RESO 2013-13 - Entergy Texas support - 8/6/2013RESOLUTION 2013 -13
A RESOLUTION OF THE CITY COUNCIL OF HUNTSVILLE, TEXAS, IN SUPPORT OF A
PROPOSAL BY ENTERGY TEXAS, INC. AND ITC HOLDINGS CORP. REGARDING THE
CHANGE OF OWNERSHIP AND CONTROL OF TRANSMISSION BUSINESS, TRANSFER
OF CERTIFICATION RIGHTS, AND RELATED RELIEF IN PUBLIC UTILITY
COMMISSION DOCKET NO. 41223 UPON THE GUARANTEE OF ENUMERATED
CONDITIONS
WHEREAS, on or about February 19, 2013 Entergy Texas, Inc. ( "Entergy ") and ITC Holdings Corp.
( "ITC Holdings ") filed an Application for Approval of Change of Ownership and Control of Transmission
Business, Transfer of Certification Rights, Certain Cost Recovery Approvals, and Related Relief with the Public
Utility Commission of Texas ( "PUC" or "Commission ") and docketed as PUC Docket No. 41223; and
WHEREAS, Entergy is a utility serving customers within the municipal limits of City and regulated by
the City; and
WHEREAS, ITC Holdings is the first, largest, and only publicly traded independent transmission
company in the nation; and
WHEREAS, City intervened as part of the Entergy Service Area Cities' Steering Committee in Docket
No. 41223 and filed expert testimony in opposition to Entergy's and ITC Holding's Application, as originally
filed, as the quantitative and qualitative benefits of the transaction were not readily discernible and insufficient to
offset the anticipated transmission costs resulting from the transaction; and
WHEREAS, City's expert testimony determined that Commission could find that the transaction is in the
public interest by imposing the conditions listed below, the first two of which guarantee that no transmission cost
increase resulting from ITC Holding's increased rate of return would be charged to customers in Texas without
first finding that the economic benefits of the transaction offset the increased transmission costs. The conditions
recommended by Cities' expert testimony are as follows:
1. ETI's customers should be left no worse off in terms of costs under the transaction than under
continued ETI ownership, and should be entitled to rate refunds or credits if necessary to
ensure this;
2. Any transmission - related cost increases must first be approved by Texas regulatory
authorities and must be offset by quantifiable transaction benefits;
3. ETI/ITC shall not seek to recover any costs incurred to effectuate the ITC transaction from its
customers;
4. ITC shall assume all liabilities for unfunded retirement or other obligations such as historical
transmission storm damage;
5. ITC should be subject to applicable Texas or multi -state regulatory oversight to the extent
such oversight does not conflict with FERC regulation;
6. The PUCT should maintain input on transmission planning activities, and ETUITC should
support an oversight group similar to the existing Entergy Regional State Committee;
7. ETI should keep the PUCT apprised of ITC transaction activities in other EOC jurisdictions,
and provide all transaction - related orders and updates, studies, reviews, reports, and analyses
as required under the orders;
8. ITC should provide the PUCT any periodic filings required by other regulatory jurisdictions
related to transmission system safety and reliability;
9. ITC should provide the PUCT a transmission - related vegetation management plan to ensure
continued maintenance of the Texas transmission system;
10. ETUITC should provide an emergency response plan that reflects coordination and
communication between ETI, ITC, PUCT and emergency responders; and
11. In the event any EOC or ITC Company commits to provide rate discounts or concessions to
customers in any other EOC jurisdiction, ETI and ITC must offer substantially the same
concession to customers in Texas.
WHEREAS, on July 9, 2013, the Administrative Law Judges issued a Proposal for Decision recommending
against the transaction as proposed in the original application and in the hearing on the merits in Docket No.
41223 and recommended that if the Commission were to approve the transaction that the conditions listed in
Cities' expert testimony be imposed; and
WHEREAS, on July 3, 2013, Entergy and ITC filed the attached letter and guarantees with the Cities and have
agreed to satisfactorily address the Cities' conditions;
WHEREAS, the Entergy Service Area Cities' Steering Committee had a meeting with ITC and Entergy
on July 10, 2013, and received assurances from both ITC and Entergy that the companies would abide by the
commitments made in the July 3, 2013, letter. The Steering Committee voted to support the proposed transaction
with ITC and Entergy guaranteeing commitments that address the conditions enumerated by Cities;
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF HUNTSVILLE,
TEXAS, THAT:
Section 1. The statement and findings set out in the preamble to this resolution are hereby in all
things approved and adopted.
Section 2. The City of Huntsville hereby supports a public interest finding by the Commission
contingent on the approval of the terms and conditions that reflect the commitments made by Entergy and ITC
Holdings, which address the conditions set out by the Administrative Law Judges and contained in Cities' expert
testimony.
Section 3. The meeting at which this resolution was approved was in all things conducted in strict
compliance with the Texas Open Meetings Act, Texas Government Code, Chapter 551.
Section 4. This resolution shall become effective from and after its passage.
PASSED AND APPROVED this 6th day of August 2013.
THE CITY OF HUNTSVILLE
AT _ ST:
clod r•. Cit ecre
Mac Woodwar , Mayor
APP' O ED AS TO FORM:
nard Schneider, City Attorney
AMENDED PROPOSED COMMITMENTS
The following proposal is made by the Entergy Texas Inc. ( "ETI ") and ITC to resolve
Docket No. 41223. This listing of conditions and commitments is intended to substitute
for all those conditions and commitments made by the Applicants in any previous term
sheet, public discussions (except those commitments made during a contested case
hearing) and/or in Applicants' rebuttal testimony.
I. DEFINITIONS
"Actual WACC Effects" means the difference in ETI retail WACC as of December 5,
2011 and actual ITC WACC applied to the ITC Rate Base and adjusted for ETI retail
impact only. This is used for benefits test(s) and true -up(s) during the Transition Period.
"Annual Review Period" means a calendar year within the Extension Period.
"Attachment 0 rate" means the MISO tariff Attachment 0 forward - looking formula, and
resulting revenue requirement and transmission charges for ITC as approved by FERC in
Docket No. ER12 -2681.
"Estimated WACC Effects" means the difference in ETI retail WACC as of December 5,
2011 and estimated ITC WACC applied to ETI estimated transmission rate base and
adjusted for ETI retail impact calculated in the retail regulatory filing to estimate retail
rate effects of the Transaction. This is used for rate mitigation calculations.
"Extension Period" means the time period following the Initial Period, if any, during
which the Rate Mitigation Plan continues in effect.
"FERC" means the Federal Energy Regulatory Commission.
"Initial Period" means the 5 -year period starting at the close of the Transaction.
"ITC" means the ITC Midsouth operating company in Texas.
"ITC Ownership Benefit Calculation" means the benefits of ITC ownership as calculated
in accordance with Appendix B to this term sheet.
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"ITC Rate Base" means actual ITC rate base reflected in rates charged for transmission
service that are passed through ETI retail rates.
