Control Number: Item Number: 52. Addendum StartPage: 0

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1 Control Number: Item Number: 52 Addendum StartPage: 0

2 PUC DOCKET NO r k-r JOINT PETITION OF SOUTHWESTERN PUBLIC UTILITY CONSMISSION P14 : I 7 PUBLIC SERVICE COMPANY AND r'; SOUTHWEST POWER POOL, INC. FOR r riy - LlN CLE1-,K DECLARATORY ORDER OF TEXAS SOUTHWEST TRANSMISSION, LLC'S INITIAL BRIEF COMES NOW Southwest Transmission, LLC ("Southwest Transmission") and, puruant to Order No. 11, timely files this Initial Brief to the Public Utility Commission of Texas (`Commission") on or before June 21, I. INTRODUCTION In this case, the Commission is being asked to determine whether the Public Utility Regulatory Act ("PURA")1 (1) restricts the Commission's ability to grant a certificate of convenience and necessity ("CCN") to transmission-only operators in Texas and (2) grants an incumbent utility a right of first refusal ("ROFR") to construct any transmission facilities located within that incumbent's certificated service area outside ERCOT. Established Texas law says no to both questions. The Commission need look no further than the plain language of these sections of PURA for an answer to the questions posed in this docket. PURA defines '`utility" and "transmi'ssion and distribution utility in Sections (6) and (19). By their plain terms, both sections expressly authorize transmission-only utilities. No provision of PURA prohibits transmission-only utilities. PURA (a) empowers the Commission to grant a CCN if it finds the CCN is necessary for the service, accommodation, convenience, or safety of the public with no mention that transmission-only utilities somehow could not meet this basic test. No ROFR can be found related to building wholesale transmission inside of a service territory certificated to a utility providing retail service. While PURA (d) expressly grants the Commission authority to certificate transmission-only utilities within the Electric Reliability Council of Texas ("ERCOT ) region, nothing in that statute prohibits the Commission from applying its existing authority to certificate a transmission-only utility outside of ERCOT, and Tex. Util. Code Ann (West 2007 & Supp. 2016). SOUTHWEST TRANSMISSION, LLC's IMTIAL BRIEF PAGE 1 OF

3 nothing establishes any ROFR. PURA does not support any theory of a transmission-only ROFR. The Commission should also recognize that these issues have largely been considered both by the Commission and the Austin Court of Appeals. In Public Util. Comm'n v. Cities of Harlingen,2 the Austin Court of Appeals held that nothing in PURA prevents the Commission from granting a CCN to a transmission-only utility in Texas. Notably, Harlingen did not rely on PURA (d) in reaching its conclusion that PURA expressly authorizes certification of transmission-only utilities, even though that statute had recently been enacted by the Legislature.. Moreover, properly reading PURA (d) in context, including consideration of the legislative and regulatory history surrounding its passage, bolsters Harlingen's conclusion that PURA permits the Commission to certificate a transmission-only utility anywhere in Texas. Since there has been no material change in law since Harlingen, that precedent continues to control. Because the Commission has the authority to grant a certificate to a transmission-only utility, there is likewise no ROFR right for incumbent utilities regarding the construction of transmission facilities within their certificated areas. 11. BACKGROUND AND FACTS A. Competitive Bidding for Transmission Projects in the Southwest Power Pool Southwest Power Pool, Inc. ("SPP") is a not-for-profit organization which serves as a Regional Transmission Operator ("RTO") of the electric power grid in its region, including certain areas of Texas.3 SPP has an open-access transthission tariff (OATT") filed with the Federal Energy Regulatory Commission ("FERC") which establishes the rates, terms, and conditions for wholesale transmission service in the SPP region.4 In 2011, FERC issued Order No which directed the removal of federal ROFRs in favor of competitive bidding for certain transmission projects.5 In directing the removal of S.W.3d 610 (Tex. App. Austin 2010, no pet.). 3 Joint Petition of Southwestern Public Service Company and Southwest Power Pool, Inc. for Declaratory Order ("Joint Petition") at 5 (Feb. 28, 2017). 4 Id. 5 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 76 Fed. Reg. 49,842, 136 FERC I] 61,051 (2011) ("FERC Order No. 1000), order on rehg, Order No A, 139 FERC If 61,132, order on reh'g, Order No B, 141 FERC 61,044 (2012). These orders are collectively referred to as "Order No unless a specific sub-order is specified. SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 2 OF

4 federal ROFRs, FERC observed that continuing a federal ROFR right "would allow practices that have the potential to undermine the identification and evaluation of a more efficient or costeffective solution to regional transmission needs..."6 FERC did not, however, seek to "limit, preempt, or otherwise affect state or local laws or regulations with respect to construction of transmission facilities."7 SPP has implemented FERC Order No through its OATT. Attachment Y to SPP's OATT sets forth the procedures for issuing a request for proposals (RFP") soliciting bids for projects known as Competitive Upgrades.8 Only qualified RFP participants (QRPs") may bid on Competitive Upgrades in SPP.9 Southwest Transmission, LLC ("Southwest Transmission") is a member of the LS Power family of companies.1 Southwest Transmission is a QRP in SPP.11 As such, Southwest Transmission is also a potential transmission-only operator in Texas should SPP select its proposal for a future Competitive Upgrade project located, in whole or in part, within Texas.12 Under its OATT, in determining whether a new transmission facility will be classified as a Competitive Upgrade, SPP must give consideration to state law relating to the certification and construction of transmission facilities.13 If SPP determines that state law prohibits entities other than an incumbent transmission owner from constructing new transmission facilities, the project will not bb declared a Competitive Upgrade and an RFP will not be issued.14 Instead SPP would assign the project to the incumbent transmission owner(s) in the location where the new transmission facilities are needed.15 SPP is currently studying potential projects in the Texas Panhandle that may potentially involve new transmission line construction.16 One of those options may include a new 345 kv transmission line of approximately 90 miles from a substation in Potter County, Texas to the 6 Order No. 1000, 136 FERC If 61,051 at P Order No. 1000, 136 FERC 61,051 at P SPP OATT, Attachment Y, III. [Joint Appendix at 48-84] See also Joint Petition at 8. 9 Id. 10 Southwest Transmission, LLC's Motion to Intervene at 1 (Mar. 10, 2017). 11 Id. 12 Id. at SPP OATT Attachment Y, I.1(e) (permitting SPP to designate the owner of "[t]ransmission facilities located where the selection of a Transmission Owner... does not violate relevant law where the transmission facility is to be built"). [Joint Appendix at 43] 14 Id., I.1(e), III and IV. [Joint Appendix at 43, 48-86] 15 Id. 16 SPS's Letter to Commissioners at 1-2 (Apr. 27, 2017). SOUTHWEST TRANSMISSION. LLC'S INITIAL BRIEF PAGE 3 OF

