IPP suppliers would be detrimental to CGS customers because
they have no control over the delivery of energy from IPPs. Because System economics dictate
the scheduling of energy from IPPs, System needs may not align with the needs CGS customers
in any given hour. Under these circumstances, the System's economic dispatch decisions for
IPPs would prevail and CGS customers would incur significant Unserved Energy costs when IPP
resources selected by a CGS customer are not included in economic dispatch for a period of
     3
time. ! Cities made the same argument in briefing, also noting "CGS must be limited to power
that is already allocated to ETI under the terms of the System Agreement.,,32 The ALJ agrees
with ETI that using QF put allows the CGS customer and QF to agree on delivery terms that

       30   ETI Ex. 41 at 9-10.
       31   ETI Ex. 73 at 11-16.
       32   ETI Ex. 73 at 11-12.
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PUC DOCKET NO. 37744

meet the needs of the COS customer in a manner that will not be superseded by the System
Agreement.33

        Cities are also concerned that if IPPs are included, COS customers would skim the lowest
cost resources away from captive retail customers. 34 As a result, Cities propose that supply
options be expanded to IPPs and QFs not currently under capacity contracts with ETI. Cities
point out that, at most, the Company only has capacity contracts with two-fifths of the IPPs in its
service territory.35

        There is insufficient evidence, however, to determine what the impact of including IPPs
in the COS power supply would be. IPPs could presumably be a source of firm power under the
program, which would allow the Company to eliminate the costs it would have incurred to
provide firm power to its COS customers rather than simply passing those costs on to ineligible
customers. On the other hand, the Company claims that its System Agreement precludes it from
including IPPs in its pool of eligible suppliers,36 and including IPPs could raise fuel costs for
other customers because COS customers could effectively skim the lower-priced fuel out of
ETI's supply.37 OPUC witness Clarence Johnson pointed out that the impact of including IPPs
as eligible suppliers may be to increase purchased power costs for non-COS customers. 38 To the
extent that including IPPs in the COS power supply would harm non-participating customers,
Cities opposes such a modification to the CGS tariff. If, however, the CGSUSC rider were either
rejected or modified so that it does not shift unrecovered costs to ineligible customers and other
protections were put in place, Cities would recommend including IPPs as a way to make the
COS program truly competitive. As explained below, however, if such costs are recovered from
COS participants, there is little conceivable incentive for participation in the program. The ALJ
concludes that expanding the pool of suppliers to IPPs and QFs not currently under capacity

       33   !d.
       34   Tr. at 129-130.
       35   Tr. at 54.
       36   ETI Ex. 52 at 36, note 4.
       37   Tr. at 129.
       38   OPC Ex. 4 at 10, Ex. CJ-Reb-2.
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PUC DOCKET NO. 37744

contracts with ETI, should be avoided as it would likely result in higher purchased power and
fuel costs for non-participating customers.

                      b.      Expanding the Supply to Include Cottonwood

           Cottonwood seeks to participate in the CGS program as a supplier. Cottonwood argues
that it is on equal footing with QFs.              ETl argues, however, that PURPA only requires the
Company to purchase QF put, not that of an independent generator like Cottonwood.
Cottonwood also argues that ETl would not actually purchase QF put for CGS customers. ETl
and the ALl disagree. PURA § 39.452(b) states: "pursuant to the competitive generation tariff,
an electric utility subject to this subsection shall purchase competitive generation service ... ,,39
Finally, Cottonwood suggests that the System Agreement be amended to permit Cottonwood to
participate in the CGS program. As noted by ETl, this would interfere with the FERC-approved
System Agreement, which is specifically prohibited by PURA § 39.452(b). The ALl concludes
that Cottonwood's proposal to be included as an eligible CGS supplier should be denied.

                      c.      Expanding the Supply to Include Out-of-State QFs

           TIEC proposes to expand the CGS supply pool by including QFs located elsewhere on
the Entergy System. Under that proposal, a CGS customer in Texas would be permitted to
contract for energy supply from a QF in Louisiana. ETI opposes this proposal, arguing that it
would upset energy allocation under the System Agreement because it would require allocation
of energy put by a Louisiana QF to ETl. ETl argues that the Operating Committee has already
exercised its discretion on this issue and determined that QF put is to be allocated to the host
Operating Company.40 ETI notes that the Operating Committee has never allocated QF put from
one Operating Company's service area to an Operating Company in another jurisdiction. 41 ETl
argues that implementation of the CGS program does not justifies such a change. The ALl
agrees.

          39   PURA § 39.452(b).
          40   ETI Ex. 73 at 12-13, Ex. IPH-R-2.
          41   Tr. at 89.
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PUC DOCKET NO. 37744

       As explained above, the Operating Committee is charged by the FERC with
administering the System Agreement, which vests the Operating Committee with the discretion
to allocate QF put energy among the Operating Companies. The Supreme Court has held that
matters delegated to the Operating Committee as part of its duties to administer the System
Agreement are matters of exclusive FERC jurisdiction.42 As a result, there is no basis for a state
regulator to direct how QF put should be allocated among the Entergy Operating Companies.

        ETl argues that even TIEC's expert witness Jeffry Pollock acknowledged that the
reallocation of lower-cost QF put from Louisiana customers to Texas customers could raise costs
to Louisiana customers to benefit Texas CGS customers. 43 ETl witness John Hurstell testified
that expanding the pool of CGS energy suppliers as proposed by TIEC requires abandonment of
the System Agreement to allocate out-of-state QF pUt,44 The ALJ agrees with ETl that, even if
TIEC's proposal did not violate the System Agreement, it makes little sense for the Operating
Committee to reallocate QF put for the sole purpose of expanding the CGS supply pool for the
benefit of a small number of Texas industrial customers and the detriment of customers in other
Entergy System jurisdictions.          Finally, ETl questions whether the Commission could even
enforce such an obligation.

       Cities note that including QFs outside of ETl's servIce area may benefit eligible
customers by increasing the diversity of available power and providing a more competitive
market,45 Cities, however, only supports the inclusion of QFs outside ETl's service area, if it
would not increase costs to non-participating customers.                This is not likely under the CGS
program, because supply options are still limited to QFs, which have discretion to put energy to
ETl. As explained below, ETl's current proposal contemplates no system capacity cost savings,
because it considers QF put as non-firm and must plan its resources as if the CGS customer
                                46
remains a normal LIPS customer.     Cities and OPUC argue that any additional QF put may

       42   Entergy Louisiana, Inc. v. Louisiana Pub. Servo Comm'n, 539 U.S. 39, 49-50 (2003).
       43   Tr. at 313.
       44   ETI Ex. 73 at 13.
       45   TIEe Ex. 1 at 41.
       46   Tr. 50-51.
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PUC DOCKET NO. 37744

expose non-participating customers to additional unrecovered costs under the CGSUSC rider. 47
As a result, Cities and OPUC do not support TIEC's proposal, unless the CGSUSC rider is
rejected or modified to avoid shifting unrecovered costs to non-participating customers.

B.       Cost Recovery Riders

         ETI's two cost-recovery riders are based on forecasted data, in amounts unspecified at
hearing, and to be updated through an annual true-up proceeding. Opponents of the program
focus on the prospective nature of these riders and ETI's inability to provide accurate or final
cost figures. They argue that both riders should be rejected as piecemeal, premature, and not
based on costs that are known and measurable.              Opponents propose that any costs may be
captured in a subsequent proceeding based on a historical test year once they are known and
                48
measurable.          They argue that allowable expenses are limited under PUC SUBST. R. 25.231(b) to
expenses that are reasonable and necessary to provide service.

         ETI argues that the opponents' proposals to defer recovery of costs do not comply with
PURA § 39.452(b)'s directive that rates be set in this proceeding to recover ETI's unrecovered
costs as a result of the CGS tariff. ETI also argues that deferral of cost recovery does not
constitute rate setting under Texas Supreme Court precedent. ETI points out that the Texas
Supreme Court specifically rejected claims that deferred accounting should be considered as the
setting of rates. The court ruled that deferral of costs was no more than setting aside the costs, so
that a rate for their recovery could be considered in a future proceeding. 49

        Under normal rate-making standards, the ALI would be inclined to agree with the
opponents. However, the plain language of PURA § 39.452(b) requires that "the utility'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," and the CGS tariff "may not be considered to offer a

        47   OPC Ex. 4 at 10.
        48   TIEC Ex. 1 at 10.

        49 State v. Public Utility Comm 'n, 883 S.W.2d 190, 197-198 (Tex. 1994). ETI notes that TIEC witness
Pollock was unaware of this decision in making his recommendations. Tr. at 264.
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PUC DOCKET NO. 37744

discounted rate or rates under Section 36.007.,,50 Unfortunately, ETI was unable to provide fixed
cost figures upon which to base its riders, but this is due primarily to the unknown level of
participation. s1 And this does not mean ETI failed to establish it will incur costs as a result ofthe
program - it has. The ALJ finds that the CGS legislation requires that the rate set in this matter
include the recovery of any cost ETI reasonably anticipates incurring as a result of the CGS
program, based on the Company's estimates, to be trued-up with actual costs in one year.
However, opponents ofETl's proposal are correct that there may be benefits to non-participating
customers or reduced costs to ETI, that should also be accounted for at the annual true-up
contemplated by both cost-recovery riders.

         1.         CGSC Rider

         Rider CGSC is designed to recover costs related to implementation and administration
costs incurred to support the CGS program. These costs would be recovered from all CGS
eligible (LIPS) customers through Rider CGSC, regardless of whether they actually take the
CGS service. Because the costs are currently estimated, the CGSC Rider is set for an annual
true-up to costs actually incurred. 52

         While no party argues that ETI should not be able to recover its startup and
administration costs, the parties disagree with the timing and specifics of ETl's proposed CGSC
Rider.        Opponents argue PURA § 36.003 requires an electric utility's rates to be just and
reasonable and that the utility has the burden to show its rate change is just and reasonable.
These parties contend that ETI failed to meet that burden, because it provided insufficient
evidence of specific costs, opting instead for estimates. In other words there are currently no
costs upon which to base a rate and State witness Pevoto testified that estimates should not be
used to establish rates in this proceeding. 53 As a result, the parties argue that Rider CGSC is
premature and should be delayed until specific figures are available.

         50   PURA § 39.452(b).
         51   ETI Ex. 9 at PRM-1 at 7; Tr. at 20, 161, 175.
         52   ETl Ex. 9 at 14,20.
         53   State Ex. 1 at 41-42.
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PUC DOCKET NO. 37744

       ETI argues that the text ofPURA § 39.452(b) requires a non-discounted rate be set in the
same proceeding as the program's implementation:

       The tariffs subject to this subsection may not be considered to offer a discounted
       rate or rates under Section 36.007, and the utility's rates shall be set, in the
       proceeding in which the tariff is adopted, to recover any costs unrecovered as a
                                                   54
       result of the implementation of the tariff.

The ALl agrees that the clear language ofPURA § 39.452(b) requires that ETI recover all CGS
program start-up and administrative costs through tariffs established in this proceeding and to do
otherwise would result in a prohibited discount rate. The ALl notes that fuel reconciliations
occur with regularity at the Commission and are analogous to the Company's proposed true-up
mechanism for the        cas program.55       The ALl recommends that ETI recover in this proceeding,
its estimated startup and administrative costs through Rider          casc, to be trued-up with actual
costs in one year.

        TIEC and Staff also seek to limit the application of Rider       casc
                                                                   to customers that elect to
participate in the CGS program. 56 This argument has merit, because there is no discemable
benefit to the LIPS class customers who do not participate in the CGS program. As noted by
Staff witness Stephen Mendoza, the rider "would seem to go against a cost causation principle
whereby costs are allocated to those customers who cause the costs to be incurred.,,57

       There is also the possibility that non-participating LIPS class manufacturers would suffer
a competitive disadvantage. PURA § 39.452(b) specifically requires that:

       The commission shall ensure that a competitive generation tariff shall not be
       implemented in a manner that harms the sustainability or competitiveness of
       manufacturers that choose not to take advantage of competitive generation.58

       54   PURA § 39.452(b).
       55   ETl Ex. 76 at 32.
       56   Staff Ex. 3 at 12-13; TlEC Ex. 1 at 46-47.
       57   Staff Ex. 3 at 12.
       58   PURA § 39.452(b).
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PUC DOCKET NO. 37744

Although the recovery of CGS startup and administration costs may not affect the sustainability
of non-participating manufacturers, it may affect their competitiveness relative to CGS
participants, because non-participant manufacturers under the LIPS tariff will contribute to cost
recovery while not receiving the benefits of the program. ETI witness Phillip May justified
recovering these costs from LIPS class customers who decide not to participate because "those
customers have the opportunity to sign up for and benefit from the CGS program."S9 But this
argument ignores the plain language of PURA § 39.452(b) that prohibits competitive
disadvantage to those manufacturers who elect not to participate. The parameters of competitive
harm, however, were not spelled-out in the provision, nor is there specific evidence in the record
of such harm.

       ETI also points out that limiting Rider CGSC to participants may result in the Company
incurring the costs of implementation.       ETI witness May testified that, because there is a
possibility that no customers will participate, the Company would be unable to recover its start-
up and administrative costs if the rider is limited to CGS participants. 6o

        This raises a potential conflict brought about by the language ofPURA § 39.452(b), and
another reason the ALJ recommends against implementation of the program. Nevertheless, if
PURA § 39.452(b) is to be read in a manner to avoid conflict, the ALJ recommends that ETI has
proposed a reasonable compromise. The ALJ agrees that requiring any non-participant in the
CGS program to share in its costs violates the principle of cost causation. Yet, even Staff agrees
that PURA § 39.452(b) states the CGS tariffs "may not be considered to offer a discount rate or
rates under Section 36.007." PURA § 36.007(d) reads:

       Notwithstanding any other provision of this title, the commission shall ensure that
       the electric utility's allocable costs of serving customers paying discounted rates
       under this section are not borne by the utility's other customers.

As a result, Staff acknowledges the prohibition against "other customers" bearing the costs of a
discounted rate appears not to apply here. Assuming this is the legislature's intent, ETI could

       59   ETI Ex. 9 at 19,20.
       60   ETI Ex. 76 at 32-33.
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PUC DOCKET NO. 37744

charge other ratepayers its unrecovered CGS program costs, despite the principal of cost-
causation.

          Second, based on the record, the extent of competitive harm non-participant
manufacturers would suffer is unclear. What is clear, however, is that if Rider- CGSC applies
 only to participants and no entities participate, the Company would be left with unrecovered
startup costs, a result expressly prohibited by PURA § 39.452(b). If the Commission approves
ETI's proposal, the ALl supports limiting Rider CGSC to CGS participants.                             However, to
 address ETI's legitimate concern over the potential of being left with the costs, the ALl
recommends that Rider CGSC initially be implemented as proposed by ETI. However, once the
program has participants, all costs should be shifted to those participants immediately or at the
annual true-up.           A refund could be issued to non-participants concurrent with the cost
reallocation. The ALl understands that this issue has not been fully explored, but ETI indicated
in briefing that it is open to suggestions.

          2.         CGSUSC Rider

         Rider CGSUSC provides for the Company's recovery from non-participating customers
of the embedded generation costs that it will lose from customers that elect to participate in the
CGS program. It is intended to recover embedded generation costs and any other related base
rate costs and would apply to all non-participating customers across all classes, including LIPS
customers not participating in the CGS program. 61 As with Rider CGSC, the Company proposes
an annual true-up of estimated unrecovered costs to the costs actually unrecovered. 62 ETI notes
the annual true-up will also provide an opportunity to consider potential adjustments in light of
the level of participation in CGS and its impact on other classes. 63

         61    ETI Ex. 9 at 14, 15,21.
         62    ETI Ex. 9 at 21-22.
        63 ETI Ex. 9 at 23-24. While the Company has not proposed a cap on the level of CGS participation, it
recognized that this is a means oflimiting the exposure of non-participating classes to unrecovered costs. Tr. at 182.
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PUC DOCKET NO. 37744

       A number of parties argue that ETl is not entitled to recover embedded generation costs
or other base rate costs at all. These parties contend that ETl is essentially seeking to recover
lost revenues, not costs. Parties opposed to the rider argue no rate should be set in this case to
account for unrecovered costs.     Instead, such unrecovered costs should be recovered from
increased revenues from load growth, or from other savings that may be associated with the CGS
program.

       ETl argues these positions should be rejected because they are at odds with the
requirements of the governing statute and with fundamental rate setting principles. As argued by
ETI the "unrecovered costs" referenced in PURA § 39.452(b) and the "lost revenue" that ETI has
calculated as the measure of the unrecovered costs are one and the same in the ratesetting
context. ETl points out that OPUC witness Johnson acknowledged in his direct testimony that
"[r]evenues are intended to equal embedded cost of service for the adjusted test year.,,64 TIEC
witness Pollock also agreed at hearing the Company's unrecovered revenues calculation would
account for the migrating customers' share of the Company's embedded fixed production costS. 65

       The ALJ agrees with ETl that PURA § 39.452(b) requires that "the utility'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," and that the CGS legislation specifically authorizes the
Company to recover any unrecovered costs as "a result of' implementation of the CGS
program. 66 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.

       The ALJ agrees that ETI's revenue requirement is based on and designed to recover such
costs. With every customer that migrates to the CGS program, ETl loses a customer and suffers
"load loss." That is, the pool of customers contributing to the recovery of ETl's embedded

       64   Tr. at 350-351.
       6S   Tr. at 261-262,356.
       66   ETI Ex. 76 at 28-29.
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PUC DOCKET NO. 37744

generation costs shrinks with each new COS participant.         Load loss is detrimental to the
Company in the opposite manner that load growth benefits the Company. Additional customers
mean the base rate quantum is spread over a larger pool. Furthermore, the same parties who
oppose Rider CGSUSC also contend ETl should offset the rider with load growth. Under normal
circumstances, the ALJ would agree with those parties opposed to COSUSC, because ETl is only
entitled to seek, but is not guaranteed a set return on its investment.          However, PURA
§ 39.452(b) mandates ETI recover "any" of its unrecovered costs as a result of the
implementation of the program.      Opponents of Rider COSUSC have failed to identify any
caveats to this expansive language. As a result, the ALJ concludes that ETl is entitled to recover
the unrecovered embedded generation costs and any related base rate costs as a result of
customer migration to the COS program. As discussed below, however, that recovery should be
offset against load growth and any identifiable capacity savings at the annual true-up.

       The most troubling aspect of Rider COSUSC is that it recovers the unrecovered costs
from all non-participating ratepayers. As with the arguments for and against Rider CGSC, Staff
and a number of intervenors argue Rider COSUSC should be rejected because it is inconsistent
with the principal of cost-causation. Although the migrating COS customers cause the costs to
be incurred, Rider COSUSC recovers ETl's unrecovered embedded generation costs from all
other ratepayers, including non-LIPS class customers who are not eligible to participate in the
COS program. 67

       Furthermore, having non-COS participants pay for costs related to the COS program may
contradict the statutory requirement that the COS tariff not harm the "sustainability or
competitiveness of manufacturers that choose not to take advantage of competitive generation"
although there is no evidence on whether this might occur. 68 All of the arguments regarding
Rider CGSC's potential competitive harm to non-participating manufacturers apply with greater
force to Rider COSUSC. Not all manufacturing customers fall within the LIPS class. Due to the

       67   Staff Ex. 3 at 12.
       68   PURA § 39.452(b).
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PUC DOCKET NO. 37744

cost-shifting nature of this rider, all such manufacturers will be saddled with BTl's unrecovered
embedded generation costs, which may be as high as 75 million dollars. 69

         As with Rider CGSC, Staff acknowledges PURA § 39.452(b) permits BTl to recover
"any" of its unrecovered costs and the CGS rate is not to be considered a discount rate under
PURA § 36.007. As a result, the prohibition against allocating costs to "other ratepayers" under
PURA § 36.007 does not apply. However, Staff disagrees with BTl's conclusion that PURA
§ 39.452(b) mandates these costs be recovered only from non-CGS participants. Staff argues
that nothing in PURA § 39.452(b), prevents BTl from charging the CGS participants its
unrecovered costs. While the AU agrees with Staff, a primary point ofBTI's CGS program is to
remove itself from the market exchange between CGS customer and the QF supplier.
Recovering unrecovered capacity/base rate costs from the migrating customer runs counter to
this purpose.        Although, the AU agrees with BTl that recovering these costs from CGS
participants would make the CGS program economically unattractive, PURA § 39.452(b) does
not mandate that such unrecovered costs be recovered from non-participating customers. 70 There
is no easy resolution to this issue. Although the ALI provides further analysis below, Rider
CGSUSC is a primary reason that he recommends the proposal be denied, because it runs
contrary to the fundamental ratemaking principle of cost causation and may harm the
competitiveness of non-participating manufacturers.

                   a.       Cost Estimates

        One of the greatest concerns stated by opponents is that the amount of potentially
unrecovered costs is unknown. BTl estimates that if all LIPS class customer were to contract for
an alternative QF supply for 100 percent of their load, BTl could potentially realize 75.2 million
dollars in avoided embedded generation costs for the eligible CGS load. Company witness May
testified that the Company already knows the unit cost of embedded generation that would be
avoided.      The only question is what the level of participation will be.           ETl cannot predict

      69 PURA § 39.452(b)'s competitive language only applies to manufacturers who elect not to participate.
The AU acknowledges that non-LIPS class customers cannot participate.
        70   ETI Ex. 76 at 32-33.
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PUC DOCKET NO. 37744

whether 5 percent or 100 percent of ETl's LIPS customers will participate in the program.
Without knowing the level of participation there is no way to know the extent of costs. 71

        TIEC witness Pollock also offered an estimate of ETl's potential unrecovered embedded
generation and purchased power capacity costs. 72 He estimated the amount is approximately 15
million dollars at ETl's proposed revenues and 12 million dollars with TIEC's proposed
adjustments to ETl's purchased power capacity costs (discussed below). However, Mr. Pollock
admitted these figures were based on 200 megawatts of participation, which was "pulled out of
thin air.,,73     The uncertainty associated with these figures is that the number of LIPS-class
customers who will participate in the CGS program is unknown.

        Because PURA § 36.003 requires that an electric utility's rates be just and reasonable, the
electric utility proposing a rate change has the burden of proof on that issue. Given that the
potential costs of the CGS program are unknown and could be very substantial, opponents argue
that ETl has failed to show that Rider CGSUSC would result in just and reasonable rates. ETI
points out that the unrecovered costs will ultimately be trued-up. Opponents respond that the
true-up will not occur until a year after the implementation of the program, resulting in
ratepayers being charged as much as 75 million dollars for the first year of the program. 74 They
argue it is unreasonable for ratepayers to be charged a large, unsupported amount, especially
when they do not cause ETl to incur these costs or benefit from the CGS program.

         The ALJ agrees. The shifting of such unrecovered costs to rate-payers who do not cause
their lack of recovery and the uncertainty associated with the ultimate amount to be charged
other classes is another major reason for the ALl's recommended rejection of this program. This
is not, however, a criticism of ETI. ETl was given the difficult task of developing a semi-
competitive program for a limited number of customers, using its own distribution system and in
spite of its limitations as a regulated entity and member of an integrated multi-state utility

         71   ETI Ex. 9 at 14; Tr. at 157, 158, 162-163.
         72   TIEe Ex. 1 at 51-52 and Ex. JP-16.
        73    Tr. at 249.
        74    Tr. at 11, 14.
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PUC DOCKET NO. 37744

system, whose cost and resource allocations are largely controlled by the Operating Committee
consistent with the System Agreement. The Company notes that while the portion of embedded
generation costs subject to loss under the CGS program is known with certainty, the volume of
load associated with those unrecovered costs will only be known once the program begins and
participation levels are known. 7S All of these restrictions contributed to ETl's difficulty in
developing exact cost figures.

        The AU finds that ETl has made a good faith effort to determine the unit cost of
unrecovered embedded generation, but simply cannot predict the level of participation. In so
doing, ETl has given the Commission a worst-case scenario of 75 million dollars in unrecovered
costs if every eligible customer participates. Because a rate must be set in this proceeding, if the
Commission approves ETl's CGS program, the ALJ recommends the rate be set based on ETl's
projections until the first annual true-up period, after which ETl may use known and measurable
costs to set rates in the future, taking into account load growth and other potential benefits of the
program as discussed below.

                   b.      Annual True-ups Should Account for Load Growth

       Staff and opponents of Rider CGSUSC argue it is deficient because it fails to account for
load growth, which could mitigate ETl's unrecovered generation-related costS. 76 TIEC witness
Pollock explained that as load grows:

       each additional unit of energy sold will provide a contribution to all fixed costs
       including embedded generation costs [and that] any reduction in embedded
       generation cost recovery attributable to the CGS program [will] be more than
       offset by increased revenues due to load growth. 77

Although it remains to be see~ whether the reduction in cost recovery will be completely offset
by load growth, it should nevertheless be accounted for. The potential amount of unrecovered
costs is substantial and ETl seeks to recover these costs from ratepayers who don't cause them

       75   Tr. at 162.
       76   Tr. at 372.
       77   TIEe Ex. 1 at 50.
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PUC DOCKET NO. 37744

and are unlikely to benefit from the CGS program.             As a result, opponents argue that any
potential cost mitigation should be accounted for in designing Rider CGSUSC. The ALl agrees,
and notes that at a minimum, load growth should be explored in the annual true-ups ofthe rider.

         ETI points out that the unrecovered costs at issue here are the embedded test year
production costs upon which the Company's base rates are being established. ETI explains that
incremental changes in future costs and revenues do not play into the determination of how such
costs are recovered. 78 Instead, rates are set in the first instance to recover the historical cost of
service. Incremental future changes in revenue from load growth or future cost savings are
devoted to covering incremental future cost increases and to ensuring that shareholders still have
an opportunity to earn a fair return despite these future increases. 79 The Company argues that its
approach to unrecovered costs honors these fundamental rate setting principles: it preserves the
Company's opportunity to recover the existing embedded costs that its rates are set to recover,
while the other parties' use of load growth and alleged future cost savings violates these
principles.

        ETI also notes that the Commission has previously recognized that load growth
adjustments such as those suggested by opponents are inappropriate. Staff witness Mendoza, for
example, acknowledged the Commission's rejection of a base revenue/load growth adjustment in
adopting its rule implementing the transmission cost recovery legislation codified in PURA
§ 36.209. The Commission found that it was "not necessary or appropriate" to "account for
growth in overall revenue as a means to reduce the transmission costs eligible for recovery.... ,,80
The Commission found that such an adjustment would discourage utility investment and that the
impact of such load growth was more properly considered within the context of a future general
rate setting proceeding. 8 !

        78   Tr. at 356.
        79   Tr. at 351-352.

      80 Tr. at 358. Project No. 33253, Rulemaking Relating to Transmission Cost Recovery Factor for Non-
ERCOT Utilities, Final Order at 14 (Dec. 14,2007).
    , 81 Id.
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         The ALJ agrees with ETl's characterization of the traditional function of load growth in
the period between rate cases. However, Rider CGSUSC recovers ETl's unrecovered base rate
costs as a result of load loss from all ratepayers who are not beneficiaries of the CGS program.
This violates the principal of cost causation. As a result, the ALJ recommends that load growth
should be accounted for to the extent that non-participating ratepayers are subsidizing CGS
program participants.

         ETl also argues that its costs are likely to increase cancelling out any load growth. ETl
claims that recent increases in non-fuel operating and maintenance costs have outpaced, and
future forecast increases will continue to outpace, the Company's forecasted load growth due to
a number of factors. Company witness May explained that distribution costs, transmission costs,
and generation costs have all increased at a greater rate than the increase in the Consumer Price
Index. ETI also argues that regulators' push for increased energy efficiency has reduced the rate
of load growth increase. Increasing utility reliance on the maturing wholesale markets has
changed the traditional model of cost recovery to one where increased purchased capacity
expense must be captured through frequent rate case filings. 82 As a result, ETl claims that load
growth cannot account for additional costs in the way it has in the past. Opponents generally
argue that ETl's assumptions regarding its future costs lack evidentiary support or are unreliable.
The ALI finds that even if ETI is correct, cost increases affecting load growth is an issue that can
be addressed during the annual true-up proceeding.

         ETl also cited the Commission's transmission cost recovery factor (TCRF) rule for
utilities outside of the Electric Reliability Council of Texas (ERCOT) as support for not using
potential load growth in designing Rider CGSUSC. 83 Staff argues, however, that the rule
accounts for load growth, and protects ratepayers, because it requires the refund of any over-
recovery as a result of load growth, but prohibits the surcharge of any under-recovery.84 In its

        82   ETI Ex. 76 at16; 202-205; Tr. at 192,201-206.
        83   Tr. at 357-360.
         84  Tr. at 357-360; P.D.C. Subst. R. 25.239(f). See also P.U.C. SUBST. R. 25.239(d) (setting the
denominator for the TCRF -BD - as "each customer class's annual billing determinant (kilowatt-hour, kilowatt, or
kilovolt-ampere) for the previous calendar year").
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PUC DOCKET NO. 37744

order approving the rule, the Commission recognized the "proposed calculation properly
accounts for load growth for the purposes of the TCRF.,,85 The Commission concluded:

        it is not necessary or appropriate to require that the calculation of the TCRF
        account for growth in overall revenue as a means to reduce the amount of
        transmission costs eligible for recovery through the TCRF. To do so would
        undermine the underlying purpose of HB 989 to encourage timely investment in
        non-ERCOT transmission infrastructure. 86

Staff also notes that in the non-ERCOT TCRF rulemaking the Commission noted that non-
transmission costs could grow faster than the increased revenues resulting from the TCRF, which
was also an implicit recognition that the opposite could be true.

        According to Staff, the TCRF rule is designed to encourage investment in non-ERCOT
transmission infrastructure.      The CGS program, however, should be designed neither to
encourage nor discourage participation. Instead, Staff argues the program should be cost-based
to the extent possible and contends that PURA § 39.452(b) expresses a policy against cross-
subsidization by prohibiting implementation in a manner that "harms the sustainability or
competitiveness of manufacturers that choose not to take advantage of competitive generation."
In light of this legislative policy and the limited scope of eligible customers, inaccuracies in the
allocation of costs should be resolved in favor of over-allocating costs to the program rather than
under-allocating costs to the program. Thus, Staff argues that accounting for load growth in the
CGS program is appropriate.

        ETI argues that if the Legislature had intended to include a load growth adjustment as
part of a mechanism for cost recovery, it would have done so. ETI notes that in the same bill that
first addressed the CGS program, the Legislature explicitly included a load growth adjustment in
the context of the Incremental Purchased Capacity Rider:

       85 Project No. 33253, Order Adopting New § 25.39 as Approved at the December 7,2007 Open Meeting
(December 14,2007) at 14.
       86 Project No. 33253, Order Adopting New §25.39 as Approved at the December 7, 2007 Open Meeting
(December 14, 2007) at 14.
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PUC DOCKET NO. 37744

       An electric utility subject to this subchapter is entitled to recover, through a rate
       rider mechanism, reasonable and necessary costs of incremental resources
       required to meet load requirements to the extent those costs result in the utility
       expending more for capacity costs under purchase power agreements than were
                                                                               87
       included in the utility's last base rate case, adjustedfor load growth.

ETI argues the express inclusion of a load growth adjustment in this provision indicates
legislative intent to exclude it where not made explicit, as in PURA § 39.452(b).

       The ALJ disagrees. As Staff notes, PURA § 39.455 concerns the recovery of incremental
costs and the express recognition of incremental load (load growth) is logical in that context.
PURA § 39.455 specifically references "necessary costs of incremental resources required to
meet load requirements to the extent those costs result in the utility expending more for capacity
costs under purchase power agreements than were included in the utility's last base rate
case ... ,,88 In contrast, PURA § 39.452(b) lacks specificity about such cost recovery, using only
the term "any" in reference to costs.         If the vague term "any" is broad enough to include
unrecovered base rate costs, as argued by ETI, then the ALJ finds that it should also be read as
inclusive of traditional offsets to those costs, such as load growth.

                 c.      Potential Benefits of the CGS Program

                         i.      Capacity Savings

       Opponents of the CGS program argue that ETI failed to identify a number of potential
benefits for non-participating customers. TlEC provided substantial briefing on this issue and
the ALI's analysis focuses on its arguments among opponents.            TIEC points out that the
Commission has long recognized that QF power may be used to avoid a utility's capacity and
energy costs. In Docket No. 5994, for example, the Commission held:

       It is generally recognized that QF power may be used for two purposes. The first
       purpose, which is the primary thrust of Section 201 of PURPA, is the
       displacement of a utility's fuel with that of QFs to achieve a more efficient use of

       87   PURA § 39.455 (emphasis added).
       88   PURA § 39.455.
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 PUC DOCKET NO. 37744

          natural resources. The second purpose is the substitution of QF generating plant
          for utility-constructed generating plant.   That is, rather than constructing
          generating plant to serve its system demand, the utility should utilize, where
          practical, the generating plant of QFs. 89

 TIEC argues the Commission's rules establish how avoided costs for QF capacity and energy
 should be addressed,90 and that the Commission has addressed how avoided costs may be
 determined for firm and as-available QF power and what constitutes firm or non-firm QF
 power. 91

          First, TIEC argues that the CGS program would reduce ETI's capacity costs.                         It is
 undisputed that ETI is a capacity short company that pays capacity costs each month for
 purchased power and for its share of Entergy System capacity reserves. 92 According to ETI,
 purchased capacity costs, including capacity costs from its affiliates, were a significant
 component of the Company's cost of service and constituted 34 percent of the company's non-
 fuel revenue requirement.93 Even though ETI recently entered into several purchased power
 contracts, ETI's capacity deficit is expected to worsen over time and its load is growing at an
                                        94
 estimated average rate of 1.8 percent. As a result, TIEC urges the Commission to deem CGS
power as a firm source of generation, with the added benefit of reduced capacity costs for all of
ETI's customers.

         89 Petition of Inquiry into the Rates Paid by Houston Lighting and Power Company to Qualifying Facilities
for the Purchase of Non-Firm Energy, Docket No. 5994, 12 Tex. P.U.c. Bull. 795 (Oct. 6, 1986), 1986 WL 380068,
*4.

        90 P.U.C. SuaST. R. 25.242 (establishing rules for calculating avoided energy and capacity costs for fIrm
and non-fIrm QF power).

         91 P.U.C. SuaST. Rs. 25.242(c)(5), 25.242(g), 25.242(i); see also Complaint of JD Wind 1, LLC, et. ai,
Against Southwestern Public Service Company, Docket No. 34442, Proposal for Decision (Mar. 25, 2009) and Order
(May 1, 2009).
         92   Tr. at 103, 173; ETI Ex. 52 at 26-28.
        93    ETI Ex. 9 at 28.

          94 Tr. at 109, 246; TIEC Ex. 12. See Application of Entergy Texas, Inc. for Approval of Power Cost
Recovery Factor, Docket No. 37482 (seeking recovery of Entergy Arkansas Inc. Wholesale Baseload purchased
power contract); see also OPC Ex. 1 at 91; and ETI Ex. 76 at 25 (seeking recovery for the Frontier purchased power
contract).
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PUC DOCKET NO. 37744

         TIEC makes a valid point.            LIPS customers account for 23 percent of ETl's total
demand. 95 If demand-related costs could be reduced by moving firm LIPS customers to CGS
load, the CGS program could possibly benefit all of ETl's customers through reduced MSS-l
costs and reduced capacity ETl currently procures in the market to serve LIPS customers. To
recognize these savings, however, ETl would have to treat the QF put as firm load - which it
cannot. TIEC proposes a number of different ideas for achieving this. TIEC proposes that the
Operating Company could recognize participating QFs as IPPs and enter into negotiated rates
with the QFS. 96 Capacity cost savings would result from a firm capacity contract with each QF,
                                                                                                            97
as demonstrated by EGSl's contract with Calpine's Carville facility, a QF located in Louisiana.
However, the Commission does not have the authority to compel the Operating Committee to do
so and ETI is subject to the Operating Committee's decisions on this issue.

         TIEC also argues that a specific contract with ETl is not a pre-condition to treating QF
power as capacity. TIEC posits the Commission could order ETl to recognize the capacity cost
savings resulting from a QF contract with a CGS customer. TIEC contends that FERC precedent
and the System Agreement explicitly recognize that, if a state commission determines that
capacity costs can be avoided by QF purchases, that determination will affect the amount of
capacity deemed available for the operating company and will impact MSS-l reserve
equalization payments under the System Agreement. 98 ETI and Staff respond that this authority
does not apply to QF put from CGS suppliers, because it would not be within the utility's
control. As a result, ETI cannot recognize the capacity benefits of QF put. 99

        TIEC claims there must be some avoided capacity costs by taking a steady stream of QF
power. There is Commission authority for such recognition and the FERC has held that "[s]tate
commission avoided cost determinations should be recognized for intra-system billing purposes

        95   ETI Ex. 9 at 13.
        96   Tr. at 88.
        97   Tr. at 298; TIEC Ex. 11 at TIEC 9-9 EC1209.
        98 Tr. at 86; TIEC Ex. 9, Entergy System Agreement at Section 10.02(f) and 2.12; State ofArk. v Middle
South Servs., Inc., 34 FERC ~ 61342,61639, Opinion No. 246-A (March 17, 1986) (affrrming Opinion No. 246, 33
FERC ~ 61408 (Dec. 23, 1985).
        99   Tr. at 87.
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PUC DOCKET NO. 37744

under the System Agreement.,,100 TIEC argues that ETI could recognize a negotiated contract or
rate with a QF, or the Commission could simply order ETI to recognize avoided capacity costs
from the CGS program. According to TIEC, the Commission has the jurisdictional authority to
determine whether the power put to ETI by a QF as a result of a CGS customer's contract with
the QF results in firm capacity, 101 is evidence of the utility's legally enforceable obligation to
take that power,102 and creates avoided costs associated with the power. 103

         TIEC acknowledges, however, that Commission rules differentiate capacity and energy
benefits provided by QFs based on whether the power is firm or non-firm. In Docket No. 5994,
the Commission determined that "[t]he difference between firm and nonfirm primarily is the
existence or non-existence of a legally enforceable obligation on the behalf of the QF to provide
power.,,104 P.u.e. SUB ST. R. 25.242(c)(5) explicitly defines "Firm Power" from a QF as power
"[f]rom a qualifying facility ... that is available pursuant to a legally enforceable obligation for
scheduled availability over a specified term.,,105 TIEC argues that notice to ETI of a contract
between a QF and a CGS customer would create such a legally enforceable obligation. l06
According to TIEC, courts have held that a legally enforceable obligation need not be a contract

        100 Opinion No. 246, 33 FERC ~ 61408 (Dec. 23, 1985); Houston Lighting and Power Company, Docket
No. 10832,20 Tex. P.U.C. Bull. 312 (Jun. 9, 1994) (addressing avoided costs for a utility that received fIrm energy
and capacity from a QF).
         101 p.u.c. SUBST. R. 25.242(c)(5) (defIning "fIrm power" from QFs) and P.U.C. SUBST. R. 25.242(c)(5)
(describing factors considered in determining quality offrrmness ofQF power).
          102 Power Resources Group, Inc. v. Pub. Uti!. Comm 'n o/Tex., 422 F.3d 231 (5th Cir. 2005) (holding that
the Commission had authority under P.U.c. SUBST. R. 25.242(£)(1)(B) to determine whether QF put power to utility
resulted in a legally enforceable obligation); see also Pub. Servo Co. of Ok. V. State Ok. Corp. Comm 'n, 115 P.3d
861,872 (Jun. 2005) (citing Metropolitan Edison Co., 72 FERC 61,015, 61, 050, 1995 WL 397198 (1995)) ("It is up
to the States, not [FERC], to determine the specifIc parameters of individual QF power arrangements, including the
date at which a legally enforceable obligation is incurred under State law.").
         103 See et. aI., 16 U.S.C. § 824a-3(f); FERC V. Miss., 456 U.S. 742 (1982); 18 C.F.R. 292.401(a); Petition
of Inquiry into the Rates Paid by Houston Lighting and Power Company to Qualifying Facilities for the Purchase of
Non-Firm Energy, Docket No. 5994, 12 Tex. P.U.C. Bull. 795 (Oct. 6, 1986), 1986 WL 380068, *4.
          104  Petition of Inquiry into the Rates Paid by Houston Lighting and Power Company to Qualifying
Facilities for the Purchase of Non-Firm Energy, Docket No. 5994, 12 Tex. P.U.c. Bull. 795 (Oct. 6, 1986), 1986
WL 380068, *5 (holding that the "difference between fIrm and nonfrrm primarily is the existence or non-existence
ofa legally enforceable obligation on the behalf of the QF to provide power.")
        lOS   P.U.c. SUBST. R. 25.242(c)(5).
        106   P.U.C. SUBST. Rs. 25.242(c)(5), 25.242(£)(1)(B).
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PUC DOCKET NO. 37744

for power between a utility and QF,107 and the Commission recognizes that when a QF and a
utility enter into a contract for the transfer of power, "the law will impose a legally enforceable

      .
obligation on the utility if the parties are unable to agree on contractual terms.,,108 Under the
Commission's rules and precedent, a legally enforceable obligation of an electric utility to take
energy and capacity from a QF arises when the QF notifies the utility that it will deliver firm
power within 90 days.109

          TIEC concludes that if a legally enforceable obligation for firm power exists, then BTl
must recognize avoided capacity costs associated with CGS QF pUt. IIO Specifically, P.U.C.
SUBST.     R. 25.242(c)(13) outlines numerous factors to determine the "degree to which capacity
offered by the qualifying facility is an equivalent quality substitute for firm purchased power or
an electric utility's own generation." The factors include:

          reliability of generation and interconnection; forced outage rate; availability
          during peak periods; the terms of any contract or other legally enforceable
          obligation, including, but not limited to, the duration of the obligation,
          performance guarantees, termination notice requirements, sanctions for
          noncompliance; maintenance scheduling; availability for system emergencies,
          including the ability to separate the qualifying facility's load from its generation;
          the individual and aggregate value of energy and capacity from qualifying
          facilities on the utility's system; other dispatch characteristics; reliability of
          primary and secondary fuel supplies used by the qualifying facility; and impact on
          utility system stability. III

TIEC proposes that these factors would be examined in a proceeding to determine CGS program
unrecovered costs, presumably in a true-up proceeding.

         107 Pub. Servo Co. of Ok. V. State Ok. Corp. Comm'n, 115 P.3d 861,872 (Jun. 2005) (citing Metropolitan
Edison Co., 72 FERC 61,015, 61, 050, 1995 WL 397198 (1995» ("It is up to the States, not [FERC], to determine
the specific parameters of individual QF power arrangements, including the date at which a legally enforceable
obligation is incurred under State law.").
        108  Complaint of JD Wind 1, LLC, et. ai, Against Southwestern Public Service Company, Docket
No. 34442, Proposal for Decision at 6 (Mar. 25, 2009), Order (May 1, 2009).
          109   Docket No. 34442, Proposal for Decision at 9 (referring to p.u.C. SUBST. R. 25.242(f)(1)(B».
          110   Docket No. 34442, Proposal for Decision at 10.
          III   P.U.C. SUBST. R. 25.242(c)(13).
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PUC DOCKET NO. 37744

         Finally, TIEC argues that the    cas program would result in reduced operational costs for
ETI due to decreased volatility in QF put power.          TIEC argues that ETI would experience
operational savings due to a flatter round-the-clock load shape. As a result, ETI could eliminate
a sporadic PURPA put pattern and would not have to swing generation associated with QFs as
much. TIEC argues that this would reduce the amount of capacity needed to maintain reliable
service. I 12

         The obvious problem with TIEC's arguments is that they are premature. For instance,
there is no evidence on any of the factors to determine whether OF put is firm because the
program has yet to be approved, implemented, or subscribed to. Until that happens there are no
contracts to be examined, nor capacity savings to be explored. In short, the record did not
indicate whether there would actually be any capacity benefit. I 13 Mr. Pollock admitted that QF
put does not count as capacity in ETl's resource planning, that such savings are only a potential
benefit, and that there has been no specific quantification of potential savings from reduced
capacity costS.11 4 As for operational costs, there is no evidence on load shape or decreased
volatility in QF put power.