"MISO" means the Midcontinent Independent System Operator, Inc.
"Rate Mitigation Plan" means use of funds over the Initial Period and Extension Period,
if any, to offset certain rate effects of the Transaction.
"Regulatory Authority" means the Public Utility Commission of Texas.
"RTO" means Regional Transmission Organization.
"Transaction" means the Reverse Morris Trust transaction among ITC Holdings Corp.,
Entergy Corp., and affiliated entities through which a subsidiary of ITC Holdings Corp.
will own the transmission assets formerly owned by the Entergy Operating Companies.
"Transition Period" means the period of time following close of the Transaction during
which the Rate Mitigation Plan is in place, which begins with the Initial Period and
includes the Extension Period, if any.
"WACC" means Weighted Average Cost of Capital in percentage terms.
II. ETI AND ITC MUTUAL PROPOSALS
A. Rate Mitigation — WACC Effects
1. Initial Period: ITC and ETI agree to implement a Rate Mitigation Plan over
the Transition Period, which at a minimum will be the Initial Period but may
be extended during the Extension Period as set forth below. The funds
associated with the Rate Mitigation Plan for the Initial Period are specified in
Appendix At but may be modified in accordance with Subsection II.A.10
below.
2. Extension Period: If at the end of the Initial Period, ITC has not
demonstrated that the annual ITC Ownership Benefit Calculation is greater
than the annual Actual WACC Effects in the fifth year following the close of
the Transaction, the Rate Mitigation Plan shall remain in place until such time
as ITC has demonstrated that the annual ITC Ownership Benefit Calculation
exceeds the annual Actual WACC Effects during an Annual Review Period.
The Rate Mitigation Plan for the Extension Period will consist of annual funds
that reflect 100% of the projected Actual WACC Effects net of the percentage
of annual Actual WACC Effects offset by the ITC Ownership Benefit
Calculation per the last calculation of such benefits.
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3. True Up of Initial Period: If at the end of the Initial Period the annual ITC
Ownership Benefit Calculation is not greater than the annual Actual WACC
Effects in the fifth year following the close of the Transaction, there will be a
true -up of the Actual WACC Effects for the Initial Period to the funds
associated with the Rate Mitigation for the Initial Period specified in
Appendix A. To the extent that Actual WACC Effects less the ITC
Ownership Benefit Calculation exceeds the funds associated with the Rate
Mitigation Plan for the Initial Period specified in Appendix A, additional rate
mitigation for the difference will be put in place over the next two years (one-
half of the additional rate mitigation in the sixth year following close of the
Transaction and one -half of the additional rate mitigation in the seventh year
following the close of the Transaction).
4. True Up During Extension Period: During the Extension Period, if any, if
annual Actual WACC Effects less the ITC Ownership Benefit Calculation for
the Extension Period exceed the rate mitigation funds provided during the
Extension Period in accordance with Subsection II.A.2, additional rate
mitigation funds for such difference will be put in place in the next calendar
year.
5. Review of Benefits By Third Party Evaluator: The determination of
whether the annual ITC Ownership Benefit Calculation exceeds annual Actual
WACC Effects shall be made by a Third Party Evaluator in accordance with
the methodology set forth in Appendix B. Beginning no earlier than the last
year of the Initial Period and at any time during the Extension Period, ITC
shall be permitted to initiate the Third Party Evaluator's assessment of the
annual ITC Ownership Benefit Calculation to determine whether the annual
ITC Ownership Benefit Calculation exceeds annual Actual WACC Effects.
There shall be no limit as to the number of times or frequency that the Third
Party Evaluator's assessment of the ITC Ownership Benefit Calculation may
be initiated during the Extension Period. The Third Party Evaluator shall be
selected by ITC and all costs associated with the Third Party Evaluator's
services will be paid by ITC.
6. Termination of Rate Mitigation: If the Third Party Evaluator determines, in
accordance with Appendix B, that the annual ITC Ownership Benefit
Calculation exceeds annual Actual WACC Effects at either the end of the
Initial Period or for any Annual Review Period, any obligations for rate
mitigation terminates on the 30th day following the filing of the Third Party
Evaluator's determination.
7. ETI Treatment of Rate Mitigation Provided by ITC: Any rate mitigation
provided by ITC that is realized by ETI as part of the Rate Mitigation Plan
will be passed through to ETI customers in accordance with Appendix A —
Section III.A Transmission Cost Rate Mechanism.
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8. Termination of ETI Contribution To Rate Mitigation: If at the end of the
20th year following the close of the Transaction, the ITC Ownership Benefit
Calculation has not been found to exceed the annual Actual WACC Effects
for an Annual Review Period, ETI's obligation to provide bill credits shall
cease. ITC shall be obligated to provide all rate mitigation thereafter until
such time as the ITC Ownership Benefit Calculation exceeds the annual
Actual WACC Effects for an Annual Review Period.
9. Measuring Estimated or Actual WACC Effects: For purposes of
measuring Estimated and Actual WACC Effects, in either the Initial Period or
the Extension Period, ETI's WACC will be based on equity and capital
structure as of the date of the Transaction's announcement (December 5,
2011), which is the basis for determining the amounts set forth in Appendix
A.
10. FERC Ordered Rate Construct Change: If FERC issues an order that
changes the formula rate or elements of the rate construct (including the
forward looking application of the formula rate, authorized rate of return on
equity, target capital structure, and annual true -up mechanism) for ITC, and
which causes a change in ITC -WACC, then any rate mitigation shall be
adjusted by an amount equivalent to the change in ITC -WACC caused by that
FERC order.
11. No Challenge To Rate Construct By Parties: During the Initial Period, the
Rate Mitigation Plan is conditioned on the parties to this proceeding in
support of the Rate Mitigation Plan and the Regulatory Authority that
approves the Rate Mitigation Plan not challenging the formula rate and
elements of the rate construct (including the forward looking application of
the formula rate, authorized rate of return on equity, target capital structure,
and annual true -up mechanism) that are approved for ITC by the FERC in
connection with the Transaction.
12. Return On Equity: During the Transition Period, ITC will not seek an approval
from FERC to utilize an overall rate of return on equity that is above the
prevailing return on equity level approved for use by Transmission Owners in
MISO, except that if that return on equity level is less than 12.38 percent then
ITC may seek approval from FERC to utilize a rate of return on equity up to
12.38 percent.
B. Rate Mitigation — Forward Test Year
1. ETI agrees to provide additional retail customers bill credits specified in
Appendix A over the first three years of the Initial Period, which amount
represents the estimated effects on retail customers of eliminating regulatory
lag by implementing a forward test year during the Initial Period.
C. Transmission System Performance
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1. ITC and ETI Storm Plans: Within 180 days after the closing of the ITC
Transaction, ETI and ITC shall file with the Regulatory Authority new
(separate) Emergency Response Plans specifically detailing their proposed
responses to tropical storms, hurricane and flood conditions, the manner in
which coordination and communication between ETI and ITC will occur, how
communication and coordination with State and local authorities will occur
and all related matters.