5 Tolk Generating Plant in Bailey County, Texas ("Potter Tolk line").17 And regardless of whether this particular study recommends the Potter Tolk line, at some point SPP will inevitably determine a new transmission line is needed within its footprint in Texas. When it recommends a new transmission line in Texas, SPP will also have to determine whether to designate the new line as a Competitive Upgrade or assign it to an incumbent utility.18 Midcontinent Independent System Operator, Inc. ("MISO") is also following this proceeding and has stated it will base its competitive process on the outcome of this case.19 Notwithstanding the process used to select the entity to construct a new transmission line in SPP (or MISO), that entity would have to seek a CCN or CCN amendment from the Commission before constructing the line.2 B. Disputes Regarding SPP's Competitive Bidding for Texas Transmission Projects Southwestern Public Service Company ('SPS") is an electric utility replated by the Commission. As stated in the Joint Petition, SPS's operations within Texas are located wholly outside the ERCOT region. In January 2017, SPS filed a state district court lawsuit in Potter County, seeking a declaration that SPS has a right of first refusal to build the Potter Tolk line, as well as other 345 kv projects to be constructed in SPS's Texas service territory. SPS also sought an injunction prohibiting SPP from allowing any transmission company other than SPS to construct the Potter Tolk line. On February 27, 2017, SPP removed the action to the United States District Court for the Northern District of Texas Amarillo Division. On February 28, 2017, SPP and SPS filed a joint petition for a declaratory order from the Commission regarding whether Texas law permits certification of transmission-only utilities in areas outside of ERCOT. SPS and SPP agreed to abate the federal court case pending the Commission's resolution of the issue in this docket. Various existing or prospective transmission service providers in Texas have intervened in this docket, including an electric cooperative and various investor-owned utilities operating or 17 Before determining that further study was needed, SPP staff determined that a new transmission line in Texas would be subject to the Competitive Upgrade provisions of its OATT. See Joint Petition at 10, VI.B. 18 See generally SPP OATT, Attachment Y. [Joint Appendix at 42-92] 19 See MISO Competitive Transmission Monthly Update, Planning Advisory Committee at 6 (May 17, 2017), included as Attachment 1 hereto. 20 PURA (a). See also Section III.A below. SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 4 OF

6 seeking to operate in SPP, ERCOT, and other regions of Texas. A number of these parties are QRPs in SPP LAW & ARGUMENT In accordance with the Briefing Order,21 Southwest Transmission discusses each of the three issues to be addressed below. A. Issue #1: May an electric utility as defined in PURA or other person construct transmission facilities in the State of Texas to provide service to the public without first obtaining from the Commission a certificate of convenience and necessity under chapter 37 of PURA? No. PURA (a) generally prohibits an "electric utility or other persoe from directly or indirectly providing service to the public under a franchise or permit unless first obtaining from the Commission a CCN stating that the public convenience and necessity requires or will require the installation, operation, or extension of the service. PURA (a) requires an "electric utility or other persoe that wants to obtain or amend a CCN to submit an application to the Commission. B. Issue #2: Does the Commission have authority under chapter 37 of PURA to grant a certificate of convenience and necessity to an electric utility as defined in PURA or other person that will provide only transmission service outside of the Electric Reliability. Council of Texas? Yes. PURA provides authority for the Commission to grant a certificate when an application meets specified criteria, and none of the criteria are related to the ability to issue a certificate to a trangmission-only utility anywhere in the State. In Harlingen, the Austin Court of Appeals held that "the Commission has been conferred power under the PURA to grant a CCN to a transmission-only utility that does not have a certificated service area."22 Harlingen's broad holding did not rely on the language of the thennewly-enacted PURA (d), even though Harlingen did find that statute supported its holding. Nothing in PURA or the Commission's rules has changed in the intervening years to justify a departure from this precedent Briefing Order at 2 (May 19, 2017). 311 S.W.3d at SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 5 OF

