Entergy Texas Customers Could Become Net Payers Under System Agreement Despite MISO Membership

A preliminary analysis by Entergy Texas reveals that, under a certain set of assumptions, Texas ratepayers will become net payers under the Entergy system agreement in 2014 even as the Entergy companies join the Midwest ISO, PUCT Commissioner Kenneth Anderson reported during Friday's open meeting.

The revelation only reinforces the need for Texas stakeholders to consider all options for the future of Entergy Texas, and not limit their analysis to the options considered by Entergy, which have been its preferred option of joining MISO, or alternatively joining the Southwest Power Pool or making changes to the current independent coordinator of transmission agreement.

Anderson said that he has not formed an opinion ultimately on what the best outcome is, but did express several areas of focus for the PUCT as it considers Entergy's proposal.

Anderson noted that there appears to be some consideration by Entergy that the system agreement does not necessarily go away even after it joins MISO, though by 2015 the Arkansas and Mississippi operating companies will have left the system agreement. During an investor call Friday, Entergy confirmed that despite MISO membership, the four operating companies which have not given notice to leave the system agreement (Entergy Texas, Entergy Louisiana, Entergy Gulf States, and Entergy New Orleans) would receive transmission service from MISO, but that Entergy would have to "map that back through" the four remaining operating companies, which would be, from a resource point of view, managed under the system agreement.

Anderson said that while a successor agreement may be required to share certain administrative costs of the operating companies, the "whole point" of RTO membership is for the companies to give up the dispatch of their generation and operation of their transmission system, which are at the heart of the benefits of RTO membership.

Anderson asked Entergy Texas to perform an early analysis of what happens beginning in 2014 as some of the operating companies start leaving the system agreement.

According to preliminary data, Anderson said that if you assume that in 2014 that the production costs in each of the operating companies is roughly proportional to what it is now, which Anderson agreed is a big assumption, then at any gas price in the $4 range, and perhaps even the low $5 range, Texas becomes a net payer under the system agreement.

Anderson thus called the future of the system agreement a "critical issue" in deciding the appropriate RTO for Entergy.

Anderson also raised concerns on MISO multi-value transmission projects, noting that such projects' costs are socialized based on an energy (throughput) basis rather than demand, such as in ERCOT (or, under a different mechanism, SPP). Such cost allocation will result in the customers of the operating companies with high usage, such as Entergy Texas, paying a greater share of such costs.

While "not a deal killer" such cost allocation must be considered, Anderson said.

Aside from transmission projects with true RTO-wide benefits, such as system reliability, MISO's multi-value projects also include transmission lines not needed for system reliability, but rather for renewable integration. Most of these projects will flow west to east, and given the Entergy system's geography, it is not likely that Texas ratepayers would benefit directly from such projects, for which they would be paying enormous costs.

Anderson also reported there is some belief that MISO will be split into a north and south zone should Entergy join, and said that any such split must be considered in an analysis of the costs and benefits.

Anderson further noted that not only does MISO place an unbundled capacity obligation on load serving entities, but that MISO is also in the process of proposing to place a forward capacity obligation on load, over the objections of several state regulators. Anderson said that he will focus on how capacity costs were factored into Entergy's cost-benefit analysis of MISO membership.