2. Vegetation Management Plans: ETI and ITC, within 180 days after
closing of the ITC Transaction, shall file with the Regulatory Authority
their tree trimming /vegetation control plan for the ETI service territories.
That plan must include expected expenditures broken down by ETI service
territories and between ITC and ETI for transmission vegetation control
versus distribution vegetation control. That plan should also detail the
breakdown of responsibility for vegetation control as between ETI and ITC.
3. System Hardening Plans: ITC, one year after closing of the ITC
Transaction, shall file with the Regulatory Authority its proposal for
"hardening" of the former ETI backbone transmission system.
4. Joint Storm Drills: ITC and ETI commit to conduct, no less than annually,
joint storm drills, which will include the participation of other entities who are
interconnected with ITC's transmission system who choose to participate,
which address joint plans for responding to catastrophic storms.
D. Other Matters
1. State Approvals: The Regulatory Authority will have the right to reconsider
its approval and public interest determination if the other jurisdictions, not
including City of New Orleans or Missouri, issue an Order denying any other
Entergy Operating Company the authority to complete the ITC Transaction.
2. FERC Approval: The Regulatory Authority will have the right to reconsider
its approval and public interest determination if the FERC issues an Order
denying Entergy and/or ITC the authority to complete the ITC Transaction.
3. Most Favored Nations: ITC and ETI will provide to the Regulatory
Authority any contingency, condition or benefit that is provided for in any
other Regulatory Authority's order approving the Transaction in any other
jurisdiction provided such contingency, condition or benefit does not derive
from circumstances or regulatory requirements unique to an individual
jurisdiction and can be applied consistently across jurisdictions, and ITC and
ETI receive comparable terms and consideration from the Regulatory
Authority seeking to receive such contingency, condition or benefit.
4. Requests For Relief: Requests for relief in the joint application are granted to
the extent not modified by this term sheet.
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III. ITC PROPOSALS
A. Jurisdiction Generally: ITC is committed to operating in full compliance with
all applicable legal and regulatory requirements, and working closely and
collaboratively with the Regulatory Authority. ITC will operate subject to and in
compliance with all state statutes and regulations that apply to it as an electric
transmission only public utility in Texas.
B. Books and Records: ITC acknowledges that the Regulatory Authority has
authority to review its books and records in accordance with the requirements of
state law.
C. Asset Transfers: ITC shall not transfer any transmission assets located in Texas
without the prior approval of the Regulatory Authority, in accordance with the
requirements of state law.
D. State ITC Representative: ITC will designate an employee whose main work
location and residence is in Texas to be a liaison on behalf of ITC to the
Regulatory Authority. ITC also will designate personnel who will be available to
participate in emergency operations coordination when needed.
E. Requests for Information and Meetings: Subject to reasonable notice, ITC will
cooperate with Regulatory Authority requests for information and for ITC staff to
attend Regulatory Authority meetings, technical conferences, and hearings.
F. Transmission Projects: On an ongoing basis, and at least annually regarding its
annual capital investment program, ITC will share with the Regulatory Authority
information about its planned or proposed transmission projects, including the
rationale for planned or proposed projects, currently anticipated timing and cost of
construction, and other material information about such projects. In addition, ITC
will respond to inquiries from the Regulatory Authority regarding its transmission
projects, will be open to and consider input from the Regulatory Authority
regarding its transmission project plans, and support the Regulatory Authority's
active participation in the regional transmission planning process.
G. Annual Rate Posting: On an annual basis, at least 15 days prior to the time that
ITC posts its forecasted Attachment 0 rate with MISO, ITC shall provide to the
Regulatory Authority a summary of that forecasted rate posting, including all
expected rate impacts.
H. Responses to Inquiries: ITC commits that it will respond to data requests timely
regarding its annual forecasted Attachment 0 rate posting with MISO and
otherwise cooperate with the Regulatory Authority and their Staff in their
analyses. ITC further agrees to make members of its staff available to the
Regulatory Authority and its Staff to respond to inquiries and to explain the
submission and the annual rate posting process.
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I. Summary of Rates Charged: Annually, within 30 days after ITC submits its
annual FERC Form No. 1 to FERC, ITC shall provide to the Regulatory Authority
a summary of all rates charged by MISO to network transmission customers of
ITC for the prior year.
J. Litigation Expenses: For issues in which Regulatory Authority has a justiciable
interest and as provided by state law, ITC commits that it will annually fund up to
$1.5 million (unless otherwise provided by applicable state law) the Regulatory
Authority's reasonably necessary expenses for an effective review of any
information or pleadings that ITC submits to the Regulatory Authority or to
FERC, and complaints or actions filed by, or investigations or audits initiated by,
the Regulatory Authority at FERC or its own jurisdiction related to transmission
services provided by ITC to utilities that are subject to the retail jurisdiction of the
Regulatory Authority. ITC also will continue to fund such necessary expenses as
had been provided in state law if that state law is repealed or does not otherwise
remain in force. This commitment is contingent upon ITC's ability to recover
such costs in rates.
K. Rate Filings: ITC commits that it will review with the Regulatory Authority
and/or Staff any rate filings initiated by it to FERC that would impact ITC's
customers in Texas in advance to explain the rationale for such a filing.
L. MISO Conditions: ITC will abide by all applicable MISO conditions, identified
in Appendix A. ITC will abide by this condition provided that: a) any exit fee
associated with terminating membership in MISO be paid by electric consumers
within the footprint served by ITC; b) any termination of membership in MISO
also be approved by FERC; c) any termination of membership in MISO also not
be disputed by another state Regulatory Authority or local authority in which ITC
or one of its affiliates operates; d) if terminating membership in MISO, ITC is
able to join a different RTO immediately upon its exit from MISO; and e) ITC
shall retain all of its rights, state and federal, to appeal and/or seek other review
of any decision or determination by the Regulatory Authority regarding ITC
membership in an RTO, including the right to assert federal preemptive rights and
seek related relief at the FERC and in the courts under applicable federal law.
M. Transmission Project Commitment: ITC will solicit input from the Regulatory
Authority regarding transmission projects that should be studied and pursued.
ITC will collaborate with the Regulatory Authority to pursue such projects, and
take appropriate actions to study and construct such projects that fulfill ITC's
transmission planning criteria, are approved through the necessary RTO planning
processes, and receive other necessary regulatory approvals.
N. Siting Authority: ITC agrees that the Regulatory Authority has certification and
siting authority for electric transmission, and will abide by any final Regulatory
Authority order adopted exercising that authority, subject to ITC reserving any
appeal rights provided under state law. However, this condition is not intended to
preempt ITC's compliance with any federal statute or final order of the FERC.
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ITC reserves all its rights to participate in proceedings to establish rules related to
the Regulatory Authority's rights and authority, and reserves the right to appeal
any rules that may be inconsistent with the applicable State and Federal laws, and
otherwise reserves its rights to appeal orders issued pursuant to such rules.