         Furthermore, as argued by Staff and ETI, Mr. Pollock acknowledged that QF put is a
non-finn source of energy. 115 He also acknowledged that his theory of capacity savings was
dependent on an assumption that the QF put from which cas customers will be supplied is
treated as a firm resource. 116 Both Staff and ETI argue that QF put cannot be treated a finn
supply. First, with regards to any contract between a cas supplier and customer, the Company
would be a third party to the contract with no rights whatsoever stemming from that contract.
The fact that a cas customer might contract with a cas supplier for a "firm" supply of power,
does not change the fact that ETI would have no control over the power put by the QF to ETI --
that power would still be non-firm to ETI. Second, the contract between the       cas supplier and

         112    Tr. at 252, 330.
         113    Staff Ex. 3 at 11.
         114    Tr. at 251,291-292,315.
         115    Tr. at 284.
         116   Tr. at 315.
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PUC DOCKET NO. 37744

customer would simply be a financial transaction, and have no impact on the necessities of ETI' s
resource planning. The Company's obligation to provide continuous, reliable service to all of its
customers, including those that migrate to CGS, would remain unchanged; CGS customers must
receive firm service and ETI cannot plan its system any differently regardless of customer
type. 117 As a result, Staff and ETI argue that capacity cost savings are unlikely.

       Staff and ETI also argue that TIEC's reliance on P.D.C. SUB ST. R. 25.242's definition of
"firm power" is misplaced. The definition of "firm power" in the rule states: "from a qualifying
facility, power or power-producing capacity that is available pursuant to a legally enforceable
obligation for scheduled availability over a specified term.,,118 Again, the contract between the
QF and the CGS customer is irrelevant. The purpose of the rule is "to regulate arrangements
between qualifying facilities, retail electric providers with the price to beat obligation (PTB
REPs), and electric utilities.,,119 The rule only applies to "all PTB REPs and to all electric
utilities.,,120 A CGS customer is not one of these entities, and is not subject to the rule even ifit
enters into a contract with a QF subject to the rule. The ALJ agrees with Staff and ETI. A
contract between a CGS customer and a QF is not subject to the rule and cannot serve as the
basis for finding a "legally enforceable obligation" between the QF and ETI to satisfy the
definition of "firm power."

       At this point, the ALJ agrees with Staff and ETI that the Company cannot, nor should the
Commission treat, CGS QF put as firm capacity. However, as noted by Mr. Pollock, because a
CGS customer will need firm, reliable service, it is reasonable to anticipate they will enter into
contracts with QF suppliers for firm round-the-clock power. As a result, the ALJ anticipates (as
do most intervenors) that ETI's purchased capacity and MSS-l needs will drop in some
proportion to the number of LIPS customers who migrate to the CGS program. If all non-
participating ETI customers are to make up for ETI's resulting load loss, then they should also
realize the benefit of any capacity savings. If the Commission approves the CGS program, the

       117   Tr. at 52, 124, 125, 136-137.
       118   P.U.C. SUBST. R. 25.242(c)(5).
       119   P .U.c. SUBST. R. 25.242(a).

       120   P.U.C. SUBST. R. 25.242(b).
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PUC DOCKET NO. 37744

ALJ recommends that the issue of capacity savings be fully explored in the annual true-up
proceeding, where evidence can be taken on the factors identified above, and on the existence
and extent of such benefits.

                             ii.      Potential Average Fuel Cost Savings

         Opponents also argue that the CGS program has the potential to lower average fuel costs
for non-CGS participants. ETl's proposal contemplates that CGS customers will move off the
fuel factor and instead pay energy costs at the avoided cost rate. ETl's firm customers (LIPS,
residential, commercial) are on ETl's fuel factor and pay average fuel costs, as opposed to
avoided fuel costs. During the reconciliation period, ETl's avoided costs of QF energy were
higher than its average costs of energy. As a result, these parties contend that if firm LIPS load
had moved to the CGS tariff during the reconciliation period, average fuel costs would have
lowered for non-CGS participants. 121

         ETI argues that avoided fuel costs could actually be lower than average fuel costs, but no
party other than TIEC provided analysis of this likelihood. In fact, both Cities witness Karl
Nalepa and ETI witness John Hurstell confirmed that, when avoided costs are higher than
average costs, non-CGS customers would experience lower average fuel costs; and that they had
conducted no analysis comparing ETl's average and avoided fuel costs. I22 While there could be
certain times when avoided fuel costs are lower than average fuel costs, TlEC argues that
increases in gas prices make this scenario less likely. 123

          121 Tr. at 229-230,311. See P.D.C. SUBST. R. 25.242(c)(1) (defIning "avoided costs" as "[t]he incremental
costs to a PTB REP, or electric utility of electric energy, which but for the purchase from the qualifying facility or
qualify facilities, such PTB REP or electric utility would generate itself or purchase from another source") and TlEC
Ex. 6 (describing the methodology for calculating ETI's avoided energy costs from QF puts under Schedule LQF);
see also Tr. at 78 (describing average energy costs as the total amount of energy sources on the system divided by
total energy).
         122   Tr. at 115,229,231. TlEC Ex. 14.
         123   TIEC Ex. 2 at 57-59.
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                                                                                 124
        Staff notes that these purported benefits have yet to be quantified.           Staff is also
concerned that because potential unrecovered generation costs could be substantial, any benefits
would probably be inadequate to offset those costs. Staff is correct that it is premature to attempt
to weigh the relative value of such benefits - there is no evidence on the matter. Nevertheless, in
the event the Commission approves ETI's CGS proposal, the ALl recommends that a review of
average fuel cost saving should at least be included in the annual true-up proceeding.

c.      ETI May Recover its Costs Through a Rider

        Cities argue that PURA § 39.452(b) limits ETI's recovery of unrecovered costs to
program implementation and administration costs (CGSC costs) and prohibits recovery of
unrecovered costs through a rider. Cities cite to the legislative history of PURA § 39.452(b),
specifically the Bill Analysis filed with the House Committee Substitute to House Bill 1567, to
support both arguments. 125 The portion of the Bill Analysis Cities rely on states:

        At the time the utility files a rate proceeding, a competitive generation tariff must
        be proposed that the PUC shall approve, reject or modify. Any tariff that is
        approved cannot be considered as a discounted rate and the utility's rates shall be
        set in this proceeding to recover any costs associated with the tariff. When the
        utility files a rate proceeding, they cannot request approval of both a rate change
        and a rate rider mechanism.

The ALJ rejects the idea that ETI is limited to recovering CGSC costs. The language of PURA
§ 39.452(b) imposes no such restrictions, and clearly states ETI is entitled "to recover any costs
unrecovered as a result of the implementation of the tariff."

        Staff and ETl also disagree with Cities' interpretation ofPURA 39.452(b) stating that the
CGS tariffs "may not be considered to offer a discounted rates or rates under Section 36.007."
Cities argue that the reference to PURA § 36.007 means that ETl must recover its cost of
providing service to CGS customers since to recover less than its cost would mean that it would

        124   Tr. at 251.
        125   Cities Initial Brief at 13.
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 PUC DOCKET NO. 37744

 be offering a discounted rate. 126 The Cities argue further that because PURA § 36.007 requires
 ETI to recover its costs, it cannot reallocate those costs to other customers of the utility. Cities
 do not explain why a statutory requirement that ETI recover its costs means that it is prohibited
 from recovering those costs from other ratepayers.

          Staff argues that Section 39.452(b)'s reference to Section 36.007 means the prohibition
 against recovering costs associated with a discounted rate from other ratepayers does not apply to
 the CGS tariff and that therefore ETI can recover its unrecovered costs from other ratepayers so
                   . . approves such a recovery. 127
 1ong as th e CommlSSlon

          Finally, Staff notes that Cities' argument that PURA § 39.452(b) only allows ETl to
 recover its unrecovered costs through base rates, raises another issue. Both riders include an
 annual true-up mechanism, which Staff is concerned may be retroactive ratemaking not
                               128
 authorized by PURA.                 The Commission is currently considering a proposed rule under which
 utilities may reconcile their distribution costs of service. 129 As a result, Staff requests that the
 Commission consider resolving the retroactive ratemaking issue consistently in this docket and
 that rulemaking.

D.       The Unserved Energy Rate

         ETI proposes that in instances where the QF is either unable or chooses not to put energy
to ETI, the CGS customer will take energy from ETI at the Unserved Energy rate. The proposed
Unserved Energy rate is based on a fixed heat rate and objective market gas prices. ETl argues
that this approach gives the CGS customer certainty as to pricing so it can either contract for
such risk with the QF or hedge that risk. ETl also asserts that the rate involves a sufficiently

         126   Cities Initial Brief at 15-16.
         127   Staff's Initial Brief at 4.

        128 See Project No. 38298, Initial Comments of the Steering Committee of Cities Served by Dncor (July
26,2010), at 16.

         129 Rulemaking Related to Recovery by Electric Utilities ofDistribution Costs, Project No. 38298, Proposal
for Publication of New § 25.43 as Approved at the June 11,2010 Open Meeting (June 14,2010) at Section (d).
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PUC DOCKET NO. 37744

high heat rate to incent against using Unserved Energy as a primary supply option, or to dissuade
the QF from sales other than to the CGS customer when it is more profitable to do    SO.130

        TIEC argues that the Company's Unserved Energy rate should be replaced by Standby
and Maintenance Service (SMS), currently available under ETI's SMS tariff. TIEC contends
that SMS and CGS customers are indistinguishable. l3l ETI first responds that this claim is based
on the false assumption that the Company is being supplied firm energy and capacity directly
from the QF. As explained above, CGS QF put cannot be considered firm energy. ETI also
argues that TIEC's proposal fails to recognize substantive differences between SMS and the role
of the Unserved Energy rate. The Unserved Energy rate is not designed to function as back-up
power as with customers that contract with ETI under SMS. Customers under the SMS tariff
own their own generation, contract for SMS capacity, and in turn may rely on that capacity and
purchase energy when their own generation becomes unavailable. 132 SMS customers may not
resell any power taken under the SMS tariff. Furthermore, unlike the SMS tariff, there is no
requirement that CGS customers own their own generation, and many will not. 133
Consequently, many potential CGS customers would not be eligible to participate in the CGS
tariff if the SMS tariff were read into the CGS requirements. CGS and SMS customers are not
indistinguishable.

       Next, ETI argues that the energy rate charged to CGS customers and under the SMS tariff
is based on the avoided costs determined after the fact for SMS. 134 ETI explains that, if the SMS
rate were the recourse rate under CGS, the CGS customer would have no certainty before the
fact of its risk exposure for a failure of the QF to put energy to ETI. This would complicate the
CGS customers' ability to mitigate that risk. That said, there is little risk to address because the
energy rates are effectively the same for CGS service and SMS. TIEC's proposal seriously
undermines its assertions that CGS customers and QFs could effectively firm up QF put energy

       130   ETI Ex. 52 at 45-46.
       131   TIEC Ex. 1 at 44.
       132   Tr. at 124; ETI Ex. 73 at 17.
       133   ETI Ex. 73 at 17-18.
       134   The SMS tariff provides for an avoided cost rate plus an adder.
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with contracts that assure delivery and energy. There is little incentive for a CGS customer to
pay a premium for delivery assurance if the customer will pay approximately the same energy
rate for CGS supply as it would pay for the energy that the Company provides when that
customer's QF supply option is unavailable. The CGS customer would be relatively indifferent
to the source of energy supply. TIEC's proposal for replacing Unserved Energy with the SMS
rate is flawed as it does nothing more than offer the CGS customer neutral pricing options in lieu
of alternative supply options.

       TIEC and OPUC expressed the concern that the Unserved Energy rate will allow the
Company to realize additional profit. 135 ETI responds that any revenues obtained through
application of the Company's Unserved Energy component will be returned to all customers
through the Company's fixed fuel factor (including LIPS customers as to the portion of load not
designated for CGS service) as a credit to the fuel balance. 136

       Finally, ETI argues that under TlEC's proposal, QF put would be deemed avoided
capacity for MSS-I purposes, purchased by ETI at its avoided capacity costs, and then purchased
from ETI by CGS customers at avoided energy costs. In other words, the QF put would be
recognized as avoided capacity when doing so would result in MSS-l savings, but then priced as
avoided energy when it comes time for CGS customers to purchase such put from ETI.            The
ALJ agrees that TIEC's proposal on Unserved Energy should be rejected.

                                             VI. CONCLUSION

       PURA § 39.452(b) authorizes the Commission to accept, reject, or modify the
Company's proposed CGS tariff. The ALJ finds that ETl's proposal represents a good faith
effort to develop a CGS program that does not violate the System Agreement and yet complies
with PURA § 39.452(b). The ALJ recommends the Commission reject the proposal, however,
because it shifts a significant cost burden to ratepayers who either cannot or elect not to
participate. The Legislature made clear in PURA § 39.452(b) that the Company will not be

       135   TlEC Ex. 1 at 45; OPUC Ex. 1 at 87.
       136   ETI Ex. 73 at 19; Tr. at 199.
SOAH DOCKET NO. XXX-XX-XXXX                 PROPOSAL FOR DECISION                       PAGE 42
PUC DOCKET NO. 37744

responsible for any unrecovered costS.1 3? Furthermore, the costs cannot be accurately quantified
until the program has been implemented and the number of participants known - thus
necessitating two cost-recovery riders and an annual true-up.        ETl recognizes the policy
implications of such cost-shifting and made this appeal to the Commission:

       ETI realizes that the cost shifting associated with the CGS program raises
       important policy concerns. If such concerns cause the Commission to conclude
       that the CGS program as proposed should not be adopted, the proper course of
       action is to reject the program as allowed by the statute, rather than modify the
       program in a way that would require shareholders to fund unrecovered costs. 138

The ALJ agrees and recommends that ETl's proposed CGS program be rejected. The proposed
Findings of Fact and Conclusions of Law are limited to the CGS issue as the parties have already
provided the remaining proposed findings and conclusions in the Stipulation and Settlement
Agreement and Proposed Final Order.

             VII. PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

A.     Findings of Fact on ETl's CGS Proposal

1.     As part of its application, ETl proposed a Competitive Generation Service (CGS)
       pursuant to Public Utility Regulatory Act, TEX. UTIL. CODE ANN. (PURA) § 39.452(b).

2.     On July 16, 2010 and July 20, 2010, a SOAR Administrative Law Judge held a hearing
       on the merits on ETl's CGS Proposal.

3.     ETl's proposed CGS tariff provides eligible customers with the opportunity to have ETI
       purchase competitive generation selected by the CGS customer and provide the selected
       generation at retail to the CGS customer.

4.     The eligible customers are Large Industrial Power Service (LIPS) customers under the
       proposal.

5.    Under the proposed tariff, a CGS customer would have the ability to contract with a
      participating CGS supplier, an eligible Qualifying Facility (QF), that puts energy to ETl
      for a set amount of load at an agreed upon price.

       137
                  PURA § 39.452(b).
      138    ETl Initial Brief at 9.
SOAR DOCKET NO. XXX-XX-XXXX                PROPOSAL FOR DECISION                      PAGE 43
PUC DOCKET NO. 37744

6.    The CGS customer must designate what portion of its load will be served by its CGS
      supplier under the CGS tariff and what portion will be served under the applicable LIPS
      tariff rate.

7.    So long as the CGS supplier provides the energy contracted for by the CGS buyer, BTl
      will continue to purchase energy from the QF at the avoided cost rate and the CGS
      customer will pay BTl the avoided cost rate for the level contracted for in place of all
      generation relate~ components that would otherwise be billed under the LIPS tariff.

8.    A CGS customer and a QF supplier are free to contract, without ETl's participation, for a
      price other than avoided costs, in which case, the costs above or below the avoided costs
      would be accounted for in payments between the CGS customer and CGS supplier, as
      prescribed by the contract.

9.     The proposed tariff would consist of a schedule describing the provisions of the program
       (Schedule CGS) along with two cost recovery riders associated with the proposed
       program: the Competitive Generation Service Cost rider (Rider CGSC) and the
       Competitive Generation Service Unrecovered Service Cost rider (Rider CGSUSC).

10.    Rider CGSC is designed to recover costs related to implementation and operating costs
       incurred to support the CGS program. These costs would be recovered from all CGS
       eligible customers (LIPS) customers through Rider CGSC regardless of whether they
       actually take the CGS service.

11.    Rider CGSC would recover ETl's initial and ongoing program costs from ratepayers who
       would not cause those costs to be incurred.

12.    Rider CGSC would recover costs from ratepayers who do not participate in the CGS
       program.

13.    The amount of implementation and operating costs incurred to support the CGS program
       to be recovered through Rider CGSC cannot be ascertained until after the program is
       implemented and CGS customers participate.

14.    Rider CGSUSC is designed to recover the difference between what would have been
       billed by BTl under traditional LIPS service and what is billed under the combined CGS
       tariff and modified LIPS service.

15.    The amount of unrecovered embedded generation costs and any other related base rate
       costs to be recovered under Rider CGSUSC cannot be ascertained until after the program
       is implemented and CGS customers participate in the program.

16.    Rider CGSUSC would recover embedded generation costs and any other related base. rate
       costs and would apply to all non-participating customers across all classes, including
       LIPS customers not participating in the CGS program.
SOAR DOCKET NO. XXX-XX-XXXX                PROPOSAL FOR DECISION                       PAGE 44
PUC DOCKET NO. 37744

17.   Rider CGSUSC would recover ETl's unrecovered embedded generation costs from
      ratepayers who would not cause those costs to be incurred.

18.   Rider CGSUSC would recover costs from ratepayers who do not participate in the CGS
      program.

19.   Rider CGSC and Rider CGSUSC may harm the competitiveness of manufacturers that
      choose not to take advantage of competitive generation.

20.   The power put to ETl would have no effect on ETl's generation resource planning
      because the energy put to ETl by a QF is a non-firm resource.

21.   There has not been a quantification of the alleged benefits to non-CGS customers that
      would result from potential capacity savings, reduced average fuel costs, and additional
      revenues from the Unserved Energy Rate.

22.   Rider CGSUSC is deficient because it does not account for potential load growth. Load
      growth should be accounted for because load growth could mitigate ETl's unrecovered
      generation related costs.

B.    Conclusions of Law on ETl's CGS Proposal

1.    PURA § 39.452(b) permits ETl to charge its unrecovered initial and ongoing program
      costs and generation related costs to customers who do not participate in the CGS
      program.

2.    ETl cannot be required to absorb its unrecovered costs under PURA § 39.452(b).

3.    PURA § 39.452(b) does not prohibit ETl from charging CGS participants its unrecovered
      costs.

4.    PURA § 39.452(b) requires that the Commission "approve, reject, or modify" the CGS
      tariff proposed by BTL

5.    PURA § 39.452(b) permits ETl to account for load growth in the design of the CGS
      tariff.

6.    ETl has not met its burden of proof to establish a rate regarding the unrecovered cost of
      implementing the CGS program.

7.    The term "eligible customer" in PURA § 39.452(b) does not mandate that the CGS
      program be only available to LIPS class customers.

8.    P.U.C. SUBST. R. 25.239 accounts for load growth.
SOAR DOCKET NO. XXX-XX-XXXX             PROPOSAL FOR DECISION                    PAGE 45
PUC DOCKET NO. 37744

9.    Neither a CGS customer nor a contract between a CGS customer and a QF is subject to
      P.D.C. SUB ST. R. 25.242(c)(5).

10.   ETl's CGS proposal is rejected.

      SIGNED October 4, 2010.
                                        _.~

                            ~RY----ADMINISTRATIVE LAW JUDGE
                                   STATE OFFICE OF ADMINISTRATIVE HEARINGS
                                           ATTACHMENT A

        Financi~
        Contract
 specifyine a level
        putto ETI
                                     Hourly Avoided              Allocation of
                                     Cost Sche dule              Texas QF put
                                          LQF                     (non-firm)

                        CGS Tariff                          I
                                                            I
                          (firm)                            I
                       (enerev at                           I
                                                            I                    \
                      avoided co                            I                        \
                         pricine)                           I
                                                            I                            \
                                                            I                                \

                                                      ..
                                                      ~     I
                                                           ...
                                                                                              \
                                                                                              ~

------>
      Unserved energy rate if OF does not put to System (any revenues go to non-CGS
      customers as credit to fuel expense)
      Startup and ongoing costs (CGSC rider)
----> Unrecovered embedded generation costs (CGSUSC rider)
                                                                                       .e_
                                                                  SOAH Docket No. XXX-XX-XXXX
                                                                    PUC Docket No. 37744
                                                                  ETI Exhibit No. 9

                                   DOCKET N O . - - - -

              APPLICATION OF ENTERGY            §   PUBLIC UTILITY COMMISSION
              TEXAS, INC. FOR AUTHORITY         §
              TO CHANGE RATES AND               §           OF TEXAS
              RECONCILE FUEL COSTS              §

                                     DIRECT TESTIMONY

                                               OF

(                                         PHILLIP R. MAY

                                          ON BEHALF OF

                                    ENTERGY TEXAS, INC.

                                      DECEMBER 2009

    2009 ETI Rate Case                                                 3-249
                                                                                             Exhibit PRM-1
(                                                                                       2009 TX Rate Case
                                                                                               Page 1of7

               SECTION Ill RATE SCHEDULES                                                        Page 42.1

                     ENTERGY TEXAS, INC.                     Sheet No.: 107
                         Electric Service                    Effective Date: Proposed
                                                             Revision: 0
                                                             Supersedes: New Schedule
                      RIDER SCHEDULE CGS                     Schedule Consists of: One Sheet

                                       COMPETITIVE GENERATION SERVICE

          I.     AVAILABILITY

                 Pursuant to PURA Section 39.452(b), this competitive generation tariff allows eligible
                 Entergy Texas, Inc. ("ETI" or "Company") customers the ability to contract for competitive
                 generation. This Rider will be available to Rate Schedules Large Industrial Power Service
                 ("LIPS") and Large Industrial Power Service - Time of Day ("LIPS-TOD") firm customer
                 load.

          II.    APPLICABILITY

                 Customers receiving service under Rate Schedules LIPS and LIPS-TOD may contract with           N
                 Qualifying Facilities ("QF(sn that are able to put energy to ETI for the provision of energy
                 to serve all or part of the Customer's generation requirements. Such customers will pay
                 only CGS charges on Schedule LIPS or Schedule LIPS-TOD (Net Monthly Bill, Column B)
(                plus applicable adjustments for the load served on CGS. Eligible Customers who elect to
                 serve a portion of their load with CGS are CGS Customers.

          Ill.   REQUIREMENTS

                 A. Any Customer applying for CGS must receive service under one of the Rate Schedules
                    listed in § II above. Only the service provided under such Schedules is eligible for
                    CGS.
                 B. A LIPS customer participating in the CGS program as a QF at one account location
                    may not also participate as a CGS customer at that same account location.
                 C. CGS Customers must inform the Company at the time of sign-up of their MW block
                    commitment for CGS for the initial term.         CGS Customers may change that
                    commitment with their next term of service.
                 D. Any Customer accepted for CGS service must be billed on a calendar month basis.
                 E. CGS service may only begin after technical and contractual requirements are met
                    (amended contract with the utility and back up metering/telemetry in place).
                 F. Standby and Maintenance Service ("SMS") is not available to CGS Customers.

          IV.    INITIAL TERM

                 The initial term will begin January 1, 2011 and be effective for one year. CGS Customers
                 must notify ETI in writing a minimum of 60 days before beginning CGS and must have all
                 contractual and technical requirements completed prior to taking CGS. CGS Customers
                 may start service anytime after January 1, 2011 but must commit to a full one year period
                 from their beginning date. CGS may then be renewed on an annual basis with the
                 minimum 60 day notification period. After the initial term, ETI will provide a report to the
                 Public Utility Commission of Texas identifying the successes as well as issues raised by

                                              (Continued on reverse side)

    2009 ETI Rate Case                                                                          3-333
                                                                                        Exhibit PRM-1
                                                                                   2009 TX Rate Case
                                                                                          Page 2 of7

                                                                                            Page42.2
            CGS. The report will also identify any changes that should be considered as a result of the
            first year of implementation and may result in changes to this Rider. CGS Customers
            assume the risk that changes to this Rider may affect the economics of any contract
            between a CGS Customer and a QF.

      V.    RETURN TO BUNDLED SERVICE

            CGS Customers may choose to withdraw from their one year commitment to CGS at
            anytime during that year but must give a 60 day written notice prior to returning to bundled
            service. A CGS Customer choosing to withdraw may not return to CGS for at least 12
            months from the time the withdrawal is effective.
                                                                                                           N
      VI.   NET MONTHLY BILL

            CGS customers will be billed for CGS pursuant to § II. In addition to these charges CGS
            Customers will also be billed the Company's Hourly Avoided Cost calculated pursuant to
            Attachment A of Rate Schedule LQF paid to the QF(s) to provide the CGS Customer's
            energy. Should any hourly deficiencies occur between the Customer's committed CGS
            load and the QF generation delivery within that hour, CGS Customers will be billed for
            "Unserved CGS Energy'' and be charged using the formula below:

            Gas price based on a 13,000 Btu/kWh heat rate (on-peak) and 10,000 Btu/kWh heat rate
            (off-peak) applied to a gas price pursuant to the Houston Ship Channel Gas Daily Average
            (HSCGDA) plus a delivery adder based on Entergy's historical average cost per MMBtu of
            gas delivered to ETl's Lewis Creek and Sabine plants for the preceding 24 months ending
            October 31. The delivery adder will be updated annually. On-peak and off-peak are as
            defined by Platt's Megwatt Daily.

      IX.   METERING

            Interval data recording (IDR) meters and telemetry are required for billing CGS accounts.
            Back up meters, the incremental cost of which will be paid by the Customer, are also
            required. The CGS Customer will be responsible for the cost of telephone service and
            maintaining any required telephone equipment for the IDR. Alternatively, and at ETl's
            discretion, such telemetry communications service required for billing may be provided to
            the CGS Customer in accordance with ETI Rider Schedule RCL (Remote Communications
            Link Rider). Meter errors will be resolved in accordance with the PUCT Substantive Rules.

      RIDER SCHEDULE CGS

2009 ETI Rate Case                                                                         3-334
                                                                                                Exhibit PRM-1
(                                                                                          2009 TX Rate Case
                                                                                                  Page 3of 7

               SECTION Ill RATE SCHEDULES                                                          Page 43.1

                     ENTERGY TEXAS, INC.                      Sheet No.: 108
                            Electric Service                  Effective Date: Proposed
                                                              Revision: 0
                                                              Supersedes: New Schedule
                     RIDER SCHEDULE CGSC                      Schedule Consists of: One Sheet Plus
                                                                                     Attachment A

                                COMPETITIVE GENERATION SERVICE COST RIDER

          I.       APPLICATION

                   This Competitive Generation Service Cost Rider (•Rider CGSC" or the •Rider") is
                   applicable under the regular terms and conditions of Entergy Texas, Inc. rcompany") to
                   all electric service billed under the Company's Rate schedules LIPS and LIPS-TOD
                   subject to the jurisdiction of the Public Utility Commission of Texas (·Pucr).

          II.      PURPOSE

                   The purpose of the Rate in § Ill below is to recover the costs incurred by the Company
                   resulting from the development and ongoing operation of the Competitive Generation
                   Service program that PURA§ 39.452(b) requires the Company to implement.
                                                                                                                   N
(         Ill.     RATE

                   All electric service accounts billed in accordance with Company's LIPS and LIPS-TOD
                   Rate Schedules will be billed the Rider CGSC Rate per kWh shown on Attachment A for
                   recovery of the Competitive Generation Service program costs.

          IV.      RECOVERY PERIOD

                   This Rider will be billed initially beginning with the Effective Date of the Competitive
                   Generation Service program and will remain in effect until termination of the program.
                   The redetermined rate described in § V. below shall become effective for bills rendered
                   on and after the first billing cycle of the January immediately following the filing year and
                   shall then remain in effect for a twelve (12) month billing period, unless otherwise
                   terminated or superseded.

          V.       TRUE-UP PROVISION

                   This Rate will be adjusted annually as shown on Attachment A to reflect actual costs
                   incurred in the development and ongoing administration of the Competitive Generation
                   Service program. On or before October 1st of each year the Company shall file with the
                   PUCT a revision of this rate that incorporates the current estimate of program operation
                   costs for the next calendar year and a true-up calculation that recognizes the difference
                   between actual expenses and recovery under this rider for the prior calendar year.
                   Interest shall be calculated monthly on the cumulative over/under recovery balance at the
                   rate established annually by the PUCT for overbilling and certain underbilling in the
                   P.U.C. Suesr. R. 25.28(c) and (d). Interest shall be calculated based on the principles
                   set out in the P.U.C. SUBST. R. 25.236(e)(1 ).

    2009 ETI Rate Case                                                                            3-335
                                                                                 Exhibit PRM-1
                                                                            2009 TX Rate Case
                                                                                   Page 4 of7

                                                                                    Page43.2
                                         ATTACHMENT A
                                      ENTERGY TEXAS, INC.
                              COMPETITIVE GENERATION SERVICE COST
                                     RIDER SCHEDULE CGSC

      The Rider CGSC rate will be adjusted annually as follows:

          LINE                          DESCRIPTION                           ADJUSTED
          NO                                                                  AMOUNT
                                                                                                 N
          1.     Estimated Program Operation Costs for Following Calendar     $940,500
                 Year
          2.     Plus: Difference Between Actual Program Operation Costs
                        and Recovery Under Rider CGSC for Prior Year
                        (True-Up) with Cumulative Interest                    $0
          3.     Sum of Estimated Program Costs and True-Up (L1 + L2)         $940,500
          4.     LIPS class kWh for Prior Year                                4,885,025,000

          5.     Rider Schedule CGSC Rate for Following Calendar Year (L3     $0.000193
                 I L4)

2009 ETI Rate Case                                                                3-336
                                                                                             Exhibit PRM-1
(                                                                                       2009 TX Rate Case
                                                                                               Page 5of 7

               SECTION Ill RATE SCHEDULES                                                        Page44.1

                     ENTERGY TEXAS, INC.                     Sheet No.: 109
                         Electric Service                    Effective Date: Proposed
                                                             Revision: O
                                                             Supersedes: New Schedule
                    RIDER SCHEDULE CGSUSC                    Schedule Consis~ of: One Sheet Plus
                                                                                    Attachment A

                  COMPETITIVE GENERATION SERVICE UN RECOVERED SERVICE COST RIDER

          I.       PURPOSE

                   This Competitive Generation Service Unrecovered Service Cost Rider rRider CGSUSC"
                   or "Rider") defines the procedure by which Entergy Texas, Inc. ("Company") shall
                   implement and adjust rates for recovery of lost base rate revenue resulting from
                   customers participating in the Company's Competitive Generation Service ("CGS
                   Program"). The purpose of this Rider is to provide a mechanism for recovery of such lost
                   base rate revenues that were included in the Company's last general rate case
                   proceeding before the Public Utility Commission of Texas ("PUCr).
                                                                                                                N
          II.      APPLICABILITY

                   This Rider is applicable under the regular terms and conditions of the Company to all
                   electric service billed under the Company's rate schedules subject to the jurisdiction of
                   the PUCT, with the exception of service billed under the CGS Program provisions of Rate
                   Schedules LIPS and UPS-TOD.

          Ill.     RATE PROCEDURE

                   The rates shown on Attachment A to this Rider shall be updated annually on or before
                   October 1st to reflect the estimated lost base rate revenue for (1) customers and load
                   participating in the Company's CGS Program in the upcoming calendar year and (2) a
                   true-up calculation for the twelve (12) billing months ending with December 31st of the
                   prior year. The estimate of the tost base rate revenue for the upcoming calendar year will
                   be based on the usage history for the known participants at the time of filing. The
                   Company will calculate the base rate charges that would apply under the standard rates
                   for the annual usage of customers participating in the CGS Program. This standard rate
                   amount will be compared to the rate revenue calculated under the applicable CGS
                   Program rates actually in effect for the Program participants. The difference between
                   these two amounts is the CGS Program's annual estimated lost base rate revenue.

                   The true-up calculation is the difference between the calculated standard (non-CGS
                   Program) rate charges for actual usage in the CGS Program and the actual CGS
                   Program rate revenue for all participants in the twelve {12) billing months ending with
                   December 31stof the prior year, plus interest calculated monthly on accrued true-up
                   balances using the rate established annually by the PUCT for overbilling and certain
                   underbilling in the P.U.C. Suesr. R. 25.28(c) and (d). Interest shall be calculated based
                   on the principles set out in the P.U.C. Suesr. R. 25.236(e){1 ). The sum of the upcoming
                   year estimate and the true-up calculation is the amount allocated to the rate classes
                   using the Production Demand Allocation Factors from the most recent base-rate case
                   adjusted to remove CGS Program load and energy. The resulting rate class allocations
                   of lost base rate revenue will be used to calculate rate class charges using the

                                              (Continued on reverse side)

    2009 ETI Rate Case                                                                          3-337
                                                                                           Exhibit PRM-1
                                                                                      2009 TX Rate Case
                                                                                             Page 6 of7

                                                                                       Page44.2
             Company's best estimate of Mure billing determinants as adjusted to remove expected
             CGS Program load and energy.

             The initial Rider CGSUSC Rate Adjustments shall become effective with the first (1st)
             billing cycle of the month following the date of the PUCT order approving this Rider
             CGSUSC if such order is received by the fifth (5th) day of the month, otherwise, the initial
             Rider CGSUSC Rate Adjustments shall become effective with the first (1st) billing cycle
             of the second (2nd) subsequent month after the date of the PUCT order approving this
             Rider CGSUSC and shall remain in effect until superseded. The redetermined rate as
             described earlier in this§ V shall be effective for bills rendered on and after the first (1st)
             billing cycle of July of the filing year and shall then remain in effect for a twelve (12)
             month billing period, unless otherwise terminated or superseded.

                                                                                                               N
       IV.   INTERIM ADJUSTMENT

             Should a change in the level of estimated Unrecovered Service Cost exceed $2 million,
             greater or less than, the estimate included in the most recently filed determination under
             this CGSUSC Rider, then either the PUCT staff or the Company may propose an interim
             revision to the then currently effective CGSUSC rate.

      V.     TERM

             This Rider shall be billed beginning with the Effective Date of the Competitive Generation
             Service program and shall remain in effect until termination of the program.

      RIDER SCHEDULE CGSUSC

2009 ETI Rate Case                                                                            3-338
                                                                                                  Exhibit PRM-1
(                                                                                            2009 TX Rate Case
                                                                                                    Page 7 of7

                                                                            Page44.3
                                          ATIACHMENTA
                                        ENTERGY TEXAS, INC.
                     COMPETITIVE GENERATION SERVICE UNRECOVERED SERVICE COST
                                      RIDER SCHEDULE CGSUSC

          Net Monthly Rate

          The following Rate Adjustments will be added to the rates set out in the Net Monthly Bill for
          electric service billed under applicable retail rate and rider schedules* on file with the Public Utility
          Commission of Texas. The Rate Adjustments shall be effective for bills rendered on and after the
          first billing cycle of the January immediately following the filing year.

          *Excluded Schedules:      CGS Program applications of, LIPS and LIPS-TOD, and EAPS, LQF,                     N
           SMS, and SQF.

                      Rate Class                            Rate Schedule                      Rate Adjustment

           Residential                             RS, RS-TOD                                     x.xxxxx      $/kWh
           Small General Service                   SGS, UMS, TSS                                  x.xxxxx      $/kWh
           General Service                         GS, GS-TOD,                                    x.xxxxx      $/kWh
           Large General Service                   LGS, LGS-TOD                                   x.xxxxx      $/kWh
           Large Industrial Power Service          LIPS, LIPS-TOD                                 x.xxxxx      $/kW
(          Lighting                                SHL,LS-E,ALS,RLU                               x.xxxxx      $/kWh

    2009 ETI Rate Case                                                                               3-339
        This page has been intentionally.left blank.

2009 ETI Rate Case                             3-340
                SOAH DOCKET NO. XXX-XX-XXXX
                   PUC DOCKET NO. 37744

APPLICATION OF ENTERGY,     )   STATE OFFICE OF
TEXAS, INC. FOR AUTHORITY   )
TO CHANGE RATES AND TO      )
RECONCILE FUEL COSTS        )ADMINISTRATIVE HEARINGS

                  HEARING ON THE MERITS

                   FRIDAY, JULY 16, 2010

           BE IT REMEMBERED THAT at 10:09 a.m., on
Friday, the 16th day of July 2010, the above-entitled
matter came on for hearing at the State Office of
Administrative Hearings, William P. Clements, Jr.,
Building, 300 West 15th Street, Room 404, Austin,
Texas, before TRAVIS VICKERY, Administrative Law

Judge, and the following proceedings were reported by
Lou Ray and Lorrie Schnoor, Certified Shorthand
Reporters of:

Volume 3                                      Pages 15 - 216
             PUC: 37744 SOAH: XXX-XX-XXXX HOM 7/16/2010
                              VOLUME 3

 1   also includes not just your testimony but also your

 2   exhibits to your direct testimony?
 3       A    Yes.
 4       Q    And for Exhibit 76, it includes not just your
 5   rebuttal testimony but also workpapers to your
 6   rebuttal testimony.     Is that correct?
 7       A    Yes.

 8       Q    I noticed that in your direct testimony,
 9   there's some errata included within your Exhibit 9.

10       A    Correct.

11       Q    Do you recognize that?
12       A    Yes.

13       Q    If      do you have any other changes or
14   corrections to any of these three exhibits?
15       A    I do not.

16       Q    And if I were to ask you the same questions
17   today on the stand that are included within the
18   written testimony, would your answers be the same?

19       A    They would be the same with the one caveat
20   that the $75 million associated with the LIPS rate
21   will likely change if there ultimately is a
22   settlement.
23       Q    Thank you.
24                   MS. KELLEY:   If what?     I didn't hear
25   that.

                     KENNEDY REPORTING SERVICE, INC.
                               512.474.2233
                                                                   1~4

               PUC: 37744 SOAH: XXX-XX-XXXX HOM 7/16/2010
                                VOLUME 3

 1                   WITNESS MAY:     I'm sorry?
 2                   MS. KELLEY:     I didn't hear the last part
 3   of your testimony.
 4                   WITNESS MAY:     We had identified
 5   $75 million of potential unrecovered costs for the
 6   entire LIPS class.     That amount would be affected with
 7   the potential settlement.
 8                   MR. NEINAST:     At this time, Your Honor,
 9   the company would offer into evidence ETI Exhibits
10   No. 9, 76, and 76A.
11                   JUDGE VICKERY:     Any objections?
12                   (No response)
13                   JUDGE VICKERY:     ETI Exhibit 9, 76, and
14   76A are admitted.
15                   (Exhibit ETI Nos. 9, 76 and 76A admitted)
16                   MR. NEINAST:     And at this time, Your
17   Honor, the Company would tender Mr. May for
18   cross-examination.
19                   JUDGE VICKERY:     Let's go off the record
20   for just one second.
21                   (Discussion off the record)
22                   JUDGE VICKERY:     Let's go back on the
23   record.
24                   Mr. Mack?
25                   MR. MACK:     Thank you.

                    KENNEDY REPORTING SERVICE, INC.
                              512.474.2233
                   PUC: 37744 SOAH: XXX-XX-XXXX HOM 7/16/2010
                                    VOLUME 3

 1                             CROSS-EXAMINATION

 2   BY MR. MACK:

 3          Q      How are you doing, Mr. May?

 4          A      Doing good.

 5          Q      Good.   Could you tell me what an interval

 6   data recording meter is?

 7          A       It's a meter that records the actual usage by

 8   a customer and frequent intervals, perhaps as frequent

 9   as you want, 15-minute intervals, that sort of thing,

10   so it provides for an average month.          Instead of just

11   cumulative consumption,        it would provide that actual

12   consumption on a 15-minute basis.

13          Q      And you claim that those would be necessary

14   for a CGS customer.         Is that right?

15          A       Correct.

16          Q      And why is that?

17          A       So that you can match up what the actual QF

18   Put is to what the consumption is at that CGS

19   customer.       And so that -- make sure that the unserved

20   energy that Mr. Hurstell was talking about, that would

21   provide whether or not there was a need to provide the

22   gap,       if you will, with unserved energy.

23          Q      Okay.   And is that kilowatts, or kilowatt

24   hours?

25          A       It would be kilowatts per hour.    Probably

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 1   match it up on an hourly basis.

 2       Q     Okay.     And if there were a customer that had

 3   a permanent and steady load, would they still need one

 4   of these meters?

 5       A     Absolutely.

 6       Q     And why is that?

 7       A     Because I don't think there is a permanent

 8   steady load.      That load would fluctuate, and we would

 9   need to make sure we know exactly what that load is

10   and can match it up on an hour-by-hour basis with that

11   QF Put.

12       Q     Okay.

13                     MR. MACK:   And I pass the witness.

14                     JUDGE VICKERY:   The State?

15                          CROSS-EXAMINATION

16   BY MS. KELLEY:

17       Q     Yes, I have a few questions, Mr. May.

18       A     All right.

19       Q     Since this legislation was being considered

20   sometime, I would imagine, before the last legislative

21   session up until today, what discussions has the

22   company had with any of its LIPS customers to gauge

23   the level of interest in the CGS program?

24       A     What discussion have we had with our LIPS

25   customers?

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 1         Q    Right.

 2         A    We had a couple of discussions, and I won't

 3   be able to recall all the details.          There were -- I

 4   believe there were at least two.

 5                      The one that I am thinking of

 6   specifically here, where we talked about some of the

 7   issues associated, that was about a year ago.          It was

 8   after the legislative session.       We talked about some

 9   of the provisions of the CGS within the law.          We

10   described what we saw as some of the challenges of

11   making sure that the CGS complied with the system

12   agreement.       And as a matter of fact,    in that meeting,

13   one of those LIPS customers suggested using QF as a

14   means for getting around that.

15         Q    As a percentage of your LIPS customers, did

16   you       have you come away from any of these

17   discussions with a feel for what the level of

18   participation would be?

19         A    No.     And having that discussion, I think

20   there was indication of interest, but, you know, it's

21   one of those things where it's all in the details and

22   relevant marketing conditions at the time and so

23   forth.     So I could not tell you how -- which customers

24   and how many and how much would be interested in

25   actually partaking in the CGS.

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 1       Q    Okay.     Just no idea if it would be 5 percent

 2   of your customers or 100 percent of your customers?

 3       A    Have no way of estimating it.

 4       Q    Okay.     If you could turn to Page 15 of

 5   your -- oh, 19 of your testimony --

 6       A    Direct?

 7       Q     -- sir, and you talk about the CGSC Rider and

 8   what the company estimates for startup and ongoing

 9   costs.

10       A    Yes, ma'am.

11       Q    And I notice on Lines No. 15 and 16, you talk

12   about that the precise level of ongoing cost in each

13   of these areas would be dependent upon level of

14   participation.     Correct?

15       A    Yes, ma'am.

16       Q    But what did -- what level of participation

17   did you use to come up with the estimates for the

18   kick-off costs and the yearly cost?

19       A    I think what we talked about is a level that

20   was well below the entirety of the LIPS class but at a

21   level that could be managed with sort of an

22   out-of-the-process process.     We have a billing process

23   that is fairly automated.     What we would plan to do

24   with this would be to do these by hand, so to speak,

25   and it was our view that we could manage a significant

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 1   participation in this with these two-and-a-half
 2   full-time customers on an ongoing basis.         So a
 3   significant portion of the customers could be managed
 4   with that.
 5          Q    Okay.    But you must have had some starting
 6   estimate.     I think I heard you say you were trying to
 7   come up with a ballpark or          there must -- it's not

 8   plucked out of thin air.        You grant me that, don't
 9   you?
10          A    I'm sorry.     I didn't hear all that.
11          Q    The $610,000 figure and then the 330
12          A    Yes, ma'am.

13          Q    -- that's not just plucked out of thin air.
14   Correct?
15          A    No, ma'am.
16          Q    Okay.    So what -- I think I heard you say
17   that there was some assumption about the level of
18   participation there would be, and I'd ask you to kind
19   of give me a ballpark there.

20          A    Yes.    And let me make clear, I don't think we
21   had any assumption of what the actually participation
22   would be.     What we were doing was trying to design a
23   system in which we would have the capacity to deal
24   with a significant portion of the LIPS customers
25   participating.

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 1          Q   And what do you consider to be a significant
 2   portion to be?
 3          A   More than half.
 4          Q   Okay.     I think a moment ago, you qualified
 5   the figure of -- that appears on Page 14, the
 6   75.2 million?
 7          A   Yes, ma'am.

 8          Q   You said that the -- a settlement would
 9   impact that?
10          A   Yes, ma'am.
11          Q   How do you anticipate it would impact it?
12          A   I can't estimate that with any certainty at
13   this time, but it would be a smaller number than
14   that
15          Q   Okay.