7 PURA (4reads as follows: A certificate may be granted to an electric utility or other person under this section for a facility used as part of the transmission system serving the ERCOT power region solely for the transmission of electricity.23 As Harlingen discussed, the passage of PURA (d) simply clarified pre-existing Texas law by confirming that the Commission may certificate a transmission-only utility in ERCOT.24 Harlingen did not limit its holding to only the areas of Texas inside ERCOT. Rather, Harlingen's holding applies throughout Texas because that case evaluated all of PURA, not just activity inside of ERCOT. While this straightforward holding governs the outcome of this case, the regulatory and legislative history leading up to the passage of PURA (d) reinforces Harlingen's holding. The history, intent, and text of that statute point to only one reasonable conclusion: PURA does not prohibit the Commission from certificating a transmission-only utility outside of ERCOT. 1. Before PURA (d) Was Enacted, the Commission Certificated a Transmission-Only Utility in Docket No In Docket No , the Commission certificated Electric Transrnission Texas, LLC ("ETT") as a new, transmission-only utility, holding that "PURA clearly contemplates a utility providing transmission services only."25 In evaluating the relevant statutory provisions, the Commission first looked to the definition of electric utility in PURA (6).26 The Commission found that because the.facilities ETT would be operating would "transmit or furnish electricity for compensation in Texas,... ETT will be, by definition, an electric utility."27 In that docket the Commission also concluded that PURA permitted it to "grant a CCN to an entity that, although not yet a utility, will become a utility upon completion of a proposed plan to own and operate utility facilities."28 Ultimately, the Commission granted ETT a CCN as a transmission-only utility PURA (d) S.W.3d at 620 & n Application of Electric Transmission Texas, LLC for a Certificate of Convenience and Necessity, for Regulatory Approvals, and Initial Rates, Docket No , Order on Rehearing at 3 (Dec. 21, 2007). 26 Id. 27 Id. (referencing PURA (6)). 28 Id. at 3-4. When the Commission decided Docket No , PURA (d) had not been enacted. 29 Id. at SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 6 OF

8 Shortly after the Commission certificated ETT, the Competitive Renewable Energy Zone (CREZ") initiative" identified other benefits of new entrant transmission-only utilities.31 The ongoing CREZ initiative provides important context to the Commission's decision in Docket No as well as the judicial and legislative decisions that followed it. 2. The Legislature Passed PURA (d) to Clarifi, PURA in Light of the Travis County District Court's Decision Reversing the Commission's Order in Docket No Various parties appealed the Commission's certification of ETT as a transmission-only utility to Travis County district court. In October 2008, the district court reversed the Commission's order on rehearing from Docket No , holding that, among other things, the Commission exceeded its statutory authority in granting a CCN to ETT as a transmission-only utility without a service area.32 In response to the Travis County district court's decision, the Texas Legislature passed House Bill (HB") 3309 part of which became codified as PURA (d) to clarify that the Conunission may indeed certificate transmission-only utilities. Given the fact that ETT contemplated providing transmission service in ERCOT, and the CREZ initiative was developing in ERCOT, PURA (d) specifically refers to ERCOT. With this policy backdrop, the adopted version of HB 3309 provided the legislative clarification necessary for ETT to move forward with non-crez facilities and for ETT and other new entrants to participate in CREZ. Various bill analyses and committee reports from HB 3309 and related bills demonstrate this legislative intent. The text ultimately adopted in HB 3309 incorporated language from a similar bill, HB Senate Bill (SB") 1913 served as the legislative companion to HB ' For instance, the bill analysis contained in the House Committee Report on the committee substitute version of HB 3406 stated its putose as follows: 30 See, e.g., Commission Staff's Petition for Designation of Competitive Renewable Energy Zones, Docket No (petition filed Jan. 4, 2007; ETT motion to intervene filed Jan. 22, 2007). 31 See, e.g., Docket No , Order on Rehearing at 3 (concluding that certificating ETT "brings an additional participant with significant resources to participate in the development of the Electric Reliability Council of Texas (ERCOT) grid"); see generally Commission Staff's Petition for Selection of Entities Responsible for Transmission Improvements Necessary to Deliver Renewable Energy from Competitive Renewable Energy Zones, Docket No , Order on Rehearing at (May 15, 2009) (identifying transmission service providers, including new entrants, qualified to construct CREZ projects). 32 Harlingen, 311 S.W.3d at Harlingen, 311 S.W.3d at 620, n See House Research Organization, Bill Analysis at 1, Tex. S.B. 1913, 81st Leg., R.S. (May 26, 2009), available on the Texas Legislature's website at and included as Attachment 2 hereto (hereinafter, "HRO Bill Analysis of S.B. 1913). SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 7 OF

9 The Public Utility Commission of Texas (PUC) approved a certificate of convenience and necessity (CCN) for a "transmission-only" provider that is not linked to a geographic location. A Travis County district court, however, recently held ihat the PUC lacks the explicit statutory authority to issue such a CCN. C.S.H.B clarifies the PUC's authority to issue CCNs to new owners and operators of certain wholesale electric transmission facilities that do not have traditional utility "service areas."35 These reports show that the bill was not intended to change the Commission's authority, but to legislatively clarify the Commission's existing authority in the wake of an adverse district court ruling.36 The House Research Organization's ("HRO") bill analysis of SB 1913 illustrates the relationship of PURA (d) to the CREZ initiative.37 In that analysis, the HRO laid out the background for the proposed bill by tracing the establishment of Texas's renewable portfolio standard to the designation of the CREZ areas and then the selection of entities responsible for constructing the necessary transmission improvements contemplated by the CREZ initiative. The HRO analysis then noted that recent litigation had challenged the Commission's authority to grant a CCN to a transmission-only utility. Finally, the HRO analysis recognized that both the supporters and opponents of SB 1913 focused on the bill's impact on the CREZ process both with respect to the selection of appropriate transmission providers and to the tinieliness of CREZ construction.38 Thus, the Legislature clearly had the timely completion of the ongoing CREZ initiative in mind when considering the various bills that ultimately became PURA (d). In fact, the enrolled version of HB 3309 the version of the bill the.legislature actually passed contained other provisions apart from newly-adopted PURA 37:051(d) showing that the Legislature expressly contemplated the CREZ initiative when passing the bill. For instance, Section 1 of HB 3309 (adopting new PURA ) exempted CREZ CCN proceedings from the newly-passed provision allowing consolidation of certain CCN proceedings.39 Other parts of Section 2 of the bill (adopting new PURA,37.051(e)-(f)) were aimed at ensuring newlycertificated transmission providers would have adequate technical and financial resources, 35 House Comm. on State Affairs; Bill Analysis, Tex. H.B. 3406, 81st Leg., R.S. (2009) (emphasis added). [Joint Appendix at 178] See also House Comm. on State Affairs, Bill Analysis, Tex. S.B. 1913, 81st Leg., R.S. (2009) (same). [Joint Appendix at 333] 36 Harlingen, 311 S.W.3d at 620 & n.7. See also HRO Bill Analysis of S.B at See HRO Bill Analysis of S.B at \ Id. at H.B Enrolled Version. [Joint Appendix at 282] SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 8 OF