0. System Improvement Plan: Within 1 year after the closing of the ITC
Transaction, ITC shall submit to the Regulatory Authority a report on its analysis
of the transmission system formerly owned by ETI and its related plan to improve
the transmission system in Texas. Included in its analysis will be a study of
congestion on the transmission system and an identification of transmission
projects to mitigate such congestion. ITC will propose and support in the MISO
planning process those transmission projects identified in the study that are
expected to cost - effectively reduce congestion.
P. ITC Responsibility for Transmission System: ITC acknowledges and commits
that, to the extent not otherwise preempted by federal law, after completion of the
ITC Transaction, it will be fully responsible and accountable to the Regulatory
Authority for the provision of safe, reliable, adequate and reasonable cost service
to its customers in all respects related to planning and the provision of service for
the transmission function. ITC shall also be responsible for coordination of
operations with ETI as necessary.
ITC Local Presence: ITC commits to maintain one or more office, warehouse,
and/or pull -out facility locations in this state that will be staffed with ITC
personnel.
Q.
R. Civic and Charitable Support: During the 3 -year period immediately following
closing of the Transaction, the subsidiaries of ITC Holdings Corp. that own the
electric transmission facilities formerly owned by subsidiaries of Entergy Corp.
will provide charitable contributions and other community support within the
communities in which they operate (allocated among those jurisdictions in a
reasonable manner and approximately commensurate in amount with each other),
at a level comparable in the aggregate to the levels currently provided by ITC
Holdings Corp. in its other service territories.
S. Use of Local Workforce: To the extent possible, and where such personnel or
vendors satisfy ITC's standards related to quality, capability, cost efficiency, and
equipment or other specifications, ITC will seek to utilize vendors, contractors,
and personnel located in this state in its transmission system maintenance and
capital investment initiatives.
T. Goodwill: ITC confirms its commitment that it will not seek to recover goodwill
related to the Transaction.
U. Transaction Costs: ITC will not seek to recover its Transaction costs unless
such recovery is approved by FERC, based on a finding that the benefits of the
Transaction outweigh such costs.
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V. Workforce Commitment: For a period of 3 years following closing of the
Transaction, ITC Holdings Corp. will not implement layoffs of employees
performing work on ITC's behalf at a level or in a manner that is not
approximately commensurate with layoffs of employees performing work on
behalf of ITC Holdings Corp.'s other subsidiary operating companies.
W. ERSC Participation: ITC will support retention of the Entergy Regional State
Committee's existing authority over cost allocation and construction of
transmission upgrades for the five -year transition period after the Entergy
Operating Companies join MISO and the transitional framework conditionally
approved by FERC in Order No. ER12- 480 -000.
IV. ETI Transmission Cost Rate Mechanism And Incremental Costs
A. ETI Transmission Cost Recovery
1. Transmission Cost Recovery: ETI shall be authorized to implement the
transmission cost recovery specified in Appendix A.
B. Incremental Costs
1. Incremental Costs: ETI agrees that it will not seek to recover incremental
costs associated with the Transaction. While this excludes all external costs,
there are certain internal costs that currently are being charged to the
Transaction that are not incremental to the ETI's ongoing revenue
requirements. ETI proposes that it be permitted to retain these costs in rates
but subject to an after -the -fact review by the Regulatory Authority that these
costs were prudently incurred for purposes unrelated to the Transaction.
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APPENDIX A: SUPPLEMENTAL PROPOSED COMMITMENTS FOR
TEXAS
I. ITC AND ETI COMMITMENTS
A. Rate Mitigation — WACC Effects
Subject to Section II.A.10 in the Amended Proposed Commitments, during the Initial Period,
ITC and ETI shall provide $77 million in Rate Mitigation Funds, which amount represents an
offset of 100% of the estimate of WACC Effects on retail rates during the Initial Period as well
as effects of the termination of Service Schedule MSS -2. The $77 million of Rate Mitigation
Funds will be provided to customers via $67 million in rate rebates by ITC or bill credits by ETI
and $10 million of net avoided costs for MSS -2.
B. Forward Test Year
ETI agrees to provide retail customers with $13.1 million in additional bill credits over the first 3
years after Transaction close.
C. Other Entergy Retail Regulator Decisions
ITC and ETI will provide the Commission, within a reasonable time after they receive them,
decisions of any of the other Entergy Retail Regulators, and the FERC, approving, denying, or
otherwise impacting the ITC Transaction.
D. Timing of Closing
ITC and ETI will not close the Transaction until after ETI has provided the notices described in
Findings of Fact Nos. 21 and 133 of the Commission's Order in Docket No. 40346 to fulfill the
terms and conditions contained in that Order.
II. ITC PROPOSALS
A. Securitization
To the extent permitted by law, upon order of the Commission, ITC will take steps necessary,
including seeking FERC approval as necessary, to utilize securitization to finance transmission -
related storm damage repair and restoration costs above $100 million for a single storm
occurrence, so long as securitized financing is available and is the least cost financing
alternative, ITC receives all applicable regulatory approvals for such securitization, and the costs
associated with obtaining such securitization is recoverable through ITC's rate for transmission
service. To the extent current law does not permit ITC to utilize securitized financing, ITC will
take reasonable steps to have changes to law made to enable such securitized financing. In
addition, ITC's compliance under this provision may be accomplished through its obtaining
securitized financing directly or through Entergy Corporation's or one of its affiliates' obtaining
securitized financing on ITC's behalf.
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B. MISO Conditions
MISO Conditions: ITC will abide by all applicable MISO conditions as set forth in the
Commission's Order of October 26, 2012, in Docket No. 40346. We have reviewed the MISO
conditions in the Commission's Order in Docket No. 40346 and believe that conditions
contained therein not identified below are inapplicable to ITC, have already been satisfied, or are
beyond the control of ITC.
Applicable Conditions:
Finding of Fact No. 23: MISO Governance (E -RSC) — ETI agreed that as a condition of
joining MISO it will support retention of the Entergy Regional State Committee's (E- RSC's)
current level of authority during the five-year transition period (as defined in Attachment FF of
the MISO tariff) in MISO as follows:
a. The E -RSC shall retain authority to direct the EOCs, upon unanimous vote, to exercise
their rights as transmission owners in MISO to add projects to the MISO transmission
expansion plan;
b. The E -RSC shall retain authority, upon unanimous vote, to direct the EOCs, as
transmission owners in MISO to propose to modify the usual MISO cost allocation
methodology among the EOCs' transmission pricing zones with respect to new
transmission projects, other than multi -value projects, that are situated entirely within
MISO South, and are approved during the five-year transition period for cost allocation
that MISO proposed to FERC and that FERC has conditionally approved. Any
modifications to the cost allocation methodology would require FERC approval.
c. ETI further agreed that it will use reasonable efforts in working with the other EOCs
(who ETI expects will work with their respective retail regulators) and the Commission in
considering an extension of such authority beyond the five-year transition period.
ITC will abide by this condition.