16          A    -- were the settlement to be adopted.
17          Q   Okay.
18                      MS. KELLEY:   I don't have any further
19   questions.
20                      JUDGE VICKERY:   Ms. Griffiths?
21                      MS. GRIFFITHS:   Oh, Ms. Magruder is no
22   longer there.
23                      JUDGE VICKERY:   Yeah.
24
25

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 1                         CROSS-EXAMINATION

 2   BY MS. GRIFFITHS:

 3       Q    Okay.    Mr. May, the $75.2 million figure on

 4   Page 14 of your testimony, that is based on the

 5   coincident peak demand of the LIPS accounts for the

 6   test year ending June 30th, 2009.      Is that correct?

 7       A    I think it's actually billing determinants,

 B   is what that's based upon.

 9       Q    Okay.    Could you take a look at your

10   testimony starting on Page 13 and then looking at that

11   next Q and A on Page 14?

12       A     (Witness complying.)

13       Q    And you estimate that the coincident peak

14   demand of the LIPS class is approximately

15   651 megawatts.    Correct?

16       A    Yes.

17       Q    All right.     You don't anticipate that all

18   651 megawatts would move to the CGS load, do you?

19       A    I don't have a way to estimate how much

20   would.

21       Q    So the answer is no?
22       A     I have no way of estimating it.

23       Q    And the generation portion of the LIPS

24   revenue requirement you state is 75.2 million.        That

25   is the entire -- based on the entire LIPS billing

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 1   determinants.        Correct?
 2       A       Yes, ma'am.     We know with certainty what the
 3   actual unit cost of the difference between LIPS and
 4   CGS is.    We just don't know what volume to apply to
 5   that.     We'll know that through participation in the
 6   program.
 7       Q      All right.      So you don't know those costs
 8   now, and you can't measure --
 9       A       No.
10       Q             them at this point?
11       A      We know those costs with certainty.         We don't
12   know what the volume would be applied to those costs.
13       Q       Okay.     If you could turn to your exhibits
14   that contain the competitive generation services
15   unrecovered service cost rider.
16       A       Yes, ma'am.
17       Q      And that is          I'm referring you to Page 7.
18   Correct -- or I'm sorry            to Page 7.   And I think the
19   Bates number at the bottom is 3-339?
20       A       Yes, ma'am.
21       Q      All right.      You're not actually proposing any
22   rate adjustment specifically in this tariff, are you?
23       A       No.     There's no volume that is estimated at
24   this time to apply to that tariff, so there is no
25   number in there.

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        APPLICATION OF ENTERGY,   )   STATE OFFICE OF
        TEXAS, INC. FOR AUTHORITY )
I   •
        TO CHANGE RATES AND TO    )                             ~· 'ti
        RECONCILE FUEL COSTS      )ADMINISTRATIVE HEARINGS

                          HEARING ON THE MERITS
                         TUESDAY, JULY 20, 2010

                   BE IT REMEMBERED THAT at 9:16 a.m., on
        Tuesday, the 20th day of July 2010, the above-entitled
        matter came on for hearing at the State Off ice of

        Administrative Hearings, William P. Clements, Jr.,
        Building, 300 West 15th Street, Room 404, Austin,

        Texas, before TRAVIS VICKERY, Administrative Law
        Judge, and the following proceedings were reported by
        Lou Ray and Leanna Lynch, Certified Shorthand
        Reporters of:

        Volume 4                                      Pages 217 - 379
                                                               ~6U

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 1   right?
 2       A    Yes.
 3       Q    All right.     And so you propose that the
 4   unserved energy rate be provided in the same manner as
 5   stand-by service is provided to customers who own
 6   their own generation.     Is that right?
 7       A    Right.    Given that they're essentially the
 8   same type of service, I didn't feel that there was a
 9   need to discriminate against the CGS customer.
10       Q    And that's rate schedule SMS.      Correct?
11       A    Yes.
12       Q    That's a cost-based rate.     Would you agree?
13       A     It's more or less a cost-based rate, yes.
14       Q    And that SMS rate includes a demand charge.
15   Right?
16       A    Yes.
17       Q    And just to clarify, you're agreeing that if
18   the SMS rate is utilized for unserved energy, that CGS
19   customers would indeed pay that demand charge as well?
20       A    Yes, they would.
21       Q    Are you familiar with fuel cost recovery in
22   Texas, sir?
23       A    Yes.
24       Q    Earlier I believe you heard some questions of
25   Mr. Nalepa about whether or not the avoided costs that

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 1   a CGS customer might pay would be above or below the
 2   average cost to customers --
 3       A       Yes.
 4       Q       -- non-CGS customers?
 5       A       I heard the questions, yes.
 6       Q       And do you know whether the effects of
 7   whether or not the avoided cost that is above or below
 8   the average fuel cost charge to CGS customers will
 9   flow through the fuel rate?
10       A       Well, the costs that the CGS customers are

11   charged might not be reflected in the fuel rate, but
12   to the extent that the CGS customer is taking 24/7

13   power off of the system -- and that's basically taking
14   it away from Entergy Texas generation purchased power
15   supply -- that will have an effect on the cost flowed
16   through the Texas fuel factor.

17       Q       Right .   Let's talk a little bit about cost
18   recovery.     Do you agree that ETI will in fact incur
19   costs to set up and administer the CGS program?

20       A       Yes.
21       Q       And do you agree that if a LIPS customer
22   decides to switch to CGS service that ETI will not
23   collect the fixed production cost included in the LIPS
24   rate from that customer?

25       A       I think the fact that the customer has

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 1   switched and the Company is not collecting the same
 2   revenue certainly creates the potential that some
 3   costs would be uncollected
 4       Q      All right.
 5       A       -- unrecovered.
 6       Q      And that cost will go unrecovered unless
 7   there is some additional revenues to --
 8       A      Exactly, unless there are some additional
 9   benefits to offset those unrecovered costs .       That's
10   correct.
11       Q       I think earlier in your testimony in this
12   section you quote the statute, 39.452(b) at Page 36.
13   Let me know when you're there.
14                    MS. GRIFFITHS:    What page are you on?
15                    MR. BREEDVELD:     Page 36.
16                    MS. FERRIS:     Is that of his direct?
17                    MR. BREEDVELD:    Yes, I'm sorry, direct
18   testimony.
19       Q       (BY MR. BREEDVELD)    Okay.   About a third of
20   the way down, sir, do you see where the statute says
21   that the utility's rates shall be set in this
22   proceeding in which the tariff is adopted to recover
23   any costs that are unrecovered as a result of the
24   implementation tariff?
25       A      Yes, it states that.

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 1       A    Based on the adjusted test-year, yes.
 2       Q    And the rate-setting process that we are
 3   describing does not concern itself about what may
 4   occur after rates are set.     Right?   At least at that
 5   time?
 6       A    That's correct.     The assumption is   that~

 7   reasonable revenue level has been set prospectively
 a   and that the conditions may change up or down, and it

 9   may be different in the future.

10       Q    And you agree that when you set rates, the
11   company should have the opportunity to recover the
12   revenue requirement that those rates are based on.
13   Right?
14       A    The cost of service rates are set at a level
15   that the commission has determined will produce a
16   reasonable opportunity to recover cost.      Whether or
17   not it does or does not is within the range of
18   conditions that may exist in the future and, of
19   course, the company can always file another case if,

20   in fact, revenues no longer cover cost.
21       Q    I think we are not disagreeing.      I think I
22   said you would agree that the company should have the
23   opportunity to recover the revenue requirement or the
24   cost that rates are based on.     Right?
25       A    What I said is the commission determined when

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 1   it set the rates in the rate case, that would provide
 2   a reasonable opportunity to recover cost of service.

 3       Q      And the CGS program should not impede that
 4   opportunity to recover those costs as established in

 5   that adjusted test-year.     Correct?
 6       A       I would say in an ideal world, yes, that's
 7   correct.
 8       Q      And the costs that may go unrecovered due to
 9   the CGS program, they are reflected as part of the

10   overall embedded costs in the test-year -- right --
11   that the rates are set on?
12       A      There were costs allocated to the CGS
13   customers and to their class.      So in that sense, yes.
14   After the rates are set, there really is no attempt to
15   track particular components to particular --
16   particular cost components to particular customers.
17       Q      But those costs are not incremental costs by
18   any means.     Right?   Costs that are -- for example, the
19   LIPS embedded cost of service in the test-year has
20   nothing to do with incremental cost that may be
21   incurred after the rates are set.       Right?    They are
22   costs that are in the test-year -- embedded historical
23   costs.     Right?
24       A      Embedded costs for allocated LIPS, they were
25   part of the overall cost of service that the

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 1   commission approves in the rate case.
 2       Q     If you set aside the CGS program for a
 3   minute, once rates are set, typically revenues can
 4   change, the cost can change as well.      Correct?
 s       A     That's correct.
 6       Q    And if you set aside the CGS program for a
 7   minute, if the company had increased revenues, those
 8   increased revenues could be applied to off set or
 9   recover increased cost.     They are not reflected in the
10   test-year.     Right?
11       A     Yes, that's possible.    I mean --
12       Q     That's typically how a rate setting has
13   worked -- base rate setting has worked at the
14   commission .    Right?

15       A     Well, the revenues are not normally dedicated
16   to particular uses, but certainly as costs increase,
17   the company will use the revenues to cover changes and
18   conditions that occur after the test-year.

19       Q     So you are asking that the revenues -- the
20   sales growth revenues, any of the company realizes, be
21   dedicated to off set embedded costs that are in the
22   historical test-year -- right -- that may be foregone
23   because of the CGS program?
24       A     Yes, that's correct.
25       Q     And to the extent you do that -- to the

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 1   extent there is revenue growth, it won't be available
 2   to cover other cost increases that may occur after the
 3   rates are set.     Correct?
 4       A      That's possible.      It could -- as I said, it
 5   could affect the extent to which the company may
 6   accelerate its need for a rate case in the future.
 7                    MR. WILLIAMS:     Your Honor, I'll pass the
 8   witness.
 9                    JUDGE VICKERY:     Ms. Ferris?
10                    MS. FERRIS:     It's my witness, Your
11   Honor.
12                    JUDGE VICKERY:     I'm sorry?
13                    MS. FERRIS:     Has everyone had an
14   opportunity to cross?
15                    JUDGE VICKERY:     Yes.
16                    MS. FERRIS:     One minute, Your Honor.     No
17   questions, Your Honor.
18                    JUDGE VICKERY:     Thank you, Mr . Johnson.
19                    Mr. Foley.
20                    MR. FOLEY:     Staff calls Stephen Mendoza.
21                    (Exhibit Staff Exhibit No. 3 marked)
22                    JUDGE VICKERY:     Mr. Mendoza, raise your
23   right hand, please.
24                    (Witness sworn)
25                    JUDGE VICKERY:     Mr. Foley, whenever you

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 1   are ready.
 2     PRESENTATION ON BEHALF OF PUBLIC UTILITY COMMISSION
 3                        STEPHEN J. MENDOZA,
 4   having been first duly sworn, testified as follows:
 5                        DIRECT EXAMINATION
 6   BY MR. FOLEY:
 7       Q     Mr. Mendoza, you should have what's been
 8   marked as Staff's Exhibit No. 3 in front of you.
 9       A     Yes, I do.
10       Q     Could you identify that exhibit.
11       A      It's my direct testimony in this docket.
12       Q     Was this testimony prepared under your direct
13   supervision and control?
14       A     Yes, it was.
15       Q      If I were to ask you the same questions
16   today, would your answers be the same?
17       A     Yes, they would.
18                   MR. FOLEY:     Staff offers Mr. Mendoza for
19   cross-examination.
20                   JUDGE VICKERY:     Thank you, Mr. Foley.
21   Cities?   No questions?
22                   Ms. Kelley?
23                   MS. KELLEY:     No questions.
24                   JUDGE VICKERY:     Kroger?
25                   MR. BOEHM:     No questions.

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 1                      JUDGE VICKERY:     Mr. Griffiths?
 2                      MS. GRIFFITHS:     No questions.
 3                      JUDGE VICKERY:     Ms. Ferris?
 4                      MS. FERRIS:     No questions, Your Honor.

 5                      JUDGE VICKERY:     ET!?
 6                      MR. WILLIAMS:     Thank you, Your Honor.
 7                           CROSS-EXAMINATION
 8   BY MR. WILLIAMS:

 9         Q     Hi Mr. Mendoza.
10         A     Hi.
11         Q     Under the CGS program, as you understand it,
12   Mr. Mendoza, the company buys from QFs that avoided
13   cost.     Right?
14         A     Yes, sir, that's correct.
15         Q     So long as QF put is made available, the
16   company collects no more from CGS customers in that
17   same avoided cost.        Right?

18         A     Yes, sir, that's correct.

19         Q     So there is nothing in it for the company
20   regarding the purchase of avoided cost -- right -- in
21   terms of prof it or margin?
22         A     It's a simple pass-through as I understand
23   it.
24                      THE REPORTER:     Can you speak up, please.
25                      WITNESS MENDOZA:     Yes.

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 1                    THE REPORTER:    I didn't get your last
 2   answer.

 3       A       It's a simple pass-through.
 4       Q       (BY MR. WILLIAMS)    And you also understand,
 s   do you not, that if the QF put is not available, if
 6   the company has to provide what's called unserved
 7   energy, then under that tariff, the customers get any
 8   margins from those sales -- float through them through
 9   the fuel clause .      Do you understand that as well?
10       A      Yes, sir.
11       Q       So again, there is no opportunity for the
12   company to make a prof it or a windfall off that aspect
13   of the program either .      Right?
14       A      Not the way I understand it, no.
15       Q       Is part of your recommendation that the
16   commission consider getting -- taking base rate
17   revenues associated with load growth to recoup
18   unrecovered cost associated with the CGS program.          Is
19   that right?

20       A      Yes, sir, that's correct.
21       Q      More generally, is it Staff's position that
22   the proposed CGS program should be rejected because
23   it's not consistent with traditional rate-making
24   principles.     Is that sort of a summary of your
25   concern?

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 1       A    That could be one way to look at it.

 2       Q    And as we talked about with Mr. Johnson, both
 3   principles include that rates are supposed to be
 4   designed to recover adjusted test-year cost.        Right?

 5       A    Under a rate case?

 6       Q    Yes .

 7       A    Yes, that's correct.

 8       Q    And traditional rate setting does not concern
 9   itself with incremental costs from revenues that occur
10   after the period addressed in the rate case.        Right?

11       A    For base rates?

12       Q    Yes, sir.
13       A    For base rates, yes.

14       Q    And it would be completely improper here if
15   you would have not, for example, set rates at a level

16   below that is shown by the test-year in the hope that
17   some later incremental revenue might make up the

18   difference.      That would not happen in a base rate
19   setting case at the PUC, would it?

20       A    You are speaking specifically to base
21   rates

22       Q    Yes, sir.

23       A    - - below the revenue requirement.        Is that
24   what you are saying?

25       Q    Yes, sir.

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 1       A       Yes, that's correct.
 2       Q       The commission has considered proposals to
 3   offset costs with load growth in other contexts, has
 4   it not?
 5       A       By "other contexts," you mean other riders?
 6       Q      Are you familiar with the commission's order
 7   adopting the TCRF rule?
 8       A       Somewhat, yes.
 9       Q      And that was the rule that allows the
10   company -- the utility outside ERCOT to recover
11   transmission investment and certain other costs
12   right       on an annual basis?
13       A       On an incremental basis, yes, that's right.
14       Q       Is it right that the -- there were proposals
15   in that rulemaking to offset the company's recovery by

16   looking at general growth and base rate revenues?
17       A      Yes.
18       Q      And the commission rejected that proposal.
19   Right?

20       A       I am going to have to take your word for
21   that.     I don't know for sure.
22                     MR. WILLIAMS:    May I approach the
23   witness, Your Honor?
24                     JUDGE VICKERY:    Yes.   If you could hold
25   off on any questions until Mr. Foley has had an

                       KENNEDY REPORTING SERVICE, INC.
                                 512.474.2233
                                       PUC DOCKET NO. 38951

  APPLICATION OF ENTERGY TEXAS,                        §       PUBLIC UTILITY COMM16SSI^I
  INC. FOR APPROVAL OF                                 §
                                                                                                   r,
  COMPETITIVE GENERATION                               §                     OF TEXAS =^--
  SERVICE TARIFF (ISSUES SEVERED                       §                                      r^        ..w    f_^+ ^.3
  FROM DOCKET NO. 37744)                               §                                      ^^^•^     ^      y^ 1 '^

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                                                                                               rrt, _^, ^c      t° rJ
                                             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

                                                                                                                          000000001
PUC 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.

                                                                                                               000000002
PUC 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).

                                                                                                                      000000003
PUC 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.

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

                                                                                                               000000004
PUC 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).

                                                                                                               000000005
PUC 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)

                                                                                                                    000000006
PUC 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.

                                                                                                       000000007
PUC 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.

                                                                                                              000000008
PUC 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.

                                                                                                        000000009
PUC 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

                                                                                                        000000010
PUC 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

                                                                                                        000000011
PUC 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 by
       the CGS supplier from the CGS contract capacity at the system hourly avoided-energy-
       cost 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.

                                                                                                      000000012
                                             Interim Order                           Page 13 of 17
PUC Docket No. 38951

       E.       CGS customer fixed-cost contribution

                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      $0.02451               0.00222

            greater)

                                                                                                     000000013
PUC 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.

                                                                                                      000000014
PUC 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.

                                                                                                       000000015
PUC 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.

                                                                                                          000000016
PUC 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.

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

                                          PUBLIC UTILITY COMMISSION OF TEXAS

                                          DONNA L. NELSON, CHAIRMAN

                                         KENNETH W. AND                 , JR., COMMISSIONER

                                          ROLANDO PABLOS, COMMISSIONER

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

                                                                                                            000000017
                                       PUC DOCKET NO. 38951                                          t'
                                                                                               FEB
                                                                                         P H 2' 1 ^
APPLICATION OF ENTERGY TEXAS,                         §                         ^
INC. FOR APPROVAL OF                                  §        PUBLIC UTILITY COMMI$$ION
                                                                                       ^.^.,,,
COMPETITIVE GENERATION                                §                 OF TEXAS
SERVICE TARIFF (ISSUES SEVERED                        §
FROM DOCKET NO. 37744)                                §

                                           OFFER OF PROOF

        On February 6, 2013, Order No. 11 was issued granting the Motion to Strike that was

filed by Citiesl on January 25, 2013. Pursuant to P.U.C. PROC. R. 22.227, Entergy Texas, Inc.

makes an offer of proof with regard to the supplemental direct testimony and exhibits of

Company witness Dennis R. Roach that were struck in Order No. 11. Attached to this pleading

is a complete copy of Mr. Roach's supplemental direct testimony and exhibits including the

portions struck under Order No. 11.

         ' The Cities are comprised of the Cities of Anahuac, Beaumont, Bridge City, Cleveland, Conroe, Groves,
Houston, Huntsville. Montogomery, Navasota, Nederland, Oak Ridge North, Orange, Pine Forest, Pinehurst, Port
Arthur, Port Neches, Rose City. Shenandoah, Silsbee, Sour Lake, Splendora, Vidor, and West Orange.

                                                       1i                                                         0^
                                                      Respectfully submitted,

                                                      Steven H. Neinast
                                                      ENTERGY SERVICES, INC.
                                                      919 Congress Avenue, Suite 840
                                                      Austin, Texas 78701
                                                      (512) 487-3957 telephone
                                                      (512) 487-3958 facsimile

                                                      John F. Williams
                                                      Everett Britt
                                                      DUGGINS WREN MANN & ROMERO, LLP
                                                      P.O. Box 1149
                                                      Austin, Texas 78767
                                                      512-744-9300
                                                      512-744-9399 (fax)

                                                      By: Z '
                                                          Steven H. 1N
                                                          State Bar N    14880700

                                CERTIFICATE OF SERVICE

       I hereby certify that a true and correct copy of the foregoing document was served on all

parties of record via U.S. first-class mail, hand delivery, overnight delivery, or facsimile

transmission on this l lt" day of February 2013.

                                                   2 .12-
                                                                                         Docket No. 38951
                                                                                        Entergy CGS Tariff
                                                                               ETI OFFER OF PROOF NO. 1
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 SECTION III RATE SCHEDULES                                                             Page __.1

            ENTERGY TEXAS, INC.                   Sheet No.: 109
                Electric Service                  Effective Date: Proposed
                                                  Revision: 0
                                                  Supersedes: New Schedule
        RIDER SCHEDULE CGSUSC                     Schedule Consists of: Two Sheets Plus
                                                                         Attachments A and B

      COMPETITIVE GENERATION SERVICE UNRECOVERED SERVICE COST RIDER

I.   PURPOSE

       This Competitive Generation Service Unrecovered Service Cost Rider (“Rider CGSUSC”
       or “Rider”) defines the procedure by which Entergy Texas, Inc. (“Company”) shall
       implement and adjust rates for recovery of Unrecovered Service Cost resulting from
       customers participating in the Company’s Competitive Generation Service (“CGS
                                                                                                             N
       Program”). The purpose of this Rider is to provide a mechanism for recovery of such
       Unrecovered Service Costs that were included in the Company’s last general rate case
       proceeding before the Public Utility Commission of Texas (”PUCT”).

II. APPLICABILITY

       This Rider is applicable under the regular terms and conditions of the Company to all
       electric service billed under the Company’s rate schedules subject to the jurisdiction of
       the PUCT, with the exception of service billed under the Competitive Generation Service
       Rider (“Rider CGS”).

III. RATE

       All electric service accounts with the exception of service billed under Rider CGS will be
       billed the Rider CGSUSC rates shown on Attachment A, as determined by application of
       Attachment B.

IV. RECOVERY PERIOD

       This Rider is effective with the first billing cycle of ______, 201_ following the PUCT’s
       approval of the initial rate to be charged under Rider CGSUSC. ETI will file a request for
       PUCT approval of the initial rate no earlier than six (6) months after the PUCT’s approval
       of the CGS Program. This Rider will remain in effect until termination of the CGS
       Program and recovery of any remaining Unrecovered Service Cost. The redetermined
       rates described in § V below shall become effective for bills rendered on and after the
       first billing cycle of ______ immediately following the filing year and shall remain in effect
       for a twelve (12) month billing period, unless otherwise terminated or superseded.

V. TRUE-UP PROVISION

       The rates shown on Attachment A will be adjusted annually as shown on Attachment B to
       reflect the actual Unrecovered Service Cost incurred due to the CGS Program. On or
       before _________ 1st of each year the Company shall file with the PUCT a revision of
       this Rider that incorporates the actual Unrecovered Service Cost for the twelve (12)
       months ending with _______ (“Test Period”) less any recovery under this Rider during
       the Test Period plus or minus any prior Cumulative Over/Under Recovery plus interest.
       Cumulative Over/Under Recovery for the Test Period is defined as the prior period
       Cumulative Over/Under Recovery plus the difference between Unrecovered Service Cost

                                   (Continued on reverse side)
                                                                                       Docket No. 38951
                                                                                      Entergy CGS Tariff
                                                                             ETI OFFER OF PROOF NO. 1
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                                                                                        Page __.2

      incurred and revenues received from this Rider during the Test Period. Interest shall be
      calculated monthly on the Cumulative Over/Under Recovery balance at the rate
      established annually by the PUCT for overbilling and certain underbilling in the P.U.C.
      SUBST. R. 25.28(c) and (d). Interest shall be calculated based on the principles set out in
      the P.U.C. SUBST. R. 25.236(e)(1). The Rider CGSUSC Recovery Amount shall be the
      sum of the Cumulative Over/Under Recovery for the Test Period plus interest less any
      CGSUSC Offsets as described in § VI below and in Attachment B. The Rider CGSUSC
      Recovery Amount shall be allocated to the rate classes using the Production Demand
      Allocation Factors from the most recent base-rate case adjusted to remove CGS
      Program load and energy. The resulting rate class allocations of the Rider CGSUSC
      Recovery Amount will be divided by the rate class billing determinants for the Test
      Period, as adjusted to remove expected CGS Program load and energy, to determine
      Rider CGSUSC rate class charges.

VI. CGSUSC OFFSETS

      CGSUSC Offsets are defined as 1) the $/kW reduction in ETI’s obligations under Entergy
      System Agreement Service Schedule MSS-1 associated with ETI’s acquisition of CGS
      Supplied Capacity (as defined by Rider CGS), which will be calculated pursuant to
      Attachment B; and 2) the revenues received from the Fixed Cost Contribution Fee (as
      defined by Rider CGS) for the Test Period.                                                           N

VII. INTERIM ADJUSTMENT

      Should a change in the level of estimated Rider CGSUSC Recovery Amount exceed $2
      million, greater or less than, the estimate included in the most recently filed determination
      under this CGSUSC Rider, then the Company may propose an interim revision to the
      then currently effective CGSUSC rate.

VIII.STAFF AND COMMISSION REVIEW

      Staff shall, and any affected person may, review the ETI filed Rider CGSUSC rate to
      verify that the formula in Attachment B has been correctly applied and shall notify the
      Company of any necessary corrections within sixty days. After completion of this review
      of the rate calculation, the Company shall make appropriate changes to correct
      undisputed errors identified in the review process. Any disputed issues arising out of this
      review process are to be resolved by the PUCT after notice and hearing.

RIDER SCHEDULE CGSUSC
                                                                                          Docket No. 38951
                                                                                         Entergy CGS Tariff
                                                                                ETI OFFER OF PROOF NO. 1
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                                                                                          Page ___.3

                                ATTACHMENT A
                             ENTERGY TEXAS, INC.
          COMPETITIVE GENERATION SERVICE UNRECOVERED SERVICE COST
                           RIDER SCHEDULE CGSUSC

Net Monthly Rate
                                                                                                              N
The following Rate Adjustments, as determined by Attachment B, will be added to the rates set
out in the Net Monthly Bill for electric service billed under applicable retail rate and rider
schedules* on file with the Public Utility Commission of Texas. The Rate Adjustments shall be
effective for bills rendered on and after the first billing cycle of the January immediately following
the filing year.

*Excluded Schedules: CGS Program applications of, LIPS and LIPS-TOD, and EAPS, LQF,
 SMS, and SQF.

 Rate Class                            Rate Schedule                  Rate Adjustment

 Residential                           RS, RS-TOD                              0.000202    $/kWh
 Small General Service                 SGS, UMS, TSS                           0.000180    $/kWh
 General Service                       GS, GS-TOD,                             0.041553    $/kW
 Large General Service                 LGS, LGS-TOD                            0.055556    $/kW
 Large Industrial Power Service        LIPS, LIPS-TOD                          0.050944    $/kW
 Lighting                              SHL, LS-E, ALS, RLU                     0.000095    $/kWh

Values above are for illustrative purposes only.
                                                                                      Docket No. 38951
                                                                                     Entergy CGS Tariff
                                                                            ETI OFFER OF PROOF NO. 1
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                                                                                        Page __.4

                                   ATTACHMENT B
                                ENTERGY TEXAS, INC.
           COMPETITIVE GENERATION SERVICE UNRECOVERED SERVICE COST
                              RIDER SCHEDULE CGSUSC
                     Test Period Twelve Months Ending ____, 201_

                                 Class Allocation & Rate Development

Line                   (A)                    (B)         (C)            (D)           (E)
No.                                         Class        Rider       Class Billing   CGSUSC
                    Rate Class            Allocation    Recovery    Determinants      Rate
                                            % (1)      Amount ($)   (MWh or kW)        (4)
                                                          (2)             (3)

 1       Residential                      47.8200%      1,081,689      5,363,885      0.000202   $/kWh
 2       Small General Service             2.3436%         53,012        294,185      0.000180   $/kWh
 3       General Service                  20.7885%       470,236      11,316,623      0.041553   $/kW
                                                                                                          N
 4       Large General Service             7.2612%       164,248       2,956,460      0.055556   $/kW
 5       Large Industrial Power Service   21.4744%       485,751       9,535,012      0.050944   $/kW
 6       Lighting                          0.3123%          7,064         74,156      0.000095   $/kWh
 7       Total ETI Retail                 100.000%      2,262,000

Notes:

(1) Most recently approved Rate Class Production Demand Allocation Factor, as adjusted to
    remove service under the CGS Program; or, if no such factor has been approved within five
    years, the factor used in ETI’s cost of service study in its most recent general rate case.

(2) Attachment B, Page ___.5, Line 8 * Class Allocation % (B).

(3) The Class Billing Determinant (MWh or kW) for the year ending ________, 20__, as adjusted
    to remove service under the CGS Program.

(4) Class Rider Recovery Amount (C) / Class Billing Determinant (D)

Values above are for illustrative purposes only.

RIDER SCHEDULE CGSUSC
                                                                                     Docket No. 38951
                                                                                    Entergy CGS Tariff
                                                                           ETI OFFER OF PROOF NO. 1
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                                                                                    Page ___.5

                                   ATTACHMENT B
                                ENTERGY TEXAS, INC.
           COMPETITIVE GENERATION SERVICE UNRECOVERED SERVICE COST
                              RIDER SCHEDULE CGSUSC
                     Test Period Twelve Months Ending ____, 201_

The Rider CGSUSC rate will be adjusted annually as follows:

    LINE                                                                   ADJUSTED
                                   DESCRIPTION
     NO                                                                     AMOUNT

    1.      Prior Period Cumulative Over/Under Recovery (A)                           $0

    2.      Unrecovered Service Costs for Test Period (B)                     $4,000,000                 N

    3.      Rider CGSUSC Revenues for Test Period                                     $0

    4.      Test Period Cumulative Over/Under (L1 + L2 – L3)                  $4,000,000

    5.      Cumulative Interest (C)                                              $40,000

    6.      Reserve Equalization Impact (D)                                   $1,250,000

    7.      Rider CGS Fixed Cost Contribution Fee (E)                          $528,000

    8.      Rider CGSUSC Recovery Amount (L4 + L5 – L6 – L7)                  $2,262,000

Notes:

    (A)     Test Period Cumulative Over/Under Recovery from prior period filing of Rider
            CGSUSC.
    (B)     Embedded cost of generation from last ETI rate case for the CGS eligible class of
            customers stated on a $/kW/month basis times the Monthly CGS Supplied Capacity
            (kW) provided each month under Rider CGS.
    (C)     See workpaper.
    (D)     Reserve Equalization Impact = [CGS MW – (CGS MW * ETI responsibility ratio)] *
            cost rate $/MW for each month.
            a. CGS MW is Monthly CGS Supplied Capacity provided each month under Rider
                CGS.
            b. ETI responsibility ratio and weighted average cost rate per MSS-1 calculation for
                that month during the Test Period.
    (E)     Rider CGS Fixed Cost Contribution Fee revenues received during Test Period.

Values above are for illustrative purposes only.
                                                                                              ^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 costs
that ETI is already recovering in base rates pursuant to the Commission's order in ETI's most-
recent 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, the
PUC 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 by
       the CGS supplier from the CGS contract capacity at the system hourly avoided-energy-
       cost 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 have
PUC 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      $0.02451                      0.00222
         greater)

                4.       On-peak and off-peak hours for the CGS unserved energy rate are as
       follows:

                         a.      Summer: On-peak hours are 1:00 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 the
PUC 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) only
PUC 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. Fuel-
       related 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.

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

                                          PUBLIC UTILITY COMMISSION OF TEXAS

                                          DONNA L. NELSON, CHAIRMAN

                                            NNETH W. ANDE               ., COMMISSIONER
                                                              V

q:\cadm\orders\fmal\38000\38951 fo.docx
                                     DOCKET NO. 38951
                                                                                       `
APPLICATION OF ENTERGY TEXAS,                    §      PUBLIC UTILITY CO^YIIVIIS(SIv
INC. FOR APPROVAL OF                             §
COMPETITIVE GENERATION SERVICE                   §
TARIFF (ISSUES SEVERED FROM                      §
DOCKET NO. 37744)                                                    OF TEXAS

 TEXAS INDUSTRIAL ENERGY CONSUMERS' LIST OF UNSETTLED ISSUES AND
                REQUEST FOR PROCEDURAL SCHEDULE

        Texas Industrial Energy Consumers (TIEC) submits the following list of unsettled issues
and request for a procedural schedule.

1.   PRELIMINARY ISSUES AND REQUEST FOR PROCEDURAL SCHEDULE

        TIEC's list of unsettled issues in Section II below reflects the common language that has
been agreed upon by the parties to identify the remaining unsettled CGS issues. The parties have
worked in good faith to identify the remaining contested issues related to implementation of a
CGS program. The parties were not able to agree on the procedures for resolving these contested
issues, however, and thus are filing separate pleadings. While TIEC believes that it may be more
expeditious for the Commission to take up all of the unresolved issues at once, TIEC is not
opposed to the other parties' preference to have the Commission first address certain preliminary
contested issues, if the Commission so desires. Preliminary issues could include the following:

A.      Unrecovered Costs

         In TIEC's view, this issue dwarfs all others and has been the primary impediment to a
workable CGS program from the outset. The position of TIEC (and others) at the hearing in this
matter during the summer of 2010 was that Entergy had not shown that there would be any
unrecovered costs (other than potential administrative costs) as a result of the CGS program.
Entergy, on the other hand, indicated that there would be a substantial amount of unrecovered
costs, at one point asserting that it could be as much as $75 million. The potential magnitude of
that issue is substantially reduced given the parties' progress on (1) a cap on the CGS program
and (2) procedures to firm up the capacity provided by CGS suppliers so that it would be counted
as firm capacity by the Entergy system. Nonetheless, the dispute remains concerning whether
there would be any unrecovered costs and, if so, the amount.

                                                                                            2l
AUS 647538.3
        The CGS statute essentially provided that retail customers who choose to take CGS
service would pay an unbundled rate for transmission and ancillary services, but would obtain
their generation from a competitive source.' ETI would purchase electricity from the identified
source and provide it to the CGS customer. TIEC's position has been that Entergy would be
fully compensated for the unbundled transmission and ancillary services through the CGS rate,
and Entergy would be fully compensated for the cost of the electricity by the CGS customer
paying the full cost of the electricity bought on its behalf from the CGS supplier. Entergy's
position, on the other hand, has been that it would suffer lost revenues that it would otherwise
receive if the CGS customer were a full bundled customer, and that Entergy's other customers
should be required to pay Entergy for those lost revenues.

        If the Commission desires to resolve this issue as a preliminary matter, the Commission
should receive limited additional evidence. The pre-filed testimony submitted in this case in late
2009 or early 2010 no longer accurately reflects the facts, and the Commission should base its
decision on the actual facts as they exist today.       Notably, the evidentiary record that was
developed in Docket No. 37744 was based on ETI's proposal for an energy-only program, not an
energy and capacity-based program as reflected in the parties' list of settled issues. TIEC does
not anticipate that additional evidence would be lengthy, and it is possible that the parties could
stipulate to key facts rather than submit testimony. In any case, the items on which the
Commission would need evidence include the following:

               •   The Entergy Operating Committee's recognition that, assuming certain
                   conditions are met, capacity provided by a CGS supplier could be counted as
                   system capacity, thereby reducing Entergy's capacity requirements.
               •   The value of the capacity provided by the CGS supplier.
               •   The fact that ETI's load growth since base rates were set is greater than the
                   proposed capped amount of CGS load. As a result, the CGS program as capped
                   would not result in any reduction in generation-related revenues for ETI, but
                   would simply reduce the amount of ETI's load growth.
               •   Operational savings that would accrue to ETI's customers from firming up
                   Qualified Facility (QF) energy puts by using them as a source of 24 by 7, base
                   load capacity.
               •   What impact, if any, joining MISO would have on a CGS program.

'See PURA § 39.452(b).

                                                   2
AUS.647538.3
        Key facts on the above issues are not in the record at this time, and TIEC submits that the
Commission cannot make an informed decision in this case without them. Accordingly, TIEC
would request an opportunity for the parties to submit record evidence on these issues in the
form of stipulated facts, facts administratively noticed, or testimony on limited issues.

B.      Responsibility for Paying any Unrecovered Costs

        If the Commission determines that there are no unrecovered costs, then this is not an
issue. If, however, the Commission determines that there are unrecovered costs, then Entergy is
entitled under the statute to recover any such costs and the Commission would have to determine
how any such costs will be recovered.

C.      Eligible CGS Customers

        There are issues about whether eligibility for CGS service should be limited to certain
rate classes, as ETI proposed, or should be available to all customers who can meet the necessary
metering requirements, including customers who may aggregate load.

        The parties differ on the issue of whether the unsettled issues can be resolved based on
briefing on the existing record or whether, in addition to briefing, it may be appropriate for the
Commission to take administrative notice of certain facts and/or accept limited additional
evidence relevant to the settled and unsettled issues. TIEC's position is that the Commission
should establish a procedural schedule that would allow the Commission to take notice of facts
and/or accept limited additional evidence relevant to the CGS issues, as well as briefing.

        The need for a procedural schedule to address evidentiary issues should be apparent from
the face of the parties' joint list of settled issues.   The Commission is currently faced with a
substantially different CGS proposal than was originally proposed by ETI almost two years ago
in Docket No. 37744. Further, considerable time has passed since the close of the record in
Docket No. 37744, and the evidence that was developed in that record is now stale (e.g.,
forecasted load growth since the test year). It is TIEC's position that the work and effort that the
parties have put into developing a revised CGS proposal will result in a much better program
than the one proposed by ETI in Docket No. 37744. Because the parties did not develop the
evidence with the current proposal in mind, however, additional evidence is necessary to provide

                                                   3
AUS 647538.3
information to the Commission that it could not otherwise consider based on the existing

evidentiary record.

II.   LIST OF UNSETTLED ISSUES

        TIEC identifies specific unsettled issues, as follows:2

A.      Unrecovered Costs3

B.       Who are eligible CGS customers

C.       Who is responsible for paying for any unrecovered costs

D.       Unresolved issues related to recognition of CGS supply as firm capacity include4:

         1)       Terms and conditions necessary for the CGS program to comply with capacity
                  planning and acquisition principles under the Entergy System Agreement

         2)       CGS Supply Contract minimum size

         3)       Whether CGS Customer aggregation should be permitted

         4)       Cost responsibility for transmission upgrades

         5)       Commercial CGS Supply Agreement terms and conditions

E.       Cap on CGS load - the level of an overall cap on the amount of customer load that would
         be included in the CGS program (i.e., 80MW to 150MW)5

F.       Appropriateness of using load growth as an offset to any unrecovered costs

G.       Capacity value of the CGS capacity product

 H.      CGSC costs:

 2 These descriptions are meant to be high level, and do not include all the component issues which affect the
 controversy surrounding these matters.

 3 The parties disagree as to whether this issue is: "The definition and calculation of any unrecovered costs" or
 instead "the definition, existence, and calculation of any unrecovered costs." TIEC's position is that the latter
 description of the issue is appropriate.

 4 ETI maintains that matters such as these listed in Section II A fall within the exclusive jurisdiction of the FERC.
 If ETI and the Parties can reach an agreed resolution of these issues, the jurisdictional question will be avoided.

 5 ETI maintains that matters such as these fall within the exclusive jurisdiction of the FERC. If ETI and the Parties
 can reach an agreed resolution of these issues, the jurisdictional question will be avoided.

                                                           4
 AUS 647538.3
        1)     Recovery of CGSC costs should there be no CGS participants

        2)     Determination of the appropriate starting date for incurring recoverable CGSC
               costs

        3)     Whether CGSC costs should earn carrying costs

1.      Whether a form contract is required for the successful implementation of the CGS
        program

III.    CONCLUSION

        For the above reasons, TIEC requests that the Commission adopt a schedule to allow
additional evidence and briefing on the unsettled issues.

                                                 Respectfully submitted,
                                                 ANDREWS KURTH LLP

                                                  Rex D. VanMiddlesworth
                                                  State Bar No. 20449400
                                                  Meghan Griffiths
                                                  State Bar No. 24045983
                                                  111 Congress Avenue, Suite 1700
                                                  Austin, Texas 78701
                                                  (512) 320-9200
                                                  (512) 320-9292 Fax

                                                  ATTORNEYS FOR TEXAS INDUSTRIAL
                                                  ENERGY CONSUMERS

                                 CERTIFICATE OF SERVICE

       I, Meghan Griffiths, Attorney for TIEC, hereby certify that a copy of the foregoing
pleading was served on all parties of record in this proceeding on this 1 st day of November 2011
by hand-delivery, facsimile, electronic mail and/or FirstCla,4, U.S. Mail, Postage Prepaid.

                                                 5
AUS•647538.3
                                              PUC DOCKET NO. 38951

 APPLICATION OF ENTERGY TEXAS,                                   §        PUBLIC UTILITY COMMISSION
 INC. FOR APPROVAL OF                                            §
 COMPETITIVE GENERATION                                          §
 SERVICE TARIFF ( ISSUES SEVERED                                 §
 FROM DOCKET NO. 37744)                                          §                         OF TEXAS
                                                                                    ..^t.     .._.,.
                UNOPPOSED STIPULATION ON UNRESOLVED ISSUE NO. 3?%
                                                                                      ^ ,.
                                                                                        C,
          All Parties except Entergy Texas, Inc. (ETI) have reached an agreement on the^"e bf
 who is responsible for paying for any unrecovered costs. ETI does not join in this stipu^`'aAYn, ro
 but does not oppose the resolution proposed by the other Parties. The proposed resolution is tl*,
                                                                                                 11
 to the extent there are costs unrecovered as a result of the implementation of a CGS tariff, those
 costs should be borne soley by customers taking service under the CGS tariff.
          The signatories request that the Commission resolve Issue No. 3 on the above basis and
are authorized to represent that ETI does not oppose this request.

          Staff of the Public Utility Commission of Texas, the Steering Committee of Cities Served by ETI, Kroger Company,
Office of Public Utility Counsel, State of Texas' agencies and institutions of higher education through their duty authorized
representatives, Texas Industrial Energy Consumers, and Wal-Mart Stores Texas, LLC and Sam's East, Inc.
 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

 By:
 Stephen Mac

 Date: April 13, 2012

 OFFICE OF PUBLIC UTILITY COUNSEL

By:
Sara J. Ferris

Date: April 13, 2012

STAFF OF THE PUBLIC UTILITY COMMISSION OF TEXAS

By:
Brennan Foley

Date: April 13, 2012

TEXAS INDUSTRIAL ENERGY CONSUMERS

By:
Rex anM' lesworth
Meghan Griffiths

Date: April 13, 2012

THE KROGER COMPANY

By.

Kurt J. Boehm

Date: April 13, 2012
                                             --^
WAL^MART STO4S TEXAS, LLC AND SAM'S EAST, INC.

Rick D. Chamberlain

Date: April 13, 2012                 /%^'        _.
                                                     Docket No. 38951
                                                    Entergy CGS Tariff
                                                   ETI EXHIBIT NO. 91

                      DOCKET NO. 38951

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

               SUPPLEMENTAL DIRECT TESTIMONY

                             OF

                        PHILLIP R. MAY

                        ON BEHALF OF

                     ENTERGY TEXAS, INC.

                       JANUARY 26, 2012

                                                           38            r
       -----~~------------------------------------------------~

                      ENTERGY TEXAS, INC.
         SUPPLEMENTAL DIRECT TESTIMONY OF PHILLIP R. MAY
                       DOCKET NO. 38951

                             TABLE OF CONTENTS

                                                            Page

I.     Introduction and Qualifications                         1

II.    Purpose                                                 1

Ill.   CGS Unrecovered Costs (Definition and Calculation)      5
IV.    Who Pays For CGS Unrecovered Costs                     17

v.     Who Is Eligible For CGS Service                        19

VI.    Conclusion                                             23
                             EXHIBITS

Exhibit PRM-1   LIPS Embedded Production Cost Docket No. 37744

Exhibit PRM-2   LIPS Embedded Production Cost Docket No. 39896

Exhibit PRM-3   MSS-1 Offset to CGS Unrecovered Costs

Exhibit PRM-4   Net CGS Unrecovered Costs

                                                                 3
     Entergy Texas, Inc.                                                           Page 1 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1                      I.     INTRODUCTION AND QUALIFICATIONS

 2   Q.      PLEASE STATE YOUR NAME, POSITION AND BUSINESS ADDRESS.

 3   A       My name is Phillip R. May.          I am employed by Entergy Services, Inc.

4            ("ESI") as the Vice President, Regulatory Services. My business address

 5           is 639 Loyola Avenue, New Orleans, Louisiana 70113.

