Texas Staff: Benefits of Entergy Texas Joining MISO Are "Small"; Costs "Understated"

Net quantitative benefits of Entergy Texas, Inc. (ETI) joining the Midwest ISO are "small," and compel the Public Utility Commission of Texas to consider, "the un-quantified risks and qualitative costs and benefits of the transaction, such as the potential costs of transmission and ramifications in governance changes," witnesses for Commission Staff said in testimony filed yesterday (40346).

While testifying that ETI has "understated" the costs of joining an RTO, Staff's witnesses recommended that the Commission conditionally approve ETI's application to join MISO, in light of the positive, though small, net quantitative benefits, with the conditions meant to mitigate various risks which could erase such small benefits.

In analyzing ETI's application, notable conclusions from Staff's witnesses include that, "Entergy's cost-benefit analysis is biased toward MISO, particularly in the areas of administrative and transmission costs associated with joining and participating in an RTO. Therefore the extent of positive net benefits that ETI may realize is likely to be smaller than Entergy has forecast."

"Entergy employed significantly lower planning reserve margins for the Join MISO case than for the Join SPP case, biasing the results in favor of MISO," Staff testified.

Staff's witnesses testified that, "no detailed analysis of the actual transmission constraints between MISO and Entergy has been performed, nor the implications of congestion within the Entergy Region on ETI's realization of benefits from joining MISO." Staff noted that, "there is the potential that ETI customers would not be hedged against such congestion."

Furthermore, "[a]s a utility that is short of capacity relative to its peak demand, ETI will be dependent on external suppliers of capacity in the future to fulfill its planning reserve obligation. Therefore, the Commission may also want to consider how the cost savings for ETI for planning reserves are impacted by the RTOs' market rules for planning reserves or capacity market design," Staff said.

"In addition, the estimated production cost savings to ETI are small," Staff said. "Therefore, it is important that the Commission consider the transaction in its entirety; that is, it consider not only the quantitative measures of forecast production cost benefits, planning reserve benefits and ancillary service benefits, but also consider the un-quantified risks and qualitative costs and benefits of the transaction, such as the potential costs of transmission and ramifications in governance changes."

Specifically, Staff testified that, "the governance proposals put forth by MISO and Entergy result in a decrease of this Commission's authority related to Section 205 filing rights and transmission planning."

Additionally, the proposed transfer of Entergy's transmission assets to ITC Holdings, if approved, "may effectively terminate the governance arrangements proposed by MISO and Entergy," Staff said.

Staff testified that the potential for transmission costs in MISO above those forecast by Entergy, and the uncertain resolution of key issues, such as auction revenue rights (ARR) allocation, "create risk that should be mitigated by applying safeguards to protect Texas ratepayers."

In light of these and other considerations, Staff recommended that the PUCT condition approval of ETI's application to join MISO on, among other things, the following:

• ETI may join MISO only if all other Entergy Operating Companies join MISO concurrently, or prior to ETI;

• ETI may join MISO only if Entergy Arkansas, Inc. (EAI) joins MISO either concurrently or prior to ETI, because the sole contract path between MISO and Entergy lies in the EAI region;

• ETI may join MISO only if the Commission maintains the level of authority it currently enjoys as a member of the Entergy Regional State Committee (E-RSC). This authority includes the ability of the E-RSC to a) direct the RTO to make certain filings with FERC under Section 205 of the Federal Power Act, and change the terms and conditions that apply to cost allocation for transmission projects and b) add specific projects to the Entergy transmission Construction Plans. Such authority should be retained indefinitely, extending beyond a proposed five-year transition period.

An additional recommended condition from Staff was redacted in the public version of testimony, as it addressed an issue granted confidential protection.