Finding of Fact No. 26: MISO Cost/Benefit Review — The signatories agreed that the
Commission will conduct a supplemental review of ETI's continued MISO membership prior to
the end of five years from the date that ETI achieves integration into MISO or December 31,
2018, whichever occurs first. In connection with this supplemental review, one year prior to that
date, ETI will submit a filing that includes a study analyzing the costs and benefits to date of
MISO participation and a forward - looking cost /benefit analysis, which affords the opportunity
for meaningful stakeholder input.
a. MISO Costs /Benefit Periodic Reports -ETI agreed to work in cooperation with
Commission Staff to develop an appropriate framework for periodic analyses and
reporting of the costs and benefits of ETI membership in MISO.
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To the extent that any study by ETI or Commission supplemental review of ETI's continued
MISO membership leads to any Commission proceeding regarding the potential exit of ITC from
MISO as a transmission owner, then ITC will participate in any such proceeding, and further
subject to Amended Proposed Commitments Subsection III.L regarding MISO Conditions.
Finding of Fact No. 31: Transmission Congestion Reporting — ETI agreed that it will provide
regular periodic updates to the Commission which detail its ongoing efforts, through its own
transmission planning and its participation in the MISO transmission expansion planning
process, to proactively identify, advocate and pursue construction of transmission upgrades that
are reasonably forecasted to provide a net economic benefit toward reducing ETI's cost to
provide reliable electric service to its retail customers.
ITC will abide by this condition as contemplated by the Amended Proposed Commitments to
which this appendix is attached.
Finding of Fact No. 33: The signatories agreed that, after ETI joins MISO, it shall remain
responsible and accountable for the operation of its systems, including but not limited to: the
manner in which it participates in any MISO- administered market; how it offers its generation
into the MISO Day Ahead and Real Time Markets; how it offers load into the MISO Day Ahead
market; bidding and scheduling,- any actions it takes to supply its retail loads; any actions it
takes to procure fuel, capacity and/or energy; the prudent administration and management of its
energy supply contracts; the prudent administration and management of its energy supply
transactions with MISO; its obligation to ensure that the charges and credits received from
MISO are correct and accurate; appropriate management of nominating ARRs, conversion to or
use of FTRs and appropriate crediting of ARR and FTR receipts, and any resource adequacy
market transactions.
ITC's commitment regarding its responsibility for the operation of the transmission system is
addressed in the Amended Proposed Commitments to which this appendix is attached.
Finding of Fact No. 34: The signatories agreed that Commission Staff shall have complete
access to information and full rights to conduct audits of costs incurred by or credited to ETI
and to conduct prudence reviews, as needed, in connection with these and related activities
within E77's control, including activities associated with transitioning to and operating within
membership in MISO. These audits and prudence reviews rights are not intended to make ETI
responsible for activities required by a valid FERC tariff and which are undertaken by MISO
that are therefore beyond ETI's control. Ensuring that MISO charges and credits to ETI are
correct and accurate, however, will be the explicit responsibility of ETI to the extent that it is
reasonably possible for ETI to do so consistent with the information that is available to it. ETI
must undertake all reasonable efforts to verify the correctness and accuracy of these charges and
credits which will include all reasonable efforts to obtain the information necessary to verify the
accuracy of these charges and credits. ETI must also validate that the charges and credits it
receives are being assessed pursuant to the MISO tariff.
ITC will provide information upon request by the Commission related to the costs incurred as a
result of ITC's participation as a transmission owner in MISO that are ultimately reflected in
3
retail rates in Texas. ITC's commitment to abide by this condition is not intended to grant the
Commission any authority it does not currently have under state law nor give up any rights that
ITC may have under federal, state, or local law.
C. Congestion Study
Following the close of the Transaction, ITC will undertake a study of congestion on the
transmission system formerly owned by ETI, identifying transmission projects to mitigate
congestion, and present such study to regulatory authorities that exercise retail rate jurisdiction
over ETI. ITC commits to propose and support in the MISO planning process those transmission
projects identified in the study that are expected to cost - effectively reduce congestion.
III. ETI PROPOSALS
A. Transmission Cost Rate Mechanism
ETI shall be authorized to implement a Transmission Cost Recovery Factor (TCRF) consistent
with P.U.C. SuBST. R. 25.239, modified such that ETI shall: 1) be authorized to defer on an on-
going basis costs for transmission service incurred under the MISO Tariff not recovered by base
rates of the TCRF, with carrying costs at ETI's WACC, and 2) subsequently include such
deferred amounts in the calculation of the TCRF rate. The TCRF shall be the means by which
bill credits from ITC will be flowed through to ETI's retail customers as well as the means by
which bill credits from ETI shall be provided to ETI's retail customers. Any costs associated
with transmission assets that are not being transferred to ITC (e.g., certain step -up transformers)
shall continue to be recovered by ETI in its base rates.
B. Call Premiums
ETI will not request recovery in rates of any call premiums incurred to pay down debt in
connection with the Transaction.
C. Service Conditions
ETI acknowledges and commits that after the completion of the ITC Transaction, it w 1 remain
fully responsible and accountable for the provision of safe, reliable, adequate, and lowest
reasonable cost service to its customers in all respects relating to generation, distribution, and
customer service. ETI shall also be responsible for coordination with ITC.
D. MISO Billing Accuracy
ETI will undertake all reasonable efforts to verify the correctness and accuracy of the ITC
portion of the MISO charges and credits to ETI, which will include all reasonable efforts to
obtain the information necessary to verify the accuracy of these charges and credits. ETI will
also validate that the charges and credits it receives are being assessed pursuant to the MISO
tariff.
4
Use of Transaction Proceeds
ETI commits that within 30 days of the date of a Commission Order in this docket, it will file
with the Commission the planned use of the proceeds of the ITC Transaction to ensure that
this use is consistent with that described in the Direct and Rebuttal Testimony of Theodore
Bunting. Should ETI utilize the proceeds of the transaction in a manner different than as
presented in Mr. Bunting's testimony, the Conunission reserves the authority to determine
whether the use of the proceeds is prudent and the appropriate ratemaking treatment of the ETI
decision. Within 180 days after the ITC Transaction is consummated, ETI shall file with the
Commission a report detailing specifically how the proceeds of the transaction were used, or will
be used, including without limitation identifying the debt that was retired or will be retired. To
the extent that ETI has not completed the disposition of proceeds within 180 days, it shall file
with the Commission a report detailing the final disposition, with such report to be filed within
60 days of the completion of the final disposition.
F. Limitation of Federal Preemption Arguments
If ETI challenges or appeals any Commission Order issued in this docket related to the ITC
Transaction, that challenge or appeal will not raise the issue of federal preemption with respect to
the jurisdiction of the Commission to approve or state its non - objection to the ITC Transaction in
order for the transaction to proceed and be consummated and/or the transmission assets of ETI to
be sold or transferred. ETI reserves its rights to appeal an Order of the Commission to the Texas
courts on any other issues.
