Court Opinion

ID: 4040853
Source: CourtListenerOpinion
Date Created: 2016-09-28 22:39:13.052135+00
Date Added: 2024-06-11T14:03:22.927460
License: Public Domain

ACCEPTED
                                                                               03-14-00709-CV
                                                                                       3761772
                                                                     THIRD COURT OF APPEALS
                                                                                AUSTIN, TEXAS
                                                                         1/14/2015 10:35:02 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                 1/14/2015 10:35:02 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 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
January 2015
                   IDENTITY OF PARTIES AND COUNSEL

      Pursuant to Texas Rule of Appellate Procedure 38.1(a), the following is a

list of all parties to the order appealed from and the names and addresses of all trial

and appellate counsel:

Parties:                                       Attorneys:

Entergy Texas, Inc.                            David C. Duggins
Appellant                                      John F. Williams
                                               Marnie A. McCormick
                                               Duggins Wren Mann & Romero, LLP
                                               600 Congress Ave., Ste. 1900 (78701)
                                               P. O. Box 1149
                                               Austin, Texas 78767-1149
                                               Counsel in District Court

                                               John F. Williams
                                               Marnie A. McCormick
                                               Duggins Wren Mann & Romero, LLP
                                               600 Congress Ave., Ste. 1900 (78701)
                                               P. O. Box 1149
                                               Austin, Texas 78767-1149
                                               Counsel on Appeal

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

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

                                         Meghan Griffiths
                                         Andrews Kurth LLP
                                         111 Congress Ave., Ste. 1700
                                         Austin TX 78701
                                         Counsel in District Court

Office of Public Utility Counsel         Sara J. Ferris
Intervenor                               Office of Public Utility Counsel
                                         1701 N. Congress Ave., Ste. 9-180
                                         P. O. Box 12397
                                         Austin, Texas 78711-2397
                                         Counsel in District Court

                                    ii
                                          TABLE OF CONTENTS

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

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

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

STATEMENT OF THE CASE .............................................................................. viii 

STATEMENT REGARDING ORAL ARGUMENT ........................................... viii 

ISSUES PRESENTED............................................................................................. ix 

NOTE REGARDING ADMINISTRATIVE RECORD .......................................... ix 

STATEMENT OF FACTS ........................................................................................1 

I.       ETI is an electric utility that is subject to traditional rate regulation by
         the Public Utility Commission of Texas. ........................................................1 

II.      Under traditional ratemaking principles, a utility is entitled to a
         reasonable opportunity to recover all of its reasonable and necessary
         expenses and to earn a return on its investment. .............................................2 

III.     The Texas legislature has required ETI to participate in a new
         program that creates new costs and guarantees ETI a way to recover
         them outside the traditional ratemaking framework........................................5 

IV.      The Commission has refused to permit ETI to recover all of the costs
         that result from the implementation of the new program. ...............................7 

SUMMARY OF THE ARGUMENT ......................................................................12 

ARGUMENT ...........................................................................................................14 

I.       The Commission erred in determining that “unrecovered costs,” as
         contemplated by PURA section 39.452(b), include only the costs
         necessary to implement and administer the CGS program, and do not
         include “lost revenues, embedded generation costs, or any other types
         of costs.” ........................................................................................................14 

         A.       The Commission’s decision is inconsistent with the plain
                  language of PURA section 39.452(b). ................................................14 
                                                             iii
         B.       The Commission’s decision also contradicts the framework for
                  cost recovery established in PURA section 39.452(b). .......................17 

         C.       This Court’s decision in CenterPoint Energy Houston Electric,
                  LLC v. Public Util. Comm’n of Tex. does not support the
                  Commission’s decision. ......................................................................20 

                  1.        This Court in CenterPoint Energy Houston Electric
                            construed a different statute that had different language
                            and a different purpose.............................................................. 21 

                  2.        The Court’s reasoning in the CenterPoint Energy
                            Houston Electric case does not support the Commission’s
                            decision here. ............................................................................23 

                            a.       This Court did not distinguish “costs” and
                                     “revenues” for all purposes.............................................23 

                            b.       Regardless, ETI indisputably sought “costs” here. ........24 

         D.       The Commission’s decision runs afoul of the principle
                  espoused in High Plains and its progeny. ...........................................27 

         E.       The quantity of production costs eligible for recovery is not at
                  issue here -- the Commission never reached that issue. ......................28 

II.      The Commission erred in determining that ETI may not recover CGS
         implementation costs prior to the date that the CGSC rider is
         approved.........................................................................................................30 

III.     The Commission erred in deciding not to authorize the recovery of
         interest on CGS implementation costs. .........................................................34 

PRAYER ..................................................................................................................36 

CERTIFICATE OF COMPLIANCE .......................................................................37 

CERTIFICATE OF SERVICE ................................................................................38 

APPENDICES .........................................................................................................39 

                                                            iv
                                       INDEX OF AUTHORITIES

Cases 

Bluefield Waterworks & Improvement Co. v. Public Serv. Comm’n of State
  of W.Va.,
  262 U.S. 679 (1923) ...............................................................................................3

CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex.,
 354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.) ................................... passim

CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex.,
 408 S.W.3d 910 (Tex. App. – Austin 2013, pet. denied) .............................. 32, 33

CenterPoint Energy, Inc. v. Public Util. Comm’n of Tex.,
  143 S.W.3d 81 (Tex. 2004) ......................................................................... passim

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.) ..........................................................................................................4

City of El Paso v. Public Util. Comm’n of Tex.,
  344 S.W.3d 609 (Tex. App. – Austin 2011, no pet.) .............................................3

City of El Paso v. Public Util. Comm’n of Tex.,
  883 S.W.2d 179 (Tex. 1994) ..............................................................................3, 4

Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue,
 271 S.W.3d 238 (Tex. 2008) ................................................................................16

Federal Power Comm’n v. Hope Natural Gas Co.,
  320 U.S. 591 (1944) ...............................................................................................2

In re Entergy Corp.,
  142 S.W.3d 316 (Tex. 2004) (orig. proceeding) ....................................................2

Office of Public Util. Counsel v. Public Util. Comm’n of Tex.,
  104 S.W.3d 225 (Tex. App. – Austin 2003, no pet.) .............................................1

Ojo v. Farmers Group, Inc.,
  356 S.W.3d 421 (Tex. 2011) ...............................................................................17

                                                             v
Oncor Elec. Delivery Co. LLC v. Public Util. Comm’n of Tex.,
 406 S.W.3d 253 (Tex. App. – Austin 2013, no pet.) .........................................3, 4

Railroad Comm’n of Tex. v. High Plains Natural Gas Co.,
  628 S.W.2d 753 (Tex. 1981) ..................................................................... 3, 27, 28

Railroad Comm'n of Tex. v. Citizens for a Safe Future & Clean Water,
  336 S.W.3d 619 (Tex. 2011) ................................................................................17

State v. Shumake,
  199 S.W.3d 279 (Tex. 2006) ................................................................................16

Suburban Util. Corp. v. Public Util. Comm’n of Tex.,
  652 S.W.2d 358 (Tex. 1983) ..............................................................................3, 4

Texas Alarm & Signal Ass’n v. Public Util. Comm’n of Tex.,
  603 S.W.2d 766 (Tex. 1980) .................................................................................5

Texas Coast Utils. Coalition v. Railroad Comm’n of Tex.,
  423 S.W.3d 355 (Tex. 2014) .............................................................. 3, 16, 20, 28

Statutes 

Tex. Util. Code Ann. §§ 11.001, et seq. ............................................................. vii, 1

Tex. Util. Code Ann. Ch. 36 ......................................................................................2

Tex. Util. Code Ann. § 36.007 ............................................................................ 5, 18

Tex. Util. Code Ann. § 36.051 ............................................................... viii, 2, 15, 28

Tex. Util. Code Ann. §§ 39.001-.359 ........................................................................2

Tex. Util. Code Ann. § 39.252 .................................................................................35

Tex. Util. Code Ann. § 39.452 ......................................................................... passim

Tex. Util. Code Ann. § 39.905 .............................................................. 20, 21, 22, 29

Other	Authorities 

Act of May 30, 2005, 79th Leg., R.S., ch. 1072 (HB 1567), § 1 (amended
 2006 & 2009) ..........................................................................................................5

                                                           vi
Rules 

16 Tex. Admin. Code § 25.231 ........................................................................... 4, 15

16 Tex. Admin. Code § 25.234 ..................................................................................5

                                                      vii
                             STATEMENT OF THE CASE

       This is a suit for judicial review of the final order of the Public Utility

Commission of Texas in its Docket Number 38951, a proceeding initiated by

Entergy Texas, Inc. for approval of tariffs implementing a competitive generation

service program. Entergy Texas, Inc. sought judicial review of the agency’s order

primarily on the grounds that it violated the Public Utility Regulatory Act1 and the

Texas Supreme Court’s decision in CenterPoint Energy, Inc. v. Public Util.

Comm’n of Tex., 143 S.W.3d 81, 84 (Tex. 2004).2 The district court, Judge Amy

Clark Meachum presiding, summarily affirmed the order.3

                STATEMENT REGARDING ORAL ARGUMENT

       Cases involving public utility regulation are usually complex, and this one is

no exception. For that reason, the Court’s decisional process would be aided by

oral argument.

1
  See Tex. Util. Code §§ 11.001, et seq.
2
  Clerk’s Record (“CR”) 4-19.
3
  CR 523-26.
                                           viii
                               ISSUES PRESENTED

1.      Did the Public Utility Commission of Texas misconstrue Public Utility
        Regulatory Act section 39.452 by defining “any costs unrecovered as a
        result of the implementation of” a competitive generation service program to
        exclude base rate costs that Entergy Texas, Inc. may not recover as a result
        of implementation of the program?

2.      Did the Public Utility Commission misconstrue the same statutory provision
        by refusing to enable Entergy Texas, Inc. to accrue and recover the cost of
        developing the program at the legislature’s direction?

3.      Did the Public Utility Commission violate Public Utility Regulatory Act
        section 36.051 and the Texas Supreme Court’s decision in CenterPoint
        Energy, Inc. v. Public Util. Comm’n of Texas, 143 S.W.3d 81, 84 (Tex.
        2004) by refusing to authorize Entergy Texas, Inc. to recover interest on its
        unrecovered costs of implementing the CGS program?

              NOTE REGARDING ADMINISTRATIVE RECORD

        The Administrative Record in this case is comprised of Joint Exhibits 1, 2,

and 3 to the Reporter’s Record. The record consists of documents filed in two

Commission dockets.

      Joint Exhibit 1 is the Administrative Record (“AR”) first filed with the
       district court, and consists of non-confidential filings in Public Utility
       Commission Docket No. 38951.

      Joint Exhibit 2 is a Supplemental Administrative Record (“Supp. AR”) filed
       with the district court, and consists of non-confidential filings in Public
       Utility Commission Docket No. 37744.

      Joint Exhibit 3 is a Supplemental Administrative Record filed with the
       district court and consists of documents that were filed confidentially in
       Docket Nos. 37744 and 38951. These were sealed by the district court.
       None of these documents are cited in this brief.

                                          ix
                                STATEMENT OF FACTS

         This case concerns the Public Utility Commission’s construction of a statute

that creates an exception to several regulatory principles traditionally applied to

electric utilities in Texas.

I.       ETI is an electric utility that is subject to traditional rate regulation by
         the Public Utility Commission of Texas.

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

utility. ETI provides electric services to over 420,000 retail customers, primarily

in southeastern Texas.4

         Historically, Texas electric utilities have been involved in all aspects of the

provision of electric service, from beginning to end. That is, electric utilities have

been responsible for either producing or purchasing power and delivering it over

transmission and distribution networks to end users. See, e.g., Office of Public Util.