 6

 7   Q.      ON WHOSE BEHALF ARE YOU TESTIFYING?

 8   A       I am testifying on behalf of Entergy Texas, Inc. ("ETI" or the "Company").

 9

10   Q.      ARE YOU THE SAME PHILLIP MAY WHO FILED TESTIMONY IN THIS

11           PROCEEDING           REGARDING            THE   COMPETITIVE      GENERATION

12           SERVICE PROGRAM?

13   A       Yes.

14

15                                        II.     PURPOSE

16   Q.      WHAT IS THE PURPOSE OF YOUR TESTIMONY?

17   A       My testimony will address the three "threshold" issues 1 summarized as:

18           1) what is the definition and calculation of CGS unrecovered costs; 2) who

19           should pay for the CGS unrecovered costs; and 3) who is eligible for

20           participating in the CGS program.

          These issues were identified in The Joint Parties List of Unsettled Issues and Issues
          Contingent on a Commission Determination of Unsettled Issues, filed in this docket on
          November 1, 2011. The Commission authorized submission of further evidence on these
          issues at its December 8, 2011 open meeting.
     Entergy Texas, Inc.                                                    Page 2 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     DO YOU SPONSOR ANY EXHIBITS IN THIS FILING?

 2   A.     Yes.     I sponsor the exhibits listed in the Table of Contents to my

 3          testimony.

 4

 5   Q.     WILL     ANY      OTHER       WITNESSES    ADDRESS    CGS     ISSUES    IN

 6          SUPPLEMENTAL DIRECT TESTIMONY?

 7   A.     Company witness Andrew J. O'Brien with ESI's System Planning and

 8          Operations group ("SPO") will provide testimony supporting certain of the

 9          issues I address.

10

11   Q.     WHAT IS YOUR UNDERSTANDING AS TO THE PURPOSE OF THE

12          CGSPROGRAM?

13   A.     The CGS program, as provided for in its enabling legislation and as

14          currently being discussed by the parties to this proceeding, is intended to

15          provide a specific subset of customers ("CGS Customers") with the ability,

16          consistent with the requirements of federal law and FERC tariffs including

17          the Entergy System Agreement, to obtain generation service from an

18          alternative supplier. In order to accomplish this objective, to address the

19          Commission's concerns regarding cost shifting under the program, and to

20          address other significant limitations imposed by the legislation (including

21          the requirement that the CGS program not create a conflict with Federal

22          law), the parties to this proceeding have engaged in extensive
     Entergy Texas, Inc.                                                                 Page 3 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1           negotiations and arrived at a tentative solution to at least some aspects of

 2           the CGS program design.

 3                   Under this collaborative proposal, customers eligible for CGS

4            service will contract with a CGS Supplier, which must be a Qualified

 5           Facility ("QF") as defined by Rate Schedule LQF in ETI's service territory,

6           for a negotiated level of CGS capacity ("Supplier-Customer Contract").

 7           ETI will not be a party to this contract; however, the Supplier/OF ("CGS

 8           Supplier"), based on the Supplier-Customer Contract, will then enter into a

 9           CGS Purchase Agreement with the Company for the same level of

10           capacity as in the Supplier-Customer Contract. The capacity supplied by

11           the CGS Purchase Agreement will take the form of a 24/7 unit contingent

12           product.     Upon fulfillment of other as-yet unresolved conditions in a

13           manner satisfactory to the Entergy Operating Committee, that committee

14           has agreed to recognize that the CGS Purchase Agreement can provide

15           firm capacity (or, in the terms of the Entergy System Agreement,

16           "capability") to the Entergy System. 2

17                   ETI will not make a capacity payment directly to the CGS Supplier.

18           Instead, ETI will provide a credit to the CGS Customer equal to ETI's

     2
         The parties to the case, including ETI, have not reached agreement on all matters necessary
         to establishment of a CGS program that includes such a capacity product. Matters yet to be
         unresolved are listed in the "Agreed List of Unsettled Issues and Issues Contingent on a
         Commission Determination of Unsettled Issues" referenced earlier in this testimony. By
         providing this testimony, ETI does not in any manner waive its rights to fully contest and
         independently assert its rights regarding any and all matters that remain in dispute among the
         parties. ETI presents this testimony solely for the purpose of facilitating the Commission's
         resolution of the threshold issues listed above, which may facilitate further efforts by the
         parties to resolve remaining contested issues surrounding the design of the CGS program
         and tariffs.
     Entergy Texas, Inc.                                                     Page 4 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          embedded production cost (measured in $/kW/month) for that customer

 2          times the CGS Supplied Capacity (kW). Any compensation for the CGS

 3          capacity to the CGS Supplier is paid by the CGS Customer pursuant to

 4          the terms of a separate Supplier-Customer Contract. The tentative terms

 5          and conditions I have laid out here, among others, are included in Section

 6          I of the CGS Stipulated Matters and Stipulated Facts filed by the parties to

 7          this proceeding on January 20, 2012.

 8

 9   Q.     IS THE INTENT OF THE CGS PROGRAM TO CREATE A CAPACITY

10          MARKET FOR ETI?

11   A.     No. The CGS program is not intended, or needed, as a means to fulfill

12          ETI's resource needs and the Company would resist any effort to place a

13          value on CGS capacity based on an alleged resource need for the

14          program.      To the contrary, the CGS program, as I noted above, is

15          designed as a means whereby a limited class of eligible customers could

16          gain access to an alternative source of generation apart from that offered

17          by ETI.

18                  The Entergy system has and will continue to plan for and acquire

19          short-term, limited-term and long-term resources needed by ETI to reliably

20          serve its Texas customers.             However, if implemented properly and

21          consistent with applicable legal requirements, the CGS program could

22          provide a relatively modest amount of additional capacity for the Entergy

                                                                                       l
     Entergy Texas, Inc.                                                             Page 5 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1               System.   As discussed below, however, this resource would come with

2                unique risks and limitations.

 3

4         Ill.      CGS UNRECOVERED COSTS (DEFINITION AND CALCULATION)

 5   Q.          PLEASE PROVIDE AN OVERALL DEFINITION OF UNRECOVERED

 6               COSTS.

 7   A.          PURA § 39.452(b), which provides the statutory authority for the CGS

 8               program, provides that "The tariffs subject to this subsection may not be

 9               considered to offer a discounted rate or rates under Section 36.007, and

10               [ETI's] rates shall be set, in the proceeding in which the tariff is adopted, to

11               recover any costs unrecovered as a result of the implementation of the

12               tariff." The statute's definition of unrecovered costs is broad: "any costs

13               unrecovered as a result of the implementation of the tariff." There are two

14               categories of costs within this statutory provision: 1) implementation and

15               administration cost ("lA Cost") associated with this program - this would

16               include the cost of any billing systems, administration cost of the program

17               going forward, and any cost incurred to develop and implement the

18               program in the first instance; and 2) unrecovered costs ("Unrecovered

19               Costs") that results due to CGS Customers no longer taking firm service

20               from the Company. The lA Cost and its recovery is not one of the three

21               threshold issues and will not be addressed in this testimony.

22                      Unrecovered Costs should be defined as the embedded production

23               costs and any other related base rate costs that would have been
     Entergy Texas, Inc.                                                           Page 6 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1           recovered through traditional rates charged to CGS Customers that will no

 2           longer be recovered from the CGS Customers. These are costs that the

 3           CGS Customers would have paid under their traditional rate schedules if

 4           they had not switched to the CGS program.           Because these customers

 5           have switched to the CGS program, these embedded production costs

 6           (less any potential offsets) would otherwise be unrecovered by ETI due to

 7           implementation of the CGS program.

 8

 9   Q.      IS THIS DEFINITION OF THE STARTING POINT FOR UNRECOVERED

10           COSTS CONSISTENT WITH THE ASSESSMENT OF UNRECOVERED

11           COSTS      RECOGNIZED          IN THE     INITIAL EVIDENTIARY HEARING

12           REGARDING THE CGS PROGRAM?

13   A.      Yes.     In his Proposal For Decision, the ALJ reached the following

14           conclusion regarding the nature of unrecovered costs:

15                          The ALJ agrees with ETI that PURA § 39.452(b)
16                   requires that "the utility's rates shall be set, in the proceeding
17                   in which the tariff is adopted, to recover any costs
18                   unrecovered as a result of the implementation of the tariff,"
19                   and that the CGS legislation specifically authorized the
20                   Company to recover any unrecovered costs as "a result of'
21                   implementation of the CGS program. ETI is entitled to
22                   collect unrecovered embedded generation costs and
23                   any other related base rate costs as a result of customer
24                   migration to the CGS program. 3

     3
          Docket No. 37744 (now severed into Docket No. 39851),Proposal for Decision ("PFD") at
          p. 22 (emphasis added).

                                                                                             q
     Entergy Texas, Inc.                                                         Page 7 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

1               Although the ALJ believed that there might be offsets to these

2               unrecovered costs, he was clear in his recognition of embedded test year

3               generation costs as the starting point for the measurement of unrecovered

4               costs.

 5

6    Q.         WOULD       IT BE APPROPRIATE TO ADOPT A               DEFINITION        OF

7               UNRECOVERED COSTS LIMITED TO WHAT YOU REFER TO ABOVE

 8              AS THE lA COSTS?

 9   A.         No, it would not. When ETI's rates are set in a base rate proceeding, the

10              level of those rates is expressly determined so as to be sufficient to

11              recover the reasonable and necessary production-related costs (including

12              return on investment) that it incurred in a representative test year,

13              adjusted for known and measureable changes. Those rates are further

14              designed so that each of the Company's customers' rates contributes their

15              share of those costs, consistent with principles of cost causation. As the

16              ALJ stated, "the ALJ agrees that ETI's revenue requirement is based on
                                                                             4
17              and designed to recover such [embedded production] costs."

18                       When, for example, a Large Industrial Power Service ("LIPS")

19              customer shifts part of its load to CGS service, it avoids payment of the

20              share of ETI's embedded test year production costs allocated to it when

21              base rates were set, because that load is now served through the CGS

     4
          /d.

                                                                                           fo
     Entergy Texas, Inc.                                                                     Page 8 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1            program. If ETI must absorb this loss, then it has failed to recover a part

 2            of its production costs that its base rates were designed to recover. The

 3            effect is the same as if the Commission had granted that particular

 4            customer a discount rate for a portion of the service. As a general rule,

 5            PURA requires that the utility, rather than its customers, absorb losses

 6            associated with discount rates. 5           As quoted above, however, PURA §

 7            39.452(b) is an exception to this rule, and expressly prohibits the CGS

 8            program tariffs from being treated as offering a discount rate.

 9                    The Company does not support proposals that shift risks or losses

10            onto ETI. Any such proposal results in only a small group of customers

11            obtaining a benefit at the expense of the Company, which is nothing more

12            than a discount rate in disguise.

13

14   Q.       HOW IS THE CGS RATE FOR CUSTOMERS STRUCTURED, BASED

15            ON THE CGS PROGRAM DESIGN DISCUSSED BY THE PARTIES

16            DURING THEIR SETTLEMENT NEGOTIATIONS?

17   A.       The proposed CGS program provides a $/kW credit for the amount of

18            CGS capacity supplied by the CGS Customer. 6 The parties' January 20

19            Stipulation affirms (Stipulation I.C.3) that this $/kW credit should be based

20            on the embedded production cost from the most recent ETI general rate

     5
          PURA § 36.007.
     6
          This credit approach is different from the ETI proposal at the time of the initial CGS hearing to
          implement unbundled rates and is administratively more efficient. See Section I.C of the
          Stipulation of Facts and Other Matters filed January 20, 2012.
     Entergy Texas, Inc.                                                      Page 9 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          case for the class of customers eligible to participate in the program. For

 2          example, based on ETI's last full base rate case (Docket No. 37744), for

 3          the LIPS rate class, this value is $6.84/kW as shown on Exhibit PRM-1.

 4          Based on the Company's most recent filed base rate case in Docket No.

 5          39896, again for the LIPS class, this value is $7.77/kW as shown on

 6          Exhibit PRM-2. This $/kW credit recognizes that the CGS Customers will

 7          be supplying a portion of their own production-related requirements via the

 8          CGS supplied capacity and not receiving the generation supply associated

 9          with ETI production costs for that amount of capacity supplied.

10

11   Q.     CAN YOU FURTHER DISCUSS WHY EMBEDDED PRODUCTION COST

12          IS THE APPROPRIATE STARTING POINT FOR DETERMINING THE

13          CGS UNRECOVERED COSTS?

14   A.     As I explained earlier, embedded production cost is the appropriate

15          starting point because that is the amount that the CGS Customer will

16          receive as a credit and will thereby avoid by taking some level of service

17          under the CGS program, instead of continuing to take that level of service

18          under its historical rate schedule. As described above, this credit is based

19          on the embedded production cost incurred to serve that customer, and

20          equates to the amount of contribution to fixed production costs previously

21          provided by the CGS Customers, and thus is the starting point for

22          calculating the CGS Unrecovered Costs.
     Entergy Texas, Inc.                                                               Page 10 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1   Q.      ARE THERE ANY POTENTIAL OFFSETS TO THIS STARTING POINT

 2           FOR DETERMINING UNRECOVERED COSTS?

 3   A.      Yes.    The current CGS program proposal under discussion among the

4            parties is based upon energy supplied via a firm 24/7 product as described

 5           earlier in my testimony, and by ETI witness O'Brien.                     The Entergy

 6           Operating Committee has indicated that such a product may, under

 7           appropriate conditions, be included in ETI's generating capability for

 8           purposes of the Entergy System Agreement accounting and resource

 9           planning. Provided that remaining outstanding issues regarding "firming

10            up" CGS capacity can be resolved in a manner that is consistent with the

11            Operating Committee parameters, the amount of capacity associated with

12           the CGS Supplier-Customer Contracts will -                     unlike the capacity

13           associated with the initial CGS proposal originally filed in Docket No.

14           37744 - be considered ETI capability in the determination of ETI's

15            payments pursuant to Entergy System Agreement Service Schedule

16            MSS-1 (Reserve Equalization). 7 The inclusion of CGS capacity in the

17            calculation of ETI's Schedule MSS-1 obligations is expected to reduce

     7
          MSS-1 obligations are calculated by comparing an Entergy Operating Company's ("OPCO's")
          owned or controlled capability to the amount of capability that an OPCO should own or
          control if it owned or controlled an amount of capability equal to its share of the System's
          load. A company that owns or controls less capability that it should be responsible for is
          known as a "short" company, and is required to compensate those OPCOs that are "long" for
          the use of the long Company's reserves. ETI is a short OPCO, which means that adding
          capability that the Operating Committee has determined to be eligible to ETI's total company
          capability will reduce ETI's MSS-1 payments.
     Entergy Texas, Inc.                                                       Page 11 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          ETI's Schedule MSS-1 payments to the other OPCOs and, as such, will

 2          reduce ETI's overall revenue requirement.

 3

 4   Q.     HAVE YOU CALCULATED THE EFFECT OF CGS CAPACITY ON ETI'S

 5          SCHEDULE MSS-1 PAYMENTS?

 6   A.     Yes. Exhibit PRM-3 shows the calculation of the effects of CGS capacity

 7          on ETI's Schedule MSS-1 obligations, based on a recent Intra System Bill.

 8          Under Schedule MSS-1, when capacity is added incrementally to the

 9          system each OPCO is responsible for their responsibility ratio share of this

10          capacity.    When an OPCO is adding capacity, in this case ETI adding

11          CGS capacity, the OPCO is comparatively longer and thus reduces its

12          Schedule MSS-1 obligation.           In this example, the reduction amounts to

13          $3.097/kW/month and would be an offset to the CGS Unrecovered Costs

14          starting point ($6.84/kW/month under current rates) discussed above.

15

16   Q.     ARE THERE ANY OTHER OFFSETS TO THIS UNRECOVERED COSTS

17           STARTING POINT?

18   A.     Yes.    Under the settlement terms tentatively agreed to by the parties,

19          other offsets would be the Fixed Cost Contribution Fee and the Unserved

20           Energy O&M adder charges set out in the parties' January 20 Stipulation

21           (Stipulations I.E.1-3, I.F.5). The Fixed Cost Contribution Fee is a fixed

22          $/kW fee per month that each CGS Customer will pay and for which the

23           revenues received by ETI will go to offset the CGS Unrecovered Costs.
     Entergy Texas, Inc.                                                       Page 12 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          The Unserved Energy O&M adder is a fee the CGS Customers may or

 2          may not pay depending on whether the CGS capacity was actually

 3          supplied to ETI or not. Again, revenues received by ETI from this O&M

4           adder will go to offset the CGS Unrecovered Costs.

 5

 6   Q.     OTHER PARTIES HAVE ARGUED THAT LOAD GROWTH SHOULD BE

 7          AN OFFSET TO CGS UNRECOVERED COSTS. PLEASE COMMENT.

 8   A       It has been suggested previously that revenues associated with load

 9          growth should be an offset to unrecovered costs. Such a suggestion is

10          inconsistent with the provision of the law that states: " ... and [ETI's] rates

11          shall be set, in the proceeding in which the tariff is adopted, to recover any

12          costs unrecovered as a result of the implementation of the tariff." This

13          language requires that the program be implemented within the base rate

14          case in which the tariff is developed, in order that the embedded costs that

15          are avoided by the CGS Customer would be readily identifiable.            Load

16          growth is not a concept that can be appropriately applied within the

17           context that rates are set in Texas based upon an historical test year with

18           known and measureable costs.              Load growth adjustments have gained

19           acceptance in Texas in some instances as a consideration in offsetting

20           incremental costs, and should not be used to offset the embedded costs

21          we are dealing with in this case.

22                  Also, as referenced above, unrecovered costs are costs that would

23           have been recovered but for the CGS program or "as a result of the
     Entergy Texas, Inc.                                                   Page 13 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          implementation of the tariff." Load growth is not dependent on the CGS

 2          program and would have occurred regardless of the CGS program.

 3                  In addition, any potential offset associated with load growth would

4           have to be limited to load growth associated with the generation function.

 5          Any load growth associated with the distribution function, for example,

 6          would be earmarked for the Distribution Cost Recovery Factor ("DCRF") in

 7          accordance with the rules adopted to implement the DCRF. I would add

 8          that load growth in the DCRF example is used to offset incremental costs

 9          incurred since the last base rate case, not to offset embedded cost.

10                  Lastly, any load growth adjustment to the Unrecovered Costs would

11          also need to recognize that ETI's generation cost continues to increase.

12          More specifically, simply adjusting for the effect of load growth on ETI

13          revenues associated with the generation function would not recognize the

14          other effects on the generation function such as cost increases.       The

15          result of such an approach would be that revenues that would otherwise

16          be available to offset increases in purchased power cost for customers,

17          would instead be dedicated to the CGS program. The result of dedicating

18          the growth in revenues to the CGS program would be the purchased

19           power costs to be recovered from all customers, save for those taking

20          CGS service, would increase. This inappropriate outcome further justifies

21          the conclusion that load growth, to the extent it is utilized, should only

22           offset incremental costs, and not embedded costs.
     Entergy Texas, Inc.                                                     Page 14 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     WHAT WAS THE COMPANY'S EARNED ROE IN ITS LAST EARNINGS

 2           MONITORING REPORT?

 3   A.     The Earnings Monitoring Report for the calendar year 2010 showed the

 4          Company's earned ROE was 7.22%, compared to an authorized return of

 5           10.125%.

 6

 7   Q.      HOW DOES THE COMPANY'S EARNED ROE RELATE TO A LOAD

 8          GROWTH ADJUSTMENT?

 9 A. If the Company is not earning its allowed ROE it should not be required to

10          make a load growth adjustment.             Any load growth adjustment would

11          simply further reduce the earned ROE below the allowed level. An earned

12           ROE below the allowed ROE is an indication that the Company's cost has

13          increased at a higher rate than any load growth or increase in sales.

14

15   Q.      IS THERE ANOTHER MORE EFFECTIVE APPROACH TO ADDRESS

16          THESE LOAD GROWTH AND COST INCREASE ISSUES?

17   A.     Yes. In Project 39246, the Commission is considering the development of

18           a purchased power recovery ("PPR") rider applicable to ETI and other

19          Texas vertically integrated utilities.      The PPR rider envisioned by ETI

20           recognizes the benefits of load growth because it reflects the total

21           revenues collected by the PPR rider. Thus, if revenues collected from the

22           PPR rider have increased due to increased sales, this increase would

23           automatically be reflected in updates to the PPR rider via the over( under)-

                                                                                      11
     Entergy Texas, Inc.                                                          Page 15 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          recovery provision, thus reducing the amounts customers would otherwise

 2          pay for purchased power costs.

 3                  In addition, ETI's envisioned PPR rider reflects the total purchased

4           power cost8 of the Company, thus it would automatically reflect any

 5          fluctuations (up or down) caused by increases or decreases in any

 6          purchased power cost component via the over(under)-recovery provision.

 7                  Due to the manner in which the PPR should function, if the

 8          acquisition of CGS capacity truly reduces ETI purchases or reduces

 9          MSS-1 payments made by ETI, these reductions would be reflected in the

10          actual cost collected through the PPR rider and would not need to be

11          separately identified and quantified. Likewise any debate on the value of

12          load growth or its quantification as an offset would no longer be necessary

13          because all increased revenues caused by the increased sales, whatever

14          their level, would be reflected in the over/under recovery provision of the

15           PPR rider.     For example, if sales increased by 5% and the purchased

16          power cost decreased 3% in the same period, both of these effects would

17           be reflected as reductions in the PPR rider, thereby automatically

18           offsetting CGS Unrecovered Costs included in the PPR.                 This would

19           eliminate any need to debate the extent to which CGS Capacity provided

20          value that should offset CGS Unrecovered Costs, because any such value

     8
         The purchased power cost reflected in ETI's envisioned PPR rider would also include the
         cost associated with Entergy System Agreement Service Schedule MSS-1.
     Entergy Texas, Inc.                                                    Page 16 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          would be captured in the PPR rider along with all other purchased power

 2          cost.

 3

4    Q.     IS THERE ANY CAPACITY COST VALUE, OTHER THAN THAT

 5          ASSOCIATED WITH SCHEDULE MSS-1, THAT CAN BE USED TO

6           OFFSET THE CGS UNRECOVERED COSTS?

 7   A      No. As demonstrated in the forgoing discussion, an offset is appropriate

 8          only if the CGS program results in an actual reduction to ETI's revenue

 9          requirement.      Accordingly, there are no grounds for an additional offset

10          other than those previously discussed.

11                  Further, as discussed by ETI witness O'Brien, many factors and

12          characteristics must be considered when valuing capacity costs, such as

13          the lack of flexibility, energy cost, firmness (unit contingent vs. system

14          contingent), term, size (level of MW), location and ability to reduce

15          operating constraints (reduction of QF put). A review of the characteristics

16          of the capacity that ETI will acquire as a result of the CGS program

17          indicates that the CGS capacity is not a product that would reasonably be

18          expected to have a high level of value.

                                                                                     (j
     Entergy Texas, Inc.                                                            Page 17 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1   Q.      WHAT IS THE RESULTING NET CGS UNRECOVERED COSTS BASED

 2           ON THE CGS UNRECOVERED COSTS STARTING POINT AND THE

 3           OFFSETS YOU DISCUSS ABOVE?

4    A.      Using the LIPS rate class as an example (and which ETI proposes should

 5           comprise the CGS-eligible customers),              Exhibit PRM-4 shows the

 6           calculation of the net CGS Unrecovered Costs based on embedded cost

 7           from Docket No. 37744 and ETI's filed case in Docket No. 39896 net of

 8           the offsets I discussed above. The current net CGS Unrecovered Costs is

 9           $2.643/kW/month based on current values from Docket No. 37744.

10           Based on the Company's filed case in Docket No. 39896 the CGS

11           Unrecovered Costs is $3.543/kW/month.

12

13                  IV.    WHO PAYS FOR CGS UNRECOVERED COSTS

14   Q,      WHAT IS THE COMPANY'S PROPOSAL FOR WHO SHOULD PAY FOR

15           THE CGS UNRECOVERED COSTS?

16   A.      The Company proposes that the CGS Unrecovered Costs should be

17           recovered from all non-CGS participating load.                  This is a slight

18           modification from the Company's direct case position in which the

19           Company was proposing that the CGS Unrecovered Costs should be

20           recovered from all non-CGS customers. 9            This modification recognizes

21           that there is a portion of a CGS Customer's load that is not supplied by the

     9
          See Docket No. 37744, Phillip R. May Direct Testimony filed on December 30, 2009, pages
          14-15 and 21, (Bates No. 3-265-266 and 3-272); ETI's Initial Brief on Proposed CGS filed
          August 2, 2010, page 11; ETI's Reply Brief on CGS filed August 16, 2010, page 6.
     Entergy Texas, Inc.                                                       Page 18 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1          CGS program and for which the Company continues to supply generation.

 2          This non-CGS participating load should be treated as any other customer

 3          load for which ETI supplies generation resources.

 4                  As discussed by Company witness O'Brien in his supplemental

 5          direct testimony, under appropriate conditions, CGS capacity can be

 6          considered to be capability for ETI and the Entergy System. Therefore,

 7           ETI's proposal for who should pay for Unrecovered Costs recognizes that

 8          the proposed CGS firm capacity product is a generation resource, the cost

 9          of which should be recovered from all customers.

10

11   a.     WHY SHOULD A NEW CUSTOMER, WHO DID NOT EXIST PRIOR TO

12          THE CREATION OF THE CGS PROGRAM, HAVE TO PAY FOR

13           UNRECOVERED COSTS?

14   A.     As stated above, the CGS capacity should be treated like any other supply

15           resource and be recovered from all customers whether new or existing.

16          Any other conclusion would imply that certain customer groups can select

17           specific ETI generation resources to satisfy their needs. For example, this

18          would imply that a new customer could elect to not pay for any River Bend

19           Station    nuclear generation-related     costs   because   the   Company's

20           acquisition of power from the River Bend Station was made and approved

21           long before that customer became an ETI customer. Such a conclusion is

22           contrary to traditional ratemaking whereby customers' rates are based on

23           average cost pricing.
     Entergy Texas, Inc.                                                           Page 19 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1   Q.      SHOULD THE LOADS OF NEW CUSTOMERS, WHO ARE ALSO CGS

2            CUSTOMERS,           BE     INCLUDED        IN    THE      CALCULATION          OF

3            UNRECOVERED COSTS?

4    A       Yes. But for the CGS program, a new customer would contribute to the

 5           Company's embedded production fixed cost based on current base rates.

6            However, because of the CGS program, the Company will not recover the

 7           same level of fixed cost from the new customer had the CGS program not

 8           been in effect.

 9

10                       V.      WHO IS ELIGIBLE FOR CGS SERVICE

11   Q.      WHAT IS THE COMPANY'S PROPOSAL FOR WHO SHOULD BE

12           ELIGIBLE FOR CGS SERVICE?

13   A       The Company continues to propose that only the LIPS class of customers

14           be eligible for the CGS program. As stated in ETI's direct case, PURA

15           § 39.452(b) is not intended to extend a competitive generation tariff

16           offering to all customers. 10 The provision refers to "eligible customers"

17           rather than to "all customers." It is important to reiterate that the CGS

18           program is not a provision for retail customer choice, or for a retail pilot

19           project, as otherwise addressed in PURA Chapter 39.                     Given the

20           complexity of the CGS program, it is appropriate to set reasonable

     10
          See Docket No. 37744, Phillip R. May Direct Testimony filed on December 30, 2009, pages
          10-12, (Bates No. 3-261-263).
     Entergy Texas, Inc.                                                               Page 20 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

1           eligibility thresholds for CGS service. Moreover, the statutory language's

2           reference to protections for "manufacturers" who choose not to participate

3           in the program suggests an expectation that this is the type of customer

4           who otherwise will be participating. The Company continues to believe

 5          that only large customers will have the size, sophistication, and capability

6           to make use of the CGS service. Second, LIPS customers already have

 7          the interval data recorder ("lOR") metering in place that is technically

 8           required    for the     program.          Third,   the   administration   and   billing

 9           requirements of the CGS program require a substantial amount of

10           additional systems work and on-going manual intervention from the

11           Company's Major Accounts Billing function.                  It cannot be easily or

12           inexpensively expanded past a relatively small number of CGS Customers

13           (customers/meters) without requiring a much larger system and personnel

14           investment. Potentials for expanding the program beyond the LIPS class

15           can be addressed in the annual reports to be filed by the Company but,

16           until it is shown that expansion beyond that class is workable and

17           appropriate, the eligible CGS Customers should be limited to the LIPS

18           class.

19

20   Q.      COULD AGGREGATION ALLOW SMALLER CUSTOMERS TO QUALIFY

21           FOR THE CGS PROGRAM?

22   A.      Theoretically, aggregation - by which I mean a group of customers

23           pooling their load for purposes of utilizing CGS service - could allow such
     Entergy Texas, Inc.                                                                Page 21 of 23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

 1              customers to qualify. However, as stated in the Company's direct case

 2              and above, the CGS program is not intended to be retail open access. 11

 3              Implementing the CGS program with aggregation across all customer

 4              classes, or even just some classes in addition to the LIPS class, is

 5              tantamount to retail open access, as there would be no limit on the retail

 6              customers then "eligible" to participate in the choice of an alternative to

 7              service from ETI. 12 In addition, on a more practical note, aggregation of

 8              accounts raises complicated customer accounting and billing provisions. 13

 9              The Company's billing system would require major modification or

10              potential replacement in order to aggregate accounts depending on the

11              number of accounts under the CGS program.                   Employee training on

12              aggregation and the ultimate billing system will be required. The cost of

13              any new billing system would have to be recovered from customers like

14              any other implementation and administration cost for the CGS program.

15              Moreover, certain provisions of this CGS program may require notification

     11
          /d.
     12
          Parties have agreed 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. However, the parties have not
          reached agreement on the amount of a cap beyond a range from 80 MW to 150 MW. See
          Stipulation of Facts and Other Matters filed January 20, 2012 (Stipulation II.B. 1-2).
     13
          The Company is assuming that if aggregation were allowed, an aggregator would be required
          to facilitate aggregation. The CGS product is a 24/7 firm product that requires the CGS
          Supplier to acquire firm network service. Examples of the complications associated with
          aggregation include: 1) if a customer who is part of a CGS aggregated group closes
          business, does this result in the entire aggregated group's CGS contract being terminated
          because the firm network resources no longer matches the aggregated groups CGS
          capacity?; 2) how can, or should, customers be added to an aggregate group because this
          would then exceed the existing CGS capacity and contracted firm network transmission
          service?; 3) how can the requirement for IDR metering and backup metering for each CGS
          Customer at their cost be fulfilled in the context of aggregation?; and 4) how would all such
          CGS Customers be converted to calendar month billing?
     Entergy Texas, Inc.                                                     Page 22 of23
     Supplemental Direct Testimony of Phillip R. May
     Docket No. 38951

1           to each CGS Customer or CGS Supplier to cease CGS supply. Providing

2           this notice to a large number of customers for a single supply is

3            impractical and not feasible.

4

5    Q.     ARE THERE ANY OTHER ISSUES RELATED TO ELIGIBILTY THAT

6            SHOULD BE ADDRESSED?

7    A.     Yes.    As discussed in Company witness O'Brien's supplemental direct

 8           testimony, it is appropriate to limit the number of CGS Supplier-Customer

 9           Contracts that can be in effect at any point in time, or to set a minimum

10           contract size for each CGS Supplier-Customer Contract.            Lastly, as

11           discussed above and as described in the parties January 20 Stipulated

12           Matters and Stipulated Facts, this CGS program is extremely complicated.

13           The Company therefore proposes that customers currently on either the

14           Rider to Rate Schedule LIPS for Interruptible Service ("Schedule IS") or

15           Economic As-Available Power Service ("Schedule EAPS") should not be

16           allowed to participate in the CGS program to satisfy any portion of their

17           firm load at this time.      Customers on Schedules IS and EAPS already

18           have their loads split between firm and other service. Adding a further

19           split of what was firm service between CGS and what then remains for

20           firm service is a further complexity in billing and administration of the CGS

21           program that should be considered at a future date, once the Company

22           and its customers have the opportunity to gain experience in the basics of

23           the CGS program. Again, the potential for expanding the CGS program to
    Entergy Texas, Inc.                                               Page 23 of 23
    Supplemental Direct Testimony of Phillip R. May
    Docket No. 38951

1          the IS and EAPS customers can be addressed in the annual reports to be

2          filed by the Company.

3

4                                     VI.     CONCLUSION

5   Q.      DOES THIS CONCLUDE YOUR SUPPLEMENTAL DIRECT

6          TESTIMONY?

7   A.     Yes, at this time.
                                                                                                                          Exhibit PRM-4
                                                                                                                       Docket No. 38951
                                                                                                                            Page 1 of 1

                                                       Entergy Texas, Inc.
                                          Net CGS Unrecovered Costs Based on LIPS Class
                                                                 $/kW/month

Line        Item                                         Docket No. 37744         Docket No. 39896        Source

        Unrecovered Costs Starting Point
            LIPS CGS Credit ( Embedded Gen Rev Req)                       6.84                7.74        Exhibits PRM-1 and PRM-2

        Offsets
  2         ETI MSS-1 offset for CGS                                    3.097                3.097        Exhibit PRM-3
  3         Fixed Cost Contribution Fee                                  1.10                 1.10        Stipulated Facts
  4         Unserved Energy O&M Adder                                       (a)                  (a)

  6         Net Unrecovered Costs (b)                                   2.643                3.543        Line 1 - Line 2 - Line 3

Notes
        (a) Unserved Energy O&M Adder offset is dependent on the actual amount of unserved energy supplied hourly.
            The resulting dollar value will go to offset the otherwise net unrecovered cost.
        (b) This Net Unrecovered Costs rate would be multiplied by any CGS Supplied Capacity and then reduced by any
            Unserved Energy O&M Adder dollars received to determine the Net Unrecovered Cost dollars for each month.
                                                    Docket No. 38951
                                                   Entergy CGS Tariff
                                                  ETI EXHIBIT NO. 92
                      DOCKET NO. 38951

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

             SUPPLEMENTAL REBUTTAL TESTIMONY

                             OF

                        PHILLIP R. MAY

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                      FEBRUARY 24, 2012
                       ENTERGY TEXAS, INC.
         SUPPLEMENTAL REBUTTAL TESTIMONY OF PHILLIP R. MAY
                        DOCKET NO. 38951

                              TABLE OF CONTENTS

                                                                        Page

I.      Introduction and Qualifications                                    1

II.     Purpose                                                            1

Ill.    Loss of Revenues Versus Unrecovered Embedded Generation Costs      2

IV.     Load Growth as an Offset to Unrecovered Costs                      7

v.      Allocation of Unrecovered Costs                                   18

VI.     Eligible Customers For CGS Service                                20

VIII.   Conclusion                                                        30

                                                                               J
                               EXHIBITS

Exhibit PRM-1R   ETI's Response to OPUC RFI1-4

Exhibit PRM-2R   ETI's Response to TIEC RFI 1-8

Exhibit PRM-3R   TIEC's Response to ETI RFI 1-5

                                                  3
     Entergy Texas, Inc.                                                                     Page 1 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1                        I.      INTRODUCTION AND QUALIFICATIONS

 2   Q.       PLEASE STATE YOUR NAME, POSITION AND BUSINESS ADDRESS.

 3   A.       My name is Phillip R. May.            I am employed by Entergy Services, Inc.

 4            ("ESI") as the Vice President, Regulatory Services. My business address

 5            is 639 Loyola Avenue, New Orleans, Louisiana 70113.

 6

 7   Q.       DID YOU PREVIOUSLY FILE TESTIMONY ON BEHALF OF ENTERGY

 8           TEXAS, INC. ("ETI" OR THE "COMPANY") IN THIS PROCEEDING?

 9   A.       Yes, I did.

10

11                                           II.     PURPOSE

12   Q.       WHAT IS THE PURPOSE OF YOUR SUPPLEMENTAL REBUTTAL

13            TESTIMONY?

14 A. I will address certain comments and recommendations made by 1) Cities

15            witness Karl J. Nalepa, 2) Texas Industrial Energy Consumers witness

16            Jeffry Pollock, 3) the Office of Public Utility Counsel ("OPUC") witness

17            Clarence Johnson, 4) The Kroger Co. witness Neal Townsend, and

18            5) Wai-Mart Stores Texas, LLC and Sam's East, Inc witness Steve W.

19            Chriss. 1

20                    Specifically, the subjects I will address are:

21            •    the erroneous claim that ETI is not seeking to recoup unrecovered

22                 costs resulting from the CGS program.

     1
          The Staff and State did not file any further testimony on the three threshold issues.
     Entergy Texas, Inc.                                                      Page 2 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

1             •   why load growth is not an appropriate offset to unrecovered costs,

2             •   ETI's perspective on the determination of which customers should be

3                 allocated responsibility for payment of unrecovered costs, and

4             •   why it is unreasonable to expand beyond the LIPS class the types of

5                 customers eligible for CGS service,

6
7    Q.      DO YOU SPONSOR ANY EXHIBITS IN THIS FILING?

 8   A.      Yes.    I sponsor the exhibits listed in the Table of Contents to my

 9           testimony.

10
11   Q.      WILL     ANY     OTHER       WITNESSES      ADDRESS    CGS     ISSUES     IN

12           SUPPLEMENTAL REBUTTAL TESTIMONY?

13   A.      Company witnesses Andrew J. O'Brien and J. Stephen Dingle with ESI's

14           System Planning and Operations group ("SPO") will also provide

15           Supplemental Rebuttal Testimony on certain issues.

16

17         Ill.     LOSS OF REVENUES VERSUS UNRECOVERED EMBEDDED
18                              GENERATION COSTS

19   Q.       PLEASE      SUMMARIZE         THE     POSITION   PARTIES   HAVE      TAKEN

20            REGARDING           THE       COMPANY'S      DESCRIPTION        OF       ITS

21            UNRECOVERED COSTS.

                                                                                             5
     Entergy Texas, Inc.                                                         Page 3 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   A.     Mr. Nalepa and Mr. Pollock take the position that the Company is seeking

 2          recovery of "lost revenues," and that lost revenues are not the same as

 3          unrecovered costs.

 4

 5   Q.     MR. POLLOCK (PP. 18-19) AND MR. NALEPA (P. 8) CLAIM THAT

 6          COURT        AND      COMMISSION             PRECEDENTS      HAVE    ALREADY

 7          REJECTED         THE     COMPANY'S           POSITION   IN   THIS    CASE    BY

 8          CONCLUDING THAT UTILITIES ARE NOT ENTITLED UNDER PURA TO

 9          RECOUP "LOST REVENUES." WHAT IS YOUR RESPONSE?

10   A.     Mr. Nalepa does not provide any indication of what precedent he is

11          referencing, so I am not in a position to respond to his contention. Mr.

12          Pollock references several Commission proceedings dealing with the

13          promulgation of the Commission's energy efficiency rule, and a court case

14          reviewing certain aspects of that rule.         Mr. Pollock contends that these

15          precedents establish a principle that references to recovery of costs in

16          PURA do not contemplate recovery of lost revenues.

17                  Before I turn to rebuttal of Mr. Pollock's suggestion, I note that

18           neither the Commission Staff nor the SOAH ALJ who was the first

19          impartial judge of these issues had any trouble concluding that ETI's

20          proposal was for the recovery of unrecovered embedded production

21          costs. The Staff, which has not indicated any change in position at this

22          juncture, concluded: "[i]mplementing the CGS tariff...              allows CGS

23          customers to avoid certain generation-related costs, and therefore PURA
     Entergy Texas, Inc.                                                                   Page 4 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          § 39.452(b) permits ETI to recover these unrecovered costs."2 Similarly,

2           the ALJ concluded: "ETI is entitled to collect unrecovered embedded

3           generation costs and any other related base rate costs as a result of

4           customer migration to the CGS program."3

 5                   As for Mr. Pollock's arguments in his Supplemental Direct

6           Testimony, I am not a lawyer and do not intend to debate the merit of

 7          Mr. Pollock's testimony as legal analysis per se. His analysis, however, is

 8          irrelevant and off base because the Company in this proceeding seeks

 9          only its statutory right to recoup the fixed production costs that it fails to

10           recover when a customer chooses CGS service over firm LIPS service.

11          The Company's production costs to serve all of its customers are

12           determined in a base rate case based on a representative test year (most

13           recently in Docket No. 37744), and every customer's share of those costs

14           are likewise determined in that same case. The Company's production

15           costs for the LIPS customers in Docket No. 37744 is $6.84/kW-month.

16           When one of those customers moves to CGS service, the Company no

17           longer recovers that $6.84 unit production cost from that customer; in the

18           words of the CGS statute, that cost is "unrecovered." Mr. Pollock points to

19           the fact that ETI's proposed CGSUSC tariff uses the term "lost revenues"

20           rather than "unrecovered costs." This difference in terminology is of no

     2
         Docket No. 37744, Staff Reply to Exceptions at p. 3. . See also /d., Staff Initial Brief at p. 3
         (" ... unrecovered costs are the costs that the Ll PS customers who elect to participate in the
         CGS program would avoid paying ETI.").
     3
         Docket No. 377 44, Proposal for Decision at p.22.

                                                                                                       l
     Entergy Texas, Inc.                                                       Page 5 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          moment, however, because in terms of test year rate-setting principles, a

 2          utility's revenue requirement and its cost of serving its customers are one

 3          and the same.

 4                  In the court of appeals case cited by Mr. Pollock, it appears that the

 5          court determined that the utility could not recover lost revenues on top of

 6          the energy efficiency program costs that were the focus on the statutory

 7          provision governing energy efficiency cost recovery. 4 Here, by contrast,

 8          ETI seeks only recovery of the production costs that a CGS customer

 9          avoids paying when it takes CGS service.

10                  In addition, the statute governing the CGS program is unique, and

11          distinct from the energy efficiency statute, in that it prescribes that ETI is

12          entitled to recoup costs that are unrecovered due to implementation of the

13          CGS program, and requires that the implementation of the program not be

14          treated as though a discount rate is being put in place.        Under PURA

15          § 36.007, if a utility grants a discount rate, it must absorb the "allocable

16          cost of serving those customers ... " who receive the discount.         If ETI

17          cannot recover the production costs avoided by the CGS customer, it will

18          absorb the portion of its production costs "allocable" to those customers,

19          just as is required when a utility provides a customer with a discount rate.

20          PURA § 39.452(b}, however, expressly prohibits the CGS program from

21          producing this result.

     4
         See PURA § 39.905.
     Entergy Texas, Inc.                                                      Page 6 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     THROUGHOUT MR. POLLOCK'S DISCUSSION ON THIS TOPIC, HE

 2          REFERS TO "HYPOTHETICAL" LOST REVENUES.                          IS THERE

 3          ANYTHING            HYPOTHETICAL             ABOUT      THE     COMPANY'S

4           UNRECOVERED COSTS?

 5   A.     No. The Company's calculation of unrecovered costs is based on

 6          embedded costs within the rate case establishing the CGS tariff as

 7          prescribed by PURA § 39.452(b).              The only unknown is whether any

 8          customers will actually apply for CGS service. Hence, the Company has

 9          developed a $/kW rate associated with its known embedded costs that

10          would be applied to actual CGS load as it occurs to determine the CGS

11          unrecovered costs. There is nothing hypothetical about this cost. The

12          same cannot be said for load growth, which may or may not occur in the

13          future.

14

15   Q.     YOU MENTION LOAD GROWTH IN THE FUTURE.                        WHAT ABOUT

16           LOAD GROWTH SINCE THE LAST RATE CASE?

17   A.     The Company has already filed a new rate case. Any growth in load since

18           rates were set in the last rate case (Docket No. 37744), along with any

19          growth in cost. will be taken up in the rate new case (Docket No. 39896).
     Entergy Texas, Inc.                                                                  Page 7 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1         IV.     LOAD GROWTH AS AN OFFSET TO UNRECOVERED COSTS

 2   Q.      PLEASE SUMMARIZE THE LOAD GROWTH PROPOSALS MADE BY

 3           THE OTHER PARTIES.

 4   A.      Mr. Townsend recommends that unrecovered costs be reduced by any

 5           increases in generation-related base rate revenues attributable to load

 6           growth. 5 It appears that, under Mr. Townsend's approach, an allocation of

 7           ETI's overall revenues from load growth would need to be made, yielding

 8           the proportion of the growth reasonably attributable to the generation

 9           function. Mr. Johnson recommends that unrecovered costs be offset by

10           production revenue growth for the LIPS class only. 6

11                   Similar to Mr. Townsend, Mr. Nalepa states that load growth "from

12           existing production-related rates charged to incremental load" should form

13           the basis for ETI to recover the production costs previously paid by the

14           CGS customer?         Mr. Chriss makes no recommendation regarding load

15           growth in Wai-Mart's February 10, 2012 direct testimony.                 Mr. Pollock

16           suggests that ETI has experienced load growth that exceeds unrecovered

17           costs and therefore there are no unrecovered costs. 8 For this discussion it

18           appears that Mr. Pollock is utilizing total company growth for the

     5
          Townsend Supplemental Direct Testimony, February 10, 2012, pages 81ines 19-21.
     6
          Johnson Supplemental Direct Testimony, February 10, 2012, page 15, lines 5-7.
     7
          Nalepa Supplemental Direct Testimony, February 10, 2012, page 8, line 22 to page 9, lines
          1-2.
     8
          Pollock Supplemental Direct Testimony, February 10, 2012, pages 21-24.