5
APPENDIX B: CALCULATION OF ITC OWNERSHIP BENEFITS
I. DEFINITIONS
"Actual WACC Effects" means the difference in ETI retail WACC as of December 5, 2011 and
actual ITC WACC applied to the ITC Rate Base and adjusted for ETI retail impact only.
"Annualized Cost of ITC Economic Projects" means the project cost of the ITC Economic
Projects based on MISO's determination divided by 40 years.
"Asset Care Plan" means work yet to be completed under ETI's "2013 T &D Reliability Plan" at
the time the Transaction closes.
"Economic Base Case" means any models of the state of the transmission assets owned by ITC
MidSouth at the time the Transaction closes. The presumed state of the transmission assets in
the ITC Midsouth footprint is the transmission assets at the time of the Transaction's close
modified to include the projects in Attachment 1 to Appendix B that receive approval through
MISO's planning process as identified on that list. At the time any study is initiated, the most
recently available models produced by MISO will be used to represent the systems and data
outside of the transmission assets owned by ITC Midsouth. To the extent these models include
systems and data outside the MISO footprint, such systems and data will be represented as in
the MISO models.
"Extension Period" means the time period following the Initial Period, if any, during which the
Rate Mitigation Plan continues in effect.
"Initial Period" means the 5 -year period starting at the close of the Transaction.
"ITC Base Case" means any models of the state of the transmission assets contained within the
footprint of ITC Midsouth to be used in this benefits test. The state of the transmission assets
for the ITC Midsouth footprint is the transmission assets contained within the footprint of ITC
Midsouth at the time any study is initiated, modified by all transmission projects approved by
MISO for integration into the ITC Midsouth footprint. At the time any study is initiated, the
most recently available models produced by MISO will be used to represent the systems and
data outside of the transmission assets in the ITC Midsouth footprint. To the extent these
models include systems and data outside the MISO footprint, such systems and data will be
represented as in the MISO models.
"ITC Economic Projects" means projects proposed by ITC and included in an approved MISO
transmission plan as a Market Efficiency Project.
"ITC Ownership Benefit Calculation" means the benefits of ITC ownership as calculated in
accordance with section III.A below.
"ITC Rate Base" means actual ITC rate base reflected in rates charged for transmission service
that are passed through ETI retail rates.
"MISO" means the Midcontinent Independent System Operator, Inc.
"Rate Mitigation Plan" means use of funds over the Initial Period and Extension Period, if any,
to offset certain rate effects of the Transaction.
"Reliability Base Level" means the 2012 results using the SGS Methodology for given indices on
the transmission system as owned and operated by Entergy Corp., and its affiliated entities.
"SGS Report" means the Transmission Reliability Benchmarking Study published by SGS
Statistical Services.
"SGS Methodology" means the methodologies employed in the development of the SGS
Report, or similar methodologies, to determine average circuit sustained outages and average
circuit outage duration,
"Subject Year" means the most recent year for which complete data is available for a measure.
Subject Year may vary by measure.
"Transaction" means the Reverse Morris Trust transaction among ITC Holdings Corp., Entergy
Corp., and affiliated entities through which a subsidiary of ITC Holdings Corp. will own the
transmission assets formerly owned by the Entergy Operating Companies.
"Transition Period" means the period of time following close of the Transaction during which
the Rate Mitigation Plan is in place, which begins with the Initial Period and includes the
Extension Period, if any.
"Third Party Evaluator" means an individual or entity (together with any necessary
subcontractor(s)) who, in ITC's sole discretion, is qualified to oversee and/or administer the
benefits test.
"WACC" means Weighted Average Cost of Capital in percentage terms.
II. CALCULATION
A. Overview
There are three components of the test that shall be applied to determine whether the
benefits of ITC's ownership of transmission offset the Actual WACC Effects:
1. Improved System Performance: The showing of an improvement in system
reliability, incremental to the Reliability Base Level, as indicated through the
system performance metrics described herein; and
2
2, Improved System Economics: The showing of an improvement in system
economics, incremental to the Economic Base Case, as indicated through the
economic benefit metrics described herein.
3. Not Readily Quantifiable Benefits: The Transaction produces benefits that are
not readily quantifiable. For purposes of calculation, this is assumed to be 10%
of Actual WACC Effects.
B. Methodology of Test for Improved System Performance
1. Calculation
For a given year, the Improved System will be the sum of:
a. Percentage Improvement in Average Circuit Sustained Outages,
b. Percentage Improvement in Average Circuit Outage Duration, and
c. Percentage Remediation of Asset Care Plan
2. Explanation Of Calculation Elements
a. Percentage Improvement In Average Circuit Sustained Outages
Utilizing the SGS Methodology, the Percentage Improvement in Average Circuit
Sustained Outages is the Subject Year actual ITC annual average circuit sustained
outages reduction as compared to the Reliability Base Level average circuit
sustained outages. This metric Is calculated as the percentage by which the
Subject Year average circuit sustained outages is less than the average circuit
sustained outages observed in the Reliability Base Level. Percentage
Improvement in Average Circuit Sustained Outages will be evaluated for each
transmission pricing zone.
b. Percentage Improvement in Average Circuit Outage Duration
Utilizing the SGS Methodology, the Percentage Improvement in Average Circuit
Outage Duration is the Subject Year actual ITC annual average circuit outage
duration reduction as compared to the Reliability Base Level average circuit
outage duration. This metric is calculated as the percentage by which the Subject
Year average circuit outage duration is less than the average circuit outage
duration observed in the Reliability Base Level. Percentage Improvement in
Average Circuit Outage Duration will be evaluated for each transmission pricing
zone.
c. Percent Remediation of Asset Care Plan
The Percent Remediation of Asset Care Plan for the Subject Year will be
calculated as the total reduction in Asset Care Plan achieved by the end of the
Subject Year measured in task or unit depending on the activity. Percent
Remediation of Asset Care Plan will be evaluated for each transmission pricing
zone.
3. Implementation Roles and Procedures
Generic Simplified Example: Percentage improvement or remediation for one metric =
(Base— ITC results or remaining work)/Base. If the base for a metric was 100 and ITC in
results or remaining work for that metric in a Subject Year = 95, then improvement or
remediation = (100 — 95)/100 = 5%. If the metrics were X, Y and Z respectively, the total
Improved System Performance would X + Y + Z).
C. Methodology of Test for Improved System Economics
1. Calculation: For a given year, the Improved System Economics will analyze the
incremental improvement of the economic performance in the ITC Base case as
compared to the Economic Base Case. The arithmetic annual average of the sum of the
following quantities over 40 years will be the Improved System Economics for the year:
a. Congestion and Fuel Savings Benefits,
b. Operating Reserves Savings Benefits,
c. System Planning Reserve Margin Benefits,
d. Transmission Line Losses Benefits,
e. Generation Investment Benefits, and
f. Future Transmission Investment Benefits
(Year 1 Total =a +b+c+ d +e+f for year 1, Year 2 Total =a+b+c+d+e+f for year
2, Improved System Economics = Average of Year 1 Total, Year 2 Total, ..., Year 40 Total)
2. Explanation Of Calculation Elements
a. Congestion and Fuel Savings Benefits
To the extent the ITC Base Case allows for a more efficient dispatch of generation
resources, opening of markets to competition and spreading the benefits of low cost
generation throughout the ITC Midsouth footprint, as compared to the Economic
Base Case, these benefits will be counted as Congestion and Fuel Savings Benefits.