Counsel v. Public Util. Comm’n of Tex., 104 S.W.3d 225, 227 (Tex. App. – Austin

2003, no pet.). Each electric utility has been responsible for providing power to all

requesting customers in a defined “service area.” Id. at 227-28. These services,

and the rates charged for them, have been subject to regulation by Public Utility

Commission of Texas (the “Commission” or “PUCT”) under the Public Utility

Regulatory Act (“PURA”).5

4
    Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 1).
5
    See Tex. Util. Code §§ 11.001, et seq.
                                               1
       The Texas legislature in 1999 ordered electric utilities to “unbundle” their

generation, transmission, distribution, and customer service functions as part of an

effort to introduce competition into the Texas retail electric industry. See Tex.

Util. Code Ann. §§ 39.001-.359. However, in the course of implementing the

legislature’s mandate, uncertainty developed about whether several areas of the

state, including ETI’s service territory, were ready for the successful transition to

retail competition. See In re Entergy Corp., 142 S.W.3d 316, 320 (Tex. 2004)

(orig. proceeding). In 2009, the legislature amended PURA to require ETI to stop

activities relating to the transition to retail competition. See Tex. Util. Code Ann.

§ 39.452 (i). Accordingly, ETI remains subject to traditional rate regulation. Id.

§ 39.452(a).

II.   Under traditional ratemaking principles, a utility is entitled to a
      reasonable opportunity to recover all of its reasonable and necessary
      expenses and to earn a return on its investment.

      PURA sets the framework for setting electric utility rates in Texas. See

generally Tex. Util. Code Ann. Ch. 36. Under PURA and applicable constitutional

principles, a utility is entitled to rates that afford it a “reasonable opportunity to

earn a reasonable return on the utility’s invested capital used and useful in

providing service to the public in excess of the utility’s reasonable and necessary

operating expenses.” Id. § 36.051; Federal Power Comm’n v. Hope Natural Gas

Co., 320 U.S. 591, 603 (1944); Bluefield Waterworks & Improvement Co. v. Public

                                          2
Serv. Comm’n of State of W.Va., 262 U.S. 679, 692 (1923). In plain English, that

means a rate for a utility like ETI does two, separate things: enables the utility to

pay its expenses and to earn a return on its investment. Regarding the former,

PURA mandates that the Commission enable a utility to recover all of its

reasonable and necessary expenses. Tex. Util. Code Ann. § 36.051; see also Texas

Coast Utils. Coalition v. Railroad Comm’n of Tex., 423 S.W.3d 355, 367 (Tex.

2014) (citing Railroad Comm’n of Tex. v. High Plains Natural Gas Co., 628
S.W.2d 753 (Tex. 1981)) (construing materially analogous provision in Gas Utility

Regulatory Act).

      In Texas, electric utility rates are set for an indefinite period in the future.

E.g.,Oncor Elec. Delivery Co. LLC v. Public Util. Comm’n of Tex., 406 S.W.3d
253, 263 (Tex. App. – Austin 2013, no pet.); City of El Paso v. Public Util.

Comm’n of Tex., 344 S.W.3d 609, 613 (Tex. App. – Austin 2011, no pet.). To set a

rate, the Commission projects the amount of money the utility will need to cover

both its expenses and a return on its investment. The total is called the utility’s

“revenue requirement” or “cost of service.” 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

                                          3
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); 16 Tex. Admin. Code § 25.231 (PUCT’s basic ratemaking rule

entitled “cost of service”).

      The Commission has adopted a rule governing this process. To calculate a

utility’s expected cost of service, the Commission examines the utility’s costs from

a historical “test year.” See 16 Tex. Admin. Code § 25.231(a). The Commission

evaluates the reasonableness of the utility’s test-year expenses and adjusts them for

“known and measurable” changes that occur after the test year. Id. § 25.231(b);

see also Oncor Elec. Delivery Co. LLC, 406 S.W.3d at 263. The Commission also

determines what level of capital investment (or rate base) is reasonable, and then

determines a reasonable rate of return on that investment. E.g., Suburban Util.

Corp., 652 S.W.2d at 362.         The Commission adds the expense and return

components together to calculate the utility’s total cost of service. The Texas

Supreme Court has acknowledged that a central goal of this process is to arrive at

cost recovery as representative as reasonably possible of the utility’s “cost situation

expected in the future.” City of El Paso, 883 S.W.2d at 188; see also Oncor Elec.

Delivery Co. LLC, 406 S.W.3d at 263.

      Utilities have different classes of customer that have different purposes and

needs. Examples of some customer classes are residential, large industrial, and

                                          4
state institutions of higher education. The Commission allocates a utility’s total

cost of service among its various customer classes in a process called “rate

design.” 16 Tex. Admin. Code § 25.234; Texas Alarm & Signal Ass’n v. Public

Util. Comm’n of Tex., 603 S.W.2d 766, 768 n.2 (Tex. 1980). This process results

in a separate “bundled” rate for each customer class going forward. The rate

design process is intended to assign each class of customer its fair share of the

utility’s total cost of service.

III.   The Texas legislature has required ETI to participate in a new program
       that creates new costs and guarantees ETI a way to recover them
       outside the traditional ratemaking framework.

       In 2005, the Texas legislature enacted a statute that required ETI to propose

a new program through which some customers could obtain service outside the

traditional paradigm. The legislature intended the new program to enable certain

retail customers to contract for “competitive generation” instead of relying upon

ETI’s portfolio of resources at ETI’s traditionally regulated rates. See Act of May

30, 2005, 79th Leg., R.S., ch. 1072 (HB 1567), § 1 (amended 2006 & 2009)

(current version at Tex. Util. Code Ann. § 39.452 (b)).

       The provision governing this program currently 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
                                          5
       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 that is contrary to
       an applicable decision, rule, or policy statement of a federal regulatory
       agency having jurisdiction.

Tex. Util. Code Ann. § 39.452 (b).

       This new “competitive generation service” or “CGS” program costs ETI

money to develop and administer.6 It also costs ETI money in that the CGS

program permits eligible customers to contract for electric generation resources

from alternative suppliers, which allows them to avoid paying some of ETI’s costs

that would otherwise be allocated to them under ETI’s base rates.7 Specifically,

the program allows eligible customers to avoid generation, i.e., production-related,

6
 AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 15).
7
  Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 12-13; Docket No.
37744, ETI Exh. 52, Hurstell Direct at 34; Docket No. 37744, ETI Exh. 9, May Direct at 9); AR
Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 2, 4, & 7).
                                             6
costs. The customers continue to pay ETI for applicable transmission, distribution,

and customer service costs.8

      It is clear from the language of section 39.452(b) that the legislature

recognized the implementation of this program may result in “unrecovered costs”

to ETI. It is equally clear that the legislature intended the utility to recover “any”

such costs.

IV.   The Commission has refused to permit ETI to recover all of the costs
      that result from the implementation of the new program.

      In 2009, ETI initiated a general rate case because the rates then in effect did

not adequately compensate it for its cost of providing service.9 In accordance with

PURA section 39.452(b), quoted above, ETI proposed a CGS program.                The

program consisted of three riders:

     a CGS Tariff, proposed to describe the mechanics of the program and to
      identify eligible customers as the Large Industrial Power Service (“LIPS”)
      class of customers;

     a CGS Cost Rider (“CGSC”), designed to recover from CGS-eligible
      customers costs related to the start-up and ongoing operations incurred to
      implement the CGS program; and

     a CGS Unrecovered Service Cost Rider (“CGSUSC”).10

      The CGSUSC rider is the principal tariff at issue in this appeal.           The

CGSUSC rider was designed to recover, from non-participating customers, the

8
  Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 15).
9
  Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 4, Domino Direct at 5-10).
10
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct Exh. PRM-1).
                                            7
base rate costs that CGS customers would avoid by switching. That is, it was

designed to recover the fixed costs of generating or acquiring electricity that do not

change with changes in customer demand.11 For example, CGS customers would

avoid the costs of building and running power plants. They would also avoid the

costs of capacity acquired under purchased power agreements.12 ETI proposed to

measure the costs at risk of non-recovery under the CGS program consistent with

the way its rates for these bundled services were set. That is, ETI proposed to

measure the embedded generation-related costs that migrating customers would

have been expected to pay under traditional rates but for the CGS program.13

       The Commission assigned Docket Number 37744 to the rate case

proceeding. The parties eventually reached an agreement on all the issues in the

case except those pertaining to the CGS program. An Administrative Law Judge

(“ALJ”) conducted an evidentiary hearing on the CGS issues.

11
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21); AR Binder 3 (Docket
No. 38951, ETI Exh. 91, May Supp. Direct at 5-6).
12
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 15; Docket No. 37744,
Cities Exh. 6, Nalepa Direct at 58). “Capacity” is the amount of power a utility has available at
any given time to serve customers. Utilities are required to have a percentage surplus or
“cushion” of capacity available in reserve, in case demand exceeds expectations. Traditionally
regulated utilities supply their need for capacity either from their own generating plants or by
buying it from someone else. Some purchased power contracts are short term, but some are long
term. Like other base rate expenses, “purchased capacity costs” are quantified during a test year
and become a component of the utility’s revenue requirement that forms the basis for prospective
rates.
13
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21 & Exh. PRM-1,
“Competitive Generation Service Unrecovered Service Cost Rider”).
                                               8
       An ETI witness estimated that ETI would incur about $610,000 of costs to

implement the program, and another $330,000 annually to keep it going.14

Additionally, ETI estimated that, based upon the test year used in Docket No.

37744, the customers expected to be eligible for the CGS program (the LIPS class)

represented approximately 23% of ETI’s total demand and 32% of the Company’s

total sales.15 ETI estimated that the revenue requirement resulting from ETI’s

embedded generation costs for the total load eligible for the CGS program was

about $57.5 million.16 This was the total amount of ETI production costs that

eligible customers would avoid if they all took CGS service for their entire load.

ETI acknowledged, however, that it could not precisely identify the level of

unrecovered costs until the actual level of participation in the CGS program was

known.17

       After the evidentiary hearing, the ALJ issued a proposal for decision on the

CGS issues. The ALJ recommended that the CGS program be rejected altogether,

one of the options authorized by the CGS statute. See Tex. Util. Code Ann. §

39.452(b). The basis of the ALJ’s decision was his conclusion that though the

program would definitely result in unrecovered costs for ETI, the only feasible way

for the Company to recover them in compliance with PURA section 39.452(b)

14
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 19).
15
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 13).
16
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 14).
17
   AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 21).
                                             9
would be to charge the unrecovered costs to customers that did not participate in

the program. The ALJ perceived this result as unfair.18

       The Commission did not adopt the ALJ’s proposal.                        Instead, the

Commission severed the CGS issues from the rate case and established a new

docket for them to be addressed. The Commission ordered that the record from the

rate case be included in the new CGS docket.19 The Commission assigned Docket

Number 38951 to the new CGS docket, and urged the parties to attempt to settle as

many CGS-related issues as possible.

       In the new docket, the parties reached agreements on many of the

outstanding issues.     They filed several stipulations of fact, as well as partial

settlements addressing discrete elements of the program. They were unable to

agree, however, on the meaning of the phrase “costs unrecovered as a result of

implementation of the CGS program tariff” in PURA section 39.452(b).

       The Commission issued an interim order on this issue. In that order, the

Commission disagreed with the ALJ’s proposal for decision and determined that

the term entitles ETI to recover only “costs to implement and administer the CGS

program,” not “lost revenues, embedded generation costs, or any other types of

costs.” In other words, the Commission determined as a matter of law that the
18
  See Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 2-3).
19
  The rate case record was voluminous, and much of it did not pertain to the CGS issue. Only
the pieces of the record in Docket No. 37744 that the parties to the district-court proceeding
identified as relevant have been included in the record. Again, those pieces comprise the
Supplemental Administrative Record, Joint Exhibit 2 of the Reporter’s Record.
                                             10
statutory term “unrecovered costs” did not include unrecovered “embedded

generation costs.”   The Commission, therefore, concluded that ETI could not

implement its proposed CGSUSC rider.20

      After issuance of the interim order, the parties filed supplemental testimony.