10 including those selected under the CREZ initiative. Both of those sections expressly referenced PURA , the legislative provision mandating Commission establishment of CREZ. This legislative and regulatory history provides strong evidence that the Legislature intended passage of PURA (d) to ensure the CREZ process an occurrence wholly within ERCOT continued to operate as smoothly as possible. It is against this backdrop that the Austin Court of Appeals considered the appeal of the Travis County district court's decision regarding Docket No Following Passage of PURA (d), the Austin Court of Appeals Held in Harlingen that PURA Gives the Commission AuthoritY to Certificate a Transmission-Only Utility in Texas. The Travis County district court's decision reversing the Commission's order in Docket No was further appealed to the Austin Court of Appeals, resulting in the Harlingen decision. As previously menticined, Harlingen held that the Commission has affirmative authority under PURA to grant a CCN to a transmission-only utility in Texas. Crucially, Harlingen's analysis did not hinge on the newly-adopted PURA (d) or on whether the utility at issue there would exist inside or outside of ERCOT it did not limit its holding to a particular provision of PURA or a particular region within Texas. Instead, the court concluded that the new PURA (d) clarified, but did not establish, the Commission's existing authority under PURA as a whole to generally certificate a transmission-only utility. The Commission does not need to rely on PURA (d) for its authority to certificate a transmission-only utility outside of ERCOT. As Harlingen held, other existing provisions of PURA grant this authority. First, the definition of electric utility set forth in PURA (6) extends to a person "that owns or operates for compensation in this state equipment or facilities to... transmit, distribute, sell or furnish electricity in this state.'41 By its own terms, then, an electric facility need not transmit and distribute electricity it can do one or the other, or both.42 Similarly, the definition of "transmission and distribution utility" ("TDU") includes "a person... that owns or operates for compensation in this state equipment or facilities to transmit or distribute electricity."43 These statutes use the disjunctive "oe rather than the conjunctive Id. (Emphasis added). See Harlingen, 311 S.W.3d at 617. PURA (19) (emphasis added). SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 9 OF

11 "ancl", which confirms that a distribution service area is not necessary to qualify as an electric utility or TDU under PURA.44 No provision of PURA prohibits certificating, transmission-only utilities. For example, PURA (a) simply empowers the Commission to grant a CCN if it finds the CCN is necessary for the service, accommodation, convenience, or safety of the public. It does not say that transmission-only utilities cannot meet this standard. Having reviewed all pertinent provisions of PURA, Harlingen concluded that "a transmission only utility can obtain a CCN without a 'certificated area. 45 Even without relying on PURA (d), the court held that "PURA authorizes the Commission to grant a CCN to an electric utility that provides only transmission services and that does not have a certificated area in which such services will be provided."46 4. After Passage of PURA (d), the Commission Analyzed the Legality of Certificating a Transmission-Only Utili1y Outside of ERCOT. The Commission has also addressed these issues since Harlingen. In Docket No , a case involving proposed transactions between Entergy Texas, Inc., ITC Holdings Corp., and their respective affiliates, the Commission evaluated its ability to grant a CCN to a transmissiononly utility outside of ERCOT.47 In that docket, the two administrative law judges who evaluated the case found that PURA permitted the certification of transmission-only utilities in Texas.48 In the course of the proceeding, Commissioner Anderson49 and then-chairman Nelson5 both expressed the view that the Commission may grant a CCN to a transmission-only utility outside of ERCOT. 44 See Harlingen, 311 S.W.3d at Id. at 620, n Id. at Application of Entergy Texas, Inc., ITC Holdings Corp., Mid South Transco LLC, Transmission Company of Texas, LLC and ITC Midsouth LLC for Approval of Change of Ownership and Control of Transmission Business, Transfer of Certification Rights, Certain Cost Recovery Approvals, and Related Relief, Docket No Id., Proposal for Decision at 3-10 (July 8, 2013) (both administrative law judges concluding that PURA does not prohibit a transmission-only utility outside of ERCOT). 49 Id., Memorandum of Commissioner Kenneth W. Anderson, Jr. at 1-3 (July 18, 2013); Memorandum of Commissioner Kenneth W. Anderson, Jr. at 2 (Aug. 9, 2013). 50 Open Meeting Tr. at 80:12-16 (July 19, 2013). The relevant transcript excerpt of the Open Meeting discussion of this docket is included as Attachment 3 hereto. SOUTHWEST TRANSMISSION, LLC'S INITIAL BRIEF - PAGE 10 OF