These benefits reflect the savings achieved through the reduction of transmission
congestion costs and through more efficient use of generation resources as well as
4
removal of reliability must run status for certain generators. The Congestion and
Fuel Savings Benefits will be evaluated on a MISO-wide basis and allocated to each
transmission pricing zone in the proportion that these benefits are shown to be
received by that transmission pricing zone.
b. Operating Reserves Savings Benefits
To the extent the ITC Base Case reduces operating reserve costs for the ITC
Midsouth footprint as compared to the Economic Base Case, these benefits will be
counted as Operating Reserves Savings Benefits. These benefits may include the
savings from retirement of generation units previously needed to support reserve
margins Operating Reserves Savings Benefits be evaluated for each transmission
pricing zone.
c. System Planning Reserve Margin Benefits
To the extent the ITC Base Case reduces transmission congestion aSC0mnparedtOthe
Economic Base Case, thereby reducing the footprint planning reserve margin and
decreasing the amount of generation required to meet the planning reserve margin,
this defers new generation. The value of these benefits will be counted as System
Planning Reserve Margin Benefits. System Planning Reserve Margin Benefits arising
from avoided/deferred generation capacity will be evaluated for each transmission
pricing zone.
d. System Losses Reduction
To the extent the ITC Base Case reduces overall system losses as compared to the
Economic Base Case, this reduces the generation needed to serve the system Iosses.
The energy value of these loss reductions is considered in the congestion and fuel
savings benefits/ but the loss reduction also helps to reduce future generation
capacity needs. The value of the reduced future generation capacity needs benefits
will be counted as System Loss 8enefits. System Loss Benefits will be evaluated for
each transmission pricing zone.
e. Optimization of Generation Locations
To the extent the ITC Base Case reduces or defers the need for constructing new
generating plants in load pockets as compared to the Economic Base Case, this
reduces the generation capital investment cost needed to serve the customers. The
value of these benefits for the ITC Midsouth footprint will be counted as Generation
5
Investment Benefits. These benefits accruing from increased deliverability of
capacity will be evaluated for each transmission pricing zone.
f. Future Reliability Transmission
To the extent that ITC Economic Projects eliminate or defers the need for future
reliability transmission investments, this reduces the total transmission investment
cost needed to serve the customers. The value of this elimination or deferral for
each Transmission pricing zone in the ITC Midsouth footprint will be counted as
future transmission investment benefits.
3. Implementation Roles and Procedures
a. Performance of the Improved System Economics Test
The valuation metrics used in the Improved System Economics Test used above were
developed by MISO for their MVP analysis
(https: / /www.midwestiso.ors/ Library /Repository /Study /Candidate %20MV P %20Anal
vsis/ MVP°% 20Portfolio% 20Analysis %20FuII %20Report.pdf). This MISO methodology
that has been vetted through a stakeholder process.
b. Input Assumptions of the Improved System Economics Test
In any year, all input assumptions of the ITC Base Case and the Economic Base Case
will be consistent with the most recent assumptions of the most recent MTEP
and /or MW analyses to be performed by MISO. These assumptions include, but are
not limited to, fuel costs, US Environmental Protection Administration
mandates /Renewable Power Standards, Toad forecasts and the attendant
uncertainties, transmission topology (unless otherwise specified herein related to
Entergy or ITC Midsouth footprint) and generation futures.
III. OVERALL. TEST IMPLEMENTATION FRAMEWORK
A. Establishment of the portion of ITC's Revenue Requirement Subject to
Mitigation
ITC Ownership Benefit Calculation:
For a given year:
a) Not Readily Quantifiable Benefits (assumed as 10% of Actual WACC Effects)
b) plus benefits demonstrated through Improved System Performance
multiplied by Actual WACC Effects (capped at 45% of Actual WACC Effects)
6
c) plus benefits demonstrated through Improved System Economics
d) less Annualized Cost of ITC Economic Projects
e) less Actual WACC Effects
If the ITC Ownership Benefit Calculation in any given year for which the calculation can
be made is greater than or equal to zero, the Rate Mitigation Plan shall terminate on the
30th day following the filing of the Third Party Evaluator's determination.
The benefits test will be performed by the Third Party Evaluator near the end of the
Initial Period such that the results will be available to ITC and ETI at the conclusion of the
Initial Period. Thereafter the test may be applied for any period at the sole discretion of
ITC.
7
ATTACHMENT 1 TO APPENDIX B: PROJECT LIST
Planned Projects Included in Economic Base Case
Project Name
LE
Proposed ISO
Planning)
The
Ford ce: Relocate capacitor bank to 115 kV bus
• e
2014 Summer
Sheridan South 500 kV FG Upgrade: Sheridan 500 kV Substation
re.lace 11 switches, and 6 line tra.s
:1` - .1%42
• 8 hitiIfO
4,04\
. '
Sheridan South 500 kV FG Upgrade: Eldorado 500 kV Substation
replace 1 switch and 2 line traps
I ii *44
LV Bab to Reed: Construct new 230 kV line and operate at 115 kV
ap,,,,ssi?.aw-tr
Calico Rock-Melbourne - Up. rade 161kV Line
s
2014 Summer
EAI 2014 Summer
17:7Lief:.
EAI
Pine Bluff Voltage Support Project: Phase 2
Woodward: Construct 230 kV ring bus and convert White Bluff to
Pine Bluff Arsenal D to
Woodward 115 kV line to 230 kV EAI
1. zoy
Woodward - Pine Bluff West - Pine Bluff McCamant: Reconductor 115
kV
tozair
" .4 r•
1w,
HS EHV-HS Industrial: U., rade Terminal Equipment EAI
•
010 ' 2 It
HS Union Carbide-HS East: Upgrade Terminal Equi
eFtPA:'
meat
AECC L&D 2 to Gillett: Construct new 115 kV Line
Mossville - Cut-in line 616 (Nelson to Carlyss
138 kV Substation
of to Bou
ux: U
rade 69 kV line
r'3?;
virieftwirk:s
Sorrento Upgrade 138/115 kV Auto and upgrade Gonzales - Sorren
138 kV Line
8 kV) into Mossville
.rt
2014 Summer
2014 Winter
2015 Summer
2015 Summer
rricfjilriNgr
EAI 2015 Summer
' 11,C4111
EAI
2016 Summer
EGSL
EGS
2013 Summer
2014 Winter
EGSL/ELL 2014 Summer
NE Louisiana Improvement Project - Phase 2
Oakridge to new Dunn Substation - Construct new 115 kV Line
(1272 ACSS)
Add 115 kV breakers at Dunn
Mt. Olive: Add Shunt Reactor
NM6: Up
rade ichoud breaker N9803
rade Ninemile to Southport 230 kV transmission line No.2
ELL 2013 Summer
ELL 2013 inter
inter
mv-teilT •
Baxter Wilson to S.E. Vicksburg - U
Dewe
vi
r
de 115 kV line
bank
EMI
2015 Summer
2012 Summer
Conroe Area Switching Station: tie lines Longmire to Fish Creek and
Conroe to Woodhaven into new switchin • station
AN"
Alden 138 kV Substation: Add Capacitor Bank
endora to Apollo 138 kV Line
ET
ETI
ETI
2013 Summer
2015 Summer
2
APPENDIX C: SUPPLEMENTAL PROPOSED COMMITMENTS REGARDING THE
SELECTION OF THE THIRD PARTY EVALUATOR
Amended Proposed Commitments Section 1I (A) (5) provides in the last sentence: "The Third
Party Evaluator shall be selected by ITC and all costs associated with the Third Party Evaluator's
services will be paid by ITC." This Appendix C provides additional details regarding that Third
Party Evaluation selection.