Some (but not all) of the parties reached another agreement on unresolved issues.21

The Commission ultimately adopted some aspects of that agreement, but rejected

other aspects of it. In the end, the Commission issued a final order that adopted

CGS and CGSC riders but not a CGSUSC rider.22

      In its final order, the Commission incorporated its interim order.         The

agency expressly ruled that ETI may recover only the costs necessary to

“implement and administer” the CGS program, and not “lost revenues, embedded

generation costs, or any other types of costs.”23 The Commission even excluded

from evidence the “CGSUSC” rider that ETI proffered in its supplemental

testimony on the ground that the Commission’s interim decision rendered it

“irrelevant.”24 The Commission further imposed a limitation on ETI’s ability to

recover CGS implementation costs. That is, the Commission ruled that ETI could

not accrue (or, consequently, recover) implementation costs incurred before the

20
   AR Binder 1, Item 77 (Docket No. 38951, Interim Order at 5-7 & FOFs 38-40).
21
   AR Binder 2, Item 113 (Docket No. 38951, May 17, 2013 Stipulation and Settlement
Agreement at 4).
22
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order).
23
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 7-8 & FOFs 50-51).
24
   AR Binder 2, Item 25 (Docket No. 38951, Order No. 11).
                                         11
CGSC rider was approved.25 The Commission also declined to authorize ETI to

recover interest on its unrecovered balance of CGSC rider costs.26

       ETI filed a motion for rehearing challenging each of these decisions.27 The

motion was overruled by operation of law. ETI then filed a suit for judicial review

of the Commission’s decisions on these issues.28 The district court, Judge Amy

Clark Meachum presiding, summarily affirmed the Commission’s order.29 ETI

appeals that judgment to this Court.

                        SUMMARY OF THE ARGUMENT

       The Commission erred as a matter of law when it determined that “any costs

unrecovered as a result of the implementation of” the CGS program includes only

the costs of implementing and administering the program. The Commission’s

decision violates the plain language of PURA section 39.452(b), which does not

circumscribe the categories of cost eligible for recovery. The decision also violates

other provisions of the statute, which evidence the legislature’s intent that

“unrecovered costs” be determined using the same test-year production costs that

are used to determine base rates, and that the program not constitute a “discounted

rate,” enabling ETI to allocate unrecovered base rate costs to customers who do not

25
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at FOF 57A).
26
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at FOF 57C).
27
   AR Binder 2, Item 121 (Docket No. 38951, ETI’s Aug. 8, 2013 Motion for Rehearing).
28
   CR 4-19.
29
   CR 523-26.
                                            12
participate in the CGS program. The Commission is bound to give effect to the

legislature’s mandates.

      The Commission is also bound to adhere to a more fundamental principle of

utility ratemaking. That is, the Commission must set rates that afford a utility a

reasonable opportunity to recover all of its reasonable and necessary operating

expenses. By excluding a significant chunk of ETI’s expenses from eligibility for

recovery under CGS program tariffs, the Commission violated this principle.

      The only legal justification the Commission gave for its decision is this

Court’s opinion in CenterPoint Energy Houston Electric, LLC v. Public Util.

Comm’n of Tex., 354 S.W.3d 899 (Tex. App. – Austin 2011, no pet.). This Court

in that case construed a different statute that is worded in materially different

language from the CGS statute. Viewed in context, the Court’s reasoning in

CenterPoint Energy Houston Electric does not support the Commission’s decision

– it actually undermines the Commission decision. There is no legal justification

for the Commission’s disregard of a clear legislative mandate. The decision to

render production costs unrecoverable is entitled to no deference and must be

reversed.

      The Commission further erred in determining that ETI may not recover costs

it incurred to put the legislatively mandated CGS program in place. Again, PURA

section 39.452(b) allows ETI to recover any and all costs that result from

                                       13
implementation of the program. Because the program cannot be implemented

without start-up costs, the Commission’s decision violates the statute and must be

reversed.

      Finally, the Commission erred as a matter of law in deciding not to authorize

the recovery of interest on CGS implementation costs. The Texas Supreme Court

has confirmed that when PURA expressly confers upon a utility a right to recover

certain costs, PURA impliedly entitles the utility to recover interest on those costs

until they are recovered. See CenterPoint Energy, Inc. v. Public Util. Comm’n of

Tex., 143 S.W.3d 81, 84 (Tex. 2004). Regardless of when ETI was entitled to

begin accruing implementation costs, ETI is entitled to interest on recoverable

amounts until they are recovered. The Commission’s order to the contrary must be

reversed.

                                  ARGUMENT

I.    The Commission erred in determining that “unrecovered costs,” as
      contemplated by PURA section 39.452(b), include only the costs
      necessary to implement and administer the CGS program, and do not
      include “lost revenues, embedded generation costs, or any other types of
      costs.”

      A.     The Commission’s decision is inconsistent with the plain
             language of PURA section 39.452(b).

      PURA section 39.452(b) says that a utility’s rates “shall be set … to recover

any costs unrecovered as a result of the implementation of the tariff.” Tex. Util.

                                         14
Code Ann. § 39.452(b). As the ALJ correctly observed,30 the statute does not limit

the categories of cost that are subject to this requirement. So long as a cost flows

from the implementation of the CGS program and is not otherwise recovered, it

falls within the express language of the statutory mandate.

         As noted above, ETI proved there are several categories of costs that may be

unrecovered as a result of the implementation of the CGS program. There are

costs directly associated with the development of the program itself and carrying

costs between the time of expenditure and recovery. Also, under the traditional

ratemaking paradigm, ETI’s rates, and the revenue requirement used to establish

them, are required by statute and Commission rule to be designed to recover the

embedded production costs the Company incurs to serve each and every one of its

customers. Tex. Util. Code Ann. § 36.051; 16 Tex. Admin. Code § 25.231(a) &

(b). With every customer that migrates to the CGS program, ETI is not recovering

through base rates charged to that customer the fixed costs it has previously

incurred to provide electricity to that customer. For example, if the fixed test-year

cost of serving ten customers is shown to be $50 million, but those ten customers

migrate to the CGS program, the utility is at risk of not recovering that $50 million

from anyone.

30
     Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 23).
                                                15
         The legislature understood this and mandated that ETI be allowed to recover

“any” costs that would otherwise be unrecovered as a result of implementing the

program.       Tex. Util. Code Ann. § 39.452(b).            Even though this mandate is

expansive and unlimited in category of cost, the Commission dramatically

circumscribed the categories of costs eligible for recovery. The Commission found

that the only costs recoverable under the CGS statute are the costs “to implement

and administer the CGS program tariff.”31 The Commission did not (nor can it)

point to any language in the statute that supports its interpretation.

         First and foremost, statutes must be construed according to their plain

language.       E.g., State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006).             The

Commission reads the statute as requiring reimbursement for only the costs “of

implementing” the program, giving the phrase “unrecovered as a result of” no

meaning. The Commission has written that phrase out of the statute. It is well

established that the legislature is presumed to have chosen its words with care, and

that 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). The Commission’s erroneous construction of the clear,

unambiguous words of the CGS statute is not entitled to any deference. E.g.,

Texas Coast Utils. Coalition, 423 S.W.3d at 363 n.16; Ojo v. Farmers Group, Inc.,

31
     AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 23 & FOF 51).
                                               16
356 S.W.3d 421, 443 (Tex. 2011) (Willett, J., concurring) (“This Court does not

consider agency interpretations of unambiguous statutes.”); Railroad Comm'n of

Tex. v. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 634 (Tex.

2011) (Jefferson, C.J., concurring) (“We do not defer to agency interpretations of

unambiguous statutes.”). The Commission’s decision must be reversed on this

basis alone.

       B.      The Commission’s decision also contradicts the framework
               for cost recovery established in PURA section 39.452(b).

       The Commission’s decision not only flatly ignores the absence of any

limitation on costs eligible for recovery and the legislature’s express confirmation

that “any” costs be included. The decision also contradicts other language in the

statute.

       First, the cost recovery framework of section 39.452(b) includes the

requirement that “unrecovered costs” be identified, and rates be “set, in the [same]

proceeding in which the tariff is adopted,” to recover those costs. Thus, the statute

plainly contemplates that the level of “unrecovered costs” will be determined based

on the same test-year production costs that are used to determine base rates. By

excluding embedded production-related base rate costs from the definition of

“unrecovered costs,” the Commission has violated this key requirement of the

statute.

                                         17
      Second, the legislature not only entitled ETI to recover costs, but it said

some things that affect who may and may not pay them. The legislature prohibited

the program from prejudicing eligible customers who choose not to participate in

it. See Tex. Util. Code Ann. § 39.452(b). The logical result of that prohibition is

that costs avoided by participating customers may not be assigned to customers

who are eligible but opt out. The legislature did not, however, say anything that

prohibits costs from being recovered from other customers. In fact, the legislature

expressly opened the door for recovering costs from other customers.             That

invitation is embodied in the legislature’s reference in the CGS statute to another

provision of PURA – section 36.007. Tex. Util. Code Ann. § 39.452(b) (“The

tariffs subject to this subsection may not be considered to offer a discounted rate or

rates under Section 36.007….”).

      Section 36.007 generally governs what happens when a utility gives a

customer a “discounted rate.” That provision prevents a utility from recovering in

its base rates, which are charged to all customers that take service under traditional

regulation, the “allocable costs of serving customers paying discounted rates under

this section….” Id. § 36.007. That is, section 36.007 prohibits a utility from

giving one customer a discount, and then saddling another customer with the costs

the first one avoided.     The result is that, generally, a utility risks having

unrecovered costs if it chooses to give a customer a discounted rate.

                                         18
       But the legislature said the CGS program may not result in a “discounted

rate.” By saying so, the legislature effectively removed the general prohibition on

shifting costs to customers who do not pay a discount, and confirmed that ETI

must be allowed to recover the full allocable costs of serving customers even after

they migrate to the CGS program. The Commission’s constricted definition of

“unrecovered costs” leaves ETI in the same position regarding cost recovery as if it

were charging a discount rate.32 In this respect, the decision violates the language

of section 39.452(b).

       The Commission and intervenors have characterized the assignment of costs

to non-participating customers as unfair.           These arguments ignore that the

legislature – not ETI – has required this result. There is no way to implement the

CGS 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. There is no free lunch, and the legislature dictated that ETI not pick

up the tab for the special deal it authorized for certain customers. It gave the

Commission the power to cancel the lunch altogether if it could not find a way to

pay for it equitably, but did not give the Commission the power to host the lunch at

the utility’s expense.

32
  Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 76, May Rebuttal at 26); AR Binder 3
(Docket No. 38951, ETI Exh. 91, May Supp. Direct at 8); Supp. AR Part IV, Vol. E (Docket No.
37744, 7/20/2010 Tr. at 341-48).
                                            19
         PUCT Chairman Smitherman acknowledged this fact in his public

discussion of the CGS program. Speaking to ETI, he said, “[I]t’s clear you’re not

supposed to shoulder the burden of this [program] …” and “[U]nder no

circumstances will you eat it [the costs of the program] ….”).33 Nevertheless, the

Commission has chosen to implement a CGS program and prevent ETI from

recovering costs that may be unrecovered as a result of its implementation.

         The Commission is bound to adhere to the strictures of its enabling statute.