12 C. Issue #3: Does Southwest Public Service Company have the exclusive right -to construct transmission facilities within its certificated service area and, if so, may it decline to exercise that right? No exclusive or ROFR right exists under PURA or the Commission's rules regarding the construction of transmission facilities outside of ERCOT. For the reasons set forth above in Section III.B relating to the Commission's authority to certificate a transmission-only utility, nothing in PURA prevents the Commission from certificating a transmission-only utility that lacks a traditional distribution service area. Similarly, nothing in PURA grants utilities with a traditional certificated service area.an exclusive right to construction transmission facilities within that area. In the joint petition, SPS argues that PURA effectively grants it a ROFR for tranšmission facilities within its service area. With limited exceptions, PURA requires a certificate holder to: (1) serve every consumer in the utility's certificated area; and (2) provide continuous and adequate service in that area. For at least three reasons, that statute does not grant SPS the ROFR it claims. First, under its plain text, the statute only applies to existing certificate holders. It does nothing to limit the Commission's jurisdiction and authority to certificate new transmission facilities and their respective operators, including a new wholesale transmission line located anywhere within Texas. Nor does the statute require a certificate holder to have a certificated area.51 As Harlingen concluded, PURA does not forbid transmission-only utilities, nor does it require transmission-only utilities to have a service area, but merely requires utilities that do have a service irea (i.e., those that offer distribution and/or retail service) to comply with its mandates within that area.52 Second, the statute only requires the certificate holder to serve every consumer in its certificated area. As Harlingen implied, the word "consume? as used in PURA essentially equates to a "retail customer" a separately-metered end-use customer who purchases and consumes electricity. 53 Transmission service is generally not provided to Harlingen, 311 S.W.3d at 618. Id. at 619. Id. (citing PURA (16) and 16 TAC 25.5(142)). SOUTHWEST TRANSMISSION, LLC'S INITIAL BRIEF PAGE 11 OF

13 "consumers" or retail customers.54 Therefore, the requirements of PURA do not extend to the certification of transmission facilities or the provision of transmission service.55 Third, SPS seems to contend that in order to ensure continuous and adequate service, it alone can construct transmission facilities in the region, implying an inability to rely on thirdparty service providers. However, that is just not true, including in current operations. SPS relies on many other third-party service providers to operate facilities in a reliable manner, under NERC standards, in providing service to its consumers. For example, SPP performs many functions vital to the provision of service to SPS's customers. Likewise, the facilities of SPS and Golden Spread are closely interconnected and interdependent, and SPS relies on Golden Spread to operate its facilities in order for SPS to serve its own customers. No reading of this provision of PURA would provide SPS with an exclusive right to provide transmission service. Southwest Transmission also notes that existing Commission regulation of Golden Spread Electric Cooperative, Inc. ("Golden Spread') demonstrates that a transmission-only operator already exists in Texas, outside of ERCOT, in SPP. Golden Spread owns and operates generation and transmission assets within both the SPP and ERCOT regions in TeXas.56 Golden Spread itself does not serve distribution load or own distribution assets, but instead provides power to its non-profit distribution cooperative members.57 Golden Spread's existing regulatory structure shows that the Commission already regulates a transmission-only entity in SPP without a certificated area. This existing regulatory structure is entirely consistent with the language and intent of PURA. For the reasons set forth in Harlingen and above, PURA does not grant a ROFR to SPS or any other incumbent utility for transmission facilities within their certificated service areas. Iv. CONCLUSION For these reasons set forth above, Southwest Transmission respectfully urges the Commission to follow the Harlingen precedent and confirm that nothing in PURA or the Commission's rules (i) prohibits the certification of transmission-only utilities in areas of Texas 54 Id. 55 To the extent a "certificated aree under PIJRA could even be read to apply to transmission facilities, a transmission line cannot be part of an incumbent utility's certificated area unless and until the Commission says so. A prospective tansmission line project that requires a CCN filing with the Commission cannot logically be part of any utility's certificated area unless and until a CCN order is issued. 56 Golden Spread's Motion to Intervene at 2 (Mar. 3, 2017). 57 Id. SOUTHWEST TRANSMISSION, LLC's INITIAL BRIEF PAGE 12 OF

14 outside of ERCOT or (ii) grants an incumbent utility an exclusive or ROFR right to construct transmission facilities outside ERCOT. SOUTHWEST TRANSMISSION, LLes INITIAL BRIEF - PAGE 13 OF

15 Respectfully submitted, By: - Myles F. Reynolds State Bar No Winston P. Skinner State Bar No VINSON & ELKINS LLP 2001 Ross Avenue, Suite 3700 Dallas, Texas Telephone: Facsimile: mreynolds@velaw.com wskinner@velaw.com Michael R. Engleman SQUIRE PATTON BOGGS (US) LLP 2550 M Street, NW Washington, DC Telephone: Facsimile: michael.engleman@squirepb.com ATTORNEYS FOR SOUTHWEST TRANSMISSION, LLC CERTIFICATE OF SERVICE Pursuant to 16 TAC 22.74, it is hereby certified that on June 21, 2017, a true and correct copy of the foregoing document was served on all parties of record in this matter in one or more of the following ways: in person; by agent; by cdurier receipted delivery; by first class mail; by certified mail, return receipt requested; by facsimile; or, if authorized, by . SOUTHWEST TRANSMISSION, LLC'S INTTIAL BRIEF PAGE 14 OF

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21 Attachment 1 Page 6 of 7 State ROFR Law in Texas? Texas does not have an explicit ROFR statue SPP claims no ROFR exists and therefore must adhere to competitive selection process Southwestern argues for existence of ROFR outside ERCOT: l= O c ci 0 f.12 W co LJJ -0 a) >, c cu c.) o F-7 co -t a) a) c o c.) y) 2 a) 2). :.7.- =.>, a) c..!..-.. c >, -o._ c V2 o 7, a) a E._ o N: 0 cn ce) ro.._ co 00 = o E u) g = c ai, D It 0_ a)... as I a) co, 0 o,..., o z EY co 0 I-1-1 ti) O ".r. P cd CO G) '; Z 0) = 0 O c u) 0.>, cti To i_ 2 co._ O cc) -C kr_ 4± 0 z E CO C CU.>, La2 1 c 47' O 0 c 0 0_ = cm co u) a, c co._ i = :E = c o- IP_ cn I), o).c ci) 5,.,... c =, = 4) 75 N. 1:3 CU >, co co) cc: icq g x ti 0 D I O._ E Cn _ _ u) a) PUCT intends to decide case on the briefs without a hearing