                                                                                                   \0
     Entergy Texas, Inc.                                                          Page 8 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          generation function, rather than load growth solely from the LIPS class of

2           customers.

3

4    Q.     ARE      THERE        COMMON         FLAWS       IN   THE    LOAD     GROWTH

5           RECOMMENDATIONS OF THE INTERVENOR WITNESSES?

6    A.     Yes, the intervenor witnesses uniformly ignore that ETI's unrecovered

 7          costs (the embedded production costs associated with serving CGS

 8          customers) are determined in a base rate case, using test year rate setting

 9           principles, just like every other element of the Company non-fuel

10           production costs.     The Commission does not consider incremental load

11           growth or other incremental cost or revenue changes outside the rate year

12           in establishing the rates that will recover ETI's fixed production costs for

13           any other component of those costs.             There is no basis for taking a

14           contrary approach in determining recovery of the embedded production

15           costs associated with serving the CGS customers.             PURA § 39.452(b)

16           confirms this view when it states that "the utility's rates shall be set, in the

17           proceeding in which the tariff is adopted, to recover any costs as a result

18           of the implementation of the tariff."         The statute says nothing about

19           considering a load growth adjustment that is unknown and unmeasurable

20           as the Commission sets rates, in this case, to recover the production costs

21           incurred to serve CGS customers.            Furthermore, even if the statute did

22           refer to load growth, changes in costs to serve customers, not just growth

23           in load, would also need to be considered.
     Entergy Texas, Inc.                                                       Page 9 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     ARE THERE ADDITIONAL FUNDAMENTAL FLAWS IN INTERVENOR

 2          WITNESS LOAD GROWTH ANALYSES?

 3          Yes, the intervenor witnesses' load growth recommendations are

 4          fundamentally       flawed     for   additional   reasons.   All   of   these

 5          recommendations assume, to one degree or another, that load growth

 6          under base rates is to be devoted, in a preferential fashion, to subsidize

 7          the CGS program. There is nothing in base ratesetting principles or in

 8          PURA that supports this approach. Under PURA, absent special statutory

 9          requirements to the contrary, base rates are to be set sufficient to

10          providing the utility with a reasonable opportunity to earn a reasonable

11          return over and above the recovery of its reasonable and necessary

12          operating expenses.

13                  Once those base rates are set, they are left in place until such time

14          as they are changed again, on a prospective basis only. There is nothing

15          in this process that earmarks load growth for a special purpose, such as

16          subsidizing the CGS customers.

17                  The Commission Staff has explicitly recognized this principle in this

18          case. In its Exceptions to the ALJ's Proposal for Decision, ETI explained

19          that devoting load growth to address unrecovered costs would prevent it

20          from using such growth to address costs of operations it actually

21          experienced while the rates were in effect. The Staff agreed, stating in its

22          Replies to Exceptions that:

                                                                                     \I-
     Entergy Texas, Inc.                                                          Page 10 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1                    [l]oad growth could be accounted for in a manner that would
 2                    keep ETI's shareholders whole. The CGSUSC Rider [for
 3                    recovering unrecovered costs] could be designed in such a
 4                    manner that only the amount of load growth related revenue
 5                    in excess of the amount of load growth related revenue
 6                    equal to ETI's costs would go toward offsetting the
 7                    unrecovered costs non-CGS participants would have to pay. 9
 8
 9   Q.      ARE      YOU     AWARE        OF    OTHER          INSTANCES   IN   WHICH   THE

10           COMMISSION HAS APPLIED TOTAL COMPANY OR GENERATION-

11            RELATED REVENUE GROWTH AS AN OFFSET TO EMBEDDED

12            HISTORICAL COSTS SUCH AS THE CGS CUSTOMER PRODUCTION

13            COSTS?

14   A.       No. As discussed in my Supplemental Direct Testimony, load growth has

15           gained acceptance in Texas as a consideration in offsetting incremental

16           costs, as in the provision for periodic adjustments for incremental changes

17            in distribution investment, 10 but should not be used to provide a means for

18           the non-recovery of embedded costs without consideration of incremental

19           costs.

20
21   Q.       IF ONE ASSUMED, PURELY FOR THE SAKE OF ARGUMENT, THAT A

22            GENERATION LOAD GROWTH ADJUSTMENT WERE APPROPRIATE

23           TO OFFSET UNRECOVERED COSTS, IS IT APPROPRIATE TO USE

     9
          Staff Reply to Exceptions at p. 4 (emphasis added).
     10
          PURA Sec. 36.21 O(a)(2).

                                                                                         \~
     Entergy Texas, Inc.                                                     Page 11 of30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          GENERATION REVENUE LOAD GROWTH FROM ALL CUSTOMER

 2          CLASSES?

 3   A.     No. If load growth from all customers classes associated with generation

 4          revenues were used to offset the CGS unrecovered costs then: 1) this

 5          load growth would not be available to offset incremental generation cost in

 6          the context of the pending purchased power rulemaking; and 2) other

 7          non-CGS classes of customers would be further subsidizing the CGS

 8          program because load growth attributable to their classes would be used

 9          to offset CGS unrecovered costs for a program that only benefits CGS

10          participants.    Mr. Pollock's Exhibit JP-4 illustrates these problems.   His

11          illustration shows that ETI' five-year projected load growth is 73.6 MW.

12          But the load growth that he calculates is necessary to offset unrecovered

13          costs (68.7 MW based on ETI's currently pending rate case) uses up

14          virtually all the ETI projected load growth.

15

16   Q.     ON PAGE 16, MR. JOHNSON DISMISSES THE COMPANY'S USE OF

17          THE EARNINGS MONITORING REPORT ("EMR") EARNED RETURN

18          ON EQUITY ("ROE") AS AN INDICATION THAT LOAD GROWTH HAS

19          NOT OFFSET INCREASED COSTS. PLEASE COMMENT.

20   A.     Mr. Johnson at first states that this report is not indicative because it does

21          not include the unrecovered costs of the CGS program (there are no CGS

22          participants currently). First, this statement is inaccurate. The EMR does

23          include the embedded production costs currently being used to satisfy
     Entergy Texas, Inc.                                                                Page 12 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           customers who may opt for the CGS program. In addition, this statement

 2           misses the Company's point. Regardless of the potential criticisms of a

 3           particular EMR, it well illustrates the general concept that if the Company

4            is not earning its allowed ROE, then the Company's non-fuel cost must

 5           have increased at a faster rate than load and its associated revenues

 6            have grown. The other parties continue to focus on growth in revenues

 7           but ignore the fact that the Company's cost is also increasing.                     For

 8           example, Mr. Pollock's Exhibit JP-2 indicates that adjusted energy sales

 9            have increased by 5.9% in the two years between the test year in ETI's

10            last rate case (the twelve months ending June 30, 2009) and the test year

11            in the currently pending rate case (the twelve months ending June 30,

12            2011). 11   ETI's non-fuel generation costs, however, have increased by

13            28.6% in the same time frame. Load growth cannot be claimed or utilized

14           to recover both incremental cost and embedded cost. 12 This would simply

15            be double counting load growth.

16                    Lastly Mr. Johnson indicates that the EMR is a general diagnostic

17           tool and does not reflect all of the adjustments that would be made in the

18            context of a rate case.         A general diagnostic tool is precisely how the

19            Company utilized this report.          It provides a general indication that the

     11
          Pollock Exhibit JP-2, line 2, last column shows 5.9% increase in sales.
     12
          LIPS non-fuel generation revenue requirement of $65.251 million from Exhibit PRM-1, line 14
          compared to $83.890 million from Exhibit PRM-2, line 3. Growth in cost for LIPS class stated
          as a percent is representative of growth in cost for the Company.
     Entergy Texas, Inc.                                                     Page 13 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          Company's revenues have not kept pace with its costs and, therefore,

 2          earnings have been below the allowed ROE.

 3

4    Q.     ON PAGE 10-11, MR. JOHNSON DISCUSSES HIS VIEW OF THE

 5          EFFECT        OF    THE     CGS      PROGRAM    ON    CUSTOMER        CLASS

 6          ALLOCATION IN SUCCEEDING RATE CASES, AND SUGGESTS THAT

 7          ALLOCATION FACTORS FOR THE CLASS OF CUSTOMERS ELIGIBLE

 8          FOR THE CGS PROGRAM WILL BE REDUCED, RESULTING IN

 9          OTHER CLASSES BEARING A LARGER SHARE OF ETI'S FIXED

10          PRODUCTION COSTS. DO YOU AGREE?

11   A.     No. In response to an RFI from OPUC, attached as Exhibit PRM-1 R, the

12          Company responded to essentially this same question.          That response

13          reflects the Company's intention on how CGS load would be treated in a

14          future rate case proceeding.

15                  Question:
16                         Assuming that Mr. May's position is adopted with respect to
17                  recovery of unrecovered costs, please explain how CGS
18                  customers' billing determinants, demand and energy contributions
19                  to class allocators, and revenues will be treated in future class cost
20                  of service studies.
21
22                  Response:
23                         Assuming Mr. May's position is adopted, including fully
24                  compensatory recovery of unrecovered costs by ETI, CGS
25                  customers' demand and energy contributions to class allocators will
26                  be included in future class cost of service studies as if the CGS
27                  program did not exist. Revenues will be calculated by including the
28                  CGS revenues and credits.
29
     Entergy Texas, Inc.                                                      Page 14 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

1           Therefore, allocation factors and the allocation of production cost will not

2           be affected by the CGS program,

3

4    a.     ON PAGE 22, MR. POLLOCK DISCUSSES THE AMOUNT OF LOAD

5            GROWTH THE COMPANY HAS EXPERIENCED. DO YOU HAVE ANY

6            COMMENT?

7    A.      Yes.   Mr. Pollock asks the Commission to simply assume that the load

 8           growth forecast by ETI will in fact come to pass, although it is plainly not a

 9           known or measurable event at this point.         Based on that speculative

10           assumption, he asks the Commission to decree for now and ever after that

11           ETI will have no unrecovered costs because load growth will outstrip

12           them. This is an unreasonable and unsupportable assumption, to say the

13           least, as Mr. Pollock's own exhibits demonstrate. The workpaper to Mr.

14           Pollock's Exhibit JP-2 shows the actual known and measurable growth in

15           ETI load over the period 1999 - 2009. Using that data, I have calculated

16           the increase from each year to the year 2009, along with the compound

17           annual growth for each year to 2009 as shown in Table 1 below.

                                                                                       \1
    Entergy Texas, Inc.                                                          Page 15 of 30
    Supplemental Rebuttal Testimony of Phillip R. May
    Docket No. 38951

1          Table 1

           Year         Non-           MW           MW        Retail    GWh          GWh

                    Coincident Increase           CAGR        Sales    Increase     CAGR

                     PeakMW          to 2009                  GWh      to 2009

            1999        3,205           41         0.13%      14,833     613         0.41%

           2000         3,338           (92)      (0.31 %)    15,325     121         0.09%

           2001         3,143           103        0.40%      14,885     561         0.46%

           2002         3,185           61         0.27%      14,987     459         0.43%

           2003         3,248           (2)       (0.01%)     15,366     80          0.09%

           2004         3,512          (266)      (1.56%)     16,026    (582)       (0.74%)

           2005         3,434          (188)      (1.40%)     14,979     467         0.77%

           2006         3,571          (325)      (3.13%)     15,383     63          0.14%

           2007         3,711          (465)      (6.47%)     15,521     (75)       (0.24%)

           2008         3,176           70         2.20%      15,533     (87)       (0.56%)

           2009         3,246            0              n/a   15,446      0            n/a

2

3                  This table clearly shows that load growth has been anything but

4          consistent for ETI and cannot be depended on to offset CGS unrecovered

5          costs as claimed by Mr. Pollock.
     Entergy Texas, Inc.                                                      Page 16 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     ON     PAGE 23,       MR. POLLOCK DESCRIBES HIS BELIEF THAT

 2          PROJECTED LOAD GROWTH MORE THAN OFFSETS ETI'S CLAIMED

 3          "LOST REVENUES." PLEASE COMMENT.

 4   A.     Mr. Pollock simply assumes 150 MW of CGS customer load, then

 5          estimates the unrecovered costs based on both values from Docket

 6          No. 37744 and from Docket No. 39896 provided by the Company, then

 7          backs into the amount of load growth that would be required to offset

 8          these unrecovered costs based on the embedded production cost values

 9          provided by the Company. This analysis exhibits several flaws. First, as

10          discussed above, Mr. Pollock's example greatly overstates the amount of

11          load growth that may reasonably be considered available to subsidize the

12          CGS program.        A more reasonable allocation of load growth would be

13          based on the percentage of load growth attributable to the LIPS class that

14          should be determined to be the class eligible for the CGS program.

15                  Second, Mr. Pollock's analysis fails to recognize the impact load

16          growth has on MSS-1 payments and ETI's capacity purchases. As ETI's

17          load increases, its responsibility ratio increases for MSS-1 purposes.

18          Therefore, ETI becomes a "shorter" company and, as a result, incurs

19           increased MSS-1 payments.             In addition, ETI will incur incremental

20          capacity costs to serve this hypothesized load growth not currently

21           reflected in the embedded cost rate assumed by Mr. Pollock. Thus, Mr.

22           Polllock has overstated the effect load growth would have as an offset to

23           unrecovered costs.
     Entergy Texas, Inc.                                                     Page 17 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     ON PAGE 20, MR. POLLOCK PROVIDES EXAMPLES OF SITUATIONS

 2          WHERE HE HYPOTHESIZES THAT NEW LOAD ASSOCIATED WITH

 3          CGS CUSTOMERS WOULD NOT RESULT IN UNRECOVEVRED

 4          COSTS. PLEASE COMMENT.

 5   A.     As discussed above and in my Supplemental Direct Testimony, PURA

 6          provides that "... [ETI's] rates shall be set, in the proceeding in which the

 7          tariff is adopted, to recover any costs unrecovered as a result of the

 8          implementation of the tariff."       As discussed in my Supplemental Direct

 9          Testimony, new load is subject to the same average cost pricing as

10          existing load.     Accordingly, in the normal course of events, new loads

11          would pay their share of ETI's embedded production costs in the same

12          manner as existing customers. Mr. Pollock's position assuming that these

13          new customers would not have paid these costs absent the CGS program

14          would require: 1) a decision by the Commission to treat a portion of ETI's

15          new load differently from other new load not associated with the CGS

16          program; and 2) would require credible proof that absent the CGS

17          program, this load would never have been added to ETI's system. Absent

18          this proof, this load is like any other new or existing load subject to

19          average cost pricing.         Like much of Mr. Pollock's presentation, his

20          scenarios are purely hypothetical and theoretical.          The facts and

21          circumstances surrounding a new customer taking service from ETI, or an

22          existing customer expanding its load, cannot be judged until such an event
     Entergy Texas, Inc.                                                               Page 18 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           occurs. Accordingly, these scenarios form no legitimate basis for making

 2           a determination regarding the level of ETI's unrecovered costs.

 3

 4                     V.      ALLOCATION OF UNRECOVERED COSTS

 5   Q.      PLEASE SUMMARIZE THE PARTIES' POSITIONS REGARDING WHO

 6           SHOULD PAY (OR BE ALLOCATED) THE CGS UNRECOVERED

 7           COSTS.

 8   A.      Mr. Townsend recommends that: 1) unrecovered costs should be

 9           recovered from CGS participants, and if that option is not viable; 2) the

10           CGS program should be rejected, and if that option is not selected;

11           3) ETI's proposal to spread these costs across all classes is the most

12           equitable (with certain modifications). 13 Mr. Johnson, Mr. Nalepa and Mr.

13           Chriss recommend that the unrecovered costs should be recovered from

14           the LIPS class of customers (both CGS participants and non-participants)

15           because only the LIPS customers have an effective ability to participate in

16           CGS and this is consistent with cost causation principles. 14 Mr. Pollock

17           recommends that unrecovered costs (if any) should be recovered from

18           CGS participants. 15      Mr. Pollock also suggests that if the unrecovered

     13
          Townsend Supplemental Direct Testimony, February 10, 2012, pages 3-4 and pages 7-8.
     14
          Johnson Supplemental Direct Testimony, page 6, line 16 to page 7, line 2. Nalepa Direct
          Testimony, February 10, 2012, page 17, lines 11-18. Chriss Direct Testimony, February 10,
          2012, page 6, line 9-19, page 7, lines 13-22.
     15
          Pollock Supplemental Direct Testimony, February 10, 2012, page 38, lines 1-13.
     Entergy Texas, Inc.                                                       Page 19 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           costs are substantial, there may be insufficient benefits to justify

 2            implementing the CGS program. 16

 3
 4   Q.       PLEASE COMMENT ON THESE PROPOSALS.

 5   A.       Ultimately the question of what class of customers should pay for

 6            unrecovered costs is a policy decision to be made by the Commission.

 7            One thing that is clear under PURA § 39.452(b) is that the Company is

 8            allowed to recover its unrecovered costs: "[ETI's] rates shall be set, in the

 9            proceeding in which the tariff is adopted, to recover any costs unrecovered

10            as a result of the implementation of the tariff." 17 The statute, however,

11            does not dictate a specific allocation of unrecovered costs among ETI's

12            customers. The Company would not oppose any reasoned allocation of

13            unrecovered costs to customer classes including CGS participants or CGS

14            eligible customers. That said, it should be understood that any allocation

15            of unrecovered costs will be temporary in nature.      Ultimately, when ETI

16            files another base rate case, the effects of the CGS program would be

17            reflected in the allocation of cost responsibility similar to the way that the

18            Company now allocates the interruptible credit.

     16
          ld, page 38, lines 11-13.
     17
          PURA § 39.452(b).
     Entergy Texas, Inc.                                                     Page 20 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   Q.     WHAT RESPONSE DO YOU HAVE TO MR. POLLOCK'S STATEMENT

 2          THAT SHOULD THE UNRECOVERED COSTS BE SUBSTANTIAL

 3          THERE          WILL    BE     INSUFFICIENT    BENEFITS      TO     JUSTIFY

 4          IMPLEMENTING THE CGS PROGRAM?

 5   A.     There is no aspect of the CGS program, as described in PURA

 6          § 39.452(b), hinting that unrecovered costs should be ignored in order to

 7          heighten the chance of the program's success for those relatively few

 8          customers positioned to take advantage of it.      To accept Mr. Pollock's

 9          implicit invitation to do so would be nothing less than creating an

10          impermissible discounted rate for CGS customers that is financed by the

11          Company's absorption of the embedded production costs incurred to

12          serve those customers. As stated in PURA § 39.452(b) and described in

13          my Supplemental Direct Testimony, the CGS program may not result in

14          the creation of such a discounted rate.       The Company is allowed to

15          recover its unrecovered costs, and the CGS program is optional to

16          customers.      Satisfaction of the statutory requirements applicable to the

17          CGS program, not guaranteed success for a select few customers, should

18          be the basis for evaluating the CGS program and tariffs.

19

20                   VI.     ELIGIBLE CUSTOMERS FOR CGS SERVICE

21   Q.     PLEASE SUMMARIZE THE POSITIONS OF THE VARIOUS PARTIES

22          REGARDING WHAT CUSTOMERS SHOULD BE ELIGIBLE FOR CGS

23          SERVICE.
     Entergy Texas, Inc.                                                                 Page 21 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1   A.      Mr. Townsend states that Kroger agrees with the Company that

 2           participation should be limited to the LIPS customers. 18 OPUC witness

 3           Mr. Johnson and Cities witness Mr. Nalepa state they agree to limiting

4            CGS eligibility to the LIPS class and, to their knowledge, that LIPS

 5           customers are the only class of customers actively pursuing CGS. 19

 6           Mr. Chriss states that Wai-Mart does not support expanding the class of

 7           eligible CGS customers beyond the LIPS class at this time. 20 Mr. Pollock

 8           proposes that eligibility should be expanded to all customers having a

 9           sufficient amount of 24n load. 21              Mr. Pollock also suggests that

10           aggregation of customer load should be allowed in order for smaller

11           customers to qualify for the CGS program?2 However, Mr. Pollock also

12           concludes that the minimum CGS contract size should be 5 MW.                          He

13           appears to make these recommendations without regard to whether such

14           customers have any interest in or ability to effectively participate in the

15           program.      Notably, in response to an RFI from ETI, TIEC could not

16           produce a list of even just one of its members, or any other person, that

17           has expressed an interest or intent to participate in the CGS program. 23

     18
          Townsend Supplemental Direct Testimony, February 10, 2012, page 5, lines 8-18.
     19
          Johnson Supplemental Direct Testimony, February 10, 2012, page 17, lines 1-9.        Nalepa
          Direct Testimony, February 10, 2012, page 17, lines 11-18.
     2
      °   Chriss Supplemental Direct Testimony, February 10, 2012, page 7, line 13-15.
     21
          Pollock Supplemental Direct Testimony, February 10, 2012, page 10, line 13-16, and page
          40, lines.
     22
          /d, page10, lines 16-19, and page 41-42.
     23
          See Exhibit PRM-3R.
--------------------~-~-~---~                                     ---   ----

         Entergy Texas, Inc.                                                        Page 22 of 30
         Supplemental Rebuttal Testimony of Phillip R. May
         Docket No. 38951

     1   Q.      HOW DOES MR. POLLOCK'S RECOMMENDATION REGARDING THE

     2           MINIMUM CGS SUPPLY CONTRACT SIZE AFFECT HIS OTHER

     3           PROPOSALS REGARDING CUSTOMER ELIGIBILITY?

     4   A       The minimum demand for LIPS service is 2.5 MW. Therefore, under Mr.

     5           Pollock's own proposals (absent aggregation), the CGS program would

     6           still have to be limited to the LIPS class of customers. Aggregation is the

     7           only proposal made by Mr. Pollock that expands the eligibility beyond the

     8           LIPS class of customers.

     9

    10   Q.      WHAT SUGGESTION DOES MR. POLLOCK MAKE REGARDING

    11           AGGREGATION?

    12   A.      Mr. Pollock makes two suggestions:          1) aggregation is not tied to retail

    13           competition; and 2) aggregation is not complicated. 24

    14

    15   Q.      DO YOU HAVE ANY COMMENTS ON THESE TWO SUGGESTIONS?

    16   A       Yes.    First, in attempting to support his claim that aggregation is not

    17           complicated, Mr. Pollock uses an example that contradicts his argument

    18           that aggregation is not a feature of retail competition. The only location

    19           Mr. Pollock cites where aggregation was instituted to allow widespread

    20           customer choice of alternative sources of electricity was in ERGOT.

    21           There, of course, aggregation was expressly included as an element of

         24
              /d,pages 40-41.
     Entergy Texas, Inc.                                                            Page 23 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           the introduction of retail competition. 25          PURA § 39.452(b) does not

2            impose retail open access on ETI and its customers. As discussed in my

3            Supplemental Direct Testimony, allowing aggregation of load to any

4            customer class is the equivalent to retail open access in that any customer

 5           can choose to aggregate its load with another and thereby select to have

6            an alternative generation supplier.           In connection with the passage of

 7           Senate Bill 7, the Commission spent several years, in numerous projects

 8           and workshops, working with ERCOT and numerous stakeholders to

 9           develop and implement the rules and mechanisms whereby service to a

10           multitude    of    retail   customers       could   be   split   between   regulated

11           Transmission and Distribution service and unregulated generation service.

12           Similarly, ETI would need to be able to identify all the individual customers

13           who decided to take part in aggregation, account for changes in the

14           aggregate group, account for switches between aggregated and traditional

15           service, etc. This Commission is well aware of the difficulties associated

16           with implementing that type of program and, contrary to Mr. Pollock's

17           suggestion, it is certainly complicated and not inexpensive.

18

19   Q.      ARE THERE ANY OTHER PROPOSALS FOR ELIGIBILITY MADE BY

20           MR. POLLOCK?

21   A.      Yes, Mr. Pollock also suggests that customers on LIPS who are also on

22           Standby Maintenance Service (SMS) and Interruptible Service (IS) should

     25
          E.g, PURA § 39.353.
     Entergy Texas, Inc.                                                       Page 24 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          be allowed to contract for CGS supply.               A LIPS customer typically

 2          designates part, but not all, of its load to be served under these separate

 3          rate schedules. SMS is a service that a customer may call on to back up

4           its own co-generation supply under certain circumstances.          IS is a rate

 5          whereby a customer who agrees to allow its service to be curtailed under

 6          certain circumstances receives a bill credit for the load devoted to IS.

 7
 8   Q.     PLEASE RESPOND TO MR. POLLOCK'S CLAIM THAT CGS SERVICE

 9          CAN READILY BE ADDED ON TOP OF CUSTOMERS ALREADY

10          RECEVING         SERVICE       UNDER         THESE   MULTIPLE    RATES     AND

11          SCHEDULES.

12   A.     As discussed in my Supplemental Direct Testimony, this CGS program is

13          extremely complicated: it will be the single most complicated billing and

14          administration ever attempted on the Entergy system.             Therefore, the

15          Company continues to propose that customers currently on either

16          Schedule IS or Economic As-Available Power Service (EAPS) should not

17           be allowed to participate in the CGS program to satisfy any portion of their

18          firm load at this time.      Customers on Schedules IS and EAPS already

19           have their loads split between firm and other service. Adding a further

20          split of what was firm service between CGS and what then remains for

21          firm service is a further complexity in billing and administration of the CGS

22           program that may be considered at a future date, once the Company and

                                                                                   Jl
     Entergy Texas, Inc.                                                      Page 25 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           its customers have the opportunity to gain experience in the basics of the

 2           CGS program.

 3                  Moreover, as explained in the Company's response to TIEC RFI

 4           1-8 (attached as Exhibit PRM-2R), this limit on customer eligibility should

 5           likewise extend to LIPS customers who also receive service under the

 6           SMS rate schedule. 26 In that RFI response, ETI further explained that the

 7           Company has a concern that customers on Schedule SMS may be able to

 8           manipulate their own generation to avoid unserved energy charges

 9           associated with a third-party CGS supplier. For example, a customer on

10           SMS is receiving backup service for its own generation. It is possible that

11           customer could utilize this backup service for its generation to instead

12           backup generation from a third-party CGS supplier and thereby avoid

13           unserved energy changes. For these reasons, and because of the same

14           billing concerns applicable to EAPS and IS customers, the CGS tariff

15           should be limited at this time to LIPS customers only.

16

17   Q.      DO YOU        HAVE ANY FINAL COMMENT ON THE CUSTOMER

18           ELIGIBILITY ISSUE?

19   A.      Yes. It makes little sense to extend eligibility for this type of experimental

20           program to customer groups or classes who have shown no interest in

21           participating. Even for the LIPS class of customers expanding CGS to IS,

     26
          SMS service is essentially backup service for a customer who serves its load from
          co-generation facilities.
     Entergy Texas, Inc.                                                      Page 26 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          EAPS and other optional rates makes little since when, as discussed

 2          above, these customers have exhibited no interest in the program.

 3

 4                                    VII.    OTHER ISSUES

 5   Q.     MR. NALEPA AND MR. POLLOCK CLAIM THAT THE FIXED COST

 6          CONTRIBUTION FEE OF $1.10/KW PAID BY CGS PARTICIPANTS

 7          FULLY RECOVERS THE PRODUCTION COST INCURRED BY THE

 8          COMPANY TO SERVE CGS CUSTOMERS. DO YOU AGREE?

 9   A.     No.    The production cost incurred by the Company to serve existing

10          customers, who might migrate to CGS service, is its actual embedded

11          production cost determined in the rate case from which the CGS program

12          will be approved. That actual embedded production cost is the $6.84/kW

13          resulting from Docket No. 37744 described in my Supplemental Direct

14          Testimony and Exhibit PRM-1.             The only offsets to this unrecovered

15          embedded production cost are the Fixed Cost Contribution Fee of

16          $1.1 0/kW and the MSS-1 impact associated with System Agreement

17          recognition of this capacity for MSS-1 purposes. There are no other actual

18          offsets to the unrecovered embedded production costs.

19                  Both Mr. Nalepa and Mr. Pollock would like to now claim that the

20          $1.1 0/kW is associated with providing production service to CGS

21          participants, or in the terms of Mr. Pollock: backup service. This is not the

22          case. The Fixed Cost Contribution Fee has always been discussed as

23          simply a method to reduce any unrecovered costs by having the CGS
     Entergy Texas, Inc.                                                          Page 27 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1           participants pay a contribution to fixed cost.            Characterizing this as

2            recovery of incremental production cost or backup service to serve CGS

3            load is simply wrong.

4

 5   Q.      WHAT IS YOUR RESPONSE TO MR. POLLOCK'S ARGUMENT THAT

6            THE MSS-1 OFFSET IS NOT AN APPROPRIATE MEANS OF PLACING

 7           A MARKET VALUE ON CGS CAPACITY?

 8   A.      Mr. Pollock has completely missed the significance of the MSS-1 offset to

 9           this case.    The reduction in ETI's MSS-1 payment, which is associated

10           with equalizing reserves among the Entergy Operating Companies, is not

11           being used as a proxy value for the CGS capacity, as claimed by

12           Mr. Pollock. 27     The Company is simply recognizing that its MSS-1

13           payments (or cost) will be reduced by recognition of the CGS capacity,

14           and that this is the only known and measurable actual cost reduction

15           attributable to the CGS program available to offset the unrecovered costs.

16

17   Q.      ON PAGE 28, MR. POLLOCK STATES THAT CGS CAPACITY IS AN

18           INCREMENTAL NEW RESOURCE. WHAT IMPACT DOES THIS HAVE

19           ON DETERMINATION OF UNRECOVERED COSTS?

20   A.      As discussed by Company witness Dingle, CGS capacity may help the

21           Company avoid acquiring some capacity in the future, although the ability

22           of CGS capacity to create such a result is limited due to certain program

     27
          Pollock Supplemental Direct Testimony, page 28, lines 7-9.

                                                                                         30
     Entergy Texas, Inc.                                                   Page 28 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          constraints such as the short-term nature of the CGS contract. However,

 2          CGS capacity in no way avoids embedded capacity cost that the

 3          Company has already incurred. Unrecovered embedded costs due to the

 4          CGS program are none the less still unrecovered.        This is the case

 5          whether or not the CGS capacity allows the Company to avoid any future

 6          capacity costs.

 7

 8   Q.     ON PAGE 14, MR. NALEPA CLAIMS THAT THE COMPANY IS

 9          BENEFITING BY THE CGS PROGRAM. DO YOU AGREE?

10   A.     No.    Mr. Nalepa claims that the Company will benefit from any MSS-1

11          savings due to the added CGS capacity for MSS-1 purposes.                As

12          described in my Supplemental Direct Testimony and discussed above,

13          assuming the CGS capacity is firmed up, MSS-1 is being used to offset

14          the unrecovered costs; thus, the Company is not keeping these benefits.

15          Rather, the Company is giving these benefits to those customers who

16          have to pay the unrecovered costs. The Company is simply complying

17          with PURA in ensuring that it is no worse off due to implementation of the

18          CGS program.

19

20   Q.     HOW CAN THE              COMPANY END         UP WORSE    OFF     DUE TO

21          IMPLEMENTATION OF THE CGS PROGRAM?

22   A.     There are a number of ways. Examples include: 1) The Company's

23          current rates were designed in Docket No. 37744 to recover the
     Entergy Texas, Inc.                                                    Page 29 of 30
     Supplemental Rebuttal Testimony of Phillip R. May
     Docket No. 38951

 1          Company's embedded cost and provide for a reasonable return to

2           stockholders based on the existing customers.      If those customers are

 3          now provided an alternative supply, the Company no longer recovers the

4           cost of its existing facilities, nor does it recover a return on those

 5          investments; 2) the Company would not be allowed to fully recover its

6           implementation and administration cost of the program; and 3) load growth

 7          could be used as an offset to CGS unrecovered costs and in addition be

 8          used as an offset to purchased power or production cost recovery in a

 9          future ratemaking proceeding.

10

11   Q.     DO YOU HAVE ANY OTHER GENERAL COMMENTS REGARDING THE

12          CGS PROGRAM?

13   A.     Yes. As the Company transitions to MISO, the CGS program will need to

14          be redesigned for a number of reasons such as: 1) QF pricing under

15          MISO will change; 2) the capacity market under MISO will be more

16          transparent; 3) uncertainty of what the MISO capacity market will look like;

17          4) QFs will have different options under MISO; and 5) ETI's options will be

18          different under MISO. Based on these factors it can be anticipated that a

19          revision to the CGS program as currently envisioned will be required in

20          2013 as ETI and the other Entergy Operating Companies enter MISO.
    Entergy Texas, Inc.                                                Page 30 of30
    Supplemental Rebuttal Testimony of Phillip R. May
    Docket No. 38951

1                                     VIII.   CONCLUSION

2   Q.     DOES       THIS      CONCLUDE         YOUR   SUPPLEMENTAL   REBUTTAL

3          TESTIMONY?

4   A.     Yes, at this time.
                                                    Docket No. 38951
                                                   Entergy CGS Tariff
                                                  ETI EXHIBIT NO. 93
                       DOCKET NO. 38951

APPLICATION OF ENTERGY           §         BEFORE THE
TEXAS, INC. FOR APPROVAL OF      §
COMPETITIVE GENERATION           §
SERVICE TARIFF (ISSUES SEVERED   §
FROM DOCKET NO. 37744)           §

               SUPPLEMENTAL DIRECT TESTIMONY

                             OF

                      ANDREW J. O'BRIEN

                        ON BEHALF OF

                     ENTERGY TEXAS, INC.

                       JANUARY 26, 2012
                                                            Docket No. 38951
                                                           Entergy CGS Tariff
                                                          ETI EXHIBIT NO. 93

                      ENTERGY TEXAS, INC.
       SUPPLEMENTAL DIRECT TESTIMONY OF ANDREW J. O'BRIEN
                       DOCKET NO. 38951

                             TABLE OF CONTENTS

I.     Introduction and Purpose of Testimony                            1

II.    Assessing the Value of CGS Capacity                              4

Ill.   Eligibility for Participation in the CGS Program                 9
                                                                                   Docket No. 38951
                                                                                  Entergy CGS Tariff
                                                                                 ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                                  Page 1 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1                 I.      INTRODUCTION AND PURPOSE OF TESTIMONY

2    Q.      PLEASE STATE YOUR NAME, BUSINESS ADDRESS, EMPLOYER AND

 3           JOB TITLE.

4    A       My name is Andrew J. O'Brien. My business address is Parkwood Two

 5           Bldg., Suite 300, 10055 Grogan's Mill Road, The Woodlands, Texas

 6           77380.

 7

 8   Q.      BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?

 9   A        I am employed as Manager, Power Marketing by Entergy Services, Inc.,

10           the service company affiliate providing engineering, planning, accounting,

11           technical, regulatory support and other services to Entergy Texas, Inc.

12           ("ETI" or the "Company") and the other Operating Companies of the

13            Entergy System. 1 Although each individual Operating Company owns its

14           generating resources and transmission assets, the Entergy System is

15           planned and operated as a single, integrated system pursuant to the terms

16            and conditions of the Entergy System Agreement. 2

          The six Entergy Operating Companies are Entergy Arkansas, Inc. ("EAI"), Entergy Gulf
          States Louisiana, L.L.C. ("EGSL"), Entergy Louisiana, LLC ("ELL"), Entergy Mississippi, Inc.
          ("EMI"), Entergy Texas, Inc. ("ETI") and Entergy New Orleans, Inc. ("ENOl"). The electric
          generation and bulk transmission assets of these six Operating Companies are operated on a
          coordinated basis as a single electric system, referred to as the "Entergy System" or the
          "System."
     2
          The Entergy System Agreement is a FERC-approved rate schedule and contract entered into
          among ESI and the Operating Companies, which requires the Operating Companies to plan,
          construct and operate their electric generation and bulk transmission facilities as a single,
          integrated electric system. It is administered by the Entergy Operating Committee. EAI and
          EMI have provided notice to the other Operating Companies that they are terminating their
          participation in the System Agreement effective December 2013 and November 2015,
          respectively, or on such earlier dates as the FERC may permit.
                                                                                Docket No. 38951
                                                                               Entergy CGS Tariff
                                                                              ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                               Page 2 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1   Q.     PLEASE        DESCRIBE         YOUR           BUSINESS        EXPERIENCE         AND

 2          EDUCATION.

 3 A. I have been employed by ESI since June, 2001. During my career, I have

 4          held numerous positions, including my current leadership position, in the

 5          areas of commercial           negotiations,     regulatory,   generation dispatch

 6          operations as well as resource and operations planning. In June, 2001, I

 7          accepted a position as Next Day Scheduler in the power marketing

 8          department of the Energy Management Organization ("EMO"). From 2003

 9          to 2006, I worked as a Generation System Dispatcher and then as the Sr.

10          Lead Analyst in the Current Day Operations group. In 2007, I accepted

11          the role of Wholesale Executive in the Supply Procurement department

12          and was promoted in 2008 to Manager, Supply Procurement. In this role,

13              gained     significant    experience       negotiating     long-term     resource

14          acquisitions, both asset purchases and purchase power agreements. In

15          2010, I accepted a position within the EMO as Manager, Operations

16          Support which is responsible for overseeing the development and

17          implementation of the next-day resource plan including generation

18          commitment and system load forecast.             In September 2011, I assumed

19          the position of Manager, Power Marketing. I have a Masters Degree in

20          Business Administration from Texas A&M University and a Bachelor of

21          Science Degree in Psychology from Louisiana State University.
                                                                         Docket No. 38951
                                                                        Entergy CGS Tariff
                                                                       ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                      Page 3 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1   Q.     ON WHOSE BEHALF ARE YOU PROVIDING THIS TESTIMONY?

 2 A. I am submitting this testimony to the Public Utility Commission ("PUCT" or

 3          the "Commission") on behalf of ETI.

 4

 5   Q.     HAVE YOU PREVIOUSLY FILED TESTIMONY IN THIS PROCEEDING?

 6   A.     No.

 7

 8   Q.     WHAT IS THE PURPOSE OF YOUR SUPPLEMENTAL DIRECT

 9          TESTIMONY?

10 A. I address two issues in support of Company witness Phillip R. May's

11          Supplemental Direct Testimony regarding the Competitive Generation

12          Service ("CGS") program that is at issue in this proceeding. First, I explain

13          that the value of capacity must consider many different factors related to

14          the characteristics of the capacity product at issue and the market

15          environment in which that capacity is being evaluated. As such, it is not

16          feasible to assign some independent arbitrary value to the capacity that

17          CGS Customers will use to supply their energy needs under the CGS

18          Program.      I offer this explanation to support Company witness May's

19          discussion of ETI's position regarding the appropriate definition and

20          calculation of unrecovered costs. My explanation addresses the factors

21          that must be considered when valuing capacity, and concludes that the

22          characteristics of CGS capacity are associated with relatively low-value

23          products.
                                                                                             5
                                                                                      Docket No. 38951
                                                                                     Entergy CGS Tariff
                                                                                    ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                                    Page 4 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1                          also support Company witness May's testimony regarding

 2            eligibility for participating in the CGS Program, explaining why important

 3            operational concerns support the Company's position that the minimum

4             capacity supplied by a CGS Purchase Agreement should be 10 MW.

 5

6                     II.      ASSESSING THE VALUE OF CGS CAPACITY

 7   Q.       WHAT IS YOUR UNDERSTANDING OF THE PURCHASED CAPACITY

 8            PRODUCT THAT HAS BEEN PROPOSED AS AN ELEMENT OF THE

 9            CGS PROGRAM?

10   A.       My understanding is that the parties to this proceeding have been

11            engaged in negotiations for some time aimed at achieving a collaborative

12            resolution of a number of contested matters surrounding the design and

13            implementation of the CGS Program. As further discussed by Company

14            witness May, that negotiating process has resulted in a tentative proposal

15            that purchased power supplied by a third party to ETI under the CGS

16            Program may be counted as ETI's capacity (or, in the terminology of the

17            Entergy System Agreement, "capability") by the Entergy System. 3 I will

18            refer to this capacity product in my testimony as "CGS Capacity" and the

     3
          The parties to the case, including ETI, have not reached agreement on all matters necessary
          to establish a CGS program that includes such a capacity product. Matters yet to be resolved
          are listed in the "Agreed List of Unsettled Issues and Issues Contingent on a Commission
          Determination of Unsettled Issues" filed on November 1, 2011. By providing this testimony,
          ETI does not in any manner waive its rights to continue to fully contest any and all issues that
          remain disputed among the parties. ETI presents this testimony solely for the purpose of
          facilitating the Commission's resolution of the three threshold issues, which may facilitate
          further efforts by the parties to resolve remaining contested issues surrounding the design of
          the CGS program and tariffs.
                                                                                   Docket No. 38951
                                                                                  Entergy CGS Tariff
                                                                                 ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                                 Page 5 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1           contracts under which this capacity is supplied to the Entergy System as

 2           "CGS Purchase Agreement."

 3                   As currently contemplated, when the CGS program goes into effect,

4            the CGS Capacity would consist of an obligation on the part of the CGS

 5           Supplier to deliver to ETI's transmission system a contractually-specified

 6           amount of energy 24 hours per day, seven days per week ("24/7") on a

 7           firm, unit-contingent basis. 4        ETI, however, will not make a capacity

 8           payment to the CGS Supplier. Instead, ETI will pay the CGS Supplier for

 9           the energy provided under the CGS Purchase Agreement at the avoided

10           cost rate established under ETI's rate schedule LQF. The CGS Supplier

11           would look to the CGS Customer, under a separate contract, for payment

12           for the capacity provided to ETI.

13

14   Q.      CAN     ETI    UNAMBIGUOUSLY DETERMINE THE VALUE TO THE

15           ENTERGY SYSTEM OF THE CAPACITY ASSOCIATED WITH THE CGS

16            PROGRAM?

17   A.       No.   The value of any capacity purchase is a function of a number of

18           different factors, including, for example, the operational characteristics of

19           the capacity purchase, the location of that capacity, the term of the

20           agreement, and the availability of other market alternatives. Moreover, it

21            is difficult to assign discrete scores to these characteristics.             I am not

     4
          "Unit Contingent" means that so long as the CGS Supplier's generating unit is physically
          capable of producing energy (or "available"), the CGS Supplier has the obligation to deliver
          the contractually-specified amount of energy.
                                                                         Docket No. 38951
                                                                        Entergy CGS Tariff
                                                                       ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                      Page 6 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1          aware of any specific formula or algorithm that can take all of these factors

2           into consideration to produce a single meaningful point estimate of the

3           value of capacity. However, it is reasonable to consider how a specific

4           capacity product ranks on a sliding scale of more or less valuable

 5          according to each of the relevant characteristics, consider all of the

6           characteristics collectively, and reach a conclusion about the relative value

7           of a specific capacity product.