E.g., Texas Coast Utils. Coalition, 423 S.W.3d at 359-60 (“As a statutorily created

body, the Commission has no inherent authority, and instead has only the authority

that the Legislature confers upon it.”). The Commission may not violate the plain

language of PURA.

         C.     This Court’s decision in CenterPoint Energy Houston
                Electric, LLC v. Public Util. Comm’n of Tex. does not
                support the Commission’s decision.

         The only legal basis the Commission articulated in its order to support its

definition of “unrecovered costs” was this Court’s decision in CenterPoint Energy

Houston Electric, LLC v. Public Util. Comm’n of Tex., 354 S.W.3d 899 (Tex. App.

– Austin 2011, no pet.).            The Commission characterized ETI’s request for

embedded production costs as a request for “lost revenues,” and found:

         50.    In CenterPoint, the Third Court of Appeals found that because
                the language of PURA § 39.905 did not specifically provide for

33
     Supp. AR Part IV, Vol. F (Docket No. 37744, Nov. 10, 2010 Open Meeting Tr. at 179 & 210).
                                               20
                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.34

According to the Commission, this Court in CenterPoint Energy Houston Electric

decided that the term “costs,” everywhere it appears in PURA, is not intended to

include “lost revenues.” This Court did not so hold. Even if it had, the holding

would not support the Commission’s decision in this case.

                1.     This Court in CenterPoint Energy Houston Electric
                       construed a different statute that had different
                       language and a different purpose.

         CenterPoint Energy Houston Electric concerned a Commission rule

implementing a PURA provision that governed an energy efficiency program. In

PURA section 39.905, the legislature directed utilities to implement energy

efficiency programs to reduce the state’s demand for electricity. Tex. Util. Code

Ann. § 39.905. The legislature directed the Commission to establish “energy

efficiency cost recovery factors” (“EECRFs”) under which utilities could recover

the expenditures they made to satisfy the legislature’s energy efficiency goals. Id.

§ 39.905(b)(1). The legislature further required a mechanism by which a utility’s

EECRF would periodically be trued-up to “reflect any over-collection or under-

34
     AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 22-23 & FOF 50).
                                               21
collection of energy efficiency cost recovery revenues in previous years.” Id.

§ 39.905(b-1). CenterPoint contended these provisions required the Commission

to afford it an opportunity to recover not only the expenditures it made to

implement its program, but also revenues it lost as a result of the program’s

success in reducing demand for electricity. This Court disagreed, holding that the

EECRF statute precluded the Commission from accounting for “lost revenues” in

the reconciliation mechanism. CenterPoint Energy Houston Electric, 354 S.W.3d

at 905.

      The CenterPoint Energy Houston Electric decision does not inform the

question presented in this case. The language of the EECRF statute is materially

different from the language of the CGS statute. The EECRF statute authorizes

“cost recovery for utility expenditures made to satisfy the goal of this section….”

Tex. Util. Code Ann. § 39.905(b)(1) (emphasis added). The use of the term

“expenditures,” and the qualification of eligible expenditures as those made for the

purpose of satisfying the energy efficiency program goal, circumscribe the universe

of costs eligible for recovery under the EECRF. The Court determined that this

language, “[c]onsidered in context,” indicates an intent for a utility to recover “out-

of-pocket expenditures associated with its implementation of energy-efficiency

programs, not to compensate a utility for any associated lost revenues attributable

to those programs.” CenterPoint, 354 S.W.3d at 904.

                                          22
      The CGS statute, in contrast, requires that “rates shall be set … to recover

any costs unrecovered as a result of the implementation of the tariff.”        Id.

§ 39.452(b) (emphasis added). The CGS language is broader than the EECRF

language. “Any” costs means just that, including fixed production costs incurred

to provide electric service to customers who ultimately migrate to the CGS

program. In contravention of this language, the Commission has categorically

precluded ETI from recovering these costs via the CGSUSC rider. This Court’s

construction of the EECRF statute does not speak to the proper construction of the

CGS statute, much less bind the Commission to misconstrue the latter.

            2.    The Court’s reasoning in the CenterPoint Energy
                  Houston Electric case does not support the
                  Commission’s decision here.

      The Commission cites the CenterPoint Energy Houston Electric decision as

support for the broad proposition that the concepts of “costs” and “revenues” are

distinct throughout PURA, such that express authority to recover “costs” is never

authority to recover “revenues” the utility has lost as the result of the

implementation of one program or another.

                  a.     This Court did not distinguish “costs” and
                         “revenues” for all purposes.

      This Court did not say that. The only issue before the Court in CenterPoint

was the scope of costs recoverable under the EECRF statute. CenterPoint argued

that the cost-recovery provisions of the EECRF statute authorized utilities to
                                       23
recover not only the direct costs of implementing the energy efficiency program,

but also “revenues” lost as a result of implementing that program. In rejecting that

argument, the Court first examined the express language of the energy efficiency

provisions. The Court then observed that the legislature in two other places in

PURA distinguished between “costs” and “revenues.”             CenterPoint Energy

Houston Electric, 354 S.W.3d at 903-04. The Court said, “[t]hese provisions

further support our conclusion that the term ‘costs,’ as used by the legislature in

PURA, is not intended to include lost revenues.” Id. at 904. This discussion

appeared in the context of construing the EECRF provision. The Court certainly

did not cite or discuss the CGS provision. It is clear from the language of the CGS

statute that the legislature did intend the utility to recover costs that result from

implementing that program. Those are the very words of the statute.

                   b.     Regardless, ETI indisputably sought “costs”
                          here.

      Furthermore, the facts before this Court in CenterPoint Energy Houston

Electric were fundamentally different from those presented in this case.

CenterPoint asked to recover “lost revenues” that were not tied to the particular

category of “expenditure” it was entitled to recover under the EECRF statute. ETI

in contrast, does not seek “lost revenues” different from or in addition to the

“costs” it is entitled to recover under the statute. ETI gets to recover “any” costs

that result from CGS program implementation, including production costs.
                                         24
       None of the experts in this case disputed that the CGS program could lead

to unrecovered “costs” of the type claimed by ETI, and the ALJ agreed it would.35

While intervenor and Staff experts argued that certain alleged benefits of the CGS

program, or revenues from load growth, might be available to offset ETI’s

unrecovered costs, they did not say that the Company could not experience

unrecovered production costs. This fact is confirmed in the agreement on how to

quantify the rate reduction that CGS customers earn by switching from traditional

rates. The credit is explicitly based on the level of ETI’s fixed production costs

that CGS customers are able to avoid paying by switching.36

       Logically, then, ETI proposed to measure its unrecovered costs caused by

migrating LIPS customers by calculating “the difference between what would have

been billed under traditional LIPS service and the amounts collected under CGS

service.”37 What would have been billed may logically be termed “revenues.” But

even assuming arguendo that a utility cannot recover lost “revenues” without the

35
   Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 2-3 & 21-22);
Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1, Johnson Direct at 85 & 88 (“The CGS-
USC rider will allow the company to flow through unrecovered embedded cost to other customer
classes.”); Docket No. 37744, Kroger Exh. 1, Higgins Direct at 6; Docket No. 37744, State
Agencies Exh. 2, Pevoto Direct at 39-41; Docket No. 37744, TIEC Exh. 1, Pollock Direct at 51-
52 & Exh. JP-16); AR Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 6-7);
Supp. AR Part IV, Vol. E (Docket No. 37744, 7/20/2010 Tr. at 261-63).
36
   AR Binder 2, Item 113 (Docket No. 38951, Stipulation and Settlement Agreement ¶ A.1 &
Attachment 1, “Competitive Generation Service” tariff at ¶ VI.B; Docket No. 38951, July 19,
2013 Order at FOF 41.c. 2-4); AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp.
Direct at 7-8).
37
   Supp. AR Binder 3 (Docket No. 37744, ETI Exh. 9, May Direct at 21); AR Binder 3 (Docket
No. 38951, ETI Exh. 91, May Supp. Direct at 6-7).
                                             25
legislature expressly saying so, the Commission reached the wrong decision here.

Though “costs” and “revenues” may not be the same in all contexts, they are the

same in the context of what ETI was seeking in this case.38

       In the test-year ratemaking construct, a utility’s revenues are designed to

recover exactly the amount of its costs.39 A utility’s “revenue requirement” is its

“cost of service.”     And just as test-year expenses determine what a utility’s

anticipated future revenue requirement will be for a particular class, a utility’s

anticipated revenue requirement for a class of customers establishes what are

indisputably the costs of serving those customers. Unlike CenterPoint, ETI is not

seeking to recover lost revenues in addition to, or instead of, a category of costs

that are guaranteed by a statute. The costs ETI seeks here – and the “revenues”

that the Commission says the Company seeks – are the same thing. The ALJ

understood this reality.40

       Even this Court in CenterPoint Energy Houston Electric recognized a

connection between eligible costs and revenues when it discussed the EECRF true-

up provision. That is, the Court acknowledged that CenterPoint was entitled to

38
   Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1, Johnson Direct at 88 (“Revenues are
intended to equal embedded cost of service for the adjusted test year.”)); Supp. AR Binder 3
(Docket No. 37744, ETI Exh. 76, May Rebuttal at 28); AR Binder 3 (Docket No. 38951, ETI
Exh. 92, May Supp. Rebuttal at 4-5).
39
   AR Binder 3 (Docket No. 38951, ETI Exh. 91, May Supp. Direct at 7; Docket No. 38951, ETI
Exh. 92, May Supp. Rebuttal at 4); Supp. AR Binder 4 (Docket No. 37744, OPUC Exh. 1,
Johnson Direct at 88; Docket No. 37744, TIEC Exh. 1, Pollock Direct at 51-52 & Exh. JP-16
(recognizing that ETI could incur unrecovered costs)).
40
   Supp. AR Binder 2, Item 36 (Docket No. 37744, Proposal for Decision at 22).
                                            26
recover revenues equal to its EECRF costs. CenterPoint Energy Houston Electric,
354 S.W.3d at 901.       The Court simply found that CenterPoint was seeking

revenues unrelated to the narrow class of costs the EECRF statute addressed --

those related to setting up and running the EECRF program. The same logic,

applied to the broader language of the CGS statute, leads to the inescapable

conclusion that ETI is entitled to recover all the costs it incurred (or, stated

differently, revenues it would have received to cover those costs) but for the CGS

program. Thus, though the CenterPoint Energy Houston Electric decision is not

on point because it addresses statutory language fundamentally different from the

CGS statute, this Court’s reasoning in that case undermines the Commission’s

decision in this case.

      D.     The Commission’s decision runs afoul of the principle
             espoused in High Plains and its progeny.

      The Commission’s decision not only violates the language and intent of

PURA section 39.452(d), it also violates a more fundamental tenet of Texas utility

ratemaking also embodied in that statutory language. That is, as noted above,

PURA requires that a utility’s rates be set to permit it to recover all of its

reasonable and necessary operating costs. Tex. Util. Code Ann. § 36.051. The

Texas Supreme Court construed a materially identical requirement in the Gas

Utility Regulatory Act and concluded that the Railroad Commission violated the

requirement by adopting a tariff that provided for less than 100% of the utility’s
                                       27
cost recovery. The Court noted that the statutory language at issue “mandates that

the Commission structure a system that will permit the utility to recover all of its

operating expenses.” See High Plains Natural Gas Co., 628 S.W.2d at 753. The

Texas Supreme Court last year reiterated the same principle, citing High Plains

Natural Gas Co., in upholding a Railroad Commission tariff that was designed to

give the utility the opportunity to recover all of its reasonable and necessary costs.

See Texas Coast Utils. Coalition, 423 S.W.3d 367. The Commission’s decision in

this case, like the Railroad Commission’s decision in High Plains, categorically

renders ineligible for recovery certain costs that are indisputably reasonable and

necessary for the utility to provide service to customers. This is contrary to law

and must be reversed.