22 Attachment 1 Page 7 of 7 i / ii NI / i

23 Attachment 2 Page 1 of 3 HOUSE SB 1913 RESEARCH Fraser ORGANIZATION bill analysis 5/26/2009 (Swinford) SUBJECT: COMMITTEE: VOTE: Authority of the PUC to issue CCNs solely for transmission of electricity State Affairs favorable, without amendment 9 ayes Solomons, Menendez, Craddick, Farabee, Geren, Hilderbran, Lucio, Maldonado, Swinford 2 nays Cook, Harless 1 present not voting S. Turner 3 absent Gallego, Jones, Oliveira SENATE VOTE: WITNESSES: On final passage, May (On House companion bill, HB 3406.) For James Checkley, Lawrence Willick, Cross Texas Transmission LLC; Calvin J. Crowder, Electric Transmission Texas, LLC; Dennis Donley, WETT, LLC; Chris Reeder, Lone Star Transmission Co., LLC; (Registered, but did not tes*: Paul Sadler, The Wind Coalition) Against Phillip Oldham, Texas Association of Manufacturers; (Registered, but did not testik Dan Hinkle, South Texas Electric Cooperative) On Barry Smitherman, Public Utility Commission BACKGROUND: When the renewable portfolio standard (RPS) was established in 1999 to encourage more access to rene*able energy sources, it did not provide for expansion of the transmission system to accommodate the increased installed capacity that the RPS requirements would produce. SB 20 by Fraser in 2005 charged the Public Utility Commission (PUC) with designating competitive renewable energy zones (CREZ) throughout the state in areas with suitable land and sufficient renewable energy potential. The PUC was required to develop a plan to construct transmission capacity necessary to deliver energy from these zones to electric customers, as well as select and issue certificates of convenience and necessity (CCN) to the entities responsible for constructing the necessary

24 Attachment 2 Page 2 of 3 SB 1913 House Research Organization page 2 transmission improvements. A CCN is a franchise from the state that delineates a utility's retail service area. Recently, litigation was filed that challenged the PUC's authority to grant -a transmission-only license to electric transmission companies that do not have a service territory in Texas. DIGEST: SB 1913 would amend the Utilities Code by authorizing the PUC to grant a certificate of convenience and necessity (CCN) to an electric utility or other person for a facility used as part of the transmission system serving the Electric Reliability Council of Texas (ERCOT) power region solely for the transmission pf electricity. SB 1913 would allow the PUC to consider a CCN application filed by a person not currently certificated as an electric utility in ERCOT. The bill would provide eligibility requirements, including that: the applicant had the technical ability, financial ability, and sufficient resources in Texas to own, operate, and maintain reliable transmission facilities; the applicant had the r6sources and ability to comply with PUC rules, the requirethents of ERCOT, and the requirements of the National Electric Reliability Council regarding transmission service; and granting an application filed by a person that was not an electric utility would not affect adversely wholesale transmission rates as. compared to if an existing electric utility were to build the transmission facility. The PUC would consider these eligibility requirements to have been met by an electric utility or other person that: \ was selected by the PUC as a transmission provider under a plan adopted for the goals for renewable energy no later than September 1, 2009; and, provided a detailed plan, before the certificate was issued, regarding the offices, personnel, and other resources they would have in Texas to ensure continuous and adequate transmission service

25 Attachment 2 Page 3 of 3 SB 1913 House Research Organization page 3 SB 1913 would exempt these electric utilities from serving every customer in a certified area and from providing continuous and adequate service in that area. The bill would take effect September 1, SUPPORTERS SAY: OPPONENTS SAY: SB 1913 would clarify existing PUC authority to issue CCNs to new owners and operators of wholesale electric transmission facilities that do not have traditional utility service areas. The recent challenge to the PUC's authority to issue these CCNs likely will slow the construction of the CREZ lines. SB 1913 would ensure that the CREZ lines would be constructed in a timely manner. This bill could dilute the current requirements for granting a CCN under the Utilities Code and could create a new class of transmission providers in Texas. During the CREZ process, the PUC selected some out-of-state companies to lay some of the CREZ transmission lines, who did so only because they do not have service areas within ERCOT. There is a risk in involving companies that do not have any ties to the state in long-term projects. There would be nothing to guarantee that they would maintain their' service in the years to come. There are several reliable and invested incumbent companies in Texas that would be more appropriate to serve these lines. Incumbent companies always should have the right of first refusal

26 Attachment 3 Page 1 of 13 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 PUBLIC UTILITY COMMISSION OF TEXAS 4 AUSTIN, TEXAS IN THE MATTER OF THE OPEN MEETING ) A3 OF FRIDAY, JULY 19, OPEN MEETING 13 FRIDAY, JULY 19, BE IT REMEMBERED THAT AT approximately a.m., on Friday, the 19th day of July 2013, the 19 above-entitled matter came on for hearing at: the Public 19 Utility Commission of Texas, 1701 North Congress Avenue, 20 William B. Travis Building, Austin, Texas, 21 Commissioners' Hearing Room, before DONNA L. NELSON, 22 Chairman, and KENNETH W., ANDERSON, JR., Commissioner; 23 and the following proceedings were reported by William 24 C. Beardmore, Certified Shorthand Reporter