 8

 9   Q.     WOULD YOU PLEASE LIST SOME OF THESE CHARACTERISTICS,

10          AND EXPLAIN HOW THEY APPLY TO CGS CAPACITY?

11   A      Yes. The following Table 1 lists and describes some of the prominent

12          characteristics that should be considered when evaluating capacity, and

13           indicates where CGS capacity lies on the spectrum of more to less

14          valuable.
                                                                             Docket No. 38951
                                                                            Entergy CGS Tariff
                                                                           ETI EXHIBIT NO. 93
Entergy Texas, Inc.                                                                Page 7 of 11
Supplemental Direct Testimony of Andrew J. O'Brien
Docket No. 38951

                                             Table 1
                              Relative Valuation of CGS    Ca(;!acit~
                                                           Relative Rank of CGS Ca(;!acit~
       Characteristic              Description
                                                           Low ~-----------------------~High
                            The ability of the System
                            Operator to direct a unit to
                            start or stop, or to move
                            from one operating level to
                            another. Generally, more
                            flexibility means more
       Flexibility          value. CGS Capacity is not     ~
                            at all flexible-if a CGS
                            Supplier's facility is
                            physically capable, it must
                            deliver and ETI must take
                            energy up to the full
                            Contract Capacity.
                            The cost of the energy that
                            is acquired when the
       Energy Cost
                            contracted capacity is
                                                                          ~
                            called upon.
                            Degree of reliability of
                            supply (e.g., a unit
                            contingent contract, which
                            depends on the
                            performance of a specific
                            generator, is less valuable
                            than a system contingent
       Firmness             contract that relies on a      ~
                            group of generators;
                            similarly, contracts that
                            have the first call on any
                            energy from a generating
                            unit are more valuable than
                            contracts that have other
                            assorted obligations).
                            A longer-term product
                            allows more certainty that
       Term
                            other capacity needs will be
                                                                ~
                            avoided.
                            Generally, fewer, but larger
                            contract blocks are easier
       Size
                            to administer and manage
                                                           ~
                            in system operations.
                            Capacity that can alleviate
                            congestion in a specific
       Location
                            planning region is more
                                                             ~
                            valuable.
                                                                                 Docket No. 38951
                                                                                Entergy CGS Tariff
                                                                               ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                               Page 8 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

                                                              Relative Rank of CGS Ca~acit)£
            Characteristic              Description
                                                              Low ~------------------------~High
                                 Capacity that can reduce
                                 the need for flexible
            Ability to reduce    capacity on the System has
            System operating     more value; CGS Capacity                               ../
            constraints          firms up QF put, which
                                 reduces the need for
                                 flexible capacity.

 1          As can be seen from the preceding Table 1, a review of the characteristics

2           of the capacity that ETI will acquire as a result of the CGS program

 3          indicates that the CGS Capacity is not a product that would reasonably be

4           expected to have a high level of value.

 5

 6   Q.     FROM THE PERSPECTIVE OF ETI'S CUSTOMERS, IS THERE ANY

 7          VALUE THAT CAN BE ASCRIBED TO CGS CAPACITY?

 8   A.     Yes. As discussed in more detail by Company witness May, the Entergy

 9          Operating Committee has agreed to consider CGS Capacity as ETI

10          capability for purposes of determining ETI's payment obligations pursuant

11          to Service Schedule MSS-1 of the System Agreement, so long as CGS

12           Capacity meets certain conditions imposed by the Operating Company.

13          That treatment means that ETI's capacity costs will be decreased as a

14           result of the CGS program.
                   ~~   ---~-   - - - - - - - - - - - - - - - - - - - - - -Docket
                                                                           ----   No.
                                                                                   - 38951
                                                                                      -------.
                                                                             Entergy CGS Tariff
                                                                            ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                          Page 9 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1          Ill.         ELIGIBILITY FOR PARTICIPATION IN THE CGS PROGRAM

 2   Q.     WHAT ASPECT OF THE ISSUES REGARDING ELIGIBILITY TO

 3          PARTICIPATE IN THE CGS PROGRAM DO YOU ADDRESS?

 4 A. I discuss the issue of whether it would be advisable to allow CGS

 5          Customers to contract with CGS Suppliers for very small amounts of

 6          capacity, thus permitting an opportunity for an increased amount of very

 7          small CGS Purchase Agreements.

 8

 9   Q.     WHAT IS ETI'S POSITION ON THIS ISSUE?

10   A.     ETI's position is that a CGS Customer should not be permitted to contract

11          with a CGS Supplier for a level of capacity less than 10 MW.

12          Furthermore, for the reasons explained by Company witness May,

13          customers should not be allowed to aggregate their load for purposes of

14          contracting for CGS supply. As a result of these conditions, eligibility to

15          participate in the CGS program would be limited to customers who can

16          individually contract for at least 10 MW of CGS Capacity.

17

18   Q.     ARE THERE OPERATIONAL CONSIDERATIONS THAT SUPPORT THE

19           IMPOSITION              OF    A   10   MW     FLOOR     FOR    PARTICIPATING

20          CUSTOMERS?

21   A.     Yes. From an operational perspective, the key factor is not the size of the

22          contracts with CGS Suppliers, but is instead the number of CGS

23          Suppliers.            From time to time, especially in emergency situations or in

                                                                                            ll
                                                                             Docket No. 38951
                                                                            Entergy CGS Tariff
                                                                           ETI EXHIBIT NO. 93
     Entergy Texas, Inc.                                                         Page 10 of 11
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1          situations in which the transmission system operator calls for curtailments

 2          to alleviate transmission constraints, the System's dispatchers must reach

 3          out and provide instructions to each Purchased Power Agreement ("PPA")

 4          counterparty. That process grows more difficult as the number of PPAs

 5          increases. Currently, the parties to the CGS proceeding have reached a

 6          tentative agreement in principle that the total amount of customer load

 7          should be capped at somewhere between 80 and 150 MW, although there

 8          is no specific agreement regarding the specific cap level within that range.

 9          This cap, combined with a minimum size of 10 MW, would limit the

10          number of potential CGS Purchase Agreements to 8 to 15, a number that

11          should be able to be reasonably accommodated.

12                  From     an   administrative     and   operational   perspective,   when

13          managing load on the System, the System dispatchers must undertake

14          the same procedures regardless of the size of the contract.            Thus, for

15          example, the same notification procedures are used to pursue the

16          reduction of a 10 MW resource as are used for a 100 MW resource during

17          a low load event. The lower the MW limit for participation in the CGS

18          program, the more likely that the administrative burden exceeds the

19          benefit provided by the resource during emergencies such a low load

20          events.      Further, the value of lower capacity level PPAs is less.

21          Continuing with the example of the management of low load events, in the

22          case of the 10 MW and 100 MW PPAs, when having to manage a low

23          load event, the ability to turn down 100 MW provides substantially greater
                                                                     Docket No. 38951
                                                                    Entergy CGS Tariff
                                                                   ETI EXHIBIT NO. 93
    Entergy Texas, Inc.                                                  Page 11 of 11
    Supplemental Direct Testimony of Andrew J. O'Brien
    Docket No. 38951

1          value to the System than does the turning down of 10 MW. In general,

2          given the size of the load on the Entergy System, contracts as small as 10

3          MW simply do not provide the same capacity value as larger PPAs, and in

4          the absence of special programs, such as CGS, that are entered into for

5          specific reasons, the System would not generally contract for such small

6          amounts.

7

8   Q.     DOES THIS CONCLUDE YOUR TESTIMONY?

9   A.     Yes, at this time.

                                                                                    /3
                                                      Docket No. 38951
                                                     Entergy CGS Tariff
                                                    ETI EXHIBIT NO. 94
                       DOCKET NO. 38951

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

              SUPPLEMENTAL REBUTTAL TESTIMONY

                             OF

                                                                   ··--
                      ANDREW J. O'BRIEN                            h)
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                     ENTERGY TEXAS, INC.
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                      FEBRUARY 24, 2012

                                                                                      1
     Entergy Texas, Inc.                                                    Page 1 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1   Q.        PLEASE STATE YOUR NAME, POSITION AND BUSINESS ADDRESS.

 2   A          My name is Andrew J. O'Brien. My business address is Parkwood Two

 3              Bldg., Suite 300, 10055 Grogan's Mill Road, The Woodlands, Texas

 4              77380.

 5

6    Q.         DID YOU PREVIOUSLY FILE TESTIMONY ON BEHALF OF ENTERGY

 7             TEXAS, INC. ("ETI" OR THE "COMPANY") IN THIS PROCEEDING?

 8   A         Yes, I did.

 9

10   Q.        WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY?

11   A          I will address certain comments and recommendations made by Texas

12              Industrial Energy Consumers witness Jeffry Pollock regarding my Direct

13              Testimony.

14

15   Q.         MR. POLLOCK CONCLUDES THAT YOUR TESTIMONY SHOULD BE

16              GIVEN LITTLE WEIGHT BECAUSE YOU HAVE NOT COMPARED THE

17              VALUE OF CGS POWER (CAPACITY) TO ETI'S EXISTING

18              PURCHASE POWER CONTRACTS. 1 HOW DO YOU RESPOND?

19   A          Nothing in my Direct Testimony required an analysis or comparison

20              between hypothetical CGS Purchase Agreements and ETI's actual PPAs.

21              Mr. Pollock's contention is inappropriate given that there are no CGS

     1
         Pollock Direct, p. 30, Ins. 8 - 10.

                                                                                          2
     Entergy Texas, Inc.                                                               Page 2 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1             Purchase Agreements. As noted in my Direct Testimony, there is no way

2              to unambiguously determine at this time the value to the Entergy System

 3             of CGS Capacity to be acquired in the future.              The value or price of

4              capacity is determined based on considerations and circumstances

 5             existing at the time a decision is made to acquire capacity, as well as the

 6              process employed, such as, for instance, a Request for Proposal, which

 7              relies on competitive bidding.          Additionally, unlike energy transactions,

 8             there are no pre-existing capacity markets or indices to consult when

 9              purchasing capacity.          With that understanding, the point of my Direct

10             Testimony was simple; namely, that the value of purchased capacity is a

11              function of a number of different factors or attributes; that,                 as

12              contemplated, CGS Capacity ranks relatively low for five of seven major

13              attributes; and that, accordingly, CGS Capacity "is not a product that

14              would reasonably be expected to have a high level of value." 2

15
16   Q.         MR. POLLOCK CONTENDS THAT A BASE-LOAD PRODUCT DOES

17              NOT      NEED         FLEXIBILITY. 3      DOES    THAT     UNDERMINE       YOUR

18              CONCLUSION REGARDING THE LOW VALUE OF CGS CAPACITY?

19   A.         No. While an inflexible product may be able to provide a base-load role,

20              flexibility is expected to add value to the resource, even if the resource

21              may also         be    used to    provide a base-load       role.    Additionally,

     2
         Direct Testimony of Andrew J. O'Brien, p. 8, Ins 3- 4.
     3
         Pollock Direct at p. 3, Ins 2 - 3.

                                                                                                     3
     Entergy Texas, Inc.                                                                Page 3 of7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1             notwithstanding ETI's base-load deficit, ETI still places a value on flexible

 2             capacity.     The current 2011 Western Region RFP, which seeks to fill a

 3             long-term capacity need for ETI, makes clear that flexibility is preferred:

 4                      Resources supplying flexibility offer benefits to Entergy
 5                      Texas and the Entergy System that resources with less
 6                      flexible or inflexible scheduling and dispatch capabilities
 7                      cannot provide. Bidders are advised that these benefits will
 8                      be captured quantitatively and qualitatively in the evaluation
 9                      of proposals and ... will result in, all else being equal, a
10                      preference for Flexible Capacity over Baseload Capacity
11                      resources. 4
12
13             Further, Mr. Pollock's observation regarding the ability of the Entergy

14             System Operator to order the CGS Supplier to curtail or not operate during

15             System emergencies misses the mark. 5              The referenced emergency

16             curtailment rights do not provide, and are notably different from, the right

17             and ability to adjust the output of a resource to respond to dynamic

18             changes in load, which is the valuable "flexibility" I discuss in my Direct

19             Testimony.

20

21   Q.        MR. POLLOCK CONTENDS THAT THE PROSPECT OF PAYING

22              UNSERVED ENERGY FOR LACK OF PERFORMANCE SHOULD

23             ADDRESS ANY FIRMNESS CONCERNS ASSOCIATED WITH THE

     4
         2011 Western Region Request for Proposals for Long-Term Supply Side Resources, p. 7.
     5
         Pollock Direct, p. 31, Ins 6- 8.

                                                                                                     4
     Entergy Texas, Inc.                                                       Page 4 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1             UNIT-CONTINGENT                NATURE      OF   THE   CGS   PURCHASE

 2             AGREEEMENT. 6 DO YOU AGREE?

 3   A.        No. CGS Suppliers must be Qualified Facilities ("QFs") connected to

4              the ETI System. My low ranking on "firmness" relates to the reality

 5             that many factors affect the firmness of a resource. Among these

 6             factors would be the number of units providing service. Most QFs

 7             consists of a single generating unit, rather than a system or fleet of

 8             generating resources.           Regardless of economic motivation, the

 9             reliability of supply, or firmness, is proportional to the number of units

10             providing service. It follows that a unit-contingent product is less firm

11             than a "system"-contingent product.             As noted in my Direct

12             Testimony, the fact that a CGS (QF) Supplier has the primary

13             obligation to serve a host load further reduces the firmness of

14             supply.

15

16   Q.         PLEASE COMMENT ON MR POLLOCK'S OBSERVATION WITH

17              REGARD TO HIS EXHIBIT JP-7 THAT ETI HAS ENTERED INTO

18              NUMEROUS               UNIT   CONTINGENT        PURCHASED       POWER

     6
         Pollock Direct, p. 31, Ins 9 - 16.

                                                                                             5
     Entergy Texas, Inc.                                                      Page 5 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1             AGREEMENTS, INCLUDING CONTRACTS WITH TERMS AS

 2              SHORT AS ONE TO THREE YEARS. 7

 3   A.         All of the contracts listed in Exhibit JP-7 are distinguishable from the

4               contemplated CGS Purchase Agreements, and, as such, Exhibit

 5             JP-7 actually makes the point made in my Direct Testimony. Each

 6              of the contracts listed in the Exhibit provide one or more attributes

 7             that will not be provided by a CGS Purchase Agreement.                For

 8              instance, certain of the contracts are for a level of capacity (MW)

 9              greater than 150 MW. A number of the contracts provide flexibility.

10              Others provide a term longer than five years.        Put another way,

11              unlike the contracts that would result from the CGS program, none of

12              the contracts listed in the Exhibit provide a low level of inflexible,

13              short-term capacity from a resource that Entergy does not control.

14

15   Q.         MR. POLLOCK IS PROPOSING A LOWER LIMIT OF 5 MW

16              RATHER THAN THE 10 MW YOU PROPOSED.                      COULD YOU

17              CONSIDER SUPPORTING A 5 MW LIMIT? 8

18   A.         Yes, my Direct Testimony was clear that the concern is not the size

19              of the contracts with CGS Suppliers, but is instead the number of

     7
         Pollock Direct, p. 32, lines 1 - 5.
     8
         Pollock Direct, pp. 32 and 43.

                                                                                            6
     Entergy Texas, Inc.                                                       Page 6 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1             CGS Suppliers. I should also add that the number of CGS contracts

 2             is a concern. As noted in my Direct Testimony, the lower the floor

 3             for participation, the greater the opportunity for more suppliers and

4              more contracts at a smaller capacity size, which, as noted in my

 5             Direct Testimony, can raise cost-benefit concerns. In the event the

 6             Commission determined to permit 5 MW contracts, ETI may seek a

 7             limitation on the number of contracts, depending on the ultimate

 8             level of participation. 9

 9

10   Q.        DOES THE FACT THAT ETI'S SERVICE AREA IS WITHIN THE

11             WOTAB         PLANNING        REGION,      A   CAPACITY-CONSTRAINED

12             REGION,         CAUSE        YOU   TO      RECONSIDER     YOUR       LOW

13             "LOCATION" RANKING FOR CGS CAPACITY. 10

14   A.        No. My ranking attributes some value for "location" to CGS Capacity,

15             which reflects Mr. Pollock's observation that ETI is within WOTAB;

16             however, the relatively low ranking also reflects that all but one QF is

17             located outside of Entergy's Western Region (generally the region

18             within the ETI area that is west of the Trinity River), which has a

19             greater need for capacity than other areas within WOTAB.

     9
      Based on the contemplated cap of 150 MW for the CGS Program and ETI's recommended 10
     MW lower contract limit, the maximum number of contracts would be 15.
     10
          Pollock Direct, p. 33, Ins 4-7.

                                                                                             7
     Entergy Texas, Inc.                                                                 Page 7 of 7
     Supplemental Direct Testimony of Andrew J. O'Brien
     Docket No. 38951

 1   Q.        WOULD           YOU     PLEASE         COMMENT             ON   THE   ISSUE      OF

 2             AGGREGATION?

 3   A.        Mr. Pollock acknowledges that he has not conducted a study of the

4              operational, billing or customer support ramifications that might be

 5             associated with aggregation. 11 Neither can ETI warrant that there

 6             would be no difficulties, including those that might be prohibitive,

7              related to ETI's supply, planning and operational responsibilities,

 8             were      the    CGS       program          to   include   aggregation.      These

 9             considerations suggest that any CGS program, if implemented,

10             should not include aggregation.

11

12                                         II.     CONCLUSION

13   Q.        DOES THIS CONCLUDE YOUR SUPPLEMENTAL REBUTTAL

14             TESTIMONY?

15   A         Yes, at this time.

     11
          Pollock deposition (February 22, 2012), p. 88.

                                                                                                       8
                                                        Docket No. 38951
                                                       Entergy CGS Tariff
                                                      ETI EXHIBIT NO. 95

                      DOCKET NO. 38951

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

              SUPPLEMENTAL REBUTTAL TESTIMONY

                              OF

                      J. STEPHEN DINGLE

                         ON BEHALF OF

                      ENTERGY TEXAS, INC.

                       FEBRUARY 24, 2012

                            001
                        ENTERGY TEXAS, INC.
        SUPPLEMENTAL REBUTTAL TESTIMONY OF J. STEPHEN DINGLE
                         DOCKET NO. 38951

                              TABLE OF CONTENTS

                                                                          PAGE

I.     INTRODUCTION AND PURPOSE                                                1

II.    CGS CAPACITY AND ETI'S CAPACITY DEFICIT                                 5

Ill.   THE VALUE OF CGS CAPACITY DOES NOT REDUCE EMBEDDED COSTS                11

IV.    FLAWS IN MR. POLLOCK'S CALCULATION OF LOWER OPERATING COSTS             13

V.     CONCLUSION                                                              26

                                    EXHIBITS
           p..~
       JSD-~             Selected Excerpts from February 22, 2012 Deposition
                         of Jeffry Pollock (Rough Transcript)
       JSD-2             Cost-Benefit Analysis of Entergy and Cleco Power
           ~             Joining the SPP RTO, Prepared by Charles River
                         Associates and Resero Consulting, September 30,
                         2010
       JSD-3             Cost-Benefit Analysis of Entergy and Cleco Power
           ~             Joining the SPP RTO Addendum Study, prepared by
                         Charles River Associates, December 8, 2010
       JSD-4             Power Point Presentation re CODA: Results of the
           (\            Initial Analysis

                                       3
     Entergy Texas, Inc.                                                                           Page 1 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1                                        I.   INTRODUCTION AND PURPOSE

 2   Q.       PLEASE STATE YOUR NAME AND CURRENT BUSINESS ADDRESS.

 3   A        My name is J. Stephen Dingle. My business address is Parkwood Two Building,

 4            Suite 300, 10055 Grogan's Mill Road, The Woodlands, Texas 77380.

 5

 6   Q.       BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?

 7   A        I am the Lead Regulatory Strategist for the System Planning and Operations

 8            ("SPO") 1 organization of Entergy Services, Inc. ("ESI"), 2 which is the service

 9            company affiliate of Entergy Texas, Inc. ("ETI" or the "Company").

10

11   Q.       PLEASE DESCRIBE YOUR DUTIES.

12   A        As the Lead Regulatory Strategist, I am responsible for managing regulatory

13            issues related to the SPO arising before the Operating Companies' 3 retail

14            regulators     and    the    Federal     Energy     Regulatory      Commission        ("FERC").

15            Regulatory issues include the application of regulatory policy, execution and the

16            administration of fuel and wholesale power purchases, the determination of

17            avoided costs, the acquisition of new generating resources, the operation of the

          System Planning and Operations is a department within ESI tasked with {1) the procurement of fossil
          fuel and purchased power, (2) the dispatch of the resources of the Entergy Operating Companies,
          and (3) the planning and procuring of additional resources required to provide reliable and economic
          electric service to the Entergy Operating Companies' customers. SPO also is responsible for carrying
          out the directives of the Entergy Operating Committee and the daily administration of aspects of the
          Entergy System Agreement not related to transmission.
     2
          ESI is the service company affiliate of the Operating Companies, which provides engineering,
          planning, accounting, technical, regulatory, and other administrative support services to each of the
          Operating Companies.
     3
          In addition to ETI, the Operating Companies include Entergy Arkansas, Inc. ("EAI"); Entergy Gulf
          States Louisiana, L.L.C. ("EGSL"); Entergy Louisiana, LLC. ("ELL"), Entergy Mississippi, Inc. ("EMI");
          and Entergy New Orleans, Inc. ("ENO"). EAI's and EMI's participation in the System Agreement will
          be terminated effective December 2013 and November 2015, respectively.

                                                         003
     Entergy Texas, Inc.                                                                        Page 2 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1            Entergy System Agreement4 , and the evaluation of and transition into the

 2            Midwest Independent Transmission System Operator, Inc. ("MISO"). My duties

 3            routinely require me to interpret and apply regulatory principles, as well as the

 4            rules and regulations of the FERC and the Operating Companies' retail

 5            regulators to issues facing the SPO organization, especially in matters related to

 6           the acquisition of generating resources, wholesale power or fuel transactions,

 7            and the application of various FERC and retail regulator-approved tariffs.

 8

 9   Q.       PLEASE        DESCRIBE         YOUR       EDUCATIONAL            AND      PROFESSIONAL

10            BACKGROUND.

11 A. I hold a Bachelor of Science degree, with majors in Economics and Government,

12           from The Florida State University and a Master of Business Administration

13           degree from the Mays School of Business at Texas A&M University.

14                   My professional career began in 1980 when I joined Middle South

15            Services, Inc. (ESI's predecessor in name), as an Associate Econometrician in

16           the System Planning department.                 I remained in the System Planning

17           department, with positions of increasing responsibility, for about the next decade.

18            During my tenure in the System Planning department, I was responsible for

19           preparing forecasts of economic activity, fuel prices, energy consumption, and

20           peak load. I also was responsible for performing various economic analyses.

     4
          The Entergy System Agreement is an FERC-approved rate schedule and contract entered into
          among ESI and the Operating Companies, by which the Operating Companies plan, construct and
          operate their electric generation and bulk transmission facilities as a single, integrated electric
          system, referred to as the "Entergy System" or, simply, the "System." The System Agreement is
          administered by the Entergy Operating Committee.

                                                       004
     Entergy Texas, Inc.                                                           Page 3 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1                  In 1991, I joined the then newly-created Least Cost Planning Department

 2          as the senior analyst responsible for developing and filing with retail regulators

 3          Least Cost Integrated Resource Plans ("LCIRPs") for each of the Operating

 4          Companies. While in the Least Cost Planning Department, I was responsible for

 5          advising the System's senior management regarding the development and

 6          implementation of LCIRP policies that would be consistent with Federal and local

 7          initiatives advancing the public interest, advocating the System's position in

 8          public rulemakings related to LCIRP initiatives, preparing LCIRP filings,

 9          assessing demand-side management programs, and considering alternative

10          methods for meeting the Operating Companies' future resource needs.

11                  In 1995, I joined EAI as the Regulatory Affairs Coordinator, with

12          responsibility for coordinating EAI's regulatory activities before the Arkansas

13          Public Service Commission ("APSC"). My primary responsibilities in that position

14          were to manage the day-to-day interactions between EAI and the APSC's

15          General Staff and advise EAI and ESI employees regarding compliance with the

16          Arkansas Commission's regulatory requirements.       I was also responsible for

17          overseeing the preparation of EAI's filings with the APSC, coordinating EAI's

18          responses to discovery, and training EAI and ESI staff regarding APSC

19          regulatory requirements. In 1999, I returned to ESI as the Manager, Regulatory

20          Affairs for the SPO organization. I was promoted to my current position in early

21          2008.

                                                     005
     Entergy Texas, Inc.                                                            Page 4 of26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1   0.     HAVE       YOU      PREVIOUSLY          FILED   TESTIMONY     IN   REGULATORY

 2          PROCEEDINGS?

 3   A      Yes.    I have testified before state retail regulatory authorities in Arkansas,

 4          Louisiana, Mississippi, and Texas, as well as before the Council of the City of

 5          New Orleans ("Council"). I have also provided affidavits in judicial proceedings in

 6          Mississippi and Texas.          My testimony has addressed matters related to

 7          regulatory policy and rulemakings, tariff design and implementation, the

 8          reasonableness and recovery of fuel and purchased power costs, integrated

 9          resource planning, the acquisition of generating facilities, and the appropriate

10          protection of confidential information.

11

12   Q.     WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?

13   A      I rebut certain of the claims that Texas Industrial Energy Consumers ("TIEC")

14          witness Jeffry Pollock asserts in his February 10, 2012 testimony in this docket.

15          Specifically, I

16              •   Discuss Mr. Pollock's flawed understanding of ETI's resource planning

17                  and resource plans, ultimately explaining that the CGS program is at best

18                  a limited-term alternative that could defer or displace short- and limited-

19                  term Purchased Power Agreements ("PPA"), but it in no way can be

20                  considered a long-term resource option or a program that affects ETI's

21                  long-term acquisition strategy;

22              •   Address Mr. Pollock's implied assertion that the CGS program will allow

23                  ETI to avoid some level of embedded capacity cost, explaining that -

                                                     006
     Entergy Texas, Inc.                                                              Page 5 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1                    consistent with Mr. May's testimony on this issue, any value that might

 2                    ultimately be attributed to CGS capability does not reduce or offset ETI's

 3                    embedded generation costs; and

 4                •   Demonstrate that Mr. Pollock's claim that the CGS program could result in

 5                    annual operating cost savings of $2 million is conceptually flawed, such

 6                    that it should be rejected.

 7

 8                           II.         CGS CAPACITY AND ETI'S CAPACITY DEFICIT

 9   Q.       WHAT IS YOUR UNDERSTANDING OF MR. POLLOCK'S CONTENTION WITH

10            RESPECT TO CGS CAPACITY AND ETI'S CAPACITY DEFICIT?

11   A.       Mr. Pollock contends that CGS Capacity can reduce ETI's capacity deficit, and,

12            in particular, ETI's base-load capacity deficit. 5 He bases this conclusion on the

13            following provisions included in the tentative proposal under consideration by the

14            parties and described in the Supplemental Direct Testimony of Company

15            witnesses Phillip R. May and Andrew J. O'Brien:

16                    •   A CGS Supplier must enter into a contract ("CGS Purchase

17                        Agreement") with ETI to provide CGS capacity on a 7X24 basis, except

18                        when the supplier's resource is not physically available;

19                    •   The CGS Supplier must obtain the status of a network resource under

20                        Entergy's OATT for the duration of the proposed CGS Purchase

21                        Agreement (which must also correspond with the term of the contract

     5
          Pollock Direct at 13, 24-25.

                                                       007
     Entergy Texas, Inc.                                                                          Page 6 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1                        between the CGS Supplier and the CGS Customer ("Customer-

 2                        Supplier Contract"). 6

 3                    •   If the above conditions are met, and all remaining issues are resolved,

 4                        the Entergy Operating Committee 7 has indicated that CGS Capacity

 5                        can be treated as capacity that is allocated to ETI.

 6

 7           Mr. Pollock implicitly concludes that because of these attributes - the 7X24

 8           delivery obligation in particular - CGS Capacity should be considered a "base

 9           load" resource for the Entergy System.               He further notes that because the

10           Entergy System's 2009 Strategic Resource Plan ("SRP") Refresh reflects a

11           capacity deficit and, in particular, a base-load deficit of 969 MW for ETI, 8 CGS

12           Capacity "would provide the utility much needed base-load capacity" and "can

13           offset ETI's projected base-load capacity deficit." 9

     6
         Pollock Direct at 25. Mr. Pollock also states that the CGS supplier must achieve a minimum 80%
         capacity factor measured during on-peak hours. (Pollock, Page 12, line 11) Actually, as a 7X24
         product, CGS Purchase Agreement requires the Supplier to provide energy at the contracted MW
         level every hour that the facility is available. Mr. Pollock reference is to the economic consequence
         associated with an increase in demand payment if the Supplier fails to provide energy at the
         contracted level during 80% of the on-peak hours. Mr. Pollock further states at Page 25, Footnote 9
         that "several of ETI's Purchased Power Agreements obligate ETI (and not the seller) to obtain
         network transmission service. To clarify, there is no relevance to this observation, which speaks only
         to the process by which transmission service is obtained for a potential System resource. For
         instance, even under the proposed CGS program, ESI, on behalf of ETI, will be making application for
         network service for the CGS Purchase Agreement. The fact that ETI (or ESI, on behalf of ETI), takes
         responsibility for the application process does not change the requirement that the resource must be
         qualified as a network resource.
     7
         The Entergy Operating Committee is the entity responsible for administering the Entergy System
         Agreement, a FERC-filed rate schedule that governs the coordinated planning and operations of the
         Entergy System.
     8
         Note that the Entergy System prepared periodic updates of its SRP; subsequent SRPs will reflect a
         different base load deficit than that shown in the 2009 SRP Refresh as a result of changes in load
         growth or resource additions/retirements.
     9
         Pollock Direct, p. 13, Ins 1-8.

                                                        008
     Entergy Texas, Inc.                                                              Page 7 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1   a.     ARE      THERE       FUNDAMENTAL           RESOURCE     PLANNING       PRINCIPLES

 2          RELEVANT TO THE EVALUATION OF MR. POLLOCK'S CLAIMS?

 3   A.     Yes. As an initial observation, it is somewhat irrelevant to discuss "ETI's base

 4          load resource need" outside of the context of the System Agreement.              The

 5          System Agreement requires that all of the System's resources are planned

 6          collectively for the mutual benefit of all of the System's load, and the allocation of

 7          any new resources is a decision that is made after System-wide resource

 8          acquisition issues are addressed. That said, the starting point for the System's

 9          resource planning is its load forecast, meaning the demand (MW) and energy

10          (MWh) that the System's resources must serve over various planning horizons.

11          Based on that load forecast, the System then plans for the acquisition of

12          resources necessary to economically and reliably meet the load over the same

13          planning horizons.

14

15   Q.     WHAT IS YOUR UNDERSTANDING OF WHETHER THE CGS PROGRAM

16          WILL AFFECT PLANS TO SERVE LOAD PARTICIPATING IN THE CGS

17          PROGRAM?

18 A. It is uncertain how a CGS customer's load will ultimately be treated for planning

19          purposes, or whether that treatment will change over time as ETI gains

20          experience with the program. Having said that, it is my understanding that, at

21          least initially, a customer's participation in the CGS program will not affect ETI's

22          plan to serve the portion of a customer's load associated with CGS Capacity

                                                     009
--   ---   --~-~~-----~

                Entergy Texas, Inc.                                                                               Page 8 of 26
                Supplemental Rebuttal Testimony of J. Stephen Dingle
                Docket No. 38951

            1            ("CGS Load"). 10 Through the CGS program, a customer's load will be served via

            2            energy that flows through the meter, and as such will be included in the load that

            3            ETI is obligated to serve.

            4

            5   a.       WILL CGS CAPACITY REDUCE LONG TERM RESOURCE NEEDS?

            6   A.       No. The program, as it is currently defined, will not provide long-term resources

            7            to meet projected resource needs.               The limited term nature of the proposed

            8            agreements, coupled with the uncertainty regarding the future continuation of the

            9            program, do not provide sufficient assurance that CGS resources will be

           10            available to meet Ell's long-term resource needs.                   Furthermore, the program

           11            does not relieve ETI of its obligation to serve CGS customers in the event that

           12            providers withdraw or fail to renew under the program.                      Ultimately, the CGS

           13            program is at best a limited-term alternative that could defer or displace short-

           14            and limited-term PPAs, but it in no way can be considered a long-term resource

           15            option or affect ETI's long-term acquisition strategy.

           16                    Because of its characteristics, CGS Capacity could possibly defer or

           17            displace the acquisition of new short- and limited-term Purchased Power

           18            Agreements ("PPA") that ETI might otherwise acquire, but would not defer or

           19            displace the acquisition of long-term capacity. Because ETI will continue to plan

           20            to serve Customers' CGS load, while obtaining only short- and limited-term

                10
                     Note, however, that Cities witness Karl J. Nalepa has suggested that the Commission should direct
                     ETI not to plan to serve load served under the CGS tariff. Nalepa Direct at 8. ("ETI should not be
                     permitted to claim that it will continue to include the CGS customer in its capacity planning
                     process .... ) ETI cannot relieve itself of its obligation to serve, and my testimony does not address the
                     changes that would occur within the resource planning process were the Commission to adopt Mr.
                     Nalepa's recommendation and relieve ETI of its obligation to serve CGS load.

                                                                     010
     Entergy Texas, Inc.                                                               Page 9 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1          resources associated with that load, ETI's long-term planning, including the

 2          acquisition of long-term capacity, will not be affected by the CGS program.

 3

 4   Q.     EVEN ASSUMING THAT A CGS PURCHASE AGREEMENT HAS BASE-LOAD

 5          RESOURCE CHARACTERISTICS, IS IT CORRECT TO CONCLUDE THAT

 6          CGS CAPACITY REDUCES ETI'S BASE LOAD DEFICIT?

 7   A.     Not necessarily. First, there is no reduction in the existing base-load capacity

 8          deficit with respect to a CGS Purchase Agreement associated with new ETIIoad.

 9          In that case, the CGS Capacity is added only for the purpose of serving the

10          additional load contractually associated with the CGS Capacity and, so, as

11          discussed above, there is no additional capacity available to reduce ETI's

12          base-load capacity deficit or any of ETI's capacity deficits for that matter.

13                  Additionally, even though it will become a System capacity resource with

14          certain base-load characteristics, a CGS Purchase Agreement does not provide

15          capacity and associated energy to the System in the same way as other base-

16          load resources. A CGS Purchase Agreement is contractually linked to a specific

17          CGS Customer and has been acquired only because of the load of that

18          Customer. Moreover, the System can only rely on the CGS Supply as a firm

19          resource so long as that contractual relationship between the CGS Customer and

20          the CGS Supplier remains in place.              This relationship creates additional

21          complexities within the resource planning process, because it adds additional

22          uncertainty to future supply and demand.

                                                     011
     Entergy Texas, Inc.                                                                       Page 10 of26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1   Q.      HOW DO YOU RESPOND TO MR. POLLOCK'S CLAIM THAT CGS CAPACITY

2            REFLECTS A CAPACITY BENEFIT COMPARABLE TO $6.66 PER t ..f-1{-
10             presentation to my testimony as Exhibit JS&+.

11

12   Q.        DID MR. POLLOCK USE SOME INFORMATION FROM THAT PRESENTATION

13             TO DERIVE A VALUE USED IN THIS PROCEEDING?

14   A.        He did. Mr. Pollock relied on page 13 (Summary of Differences Between ETI's
                                                                            3S~-rt-lf'
15             costs under CODA versus the 5-1 scenario in 2014) of Exhibit dSB-4. In his

16             recent deposition, Mr. Pollock testified:

17                      2                All right. So if you start with that [page 13 slide], you
18                      3    look at the column called flex cost allocation
19                      4    differences, I had to eyeball what that is. That
20                      5    represents the additional flexible capacity costs or
21                      6    basically energy costs that Entergy would incur because
22                      7    of its flexible energy requirements a portion of which
23                      8    is attributable to the PURPA puts. 31
24

     31
          Pollock Depo at 48 - 49.

                                                     q
     Entergy Texas, Inc.                                                             Page23 of26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1   Q.     DOES MR. POLLOCK'S APPROACH PRODUCE A MEANINGFUL RESULT?

 2   A.     No. The fundamental problem is that Mr. Pollock's starting point - the $40 million

 3          that he eyeballs from the graph on page 13- is not a measure of the flexible

 4          capability or energy costs that ETI would incur as a result of its flexible energy

 5          requirements.     Rather, the graph presents a comparison of the costs that ETI

 6          might have incurred while operating in 2014 under the System Agreement

 7          without EAI and the costs that ETI might have expected to incur under the CODA

 8          with all six Operating Companies participating. The bar that he uses as the basis

 9          for his $40 million number is labeled "Flex Cost Allocation Differences." I am

10          perplexed as to how Mr. Pollock could look at those descriptions, especially in

11          the overall context of this presentation, and reach the conclusion that the $40

12          million was some sort of estimate of the cost of flexibility.

13

14   Q.     WHY DO YOU BELIEVE THAT THE CONTEXT OF THE PRESENTATION IS

15          IMPORTANT?

16   A.     A review o!J. page 3 of the presentation (the entirety of which is attached at Exhibit
            ~1)-'YI.•,.
17          ~ may be helpful. A copy of that page follows:
     Entergy Texas, Inc.                                                                                  Page 24 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

                 The main difference in this initial analysis between CODA and the
                 System Agreement revolves around the allocation of flexible
                 energy costs

                  •  Flexible energy costs refer to the costs that correspond to the provision of flexibility for
                     the System
                  • Flexible energy costs are not unique to CODA-- they are as much a part of the System
                   • Agreement as they are of CODA
                  • CODA and the System Agreement allocate flexible energy costs very differently
                     • The System Agreement allocates flexible energy costs regardless of an OPCO's
                         "flex" position (i.e. if it has excess flexibility or is short flexibility)
                     • CODA allocates flexible energy costs based on an OPCO's flex position
                     • The largest impact relates to different allocations of the flexible energy costs of
                         legacy gas/oil units as the cost of these unit are usually much higher than newer
                         gas and coal units-- i.e. $100/MWh versus $65-75/MWh
                  • The following charts highlight how the CODA and System Agreement structures differ,
                     using three portrayals that are indicative of circumstances faced by the OPCOs

                                                Preliminary Results -- SubJect to Change
                                                  Addtttonal Scenarios Contemplated

 1          As is explained on that slide, the Operating Companies incur costs associated

 2          with flexible operation under both the CODA and under the System Agreement.

 3          However, one of the key differences between the CODA and the System

 4          Agreement is how those costs are allocated. Slide 13 explains that under CODA,

 5          ETI is allocated $40 million more in costs associated with flexibility than it is now

 6          - in other words, under the current System Agreement regime, ETI is short on

 7          flexibility but is not paying the other Operating Companies for that flexibility.

 8

 g   a.     DOES THE APPLICATION OF MR. POLLOCK'S APPROACH TO OTHER

10          OPERATING COMPANIES INDICATE THE FUNDAMENTAL FALLACY OF HIS

11          APPROACH?

                                                                026
     Entergy Texas, Inc.                                                                  Page25of26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

1    A.      Yes. First, it is important to note that, as is the case in most forms of energy

2            exchanges, the Flex Exchange sums to zero. That is, the amount of energy that

3            is taken from the exchange exactly equals the amount of energy placed into the

4            exchange. 32 The application of Mr. Pollock's approach would thus suggest that

5            the value of flexible capability for the System is zero. Furthermore, page 14 of

6            the same presentation upon which Mr. Pollock relies indicates that EAI has a

7            negative $25 million Flex Cost Allocation Difference.              The application of Mr.

 8           Pollock's method for valuing flexible capability to EAI would indicate that there is

 9           a negative value, or a cost, associated with firming up the QFs.                That is a

10           nonsensical result.       A valuation method that does not produce consistently

11           meaningful results across companies cannot be relied upon.

12

13   Q.      ARE THERE OTHER FLAWS IN MR. POLLOCK'S CALCULATION?

14   A.      Yes. The next error that I address is the "Percent Affected• calculation that Mr.

15           Pollock performs.

16

17   Q.      HOW DOES MR. POLLOCK DESCRIBE THE "PERCENT AFFECTED•

18           NUMBER?

19   A.      Mr. Pollock claims that the Percent Affected number is the percentage of ETI's

20           QF puts that would be eliminated as a result of the implementation of 150 MW of

21           CGS Capacity. 33

                                                                               5J.
     32
          Mr. Pollock acknowledged this fact in his deposition. Pollock Depo   at~
     33
          Pollock Depo at 53.

                                                     \\
     Entergy Texas, Inc.                                                                      Page 26 of 26
     Supplemental Rebuttal Testimony of J. Stephen Dingle
     Docket No. 38951

 1   Q.       IS MR. POLLOCK'S ASSERTION REASONABLE?

 2   A        No. Mr. Pollock reaches his 31.6% Percent Affected value by assuming that the

 3            150 MW of QF capacity that participates in the CGS program operates at a 100%

 4            load factor. 34 He then multiplies 150 MW by 8, 760 hours per year by two years,

 5           which yields 2,628,000 MWh, which Mr. Pollock then claims is the amount of

 6           energy that would be provided by 150 MW of CGS generation. He then divides

 7           that 2.6 million MWh of generation into 8.2 million MWh, which is the actual

 8           amount of energy that QFs put to ETI over a two year period, to arrive at 31.6%.

 9                   But, comparing one number (his assumed QF put) at an assumed 100%

10           load factor with another number that reflects the actual load factor of the QFs that

11           put to ETI, which is approximately 40%, is like comparing apples to oranges. A

12           more reasonable calculation would be to compare the 150 MW of QF capacity

13           that could potentially be firmed up via the CGS program to the 1 ,825 MW of

14           eligible QF suppliers shown in Mr. Pollock's Exhibit JP-1.                That produces a

15           "Percent Affected," or percent of QF puts that would be potentially firmed up, at

16           less than 12%.

17

18                                            V.     CONCLUSION

19   Q.      DOES THIS CONCLUDE YOUR SUPPLEMENTAL REBUTTAL TESTIMONY?

20   A       Yes.

     34
          Which, as Mr. Pollock admitted in deposition, is an assumption inconsistent with the actual facts.
          Pollock Depo at 52-53.

                                                       028
                                                                JSD-R-1
                                                        Docket No. 389~
                                                            Page 1 of~ \1
                                                                     1
                                                               Page 35
 1   River analysis looked at?
 2      A     Well, it's -- the Charles River analysis looked
 3   at the whole region, but then Entergy took that analysis
 4   and did a second analysis that showed what the benefits
 s were for just the Entergy -- Entergy operating company.
 6      Q     Right.   But you took that number from the
 7   Charles River analysis.     Right?
 8      A     I think that was the original source, but I'll
 9 have to check it to make sure.
10      Q     Well, let me ask you this.        If, in fact, that
11   reference is from -- to Entergy is from the Charles
12   River addendum, that's -- refers to the entire Entergy
13   balancing authority.    Correct?     Not simply the Entergy
14   operating companies?
15      A     Well, I don't recall.       There were two studies.
16   The original study was based on the regions, and then I
17   think in the evaluation report that was filed by Entergy
18   at the Commission, they separated the analysis between
19   Entergy operating companies qnd the other regional
20   companies.
21       Q    Well, let me -- let me ask you this.        Is it
22   correct that if more than just the Entergy operating
23   companies are included in that number, that
24   so million-dollar number, or -- I'm sorry -- the sales
25   number in Row 1, your analysis would be incorrect, would
                            Kennedy Reporting

                               \L
                                                                  JSD-R-1
                                                          Docket No. 38951
                                                                Page2of~l~
                                                                  Page 36
 1   it not?
 2      A      Well, it -- it -- I mean, the       so million could
 3   be higher or lower.      Just depends -- I mean, some of the
 4   benefits went up when you only looked at Entergy only;
 S   but, yeah, if it         if, in fact, the    so million is
 6   region-wide, then I should have used the            Entergy•s
 7   operating company specific number, which is the number I
 8   thought I used.
 9      Q      All right.
10      A        I'll have to check it and let you know.
11      Q      Did you have any involvement with the
12   development of the Charles River cost benefit analyses?
13      A        I did not.
14       Q       So you weren't -- you didn't participate in the
1S   working group that put those together?
16      A      No.

17       Q       Did not attend the Entergy Regional State
18   Committee meetings where they reviewed that modeling and
19   set it up?
20      A      No.

21       Q       Have you reviewed the specific addendum study
22   that that    so million-dollar number was based on?
23       A       I've read through the study, yes.
24       Q       All right.    And so do you know what the
25   particular identifier of the study            how it was
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                                                                 Page 37

 1   identified or what it was called?       Particular
 2   sensitivity?
 3      A     I think it was called Cost Benefit Analysis of
 4   Entergy and Cleco joining the SPP RTO Addendum Study.
 5   It is December 8th, 2010.
 6      Q    And the particular aspect of the study that
 7   resulted in the 50 million-dollar number for Entergy,
 a would that have been SQ2 Entergy QFs firm?
 9      A     Yes.
10      Q     So you're aware that in this study, each of
11   these different sensitivities reflect different modeling
12   assumptions in the status quo case or in the case in
13   which a move to SPP is compared?
14      A     Yes.
15      Q     Do you have the December 8th addendum study in
16   front of you?
17      A    No.