      E.     The quantity of production costs eligible for recovery is not
             at issue here -- the Commission never reached that issue.

      There was much debate before the Commission and district court over the

extent to which ETI’s embedded production-related costs will actually be

unrecovered, and the extent to which unrecovered costs might be offset or

mitigated upon implementation of the CGS program.                 Indeed, both the

Commission and intervenor Texas Industrial Electric Consumers (“TIEC”) argued

that the basis of the Commission’s decision was a determination that none of ETI’s

embedded production costs will be unrecovered as a result of the CGS program.

These parties will likely make the same argument again. It has no merit.
                                         28
       The Commission did not make a factual determination that ETI will not have

any unrecovered costs as a result of CGS program implementation.

       The Commission said:

              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.

                                            ***

              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.) … Like PURA § 39.905, PURA §
       39.452 (b) [the CGS statute] 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.41

       In short, the Commission’s order is based solely upon its interpretation of

the CGS statute. The Commission did not reach the issue of how much of ETI’s

costs will be unrecovered as a result of implementing the CGS program, because

the Commission defined the term “unrecovered costs” in a way that precludes the

41
  AR Binder 2 (Docket No. 38951, Final Order at 6, 7-8; see also FOFs 49-51) (emphasis added;
footnotes omitted)).
                                             29
issue from arising. The Commission concluded that the words “any unrecovered

costs” in PURA section 39.452(b) include only the costs of implementing and

administering the CGS program. That is the only reason the Commission gave for

rejecting the proposed CGSUSC rider, which was designed to recover embedded

production costs avoided by participating CGS customers.

      To be clear, the debate on appeal is not whether -- or what -- costs will in

fact be unrecovered. The question before this Court is whether ETI is statutorily

entitled to recoup unrecovered, embedded production-related costs of serving

customers that migrate to the CGS program. The Commission answered that

question in the negative.    This Court must reverse that decision because it

contravenes the clear language and intent of PURA section 39.452(b).

II.   The Commission erred in determining that ETI may not recover CGS
      implementation costs prior to the date that the CGSC rider is approved.

      In addition to its request to recover, via its CGSUSC rider, all embedded

production-related costs that are unrecovered as a result of customers migrating to

the CGS program, ETI sought to recover through its CGSC rider all the costs of

implementing and administering the CGS program.          Though the Commission

apparently recognized that ETI is entitled to recover its costs of implementing and

administering the program, the Commission improperly narrowed the universe of

costs that qualify. The Commission decided that ETI “should not be able to

                                        30
recover any costs via the CGSC rider until the CGS program is implemented.”42

The Commission found:

       57A. 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 [sic].43

The effect of this ruling is to prevent ETI from recovering the lion’s share of the

CGS implementation costs it has incurred in the conduct of this proceeding and in

its previous good faith efforts to reach agreement with the parties on a host of

issues related to the design of the CGS program and tariffs. These collaborative

efforts among the parties led to stipulations on the vast majority of the elements of

the CGS program and tariffs. Before the underlying proceeding had concluded,

ETI had already incurred over $900,000 in costs toward implementation of the

program.44

       The Commission’s decision on this issue violates the plain language of

PURA section 39.452(b). Again, that statute requires that ETI be allowed to

recover “any costs unrecovered as a result of the implementation of the [CGS]

tariff….” Tex. Util. Code Ann. § 39.452(b). The statute does not limit recoverable

42
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 9).
43
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 25 & FOF 57A).
44
   AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 15). There is a small
amount of CGS-related expense (approximately $300,000) that forms part of the test-year costs
upon which ETI’s base rates were established in Docket No. 37744. ETI proposed to credit that
amount under the CGSC rider, so the costs will not be recovered twice. AR Binder 3 (Docket
No. 38951, ETI Exh. 101, Roach Supp. Direct at 15; Docket No. 38951, ETI Exh. 103, Roach
Supp. Rebuttal at 3).
                                             31
costs to those incurred in any particular time period. The provision contemplates

recovery of all CGS tariff implementation costs, regardless of when they are

incurred.

      This is not the first time the Commission has assigned an unduly narrow

meaning to the concept of program implementation. In the docket underlying

CenterPoint Energy Houston Electric, LLC v. Public Util. Comm’n of Tex., 408
S.W.3d 910 (Tex. App. – Austin 2013, pet. denied) (“CenterPoint Energy Houston

Electric II”), the Commission decided CenterPoint was not entitled to a

performance bonus on energy efficiency programs funded by $10 million in

settlement proceeds. The basis for the Commission’s decision was that although

performance bonuses were due on programs “implemented under” the

Commission’s rule, the programs at issue were implemented under a settlement,

not the rule. In reversing the Commission’s decision, this Court noted, “the PUC’s

position here unnecessarily complicates what is fairly standard statutory and

regulatory language. ‘Implement’ simply means ‘carry out.’” CenterPoint Energy

Houston Electric II, 408 S.W.3d at 917. The Court applied this common-sense

meaning to the word, holding that CenterPoint was entitled to a performance bonus

on all its programs “carried out” to achieve the energy efficiency goals of the rule,

so long as they met the other requirements of the rule, regardless of the source of

program funding.

                                         32
         The same common-sense meaning should be applied to the word

“implementation” in the CGS statute. Furthermore, the Court should give effect to

the breadth of the CGS entitlement. That is, in the CGS statute, the legislature not

only entitled the utility to the costs of implementing the program; the legislature

also entitled the utility to the unrecovered costs that result from implementing the

program. Without incurring the costs of proposing, negotiating, and developing

the CGS tariff (and the associated CGSC and CGSUSC riders), the program could

not be implemented or “carried out.”45 The costs incurred to develop the tariff and

riders are just as much a result of program implementation as are the costs incurred

after they are adopted and go into effect. Moreover, excluding recovery of any of

these costs is inconsistent with the legislative intent, discussed above, that ETI not

subsidize the implementation of the CGS program and tariffs.                    In short, the

Commission’s limitation of the time frame for accrual of CGS implementation

costs is contrary to PURA section 39.452(b) and must be reversed.

45
     AR Binder 3 (Docket No. 38951, ETI Exh. 103, Roach Supp. Rebuttal at 2).
                                               33
III.   The Commission erred in deciding not to authorize the recovery of
       interest on CGS implementation costs.

       Finally, ETI requested to earn interest on the unrecovered balance of the

CGSC rider charges.46 The Commission decided that ETI should not be permitted

to recover interest on this balance.47 The Commission found:

       57C. It is not appropriate for ETI to recover interest on the
            unrecovered balance of the CGSC rider charges.48

The sole rationale for the Commission’s decision is that it typically does not allow

interest to accrue on the unamortized balance of legal and consulting expenses (i.e.,

“rate case expenses”) that utilities incur in prosecuting full, general rate cases.49

       That is not a legitimate basis upon which to deny ETI interest on

unrecovered CGSC rider charges. Rate case expenses are not governed by PURA

section 39.452(b), which assures, without exception, ETI’s right to recover all

costs associated with implementing the CGS program. The time value of money

that ETI must forego while it waits for the CGSC rider to be approved, and that it

will just as surely forego between periods of adjustment to that rider, is an

46
   AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct, Exh. DRR-SD-3 at 2
(Section V “True-Up Provision”) and DRR-SD-6 (redline) at 2 (Section V “True-Up
Provision”)).
47
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 10).
48
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 25 & FOF 57C).
49
   AR Binder 2, Item 119 (Docket No. 38951, July 19, 2013 Order at 10).
                                           34
unrecovered cost to the same extent as are the other CGS program implementation

costs.50

       The Texas Supreme Court’s decision in CenterPoint Energy, Inc. v. Public

Util. Comm’n of Tex., 143 S.W.3d 81, 84 (Tex. 2004) confirms that when PURA

expressly confers upon a utility a right to recover certain costs, PURA impliedly

entitles the utility to recover interest on those costs until they are recovered. In

CenterPoint Energy, Inc., CenterPoint sought to accrue interest on stranded costs

until they were quantified. PURA section 39.252(a) expressly authorized utilities

like CenterPoint to recover their stranded costs that resulted from the introduction

of retail competition into their service territories.          Tex. Util. Code Ann.

§ 39.252(a). PURA did not expressly authorize utilities to earn interest on their

unrecovered stranded costs. The Commission adopted a rule that precluded the

utility from beginning to accrue interest on the stranded costs when they arose, and

required the utility to wait to accrue interest until the stranded costs were

quantified. The Texas Supreme Court invalidated the rule, holding that it was

“inconsistent with the Legislature’s intent, expressed in Chapter 39 of the PURA,

that utilities fully recover their ‘net, verifiable, nonmitigable stranded costs’ … A

two- or three-year gap in recovery of carrying costs would not permit generation

50
  AR Binder 3 (Docket No. 38951, ETI Exh. 101, Roach Supp. Direct at 17; Docket No. 38951,
ETI Exh. 103, Roach Supp. Rebuttal at 6).
                                           35
companies full recovery of their stranded costs as the Legislature envisioned.”

CenterPoint Energy, Inc., 143 S.W.3d at 84.

      The Court’s reasoning applies equally to this case. ETI is statutorily entitled

to recover all of its costs of implementing the CGS program, including interest.

The Commission, in denying ETI the right to earn interest on unrecovered

amounts, violated PURA section 39.452(b).           This Court must reverse the

Commission’s ruling on this issue.

                                     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 has the statutory right to recover: its

embedded production-related costs that are unrecovered as a result of

implementing the CGS program; costs ETI incurred to implement the program

before the CGSC rider becomes effective; and interest on the unrecovered balance

of costs incurred to implement the CGS program. 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.

                                            36
                               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 9,085 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

                                        37
                         CERTIFICATE OF SERVICE

       As required by Texas Rule of Appellate Procedure 9.5, I certify that on the
14th day of January, 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

                                         38
                                 APPENDICES

A.   Final Order of the Public Utility Commission of Texas in Docket No. 38951

B.   Interim Order of the Public Utility Commission of Texas in Docket No.
     38951

C.   Entergy Texas, Inc.’s Motion for Rehearing in Docket No. 38951

D.   Texas Utilities Code section 39.452(b)

E.   District Court’s Judgment

                                      39
APPENDIX A

  FINAL ORDER
                                                                                    . ... .
                                                                                    •             , .. . - f '
                                                                                    •             l ·' :     .I r. ! )
                                                                                                                 '"
                                        PUC DOCKET NO. 38951
                                                                          - '2013 JUL I 9 PH 3: II
                                                                         t--\l,JL I(; .J'   II.
                                                                                            I ( ( (    •   I'
                                                                                    FILi l'fG C( t. R,..,' .. ~ .l..t·:

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

                                                   ORDER

                                              I.     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. 1 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 (AU)
forwarded the parties' stipulation and settlement agreement and the proposal for decision to the
Commission for consideration.

        1
            Application of Entergy Texas, Inc. for Authority to Change Rates and Reconcile Fuel Costs,
Docket No. 37744, Corrected Application (Feb. 23, 201 0).
PUC Docket No. 389~1                               Order                                         Page 2 of27

        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, 201 0 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-Martjointly 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 ETrs 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                                             Page3 of27

negotiating, the Entergy Operating Committee had agreed that CGS power from qualifying
facilities in the ETI service territory could provide firm generation.•

       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."s

       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, 201 2, the parties
submitted a third stipulation on customer eligibility stating that large industrial power service
(LIPS) customers would be the COS-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.

