Analysis Finds Entergy Texas Benefits of Joining MISO At Risk if Entergy PPAs Terminated

An independent analysis prepared for the Public Utility Commission of Texas indicates that the benefits to Texas customers from Entergy Texas, Inc. (ETI) joining the Midwest ISO are at risk if certain PPAs with other Entergy operating companies are terminated upon MISO membership, as is being sought by such other operating companies.

See prior story for background on PPA issues

The analysis again shows that alternatives for Entergy Texas, such as membership in ERCOT, likely produce better quantitative and qualitative benefits, the largest of which is that ETI would be wholly within the jurisdiction of the PUCT, a benefit so large it is immeasurable. Had a retail electric provider been active in the proceeding, and been an advocate for ETI's ERCOT membership, perhaps a record would exist upon which reconsideration of the ERCOT option could now proceed in light of the surprise challenges now arising under the MISO option.

While the largest obstacle to ETI ERCOT membership had been the sticker shock of transmission costs to link the grids, in light of the evaporating benefits of MISO membership, unknown future costs from capacity markets and federally socialized transmission costs, such ERCOT costs may have been justifiable alternatives, especially when the benefit of placing ETI solely under the PUCT's jurisdiction is considered.

Had a REP been an advocate in the ETI proceeding for an ERCOT solution, perhaps we would be talking about a new service area opening up to retail competition, instead of pinning hopes on states outside of organized markets, such as Arizona, or other long-shots.

In any event, what is before the PUCT now is an analysis by London Economics International that concludes that if the at-issue PPAs were terminated, the estimated impact to ETI ranges from a cost of $138 million to a benefit of $1 million (in NPV terms for 2014-2022).

A reduction in benefits of $138 million on an NPV basis would "significantly erode" the total benefits of ETI joining MISO from a prior May 2011 study, London Economics noted.

"ETI would still retain some benefit, but it is important to note that the May 2011 Analysis is based on many of the same outdated assumptions as the Updated Analysis, and therefore may overstate the trade benefits, as LEI has previously testified. It is also important to note that this Report only looks at the First and Updated Analysis and does not attempt to re-examine any [of] the May 2011 analysis, which LEI believes, as stated in its testimony, does not accurately reflect the benefits or capture potential incremental costs. Furthermore, the changes that were correctly made in the Updated Analysis (i.e., current operating dynamics, make-whole payments and congestion costs) are not reflected in the May 2011 estimate of net benefits from joining MISO," LEI said.

"LEI's analysis indicates that the results are highly sensitive to certain assumptions and inputs, such as available operating capacity, capacity prices and future natural gas price assumptions. Entergy's Consultant [which indicated benefits from PPA termination] largely relied on outdated modeling results of the 2010 CRA Study. For example, the CRA Study had assumed natural gas prices in the future would be roughly double of what they are today and what they are expected to be in the medium term," LEI said.

"The Capacity Cost analysis relies on units' installed capacity instead of unforced capacity as suggested by MISO's Resource Adequacy rules; and results of the analysis are highly sensitive to future capacity market price levels, which are difficult to predict, and may be lower than what Entergy's Consultant relied upon," LEI added.

Docket: 40979