18       Q    Can you get that?
19                    MS. GRIFFITHS:     I'd like a copy as well if
20   you're going to be going through it with Jeff.           Can you
21   get me a copy?
22      A     I don't know that I have it in front of me or
23   that I have immediately in front of me.
24       Q    (BY MR. WILLIAMS)        All right.   I'll have to --
25   I thought you would have that with you.
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                                                                 Page 40

 1   $50 million is a comparison to the status quo.
 2      Q     Well, take a look at Page 7 of the Exhibit 2.
 3   Do you see where it says    11   SQ2: Entergy QFs Firm in
 4   Status Quo Case"?
 5      A     Yes.
 6       Q    And that says SQ2 -- in that sensitivity, it
 7   says QFs are treated as firm in both the status quo case
 8   and the join SPP case.     Do you see that?
 9      A     Yes.
10      Q     So SQ2 does not reflect the value of firming up
11   the QF capacity, does it?
12      A     Okay.    So the SQ is compared to status quo
13   wait a second.    That's not right, then, because the
14   status quo case says nonfirm.         So status quo in Table 4
15   says nonfirm.    SQ2 shows firm.       So that is comparing the
16   benefit of firming up the QFs.
17                    I think there's something -- a problem
18   with the way that's being described.         But if you go back
19   to Table 4 and you start with the status quo case, that
20   says "QFs nonfirm."     SQ2 says "QFs firm."      Therefore, it
21   reflects the benefits of firming up the QFs.
22       Q    But that's not what it says on Page 7.            It says
23   that "This sensitivity has QFs treated as firm in both
24   the status quo case and join SPP case."
25       A    Well, that's not what Table 4 says.

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                                                              Page 41
 1       Q      So you -- you think that Charles River got it
 2   wrong in their description on Page 7?
 3       A      I think there could be a wrong description or a
 4   misstatement on page -- on that page because the
 5   chart -- I mean, the whole purpose of doing the
                                                                          1
 6   sensitivity study was to measure the benefits of firming              '

 7   up the QFs.    In the status quo case, the QFs were not
 8   firm.   That's what Table 4 says.    And we can read the
 9   rest of the report.    That's the context in which that
10   that sensitivity was done is what's the benefit of
11   firming up QFs.
12       Q      Well, what Table 4 shows is it starts the
13   status quo case, then it does sensitivities.      Right?
14       A      Right.
15       Q      SQ2 shows that the sensitivity is -- make the
16   QFs firm in the status quo case.     SQ, status quo.
17   Correct?
18       A      Status quo, Sensitivity 2, says --
19       Q      Firm Entergy QFs.
20       A      -- makes it firm.
21       Q      Right?
22       A      Right.   So --
23                   (Simultaneous discussion)
24       Q      At the bottom, join SPP case
25                   MS. GRIFFITHS:   Let him finish
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                                                          Docket No. 38951
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                                                                  Page 44

 1   QFs from nonfirm to firm.
 2         Q    But your -- the case you're comparing are the
 3   status quo case and the join SPP case.          Right?
 4         A    No.     I'm comparing the status quo case where
 5   QFs are nonfirm and SQ2 which the Entergy QFs are firm.
 6         Q    But Charles River was comparing the status quo
 7   case with the join SPP case, was it not?
 8         A    Sure.
 9         Q    And Status Quo Case 2, which it was comparing
10   to the join SPP case, had the Entergy QFs firm.            Right?
11         A    Status Quo 2 has the QFs as firm, yes.
12         Q    And you compare that to the join SPP case, at
13   the       they      it also has the QFs firm.     And Page 7
14   explains it by saying only the seams charges are
15   different between the two cases.        Isn't that not right?
16         A    That's what it says.     I understand that.
17         Q    All right.     But just so we can wrap this up, if
18   you assume that the QFs are firm in both the status quo
19   case and in the join SPP case being compared, then your
20   analysis would be wrong.       Right?
21         A     Well, the status quo case in Table 4 says QFs
22   are nonfirm.       So if you're comparing the status quo case
23   and the SQ2, the analysis measures the benefits of
24   firming up the QFs.
25         Q     Can you answer my question?
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1        A     Yes.
2                     MS. GRIFFITHS:     Restate your question,
3 Johns.
4        Q     (BY MR. WILLIAMS)       My question is:      If you
 5   assume that the -- in both the status quo case and in
 6   the join SPP case being compared by Charles River, the
 7   Entergy QFs are firm, then your analysis is wrong?

 8                    MS. GRIFFITHS:     Objection, form.
 9       A     If you're saying I compared the same
10   circumstances in both cases they're firm, then I picked
11   the wrong number.
12       Q     (BY MR. WILLIAMS)       Okay.    You know,
13   Mr. Pollock, your interpretation or explanation of this
14   document, is that based just on looking at the face of
15   the document here this afternoon or do you have some
16   other information that leads you to that interpretation?
17       A     I've read the reports.          I've read the reports
18   when they were presented and read the reports when the
19   company filed its technical report -- technical
20   evaluation report with the Commission.
21       Q     Okay.    So it's strictly based on reading the
22   report?
23       A     Yes.
24       Q     Okay.    Going on to Line 3 of Deposition Exhibit
25   1, there you calculate a dollar per megawatt hour per

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                                                     Docket No.j8951
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 1   unit savings rate.     Why is it appropriate to use a
 2   calculated capacity benefit of firming up capacity on a
 3   dollar per megawatt hour, not a dollar per kW basis?
 4      A      Since we're talking -- we're talking about
 5   operating cost savings, and so the most -- and in this
 6   case trade benefits, most of which are production cost,
 7   most of which is that is fuel.
 8       Q     Okay.   So these won't     these will be
 9   produce fuel cost savings mostly.     Is that what you're
10   saying?
11      A      I said that the lower operating cost associated
12   with reduced flexible capacity requirements; so, yes,
13   there would be changes in operating costs.     It would be
14   benefits that customers would see immediately in terms
15   of lower fuel costs.
16       Q     So these would not change the company's fixed
17   capacity cost?
18       A     Over time, they could because the company says
19   it installs significant amount of flexible capacity in
20   part to the -- for the -- reflect the PURPA put.        If you
21   had no PURPA puts, there would be less reserve margin
22   required; therefore, over time, there would be less
23   capacity cost.
24       Q     But you haven't calculated that?    You've
25   calculated essentially a benefit that flows through fuel
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                                                                p.. \w
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 1       A     Correct.   That's the work paper.
 2                  All right.     So if you start with that, you
 3   look at the column called flex cost allocation
 4   differences, I had to eyeball what that is.      That
 5   represents the additional flexible capacity costs or
 6   basically energy costs that Entergy would incur because
 7   of its flexible energy requirements, a portion of which
 8   is attributable to the PURPA puts.
 9                  I estimated about 20 percent of the -- and
10   eyeballed the number there -- about 40 million-dollar
11   impact, so it doesn't -- it only counts the additional
12   flexible capacity or energy cost that ETI would incur
13   under the CODA and not the -- kind of didn't count any
14   of the flexible energy costs that ETI itself would
15   incur.   This is additional cost that ETI would have to
16   purchase from the other company.      I determined that
17   about 20 percent of that 40 million would be
18   attributable to the PURPA puts.      That's how I got the
19   8 million.
20       Q     How did you get 20 percent?
21       A     I looked at the company's strategic resource
22   plan and looked at what the resource plan was saying
23   about variations in load in various different time
24   periods, and it cited two things.      It cited the
25   variations due to load swings and also the variations
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 1   due to the PURPA puts.    If I looked at all four of the
 2   scenarios, I looked at the variation in the PURPA puts
 3   to the sum of the variation of the PURPA puts and load
 4   swing, and you get a number ranging anywhere from the QF
 5   puts ranging anywhere from 15 to over half of the load
 6   swings.   So I picked 20 percent.
 7       Q     Okay.   Now, this analysis is based on
 8   information related to what's called the CODA.       Right?
 9       A     Yes.
10       Q     What is the CODA?
11       A     Commitment, operating and dispatch agreement,
12   which was one of the alternatives that Entergy was
13   considering as a successor to the current system
14   agreement.
15       Q     And looking back at the work paper regarding
16   the summary of differences between ETI's costs under the
17   CODA versus the 5-1 scenario --
18       A     Yes.
19       Q     -- are you saying the $40 million is the --
20   well, explain to me again.      What are you saying the
21   $40 million represents?
22       A     If you look at the bar in the middle, it
23   says -- under -- where it says "Flex cost allocation
24   differences" and eyeball it, it looks like about -- the
25   size of the bar is about 40 million.
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1    operating company either has to self-provide or obtain
2    from other operating companies so that it matches the
3    amount of flexible capacity that each company requires.
4                     In this case, ETI would have to spend
5    about $40 million more than its existing flexible
 6   capacity resources to meet its flexible capacity
 7   requirements.
 8       Q    So you agree that this flex exchange was
 9   intended to compensate the operating companies that
10   provide more than their proportioned share of flex --
11   capability to the system?
12       A    Yes, with the companies that need it more or
13   has less than their necessary share of flexible
14   resources.
15       Q    Okay.     And so is it correct that a fundamental
16   design principle for an exchange like this is that the
17   dollars in megawatts hours in the exchange sum to zero?
18                    MS. GRIFFITHS:     Objection, form.
19       A    On a system-wide basis, yes, they would.
20       Q    (BY MR. WILLIAMS)        Okay.   So that means some
21   operating companies would have negative values --
22   right -- or payments associated with the flex exchange.
23   Right?
24       A    Right.     Works just like MSS-1.
25       Q    And other companies would have negative

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 1   values
 2       A      That's correct.
 3       Q      -- associated with firming up QF puts.     Right?
 4       A      That's correct.
 5       Q      Take a look at Line 8 of Exhibit 1.
 6       A      Yes.
 7       Q      On there, you calculate 150 megawatts CGS, 24
 8   months.    Do you see that?
 9       A      Yes.
10       Q      Is that by multiplying 150 megawatts by 8760
11   hours per year for two years?
12       A      Yes.
13       Q      So that would be a hundred percent load factor.
14   Correct?
15       A      Yes.
16       Q      But there's no customer generator that has a
17   hundred percent load factor.    Right?
18       A      Well, this is not measuring the customer
19   generator.    It's measuring a CGS customer's supply.
20       Q      Well, do they -- will they -- do you expect a
21   CGS customer or the CGS supplier to have a hundred
22   percent load factor for over 24 months?
23       A      Probably not exactly a hundred percent load
24   factor, no.
25       Q      Are you aware of any customer or supplier that
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                                                               JSD-R-1
                                                       Docket No. 389~~
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 1   has a hundred percent load factor now?
 2       A      No.
 3       Q      Line 10 has a -- the data is described as
 4   percent affected.
 5       A      Yes.
 6       Q      And that's Line 8 divided by Line 9.     Right?
 7       A      Yes.
 8       Q      What is -- what is that representing, the
 9   percent affected number?
10       A      If we had 150 megawatts of QF puts, that would
11   roughly be about 31.6 percent of all the QF puts that
12   Entergy Texas bought power from over that 24-month
13   period.
14       Q      So you're saying that firming up 150 megawatts
15   of QF puts would alleviate the flexible capability needs
16   of a third of ETI's entire annual energy needs?
17       A      No.    It would eliminate about a third --
18   31.6 percent of the PURPA put.
19       Q      So why do you -- so why do you multiply the
20   percent affected by the total sales?
21       A      So the average effect is 46 cents a megawatt
22   hour.     It affects roughly 31.6 percent of the total
23   sales.    So that's why the value is basically the 46
24   cents times 31.6 percent times ETI's sales.       That gets
25   you to 2.3 million.

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1       A      The answer is whatever the power plant is still
2    providing service, it's providing service to somebody.
3    It's needed by somebody on the system.
4        Q     So the CGS contract will not cause me to be
5    able to reduce those capacity costs associated with that
 6   generating plant.     Right?

 7       A     Not exactly on the day of the CGS contract; but
 8   over time, it might.

 9       Q     Well, my hypothetical was year ten of a 40-year

10   power plant life.     There's no CGS contract going to
11   cause me to shed those capacity costs.       Right?
12       A      I understand.
13       Q     Was the answer
14       A     The company is in a deficit, and so the company
15   needs additional capacity.       It's that additional
16   capacity that would be avoided.
17       Q      Okay.   So we're not talking about historical
18   we'r~   not talking about avoiding historical embedded
19   capacity costs with CGS capacity.        We're talking about
20   the ability to avoid potentially some capacity costs
21   that's incremental that results --

22       A      Well, not entirely.     No.   Your example was for
23   power plants.      And, you know, for power plants, you have
24   a need, and it would be an avoided -- it would be
25   avoiding another power plant coming in, which would

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                                                     Docket No. 389~
                                                          Page~. ((p
                                                             Page 73
 1   raise rates for everybody.
 2       Q    Okay.    And that's an incremental
 3       A    There could be -- there could be a purchased
 4   power agreement that you would otherwise not extend
 5   because you got this -- you've already met the supply
 6   deficit with CGS supply.
 7       Q    Okay.    Well, I bite.   Let's go onto the
 8   purchased power example.
 9                    If I have a purchased power contract
10   that's ten years -- has ten years to run on it when I
11   enter into a CGS contract, I'm not going to avoid any of
12   the capacity costs under that purchased power contract
13   because I entered into a CGS contract.     Right?
14       A    Not for that specific contract, no; but you
15   might not enter into a new contract, or you might
16   enter· -- exit a contract that existed at the time the
17   rates were set because you didn't need the capacity.
18   You didn't -- you decided not to extend the term.        I
19   mean, that's why you enter into some short-term
20   contracts.
21       Q    Yeah.    And assuming you had the right to get
22   out of that contract?
23      A     Oh, contracts have a specific term.        Sometimes
24   there's one year.     Sometimes it's three years.
25   Sometimes it's ten years.     At the end of one year, three
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                                                           Docket No. :}8951
                                                               Page)'! of)'!,
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 1    years, ten years, you can      deci~e   to renew it or not.
 2    It's not a question of breaking a contract.         It's a
 3    question of not renewing it.
 4        Q      Is it correct your view is that CGS capacity
 5    should be viewed as base load?
 6       A       Sorry?    Can you repeat it -- the question?
 7        Q      Is it your view that CGS capacity should be
 8    viewed as base load capacity?
 9        A      Yes.
10        Q      Is short-term base load capacity a common
11    product for ETI or -- I'm sorry -- for the Entergy
12    system?
13                      MS. GRIFFITHS:    Objection, form.
14       A       I don't know what you mean by "common product."
1'5   I mean, the company has bought 24-7 products.          That is a
16    base load product.       I don't know how common that
17    practice is or if it's still -- still done.         The company
18    enters into         ETI enters into a three-year deal for
19    base load capacity from Arkansas.         That's a -- that's a
20    short-term base load contract.
21        Q      (BY MR. WILLIAMS)       All right.   Let me just wrap
22    this up.    Let's talk about base load capacity.          Is it
23    your opinion that CGS capacity can allow ETI to avoid
24    the cost of long-term base load capacity?
25        A      What do you mean "long-term base load
                               Kennedy Reporting

                               ll
                                                           Docket No. 38951
                                                         Entergy CGS Tariff
                                                       ETI EXHIBIT NO. 101

                                           Redacted Per Order No. 11

                       DOCKET NO. 38951

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

               SUPPLEMENTAL DIRECT TESTIMONY

                             OF

                       DENNIS R. ROACH

                        ON BEHALF OF

                     ENTERGY TEXAS, INC.

                      JANUARY 11, 2013
                        ENTERGY TEXAS, INC.
         SUPPLEMENTAL DIRECT TESTIMONY OF DENNIS R. ROACH
                         DOCKET NO. 38951

                              TABLE OF CONTENTS

                                                                       Page

1.      Introduction and Qualifications                                       1

II.     Purpose                                                           3

III.    Non-Fuel Embedded Generation Cost Credit                          7
IV.     TIEC's Proposal to Avoid Unserved Energy Costs                   10
V.      TIEC's Proposed Rider CGSC Does Not Allow ETI to Recover Its
        CGS Implemenation and Administration Costs                       13
VI.     Fixed Cost Contribution Fee                                      18

VII.    Rider CGS, Rider CGSC,                                           21
VIII.   Conclusion                                                       23

                                      EXHIBITS

Exhibit DRR-SD-1        LIPS Non-Fuel      Embedded Production Cost Docket
                        No. 39896

Exhibit DRR-SD-2        ETI's Proposed Rider Schedule CGS

Exhibit DRR-SD-3        ETI's Proposed Rider Schedule CGSC

Exhibit DRR-SD-5        Redline Comparing ETI's Proposed Rider Schedule CGS
                        to TIEC's Proposed Rider Schedule CGS
Exhibit DRR-SD-6        Redline Comparing ETI's Proposed Rider Schedule
                        CGSC to TIEC's Proposed Rider Schedule CGSC

                                  -3
             Entergy Texas, Inc.                                                                      Page 1 of 23
             Supplemental Direct Testimony of Dennis R. Roach
             Docket No. 38951

     1                             I.      INTRODUCTION AND QUALIFICATIONS

     2       Q.        PLEASE STATE YOUR NAME, BUSINESS ADDRESS, EMPLOYER AND

     3                 JOB TITLE.

     4       A.        My name is Dennis R. Roach. My business address is 425 West Capitol,

     5                 Little Rock, Arkansas 72201. I am employed by Entergy Services, Inc.

     6                 (ESI)' as Manager Regulatory Strategy.

     7

     8       Q.        ON WHOSE BEHALF ARE YOU SUBMITTING THIS TESTIMONY?

     9 A. I am submitting this Supplemental Direct Testimony on behalf of Entergy

10                     Texas, Inc. (ETI or the Company).

11

12           Q.        PLEASE STATE YOUR EDUCATION, PROFESSIONAL AND WORK

13                     EXPERIENCES.

14 A. I hold a Bachelor of Science degree, cum laude, with a major in

15                    Mathematics, from Henderson State University and a Master of Arts

16                    degree in Management from Webster University.

17                             I have spent my entire professional career working for the Entergy

18                    System. I began working for Arkansas Power & Light Company (AP&L),

19                    Entergy Arkansas, Inc.'s (EAI's) predecessor, in 1981, in the Rate

20                    Department as a rate analyst. I primarily worked on rate design, cost

21                    analysis, and economic analysis associated with rates.                   From 1990 to

         '        ESI is a subsidiary of Entergy Corporation that provides technical and administrative services
                  to all the Entergy Operating Companies.
              Entergy Texas, Inc.                                                             Page 2 of 23
              Supplemental Direct Testimony of Dennis R. Roach
              Docket No. 38951

     1                  1993, I worked for AP&L as a senior analyst in the Rate Department and

     2                 then in the Market Support Department with additional responsibilities in

     3                 the areas of cost studies, rate design, and economic analysis.

     4                         In 1993, I joined ESI, working in the Pricing and Economic Analysis

     5                 Department as a senior analyst. During this time my duties included rate

     6                 design, demand side management analysis, cost analysis, special rate

     7                 contract analysis, and marketing program evaluations for each of the

     8                 Entergy Operating Companies.2

     9                        In 2002, I joined the Regulatory Strategy Department as Manager
10                     Regulatory Strategy. In this job, I am responsible for assisting in the
11                     overall coordination of regulatory issues among the Operating Companies.

12

13           Q.       HAVE YOU PREVIOUSLY PROVIDED TESTIMONY BEFORE THE
14                    PUCT?

15           A.       No.

16

17           Q.       WHY ARE YOU QUALIFIED TO PROVIDE THIS TESTIMONY?

18 A. I have worked closely on the development of the Competitive Generation

19                    Services (CGS)-related riders that I sponsor through this testimony, and
20                    have been involved in the negotiations with the Texas Industrial Energy

         2        The Entergy Operating Companies are: ETI; EAI; Entergy Gulf States Louisiana, L.C.C.;
                  Entergy Louisiana, LLC; Entergy Mississippi, Inc.; and Entergy New Orleans, Inc.

                                                    ^
         Entergy Texas, Inc.                                                         Page 3 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     1          Consumers (TIEC) and the other parties throughout the development of

     2          the CGS program.

     3

 4                                            II.   PURPOSE

     5   Q.     WHAT IS THE PURPOSE OF YOUR TESTIMONY?

 6       A.     In this testimony, I:

 7                        •   Address the non-fuel embedded generation cost portion of the

 8                            Large Industrial Power Service (LIPS) Rate Schedule as derived

 9                            from the current rates set in PUCT Docket No. 39896;

10                     •      Explain ETI's concerns with TIEC's proposal to allow a CGS

11                            customer to decrease its load as that customer's CGS Supplier

12                            decreases its supply, and thereby avoid Unserved Energy

13                            charges;

14                     •      Address the flaws in TIEC's proposed schedule for recovery of

15                            CGS-related administration and implementation costs; that is,

16                            the Rider "CGSC";

17                    •       Address the Company's position on the role of the "Fixed Cost

18                            Contribution Fee" in the CGS rider; and

19                    •       Sponsor the three CGS-related riders proposed by ETI in this

20                            docket: Rider Schedules CGS, CGSC,

                                                    ^
           Entergy Texas, Inc.                                                     Page 4 of 23
           Supplemental Direct Testimony of Dennis R. Roach
           Docket No. 38951

      1    Q.     DO YOU SPONSOR ANY EXHIBITS IN THIS FILING?

     2     A.     Yes.    I sponsor the exhibits listed in the Table of Contents to my

     3            testimony.

     4

     5     Q.     WILL    ANY OTHER WITNESSES ADDRESS CGS ISSUES IN

     6            SUPPLEMENTAL DIRECT TESTIMONY?

     7     A.     Company witness J. Steven Dingle with ESI's System Planning and

     8            Operations group (SPO) will provide testimony supporting certain of the

     9           issues I address, as well as additional matters that remain unresolved in

 10              this docket. Specifically, Mr. Dingle also addresses the 24/7 firm nature of

 11              the CGS product and how that affects the Unserved Energy rate, which I

12               also address in part. In addition, Mr. Dingle addresses issues regarding

13               the Entergy System Agreement and the Entergy Operating Committee's

14               role and authority under that agreement; how the CGS program could be

15               affected by ETI's integration into the Midwest Transmission System

16               Operator; termination payments should the CGS Supplier or CGS

17               Customer default in their obligations to provide CGS supply for the entire

18               contracted period; the process for initiating CGS service; and TIEC's

19               proposed "force majeure" provision for the CGS Purchase Agreement.

20

21        Q.    WHAT IS YOUR UNDERSTANDING AS TO THE PURPOSE OF THE

22              CGS PROGRAM?

                                                  7
          Entergy Texas, Inc.                                                        Page 5 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

      1   A.     The tentative terms and conditions that address how the CGS program

     2           would work are included in Section I of the CGS Stipulated Matters and

     3           Stipulated Facts filed by the parties to this proceeding on January 20,

     4           2012. In this answer, I will explain the primary (but not all) provisions of

     5           the program as laid out in those stipulations.

     6                  The CGS program, in accordance with PURA § 39.452 and as

     7           proposed to be structured by the parties, is intended to provide a specific

     8           subset of customers (CGS Customers) within ETI's Large Industrial Power

     9          Service (LIPS) Rate Schedule class with the ability, consistent with the

 10             requirements of federal law and FERC tariffs including the Entergy System

 11             Agreement, to obtain generation service from an alternative supplier. In

12              order to accomplish this objective, to address the Commission's concerns

13              regarding cost shifting under the program, and to address other significant

14              limitations imposed by the legislation (including the requirement that the

15              CGS program not create a conflict with Federal law), the parties to this

16              proceeding have engaged in extensive negotiations and arrived at a

17              tentative solution to at least some aspects of the CGS program design.

18                     Under this collaborative proposal, customers eligible for CGS

19              service will contract with a CGS Supplier, which must be a Qualified

20              Facility ("QF") as defined by Rate Schedule LQF that is or will be

21             interconnected to       ETI,   for a     negotiated level of CGS       capacity
22             (Supplier-Customer Contract).         ETI will not be a party to this contract;
23             however,      the    Supplier/QF       ("CGS   Supplier"),   based    on    the

                                                9^
             Entergy Texas, Inc.                                                                  Page 6 of 23
             Supplemental Direct Testimony of Dennis R. Roach
             Docket No. 38951

     1              Supplier-Customer Contract, will then enter into a CGS Purchase

 2                  Agreement with the Company for the same level of capacity as in the

 3                  Supplier-Customer Contract.             As further discussed in Mr. Dingle's

 4                  Supplemental Direct Testimony, the capacity supplied by the CGS

 5                  Purchase Agreement will take the form of a 24/7 unit contingent product.

 6                  Mr. Dingle also explains, upon fulfillment of other conditions addressed in

 7                  his testimony in a manner satisfactory to the Entergy Operating

 8                  Committee, that Committee has agreed to recognize that the CGS

 9                  Purchase Agreement can provide firm capacity (or, in the terms of the

10                  Entergy System Agreement, " capability") to the Entergy System.3

11                          ETI will not make a capacity payment directly to the CGS Supplier.

12                  Instead, ETI will provide a credit to the CGS Customer equal to ETI's

13                  non-fuel embedded generation cost (measured in $/kW/month) for that

14                 customer times the CGS Supplied Capacity (kW). Any compensation for

15                 the CGS capacity to the CGS Supplier is paid by the CGS Customer

16                 pursuant to the terms of a separate Supplier-Customer Contract.

17

18       Q.        IS THE INTENT OF THE CGS PROGRAM TO CREATE A CAPACITY

19                 MARKET FOR ETI?

         3     By providing this testimony, ETI does not in any manner waive its rights to fully contest and
               independently assert its rights regarding any and all matters that remain in dispute among the
               parties. ETI presents this testimony solely for the purpose of facilitating the Commission's
               resolution of the issues listed above.
          Entergy Texas, Inc.                                                       Page 7 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

     1    A.     No.      As explained by Mr. Dingle, the CGS program is not intended, or

     2           needed, as a means to fulfill ETI's resource needs and the Company

     3           would oppose any effort to place a value on CGS capacity based on an

     4           alleged resource need for the program.              To the contrary, the CGS
     5           program, as I noted above, is designed as a means whereby a limited

     6           class of eligible customers could gain access to an alternative source of

     7           generation apart from that offered by ETI.

     8                    The Entergy system has planned for and acquired, and will

     9          continue to plan for and acquire, short-term, limited-term and long-term

 10             resources needed by ETI to reliably serve its Texas customers. However,

11              if implemented properly and consistent with applicable legal requirements,

12              the CGS program could provide a modest amount of additional capacity

13              for the Entergy System.           As discussed below and in Mr. Dingle's
14              testimony, however, this resource would come with limitations.

15

16                 III.     NON-FUEL EMBEDDED GENERATION COST CREDIT
17       Q.     WHAT IS THE LEVEL OF THE LIPS NON-FUEL EMBEDDED

18              GENERATION          COSTS THAT           WILL   BE     CREDITED TO CGS
19              CUSTOMERS AS PART OF THE CGS PROGRAM?

20       A.     The LIPS non-fuel embedded generation costs derived from the rates

21              recently set by the Commission in ETI's most recent base rate Docket

22             No. 39896 is $6.33 per kW per month. The order approving new rates in

23             Docket No. 39896 became final in mid-December 2012 and the new rates

                                                  ^^
         Entergy Texas, Inc.                                                       Page 8 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     1          relate back to service rendered on and after June 30, 2012. As a result,

     2          the LIPS non-fuel embedded generation costs figure that has been

     3          addressed in prior filings in this docket should be changed from the $6.84

     4          per kW per month that resulted from the prior rates approved in ETI

     5          Docket No. 37744 to the $6.33 per kW per month derived from the more

     6          recent Docket No. 39896. A schedule showing how the $6.33 per kW per

     7          month non-fuel embedded cost figure is derived is attached as my Exhibit

     8          DRR-SD-1. The $6.84 per kW value resulting from Docket No. 37744,

 9              and agreed to by all parties to this docket, was developed by taking the

10              LIPS class non-fuel embedded production cost from the Company's

11              rebuttal cost of service and scaling this value down based on the

12              difference between the LIPS non-fuel total revenue requirement resulting

13             from the settlement in Docket No. 37744 and the LIPS non-fuel total

14             revenue requirement from the Company's rebuttal cost of service. The

15             resulting scaled value was then divided by the LIPS billing demand to

16             develop the LIPS non-fuel embedded production cost on a $/kW basis.

17             This scaling was necessary because the settlement from Docket No.

18             37744 did not identify the functional revenue requirement by rate class. A

19             similar situation exists now as a result of ETI's most recent base rate case

20             (Docket No. 39896) because the Staff's cost of service number running

21             model from Docket No. 38986 also does not identify the functional

22             revenue requirement by rate class.           As shown on my attached Exhibit
23             DRR-SD-1, and its supporting work papers, a similar process was used to
         Entergy Texas, Inc.                                                     Page 9 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     1          develop the non-fuel embedded production cost for the LIPS class for

     2          Docket No. 38986. This change to $6.33 per kW per month should be

     3          made in Section VI.B. of Schedule CGS, which is Exhibit DRR-SD-2 to my

     4          testimony.     As currently written, that section acknowledges that the

     5          $6.84 figure should be updated to the current applicable non-fuel

     6          embedded generation cost figure.

     7

     8   Q.     BY AGREEING THAT $6.33 PER KW PER MONTH SHOULD BE

     9          CREDITED TO CGS CUSTOMERS, IS ETI MAKING ANY CONCESSION

10              REGARDING          THE      DETERMINATION      OF      THE    COMPANY'S
11             "UNRECOVERED COSTS" RESULTING FROM THE CGS PROGRAM?

12       A.    No.     The Interim Order issued by the Commission in this Docket

13             No. 38951 on June 12, 2012 concluded, on an interim basis, that the

14             non-fuel embedded generation costs avoided by the CGS customer are

15             not included within the meaning of the phrase " unrecovered costs" to the

16             Company as that phrase is used in PURA § 39.452(b). I understand that

17             that is the Commission's interim ruling, and my testimony here is limited to

18             identifying the level of the LIPS credit that would be provided to the CGS

19             Customers under the CGS rider. By providing this testimony, ETI is not

20             waiving its right to contest the Commission's ruling as to what is and what

21             is not an " unrecovered cost" under PURA § 39.452(b).

                                                l,Q,
           Entergy Texas, Inc.                                                   Page 10 of 23
           Supplemental Direct Testimony of Dennis R. Roach
           Docket No. 38951

      1          IV.    TIEC'S PROPOSAL TO AVOID UNSERVED ENERGY COSTS
     2     Q.     PLEASE SUMMARIZE THE NATURE AND OBJECTIVES OF THE

     3            UNSERVED ENERGY RATE INCLUDED IN THE CGS PROGRAM.

     4     A.     The unserved energy rate is covered in Section VII of the CGS rider, and

     5            is included in both the Company's (Exhibit No. DRR-SD-2) and TIEC's

     6            proposed riders. ETI charges the CGS Customer under this rate when the

     7            CGS Supplier fails to provide the contracted CGS capacity that is intended

     8            to be made available on a 24/7 basis to serve the CGS Customers.

     9            Charging the unserved energy rate allows ETI to recover the costs of

 10              continuing to serve the CGS Customer when the CGS Supplier fails to

 11              deliver. By implementing an Unserved Energy rate, other customers are

12               protected because they are not then burdened with bearing the cost of the

13               energy that ETI must provide to make up for the lack of CGS supply. This

14               is also why the revenues from the Unserved Energy are credited to ETI's

15               fuel balance-to ensure that other customers are not being harmed when

16               a CGS Supplier fails to deliver its contracted supply.

17

18        Q.     PLEASE EXPLAIN THE SECOND ISSUE THAT YOU ADDRESS: TIEC'S

19               PROPOSAL TO ALLOW A CGS CUSTOMER TO REDUCE ITS LOAD

20               TO MATCH A DECREASE IN DELIVERIES BY THE CGS SUPPLIER,

21              AND THEREBY AVOID UNSERVED ENERGY CHARGES.

22        A.    TIEC's proposed CGS rider, at the end of the first sentence in Section VII,
23              "Unserved Energy," includes the words:            "less any corresponding

                                                  to
          Entergy Texas, Inc.                                                      Page 11 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

      1          reduction in the CGS Customer's electricity usage." I understand this

     2           phrase to mean that a CGS Customer would be allowed to reduce its load

     3           to match a corresponding reduction in its CGS Supplier's deliveries to ETI,

     4           and thereby potentially avoid unserved energy charges.          ETI does noi
     5           agree with TIEC's proposal to allow the CGS Customer to avoid unserved

     6           energy payments in this manner.             Company witness Dingle addresses
     7           certain aspects of this issue in support of ETI's position.

     8                  In addition to Mr. Dingle's points, this proposal by TIEC is

     9          unworkable for a number of reasons related to metering and tracking. If
 10             TIEC's proposal were adopted:

 11                     (1) ETI has no way to know that a reduction in a Customer's load is
 12             for economic reasons, rather than because of a reduction in the

13              Customer's CGS Supplier's supply;

14                     (2) Entergy's System Operations Center real-time system does not
15              meter customers' consumption (CGS or otherwise). Because there is no
16              real-time data as to both the CGS Customers and CGS Suppliers, there is
17              not a reliable method for a CGS Supplier to notify its CGS Customer(s)
18             that it is reducing its supply;

19                     (3) In the situation of one CGS Supplier serving multiple CGS
20             Customers, when the CGS Supplier reduces its supply, there is no method
21             for prioritizing the reduction to the multiple Customers, and therefore no
22             method for determining which CGS Customer should avoid unserved
23             energy charges or the level of required reduction; and

                                                 i^
          Entergy Texas, Inc.                                                    Page 12 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

      1                  (4) In the reverse situation-one CGS Customer with multiple CGS

     2           Suppliers-all hierarchy rules as to CGS and non-CGS supplies from the

     3           Supplier are set by the Supplier, and ETI has no way of knowing how to

     4           allocate the reduction in the Customer's load to multiple CGS Suppliers.

     5           As a consequence of these various uncertainties, there is no way to

     6           reliably match a CGS supply reduction to a CGS customer load reduction.

     7                  In addition to the metering and tracking-related implications that I

     8          just described, Mr. Dingle also notes that the CGS program is intended to

     9          result in a 24/7 firm product, and the 80% capacity factor built in to the

 10             CGS program is intended to cover potential unavoidable reductions in

 11             CGS Supplier deliveries to ETI. If the CGS Customer is also allowed to

12              reduce its load to offset any reduction in CGS supply, the "firmness" of the

13              CGS program, and the very basis for treating the CGS Supplier's

14              deliveries as firm capacity, is compromised. If the CGS program in fact

15              results in a non-firm capacity product from a CGS Supplier, then the

16              Entergy Operating Committee may well determine that it cannot treat that

17              CGS Supplier's CGS capacity as firm and will thereby need to plan to

18              serve that Supplier's CGS Customer(s) with Entergy System capacity,

19              rather than CGS capacity, thus nullifying the core intent of the program as

20             to that Supplier and its CGS Customers.

21                     As noted, ETI must stand ready to serve the CGS Customer

22             regardless of what the CGS Supplier delivers to ETI. The solution to

23             TIEC's issue is for the CGS Customer and its CGS Supplier to agree to

                                                   I„-5-
         Entergy Texas, Inc.                                                      Page 13 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     1          provisions in their separate contract that would account for the Supplier

     2          reducing its deliveries. The Commission should reject TIEC's unworkable

     3          proposal to allow a CGS customer to match a reduction in CGS supply to

     4          a corresponding reduction in the Customer's load

     5

     6         V.  TIEC'S PROPOSED RIDER CGSC DOES NOT ALLOW ETI TO
     7        RECOVER ITS CGS IMPLEMENATION AND ADMINISTRATION COSTS
     8   Q.     PLEASE ADDRESS ETI'S CONCERNS WITH TIEC'S PROPOSED

 9              RIDER SCHEDULE CGSC.

10       A.     Rider CGSC establishes the formula and method by which ETI would

11              recover its costs of implementing and administering the CGS program.

12             TIEC's version and ETI's version of Rider CGSC are very different. ETI's

13             version is attached as my Exhibit DRR-SD-3. TIEC's version is attached

14             to its November 27, 2012 Motion filed in this docket.

15                     TIEC's Rider CGSC fails to carry out the requirement of PURA

16             § 39.452(b) that ETI incur no "unrecovered costs" in connection with the

17             CGS program. TIEC's proposal erroneously:

18                 •   eliminates virtually all recovery of implementation costs prior to the
19                     date the Commission approves the program (save for a small
20                     amount included in ETI's most recently established base rates)
21                     (TIEC CGSC Rider Sections II, IV, and V);
22                 •   makes no provision for ETI recovery of implementation costs to the
23                     extent there are no CGS subscribers;

                                                   /I/
          Entergy Texas, Inc.                                                        Page 14 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

     1                 •    makes no provision for recovery of interest to address the time
     2                      value of money in connection with delay in cost recovery under the
     3                      rider;
     4                 •    applies revenues from the Unserved Energy rate, without
     5                      reservation,   to reduce the recovery of implementation and
     6                      administrative costs (TIEC Rider CGSC, Attachment A).            The
     7                      parties have previously agreed that revenues only from the variable
     8                      O&M portion of the Unserved Energy rate are to be used to reduce
     9                      unrecovered costs. The parties have further previously agreed that
 10                         other revenues from the Unserved Energy rate are to be used to
 11                         reduce reconcilable fuel costs;
 12                    •    applies revenues from the Fixed Cost Contribution Fee to offset
 13                         and reduce the recovery of CGS program implementation and
 14                         administrative costs. (TIEC Rider CGSC, Attachment A).
 15
16       Q.     WHAT IS ETI'S POSITION WITH REGARD TO CGSC COSTS
17              INCURRED PRIOR TO THE DATE THE COMMISSION APPROVES THE
18              CGS PROGRAM?
19       A.     For purposes of the current CGS proposal, ETI has been incurring costs to
20              implement this CGS program since 2009 when it proposed the basis for
21              the current CGS proposal in its base rate case filing in Docket No. 37744.
22             The current Docket No. 38951 was severed from Docket No. 37744 and
23             has proceeded since then to result in the CGS riders now at issue before
24             the Commission.         ETI will continue to incur those implementation costs
25             until       the   program   commences,         and then will incur costs to
26             administer/operate the program once the Commission issues its order

27             directing ETI to proceed with the program.            ETI should recover these

                                                      (?
         Entergy Texas, Inc.                                                     Page 15 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     1          costs-including historical, current, and future implementation costs-as

     2          well as administering the CGS program once it is approved.

     3                  Specifically,   ETI    proposes that its initial annual program

     4          implementation and operation costs be established at a level of $940,500,

     5          as addressed in Company witness Phillip May's testimony filed in ETI

 6              Docket No. 37744 filed on December 30, 2009, Exhibit PRM-1. However,

 7              to show the Rider CGSC calculation for illustrative purposes, ETI is

 8              deducting $310,746 from the $940,500.          This illustration is shown on

 9              Attachment A to Rider CGSC (Exhibit DRR-SD-3). The $310,746 is the

10              amount of affiliate-related costs charged to the CGS Project Code during

11              the Docket No. 39896 test year, and now included in ETI's current base

12              rates as a result of the Commission's order in that case. Thus, ETI is not

13             double recovering these CGSC-related costs through both current base

14             rates    and     ETI's   proposed    Rider   CGSC.    As also shown on
15             Exhibit DRR-SD-3, ETI has also deducted an assumed (for illustrative

16             purposes) $20,000 attributable to the "Rider CGSC Unserved Energy

17             Variable O&M Charge," for a total Rider CGSC Recovery Amount of

18             $619,254.      To derive the Rider CGSC rate for the following year, the

19             CGSC Recovery Amount would be divided by the CGS or LIPS class kW

20             for the prior year. This initial Rider CGSC rate would be proposed some

21             months after the Commission approves a CGS Program, but ETI cannot

22             identify precisely when that filing would be made until it has a Commission

23             order in hand.

                                                    17
          Entergy Texas, Inc.                                                    Page 16 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

     1    Q.     WHAT IS ETI'S POSITION WITH REGARD TO TIEC'S "INCREMENTAL"

     2           COST RECOVERY PROPOSAL?

     3 A. In Section II of its version of the CGSC rider, TIEC defines "incremental"

     4           costs as reasonable and necessary costs incurred by ETI "following" the

     5           Commission's approval of the CGS Program.          Through this definition,
 6               TIEC is proposing that ETI not recover any of its implementation costs

 7               incurred prior to the date the Commission approves the CGS Program.

 8               ETI disagrees with that position because it would result in ETI not

 9              recovering those unrecovered costs, contrary to PURA § 39.452.

10

11       Q.     SHOULD RIDER CGSC ACCOUNT FOR A POTENTIAL SITUATION IN
12              WHICH THERE ARE NO CGS SUBSCRIBERS?

13       A.     Yes.   TIEC's proposed Rider CGSC does not account for this potential
14              situation. In that situation, ETI will, nevertheless, have incurred costs to

15              implement the program even if no Customers subscribe. These would be

16              "unrecovered" implementation and administrative costs, which ETI is

17              entitled to recover in accordance with PURA § 39.452, as is provided for in

18              ETI's proposed Rider CGSC. ETI's proposal is that, if there are no CGS

19             subscribers, these costs would be recovered from all customers taking
20             service under Rate Schedules LIPS and LIPS Time-of-Day.

                                                      i^
               Entergy Texas, Inc.                                                                Page 17 of 23
               Supplemental Direct Testimony of Dennis R. Roach
               Docket No. 38951

      1        Q.        SHOULD ETI RECOVER INTEREST ON THE FUNDS ITS EXPENDS TO

     2                   IMPLEMENT AND ADMINISTER THE CGS PROGROM PRIOR TO

     3                  RECOVERING THOSE COSTS THROUGH RIDER CGSC?

     4        A.        Yes.    As noted above, there is a time value of money associated with

     5                  ETI's expenditures between the time those expenditures are made and

     6                  when they are actually recovered through Rider CGSC. ETI's proposed

     7                  Rider CGSC, therefore, includes a cumulative interest line item to account

     8                  for this value.4

     9

 10           Q.        SHOULD ALL REVENUES RECEIVED BY ETI UNDER THE UNSERVED

 11                     ENERGY RATE PROVISION BE USED TO REDUCE THE RIDER CGSC
12                      COSTS?

13            A.        No. The parties have agreed that the structure of the rate for Unserved

14                     Energy will include an agreed energy charge and an agreed Operation

15                     and Maintenance (O&M) adder.              The monthly CGS Unserved Energy
16                     charge will be the sum of (a) hourly Unserved Energy times 105% of the
17                     system hourly avoided energy costs for ETI for the current month and
18                     (b) the hourly CGS Unserved Energy times specified variable O&M
19                     charges. This agreement is memorialized in both the "Agreed List of
20                     Settled Issues" filed in Docket No. 38951 on November 1, 2011 at page 2,
21                     Paragraph C. and in the "CGS Stipulated Matters and Stipulated Facts"

          °        TIEC deleted any reference to interest in the body of Rider CGSC, though it did leave a
                   reference to "cumulative interest" in Attachment A to its proposed rider. Thus, the intent
                   regarding the treatment of interest is not clear.
             Entergy Texas, Inc.                                                                Page 18 of 23
             Supplemental Direct Testimony of Dennis R. Roach
             Docket No. 38951

     1                 filed in this docket on January 20, 2012 at pages 2-3. The document

 2                     provides that revenues from the variable O&M portion of the Unserved

 3                     Energy rate will be used to offset unrecovered costs.5 But that stipulation

 4                     also provides that the revenues from the portion of the rate that is based

 5                     on system avoided energy charges will go towards offsetting ETI's eligible

 6                     fuel costs.6 Thus, to maintain consistency with the parties' agreement, not

 7                     all revenues from the Unserved Energy rate are used to offset the CGSC

 8                     costs-only revenues the variable O&M charges are used for that

 9                     purpose, and is necessary to help prevent other non-participating

10                    customers from subsidizing the CGS Program.

11

12                                   VI.    FIXED COST CONTRIBUTION FEE
13           Q.       WHAT IS THE "FIXED COST CONTRIBUTION FEE"?

14       A.           This fee is a fixed dollar per kW charge paid on a monthly basis to ETI by

15                    a CGS customer as part of the compensation ETI receives to provide CGS

16                    service. This fee is referenced in Section VI of the CGS rider proposed by

17                    both TIEC and ETI.