       • TIEC's Response to Joint Motion for Decision on Proposal for Decision at 4 (Sep. 15, 20 11 ).
       5
           CGS Stipulated Maners 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, 20 12).
PUC Docket No. 38951                                 Order                                      Page4 ofl7

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 AU 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. 11 Cities, OPUC, ETI, TIEC, and Commission Staff filed briefs
on March 1, 2013 and reply briefs on March 20, 2013. At the April25, 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

        1
            TIEC's Motion to Adopt a Competitive Generation Services Program (Nov. 27, 2012).
        9
          Com.mission 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, 20 12).
        11
             Letter from TIEC (Feb. 8, 2013).
        12
             Letter from TIEC (May 8, 2013).
PUC Docket No. 38951                                   Order                                         PageS of27

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 progr~ 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. 1s TIEC filed a response to the
opposition 16 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, 20 13).
        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, 20 13).
PUC Docket No. 38951                                 Order                                       Page 6 of27

                                              III.     Discussion
          PURA 18 § 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 201 2 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

          11
               Public Utility Regulatory Act (PURA), TEx. UTIL CODE ANN.§§ 11.001-66.017 (Vernon 2007 & Supp.
201 1).
PUC Docket No. 38951                                       Order                                      Page 7 of27

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 AU 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. 19

        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.20 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. Uti/. Comm 'n,
354 S.W.3d 899 (Tex. App-Austin, 201 1 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.
        21
             Supplemental Direct Testimony of Jeffry Pollock, TlEC 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                                     PageS of27

distinguishes "costs" from ''revenues," the term "costs," as used by the legislature in
PURA § 39.905, is not intended to include lost revcnues.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 Comrnjssion 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, 201 0 related to the
                   26
CGS program.            TIEC's version of the CGSC rider would permH ETI to be able to recover the
incremental, reasonable, and necessary CGS program implementation and administration costs

        25
              CenterPoint Energy Houston Electric, UC v. Pub. Uti/. Comm'n, 354 S.W.3d 899, 903-904
(Tex.Civ.App-Austin. 2011 )
        26
             ElTs redlined tariff version Exhibit DRR-SD-6 at I, Section 11 Purpose.
PUC Docket No. 38951                                    Order                          Page9ofl7

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 ofthe 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).30
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 Staffs Initial Brief at 6-7 (March 1, 2013 ).
       29
            ETI's redlined tariff version Exhibit DRR-SD-6 at I , Section Ill Rate.
       3
        °Commission Statrs Initial Brief at 7 (March I, 2013).
       31
            OPUC's Reply Brief at 12 (March 20, 2013).
       32
            TIEC's Initial Briefat24-25 (March 1, 2013).
PUC Docket No. 38951                                       Order                              Page 10 of27

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. Js

        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 201 0-the costs are not costs to implement
the CGS program. 36

        33
             Ell'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
             TlEC's Reply Brief at 17-18 (March 20, 20 13).
PUC Docket No. 38951                              Order                                      Pagellof27

        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 ETrs most-
recent rate case, Docket No. 39896.37

        The Commission agrees with TIEC on this issue and goes further to state that to pennit
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 11.8 .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 ETl should not be pennitted 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
Defe"ed Accounting Treatment, Docket No. 39896, Order (Sept. 14, 20 12).
PUC Docket No. 38951                             Order                                       Page 12 ofl7

                                        V.      Findings of Fact

ProcedMrlll 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 AU 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, 201 1.

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. Huntsv ille,
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 of27

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-Martjointly 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 ETl 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 of17

14.    On January 20, 2012, the parties submitted agreed settlement tenns 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 confonn to the interim order rulings and
       resolve other remaining contested issues.
PUC Docket No. 38951                         Order                                    Page 15 ofl7

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, TlEC, 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.l and 2 of that
       settlement.
PUC Docket No. 38951                           Order                                  Page 16 of27

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.

Eligible 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 finn 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 of27

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.

Customen responsible for IHiving 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 S#pu/ated Matten and StiouiiJted 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 detennination of the Entergy Operating Committee, the
PUC Docket No. 38951                                 Order                                         Page 18 of27

        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 COS-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 ll 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 finn 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 finn 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, 201 3). Finding of Fact No. 53A.
PUC Docket No. 38951                          Order                                  Page 19 of27

       reduction in energy purchased by the COS customer" referenced in section F. I 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 COS
       customer will pay ETI a retail rate that includes all other charges the customer would pay
       as a finn customer (for example Rider TIC, HRC, SRC, SRO, and IFF charges, if
       applicable).

       D.     COS energy payment

               I.      COS customers will pay fuel costs based on avoided cost for
       COS-supplied energy. Specifically, ETI will purchase hourly COS energy supplied by
       the COS supplier from the COS contract capacity at the system hourly avoided-energy-
       cost as determined under Rate Schedule LQF. ETI will charge the COS customer at the
       same rate for that hourly COS-supplied energy not to exceed the energy requirement of
       the COS customer.

       E.     COS customer fixed-cost contribution

               1.      The level of compensation to ETI from CGS customers for COS service
       will include a monthly fixed charge called a fixed-cost contribution.

              2.       The fixed-cost contribution will be $1.10 per kW of COS load per month.

              3.       Revenues from the fixed-cost contribution will reduce any otherwise
       unrecovered costs associated with the program.

       F.     COS customer unserved energy rate

               1.      If, in any hour in a delivery month, there is hourly COS unserved energy,
       the CGS customer will take service from ETI under the CGS unserved energy rate.
       Hourly COS 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 COS contract capacity by the COS supplier in
       such hour, not to exceed the energy requirement of the CGS customer. The parties have
PUC Docket No. 38951                                  Order                                    Page 20 of27

       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 prn 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 of27

                       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 COS 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 detennining 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 2417
       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                                  Page22 of27

       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 ofl7

       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.

Tire Mql7, 2013 Stipu/11tum1U1d 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 COS rider, the CGSC rider,
       and appeal rights.

53.    Agreements as to CGS Rider:

       A.        COS Credit: The parties agree to a COS 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 COS supplier and thereby avoid unserved energy charges to the extent the CGS
       customer's CGS load is reduced.

       C.        Tennination Payment: The parties agree to remove ETI's proposed liquidated
       damages provisions from the COS 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 0(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.. infonnation.

       E.        Force Majeure: The parties agree to remove TIEC's proposed force majeure
       provision.
PUC Docket No. 38951                         Order                                   Page24of27

       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 11.8 .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 11.8.2. now,
       rather than deferring them as proposed in the May 17, 2013 settlement.
PUC Docket No. 38951                         Order                                    Page25of27

       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-TOO 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 2.6 of 2.7

       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.

                                    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
1.     The Commission adopts each of the three stipulation and settlement agreements filed on
       January 20,20 12, April30, 2012, and April l8, 2012.

2.     The Commission adopts each of the provisions of the stipulation and settlement
       agreement filed on May 17, 2013, except for section 11.8 .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                             Page27 of27

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.

I 0.       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                    ~y      of July 2013

                                            PUBLIC UTILITY COMMISSION OF TEXAS

                                            ~vt-
                                            DONNA L. NELSON, CHAIRMAN

q:'cadm\ordcrs\final\38000\3895 I fo.docx
APPENDIX B

 INTERIM ORDER
                                       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
   APPENDIX C
ETI's MOTION FOR REHEARING
                                 PUC DOC KET NO. 38951

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

                                ENTERGY TEXAS INC.'S
                               MOTION FOR .REHEARING

TO THE HONORABLE PUBLIC UTILITY COMMISSION OF TEXAS:
       Entergy Texas, Inc. ("ETI" or "the Company") files this motion for rehearing of the
Commission's July 19, 2013 Final Order, addressing ETI's application for approval of its
proposed competitive generation service ("COS") program and associated tariffs.
       The Commission's final order in many respects is based on adoption of stipulations
among the parties on various COS program and tariff elements. Not all issues in the case,
however, were settled. ETI now seeks rehearing by the Commission regarding several important
contested elements of the COS program and tariffs addressed and resolved by the Commission's
Final Order: I) the proper scope and definition of "unrecovered costs"; 2) the point in time at
which ETI may begin to recover COS implementation costs; and 3) whether interest should
accrue during the time period that ETI must delay recovery of COS implementation and
administration costs.
Point or Error No. 1: The Commission erred in determining that "unrecovered costs," as
contemplated by PURA § 39.452{b), include only the costs necessary to Implement and
admin ister the CGS program, and do not include "lost revenues, embedded generation
costs, or any other types or costs.'' (Interim Order at 4, S-7, FoF 39-40, CoL 2; Final Order
at 6, 7-8, 11, FoF 20, 50-51, CoL 2).
Point or Error No. 2: The Commission erred in excluding from evidence ETI's proposed
Competitive Generation Services Unrecovered Service Cost ("CGSUSC") Rider, and the
associated portions or the Supplemental Direct Testimony or Company witness Dennis
Roach (p. 22, II. 1- 11 and Exhibit DRR-SD-4), on the ground that they were contrary to th e
Commission's ruling on " unrecovered costs" and therefore irrelevant. (Order No. 1I
Ruling on Cities' Motion to Strike at 1-2).
       Under the terms ofPURA § 39.452(b), ETI is guaranteed the ability "to recover any costs
unrecovered as a result of the implementation of the [COS] tariff." The Commission's Final
Order determined that "unrecovered costs" include "only those costs necessary to implement and
administer the COS program and are not to be defined to include lost revenues, embedded
                                                           1
generation costs, or any other types of costs."                The Company respectfully submits that this
ruling is inconsistent with the plain terms and requirements ofPURA § 39.452(b), which broadly
encompass not only tariff implementation and administration costs, but also the embedded
production costs that ETI will lose the ability to recover as a result of the COS program and
tariffs.       For the same reason, the Company excepts to and requests rehearing of the
Commission's ruling excluding ETI' s proposed COS USC Rider tariff and related testimony from
evidence, since that ruling follows from the Commission's reading of Section 39.452(b).l
           As the SOAH judge correctly concluded, ETI's right to recover costs that arise due to the
implementation of the COS program and tariffs is not subject to limiting terms or categories.3
The statute does not state that ETI shall recover only costs incurred "in implementing and
administering the COS tariff." Instead, the plain terms of the statute entitle ETJ to recover "any"
manner of costs that would otherwise be unrecovered "as a result or• the tariff's implementation.
The Commission's limitation of ''unrecovered costs" to a single specific category of costs
(implementation and administration costs) is not consistent with the statute. ETI is entitled to an
opportunity to show under the statute, and has shown by its evidence, that implementation of the
COS tariffs will cause it to incur production costs that it cannot recover absent Commission
provision for recovery in this case.
           The Commission's interpretation of ''unrecovered costs" is also at odds with the
framework for cost recovery established in PURA § 39.452(b). First, the statute makes clear that
the COS program may not operate like a discount rate under PURA § 36.007; that is, the effect
of the COS program must n ot be that ETI is prevented from recovering the full "allocable costs
of serving customers... .'"'          Since PURA § 39.452(b) says, in effect, that ETI cannot be
precluded, due to the COS program, from recovering the allocable costs of servi ng its customers,

           1
            Final Order at 0.8, II, FoF 20, 51, CoL 2. The Commission's Final Order incorporates ii.S previous
ruling on the scope and definition of unrecovered costs set out in ii.S June 12, 2012 Interim Order.
           , St>e Order No. II Ruling on Citks' Motion to Strike (Feb. 6, 2013).
         ' Proposal for De<: ision ("PFD~) at 18 (ETI will experience unrecovered production cost.s as a result of the
CGS pro&fllDI), 22 (ETI entitled to recover any unrecovered cost, including embedded production COSI$), 23
("Opponeni.S of Rider CGSUSC have failed to identify any caveats to this expansive language ..." guaranteeing full
cost recovery).
        • PURA § 36.007 is the provision that the COS propm must !12! mimic. This provision prevents a utility
from recovering in it.S base rates charged to all customers the "allocable cosi.S of serving customers paying
discounted rates under this section ...."