I. Mutually Agreeable Selection of the Third Party Evaluator
Ninety (90) days before the initiation of the review of benefits by the Third Party
Evaluator undertaken pursuant to Amended Proposed Commitments Section II (A) (5), ITC and
the Entergy Regional State Committee ( "ERSC ") (or comparable successor organization
comprised of the five retail authorities) will mutually agree on the selection of a Third Party
Evaluator that meets the qualification criteria set forth in Section II.
II. Third Party Evaluator Qualification Criteria
The Third Party Evaluator must be independent of ITC, Entergy, any Regulatory Authority and
the ERSC and must disclose any potential conflicts of interest regarding its representation of
ITC, Entergy, any Regulatory Authority or the ERSC in its proposal. In addition, the mutually
agreeable Third Party Evaluator must meet all of the following qualification criteria:
1) Powerflow experience
2) Electric market simulation experience
3) Experience with cost - benefit analysis for transmission projects
4) Experience with analysis in an RTO environment
5) Experience or knowledge of loss of load calculations (specifically those used by MISO)
III. Third Party Evaluator Report
The Third Party Evaluator's written report regarding its review of benefits will be submitted to
the Regulatory Authority (with any portions that are entitled to confidential treatment submitted
accordingly). The Third Party Evaluator will also be made available, upon reasonable notice, to
answer questions by the Regulatory Authority regarding the report in a duly noticed workshop or
open meeting. The conclusions of the written report shall be fmal and the Regulatory Authority
will issue an order accepting the written report, except that, if within 30 days of the submission
of the written report to the Regulatory Authority, the Regulatory Authority identifies a potential
error or errors in the written report, the Third Party Evaluator shall review the potential error(s)
and correct such error(s), and conclusions based thereon, if any.
- filh . Entergy
Entergy Texas
9425 Pinecroft
The Woodlands, Texas 77380
Tel 281- 362 -4680
Fax 281 - 362 -4683
Sallie T. Rainer
President/CEO
srainer@entergy.com
July 3, 2013
[Addressee]
[Addressee Title]
[Address]
[Address]
Dear [Address],
We are writing to ask for your City's support of the proposed transaction whereby
Entergy Texas will spin off its electric transmission business and merge that business with
ITC Holdings Corp. (ITC). This transaction will bring a strong new business partner to
Southeast Texas and significant benefits to retail electric consumers.
Entergy Texas firmly believes that the independent transmission company model is the
most effective and efficient model to manage the requirements to build and maintain the
transmission grid necessary to meet customer electric demands and preferences today and into
the future, particularly as Entergy Texas moves into the operating environment of a Regional
Transmission Organization (RTO). ITC, the first, largest and only publicly -traded
independent transmission company in the United States, is the right partner to take on that
role. ITC is financially strong, has more than a decade of experience planning and operating
in an RTO environment, and has a proven track record of top tier performance for the
transmission systems it owns and operates. ITC is committed to making investments in
transmission infrastructure in Southeast Texas to enhance reliability, provide greater market
access to lower cost generation resources, and reduce congestion on the transmission system
for the benefit of retail customers. Having ITC responsible for investments in transmission
will also make Entergy Texas financially stronger and improve Entergy Texas' ability to
support growing investment requirements in generation and distribution infrastructure, which
will also serve to benefit customers.
Entergy Texas and ITC appreciate that a coalition of cities has actively participated in
proceedings before the Public Utility Commission of Texas to explore the benefits offered by
this transaction. The coalition took the position that the transaction could be found to be
consistent with the public interest subject to certain conditions. Entergy Texas and ITC have
made commitments to address those conditions at the hearing for this proceeding and are
making further commitments in the attached list of amended commitments. Notably, Entergy
Texas and ITC are making commitments in Texas to provide rate mitigation (approximately
$77 million) for five years that will offset the retail rate effects of the cost of capital difference
arising from ITC's federally- approved rate construct (including ITC's authorized return on
equity of 12.38 %) as compared to Entergy Texas' retail rate construct. Moreover, Entergy
Texas and ITC commit, that, during the fifth year following the close of the transaction, ITC
will conduct a test to demonstrate that ITC's ownership of and investment in transmission
have produced benefits that offset the actual retail rate effects resulting from the change in
cost of capital due to ITC's ownership. If ITC is not able to show that such benefits offset
such costs, Entergy Texas and ITC commit that they will continue to provide rate mitigation
until ITC can make such a showing. Entergy Texas also makes the commitment to provide
additional retail bill credits (approximately $13 million) to compensate customers for the
transition to ITC's forward - looking rate. Finally, and importantly, the attached includes ITC's
commitments to a local corporate presence, use of local workforce, and local civic and
charitable support. These commitments are incremental to the local economic development
benefits that will accompany ITC's investment in transmission.
These commitments have been carefully constructed by Entergy Texas and ITC to be
responsive to the conditions set forth by the coalition and to ensure that customers are
protected from rate increases resulting from the difference between ITC and Entergy Texas
cost of capital that are not more than offset by demonstrated benefits. We trust that you will
agree the commitments made by Entergy Texas and ITC substantively satisfy the conditions
set forth by the coalition and that your City will take formal action to support the transaction
subject to those commitments.
We thank you for your continued support of Entergy Texas and your thoughtful
consideration of ITC as a new corporate citizen in the region. Please do not hesitate to contact
any of us should you have any questions regarding the companies' commitments to customers
and the community as part of this transaction.
Respectfully,
Sallie T. Rainer
President / CEO
Entergy Texas, Inc.
Theodore H. Bunting, Jr.
Group President — Utility Operations
Entergy Corporation
Linda Blair
Executive Vice President & CBO
ITC Holdings Corp.
Cameron Bready
Executive Vice President & CFO
ITC Holdings Corp.
Entergy ri I'.
cc: Dan Lawton
Attachment