                  This may be a typographical error. It is possible that TIEC intended to reference variable
                  O&M revenue only from the unserved energy rate as being used to reduce the unrecovered
                  implementation and administrative costs. See "CGS Stipulated Matters and Stipulated Facts"
                  at page 3, Item F.5.
         6        See CGS Stipulated Matters and Stipulated Facts at page. 3, Item and F.6. To reduce
                  remaining controversy among the parties, ETI has conformed its rider to TIEC's proposal to
                  use the variable O&M revenue to offset CGS implementation and administration costs.
         Entergy Texas, Inc.                                                                   Page 19 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

 1       Q.        WHAT IS TIEC'S PROPOSAL REGARDING THE USE OF THE FIXED

 2                 CONTRIBUTION FEE?

 3 A. In Section VI.A. of its proposed CGS rider, TIEC proposes that "Revenues

 4                 received from this fee will reduce ETI's Rate Schedule CGSC charges."

 5

 6   Q.            WHY SHOULD THE $1.10 per kW FIXED COST CONTRIBUTION FEE

 7                 NOT BE USED TO REDUCE RIDER CGSC COSTS?

 8   A.           As recognized by TIEC, the Office of Public Utility Counsel (OPUC), and

 9                the Cities in this docket, the $1.10 per kW Fixed Cost Contribution Fee is

10                 intended to compensate ETI for standing ready to serve the CGS

11                Customer.' This $1.10 fee was intended to offset unrecovered production

12                costs, not unrecovered implementation and administration costs.                      This
13                point is addressed in the "Agreed List of Settled Issues" filed in this docket

     '         The citations to TIEC's OPUC's, and the Cities' testimony on this point are: Direct Testimony
               of TIEC witness Jeffry Pollock at page 16, lines 3-11: "The costs of backup power will be
               paid for by CGS Customers through the Unserved Energy Rate and a Fixed Cost
               Contribution Fee referenced in the Stipulation. Unserved Energy will be priced at 105% of
               avoided energy cost plus an O&M Adder. This is similar to how ETI currently prices backup
               power in Schedule SMS. In addition, the CGS Customer will be required to pay a Fixed Cost
               Contribution Fee of $1.10 per kW-Month of CGS Contract Capacity. The Unserved Energy
               pricing mechanism ensures that CGS Customers pay all of the incremental variable costs
              associated with back-up power plus a contribution to generation fixed costs." (Feb. 10, 2012)
              Supplemental Rebuttal Testimony of TIEC witness Jeffry Pollock at page 12, lines 7-9: "ETI
              will incur production costs (capacity, O&M, fuel) only to provide backup power, which is
              covered through the Unserved Energy rate and the Fixed." (Feb. 24, 2012). Supplemental
              Direct Testimony of OPUC witness Clarence Johnson at page 11, lines 16-18: "ETI must
              maintain generating capacity to serve CGS load when the associated cogeneration is not
              providing output. The CGS customers pay a$1:10 per month fixed charge in recognition of
              that fact." (Feb. 10, 2012). Supplemental Direct Testimony of Cities witness Karl Nalepa at
              page 10, lines 14-17: "Over time, the only production costs that would be incurred by ETI for
              providing firm production service to CGS customers should be recovered through the CGS
              fixed cost contribution and revenues generated from the variable O&M unserved energy rate.
              If not, the fixed cost contribution and unserved energy rate should be adjusted so that the
              CGS customer is responsible for any production costs that it causes to be incurred." (Feb. 10,
              2012).

                                                     ^^
             Entergy Texas, Inc.                                                     Page 20 of 23
             Supplemental Direct Testimony of Dennis R. Roach
             Docket No. 38951

     1              on November 1, 2011, which, at page 3, Section G, states: "Certain

 2                  revenues from the Unserved Energy Rate, and all revenues from the

 3                  Fixed Cost Contribution, will be applied as an offset to any production

 4                  costs unrecovered as a result of the implementation of the CGS tariff."

 5                  (Emphasis added.)       ETI's position on this point is further bolstered by

-6                  Cities acknowledgment that the Fixed Cost Contribution Fee was intended

 7                  to offset embedded production costs: "Even though ETI alleges that the

 8                  unrecovered costs would be the full amount of LIPS production cost

 9                  revenues of $6.84/kW/month, ETI would reduce (or offset) that amount by

10                 the fixed cost contribution fee and the variable O&M unserved energy

11                 revenues."8 Thus, the $1.10 charge was intended to offset "production"

12                 costs, not the implementation and administration costs covered by Rider

13                 CGSC. As indicated by TIEC, OPUC, and the Cities, the $1.10 charge is

14                 necessary to compensate ETI for standing ready to serve the CGS

15                 Customers and, therefore, should be retained by ETI rather than being

16                 credited back to the customers who paid that monthly charge. The $1.10

17                 charge cannot be used to recover both implementation costs and also

18                 compensate ETI for standing ready to serve CGS customers.

         8     Karl Nalepa Supplemental Direct Testimony at page 11, lines 19-22 (Feb. 10, 2012)
               ( Emphasis added).

                                                     ^j
          Entergy Texas, Inc.                                                  Page 21 of 23
          Supplemental Direct Testimony of Dennis R. Roach
          Docket No. 38951

      1                 VII.   RIDER CGS, RIDER CGSC,
     2    Q.     DO YOU SPONSOR THE RIDERS CGS, CGSC,

     3           ATTACHED AS EXHIBITS TO YOUR TESTIMONY?

     4    A.     Yes.      I sponsor those three Riders, as well as the appendices and

     5           attachments to those Riders.

     6

     7    Q.     PLEASE BRIEFLY DESCRIBE EACH OF THESE RIDERS.

     8    A.    Rider CGS is the schedule that sets out the CGS program. It is attached

     9          as my Exhibit DRR-SD-2. Rider CGS addresses: the availability of CGS
 10             service; who is eligible for this service; how CGS service is initiated;

 11             tracking certifications; termination events and rights; billing; unserved
 12             energy; metering; and reporting requirements.    Rider CGS also includes
 13             an "Appendix A," which sets out the general terms and conditions that
14              would apply to an ETI-Supplier Contract. ETI had intended that a form of
15              the ETI-Supplier Contract would have been developed and filed with these
16              Riders, but ETI and TIEC were unable to agree to such a form contract.
17                       I have generally described Rider CGSC above.        This Rider,
18             attached as Exhibit DRR-SD-3, sets out the recovery of ETI's CGS
19             implementation and administration costs.         This Rider includes an
20             "Attachment A" that sets out the proposed CGSC rate for illustrative
21             purposes.       The Company's intention would be to file a revised Rider
22             CGSC when the costs of developing and administering the ultimate CGS
23             program are known.

                                                -^ Y
         Entergy Texas, Inc.                                                     Page 22 of 23
         Supplemental Direct Testimony of Dennis R. Roach
         Docket No. 38951

     I

     2

     3

     4

     5

     6

     7

 8

 9

10

11

12

13       Q.    DO YOU SPONSOR ANY OTHER EXHIBITS?

14       A.    Yes.      For illustrative purposes, I have included two additional exhibits.

15             Exhibit DRR-SD-5 is a redline comparison of ETI's proposed Rider CGS to

16             TIEC's proposed Rider CGS filed with its November 27 motion.

17             Exhibit DRR-SD-6 is a redline comparison of ETI's proposed Rider CGSC

18             to TIEC's proposed Rider CGSC. These two exhibits are presented to

19             better assist the Commission in understanding, and seeing, the

20             differences between ETI's and TIEC's respective proposals for these two

21             Riders.

                                                 as
    Entergy Texas, Inc.                                    Page 23 of 23
    Supplemental Direct Testimony of Dennis R. Roach
    Docket No. 38951

                                     VIII.    CONCLUSION
2   Q.     DOES THIS CONCLUDE YOUR SUPPLEMENTAL DIRECT

3          TESTIMONY?

4   A.     Yes, at this time.

                                             a^X
                                                              Docket No. 38951
                                                            Entergy CGS Tariff
                                                          ETI EXHIBIT NO. 103

                       DOCKET NO:: :3$951" 5 r `

                                2013 FEB -I PM 2: 53
APPLICATION OF ENTERGY                       BEFORE THE
TEXAS, INC. FOR APPROVAL OF
COMPETITIVE GENERATION         §    PUBLIC UTILITY COMMISSION
SERVICE TARIFF (ISSUES SEVERED §
FROM DOCKET NO. 37744)         §              OF TEXAS

              SUPPLEMENTAL REBUTTAL TESTIMONY

                               OF

                        DENNIS R. ROACH

                         ON BEHALF OF

                      ENTERGY TEXAS, INC.

                        FEBRUARY 1, 2013

                                                                                 /7 i
                      ENTERGY TEXAS, INC.
       SUPPLEMENTAL REBUTTAL TESTIMONY OF DENNIS R. ROACH
                        DOCKET NO. 38951

                           TABLE OF CONTENTS

                                                                  Page

1.     Introduction                                                  1

II.    Response to TIEC                                              1

III.   Response to Staff                                            11

IV.    Response to OPUC                                             12

V.     Response To WAL-MART/SAM'S CLUB                              17

VI.    Conclusion                                                   17

                                  EXHIBITS

 Exhibit DRR-SR-1      TIEC Response to ETI RFI's

 Exhibit DRR-SR-2      ETI Response to TIEC RFI 4-4 Subpart (a)
                                                                                          Page 1 of 17
     Entergy Texas, Inc.
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1                                           I.    INTRODUCTION

2    Q.      PLEASE STATE YOUR NAME, BUSINESS ADDRESS, EMPLOYER AND

3            JOB TITLE.

4    A.      My name is Dennis R. Roach. My business address is 425 West Capitol,

5            Little Rock, Arkansas 72201. I am employed by Entergy Services, Inc.

6            (ESI)' as Manager Regulatory Strategy.

7

8    Q.      ARE YOU THE DENNIS ROACH WHO FILED SUPPLEMENTAL DIRECT

 9            TESTIMONY IN THIS DOCKET ON JANUARY 11, 2013?

10   A.       Yes.

11

12                                    II.        RESPONSE TO TIEC

13    Q.      ON PAGE 9 OF HIS SECOND SUPPLEMENTAL DIRECT TESTIMONY,

14            TIEC WITNESS JEFFRY POLLOCK STATES THAT "TIEC'S PROPOSED

15            [CGS] TARIFF COMPORTS WITH THE PARAMETERS OF THE CGS

16            PROGRAM AS DISCUSSED IN THE PRIOR STIPULATIONS AND IN

17            THE INTERIM ORDER, AND IT PROVIDES A WORKABLE PROCESS

18            FOR INITIATING CGS SERVICE." HOW DO YOU RESPOND?

19    A.      While I agree that ETI and TIEC (along with the Staff and other parties)

20             have made significant progress in resolving many contentious and

21             complex issues, TIEC's version of Rider CGS does not comply with the

      '    ESI is a subsidiary of Entergy Corporation that provides technical and administrative services
           to all the Entergy Operating Companies.

                                                     5
     Entergy Texas, Inc.                                                   Page 2 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1           final sentence in PURA § 39.452(b) because it would be contrary to "an

2           applicable decision, rule or policy statement of a federal regulatory

3           authority having jurisdiction" (that is, the Federal Energy Regulatory

4           Commission) as discussed by Company witness Dingle. In addition,

5           TIEC's version of Rider CGS should be rejected for the reasons discussed

6            in Mr. Dingle's Supplemental Direct and Second Supplemental Rebuttal

7            Testimony, as well as my Supplemental Direct and this Supplemental

 8           Rebuttal Testimony.

 9

10   Q.      ON PAGES 25-26 OF HIS SECOND SUPPLEMENTAL DIRECT

11           TESTIMONY, MR. POLLOCK ASSERTS THAT THE RIDER CGSC

12           (IMPLEMENTATION           AND ONGOING ADMINISTRATION COSTS)

13           SHOULD APPLY TO COSTS INCURRED ONLY AFTER THAT RIDER IS

14           APPROVED AND THAT ETI IS ALREADY RECOVERING LEGAL AND

15           REGULATORY COSTS RELATED TO THE CGS PROGRAM THROUGH

16           ETI'S BASE RATES. HOW DO YOU RESPOND?

17    A.     ETI is and has been incurring costs to implement the CGS Program since

18           prior to November 10, 2010, which is the date the PUCT severed the CGS

19           Program from Docket No. 37744 to establish this docket. ETI, however, is

20           requesting recovery of its implementation costs only from that November

21            10, 2010 date forward.       There is no way that ETI could put the CGS

22            Program into effect without incurring these implementation costs:      we

23           would not have a proposed tariff, much less completed all of the drafts,

                                                4
     Entergy Texas, Inc.                                                                 Page 3 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1           analyses, and discussions necessary to work through the myriad complex

2            issues that have brought us just to this point. In addition, TIEC's assumed

3            recovery via base rates in Docket No. 39896 did not begin until June

4            2012, which is long after costs started being incurred. There is no doubt

5            that, under TIEC's approach, these implementation costs would go

6            "unrecovered" if ETI were not allowed to collect them. My understanding

 7           is that the PUCT has concluded, on an interim basis, that "unrecovered

 8           costs" are the "costs to implement and administer the CGS program tariff."

 9           (Interim Order at page 6.) TIEC's approach would allow only recovery of

10           the costs of administering the tariff.

11                   As to Mr. Pollock's second point, yes, there is an amount

12           attributable to ETI's work on the CGS Program that was used to set

13           current base rates. But ETI is proposing, in its Rider CGSC, to credit the

14           amount used to set current retail base rates ($299,372)2 to the ultimate

15           Rider CGSC rate. For a further discussion about what was included in the

16           setting of base rates and if it is determined that something else should be

17           done, how to avoid rate class subsidy issues, please refer to Section IV of

18           this testimony below where I respond to OPUC's testimony on this issue.

19

      2 ETI's Rider CGSC should have only credited the retail portion included in base rates of
         $299,372 because that is the level authorized for recovery in current retail rates and not the
         full $310,746. The difference between the two figures is the amount allocated to the
         wholesale class.

                                                  );5
     Entergy Texas, Inc.                                                      Page 4 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1    Q.     ON PAGE 26, MR. POLLOCK CONTENDS THAT THE $1.10 FIXED

2           COST CONTRIBUTION FEE SHOULD BE USED TO REDUCE THE

3           "UNRECOVERED COSTS," THAT IS, THE COSTS TO BE COLLECTED

4           THROUGH RIDER CGSC. DO YOU AGREE?

5    A.     No. I addressed this point in some detail in my Supplemental Direct

6           Testimony.      Mr. Pollock is correct if the PUCT had concluded that

 7          "unrecovered costs" included ETI's unrecovered embedded production

 8          costs, but it did not. The fixed cost contribution fee is necessary for ETI

 9           standing ready to provide service to the CGS Customer regardless of

10          whether the Customer's CGS Supplier delivers its contracted supply to

11           ETI. ETI should be allowed to retain this fee in order to at least contribute

12           to, if not cover, the incremental cost incurred by the Company to stand by

13           to serve this load. Staff witness Mendoza came to this same conclusion in

14           his January 25, 2013 testimony by referring to the Agreed List of Settled

15           Issues that state that the Fixed Cost Contribution Fee "will be applied to

16           offset any production costs unrecovered as a result of the implementation

17           of the CGS tariff."3

18

19   Q.      ON PAGE 27, MR. POLLOCK STATES THAT IT IS PREMATURE TO

20           ADDESS HOW ETI WOULD RECOVER ITS RIDER CGSC COSTS IF

21           THERE ARE NO CGS CUSTOMERS. HE STATES THAT IT WOULD BE

22           SPECULATIVE TO ASSERT THAT THERE WOULD BE ZERO

     3 Docket No. 38951, Mendoza Direct Testimony at 11.

                                                  (-Lo
     Entergy Texas, Inc.                                                        Page 5 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1             PARTICIPATION AND, EVEN IF THERE WERE NO PARTICIPANTS,

2             THE COSTS WOULD BE DI MINIMIS. HOW DO YOU RESPOND?

3    A.       This is another situation in which TIEC is attempting to put off an important

4             and real issue, and thereby place at risk ETI's ability to recover these

5             costs. Once again, TIEC has responded to an ETI request for information

6             that it does not keep records of which of its members have even

 7            expressed an interest in the CGS Program-TIEC cannot name even one

 8            of its members (also ETI customers and/or Qualifying Facilities "QFs")

 9            who are interested.    My attached Exhibit DRR-SR-1 is a copy of TIEC's

10            responses on this point.     Staff witness Mendoza has agreed with ETI's

11            proposal and that "In the event no customers subscribe to the CGS

12            program, any unrecovered costs should be borne by the customer class it

13            was designed to potentially benefit."4 Further, the costs incurred by ETI to

14             implement the CGS Program to date are $945,100 for the period

15             December 2010 through November 2012, which the Company reported to

16            TIEC in response to TIEC 4-4 subpart (a). This response is attached as

17             my Exhibit DRR-SR-2. This value is certainly not di minimis. There is no

18             valid reason to not address this issue now as an important component of

19             the CGS Program.

20

     4 Id. at 9.
     Entergy Texas, Inc.                                                        Page 6 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1    Q.     ON THE SAME PAGE, MR. POLLOCK ALSO ASSERTS THAT ETI

2           SHOULD       NOT     ACCRUE        INTEREST    ON THE UNRECOVERED

3           BALANCE OF THE RIDER CGSC CHARGES. DO YOU AGREE?

4    A.     No.    Mr. Pollock analogizes this requested interest recovery to what he

5           refers to as the typical practice regarding rate case expenses.      This is not

6           a "typical" case; it is instead a case subject to a specific statutory provision

 7          that applies only to a CGS Program for ETI. Rider CGSC would recover

 8          the costs that ETI incurs to implement and administer the CGS Program,

 9          which the PUCT has ruled, on an interim basis, that ETI is entitled to

10           recover. There is a time value of money associated with the unrecovered

11           balance of CGSC costs, due to the delay in their recovery, which is

12           addressed by allowing ETI to recover interest on this unrecovered

13           balance. Otherwise, ETI will not be recovering the full amount of these

14           unrecovered costs.

15

16   Q.      ON PAGE 15 AND PRIMARILY PAGES 27 THROUGH 29, MR.

17           POLLOCK        ARGUES         THAT      THE   PROVISION        ADDRESSING

18           "UNSERVED ENERGY" SHOULD INCLUDE A PROVISION THAT

19           ALLOWS A CGS CUSTOMER TO REDUCE ITS LOAD TO MATCH A

20           REDUCTION IN CGS SUPPLIERS TO ETI BY THE CGS SUPPLIER. DO

21           YOU AGREE?

22   A.      No.    Mr. Pollock asserts a number of points in an attempt to support

23           TIEC's request to include this " reduce load to match reduced supplies"
     Entergy Texas, Inc.                                                      Page 7 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1           provision. I also addressed this at some length in my Supplemental Direct

2           Testimony, as did Mr. Dingle. The fundamental bottom line is that TIEC's

3           proposal ignores the 24/7 Unit Contingent nature of the CGS product, to

4           which TIEC has agreed.

 5                    In addition, as described in Mr. Dingle's Second Supplemental

 6           Rebuttal Testimony, the Entergy system would purchase the CGS Supply

 7          to satisfy system load. There is no direct link between the CGS Supply

 8           and the CGS Customer load as implied by TIEC. TIEC attempts to make

 9          this connection between CGS Supply and the CGS Customer in order to

10           equate the simultaneous reduction in CGS Supply and CGS Customer

11           load to the simultaneous reduction in host load and host generation

12           associated with the provision of standby service to customer host

13           generation.    These two situations are drastically different as I explain

14           below.

15                    Under Standby service for host generation, Entergy (and ETI) is not

16           purchasing the host generation, rather it is satisfying host load and any

17           excess in generation may or may not be "put" to the Company in the form

18           of a QF put. The simultaneous reduction in load and generation happens

19           with a singular customer at a single location, and the Company in all

20           likelihood does not even know, or need to know, that this has occurred.

21           On the other hand, for the CGS Program, the CGS Supplier must have

22           obtained firm transmission service, committed to supply a 24/7 unit

23           contingent product to the Entergy transmission grid as described by Mr.

                                                 q
     Entergy Texas, Inc.                                                     Page 8 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

1           Dingle, and agreed that        CGS Supply is being provided to serve the

2           Entergy System load, rather than a specific CGS Customer. If this CGS

3           Supply is suddenly no longer available, Entergy and its other customers

4           will incur a cost to 1) replace this energy source and 2) plan for and

 5          provide standby service whether or not a customer's load (CGS or

 6          otherwise) coincidentally is reduced.

 7

 8   Q      ON PAGE 28, MR. POLLOCK SUGGESTS THAT THE CGS CUSTOMER

 9          WILL HAVE INTERVAL DATA RECORDING METERING IN PLACE SO

10           ETI   SHOULD BE ABLE TO               TELL WHEN THE CUSTOMER IS

11           REDUCING LOAD IN ORDER TO MATCH THE CGS SUPPLY

12           REDUCTION.          DOES THIS STATEMENT FULLY ADDRESS THE

13           BILLING ISSUES ASSOCIATED WITH TIEC'S PROPOSAL?

14   A.      No.   This statement makes a rather broad conclusion about "matching"

15           that does not address the events that are likely to occur in the real world

16           but instead raises numerous unanswered questions. First, what is the

17           Company supposed to consider for billing if the MW's do not match?

18           Meaning, what if the CGS Supply was reduced by 1,500 kW between two

19           30 minute intervals, but the CGS Customer's load only reduced by 1,000

20           kW.    Is the Company to assume that the supply reduction and load

21           reduction have "matched" or is the Company supposed to bill unserved

22           energy for the difference between 1,500 and 1,000?

                                                    lC)
     Entergy Texas, Inc.                                                      Page 9 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1                    Second, what is the Company supposed to consider for billing if the

2           timing doesn't match? If the CGS supply was reduced in one interval but

3           the reduction in CGS Customer load did not occur until two hours later,

4           what is the Company to assume for billing unserved energy under TIEC's

 5          proposal? Is the Company supposed to bill unserved energy for the

 6          intervening two hours?

 7                    Third, what is the Company to assume if either the supply reduction

 8          or the load reduction is not constant or consistent across intervals? For

 9          example, is the Company to charge for unserved energy if the load

10          reduction is a constant 5,000 kW across all hours but the supply reduction

11           is 5,000 kW for half of the hours but 5,100 kW for the other half of the

12           hours.

13                    Fourth, the CGS Program is further complicated by the potential for

14           a CGS Supplier to enter into CGS agreements with multiple CGS

15           Customers.      As discussed in my Supplemental Direct Testimony in the

16           situation of one CGS Supplier has entered into a CGS agreement with

17           multiple CGS Customers, when the CGS Supplier reduces its supply,

18           there is no method for prioritizing the reduction to the multiple Customers,

19           and therefore no method for determining which CGS Customer should

20           avoid unserved energy charges or the level of required reduction. For

21           example, if the CGS Supply was reduced by 10,000 kW and CGS

22           Customer-1 reduced its load by 4,500 kW and CGS Customer-2 reduced
     Entergy Texas, Inc.                                                      Page 10 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          its load 3,000 kW, the Company does not know which CGS Customer(s) is

 2          supposed to billed unserved energy and in what quantities.

 3                  Fifth, the Company has no way to determine whether a CGS

4           Customer's reduction in load truly had to do with a reduction in CGS

 5          Supply or a reduction in load for economic reasons. For example, assume

 6          again as in my fourth point immediately above that a single CGS Supplier

 7          that has contracted with two separate CGS Suppliers. Assume the CGS

 8          Customer-2 reduction in load was for economic reasons associated with

 9          the sale of its own product.         Further assume that the CGS Supplier

10          actually never requested CGS Customer-2 to reduce its load, but instead

11          requested that CGS-Customer-1 undertake the full reduction. Under this

12          set of assumptions, CGS Customer-1 should pay unserved energy for the

13          full difference between 10,000 kW and 4,500 kW. From ETI's billing

14           perspective, however, the Company has the exact same metering data

15           under both scenarios (fourth point versus this fifth point) but has no way to

16          discern that difference.

17                  Finally, these issues are not mutually exclusive. For example, the

18           circumstance could be similar to the fifth point above, while at the same

19          time, the timing of the reductions does not match (second point above)

20           and the kW values do not match (first point above).

21

                                                 t-Z^
     Entergy Texas, Inc.                                                       Page 11 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1                                III.     RESPONSE TO STAFF

2    Q.     ON PAGE 6 OF HIS DIRECT TESTIMONY, STAFF WITNESS STEPHEN

 3          J. MENDOSA STATES THAT THE CGS PROGRAM HAS NOT YET

4           BEEN IMPLEMENTED AND THEREFORE, ETI SHOULD NOT BE

 5          ALLOWED          TO          RETROACTIVELY       RECOVER      ANY      COSTS

 6          ASSOCIATED WITH THE IMPLEMENTATION OF THE CGS PROGRAM.

 7          ON A RELATED POINT, ON PAGE 7, MR. MENDOZA STATES THAT

 8           ETI SHOULD NOT BE ALLOWED TO RETROACTIVELY RECOVER

 9          COSTS ABOVE THE LEVEL CURRENTLY REFLECTED IN BASE

10           RATES. IS THE RECOVERY OF CGS COSTS SUBJECT TO

11          TRADITIONAL TEST YEAR RATE MAKING?

12   A.      No. The recovery of CGS implementation cost is subject to the specific

13           provisions in PURA §39.452(b), which states in part:

14                  The tariffs subject to this subsection may not be considered
15                  to offer a discounted rate or rates under Section 36.007, and
16                  [ETI's] rates shall be set, in the proceeding in which the tariff
17                  is adopted, to recover any costs unrecovered as a result of
18                  the implementation of the tariff.
19
20                  A common definition of the word " implement" is to "CARRY OUT,

21           ACCOMPLISH; esp : to give practical effect to and ensure actual

22           fulfillment by concrete measures...."5 Substituting the definitional phrase

23           into the statutory word "implementation" results in: "...to recover any costs

24           unrecovered as a result of giving practical effect to and ensuring actual

25           fulfillment by concrete measures of the tariff." ETI cannot give "practical

     5 MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 582 (101h ed. 2002).
     Entergy Texas, Inc.                                                       Page 12 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          effect to and ensure actual fulfillment by concrete measures" (or "carry

 2          out" or "accomplish") the CGS tariff without undertaking all of the work that

 3          has gone into this docket. Thus, ETI is incurring, and has incurred, costs

4           to implement the CGS tariff; by statute, it is entitled to recover those costs.

 5                  Further, there is no timeframe qualifier on this provision.        The

 6          Company is allowed to recover any costs unrecovered as a result of the

 7          implementation of the CGS tariff no matter when those costs are incurred;

 8          there is, therefore, no consideration, much less prohibition, against

 9          recovering costs incurred back to November 10, 2010.

10

11   Q.     ON PAGE 8, STAFF WITNESS MENDOZA STATES THE AMOUNT

12          CURRENTLY RECOVERED IN BASE RATES ASSOCIATED WITH THE

13          CGS PROGRAM GOES AGAINST COST CAUSATION PRINCIPLES

14          WHEREBY COSTS ARE ALLOCATED TO THOSE CUSTOMERS

15          CAUSING THE COST TO BE INCURRED. PLEASE COMMENT.

16   A.     The Office of Public Utility Counsel ("OPUC") makes a similar argument. I

17          will address the topic of the amount included in base rates and cost

18          causation among classes in Section IV of this testimony below.

19

20                                IV.    RESPONSE TO OPUC

21   Q.      STARTING ON PAGE 8, OPUC WITNESS NATHAN A. BENEDICT

22           STATES A CONCERN THAT NON-CGS PARTICIPATING RATE

23           CLASSES ARE PAYING FOR CGS IMPLEMENTATION COSTS VIA

                                                   14
     Entergy Texas, Inc.                                                         Page 13 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          BASE RATES. ON PAGES 8 THROUGH 10, MR. BENEDICT STATES

 2          THAT ETI'S RECOVERY VIA BASE RATES AND SUBSEQUENT

 3          CREDIT VIA RIDER CGSC CREATES CLASS SUBSIDIES. ARE THERE

4           CGS COSTS REFLECTED IN ALL CUSTOMER CLASSES?

 5   A.     Yes.    As stated in ETI's response to OPUC RFI 2-1 and RFI 2-2, the

 6          $299,372 represents the amount of CGS costs used to set current retail

 7          base rates and that has been allocated to all retail rate classes.

 8

 9   Q.     WHAT IS THE MAGNITUDE OF THE AMOUNTS BEING BILLED

10          CUSTOMERS FOR CGS IMPLEMENTATION COSTS CURRENTLY IN

11          BASE RATES?

12   A.     Using the residential rate class as an example, a typical residential

13          customer using 1,000 kWh per month would be paying less than

14          $0.03/month.6

15

16   Q.     ON PAGES 5 AND 8, OPUC WITNESS BENEDICT SUGGESTS THAT A

17          ONCE-ANNUAL REFUND IS THE OPTIMAL SOLUTION TO CREDIT

18          CUSTOMER CLASSES FOR THE AMOUNT BEING BILLED IN BASE

19           RATES. DO YOU AGREE?

20   A.      No. At the outset, in Docket No. 39896, the Commission authorized ETI to

21           recover, through base rates, the charges to the Company's project code

     6 Residential $159,946 shown on the Company's response to OPUC RFI 2-2 divided by
        Residential 5,577,331,000 kWh (Docket No. 38986, Staff Cost of service number running
        model, Schedule Q-7) times 1,000 kWh/month equals approximately $0.029/month.

                                              16
     Entergy Texas, Inc.                                                    Page 14 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          established to capture CGS-related costs.           OPC's proposal would

 2          circumvent that ruling by requiring a refund of those base rate charges to

 3          all but the LIPS class.       Further, the class-based figures cited by Mr.

 4          Benedict in his testimony (which were provided to OPUC through the

 5          Company's response to OPUC RFI 2-2) were based on ETI's cost of

 6          service model, which is an approximation of the Staff's number running

 7          model. But Staff's number running model does not provide the detail or

 8          functionality to segregate the CGS-related charges by customer class, and

 9          a number of different allocation factors were used to allocate the CGS

10          project code costs in Docket No. 39896.            Therefore, there is an

11          unavoidable imprecision in those figures.

12                  However, if the PUCT wants to attempt to remove customer class

13          subsidies ( both inter and intra class), even given the imprecision

14          described above for this portion of the Rider CGSC charge, then the

15          appropriate method to address these class subsidies would be to have a

16          separate rider that would essentially negate the amount included in base

17          rates for CGS service, but also implement a mechanism to ensure that ETI

18          then recovers this full amount via Rider CGSC. The rate for this credit

19          rider would be developed by rate class using the rate class dollar amounts

20          referenced in ETI's response to OPUC RFI 2-2 and included in the table

21          on page 8 of Mr. Benedict's testimony divided by the billing determinants

22          used to set rates in Docket No. 39896. The table below shows this credit

23          rate to remove the CGS billing via base rates going forward. This rate

                                               ^('0
     Entergy Texas, Inc.                                                                 Page 15 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          could go into effect when the CGS Program is approved, and specifically,

2           when Rider CGSC is approved and in effect, and would continue as long

 3          as base rates from Docket No. 39896 are in effect.

4                                                Table 1

             Rate Class                    CGS $                kWh             Credit Rate

                                       in Base Rates       in Base Rates           $/kWh

             Residential                       159,946        5,577,331,000          0.000029

             Small General Service               9,954          310,769,000          0.000032

             General Service                    55,140        3,253,695,000          0.000017

             Large General Service              17,988        1,520,082,000          0.000012

             Large Industrial Power

             Service                            49,192        5,301,215,000          0.000009

             Lighting                            7,153           77,279,359          0.000093

             Total Retail                      299,372

 5

 6   Q.      IF THIS CREDIT RIDER APPROACH IS TAKEN, WHAT OTHER

 7           CHANGES ARE REQUIRED?

 8   A.      The Rider CGSC filed by the Company would need to have the $310,746

 9           credit currently reflected in this rider removed because customers would

10           effectively be receiving this credit via the credit rider.'              But as stated

11           above, the Rider CGSC rate would then need to ensure that the full

12           amount of implementation costs, including the $299,372, is recovered so

     ' Again, ETI's Rider CGSC should have only credited the retail portion included in base rates of
         $299,372 because that is the level reflected in current retail rates and not the full $310,746.

                                                    iI
     Entergy Texas, Inc.                                                       Page 16 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1          that ETI does not forego this recovery already authorized in Docket No.

 2          39896.

 3

 4   Q.     WHY IS THE USE OF A CREDIT RIDER PREFERRED TO OPUC'S

 5          PROPOSAL?

 6   A.     Again, if the PUCT concludes that an attempt to remove class subsidies

 7          should be made, there are a number of reasons. First, the credit rider

 8          truly is the simplest approach in that this credit rider simply removes what

 9          is included in base rates and it stays in effect as long as rates from Docket

10          No. 39896 are in effect. Second, this approach treats all rate classes the

11          same.    Third, this also simplifies Rider CGSC to just recover the CGS

12          implementation and administration costs and not deal with either prior

13          periods or on-going credit amounts.           Fourth, this proposal accurately

14          removes any perceived customer subsidy in that the base rate charge is

15          effectively removed. Fifth, this proposal not only removes any perceived

16          inter-class subsidies but it also removes any intra-class subsidy. By giving

17          the LIPS class a credit just like other classes and then charging the CGS

18          participants the Rider CGSC costs, intra-class subsidies within the LIPS

19          rate class are removed. In comparison, OPUC's proposal is overly

20          complicated by once-annual refunds and continues to have an intra-class

21          subsidy within the LIPS rate class.

22

                                               ^4
     Entergy Texas, Inc.                                                    Page 17 of 17
     Supplemental Rebuttal Testimony of Dennis R. Roach
     Docket No. 38951

 1                    V.      RESPONSE TO WAL-MART/SAM'S CLUB

 2   Q.     STEVEN CHRISS, FILING TESTIMONY ON BEHALF OF WAL-

 3          MART/SAM'S         CLUB,     RECOMMENDS THAT THE COMMISSION

 4          REJECT ETI'S RIDER CGSUSC AND LIMIT THE COLLECTION OF

 5          UNRECOVERED COSTS TO THE CUSTOMERS TAKING SERVICE

 6          UNDER THE RIDER CGS. HOW DO YOU RESPOND?

 7   A.     First, I note that Cities filed a Motion to Strike the Rider CGSUSC

 8          references and discussion in my Supplemental Direct, as well as striking

 9          Rider CGSUSC attached as an exhibit to that testimony. The Company

10          has filed a response in opposition to Cities' Motion to Strike. As discussed

11          in the Company's response to Cities, Rider CGSUSC (and references to

12          that Rider in my Supplemental Direct Testimony) should not be struck

13          because that proposed Rider CGSUSC and referenced passages in

14          testimony are presented to establish a complete evidentiary record on the

15          issue of what are unrecovered costs, and ETI's consistent position is that

16          it is a Commission policy call as to which customers are responsible for

17          reimbursing ETI for its unrecovered costs.

18

19                                     VI.    CONCLUSION

20   Q.     DOES THIS CONCLUDE YOUR SUPPLEMENTAL REBUTTAL

21          TESTIMONY?

22   A.     Yes, at this time.

                                                  V^A
                   PUC DOCKET NO. 38951

APPLICATION OF ENTERGY     ) PUBLIC UTILITY COMMISSION
TEXAS, INC. FOR APPROVAL   )
OF COMPETITIVE SERVICE     )
TARIFF (ISSUES SEVERED     )
FROM DOCKET NO. 37744)     )           OF TEXAS

                  HEARING ON THE MERITS

                Thursday, April 19, 2012

           BE IT REMEMBERED THAT at 9:11 a.m., on

Thursday, the 19th day of April 2012, the above-entitled

matter came on for hearing at the Public Utility

Commission of Texas, William B. Travis Building, 1701

North Congress Avenue, Commissioners' Hearing Room,

Austin, Texas, before DONNA NELSON, CHAIRMAN; KENNETH

ANDERSON AND ROLANDO PABLOS, COMMISSIONERS, IRENE

MONTELONGO AND ANDREW KANG, Administrative Law Judges,

and the following proceedings were reported by Evelyn

Coder, Certified Shorthand Reporter.

Volume 2                                     Pages 37 - 212
                                                          Page 180

 1   any of the company's capacity costs for the generatiort
 2   it owns.    Correct?
 3       A      (Pollock)   The company is going to know pretty
 4   far in advance, before the signing of the contract, that
 5   there's a good -- at least the likelihood that there's a
 6   resource out there, and I don't think that's going to go
 7   totally unnoticed in the planning process.
 8                   I mean, the company executes year,
 9   two-year, three-year extensions of existing contracts
10   that they might not otherwise have to do if they know
11   that they're close to getting a CGS resource in place,
12   within the time window, which requires that the
13   contract, I think, has to be in place by at least April
14   or before the summer.     So that gives the company plenty
15   of -- and you're going to know in advance that customers
16   are going through this process, so it's not going to be
17   a total unknown.
18       Q      Well, that's not my question.   My question is,
19   the company has capacity costs that it incurs on its
20   power plants like River Bend.
21       A      (Pollock)   Yes.
22       Q      And the fact that it enters into a CGS contract
23   for a couple of years will have no tendency to reduce
24   the capacity costs its paying for River Bend at all.
25   Right?

                  KENNEDY REPORTING SERVICE, INC.
                            512.474.2233
                                                          Page 181

 1       A    (Pollock)     It's not intended to.   As I said,
 2   the CGS program right now would replace a limited-term,
 3   PPA, purchased power agreement.     So, yeah, it could
 4   certainly def er an extension or brand new PPA from being
 5   entered into, and that's really the point.
 6       Q    But if the contract is for, say, three years,
 7   and no longer than five years, it's not going to cause
 8   the company to alter any of its obligations that are
 9   long-term contracts.     Correct?   They would be the same?
10       A    (Pollock)     No, but on the margins, when the
11   company, you know, enters into numerous limited-term
12   agreements, as they've had, it's going to affect those
13   agreements.
14                   I mean, you know, let's not put, you know,
15   CGS as trying to replace a 30- or 40-year resource.         You
16   know, maybe it eventually will do that, but for the
17   short run, as long as the company is relying on these
18   limited-term purchases, that's where we can defer -- and
19   those purchases -- those costs, as Mr. May points out,
20   keep going up, that's where we can do some good and help
21   out the customers.
22       Q    But it would simply be a matter, though, of
23   what -- if you have a short-term CGS contract, what it
24   can displace will depend on what the company has in its
25   portfolio at the time the CGS contract is entered into.

                   KENNEDY REPORTING SERVICE, INC.
                             512.474.2233
                                                          Page 182

 1   Right?
 2       A    (Pollock)    Sure; sure, it does.
 3       Q    We don't know what that will be at this point?
 4       A    (Pollock)    You know what your portfolio is.
 5   You know for all the limited-term contracts.     You have a
 6   start date, an end date.    The question is, is there
 7   going to be an extension if we need it or not, and
 8   that's where you could potentially affect the process.
 9       Q    But we don't know when the CGS contract will be
10   entered into?
11       A    (Pollock)    We don't.
12       Q    Okay.     Is it your contention or TIEC's
13   contention that any amount of unrecovered costs, no
14   matter how small, will undermine the program?
15       A    (Pollock)     I think to the extent that a CGS
16   customer is going to incur some unrecovered costs -- and
17   that's an issue.     I can't say how much of unrecovered
18   costs would either dissuade that customer from not
19   entering a CGS contract or not because I'm not in a
20   position to know that.
21                    But I think the more pressure you put and
22   the more hurdles you put on the program like that, I
23   think less likely the program will work.     Maybe it will
24   work for some customers but not as many customers as
25   would otherwise be the case.

                 KENNEDY REPORTING SERVICE, INC.
                           512.474.2233
                 SOAH DOCKET NO. XXX-XX-XXXX
                    PUC DOCKET NO. 37744

APPLICATION OF ENTERGY          §   PUBLIC UTILITY COMMISSION
TEXAS, INC. FOR AUTHORITY TO    §
CHANGE RATES AND RECONCILE      §
FUEL COSTS                      §           OF TEXAS

                   DIRECT TESTIMONY

                               OF

                   CLARENCE JOHNSON

                    ON BEHALF OF THE

          OFFICE OF PUBLIC UTILITY COUNSEL

                        REDACTED

                          June 9, 2010
 1   A.   Yes.    The CGS-USC rider will allow the company to flow through unrecovered

2         embedded cost to other customer classes.       The unrecovered costs are defined as the

3         difference between the revenue paid as a CGS customer and the revenues which would

4         have been collected by ETI ifthe CGS customer had remained a standard LIPS customer.

5         If all LIPS customers opted for CGS service, the unrecovered costs would be $57.5

6         million. 87 Furthermore, the "lost revenue method" used in the CGS-USC tariff may not

7         be equivalent to "unrecovered costs," which is the term used in the statute.

 8   Q.   WHY IS "LOST REVENUE" DIFFERENT FROM "UNRECOVERED COST?"

 9   A.   Revenues are intended to equal embedded cost of service for the adjusted test-year.

10        However, revenues may depart from costs, either higher or lower, as the time frame

11        advances further from the test-year.      Moreover, the loss of individual customers'

12        revenues does not mean that the underlying costs are ''unrecovered." For instance, the

13        generating capacity which served the departing customers can be redirected to other

14        revenue producing uses, such as selling power into the wholesale market.

15   Q.   CAN YOU FORESEE ANY CIRCUMSTANCES WHERE RE-ENTRY OF

16        FORMER CGS CUSTOMERS IMPOSES UNFAIR IMPACTS ON NON-

17        PARTICIPATING CUSTOMERS?

18   A.   Yes. Bundled utility pricing tends to be more stable and less volatile than market pricing

19        because rates are based upon average costs   ~stead   of marginal costs. Customers will be

20        attracted to CGS service when market prices are lower than the utility's average costs.

          87
               May Direct Testimony at 14.

                                                      Redacted Direct Testimony of Clarence Johnson
                                                     On Behalf of the Office of Public Utility Counsel
                                                SOAH Docket No. XXX-XX-XXXX; PUC Docket No. 37744
                                                                                       Page 88 of 115
                                                                                                                                                    TIEC EXHIBIT NO. 15

                       PUC DOCKET NO. 38951

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

              Supplemental Direct Testimony and Exhibits 

                                                                        of

                             JEFFRY POLLOCK

                                                  On Behalf of

               Texas Industrial Energy Consumers

                                        February, 2012

                                                  iy
                      j. POLLOCK
                      4	
                           ........................................................:.......................................................
                                             u '	                               t3 & A °`#
                                                                                Jeffry Pollock
                                                                                Supplemental Direct
                                                                                Page 14

                      3. UNRECOVERED COSTS FROM THE CGS PROGRAM

   1	   Q	     WHY IS THE ISSUE OF THE DEFINITION OF "UNRECOVERED COSTS" BEING
   2	          ADDRESSED IN THIS PROCEEDING?
   3	   A	     PURA § 39.452(b) provides that ETI's rates "shall be set, in the proceeding in which
   4	          the tariff is adopted, to recover any costs unrecovered as a result of the
   5	          implementation of the tariff." ETI and TIEC do not agree about what "costs" this
   6	          refers to. Just as ETI and other utilities unsuccessfully argued with respect to energy
   7	          efficiency program costs, ETI claims the reference to "costs" would allow it to recover
   8	          not just its actual expenditures in implementing a CGS Program but also hypothetical
   9	          lost revenues ETI may have received if all CGS Customers paid ETI's full firm rate
  10	          instead. ETI's proposed Rider CGSUSC clearly states that it "defines the procedure
  11	          by which Entergy Texas, Inc. ('Company') shall implement and adjust rates for
  12	          recovery of lost base rate revenue resulting from customers participating in the
  13	          Company's Competitive Generation Service ('CGS Program')."' (emphasis added)

  14 Definition of Unrecovered Costs
  15	   Q	     HOW SHOULD UNRECOVERED COSTS BE DEFINED?
16	     A	     Unrecovered costs should not include ETI's hypothetical lost revenues. If a CGS
  17	          tariff is adopted, the costs that could be unrecovered as a result of implementation of
  18	          the tariff should include the expenditures actually incurred by ETI to implement and

        1 Docket No. 37744, ETI Ex. 9 at Exhibit PRM-1.

                                                          3. Unrecovered Costs From the CGS Program
                                                  J.POLLOCK
                                                  INCORPORATED

                                                                                                         15