                                                           2
it necessarily follows that ''unrecovered costs" include those very same types of costs, and not
merely implementation and administration costs.
        In addition, the cost recovery framework of Section 39.452(b) includes a requirement that
"unrecovered costs" be identified, and rates be "set, in the [same) proceeding in which the tariff
is adopted," to recover those costs. Thus, the statute plainly contemplates that the level of
"unrecovered costs" be determined based on the same test year production costs that are used to
determine base rates in that same proceeding. This is the approach that ETI's evidence and
testimony takes in this case; ETI's witnesses identify the portion of the test year costs that will
no longer be paid by customers migrating to COS service and utilize that amount as the measure
of unrecovered costs. s The Commission's definition of unrecovered costs does not give effect to
this key requirement of the statute.
        The provisions of Section 39.452(b) evidence the legislature's intent to ensure that ETI
not be required to subsidize the COS program,' as recognized by Chairman Smitherman in his
discussion of the COS program. 7 Moreover, the provisions in Section 39.452(b) preventing the
COS tariff from being treated as a discount rate are clearly intended to avoid the result in past
rate cases where the Company's shareholders were required to absorb any shortfall in cost
recovery arising from the offering of discount rates to retail industrial customers.•
        Contrary to this legislative intent, under the Commission's definition of ''unrecovered
costs,'' the evidence in this case shows that ETI will lose any opportunity or ability to recover a
portion of the fixed production costs it incurs to serve its customers, because customers moving
to the COS program will cease paying their share of those costs and no other customers will pick
up the shortfall in cost recovery. In these circumstances, the Commission's interpretation of the
tcnn "unrecovered costs" has two statutorily impermissible impacts:                    I) it prevents ETT from
recovering costs that are unrecovered as a result of the COS program's implementation, or even

        1
            See, e.g., PFD at 22.
         ' PFD at 3 (~the CGS legislation makes clear ETI is not to bear any costs as a result or the implementation
or the program.").
        1
           Open Meeting (Nov. 10, 2010) Tr. at 179 ("'it"s clear you're not supposed to shoulder the burden or this
(program) ...."), 210 ("under no c~wnstances wall you eat it (costs or program) ....").
        ' E.g., Application of Entugy Tuas for Approval oflrs Traruition to Competition Plan, and for the
Authority to Reconcile Fuel Costs, to Set Revised Fuel Factors, and to Recover a Surcharge/or Under-Recovered
Fuel Cos11, Docket No. 16705, Proposal ror Oocision at 399; Second Order on Rehearin& at 37-38. FoF 247-252
(Sep. 4, 1998).

                                                         3
the opportunity to make a demonstration that it has experienced "unrecovered costs"; and 2) it
puts ETI in the same position as it would be if it were charging a discounted rate to COS
customers (that is, ETI and its shareholder have to absorb the shortfall in recovery and thereby
subsidize the COS program).
        The Commission supports its position regarding the definition and scope of "unrecovered
costs" almost exclusively by reference to the Third Court of Appeals decision in CenterPoint
Energy Houston Electric, LLC v. Pub. Uti/. Comm'n.9 For numerous reasons, that case is not
pertinent to this proceeding. First, ETI 's proposed defmition of unrecovered costs addresses not
lost revenues, but instead recovery of test year fixed production costs that it would recover
through base rates from the COS customer, but for that customer's switch to COS service. As
the AU determined and the evidence clearly demonstrates, "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."10
        The expert witnesses in this case agreed with the ALJ on this point, and they also
recognized that these fixed production costs could constitute a variety of "unrecovered costs"
within the meaning of Section 39.452(b). 11 Tellingly, the rate reduction that COS customers
earn by switching from their former firm Large Industrial Power Service ("LIPS'') rates is
explicitly based on the level ofETI's fixed production costs that they are able to avoid paying by
the switch. 12 The Commission, however, has not recognized any means by which ETI can seek

        9
              354 S.W.3d 899 {Te><. App.- Austin 2011, no pet).
         10
              PFD at22.
         11
             PFD at 22, citing Tr. at 26 I-262; PFD at 25, citing T!EC Ex. I at 51-52 and Ex. JP-16; >ee also Direct
Testimony of Clarence Johnson, OPC Ex. I at 88, Tr. at 351; Tr. at 356; Direct Testimony of Jeffrey Pollock, TIEC
Ex. l at 51.
         12
              See Stipulation of Facts, Nos. C. 2-4; Final Order FoF 41.c. 2-4.

                                                            4
to recover those costs in its order. Instead, the Commission has categorically precluded their
recovery. 13
        From this discussion, it should be evident the Third Court's ruling in CenterPoint-that
"lost revenues" and "unrecovered costs" are distinct statutory terms-does not address or justify
the Commission's determination that ETI will not experience and cannot recover any manner of
unrecovered costs (save for implementation/administration costs).                     Finally, the CenterPoint
decision is distinguishable from the case at hand because of the clear differences in the
COS-related statutory provisions and the energy efficiency-related provisions that were before
the Third Court of Appeals. PURA § 39.905(bXl) specifies that energy efficiency cost recovery
is limited to "expenditures made;" i.e., "out of pocket expenditures associated with [the utility's]
implementation of energy-efficiency programs ...."t 4 This is a completely different context and
standard from the cost recovery concept set out in PURA § 39.452(b). Under the CGS statute,
the standard for recovery-"any costs unrecovered as a result of the implementation of the
tariff"-must be read in context with the requirement that the program not have the impact of a
discounted rate. Viewing these provisions as a whole demonstrates that PURA § 39.452(h) is
intentionally aimed at recovery of otherwise forgone embedded production costs. Recovery of
such costs is the focus of the Company's proposed definition and tariff provisions.
        For all these reasons, ETI respectfully submits that the Commission's determination
regarding the scope and definition of "unrecovered costs" (as well as its exclusion from evidence
of ETI's proposed CGSUSC tariff and explanatory testimony) is contrary to PURA, affected by
error of law, arbitrary and capricious, an abuse of discretion, and unsupported by substantial
evidence. Furthermore, the Commission's action contradicts ETI's right, under PURA § 36.051
and the Texas and United States Constitutions,ts to rates sufficient to provide a reasonable

         11
            The Commission's decision to narrowly define ''unrecovered costs" to include only implementation and
administration costs has rendered immaterial claims by the other parties that maners such as capacity value, load
growth, or reductions in the variability of QF put, should be considered as offsets or as means to recoup
"unrecovered costs." To the extent any party anempts to defend the Commission's order on the basis of such
offsets, they are not contemplated by PURA § 39.452(b), are speculative, hypothetical, and unquantifiable at this
time, and do not eliminate the existence of unrecovered costs and the need for a proper, staMorily supported
defmition supporting their recovery. E.g., Tr. at 251 (TIEC witness concedes offsets caMot be quantified); TIEC
Initial Brief at 16 (alleged reduced operational costs associated with implementation of CGS program caMot be
quantified). These alleged offsets do not provide a reasonable basis or substantial evidence for iiS rulings regarding
the meaning of "unrecovered costs," nor remedy the flaws in statutory interpretation regarding PURA § 39.452(b).
         "CenterPoint, 354 S.W.3 d at 901,904.
         " See Tex. Const. An. I,§ 19; U.S. Const. Amend. V, XIV.

                                                          5
opportunity to earn a reasonable return over and above the recovery of its reasonable and
necessary expenses.
Point of Error No. 3: The Commission erred in determining that ETI may not recover
CGS implementation costs prior to the date that Rider CGS is approved. (Final Order at
8-9, 11, FoF 57A, Ordering Paragraph 8).
       The Commission determined that ETI could only begin to recover CGS program
implementation and administration costs (i.e., the costs to be recovered under the future CGS
Cost, or "CGSC" Rider), on the date of the tariff's approval and further implementation pursuant
to that approval (that is, July 19, 2013). The effect of this ruling is to prevent ETI from
recovering the lion's share of the CGS implementation costs it has incurred in the conduct of this
proceeding and in its previous good faith efforts to reach agreement with the parties on a host of
issues related to the design of the CGS program and tariffs. 16 These collaborative efforts among
the parties led to stipulations as to the vast majority of the elements of the CGS tariff.
       The Commission's decision in this instance is at odds with the plain meaning of the
statutory requirement in PURA § 39.452(b) that ETI be allowed to recover "any costs
unrecovered as a result of the implementation of the [CGS] tariff...."                      This provision
contemplates recovery of all CGS tariff implementation costs, regardless of when they are
incurred. Without incurring the costs of bringing the CGS program and tariffs to this point, ETI
and the Commission could not implement the tariff. Moreover, excluding recovery of these costs
is inconsistent with the legislative intent, described in Point of Error No. I, that ETI not
subsidize the implementation of the CGS program and tariffs. For these reasons, the Company
respectfully submits that the Commission's determination regarding the timeframe for recovery
of CGS implementation costs is contrary to the applicable statutory requirements, affected by
error of law, arbitrary and capricious, an abuse of discretion, and unsupported by substantial
evidence.
Point of Error No. 4: The Commission erred in its determination not to authorize the
recovery of interest on CGS implementation costs. (Final Order at 10-11, FoF 57C,
Ordering Paragraph 5).
        The Commission determined that it "is not appropriate for ETI to recover interest on the
unrecovered balance of the CGSC rider charges." 17                    The Commission supported its

         16
            There is a small amount of CGS-related expense (approximately $300,000) that forms pan of the test
year costs upon which ETI's current base rates were established.
        11
             Fof 57C.

                                                      6
determination by comparison to its recent practice regarding the treatment of rate case expenses,
"which are typically amortized over a three-year period without a return on the unamortized
balance." 11 The Commission's practice regarding the amortization and recovery without interest
of rate case expenses, however, has not, to ETI's knowledge, been the subject of judicial review
and is not controlling in this case. Rate case expenses are not governed by PURA § 39.452(b),
which assures, without exception, ETI's the ability to recover all otherwise unrecovered
implementation costs associated with the CGS program.
        The time value of money ETI must forgo while it waits to begin recovery of CGS
program administration and implementation costs, via the yet to be established CGSC Rider, and
which it wi ll just as surely forgo between periods of adjustment to that rider, is an unrecovered
cost to the same extent as are other CGS program implementation costs.                         In an analogous
context, the Texas Supreme Court has ruled that when otherwise statutorily mandated recovery
of costs by a utility is delayed, then recovery of interest to reflect the time value of money is
likewise required. 19 For these reasons, the Commission' s denial of the recovery of interest is
contrary to the applicable statutory requirements, affected by error of law, arbitrary and
capricious, an abuse of discretion, and unsupported by substantial evidence.
        Ln conclusion, ETI respectfully requests that the Commission grant this motion for
rehearing in all respects. ETI requests such other and further relief to which it may show itself
justly entitled.

         " Final Order at 10.
         19
             CenterPoint Energy, Inc. v. Pub. Uti/. Comm 'n, 143 S.W.3d 81 (Tex. 2004) (ruling that the Commission
bad erred in delaying the accrual of carrying costs on slranded costs until the amounts were detennined, rather than
starting carrying costs when the costs first arose).

                                                         7
                                               Respectfully submitted,

                                               Steven H. Neinast
                                               Assistant General Counsel
                                               ENTERGY SERVICES, INC.
                                               919 Congress Avenue, Suite 840
                                               Austin, Texas 78701
                                               (512) 487-3957 telephone
                                               (512) 487-3958 facsimile

                                               John F. Williams
                                               Jay Breed veld
                                               DUGGINS WREN MANN & ROMERO, LLP
                                               600 Congress Avenue, Suite 1900
                                               P.O. Box 1149
                                               Austin, Texas 78767-1149
                                               (512) 744-9300 telephone
                                               (512) 744-9399 facsimile

                                               .,.]0~~-:-- LJ~
                                                    State Bar No. 21554100

                                               ATTORNEYS FOR
                                               ENTERGY TEXAS, INC.