27 Attachment 3 Page 2 of 13 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, FRIDAY, JULY 19, ,4 COMMUNICATIONS 5 AGENDA ITEM NO. 1 6 DOCKET NO APPLICATION OF VALLEY TELEPHONE COOPERATIVE, INC. TO RECOVER 7 FUNDS FROM THE TEXAS UNIVERSAL SERVICE FUND PURSUANT TO PURA SEC, AND 8 P.U.C. SUBST. R CONSENTED 9 AGENDA ITEM NO PROJECT NO TEXAS UNIVERSAL SERVICE FUND (TUSF} ADMINISTRATION ASSESSMENT RATE 11 REVIEW CONSENTED 12 AGENDA ITEM NO DOCKET NO COMMISSION STAFF'S PETITION TO ESTABLISH A REASONABLE RATE 14 FOR BASIC LOCAL TELECOMMUNICATIONS SERVICE PURSUANT TO P.U.C. SUBST. R NOT HEARD 15 AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION REGARDING 17 IMPLEMENTATION OF STATE AND FEDERAL LEGISLATION AFFECTING TELECOMMUNICATIONS 18 MARKETS, CURRENT AND PROJECTED RULEMAKING 19 PROJECTS, AND COMMISSION PRIORITIES NOT HEARD ELECTRIC 20 AGENDA ITEM NO DOCKET NO ; SOAH DOCKET NO APPLICATION OF SOUTHWESTERN ELECTRIC POWER COMPANY FOR AUTHORITY TO 23 CHANGE RATES AND RECONCILE FUEL COSTS 9/

28 Attachment 3 Page 3 of 13 1 TABLE OF CONTENTS 2 PA3E 3 AGENDA ITEM NO. 6 4 DOCKET NO ; SOAH DOCKET NO APPLICATION OF LONE STAR 5 TRANSMISSION, LLC FOR RATE CASE EXPENSE 6 SEVERED FROM P.U.C. DOCKET NO AGENDA ITEM NO. 7 7 DOCKET NO ; SOAH DOCKET NO APPLICATION OF WIND ENERGY TRANSMISSION TEXAS, LLC FOR RATE CASE 9 EXPENSES PERTAINING TO DOCKET NO AGENDA ITEM NO DOCKET NO ; SOAH DOCKET NO NON-STANDARD TRUE-UP FILING 12 OF ENTERGY TEXAS, INC. PURSUANT TO THE FINANCING ORDER IN DOCKET NO CONSENTED 13 AGENDA ITEM NO DOCKET NO ; SOAH DOCKET NO APPLICATION OF ENTERGY TEXAS, INC., ITC HOLDINGS CORP., MIDSOUTH 16 TRANSCO LLC, TRANSMISSION COMPANY TEXAS, LLC, AND ITC MIDSOUTH LLC FOR 17 APPROVAL OF CHANGE OF OWNERSHIP AND CONTROL OF TRANSMISSION BUSINESS, 18 TRANSFER OF CERTIFICATION RIGHTS, CERTAIN COST RECOVERY APPROVALS, AND RELATED 19 RELIEF AGENDA ITEM NO DOCKET NO PETITION OF CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC TO ESTABLISH 22 DEEMED SAVINGS VALUES FOR RESIDENTIAL DEMAND RESPONSE WITH DIRECT LOAD CONTROL 23 SWITCHES INSTALLED ON OUTDOOR COMPRESSOR UNITS 24 CONSENTED

29 Attachment 3 Page 4 of TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO DOCKET NO AGREED NOTICE OF VIOLATION AND SETTLEMENT AGREEMENT 5 RELATING TO SOUTHWESTERN ELECTRIC POWER COMPANY'S VIOLATION OF PURA AND P.U.C, SUBST. R , CONCERNING 7 RELIABILITY AND CONTINUITY OF SERVICE CONSENTED AGENDA ITEM NO. 12 a PROJECT NO PROCEEDING TO TRACK 9 COMPLIANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THE COMMISSION'S ORDER 10 ISSUED IN DOCKET NO AND THE NUS, AND ASSOCIATED STUDIES ARISING FROM THE 11 ORDER AND/OR NUS NOT HEARD 12 AGENDA ITEM NO PROJECT NO P.U.C. PROCEEDING TO SET THE SYSTEM BENEFIT FEE AND LOW INCOME 14 DISCOUNT CONSENTED 15 AGENDA ITEM NO PROJECT NO RULEMAKING RELATED TO ADVANCED METERING ALTERNATIVES NOT HEARD 17 AGENDA ITEM NO PROJECT NO PROCEEDING TO EXAMINE 19 THE INPUTS INCLUDED IN THE ERCOT CAPACITY, DEMAND AND RESERVES REPORT... NOT HEARD 20 AGENDA ITEM NO PROJECT NO RULEMAKING REGARDING 22 DEMAND RESPONSE IN THE ELECTRIC RELIABILITY COUNCIL OF TEXAS (ERCOT) 23 MARKET