                              CERTIFICATE OF SERVICE

       I certify that a true and correct copy of this document was served by facsimile,
hand-delivery, overnight delivery, or First Class U.S. Mail on all parties of record in this
''""""mgooA"""''·2013.                    ~                1- lj ~
                                           o       F. Williams

                                               8
  APPENDIX D
Texas Utilities Code § 39.452(b)
V.T.C.A., Utilities Code § 39.452                                                                              Page 1

                                             Effective: June 19, 2009

Vernon's Texas Statutes and Codes Annotated Currentness
 Utilities Code (Refs & Annos)
    Title 2. Public Utility Regulatory Act
      Subtitle B. Electric Utilities (Refs & Annos)
            Chapter 39. Restructuring of Electric Utility Industry
              Subchapter J. Transition to Competition in Certain Non-Ercot Areas
                   § 39.452. Regulation of Utility and Transition to Competition

(a) Until the date on which an electric utility subject to this subchapter is authorized by the commission to im-
plement customer choice under Section 39.453, the rates of the electric utility shall be regulated under tradition-
al cost-of-service regulation and the electric utility is subject to all applicable regulatory authority prescribed by
this subtitle and Subtitle A, including Chapters 14, 32, 33, 36, and 37.

(b) 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 compet-
itive generation service, selected by the customer, and provide the generation at retail to the customer. An elec-
tric utility subject to this subsection shall provide and price retail transmission service, including necessary an-
cillary 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 transmis-
sion customers. Notwithstanding any other provision of this chapter, the commission may not issue a decision
relating to a competitive generation tariff that is contrary to an applicable decision, rule, or policy statement of a
federal regulatory agency having jurisdiction.

(c) That portion of any commission order issued before the effective date of this section requiring the electric
utility to comply with a provision of this chapter is void.

(d) Until the date on which an electric utility subject to this subchapter implements customer choice:

  (1) the provisions of this chapter do not apply to that electric utility, other than this subchapter, Sections

                           © 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
V.T.C.A., Utilities Code § 39.452                                                                              Page 2

  39.904 and 39.905, the provisions relating to the duty to obtain a permit from the Texas Commission on En-
  vironmental Quality for an electric generating facility and to reduce emissions from an electric generating fa-
  cility, and the provisions of Subchapter G that pertain to the recovery and securitization of hurricane recon-
  struction costs authorized by Sections 39.458-39.463; and

  (2) the electric utility is not subject to a rate freeze and, subject to the limitation provided by Subsection (b),
  may file for rate changes under Chapter 36 and for approval of one or more of the rate rider mechanisms au-
  thorized by Sections 39.454 and 39.455.

(e) An electric utility subject to this subchapter may proceed with and complete jurisdictional separation to es-
tablish two vertically integrated utilities, one of which is solely subject to the retail jurisdiction of the commis-
sion and one of which is solely subject to the retail jurisdiction of the Louisiana Public Service Commission.

(f) Not later than January 1, 2006, an electric utility subject to this subchapter shall file a plan with the commis-
sion for identifying the applicable power region or power regions, enumerating the steps to achieve the certifica-
tion of a power region in accordance with Section 39.453, and specifying the schedule for achieving the certific-
ation of a power region. The utility may amend the plan as appropriate. The commission may, on its own motion
or the motion of any affected person, initiate a proceeding to certify a qualified power region under Section
39.152 when the conditions supporting such a proceeding exist.

(g) Not later than the earlier of January 1, 2007, or the 90th day after the date the applicable power region is cer-
tified in accordance with Section 39.453, the electric utility shall file a transition to competition plan. The trans-
ition to competition plan must:

  (1) identify how the electric utility intends to mitigate market power and to achieve full customer choice, in-
  cluding specific alternatives for constructing additional transmission facilities, auctioning rights to generation
  capacity, divesting generation capacity, or any other measure that is consistent with the public interest;

  (2) include a provision to reinstate a customer choice pilot project and to establish a price to beat for residen-
  tial customers and commercial customers having a peak load of 1,000 kilowatts or less; and

  (3) include any other additional information or provisions that the commission may require.

(h) The commission shall approve, modify, or reject a plan filed under Subsection (g) not later than the 180th
day after the date the plan is filed unless a hearing is requested by any party to the proceeding. A modification to
the plan by the commission may not be in conflict with the jurisdiction or orders of the Federal Energy Regulat-
ory Commission or result in significant additional cost without allowing for timely recovery for that cost. If a
hearing is requested, the 180-day deadline is extended one day for each day of the hearing. The transition to
competition plan shall be updated or amended annually, subject to commission approval, until the initiation of
customer choice by an electric utility subject to this subchapter. Consistent with its jurisdiction, the commission
shall have the authority in approving or modifying the transition to competition plan to require the electric utility

                           © 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
V.T.C.A., Utilities Code § 39.452                                                                            Page 3

to take reasonable steps to facilitate the development of a wholesale generation market within the boundaries of
the electric utility's service territory.

(i) Notwithstanding any other provision of this chapter, if the commission has not approved the transition to
competition plan under this section before January 1, 2009, an electric utility subject to this subchapter shall
cease all activities relating to the transition to competition under this section. The commission may, on its own
motion or the motion of any affected person, initiate a proceeding under Section 39.152 to certify a power re-
gion to which the utility belongs as a qualified power region when the conditions supporting such a proceeding
exist. The commission may not approve a plan under Subsection (g) until the expiration of four years from the
time that the commission certifies a power region under Subsection (f). If after the expiration of four years from
the time the commission certifies a power region under Subsection (f), and after notice and a hearing, the com-
mission determines consistent with the study required by Section 5, S.B. No. 1492, Acts of the 81st Legislature,
Regular Session, 2009, that the electric utility cannot comply with Section 38.073, it shall consider approving a
plan under Subsection (g).

(j) Notwithstanding any other provision of this subtitle, in awarding a certificate of convenience and necessity or
allowing cost recovery for purchased power by an electric utility subject to this section, the commission shall
ensure in its determination that the provisions of Sections 37.056(c)(4)(D) and (E) are met and that the generat-
ing facility or the purchased power agreement satisfies the identified reliability needs of the utility.

CREDIT(S)

Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. Amended by Acts 2006, 79th Leg., 3rd C.S.,
ch. 11, § 1, eff. May 26, 2006; Acts 2009, 81st Leg., ch. 1226, § 3, eff. June 19, 2009.

HISTORICAL AND STATUTORY NOTES

2007 Main Volume

Acts 2006, 79th Leg., 3rd C.S., ch. 11, in subsec. (a), inserted “and except for proceedings and cost recovery
mechanism authorized by Sections 39.458-39.463,”, and in subd. (d)(1), inserted “, and the provisions of
Subchapter G that pertain to the recovery and securitization of hurricane reconstruction costs authorized by Sec-
tions 39.458-39.463”, and made a nonsubstantive change.

2014 Electronic Update

2009 Legislation

Acts 2009, 81st Leg., ch. 1226 in subsec. (b), substituted “An electric utility subject to this subchapter’’ for
“Notwithstanding Subsection (a), except for adjustments authorized by Sections 36.203, 39.454, 39.455, and
39.456, and except for proceedings and cost recovery mechanisms authorized by Sections 39.458-39.463, a per-
son may not file a proceeding to change, alter, or revoke any rate offered or charged by an electric utility subject
to this subchapter before June 30, 2008. As part of a Subchapter C, Chapter 36, rate proceeding, the utility’’, in-

                          © 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
V.T.C.A., Utilities Code § 39.452                                                                        Page 4

serted “not later than September 1, 2010’’, and added the fourth to eighth sentences; and added subsecs. (i) and
(j).

V. T. C. A., Utilities Code § 39.452, TX UTIL § 39.452

Current through the end of the 2013 Third Called Session of the 83rd Legislature

(C) 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

END OF DOCUMENT

                          © 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
   APPENDIX E
District Court's Final Judgment
OCT-16-2014   15:02          201ST DISTRICT COURT                    512 854 2268           P.02/0S

                                                                     Filed in The District Court
                                                                      of Travis County, Texas

                                                                           OCT 1 6 2014 MC
                                     NO. D-1-GN-13-003434            At       3 /3            f   M.
                                                                     Amalia Rodriguez-Mendoza, Clerk

        ENTERGY'fExAs, INC.,                        §   IN THE DISTRICT CoURT OF
                PLAINTIFF,                          §
                                                    §
        v.                                          §   TRAVIS COUNTY, TEXAS
                                                    §
         PuBLIC UTILITY CoMMISSION                  §
         OF TEXAS,                                  §
                DEFENDANT.                          §   345TH JUDICIAL DISTRICT

                                        Final Judgment

               On August 5, 2014, the Court heard this administrative appeal on the

        merits. Plaintiff Entergy Texas, Inc., defendant Public Utility Commission of

        Texas, intervenor Office of Public Utility Counsel, and intervenor Texas

         Industrial Energy Consumers appeared through counsel and announced

         ready. The Court, having reviewed the pleadings, the administrative record,

        the briefs, and argument ofcounsel, finds that the Public Utility Commission's

        final order in its Docket 38951, the agency order under review in this cause,

        should be in all things affirmed.

                IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the

         Final Order of the Public Utility Commission ofTexas in its Docket No. 38951

         is AFFIRMED.

                                                    I
OCT-16-2014   15:02        201ST DISTRICT COURT                         512 854 2268     P.03/0S

               IT IS FURTHER ORDERED that Plaintiff take nothing by its cause of

        action and that costs are assessed against the Plaintiff.

               This is a final judgment that disposes of all parties and all claims and is

        appealable. All relief not expressly granted herein is DENIED.

                                              Amy Clark    ac um
                                                Judge Presiding

        Approved as to form:

         /s/ Megan M. Neal
         Megan M. Neal
         Assistant Attorney General
         State Bar No. 24043797
         Representing Defendant Public Utility Commission of Texas

         Marnie A. McCormick
         Duggins Wren Mann & Romero, LLP
         State Bar No. 00794264
         Representing Plaintiff Entergy Texas, Inc.

         Isl Sara J. Ferris
         Sara J. Ferris
         Senior Assistant Public Counsel
         Office of Public Utility Counsel
         State Bar No. 50511915
         Representing Intervenor Office of Public Utility Counsel

                                                  2
OCT-16-2014   15:03         201ST DISTRICT COURT                           512 854 2268        P.04/0S

                 IT IS FURTHER ORDERED that Plaintiff take nothing by its cause of

          action and that costs are assessed against the Plaintiff.

                 This is a final judgment that disposes of all parties and all claims and is

          appealable. All relief not expressly granted herein is DENIED.

                                                Signed this __ day of October, 2014

                                                Amy Clark Meachum
                                                  Judge Presiding

          Approved as to form:

          Megan M. Neal
          Assistant Attorney General
          State Bar No. 24043797
          Representing Defendant Public Utility Commission of Texas

         lsl~11twc!<..._
          Marnie A. McCormick
          Duggins Wren Mann & Romero, LLP
          State Bar No. 00794264
          Representing Plaintiff Entergy Texas, Inc.

          SaraJ. Ferris
          Senior Assistant Public Counsel
          Office of Public Utility Counsel
          State Bar N o . - - - - - -
          Representing Intervenor Office of Public Utility Counsel

                                                   2
OCT-16-2014   15:03     201ST DISTRICT COURT                     512 854 2268      P.0S/0S

     Isl Rex Van Middlesworth
     Rex VanMiddlesworth
     Thompson & Knight, LLP
     State Bar No. 20449400
     Representing Intervenor Texas Industrial Energy Consumers

                                          3

                                                                                TOTAL P.05