30 Attachment 3 Page 5 of 13 1 TABLE OF CONTENTS PAGE AGENDA ITEM NO PROJECT NO COMMISSION PROCEEDING TO ENSURE RESOURCE ADEQUACY IN TEXAS AGENDA ITEM NO PROJECT NO INFORMATION RELATED 7 TO THE ENTERGY REGIONAL STATE COMMITTEE NOT HEARD 8 AGENDA ITEM NO PROJECT NO INFORMATION RELATED TO THE SOUTHWEST POWER POOL REGIONAL 10 STATE COMMITTEE NOT HEARD 11 AGENDA ITEM NO PROJECT NO INFORMATION RELATED TO THE ORGANIZATION OF MISO STATES NOT HEARD 13 AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION ON 15 ELECTRIC RELIABILITY; ELECTRIC MARKET DEVELOPMENT; ERCOT OVERSIGHT; 16 TRANSMISSION PLANNING, CONSTRUCTION, AND COST RECOVERY IN AREAS OUTSIDE OF ERCOT;. 17 SPP REGIONAL STATE COMMITTEE AND ELECTRIC RELIABILITY STANDARDS AND 18 ORGANIZATIONS ARISING UNDER FEDERAL LAW... T AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION REGARDING IMPLEMENTATION OF STATE AND FEDERAL 21 LEGISLATION, AFFECTING. ELECTRICITY MARKETS, CURRENT AND PROJECTED RULEMAKING 22 PROJECTS, AND COMMISSION PRIORITIES NOT HEARD

31 Attachment 3 Page 6 of 13 1 TABLE OF CONTENTS 2 PAGE 3 GENERAL 4 AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION REGARDING AGENCY REVIEW BY SUNSET ADVISORY 6 COMMISSION, OPERATING BUDGET, STRATEGIC PLAN, APPROPRIATIONS REQUEST, PROJECT 7 ASSIGNMENTS, CORRESPONDENCE, STAFF REPORTS, AGENCY ADMINISTRATIVE ISSUES, 8 FISCAL MATTERS AND PERSONNEL POLICY NOT HEARD 9 AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION REGARDING CUSTOMER SERVICE 1 ISSUES, INCLUDING BUT 11 NOT LIMITED TO CORRESPONDENCE AND COMPLAINT ISSUES NOT HEARD 12 AGENDA ITEM NO DISCUSSION AND POSSIBLE ACTION ON 14 INFRASTRUCTURE RELIABILITY, EMERGENCY MANAGEMENT, AND HOMELAND SECURITY NOT HEARD 15 AGENDA ITEM NO ADJOURNMENT FOR CLOSED SESSION RECONVENING OF OPEN MEETING PROCEEDINGS CONCLUDED REPORTER'S CERTIFICATE

32 Attachment 3 Page 7 of PROCEEDINGS 2 FRIDAY, JULY 19, (9:35 a.m.) 4 CHAIRMAN NELSON: Okay. This meeting of 5 the Public Utility Commission of Texas will come to 6 order to consider matters that have been duly posted 7 with the Texas Secretary of State for today, July 19, So, this is what I thought we would do, 10 Ken, is we would start out with the SWEPCO -- bring up 11 the SWEPCO case, hear oral argument for about an hour. 12 I would propose that we give parties about minutes each. Is that okay with ycu? 14 COMM. ANDERSON: Which means CHAIRMAN NELSON: Yeah, which means 30, 16 and then we break at COMM. ANDERSON: That's fine. 18 CHAIRMAN NELSON: -- and then we'd take a 19 break at 1030 straight up because we've got a closed 20 session today. 21 COMM. ANDERSON: Oh, and then do closed 22 session? 23 CHAIRMAN NELSON: And then do closed 24 session, then come back and finish SWEPCO and then do 25 the rest of the agenda

33 Attachment 3 Page 8 of AGENDA ITEM NO. 9 2 DOCKET NO ; SOAH. DOCKET NO APPLICATION OF ENTERGY 3 TEXAS, INC., ITC HOLDINGS CORP., MIDSOUTH TRANSCO LLC, TRANSMISSION COMPANY 4 TEXAS, LLC, AND ITC MIDSOUTH LLC FOR APPROVAL OF CHANGE OF OWNERSHIP AND 5 CONTROL OF TRANSMISSION BUSINESS, TRANSFER OF CERTIFICATION RIGHTS, CERTAIN 6 COST RECOVERY APPROVALS, AND RELATED RELIEF 7 8 CHAIRMAN'NELSON: And then Item No. 9 is 9 the Entergy ITC docket. Heidi. 10 MS. JACKSON: In this case Commissioner 11 Anderson filed a memo. 12 CHAIRMAN NELSON: Yeah. And so you filed 13 a memo, and really it's to the.egal issues and not 14 to COMM. ANDERSON: Yeah. And let me say the 16 reason I did it was because of a couple of reasons. I 17 realized that the time for filing exceptions is still 18 out there and I'm not -- I wasn't trying to jump-start 19 the conversation in advance of giving parties an 20 opportunity. 21 It's just that this is a pure legal 22 question. To the extent that they're in the exceptions, 23 you're just going to be regurgitating what was in your 24 briefing, and,i did review all the briefing. And while 25 I don't propose necessarily we take any action, I wanted

34 Attachment 3 Page 9 of to highlight some concerns that I had about the Judges' 2 recommendations. 3 Now, one -- because there's really two 4 parts to the legal question. One is, "Do we have the 5 authority to grant CCNs.outside of ERCOT to a TSP-only 6 utility?" There I agree with the Jildges. Surprise 7 surprise. But then where they went on and raised 9 questions about whether Subchapter J of Chapter 39 was 10 somehow violated, I have -- you know, I appreciate the 11 Judges work on this. I think they worked very hard, 12 but I just don't come to the same conclusion after going 13 back and looking at the legislative history. At least 14 that's my position today. 15 You know, I will read the R exceptions and 16 look at it. But I think it would be a very dangerous 17 precedent to go down that road, because I could see a 18 theory -- and I'm not -- again, I'm not tipping my hand 19 on the public interest side at all. 20 But, for example -- and this is totally a 21 hypothetical. But if Entergy had come and said, "We're 22 selling our transmission system to Lone Star," within 23 the context of Texas only, you know,.i think that PURA 24 actually contemplates that kind of a transaction. 25 I am not persuaded that Subchapter J in